Tag Archives: Economics

Impossible

In Computer Science there is a machine. It was first envisioned by Alan Turing in 1936 and it bears his name. It’s more powerful than any computer that has ever been made or will ever be made, despite running on a magnetic tape. How is this possible?

Well, it isn’t. Not strictly speaking. You can’t build a Turing Machine because Turing Machines need something that doesn’t exist. They need infinity. In fact, they need two infinities. A Turing Machine’s incredible power relies on an infinite length of tape and an unlimited amount of time.

And yet, Turing Machines are useful. They’re the conceptual basis for modern computer systems, because what’s true of a machine with an infinite length of tape and an infinite amount of time is often also true of a machine with a large amount of memory and a fast microprocessor.

Nor is Computer Science the only science with such a machine. Physics has the Carnot Heat Engine. Devised by Nicolas Léonard Sadi Carnot in 1824, it doesn’t require any infinities, but it does violate the Second Law of Thermodynamics.

As with the Turing Machine, the Carnot engine is useful despite its physical impossibility. It defines the boundaries of what is possible for a heat engine.

These conceptual models of simple and useful but impossible things show up in many disciplines. Even Economics has its equivalent. You may have heard of it: the Free Market.

You’ll often hear pundits, and even economists who should know better, talking about “The Free Market” as if that were a thing that actually existed in the real world, but a Free Market isn’t the same thing as a Private sector, and it’s not some utopian anarchy. It’s an impossible machine.

A conventional description of a Free Market describes a marketplace entirely free of coercion or fraud. Free Markets can do wonderful things in theory, and they’re a useful approximation for a real market in many situations.

Of course, real markets aren’t free. Real markets have coercion and fraud, things not considered by the simplistic Free Market model, and these things are unavoidable.

The only effective tool against coercion and fraud is, oddly, coercion. Specifically coercion of the sort practiced by governments. With the power of government, we can remove bad actors from the market and compensate for the subtler imperfections of real markets (what are called market failures.) Ultimately, it’s only with extensive government intervention that a market can approach the impossible perfection of a Free Market and summon Adam Smith’s Invisible Hand.

Unemployment and the Problem of Abundance

One of the foundational assumptions of economic theory is that human wants are unlimited. In concept, no matter how much we produce, it would never be enough to sate our avarice.

In practice, of course, human wants are actually large but limited. There are only so many hours in a day, you can only drive so many cars, can only eat so much food, etc. There is a fundamental upper limit to how much you can usefully spend (and, for what it’s worth, this limit is well below the income of your average billionaire.)

So what happens when a society is finally positioned to make as much stuff as everybody not only needs but wants?

It turns out there’s actually a fair amount of theory trying to deal with a very specific market failure, where the Market Clearing Assumption doesn’t produce the expected result. This theory, developed by John Maynard Keynes and others, revolves around labor markets and the mystifying problem of unemployment. According to the Market Clearing Assumption, you see, involuntary unemployment (that is, unemployment) can’t exist. Any labor on offer would be sold at whatever price the market would bear.

And yet, unemployment clearly does exist. There are a couple of explanations: markets aren’t as perfect as they’re modeled as being. Finding work can take time (frictional unemployment) and changes in the overall economy may render the skills of some workers irrelevant or unneccessary (structural unemployment,) in turn requiring time to retrain. But there is a third type of unemployment (cyclical unemployment) that simply results from a notionally temporary excess of labor.

Consider, though, a society that can still live comfortably while in this depressed condition. The usual remedy (fiscal extravagance to increase aggregate demand) would seem to be inappropriate. Why have workers dig and fill holes simply because we have nothing else for them to do?

Because labor-saving devices only get more and more effective as time goes on, and because human wants are not truly unlimited, this situation would seem to be inevitable on a long enough timeline. Indeed, the middle-class lifestyle of the First World is already frequently criticized for overconsumption, even as the more enlightened economists scream from the rooftops that we must spend more to put people back to work.

But if your problem as a society is not that you don’t produce enough but that you have an excess of labor, shouldn’t you reconsider the foundational morality of the idea that everyone should work? Involuntary employment, after all, is the definition of slavery.

Why should people be forced to work or starve if society doesn’t need them to?