It's Like a Survivor Economy I don't know how many of you are familiar with the concept of a "survivor economy", but there's a good summary here that includes some great examples of it. The key thing about this concept is that there's a different set of rules when you are forced to be productive against all odds - when you are literally surviving. Being forced to be productive in a crisis is very difficult. You see people like the Duggars who can't work for years while raising children. They can't just go get a job. Or you have people who have long jobs - lawyering, for example - where if they get laid off they have to get another job. You might expect that as the country gets richer the people who are in trouble for work will just get better jobs and become productive and eventually get back to work. But even in the last couple decades, it doesn't seem to have happened for people whose jobs or income are not keeping up with inflation, much less to people whose jobs are contracting. These people have lost jobs, or lost income, and have trouble recovering. I think the recent recession has been one of the worst economic downturns for doing this that I can recall. This happens so much that it affects the statistics. If you look at the poverty rate in America (as a ratio of the income of the top 1 percent of Americans), in most years, it's pretty constant. But during recessions, it goes up. If the economy is growing faster than it is during recessions, then you would expect the poor to actually move out of poverty. But the rich get richer, so that the poor can barely move out of poverty. It's a simple reality: the more money you have, the more opportunity you have. It's not just inequality. It's a very large problem because the more money you have, the more you can work out all kinds of complicated things. The more money you have, the less desperate you are. But it's still true: the more money you have, the less likely you are to be poor. All of this goes away in a crisis. People can be forced to be productive even when they can't earn as much money as they once could have. In a normal economy, the poor may have less opportunity because they may not have enough money to work hard. In a crisis, you have to work more. The people who aren't working at the same rate as usual are simply those who are unable to find jobs. But even the people who are working are working differently than usual. People get laid off and often have to get new jobs in a different industry or at lower wages. If you have a family, it's hard to work more and earn more, even when there's no job. And the crisis forces people to get creative to pay their rent. They're often forced to start a business. The people who aren't working at the same rate as usual are the people who have been laid off or have had to take a new job. They are people with a better ability to be flexible and change quickly. That's what happens in times of crisis. The idea is that in a true "survivor economy", the people who are most likely to be productive are precisely the people who would normally be out of the labor force because they have the means to live and don't need work. Most of the articles about "social mobility" and "equal opportunity" in the last couple years just talk about this. In a crisis, the people who had advantages are forced to work harder and earn more money because they are the only people who can survive. When you are poor, you have to earn more, even if that means fewer hours. The best people for this are people who don't need work, not because they're not ambitious, but because they don't have to work to make a living. The best way to support people is not by working longer hours. It's by giving them money so they can invest, save, or live very frugally without living in utter poverty. If you pay someone to stay in bed all day, then their children will work very hard to make sure they get all the money they need and invest it for the future. People who have the resources don't have to work that hard. It should not be a surprise, then, that it becomes easier for those with more money to find work than it is for those who don't have as much. This is a problem because people are trapped in a poverty trap. You start working, but you can't earn much because your kids are not productive enough. You start investing more, but then you lose your job. Then you stop investing, but your kids aren't working as much. And the best people for this - people who are not working because they don't need to work - find themselves cut off from all kinds of opportunity. This is very bad. It's the opposite of the kind of life an economist thinks it should be. The best thing about this idea is that it suggests that it doesn't actually have to be this way. That there are ways to solve the problem. And the way to solve the problem is not to fix the economy, but to build a society that doesn't force people to work as much. The society has to be organized so that people can make money without working as hard. It's not necessarily about charity. The way to fix the problem is to help people become rich in a more efficient way so that they can then invest and they have nothing to fear from the market. It's easy to imagine a society in which the average person can do just enough work to pay for their house, feed themselves, and have some money to invest, saving, or live frugally. The people who are still working hard are the people who still need work, and they can earn less. The best thing about a society in which people have more opportunity is that you can't really force people to work harder if you just give them money. This doesn't mean there aren't going to be problems and struggles. It doesn't mean that everyone's going to be happy and rich. It doesn't mean that everyone will be working to reach a level of production that is equal to the level of production in the richest society in the world today. But it does mean that you don't have to treat this as a tragedy of capitalism that is going to destroy society if you want. You can see a society in which everybody is happier and still grows as a society. But that can happen only if everyone has the resources they need. And if everyone has the resources they need, you don't need as many of them to be productive or to be wealthy. You just have to have some work that everyone can do and a fair enough amount of money. You need to be careful of how you frame these things. It's easy to frame it as a problem of government policy or an issue of "too much equality" or something similar. But the problem is very straightforward and not particularly difficult to fix. You have to change the structure of society. That's pretty easy, I think. You can do it. It's not complicated. Wednesday, November 18, 2009 "Free" Is a Lie Economic theory seems to be changing in ways that make it more accurate and practical. It also seems like there are a lot of different ways to get to the same results, so you have to decide which ideas are right for what situation. But there's still some interesting ways to think about economics. Like in this discussion in New Republic that started with an interesting question: if you had to build a society, would you be happy if the most powerful people were people who contributed the most, but not if they were people who just lived the longest. It makes a lot of sense in a way that it makes less sense if you really have to be productive and so you're always working. But it gets interesting if you think of ideas like this: In this world, the economy would be more egalitarian and people wouldn't have to work as hard, but people would have more responsibility and autonomy. They'd work less because they have more opportunity to contribute things that aren't marketable, like raising children, cooking food, taking care of your old parents, and so forth. These responsibilities would be distributed throughout the society so that no one person is always responsible for things that other people couldn't do. And then the people who could do all these things would get a lot of respect and autonomy in the society. This, by the way, is another thing that I don't think can happen in a society based on market competition. There's no good way to do this. The idea of free-market competition is that people who are good and productive are going to do well in the market, and they get promoted into a higher economic status. In a society based on the idea of responsibility, there's no way this happens. All the people who are smart enough to do everything and good enough to do everything are so busy doing it that nobody can do anything. And then people who are working too hard are going to be resentful that they have to do all these things for the society. That's not a pleasant situation. It's not attractive. But if you set up society so that everyone has the opportunity to contribute to society without having to compete with each other, you solve the problem of competition. So you see things like the National Endowment for Democracy and some of these organizations that give so much money to people with more power and privilege, but you get in trouble when you use that