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I have some observations about the Production Possibility Curve, and how it relates to the idea of MMT. My expertise in this matter is taking Econ 101 at a community college over 20 years ago, so feel free to point out that this is very oversimplified. The Production Possibility Curve is the amount of a product you can get out of a resource, however that is defined, either through money, labor, or a physical material. A very basic example is that if I have 100 units of grapes, I can have 100 units of grapes and 0 units of grape juice, 0 units of grapes and 100 units of grape juice, or somewhere inbetween. Only, of course, for most things, you don't have a linear relationship between the products being produced. At the time that the foundations of economics were being developed, the physical infrastructure and the labor market were much more malleable than they are now (I believe so, I am kind of guessing at what the 18th century was like). If demand fluctuated in the economy, it was possible to fairly quickly change resources, as well as between the government and the private sector. If a business wanted to go from making bread to making candles, it was a pretty linear change along the production possibility curve, as far as the physical infrastructure, and the labor skills needed. The same with government employment, which at the time was often the military: the shift between farmers and soliders, and back to farmers, was a pretty linear process. Now, "Swords Into Ploughshares" is a metaphor. The idea of turning, say, an AR-15 into a John Deere tractor seems pretty ludicrous. But in the 1750s or so, it wasn't a metaphor: a blacksmith might make weapons, or farming equipment, with about the same level of skill. So here is something about the current economy that is relevant to the entire idea of the government paying for gigantic programs without taking resources from other sectors, or on the other hand, releasing resources by ending programs. And why this doesn't really work, in my view, in the way that socialists or libertarians want it to. Take NASA for example. It is a big government program. What would happen if the government doubled NASAs budget? Well, doubling it might allow NASA to produce more, as it could buy more of certain types of supplies (like computers and fuel and titanium) that are ready commodities. NASA could also hire engineers out of retirement, from the private sector, maybe from other countries. But then as the budget increases by higher factors, tripling or quadrupling, the gains get smaller. Because the limiting factor on NASA isn't nominal money, it is that the things it wants to purchase (which is primarily very specialized labor) is a limited resource. There are only so many astrophysicists and materials engineers and legacy FORTRAN programmers available. So as the budget increases past a certain point, it doesn't do anything (immediately). Now let's take the opposite example, the libertarian wet dream, NASA is decided to be a wasteful government program, it is totally discontinued, and all of the money associated with it is released back into the private economy. and about 20 billion dollars, divided by 300 million people, is released back into the economy. Everyone gets 70 extra dollars! But those 70 extra dollars, if they are chasing the same amount of goods and services, don't allow you to get more of anything in real terms. They only would be worth something if those NASA engineers are now producing something else. And here is the thing: as good as they are at building interstellar probes, NASA personnel don't really have a lot of skills at anything else. Okay, obviously some of them might go to work for Boeing and build planes, some might work as computer designers, but on the whole, they have incredibly specific skills that are not going to be producing things elsewhere in the economy. So the problem, as I see it, with the theory that the government can arbitrarily create money is that they quickly run up against the fact that in a highly specialized economy, production works in a pretty tight band, and that it is hard, in the short term, to increase or decrease resources in different sectors by much. (This is a pretty long post already, so I won't say what I think would happen in the long term: if the government increases NASA's budget, it is going to encourage people to study science and engineering, and you are eventually going to have a real increase in production, but with specialized employment, that might have ten or more years lag time)
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Jan 27, 2019 03:30
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| # ¿ May 15, 2024 23:01 |
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MixMastaTJ posted:
Above, I made an effortpost about the production possibility curve and other such things. But I will try to summarize it. What is your supply of unused medical services? How many unemployed or underemployed doctors, nurses and medical personnel are there? How many empty hospital rooms? How many medicines sitting in a closet, untouched? If you have 500 billion dollars worth of doctor time a year, doctors sitting in empty examining rooms, twiddling their thumbs, then that is how much money you can give to medical programs before you see inflation. But you can't take one trillion and give it to these programs because the supply doesn't exist. That is the point when inflation hits. In a really simplified analogy: say you want Fig Newtons. You go to your local grocery store with 50 dollars and buy half the Fig Newtons on the shelf. With 100 dollars, you can buy all of the Fig Newtons. But if you had 200 dollars, you would still only be getting the same amount of Fig Newtons, because that is all there is on the shelf. So the question with any type of Medicare for All program is, what is the slack capacity? Do we have a lot of trained doctors in already built hospitals, sitting there doing nothing? Then the government can "create" money to pay for their services, which are already there. But the government can't "create" money to pay for things that don't exist.
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Jan 28, 2019 15:40
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MixMastaTJ posted:Healthcare isn't a "supply/demand" issue like Fig Newtons. If I want a Fig Newtons and the store is out I buy off brand cookies. If I have a gunshot wound and can't get a doctor, I die. Well, how many people are getting shot and need trauma surgery? Probably few enough that having that being a paid-for thing will not use up the capacity of trauma surgeons, who are just sitting there twiddling their thumbs. A better example would be this: Someone has asthma, and getting them a "free" visit to a physician is using spare capacity because we have enough physicians to consult with people about asthma. Our supply can meet the demand. But could we send everyone with basic asthma to consult with a pulmonologist? Probably not, because right now we have a capacity of 12,000 pulmonologists in the US, and 24 million people with asthma. My point wasn't to argue specifically about medicare for all, but to point out that creating money doesn't do anything about the fact that there is a limited supply of something. I actually have a graduate degree in education policy, so I can give you a better example from education: There is no (or little) marginal cost for putting students in a classroom, once you have started a class. If you have a university classroom with 20 seats in it, and you have 10 of those seats filled, it costs little to fill them all up. But then when you have the 21st student, and you can't fit them in the classroom (or, more likely in a higher education setting, the professor doesn't have time to read their papers and help them individually) , then you have run out of supply, and you need to hire another professor and start another class. But if the professor is teaching, say, Japanese at the University of Wyoming, that supply is exhausted. I feel that the two largest economic problems for young people right now are health care and higher education, and both of these are expensive because they have a limited supply of trained people requiring the service, and that while there is some ability to "create money" to pay for the existent supply of labor, at some point it runs out. We might also be having an argument about a fact/value distinction. When I say "Not everyone can have unlimited healthcare", I am not debating at all whether there is a moral right to it, whether it is a human right, whether people "deserve" it...I am stating a fact that thinking something is a moral right doesn't make it physically exist. I personally believe that everyone morally deserves basic health care and education, but I know there are some factual limits on the extant to which people can have access to pulmonologists or Japanese professors. If you can't understand that printing money doesn't make pulmonologists or Japanese professors appear out of thin air, I don't know what else I can say?
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Jan 29, 2019 03:49
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