Economics and the Fundamental Scarcity of Time: Part 1
What would be the consequences if nearly everything we think we know about the economy — its basic statistics such as Gross Domestic Product (GDP), its growth, its real interest rates, its rate of innovation, and its performance relative to other nations — turns out to be wrong?
Would Donald Trump be reelected? Or not?
My frequent readers are familiar with the revolutionary new work of Marian Tupy of Saint Andrews and Gale Pooley of Brigham Young — I’ve shared their expertise in previous Daily Prophecy’s. These two economists are extending Julian Simon’s cornucopian legacy on resources and population into the new century.
In The Ultimate Resource and other works, Simon argued that material resources are essentially infinite and the critical scarcity is human beings.
To Simon, humans were not essentially mouths, consuming resources, but minds, creating them. In their new study of the prices of 50 commodities crucial to human life, Pooley and Tupy show that with every one percent increase in population (more minds) comes a more than one percent drop in prices. In other words, resources become more abundant as the population grows.
As I regard Simon to be the most important figure of 20th century economics, I was receptive to Tupy and Pooley’s work and helped introduce it in mid-April in a speech at the libertarian Cato Institute in Washington, D.C.
However, even I was startled by the radical implications of their findings. The significance of their work reaches far beyond the issues of population and resources and affects every question of economic measurement, performance, and policy that agitates our politics and prospects today.
Economics: Looking at Today and the Past
Ever since the age of David Ricardo in the 18th and early 19th centuries, economics has been known as the “dismal science,” the science of scarcity. Lionel Robbins, the eminent British theorist of the 1930s, defined the subject as the “study of the use of scarce resources that have alternate uses.”
The environmental movement attests that these scarce resources are primarily material, limited in quantity, and becoming ever scarcer with the growth of consumption and human populations.
In the early 1970s, these views began to dominate the news. Jimmy Carter was in the White House and long queues of dour motorists were forming around gas stations. Paul Ehrlich’s Population Bomb rode high on best seller lists. The world economy suffered an acute energy crisis. With petroleum prices soaring, theories of “Peak Oil” prevailed. The media alarmed the world with Ehrlich’s predictions of coming worldwide famines and plagues.
In 1971, Nicholas Georgescu-Roegen wrote The Entropy Law and the Economic Process ascribing the scarcity to physics itself, the second law of thermodynamics. He declared that this law is permanent and inexorable and fundamental to all economic activity. Everything is wearing down and running out. His conclusion was that measured economic growth is largely an illusion, with measured profits nullified by environmental depletion.
Pooley and Tupy point out that the assumption of scarcity merely reflects the infinitude of human wants. As the Rolling Stones proclaimed in 1969 and after, “You can’t always get what you want.” People nearly always want more than is available to them.
Scarcity gauges what we want and what abundance we have. We can measure both through the price system. When something is economically scarce, the price goes up. When it is abundant, the price goes down. Thus, we can take the movement of prices up and down as signifying a growing scarcity or abundance.
However, there is a problem. Prices not only vary across national borders, they change constantly. Prices are reflected in money and represented in some 100 significant currencies. Led by the dollar, yuan, euro, yen and others, their values float against one another in international markets conducting some $5.1 trillions of currency trading every day, 25 times the world GDP.
Economists adjust these prices over time by a variety of “inflators” and “deflators” — the consumer price index (CPI), the GDP deflator, the producers price index, the consumer expenditures price index, the CPI minus allegedly volatile prices of food and energy, the Walmart price index of Hong Kong economist Charles Gave, and on and on.
Just as exchange rates measure values across national borders (across space), interest rates measure values across time. Presuming the you can resolve on the right index, the right currency values and the correct basket of purchasing power parities, you can come up with estimates of national and world economic growth. You can calculate “real interest rates” (adjusted for the inflationary devaluation of the currency) and you can guide Central bankers and national Treasuries in setting nominal interest rates.
All these calculations reflect the current muddle of global monies that I recount in my books The Scandal of Money and Life After Google.
If economics is the study of scarce resources with alternative uses, it is money that mediates among all the alternative uses and trade-offs. Money serves as a measuring stick, translating into economics the fundamental scarcity of time. Time is what remains scarce when everything else becomes abundant. Central banks can print money, but they cannot print time.
As an instrument to measure abundance and scarcity around the globe, Tupy and Pooley have resolved on what they call “time-prices”. Time-prices register how much time it takes an average worker to earn the money to purchase a particular good or service.
This is a profound and revolutionary breakthrough in the economic sciences of measurement. It obsoletes all the complex, changing and politicized apparatus used to adjust prices and commodity baskets across time and space.
Using money as time in a measuring stick gauged in minutes and hours to buy a thing, they show that all prevailing economic data registering GDP, growth, real interest rates, rates of innovation and productivity growth, economic conditions between countries, eras, and generations are unnecessarily complex, deeply misleading and drastically wrong.
Tomorrow I will explore the consequences for our political parties, for our presidential candidates, for President Trump and our economic future.
Editor, Gilder’s Daily Prophecy