Global Economic Intersection
Advertisement
  • Home
  • Economics
  • Finance
  • Politics
  • Investments
    • Invest in Amazon $250
  • Cryptocurrency
    • Best Bitcoin Accounts
    • Bitcoin Robot
      • Quantum AI
      • Bitcoin Era
      • Bitcoin Aussie System
      • Bitcoin Profit
      • Bitcoin Code
      • eKrona Cryptocurrency
      • Bitcoin Up
      • Bitcoin Prime
      • Yuan Pay Group
      • Immediate Profit
      • BitQH
      • Bitcoin Loophole
      • Crypto Boom
      • Bitcoin Treasure
      • Bitcoin Lucro
      • Bitcoin System
      • Oil Profit
      • The News Spy
      • Bitcoin Buyer
      • Bitcoin Inform
      • Immediate Edge
      • Bitcoin Evolution
      • Cryptohopper
      • Ethereum Trader
      • BitQL
      • Quantum Code
      • Bitcoin Revolution
      • British Trade Platform
      • British Bitcoin Profit
    • Bitcoin Reddit
    • Celebrities
      • Dr. Chris Brown Bitcoin
      • Teeka Tiwari Bitcoin
      • Russell Brand Bitcoin
      • Holly Willoughby Bitcoin
No Result
View All Result
  • Home
  • Economics
  • Finance
  • Politics
  • Investments
    • Invest in Amazon $250
  • Cryptocurrency
    • Best Bitcoin Accounts
    • Bitcoin Robot
      • Quantum AI
      • Bitcoin Era
      • Bitcoin Aussie System
      • Bitcoin Profit
      • Bitcoin Code
      • eKrona Cryptocurrency
      • Bitcoin Up
      • Bitcoin Prime
      • Yuan Pay Group
      • Immediate Profit
      • BitQH
      • Bitcoin Loophole
      • Crypto Boom
      • Bitcoin Treasure
      • Bitcoin Lucro
      • Bitcoin System
      • Oil Profit
      • The News Spy
      • Bitcoin Buyer
      • Bitcoin Inform
      • Immediate Edge
      • Bitcoin Evolution
      • Cryptohopper
      • Ethereum Trader
      • BitQL
      • Quantum Code
      • Bitcoin Revolution
      • British Trade Platform
      • British Bitcoin Profit
    • Bitcoin Reddit
    • Celebrities
      • Dr. Chris Brown Bitcoin
      • Teeka Tiwari Bitcoin
      • Russell Brand Bitcoin
      • Holly Willoughby Bitcoin
No Result
View All Result
Global Economic Intersection
No Result
View All Result

Hoarding and Scarcity: Applied Cambridge Economics

admin by admin
September 16, 2017
in Uncategorized
0
0
SHARES
21
VIEWS
Share on FacebookShare on Twitter

by Philip Pilkington

In recent comments to my blog there was a somewhat interesting discussion about hoarding and unemployment. One commenter claimed that hoarding only caused unemployment in a monetary economy. I have heard this a lot, but I have never thought it to be remotely true.


Please share this article – Go to very top of page, right hand side, for social media buttons.


I laid out a simple example. Here I will give another. Imagine an economy of robots with a constant population and a zero growth rate. This economy, then, just reproduces itself day after day. In order to do this oil is needed. The robots need to consume 80 barrels of oil a day to do their work (i.e. consumption) which is wholly occupied with operating the machinery, while 20 barrels are needed to use this machinery to extract the 100 barrels needed for the economy to reproduce itself (i.e. investment).

Now, what happens if I come along and hoard, say, 10 barrels of the oil? Well, the economy will experience unemployment that day. Let’s say that the 10 barrels are taken out of ‘consumption’ because the robots know that for every 1 barrel they take out of ‘investment’ they will lose 5 barrels the next day. Well, that means that 12.5% (1/8) of the robot workforce will have to go unemployed because they cannot be paid. Let’s say they ‘shutdown’ and do not operate that day**.

Another commenter correctly pointed out that this could not happen in a marginalist model. He was entirely correct but this does not point to the unreality of the situation — this scenario is undoubtedly a real one and perfectly logically coherent — but rather the inability of mainstream models to deal with such phenomena. Due to the way mainstream models are set up — in this case, the problems arise due to assumptions of substitution; the assumption that ‘capital’ is an endowed feature that does not rely on inputs; and the assumption of timelessness — they simply cannot conceive of such problems.

But these problems are real. I am no Peak Oil theorist but I think we can all agree that if 20% of the US’s oil imports were cut off tomorrow a recession and unemployment (together with inflation) would follow. Indeed, we have a natural experiment in this regard; namely, the oils shocks of the 1970s.

During the oil shocks OPEC undertook an embargo on exports of oil to the US. This was effectively the same thing as my example of hoarding. What happened? Prices rose after each shock and a recession soon followed. You can see this in the chart below (data from FRED).

OilUnemployment

As we can see, each time the OPEC countries held back oil exports to the US the economy dipped into recession. The mainstream at the time came up with all sorts of wacko explanations for these recessions (and I want to stress that oil was not the only factor) and they also came up with wacko explanations for the inflation that accompanied them. But that was because their basic models could not incorporate such events.

Thus even in a monetary economy a withdrawal of certain key resources needed for the reproduction of the system of production will create unemployment and recession. This is intuitively obvious, of course, but economists are not the most intuitive people on the planet. Rather they are led around by the nose by their models which completely structure the way they view the world.

The model that I laid out above is, by the way, a stripped down Sraffian model. Such a model could also be derived from the work of Wassily Leontief or Karl Marx in the reproduction schemas of Volume II of Das Kapital or you can find a similar framework married to Keynesian economics in Joan Robinson’s The Accumulation of Capital, but such a model cannot be derived from marginalist theory.

What lesson should we learn from this? Simple. Different models tell us different things about different aspects of the economy. Even if you don’t think that marginalist models are complete garbage you must understand that they only produce results based on the assumptions that they make. If the initial assumptions rule out, for example, the effects that shortages of a commodity that is needed to reproduce the system of production lead to, then the model-user will not be able to understand such phenomena. They will literally suffer from a myopia that is caused by their own rigid adherence to the models that they have been told are “superior” by those who mark their exams and give them promotions.

If that is not, at the very least, a good case for economic pluralism, I don’t know what is!

_________

** Actually, it’s a little more complicated than this. If the robots were rational they would recognise that the entire workforce was required to operate the machinery. Thus, by removing some of the workforce by ‘shutting them down’ they would not get the maximum amount of oil even if they kept investment constant. Thus, they would have to balance this properly. I think that the end result comes out at about 1 barrel of investment-oil forgone and 9 barrels of consumption-oil forgone. Thus around 11.25% (9/80) of the workforce go unemployed. This will lead to a shortfall of 5 barrels the next day that will have to be distributed and so on and so on until the economy returns to full employment. But I laid it out above as I did to keep things simple. The overarching point is the same.

Update: I actually ran through the simulation properly in the comments. What we actually get is a permanent unemployment equilibrium. Here I quote my comment from below:

In the period in question — call it Period t — demand is 100 (but 10 are essentially disposed of). The inputs needed to cater for this demand come from Period t-1. These were produced in a full employment economy. The robots then decide how to distribute these 100 inputs, minus the 10 extracted by the hoarder (imagine these disappear), in line with how best to produce inputs in Period t+1. The best way to do this is to “shut down” 19 of the robots and have the rest work.

In Period t-1: 80 units of labour (at subsistence wage) and 20 units of (circulating) capital produce 100 units of output. The labour:capital ratio here is 4:1. For every 4 units of labour, 1 unit of capital is used. Together each “coupling” produces 5 units of output, so 100 units.

In Period t: 10 units disappear (hoarded). Leaving the economy with 90 units. These are divided up in line with the previous ratio (4:1). So, that means that 72 units of labour are thrown together with 18 units of circulating capital (again, 4:1, the optimal ratio). The rest of the labour force remain unemployed because they are in “shutdown” and cannot be reactivated without more output. This system again reproduces itself. It produces 90 units of oil.

Now that I actually work through it what we get is a permanent unemployment equilibrium ala Keynes in the General Theory. Wow! Very interesting!

Previous Post

Investing.com Weekly Wrap-Up 15 September 2017

Next Post

Hurricanes Harvey And Irma Will Boost Consumer Credit Outstanding

Related Posts

Unlock the Future of Fashion with NFTs and Wearables
Business

Unlock the Future of Fashion with NFTs and Wearables

by John Wanguba
May 27, 2023
Are Bitcoin Casinos Legal?
Business

Are Bitcoin Casinos Legal?

by John Wanguba
May 26, 2023
What Are Deposit Tokens?
Economics

What Are Deposit Tokens?

by John Wanguba
May 22, 2023
If The Stock Market Crashes, What Will Happen To Bitcoin?
Finance

If The Stock Market Crashes, What Will Happen To Bitcoin?

by John Wanguba
May 20, 2023
Who Will Win XRP vs SEC Case?
Econ Intersect News

Who Will Win XRP vs SEC Case?

by John Wanguba
May 20, 2023
Next Post

Hurricanes Harvey And Irma Will Boost Consumer Credit Outstanding

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Browse by Category

  • Business
  • Econ Intersect News
  • Economics
  • Finance
  • Politics
  • Uncategorized

Browse by Tags

adoption altcoins bank banking banks Binance Bitcoin Bitcoin adoption Bitcoin market blockchain BTC business China crypto crypto adoption cryptocurrency crypto exchange crypto market crypto regulation decentralized finance DeFi Elon Musk ETH Ethereum Europe Federal Reserve finance FTX inflation investment market analysis Metaverse NFT nonfungible tokens oil market price analysis recession regulation Russia stock market technology Tesla the UK the US Twitter

Archives

  • May 2023
  • April 2023
  • March 2023
  • February 2023
  • January 2023
  • December 2022
  • November 2022
  • October 2022
  • September 2022
  • August 2022
  • July 2022
  • June 2022
  • May 2022
  • April 2022
  • March 2022
  • February 2022
  • January 2022
  • December 2021
  • November 2021
  • October 2021
  • September 2021
  • August 2021
  • July 2021
  • June 2021
  • May 2021
  • April 2021
  • March 2021
  • February 2021
  • January 2021
  • December 2020
  • November 2020
  • October 2020
  • September 2020
  • August 2020
  • July 2020
  • June 2020
  • May 2020
  • April 2020
  • March 2020
  • February 2020
  • January 2020
  • December 2019
  • November 2019
  • October 2019
  • September 2019
  • August 2019
  • July 2019
  • June 2019
  • May 2019
  • April 2019
  • March 2019
  • February 2019
  • January 2019
  • December 2018
  • November 2018
  • October 2018
  • September 2018
  • August 2018
  • July 2018
  • June 2018
  • May 2018
  • April 2018
  • March 2018
  • February 2018
  • January 2018
  • December 2017
  • November 2017
  • October 2017
  • September 2017
  • August 2017
  • July 2017
  • June 2017
  • May 2017
  • April 2017
  • March 2017
  • February 2017
  • January 2017
  • December 2016
  • November 2016
  • October 2016
  • September 2016
  • August 2016
  • July 2016
  • June 2016
  • May 2016
  • April 2016
  • March 2016
  • February 2016
  • January 2016
  • December 2015
  • November 2015
  • October 2015
  • September 2015
  • August 2015
  • July 2015
  • June 2015
  • May 2015
  • April 2015
  • March 2015
  • February 2015
  • January 2015
  • December 2014
  • November 2014
  • October 2014
  • September 2014
  • August 2014
  • July 2014
  • June 2014
  • May 2014
  • April 2014
  • March 2014
  • February 2014
  • January 2014
  • December 2013
  • November 2013
  • October 2013
  • September 2013
  • August 2013
  • July 2013
  • June 2013
  • May 2013
  • April 2013
  • March 2013
  • February 2013
  • January 2013
  • December 2012
  • November 2012
  • October 2012
  • September 2012
  • August 2012
  • July 2012
  • June 2012
  • May 2012
  • April 2012
  • March 2012
  • February 2012
  • January 2012
  • December 2011
  • November 2011
  • October 2011
  • September 2011
  • August 2011
  • July 2011
  • June 2011
  • May 2011
  • April 2011
  • March 2011
  • February 2011
  • January 2011
  • December 2010
  • August 2010
  • August 2009

Categories

  • Business
  • Econ Intersect News
  • Economics
  • Finance
  • Politics
  • Uncategorized
Global Economic Intersection

After nearly 11 years of 24/7/365 operation, Global Economic Intersection co-founders Steven Hansen and John Lounsbury are retiring. The new owner, a global media company in London, is in the process of completing the set-up of Global Economic Intersection files in their system and publishing platform. The official website ownership transfer took place on 24 August.

Categories

  • Business
  • Econ Intersect News
  • Economics
  • Finance
  • Politics
  • Uncategorized

Recent Posts

  • Unlock the Future of Fashion with NFTs and Wearables
  • Are Bitcoin Casinos Legal?
  • What Are Deposit Tokens?

© Copyright 2021 EconIntersect - Economic news, analysis and opinion.

No Result
View All Result
  • Home
  • Contact Us
  • Bitcoin Robot
    • Bitcoin Profit
    • Bitcoin Code
    • Quantum AI
    • eKrona Cryptocurrency
    • Bitcoin Up
    • Bitcoin Prime
    • Yuan Pay Group
    • Immediate Profit
    • BitIQ
    • Bitcoin Loophole
    • Crypto Boom
    • Bitcoin Era
    • Bitcoin Treasure
    • Bitcoin Lucro
    • Bitcoin System
    • Oil Profit
    • The News Spy
    • British Bitcoin Profit
    • Bitcoin Trader
  • Bitcoin Reddit

© Copyright 2021 EconIntersect - Economic news, analysis and opinion.

en English
ar Arabicbg Bulgarianda Danishnl Dutchen Englishfi Finnishfr Frenchde Germanel Greekit Italianja Japaneselv Latvianno Norwegianpl Polishpt Portuguesero Romanianes Spanishsv Swedish