Spending, Comparative Advantage, and Unemployment
By Arnold Kling
Idle unemployment is a problem in societies that are highly productive but very unequal. Here basic goods (food, clothing) can be produced efficiently by the wealthy via capital-intensive production processes. The poor do not employ one another, because the necessities they require are produced and sold so cheaply by the rich.
Pointer from Tyler Cowen. I recommend Waldman’s entire post, for I found it difficult to excerpt.
One advantage of the PSST approach is that I do not think of the economic coordination problem in terms of spending vs. saving. Instead, I think of it in terms of finding comparative advantage. So, in Waldman’s story/model, I ignore the problem of the rich not wanting to spend their wealth. Instead, I focus on what makes people idle. When I read, “The poor do not employ one another,” I want to focus on why they do not. Comparative advantage is always present. And, in the PSST way of thinking of things, comparative advantage is all that you need to generate employment, as long as entrepreneurs are able to discover patterns of trade that work. The problem is that the chains of trade can be very complex, and the Rubik’s Cube with Disturbances becomes hard to solve.
The PSST model suggests that any distribution of income and wealth can be consistent with full employment. Only large economic disturbances can cause patterns of trade to become unsustainable, leading to coordination problems that cause high unemployment.