Safeguarding Our Standard Of Living, By Design

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In economic downturns worry about continuing to be able to consume as much as during better times is often the cause of widespread anxiety. Loss of employment and the prospect of the depletion of savings grip individuals and families alike, while waiting for the good times to return. Workers hunker down in their jobs, happy to keep what they have rather than demand higher wages and consume less to assuage the uncertainty. Employers do not hire or hire only reluctantly offering lower wages and on favorable terms. The entire economy gets caught up in a vicious negative feedback loop of lower consumption and lower production.

Standard of living is the capacity of individuals and, in aggregate, nations to consume. The sole purpose of production is consumption. Income earned through production is the income consumed and saved. The capacity to produce a good or a service that can be demanded creates a market. The demand generates the cash flow and the profit for the producers to hire workers. The workers’ earnings are consumed and saved. The savings are invested in future production and the process continues. That production possibilities drive consumption is widely attributed to the French economist Jean-Baptiste Say and is known as Say’s law.

There are two reasons why standards of living can suffer: first, when production goes down because the technologies to use scarce resources efficiently are not as yet available, thus making production expensive; and second, but related, when production goes down, albeit the lack of scarcity of resources, because money is not being invested in producing real things and in services that support the production of real things.

Often in economic cycles, the second reason is more common that the first, usually in the short run. Money becomes speculative more than being a vehicle of real investment. It becomes bad, driving out the good money. This is known as Gresham’s law after Sir Thomas Gresham or Copernicus Law in Europe, but has been widely known in the history of finance since antiquity.

In the case of modern fiat money which is not commodity money, only one money can go bad: a nation’s currency when its imprinted value is not the same as the real value or its purchasing power. The money that goes into generating spurious returns for a few starves investment in those production possibilities that produce real goods and services. The bad money drives out the good money.

The first cause of the loss of the standard of living is what really drives the discrepancy between the face value of money and its real purchasing power, also known as inflation, in the long run. Rising resource scarcity and the inability of technologies to keep pace to address the resource scarcity in time raises the prices of scarce resources and, hence, eventually all prices.

The Industrial Revolution in the 19th century gave rise to the systematic study of the creation of technologies (engineering) based on the understanding of how nature works (science). The purpose of engineering is to produce in order to facilitate consumption and, hence, a ever higher standard of living. But resources are scarce and do deplete and, therefore, technology must become smarter to both consume fewer depleting resources and to reuse resources to safeguard the prospect of a ever higher standard of living. Technologies to consume fewer perishable natural resources will still, eventually, deplete all resources unless resources can be reused as a matter of engineering design, the earth being the living example of which we are all a part, having been made from it.

Engineering research and education in this post-industrial age must lay great emphasis on technologies that are not only parsimonious in resource consumption but build-in, by design, maximum resource reutilization or recycling.


About Chandrashekar (Chandra) Tamirisa
This entry was posted in Economics, Engineering, Transformations LLC and tagged . Bookmark the permalink.

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