Economics Without The B.S.**:
[** Double entendre intended.]
Jevin's Paradox explained:
From NPR's 'Planet Money;: "Why the AI world is suddenly obsessed with a 160-year-old economics paradox"
I will explain that differently.
The paradox is the difference between efficiency and productivity, and at a macro-economic level confusing efficiency for productivity.
If I made something last year and it took me so many hours and I used so many resources to get that output, that is productivity. If this year I took less hours and used less resources to get the same output, that is being more efficient and I am being more productive. But for the overall economy of the nation if the output is the same as last year, the nation did not become more productive. The nation may be more efficient, but it is not more productive.
And the reason is, for the nation as a whole, when you are more efficient you produce a savings -- the nation expended less man-hours and used less resources -- so...What did you do with that savings? Since you have more man-hours to expend and more idle resources available to you, you should be able to deploy them for newer projects/production. That's what makes a nation productive; and by being efficient you are also more productive.
Economics is the deployment of scarce resources, so there are always opportunities to accomplish more we just don't have enough time or resources to do all the things we want to satisfy our wants and needs, which are unlimited. By being efficient the living standards of our society improve, but by being more productive our society advances, what we call "progress".
There is a link between productivity and progress. There is not a link between a society being more efficient and progress. If a society is just more efficient but its output remains the same, there should be deflation.
When the economist Jevons came up with this paradox -- and he did not express it the way I just did -- it was during the late 19th century. From 1866, right after our Civil War, to 1896 the United States went through a thirty year deflationary period. There were new inventions -- this was the industrialization of America -- and there was more and newer production. But most Americans did not experience it during this time period -- we were still rural, but urbanizing; most people did not work in factories; and there was still a great deal of inequality; and labor strife which sometimes resulted in violence. Many of the inventions of this time would get broader societal applications during WWI and especially during the 1920s -- that's when the nation really became more productive and the benefits were more widely spread among the people. I think most economist and many historians do not get this, what I just explained.
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