The Economy of the Future - II

We saw in the previous post what the economy of the future looks like if Martin Ford's prediction comes true and a small fraction of the society ends up producing all the goods that meet the demands of the society. If we do not let the government intervene and let the market evolve on its own, under free-market principles, most of the people will be shut out from the economy and be forced into poverty. The GDP of the society will shrink with the economy just large enough to cater to only the productive members. If we do not want the majority of the society to be mired in poverty then the government has to step in and employ most of the people to provide them with some means of sustenance.

We saw in http://layconomics.blogspot.com/2012/10/stimulus-tax-cuts-debts-deficits-and.html that the government can do this in either of two forms:

1. Raise taxes on all the productive members to pay for the government programs that support the non-productive members of the society. This essentially means that the government is forcing the productive members to produce for others without expecting anything in return.
2. Hand GOUs to all productive members in return for supporting the non-productive members. This results in a continuously rising debt (However, this may not be an issue as outlined in "is public debt really that terrible?") parts of which the productive members can redeem if and when they find something appealing in the market place.

The second approach is what will appeal to the human psyche because it allows the productive members to gain something in return for selling their goods in the market. What they gain are GOUs that they can redeem for whatever they find of value in the future. We will have to get used to mounting debt and not view it as a bad thing. This is similar to accruing paid time off (PTO) in your company but with no accrual limits and unlimited roll-over from year to year. However, just like you would avail yourself of your PTO savings only when the need arises the "rich" would only be able to avail themselves of their savings only when there are services available. Looked at in a different way, the second approach is simply providing the productive members with access to more services than others and first dibs at those services in the society. Once everybody understands how the new economy works we will continue to have a thriving market economy.