While there are certainly disadvantages to being old, one of the advantages is knowing things they don’t teach much anymore. I could be wrong, but I believe fewer kids these days know of The Ant and the Grasshopper, Aesop’s fable from about 2600 years ago.
Its story: In the summer the Grasshopper spends his time singing and dancing while the Ant works hard, building up his food stores to tide him over in the winter. In the winter the Ant is doing well, while the Grasshopper is starving, cold, and has to beg for food.
A funnier, non-Aesopian version is that in the winter the anxious, humorless and workaholic ant also isn’t doing so well, because he had to hand over all his saved food to the ant surgeon to pay for a heart bypass. We’ll ignore that version.
The story is meant to instruct kids on proper behavior, and not meant as an allegory about economics, but it can profitably be used that way. It isn’t ideal because what the ant is doing is hoarding, which isn’t the same thing as investing.
In Aesop’s time, investing, in the sense of sacrificing current consumption and using the resources saved for something that is meant to increase one’s future ability to consume, was close to non-existent. Average productivity was so low that most people and their entire families, including little kids, had to work very hard just to stay alive. Very little excess output existed to use for investment instead of consumption, and if there were some savings generated, that was used for weapons and military training to protect their production from neighboring groups who were pirates.
The main reason why civilization went thousands of years with next to no improvement in living standards was because low productivity means no extra output to invest, which means no growth in productivity. At some point in the late Middle Ages increased trade with the East and other factors raised incomes enough that there was more to invest, which raised incomes even more and started the upward spiral of income and wealth that has enriched the world, especially the poorest people, ever since.
The growth in living standards has been so strong over recent centuries that most people assume, incorrectly, that living standards always rise because new technology always comes along to make that happen. In fact, technology advances only if people can pay for R&D by not spending all their income on consumption.
Back to Ant: We can imagine that he has partners who, confident that Ant is bringing in enough to keep them all fed summer and winter, are able to devote their time to making tools that will make the Ant even more productive the following summer.
Meanwhile, Grasshopper is doing well in the entertainment business, but spends all his money on, naturally, smoking grass and bar hopping. Not only is there nothing to eat over the coming winter, but he has nothing left to invest in anything that would have increased his income in the following year. Had he saved, he could have spent money on self-publishing a book, a sure way to riches as I have discovered.
I mention all this because led by the economics profession, the governments of the US and most other developed countries, who follow our example because we appear to know what we are doing, have gone full grasshopper.
Businesses continue to invest to increase the value of their output relative to the cost of the inputs because they must in order to stay competitive in their industry, and not risk being the high cost producer who is wiped out in a recession or price war. So incomes and living standards still have some upward pressure.
But governments are acting almost as if they were trying to make productivity drop. For one, increased regulation, paperwork and reporting requirements add to costs without expanding output. That makes unit costs rise, prices rise, and the living standards of the poor drop. By adding to fixed costs, they add to business risk, because in a downturn a company can’t lay off the administrators they need to satisfy the government. And by requiring a large bureaucracy it makes it harder for an innovative new competitor to raise the necessary funds to enter the market, thereby entrenching the biggest competitors and reducing their inclination to innovate.
Even worse is the massive government deficit spending. There is nothing wrong with deficits per se if the money is spent on investments that will increase future incomes. One would be hard pressed to call most of our spending investment anything but consumption. At some point in coming years taxes have to go up to avoid a financial crisis. You may have been saving, but the government has been consuming more than you have saved and has been putting the cost on your tab.
Even things that resemble investments, like “green” financial incentives, are not meant to increase output at all, just produce the same stuff in a more expensive way. That might be helpful in the fight against climate change, but by diverting investment away from productivity enhancement, it will stall any growth in living standards.
Should we try to decrease future climate change amelioration spending by 10% at the cost of reducing our future incomes by 50%? Only someone with the brains of a grasshopper would think that makes sense.