“3. All opportunities to improve output and reduce costs/input have been exhausted (no more productivity growth is possible).”
Historically people are always coming up with new ideas. Who knows what will be thought up next?
“2. The demand and supply forces of production have matched- consumption trends may change but consumption levels remain unchanged.”
What does this mean exactly? That exactly the same amount of money is spent each year, more or less? And that there is some magic power that makes sure this will keep happening year after year? Say each year 1/3 of the population buys a new car. After 3 years everyone has a new car. What will they do with the money they have extra now that they arent buying a car? What will the auto industry do now that no one is buying a car? What about if a lot of people decide they want to save extra money this year instead of spending it? Is this predictable?
“1. The population has reached to an optimum level and no longer growing or declining.”
Optimum for what? Besides, if new medcal discoveries prolong people’s lives, the population will grow as people live longer.
Bottom line, anything is possible, even that all those 3 things stay the same forever. But it seems very unlikely.
Krazy K: “No, such a scenario isn’t possible. Even barring technological growth, it is always possible to accumulate more capital.”
Under free market conditions, yes, I agree this is correct and the scenario described in the OP could not happen. However, what about under conditions of massive government intervention like we are experiencing now? I wouldn’t call it a “saturated” economy, but the intervention (Fed printing, deficit spending) will certainly stop capital formation which will, almost by definition, lead to horrible economic conditions.
As for the OP’s question about how to get such an economy going again, it’s so simple, just two easy steps: #1 - Stop the intervention in the economy, #2 - Reverse the massive government complex that has strangled growth. In other words, first implement the Ron Paul Plan, then keep going in the same direction until people start asking what life was like under government intervention.
Smiling Dave wrote :
“2. The demand and supply forces of production have matched- consumption trends may change but consumption levels remain unchanged.”
What does this mean exactly?
Thanks Dave. What I am implying here is that there is no growth in demand from the population. As the demand has stabilized the output of the economy (both manufacturing and service) is not growing or contracting. Does that make any sense?
No, I don’t think this makes sense. You seem to be ignoring capital theory (capital formation under unhampered marked conditions). Your question seems to consider economic activity in terms of aggregate demand / Keynesian flow theory. Why the emphasis on demand?
bbnet said “Sounds like utopia to me.” Exactly right.
Musicgold, do any of the replies on this thread strike a chord?
It would really take ENORMOUS government intervention to stop ALL capital formation; much more than we have currently. The market economy is more resilient than you think.
It is not possible simply because the valuation of goods by people constantly changes, i.e. demand always changes. Therefore, demand cannot continuously be matched by supply.
As an example: I may prefer to have trees in my garden or I may not. It might also be that I at one point prefer to have trees in my garden, but then my preference changes and I want the trees removed. Human action as in the change of people’s valuation is never predictable and therefore an economy can never be in a perfect equilibrium.
@musicgold: Well, I spent quite some time tonight putting together a list with links, etc, but I lost the whole thing while going back and forth between pages.
I’ll try again later after I’ve regained my composure.
@musicgold: Here are a few of the links I put together earlier but lost. I think these are a good start and should point you in the right direction. The first one is in cartoon form, but don’t be fooled, the concepts are valid and well presented.
If you remove the provision that consumption trends may change then you’ve got an evenly rotating economy (Austrian) or an economy in equalibrium (neoclassical). These are never achieved in reality but are important theoretical constructs.