Fundamental Relationships

The production of goods and services uses two inputs-- natural resources and time spent doing work.

The opportunity to pursue happiness (OPH) increases with time for leisure and purchasing power.  

  • There is only one way to simultaneously increase the time for leisure and purchasing power, increase productivity.

  •  Actual happiness does not necessarily increase with OPH.

Productivity, or the number of goods or services that can be produced or consumed during a given period, includes these tenets:

  • Productivity increases as a result of time spent at improvement.

  • A chainsaw purchased by a business is referred to as an investment expenditure and the same chainsaw purchased by a household is referred to as a time-saving good.  Investment expenditures and the purchase of time-saving goods affect productivity in the unmeasured and measured sectors of the economy. 

  •  Productivity improvement causes the structure of society to change.  For example, the introduction of time-saving goods such as dishwashers and laundry machines enabled more women to enter the work force.  Or, urbanization might expand significantly if people can sleep, take showers, put on make-up, and work while commuting in driverless cars or RVs.

  • Structural unemployment generally increases with the rate of productivity improvement.  For example, consumption productivity improves when people save time by buying items like microwaves and clothes online, and structural unemployment increases when individuals in brick-and-mortar retail businesses lose their jobs.   

  • Productivity gains in the measured sector affect productivity in the unmeasured sector and productivity gains in the unmeasured sector cause time spent working in the measured sector to increase.

Some tenets concerning debt are:

  • Debt moves expenditures forward.  One can borrow and spend immediately or wait until savings are sufficient.

  • Increased debt used to purchase product always causes economic output to increase in the short run.

  • Debt payments always have an adverse effect on economic output and demand.

  • Debt used to purchase a $100,000 leisure-enhancing RV or a time-saving excavator has the same short-term effect on economic growth.  The long-term effect is significantly different.  

  • Expansionary fiscal and monetary policy stimulates the economy in the short run through increased debt-fueled expenditures.

  • Rising debt and asset prices are the two best predictors of financial crises, and financial crises are generally associated with depressions and severe recessions.

Over the long term, the belief systems or values of individuals throughout society are a far greater determinant of economic growth or vitality than fiscal or monetary policy.

All economic activity must occur within Earth’s capacity to sustain.