Feedback loops exist to ensure performance. They work exceptionally well when people feel guilty if they do a poor job.
- What should get produced?
- How do we decide how to produce it?
- How do we get it from producers to consumers?
Once these questions have been answered we turn to this model:
Inputs: factors of production that fall into one of three categories-
- Land - things are only resources if we have the technology to deal with them efficiently. For example, oil is not a resource.
- Labor - number of bodies
- Capital - exists in two forms: physical (produced for the purpose of producing something else) and human (anything we do to augment our natural abilities)
The black box is either self-sufficiency or specialization and exchange. Being self-sufficient doesn't generate any economic activity because economic activity is generated by spending money.
More self-sufficiency = less economic activity = less GDP
We need Patterns of Sustainable Specialization and Trade. According to PSST, discovery--the ability to use resources efficiently--is imperative to economic success. It is possible to un-discover things, which causes economic funks. Rapid changes in technology often insinuate un-discovery because adaptation takes time. We need to redeploy inputs to get what we want.
Although the overwhelming consensus is that trade is good, it has a negative connotation sometimes. This is because nothing new is created, and it is often seen as exploitive. Addressing the latter point, voluntary exchange isn't trade of equal value, but rather only works when people have different values. Wealth is whatever it is people value, and economic growth occurs when the production of wealth increases.
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