Sunday, February 25, 2007

Magic: Destroying Dreams?

Okay, I realize it's only the second entry, and perhaps a bit early for humour, but I am certain that the following is legitimate economic inquiry, and something I have every intention of working on during summer term.

The basic question I ask is what would happen to the economy as a whole were every member of humanity endowed with an amount of magic power, and for simplicity's sake, assume it is manifested in the ability to create a certain dollar value (per day) of goods and services.

The knee-jerk response is to simply count this as an extra accumulation of human capital. It is, after all, analogous to education, granting an ability to produce more each day. But that's not really true. Education confers the ability to produce more with every hour you work. Magic powers, however, would grant a certain amount of earning capacity each day, but per-hour productivity remains unchanged. Any manual on growth would easily inform that long-run per capita growth, especially in developed countries, will depend predominately on productivity growth.

So, we can't say (yet) with confidence that this endowment on humanity would result in long-run growth. It's tempting to say that it will simply afford everyone more lesiure - in the extreme case, if the magic were enough to comfortably subsist, we could see vast migration away from the labour force, with the accompanying stagnation (and perhaps decline) of technological progress and by extension, growth.

Moving on, envision a world where magic gives a nice cushion, and maybe a few luxuries, but can't replace the daily grind. We can't expect people to leave their jobs over, say, ten thousand a year. So assume the labour market is more or less unaffected. Fiscally, magic would certainly ease retirement and unemployment obligations to the government, and open up channels in that manner.

There's an argument to be made for the stagnation of consumption, but the strength of the North American consumer in recent years suggests not. The real impacts would arise from the virtual destruction of abject poverty, which has to be an admirable goal. But the impacts of that much wealth suddenly appearing are definitely beyond this writer, barring further analysis. I'd expect major inflationary shocks, for sure.

It's really an open-ended question. Does the fight in Iraq intensify, with an unstoppable supply of arms and explosives to all involved? Does freeing up people from mundane tasks, such as washing dishes and food preparation start a new era of productivity growth? Will markets open up for magic? Will people become enslaved and their magic powers be harvested?

Either way, as someone who devours fantasy and science fiction, there are more than enough questions to keep one's mind churning. As long as it doesn't end up in killing the dreams of Harry Potter fans.

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