Societies evolve and change. Technology creates new products and services. Our economy has transitioned from an industrial society to a technological society, and is now moving into a phase termed knowledge based in less than 50 years. This pace is an overload on the legal system and various institutions. As a result, the relationship of elasticity on product and service demand changes, which causes business and governments to rethink policy, methodology, law and how to operate in a new environment as it changes before its eyes.
Elasticity directly impacts price. In the 1980’s it was not important to have a cell phone or email to conduct business, so these type of products and services’ price movements did not affect demand. However, in the 21st century cell phones and email are imperative in order to do business, consequently the elasticity of demand and supply of the products and services has changed. These products and services’ changes in elasticity of demand and supply create behavioral changes in purchasing, due to price changes and feature functionality, and utility. Consequently, people must have cell phones and email to for example, gain employment, conduct business, and deal with family issues. This means a new item of nondiscretionary spending has now entered a family, or businesses mix of products and services that it must have. As a result, this changes the effect of government policy and spending patterns, hence economic analysis and policy creation.
Now one can see that the new requirements placed on society and business by these changes, leave less money available for normal purchases that have always been required, or part of the family budget that cannot be omitted. However, the flip side to this is employment gains in the new industries that create these products, or services. Although, the net employment increase is less than the employment decrease since the recession of 1990-91, due to innovation driving down labor needs and costs at faster pace. This leads to lower GDP and less national income per capita; society must find ways to deal with this issue. One might ask is this dilemma and or trade off correctable so as to increase national income or GDP, and per capita income. The short simple answer is yes. However, the outcome is dependent on the extent to which the government utilizes what economist call the multiplier principle and its dynamic relationship with the private sector.
Policies must be implemented that focus on employment that results in economies of scale, or reduced cost and increased utility patters. Consequently, polices that embrace education, infrastructure such as transportation, water, energy, health care and delivery become imperative in this type of secular development phase of a society. Education has a long payback period that can be from 18 to 30 years; this makes these policies difficult to implement when a country such as the USA is facing large debt. The appetite is currently. However, a low appetite for education is the wrong direction because of economies of scale and utility that education provides a society. In a low interest rate environment these opportunities must not get away from a country in the midst of globalization. Infrastructure such as transportation, energy and water can bring down the long run average cost curve thereby increasing families discretionary spending.
These types of investments also increase the amount of leisure time people can have. Spending on health care technology, disease cures, and delivery methods also reduce the long run average cost curve affecting family’s finances and per capita income. If the opportunity to seize the low interest rate environment is not seized, then a society will find it too expensive to invest in these areas, leaving the country at a competitive disadvantage as compared to other countries in a globalized economy. The choice will either increase or decrease the standard of living.
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