There's been a lot of discussion, too much in fact, on Keynes and Hayek on the list recently. I recall reading them, and others like Friedman, a very very long time ago. They understood the world from the perspective of their times, but now they're all dead. Well Krugman, essentially a Keynesian, isn't dead, but the kinds of things he keeps saying in his columns, which I've characterized as "spend, spend, spend", seems out of place too as belonging to a past era rather than now.
What kind of a world do we live in now and how might we think about it? One of the greatest differences between the worlds of Keynes and Hayek is the extent of globalization. Economic decisions and actions that are now made a very long distance from us can have a huge effect on our well being. When Keynes and Hayek lived, and thought, unemployment in a particular country was seen as caused by a fall in effective demand in that country or by market imperfection such as too much monopolization and too little competition. I don't think that is the case now. Many Americans for example are unemployed because a large chunk has been ripped out of their economy and shipped off to China. Another major difference between the world of Keynes and Hayek and our world is that of the efficiency of the productive process. Even if production has or has not been shifted to China and the BRICs, the productive process employs far fewer people than in would have in Keynes' and Hayek's day. But because of population growth there are far more people needing work. Even the production of an increasing proportion of consumers goods in China has done little to increase the proportion of the Chinese population that is employed. And globally, while the efficiency of production has increased greatly, so has the proportion of the global population needing employment. In 1950, global population was approximately 2.5 billion; by 2000 it had increased to over 6 billion. And a much larger proportion of global population lived in cities where they would be less able to fend for themselves if they did not find jobs. Yet another major difference between our world and that of Keynes and Hayek is the greatly expanded role of the financial sector, which can play a very large role in global economic illness or health, as the US subprime mortgage debacle has demonstrated. Yes indeed, as James Galbraith argues, catch the bastards, incarcerate them, apply tough laws, etc., but will that stop them? Hardly, given the vast number of hiding places that electronic communications now provide them. So, let us nod respectfully in the directions of Keynes and Hayek and earlier economic thinkers like Adam Smith, Jean Baptiste Say, David Ricardo, etc., but let's not forget that we live in a very different world than they did. My greatest fear is that our world of growing population, job shrinkage, and the growth of nefarious practices could, in a couple of decades, resemble the world portrayed in Soylent Green, a very classic movie about a world gone totally out of kilter. Ed
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