Ed,
At 11:34 12/07/2010 -0400, you wrote:
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.
There was as much, if not more, globalized trade (as between many different
importers and exporters in different countries)(as a percentage of total
world GDP) in the 1870s/80s as now. A very great deal of globalized "trade"
today is the shifting of components and sub-components within and between
large corporations.
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.
But it's still the case that most high-value components (with higher profit
margins) are made elsewhere and only assembled in China. Even so, Chinese
wage rates are rising rapidly now -- just as they did in Japan and Korea in
the 1960s and the 1980s respectively -- and will be equivalent to ours in
the not too distant future. Chinese firms will then start to move to the UK
and the US just as the Japanese and the Koreans have done.
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.
But the basic nature of economic transactions remains exactly the same as
then -- and probably the same as in 75,000BC when sea-shell necklaces were
traded over long distances.
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.
All the signs are that when people are in Soylent green scenarios -- as
they surely will be in many regions of the world -- then fertility rates go
way down. There'll also be a huge amount of starvation but, within a
generation or so, the world population should start to sink. I think the
basic technologies will be extremely sophisticated by then so the big issue
within the advanced countries (not necessarily those of today) will be
whether they can educate their children up to a standard to be able to
force job sharing on the adults with interesting.
Keith
Ed
Keith Hudson, Saltford, England
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