Keith, your emphasis on growth being dependent on the production and acquisition of new consumers goods has a certain validity, but it would seem to apply mostly to a world of longer term stability. In the real world, a world that is not really very stable in the longer term, many factors would account for surges in growth. For example, growth has often been the result of instability resulting from wars. The need to rebuild Europe after WWII via programs like the Marshall Plan was a large factor in the growth that took place in the 1940s and 1950s. Much of the growth in China during the past couple of decades has been about streams of consumers goods, but goods destined for markets abroad and not for the domestic market and not really goods that imparted much status to the purchaser. Our coffee making machine was made in China. It is fancier than our previous one, but do I swell with pride every time I pour coffee out of it? Not really.
Throughout the world, people's expectations may have centered on the
acquisition of status goods in markets characterized by longer term stability,
but in most parts of the world people were more concerned with simply having a
roof over their heads or, in places of perpetual disturbance or chaos, just
getting the hell out of there to someplace safer for themselves and their
children. Migration from central and eastern Europe to Canada during the
first few decades of the 20th Century is an example of the latter. It had
nothing to do with status goods. What it was largely about was relocating the
family to a place that was safer and more predictable. My own family had come
to Canada after having suffered through the vicissitudes of WWI in central
Europe. They got here in time to participate in the wheat boom, a huge element
in Canadian economic growth at the time. And yes, they acquired what I suppose
were status goods then. I do remember squeaky radios and Model T Fords. But
did they really impart pride and status? Hardly.
Ed
----- Original Message -----
From: Keith Hudson
To: RE-DESIGNING WORK, INCOME DISTRIBUTION,EDUCATION
Sent: Saturday, August 21, 2010 1:28 AM
Subject: Re: [Futurework] FW: [p2p-research] Stiglitz: Needed: a New Economic
Paradigm
Of all the comments I best liked the one by "Uncle Billy Cunctator" who wrote:
"It would be nice if he [Stiglitz] described this new paradigm for us."
Too true. But when J-B Say and others arrived at "Supply creates its own
demand" in the early 1800s most of the "supply" was food and consumer goods
(mostly hand-made) constituted only a very small part of the average wage. The
total supply of food was always mopped up by the population (or any excess
bought to be fed to the pigs) while consumer goods were mopped up by the
aristocracy and middle-classes. However, the consumer goods had to be conducive
to purpose -- that is to satisfy one's class status (or aspirations).
Today (until recently anyway) food has been cheap and only a small part of
general consumer spending. Until about 1980, of consumer goods (of which a
large proportion are bought for status reasons only), there were always some
for which there was still an unsatisfied demand by a sufficiently large
component of the public. But since then we have had no uniquely new consumer
goods, only enhancements of old ones. The chain of supply, which had been
ever-changing, ever-enlarging, ever-improving all through the 1780-1980 era
finally gave out. Increasingly, people could only be induced to continue buying
up to the hilt by too easy access to credit -- indeed, thrust upon them. It was
not "Supply creates its own demand" that broke down, but that the supply itself
gave out.
There are still status goods, of course. But as Fred Hirsch pointed out 40
years ago the ones that remain (beautiful houses in beautiful surroundings,
ocean-going yachts, access to the politically powerful, international travel,
staying at 6-star hotels, personal coaching for one's children and access to
the top universities, etc) are now, and always will be, in short supply. They
are not available for mass consumption.
No, we don't need a new paradigm because Say's "Law" is not really a paradign
but merely a statement about human nature.. We need new technologies by which
we can exist in much smaller communities (as Sandwichman is hinting at) where
status can be gained by personal worth and reputation, not by how many consumer
goods one can accumulate.
Keith
At 16:03 20/08/2010 -0400, you wrote:
Click on
Stiglitz: Needed: a New Economic Paradigm
To get to the comments.
From: [email protected]
[mailto:[email protected]] On Behalf Of Michael Gurstein
Sent: Friday, August 20, 2010 1:12 PM
To: 'RE-DESIGNING WORK, INCOME DISTRIBUTION, EDUCATION'
Subject: [Futurework] FW: [p2p-research] Stiglitz: Needed: a New Economic
Paradigm
Note the comments that follow... (and our very own "Sandwichman" is the
first in the queue ;-)
M
-----Original Message-----
From: [email protected]
[mailto:[email protected]] On Behalf Of Ryan
Sent: Friday, August 20, 2010 9:03 AM
To: Peer-To-Peer Research List
Subject: [p2p-research] Stiglitz: Needed: a New Economic Paradigm
Sent to you by Ryan via Google Reader:
Stiglitz: Needed: a New Economic Paradigm
via Economist's View by Mark Thoma on 19/08/10
Joseph Stiglitz says adding bells and whistles to the current vintage of
macroeconomic models will not fix what is wrong with them, "Nothing less than a
paradigm shift will do":
Needed: a new economic paradigm, by By Joseph Stiglitz, Comentary,
Financial Times: The blame game continues over who is responsible for the worst
recession since the Great Depression the financiers who did such a bad job of
managing risk or the regulators who failed to stop them. But the economics
profession bears more than a little culpability. It provided the models that
gave comfort to regulators that markets could be self-regulated; that they were
efficient and self-correcting. The efficient markets hypothesis ... ruled the
day. Today, not only is our economy in a shambles but so too is the economic
paradigm that predominated in the years before the crisis or at least it should
be.
It is hard for non-economists to understand how peculiar the predominant
macroeconomic models were. Many assumed demand had to equal supply and that
meant there could be no unemployment. (Right now a lot of people are just
enjoying an extra dose of leisure; why they are unhappy is a matter for
psychiatry, not economics.) Many used representative agent modelsall
individuals were assumed to be identical, and this meant there could be no
meaningful financial markets (who would be lending money to whom?). Information
asymmetries, the cornerstone of modern economics, also had no place: they could
arise only if individuals suffered from acute schizophrenia, an assumption
incompatible with another of the favored assumptions, full rationality.
Bad models lead to bad policy: central banks, for instance, focused on
the small economic inefficiencies arising from inflation, to the exclusion of
the far, far greater inefficiencies arising from dysfunctional financial
markets and asset price bubbles. After all, their models said that financial
markets were always efficient. Remarkably, standard macroeconomic models did
not even incorporate adequate analyses of banks...: even a cursory look at the
perverse incentives confronting banks and their managers would have predicted
short-sighted behavior with excessive risk-taking. ...
Fortunately, while much of the mainstream focused on these flawed models,
numerous researchers were engaged in developing alternative approaches. ...
With a few exceptions, most central banks paid little attention to systemic
risk and the risks posed by credit interlinkages. Years before the crisis, a
few researchers focused on these issues, including the possibility of the
bankruptcy cascades that were to play out in such an important way in the
crisis. This is an example of the importance of modeling carefully complex
interactions among economic agents (households, companies, banks) interactions
that cannot be studied in models in which everyone is assumed to be the same.
Even the sacrosanct assumption of rationality has been attacked: there are
systemic deviations from rationality and consequences for macroeconomic
behavior that need to be explored.
Changing paradigms is not easy. Too many have invested too much in the
wrong models. Like the Ptolemaic attempts to preserve earth-centric views of
the universe, there will be heroic efforts to add complexities and refinements
to the standard paradigm. The resulting models will be an improvement and
policies based on them may do better, but they too are likely to fail. Nothing
less than a paradigm shift will do.
But a new paradigm, I believe, is within our grasp... What is at stake,
of course, is more than just the credibility of the economics profession or
that of the policymakers who rely on their ideas: it is the stability and
prosperity of our economies.
Things you can do from here:
a.. Subscribe to Economist's View using Google Reader
b.. Get started using Google Reader to easily keep up with all your
favourite sites
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Keith Hudson, Saltford, England
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