Let's call it a draw, at least for the time being, Keith. ----- Original Message ----- From: Keith Hudson To: RE-DESIGNING WORK, INCOME DISTRIBUTION, , EDUCATION Cc: Ed Weick Sent: Saturday, August 21, 2010 2:37 PM Subject: Re: [Futurework] FW: [p2p-research] Stiglitz: Needed: a New Economic Paradigm
Ed,
At 11:04 21/08/2010 -0400, you wrote:
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 longer terms we consult geology! But in terms of human lifespans in
economics, most people in most periods of history are stuck in one environment.
Today we are living in the most dramatic times in all history but migration is
still only affecting -- what? -- 5% of the population at any one time.
Migration is usually only a brief episode between two different long-term
environments.
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.
True enough.
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.
Want to bet? Even the poorest homes in China -- as in the favelas of Sao
Paulo or in the shanty towns of Africa -- have TV, and that's as much a status
good to them as it was to us only a few decades ago in the advanced countries.
As to the Chinese poor, still earning very low wages (5% of ours if they're
lucky), you can't expect them to be spending on a range of consumer goods.
However, the wages of low-paid factory workers in some coastal cities of China
are now beginning to rocket upwards -- 300% in the last year in some car
factories.
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.
But coffee itself, as was tea, as was pepper, as was sugar, was very much a
status good when first imported into Western countries. In this country only 70
years ago, coffee drinking was an upper middle-class activity only. As was
dining in restaurants. Most working people in those days lived a lifetime
without ever going into one.
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.
Once again, most people most of the time have a roof over their heads and
don't live in perpetual disturbance or chaos. Even in initial conditions of the
most extreme chaos (e.g. the California Gold Rush -- the "forty-niner") any
society rapidly develops its own rules and regulations. (And the banking sector
today would soon do the same if they couldn't rely on a lender of last resort
to ge them out of trouble -- the central banks of governments.)
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.
Of course not. And the first goods they wanted was seed-corn and tools, and
enough fuel to get them through the winter. I would guess that the early
settlers never bought a status good in the whole of their lifetime. But once
well and truly settled their children did, once adult. Even the Amish and
Hittites of modern America with, probably, fewer personal goods than even poor
families in India, take pride in Sunday-best clothes, the best possible horse
and trap among their neighbours, etc
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.
Of course they did! The glow doesn't last long, particularly when neighbours
catch up. The very point of my hypothesis is that, today, now that there isn't
a chain of new consumer goods lying ahead, what we have soon palls and that, in
the longer term future, we need to return to smaller communities in which
status is not acquired or appropriated but freely given by others on the basis
of personal qualities and skills. This may sound utopian but similar
environments have occurred many times before in history in many places and
there is no reson why it shouldn;t happen again if we develop the right
locally-based technologies.
Keith
----- 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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