Another thing Keynes did not seem to take into account is that a growing portion of investment concerns the displacement of labour by new technology. This may not have been a significant economic concern in his day, but it most certainly is now.
Ed ----- Original Message ----- From: Tom Walker To: RE-DESIGNING WORK, INCOME DISTRIBUTION,EDUCATION Cc: Keith Hudson Sent: Friday, April 13, 2012 3:41 PM Subject: Re: [Futurework] "Efficiency's Promise: Too Go od to Be True" "More Jobs Predicted for Machi nes, Not People" "Economic Possibilities for our Grandchildren" is a good starting point. Keynes made the same point with more precision 15 years later in a letter to T. S. Eliot and a couple years before that in a Treasury Department memorandum on full employment after the war. http://econospeak.blogspot.ca/2009/08/skidelsky-on-keynes-and-queens.html Here's how Keynes biographer Lord Skidelsky summed up the relationship between the earlier essay and the later letter: My final section can best be introduced by quoting from a letter Keynes wrote to T.S. Eliot on April 5, 1945: "The full employment policy by means of investment," he wrote, "is only one particular application of an intellectual theorem. You can produce the result just as well by consuming more or working less" (CW, XXVII, p. 384). To make sense of this mysterious remark, one has to go back to Keynes' essay, "Economic Possibilities for our Grandchildren," first read to Winchester schoolboys in 1928, or even further back to G.E. Moore's Principia Ethica, the bible of his youth and the source of his ideas about the good life. Economics, Keynes always insisted, is only useful if it can get us over the hump of scarcity, as quickly as possible, into the realm of plenty, when man would confront his "real, his permanent problem--how to use his freedom from pressing economic cares ... to live wisely and agreeably and well" (CW, IX, p. 328). "The full employment policy by means of investment" is Keynes' method of accelerating through the barrier. From this perspective, the mass unemployment of the interwar years was not just the result of a random collapse of confidence, but the precursor of what can happen to rich societies that fail to make adequate preparations for the good life which wealth makes possible. It is typical of Keynes that he should have returned to this vision during the war itself, as soon as it became clear that the Allies would win. The core of it is contained in a memorandum he wrote on May 25, 1943, entitled "The Long-Term Problem of Full Employment." He saw three phases after the war. In phase I, which he thought might last five years, investment demand would exceed full employment saving, leading to inflation in the absence of rationing and other controls. In this phase, the emphasis should be on securing a high rate of saving in order to reconstruct the war damaged economy. In phase 2, which he thought might last between five and ten years, he foresaw a rough equilibrium between investment and full employment saving "in conditions of freedom," with the state active in varying the pace of investment projects. In phase 3, investment demand is so saturated that it cannot be brought up to the level of full employment saving without embarking on wasteful and unnecessary programmes. In this phase, the aim of policy should be to encourage consumption and discourage saving, and so absorb some of the unwanted surplus by increasing leisure, with shorter hours and more frequent holidays. This will mark the entrance to the "golden age," the age of capital saturation. Eventually, Keynes thought, "depreciation funds should be almost sufficient to provide all the gross investment that is required" (CW, XXVII, pp. 321-324; also see Keynes to Josiah Wedgwood, July 7, 1943, p. 350). It is the age, foreshadowed in the General Theory, of the "euthanasia of the rentier," since there will be no demand for new capital. The same objection can raised against this essay in prophecy that was raised against Keynes' earlier "Economic Possibilities for our Grandchildren": that it assumes that all material wants in the wealthy nations will be quickly saturated, and that it completely ignores the capital needs of the poor countries. In these respects Keynes was a child of his times. He did not foresee that technology would constantly create new products and underestimated the ability of advertising constantly to create new wants. Above all, he did not foresee the postwar population explosion in the developing countries. This factor, more than anything else, has rendered his prophecy academic. Nevertheless, it does raise some pretty fundamental questions about what economics is for, as well as the distinctly awkward question of how far the peoples of wealthy nations should continue postponing their own "golden age" until everyone in the world has caught up with them. What is certain is that Keynes would never have worshipped at the altar of GDP. The rate of per-capita income growth was only important to him as an indication of the speed at which societies were approaching material abundance. Beyond that point, he expected that rates of growth would and should slow down. One can surmise that he would have had little sympathy for "endogenous growth theory" which promises to postpone the slowdown of rich countries, and thus the "catch up" of poorer countries, into a far distant future. My purpose in this paper has not been to enter into an argument with Keynes. It has been to show that his thought, from whatever period of his life one chooses to take it, is richer, more suggestive, and more unexpected than the textbook Keynesianism that still flourishes, or the administrative Keynesianism that ruled policy in the 1950s and 1960s. His views on the minimum sustainable rate of unemployment and his fiscal philosophy still have a great deal to offer governments. His reminder that economics needs to retain its connection with the non-economic ends of life as these have been conceived by moralists and ethical philosophers remains a necessary warning against blind worship of the golden calf, and against marketization carried to extreme lengths. So I say: Down with Keynesianism, and up with Keynes! On Fri, Apr 13, 2012 at 11:50 AM, Arthur Cordell <[email protected]> wrote: Keith see the url below Economic Possibilities for our Grandchildren http://www.marxists.org/reference/subject/economics/keynes/1930/our-grandchi ldren.htm Keynes saw the world quite clearly. He saw a future where we wouldn't have create work and worry about unemployment. -----Original Message----- From: [email protected] [mailto:[email protected]] On Behalf Of Ed Weick Sent: Friday, April 13, 2012 2:12 PM To: Keith Hudson; RE-DESIGNING WORK, INCOME DISTRIBUTION, EDUCATION Subject: Re: [Futurework] "Efficiency's Promise: Too Go od to Be True" "More Jobs Predicted for Machi nes, Not People" Not sure that you have Keynes and Marx right here, Keith. When I studied economics, Keynesianism was still very much the vogue. I don't recall that his solutions were to be applied via the banks or printing money. Rather, the idea was to involve large scale public works etc. when the private sector ran out of steam and the public sector had to kick in. I suppose that borrowing and printing money might have been part of this, but it was not emphasized. As for Marx, the ideas were very good, but how would you ever do what he recommended. Well, as Lenin and Stalin demonstrated, the state would do it, and in doing it, they would convert a humane idea into a horror show. One of the best books I've read on why good ideas go terribly wrong is John Gray's "Black Mass". If you haven't read it, do take a look. Ed ----- Original Message ----- From: Keith Hudson To: RE-DESIGNING WORK, INCOME DISTRIBUTION,EDUCATION ; Tom Walker Sent: Thursday, April 12, 2012 10:32 PM Subject: Re: [Futurework] "Efficiency's Promise: Too Go od to Be True" "More Jobs Predicted for Machi nes, Not People" Tom, Your previous comments over the years on FW concerning the "lump of labour fallacy" caused quite a change of mind in my own thinking, so I was interested to read your recent exegesis of the increasing automation-joblessness problem on your ecologicalheadstand website. There, you contrast the different approaches taken by Marx and Keynes in trying to solve the same problem. Here, I'd just like to describe what I think are the reasons why they both failed. Marx was writing at a time when factory conditions were still atrocious (or at least had been a few years previously according to the out-of-date statistics that Engels was feeding him with) and workers (mostly fresh from the countryside and highly biddable) were being badly exploited by the factory owners (with the exception of a few such as Robert Owen, and some of the Quakers, etc). On the whole, though, workers were slowly beginning to prosper and, due to gradually improving water and sewage works in the large cities, children were surviving in larger numbers and the population was expanding at a fast clip. They were beginning to buy modest versions of the sort of consumer products that the middle-class were already buying. Growing production efficiencies were such that a growing demand could be met and even if workers were displaced from one factory due to more automation they could usually find another job in a factory in a slightly newer industry. Note, however, that when Marx was writing none of the consumer goods were yet important enough (or pricey enough) that they were transformational both in their economic effects (the saving of money to buy the goods) and in their social use. Within two or three decades, however, workers were able to buy a bicycle, for example, which enabled them to be much more choosy about where they might work for the best wages. By the time Keynes was writing most of the iconic consumer goods that we have today (electrical goods of many sorts, telephone, radio, television, car) were already in existence for the enjoyment of a growing middle-class (what I term the 20-class of today), but not yet for most of the population (what I term the 20-class of today). And they certainly weren't for the millions of workers in the industries which had been highly profitable (producing highly exportable goods) in the years before World War I. These were cotton, coal, ship building, heavy engineering (bridges, railway locomotives, etc). These were no longer profitable (or exportable) because, although money had inflated three times during the War, the Bank of England (then more powerful than the Government) was intent on deflating the pound until it was as valuable as the pre-war pound. Many workers' wages in the big industries were ground down and owners couldn't get the capital to reinstate their machinery, worn-down by the war. Exports were drying up. Keynes' General Theory was therefore concerned mostly with how to overcome this large-scale unemployment problem rather than to describe an economic theory of an economy in equilibrium. Although there was a cornucopia of consumer goods that were, in theory, available for millions of workers to buy they simply hadn't enough wages (or had none at all) to buy them with. But neither Marx or Keynes were able to imagine a world in which credit would become so widely available as today (or, rather until 2008). By 1980/90 or so, not only were workers receiving wages that enabled them to buy consumer goods that Marx could never even dream of, workers were able to get credit for money far beyond anything Keynes could possibly imagine. In his day (when he wrote his Theory), the big commercial banks were growing so fast and so out of control of the Bank of England (or of the Fed in America) that instead of keeping up to 20% or even 30% of cash in reserve when they created credit (to carefully assessed customers) they allowed their reserves to decline to almost nothing (0% to 2% or 3%) by the time of the 2008/9 crash, Instead of being constrained to give credit of something up to 3 or 4 times their reserves, they were beginning to give almost unlimited credit. And, just to make sure (so they thought) they were all in addition buying and selling insurance policies (derivatives) from one another. In Japan, America and Europe, the commercial banks felt impregnable until 2008/9 hit them (though it hit Japan in 1990). (The small number of investment banks were in far better condition because they were clever enough to invent the myriad of derivatives with which they conned the high street banks.) But despite the limitations of their respective theories, both Marx and Keynes (geniuses both to be sure) were aware that the very real problem of almost total automation of consumer goods still existed over the longer term. Who would be able to buy them? It is this ultimate problem which neither has been able to solve. Marx's solution (communism) has already collapsed, Keynes' solution (government controlled money-printing and attempted bail-outs of the banks) looks very much as though it is not succeeding. Keith At 00:11 13/04/2012, you wrote: An invisible thread connects David Owen's The Conundrum ( "Efficiency's Promise: Too Good to Be True") and Erik Brynjolfsson's and Andrew McAfee's Race Against the Machine ( "More Jobs Predicted for Machines, Not People"). Both books address real -- and very important -- problems but they both arrive at false conclusions. The "conundrum," according to Owen, boils down to a lack of commitment driven by conflicting motives, "Do we honestly care?" he laments at the end, citing George Orwell's observation that, "All left-wing parties in the highly industrialized countries are at bottom a sham, because they make it their business to fight against something which they do not really wish to destroy." Meanwhile, Brynjolfsson and McAfee prescribe the clichéd panaceas of education, "flexibility" and entrepreneurship: "Our skills and institutions will have to improve faster to keep up lest more and more of the labor force faces technological unemployment." continued at: http://ecologicalheadstand.blogspot.ca/2012/04/efficiencys-promise-too-good- to-be-true.html?spref=fb -- Cheers, Tom Walker (Sandwichman) _______________________________________________ Futurework mailing list [email protected] https://lists.uwaterloo.ca/mailman/listinfo/futurework Keith Hudson, Saltford, England http://allisstatus.wordpress.com _______________________________________________ Futurework mailing list [email protected] https://lists.uwaterloo.ca/mailman/listinfo/futurework _______________________________________________ Futurework mailing list [email protected] https://lists.uwaterloo.ca/mailman/listinfo/futurework _______________________________________________ Futurework mailing list [email protected] https://lists.uwaterloo.ca/mailman/listinfo/futurework -- Cheers, Tom Walker (Sandwichman) ------------------------------------------------------------------------------ _______________________________________________ Futurework mailing list [email protected] https://lists.uwaterloo.ca/mailman/listinfo/futurework
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