Do you think that the old alphabet is still useful in this modern age? Should we add extra characters to account for the new technology and global business. (We would have to change that kindergarten tune, of course.)
We can add new words - but we still use the basic 26.
In the same vein, we must ask have people changed? I would say nothing is so unchangeable as human nature. The Classical Basic Assumptions were described a century or two ago. Has a recent human nature change invalidated them? I would say - not at all.
The Classicists used four terms to name concepts that included everything (really everything). Are they out-of-date? Hardly. Yet, neos have added a fifth - the Entrepreneur.
Without doubt, the addition of entrepreneur was an invention of conservative neo-Classicals. There was this thing "profit" which was always unearned and/or exorbitant. Profit really had a bad name. Now, we oldies didn't use profit as an economic term. It is an accounting term meaning an excess of income over outgo. It has nothing to do with economics.
Obviously, profit had to be made respectable. So, the neos invented the entrepreneur. He was the one who got the profit for taking risks, for managing a business.
Classically, as Labor is mental and physical exertion used in production, one wonders how the entrepreneur doesn't fit within this concept.
There is a "problem" with Classical concepts.
The dichotomies that form the basis of societal conflict disappear. Labor, by definition. includes the nurse, the entrepreneur, the CEO, and the garbage man. By golly! We are all together in one class.
Makes class conflict a no-no. We can't have that, can we?
Another conflict is between Labor and Capital. To the Classicist, Capital is the name given to products in the production process. How can there be a conflict between Labor and Capital? Does it mean people don't like lathes, or hammers, or blast furnaces.
However, it's the people who own the Capital who are to blame. Labor needs Capital to provide them jobs
But, hold it! Doesn't Capital need Labor, or the machines will go rusty?
It's fairly obvious that Labor and Capital work together. They are on the same side, so why are they fighting? Neither can do much without the other.
The obvious weakness of Labor is important. The persistence of poverty and continual unemployment is a cancer on the economy. Yet, this was forecast by Ricardo 200 years ago with his Iron Laws of Rent and Wages.
Of course, that's old out-of-date stuff. Now we know better, don't we? Why is it that, even in the richest nations, there is widespread poverty? The neos have no answer. Their solutions are food stamps, general welfare, minimum wage laws, "free" health insurance, "affordable" housing. They raise the school leaving age to stop kids joining the labor pool - also make early retirement attractive to remove people. The bureaucracies explode to take people off the streets.
These are no more than neo-Classical band-aids.
Even with them, there is still a shortage of jobs, and those that are available are at subsistence (the working poor). Meanwhile, jobs for better trained and educated people require long hours and enervating commutes. And all this while there are perhaps two wage-earners in the family, and second jobs are anything but rare.
Our cities are a mess. A new project to revive downtown Los Angeles will use $180 million of pension funds on 7.2 acres of land. Among other things, they will build 251 apartments in 4 abandoned office buildings. The neos have no economic explanation for 4 downtown abandoned buildings sitting on some of the best land in Los Angeles - the Classicals do.
The Japanese firm - Shuwa Investments Corporation bought the 7.2 acres for "more than $75 million some 15 years ago. They sold it probably for less than $40 million.
(Those unfortunate Japanese land speculators! I seem to remember the ones who bought Pebble Beach Golf Course lost more than $200 million.)
The Los Angeles-based development firm purchased the property--spanning three blocks bounded by 8th and 9th streets and Grand Avenue and Figueroa Street--for an undisclosed amount from Shuwa Investments Corp.
Shuwa had listed the property for about $40 million, brokers familiar with the deal said. The Japanese-owned real estate firm purchased the property, which includes the former Southern California Gas Co. headquarters, for more than $75 million in 1987. Japanese investors were paying top dollar for U.S. real estate at the time.
CIM's plans for the property include new construction and renovation of the old gas company building into loft-style housing.
There is a theme running through economics that is almost totally ignored by the neo-Classicals. This is the influence of land on our economies, our cultures, our well-beings - on the directions of our lives.
So hardly a voice is raised from the economics profession about the bubble that could be worse than the stock market - the land price bubble. Land prices are rising by 15%-20% a year. What happens if we follow the Asian land crashes - the Japanese crash, or even repeat the S & L crash? How much did it cost a decade ago - $200 billion? - $300 billion? I've forgotten, but it would make a nice addition to the budget deficit.
That's all, honey!
Everyone on the list will be glad to call you that.
Harry
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Karen wrote:
Harry, you old codger, do you really think that all the old rules and examples apply in this new economy, with all the technology and global business that links so much of what is invested, produced and sold these days? I thought we weren't applying economics to old formulas as successfully nowadays. That's the point I got from Krugman's article, that not all the indications point in the same direction, but neither do the remedies.We don't know what we have now, do we? I'm no economist, and that may mean something on this list, but allow yourself to be open to new data, to admit that the unpredictable nature of applying familiar patterns and knowledge with new realities and challenges has you stumped, too. It keeps you young, dear. Relax. No one else on this list is going to call you that. Ciao! Karen Harry wrote: It is important to get rid of the non-causes (if we can) so we can look for the real problems. Otherwise, we will waste our time on the "nons". Do note however, that before every major depression, we've had a wild orgy of land speculation. What do we have now? --- Incoming mail is certified Virus Free. Checked by AVG anti-virus system (http://www.grisoft.com). Version: 6.0.434 / Virus Database: 243 - Release Date: 12/25/2002
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