Monday, October 27, 2008

Eco 101: It's the economy, stupid...with more 11/5

As the world slips into recession, possibly a depression, as unemployment rises, and retirement accounts dwindle, we suddenly realize how inadequate our understanding of economics is.

As I see it, the major theories fall between two camps, those of the libertarian bent, who argue against government interference in economic affairs, leaving the markets to rise and fall on their own, and those who advocate government intervention, regulation, and even government ownership of production in order to secure equality of opportunity and wealth.

Virtually all economists support some form of "spreading the wealth," whether through taxation or through government regulation of wages, benefits, and labor laws. No serious thinker today argues against the redistribution of wealth for the good of society and for the health of the economy. Recent events clearly demonstrate the essentil need for government intervention when capitalism runs amok.

For a brief understanding of Economics, I recommend looking at the work of three giants: Smith, Keynes, and Marx. Milton Friedman is also a good source of the unfettered capitalism view, though he does a good job summing up the theories of those before him:

I like to start with Keynes, who is apropos today as governments try to come to the rescue of the markets. He is also interesting personally as an active member of Bloomsbury:

Painter Duncan Grant with Keynes

John Maynard Keynes

Added Nov. 5, 2008:

November 4, 2008

The hippy guide to Keynesian economics

Forget those Depression rescue plans and focus on his vision for a more fulfilling life

Alistair Darling, the Chancellor, may be basing his economic rescue plan on the idea that “a lot of what Keynes wrote still makes sense”, but he doesn't know the half of it.

John Maynard Keynes, the old maverick, plotted a revolutionary prescription for our era that makes Mr Darling's planned public spending splurge look sepia coloured and disastrously short-sighted.

In the depths of the Great Depression, Keynes imagined a completely different future for us, far removed from today's world of boom and bust. In a largely forgotten essay, Economic Possibilities for Our Grandchildren, he predicted that in three generations' time (the era we are entering) the “economic problem” - the challenge of creating and allocating resources so that everyone would have enough to satisfy their needs and basic desires - would be solved. Once we had passed that historic point, he thought that we would be liberated to explore the greater potential of humankind.

For Keynes, economics was a dirty game, and the business of earning and spending was a sordid obligation that humanity should shrug off as soon as possible. In the 1930s he believed that until we had developed our economy and technology sufficiently to support our human material requirements “we must pretend to ourselves and to everyone that fair is foul and foul is fair; for foul is useful and fair is not. Avarice and usury and precaution must be our gods for a little longer still.”

But once we had got ourselves “out of the tunnel of economic necessity into daylight”, he predicted: “I see us free to return to some of the most sure and certain principles of religion and traditional virtue - that avarice is a vice, that the exaction of usury is a misdemeanour and the love of money is detestable...We shall once more value ends above means and prefer the good to the useful. We shall honour those who can teach us how to pluck the hour and the day virtuously and well.” He thought that we would flourish in the arts, in culture, and even perfect the ultimate refinements of beauty and friendship.

The man whose ideas helped to navigate Britain out of the mass unemployment of the 1930s after orthodox economics had failed, would look at the Western world today and declare: “Fiscal job done. Let's get on with the interesting stuff.” Remember, Keynes wasn't some dry old number-shuffler, but a member of the proto-hippy Bloomsbury circle who did his fair share of youthful sexual adventuring. In the 1940s he chaired the Council for the Encouragement of Music and the Arts - the progenitor of the Arts Council.

Of course, Keynes has the advantage on us, in that he was writing with the benefit of imaginative foresight. It's a perspective that we don't enjoy, as we come full up against the consequences of unprecedented levels of material and technological abundance. In his optimism, Keynes rejected the possibility that once we had solved the economic problem we would shackle ourselves by constantly chasing ever more stuff - possessions, debt, celebrity, Brand'n'Woss-style infotainment, rather than learning to be satisfied with material contentment and evolving from there.

He predicted that only a sizeably ignorant minority would pursue constant, selfish consumption: “When the accumulation of wealth is no longer of high social importance, there will be great changes in the code of morals,” Keynes wrote.

“Of course there will still be many people with intense, unsatisfied purposiveness who will blindly pursue wealth unless they can find some plausible substitute. But the rest of us will no longer be under any obligation to applaud and encourage them.” Indeed, Keynes imagined that instead of encouraging the likes of Posh'n'Becks through magazines such as Heat and Grazia, we would foster a virtuous cycle that would run something like this: if we create and consume less consumerist propaganda, and if we feel less hurried and worried, then we should feel that we have enough materially and therefore need to spend less, strive less and earn less. Then we will have time and energy to spend in more fulfilling and mutually productive ways.

The likes of Mr Darling have failed to read Keynes's revolutionary recommendations for our abundance-glutted times. Instead, our economic leaders are bent on applying his 1930s solution to a 21st-century problem. Simply jump-starting the creaking old Keynesian economic model will only guarantee us more boom, more bust, more misery and a future in which our needless overconsumption of finite global resources can only increase.

Economic Possibilities for Our Grandchildren was out of print for 20 years, but was revived last year in Revisiting Keynes (edited by Lorenzo Pecchi and Gustavo Piga, MIT Press). Mr Darling, and the rest of the world's economic leaders, would do well to visit the bookstores to learn what Keynes truly prescribed for this 21st-century crunch.

John Naish is author of Enough: Breaking Free from the World of More, published by Hodder & Stoughton

Any discussion of economics has to include the thought of Adam Smith:

Western Economists
Classical economics
(Modern economics)

Finally, Marxian economics, minus his political arguments for communism and a violent revolution, is still valid today. Democratic socialism, practiced globally, especially in Europe, is essential to any comprehension of Economics:

Marxian Economics

Also, do read:
Like, Socialism.

Spread the Wealth.


No comments:

Post a Comment