
Economic Possibilities for Our Grandchildren (1931) - iamzlatan
http://fermatslibrary.com/s/economic-possibilities-for-our-grandchildren
======
Animats
Plain HTML version without popups.[1]

This is a famous paper by John Maynard Keynes. He saw that productivity was
going to increase considerably over the next two generations, but really had
no clue how that would play out. Now we're there, and it's not working out
like anybody back then expected.

What Keynes missed was a consequence of a trend that could be seen back then -
productivity increases are concentrated in certain areas, broadly, those
involving "making stuff" \- manufacturing and agriculture. In Keynes's day,
that was most of the work force. In the US today, 14% of the work force makes
all the stuff. (Yes, imports. If the US made all its own stuff, that number
would still be well under 20%).

As a result, most of the work force is in low-productivity jobs - leisure and
hospitality, retail trade, and health care are the biggest categories. Because
each worker in those areas produces little revenue, wages tend to be low
there. With most workers in low wage, low productivity areas, wages overall
are driven lower. Although manufacturing could afford to pay higher wages,
they don't have to be that much higher. A new hire in an auto plant today gets
about half, in real dollars, what a new hire got in 1975.

That's part of how we got to where we are today. This wasn't forseen by
prominent economists.

[1]
[https://www.marxists.org/reference/subject/economics/keynes/...](https://www.marxists.org/reference/subject/economics/keynes/1930/our-
grandchildren.htm)

[2]
[https://www.bls.gov/emp/ep_table_201.htm](https://www.bls.gov/emp/ep_table_201.htm)

~~~
FabHK
> This is a famous paper by John Maynard Keynes

Indeed, and it was the starting point of the thought-provoking book _How much
is Enough?_ [1, review in 2] by noted Keynes biographer Robert Skidelsky and
his son Edward, in which they advocate for more leisure, of the enlightened
sort, instead of more work. It's a good read, though short on actual
solutions.

One concern both Keynes and the Skidelskys had is this:

> Yet there is no country and no people, I think, who can look forward to the
> age of leisure and of abundance without a dread. For we have been trained
> too long to strive and not to enjoy. It is a fearful problem for the
> ordinary person, with no special talents, to occupy himself, especially if
> he no longer has roots in the soil or in custom or in the beloved
> conventions of a traditional society.

> To judge from the behaviour and the achievements of the wealthy classes
> today in any quarter of the world, the outlook is very depressing!

(Keynes, 1930 (!))

Now, with the increase in inequality over the last two decades and stagnating
real incomes for the bottom half, it looks like this problem will be confined
to the "wealthy classes" a bit longer...

[1]
[https://en.wikipedia.org/wiki/How_Much_Is_Enough%3F_(book)](https://en.wikipedia.org/wiki/How_Much_Is_Enough%3F_\(book\))

[2]
[http://www.economist.com/node/21559308](http://www.economist.com/node/21559308)

~~~
opo
Income inequality has grown, but it is a common misconception that incomes
have been stagnant. According to the St Louis Fed the issue has been:

>...Economists long have noted that focusing on AHE rather than total
compensation yields an inaccurate picture of labor compensation due to the
omission from AHE of employer-provided benefits.

[https://files.stlouisfed.org/files/htdocs/publications/es/07...](https://files.stlouisfed.org/files/htdocs/publications/es/07/ES0707.pdf)

The page has 2 charts showing the differences when you compare wages to total
compensation.

~~~
FabHK
Not sure that's really a relevant factor. A 2012 source I found said that from
1973 to 2011, productivity grew by 80%, but wages only 4%, and total
compensation 10.7% - that's a bit more, but it's still much closer to wage
growth than to productivity growth.

Annualised, that's productivity 1.55%, wage 0.1%, total comp 0.25%.

[http://www.epi.org/blog/real-hourly-wage-growth-last-
generat...](http://www.epi.org/blog/real-hourly-wage-growth-last-generation/)

~~~
opo
Those numbers conflict with the St Louis Fed, so not sure what to make of
them. It is unfortunate that their source seems to be produced from the think
tank itself.

------
ThomPete
_" If economists could manage to get themselves thought of as humble,
competent people, on a level with dentists, that would be splendid!"_

Agreed!

The primary problem is politicians use of and reliance on economists as if
they are fortune tellers. The fact that there isn't an economic model in use
which doesn't treat technology as an externality is to me the best sign of how
far of from usefulness economy have become.

Of course there are areas where economy is good but it's not a science and
it's use as a way to dictate politics is not founded in rationality.

~~~
acover
Correct me if I'm wrong. There are certain areas where economics/human
behavior that are well understood. Like how people behave in markets.

Macroeconomics isn't as well understood. However given the vast control the
central bank has monetary policy seems to be quite effective.

Side note: I'd love to know what areas of economics, psychology and other soft
sciences have predictive power, according to a consensus of experts.

Do we know things? What do we know? Let's find out!

Edit 2: HN confuses me. Downvotes for what?

~~~
crawshaw
Only in the last 20 years have economists begun to admit their traditional
model of people in micro-economic markets, so-called "rational" actors, don't
correspond to reality.

The amazing resistance of the field to such obvious claims (the more
successful part of what's called behavioural economics) gives many of us
looking in from the outside pause.

~~~
drewcrawford
This is a common misconception. It is "traditional" macroeconomics (e.g.
Keynes) did not engage with microeconomics at any point [1].

It was not until the 1970s and the Lucasian rationalist critique that
microfoundations became an important inquiry. And that shift didn't occur
because people were sentimentally attached to micro (if anything, they were
attached to prevailing macro theories), it happened because Lucasian
rationalism explained an empirical phenomenon (a shift in the Phillips curve)
that was not explained by the other approaches. Since that time support for
microfoundations has waxed and waned a few times, in response to several other
empirical shifts.

In practice, economics is much like the other sciences, with a slightly wider
diversity of thought. Like the other sciences, most people only understand a
caricature of it that is given through the lens of politics. Unlike the other
sciences, more people seem inclined to accept this caricature and criticize it
on that basis, which is unfortunate.

[1] Everyone, but see
[https://www.jstor.org/stable/2231707?seq=1#page_scan_tab_con...](https://www.jstor.org/stable/2231707?seq=1#page_scan_tab_contents)
for a plausibly-readable overview

~~~
neilwilson
The problem is that the notion that 'microfoundations' can be linked to the
macro economy by searching for 'deep parameters' suffers from precisely the
same critique.

It's even proved wrong within the body of theory that embraces it. The
Sonnenschein-Mantel-Debreu theorem.

Economists then do a lot of hand waving and point to 'data', without
acknowledging that the 'data' is collected from a system that has been under
the influence of their ideas for over 40 years and therefore will, inevitably,
be the right shape.

If you collect data from a man in a straitjacket, unsurprisingly it will look
like a man in straitjacket. It can tell you nothing about ideas that involve
removing the straitjacket.

Non-falsifiability of theorems is the hallmark of macroeconomics. Because it
is an ideology dressed up as a science.

------
ykler
It seems that he has been generally correct about the economic problem
gradually ending, though maybe inequality of distribution has been worse than
he expected, so we are still somewhat distant from the real end. But if his
picture is right, there should have been steady progress in the ability of the
upper middle class to make better use of leisure time. Has there been? I have
no clear sense of this.

~~~
freeone3000
You can watch a movie at 2am on your home theatre streamed from your personal
computer in your couch in your own home. You can get one of a billion
computerized entertainment products. You can get one of a billion billion
_non_ computerized entertainment products, delivered to your home in two days.
In a day. In an hour. By truck. By bike. By drone. You can fly in a plane to
Jamaica Friday evening and be back by Monday morning, don't even need to take
a vacation day.

We're in an age of unprecedented personal entertainment, and the upper middle
classes are in an ideal position to take advantage.

------
dustingetz
E.F. Schumacher responds directly to this paper in Small is Beautiful (1972),
here are some snippets from this chapter of his book. Note that some people
_hate_ this book; read the amazon 1-star reviews for some scathing commentary.

TLDR: Western economics as Keynes suggests is an unbounded feedback loop; it
generates income inequality which generates intolerable circumstances for poor
people which leads to war.

\----

This proposition can be divided into three parts: First, that universal
prosperity is possible; Second, that its attainment is possible on the basis
of the materialist philosophy of “enrich yourselves”; Third, that this is the
road to peace

Is there enough to go around? … What is “enough”? … Not the economist who
pursues “economic growth” as the highest of all values, and therefore has no
concept of “enough.” There are poor societies which have too little; but where
is the rich society which says: “Halt! We have enough”? There is none.

Economic growth has no discernable limit, must necessarily run into decisive
bottlenecks when viewed from the point of view of the environmental sciences.
An attitude to life which seeks fulfillment in the single-minded pursuit of
wealth--in short, materialism--does not fit into this world, because it
contains within itself no limiting principle, while the environment in which
it is placed is strictly limited. … The developments of science and technology
over the last hundred years have been such that the dangers have grown even
faster than the opportunities.

Economic progress, [Keynes] counseled, is obtainable only if we employ those
powerful human drives of selfishness, which religion and traditional wisdom
universally call upon us to resist. The modern economy is propelled by a
frenzy of greed and indulges in an orgy of envy, and these are not accidental
features but the very causes of its expansionist success. The question is
whether such causes can be effective for long or whether they carry within
themselves the seeds of destruction. … It may look true in the short run and
turn out to be false in the longer run.

I suggest the foundations of peace cannot be laid by universal prosperity, in
the modern sense, because such prosperity, if attainable at all, is attainable
only by cultivating such drives of human nature as greed and envy, which
destroy intelligence, happiness, serenity, and thereby the peacefulness of
man. … Their wealth depends on making inordinately large demands on limited
world resources and thus puts them on an unavoidable collision course--not
primarily with the poor (who are weak and defenseless) but with other rich
people.

The cultivation and expansion of needs is the antithesis of wisdom. It is also
the antithesis of freedom and peace. Every increase of needs tends to increase
one’s dependence on outside forces over which one cannot have control, and
therefore increases existential fear. Only by a reduction of needs can one
promote a genuine reduction in those tensions which are ultimate causes of
strife and war.

Never think that wars are irrational catastrophes: they happen when wrong ways
of thinking and living bring about intolerable situations.

It is doubly chimerical to build peace on economic foundations which, in turn,
rest on the systematic cultivation of greed and envy, the very forces which
drive men into conflict.

~~~
kwhitefoot
Good to be reminded of that. I haven't read mine for years, time to take it
off the shelf again.

I think that the point about selfishness and envy is spot on.

I'm convinced that one of the few things that were better in the past, well
the bit that I inhabited in the 60s and 70s at least, was that people were not
driven to the same degree by the need to acquire the latest gadget, and to
excess in general.

Of course excess was there but in my experience in more episodic form, and
therefore more sustainable and in fact more enjoyable.

------
dforrestwilson
"If economists could manage to get themselves thought of as humble, competent
people, on a level with dentists, that would be splendid!"

Sadly this is still not the case. Macroeconomics in particular is still theory
> scientific process.

And the frustrating thing about Keynes is that he failed to acknowledge the
simple fact that Keynesian policy only works when _every country in the world
is not practicing it_.

Microeconomics is where I think the real breakthroughs are happening.

Edit: Down-voted?

~~~
tome
> Keynesian policy only works when every country in the world is not
> practicing it.

Huh?

~~~
baybal2
>> Keynesian policy only works when every country in the world is not
practicing it.

>Huh?

When somebody big prints money, everybody print money.

~~~
tome
And that means Keynsianism fails to work why exactly?

~~~
dforrestwilson
Government creep results in suboptimal outcomes for everyone, raising tensions
and exacerbating economic books and busts. I point to Greenspan and the
housing crisis. Maybe the U.S. shouldn't be subsidizing housing and student
loans?

Additionally, currency and trade wars tend to become the violent kind.

You could argue that the real problem is that Keynesian backed governments
never turn off the spigot, but why should they when the chosen stimulus policy
neatly aligns with their own professional goals?

~~~
tome
That sounds like "Keysian policy never works". dforrestwilson said "Keynesian
policy only works when every country in the world is not practicing it" which
sounds like a different claim entirely, so I'm confused.

