«

»

Sep
26

It would be nice to understand the why

It is simply too bad that we won't be able to act at this late date.

So while those few of us who are capable can continue to seek understanding of our situation, at least for scientific sake, I just don't see that understanding having any impact on how the world is run by the idiots in charge. They do not want to know.

Question Everything: Peak Neoclassical Economics?
It’s Really Past Time for This A Failed Theory If you took economics in college then there is a very good likelihood that you learned using Paul Samuelson’s Economics textbook, now in its 19th edition (along with new co-author William…

16 comments

  1. Edward Morbius
    Edward Morbius says:

    +Chris George The "why" of what? Why neoclassical economics took off? Like most myths and fables, it offered an appealing lie: of perpetual growth.

    Or why the idiots don't want to know? I'm suspecting that many of them do (though some economists continue to delude themselves). Krugman (previously someone I'd somewhat respected) very much among them.

    Or something else?

    I like what Mobus has to say here.

  2. Chris George
    Chris George says:

    I am diving into anthropology and sociology at the same time. Both introductory courses, both with the intention of understanding why. The biophysical model makes far more sense than the neoclassical. So the why question to me is why did we even begin to think that infinite growth on a finite planet was even possible.

    What is it that allows us to disconnect our ideas from the reality that surrounds us?

  3. Edward Morbius
    Edward Morbius says:

    +Chris George why did we even begin to think that infinite growth on a finite planet was even possible

    The idea seems to have emerged with a precursor to modern (classical) economics, with the Merchantilists (though Wikipedia doesn't cite a source):
    https://en.wikipedia.org/wiki/Merchantilism#Infinite_growth

    An alternate precursor, physiocracy, held that resources were finite.

    Another aspect is that "energy" itself as a concept didn't emerge until the early 19th century — after Adam Smith. In fact, looking at Smith, you could interpret "land" as an input in his economic model as "energy", as most energy inputs either grew (grains, crops, grass, wood) or were collected based on land (wind, water power). There was a small (but growing) amount of coal being burned, priced, incidentally, the same as wood when converted to BTU equivalent, but already by the late 18th and early 19th centuries, mining engineers and economists (often one and the same) were expressing concern over what would happen should England's coal supplies be exhausted.

    The formalization of the notion of infinite economic growth is hard to pin down. Robert Gordon, in his recent paper "Is U.S. Economic Growth Over? Faltering Innovation Confronts the Six Headwinds" ascribes it to Robert M. Solow (whose growth equations are expressed entirely in terms of stocks of capital and labor).

    More discussion here:
    https://plus.google.com/u/0/104092656004159577193/posts/YA4uz7wt1fE

    More recently, it wasn't until the concept of unlimited growth was challenged formally, in particular by Meadows, et al in Limits to Growth that neoclassical economics had to face this issue directly, and for the most part they reacted harshly (and largely illogically). I just checked my downloaded copy of LTG: it doesn't even specifically address the concept of unlimited economic growth, I haven't checked the 30 year update yet (hardcopy). Backhouse's The Ordinary Business of Life (a survey history of economic thought) only mentions growth in passing, fails to discuss Solow's own growth equations (other than a mention of the IS-LM model), or Limits to Growth. It does note that early economists considered growth to derive from increased population, which was limited by food production (James Stueart). Or by agricultural capital (Francois Quesney).

    As Noam Chomsky notes: "Unlimited economic growth has the marvelous quality of stilling discontent while maintaining privilege, a fact that has not gone unnoticed among liberal economists."

    Or alternatively: unlimited growth makes a number of very appealing fictions plausible. That wages and productivity can increase, that interest on loans can be repaid, that the poor (both of advanced nations and of what is now unfashionable to call the "Third World") can be brought into, if not prosperity, at least a middle-class existence.

    Declaring the emperor has no clothes makes a great many of these attractive fictions unattainable.

    Which makes me more convinced that the doctrine of "unlimited economic growth" is either wishful thinking, or a consciously adopted principle which allows further accumulation of wealth by the wealthy. Quite possibly both.

  4. Chris George
    Chris George says:

    Have you ever read any Henry George?

  5. Edward Morbius
    Edward Morbius says:

    +Chris George I've run across his name and skimmed his Wikipedia entry.

    He's one of the classical economists mentioned in The Four Horsemen (movie) (others being Ricardo, Smith, Marshall, Quesnay, Mill, Rousseau, and Locke).

    Why?

  6. Chris George
    Chris George says:

    The question of productivity. He asked how it could be that with increases in productivity tied to technology and productivity tied to increasingly skilled labour did not improve the lot of either capitalists or labour. After 100 years of industrialization he asked how it could be that workers were still living at the subsistence level and capital was still chasing a 10-20% return.

    It was your touching on Smith and the concept of land as energy that brought it to mind. He worked out what he thought would be a more just system. He postulated that the land is a commons, part of the birthright of every human. The role of government should be to manage that and protect it for future generations. This would answer the productivity question as he determined that it was the concept of rents that was sucking up the productivity gains. His solution eliminates the idea of private property in land. All wealth flows from the land. By restricting access to the land, we disenfranchise people. It doesn't matter if we all share opportunity if the gatekeepers control the resources required to exercise it. He postulated a thought experiment, an analogy that I have run by many people. No one has been able to give me a considered response so far, mainly because they probably find the idea of private property in land so baked into things that they can't imagine life without it.

    ++++++++++++++++++++++++

    Place 100 men on a bountiful, virgin island that has no way of escape. Have an omnipotent, all seeing, all powerful entity (the state) lay down the law and grant one of the two conditions below.

    Give one of the men ownership, as defined by the property laws of your country, of the all of the land. Or give one of the men ownership of the other ninety nine as his chattel slaves.

    How would the material reality of the ninety nine differ in these two situations? How would the material reality of the one man differ?

    If you can explain to me how the first situation is just, fair and right and the second situation is evil and immoral, I am here and willing to listen with an open mind.

    +++++++++++++++++++++++++

    He used this analogy to slide an ethic under his ideas. I read the book (Progress and Poverty) twice and it is probably time for another reading. I have done a poor job of explaining his ideas, I recommend his book if you get the opportunity. But I would like to hear what you think of the analogy.

  7. Edward Morbius
    Edward Morbius says:

    +Chris George So, I've got to ask: are you any relation to Henry George?

    The question of productivity. He asked how it could be that with increases in productivity tied to technology and productivity tied to increasingly skilled labour did not improve the lot of either capitalists or labour. After 100 years of industrialization he asked how it could be that workers were still living at the subsistence level and capital was still chasing a 10-20% return.

    "He" == Henry George?

    The argument over the balance of product of labor and how it's allocated between labor and business owners goes back to at least Smith and Ricardo.

    Smith noted that labors wages were determined not by the size of the economy but by its growth rate. Smith noted that though the American colonies were smaller, overall, than the economy of England, labour rates were higher.

    Ricardo formalized this as "The Law of Rent": if your alternative employment is more remunerative than your existing employment, you can either demand higher wages, or decamp to the alternative. Translated variously in job wage negotiations: have another offer available.

    It was your touching on Smith and the concept of land as energy that brought it to mind. He worked out what he thought would be a more just system. He postulated that the land is a commons, part of the birthright of every human.

    There's a leap from "land is the source of economic growth" to "therefor land is a commons". I'd have to read George's work to see where he gets that and where he goes with it.

    Ricardo also looked at land as different, among other things, his work was a gripefest against landlords whom, in his view, would secure all the gains of economic activity, along with labor, while the poor capitalists and bankers would go woefully undercompensated. Bought hisself a seat in British Parliament to spread those views, got his personal papers bought up by a Scottish banker after his death, and started this interesting process by which economists paired with financiers, publishers, and politicians to spread their views.

    That said: there are arguments to preserving the productive capacity of land and ensuring that its ownership isn't overly concentrated.

    The role of government should be to manage that and protect it for future generations. This would answer the productivity question as he determined that it was the concept of rents that was sucking up the productivity gains. His solution eliminates the idea of private property in land. All wealth flows from the land. By restricting access to the land, we disenfranchise people. It doesn't matter if we all share opportunity if the gatekeepers control the resources required to exercise it. He postulated a thought experiment, an analogy that I have run by many people. No one has been able to give me a considered response so far, mainly because they probably find the idea of private property in land so baked into things that they can't imagine life without it.

    It's definitely interesting. There's some measure of this already in property taxes and similar such institutions (effectively rent you're paying the government for land). Another argument against perpetual title is that, simply: title ownership becomes too hard to determine. It's somewhat analagous to the situation concerning copyright. For "orphan works" there may, literally, be no way to determine who the lawful owner of a work's copyright is. Similar situations can occur in the case of land. Hernando de Soto in his The Mystery of Capital notes that land ownership in Latin America and elsewhere is so hopelessly entangled that there's often no clear title to property. Which doesn't entirely prevent economic development, though it greatly complicates matters (why invest in something if someone can come along and claim it all?).

    [Henry George]:

    "Place 100 men on a bountiful, virgin island that has no way of escape. Have an omnipotent, all seeing, all powerful entity (the state) lay down the law and grant one of the two conditions below.

    "Give one of the men ownership, as defined by the property laws of your country, of the all of the land. Or give one of the men ownership of the other ninety nine as his chattel slaves.

    "How would the material reality of the ninety nine differ in these two situations? How would the material reality of the one man differ?

    "If you can explain to me how the first situation is just, fair and right and the second situation is evil and immoral, I am here and willing to listen with an open mind."

    Well, that somewhat explains the rationale.

    It's a bit of a strawman: it' would be rare for an entire nation's capital (and land) to be owned by a single individual, and even were it to be highly concentrated, you'd likely have at least an oligopoly of parties. Which would give the freedom to choose between your slaveowner 😉

    There's also the matter of land redistribution as it's been attempted elsewhere. The specifics can go wrong in spectacular ways: Zimbabwe and Rawanda both come to mind as cases in which attempts to revise land ownership have gone spectacularly poorly.

  8. Chris George
    Chris George says:

    Henry George (no relation), dove into the origin of private property in land. The sovereign would grant land to people who could provide muscle for military hi-jinks. These deeds in arms became deeds in land. He took the position that the entire concept was a privilege granted to the few for political reasons and it really hadn't changed much in his time (1879). His views on keeping land as a birthright comes from the simple logic that they aren't making any more of it. He saw the injustice in setting up a system that rewarded speculators and locked out new entrants into the economy. He saw the ability of a man to go find a piece of unused land and make something out of it as the floor under wages. If you were better off working your own land you didn't have to go take a shitty job for no pay. Baked in minimum wage. But if you allow property ownership to concentrate, there is never enough land for the new entrant, no matter how productive he or she might be. The objective of his idea was to make the rent for the land or the royalty for the resources high enough to discourage speculation and camping. He saw the fortunes made across the great plains during the railroad era. The corruption and politics (same thing) during this process were legendary. If a person needed to be productive with the land to meet the rent he was unlikely to be able to afford to camp on it. The natural increase in property value as a certain parcel becomes more economically viable (like a lot in a city centre, close to markets and labour) flows to government in the form of rent. This would be a far smaller increase than the current system of increasing capital value which goes to the speculator and the interest paid on the loans required to purchase at the inflated prices.

    His ideas sought to fairly allocate the produce of labour and land between those who risked capital and those who did the work. By retaining possession of the portion allocated to rent to fund government, making this income government's only source and eliminating speculation, he sought to provide increased incentives for the creation of wealth.

    I can see the potential for his ideas, he took the time to address many of the immediate concerns his peers were discussing. His ideas were actually hotly debated at the time. Their relative anonymity in our day made them interesting to me. Anything a mainstream economist thinks is not worth discussing is either really stupid or undermines their entire profession. I think George's ideas fall in the latter category.

  9. Edward Morbius
    Edward Morbius says:

    I'd see the problem of excess ownership grants as a specific instance of monopoly grant. It can be useful in a small or selective degree, harmful in a large one.

    I tend to see this as one of the edge cases in which things go bad. I think Morbus's essay does a much better job of capturing the "what's wrong" with Econ — at both the micro and macro levels, synthesizing Keen and the ecological economists (actually helping me move my understanding forward, always a good thing).

    In a number of conversations with people, generally of a strongly ideological bent (Libertarian, Anarchist, Communist, Market Fundamentalist, etc.) I run into the dissonance in my own head that the problems and situations they're describing don't really seem to me to be the key and important issues at the heart of what we're facing. People such as Dennis and Donella Meadows (the Limits to Growth crowd), Charles Hall and Herman Daly (ecological / biophysical economics), +Gail Tverberg (who ties the financial and energy picture together phenomenally well), Richard Heinberg, and others of that ilk, seem to me to make far more sense.

    Not that they're providing an easy way out. But I don't think there is one.

  10. Chris George
    Chris George says:

    I see ideological debate about political economy as an interesting intellectual diversion. We are plumb out of time for making systemic changes.

    Resources are getting scarce, the waste sinks are full and the happy motoring society has been on life support for the past 14 years. In all of my experience I have never seen a population of yeast that voluntarily stopped consuming the sugar until forced to by either poisoning themselves with alcohol or using up all the sugar. I don't expect it will be any different with us.

  11. John Poteet
    John Poteet says:

    There's quite a lot here to think about. One thing I know for certain is that absentee owners across the U.S. are leaving agricultural land, housing, and commercial property go to rot because they are waiting for a speculative boom while their taxes are too low for them to shift the properties into productive use.

    This is how we get the phenomenon of empty downtowns with a bustling WalMart at the edge of town. It's not that there aren't some people willing to put those properties to some productive use. It's the fact that renting the properties at a lower value reduces their value as a hedge against taxes. The economic structures established to maintain rents are antithetical to the structures needed to support life.

  12. Edward Morbius
    Edward Morbius says:

    +John Poteet Source on that? (The property going to rot bit).

    I've also seen many towns (particularly in the midwest / plains states, but also other rural regions) gradually depopulating, some disappearing entirely.

  13. John Poteet
    John Poteet says:

    +Edward Morbius If it wasn't night time I could walk out the door and take pictures of such within a mile. Storefronts unoccupied for five years now. Empty lots. Houses sinking into the earth. Housing developments started and then abandoned. I live in the nice section of a relatively prosperous California, Sacramento Valley city.

    The corner lot at 133 Main Street in Chico California has been empty for the 20 years I've lived here. That lot is 300 yards from the university. It has value. The value is just being wasted.

    Roll a Google street view camera through downtown Stockton or Bakersfield. It's ugly.

    Here's a report on vacant and abandoned properties prepared for the U.S. Conference of Mayors.

    In the 42 cities for which survey responses were received there are an estimated 79,186 vacant and abandoned properties, ranging from about 16,400 in Baltimore, 10,000 in Buffalo, 8,000 in Las Vegas, and 4,900 in Columbus to as few as 12 in New Berlin and five in Santee and Linden. One city, Frisco, reported having no such properties.
    http://www.usmayors.org/bestpractices/vacantproperties08.pdf

  14. Edward Morbius
    Edward Morbius says:

    +John Poteet If I recall, California still has Proposition 13 on the books which greatly limits real estate property tax increases. Which applies to both residential and commercial properties, and means that a business can hold a commercial property without realizing its full (taxable) carrying cost, with a greater benefit the longer it's held it. Allowances for inheritance within families and such as well.

    Yes, that would tend to depress profitable commercial use.

    But i's not just California that's affected. In Salt Lake City, even during and immediately after the Olympic Games, you'd find entire square blocks in and near downtown which were used for nothing but flat car parking. There's St. Louis, Detroit, Madison, and Milwaukee. We won't even mention Detroit. Albuquerque. Even NYC, once you're out of Manhattan, has tons of blight. Small midwestern towns are far worse than even California's central valley. San Francisco has 528 Pine Street (immediately across the street from 555 California — the former BofA headquarters tower, heart of the Financial District) — which has been vacant for some 30 years.

    So … it's a a bigger issue.Small midwestern towns are far worse than even California's central valley.

  15. John Poteet
    John Poteet says:

    +Edward Morbius I see you understand the problem perfectly. I didn't know that info about 528 Pine in San Francisco. That's simply an insane waste.

  16. Chris George
    Chris George says:

    It is exactly this blight that Henry George sought to counter. By allowing speculators to hold property unproductively we hinder the productive from creating wealth. We also reward the speculators for doing absolutely nothing useful for society and yet skimming most of the cream from the top of the economy.

Leave a Reply

Your email address will not be published.

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>