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the_affluent_society [2009/07/17 03:01]
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the_affluent_society [2019/11/08 10:39] (current)
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| The study of business cycles emerged in the early twentieth century, addressing abiding concerns that serious depressions were part of the natural course of events under a capitalist system. By the 1930s economists still had no answers, rather discouragingly claiming that such depressions would self-correct and any intervention would only prolong the misery. | The study of business cycles emerged in the early twentieth century, addressing abiding concerns that serious depressions were part of the natural course of events under a capitalist system. By the 1930s economists still had no answers, rather discouragingly claiming that such depressions would self-correct and any intervention would only prolong the misery. |
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| ====== The American Mood ====== | ====== The American Mood ====== |
| The central tradition((Galbraith's rather inclusive term for economic orthodoxy, including the various schisms not usually counted as 'classical economics' or included in other similar terms, such as Keynesianism.)) had a much greater influence on American economic thinking than any native thinkers. However, those that did exist were generally as or more pessimistic about the future of the economic system than the classical school --- somewhat surprisingly, given the greater economic opportunities of the New World and the stereotype of American optimism. | The central tradition((Galbraith's rather inclusive term for economic orthodoxy, including the various schisms not usually counted as 'classical economics' or included in other similar terms, such as Keynesianism.)) had a much greater influence on American economic thinking than any native thinkers. However, those that did exist were generally as or more pessimistic about the future of the economic system than the classical school --- somewhat surprisingly, given the greater economic opportunities of the New World and the stereotype of American optimism. |
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| Henry Charles Clay was the only one that could be considered an optimist. He noted the tendency of wages to rise in new settlements as more fertile land could be cleared for agricultural use, although he suspected that America might also ultimately reach a phase in which all land was in use and labour productivity must therefore fall. | [[wp>Henry Charles Clay]] was the only one that could be considered an optimist. He noted the tendency of wages to rise in new settlements as more fertile land could be cleared for agricultural use, although he suspected that America might also ultimately reach a phase in which all land was in use and labour productivity must therefore fall. |
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| Henry George, like Marx, was the founder of a faith. He agreed with Ricardo that increasing population would lead inevitably to more intensive working of land --- and thus to a lower return to labour and a higher return to the landlord (increasing rents, falling wages). He also noticed the effect that land speculation (anticipating these rises in rent) had on the economic cycle --- real estate bubbles played a central role in many of the American panics that he witnessed. However, he also proposed a solution --- he advocated the nationalisation of land (or rather, equivalently, an annual land tax equal to the estimated return of land in its unimproved state). He was pessimistic as to the economic future of society were this not to be achieved. | [[wp>Henry George]], like Marx, was the founder of a faith. He agreed with Ricardo that increasing population would lead inevitably to more intensive working of land --- and thus to a lower return to labour and a higher return to the landlord (increasing rents, falling wages). He also noticed the effect that land speculation (anticipating these rises in rent) had on the economic cycle --- real estate bubbles played a central role in many of the American panics that he witnessed. However, he also proposed a solution --- he advocated the nationalisation of land (or rather, equivalently, an annual land tax equal to the estimated return of land in its unimproved state). He was pessimistic as to the economic future of society were this not to be achieved. |
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| Thorstein Veblen anticipated an increasing conflict between industry and business --- industry had a deplorable instinct to overproduce, undercutting business' attempts to make money. Business always wins. Monopoly triumphs; output is constrained but all wealth flows to the mighty few. So it goes. Yet depressions are a normal part of the system, they cannot be avoided. Inequality would be enormous and would continue to rise. Yet he held the rich more in contempt than responsible. | [[wp>Thorstein Veblen]] anticipated an increasing conflict between industry and business --- industry had a deplorable instinct to overproduce, undercutting business' attempts to make money. Business always wins. Monopoly triumphs; output is constrained but all wealth flows to the mighty few. Yet depressions are a normal part of the system, they cannot be avoided. Inequality would be enormous and would continue to rise. Yet he held the rich more in contempt than responsible. |
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| However, he believed the cultural consequences of the changes which society were undergoing were far more severe than the inevitable impoverishment of almost everybody. Factory labour undermined the family and church. By brining workers into close contact with one another, through unions it lead to the breakdown of law and order --- socialism being next to anarchy. | However, he believed the cultural consequences of the changes which society were undergoing were far more severe than the inevitable impoverishment of almost everybody. Factory labour undermined the family and church. Bringing workers into close contact with one another, through unions, would lead to the breakdown of law and order --- socialism being next to anarchy. |
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| The American tradition also adopted the Social Darwinism of Herbert Spencer (an Englishman), through the work of William Graham Sumner. Spencer, not Darwin, coined the phrase 'survival of the fittest' and provided one of the most politically useful ideologies in history: the destitution, starvation and inability to reproduce of the genetically inferior was a benign force necessary to the improvement of the species. Moreover, any attempt to alleviate this process through charity or government action was not only expensive, but immoral. The doctrine provided previously lacking justification for the inheritance of wealth: if the father was biologically superior, genetics dictated that so would be the son. | The American tradition also adopted the [[wp>Social Darwinism]] of [[wp>Herbert Spencer]] (an Englishman), through the work of [[wp>William Graham Sumner]]. Spencer, not Darwin, coined the phrase 'survival of the fittest' and provided one of the most politically useful ideologies in history: the destitution, starvation and inability to reproduce of the genetically inferior was a benign force necessary to the improvement of the species. Moreover, any attempt to alleviate this process through charity or government action was not only expensive, but immoral. The doctrine provided previously lacking justification for the inheritance of wealth: if the father was biologically superior, genetics dictated that so would be the son. |
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| ====== The Marxian Pall ====== | ====== The Marxian Pall ====== |
| Inequality has been justified on many grounds, "principally noted for the absence of the most important reason, which is the simple unwillingness to give up what [the rich] have." Equality has been argued to lead to uniformity and monotony (the rich sponsor the arts and education), redistribution has a musty association with godless communism, and the original Ricardian defence was that the present system was ultimately inevitable, and any attempt to change it would only lead to short-run inefficiency which would make everybody worse off. The most common justification is that inequality provides an incentive to be richer, an important driver of individual effort and overall economic growth. | Inequality has been justified on many grounds, "principally noted for the absence of the most important reason, which is the simple unwillingness to give up what [the rich] have." Equality has been argued to lead to uniformity and monotony (the rich sponsor the arts and education), redistribution has a musty association with godless communism, and the original Ricardian defence was that the present system was ultimately inevitable, and any attempt to change it would only lead to short-run inefficiency which would make everybody worse off. The most common justification is that inequality provides an incentive to be richer, an important driver of individual effort and overall economic growth. |
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| Inequality has fallen off the political landscape in the US in recent years. Some measure of increased redistribution has been achieved through the progressive income tax implemented at the end of the Second World War. However, inequality remains acute, and a newfound equity can hardly explain the current détente between the rich and poor. Partly the real power of the rich has diminished --- they no longer directly run their own corporate empires, there is no longer a large servile class to staff their households and their ostentation diminished as wealth became more common and vulgar. Partly too, it has been accepted by liberals that the major part of the gains that have been made by the majority of the working class have come through economic growth rather than redistribution --- that is not to say that growth is a more important route to working class wealth than redistribution, but it is far less resisted. Although a large part of the working class has become more affluent, it is often not appreciated the extent to which an underclass has remained poor in the midst of these broader gains. | Inequality has fallen off the political landscape in the US in recent years. Some measure of increased redistribution has been achieved through the progressive income tax implemented at the end of the Second World War. However, inequality remains acute, and a newfound equity can hardly explain the current détente between the rich and poor. Partly the real power of the rich has diminished --- they no longer directly run their own corporate empires, there is no longer a large servile class to staff their households and their ostentation diminished as wealth became more common and vulgar. Partly too, it has been accepted by liberals that the major part of the gains that have been made by the majority of the working class have come through economic growth rather than redistribution --- that is not to say that growth is a more important route to working class wealth than redistribution, but it is far less resisted. Although a large part of the working class has become more affluent, it is often not appreciated the extent to which an underclass has remained poor in the midst of these broader gains. |
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| ====== Economic Security ====== | ====== Economic Security ====== |
| - Research and development controls the risk of rapid technological advance, | - Research and development controls the risk of rapid technological advance, |
| - Market power provides a measure of control over prices and hence earnings | - Market power provides a measure of control over prices and hence earnings |
| - The bureaucratic structure of large corporations averts risks on the ability of its leaders. | - The bureaucratic structure of large corporations averts risks relating to the (in)ability of its leaders. |
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| They nevertheless harshly criticise the efforts of labour and farmers to advance their own levels of security. | They nevertheless harshly criticise the efforts of labour and farmers to advance their own levels of security. |
| So, as the lot of workers and farmers improved, so did their concern not to lose jobs and stable commodity prices. The 1930s was the key decade in this process, with new swathes of government intervention to provide social security, pensions and to regulate farm prices to prevent foreclosure. However, accompanying these microeconomic measures, for the first time in the 1930s the case for macroeconomic measures to improve stability became accepted. Unemployment compensation may mitigate unemployment, but far better to eliminate involuntary unemployment by preventing depression; guaranteeing minimum commodity prices never went as far as a healthy economy to maintain farmers' income. Moreover, the consequences of macroeconomic stabilisation far outweigh, in quantitative terms, microeconomic stabilisation, and it is for this reason that the conventional wisdom that instability improves production is plain wrong. Job losses and bankruptcies --- the instability that supposedly keep the system running efficiently, in fact cause depression and quantitatively far greater reductions in output than could possibly be attributed to the loss of incentives (the associated phenomenon being unpunished idleness --- something which those in higher stations in society have been turning into an artform for a very long time, no less, perhaps, than in universities in which the word "idleness" has now been replaced by "scholarship"). Unfortunately for the conventional wisdom, the recent decades of increased security for all economic agents have also been the most economically successful in history --- a fact that is empirically undeniable, but so heretical as to be essentially unspeakable in conservative circles. | So, as the lot of workers and farmers improved, so did their concern not to lose jobs and stable commodity prices. The 1930s was the key decade in this process, with new swathes of government intervention to provide social security, pensions and to regulate farm prices to prevent foreclosure. However, accompanying these microeconomic measures, for the first time in the 1930s the case for macroeconomic measures to improve stability became accepted. Unemployment compensation may mitigate unemployment, but far better to eliminate involuntary unemployment by preventing depression; guaranteeing minimum commodity prices never went as far as a healthy economy to maintain farmers' income. Moreover, the consequences of macroeconomic stabilisation far outweigh, in quantitative terms, microeconomic stabilisation, and it is for this reason that the conventional wisdom that instability improves production is plain wrong. Job losses and bankruptcies --- the instability that supposedly keep the system running efficiently, in fact cause depression and quantitatively far greater reductions in output than could possibly be attributed to the loss of incentives (the associated phenomenon being unpunished idleness --- something which those in higher stations in society have been turning into an artform for a very long time, no less, perhaps, than in universities in which the word "idleness" has now been replaced by "scholarship"). Unfortunately for the conventional wisdom, the recent decades of increased security for all economic agents have also been the most economically successful in history --- a fact that is empirically undeniable, but so heretical as to be essentially unspeakable in conservative circles. |
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| The emerging explanation for this increased focus on stability was that the modern industrial economy was becoming increasingly unstable as it evolved. Not so. The Great Depression is often cited as support for this argument --- no similar phenomenon existed in the early nineteenth century. This is true, but insignificant --- more importantly, in the early nineteenth century workers did not have well-paid jobs to lose as they did in 1930: employment was so barely better than unemployment that unemployment could not inspire the terror or a twentieth century depression. The important development is of something valuable to lose, not of instability. A similar misconception was that the evolution of concentrated markets was an attempt on the part of big business to maximise profits --- although this was certainly a component, the desire to increase security for large corporations plays a much large role in controlling markets than is widely accepted. | The emerging explanation for this increased focus on stability was that the modern industrial economy was becoming increasingly unstable as it evolved. Not so. The Great Depression is often cited as support for this argument --- no similar phenomenon existed in the early nineteenth century. This is true, but insignificant --- more importantly, in the early nineteenth century workers did not have well-paid jobs to lose as they did in 1930: employment was so barely better than unemployment that unemployment could not inspire the terror or a twentieth century depression. The important development is of something valuable to lose, not of instability. A similar misconception was that the evolution of concentrated markets was an attempt on the part of big business to maximise profits --- although this was certainly a component, the desire to increase security for large corporations plays a much larger role in controlling markets than is widely accepted. |
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| Economic stability, unlike economic desires more generally, can be sated. Once a worker has protection against unemployment, old age and sickness, the value of further protections diminishes sharply. Protection from instability can be adequately achieved, and to a large extent has been in the United States (an exception being the lack of health insurance). The only truly significant threat to stability that remains is the threat of depression. As has been mentioned, recessions account for far larger falls in production than could possibly be imagined to result from any loss of incentives. | Economic stability, unlike economic desires more generally, can be sated. Once a worker has protection against unemployment, old age and sickness, the value of further protections diminishes sharply. Protection from instability can be adequately achieved, and to a large extent has been in the United States (an exception being the lack of health insurance). The only truly significant threat to stability that remains is the threat of depression. As has been mentioned, recessions account for far larger falls in production than could possibly be imagined to result from any loss of incentives. |
| This disinterest in the essential drivers of growth may be justified by our underlying indifference to our level of production. We have proven in wartime that when production is of extreme importance to it, we attend to all means by which it can be improved rationally. Perhaps in peacetime, the commitment to raising production substantially simply isn't worth the effort. And yet even if that is so, the limited extent to which we do selectively try to raise output is steeped in tradition and irrationality. | This disinterest in the essential drivers of growth may be justified by our underlying indifference to our level of production. We have proven in wartime that when production is of extreme importance to it, we attend to all means by which it can be improved rationally. Perhaps in peacetime, the commitment to raising production substantially simply isn't worth the effort. And yet even if that is so, the limited extent to which we do selectively try to raise output is steeped in tradition and irrationality. |
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| Another irrationality persists (more in America than elsewhere?): the prestigious usefulness of private-sector output, compared to the burdensome annoyance of public expenditure. Somehow public expenditure can never quite be viewed as a productive and enriching element of national output; it is forever something to be avoided, at best a necessary encumbrance. Cars are important, roads are not. An expansion in telephone services improves the general well-being, cuts in postal services are a necessary economy. Vacuum cleaners to ensure clean houses boast our standard of living, street cleaners are an unfortunate expense. Thus we end up with clean houses and filthy streets. | Another irrationality persists (more in America than elsewhere?): the prestigious usefulness of private-sector output, compared to the burdensome annoyance of public expenditure. Somehow public expenditure can never quite be viewed as a productive and enriching element of national output; it is forever something to be avoided, at best a necessary encumbrance. Cars are important, roads are not. An expansion in telephone services improves the general well-being, cuts in postal services are a necessary economy. Vacuum cleaners to ensure clean houses boost our standard of living, street cleaners are an unfortunate expense. Thus we end up with clean houses and filthy streets. |
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| Production has taken on a preeminent role in our lives, despite being a goal we fail to pursue vigorously or thoughtfully. It is a measure of achievement, though we do not strive particularly hard to achieve. This is not a call to take the problems of production more seriously. It may instead be simply an observation that production isn't important to us. Perhaps we value maximal production primarily for the security that affords us --- by maximising production we ensure full employment. Advertising convinces us of the absolute necessity of consuming the goods that we already produce, but not of the need to produce anything currently beyond our means. | Production has taken on a preeminent role in our lives, despite being a goal we fail to pursue vigorously or thoughtfully. It is a measure of achievement, though we do not strive particularly hard to achieve. This is not a call to take the problems of production more seriously. It may instead be simply an observation that production isn't important to us. Perhaps we value maximal production primarily for the security that affords us --- by maximising production we ensure full employment. Advertising convinces us of the absolute necessity of consuming the goods that we already produce, but not of the need to produce anything currently beyond our means. |
| The fightback comes in two stages. Firstly, and rather weakly, it is suggested that this only applies to an individual good --- that agents have an insatiable desire for variety and that an individual can continue to consume new products as his income rises which maintain a constant marginal utility of consumption. Secondly, and not entirely compatibly, the question is proclaimed to be untestable and therefore unscientific. Intertemporal comparisons are held to be inherently illegitimate. Thus if a worker's wage rose from $10 to $20 last year, the benefit to him of that extra $10 of consumption cannot be compared with this year's raise from $20 to $30, simply because they occurred at different times. It is a common mistake of the uninitiated student of economics to suppose that intertemporal comparisons of this type might be valid, and one which the teacher of economics expends some effort in correcting. | The fightback comes in two stages. Firstly, and rather weakly, it is suggested that this only applies to an individual good --- that agents have an insatiable desire for variety and that an individual can continue to consume new products as his income rises which maintain a constant marginal utility of consumption. Secondly, and not entirely compatibly, the question is proclaimed to be untestable and therefore unscientific. Intertemporal comparisons are held to be inherently illegitimate. Thus if a worker's wage rose from $10 to $20 last year, the benefit to him of that extra $10 of consumption cannot be compared with this year's raise from $20 to $30, simply because they occurred at different times. It is a common mistake of the uninitiated student of economics to suppose that intertemporal comparisons of this type might be valid, and one which the teacher of economics expends some effort in correcting. |
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| Only rather wayward voices such as Keynes dare to challenge such assumptions. According to Keynes, the needs of human beings | Only wayward voices such as Keynes dare to challenge such assumptions. According to him, the needs of human beings |
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| > fall into two classes --- those needs which are absolute in the sense that we feel them whatever the situation of our fellow human beings might be, and those which are relative only in that their satisfaction lifts us above, makes us feel superior to, our fellows. | > fall into two classes --- those needs which are absolute in the sense that we feel them whatever the situation of our fellow human beings might be, and those which are relative only in that their satisfaction lifts us above, makes us feel superior to, our fellows. |
| Moreover, | Moreover, |
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| > assuming no important wars and no important increase in population, the economic problem may be solved, or at least within sight of solution, within a hundred years. This means that the economic problem is not --- if we look into the future --- the permanent problem of the human race.((John Maynard Keynes, 1931, Essays in Persuasion, "Economic Prospects for Our Grandchildren", London: McMillan, pp365-6. Italics in the original.)) | > assuming no important wars and no important increase in population, the //economic problem// may be solved, or be at least within sight of solution, within a hundred years. This means that the economic problem is not --- if we look into the future --- //the permanent problem of the human race//.((John Maynard Keynes, 1931, Essays in Persuasion, "Economic Prospects for Our Grandchildren", London: McMillan, pp365-6. Italics in the original.)) |
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| Needless to say, this distinction between some class of needs which are inherently satiable and some other, possibly more nebulous class is still regarded as a profoundly heretical suggestion by the conventional wisdom. | Needless to say, this distinction between some class of needs which are inherently satiable and some other, possibly more nebulous class is still regarded as a profoundly heretical suggestion by the conventional wisdom. |
| Production for the sake of security is important. Production for the sake of production is not. Consider the following hypothetical: a presidential candidate has to choose between (a) a substantial nationwide productivity increase that was split equally between step output growth and increased unemployment, and (b) no increase in productivity: every candidate would choose (b). | Production for the sake of security is important. Production for the sake of production is not. Consider the following hypothetical: a presidential candidate has to choose between (a) a substantial nationwide productivity increase that was split equally between step output growth and increased unemployment, and (b) no increase in productivity: every candidate would choose (b). |
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| Spiralling debt creation for consumption is an important part of the contemporary process of want creation. Emulation and advertisement create wants in those with and without the means to pay alike. Consumer debt in America has been rising rapidly since the War, substantially above rises in earnings. Significant numbers of the poorly paid are committed to repaying over a fifth of their income in debt repayment (one in nine households in a low income bracket(($2000-$3000 per annum in 1955; cf median income of $3960 (p168).)) is committed to paying more than 40 per cent). Consumer debt is macroeconomically destabilising --- people borrow and spend when the economy is healthy and cut expenditure in order to repay debt when the economy is weak. The consequences of unemployment in a household that has precommitted over 40 per cent of its pre-tax income to debt repayment are severe, for the household but also for the economy more generally. This continual expansion in debt appears to be necessary for consumer demand to keep pace with rising output, but the debt cannot continue to expand indefinitely --- there are practical limits to the extent to which consumers can sink into debt. If the ability of advertising to keep demand abreast of production falters, the consequences could be dangerous, and could be significantly magnified by a consequential debt crisis. The conventional wisdom regards the nation's spiralling consumer debt as benign. Unlike in the UK, there is no suggestion that it might be curtailed by legislators. At the same time, government borrowing for investment in public infrastructure is tightly controlled. | Spiralling debt creation for consumption is an important part of the contemporary process of want creation. Emulation and advertisement create wants in those with and without the means to pay alike. Consumer debt in America has been rising rapidly since the War, substantially above rises in earnings. Significant numbers of the poorly paid are committed to repaying over a fifth of their income in debt repayment (one in nine households in a low income bracket(($2000--$3000 per annum in 1955; cf median income of $3960 (p168).)) is committed to paying more than 40 per cent). Consumer debt is macroeconomically destabilising --- people borrow and spend when the economy is healthy and cut expenditure in order to repay debt when the economy is weak. The consequences of unemployment in a household that has precommitted over 40 per cent of its pre-tax income to debt repayment are severe, for the household but also for the economy more generally. This continual expansion in debt appears to be necessary for consumer demand to keep pace with rising output, but the debt cannot continue to expand indefinitely --- there are practical limits to the extent to which consumers can sink into debt. If the ability of advertising to keep demand abreast of production falters, the consequences could be dangerous, and could be significantly magnified by a consequential debt crisis. The conventional wisdom regards the nation's spiralling consumer debt as benign. Unlike in the UK, there is no suggestion that it might be curtailed by legislators. At the same time, government borrowing for investment in public infrastructure is tightly controlled. |
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| Monetarism does not act directly on the wage-price spiral. It acts only by controlling business borrowing for investment. This is often poorly understood. It is not unknown for conservatives to simultaneously call for a rising rate of business investment (and tax incentives to achieve this) alongside tight monetary policy to control inflation. The combination of the two policies is absurd. The myth seems to persist that monetary policy somehow acts directly on prices, the wage price spiral, without touching the volume of producer borrowing, investment and spending. | Monetarism does not act directly on the wage-price spiral. It acts only by controlling business borrowing for investment. This is often poorly understood. It is not unknown for conservatives to simultaneously call for a rising rate of business investment (and tax incentives to achieve this) alongside tight monetary policy to control inflation. The combination of the two policies is absurd. The myth seems to persist that monetary policy somehow acts directly on prices, the wage price spiral, without touching the volume of producer borrowing, investment and spending. |
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| Monetary policy has a differential impact on different types of business. The circumstances under which monetary control is attempted are those of strong consumer demand. Under such conditions, firms in oligopolistic markets tend to have unliquidated gains. This enables them to pass on the increased cost of borrowing, and this will be especially easy when new borrowing is undertaken for the supposedly laudable goal of investment. Unions and the public understand and accept this motivation for price increases without concomitant wage increases. These firms' capacity to pass on increase costs also make them a safe bet for banks choosing to ration credit (as normally happens under tight monetary conditions). In contrast, those in competitive markets cannot raise prices to meet these costs. They are less likely to secure rationed credit. They cannot resort to bond issues to circumvent rationing. Monetary policy acts primarily on small firms and, for this reason, tends to find approval in larger firms. Severe monetary policy tends therefore to be forcefully resisted by small businesses and farmers. | Monetary policy has a differential impact on different types of business. The circumstances under which monetary control is attempted are those of strong consumer demand. Under such conditions, firms in oligopolistic markets tend to have unliquidated gains. This enables them to pass on the increased cost of borrowing, and this will be especially easy when new borrowing is undertaken for the supposedly laudable goal of investment. Unions and the public understand and accept this motivation for price increases without concomitant wage increases. These firms' capacity to pass on increased costs also make them a safe bet for banks choosing to ration credit (as normally happens under tight monetary conditions). In contrast, those in competitive markets cannot raise prices to meet these costs. They are less likely to secure rationed credit. They cannot resort to bond issues to circumvent rationing. Monetary policy acts primarily on small firms and, for this reason, tends to find approval in larger firms. Severe monetary policy tends therefore to be forcefully resisted by small businesses and farmers. |
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| There is also a potential risk involved. Investment spending is traditionally the most volatile of all demand in the economy. As discussed, monetary policy may well need to be severe in order to begin to bind, and actually become effective in reducing inflation. The effects on an extreme contraction in the money supply on a notably volatile section of demand are unavoidably unpredictable. The economy cannot be 'fine-tuned' in this way. Monetary contraction may be completely ineffective up to a point, and then disastrously over-effective. There is no way of knowing. | There is also a potential risk involved. Investment spending is traditionally the most volatile of all demand in the economy. As discussed, monetary policy may well need to be severe in order to begin to bind, and actually become effective in reducing inflation. The effects of an extreme contraction in the money supply on a notably volatile section of demand are unavoidably unpredictable. The economy cannot be 'fine-tuned' in this way. Monetary contraction may be completely ineffective up to a point, and then disastrously over-effective. There is no way of knowing. |
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| Monetarism is not an effective tool. It is blunt, unreliable, discriminatory and dangerous. These lessons have recently been relearned (1968-69) as monetary policy has attempted to constrain inflation resulting from Vietnam spending. | Monetarism is not an effective tool. It is blunt, unreliable, discriminatory and dangerous. These lessons have recently been relearned (1968--69) as monetary policy has been used to attempt to constrain inflation resulting from Vietnam spending. |
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| ====== Production versus Price Stability ====== | ====== Production versus Price Stability ====== |
| In the US, public expenditure tends to hover at the lower end of that tolerable by the community. There is little or no room for it to be cut (whilst it is often inefficiently administered, cutting budgets is a terrible way of reducing inefficiency: "it is far easier to cut function than waste"). Significant cuts in public spending are politically very difficult. | In the US, public expenditure tends to hover at the lower end of that tolerable by the community. There is little or no room for it to be cut (whilst it is often inefficiently administered, cutting budgets is a terrible way of reducing inefficiency: "it is far easier to cut function than waste"). Significant cuts in public spending are politically very difficult. |
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| Tax increases in the midst of inflation, which themselves directly increase prices and business costs, appear rather obtuse to the layman. More importantly, the suggestion of tax increases seem to threaten the tacit agreement that the issue of economic redistribution be ignored. When tax increases are proposed, liberals feel a knee-jerk responsibility to call for them to be progressive and conservatives feel a knee-jerk suspicion that the real goal is to expropriate their wealth for the benefit of others. Finally, there is the ubiquitous conflict with production and employment --- whilst some monetarists hope to argue that monetarism can control inflation through some unseen mechanism that does not reduce production, that claim is never made of fiscal control. | Tax increases in the midst of inflation, which themselves directly increase prices and business costs, appear rather obtuse to the layman. More importantly, the suggestion of tax increases seems to threaten the tacit agreement that the issue of economic redistribution be ignored. When tax increases are proposed, liberals feel a knee-jerk responsibility to call for them to be progressive and conservatives feel a knee-jerk suspicion that the real goal is to expropriate their wealth for the benefit of others. Finally, there is the ubiquitous conflict with production and employment --- whilst some monetarists hope to argue that monetarism can control inflation through some unseen mechanism that does not reduce production, that claim is never made of fiscal control. |
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| The final possibility is to combine wage and price controls with a background fiscal policy. Price controls need only be effective in oligopolistic markets, in which they are much easier to implement anyway --- in competitive markets there is no union or corporate power to fuel the wage-price-profit spiral. But such controls would be in stark contrast to all conventional wisdom. By controlling prices, the allocative efficiency of the market is impaired --- prices cannot adjust to changing circumstances to redistribute resources. During wartime such allocative efficiency was swamped by far greater increases in output along far more effective dimensions than improved allocation --- those typically receiving less attention from economists. | The final possibility is to combine wage and price controls with a background fiscal policy. Price controls need only be effective in oligopolistic markets, in which they are much easier to implement anyway --- in competitive markets there is no union or corporate power to fuel the wage-price-profit spiral. But such controls would be in stark contrast to all conventional wisdom. By controlling prices, the allocative efficiency of the market is impaired --- prices cannot adjust to changing circumstances to redistribute resources. During wartime such allocative efficiency was swamped by much greater increases in output by far more effective means than improved allocation --- those typically receiving less attention from economists. |
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| Modern expectations that the economy will be held very near full employment have opened the way for persistent inflation. The conservative (monetarist) response is ineffectual, discriminatory and potentially dangerous. The liberal (fiscal) response is so at odds with the goals of high output and employment that it is politically unfeasible. The only remaining alternative (price controls) labours under a large ideological cloud. The way is open for recurrent inflation, which itself has a discriminatory impact on different groups, and exacerbates the other unsolved problem of the affluent society. | Modern expectations that the economy will be held very near full employment have opened the way for persistent inflation. The conservative (monetarist) response is ineffectual, discriminatory and potentially dangerous. The liberal (fiscal) response is so at odds with the goals of high output and employment that it is not politically feasible. The only remaining alternative (price controls) labours under a large ideological cloud. The way is open for recurrent inflation, which itself has a discriminatory impact on different groups, and exacerbates the other unsolved problem of the affluent society. |
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| ====== The Theory of Social Balance ====== | ====== The Theory of Social Balance ====== |
| In American society, production is seen as the primary social goal. This is due to the continuing thrall of anachronistic ideas, vested interests in production, the obscurantism of the theory of consumer needs, a mistaken conception of the national security and an unfortunate association under present conditions between production and security for many millions of workers. | In American society, production is seen as the primary social goal. This is due to the continuing thrall of anachronistic ideas, vested interests in production, the obscurantism of the theory of consumer needs, a mistaken conception of the national security and an unfortunate association under present conditions between production and security for many millions of workers. |
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| A society must survive before it may begin to consider the pursuit of happiness its primary goal. But production is no longer a means to survival, either as it traditionally was, or in its modern reformulation as a war or productive capacity with the Soviet Union. But military production plays an essential role within American society. Many valuable technologies have been developed under military auspices. | A society must survive before it may begin to consider the pursuit of happiness its primary goal. But production is no longer a means to survival, either as it traditionally was, or in its modern reformulation as a war of productive capacity with the Soviet Union. But military production plays an essential role within American society. Many valuable technologies have been developed under military auspices. |
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| > This has done more to save us from the partial technological stagnation that is inherent in a consumer goods economy than we imagine. But this is a hideously inefficient way of subsidising general scientific and technical development as nearly all scientists agree. ---page 283 | > This has done more to save us from the partial technological stagnation that is inherent in a consumer goods economy than we imagine. But this is a hideously inefficient way of subsidising general scientific and technical development as nearly all scientists agree. ---page 283 |
