Thomas Geoghegan has an excellent essay in the latest issue of the Nation that aims to move beyond caricatures of Keynesian thought and explain what the man actually believed about getting economies out of depressions. As it turns out, Keynes was very concerned about countries running trade deficits and, related to that, the crowding out of investment in real goods and services by the financial sector:

For Keynes the key to getting the rich to invest in labor on the construction of durable assets was to hold down the windfall returns from loans, buyouts and financial speculation — the income he would call “interest.” That’s the nub of our country’s trade deficit problem. In Book VI [of the General Theory], Keynes adumbrates the one big thing he learned from the Bourbons, the Habsburgs, John Locke and even Adam Smith about the importance of holding down the rate of interest to stimulate trade, to make it less attractive to “invest” in short-term derivatives and relatively more attractive to invest for the long term in widgets. Keynes put it this way: “It is impossible to study the notions to which the mercantilists were led by their actual experiences, without perceiving that there has been a chronic tendency throughout human history for the propensity to save to be stronger than the inducement to invest.”

This argument jibes with, among others, Simon Johnson’s warning of the banking industry’s takeover of American politics, as well as long-running labor-liberal critiques of the recent Anglo-American model of outsourcing manufacturing and replacing it with financial services.

It’s important, however, to draw this out in more detail. To begin with, looking to Germany, as Geoghegan does, as a model of a more export-oriented economy is probably not a such a good idea right now, for obvious reasons. Admittedly, that has less to do with Germany’s actual economy than its hand in creating the eurozone and the insular, unaccountable European Central Bank.

More significant is the fact that closing the trade deficit isn’t something that can be achieved by reverting to the status quo with respect to manufacturing, which is what usually comes to mind when talking of boosting exports. Despite frequent lamentations that we no longer “make things”, the US actually remains the top manufacturing country in the world; it’s only the number of people employed in manufacturing that has fallen off a cliff. Some of that is due to outsourcing, but it also reflects rising productivity and automation. As it happens, Keynes addressed this question of technology displacing labor directly in “Economic Possibilities for Our Grandchildren” (PDF); in it he predicted that the vastly richer world of 2030, a century after the essay’s publication, would allow people to work as little as 15 hours per week, while enjoying the same levels of prosperity. Obviously, that isn’t likely to come to pass for a variety of reasons — see this discussion in Dissent from a few years back — but the point is that the question of full employment needs to be disaggregated from the question of innovation and productivity improvements. American manufacturing today is much more efficient than it’s ever been, as Matt Yglesias has pointed out; it doesn’t strike me as advisable to give up that advantage for the sake of jobs, any more than it would be to give up modern farming equipment for the same purpose.

Indeed, if we want to discuss reducing the trade deficit and increasing employment, why don’t we start by observing that a great deal of the US trade deficit is oil? If it’s true that trade deficits impede long-term growth, then probably the most pro-growth measure the US could undertake is to vastly reduce oil consumption, which would have the nice side effect of insulating the economy against future price shocks. Alternatively, the US could more aggressively increase domestic oil production, but given the relatively trivial amount of untapped reserves, that doesn’t seem like a viable strategy.

8:42 am  •  October 4, 2011  •  8 notes  •  View comments

“To tell the time using a sundial you’d need calculus.”

— NASA discovers a “Tatooine-like” planet orbiting a binary star system. I’m now concocting a SF story about a planet in a binary system where a Bronze Age civilization, out of necessity, discovers calculus millennia before their Earth counterparts, subsequently taking to the stars and conquering less-advanced planets in solitary star systems. Actually, I think I just recreated the backstory to Stargate.

(Source: idealab.talkingpointsmemo.com)

5:44 pm  •  September 15, 2011  •  View comments

In a time of uncertainty like ours, money fetishism can take hold rather easily. You know — goldbugs, Bitcoiners, folks who think that a mild uptick in inflation is a sign that the President and the Fed are “debasing the currency” — those kinds of people. Why is that?

If you’ve ever taken a intro economics course, you know that money serves three functions:

1. As a unit of account;
2. As a medium of exchange;
3. As a store of value.

Function 1 is pretty self-explanatory. Things get more problematic with 2 and 3, since they are, at heart, in conflict with each other. As a medium of exchange, money is there to facilitate transactions; and thus, more money, more transactions. As a store of value, however, the less money there is in the system, the better, as it drives up the value of the money that does exist. And yet, there is a paradox: If money were purely a store of value, it would be worthless; and if money were purely a medium of exchange, no one would use it when buying or selling anything.

Why? Think about Bitcoin: With the maximum supply forever fixed at 21 million, those in possession of them are far more likely to hoard them and have them appreciate in value than spend them or sell them in those rare parts of the world where Bitcoins are accepted as currency. And indeed, as James Surowiecki has documented, that’s what’s been happening — which has had the effect of casting doubt on Bitcoin’s future.¹

At the same time, worries about currency debasement aren’t completely, er, baseless. If you’ve got 80 percent inflation and shopkeepers are changing prices on a daily basis, as was the case in Brazil not long ago, you’ve got a problem. Fortunately, developed countries are nowhere near suffering from high inflation, and are unlikely to do so anytime soon.

The point is that a successful currency keeps both factors in balance. A little inflation, in most circumstances, helps the money supply facilitate the functioning of the real economy, while preserving the bulk of asset values. At present, though, the money supply is too heavily weighted in favor of the latter than the former. That’s why I hope that Ben Bernanke’s recent remarks about inflation are a sign the Fed will press ahead with monetary expansion later this month. If only the same could be said about the European Central Bank…

1:00 pm  •  September 12, 2011  •  1 note  •  View comments

natashavc:

New York 1916

(via blackandwtf / nevver)

(Reblogged from nevver)

6:25 pm  •  September 5, 2011  •  1,139 notes  •  View comments

One of the creators of RSS says that the problem of RSS overload is due to the way most RSS readers are designed, not the format itself:

If you miss five days of reading the news because you were on vacation (good for you!) the newspaper you read the first day back isn’t five times as thick as the normal day’s paper. And it doesn’t have your name on the cover saying “Joe you haven’t read 1,942,279 articles since this paper started.” It doesn’t put you on the hook for not reading everything anyone has ever written. The paper doesn’t care, so why does your RSS reader?

9:40 am  •  September 5, 2011  •  View comments

I’m an active user of Google Reader, to put it mildly; but even I can recognize that having an information firehose doesn’t necessarily lead to becoming more informed, still less productive. Fortunately, Google Reader’s own trends feature allows you to easily see which sites you actually read regularly, which makes feed-pruning a relatively simple task.

The problem of RSS poisoning also suggests a few other things:

• The recommendation of the mid-aughts regarding blogging — i.e., post as often as possible, even if your thoughts aren’t fully fleshed out — needs to be discarded. Given the proliferation of content, the motto of a blogger in the 2010s should be, “better fewer, but better.”
• The limited bandwidth that any one person has to process information means that any one author or publication attaining a mass audience will be exceedingly difficult; narrowcasting, or intense readership from a few people will by far be the more likely norm.
• At the same time, some people — and these are likely to be the most widely read people — are going to have to subject themselves to RSS poisoning in order to avoid the creation of thousands or millions of echo chambers. We all have to make sacrifices, I suppose.

4:38 pm  •  September 4, 2011  •  View comments

Worth reading in full. I particularly liked this part:

The important thing is that, while we try to be prudent and wise about what the kids are exposed to, an atmosphere of good cheer and openness pervades our lives. Modesty without good cheer is oppression. Alcohol without good cheer is drunkenness.

6:37 pm  •  September 3, 2011  •  View comments