Sometimes, ideas are put across so elegantly that it would be sinful to insert your words in between. So here’s a string of ideas…
“…we do not measure prosperity by consumption, but by production. We get wealthy by producing what someone values to consume. Our wealth takes either the form of current consumption or (more importantly in a deeply uncertain world) claims on others’ production whenever we might want or need it. We should never, ever measure prosperity in terms of consumption, but always in terms of production, weighted, importantly, by the strength of financial arrangements that allow us to convert unconsumed production into credible options to consume later.”
“However, we do not measure prosperity in terms of how much work people are doing. That is a terrible error and the most vulgar form of Keynesianism. Make-work is not a path to prosperity, and effort is not production. Prosperity is a matter of the rate at which goods and services that are highly valued can be produced, whether the production is labor intensive or capital intensive, however much or little people are working. Employment is a more complicated issue than output. Under current (foolish) institutional and ideological arrangements, for most people, employment is our main source of claims on current or future production, and also a measure of our respectability and value as human beings.
"Holding institution and ideology constant, unemployment is harmful far beyond its effect on output. But let’s not confuse objectives. Employment and output are historically correlated, because it takes work to produce output, and also because the measured value of output is dollar weighted and there are few consumers to confer value without widespread employment. But the degree to which the production of any given thing is tethered to traditional employment is variable and technology dependent, and the ability to confer value through purchase could be distributed via means other than employment.”
“We measure prosperity by production, not by work, and we measure production by value, by what people are willing to pay for what is produced.”
Because Americans were on a borrowing binge, they have bought too much. So, here’s a moral quandary:
“…it is now inevitable that we work less? Why does that make fundamental sense? Surely something is going wrong. Shouldn’t we be working more to pay for all the stuff we bought.
"Some people might say that the “something” is structural readjustment. We have to move towards an investment based economy and there are frictions… Recessions in that story are not a punishment for overconsumption, they are a result of suddenly realizing that you have to shift paths.”
“At an individual level the correlation between past consumption and recent unemployment is obviously negative. The people who have sinned are not by and large the people being punished. Some people overconsumed relative to their income, and some people invested poorly. Those who overconsumed have mostly faced consequences for their misbehavior — they are either deeply in debt, or they have endured foreclosure or bankruptcy.
"But the people who invested absurdly, especially “savers” who lent money but permitted themselves ignorance and indifference to how their wealth would be mismanaged, have not suffered the costs of their recklessness. Instead, they have been almost entirely bailed out. It is lenders and investors more than any other group who determine the patterns of our macroeconomy. There are always people willing to overconsume or gamble on foolish enterprises.
"We do and must rely upon those with resources to steward to ensure those resources are used wisely. They did not, and their recklessness has brought us to catastrophe. But rather than condemn them for negligence and permit their claims to be appropriately devalued, we applaud them for “prudence” and let government action be bound by commitments to sustain their destructive and ridiculous claims.”
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Many have suggested that the root of our economic problems is the ever-widening income gap. Let’s take a shot at this.
Most would want incomes to be redistributed in such a way that “those who produce can afford to buy what they are producing.” Moreover, consumption drops with increase in income and even the part labor plays in production declines.
But there’s one major trend in India and elsewhere that many tend to overlook: use of Internet and computers.
“…with the increased focus on technology – where we spend more and more of our time on our cell phone, doing emails, watching DVDs and generally surfing the web – there is less of a difference between how the super rich and the reasonably well off spend their time hour by hour during their typical days…those activities do not require much income. If this trend continues, a redistribution of income will not spur the increase in spending.”
“…we do not measure prosperity by consumption, but by production. We get wealthy by producing what someone values to consume. Our wealth takes either the form of current consumption or (more importantly in a deeply uncertain world) claims on others’ production whenever we might want or need it. We should never, ever measure prosperity in terms of consumption, but always in terms of production, weighted, importantly, by the strength of financial arrangements that allow us to convert unconsumed production into credible options to consume later.”
“However, we do not measure prosperity in terms of how much work people are doing. That is a terrible error and the most vulgar form of Keynesianism. Make-work is not a path to prosperity, and effort is not production. Prosperity is a matter of the rate at which goods and services that are highly valued can be produced, whether the production is labor intensive or capital intensive, however much or little people are working. Employment is a more complicated issue than output. Under current (foolish) institutional and ideological arrangements, for most people, employment is our main source of claims on current or future production, and also a measure of our respectability and value as human beings.
"Holding institution and ideology constant, unemployment is harmful far beyond its effect on output. But let’s not confuse objectives. Employment and output are historically correlated, because it takes work to produce output, and also because the measured value of output is dollar weighted and there are few consumers to confer value without widespread employment. But the degree to which the production of any given thing is tethered to traditional employment is variable and technology dependent, and the ability to confer value through purchase could be distributed via means other than employment.”
“We measure prosperity by production, not by work, and we measure production by value, by what people are willing to pay for what is produced.”
Because Americans were on a borrowing binge, they have bought too much. So, here’s a moral quandary:
“…it is now inevitable that we work less? Why does that make fundamental sense? Surely something is going wrong. Shouldn’t we be working more to pay for all the stuff we bought.
"Some people might say that the “something” is structural readjustment. We have to move towards an investment based economy and there are frictions… Recessions in that story are not a punishment for overconsumption, they are a result of suddenly realizing that you have to shift paths.”
“At an individual level the correlation between past consumption and recent unemployment is obviously negative. The people who have sinned are not by and large the people being punished. Some people overconsumed relative to their income, and some people invested poorly. Those who overconsumed have mostly faced consequences for their misbehavior — they are either deeply in debt, or they have endured foreclosure or bankruptcy.
"But the people who invested absurdly, especially “savers” who lent money but permitted themselves ignorance and indifference to how their wealth would be mismanaged, have not suffered the costs of their recklessness. Instead, they have been almost entirely bailed out. It is lenders and investors more than any other group who determine the patterns of our macroeconomy. There are always people willing to overconsume or gamble on foolish enterprises.
"We do and must rely upon those with resources to steward to ensure those resources are used wisely. They did not, and their recklessness has brought us to catastrophe. But rather than condemn them for negligence and permit their claims to be appropriately devalued, we applaud them for “prudence” and let government action be bound by commitments to sustain their destructive and ridiculous claims.”
***************************
Many have suggested that the root of our economic problems is the ever-widening income gap. Let’s take a shot at this.
Most would want incomes to be redistributed in such a way that “those who produce can afford to buy what they are producing.” Moreover, consumption drops with increase in income and even the part labor plays in production declines.
But there’s one major trend in India and elsewhere that many tend to overlook: use of Internet and computers.
“…with the increased focus on technology – where we spend more and more of our time on our cell phone, doing emails, watching DVDs and generally surfing the web – there is less of a difference between how the super rich and the reasonably well off spend their time hour by hour during their typical days…those activities do not require much income. If this trend continues, a redistribution of income will not spur the increase in spending.”
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