Seeing gross misunderstandings of economics like this and the degree to which these ideas are popular (as witnessed in the very comments right here, including one implying that about 2/3 of the population of the world is "useless") disheartens me more than almost anything.
No, Keynesian economics is not how America recovered from the depression, nor was mobilization for wartime production (checkout the book "Keep From All Thoughtful Men" for a truly in depth analysis of the US economy during that period). No, abundance and worker productivity are not why unemployment is so high and the world economy is on shaky ground. None of these things are correct, and buying into these theories leads to erroneous decision making that will serve to exacerbate the problems rather than make them better.
Much of the problems describe are due to government action, not economic transformation. The labor laws that exist today are tightly coupled to a particular model of employment and work which is no longer dominant in the economy today, and the impedance mismatch causes a huge reduction in economic efficiency as well as misery and limitation of opportunity for many workers. Onerous regulation, as exists today in every aspect of economic activity, heavily favors the consolidation of economic activity into large corporations. And that disadvantages the individual worker in a variety of ways, as well as limiting the innovation and responsiveness of the market, down to the scale of the lone entrepreneur.
Add to that the deterioration of public education in America over the last quarter century (to such a degree where even basic literacy cannot be presumed of the holder of a high school diploma) forcing the escalation of credentialism for many entry level knowledge worker jobs toward college degrees. Meanwhile, the widespread availability of cheap, government backed student loans combined with the disruption of public funding for many public higher education institutions has led to a massive explosion in the cost of higher education. At the same time "trade school" education has become denigrated in society even though many of those jobs are high paying, well in demand, and the necessary education is often quite affordable.
Add to that the bursting of a real estate bubble of unprecedented size in the US and the follow-on worldwide financial crises. Much of it caused or exacerbated by the same reasons as above, regulation and government backing creating banking institutions that were "too big to fail", but not too big to gamble to the tune of trillions of dollars. The worldwide economy still has yet to fully recover from that disaster.
Add to that the profligate borrowing of the world's governments as if there was no tomorrow. Except tomorrow has come, and governments that have been collecting as much revenue as they possibly can and using it on social programs that everybody likes are finding that they've created a system with insufficient slack to deal with any disruption, even disruptions such as paying the debt they owe before it blows up in their faces.
It's facile to blame the economic problems of today on technology. It makes it seem as though these problems are some sort of inevitable consequence of advancement when in reality they are the product of specific choices that are now coming home to roost.
Yeah, who needs those pesky regulations. We should just start deregulating. Let's start with banks. Oh wait, that didn't turn out so well did it? Remember a certain massive explosion in Texas recently. I guess deregulation there just didn't come fast enough to stop it? What about energy? Surely they must have the tightest and most restrictive regulations with OSHA being such a pest. I think some people on the gulf coast would like to have a word with you.
Surely deregulation will lead to more competitive free markets! Take a look at the 19th and early 20th century economy for some excellent examples of how wonderful monopolies are (railroads, oil, etc). I'll assume you're not against government regulation of utility infrastructure since I'll assume you wouldn't like hoping a company will decide your area is profitable enough to build out or having to have new wiring and piping run to your house to switch to a competitors infrastructure.
Labor laws. Pffft. Who needs those? We have unions to ensure businesses don't mistreat workers. Oh wait. Surely an employer would never take advantage of someone to pad their bottom line. Yeah.
Are there areas where the government does some ridiculous things? Sure. Does it cost money to protect and treat workers respectfully? Sure. Are we worth the ideals we stand for if we don't? NO.
Oh gee, better quit those social programs! We sure wouldn't want accidentally melt down the economy ensuring our population is healthy or providing benefits to veterans or pensions for government employees or teacher salaries or infrastructure -- I think the everyone gets the point there.
We don't have near the tax burden in the US that we did mid century so I guess we have a ways to go before our government is "collecting as much revenue as they possibly can".
No need to reply expecting a debate, I've said my piece. :)
You are arguing against a straw man. I didn't just say "regulation", I said onerous regulation.
There should be little doubt that onerous regulation not only exists but is commonplace in the US at the moment. The sheer size of the federal register is indication enough, it's simply not possible for any one person to fully understand the law that they are subject to, period.
Effective regulation is often good. For example, I don't think the western world would have so quickly improved its air quality in the mid to late 20th century without regulation, and that has improved the lives and well-being of hundreds of millions of people. But effective regulation is difficult and sometimes requires great skill to create. In contrast, the hodge podge of laws and business rules that we have today is downright kafkaesque in its maddening mixture of arbitrariness and severity.
Most importantly, even laws and rules put in place by people operating in good faith and with the best of intentions can have ill effects. The law of unintended consequences is perhaps the most important factor in creating regulation, but it is a law that is frequently ignored by policy makers.
Consider something simple, the labor laws which force a transition in employment type around the 40 hours per week boundary, such as offering benefits and so forth. This causes many employers to use a larger number of part-time workers. Is this because those employers are evil or shirking their responsibility? Well, not necessarily, it may not be feasible to have employees for a given position provided with benefits. And even if it were and the employers were merely being "greedy bastards", would it change anything? Has the law been able to compel employers to avoid hiring part-time workers? Not at all. And the unintended consequence is that if someone has a desire to work 40 hr weeks (or longer) at an entry-level position in order to have a higher income this is just not available to them (at least without working "under the table"). Instead they need to work multiple part-time jobs, but they end up spending more time traveling to/from each job and they may have difficulties with the schedule of each job meshing with the other. In the end many people end up worse off with these labor laws, because it is more difficult and more costly to be able to work enough hours to make a decent living. And these are the workers who are the poorest, working entry-level jobs, and with the greatest desire to work. Precisely the people most in need of help, and instead they are put at a disadvantage.
As to your point about the tax burden mid 20th century, it's utterly off base. The government is collecting a much higher percentage of the total GDP of the country today than it was then. Regardless of the nominal tax rates (which are rarely reflective of effective tax burdens) the actual revenue collection has gone up. Additionally, I wasn't talking about the US in that case, I was talking about countries such as Denmark, Sweden, France, Italy, Spain, Greece, etc. Each of those countries has a tax burden higher than 1/3 of the GDP, in some cases approaching half of the GDP as in Denmark and Sweden. When you consistently take so much of the GDP for government use and you use so much of it on programs that impact the daily lives and livelihoods of so many citizens there is frequently no room for paying off debt because doing so means not just reducing outlays to the level of a balanced budget but even deeper to provide a surplus.
Thanks for your post. It's refreshing to hear more realistic opinions on this situation.
I opened up the Hacker News homepage to see if anyone was discussing the US debt crisis. (I'm not American, and I find HN a fairly good source of commentary on US events). There's a non-negligible possibility that the world is about to be plunged into another round of financial crises. I guess from one point of view the current state of the world economy is just a temporary downswing in our epic quest from the caves to the stars. But I'm becoming more inclined to believe that industrial civilisation has already passed its apex, and is now growing increasingly unstable as it attempts to continue infinite growth on a finite world.
What's the no #2 article on HN? How our biggest problems are dealing with too much abundance!
The last time you accused someone of misunderstanding something was when you accused Walter Bright, inventor of the D language, of a "deep misunderstanding of compiler technology": https://news.ycombinator.com/item?id=6357708.
While any "narrative" is going to be imperfect as an explanation, I thought this article was actually pretty insightful.
The vast majority of the economics profession agrees that the problem right now is a lack of demand. Consider the possibility that they are right and that it is yourself that has the misunderstanding.
That series of posts was mostly about miscommunication, we were talking about two different things (compiling the same code using different compilers and compiling the same code using the same compiler), neither of us picked up on the other person's point at the time.
Besides which, are accusing me of being fallible? That's not a difficult task, all humans are so. As to what "the vast majority of the economics profession" believes, I would point out that the track record of that profession in predicting the economic outcome of different decisions is poor at best.
Well, I would put it differently: you simply misunderstood what he (Walter) was saying, and then (too quickly) concluded that he therefore must have a deep misunderstanding!
But I admit my critique is a bit unfair and "ad-hominem".
I've been reading the financial press (in London, I work in the City) for the last 5 years. The austerity "caucus" - those who have advocated "austerity" policies - have simply been wrong every step of the way. They predicted hyper-inflation, high US treasury yields, and a strong recovery in Ireland (where austerity has been forced by the ECB). Instead we've had moderate to low inflation (too low at times), unprecedented low yields for sovereigns who can borrow in their own currency, and a never-ending recession/depression in Ireland.
The "Keynesians" (Paul Krugman, Martin Wolfe, Joseph Stieglitz and many others) have been right. They have a working model (IS LM) which they refined after observing Japan's lost decade. They've used it to make predications, and been proved correct.
No, Keynesian economics is not how America recovered from the depression, nor was mobilization for wartime production (checkout the book "Keep From All Thoughtful Men" for a truly in depth analysis of the US economy during that period). No, abundance and worker productivity are not why unemployment is so high and the world economy is on shaky ground. None of these things are correct, and buying into these theories leads to erroneous decision making that will serve to exacerbate the problems rather than make them better.
Much of the problems describe are due to government action, not economic transformation. The labor laws that exist today are tightly coupled to a particular model of employment and work which is no longer dominant in the economy today, and the impedance mismatch causes a huge reduction in economic efficiency as well as misery and limitation of opportunity for many workers. Onerous regulation, as exists today in every aspect of economic activity, heavily favors the consolidation of economic activity into large corporations. And that disadvantages the individual worker in a variety of ways, as well as limiting the innovation and responsiveness of the market, down to the scale of the lone entrepreneur.
Add to that the deterioration of public education in America over the last quarter century (to such a degree where even basic literacy cannot be presumed of the holder of a high school diploma) forcing the escalation of credentialism for many entry level knowledge worker jobs toward college degrees. Meanwhile, the widespread availability of cheap, government backed student loans combined with the disruption of public funding for many public higher education institutions has led to a massive explosion in the cost of higher education. At the same time "trade school" education has become denigrated in society even though many of those jobs are high paying, well in demand, and the necessary education is often quite affordable.
Add to that the bursting of a real estate bubble of unprecedented size in the US and the follow-on worldwide financial crises. Much of it caused or exacerbated by the same reasons as above, regulation and government backing creating banking institutions that were "too big to fail", but not too big to gamble to the tune of trillions of dollars. The worldwide economy still has yet to fully recover from that disaster.
Add to that the profligate borrowing of the world's governments as if there was no tomorrow. Except tomorrow has come, and governments that have been collecting as much revenue as they possibly can and using it on social programs that everybody likes are finding that they've created a system with insufficient slack to deal with any disruption, even disruptions such as paying the debt they owe before it blows up in their faces.
It's facile to blame the economic problems of today on technology. It makes it seem as though these problems are some sort of inevitable consequence of advancement when in reality they are the product of specific choices that are now coming home to roost.