Unsolved Gloom vs.
© 1999-2015 Phil Hyde, Timesizing Assocs, Box 117, Harvard Sq. Station, Cambridge MA 02238, USA (email@example.com) - HOMEPAGE
The Many Names and Faces of the Economic Puzzle
The Economic Puzzle was called the "unsolved riddle of social justice" in 1920 in a book of that name (John Lane Press: New York) by "Canada's Mark Twain" and McGill (economist)political'scientist', Stephen Leacock. He phrased it (pp. 22-23) in terms of technology, to paraphrase, why with all our wonderful technology is there still poverty? The answer he implies is that work-saving technology creates a surplus of human labor, and market forces, responding to the surplus, push relatively many (billions) wages down and a relatively few (tens of thousands) CEO salaries way way waaay up. And most CEOs already have far more than they can spend so monetary circulation and markets shrivel. Leacock's answer is taken a step further by a memorable exchange between Henry Ford and Walter Reuther in the late 1930s - Ford, "Let's see you unionize these robots" - Reuther, "Let's see you sell them cars" - in other words, if employers use technology to eliminate jobs, they're also eliminating markets.
Leacock indicates (pp. 30-31) that, so far, we seem to have found only one solution to this dilemma - war, because war eliminates surplus labor in the worst possible way, killing, and creates demand for product in the worst possible way, blowing it up, and market forces respond to the ensuing labor shortage by lowering a few CEO salaries, raising many many wages, and reviving markets. Leacock's theme of war was picked up by America's greatest humorist, Will Rogers - "In fact we have reversed the old system; we all [if we don't get killed] get fat in war times and thin during peace" (2/22/1931), voicing the important observation, much neglected by standard economists, that wars are good for the economy, indicated by the phrase "wartime prosperity." Standard economists are focused, like Ptolemaic astronomers, on the wrong center. Ptolemy thought the Earth was the center of the solar system and economists today think that productivity is the center of the economy. The real center is the balance between productivity and marketability, and in fact, productivity is totally meaningless unless it is MARKETABLE (OK, it's not totally meaningless these days because some of it's still negative and destructive via stressing the environment).
The Economic Puzzle has many other names and faces -
Phil invites everyone to contribute any terminology they may know of for the economic puzzle and he will include them on this list and give them a source credit. He thinks the time is long overdue for publishing a comprehensive, very long-term solution to the economic puzzle.
- A recent version is safely fuzzy as you'd expect from one of the Onepercenters, Michael Sandel of Harvard: What should be the role of money in markets in our society? By this he means to object to commercializing everything, especially in a world of steep inequity, within which commercialization turns the poor into charity cases or outright starves them.
- "The Economic Problem" - title of a book by economist Robert Heilbroner (3rd Ed.,1972 - Prentice-Hall: Englewood Cliffs, NJ). The habit of thinking of economics as solution rather than problem began with economics' inventor, William Petty, in his 1690 book, The Political Arithmetick. However, Parson Malthus (see below) began the reversal of this habit in 1798, and he it was what who moved Thomas Carlisle to dub economics "the dismal science." The economic problem is often identified in standard economics as shortage or scarcity, as in Heinz Kohler's 1968 introduction to economics titled "Scarcity Challenged." But shortage is not the economic problem, it's the economic tool that every well-off profession or skill-group uses to keep its pay excessive and its lifestyle wasteful. American nurses, fed up with long hours for low pay, have just created a shortage of their skills by closing down most non-degree hospital nurse-training programs, forcing any would-be nurse to spend more time and much more money on a university degree program. But some of these well-off professions take considerable trouble to keep other skills in surplus and away from shortage. For decades, physicians, for example, succeeded in doing it to nurses - until just recently. CEOs, on the other hand, are still doing it to almost everyone by introducing work-saving technology followed by layoffs instead of hourscuts, and by shifting jobs to over-populated, desperate, low-wage nations.
- "To him that hath, more shall be given, but from him that hath not, even that which he hath shall be taken away." This is how Jesus of Nazareth captured the economic puzzle - an early version of our own familiar "the rich get richer and the poor poorer." It focuses on what happens to the individuals in each case.
- In astrophysical terms, it may be said that the centripetal (gravitational, concentrational) forces upon wealth are stronger than the centrifugal forces, despite the rhetoric of trickle-down (i.e., in Buckminster Fuller's terms, "trickle-out" - from the center, bearing in mind that in the economy there are many concentrational "centers" just as in a solar system, there are many gravitational centers).
- The standard economist's name for it is the marginal efficiency of wealth (or the diminishing utility of concentrated money at the margin). This is still an extremely under-discussed and under-researched aspect of standard economics. Phil Hyde has expressed it like this - a million dollars in the hands of one man works a lot less hard in terms of providing employment than a thousand dollars in the hands of a thousand people, or indeed, any smaller division of the amount. FDR put it this way in 1934, "Ninety percent of our people live on salary or wages, ten percent on profits alone....People in this country whose income is less than two thousand a year, buy more than two-thirds of all goods sold....If these people are not assured of an income, the goods produced cannot be sold." Nor can the jobs involved in producing the goods be maintained. (FDR quote from p.316, Will Rogers - A Biography by Donald Day, published by David McKay: New York, 1962.)
- "Scarcity." Many economists, such as Amherst's Heinz Kohler, capture the economic problem in this one word. *Buckminster Fuller also targeted scarcity and the stupidity of running the world on a scarcity basis. Another engineer, Arthur Dahlberg in his super-thesis masterpiece, Jobs, Machines and Capitalism (1932), got more specific - he said we should quit running our economy with a scarcity of jobs and business opportunities and switch to running it with a shortage of labor, for whom jobs and business opportunities would be plentiful (the shortage was to be engineered by cutting the workweek to 20 hours). Scarcity of jobs and business opportunities is exactly what you would expect in the context of concentrated wealth because the rich have too little time to spend their astronomical claims to wealth, ergo the "marginal utility of wealth" aka the inefficiency of the state of concentration. In other words, it does not matter how rich a country is in terms of absolute amount of wealth, however astronomical - if 1% of the population owns 99% of the wealth, that country is still a miserable, dirt-poor, third-world nation. See Kohler's book, "Scarcity Challenged - An Introduction to Economics" (Holt, Rinehart & Winston: New York, 1968).
- How do we split apart "political economy." With its stress on rhetoric and diplomacy, politics will always be an art, despite the unrealistically named "political science." But economics has a chance of moving to a hard-nosed scientific basis along the lines suggested by its founder (no, not Adam Smith), Sir William Petty, the title of whose masterpiece says it all, "The Political Arithmetick" (1690). Petty was a statistician (like W. Edwards Deming, the postwar savior of the Japanese economy). How do we get politics out of economics, and politicians out of the economy? Economists have been trying to do this by simple-mindedly quantifying everything and developing econometrics far beyond all its qualitative underpinnings, but those quantitative underpinnings are precisely the problem. Their narrowness and vulnerability to blind, narrow, and short-sighted self-interest are precisely the problem. They are making maximum investments of time and energy at points of minimum return. They cannot forecast much longer than 25-30 years (one generation) with any confidence because the qualitative aspects of the economy change enough to make key economic variables as currently defined irrelevant. Witness our current outdated unemployment rate.
- We've nearly completed the separation of Church and State, of religion and politics. How do we build on that and separate State from Market?
- How do we establish economics on a solid engineering basis, as both engineer Herbert Hoover and the man he should have listened to, engineer Arthur Dahlberg, wanted?
- How do we get our economic technology caught up with our computer technology? Clearly this takes automation and cumulatively improving programmed balance rather than error-prone, politically vulnerable, necessarily repeatable acts of discretion.
- How do we make economics a fitter tool for ecologists than for politicians?
- "The marginal utility/efficiency of wealth" - this is the basic identification of the core problem à la standard neoclassical economics. In other words, when it comes to wealth - the more concentration, the less circulation - and v.v. This version focuses on what happens to the "velocity of money" and by implication, general domestic markets. This area is carefully neglected in standard economic research, which has tended to jump to quantification and make a maximum of investment at points of minimum return.
- "An unknown theory of dynamic economic equilibrium." This is how Keynes' mentor, Alfred Marshall, thought of the economic puzzle. Marshall (1842-1924) "made many original contributions to static equilibrium theory and yet hankered all his life for a dynamic theory that he was unable to produce...." This is reminiscent of John Kenneth Galbraith's search for the great economic synthesis (see below) and of Albert Einstein's search for the unified field theory (which we also have in a simple, elegant, and blindingly obvious version, but we will not be announcing this until a couple of weeks before the November election). Marshall even goes "so far as to claim that biology and not mechanics is 'the Mecca of the economist.'" Mark Blaug, Great Economists Before Keynes (Wheatsheaf Books: Brighton, England, 1986), p. 150. Timesizing® constitutes a description of a near-term dynamic equilibrium theory where, by design, the length of the workweek (and therein an automatic trigger of reinvestment in human capital) varies inversely with the comprehensive unemployment rate. Timesizing thus provides a dynamic equilibrium theory based on the model of biological (specifically, physiological) homeostasis. The deep-structure design of timesizing provides for the successive fine-tuning of the equilibrium by mapping the predefinitions and regulatory phases from the employment-per-person dimension (timesizing proper) onto more general variables such as income-per-person (moneysizing1), thus providing longer-term dynamic equilibrium theories. (Here, each "term" may last as long as a century and the "fine-tuning" is propelled by rising public expectations relative to living standards or quality of life.)
I've just (4/02/2015) discovered online, googling for Marshall's counterpart phrase ("partial analysis") to Einstein's "thought experiment," a fabulous 1906 quote from Marshall, found by Mark Thoma in Stanley Brue's Evolution of Economic Thought, 5th ed., p.294 and posted by Mark on http://economistsview.typepad.com/economistsview/2006/05/alfred_marshall.html that would have made him a maverick like Galbraith today and has raised my respect for him immeasurably aka unquantifiably aka unmathematicalizably. Mark Thoma introduces the quote:
"In 1906, Alfred Marshall wrote about his skepticism regarding the use of mathematics in economics:
'[I had] a growing feeling in the later years of my work at the subject that a good mathematical theorem dealing with economic hypotheses was very unlikely to be good economics: and I went more and more on the rules - (1) Use mathematics [only] as a shorthand language, rather than an engine of inquiry. (2) Keep to them [=rules? =rule(1)?] till you have done. (3) Translate into English. (4) Then illustrate by examples that are important in real life. (5) Burn the mathematics. (6) If you can't succeed in (4), burn (3). This last I did often.'
"I don't mind the mathematics, it's useful and necessary, but it's too bad the history of economic thought is no longer required or even offered in many graduate and undergraduate programs. That's a loss."
I [PH3, 4/02/15] think it's worse than that. By jumping into quantification to enhance its power, economics has trivialized itself and even castrated itself, because it is making maximal investments of time and energy at points of minimal return. Now it has acquired power but its power is at best irrelevant, at worst destructive, even self-destructive. It has column after column of quantitative data that it's monitoring but the column headings are qualitative-linguistic, not quantitative-mathematic, and they are often lethally flawed. For example, shorter average workweek is viewed as a negative when, in an economy with a well-designed core such as established upgradably by the Timesizing program, a shorter average work-week (and its silhouette/"photographic negative," a correspondingly longer average leisure-week! ARTICULATION BREAKTHRU ALERT) is a natural and logical outcome of cumulating and ongoing introductions of worksaving technology, i.e., it's a positive.
- John Kenneth Galbraith expressed the economic puzzle as follows in the somewhat wistful last segment of his 1976 TV series, The Age of Uncertainty: "We remind ourselves of the number of people who are still poor in the poor countries and also in the rich. We reflect that, two hundred years after Adam Smith, economists have achieved not the control of inflation, not the prevention of unemployment, but the ability to have both at the same time" [i.e., "stagflation" - ed.]. The TV series was written up in a book by the same name and published by Houghton Mifflin, Boston in 1977 (this quote is on p. 324.)
- Other economists have referred to the economic problem as the "Malthusian trap" since its roots go all the way back to 1798 and Parson Thomas Malthus. It was he who, in his "Essay on the Principle of Population," explained scarcity by the tendency of human population to outgrow its food supply. He compared population growth to a geometric function (2, 4, 16, 256,...) and food supply growth to a merely arithmetic one (2, 4, 6, 8,...). Malthus gives us two points of in the ultimate balance: population and food supply.
- Here's another "take." Business wants something for nothing. It wants to produce stuff to sell without producing people to sell it to. It wants government to take care of that - without taxes. Yes, business wants government to supply the people to buy everything it produces - OR for government to buy it itself - without taxes. Business is near-sighted and short-sighted. It whines about big government and taxes. But by ignoring the need to maintain its own markets - indeed, by shrugging that task off onto taxpayers - it pushes the center of society from the private to the public sector and shrinkwraps itself in red tape.
- And another. As it is now, [industrialists] are just manufacturing dice for Wall Street to shoot craps with. -- Will Rogers
- Here's a new wrinkle on the economic puzzle:
1/04/2000 Uncertainty follows 1999's broken rules, Boston Capital column by Steven Syre and Charles Stein, Boston Globe, C1.
Stock prices and interest rates are supposed to work like kids on opposite sides of a seesaw: When interest rates go up, stock prices are supposed to come down. In 1999, this relationship broke down. Interest rates rose steadily all year, but stocks shrugged off the news and turned in another spectacular performance. Could the same thing happen in 2000 or is this the year reality, and interest rates, start to bite. "That is going to be the dominant question for the market in the first few months of the year," said Jim Weiss, chief investment officer for equities at State Street Research....
[The real questions are: why did this corelation happen in the first place, and why has it stopped now?
This situation is parallel to the breakage in the mid-1970s of the seesaw between inflation and unemployment.]
Phone Phil at 617-623-8080 or e-mail: firstname.lastname@example.org
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