Redefining Wealth and Prosperity in the 21st Century
May 11, 2016 1:01 AM Subscribe
Kennedy was right - "Much that is valuable is neither tangible nor tradable... Gross domestic product (GDP) is increasingly a poor measure of prosperity. It is not even a reliable gauge of production."*
A Conversation With Joseph Stiglitz - "GDP is just the sum total of the output of the economy, it doesn't say how much of that is going into whose pocket. In the first three years of the recovery, 91 percent of all gains went to the top 1 percent. So the bottom 99 percent saw nothing. Many were actually becoming worse off: Their balance sheet had been destroyed, their major asset has been their home and the value of their home had gone down anywhere from 20 to 50 percent. Then came QE, and it created a stock-market but the average American has very little in the stock market. Overall ownership of stocks, is much more concentrated than the concentration of wealth itself, so QE was basically a gift to the 1 percent."
Kristol, Kalecki, and a 19th Century Economist Defending Patriarchy all on Political Macroeconomics - "So if you are a type who believes the government can only do bad, who believes that prosperity flows from how appreciated the business community feels, and who believes strongly in the Natural Order, then you are not going to be in favor of activist monetary and fiscal policy to fix the economy. You also won't have any actual coherent view of what is wrong with the economy."
New paradigms in economic theory? - "There seem to be three mini-paradigms here: bounded rationality, interdependence, and holistic analysis. The first two have already been making inroads in economics, though I think they should make more inroads. The latter is kind of an older idea that doesn't seem to have panned out as well as many hoped - there isn't actually going to be a Second Enlightenment replacing reductionist science with holism. But I think that more important than any of these theoretical changes - or the evolutionary theory suggested by Wilson - is the empirical revolution in econ. Ten million cool theories are of little use beyond the 'gee whiz' factor if you can't pick between them."
Free Lunch: ways to build a helicopter - "An op-ed in the FT by Shahin Vallée makes the very important and under-appreciated point that there is a choice to be made about whom the helicopter drop should target, and that how this choice is made matters for economic and political economy reasons. Vallée rightly distinguishes between three targets: the government, households and the banking system. We could, for completeness, add the non-financial private sector, that is to say businesses producing goods and services in the 'real economy'... banks and businesses are already insufficiently willing to either lend or invest despite record low funding costs. The same is strangely true for governments. By far the biggest bang for the helicopter buck can be expected from a money drop to households." [1,2,3,4,5]
Universal basic income continues to attract attention - "The oldest argument for UBI (Thomas Paine's) is that it justly allocates economic rent to which no one has a fair individual claim, since it results from windfall natural resources or the overall productivity of society. Paine applied his argument to land ownership; it seems entirely plausible to apply the same argument to some of the rents created by technological innovation and privatised intellectual property."
Nixon's Basic Income Plan - "It was the summer of '68, the end of the decade that brought us flower power and Woodstock, rock and roll and Vietnam, Martin Luther King and a feminist revolution. It was a time when everything seemed possible, even a conservative president strengthening the welfare state. While young demonstrators the world over were taking to the streets, five famous economists — John Kenneth Galbraith, Harold Watts, James Tobin, Paul Samuelson, and Robert Lampman — wrote that '[t]he country will not have met its responsibility until everyone in the nation is assured an income no less than the officially recognized definition of poverty'. The New York Times published their letter, signed by 1,200 fellow economists, on the front page. The next year, Richard Nixon was on the verge of making these economists' dream a reality by enacting an unconditional income for all poor families."
Running India: Domesday 2.0 - "A technological blueprint for better government"
No Great Technological Stagnation - "Many economists say we are living through a Great Stagnation. The term, was made famous by Tyler Cowen's book of the same name and the latest iteration is, of course, Robert Gordon's The Rise and Fall of American Growth. But they usually look at economic factors like Total Factor Productivity (TFP) or GDP per hour worked. By these measures, we are living through a stagnant period. Some expected that the stagnation would go away once we properly accounted for the Internet and similar hard to account for innovations, but apparently this was done, and the picture doesn't change much. In this post, I take an engineering perspective and look directly at technology itself."
Decomposition: Technology versus the Distribution of Workers in Aggregate Productivity - "Gordon's critics could well be right about their individual technologies, and yet wrong about this having anything to do with aggregate growth, because those sectors may not employ many people. And Gordon can be right about aggregate growth, but wrong about individual technologies stagnating, because the movement of workers to low-productivity sectors may be dragging down growth. In short, you cannot talk about aggregate productivity growth without talking about both technology and the distribution of workers across sectors."
The Productivity Slump and What to Do about It - "How much productive talent is wasted simply because of lack of opportunity? How many women and minorities, for example, could be contributing greatly to our economy but never got the chance? Increasing opportunity so that talented individuals have the chance to reach their full potential would give the economy a needed efficiency boost. Education is one component of this, but we also need to be sure that the barriers that keep people from realizing their potential are removed... Productivity growth is the main driver of economic growth and a rising standard of living. By itself, an increase in productivity won't necessarily translate into rising living standards for everyone -- that depends on how the increase in output is divided among various groups in the economy. If all of the increase in output due to rising productivity goes to those at the top of the income distribution, as it has in recent decades, it won't do much for most people."
When a first-year undergraduate first encounters the idea of GDP as the value added in an economy, adjusted for inflation, it sounds pretty straightforward, says Sir Charles Bean, the author of a recent review of economic statistics for the British government. Get into the details, though, and it is a highly complex construct—and, as Mr Nordhaus's fable shows, a snare for the unwary...How to measure prosperity: GDP is a bad gauge of material well-being. Time for a fresh approach
By convention GDP measures only output that is bought and sold. There are reasons for this, only some of them sound. First, market transactions are taxable and therefore of interest to the exchequer, an important consumer of GDP statistics. Second, they can be influenced by policies to manage aggregate demand. Third, where there are market prices, it is fairly straightforward to put a value on output. This convention means that so-called “home production”, such as housework or caring for an elderly relative, is excluded from GDP, even though such unpaid services have considerable value.
Although a big improvement on today's measure, GDP-plus [pdf; 1,2,3] would still be an assessment of the flow of income. To provide a cross-check on a country's prosperity, a third gauge would take stock, each decade, of its wealth. This balance-sheet would include government assets such as roads and parks as well as private wealth. Intangible capital—skills, brands, designs, scientific ideas and online networks—would all be valued. The ledger should also account for the depletion of capital: the wear-and-tear of machinery, the deterioration of roads and public spaces, and damage to the environment. Building these benchmarks will demand a revolution in national statistical agencies as bold as the one that created GDP in the first place.Because what is not measured tends to be undervalued and ignored, conversely in a 'market' economy, activities that result in dollar transactions at their associated prices tend to be overly privileged. And yet it's the main signaling mechanism and incentive system that we coordinate on and organize our lives around. Hence, as a pervasive and decidedly non-neutral value system, it is (literally) worth interrogating; the proverbial missing keys to ongoing prosperity may well indeed lie beyond the cold glow of the streetlight. Meanwhile, blindly measuring everything is no solution either, or worse. So a corollary is that proper measurement and continual (re-)evaluation is both hard and necessary to improve our well-being and our understanding of how to better organize society.
- What Is Wealth? - "Wealth assets are always and anywhere political and social constructs. Things exist, but 'wealth' is a fiction, the contours of which are fully derivative of how we create our systems of control and power over the material things of the world."
- What is Prosperity? - "And therein lies the difference between a poor society and a prosperous one. It isn't the amount of money that a society has in circulation, whether dollars, euros, beads, or wampum. Rather, it is the availability of the things that create well-being—like antibiotics, air conditioning, safe food, the ability to travel, and even frivolous things like video games. It is the availability of these 'solutions' to human problems—things that make life better on a relative basis—that makes us prosperous. This is why prosperity in human societies can't be properly understood by just looking at monetary measures of income or wealth. Prosperity in a society is the accumulation of solutions to human problems. These solutions run from the prosaic, like a crunchier potato chip, to the profound, like cures for deadly diseases. Ultimately, the measure of a society's wealth is the range of human problems that it has found a way to solve and how available it has made those solutions to its citizens."
- Whose Are the Ruling Macroeconomic Ideas? - "When I look around, I see lots of ideas with a potency that is extremely great but with influence that is nowheresville. The ruling ideas are... barely ideas--they are, rather slogans. The bipartisan technocratic policy center of politicians who listen to arguments about what policies might actually work is gone--or at least paralyzed. And too many key levers of power are held by a right--in Germany, in Britain, and in the U.S.--that appears profoundly uninterested in argument about policy effectiveness, if not uninterested in policy effectiveness itself."
- The bankers have us by the plums: Thus it is important to cosset, coddle, and enrich our bankers, because only if they are confident will the engine of financial intermediation that is the only thing that can create a booming full-employment economy run smoothly.
- Debt is bad (except when it is used to fund tax cuts for “job creators”): Hence it is important to cut Social Security and make sure that not an extra drop is spent on public infrastructure.
- Today's extremely low interest rates must be unnatural: Hence they need to be reversed and monetary policy "normalized" as quickly as normalization can be accomplished without renewed recession.
- Only pain can drive reform: Hence boosting employment and restoring fast growth would be bad as it would impeded the essential process of actually undertaking the badly-needed "structural reforms".
- We couldn't have done any better: The most urgent economic problems of the North Atlantic aren't the standard ones of too-little "money" (of various kinds) chasing a normal amount of goods, but are complicated and irresolvable.
Most of the models used by economists ignored inequality. They pretended that macroeconomy was unaffected by inequality. I think that was totally wrong. The strange thing about the economics profession over the last 35 year is that there has been two strands: One very strongly focusing on the limitations of the market, and then another saying how wonderful markets were. Unfortunately too much attention was being paid to that second strand.
What can we do about it? We've had this very strong strand that is focused on the limitations and market imperfections. A very large fraction of the younger people, this is what they want to work on. It's very hard to persuade a young person who has seen the Great Recession, who has seen all the problems with inequality, to tell them inequality is not important and that markets are always efficient. They'd think you're crazy.
IN A month or so, India will have registered a billion residents—the latest stage in the creation of a complete identity database of what will soon be the world’s most populous country. Aadhaar, which means “foundation” in Hindi, matches names with fingerprints and iris scans on a scale that has never been seen before. Reimagining government with such technology at its core will be key to meeting the mounting aspirations of India’s citizens, according to two of the scheme’s architects, Nandan Nilekani and Viral Shah. If the Domesday Book, an 11th-century survey of England, was commissioned to raise funds for government, Aadhaar’s most useful purpose is to help their disbursement... It allows the government to pay benefits directly to over 200m bank accounts linked to its database, so cutting out layers of corrupt and inept middlemen.
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