Tuesday, June 27, 2017

About the gains from our economically viable choices

Responding to Peter J. Boettke's Don’t Be “a jibbering idiot” PDF.

Toward the end of yesterday's post I pointed out that even though only economically viable options are chosen, the choice does not always help to "lift humanity from the miserable condition." Even if only the most viable options are chosen.

Concentrated gains outweigh widely distributed gains. Concentrated gains tend to lift the few and lower the many. Given the increase of inequality, there is a point beyond which the gains from economically viable choices are not sufficiently distributed to permit us to say that "humanity" is lifted. It is only below this determining point that the distribution of gains assures the lifting of humanity.

The location of the determining point will change as inequality changes.

Then too, the gains themselves change as the economy evolves, becoming generally more pecuniary. Gains that are increasingly pecuniary provide less social advantage, and contribute in their own way to greater inequality.

Beyond that, extreme inequality may cause the economy to change in such a way that the most economically viable options seem to promote something other than the advance of civilization.

Monday, June 26, 2017

Feasible but not viable

After quoting James Buchanan on general equilibrium (see yesterday's post) Peter J. Boettke expands on the thought, saying
This is how the price system impresses upon decision makers the essential items of knowledge required for plan coordination. This is how monetary calculation works to guide us amid a sea of economic possibilities and ensures that among the technologically feasible only the economically viable projects are selected.

Chicago Tribune 14 April 1945
I read that far, and a TOYNBEE flag went off in my head. Among the technologically feasible, only the economically viable projects are selected, Boettke says. Yeh. Only the economically viable.

Toynbee, Arnold J. Toynbee, said the construction of roads and viaducts was abandoned after the fall of Rome because, though such projects were still technologically feasible, they were no longer economically viable.

Note that in the Chicago Tribune story from 1945, Toynbee is quoted as saying "Social malady was the cause" of the abandonment of Roman roads. But he also points out that "a road system of the Roman standard would not have paid its way". Would not have paid its way. In other words, not economically viable.

There is one additional sentence in Peter Boettke's paragraph:
... among the technologically feasible only the economically viable projects are selected. This is how wealth is created and humanity is lifted from the miserable condition of extreme poverty to one where human flourishing is even possible.

Yeah, "humanity is lifted from the miserable condition" because economically viable projects are selected. But it doesn't work all the time. When Roman roads stopped being viable, they stopped being built. But choosing a less un-viable alternative did not "lift humanity from the miserable condition." It only slowed the descent toward misery.

Peter Boettke suggests that the market system drives us to the economically viable. I can see that. But the economically viable option is not sure to "lift humanity". Most often, perhaps it does. In the decline phase of the cycle of civilization, it does not.

Sunday, June 25, 2017

James Buchanan on general equilibrium

James Buchanan, quoted by Peter J. Boettke in Don’t Be “a jibbering idiot”: Economic Principles and the Properly Trained Economist:
A solution to a general-equilibrium set of equations is not predetermined by exogenously-determined rules. A general solution, if there is one, emerges as a result of a whole network of evolving exchanges, bargains, trades, side payments, agreements, contracts which, finally at some point, ceases to renew itself. At each stage in this evolution towards solution, there are gains to be made, there are exchanges possible, and this being true, the direction of movement is modified”.

Sounds like an asymptotic approach to perfection. The "gains" get smaller and smaller as progress is made, until finally the gains add nothing at all. At that point economic nirvana is reached, general equilibrium, and the economy "ceases to renew itself."

In other words, change comes to an end. Yeah, I don't buy that at all. Seems to me the most significant words in the Buchanan quote are "if there is one".

Saturday, June 24, 2017

James Buchanan on markets

Peter J. Boettke of George Mason U, in Don’t Be “a jibbering idiot”: Economic Principles and the Properly Trained Economist, quoting James Buchanan:
“A market is not competitive by assumption or by construction,” Buchanan argued. “A market becomes competitive, and competitive rules come to be established as institutions emerge to place limits on individual behavior patterns.”
Surely this could be understood as support for regulation of, say, financial markets.

Thursday, June 22, 2017

A game for two players

SpaceX's Mars colony plan: How Elon Musk plans to build a million-person city

Elon Musk wants Mars? Sure, because everything on Earth will be owned by Jeff Bezos:

Amazon is buying Whole Foods Market in a $13.7 billion deal

Wednesday, June 21, 2017

The business cycle, bigger

Patterns of Growth and Decline in Western Civilization
Source: Greg Stevens                (Click Graph to Enlarge)

Recommended reading: Western civilization will completely collapse in the next 200 years.

Take that "200 years" as conceptual. Stevens does not say May 4, 2217 is the critical date. He says "I have no equation to give you that will spit out a number!" But determining the exact moment of our demise is not really the point. The point is that the cyclic pattern is a useful tool for thinking about the world.

Tuesday, June 20, 2017

Doublespeak at Bloomberg

Bloomberg: "While the expansion has been normal, 'output has been held back by woeful productivity growth and an unusual decline in labor-force participation'..."

You can't have it both ways. Either the expansion has been normal, or it has not. If output has been held back, then expansion has not been normal.

See Skipping a stone across recent years

Sunday, June 18, 2017

It's like that

As a follow-up to my two previous posts, I want to clarify one point: There is an imbalance between private and public debt, an excess of private relative to public, and economic growth will not improve until the imbalance is corrected.

My theory doesn't need 2% inflation to prop up the economy. And it certainly doesn't need three or four percent inflation to get better growth. I have no need of that hypothesis.

From Unveiling the Edge of Time by John Gribbin:
Newton himself had been baffled by one feature of the behavior of the planets. One planet on its own, orbiting the Sun, would indeed move in a perfect ellipse in obedience to Kepler's laws, under the influence of the inverse-square law of gravity. But with two or more planets, the extra gravitational forces of the planets acting on each other would tug them out of their Keplerian orbits. Newton feared that these effects might lead to instability, eventually tumbling the planets out of their orbits, and sending them either crashing into the Sun or drifting away into space. He had no scientific answer to the problem but suggested that the hand of God might be required, from time to time, to put the planets back in their proper orbits before such perturbations became too large.

In the mid-1780s, however, Laplace proved that these perturbations are actually self-correcting. Using the example of Jupiter and Saturn, the two largest planets in the Solar System, with the strongest gravitational pulls, he found that although one orbit might contract gradually for many years, in due course it would expand again, producing an oscillation around the pure Keplerian orbit with a period of 929 years. This was one of the foundations of what is possibly the most famous remark ever made by Laplace. When this work on celestial mechanics was published in book form, Napoleon commented to Laplace that he had noticed that there was no mention of God in the book. Laplace replied: "I have no need of that hypothesis."

Saturday, June 17, 2017

That tangent again

There is an excess of private sector debt. This creates problems, in response to which public debt has increased. Almost everyone sees and objects to the increase in public debt. Few see and object to the high level of private debt that created the problems and caused the public debt to grow. Those who do see private debt as the problem seem universally to point to faster increase in public debt as the solution. But this solution is not quite right.

Those who call for faster increase in public debt are right in the sense that increasing the public debt reduces the imbalance between public and private debt. But the analysis must not stop there. For in our economy, increases in the public debt lead to greater increases in private debt, making the imbalance worse. So the solution, as I see it, is not to focus on increasing the public debt, but rather to focus on limiting the increase of private debt.