How to fill the days, hours and minutes? It’s now seven decades since John Maynard Keynes peered into the future and declared that, one day, trying to scratch a living would cease being “the permanent problem of mankind.”

On the contrary, the moustachioed baron said in 1930; the problem ahead was that people would have too much leisure, too much free time, and not enough to do.

Keynes was bang on of course, as ever. His vision, detailed in Economic Possibilities for our Grandchildren, has in fact come to pass 30 years early, despite those very wars and conflicts he thought would impair it. By 2030, and “for the first time since his creation” Keynes wrote, ”man will be faced with his real…problem — how to use his freedom from pressing economic cares, how to occupy the leisure, which science and compound interest will have won for him, to live wisely and agreeably and well.”

And lo!

“Shoppers on a North Tyneside high street [in the UK] could be forgiven for thinking that a new business has moved into an empty retail unit in the town,” says the local council.

“The vacant Select store in Whitley Road, Whitley Bay is the first [empty shop] to benefit with a design treatment that gives the impression of a high quality delicatessen…”

Yes, the United Kingdom — seat of the industrial revolution — is now so advanced, so highly developed, it doesn’t even need real shops anymore.

Welcome to the Potemkin High Street. The mere illusion of commerce will do. How’s that for a Keynesian possibility…?

“The economic climate has forced many businesses to bring down the shutters. We need to ensure that…our high streets look attractive to both shoppers and potential business investors,” says Judith Wallace, the town council’s deputy mayor. “The colourful graphic designs — which can feature a whole range of different shop types — are either taped inside the windows or screwed to the fascia so they can be removed and re-used as required,” gushes the council on its jolly little website.

Whitley Road’s fake-shop was just one of 60 announcements North Tyneside’s government press team have put out in the last four weeks. Three press releases per day might seem a bit much for the local population of 191,000. But you’ve got to keep people busy, right? Otherwise, “Must we not expect a general ‘nervous breakdown’?” as Keynes asked back in 1930.

“We already have a little experience of what I mean — a nervous breakdown of the sort which is already common enough in England and the United States amongst the wives of the well-to do classes — unfortunate women, many of them…who cannot find it sufficiently amusing, when deprived of the spur of economic necessity, to cook and clean and mend, yet are quite unable to find anything more amusing.”

Just how has mankind (and his bored, unfortunate wife) attained this evolutionary step change three decades ahead of schedule? Besides assembly-line production and labor-saving devices, Keynes thought the lower orders would be “deprived of their traditional tasks and occupation by their wealth.” But not quite. Hardly the wealthiest people in Britain today, even the long-term unemployed enjoy “conveniences, comforts, and amenities beyond the compass of the richest and most powerful monarchs of other ages” (as Keynes once wrote of London’s upper-classes on the eve of WWI). Yet it is other people’s wealth, not their own — plus two billion low-cost workers quitting communism since 1989, of course — that has freed what used to be called Britain’s “working class” from work.

As in the West Midlands, cradle of the industrial revolution and thus another early entrant to Keynes’ brave “Post Employment” future, unemployment amongst the north-east’s ex-coal-mining population has risen to 9.8% according to the latest official data. Yet a further one-in-four people of working age on Tyneside has opted out of the jobs market entirely. Whether through choice or not (national data says only 7% of the eight million souls deemed economically inactive have taken early retirement), the welfare state — built in Keynes’ name after the Great Depression led to a second Great War — promises to feed, clothe and house people, whatever comes. So it’s little wonder that, according to one analysis, more than two-thirds of north-east England’s economy came from state spending last year, up from 59% in 2004. Nationwide, the total jobless figure has now risen to 27%, just below the historic peaks of the mid-80s, but only because the public-sector payroll has risen by 950,000 since the current administration came to power a little over a decade ago. Take away those jobs, and the horrific worklessness of 25 years ago would be back, but without the hope of falling inflation and interest rates, plus de-regulation and broadening free trade, to reduce it.

“If the gross domestic product of the entire world were distributed evenly, each of the world’s inhabitants would have more than enough to bring everyone out of poverty,” notes Nobel-winning Joseph Stiglitz, writing one of several essays recently published to commemorate and examine Keynes’ Economic Possibilities. The reason so many of us are working more hours than ever before, he guesses, is that financial rewards have been spread out unevenly. “Keynes ignored distributional issues, and failed to appreciate the extent to which global inequity would increase in the second half of the twentieth century,” as a review in the Times Literary Supplement puts it.

But what Keynes’ economic model didn’t miss, however — or at least, what the constant intervention built on his theories guarantees until the money runs out — is the chance to nip here and give away there…putting up a shop-front of busy-busy bees, just like Whitley Road’s fake delicatessen.

• “Unemployment in the UK has fallen for the third month running,” says the Financial Times of the January statistics, “but the workforce shrank sharply as young people took refuge in education instead of seeking jobs…”

• “A package of tax breaks and highway spending cleared the US Congress Wednesday,” says Reuters, “the first of what Democrats hope will be several efforts to bring down the 9.7% unemployment rate…”

• “Demand for labor has been falling steadily for decades as higher productivity has eviscerated the job count in agriculture and manufacturing,” says Edward Hadas at BreakingViews. “Leisure, healthcare and other service industries have taken up some of the job slack…but the ageing population will not necessarily change this overall trend very much.”

A keen eugenicist, Keynes once shocked his upper-class chums by demanding assisted suicide for bond holders…the “euthanasia of the rentier” in his phrase…so that taxes didn’t go on repayments, and savings could be more wisely spent by clever chaps such as himself.

How long before some new wit, faced with the economic impossibility of the West’s post-work society, suggests the same for the lower orders instead…?

Regards,
Adrian Ash, BullionVault
for Whiskey & Gunpowder

March 24, 2010

The Economic Impossibility of John Maynard Keynes was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

The GDP includes, to generalize, everything produced and consumed within a country or exported to other countries. In this “everything in one pot” view, everything counts, regardless of its causes or its effects on society. You contract an illness and buy medical care, you’re in a wreck and pay for car repairs, you buy cigarettes or alcohol based on an addiction, factories are rebuilt after a war, shells and fighter planes are built to destroy those factories, a lumber company cuts down a forest down to the last tree, the government spends billions on a new boondoggle, a corporation charges you monopoly prices, there’s a gas discount and everyone’s filling up. Even though all these things are symptomatic of social problems, they are counted as part of “the economy.” The genocide in Iraq is a boon to “the economy” (although, in the long term, war spending has a persistent negative effect on GDP and employment, either through inflation, higher interest rates, or increased taxes). Mindless consumption is a boon to “the economy.”

“The money in the big pot could be going to cancer treatments or casinos, violent video games or usurious credit-card rates. It could go towards the $9 billion or so that Americans spend on gas they burn while they sit in traffic, or the billion plus that goes to such drugs as Ritalin and Prozac that schools are stuffing into kids to keep them quiet in class. The money could be the $20 billion or so that Americans spend on divorce lawyers each year, or the $41 billion on pets, or the $5 billion on identity theft, or the billions more spent to repair property damage caused by environmental pollution. The money in the pot could betoken social and environmental breakdown- misery and distress of all kinds. It makes no difference. You don’t ask. All you want to know is the total amount, which is the GDP. So long as it is growing then everything is fine.”

– Jonathan Rowe, co-director of West Marin Commons

One might reply that this is a misguided criticism, since the GDP is precisely meant as a “kitchen sink” metric for all production. But the GDP is also often criticized for omitting to count many vast areas of trade, including housekeeping, production for self-consumption, black markets and underground economies (which in some societies are bigger than the white market), crime, and barter. The only logical conclusion is that the subject most conducive to growth is a person who is perpetually just sick enough to need medical care but not enough to stop working, morbidly obese from constant eating, always drives everywhere, hires maids instead of cleaning his own house, and does not interact with anyone but Wal-Mart workers.

Retail sales is another metric that gets trotted out in the mainstream media, especially around Christmas. The assumption here is that the more money people spend during the year, the better off “the economy” is. But this is counter-intuitive, as spending can be motivated by all sorts of reasons, including inflation, short-term biases, and outright fraud. People are tricked into buying goods by marketing campaigns and a panoply of retail tricks and lies. Retail sales do not take into account the quality of products or what they may do to our quality of life, and under that point I could repeat a lot of the things I said above. They also do not include the consequences of depending on big retail corporations for our livelihood, or the consequences of globalization on the third world.

Saving money is actually a very positive thing for the well-being of the individual, and yet increased savings (as we are seeing right now) wreak havoc on “the economy.” Unfortunately, people generally under-save and get in debt too easily for their own good, partially due to human psychology and partially due to the centralized banking system which causes scarcity of credit.

Measuring employment suffers from the same general flaws, as it does not take into account the nature of the jobs in question: not only the quality of the work environment, the wage, or the work structure (especially how hierarchical it is), but also what the work itself entails. It’s easy to see what a CEO, a commodities trader or a monopoly banker contribute to the corporatist system, but very difficult to see their contribution to the well-being of society. Even though they are “employed,” it’s hard to say that a soldier, a policeman or a bureaucrat, on the whole, contribute anything positive to society. Employment statistics, therefore, are at best very incomplete, and at worst completely misleading.

If these three metrics do not measure general well-being, or even how well the economy fulfills our needs, what do they measure? The GDP measures how much is produced and consumed. Retail sales measure how much is consumed, and how much surplus is generated. Employment measures how many people are participating to production. It is not the nature of production or consumption that is examined, but the concept of production and consumption themselves. The only possible conclusion we can arrive at, is that these metrics measure the health of the corporatist system, not well-being or the fulfillment of needs.

The underlying premise behind the use of these metrics is shared by all parties and ideologies on the mainstream political spectrum: growth is inherently good. Not all of these ideologies support the idea that growth should be completely unlimited and unchecked (Greenies, for instance, believe that growth should be tempered with environmental considerations), but they all judge growth as a primary objective. Not only that, but they believe that growth alone can solve socio-economic problems, the good old tried-and-true statist technique of “if we project enough force and throw enough money at a problem, it will eventually disappear.” If “the economy” keeps growing, goes the argument, then we’ll have more money to pump into health care, we’ll have more money to pump into education, we’ll have more money to pump into social programs, and everything will correct itself. A shining example of this insanity, Mosler’s Law, states that “there is no financial crisis so deep that a sufficiently large increase in public spending cannot deal with it.”

This is the same kind of argument that statists use when talking about government and corporatism, of the “we just need to put good people in charge” type. Putting better people or more money in a broken system won’t fix it. Solely producing more goods cannot change the balance of power in a society and cannot correct inefficiencies and immoralities caused by the very fabric of the economy that produces them. On the contrary, one can only expect it to make the problems worse, because it maintains the viability of the current capital-democratic system.

We must therefore question our belief in economic growth as a solution, as a necessity, as an inherent good, as a progressive factor. If it’s only useful to measure the cost of goods that are made and sold, then it has little relation to human life.

The real question is not “how much stuff is traded” but rather “how stuff is traded.” In the corporatist system, labour is traded under a highly hierarchical, authoritarian, central-planning oriented structure. The people at the top of this fictional legal structure reap the surplus, which they steal from their inferiors through the latter’s “voluntary” surrender of their freedom of labour, which concentrates wealth and therefore economic power. These imaginary structures then sell the produced goods, generally to individual customers who have very little economic power. They also generally get their raw materials from dispersed third-world entities, which have far less economic power than they do.

It should be easy, in fact it should be child’s play, for anyone to realize that such a system cannot serve anyone’s interests but those of the people at the top, and that its elite will necessarily try and succeed at subverting people’s desires for their own interests, in the same way that the elite in a democratic system always eventually succeeds at subverting moral values for its own power. Capital and guns have always been, throughout history, mutually dependent and mutually beneficial. Inequality of wealth or power cannot lead to anything but a loss of freedom in the long term, for the same reason that loss of freedom must lead to inequality of wealth or power in the long term.

Once again, I must emphasize that these are systemic features and do not depend on the bad intentions of any number of people. The vast majority of people have good intentions, and very few people (except very aberrated cases like serial killers) believe they are doing evil. We must therefore banish from our heads the image of the maniacal politician or executive rubbing his hands together, or tenting them à la Mr. Burns, saying “my eeee-vil plan is working perfectly.” The fact is that they are simply doing their jobs. That’s all that the system’s survival depends on, or the survival of any system whatsoever.

I already mentioned the concept of surplus. In the corporatist system, accumulating surplus is the goal of the vast majority of economic entities, and drives growth. In an economy where actual human needs, not hierarchies of wealth, direct action, the accumulation of surplus, and therefore growth, would no longer be priorities. We must see economic activity, not as an end in itself, but as the extension of how we see each other and what we consider to be proper ethics. Hierarchies betray a pessimistic, authoritarian and dogmatic view of human existence. Its consequences are to turn moral agents into tools of production and consumption (to spend beyond their means, to become trained consumers, and to produce more consumers). Efforts to counter this immorality must pass through counter-economic activities, personal de-growth based on our values, and a refusal to position our lives as part of a production/consumption framework.

Regards,
Francois Tremblay

February 11, 2009

Unlimited Economic Growth: What Is the Economy? was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

Eventually we came to terms, and the professor agreed to teach a few lessons at the bargain-basement price of nothing. Without further ado, here is professor Hardious Knocks of the prestigious School of Hard Knocks, teaching Relationship Management 101. Each lesson in this series is based on current events. There will be a written assignment after each lesson. Class is now in session.

Lesson 1
Relationship Management by the Book

“The stalled real estate market turned Stoneybrook at Venice into a very different community than its residents paid for: a half-built subdivision dotted with slow-moving construction sites and ‘For Sale’ signs.

“Many residents of the 560-acre east Venice subdivision said they are willing to weather those inconveniences. But the latest news — that mega-developer Lennar will dump more than $6 million in costs on homeowners — has Stoneybrook residents crying foul and preparing a lawsuit…

“Lennar had asked the county for designation as a community development district, a special taxing district that issues bonds to pay for things such as drainage and roads.

“The commission’s vote was 3-2 in favor of Lennar’s request…

“The tax will add more than $700 a year to some residents’ yearly payments…

“Residents said they were under the impression they would only have to pay for future maintenance through their homeowners dues. But commissioners ruled the developer did everything by the book.

“The decision, coupled with Lennar’s recent increase in some homeowner’s dues by $200 a year — another move residents say wasn’t properly announced — has a group of more than 150 Stoneybrook residents ready to take Lennar to court…

“Stoneybrook residents loudly applauded a speech by [resident community group leader Gary] Natiss, in which Natiss threatened a lawsuit and said the ‘only thing Lennar could be building in this county are license plates while they are wearing their little orange uniforms’…

“Others cited a petition, with more than 150 signatures, protesting the levy. Many residents held signs with slogans such as, ‘We have been Lennarred.’

“Lennar attorney Dan Bailey called the residents’ claims ‘reckless allegations.’ He said Lennar made clear there would be more costs when it started selling homes in Stoneybrook…

“Today, the complex is about 43% sold, which county staff said is less than two-thirds as far along as Lennar hoped. County staff said Lennar will fall almost $8 million short of its revenue goals for its first two years if the sales trend keeps up.”

Homework Assignment 1

• Discuss the need to get it in writing and read the fine print
• Is “by the book” the best way to treat customers?
• Does Lennar care about its relationships once the closing is finished?
• If you have to enter a lottery to start a relationship, what can you expect out of the relationship down the road?
• Is the proposed relationship the homeowners have with a lawyer likely to be beneficial to anyone but the lawyer?
• Does the commission just want the work done regardless of who pays?
• Is the commission just acting to avoid a lawsuit by Lennar?
• Do you even know who your commissioners are?

Lesson 2
You Are No Longer Needed. Goodbye.

“Centex Sees More Layoffs to Get to ‘Fighting Weight’

“Centex Corp. chief executive Tim Eller, during the company’s quarterly earnings call Wednesday, said the homebuilder’s head count is down 17% since the beginning of its fiscal year. ‘There will be more reductions in the [fiscal] fourth quarter,’ the CEO said. ‘We’re taking the necessary steps to get our balance sheet and our organization to their fighting weight,’ he added.”

Homework Assignment 2

• You think you have a job in an industry going gangbusters
• You are a loyal employee in for the long haul
• Does it matter?
• Who are golden parachutes for, anyway?
• Do you have a plan in case you are fired?
• Should you?

Lesson 3
Blame the Auctioneer

“Low Bids Take Glow off Property Auction

“One Cape Coral homeowner left an auction sponsored by the Miloff Aubuchon Realty Group Inc. elated her home fetched a $400,000 bid.

“Then, the bottom fell out.

“‘The bid came over the Internet. They said there was a computer glitch,’ said Rosemarie Leibert, 79. ‘They put it back on auction and the bid was $250,000.’

“Leibert declined to take the bid…

“Leibert was upset with the auction, calling it a ‘farce.’ She believes the bids were too low and the auction didn’t deliver serious bidders…

“Calling the effort a learning experience, Jeff Miloff, the realty group’s sales manager, said another auction planned for March could have different rules.

“The bids were so unrealistic the auction showed people didn’t do their homework, Miloff said.

“‘The next auction could have suggested opening bids,’ Miloff said. ‘People had no sense of what they were bidding. It made no sense.’”

Homework Assignment 3

• Is the auctioneer to blame for low bids?
• Will any bids come in if there are minimums?
• Who has no sense here, the bidders or the sellers?
• Exactly who failed to do their homework?
• Assign the blame in percentages to the bidders, the sellers, and the auctioneer.

Lesson 4
We’re All in This Together

“Foreclosures Put Added Burden on Association-Run Communities

“If you think you’re paying more to live in your condo, townhouse, or gated community, consider this: It may get worse before it gets better.

“Experts fear that with homes selling slowly, owners who can no longer afford payments may soon abandon them. If that happens, those left behind in communities run by associations must make up the missing share of money to maintain roofs, roads, landscaping, and pools.

“‘We’re seeing a 100% increase in the number of files turned over to us [by associations] for lien and foreclosure,’ said Gary Poliakoff, whose Fort Lauderdale-based law firm, Becker & Poliakoff, represents 4,200 associations in Florida…

“An association’s expenses are constant, so budgets are based on the community’s number of homes and apartments.

“‘Other owners have to make up the shortfall because service providers aren’t going to say, “We feel sorry for you and will reduce the cost,”‘ said Poliakoff.”

Homework Assignment 4

• If a condo tower is only 50% sold, who is going to pay those dues for the empty units?
• Should one believe that initial assessment the builder/developer stipulated?
• What happens if your neighbor defaults on his mortgage and the bank owns the property before the condo association failed to get a lien for assessments?
• How will increasing insurance rates affect your neighbor’s ability to pay?
• What about the guy 18 stories up whom you’ve never met?
• When the tuckpointing fails, how many new relationships will be formed?

Lesson 5
Who Do You Believe?

“The 0.8% drop in sales in December came after two straight months of improving sales, the first back-to-back sales gains since the spring of 2005.

“David Lereah, chief economist for the Realtors, said that even with the December setback, he still believes that sales of existing homes have hit bottom and will start to gradually improve.

“‘With fingers and toes crossed, it appears that we have hit bottom in the existing home market,’ he said.

“In other economic news, the number of Americans filing applications for unemployment benefits shot up last week by the largest amount in 16 months, reversing two weeks of big declines.

“The Labor Department reported that 325,000 newly laid-off workers filed claims for jobless benefits last week, an increase of 36,000 from the previous week. That was the biggest one-week rise since a surge of 96,000 claims the week of Sept. 10, 2005, when devastated Gulf Coast businesses laid off workers following Hurricane Katrina.

“But economists said they believe the low point for housing has been reached and they are forecasting a slow rebound in 2007. Because of that optimism, analysts don’t believe the slump in housing will drag the overall economy into a recession.”

Homework Assignment 5

• Is Lereah believable?
• Is the NAR believable?
• Who do you believe?
• If you cross your fingers and toes, does it help?
• What about wishing on a star?
• 36,000 more people formed a new relationship with their local unemployment office. Estimate the percentage of those above who were prepared for this new relationship.

Extra Credit Assignment
Lower Your Costs or You’re Fired

“Faced with a $195.6 million loss in the fourth quarter, the Miami-based homebuilder is telling subcontractors that it wants further cost cuts or they’ll be excluded for six months from future bidding.

“Lennar Corp. is asking its homebuilding subcontractors to cut their current charges by 5% or more or face a minimum six-month ban on bidding for work, a company executive said late Tuesday…

“‘As our customers continue to pay us a lower price for our homes, we must in turn pay you a lower price for your services,’ said a letter circulated to subcontractors in Lennar’s Orange Coast, Corona, Temecula, and Palm Springs divisions.

“[Lennar Southwestern U.S. regional Vice President Jeff] Roos, said similar requests are being made of Lennar subcontractors nationally.

“‘Every builder is doing the same thing,’ added Roos, who works in the company’s Western region office in Aliso Viejo. ‘Everybody understands that the market has softened…I think everybody realizes in times like this…they need to manage their business accordingly.’

“Roos said 90% of the subcontractors in the region had a positive response to the letters.”

Extra Credit Homework

• How likely is it that there was a “positive response” from the subcontractors when asked to cut prices?
• Will the subcontractors cut prices anyway?
• Find at least three more “special relationships” involving Lennar and report on them.

Hmmm. There seem to be some questions for professor Hardious Knocks about this extra credit assignment.

Mr. Plumber: I can’t cut my costs, I have bills to pay.

Professor Knocks: It seems you have a relationship problem with your bills. We cover that in Relationship Management 102. The first two lessons are “How to avoid paying your creditors” and “How to terminate expensive relationships.”

Mr. Carpenter: This sounds like extortion. My inventory is stacking up, and if I cut prices, I will lose money on the bid.

Professor Knocks: It does not matter what your costs are. You can lower your prices and lose money, or not lower them and do no business.

Mr. Economist: You can’t fool me. This extra credit assignment is really about deflation.

Professor Knocks: Don’t confuse falling prices with deflation or rising prices with inflation. I highly recommend that you take Deflation 101. The first lesson is how to put the horse in front of the cart. But if the carpenters and plumbers of the world go bankrupt, or if too many of those new relationships at the unemployment line end up in bankruptcy court, then yes, we are talking deflation. I look forward to seeing you in class next semester.

Please e-mail your finished assignments to HardiusKnocks@SchoolofHardKnocks.Edu

Class dismissed.

Regards,
Mike Shedlock ~ “Mish”

January 29, 2007

Relationship Management 101 was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.