The mother of invention

I thought I’d quickly highlight a point made recently by two great posts. First, here’s J.W. Mason:

There is increasing recognition in the mainstream of the importance of hysteresis — the negative effects on economic potential of prolonged unemployment. There’s little or no discussion of anti-hysteresis — the possibility that inflationary booms have long-term positive effects on aggregate supply. But I think it would be easy to defend the argument that a disproportionate share of innovation, new investment and laborforce broadening happens in periods when demand is persistently pushing against potential. In either case, the conventional relationship between demand and supply is reversed — in a world where (anti-)hysteresis is important, “excessive” demand may lead to only temporarily higher inflation but permanently higher employment and output, and conversely.

Now, from the blog direct economic democracy:

Of course we COULD choose to have just a few in the owning class and have everyone else rioting. BUT the owning class would get no benefit at all by keeping itself select. In fact that would make each member of the owning class less rich because the market would be smaller. Technological innovations have very high development costs relative to the unit cost of the product. A product such as a new medicine or an innovative electronic gadget becomes dramatically cheaper to produce per unit item if the development costs are spread across many more units sold. Imagine if we lived in a world with greater disparities of wealth than we do now. Imagine if the market for the latest medicine or electronic gadget was 1/10000th the current size. Those few who could still afford such items would have to pay massively more to cover the development costs. That dynamic works in the opposite direction too. Imagine if the potential market for the latest product was all seven billion people on earth. Then development costs would be spread so thinly they would hardly be noticed. Capital goods such as the robotic workers themselves also have the same economy of scale. It starts to make financial sense if many factories staffed with robots are to be built but not if just a few… [H]aving an economy directed towards technological development is critically dependent on having lots of potential customers.

It’s something of a cliché, starting with Marx and moving through Schumpeter, to gush over capitalist economies’ capacity to innovate, reinvent, and overthrow themselves. Profit-seeking entrepreneurs constantly strive to find new and/or cheaper ways to “serve customer needs”. In a capitalist economy, necessity surely is the mother of invention.

But with a very large asterisk. Capitalist entrepreneurs are motivated by the accumulation of money claims. In a capitalist economy, it is not mere necessity, but purchasing-power-weighted necessity that is the mother of invention. American entrepreneurs don’t compete to meet the needs of money-poor Africans or Chinese. Instead, Chinese entrepreneurs compete to meet the needs of citizens of the country money comes from. Within the US, entrepreneurs don’t much innovate to discover and address unmet needs of the poor. That’s a rough business. The poor have more needs than they can pay for already, and entrepreneurs hope to be paid. There is, of course, plenty of business activity on behalf of the poor, but the preponderance of it is in sectors that are in one form or another subsidized, e.g. health-care, education, and finance. The customer businesspeople work to please is the state, or quasi-state financial firms, who may or may not need to solicit the collaboration of or delegate some decision-making to actually poor “end-users”. Entrepreneurial energy always goes where the money is.

It is in this light that I think we should interpret, for example, problems of “general glut” or “abundance”, as Izabella Kaminska puts it. Actual scarcity has not, in fact, been overcome. We have not achieved overcapacity in aggregate. In a depression, businessmen perceive overcapacity all over the place. But that is a distributional phenomenon. There is an abundance of goods and services relative to the needs and desires of people with purchasing power to consume. There is no such abundance in an absolute sense.

Abundance, ultimately, is a choice variable for the political class. “We” are presented with a devious choice, a Faustian seduction. We can choose abundance, for ourselves, by maintaining a distribution under which a relatively small fraction of humanity claims a sufficiently large share of world purchasing power that the economy’s capacity to produce will remain safely in excess of that group’s needs. Or we can choose scarcity, by distributing purchasing power widely enough to put our productive capacity under pressure, leaving all of us, even the affluent, at risk of actual shortage.

If we choose the abundance, we can expect Tyler Cowen’s “Great Stagnation” to continue. Technology will stagnate, because purchasing-power weighted necessity is the mother of invention, but people with needs have little purchasing power while people with purchasing power have trivial needs. If we choose scarcity, we take a risk. We may fail, and end up impoverished relative to where we (some of us) might have been, had we chosen the more conservative path. But purchasing-power-weighted necessity is the mother of invention, and in the past, mass affluence has inspired extraordinary innovation in pursuit of the mass dollar. If you believe in the power of capitalism and technology, then you should favor choosing scarcity, both for your own benefit (robots, yay!) and to expand the “we” by whom some level of abundance might plausibly be claimed.

Political conversation often obsesses over a pathological and ahistorical fear of idleness among the non-affluent. Given the choice, if not absolutely compelled by necessity, wouldn’t “they” become lazy slackers, eating diabetes chips and watching monster trucks on teevee all day? Or would they lift themselves up, spend a few hours at the gym, and take advantage of their leisure to find creative and productive use of their capacities?

Human fears project outward, and so it is for the political class. For as a group, it is “we”, not “they” who are choosing comfortable idleness. They are desperate for jobs. But we are collectively slouched on easy chairs in the sky, enjoying decent stock returns, low inflation, and remunerative careers. The question is whether “we”, the relatively well-to-do who call the political shots, have the moxie to shed our pantsuit pajamas and take a chance on capitalism’s capacity to transform the world. So far we have chosen a comfortable depression, which makes for grand debates and entertainments. Would you pass the remote? Shall we watch Maddow or O’Reilly or Colbert, or read yet another self-righteous blog post?

Update History:

  • 30-Apr-2013, 4:30 p.m. PST: Fixed too-general google books link to Mating by Norman Rush; fixed spelling of “asterisk”, was “asterix” like the comic character, thank you William Pietri!
  • 1-May-2013, 8:35 a.m. PST: Avoiding duplication of “constantly”: “economies’ capacity to constantly innovate”
  • 24-Mar-2013, 9:25 p.m. PDT: “enjoying a decent stock returns”
 
 

30 Responses to “The mother of invention”

  1. vlade writes:

    I actually disagree with the “mother of invention” meme.

    Enterpreneurs (as opposed by inventors – usually these two don’t overlap that much) go for profit. (sustainable) Profit by innovation is the hardest one to achieve – the easiest one to achieve is by cutting cost, the next one by capital expenditure. Only when everything else fails, invention kicks in.

    The reasons are really simple – invention tends to be large up front expenditure and risky. Thus the expected payoff of invention is relatively small, and to really pay off, you need a large portfolio (which is why it works for society, large portfolio of inventors failing doesn’t matter as long as some pay off handsomely). You have to be large to afford a large portfolio, but at that time it becomes more cost efficent to invest into lobbying and/or buying small competition (i.e. covertly or overtly manipulate the market) – again, larger and certain payouts in short/medium timeframe.

    You can look at it that the capitalists tend to find the easiest way to get profits – and invention is that only when everything else fails.

  2. reason writes:

    Steve,
    this is
    a. Very clearly written and true
    b. Not quite enough – because the apologists for the very rich will deflect this by pointing to the undeveloped world and asking if we are suggesting we should be subsidising them (rather than producing more equitable distribution everywhere). i.e. They will make it an international redistribution question rather than a interpersonal redistribution question. And somehow, that will in the end benefit only the elites in each country, because aggegate demand will remain chronically insufficient.

  3. stone writes:

    reason@1, I guess to some extent neoliberalism uses wealth inequality at home as a way to drive wealth inequality between countries. Money flows to where there is more asset price inflation than CPI inflation and wealth inequality helps to move asset price inflation ahead of wage inflation.So we screw our own country up so as to screw the rest of the world up even more :).

    My hope is that rich people in the rich world could actually have all of the consumption they want even if everyone across the world was living in luxury. All that would be foregone would be stores of wealth that are not going to be drawn down ever under our current way of doing things. If people never looked at their account statements, they wouldn’t be any the wiser. Oil might be unaffordable but the massive demand would cause funky new renewable technologies to be developed etc etc.

  4. stone writes:

    vlade@1, I guess under a high pressure inventive scenario, people will not be seeking sustainable profits. It will be a rapid succession of short lived profits. The latest technology will do great for a couple of years, then be junk and the next thing will take over.Thomas Edison had a lifetime of such ventures didn’t he? I think the crucial thing is that a vast swathe of the global population need to have the financial freedom to have a go in that way. People do have an eagerness to see their ideas come to fruition; money is not the only motivator.
    As things currently stand, simply owning stock in Coca Cola or whatever enables exponentially aggregating financial power. I guess that is what we need to forgo.

  5. stone writes:

    I also think it is crucial to see not just the untapped potential of currently unemployed people etc but also the untapped potential currently locked up in “farting around”. If there was enough demand, then people wouldn’t be sitting in endless meetings about marketing strategies and such like. Everything made would be sold – demand could be at a level only seen in WWII -but for peace.

  6. Actual scarcity has not been overcome because we still allow knowledge use to be defined as “scarce”, in the same manner as physical resources. While physical resources benefit from centralization flows, knowledge use needs to take place in distributed and decentralized local settings. The way to do that is to allow knowledge to be captured in all its aspects for use together, instead of separately contrast institutional terms. This is what I have been working on for ten years and I am anxious to continue, only I fear that the nominal targeting setting in which it could effectively take place may be shot down, and so must concentrate on assisting in the rescue of that idea in the present.

    If nominal targeting is rejected, we have no guarantees that we can effectively harness our real wealth, because nominal targeting is very much about our collective capacity as human beings. As long as interest rate targeting is the primary measure, the source of wealth will always reside outside ourselves and even if we were to effectively collect wealth use, we would have no way of knowing it is actually well represented in a monetary system which would rather measure the wealth capture opportunity of banks instead.

    As for robots, they can do our repetitive high and low skill work. Meanwhile, we can reclaim and integrate high and low skill non repetitive work so as to end the hollowing out process and continue real growth. That is, provided we get the right monetary measurement in place to make this happen.

  7. Zach writes:

    people with needs have little purchasing power while people with purchasing power have trivial needs.

    I love this, but maybe use trivial on both sides.

  8. Steve, this is a fantastic post.

    “Capitalist entrepreneurs are motivated by the accumulation of money claims. In a capitalist economy, it is not mere necessity, but purchasing-power-weighted necessity that is the mother of invention.”

    You wouldn’t believe how well this sums up a vague idea I’ve had for the last decade. Incredible work.

    The idea was something like “all of the significant inventions we’ve had are aimed at the middle class. Rich people have always had great food and large clean houses. But the things we consider worthwhile – phones, sewage treatment, cars, computers, safety – are only possible when many millions of people can afford them.” But it was missing something quite important, and that phrase encapsulates what it was missing.

    This choice between mass prosperity combined with genuine shortages or focused prosperity combined with abundance for a few…well, it’s not a popular message, but an honest one.

    Morgan Warstler is going to counter with a refinement and say something like “We just need the top 10%-20% to be large and prosperous enough to drive innovation. Those are the only people actually working hard anyway.”

  9. Squaring this circle is easy and get to Caplan’s false choice today from economists on efficiency vs justice / equality.

    Equality should be measured in time scale by economists.

    HOW FAST do the inventions enjoyed by the rich become accessible by the poor?

    If it takes 20 years for the avg poor person to get a smart phone, those poor people are less equal than a system where poor people get a smart phone in 7 years.

    Wealth has nothing to do with equality in economic terms. No one today would choose to live in a land 500 years ago where there were no smart phones.

    Next point: As the curve of history compresses (ie HOW SOON are smart phones invented?) the time scale to equality of technology access shrinks as well.

    In a world where the Internet is commonplace by 1845, it takes only three years for the avg poor person to have a smart phone.

    Efficiency is ALAYS the more fair and the most just, bc it shortens time scale to new goods for everyone. Productivity gains are ALWAYS good, bc there are literally unlimited wants, demand is totally assured. The savings are always invested.

    Per our conversation yesterday though, CONSUMPTION is the key hedonic metric, not demand. This is complicated bc digital consumption makes it impossible long term to keep nominal inflation going.

    Repeat after me: 0-2% inflation is the new 1970′s inflation. Because mp3s on pirate bay. Generally speaking. Corollary, 907′s inflation today is the new weimar.

    Lastly, there is a TON of money, in taking care of poor for entrepreneurs.

    Since 1998, public employees at state, local, federal level have been given wage increases of nearly $500B over inflation. They have delivered no productivity gains to speak of.

    Keeping $1 for each $5 saved, while we take that money back is $100B in new annual technology revenue – it is 2.5x the size of online advertising

    This is the new future boyos, when someone says there isn’t a profit in X, thats the fattest calf in the pen.

  10. We should never fight the 80 / 20 rule.

    At any one snapshot in time, the top 20% will produce 80% of the economy. The bottom 80% will do the other 20% supporting the work of the top 20%.

    This is a fact. We shouldn’t fight it.

    BUT there are a couple qualifiers the fairness left should remember before freaking out:

    1. the top 1/3, maybe more, will spend part of their earning lifetime in the top 20%.

    2. the earlier and later people work, the greater the % of peeps will touch both groups.

    3. the folks who work the earliest, and savers have a better shot at reaching the top 20% and staying there for a longer piece of their lifetime.

    NOW THEN

    The key metric as Mike Sankowski mentions, is what is the distribution of wealth within the top 20% at any one snapshot in time?

    Essentially, to work with the cold brutal fact of the snapshot 80 /20 rule, we want as many of the 20% as possible to want yoga lesson, manicures, food prep, et.

    The service economy literally demands #distributism.

    Finally, reason just needs to accept that Guaranteed Income and Choose Your Boss is most efficient market friendly way to do the safety net, which MEANS it will produce the greatest amount of consumption for those that can’t produce enough for themselves.

  11. We should never fight the 80 / 20 rule.

    At any one snapshot in time, the top 20% will produce 80% of the economy. The bottom 80% will do the other 20% supporting the work of the top 20%.

    This is a fact. We shouldn’t fight it.

    BUT there are a couple qualifiers the fairness left should remember before freaking out:

    1. the top 1/3, maybe more, will spend part of their earning lifetime in the top 20%.

    2. the earlier and later people work, the greater the % of peeps will touch both groups.

    3. the folks who work the earliest, and savers have a better shot at reaching the top 20% and staying there for a longer piece of their lifetime.

    NOW THEN

    The key metric as Mike Sankowski mentions, is what is the distribution of wealth within the top 20% at any one snapshot in time?

    Essentially, to work with the cold brutal fact of the snapshot 80 /20 rule, we want as many of the 20% as possible to want yoga lesson, manicures, food prep, et.

    The service economy literally demands #distributism.

    Finally, reason just needs to accept that Guaranteed Income and Choose Your Boss is most efficient market friendly way to do the safety net, which MEANS it will produce the greatest amount of consumption for those that can’t produce enough for themselves.

  12. vlade writes:

    @stone – that’s why I distinguish between an inventor and an entrepreneur.

    We’d support inventors, but out system actually supports entrepreneurs – at the skin level, it may seem as no distinction, but for me it’s actually a very crucial one. Inventors seek new stuff, entrepreneurs seek (in general) profits. Nothing wrong with it, and often investors need entrepreneurs, but profit on its own is not a driver of progress as some people seem to believe. Profit _can_ drive progress, but mostly when there’s no other alternative to generate profit (it’s almost by definition. If there was an easier way to profit, someone w(sh)ould take it first), and alternatives tend to be a surer way (which is why in a recession most people cut costs instead of spending more money on innovations. Even though the evidence shows that those who successfully spend money on innovation do better – although it doesn’t say what happens to those who fail)

    Edison is a good example of a large portfolio of inventions (so that some pay for themselves) – unfortunately, these days it’s not that feasible anymore for a one-man band (and Edison wasn’t a one-man band to start with). Look at biotech startups – most of them are a single (or a couple) trick ponies. And they have to be, for you need to specialize to get anywhere quickly.

    If you look at a lot of development in the mid 20th century, lots of stuff was done by inventors w/o entrepreneurs. Basic research is only very rarely supported by entrepreneurs, as it’s the extreme form of invention (you may get REALLY big win, but you’re guaranteed to get a REALLY big bill).

  13. Peter K. writes:

    Morgan, as Frank Zappa would say, “don’t eat the yellow snow.”

    Back to the topic at hand, recently the mother of invention was Khrushchev who banged his shoe on the lectern at the UN and sent Sputnik into orbit, thereby creating the interstate highway system, NASA and DARPA/the Internet.

    After the Cold War ended, entrepreneurs invented financial instruments like credit-default swaps and derivatives to turn money into more money.

  14. Ben writes:

    It’s definitely worthwhile to think of abundance as abundant relative to demand instead of simply “a lot”. But I also think it’s important to distinguish between abundant relative to actual demand (i.e. everyone who can and will pay) and abundant relative to potential demand (i.e. everyone who would pay if they had the money). Because a lot of the abundance people are talking about is the latter. And I’m not sure I’d say the former is “abundance”, at least not in the way I’m used to using it.

    Also, how much are elites/rich people choosing to capture all the abundance, and how much is technology choosing it for them?

  15. stone writes:

    PeterK @13, I’ve also thought just the same- capitalism needed communism for capitalism to work. Simmilarly, apparently the MacArthur plan in post WWII Japan was motivated by the imperative to prevent communism having any attraction for any Japanese – the Japanese economic miracle was a result. Perhaps without communism lurking in the background as a threat, Japan wouldn’t have had land reform and widespread prosperity.

  16. Tony W writes:

    Some things, no matter how much innovation you throw at them, will not trickle down to the poor simply “because capitalism”.

    Health insurance is a good example. At least in any time frame worth talking about, we are not going to make surgery or cancer treatment so cheap and accessible that you can get it from vending machine. Another example I can think of is rent. Robots aren’t going to make land cheaper nor will they replace landlords and be programmed with an altruism function.

    This stuff is obvious, but I say it because of the fallacy that if we just treat our top 10 – 20% well enough, we’ll get all the stuff they have. What they have which is invaluable is the very insurance like role of wealth. Sure, the smart phone a billionaire uses might be attainable by someone near the poverty line, but the real thing that the wealthy person owns is their own time and economic security not dependent on the whims of the labor market.

  17. reason writes:

    MW @11
    “Finally, reason just needs to accept that Guaranteed Income and Choose Your Boss is most efficient market friendly way to do the safety net”

    I do accept it, believe me, I’ve been pushing that idea for years (although I prefer to call it a national dividend).

    And I’m reasonably well off and have no interest in having a smart phone. What a lousy example.

  18. Morgan Warstler writes:

    Its always a bummer when peeps doing economics are all ying and no yang

    Fisher, Keynes, Friedman, and now Sumner – real ideas GIVE and TAKE. They appeal to both the mother and father in us all.

    Keynes required the state not to grow in good times.

    Friedman said low rates are a sign of tight money.

    Sumner means that whenever we hit 4.6% NGDPLT we raise rates and any unhappiness at that point obviously is caused by govt. regulation – it is structural, for sure.

    so reason, whenever we talk national dividend its really important we equally emphasize the demand of the user that they be put to work, there is no “MOAR LEISURE” or “JOB SHARING” – or whatever else Izabella Kaminska is grasping at.

    You can be a painter, but you have to be good enough to win patrons at $40+ per week. You are still competing.

    now that we know everyone has to work for their GI, the question is who best puts them to work, the elites, the technocrats, or their neighbors who live in joy and suffering next to them? Of course it is their neighbors who have a GI to spend and have near unlimited wants, and could use some super cheap labor to lever up the PPP on their GI.

    —–

    Please get a smart phone! If you wait, we’ll have to buy you one. Soon they will be a civil right.

    We can’t close down 80% of the govt. buildings and deliver lots more 24/7 govt services unless the whole enterprise of govt. becomes a cloud based platform – until everyone is guaranteed a smart phone to access it.

    As Gavin Newsom says we want a new govt like Facebook that has 3000 employees, not one like McDonalds that has 1.7M.

  19. john c. halasz writes:

    Historically, capitalism has been, despite periodic crises and even catastrophes, relatively effective in inducing increased productive efficiencies and innovations in consumer products. But efficiency in consumption has been anathema to the entire capitalist “ethos”. So then, what constitutes “abundance” and “scarcity”? how do “we” address the core contradiction of capitalism, over-consumption for the sake of over-production, the artificial perpetuation of “scarcity”?

    Capitalism is defined by the predominantly private ownership of the means of production, such that investment is determined by the profits accruing to such ownership and control and distribution by production incomes. Which means technical possibilities will only be selected in accordance with the system “imperative” of maintaining the “value” of invested capital, by means of maintaining or increasing the rate-of-profit, regardless of any overall full natural resource or social cost accounting. If technical innovations increase the level of productivity and potential output, they will only result in reducing the level of direct employment involved or in increasing the level of superfluous consumption. And nowadays, with the IT revolution having decreased the cost and increased the flexibility of capital goods and thus increased their substitutability for labor, (and not just on the level of “physical” capital, but also “intangible” capital, i.e. the scope and flexibility of business organization), it seems as if the distributive mechanism for maintaining adequate effective demand has broken down amidst a plethora of potential output, despite billions of human beings with unmet basic needs, and capital(ists) must turn to to rent-seeking strategies in place of further productive investment to maintain their dominant position.

    And to that, that the current production system is environmentally unsustainable and that there is a vast need for technical innovation and productive investment to replace our current infrastructure and capital stocks, which means “destroying” the value of much extant capital and the financial claims placed upon it. Oil majors, for example, will never become “green”, (dispite all the false advertizing from BP, which came to bite it in the ass), since their entire capital stock and technical expertise is invested in oil and gas extraction and their “value” can not be transferred to another sector, lest they lose their market-dominant rents, (not to mention that portion of their market capitalization that is due to rents of as yet unextracted oil that they still have claim to). In the future, for elementary reasons of thermodynamics, surface land transport will have to be almost entirely electrified, which means that both the “value” and the power of the oil sector will have to be destroyed. But then what about the automobile industry? Does 200,000,000 personal vehicles for a nation of 300,000,000 people constitute an efficient transportation system? When 60% of the energy that they consume, (not to mention other materials), is used up in their manufacture, before they’re even driven and when the average vehicle is used 75-90 minutes per day? A high-tech, computer optimized, and prompt and personalized mass transport system is perfectly feasible technically, (since electrical motors themselves are, what, 130 years old?) There is no need to wait on exotic battery technologies, to maintain the model of private ownership on both the production and consumption ends, (as with Google’s and Audi’s testing of completely automated automobiles), which would just place further stresses on the earth’s resources and technologies. But then what would be the agent or agency to bring about such development and investment? Certainly not “us”, eh?

    But then such a truly efficient collective system of sustainable production and consumption would require, as a matter of collective choice, not just a re-distribution of monetary claims, but of employment and educational opportunities and modes, as well, eh?

    Thinking outside the box we are currently trapped in, rather than just tinkering around the edges, might be the opportunity our current crisis and stagnation is affording us.

  20. stone writes:

    john c. halasz@19, that “direct economic democracy” blog is all about the idea that simply replacing current taxes with a uniform tax on gross assets could end up turning everything around. It would ensure that capital was always put to use so as to earn the means to pay the tax. It would cause enterprise risk to be something worth facing rather than something best avoided. It would cause money to reflect the reality that every unused hour of machine or human time is permanently lost.

  21. [...] A beautiful post [...]

  22. Peter K. writes:

    stone@15

    And I’ve read that Japan’s meteoric rise from agrarian nation to economic and technological powerhouse “GODZILLA!” demoralized the Soviets. Happy Mad Day!

  23. Mercury writes:

    No but the poor benefit hugely…eventually, they just usually (*gasp*)don’t get to be in the front of the line. People actually starved to death in the US during the depression of the 1930s. Today you can be “poor” and still have A/C, cable TV on a flat panel, a cell phone, washer and dryer, a car and access to many cheap, life-sustaining medications – all things that were developed by people looking to make a buck and originally marketed as luxury products (more or less).

    Is this a trick question? As long as these people vote for more government, government is not incentivized to arrange things otherwise. Look out the window.

  24. Mercury writes:

    Oops. The referenced quotations are:

    1. “In the US, entrepreneurs don’t much innovate to discover and address unmet needs of the poor.”

    2.”Political conversation often obsesses over a pathological and ahistorical fear of idleness among the non-affluent. Given the choice, if not absolutely compelled by necessity, wouldn’t “they” become lazy slackers, eating diabetes chips and watching monster trucks on teevee all day? Or would they lift themselves up, spend a few hours at the gym, and take advantage of their leisure to find creative and productive use of their capacities?”

  25. don writes:

    Isn’t this just Keynesianism ?

  26. [...] Fascinating take on why capitalism won’t save us: [...]

  27. Peter N writes:

    Viewpoints:

    1) Psychology and Game theory have shown, that short circuiting a reward feedback system will destroy it.

    If it’s easier to get corporate earnings by lobbying for rents rather than producing products, this will increase until it produces a monopolistic oligarchy or a severe enough public reaction to halt the process. The farther it goes, the more likely this reaction and its aftermath will be unpleasant.

    If it’s less expensive to produce products without workers to the extent that it decreases the number of consumers and this is an increasing trend, then this is an example of something that can’t go on forever and will thus stop (Stein’s Law applies). We’re only discussing what stop we’re going to get off at. The idea that the destruction of old jobs will lead to new better necessary jobs is a mirage. We may be able to generate a sufficient number of unnecessary jobs (new wants), but they would, in the end, all have to be personal services, and we shouldn’t count on this outcome.

    2) Ecology

    A more diverse ecosystem is a more resilient one. This doesn’t necessarily mean more stable, but this space covered the topic of fragility pretty thoroughly recently.

    The economy where the rich produce for the rich based on rental rights is very non-diverse. It may very well be stable, but it will also be fragile.

    3) Goals

    Morgan has something like the right idea. The best goal is to maximize some weighted welfare function. This should not be average welfare (e.g. 5/averaging Bill Gates with the population of Mali). Median welfare is better, but best would be some function that produces a high rate of progress of that welfare with floor. Something like maximizing the median of the 5/2 root of income.

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  29. double bubble triple dip writes:


    anti-hysteresis — the possibility that inflationary booms have long-term positive effects on aggregate supply. But I think it would be easy to defend the argument that

    ~~SRW~

    Quite! I have been suspicious more than once concerning LBJ’s taking sides against Mayor Daily’s argument to bring the troops home from Viet Nam. Anti-hysteresis could easily have been LBJ’s hidden motive for thinking, “A sudden depletion of workers from CONUS will directly drop the unemployment rate by removing the previously unemployed draftees, but indirectly open employment slots of departing recruits to sop up workers not-subject-to-the-draft.”. Leaving troops in Indonesia long enough for anti-hysteresis to set in was his hidden motive. Was LBJ just a modicum brighter than 43rd President? 43rd who squandered the non-extant-budget-surplus on Keynesian-ism just before Democrats set up shop? Set up just in time to take advantage of Bush Dynasty anti-hysteresis? Difficult to say what activity goes on inside a non-mind.

    Also difficult to prove this time around that anti-hysteresis does not have a coefficient of i.

    -1^0.5

  30. From the quote by Mason, ” in periods when demand is persistently pushing against potential… “excessive” demand may lead to only temporarily higher inflation but permanently higher employment and output, and conversely.”

    It is good to push up against the LRAS curve as is implied in this quote. Inflation targeting has damaged this dynamic.