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Home Topics in Depth Economics The new economics and its unique set of problems

  • PiedPiper (1188 posts)
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    The new economics and its unique set of problems

    Food for thought/discussion. Recommend reading the whole article about the role of unions, etc. in today’s changing world.

    No easy answers, and some issues have only become more intense and inflated since this discussion first began.

    This is a dated but still relevant interview (1995) on that changing world (moving away from industrialization) by Alvin Toffler:

    Perspectives For A Changing World

    (excerpt) –

    I have, next to my desk, a brand-new 1994 economics text for graduate students which still says the factors of production are land, labor, and capital. The world “knowledge” doesn’t appear. If we’re still publishing graduate economics texts that say that–I’m not in favor of book-burning, but I would send them to some storage bin somewhere.

    Recycle This Book!

    [laughs] Yeah, recycle this book!

    We need to really start from scratch. The problem with employment, as we’ve written and I’m sure you’ve heard us say, is that in a Second Wave economy, if you have a million people unemployed, you can stimulate the economy with Keynesian or other macroeconomic manipulations. You can create a million jobs, and you have solved your problem. In a Third Wave economy, you have a million people unemployed, you do the same thing, and you succeed in creating ten million jobs, but these people can’t do those jobs. So the problem of unemployment has gone from quantitative to qualitative. It’s a question of skill matching.

    So that’s why the Clinton administration says we need to have retraining. There’s several problems with that; one is it overlooks acceleration. By the time you’re trained, the skill requirements may be changed again. And secondly, it implies a much better forecasting capability than we have as to what skills will be required.

    Indeed, we now know that it isn’t just people without skills who are unemployed, it’s tens of thousands of rocket scientists with the wrong skills. It’s not a question of education or no education, training or no training; you’ve got to hit a moving target.

    That says to me that we’re going to be living with structural unemployment for a long time, and that that is going to include large numbers of educated middle-class people who will at least go through a few months of unemployment, and maybe, with luck, some retooling during that time, and maybe, with luck, be able to get back into it.

    That will change the politics of unemployment. It’s no longer just Those People down in the ghetto or the barrio or the poor part of town who are potential victims of unemployment, but it’s us. I think that will force political attention to the problem, and hopefully we’ll get some fresh ideas out of it.

    My own view is there’s no solution to the problem given the current definitions that economists use and the current accounting systems that companies have. That you can’t solve the problem within the constraints of the current Second Wave notions of economics.

    It’s a garbage-in, garbage-out situation.

    Yes. You have to know who is really productive in the economy. And the definition of “productive” isn’t what it once was.

    Exactly. The economists’ definitions of production are hopelessly anachronistic and very, very narrow. Because they start with “the only thing that matters is something that involves an exchange of money,” basically.

    But we now know that mothers raising kids, how they raise their kids, has a big impact on productivity in the economy.

    So you have to redefine all the economic terminology, the categories that we have–what is efficiency, what is productivity? Forget GNP or GDP, and so on. This is going to require an intellectual revolution in economics. I think we’re beginning to move in that direction. Nevertheless, governments are still listening to these Merlins, people with supposedly magical skill to manipulate.

    One of the first lessons of the new economics, which is true in the old as well but has been radically ignored, is that you can do all the macroeconomic manipulation you want, but people don’t live in the macroeconomy, they live in the microeconomy.

    Take Latin America. Mexico, Brazil, Argentina, they’re all patting themselves on the back for having licked inflation and for having begun to privatize and for having begun to carry out what is in effect the International Monetary Fund formula. And indeed, people are making money–until the Mexican peso collapsed, but leave that aside, even.

    The fact is, if you talk to the cab drivers, they’re not doing so terrifically. You talk to the ordinary people, they’re not doing so terrifically. We’ve had that experience for many, many years.

    One of the reasons for our misestimating what’s happening in these places is we pay too much attention to the macroeconomy and not enough to the microeconomy. This is why a lot of investors got stuck in Mexico, and why they will get stuck in other countries, because they read the same Wall Street Journal articles, they read the same financial information, drawn from Newtonian models, and they think that’s an economy.

    Heidi and I believe that if you want to understand an economy, you’ve got to understand culture. You’ve got to understand social institutions. You’ve got to understand politics. You’ve got to understand a lot of things other than how the money is flowing through the system.

    So I think the next major intellectual revolution has to be in economics. That will make a great many people very unhappy.

    What are the winners going to look like?

    My hunch? They’ll have short lives. [laughs] Just because everything is more ephemeral.

    Like the computer business–the people who were the gods ten years ago are mostly gone.

    Right. And I think that is, in fact, a consequence of acceleration. You live in an accelerated environment, that’s the nature of the game.

    I can’t tell you what technology or what business is going to succeed, but I think it’s important for people to understand that the Third Wave is not just happening in the United States, nor is it just happening in Singapore and Japan and these newly industrialized countries. Cells or little implantations of Third Wave technology and Third Wave people are popping up in the strangest parts of the world, from Brazil to Bangalore. We’re buying software from India, and India is buying software from Vietnam.

    On the one hand the complacence on the part of the United States and Japan and other countries is going to do them in. And on the other hand, the obsolete kind of third-worldism that we saw in the ’70s and ’80s, the south-against-the-north rhetoric, is going to hurt the poor countries, to the degree that they’re still thinking along those lines.

    I think we’re going to see amazing technological breakthroughs, which I cannot forecast, popping up in the most amazing places.

    What should the smart little country be doing right now?

    I’m going to make a cynical statement. The smartest thing a small country can do is get rid of its peasants. That’s exactly why Singapore is Singapore.

    Singapore never had to deal with a First Wave population. When Malaya was broken up in the early ’60s, Singapore may have felt that it was being cheated of population at the time. But the best thing that ever happened to it was it didn’t have to deal with an impoverished First Wave peasantry.

    I’m being cynical and being facetious about it, but the fact of the matter is that countries saddled with large First Wave peasant populations, especially if those peasants are uneducated, obviously have the worst drag on the system. Those countries that have an at least reasonably educated population have a better chance, if we still think in terms of countries.


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