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Simon's insight is not so easily dismissed even if you can refute some of the numbers he had given in support of it -- that there is no reason to presume that human population growth actually be limited by merely linear projections of resource use and availability into the future because people can adapt to scarcity.

This apparently makes sense to adherents of Neo-Classical Economics. Perhaps that explains why they deny that financial bubbles occur, that they can be seen as they inflate and that they can be managed in the long term interest of society. A better question just now seems to be if the world economy can successfully recover from the most recently burst bubble.

To others, this "insight" seems more like folly and wishful thinking. Prudence would seem to dictate that we take seriously the pending depletion of the fossil energy resources on which the increasingly complex societies of the last two hundred years have been built. Without access to the highly favorable EROIs that were available until the 1970s, much, if not all, of that complexity could undergo a dramatic collapse in the not too distant future.

The problems for the next two decades are likely to be learning to deal with declining marginal returns on the investments required to provide the energy to drive our cultures. Renewable energy sources provide positive marginal returns. I have seen figures of up to 20:1 for wind. But that may be inadequate to support systems that were built up during times of 50:1 returns.

My fear is that by denying the existence of foreseeable constraints we will run into them very hard and, instead of moving gracefully to a scenario in which we rely on 20:1 returns from renewables, we end up in a near total collapse of the culture. We have to consider that, by blindly following hopeful scenarios and denying the possibility of negative scenarios we could end up needing to rebuild all of our coastal cities on higher ground in a world in which 20:1 returns on investment are the best obtainable. And we could end up having to do that in a social context where a tiny minority possesses almost all disposable wealth and control of the apparatuses of government and has no interest in the survival of the bottom 90% of income earners in the society. But that might get us back to a population less than 10% of what we have today.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Nov 11th, 2010 at 04:53:30 PM EST
[ Parent ]
There are two arguments being conflated here (and I don't mean just your comment).  One is an efficiency (or growth) argument, and one is an equity argument.  That the world will recover from the latest economic calamity is a forgone conclusion -- of course it will, because it already has. Neoclassicals argue that collective efforts should not try to intervene in this process, while Keynsians argue that collective action should be attempted.  The reason Keynsians argue this, however, is NOT because it will lead to higher growth than would occur otherwise.  Rather, it is because it will prevent the poorer among us from having to experience deprivation.  That is, Keynsian analysis is, first and foremost, an equity argument, not a growth argument.  Keynes framework, even in its later Minsky versions, doesn't argue that the world will collapse if government doesn't stimulate demand and employ people.  Rather, Keynes framework argues that doing so keeps more people alive and better off than otherwise.

Neoclassical economics, on the other hand, doesn't argue that the poor will be better off if government keeps its hands off the economy and lets the forces of "creative destruction*" do its necessary work in a recession.  Rather they just argue that more growth will happen if it's done that way instead of through stimulus packages of some kind.  

Both views may be mutually consistent. We need to keep that in mind here.

*I know. "Creative destruction" is not a neoclassical idea, but it has been invoked, improperly, to apply to the current crisis and the imagined purging that it performs on weak parts of the economy.

by santiago on Thu Nov 11th, 2010 at 05:43:36 PM EST
[ Parent ]
That the world will recover from the latest economic calamity is a forgone conclusion -- of course it will, because it already has.

In which fictional alternative universe?

Strip out financial sector income, and the world hasn't recovered. And until and unless the non-financial sector recovers, the financial sector incomes are Monopoly money. The stock market produces nothing, runs nothing, builds nothing, creates nothing. A stock market rally therefore does not indicate a recovery. A recovery in wind turbine production, a recovery in steel production, a recovery in employment, those are real indicators of a real recovery.

The reason Keynsians argue this, however, is NOT because it will lead to higher growth than would occur otherwise.

No, of course not. The fact that it demonstrably does lead to higher growth is a nice aside, but not central to the point.

Neoclassical economics, on the other hand, doesn't argue that the poor will be better off if government keeps its hands off the economy and lets the forces of "creative destruction*" do its necessary work in a recession.  Rather they just argue that more growth will happen if it's done that way instead of through stimulus packages of some kind.

The neo-classicals are demonstrably wrong on the facts. Keynesian interventionist economics produce higher growth overall.

Both views may be mutually consistent. We need to keep that in mind here.

Only in the fantasy world in which the neo-classicals are not full of shit. Which they are in the real world, where their policy prescriptions always lead to lower growth, cycle-averaged, than responsible policy prescriptions.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Nov 11th, 2010 at 06:05:16 PM EST
[ Parent ]
JakeS:
The neo-classicals are demonstrably wrong on the facts.

they know that, their job is to keep a straight face act properly innocent under the rigorous media glare.

JakeS:

Keynesian interventionist economics produce higher growth overall.

and why would they actually want that? that would be deflationary, (most of all to their egos).

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Thu Nov 11th, 2010 at 06:48:16 PM EST
[ Parent ]
Some of them are, obviously, simply whores. But a lot of them really do believe that they are on a sound empirical footing, for a variety of reasons. Now, I happen to disagree with their confidence in the quality of their empiricism, but that is a discussion that really can only be fruitfully carried out in the presence of concrete data.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Nov 11th, 2010 at 08:09:06 PM EST
[ Parent ]
JakeS:
for a variety of reasons.

any good valid ones? the concrete data is always hindsight, no?
so it's on faith partly, and the power to convince/dupe others that this time it really really really will work.

just because it didn't before, doesn't mean anything because this time is new and different!

trust us, even wrong, we know more than you...shit happens!

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Fri Nov 12th, 2010 at 10:27:56 AM EST
[ Parent ]
It's not that cut and dried. Usually. You're dealing with numbers that can often be sliced in several different ways, so you can't attribute to malice what is adequately explained by confirmation bias.

There are a few cases where their empirics are simply out-and-out sloppy, such as the way they analyse unemployment. And there are some cases where they resort to blatant cop-outs, such as financial shocks being exogenous. But for the most part, their models are not blatantly wrong as long as you massage your data in a not too extravagant fashion.

There's a substantial component of black magic to statistical data analysis, no matter how rigorously you do the math. Because there is no theory-neutral method for deriving which of the infinitely many possible mathematical models you want to compare your data to. So there's plenty of room for honest mistakes, even in the natural sciences. Add in the fact that economics deals with data that's so noisy that most physicists wouldn't even bother trying to extract a signal, and, well...

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Nov 12th, 2010 at 12:05:47 PM EST
[ Parent ]
thanks teach, a pitch perfect reply for my comprehension levels!

all the other economists say the emperor is naked, any that spin even illusive clothes get the (well-paid) jobs being Serious.

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Sun Nov 14th, 2010 at 08:41:00 AM EST
[ Parent ]
No, the facts don't actually indicate that higher growth results from Keynesian intervention compared to non-intervention if you're talking about the long term.  That's neither something hypothesized by Keynesian theory or supported by evidence, largely because that it not what Keynesian theory is meant to address. Keynesian theory is about reducing unemployment and deprivation as a policy priority, not maximizing economic growth, which is seen as a secondary outcome, but not a primary one. It is a primary one for neoclassical views of macroeconomics, however, but it still remains largely unknown. It may be true, but even if it is, it doesn't mean that the Keynesian view is false because they have different objectives.
by santiago on Thu Nov 11th, 2010 at 11:58:05 PM EST
[ Parent ]
No, the facts don't actually indicate that higher growth results from Keynesian intervention compared to non-intervention if you're talking about the long term.

Yes, they do. There is a measurable anticorrelation between economic instability and long-run growth. Pro-cyclical policies hurt long-run growth. Either because they are intrinsically stupid, wasteful and destructive, because "long-run" growth is really just a series of short-run growth cycles, and pro-cyclical policies disrupt short-run growth, or (usually) both of the above.

Keynesian theory is about reducing unemployment and deprivation as a policy priority, not maximizing economic growth,

Yes and no. It's about reducing unemployment and deprivation, but the way it does so is by ensuring maximum possible growth. Keynesian economics - or at least the crass Keynesian economics that resulted after the academic economists were done with re-casting Keynes in terms of Walrasian epicycles - is primarily about sidestepping questions of equity by ensuring the highest possible growth.

It is a primary one for neoclassical views of macroeconomics, however,

Yep. Even by its own official meterstick, neo-classical economics is pure FAIL.

Of course, the official productivist meterstick never had anything to do with the actual objectives of those who dogmatically insist on clinging to their Walrasian epicycles...

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Nov 12th, 2010 at 10:52:46 AM EST
[ Parent ]
No, the facts don't actually indicate that higher growth results from Keynesian intervention compared to non-intervention if you're talking about the long term.

Actually, Richard Koo presented a good, well supported argument that such intervention is less costly than not intervening at the inaugural meeting of George Soros' Institute for New Economic Thinking in April, 2010. He drew from The Bank of Japan's experience during Japan's "Long Recession" after the real estate bubble of the '80s collapsed. BOJ raised interest rates too soon and produced a "double dip" out of poorly founded concerns about the effects of deficits. The double dip resulted in lost production. BOJ found that repairing the additional damage was more expensive than continuing the stimulus would have been.

A link to the video presentation is here.

Koo's slide presentation is here.

And Yves Smith's coverage with lots of links and intelligent commentary is here

(Sorry for the late response. I was traveling Friday and this morning and will be again Sunday and Monday morning.)

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Nov 13th, 2010 at 04:43:57 PM EST
[ Parent ]
Yes, it has been argued, and is often done so in public policy debate, but I'm arguing that such propositions really miss the point and ultimately weaken the Keynesian case. Irregardless of how fast the economy might grow, the Keynesian argument has always been to maximize employment to ensure that deprivation is minimized. This means that even if it is true that an economy grows slower by trying to employ everyone, introducing the possibility of inefficiencies, it's still superior to another policy that would allow high unemployment to persist even if there was higher overall economic growth.
by santiago on Mon Nov 15th, 2010 at 10:57:37 AM EST
[ Parent ]
What Koo argued was more that ignoring the need to maintain full employment, which I agree is a key goal of Keynes, with the aim of reducing the deficit will actually result in an increase of the deficit over what would have been the case had full employment been maintained. This is much more true now, with such stabilizers as unemployment insurance and welfare, that it was in the '30s. (Of course pressure will continue to build to eliminate those stabilizers.)

I would love to see the goal of full employment taken seriously by the Fed, Congress and the Administration. Were it taken seriously, robust fiscal policies could readily be employed to start doing a variety of greatly needed social tasks, from maintaining employment in K-12 and post-secondary education, repairing deteriorating infrastructure -- roads, bridges, and sewage treatment facilities, putting in place electrical transmission infrastructure coordinated with the construction of windmills along the front range of the Rockies, converting our rail infrastructure to electric power, etc.

But even more important would be reversing the last 40 years worth of policies on "globalization" so as to encourage, to the maximum possible extent, repatriation of manufacturing to the USA. But this would require that policy be directed towards the welfare of the population as a whole rather than exclusively to the benefit of those with great wealth.

What has served to discredit Keynes in the USA, to the extent of those who have even heard of him, is the caricature of him as favoring squandering of government money pointlessly. This has consisted of taking rhetorical flourishes of his that made sense in the context of the mid-1930s, even if they were written to make a point, not as a policy recommendation, and presenting them as what Keynes would have us do today. Indeed, it is almost impossible to further damage the popular image of Keynes in the USA.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Nov 15th, 2010 at 05:03:18 PM EST
[ Parent ]
That the world will recover from the latest economic calamity is a forgone conclusion -- of course it will, because it already has.

In which fictional alternative universe?
Well, just this past September the NBER dated the end of the recession in June 2009. And the folks at VoxEU agree:
Global industrial production continues to recover - something for which policy deserves considerable credit (as we have argued on this site, see Almunia et al 2009 and O'Rourke and Eichengreen 2009). But before indulging in self-congratulation, policymakers should note that the level of industrial production is still 6% below its previous peak (figure 1). (At the trough it was 13% below its previous peak.) It follows that considerable excess capacity remains in a number of important economies. Exiting now from policies of stimulus in those countries would therefore be premature.
Instead, we got austerity...

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Fri Nov 12th, 2010 at 02:50:03 AM EST
[ Parent ]
ARGeezer:
My fear is that by denying the existence of foreseeable constraints we will run into them very hard and, instead of moving gracefully to a scenario in which we rely on 20:1 returns from renewables, we end up in a near total collapse of the culture.

the most concisely -and elegantly_ put raison d'etre for ET that i've read so far.

very nice

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Thu Nov 11th, 2010 at 07:04:52 PM EST
[ Parent ]

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