Economic Possibilities for Keynes’s Grandchildren

83 years ago John Maynard Keynes, the great economist of the first half of the 20th century, wrote a short essay entitled Economic Possibilities of Our Grandchildren. Even though the word and the very discipline of futurology had not been invented yet at that time, this is exactly what Keynes engaged in. He wrote down in the essay what he thought the world would look like around 100 years later. Although there are still some 15 years left, I guess it is fair enough to assume that no great, revolutionary changes in societal or economic affairs will take place until 2030. Let us therefore take a look at Keynes’s vision, for we can learn a lot from it about our own time.

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Limitations of GDP as Welfare Indicator

GDP (and its derivatives) is a measure of economic activity, actually. Narrowly understood economic activity, one should add. However, this does not prevent economists and policy makers from making welfare comparisons across countries and across time on its basis. The argument goes as follows: GDP is a good proxy of the consumption possibilities people have, and consumption is a good proxy of well-being/welfare. Therefore, we allegedly can use GDP per capita for comparing welfare between countries and GDP growth as an indicator of social progress within a society. This may sound compelling to many and, indeed, we are used to this rhetoric from authorities and the media. But it is wrong to assume that GDP or any of its common derivatives provides a measure of social welfare, for a number of reasons. Continue reading

How Much Education Is Good?

A common demand of Greens and Leftists* in many conutries is that access to higher education should be eased so that wider parts of the population could enjoy it. Indeed, within inter-country comparisons of the quality of education systems, the share of young people enjoying higher education is seen as a positive variable (indicating, e.g., that the Polish educational system is, at least in one respect, better than its German counterpart). But is this a sensible view of education? Could it be that there is some optimal level of education (from the point of view of the society)? If yes: how much education is good? Continue reading

Ideas Lost in Time

The process of societal change – in attitudes, institutions, values, relationship patterns etc. – is accelerating steadily in modern societies. Their members are losing their ability to accommodate to these changes. Furthermore, since our basic needs are fulfilled, we engage more and more in competition for goods that some can have – but not all at the same time, not without serious quality deterioration at least. Moreover, we are working much to be able to pay for consumer goods that we cannot really consume because our time budget does not allow for it any more. This does not stop us from desiring even more consumer foods and from uselessly working to earn the money we need to pay for them. At the same time, whereas GDP has been growing continuously (with only minor periods of regress) for years, the satisfaction we draw from our lives has been at best stable in that time, since our aspirations change as fast as the economy (and our incomes) grows. Last but not least, this growth in production and consumption, as well as population, has led to a terrible, unsustainable level of use of Nature’s resources and services, which can in effect lead to a break down of the world economy.

What do these insights have in common? They were all made some 40 years ago, and little seems to have changed to the better – rather the contrary. Continue reading

Social Limits to Growth

There has been much talk and controversy about ecological limits to growth (in GDP or related measures), at the least since the famous Limits to Growth report to the Club of Rome was published in 1972. However, much less (if any) attention has been given to other possible sources of limits to growth. The reason is not that none have been identified – indeed, as early as 1976 Fred Hirsch, an Austrian-British economist, wrote his pathbreaking but largely ignored book on Social Limits to Growth, in which he pointed out to social scarcities that effectively impose limits on economic growth. He argued that so-called positional competition that is promoted by growth leads to ever more frustration within the allegedly ever better off society.

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Sacrificing Development Needs for Prestige

China, a country where 4 per cent of the population are still living in poverty (following the rather rigorous definition of the World Bank), is about to spend billions of dollars to enable a few Chinese astronauts a flight to the Moon by 2025. There is hardly a tangible benefit to be found in this project – except some kind of international prestige. Meanwhile, the resources (we are talking here about much more than just money, e.g. time, skills etc.) required for its successful carrying out might well be sensibly invested in development projects that would yield a high social return. China’s Moon project seeems to be a particular variation of the positional goods problem described by Fred Hirsch in 1976 – on the national rather than individual level. And it seems to be even more profound than the difficulty originally identified by Hirsch. Continue reading