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View Diary: The Story of the Monkey King: A Macroeconomic Fairytale (7 comments)

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  •  The problem with toy economic problems (1+ / 0-)
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    Oh Mary Oh

    like this banana monarchy starts with the toy command economy, in which there is no housing, no offices, almost no factories, no consumer products, no education, no infrastructure, no entertainment, no health care, no first responders, only one kind of food, no clothing, apparently only one other country with an equally impoverished economy, no markets except those the king has thought to create, no legislature, no judiciary, no press, and so on.

    The technology described is far beyond merely fictional, with its pretenses that one can make screws, screwdrivers, and boards out of nothing with no other tools, screw screws into wood by hand at all, operate two screwdrivers at once, and export the results with no transportation.

    BTW, who grows the bananas?

    A short-term relief measure is to allow emigration into territories with saner and realer economies, or economies with different comparative advantages, as the vast majority of real countries do. The long-term solution requires diversification and massive legal changes, including imports and a much wider variety of exports, and permission for the monkeys to start other kinds of business and to hire each other without royal interference. We can discuss product regulation when there is something besides screwdrivers, screws, boards, and bananas to regulate, but it is clear that financial and business regulation are long overdue here, along with corruption laws and a genuine political system.

    There is a good deal more to the question and the answer, but that will do to get started. In short, what you have presented is

    Not even wrong
    as physicist Wolfgang Pauli used to say of impossible theories that failed basic consistency with themselves, much less reality, and were thus not worthy of the test of experiment.

    Historically, the US and global economy has confronted and solved your toy problem in the much more complex context of reality many times over. Agricultural mechanization made it possible for a tiny fraction of the population to feed the whole. The rest did not all have to be condemned to poverty and idleness. Many were able to work in offices and factories making everything else that pure agriculturalists cannot even dream of in vast profusion and industrial quantities, except when unemployment shot up during the recurring financial panics resulting from asset bubbles and other financial shenanigans.

    Factory automation has been increasing productivity constantly for centuries now. For every job it takes away, it opens up more to supply the more productive and thus higher-paid workers, unless the political system is so screwed up that all of the increased revenue from increased productivity is captured by the bosses and owners, and none goes to the workers. This was typical of pre-union capitalism, and is the new system the US has been installing since Ronald Reagan. There is nothing of economic necessity in it. It is purely political.

    The only country that I am aware of that matches your toy model in any way is North Korea, which is indeed a toy command economy and a disaster. That is not the fault of economics.

    Ceterem censeo, gerrymandra delenda est

    by Mokurai on Thu Oct 17, 2013 at 12:11:07 AM PDT

    •  The point in the ridiculous story is to illustrate (0+ / 0-)

      that at the level of the national economy there is a tradeoff between labor and capital and choosing a satisfactory rate of substitution between the two is a difficult problem. If I convinced someone of that then I accomplished what I set out to accomplish when I wrote the story.

      Real existent economies have much more complicated political histories and are far more complex. This story is not about infrastructure, regulation, or the legal framework of viable systems of private property-based exchange. This problem has been solved many times over, although you will have to share some examples of when it was solved in the US because I cannot think of any examples from US economic history.

      Sweden solved the problem in the 1990s with radical austerity measures (radical for Sweden but mild for the Anglo-American states). The measures still left a fairly robust social welfare state with some contingent problems in the complicated details, but ultimately a successful solution to the problem. Sweden now enjoys miraculous economic growth that is virtually without parallel in the west and that is accompanied by generous social welfare benefits. The standard answer from mainstream Anglo-American economists is that Sweden is a homogenous society with a small, close-knit population that trusts an uncontroversial and responsive government. I'm not convinced of the relationship between this kind of homogeneity and social welfare.  

      I agree that the Reagan Revolution was regressive. The benefits of organized working class movements in the 60s were rolled back in the 1980s. But that process of regression actual began during the liberal administration's of the 1970s. Ralph Nader gives a pretty convincing account of this.

      There will always be plenty of things to compute in the detailed affairs of millions of people doing complicated things. -Vannevar Bush 1945

      by Nathan Jaco on Thu Oct 17, 2013 at 06:56:38 PM PDT

      [ Parent ]

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