By my lights, Dani Rodrik is a fine political economist. He recently posted at his site this interesting calculation:
"How much of a boost to economic activity will a fiscal stimulus provide? For those who believe that we have entered a Keynesian world of shortage of aggregate demand -- me included -- the answer depends on the Keynesian multiplier.Kewl, eh?The size of this multiplier depends in turn on three things in particular, the marginal propensity to consume (c), the marginal tax rate (t), and the marginal propensity to import (m). If c=0.8, t=0.2, and m=0.2, the Keynesian multiplier is 1.8 (=1/(1-c(1-t)+m)). A $1 trillion fiscal stimulus would increase GDP by $1.8 trillion....
Now suppose that we had a way to raise the multiplier by more than half, from 1.8 to 2.8. The same fiscal stimulus would now produce an increase in GDP of $2.8 trillion -- quite a difference. Nice deal if you can get it. In fact you can. It is pretty easy to increase the multiplier; just raise import tariffs by enough so that the marginal propensity to import out of income is reduced substantially (to zero if you want the multiplier to go all the way to 2.8). Yes, yes, import protection is inefficient and not a very neighborly thing to do -- but should we really care if the alternative is significantly lower growth and higher unemployment?"
Cosmopolites, beware! The dark shroud of protectionism looms near.
Here's the flip side: raise the system to the global level, where there are no imports or exports only internal planetary trade. The propensity to import naturally goes to zero (unless some Venusians turn up who want to sell us cars), and you get the same powerful results as by sliding lower down to national protectionism.
If the earth's 200 nations formed a more perfect union, say, like the Terran federation of nation-states, then we have again the robust fiscal multiplier 2.8....
O brave new world!
Comments (3)
Brilliant! Go get Krugman's prize from him.
Posted by Linda J | December 18, 2008 5:08 PM
Posted on December 18, 2008 17:08
It is disappointing and disheartening to see OP and SMBIVA continue to promulgate this brand of analysis and this kind of thinking.
These kinds of posts effectively nullify the usual, outside-the-left-in-name-only-box thinking and analysis which makes SMBIVA so unique and vital.
Unless you're trying to be clever and sarcastic. In which case you've overshot the goal by many miles indeed. Which speaks to another ongoing SMBIVA issue, that of claiming kinship with the proles while writing so far above the average person's head as to be chronically cryptic, arcane, abstruse and counterproductive.
Regardless, back to matters at hand.
I maintain that you cannot discuss the brain damage that is mainstream economics without discussing its fundamental, mythical mantra: infinite growth on a finite planet.
On December 1st of this year, The New York Times' DotEarth Blog -- in a rare, fleeting moment of perceptive clarity -- acknowledged the blatantly obvious:
"Climate change is not the story of our time. Climate change is a subset of the story of our time, which is that we are coming of age on a finite planet and only just now recognizing that it is finite." [tinyurl.com/5d3xzx]
And, on December 16th, Peter G. Brown and Geoffrey Garver, authors of, Right Relationship: Building a Whole Earth Economy, expounded on this hidden-in-plain-sight reality [tinyurl.com/7j29l6]:
"The ecological budget – on which all life, and consequently the human economy, depends – is already in dramatic deficit, and balancing it should be a high priority for nations around the world, even as the financial meltdown seizes headlines.
"Why is this budget just as pressing as the fiscal budget? September 23, 2008, was Earth Overshoot Day [tinyurl.com/e9bbz]: when the human species used up what the Earth, fuelled by the sun, will make available in 2008 to provide for and clean up after us and the Earth’s millions of other species.
"The period after that date represents the time in which the human population causes an ecological deficit, using up the Earth faster than it can regenerate. We have run this deficit since at least the 1980s, and every year Earth Overshoot Day comes earlier.
"The story behind this moving date is one of a global environment that is rapidly losing its ability to support life: accelerating climate change, greater numbers of species and habitats in peril, fisheries in decline, the proliferation of ocean dead zones, declining fresh-water resources and more. Ecological overshoot is climate change on steroids. It is happening right now, and it is worse than we have imagined."
The problem is, of course, that there is no "we" as asserted by the Times. We do not realize that we live on a finite planet. It is this profound misunderstanding -- coupled with healthy amounts of indifference, gluttony and greed -- which essentially caused the current financial crisis (which is nothing compared to the coming "eco-crunch": tinyurl.com/3ftjlu). Cornucopian mythology is in our blood. It is all around us morning to night, cradle to grave. It is an emergent property of our cultural way of being. To pierce the veil of this "consensual validation"(*) is to fundamentally question who we are; a formidable, atypical discipline for any human being.
We are not encouraged to understand (nurture), and we are not generally hardwired to fathom (nature), the detrimental and ecocidal consequences of our seemingly innocuous daily lives.
Contrary to the wishful thinking of the Times (pun intended), we have precious little stomach for reality. Let alone the will or capacity to act on it.
We live in a culture of make believe:
"This country’s political and cultural institutions are not equipped to deal with this coming collapse, and there is very little chance that political organizing rooted in the necessary radical analysis, in the time available, can alter that to any significant degree. We are not prepared for the coming shift out of the current high-energy/high-technology phase, and nothing in recent institutional responses (or non-responses) to the clear signs of this suggests we will be prepared in time."
Robert Jensen, Real hope: Facing difficult truths about an uncertain future [tinyurl.com/7l6yhc]
---
Additional Resources:
www.storyofstuff.com
(20 minute video and resource-rich website)
[Yes, I know, her example of planned obsolescence is simplistic -- the CPU is not the only thing which changes: which is actually more proof, not less -- but, in my capacity as an IT worker, I know the underlying concept and the overall example are sound]
The absurdity of endless economic growth
[tinyurl.com/6zzmb4]
Just what planet are economists on?
[tinyurl.com/5vw7hr]
An Overlooked Detail - Finite Resources Explain the Financial Crisis
[theoildrum.com/node/4770]
---
(*) "What is so deceptive about the state of mind of the members of a society is the 'consensual validation' of their concepts. It is naively assumed that the fact that the majority of people share certain ideas or feelings proves the validity of these ideas and feelings. Nothing is further from the truth. Consensual validation as such has no bearing whatsoever on reason or mental health. Just as there is a 'folie à deux' there is a 'folie à millions.' The fact that millions of people share the same vices does not make them virtuous, the fact that they share so many errors does not make the errors to be truths, and the fact that millions of people share the same forms of mental pathology does not make them sane."
- Erich Fromm, The Psychology of Normalcy
Posted by MonkeyMuffins | December 26, 2008 12:53 AM
Posted on December 26, 2008 00:53
monk monkey :
orthogonal process
Posted by op | December 27, 2008 7:46 AM
Posted on December 27, 2008 07:46