Present day economists should all take a look at this article, because it explodes all of their myths as to the origin of wealth and growth.
Economic anthropologists estimate the average annual income of hunter-gatherers to have been about $100 per person and the average annual income of big-city dwellers to be about $40,000 per person.
If ever there was a great leap forward, this is evidence of it. It has been estimated by Eric Beinhocker in his book, "The Origin of Wealth," that the $100-per-person annual income rose to only about $150 per person by 1000 BC and did not exceed $200 per person until after 1750 and the onset of the Industrial Revolution. Today the average is $6,600 per person per year for the entire world. Of course, the magnitude of the increase is much higher for the wealthiest people in the richest nations.
This is the central narrative upon which all economic theories must orbit. What is the major difference between 1750 and 2010? I'll give you a hint, it's sitting there in the quote: "after 1750 and the onset of the Industrial Revolution."
It wasn't after 1300 and the onset of international banking. It wasn't after 1780 and the publishing of Adam Smith's Wealth of Nations. It wasn't after 1994 and Bill Clinton's cutting of welfare. There was only one important factor to the world's, and America's, wealth -- the industrial revolution, ie, technology.
Pundits seem to operate under various delusional beliefs for the source of wealth/growth in this world, depending on whether they are conservative or liberal.
The models could be summarized as:
"Economic growth is due to hard work." This theory is the basis of many conservative pundits. All they ever want to do is make people work harder. The campaign to eliminate the minimum wage so more poor people can find employment working ridiculously hard for ridiculously little is one pet project of these types. We are told that if lazy Americans would just go work hard, or lazy school children would just study harder during school, we would have infinite riches. This of course flies in the face of people all across the third world who work 16 hour shifts for next to nothing wages. Never mind the fact that hours worked and productivity of your work are completely unrelated, just pile on more work, and more employment. Once we have full employment and 60 hour work weeks for all, everyone would be rich. Due to this fetish for hard work, whether it is useful work or not, whether it is even healthy or natural for people to work hard (a new study came out today showing 10 hour work days elevates your risk of heart attacks -- we're literally being worked to death by conservatives but when have they ever cared. . .), the universal solution to every economic downturn is to eliminate all worker protections, all minimum wages, all union organizations, all welfare, all unemployment benefits, all anything that could keep people from working harder.
Libertarians tend to worship work as an end in itself. Ayn Rand says the purpose and meaning of life, I shit you not, is working.
[The essence of Objectivism is] "the concept of man as a heroic being, with his own happiness as the moral purpose of his life, with productive achievement as his noblest activity, and reason as his only absolute."[71]
Man's noblest activity isn't keeping his promises, it isn't loving and raising a family, it isn't protecting his family/nation/ideals, it isn't achieving enlightenment, it isn't leading a moral existence, it isn't appreciating the wonders of life, nature, or mind, in fact, it's not even anything that requires sentience. The noblest activity of man is far outshone by the noble activity of more productive animals or computers. I'd hate to imagine how noble an automated car manufacturing factory may be in comparison to a hundred or even a thousand human beings.
I consider work to be a great evil. After all, if it were enjoyable, it would no longer be called 'work.' The fact that anyone is working is proof that they are suffering. They would rather be somewhere else, doing something else, if only they could afford it. The idea of creating more work, and getting more people to work, as not only necessary for economic growth, but actually the noblest activity of man, is practically satanic. Luckily, it's not true, and it's not necessary. People are working far few hours than they did in the past, or third worlders currently work, but still make more money. This is because the source of wealth is not work -- at least, not human beings working.
From the linked article:
Americans also now enjoy a shorter workweek, with the total hours of life spent working steadily declining for the last 15 decades. In the mid-19th century, for example, the average person invested 50% of his waking hours in the year working, compared with a mere 20% before the current recession. Fewer working hours translates into more leisure time. In 1880, the average American enjoyed just 11 hours per week in leisure time, compared with the 40 hours per week average today. And those working environments are cleaner, safer and more pleasant.
Our per capita wealth has been steadily increasing even as we work less and less. To conservatives and libertarians, this is horrible news because it justifies the sin of 'sloth.' To them, work is good for its own sake and shrill warnings about the economy are just a means to an end, that of more people working. They pretend we can't afford for people to work less, when in fact it would be economically insignificant if 80% of the country were unemployed tomorrow. ((The top 20% of Americans make over 50% of America's income and control 85% of its fixed wealth, as just a refresher.)) Getting more people on the 'work train' by rousting them out of various homeless shelters and basements and into sub-minimum wage jobs is not the answer to all recessions -- in fact, it's just a sadistic technique of busy-bodies who can't stand the idea of anyone, anywhere, not working as hard as they are, like the devil's love of company in Hell.
Let's go on to the next economic model then,
"Various financial speculations create (or destroy) wealth."
This has to be the second dumbest economic model. The idea that the economy is reliant on who gets what loan, or who invests in whom, or whether the stock market is up or down, or which currency is trading at what value, and all these various, ever-more-complicated schemes of derivatives and futures and shorts and insurances, is all so much busywork. I'm sure there is some marginal use to getting money from less promising ventures into more promising ones. I'm sure loans, interest, and retirement accounts all have their place -- but to claim they are more important than physical reality itself, that the economy is dependent upon financial wizards who type out 1's and 0's to each other all day every day, is a ridiculous farce.
Our wealth doesn't come from stringing a bunch of successful trades together, or denoting our wealth in the proper currency, almost all of these transfers are zero sum -- for everyone who makes a good bet, someone else has to make a bad one. Our wealth is growing in our fields as we speak, or on our ranches, or is being dug out of our mines, or flowing down our rivers. Our wealth is all around us in the form of finished goods, built cities, flowing electricity, clean water, abundant food. If the stock market disappeared tomorrow and we lost all those trillions of imaginary dollars, not a single thing would have changed in the physical world. The crops would still come in, the oil would keep flowing, the machines would keep spinning our cotton into clothes, and the cows would keep grazing our grass. Losing sight of what our economy stands for, and treating money, a mere symbol, as the equivalent to the goods themselves, is an elementary error.
The third economic model is shared by most everyone else:
"The economy is determined by government policy."
To them, whenever the economy goes up, it must be because of some law that was recently passed (or revoked.) If it goes down, the same. And if it stays the same, that was because of a law too. They even have some evidence pointing towards this -- certainly America performed better than the Soviet Union, and South Korea is richer than North Korea. Due to this, everyone is aflutter over relatively meaningless bills and government decisions, like how far into debt a country goes (Japan has a nearly 200% debt to GDP ratio, but they don't seem to care.) The entire world economy, supposedly, hinges on whether Greece, a country of some few millions, repays its tiny debt or not. These are the logical extremes 'wealth as decided by policy' reaches. The truth is early Colonial America had as free an economic system, as low taxes, and as little regulation as anyone could ever dream of possessing. They were still dirt poor in comparison to the socialist, and even the communist countries of the world today. No matter how bad your policy making becomes, and no matter how good the policies of those in the past, there is still the gap stated in the linked article: $250 in 1750, $6,600 today. Like financial wizardry, government policies can only hurt or help the economy on the margins. It is unlikely any country will be so poorly run as to significantly hamper their growth -- and even if it is run that poorly, it's unlikely to have a large population or to last very long. When a policy doesn't work, it's changed. When a country can't feed its people while insisting on 'staying the course', it's either conquered or has a revolution. Eventually even Cuba and North Korea will crack, it's just a question of when.
Which leads to the final, and correct model of what drives the economy:
"The economy is determined by technology."
It isn't very difficult. Early anthropologists grasped this concept by labeling the past by what technology existed at the time: "The stone age," "The bronze age," "The iron age." Once you grasp that fundamental concept, everything becomes clear. The world would always be poor until we invented the steam engine -- it would always be rich after. The world we live in is three times as rich as the 1950's because we invented computers, besides some other useful tricks. This even though the population of the world has doubled and redoubled -- meaning we're actually 12 times as rich as the 1950's. Even with all of our evil socialist bills passed since 1950. Even with all of our lazy welfare addicts. Even with all our bubbles and malinvestments and debts and sub-primes and blah blah blah.
Take two seconds to look at history and you realize it's all bullshit. All life hinges on the level of technology the era possessed. Once you filter out the noise, you reach statistics like yield per acre, memory per square inch, cents per kilowatt/hour, length of life, etc. And guess what, all our statistics are increasing. Every year, almost every day.
When our alloys are getting stronger, our engines burning better, our crops growing thicker, our computers getting faster, it is physically impossible for the economy to go down. It is simply impossible. Anyone who predicts such a thing is a knave or a fool. Due to the popularity of crazed predictions of economic doom, it's possible to create recessions out of nothing -- wave your arms, hurt consumer confidence, make people bail out of the market, and maybe you can set the economy back for a year or two. But how long before everyone wakes up, realizes we've perfected some new device or cured some new disease, and the economy goes back up again to reflect reality?
At this point, the only question is how fast the economy will grow. It is absolutely inevitable that the world's economy will grow, and grow, and grow, probably faster than the world has ever seen before. This is because 2 billion people have yet to transform their societies into the technological level the rest of us already have. They don't even need to invent or discover anything. If African farmers just follow our advice and plant our seeds, they can triple their productivity in a year. Some pilot programs have gotten Africans to do just that. It will be all the easier to apply technological advances to the citizens of India, China, southeast Asia, Russia, Brazil, Mexico, etc. Anywhere that has somehow avoided the industrial revolution so far still has the chance to adopt it now, free of charge, free of all difficulty. No intelligence, no initiative required. Just monkey see, monkey do. Plug it in and go.
But the economy doesn't need them to improve. The modern world is doing just fine continuing to improve itself. Fiber optics are replacing outdated copper telecommunication networks. Wind farms are replacing outdated fossil fuel plants. Genetically modified crops are replacing ordinary breeds. Fuel efficient cars are replacing fuel inefficient cars. LED's are replacing incandescent light bulbs. HD TV's are replacing SD's. Flat screens are replacing cathode ray tubes. Cell phones are replacing home phones. Just take a look out the damn door. There probably isn't a single product being sold, from winter coats to dog leashes, that hasn't recently been improved. Remember when we still had to iron our clothes? Yeah, dead and gone. Thanks to technology. Who knows how many billions of dollars that has saved us over the decades.
All doom and gloom surrounding the economy is based on a flawed model of the nature of wealth. Wealth is technology. It is nothing but technology. Wealth is the phenotype of technology's genotype. Not only does this make perfect sense, not only does all history validate this concept, but as of April 30th, or whenever that article came out in the LA Times, it is criminally stupid to believe anything else. The statistics are there, the proof is iron clad. No matter what you did, in the past you were poor because the technology to make us rich didn't exist. And no matter what we do today, we're going to end up rich because the technology to make us rich does exist. It is absurd that our politicians are still even talking about growing the economy, or getting richer. Mussoulini in freaking 1940 said "The problem of production is solved, the remainder of the task is the problem of distribution."
If we had reached the point of producing plenty in 1940, then there's more than enough produced in 2010. The problem is still distribution. It will always be distribution so long as scaremongerers keep the people focused on imaginary crisis of production. So long as we are threatened with shortages, collapses, and anarchy, they can keep spinning their webs about how we can't 'afford' various laws, how we simply must eliminate the minimum wage, how immigrants are 'doing the work we can't do' or 'paying for our pensions' and thus we have to let them race replace us, on and on and on. Every single argument about the 'strong' or 'weak' dollar, every article about the debt, every article about health care, every article about taxes, every article you've ever read by any organization in any branch of the media, you can be sure was just another brick in the wall, another desperate attempt of the interested parties to keep people's minds off the 'problem of distribution' and on the non-existent, completely solved 'problem of production.' Distribution is the only portion of the equation left in the creation of an earthly utopia. All economic woes will be solved by the citizen's dividend.
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