I felt compelled today to revisit Keynes’ classic “The Economic Possibilities for Our Grandchildren.” Here's Part 1: #1550624

Plenty of Marxian-leaning economists and historians have a problem with this idea, from Marx himself to Piketty and my current nemesis Sven Beckert (#1434507, #1426621), that capital – however defined – just automatically accumulates; increases; throws off returns.

In Keynes, we see where Piketty found his ideas of capitalism so neatly supported.

Keynes puts WAAAAY too much emphasis on compound interest, capital accumulating at 2-6.5% and the compound interest making us all live well. It’s true that small, incremental improvements repeated year in and year out over time generate fascinating change, but what made us rich wasn’t stacking capital goods on top of each other or funds profitably invested across the empire but economic growth itself: innovation, more people figuring out more stuff, Smithian growth through wider expansion of the division of labor across the planet. McCloskey's letting the common man have a go #1534753, the pretty good commercial dealings among honest merchants and their repeat customers.

But there’s nothing automatic about capital’s returns, which plenty of thoughtful economists (including Björn Wahlroos, just to pick a Swedish-Finnish one #1540813) have observed since Piketty emerged on the popular arena with his r > g “scientific” equation.

To “earn” that average market return, you need to invest it again and again, risk it in ventures, and provide value to consumers over and above the outlays for amassing the inputs. All while others like you try to outcompete you and undercut you and outearn you, and if you fall short in any way you earn not the market return but negative 100% returns. Have fun staying poor. (Looking at you, @BlokchainB)**  

Yes, boomers have been a weird exception here, smoothly riding the shrimp sandwich that was their (financial) timelines. Fuck 'em, and take all their stuff (#1537004, #1521908 Quite a lot via expanded government sector, paid for by everyone else and their decedents via luxury boomer communism #1468968, and the money printing and regulatory hurdles that hurled housing prices sky high.

Keynes’ stipulation for continued economic growth

He gives four ifs for projecting that we’ll live in abundance a century thence.

1)     our power to control population,

2)     our determination to avoid wars and civil dissensions,

3)     our willingness to entrust to science the direction of those matters which are properly the concern of science, and

4)     the rate of accumulation as fixed by the margin between our production and our consumption;

yeah, we sucked at all these.

Also, population is incorrectly specified: all new humans come not just a mouth to feed but two able hands and a creative brain. The ultimate resources, to invoke Julian Simon, is our mind and ingenuity. So that one doesn’t quite matter. (Though we definitely failed per Keynes' little sketch, quadrupling world population in a hundred years.)

On avoiding wars I believe we get a medium score. WWII, though a long time ago, was a complete disaster in terms of destruction — and radically changed the trajectory of free societies everywhere: totalitarianism, genocides, and Higgs' ratchet effect on the size of the parasitic class.

Science, I guess, a maybe, as well. Great strides and impressive technological improvements, but peer review is broken; the regulatory state has overdone itself; the mind virus that is wokeness marched through the institutions and took over the values and virtues of millions of people. Ergo Covid and other totalitarian “science” experiments. Yes, it has “saved” a bunch of lives and we’re all happy for specialized surgery and antibiotics etc, but whether science broadly has delivered since 1930, I guess, is ambiguous.

And finally, the ratio between production and consumption, i.e., savings rate, has declined faster than the Marxian’s projected rate of profit, so I guess we’re OK but definitely getting worse. FRED Economic Data // FRED Economic Data

If we account for malinvestments and the rampant capital consumption everywhere, I’m not so sure we’re really coming out ahead here…

Alienation and the Marxian connection

"Alienation," the negative Marxian term for what a laborer feels when he doesn't also consume the thing he makes, or even know the person who consumes it. That is, the downside of the vast (and vastly productive) global division of labor means we're all incredibly small cogs in massive machines and it's hard to stay motivated or happy producing when that's the case. No point, no motivation; enter mental health problems and shitty work-life balance.

Marx was right-ish about that (#1533284, #1540851)

In the essay, Keynes ridicules the future-looking, industrious man:

For we shall inquire more curiously than is safe to-day into the true character of this “purposiveness” with which in varying degrees Nature has endowed almost all of us. For purposiveness means that we are more concerned with the remote future results of our actions than with their own quality or their immediate effects on our own environment. The “purposive” man is always trying to secure a spurious and delusive immortality for his acts by pushing his interest in them forward into time. He does not love his cat, but his cat’s kittens; nor, in truth, the kittens, but only the kittens’ kittens, and so on forward forever to the end of cat-dom. For him jam is not jam unless it is a case of jam to-morrow and never jam to-day. Thus by pushing his jam always forward into the future, he strives to secure for his act of boiling it an immortality.

Strangely, Keynes doesn't think that economic growth and widespread productivity will make everyone so rich that they choose to consume leisure as a normal good.

No, he thinks, there won’t be much labor around for everyone and yet everyone has a little worker/devel dutifully inside of us willing – needing, even – to perform. So we shall split the necessary work about: 3h daily shifts or 15h work weeks.

“The strenuous purposeful money-makers may carry all of us along with them into the lap of economic abundance.”

When the accumulation of wealth is no longer of high social importance, there will be great changes in the code of morals. We shall be able to rid ourselves of many of the pseudo-moral principles which have hag-ridden us for two hundred years, by which we have exalted some of the most distasteful of human qualities into the position of the highest virtues.

Yes, he’s a Marxist. Incredible. He thinks the commercial virtues that led to the present day's abundance are bad values that were instrumentally useful for the duration of getting to the future. NOT YET!

I see us free, therefore, to return to some of the most sure and certain principles of religion and traditional virtue – that avarice is a vice, that the exaction of usury is a misdemeanour, and the love of money is detestable, that those walk most truly in the paths of virtue and sane wisdom who take least thought for the morrow. We shall once more value ends above means and prefer the good to the useful. We shall honour those who can teach us how to pluck the hour and the day virtuously and well, the delightful people who are capable of taking direct enjoyment in things, the lilies of the field who toil not, neither do they spin.

But beware! The time for all this is not yet. For at least another hundred years we must pretend to ourselves and to every one that fair is foul and foul is fair; for foul is useful and fair is not. Avarice and usury and precaution must be our gods for a little longer still. For only they can lead us out of the tunnel of economic necessity into daylight.

We, the grandchildren of Keynes' generation, could have chosen more leisure. We didn't, or we were by laws or financial incentivzed or the way our labor markets or retirement system works prevented/disincentivized to do that.

Also: we wanted more stuff. The demand curve in the goods markets, which implicitly determined our desire for how much labor income, moved further and further out. We want more stuff – most of which, ironically, sits unused in the garage; hashtag ownership obsession.

“The ownership cult is just trauma from having nothing you can truly call your own.” --Geeknik.

= “As the income gap in the U.S. has widened," writes Kolbert with a clear, left-wing New Yorker agenda. "it’s actually lower-wage workers who have ended up with the most leisure. And it’s high earners who report feeling the most time pressure.”

That also kind of makes sense; while the oppressive tax regime is somewhat more accommodating to the lower end of the income scale, they usually face steep marginal tax rates – and with little to no meaningful change in living standards by working a ton of more hours. The rich, on the other hand, are usually expected to work a ton more and have access to an infinite variety of more and higher-quality goods – that mafia don and his tacky yacht again.

At medium/low incomes, the substitution effect dominates the income effect and we get the normal, predictable result that higher wages lead to more hours worked. But at higher wages, the income effect dominates making people “buy” leisure back from their employers. The extreme income at the top is a reflection of this, as it takes a stunning amount of money to entice away people from their leisure that much. (“the “long-hours premium””)

what goes for the baseball diamond also applies to the school play, the anniversary dinner, even the annual family skiing trip to Vail; the disproportionately compensated have a disproportionate motive to keep on working.

At the lowest end, too, plenty of individuals face marginal tax rates that are prohibitive, or rather quit working altogether when the combined bundle (work, hassle, difficulty of commuting etc) doesn’t seem worth it for the paltry little funds you end up with.

This short and impactful article is a major paradox in the Keynesian edifice of Lord Keynes' prolific writing.
BEAUTIFULLY summarized by Skildeski himself (#1476087), via Kolbert's article:

Robert Skidelsky, has called “Economic Possibilities for Our Grandchildren” a summation of “many of the ambivalences” in Keynes’s thinking. Keynes was an economist who made fun of economics, a savvy investor who disdained moneymaking, a brilliant and hardheaded analyst given to airy flights of fancy. Perhaps more than anything else he wrote, “Economic Possibilities” expresses Keynes’s utopianism: not only would people solve the problem of fulfilling their material needs; they’d also solve the problem of how to take advantage of having solved the problem.

Concluded Kolbert,

It is, to say the least, disappointing that things haven’t turned out that way—that inequality has grown, that leisure is scarce, that even the rich complain of being overwhelmed. And yet so much of what we do, collectively and individually, suggests that we still believe more wealth is the answer.

More cowbell.