Change of pace photo

Water Lilies, Mystic, CT

Blogging from the subway

Here I am blogging from Broad Channel Station in Queens, near Rockaway Beach. Being able to post things onto the internet from a subway platform makes me feel crazed with power!

I recommend the fluatas at Rockaway Taco.

Purpose and consumption

One problem is we think too much in terms of consumption. This is where Keynes goes wrong in the essay Economic Possibilities for our Grandchildren which I keep referring to as a benchmark. (see 'economic possibilities' in the labels on the right.)

On the one hand, he acknowledges the problems that can come with material satiation:

If the economic problem is solved, mankind will be deprived of its traditional
purpose.
Will this be a benefit? If one believes at all in the real values of life, the prospect at least opens up the possibility of benefit. Yet I think with dread of the readjustment of the habits and instincts of the ordinary man, bred into him for countless generations, which he may be asked to discard within a few decades.
To use the language of to-day-must we not expect a general “nervous
breakdown”? We already have a little experience of what I mean -a nervous
breakdown of the sort which is already common enough in England and the United States amongst the wives of the well-to-do classes, unfortunate women,many of them, who have been deprived by their wealth of their traditional tasks and occupations--who cannot find it sufficiently amusing, when deprived of the spur of economic necessity, to cook and clean and mend, yet are quite unable to find anything more amusing.
To those who sweat for their daily bread leisure is a longed--for sweet-until
they get it.

But he also dismisses "purposiveness".

Of course there will still be many people with intense, unsatisfied purposiveness who will blindly pursue wealth-unless they can find some plausible substitute. But the rest of us will no longer be under any obligation to applaud and encourage them. 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.

Keynes thinks the answer is in essence to cultivate a higher form of consumption, a Bloomsbury aestheticism.

The strenuous purposeful money-makers may carry all of us along with them into the lap of economic abundance. But it will be those peoples, who can keep alive, and cultivate into a fuller perfection, the art of life itself and do not sell themselves for the means of life, who will be able to enjoy the abundance when it comes.

This prefigures much of the focus on consumer demand in his General Theory a few years later, and much macroeconomic thinking for the following eighty years.

But people do not want to just consume. They want to produce. They want purpose and to be purposive. They want independence and self-reliance and a sense they have earned what they have.

Keynes's comments on bored housewives reads strangely now, as he wrote thirty years before the revolution in women's roles.

Some of the vast movement of women into the workforce was driven by economic necessity, especially as two incomes were increasingly needed to pay mortgages.

But I think much more was driven by boredom, a sense that even the most luxurious home in Scarsdale or Henly could be a gilded cage. Many women wanted the stimulation of participation and challenge. The movement even called itself "women's liberation."

Keynes is right that we need more cultivated consumption, and that we need to pause sometimes to enjoy the good things of life. But consumption cannot really be an end in itself.

How do you motivate people to act for the common good?

This is one of the most fundamental questions about now we organize our lives and the economy and society. We can't really have success as a city or country or world without a good answer.

One answer is you don't need to. Let people pursue their own sense of self-interest and the invisible hand will produce prosperity.

One major class of answers is moral suasion. The oldest answer in this tradition is religion. A more recent one is media campaigns and civil society movements, like the one over global warming.

One of the biggest problems with this is there is rarely full agreement on what the common good is. And this is where classical liberalism - both political and the classical liberalism of mainstream economics - have taken a wrong turn.

The End of the Middle Class?

This is a very interesting take on how the economy is developing in the Atlantic. It argues for solutions like more spending on community colleges and vocational education.

I don't disagree with that, but the whole argument of this blog is we need a deeper rethink of the economy. We've got very widespread material wealth. But most of the things people want now aren't directly material (or purely material) in the same way. So we need different social technologies to get there.

In particular, massive welfare spending is NOT an effective solution. The broken glass on the streets of London this week showed that. Delivering more of what we want from the economy depends on how people relate to each other and how you motivate people. And money can actually undermine that.

The joy of shared public goods

G and I were walking along the Hudson river last night, in Battery Park and Hudson River Park. It was just beautiful. The design is remarkable- railings, brickwork, stone, beautiful local grasses and trees, places to sit, and views out on the water. This is the kind of social spending - on public goods which can be accessed or used by everybody - which should not be cut, but increased as society gets richer. National parks, libraries, road systems, open air concerts, summer festivals. It doesn't have to be purely governmental spending, either, as the Central Park Conservancy or the Business Improvement Districts which spend money on streetscapes in New York show. National Defense and law and order are also public goods in a broader sense.

The problem is most governmental spending is increasingly direct transfers to specific individuals - redistribution or welfare spending or pensions. These are generally private goods, consumed by their recipients alone.

And I think that is why government spending and tax has become increasingly controversial in the US. You may have social objectives for the spending, to be sure, like limiting poverty among the elderly. But the universal nature of social security or Medicare mean much of the spending is a direct transfer to well-off individuals.

There is also an increasing public perception that much public money is used to benefit the special interests in Washington, whether big corporations, banks, or teachers' unions. It is not spending for the common good. ( I also talked about this here.)

So part of the tea party rage is of course a matter of arithmetic - the size and upward trend of the deficits. But I think there is a much broader and deeper problem with the legitimacy of government taxation and spending. To many, tax looks more like confiscation, forcibly exacted to benefit others and to serve ends which are not your own.

Tax has lost touch with the common good. And I see that as a real problem, because I think many things in the federal budget should be increased. Cancer or energy research, for example. NASA. NOAA. But everything could be degraded by a general fratricidal fight over overall taxation and spend levels, and the size of the government.

We need instead a better debate about what government spending should do. The progressive left, in using government as a tool for their social objectives or distributional goals, is going to end up squeezing or destroying spending on the common good and public resources which benefit everybody. Welfare spending is going to delegitimize spending on public goods in general. We have beautiful parks in New York. But we increasingly need private money and local hypothecated taxes on people within the immediate area of a few blocks to make them work.

Yes, the tea party may need to be more flexible on taxes. But progressive social spending has also reached the limits of its legitimacy. A lot of people do not want to be taxed to support progressive goals. Government cannot be a device to transfer money from struggling working age familiies to the increasingly wealthy elderly, for one thing

Change of pace photo

China Beach on the west coast of Vancouver Island, BC.

Nurses spend the majority of their time on paperwork

Incidentally, talking of McKinsey, here is a link to their latest study of productivity trends. They argue that labor-saving productivity improvements do not destroy jobs over time. Generally reductions in the price of the goods produced mean comsumers now have additional resources to spend on new and different goods. Time to shop!

Historically this is true. We eliminated most jobs in subsistence agriculture in the west, which of course employed the majority of the population in medieval times. We are not worse off for it.

But the nature of the new goods and services which appear matter as well, and the nature of the demand and preferences themselves. The study does not really get to grips with this. If people can afford a car for the first time, two or three generations ago, that boosts an auto industry that employes hundreds of thousands in everything from steel production to car loans to final assembly to retail. If people now choose to spend more time on Facebook, how many extra jobs does it create? Not many.

Too much economic commentary has in essence a faith that "something will turn up" to employ people providing new goods and services, because it always has before. But if the nature of needs and technology is changing, you can't simply assume that.

There is plenty of scope for improvements in productivity in existing goods and services, too, expecially in sectors like healthcare. This line from the report really struck me: "Today, nurses still spend less than 40 percent of their time with patients and the rest on paperwork." Healthcare has been one of the biggest sources of job growth in the last ten years. But it is extremely inefficient.

Social technologies create wealth

I want to divert for a second to another idea. Just as physical technologies have developed and evolved over time, so have social technologies. Eric Beinhocker, a McKinsey researcher, defines social technologies as "methods or designs for organizing people in pursuit of a goal or goals" in his book Origin of Wealth: Evolution, Complexity, and the Radical Remaking of Economics, which I previously mentioned here. They are better ways for people to cooperate together.

As he points out, the idea is closely related to the Nobel-winning economic historian Douglass North's "institutions". North defines these as "the rules of the game in a society". (We'll come back to North's Structure and Change in Economic History another time.)

Social technologies include the rule of law and an independent judiciary, property rights, a functioning banking system, democracy and elections, the joint stock corporation, shareholder governance, double-entry bookkeeping and audit requirements, reciprocity norms and ways to prevent cheating. And one of the most fundamental social technologies is money, which Beinhocker says "in essence provides a universal utility converter - it enables one person's economic needs an wants to be translated into the same units as someone else's needs and wants."

People do get better at social technologies over time. They tend to evolve in the same way as physical technologies, and explain much of the difference in wealth between countries. Beinhocker argues improvements in organization and management were the underlying cause of the 1990s productivity boom, for example, not just increases in computing power.

What does this all mean here? We need to improve our social technologies to deal with many of our problems. Material accumulation alone does not do that. And money itself, which we takes much as defining much of the parameters of our existence, is one social technology among others. It has evolved over time, from gold stamped with the image of the local king to an immaterial entity held as bits in enormous computing networks and traceable back to book entries in a central bank computer.

(edited to fix spelling mistake I noticed)

Culture is essential

Markets continue to be very fragile, but it is the London riots which are most on my mind.

Financial crisis seems almost familiar now. But breakdown in physical law and order across much of a major western city for several nights is something distinctly unsettling. There has been nothing like it, at least since the LA riots.

There is so much talk in the media about the causes. I've been talking in this blog about material saturation and the fact that it leaves so many of our problems unsolved. And I think it explains some of what we are seeing on the streets.

The use of money and the market mechanism is an excellent way to achieve economic growth and allocative efficiency. It is an extremely useful social technology. It has generated remarkable abundance and wealth.

But it is not necessarily a way to build and maintain culture. And many of the things people most want and need depend on culture. You need some degree of responsibility and honesty and ethical norms.

Redistribution of money and resources alone is not the answer to social problems and the evolution of society.

London is one of the wealthiest cities in the world. It is not equally distributed, for sure. But billions are handed out in benefits each year. London offers every kind of excitement and variety, much of it for free. It is filled with immigrants who have flocked to find work and opportunity, and succeeded. As Dr Johnson said a long time ago, the man who is tired of London is tired of life. It is hard to believe this is just a matter of just income equality.

It reminds me of the famous saying by former Senator Daniel Patrick Moynihan:

The central conservative truth is that it is culture, not politics, that determines the success of a society. The central liberal truth is that politics can change a culture and save it from itself.

An additional truth is you can't solve cultural problems with money alone. Indeed, it has been a commonplace criticism for centuries that too much material wealth can undermine a culture. It recalls the decadence and collapse of Rome, or the ancient conflict between the latest tightly knit nomadic tribe sweeping in from the steppe and the settled, wealthy city. The vigorous merchants of medieval Venice, sailing to Constantinople and Alexandria, declined in later centuries into rentiers living off their land in the Veneto.

And there is also Daniel Bell's argument about the Cultural contradictions of capitalism, that capitalism can undermine over time some of the values that sustain it. I will come back to that in the future.

There is also a problem with most forms of liberalism, which aim to be both value neutral and neutral between cultures. Far from thinking about how to sustain a culture, mainstream liberalism suggests that is not a valid aim for the state. It only thinks in material welfarist terms.

In that sense the Moynihan quote is wrong. When liberals think of changing a culture, they tend more towards making it procedurally fair and tolerant. They rarely think about what makes a culture work. But any business knows culture can make all the difference to the bottom line, for example. It matters for success.

Libertarians are also wrong to think that market exchange and voluntary individual contracts are sufficient in themselves to make a society work. You need a cultural and ethical fabric that is deeper than an Ayn Rand novel alone.

Change of pace

The Lion Court in the Alhambra, Granada, Spain. One interesting thing about the Alhambra is although it is esthetically stunning, the materials used are actually cheap - mostly plaster. The palace was built when Granada was a declining city state in the 14th and 15th centuries, when the glory of the Ummayad caliphate based in nearby Cordoba was just a memory. They couldn't afford pricey materials.

The great Moorish palaces of the 10th century, like Medina Azahara outside Cordoba, were vastly more lavish according to historical accounts. But they were destroyed by marauding armies of Islamic extremists from Morocco in the early 11th century. The material wealth was lost to ignorance and violence long before Granada fell to Ferdinand and Isabella in 1492.

The story is told in part here: The Ornament of the World: How Muslims, Jews, and Christians Created a Culture of Tolerance in Medieval Spain

Most people have basic material "stuff"

Here is a US census table (2004 data) giving the percentage of American households who own various appliances. 99% own a refrigerator, 96% a microwave and so on.

Inequality is a serious issue, and I'll come back to it. Maybe inequality is much of the reason behind people striving so hard to earn more, as the rewards are disproportionately higher if you achieve one of the top positions in the career ladder.

But that is a different issue than absolute need. At least in the US we have solved the economic struggle for subsistence.

Not that it feels like it with consumer confidence plunging and markets so volatile. People get habituated very quickly to a certain level of material affluence. And they often get over their heads in debt to do it.

Rioting and flatscreen TVs

As if to prove the point about satiation, rioters and loiters in London organize themselves on blackberry. They are so deprived they use the same smartphones as city lawyers or investment bankers.

That's not to say some are relatively disadvantaged. But that's the issue. The deprivation is relative. They are ripping flatscreen TVs off walls. It isn't a bread riot.

And many of them probably have flatscreen TVs at home. TV is important if you have few other aims in life.

It's much more a matter of drift and purposelessness and lack of education. Like the road where every store was looted except the Bookstore. Billions of dollars or pounds of welfare spending won't necessarily fix that cultural and educational poverty.

Are we satiated with consumer goods?

How much stuff is enough? One big change we've been discussing is people increasingly have most of the material possessions they want or need. Even the poorest households in the US today have flatscreen TVs, refrigerators, cars, or air-conditioning.

Clothing is not as much of a social indicator as it once was. Sure, it still costs a fortune to keep up with haute couture. But look around a midtown street and it is hard to tell billionaires from off duty baristas, at least from a distance. Everyone tends to wear jeans and t-shirt at the weekend in any case. The range and quality and bargains of clothing in an average city are astounding.

Food is available in ever increasing quality and variety, and it is an ever smaller proportion of people's incomes.

Shelter certainly costs us a huge amount. But actual physical shelter is readily available, even if it is in the exurbs. We pay more for proximity to jobs or good schools or cultural excitement. No doubt you can always imagine a bigger house in a better location, all the way up to a palace. But not even Louis XIV's Versailles had the central heating, a/c and general comfort of an average modern house. Phillip II built the vast gloomy Escorial Palace, but effectively lived in a set of rooms about the same size as my New York apartment.

Basic needs are, as Keynes imagined 80 years ago, more or less satiated in the US. We still seek quality improvements in those basic needs. But quality frequently improves without increases in cost. In areas like Computers, power soars while prices plunge.

G and I decided a while back that we'd increasingly spend more money on experiences - more on travel, good food, culture, stimulation. In this I think we follow a broader trend. But the demand for experiences, and the kind of social arrangements which optimize them, may be very different from one devoted to maximizing material possessions.

The agricultural revolution transformed society ten thousand years ago. The industrial revolution transformed society two hundred years ago. And now another profound change is transforming society and the nature of the economy again. We talk about the "knowledge society" or "postindustrial society" or "postmodernity", sure. But we haven't begun to really change our habits of thought and wider economic ideas. We haven't figured out yet what the latest revolution means.

The Coffee shop question restated

I started this blog with a question written in a coffee shop in New Yotk.

I last restated it here.
"How do we make economic evolution work for us, rather than against us?".

Now we have another angle:
How do we deal with abundance in the economy so we get the most of what we actually want?

London. ..... London

I just cannot believe what is happening tonight- a breakdown of law in one of the major cities of the western world. I know London very well, and I know the Clapham area also.

Clapham Junction is burning. This isn't like Detroit or Watts burning. This is like Forest Hllls or West LA burning.

A change of pace

From a small house in the woods in Maine, one summer's morning.

Markets plunging again

It might seem crazy to talk about about abundance when the S&P is now down 5% on the day. But it is a symptom of an overstretched system. "Demand" is inadequate to employ people. Discounted future liabilities - a matter of social and political promises - are out of control. Confidence is fading.

Still, it is frightening. The political system is going to a crisis of legitimacy if we go on like this.

Purpose and the economy

The problem with our economy isn't shortage of money, or shortage of goods. It's shortage of purpose.

Or at least purpose with a particular end in mind.

The Age of the Blackberry

I'm discussing how the world is different from the one imagined by Keynes in the essay Economic Possibilities for our Grandchildren

So why do we work so hard still? Here in New York, people work very long hours. Some of that is a matter of choice. Much is not.

One of the main criticisms of Keynes' essay is he focused on the income effect of greater wealth. As people earned more, he thought they would choose to work less because work was an "inferior good" - something you would consume less of as your income grew. In the same way, Canned spam is an inferior good. When people earn more they tend to consume less spam in favor of filet mignon or eating out at Babbo.

But there is also a "substitution effect." The more you earn, the more it also costs you to forego an hour of work. Your time becomes more valuable in money terms. So people may decide the rewards of extra hours at work are still more valuable than time off. It may be worthwhile to sleep with the blackberry by your pillow to earn proportionately more material rewards.

Critics also argue Keynes had too rigid a distinction between work and leisure. Tradtional economics in his day saw work as mostly pain, or disutility. It was the uncomfortable, unpleasant, disagreeable things you did to earn your leisure time.

Now of course work and career are often the main purpose or challenge in life for may. Much more creativity and skill and intellect is required for most jobs now than for a 1930s steelworker or farmer. People enjoy the social aspects of work. They want to go into the office fornthe satisfaction of being part of the team, part of the group.

Of course we get all the bureaucracy and workplace politics as well.

The Age of Abundance

Again, the remarkable thing is we have indeed reached an age of abundance. Not for everyone, of course. The Keynes essay has often been criticized for ignoring the problem of unequal distribution. A billion people still live close to bare subsistence and starvation. And environmentalists can object that satisfying people's basic needs may not be ecologically sustainable.

But if you think about the typical Walmart, say, there are vast amounts of material goods available extremely cheaply, a dazzling fairytale abundance of things which would have amazed earlier generations.

Manufactured goods like clothing or electronics have generally got much cheaper and much higher in quality in our lifetimes.

We actually have too much of many things. We throw much of our food away unused, as it gets forgotten at the back of the refrigerator. One of our main medical challenges is soaring levels of obesity - too much food, not too little. We throw away cellphones or iPods just a few years old.

Perhaps a lot of our basic problems in the economy stem from the fact we don't know how to deal with abundance very well, certainly in the developed countries.

A lot of commentary, such as in the recent collected essays by major economists Revisiting Keynes: Economic Possibilities for Our Grandchildren, focuses on why Keynes got his expectations for work versus leisure so wrong. And I will have a lot to say about that.

But much of the criticism overlooks why Keynes obviously thought such an outcome may not come about because of the 'old Adam' in us, our need for purposive activity.

This means we have to put purpose, people's desire to fill their days, at the very heart of the whole nature of the economy and our daily lives.

The trouble is, as Joseph Stiglitz points out in his essay in that book, mainstream economics takes people's preferences as fixed, as given. Many of the interesting questions are therefore passed over. They are relegated to the realm of moral philosophy.

And one of the most common definitions of economics as a discipline is the science of the allocation of goods under scarcity. Lionel Robbins' definition was "the science which studies human behavior as a relationship between ends and scarce means which have alternative uses."

What if we do not have scarcity for most needs? The problem is more the nature of our needs when we could - if we chose - eliminate scarcity and leave immense amounts of leisure left over.

Why do we want what we want? Are our purposes and wishes consistent, or self-conflicting? Why is it in an age of abundance we end up working sixty hour weeks and living by the blackberry? Do we actually want or choose that?

So what kind of life does economic growth give us?

And here is the fascinating thing. People will have enough to satisfy all their absolute needs, and Keynes thinks relative needs are not so important. People will become satiated with material goods and services.

And so in his view we will solve the struggle for subsistence, the economic problem which has always been mankind's biggest challenge. We will have an age of abundance, not scarcity. Hunger and want and need will be forgotten, because the sheer growth of productive capacity and technology will make it easy to fulfil any such wants.

But this is not all good news.

Thus we have been expressly evolved by nature-with all our impulses and deepest instincts-for the purpose of solving the economic problem. If the economic problem is solved, mankind will be deprived of its traditional purpose.

What do we do then?

For many ages to come the old Adam will be so strong in us that everybody will need to do some work if he is to be contented. We shall do more things for ourselves than is usual with the rich to-day, only too glad to have small duties and tasks and routines. But beyond this, we shall endeavour to spread the bread thin on the butter-to make what work there is still to be done to be as widely shared as possible. Three-hour shifts or a fifteen-hour week may put off the problem for a great while. For three hours a day is quite enough to satisfy the old Adam in most of us!

This expectation of shorter hours is anything but true today. The idea of a three hour work day is unimaginable to most.

He thought that people would find it hard to deal with increased leisure. When the idle rich have tried it, they tend to end up bored, dissipated and unhappy.

Thus for the first time since his creation man will be faced with his real, his
permanent problem-how to use his freedom from pressing economic cares, how to occupy the leisure, which science and compound interest will have won for him, to live wisely and agreeably and well.
The strenuous purposeful money-makers may carry all of us along with them into the lap of economic abundance. But it will be those peoples, who can keep alive, and cultivate into a fuller perfection, the art of life itself and do not sell themselves for the means of life, who will be able to enjoy the abundance when it comes.
Yet there is no country and no people, I think, who can look forward to the age
of leisure and of abundance without a dread. For we have been trained too long to strive and not to enjoy. It is a fearful problem for the ordinary person, with no special talents, to occupy himself, especially if he no longer has roots in the soil or in custom or in the beloved conventions of a traditional society.
To judge from the behaviour and the achievements of the wealthy classes to-day in any quarter of the world, the outlook is very depressing! For these are, so to speak, our advance guard-those who are spying out the promised land for the rest of us and pitching their camp there. For they have most of them failed disastrously, so it seems to me-those who have an independent income but no associations or duties or ties-to solve the problem which has been set them.

The sheer force of accumulation

Keynes' starting point is the sheer power of growth over longer periods of time. Capital accumulation - the growth of equipment, machinery and other productive capacity- is enormous, as even slow rates of growth compound and feed on themselves. Over a hundred years this capital deepening alone produces staggering growth in wealth, and generally incomes too. And we have actualy seen that since he wrote in 1930.

If capital increases, say, 2 per cent per annum, the capital equipment of the world will have increased by a half in twenty years, and seven and a half times in a hundred years. Think of this in terms of material things--houses, transport, and the like.

The other major force for growth is technical progress, which is visible all around us every day. I am writing this on an iPad in the park, a device which would almost have seemed miraculous just a few years ago.

In quite a few years-in our own lifetimes I mean-we may be able to perform all the operations of agriculture, mining, and manufacture with a quarter of the human effort to which we have been accustomed.

Technological progress has if anything been far faster than Keynes imagined. He thought that this could lead to temporary unemployment. But he thought this would not last.

For the moment the very rapidity of these changes is hurting us and bringing difficult problems to solve.Those countries are suffering relatively which are not in the vanguard of progress. We are being afflicted with a new disease of which some readers may not yet have heard the name, but of which they will hear a great dealin the years to come--namely, technological unemployment. This means unemployment due to our discovery of means of economising the use of labour outrunning the pace at which we can find new uses for labour. But this is only a temporary phase of maladjustment.

Economic Possibilities

One of the biggest themes I want to discuss in this blog is a set of questions raised in a short essay written in 1930 by John Maynard Keynes, Economic Possibilities for our Grandchildren. An online copy is here, only seven pages long.

Importantly, this is NOT about the topical but stale debate about smoothing recessions with fiscal deficits."Keynesian economics" has become a shorthand, indeed almost an insult in Washington for demand management and terrifyingly huge fiscal deficits.

I'm not so interested in that debate, which is essentially about the size of the state and the efficiency of markets in isolation. Nor is this about more recent "neo-Keynesian" thinking, about rigid wages or sticky prices and how they gum up market equilibrium.

And in any case, it is wrong to see Keynes as anti-market. His purpose later in the 1930s was to rescue capitalism when much of the western policy elite thought it was doomed, as they nervously watched the rise of communism and fascism.

Instead, see this as a starting point - intuitive long-range questions asked by among the most brilliant economists of the 20th century, agree with him or not.

I've long been fascinated with this essay because it asks what the economy and the economic process is for. It is about the ends, the purpose of economic activity in long range view. It is about the far future, not the business cycle or the next data point. Writing in the teeth of the Great Depression, Keynes was still optimistic about the future, foreseeing incomes would increase between four and eight times over in the next century. But that would mean basic needs could be met.

Let us, for the sake of argument, suppose that a hundred years hence we are all of us, on the average, eight times better off in the economic sense than we are
to-day. Assuredly there need be nothing here to surprise us.

Now it is true that the needs of human beings may seem to be insatiable.But they fall into two classes --those needs which are absolute in the sense that we feel them whatever the situation of our fellow human beings may be, and those which are relative in the sense that we feel them only if their satisfaction lifts us above, makes us feel superior to, our fellows.

Needs of the second class, those which satisfy the desire for superiority, may indeed be insatiable; for the higher the general level, the higher still are they. But this is not so true of the absolute needs-a point may soon be reached, much sooner perhaps than we are all of us aware of, when these needs are satisfied in the sense that we prefer to
devote our further energies to non-economic purposes.

Now for my conclusion, which you will find, I think, to become more and
more startling to the imagination the longer you think about it. I draw the conclusion that, assuming no important wars and no important increase in population, the economic problem may be solved, or be at least within sight of solution, within a hundred years. This means that the economic problem is not-if we look into the future-the permanent problem of the human race.

That far future he wrote about is now. And we indeed increased incomes by about six times over. But few would argue, especially this week with markets fragile and the eurozone on the brink, that we have solved the economic problem. Keynes was right about growth and wealth, but evidently wrong- as we shall see - about what we would do with it.

Why not? Why hasn't the vast increase in productivity and wealth relieved us from economic problems? What is the economy for?

Markets relatively calm so far

After an apprehensive weekend, Asia and Europe are only down about 2% so far. I'm here in a coffee shop with G, looking at the window at the yellow cabs. On a beautiful sunny morning, market turmoil can seem abstract. But it is not.

Voters don't want money?

Here is an interesting argument from Michael Barone. He is conservative, but probably knows more about politics district by district than anyone else in the country, having edited National Journal's Almanac of American Politics for years.

I think the larger mistake the Obama Democrats have made is that they suppose ordinary voters want government to channel more money in their direction.

But ordinary Americans don't want money as much as they want honor. They want what the chance to achieve what American Enterprise Institute President Arthur Brooks calls "earned success."