Counterparties: The Jetsons were Keynesians

October 19, 2012

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In the future, we’ll only work 15 hours a week. So said John Maynard Keynes in 1930. Keynes’s utopianism is nothing new – it’s been a common refrain since the Enlightenment, when French philosopher Condorcet pushed it to absurdity by suggesting that an infinite expansion in human height was just around the corner.

John Quiggin has a great, nuanced re-evaluation of Keynes’ prediction. He writes that “for the first time in history, our productive capacity is such that no one need be poor” and that it is possible to achieve Keynes’s vision by 2060. The biggest obstacle won’t be productivity, but social norms:

What is needed most is a change in attitudes to work that would make a guaranteed minimum income socially sustainable. The first is that the production of market goods and services needs to become pleasant enough that those doing it don’t mind supporting others who choose not to. The second is that the option of receiving a guaranteed minimum income does not become a trap, leading into the kind of idleness that produces despair.

According to Gary Becker and Robert Frank, there are two reasons why Keynes’ prediction won’t fully materialize. Per Becker, Keynes was too influenced by the economic model of the landed British gentry, whose wealth was based on land values uncorrelated to their own labor. Frank, meanwhile, thinks Keynes didn’t anticipate the ability of technology to create new goods that would attract our buying desire.

When Quiggin writes that “the culture of conspicuous consumption… is on the wane”, he misses how quickly what is coveted can be rebranded to appear inconspicious (see “artisanal”) and how rapidly what he views as outmoded consumption is being adopted in emerging markets. We have also created a new elite with asset-based wealth, and their stress levels, if not work hours, are low compared to their financial inferiors.

We may be closer to Keynes’ prediction than we’re willing to admit. Catherine Rampell writes that we have an inflation problem, and that the more we work, the worse it gets:  “Americans overestimate how many hours they work in a typical week by about 5 to 10 percent, according to a Labor Department study, with the biggest exaggerators being people who work longer weeks.” Productivity can reach cult-like levels of devotion for some, but its benefits can be distributed unequally. There’s strong evidence that the productivity revolution of the last two decades hasn’t benefited workers much.

There are also many ways of thinking about productivity, and how to improve it. Bike commuting provides a good example:

Motorists may think they are saving time with their cars when it takes 20 minutes to drive to work, compared to 30 or 40 minutes on a bicycle. However, motorists might be spending one or two hours per day (or more) earning the money to cover the cost of their cars, while cyclists spend only a few minutes per day earning the money to pay for their bicycles.

Another way to think about productivity is to concentrate on unlocking the value of your own ideleness. Start viewing vacation as a patriotic duty: not only does it increase national national and personal productivity, it can help prevent fraud. — Ben Walsh

On to today’s links:

The day where the market fell by 22% – a firsthand account of 1987’s Black Monday – Art Cashin

Popular Myths
Who makes up the 47%? Mostly working Americans and the elderly – Timothy Noah

JPMorgan says the payroll tax cut is a goner, which could kill growth next year – WaPo

The Greg Smith Files
Greg Smith says he saw Lloyd Blankfein naked in the Goldman locker room – WSJ
Greg Smith “conned” the New York Times, says the New York Times’ Andrew Ross Sorkin – Zach Seward
“I gave Ted a look – he was smiling – and took my Donic out of its case.” – Dealbreaker

Central banks are the “only game in town”, may be doing more harm than good – Raghuram Rajan

Private equity firms are once again loading companies up with debt to pay themselves – WSJ
Why dividend recaps are private equity’s most inexcusable technique – Fortune

Gender income inequality by state – Slate

If you’re a private banker, business is only getting tougher – All About Alpha

Does the IMF ignore its own research on inequality? – Oxfam

New Normal
“Markets that rise on both good and bad news are not stable markets” – Nouriel Roubini
Now veterans are stuggling with student loans – Reuters

Seattle Times starts buying its own ads to promote candidates, gay marriage – Seattle Times

Financial Arcana
Morgan Stanley and a tale of two VaRs – Tracy Alloway

There’s a lot less “dark social” traffic than we think – Buzzfeed

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