Friday, January 9, 2015

Noah Smith — One Economic Theory to Explain Everything

…decades ago, Krugman created a possible Theory of Everything…. 
The theory I’m talking about isn't Keynesian economics, which Krugman often praises in his blog and his twice-weekly column in the New York Times. Nor is it the New Trade Theory, which is probably what Krugman is best known for as an academic. I’m talking about a theory called New Economic Geography, which Krugman developed in the 1990s along with Japan’s Masahisa Fujita and the U.K.’s Anthony Venables.…
Yes, of course, but this doesn't explain the how to accomplish globalization. There are socio-economic choices with political implications and consequences.

Bloomberg View
One Economic Theory to Explain Everything
Noah Smith

4 comments:

Unknown said...

It's all very obvious. Everything's fine. The local market handles exchanges between the producers (who are also the consumers) in the community with only modest long-term accumulation (saving). There is some regional trade among areas of "natural advantage". Everybody's happily miserable (depending on your tendency to optimism or pessimism) together. Then someone decides that they have to game the system, take advantage of gains from arbitrage in distant trade, avariciously accumulate (hoard), lend at interest (often using predatory loans to accumulate desirable "property"), and "economically enslave" (colonize?) the rest of the community.

The problem with globalization is that this Mercantilist (Capitalist) strategy depends on the arbitrage for much of its higher yields. As you globalize, you and your competitors squeeze out the arbitrage distortions and you are back to merely using your colonists to feed the profit machine. The fight over the few arbitrage opportunities becomes a battle to be the last oligarch standing. Think Tolkien's Sauron.

Unknown said...

Sorry, in the immediately previous post, the first paragraph was supposed to be enclosed in "snark" and "/snark" tags.

Tom Hickey said...

It's been known at least since Lewis Mumford that the basis for economic development and expansion is centralization and hierarchical organization because of the organizational efficiency and effectiveness gained by this meta-institutional arrangement over decentralization and consensual organization. This was reflected historically by the growth of village, towns and cities and city states in the ancient world.

Superior organizational efficiency and effectiveness result in superior power. When a power structure develops there is either a balance of power or conflict among different cohorts seeking dominance.

Jane Jacobs investigated this wrt urbanization, and Peter F. Drucker wrt management, and both concluded that the future would be dominated by cities, on one hand, and large corporations on the other. Political and military studies have long been about the investigation of power and its application among political entities. In modern times this was chiefly about nation states, whereas recently it has been about liberation movements involving non-state actors against nation states.

Owing to the development and expansion of asymmetries along with economic development and expansion, history is influenced by hysteresis and path dependency making it difficult to shift course radically. As a result further asymmetry is baked in culturally and institutionally, which leads to conflict and inequality.

While there are many possible courses for organizational development and socio-economic institutional arrangements, politics as the reality of power eliminates many of them and sets humanity on an course to an uncertain future owing to asymmetry of power that stands in the way of harmonious development on an optimal expansionary path that accommodates population growth within the limitations of efficient and effective use of available resources through knowledge growth and technological innovation.

The question is how to recapture the benefits of decentralization and consensus organization wrt to freedom, egality and community while taking advantage of the efficiency and effectiveness of centralization for economic development and expansion, qualitatively as well as quantitatively. That is to say, what might living a good life in a good society, the basic question concern of the ancients, look like going forward for humanity now and in the future, based on what we do as a species in the present. The range is between unfolding full potential of individual and social life and taking a path toward extinction.

Ryan Harris said...

communities and production. mne and mmt. debian and gnu. I love patterns like these, they make me so happy, a new way to categorize for all.