Thursday, May 18, 2017

The road not taken

"Professor Commons, who has been one of the first to recognise the nature of the economic transition amidst the early stages of which we are now living, distinguishes three epochs," Keynes wrote in 1925, "three economic orders, upon the third of which we are entering."

The three epochs identified by Professor Commons are the Era of Scarcity, the Era of Abundance, and the Era of Stabilization. The change from the second epoch to the third, according to Keynes, is the source of some troubles.

Robert Skidelsky writes:

The classical economists of the nineteenth century looked forward to what they called a “stationary state,” when, in the words of John Stuart Mill, the life of “struggling to get on…trampling, crushing, elbowing, and treading on each other’s heels” would no longer be needed.

According to Skidelsky, the classical economists of the nineteenth century thought with Professor Commons that the world would move from abundance to stabilization. Skidelsky brings this up to make the point that secular stagnation (as described by Larry Summers) *IS* the stabilization, and we should get used to it: "one should view secular stagnation as an opportunity rather than a threat", Skidelsky says.

I say one should have doubts about any era of stabilization. The economy moves in waves and cycles. Growth follows recession follows growth. Why would this suddenly stop? Why would the economy suddenly "stabilize"? One day general equilibrium is unachievable, and the next day it is thrust upon us -- stable general equilibrium, no less. Hogwash.

It is unrealistic to think the world will stabilize. It is beyond ridiculous to think it will stabilize at an acceptable level of output. It is laughable to think it's all under control.

Can we make it happen? Possibly. But that is a different road than the one we have taken.

Asked whether there had ever been anything like the Great Depression before, John Maynard Keynes replied, "Yes, it was called the Dark Ages, and it lasted 400 years."

The fall of Rome was a Great Depression on a grand scale. Professor Commons' "Era of Scarcity" was the long, slow recovery from that economic collapse. The "Era of Abundance" was the grand-scale boom. These are parts of a cycle, a business cycle on a grand scale: the cycle of civilization.

In place of the Era of Stabilization we can reasonably expect another grand-scale Depression, another "Fall of Rome", only this time it won't be Rome.

Can we avoid it? Possibly. But that is a different road than the one we have taken.

Now, as the final day of his campaign drew to a close, Scipio Africanus stood on a hillside watching Carthage burn. His face, streaked with the sweat and dirt of battle, glowed with the fire of the setting sun and the flames of the city, but no smile of triumph crossed his lips. No gleam of victory shone from his eyes.

Instead, as the Greek historian Polybius would later record, the Roman general "burst into tears, and stood long reflecting on the inevitable change which awaits cities, nations, and dynasties, one and all, as it does every one of us men."

In the fading light of that dying city, Scipio saw the end of Rome itself.
- Charles Colson in Against the Night

Arnold J. Toynbee identified at least 23 civilizations. Most of them are dead and gone. Toynbee, though, said the death of civilization was avoidable. Stefan Zenker lays it out:

In contrast to Oswald Spengler, who thought that the rise and fall of civilizations was as inevitable as the march of the seasons, Toynbee maintained that the fate of civilizations is determined by their response to the challenges facing them... The unifying theme of his book is challenge and response.

Challenge and response. If our response meets the challenge successfully, civilization advances. If not, civilization declines. It's that simple.

But we must choose the road less traveled. And that means that most of us have made the wrong choice.

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