Wednesday, March 01, 2006

Economic Possibilities For Our Grandchildren

In his 1930 essay "Economic Possibilities for our Grandchildren," the great economist John Maynard Keynes had two contradictory attitudes toward how technology would affect employment.

Looking one hundred years in the future, at how technology would affect his grandchildren, Keynes foresaw a society with more leisure, which would allow people to be more fully human.

All through recorded history, Keynes said, there had not been any great economic improvement. There were ups and downs, but there was not any general trend toward improved production and greater prosperity. "From the earliest times of which we have record - back, say, to two thousand years before Christ - down to the beginning of the eighteenth century, there was no very great change in the standard of life of the average man living in the civilized centers of the earth."

But there has been continuing economic progress during recent centuries, because new technologies have made production more efficient, and because capital accumulating at compound interest has been available to invest in those technologies. If production becomes 2% more efficient each year, then output doubles every thirty-five years. A century from now, we will be able to produce more than seven times as much as we do now.

So, Keynes said, "mankind is solving its economic problem." In the past, "the economic problem, the struggle for subsistence, always has been ... the primary, most pressing problem of the human race - not only of the human race but of the whole biological kingdom from the beginnings of life." But in the future, "a point may soon be reached, much sooner perhaps than we are all aware of, when these needs are satisfied in the sense that we prefer to devote our further energies to non-economic purposes."

When that time comes, "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."

Those are the economic possibilities for our grandchildren, but that future is remote enough that it does not influence current policies. Looking at the same decrease of work time and increase of leisure as a current issue, Keynes has a very different attitude toward it: it becomes "technological unemployment ... 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."

In this view, more efficient production does not give us leisure and freedom. It gives us the problem of unemployment, which we must solve by finding new uses for labor. If new technologies let each worker produce 2% percent more each year, than we must consume 2% more each year, whether or not we want the products we are consuming, purely avoid technological unemployment.

Obviously, we will never have more leisure as long as we believe that, to fight technological unemployment, we must find new uses for labor just as quickly as we economize the use of labor.

After World War II, this attitude toward unemployment became the conventional wisdom. All the developed nations used the methods that Keynes had recommended to "find new uses for labor." Governments built more roads, built more suburban housing, and used deficit spending to stimulate the economy, just as Keynes had said they should to avoid unemployment.

They were so successful at "finding new uses for labor" that the work week stopped getting shorter after World War II. The standard work week had declined from 72 hours early in the nineteenth century to 40 hours during the 1930s. Then the standard work week stopped declining, and it has remained 40 hours for seven decades.

Today, the grandchildren of Keynes' generation have entered the workforce. In a couple of decades, we will have passed the hundred years that Keynes said we would have to wait for a future of leisure. Yet Americans have less leisure today than in Keynes' day: the standard work-week is still forty hours, but many people work longer hours than the standard.

If we are ever going to have more leisure, we need current economic policies that offer us shorter work hours. We cannot keep following Keynes' idea that leisure and freedom are economic possibilities for our grandchildren, but that current policies must create jobs quickly enough that there is not more leisure for our contemporaries.

This approach reminds me of the school in Alice in Wonderland where the policy was always to give the students jam tomorrow but never to give them jam today. No matter how much time passes, it always remains today, and we never get the jam that we were promised.

Quotations from John Maynard Keynes, "Economic Possibilities for our Grandchildren," in Essays in Persuasion (New York, Harcourt, Brace & Co., 1932) pp. 358-373.

1 Comments:

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10:55 PM  

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