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| Last Updated: Aug 15th, 2008 - 11:26:43 |
Newsletters
:
2006 Newsletters
:
24 November 2006
Thought for the Day
Collecting more taxes than is absolutely necessary is legalized robbery.
Calvin Coolidge
Nov 23, 2006, 11:22
Newsletters
:
2006 Newsletters
:
24 November 2006
Globalization: The Long-Run Big Picture
Summary
Globalization, in conjunction with its essential prerequisite of respect for private property rights, and thus the existence of substantial economic freedom in the various individual countries, has the potential to raise the productivity of labor and living standards all across the world to the level of the most advanced countries. In addition, it has the potential to bring about the radical improvement in productivity and living standards in what are today the most advanced countries, and to provide the strongest possible foundation for unprecedented further economic advance everywhere.
These overwhelmingly beneficial results are often hidden from view by the fact that at the same time globalization implies a substantial decline in the relative or even absolute nominal GDPs of today's advanced countries, the experience of which engenders opposition to the process.
What is not seen is that to whatever extent globalization might reduce absolute nominal GDP in today's advanced countries, it reduces prices many times more, with the result that it correspondingly increases their real GDP, and that to whatever extent it reduces merely their relative nominal GDP, it again increases their real GDP many times more.
This article shows that by incorporating billions of additional people into the global division of labor, and correspondingly increasing the scale on which all branches of production and economic activity are carried on, globalization makes possible the unprecedented achievement of economies of scale - the maximum consistent with the size of the world's population. First and foremost among these will be the very substantial increase in the number of highly intelligent, highly motivated individuals working in all of the branches of science, technology, and business. This will greatly accelerate the rate of scientific and technological progress and business innovation.
The achievement of all other economies of scale will also serve to increase what it is possible to produce with any given quantity of capital goods and labor. Out of this larger gross product comes a correspondingly larger supply of capital goods, which makes possible a further increase in production, resulting in a still larger supply of capital goods, in a process that can be repeated indefinitely so long as scientific and technological progress and business innovation continue and an adequate degree of saving and provision for the future is maintained.
The article shows that from the very beginning, the process of globalization serves to promote capital accumulation simply by dramatically increasing production in the countries in which foreign capital is invested, out of which increase in production comes an additional supply of capital goods.
Some critics of globalization, notably Paul Craig Roberts, do not understand how it promotes capital accumulation and instead believe that it deprives the advanced countries of capital. Others, notably Gomory and Baumol, view the effect of globalization on nominal GDP as though it were its effect on real GDP and are thus led to confuse competition for limited money revenue and income with economic conflict. This article answers both sets of errors, including related confusions concerning outsourcing.
Globalisation, like Peak Oil and Climate Change, is a topic about which politicians make a great deal of noise and pressure groups all over create a lot of fuss. This article provides a very sound overview and although rather long it manages to be complete and puts globalisation in perspective as one of the greatest benefits to mankind likely to occur in the 21st century.
[ Visit Website ]
Nov 22, 2006, 13:31
Newsletters
:
2006 Newsletters
:
24 November 2006
Milton Friedman; An Enduring Legacy.
One of the most influential economists of the 20th century has died.
MILTON FRIEDMAN won the John Bates Clark Medal, awarded to an outstanding American economist under the age of 40, in 1951. Many consider it harder to win than a Nobel Prize. One of the measures of his greatness is that when he got it, he still had not done any of the work for which he would become most famous. Still to come were the permanent-income hypothesis, his groundbreaking “A Monetary History of the United States” (co-written with Anna Schwartz) and the proposal of a natural rate of unemployment.
These works revolutionised the conduct of central banks around the world. But to non-economists Mr Friedman’s great achievement is not his challenge to Keynesian demand management but the popular writings that challenged a consensus favouring ever-greater state intervention in the economy. This work, too, came long after his peers had recognised him as a leading light. At the time of his death on Thursday November 16th, the 94-year-old economist was still working to spread his ideas about free markets, this time through a documentary for American public television.
It is another mark of his greatness that so many of the ideas that seemed crazy when he came up with them - from blaming the Depression on bad central-bank policy, to school vouchers and the volunteer army - have gained mainstream acceptance. But Mr Friedman always recognised that his success was fragile; free markets and stable money have lots of enemies, particularly among politicians. He has left us a staggering legacy of economic theory and public-policy prescriptions - but is that inheritance growing or shrinking?
Certainly, on the monetary side, Mr Friedman remains a giant. His critics point out that central bankers no longer try to target the money supply directly, but to those who remember the inflationary 1970s it is perhaps more important that futile attempt to push unemployment to zero no longer trigger inflationary spirals. In developed countries politicians may talk like Keynesians, but they behave like monetarists, looking to the central bank, rather than fiscal policy, to stave off inflation and recession.
And what of his other crusades? His proposal of a volunteer military force, once rejected as impractical, is now so deeply ingrained in American culture that politicians who proposed bringing back the draft for the war in Iraq were dismissed as crackpots or worse. His quest to replace anti-poverty programmes with a “negative income tax” that would give cash to the working poor has come to fruition in the form of the earned-income tax credit. This is now the favoured policy prescription on both left and right for boosting incomes at the bottom. School vouchers, too, are making progress, albeit slowly. And where they are not, the idea that students should be able to choose between public schools is nonetheless bringing competition to America’s educational system.
Even outside his homeland, his ideas continue to make inroads. He was pilloried for briefly advising the Pinochet regime in Chile, where his students, “the Chicago boys”, ran economic policy. Thirty years later that oppressive government is gone but his free-market reforms have made Chile the economic star of Latin America. The World Bank and IMF continue to push for stable financial systems and market-based reforms around the world. Proposals like the negative income tax were forerunners of the consensus growing in Europe (and elsewhere) that governments should provide safety nets through taxation and distribution of cash benefits rather than heavy regulation of markets.
But despite Mr Friedman’s work, thickets of regulation thrive in most countries, particularly his homeland. Nor has he succeeded in trimming back the state, which is still growing in many places, including America. Ironically, another legacy may be to blame: income-tax withholding, which he helped to invent during the second world war. The fact that the tax is deducted from most peoples’ pay before it reaches their pockets is perhaps the main reason why the state has been able to grow so large. Mr Friedman deeply regretted this contribution to economic science - but like his other inventions, it will long outlive him.
Nov 20, 2006, 12:44
Newsletters
:
2006 Newsletters
:
24 November 2006
The Stern Tendency
It is not that I believe what the Greens are saying about Climate Change but here is an interesting comment from The Economist which helps explain how economic theory works in practice.
In the 1970s the Greens raised the problem of global cooling; in the 1990s they raised the problem of global warming. Now they are concerned with the climate changing.
The science is vague and invariably alarming.
However I am all for cleaning up the atmosphere in general and this looks like as good a way to do it as any.
[ Visit Website ]
Nov 7, 2006, 11:05
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