Sunday, September 19, 2010

A new book and predictions of the future from Keynes and Lovecraft

It was a beautiful fall day yesterday in Northern Virginia, and I was couped up all morning at my mother-in-laws scraping and painting, so in the afternoon we decided to take a walk to the bookstore.

I got this book, which I've had my eye on for a while but is now out in paperback. Revisiting Keynes is a collection of essays reflecting on Keynes's 1930 essay "Economic Possibilities for our Grandchildren". Keynes makes a variety of predictions on what the world would look like in 100 years (so, 2030). Some of them are right, but many are way off. And where Keynes is right (on economic growth prospects) he actually low-balls it. The accuracy on this point is actually quite commendable - the opening essay details how, in 1930, not many people had very high hopes for secular economic growth. The U.S. was just entering a depression but Britain had been stagnant for years. Keynes was actually making a counter-intuitive case for optimism in continued growth.

His other predictions went awry, though - perhaps most famously his view that demand would be satiated, work hours would be reduced considerably, and we would spend more time on leisure and the arts. I've only read the first essay, but it looks like several contributors are going to address this point. One of the most interesting explanations is that a lot of the capital accumulation that ended up being important in the 2oth century in a way that early writers didn't forsee was the importance of human capital. Physical capital you can put to work while you enjoy a life of leisure, but you can't enjoy the gains from human capital unless you go to work yourself. I think this is probably the most convincing reason for why Keynes was wrong on this point. But there are also discussions of multiple equilibria depending on preferences (Europe has seen a greater reduction in work hours), reward in work itself (this is brought up by Phelps - and this is actually a point that Keynes himself stresses in The General Theory, that it's wrong to simply think of work as a disutility and that work can be enjoyable), that consumption isn't as easily satiated as one might have thought, etc.

To make things even more fascinating, I was also reading more Lovecraft letters last night, and I read a 1931 letter where he also takes it upon himself to make predictions of what the world will look like 100 years in the future. What's amazing is that he cites many of the points that Keynes makes: (1.) mechanization will increase growth substantially and reduce work hours considerably (2.) cultural and moral development will be emphasized once people have all that leisure time - they'll create art and have their own Bloomsbury Group (Keynes's literary circle) or Kalem Club (Lovecraft's literary circle). I've seen Lovecraft make overproductionist arguments before, but here he also makes the underconsumptionist arguments that would become characteristic of Keynesianism. That was a very exciting find for me. In classic Lovecraft form, he calls his synopsis of underconsumptionism "a fine piece of grim cosmic irony".

The Keynes book looks good - I'll update as interesting points come up.

Contributors include William Baumol, Gary Becker, Richard Freeman (which reminds me, I need to work on that NBER chapter he's editing!), Axel Leijonhufvud, Lee Ohanian, Ed Phelps, Robert Solow, and Joe Stiglitz, among others.


By the way - it's another beautiful day today, and for anyone near Arlington, Crystal City is having it's annual wine festival. Please come if that sounds interesting to you.

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