The Economic Possibilities of Our Grandchildren.

We find ourselves in similar times to those in which the Cambridge economist, John Maynard Keynes, (1883-1946) wrote his essay ‘Economic Possibilities for Our Grandchildren’ 1 (1930). It is an essay of predictions, unusually for ‘the master’, some of which are wrong. But it is only the inaccuracies that make the essay worth revisiting.

The essay begins by entertaining sentiments that would not be unusual today. ‘[people say] The rapid improvement in the standard of life is now going to slow down’. But Keynes calls this simply ‘a bad attack of economic pessimism’; a minor hiccup in centuries of stable economic expansion. Rather nonchalant given the situation; unemployment was at 12% and still climbing, the economy had shrunk 6% in the preceding year and total debt was at 160% of national income. Though, sure enough, Keynes turned out to be correct – the 1930s were dire, but not the end of economic growth. The current situation is comparatively rosy. If Keynes were here today, he would likely stick by his optimistic forecast – our current troubles are merely ‘growing pains’; technical unemployment caused by us replacing jobs faster than we can create new ones2.

The ‘growing pains’ Keynes spoke of were electricity, mechanisation, mass production and oil. Ours today are automation, the internet, computers and a new wave of people entering the workforce. All make machines more valuable than labour, compressing wages, demand and slowing growth. But in the longer run, as in the 1940s, they allow workers to produce more; hence adding to our wealth.

Having challenged the pessimistic consensus, Keynes asks: ‘What can we reasonably expect the level of our economic life to be a hundred years hence? What are the economic possibilities of our grandchildren?’. His quantitative answer to this question is more accurate than his qualitative answer – but it is the latter from which we may learn much more.

Keynes predicted, given that there were no major wars3, in a hundred years we would be four to eight times richer (growing at an average rate of just under 2% per year). Considering that we have had a major war, and we are fourteen years early in our assessment, the actual figure of just under five times richer is right where it should be.

He then continues, assuming we are 8 times richer, as forecasts say we should be in 2030, ‘the economic problem may be solved, or be at least within sight of solution’. Before you laugh the idea away, he has an important distinction to make. There are needs that we feel ‘whatever the situation our fellow human beings may be in’ and needs that we feel ‘only if their satisfaction lifts us above, makes us feel superior to, our fellows.’. The first sort, consumption to meet our basic physical requirements, is finite; you can only eat so much food before you are full, you need so much heating before you are warm and there is a point at which more healthcare won’t make you any healthier4. I am aware that saying this may be contentious, but in the UK we have almost reached abundance in this sense; there are very few people who do not have food, healthcare or shelter. And for those who do not, the causes are often social, not economic; drug dependencies or broken families.  The second sort of need is infinite. As others accumulate wealth we will desire more of our own to surpass them, and likewise as we accumulate wealth, others will desire more of their own to surpass us. Keynes took only the first sort of needs to be a part of the economic problem; which may have turned out to be myopic.

That the economic problem will be solved by 2030 is a bold prediction; but there is more to it. With our needs satisfied there’d be far less need to work; ‘Three-hour shifts or a fifteen-hour week’ would be possible. Before discussing why we are not on track to meet these aims, it is worth looking at what society would be like if they were to be met.

Bertrand Russell (1872-1970), having retired from a career in analytic philosophy, began to think about what idleness could do for us. His thoughts were published in the essay ‘In Praise of Idleness’ 5(1932). Russell believed that ‘the road to happiness and prosperity lies in an organised diminution of work’ and that the ‘morality of work is the morality of slaves’. He imagines that, with working hours cut down to four, we would not spend our free time exhausted, so would fill it with more active and participatory endeavours, or spend more time in education. He also sees our temperament changing as we work less, we ‘will become less persecuting and less inclined to view others with suspicion’ because ‘good nature is the result of ease and security, not a life of arduous struggle’.

While Keynes joins Russell in this positive view of idleness, the change concerns him, ‘mankind will be deprived of its traditional purpose’, ‘it is a fearful problem for the ordinary person, with no special talents, to occupy himself’. This is already showing itself among wealthy wives, who often find little to do with their time other tend to the house. For example, two thirds of ‘ladies who lunch’ drink more than the recommended limit of three units of alcohol a day, and are twice as likely to suffer from anxiety and nerves. It will take a radical change in mind-sets to prevent this from becoming near universal, Keynes says. Money needs to be loved as a ‘means to the enjoyments and realities of life’ rather than an end in itself – he calls the latter view a ‘disgusting morbidity… semicriminal, semi-pathological’.  Rather worryingly, we seem to moving in the wrong direction in this respect, becoming more consumerist and more materialistic with every passing decade, ruining the leisure time we do have.

However, the preceding discussion is relatively unimportant in comparison with the main question that arises from the essay, what went wrong? Why are we still working so much? It is only this that makes the essay worth reading. His logic seems unassailable. If economic prosperity had already lifted the average person in the west above subsistence, surely being eight times richer would allow us to work only a few hours a day, while maintaining the same standard of living?

There are even reasons why we should be working less than Keynes had predicted, globalisation and the empowerment of women. Whereas before we would need to work a certain number of hours to purchase a T-shirt, we can now work fewer hours on a high wage, and import one from China or Bangladesh. And, demand has not significantly fallen since women entered the workforce, but the number of people able to supply goods to meet demand, has growth hugely. So each worker should be working less than before.

In the defence of Keynes, annual hours of work have fallen from about 2700 to 1700 from his times to the turn of the millennium6, but the puzzle remains. If his predictions were correct, we would be down to 600 hours in the next few years. Where has he gone wrong? Or have we?

The first error that Keynes may have made is his analysis of the relationship between capital and labour. He envisaged that technical developments would, eventually, make capital complement labour, that is, allow workers to be more productive, and hence earn a higher wage. Critics would say that this hasn’t been the case, capital has replaced labour, for example those complex automated machines in car factories or self-service supermarket checkouts. The data, however, supports Keynes. Wage’s share of income has only fallen by a couple of percentage points in the last 40 years and wages in the UK have been growing steadily since WW2.

Or maybe Keynes failed to see how more of our income, and then free time, would be soaked up by new inventions – televisions, mobile phones, airplane flights. Any technological progress that increases our incomes, also increases the number of things on which we have to spend money. This is certainly correct to some degree, but does not account for enough of the shortfall to be conclusive. US consumers spend just over 5% of their income on technology, and about 10% of their incomes on travel. A sizeable proportion of this money replaces other spending – we pay for cable television and flights rather than the theatre and boats, as they would have in the 1930s – so there is still a huge gap between how much we do, and should, work.

The first answer that puts the blame on us, comes from Russell’s essay. He thought that the economic problem, in the formation of it that Keynes laid out, was already solved. The actual problems were; how both wealth and idleness were distributed, and overconsumption.

Wealthy landowners often live of the rent of their property and the labour of others, so perhaps a reduction in inequality would go some way to get the number of hours worked down. Empirically, this argument has some weight. Inequality began to fall around the first World War, and continued to do so until the 70s, before slowly creeping up until the present day – this description matches that of weekly hours worked, and not just in the UK, but across the English speaking world, Continental Europe and Japan. But again, where this line of argument falls short is the magnitude, huge reductions in inequality would be necessary to get down to the 600 hours we are looking for. Inequality in idleness is likely more significant. Counting those missed by the official headline unemployment figure, there are probably around 7 million people7 who do not have a job, but would like one. These people being given the opportunity to work would take some of the burden off those who do have work.

Next, Russell states that we produce things that are not wanted. A possible culprit for this infliction is the ‘age of advertising’, which was born in Russell’s time. Maybe the capitalist system and mass advertising we have been subject to have indoctrinated us, moulded us into the insatiable materialists that corporations want us to be. Putting the Marxist vibes aside, this idea makes sense. As Keynes said, ‘we have been trained to strive and not to enjoy’, this training serves us well in achieving economic growth to solve the problem of scarcity, but not in enjoying the freedom we have access to once it is solved. This is a deeply saddening diagnosis. Are we not capable, as humans and as a society, to put aside our greed and enjoy simple things – books, art, music, sport and the company of others?

So, perhaps it is the ‘psychological problem’ or the ‘sociological problem’ that needs to be solved, rather than the ‘economic problem’. Indeed, this is likely, and also possible to investigate. During the First and Second World Wars, half the labour force and over half of GDP was removed from catering for our physical needs to support the war effort. The economy still functioned, people ate and had homes. If we removed the same proportion of hours from the average working day, with our current GDP, four times higher, we could comfortably survive. Even more comfortably if measures were taken to further kerb inequality, unemployment and underemployment.

We have already looked at why idleness can be positive, but perhaps people want to work for the material comforts it brings? To confirm this, we must look for potential reasons why individuals would work even if it wasn’t in their best interest. If no such reasons exist, we may discard the ideas of Keynes and Russell; people work because it is the right thing for them to do – we have nothing to be concerned about.

These reasons come under two categories; things that force people to work, even if they don’t want to, and things that make people think that working is a good idea, even if it may not be.

Of the first sort, the power that employers have over us can be seen as a tool to ensure long hours of work. If we push for fewer hours our employer may fire us and employ one of the many unemployed waiting for work. While there are cost associated with making workers redundant, they are small in comparison with the costs of being made redundant; which places negotiating power firmly in the hands of employers. Maybe, and in fact it is likely that, many people would rather live in less comfort, with more free time, but are prevented from doing so by their employers. Next, though admittedly this is largely their fault, there are also countless cases of people forced into work by debt. Firms who sold adjustable rate mortgages to individuals they knew would not be able to pay them back, and predator loan companies (Wonga for example), can be blamed for exaggerating the problem.

What about things that push us into wanting to work more? Aside from the mass advertising and consumerism mentioned above, we can look at Protestantism, our political system, and inequality.

Max Weber’s (1864-1920) ‘The Protestant Ethic and the Spirit of Capitalism’ 8 (1905) is focused on how capitalism arose in the first place, but is still relevant today. Many of us not actually Protestant, however we still, to varying degrees, abide by the protestant teaching that our sins can only be forgiven if we work hard; god does not like our time off. Sub-consciously we see work as ‘good’ and ‘moral’, an end in itself, even if, as atheists, we know it is no such things.

Maybe political rhetoric contributes to this? The soundbites that politicians use glorify work, feeding the idea that it is intrinsically ‘good’ and ‘moral’. The conservative party are certainly the primary culprits; the phrase ‘hard working’ was used 11 times in their 2015 manifesto, but New Labour are guilty too – they took a hard line on rewarding ‘strivers’ and punishing ‘skivers’. Of course, this notion of ‘justice through work’ is not exclusive to party politics, but it is clear to see.

Recall Keynes’ second sort of need; that which is derived for the desire to be above, at least materially, our fellows. It is for this that we perform a great proportion of our work, and the extent to which society is motivated by this, is determined by levels of inequality. The greater the shortfall in material wealth of an individual relative to his peers, the more pressure will be upon him to improve his lot, either from family, friends, society or himself.

There is a double act going on here, though. When great value is placed on ‘equality of opportunity’, but not ‘equality of outcome’, the pressure to perform is increased. The more evident it is that one’s outcome is determined by their birth, the more they may be forgiven for not succeeding. Whereas, a world where everyone seems to have an equal chance, but ends up with wildly different fortunes, is one that places work above all other aspects of life. Don’t be mistaken, I am not advocating a return to a feudal or caste system, that would be against the tide of social progress. But it is worth considering that a meritocracy, or more accurately, a supposed meritocracy, can be detrimental9.

So, before looking at the economic possibilities of our grandchildren, what have we learnt from the present situation? The level of average wealth, at least in the UK, is high enough for a modest lifestyle with only a few hours of work. But society has not allowed us to take up this option, both in the way it has moulded us, and in the way it is structured; it is geared for growth, rather than for people. Keynes failed in his predictions, but the onus is on us, not him. We have solved the economic problem, but not without creating a social one.

What, then, will the future hold? Likely more of the same. Our poor will remain poor, without access to the goods that their hardship has produced. Our new smartphones will ruin the remaining leisure time we have, always being able to respond to that work email. Our notion of value will be further shaped by mindless advertising, tricking us into buying things we don’t need in the hope that they will satisfy us. Our standing will take priority over our state of mind, leading us to work and consume just to get one up over our peers. Our children will no longer get an education, they’ll be trained, programmed, like machines, to get a job and produce things nobody actually wants.

Or can we make a change? Veer off this path that the twentieth century has set us upon? There are signs, small signs, that we can do this. The EU’s social chapter limits working hours to 48 per week, Sweden is moving employees towards a six hour working day, France recently banned work emails after 6pm. Changes like these, along with an expansion in further education, redistribution of wealth, and most importantly a shifting of priorities, will allow Keynes’ prophesy to be fulfilled for our grandchildren.

 

1 It is certainly worth reading the essay, which can be found here: http://www.econ.yale.edu/smith/econ116a/keynes1.pdf

2 His view that this was the primary cause of unemployment changed in ‘The General Theory of Employment, Interest and Money’ (1936) but the new ideas add to, rather than refute, his earlier work.

3 Incidentally, in ‘The Economic Consequences of the Peace’ (1919), he predicted that in 20 years’ time The Treaty of Versailles would drive Germany to start a second World War.

4 Keynes’ subscription to this idea shows his rejection, or perhaps ignorance, of, mainstream economic thinking of the time. Alfred Marshall (1842-1924) in his ‘Principles of Economics’ (1890) axiomatically states that if the cost of a good was low enough, demand for it would have no upper bound. While this holds true in an economics textbook, it is not observed in the real world. Nobody hordes those free leaflets given out in train stations.

5 Also worth reading: http://www.zpub.com/notes/idle.html

6 Huberman, M. and Minns, C. (2007) The times they are not changin’: Days and hours of work in Old and New Worlds, 1870–2000. [online]. Available at: http://personal.lse.ac.uk/minns/Huberman_Minns_EEH_2007.pdf

7 From the Guardian: http://www.theguardian.com/politics/reality-check-with-polly-curtis/2012/feb/16/unemployed-uk-how-many

8 Can be read here: http://www.d.umn.edu/cla/faculty/jhamlin/1095/The%20Protestant%20Ethic%20and%20the%20Spirit%20of%20Capitalism.pdf

9 for a more in-depth look at this idea, check out my blog post at: http://tiffinomics.com/capitalism-affluence-and-happiness/

Leave a Reply

Your email address will not be published. Required fields are marked *