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Robots and Robber Barons

posted on 11 December 2012

I think that Krugman's argument below is closer to the truth than Mankiw's notion of the

ever expanding pie. A lot of people are getting no pie and never will. Capitalism won after the Fall of The Wall but ordinary people have not won. We're back to 19th century conditions of low wages, no unions, and no benefits. And no jobs either.


What happens when the seemingly inevitable rise of the rentier class (Spain, Holland, England and now the US) hollows out the workforce to the extent that there is insufficient inventive talent and skilled support for the economy to compete in an increasingly technology based marketplace? We can go back to Adam Smith, who pointed out that "For a pair of diamond buckles, perhaps, or for something as frivolous or useless, they exchanged the maintenance of a thousand men for a year, or what is the same thing, the price of maintenance of a thousand men for a year, and with it the whole weight and authority which it could give them. The buckles, however, were to be all their own..."

(Adam Smith, Wealth of Nations in the chapter: how the towns improve the country...p366 in my edition)

When the people who do the R&D and innovation and the engineering and skilled prototype development are amongst the thousand, and are replaced by increasingly Madoff like investments and 'luxury' brand $8000 dollar purses and such, the economic decline from inability to compete for the future is inevitable.

On a lighter note, you can see the complete cycle in my piece on the popular TV series entitled ' Downton Abbey Economics', which takes one from the post Napoleonic war bailout of the banks, rich landowners and gentlemen farmers, through the wealthy middle class of the industrial revolution to peak earnings of the 'one percent' and the economic rot immediately prior to WW1. Enthusiasts of the series tell me that the family is going to get Madoffed in the upcoming episodes.

I actually think Krugman is quite often closer to the truth than Mankiw. But that aside: there is a big difference with the 19th century! Nowadays the people (at least in western democracies) have a general right to vote. And if you gauge the levels of resentment and anger among the "men & women in the street" about this then it is clear a political correction will come sooner or later ... probably sooner. And what some economists and financial wizards tend to forget is that a government backed by the majority of its people has definite ways of enforcing whatever change gets a majority. When the season for corporate bomusses draws near again you can just watch those "majorities" grow.

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