Economic impossibilities for our grandchildren?: Keynes Lecture by Kevin O’Rourke

Kevin’s recent Keynes Lecture at the British Academy can be viewed here.

2 replies on “Economic impossibilities for our grandchildren?: Keynes Lecture by Kevin O’Rourke”

Not sure what Prof O’Rourke’s ‘message’ is – that we do or do not have a situation where local and/or global aggregate economies are ‘stagnating’ – and that factors such as population, technology, savings and investment are somehow interacting – in some sort of mysterious manner. So the ‘fix’ – if there is indeed one, may be both tricky to identify and then implement. But to what effect? To resume the Permagrowth economic paradigm? He did not specifically allude to this paradigm so I am guessing that its like a smart device app – running in the background.

What did catch my attention was his comments about Sub-Saharan Africa (SSA). Now there is a clutch of economic basket-cases if there ever was one. And population growth and a moving technological frontier will bring economic development and rising standards to SSA? Sorry, Prof O’Rourke, but you are not living in the real world. Notice what’s going on in Nepal at the moment? Oh! – its a shortage of liquid hydrocarbon fuels. Sure is a mess over there. The logic of any substantial economic “growth” in SSA is that it would, in the most unlikely event it actually did occur, suck up the entire global export-supply of liquid hydrocarbon fuels and leave nothing for China, India and other lesser nations. Seriously – there is simply insufficient liquid fuel available now or in the future, to permit any substantial economic improvement in SSA.

Economic growth – which is actually a logarithmic function, requires inputs of raw energy (coal, oil and gas), credit, and raw inorganic commodities. People are also needed to man the technological interface. And its sobering to observe the VW emissions situation. Brilliant engineering technology being finessed by the Physical Law. So they had to ‘cheat’. Technology has its limits. Real caution is strongly advised.

I mentioned credit – as an essential ingredient for economic activity. Credit has a cost: its called interest rate. So what’s the likely outcome if the cost goes to zero? Lots and lots of credit is generated. And then what? Oh!, we have an exponential increase in debt. Its assumed incorrectly – since the assumption is based on historical experience, that future economic expansion will provide the necessary surplus to pay down the debt. It should, but it won’t; g is either flat or declining; might even get to zero or worse, go negative. n won’t help either; just more folk who need 5 to 10 litres of liquid hydrocarbon fuel, per person, per day instead of a half to one litre – depending on where they came from originally. The cut-off point that separates and distinguishes an emerging economy from a subsistence one is the consumption of 2 litres of liquid hydrocarbon fuel, per person, per day.

Not very enlightening, overall. And some major economic omissions

I thought it was enjoyable and well presented.

It’s blindingly obvious that government deficits are too small.

How on earth the bleating about Debt/GDP being the arbiter of sustainable sovereign debt continues to flourish, I have no idea.

The JGB is 45bps….. Gilts are 2%….. it couldn’t be more obvious if it tried.

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