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The Great Depression followed by World War II might be accurately regarded as the last major world changing global events. But ideas and technologies precipitated by those events are still with us and still pushing us along in an avalanche of chain reactions. The misapplication of those ideas and technologies has given us a future with little margin for further error. This essay attempts to point out one of the ongoing errors.
The changes in Germany resulting from Hitler's rise to power prompted Albert Einstein to emigrate to the US. That same rise to power motivated Einstein to sign a letter encouraging Franklin D. Roosevelt to initiate development of the Atomic Bomb. The pressures of war gave the Germans the incentive to develop the jet engine that was conceived in England before the war and to develop long range missiles to attack London. The United States needed to produce ballistics tables for all of the new artillary it developed to fight the war and to speed up that process the production of the first electronic computer, the ENIAC, was financed.
But the Depression that may have triggered the war also had other long term effects. John Maynard Keynes made suggestions about what to do about the Depression but they made no sense to Roosevelt. World War II forced FDR to do what Keynes had been suggesting all along. So the US came out of the war physically intact, with a booming economy and new technologies. And another 60 years of history have brought us HERE.
But where the hell is HERE?
Does anybody know what the hell is going on?
What is this globalization crap and what good is it?
It seems there are some problems with that Keynesianism that everyone thought was so great after World War II and some of the other ideas. You give some people a little new knowledge and they will find new and improved methods of being stupid. Keynes said the government should borrow and spend to prime the pump of the economy. He did not say borrow and spend to throw money away on wars and nuclear weapons. The term "planned obsolescence" was not coined until 1940 and Keynes died in '46 and was busy with the war in between. As far as I know Keynes never said anything about planned obsolescence. How many automobiles have Americans and other first world nations trashed since 1946?
So now we have a United States with lots of consumer debt and lots of government debt and of course it is all the fault of John Maynard Keynes. ROFL
GlobaLIES This!
GDP GDP GDP GDP GDP GDP GDP GDP GDP GDP GDP GDP GDP GDP GDP GDP
GNP GNP GNP GNP GNP GNP GNP GNP GNP GNP GNP GNP GNP GNP GNP GNP
These two acronymns are what we hear from economists and politicians all the time. GDP mostly replaced GNP around 1990. GDP is Gross Domestic Product and GNP is Gross National Product. The difference is GDP takes foreign investment into account but that is irrelevant to this discussion. GNP_Blog
This discussion deals with what you RARELY hear and what you NEVER hear. What you rarely hear and may never have heard is NDP or NNP. Net Domestic Product and Net National Product. These differ from Gross because our economists subtract DEPRECIATION. The robots that General Motors uses to manufacture automobiles wear out and eventually have to be replaced. These robots are what economists call CAPITAL GOODS. Capital goods have to be replaced for the factories to keep running so the government allows businesses to deduct this depreciation from their taxes according to IRS schedules and economists subtract this from GDP to compute NDP. You may have noticed that the blog did not mention NNP/NDP.
The economists also claim that this depreciation is small each year so they normally don't mention it at all.
What you never hear is that the equation the economists are using is WRONG!
When Joe Blow consumer buys an automobile it gets added to GNP. But his car wears out just like the automobiles purchased by car rental companies like Hertz and Avis who file their depreciation with the IRS. Just because depreciation doesn't get filed doesn't mean it doesn't happen. The laws of physics don't care about money or if we get our equations wrong.
 The purchase of capital goods, like automobiles by car rental companies, increases GNP and is represented by arrow A. This increases NNP as indicated by arrow A'. The B and B' arrows show the same effects resulting from the purchase of durable goods by consumers. Things are a bit more complicated for the C arrow. Since depreciation is subtracted from GNP, C' points down reducing NNP. This results in an equation with two arrows on the left side pointing up but only one arrow pointing down. These arrows on the equation make it obvious that something is missing. Since Depreciation in the upper equation refers to CAPital goods it is represented by Dcap in the lower equation with the same C arrow. The variable Dcon is added to represent Depreciation of CONsumer goods. The D arrow represents increases to Dcon which is inside the parentheses with Dcap so it is also subtracted. D' arrow on the left side of the equation points downward with C' resulting in two down arrows to balance the two up arrows A' and B'. This will result in a value very different for NNP from what the economics profession has been getting and not telling us about. I conservatively estimate that Americans have lost TEN TRILLION DOLLARS in depreciation of automobiles since 1945.
This creates a problem for the economics profession. If they say this equation is correct how do they explain getting it wrong since World War II? If they say it's incorrect how do they explain what is wrong with it to all of the people that know how to do grammar school algebra? So most of them say nothing.
THE ECONOMY is not just the flow of money. It is the WEALTH, tangible and intangible, of every economic unit in a society. A man with $10,000,000 in a safe deposit box could have ZERO income for the remainder of his life but live quite well. People with no wealth must have income for food and rent so they are coerced into laboring for those with wealth. Why hasn't accounting been mandatory in all of our highschools since WWII? Would the economies of all of the advanced nations be in quite different states if accounting had been mandatory? How many people with economics degrees are employed by companies encouraging people to go into debt for things which depreciate for the economists to ignore?
These diagrams of GNP are what economists use to represent an economy. The one on the left is mine and the one on the right is from the blog. They are functionally the same but some names are different and arrows are in different locations. Firms on the right are business on the left and households on the right are work/con for worker/consumers on the left. The Goods & Services arrow is on the top in the right diagram and on the bottom in the left. Labor on the left is factor services on the right.
 
This is GNP minus the depreciation economists subtract but rarely discuss outside of professional economic circles, called NNP. Professional economists never put the depreciation into their diagram. It adds a rather obvious asymmetry.
This is GNP minus all of the depreciation, including what consumers loose. This restores the symmetry but adds a factor that economists never mention.  Maybe we should call it DNW for Delta National Wealth, change in national wealth.
On an international level this brings up the subject of planned obsolescence. Airplanes from World War II, the Spitfire, P-51 Mustang, P-38 Lightning, could fly at 400+ miles per hour. These planes were designed without electronic computers. How is it that 36 years after the moon landing automobile companies with computer aided design and computer aided engineering need to redesign machines that roll along the ground at less than 130 mph? If cars cost more because they are redesigned each year aren't the countries that import all of their cars losing vast amounts of wealth? Shouldn't the political leaders be aware of this ignored depreciation? How well do most politicians understand economics? FDR didn't understand what John Maynard Keynes was talking about.
FDR & Keynes
Mentioning FDR and Keynes brings up the subject of the Depression. The Depression was seen by many as a failure of Capitalism. Since govenrment officials did not understand how the economy worked many of the things they did to cure the Depression actually made it worse. Keynes developed the concepts we now refer to as MACROECONOMICS which included the concept of Gross National Product. Keynes told FDR to borrow money and spend it to "prime the pump" of the economy to generate cash flow. This made no sense to FDR and he didn't do it until World War II forced him to. The success of the American economy during WWII is taken as proof that Keynes was correct.
Life and technologies have changed greatly since that war. Keynes did not live in a world where people watched television for 30 hours each week. The first television commercial was broadcast in the US in 1941 and Keynes was in England and England was at war. TV didn't become significant until after Keynes died in 1946. The influence of Pavlov and von Neumann have grown in the world since Keynes followed the long run.
Vulcan Technology
Vulcan Economics
John von Neumann's 1944 book with Oskar Morgenstern, Theory of Games and Economic Behavior was a landmark of twentieth century social science. Interestingly von Neumann is also Nfamous in the computer industry. Nfamous because most people never heard of him even though almost all computers are von Neumann machines. Someone joked that von Neumann was actually an outer space alien who had trained himself to perfectly imitate a human being in every way. Computers have affected the economy because they made the management of huge corporate and government bureaucracies possible. They have also triggered rapid stock market fluctuations due to program trading which began in the 80's. Now the cyber-economic influence is global due to the World Wide Web. Human beings are information processors and their behavior can be affected by the information they receive, be it accurate or inaccurate. Plenty of people have a vested interest in hiding important information and in a "free" media saturated society the way to do that is to distribute lots of distorted information. The more things change the more they remain the same.
"All warfare is based on deception." - Sun Tzu, 500 BC
How much did the world change from the publishing of THE COMMUNIST MANIFESTO in 1848 to Marx's death in 1883? The American Civil War was fought and lost, or won depending on your perspective and the transformer was invented in 1876. A pretty good argument could be made that the invention of the transformer was more important than the Civil War. It is an electrical component fundamental to the manipulation of electricity and our modern society could not run without it. Technology has changed society and the workings of the economy. It is the perpetuation of 19th century ideas that partly keeps us from using that technology to solve our problems.
There is no reason why everyone should not know accounting and be able to do it on inexpensive von Neumann machines. This would result in von Neumann technology affecting the von Neumann theory of games. Changing the quality of play of millions of people would fundamentally affect the game. Global von Neumannism could make Marxism and conventional Capitalism obsolete. With all of their talk about globalization why aren't any economists suggesting this?
"Economics is extremely useful as a form of employment for economists." - John Kenneth Galbraith :lol: :lol: :lol:
Another legacy of World War II is, "If you are going to tell a lie, tell a big lie." I guess this lie of omission by the economics profession that has been running the world since then means the current system qualifies as NAZInomics.
We may have to blame the next great global depression on the economics profession.
umbrarchist
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