tag:blogger.com,1999:blog-5413971403266308894.post719311539844221655..comments2023-10-20T14:05:41.890-04:00Comments on Positive Economist: What economists do: theory versus empiricsjdchttp://www.blogger.com/profile/15516571466258088759noreply@blogger.comBlogger1125tag:blogger.com,1999:blog-5413971403266308894.post-17543397645921431742008-03-30T20:08:00.000-04:002008-03-30T20:08:00.000-04:00Jim, I encountered your post as the result of a Go...Jim, I encountered your post as the result of a Google Blogs Alert. You're obviously a student of economics.<BR/><BR/>I'm not. At least, I don't have formal training in economics. (I'm an engineer who spent his life in engineering and manufacturing.) However, fifteen years ago, while visiting the St. Louis Science Center, I saw a graph on the wall that changed my life. The graph depicted the growth in the human population from the time of Christ to the present. It set me to contemplating what this meant for the future.<BR/><BR/>The end result is a book I've recently published that I think you may find very interesting. The title is "Five Short Blasts: A New Economic Theory Exposes The Fatal Flaw in Globalization and Its Consequences for America." To make a long story short, the heart of this theory is that, as population density rises beyond some optimum level, per capita consumption of products begins to decline. This occurs because, as people are forced to crowd together and conserve space, it becomes ever more impractical for them to own many products. Falling per capita consumption, in the face of rising productivity (which always rises), inevitably yields rising unemployment and poverty.<BR/><BR/>Some may quickly dismiss me as a Malthusian. But, unlike Malthus, whose theory dealt with a shortage of food, my theory deals with space, and what happens when people are forced to conserve space and use it more efficiently. It may indeed be possible for man's genius to overcome any shortages of resources through efficiency, recycling, substituion, and so on. But when it comes to space, the very act of attempting to use it more efficiently exacerbates the problem of falling per capita consumption and rising unemployment. <BR/><BR/>This theory has huge implications for U.S. policy toward population management (especially immigration policy) and trade. The population implication is obvious, buy why trade? It's because when we engage in free trade in manufactured goods with nations that are much more densely populated than our own, we actually import these effects of an excessive population density - unemployment and poverty. We become one nation economically. The work of manufacturing is spread evenly across the combined work force. But while the more densely populated nation gets free access to our healthy market, all we get in return is access to a market emaciated by crowding and low per capita consumption. The result is an automatic trade deficit. No amount of productivity improvement, dollar devaluation, etc. can have any impact because none of these alter the fundamental problem - the disparity in population density and the disparity in our markets. <BR/><BR/>The relationship between population density and per capita consumption is borne out by consumption data from around the world. And one need look no further than our trade data to find proof of the effect of attempting to trade freely in manufactured goods with grossly over-populated nations. Using our 2006 trade data, an in-depth analysis reveals that, of our top twenty per capita trade deficits in manufactured goods (the deficit divided by the population of the nation in question), eighteen are with nations much more densely populated than our own. Even more revealing, if the nations of the world are divided evenly around the median population density, we had a $17 billion trade surplus with the half of nations below the median population density. With the half above the median, we had a $480 billion deficit!<BR/><BR/> Through most of human history, the interests of the common good and business (corporations) were both well-served by continuing population growth. For the common good, we needed more workers to man our factories, producing the goods needed for a high standard of living. This population growth translated into sales volume growth for corporations. Both were happy. Economists looked upon this situation and concluded that population growth is always beneficial economically.<BR/><BR/>But, once an optimum population density is breached, their interests diverge. It is in the interest of the common good to stabilize the population, avoiding an erosion of our quality of life through high unemployment and poverty. However, it is still in the interest of corporations to fuel population growth because, even though per capita consumption goes into decline, total consumption still increases. We now find ourselves in the position of corporations influencing public policy in a direction that is not in the best interest of the common good. <BR/><BR/>In 1947, the United States signed the Global Agreement on Tariffs and Trade, turning its back on 170 years of tariffs that protected our domestic industries and built the U.S. into the wealthiest nation on earth - the preeminent industrial power. Why? Because disciples of Ricardo's principle of comparative advantage, the economic theory upon which the concept of free trade is based, believed we could do even better by opening more markets. <BR/><BR/>But now, six decades later, we find that our nation has been transformed into a skid row bum, literally begging the rest of the world for money to keep us going. This has happened because we've placed our faith in a theory - Ricardo's principle of comparative advantage - that is overly simplistic and flawed. It is flawed because it does not take into consideration the effects of population density I've described above. <BR/><BR/>I believe this theory has the potential to revolutionize modern thinking about the human population and its relationship to economics. To learn more about this new theory, please visit my web site at OpenWindowPublishingCo.com where you can read the preface for free, join in my blog discussion and, of course, purchase the book if you like. (It's also available at Amazon.com.)<BR/><BR/>Please forgive the somewhat "spammish" nature of this reply. I just don't know how to inject this new perspective into a discussion without drawing attention to the book.<BR/><BR/>Pete Murphy<BR/>Author, Five Short BlastsAnonymousnoreply@blogger.com