Serendipity

Alin Voicu

Opening the day’s newspaper after this was just posted on Front Porch Republic (reproduced below), one could find an article on the rural-urban contrast in the US: “Population Leaves Heartland Behind” which says that

Americans continued to abandon the nation’s heartland over the past decade, moving into metropolitan areas that have grown less white and less segregated, the 2010 Census showed.

The U.S. population grew by 27 million over the decade, to 308 million. But growth was unevenly distributed. Metropolitan areas, defined as the collection of small cities and suburbs that surround an urban core with at least 50,000 people, accounted for most of the gain, growing 10.8% over the decade to 257.7 million people…

Such findings come as no surprise to Robert Knudson, city manager of Belleville, Kan. Over the decade, the county surrounding Belleville lost 855 people—15% of its population—and has been tearing down empty homes in recent years. Mr. Knudson is typical of many residents in his home town: His two adult children live in Wichita, a two-and-a-half hour drive away.”We were producing children for the jobs we couldn’t support,” Mr. Knudson said. (The Wall Street Journal, April 11, 2011, page A6).

Can Mr. Knudson be saying that even the US rural areas are overpopulated in the economic sense and the children they were “producing” could not be absorbed into the local economy? (Probably not–people moving out of rural areas may well signify continuous industrial/ urban development in need of labor, on the one hand, and a sufficiency of labor in agriculture.) Or, regardless, that the local fabric continues to fray as the income (and output) per head declines in rural America? (Note that Marx stated that “the whole economic history of society is summed up in this antithesis [between the city and the countryside].” (Capital, i, xiv.4, qtd. in Georgescu-Roegen work listed below, 1960)) If that is the interpretation of the WSJ article, then it aligns with Nicholas Georgescu-Roegen’s observation that “the conflict between the interests of the agricultural and industrial sectors exists even in the advanced economies, including the United States. The only difference is that in these economies the conflict is attenuated by the high income, and therefore it can be resolved by such methods as [agricultural price supports]. Overpopulation is the necessary condition for the conflict to become a social vis viva.” (“Economic Theory and Agrarian Economics,”  1960)

And, to avoid misunderstanding, overpopulation in this and Georgescu-Roegen’s sense means the following (apud Doreen Warriner, Economics of Peasant Farming, London, 1939):

It is not, of course, accurate to describe as over-populated any country with a high density of farm population, a low output per head, and a non-mechanized method of cultivation. To give the term any meaning it must be supposed that the size of the population itself causes the wage per head to be lower than it would be if the population were smaller. In this sense a country [or region] is is over-populated if wages fall, because the supply of labour increases faster than the other productive resources of the community.

Here is also the FPR comment for completeness:

Glad indeed to see Georgescu-Roegen mentioned as his insights are not limited to ecology (or bioeconomics) but also speak to development, innovation and policy decisions in the sphere of the (partial) economic process itself.

Particularly pertinent to the GDP discussion in his view are at least the following two ideas:

First, an idea dear to the hearts of front-porchers, that economics should be “local” in a certain sense. Namely, that it should and, indeed, must include the particularities of the economy under consideration, a notion closely linked to city/county/state/country, etc. Particularly in less-than-strictly-urban economies, ophelimity (utility) could continue to be described hedonistically, but not strictly hedonistically—what others do and how much they make (or don’t) would certainly count in matters of distribution and that information is more easily available in non-urban settings, for instance. In that sense, even using a Walrasian view on general equilibrium, the components of national income for distribution purposes (using the income definition/sum of factors calculation for GDP) would be *different* for industrialized economies and for developing ones, for instance. The maximization of welfare in the economy requires a maximization of Walras’ national income (Barone), which derives from the goal of maximizing factor incomes. Specifically, for example, in an overpopulated economy, national income would be given only by numeraire as consumed labor and capital tend to be zero.

Second, and linked to Walras’ insights in the the first, is the composition of a national income calculation, e.g., GDP. Walras’ included leisure in his definition. Neoclassicals do not. True, this value is zero in some economies (developing, overpopulated, etc.) but significantly different from zero in advanced economies: “[T]he [Neoclassical] approach reflects the businessman’s viewpoint: wages are a part of his cost but do not represent a cost counterpart in the life enjoyment of the worker… By comparison [with Marx and Ricardo], the philosophical barrenness of the Neoclassical school becomes all the more conspicuous. Perhaps a pronounced pragmatical bent is responsible for the fact that this school, while paying attention to that part of a worker’s time sold for wages, has completely ignored the value of the leisure time… The necessity of including the value of leisure time (under some form or another) into the pseudo measure of welfare becomes all the more imperative in the case of international comparisons and in that of comparing the situations of the same community at distant times.”

That Neoclassicism is feeling the “pinch of relevancy” may be gleaned from the recent efforts to redefine a measure of welfare beyond GDP, e.g., in the Sarkozy-sponsored work of Stiglitz, Sen and Fitoussi, *Mismeasuring Our Lives: Why GDP Doesn’t Add Up*. But long before that, Simon Kuznets himself, the adviser to the US government for the standardization of the measurement of GNP, indicated in his first report to Congress (1934) regarding national income that “economic welfare cannot be adequately measured unless the personal distribution of income is known. And no income measurement undertakes to estimate the reverse side of income, that is, the intensity and unpleasantness of effort going into the earning of income. The welfare of a nation can, therefore, scarcely be inferred from a measurement of [gross domestic product].”

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