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Economic possibilities for our overworked grandchildren

Feb 29,2024 - Last updated at Feb 29,2024

ITHACA, NEW YORK — In 1930, John Maynard Keynes published his short essay “Economic Possibilities for Our Grandchildren”, in which he outlined his vision of a future global economy characterised by leisure and abundance. As the rapid advance of artificial intelligence threatens to displace millions of workers, it is worth revisiting this brilliant, passionate work.

Keynes originally wrote his essay in 1928 for a lecture at a boys’ school in Hampshire, England, and spent two years revising it before its publication. Despite being taken aback by the 1929 stock market crash, he encouraged his readers to view it as a “temporary phase of maladjustment”. Demonstrating his characteristic foresight, Keynes avoided making predictions for the next five or ten years, instead focusing on the century to come.

Many of Keynes’s insights were remarkably prescient. Modern society, he observed, had become “afflicted with a new disease”, whereby technological advances had reduced demand for labor. But he viewed this “technological unemployment” as a reason for hope, not despair, predicting that innovation would drive rapid GDP growth and usher in an age of leisure. “The standard of life in progressive countries one hundred years hence,” he speculated, “will be between four and eight times as high as it is”. Despite the economic ups and downs of the past century, this prediction has proven to be accurate.

But as far-sighted as he was, Keynes’s other forecasts were far off the mark. “Within a hundred years,” he asserted, humanity’s “economic problem,”the need to work in order to produce the goods that sustain us, would be resolved. While people may still work “three hours a day”, mainly “to satisfy the old Adam in most of us”, both the poor and the rich would enjoy such prosperity that labour would become unnecessary.

Keynes has been rightly taken to task for this wildly optimistic prediction. As Elizabeth Kolbert noted in The New Yorker, the productivity gains of the past century have not translated into increased leisure time for all. To be sure, the economically disadvantaged work less now, both because there are fewer jobs and because life is less precarious than it used to be. But the wealthy, driven by a culture of competitive greed, find themselves working more than ever.

Moreover, work-leisure balance varies across regions and countries. The average American, for example, works 100 hours more annually than the average British worker and 300 hours more than the average French employee. US workers also take fewer vacation days than their European counterparts, who are legally entitled to at least four weeks of paid vacation per year.

But while Keynes failed to anticipate how the economic problem would evolve, his essay’s underlying normative argument is often overlooked. Indeed, one of the main reasons why he got his prediction wrong is that he projected his own ethical principles onto others. Much like his Bloomsbury Group peers, Keynes viewed greed with disdain. In the same essay, he described the relentless pursuit of wealth for its own sake as a “disgusting morbidity”.

Keynes’s mistake was to underestimate human greed and assume that a certain level of financial security would satisfy most people. He envisioned a more equitable world where individuals could enjoy unprecedented prosperity, free from economic anxieties. But, as Joseph E. Stiglitz has pointed out, Keynes misjudged the balance between the desire for leisure and the appetite for consumption. After all, why settle for a single TV when you can work harder and install screens “in every room and in both the front and the back of automobiles”?

Keynes also underestimated the competitive drive that fuels the relentless quest for wealth and social status. The wealthy, in particular, are often motivated by a desire to maintain their relative standing, leading to an endless competition for supremacy. While Keynes believed that a shift toward an equitable world would occur naturally, it has become clear that achieving this goal requires government intervention.

One way to bring about the equitable society Keynes envisioned is to tax the rich. In my recent book Reason to be Happy, I propose a tax regime designed to redistribute income from the wealthy to the poor, leaving relative positions unchanged and without undermining individual incentives. This system, which I have dubbed the “accordion tax”, aims to narrow the income gap by taxing those with above average earnings and transferring these funds to those with below average wages, as a form of negative proportional tax.

This approach would enable billionaires like Elon Musk and Jeff Bezos to maintain their relative standing, even with substantially reduced post-tax earnings. Given that their primary concern is their rankings among the world’s wealthiest individuals, their motivation to innovate and venture into new fields would not be diminished. Meanwhile, the economic well-being of lower-income households would significantly improve.

Contrary to Keynes’s expectations, we cannot build a fairer society by leaving people to their own devices. Fortunately, a growing number of people, including several of the world’s billionaires, are committed to addressing today’s extreme economic disparities, even though that would be to their own disadvantage. Nearly a century after Keynes outlined his vision of the future, the road to solving our economic problem remains long. Still, there is cause for hope. While avarice has grown, so has awareness of its consequences.

 

Kaushik Basu, a former chief economist of the World Bank and chief economic adviser to the government of India, is professor of Economics at Cornell University and a non-resident senior fellow at the Brookings Institution. Copyright: Project Syndicate, 2024. www.project-syndicate.org

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