Trading away the residual

In development economics, the “residual” refers to the factor in the growth of the economy first identified by Robert Solow in 1956. It had been thought that physical capital accumulation, plus land, explained the growth of national economies. After Solow, whose model indicated that these could account, at most, for 50 percent of economic growth, economists started exploring just what the residual was. This was the beginning of the new growth school, with its emphasis on knowledge, technological change, education.

Alas, this changed emphasis rather neglected the relationship between physical capital accumulation and ‘human capital”. For economists, humans are blanks. The man who works as a welder can be retrained to work in a grocery store, or to make chips for a computer, etc., etc. His work preferences, his experience, counts for zip. It is only – ah, the sweetness of it all! – when you get to highly skilled labor like, say, being an economist that you have to be careful to preserve the full majesty of the skill. Economists never consider that they should be retrained to teach, say, literary criticism. That is because they recognize, in themselves, what it means to be human, and in others, what it means to be a zero in a column. We are talking about a severe professional autism.

The impact of this autism is evident in the way the New Growth school attached itself to the old orthodoxy of free trade. One would think that there would be sense, a glimmering sense, that technostructures, then, must involve knowledge – must involve a whole dimension of tacit knowledge – necessary for their growth and change. For instance, when the auto first arrived on the scene in these here states, it naturally attracted the repair services of blacksmiths. Blacksmiths were those people who, at the grassroots, had the most experience with metal – and the auto was the most metal the average person had ever had to deal with. If one traces auto repair back far enough in this country, you always run into blacksmithing.

This makes sense. There are constraints on substitution of skills. And there are paths that skills take in an economy. Imagine, however, that somehow, the U.S. had outsourced all blacksmiths, or most, before the auto appeared. The experience of this vast metal object and needing to repair it would have had to involve creating a service from scratch. This would have impeded, in a major way, the sales and distribution of autos.

Well, this is what the kind of free trade regime which is the essence of Reaganism has helped bring about. We have offshored our residual. Or much of it. Economists are stubbornly blind to that fact, because this offshoring has been massively beneficial to the only class they serve, the wealthiest 1 percent. That class, of course, makes money everywhere. Of course, when it gets into trouble, it gets its money from the taxpayers of one country or anoterh in the grand old tradition of ancien regime nobility – otherwise, however, it is as multi-culty as dick.

The refusal to even consider an industrial policy, about which American economists take a peculiar pride (I did mention the massive professional autism problem, didn’t I?) is resulting in the peculiar shape of downturns and booms in the contemporary U.S. of A. At the moment, economists are puzzling over the odd belief of the public that there is this inflation thing going on. Impossible! inflation, as we all know, being a symptom of class warfare, or, since we don’t want to scare the children, of greedy workers demanding outrageous pay through corrupt unions, which luckily have been smashed. So wages are flat and declining – and isn’t that great! Alas, having pissed on the residual, what is happening at the moment in the U.S. is a phenomenon very familiar from Latin America: a primary products led inflationary spiral. In the seventies and eighties, Latin American countries were hit by savage inflation, kickstarted by increases in petroleum prices, that occurred at the same time the Washington Consensus was being put in place from the barrel of a gun. The inflation eventually went down, and W.C. shills patted themselves on the back – but of course the reason it went down is that the primary product price structure collapsed. Hey, it is back!

Don’t worry though. Nobody will discuss this at all. No economist will recognize it. And, collectively, our lives will get crappier and crappier as we timorously forget that once, there actually was such a thing as resistance. Now, let’s watch some teevee!

Who's that young girl laughing at me
Like I was the butt of some hilarity