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Humans like categories. And for good reason – they make the world computable. Unfortunately, they can have the side effect of predigesting the world for us, so especially when it comes to concepts that are wholly or mostly abstract, we should be doubly on our guard against firm deliniations against what is “x” and what is “not x.”

More often, “x” is better used as an adjective and not a noun, not a class of thing but property that a thing can have more or less of or be more or less consonant with. JP Koning is a terrific advocate for this approach, as he explains why is blog is called “Moneyness:”

The second way to classify the world is to take everything out of these bins and ask the following sorts of questions: in what way are all of these things moneylike? How does the element of moneyness inhere in every valuable object? To what degree is some item more liquid than another? This second approach involves figuring out what set of rules determine an item’s moneyness and what set determines the rest of that item’s value (its non-moneyness).

Here’s an even easier way to think about the two methods. The first sort of monetary analysis uses nouns, the second uses adjectives. Money vs moneyness. When you use noun-based monetary analysis, you’re dealing in absolutes, either/or, and stern lines between items. When you use adjective-based monetary analysis, you’re establishing ranges, dealing in shades of gray, scales, and degrees.

Not only do I wholeheartedly endorse this approach re: understanding money, I think the methodology should be expanded to all kinds of other things. For example – a feature of much libertarian thought is trying to decide whether or not something is “coercive.” I’m not a libertarian, but I am emphatically not trying to concern troll when I suggest a better avenue to pursue is trying to weigh whether different things are more “coerce-y” than other things.

This brings us back to “savings” vs. “consumption,” or “investment,” or “consumer goods” vs. “capital.” I really don’t like these distinctions, because as useful as they have often been in the past in the present they can often sow more confusion than anything else. I suggest we instead look at different goods having different levels of “saveyness” or “capitalness” – some goods last longer, some have more uses, some increase future productivity more than others. This applies to both the consumer side as well as the good side – ie, is a certain consumer decision “saving” or “consuming,” as well as is a certain good “consumption” or “capital?”

Think of a Twinkie. Twinkies are an odd product; on the one hand, they are a cheap, delicious, unhealthy snack; on the other hand, they are (at least according to legend) practically immortal. So is buying a Twinkie consumption or saving? Does it depend when you eat it? And for those who will say “but Twinkies aren’t an investment, they bear no interest, they just sit there” – so does money under the mattress, and nobody thinks that isn’t saving. More interestingly, from the perspective of the economy, for the most part it doesn’t matter what you do with the Twinkie. Obviously in the aggregate, if people buy lots of Twinkies for “saving” purposes as opposed to “consumption” purposes there might be fewer loanable funds, but if you were deciding whether to buy a Twinkie, stuff it in the pantry, and eat it in a year, or simply stuff a dollar bill in the pantry to buy a Twinkie a year from now, you’d still be saving the same amount…right?

Or think about what goods are “consumption” and which are “capital.” Got it? OK – is roasted coffee a consumption good or capital? Fine, that’s probably an easy one – since it only has a single use, it probably gets counted as consumption even though it is manufactured and increases productivity. What about a Keurig machine? What about my beloved ekobrew that allows me to turn fancy whole bean roasted coffee into a Keruig-produced cup of hot java? Are these “consumption” or “capital” goods? Does it matter if I’m a worker at a firm or a sole proprietor? If Google had a giant coffee roasting and producing operation at the Googleplex as a perk for their employees we’d probably call the equipment they used to make the coffee “capital” – so is it merely a question of scale? If I buy it on Amazon, is it automatically “consumption?”

I think these conceptual questions are inevitable if we continue to rely on heuristical categories that don’t tell us much about modern life. Instead, any time we discuss a social production decision, we should instead ask ourselves questions – what does the good do? What inputs does it require to do what it does? How long does it last? How much does it increase productivity and happiness? How much maintenance does it require? What is it replacing or displacing, if anything? Asking these kinds of questions will tell us things about the nature of what we, as a society, are producing that are much more valuable than traditional delineations. For example, I think the United States, as a society, should be building more high-speed rail. High-speed rail is very “capital-y” – it lasts a long time and greatly increases productivity. I would be willing to trade substantial amounts of “consume-y” goods – candy bars, video games, new T-shirts – in favor of building more high-speed rail. Of course, the GDP calculation will show that as “G” and not “S/I” assuming it is built by the state – but it represents a social decision to produce more long-lasting, productivity enhancing, future-oriented stuff than it was before at the expense of more quickly-depleted, pleasure enhancing, present-oriented stuff. In the aggregate, that’s what “saving” is. It’s not a question of “more” or “less” but “what?” and “why?”
See also this book.


Ethan Gach at TLoOG puts his finger on what it was about Noah Smith’s article about the poor and saving that didn’t sit quite right:

Hmmm, I wonder what would happen if everyone started saving as much income as they reasonably could? Where would the high yield investments be with so much capital sloshing around? How would the markets react when aggregate demand plummets even further?

Snark aside, the key here is that, while it would benefit any individual poor person to save more (assuming, of course, that’s possible given their income and cost-of-living, which is not an assumption I’m eager to make), if every poor person somehow stumbled onto Smith’s article and tried to save more it might generate economic disequlibria that wouldn’t benefit anyone. This is semi-related to the point I’ve made before that aggregate saving is a very different animal than individual saving.

IMHO, the best thing we can do for poor people is to a) give them money and other stuff (mostly healthcare), but perhaps more importantly b) make American richer so that we can more easily afford to give poor people money and healthcare. Public policy-wise, this mostly means investing in things that increase forward-looking productivity – high-speed rail, super-fast public internet access, etc. If America is richer tomorrow than it is today, than transfer programs can either a) grow without affecting the real net incomes of those paying for them or b) can remain at current levels of generosity while simultaneously allowing effective taxes to decline or making more public investment possible. That makes the political economy of the welfare state more sustainable and leads to a virtuous cycle. I don’t think it’s a coincidence that most wealthy nations have generous social safety nets.

Note that this is distinct from the right-wing trope that economic growth automatically benefits the poor because every time GDP grows golden coins rain from the flying limousines of the rich onto the heads of the grateful poor. The key is still in active support networks for the poor and the way that economic growth tends to strengthen them

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