Friday, 6 March 2009

Calls for new capitalism, new economics, new something

I am not sure what to call this category of articles, though I tend to agree with them and have my own series of postings coming up along similar lines:
Also relevant are lots of recent work on behavioural theory, cognitive hierarchy theory and so on.

There is a hunger for something new. This is quite a different impulse from the other dominant category of economic proposals: how to fix the current problem.

In the spirit of Greg Mankiw's "Pigou Club" I'll collect similar proposals here and post them with the tag 'new economics'. Of course any field always has someone who wants to promote "the new paradigm" because it's good for their career - but I have the feeling that both the desire and the opportunity at present are unusually strong. I am speaking in May about behavioural economics and whether this represents the new theory that people hunger for.

Perhaps a clear consensus will emerge on what this new economics will look like - I'll keep watching.


Pete Murphy said...

I would like to submit my own theory for consideration, a theory I've explained in my book, "Five Short Blasts: A New Economic Theory Exposes The Fatal Flaw in Globalization and Its Consequences for America." (A very long subtitle, I know.) I would be happy to provide you with a complimentary copy if you would E-mail me with a shipping address.

To explain the theory briefly, as population density rises beyond some optimum level, per capita consumption begins to decline. This occurs because, as people are forced to crowd together and conserve space, it becomes ever more impractical to own many products. Falling per capita consumption, in the face of rising productivity (per capita output, which always rises), inevitably yields rising unemployment and poverty. This theory is borne out by per capita consumption data gathered from around the world.

This theory has huge ramifications for U.S. policy toward population management (especially immigration policy) and trade. The implications for population policy may be obvious, but why trade? It's because these effects of an excessive population density - rising unemployment and poverty - are actually imported when we attempt to engage in free trade in manufactured goods with a nation that is much more densely populated. Our economies combine. The work of manufacturing is spread evenly across the combined labor force. But, while the more densely populated nation gets free access to a healthy market, all we get in return is access to a market emaciated by over-crowding and low per capita consumption. The result is an automatic, irreversible trade deficit and loss of jobs, tantamount to economic suicide.

One need look no further than the U.S.'s trade data for proof of this effect. Using 2006 data, an in-depth analysis reveals that, of our top twenty per capita trade deficits in manufactured goods (the trade deficit divided by the population of the country in question), eighteen are with nations much more densely populated than our own. Even more revealing, if the nations of the world are divided equally around the median population density, the U.S. had a trade surplus in manufactured goods of $17 billion with the half of nations below the median population density. With the half above the median, we had a $480 billion deficit!

Our trade deficit with China is getting all of the attention these days. But, when expressed in per capita terms, our deficit with China in manufactured goods is rather unremarkable - nineteenth on the list. Our per capita deficit with other nations such as Japan, Germany, Mexico, Korea and others (all much more densely populated than the U.S.) is worse. My point is not that our deficit with China isn't a problem, but rather that it's exactly what we should have expected when we suddenly applied a trade policy that was a proven failure around the world to a country with one fifth of the world's population.

I firmly believe that it is this relationship between population density and per capita consumption that is behind the enormous imbalance in global trade that has collapsed the global economy.

If you‘re interested in learning more about this important new economic theory, then I invite you to visit either of my web sites at or where you can read the preface, join in the blog discussion and, of course, buy the book if you like. (It's also available at But, as I said at the beginning, I'd be happy to provide you with a complimentary copy.

Pete Murphy
Author, "Five Short Blasts"

Leigh Caldwell said...

Hi Pete

Thanks for the comment. I'll take a look at your website first - I wouldn't want you to send the book if I wouldn't have time to read it.

It's an intriguing idea, though my first response is this. Correlation isn't causation - the most densely populated countries are in most cases the richest (because their economies are less agriculture-dominated), and it is more likely that the US will run a trade deficit with a rich than a poor country.

Just for comparison, you might want to see if the US's total (instead of net) exports per capita to densely populated countries are greater than to sparse ones. Or try the same with other stats such as GDP per capita, tourism, proportion of employees in financial services or number of US TV shows broadcast. Ideally, figures which are neutral to your thesis.

I think you'd find a number of correlations in those figures too, mainly caused by the relationship between income and population density, rather than because of declining propensity to consume in denser places. However I will take a look at your site and give it some thought.

Thanks again for stopping by.