Tuesday, June 22, 2010

Planet BP on the Gulf Oil Spill and Keynes on Digging Holes

Chapter 16 of the General Theory argued:

If — for whatever reason — the rate of interest cannot fall as fast as the marginal efficiency of capital would fall with a rate of accumulation corresponding to what the community would choose to save at a rate of interest equal to the marginal efficiency of capital in conditions of full employment, then even a diversion of the desire to hold wealth towards assets, which will in fact yield no economic fruits whatever, will increase economic well-being. In so far as millionaires find their satisfaction in building mighty mansions to contain their bodies when alive and pyramids to shelter them after death, or, repenting of their sins, erect cathedrals and endow monasteries or foreign missions, the day when abundance of capital will interfere with abundance of output may be postponed. “To dig holes in the ground,” paid for out of savings, will increase, not only employment, but the real national dividend of useful goods and services. It is not reasonable, however, that a sensible community should be content to remain dependent on such fortuitous and often wasteful mitigations when once we understand the influences upon which effective demand depends.

Benoit Faucon has some fun with Planet BP’s attempt to find the bright side of the Gulf Oil spill:

But in Planet BP — a BP online, in-house magazine — a “BP reporter” dispatched to Louisiana managed to paint an even rosier picture of the disaster. “There is no reason to hate BP,” one local seafood entrepreneur is quoted as saying, as the region relies on the oil industry for work. Indeed, the April 20 spill on the Deepwater Horizon is being reinvented in Planet BP as a strike of luck. “Much of the region’s [nonfishing boat] businesses — particularly the hotels — have been prospering because so many people have come here from BP and other oil emergency response teams,” another report says. Indeed, one tourist official in a local town makes it clear that “BP has always been a very great partner of ours here…We have always valued the business that BP sent us.”

OK – we are far below full employment but even Keynes recognized that employment creating activity with a positive marginal productivity were a better way to restore full employment than activities with either zero marginal productivity (digging holes) or ones with negative marginal productivity (polluting the Gulf of Mexico).


Jazzbumpa said...

EVEN Keynes?!?


Eubulides said...

To think of the spill in the Gulf as an example of negative marginal efficiency is yet another example of zombie economics and what Wittgenstein termed "language on holiday"