The New Pragmatism – a way towards a better future?

GRZEGORZ W. KOLODKO - Transformation, Integration, and Globalization Economic Research (TIGER)

In the future, we need the New Pragmatism, the economics of moderation rather than that of excesses, imbalances and crises. All of those will happen more than once to humanity and the interconnected global economy as well as to the national economies, but it should be exception rather than a rule. What should be the rule is knowing where to stop and adapting to real economic growth opportunities; moderate income disparities rather than extremes that wear out vast numbers of people and lead to new revolutions; toning down the marketing folly which creates needs that are utterly detached from the realities of the effective demand. Last but not least, what should be the rule is not overdoing it when transforming more and more pieces of the Mother Earth into goods that are meant to be sold at a profit by their manufacturers, although possessing and using them no longer improves consumer satisfaction. 

There is a shortage of some raw materials and budgetary incomes, while we have an excess of garbage and all kinds of debts contracted by households, companies, entire countries. A technology to produce clean and renewable energy is missing, while there is a surplus of technologies for producing weapons of mass destruction. There is an abundance of banks with excess liquidity, willing to grant loans to naïve consumers, while there are not enough loans for small enterprises as it takes more effort to monitor them. In many countries and regions, there is an evident surplus of people who cannot be properly nourished, while somewhere else areas that were prosperous until recently are becoming depopulated.

In some economies, in the wake of speculative bubble on the real estate market, too many houses and apartments were built, which are now standing empty and getting dilapidated as there are no buyers, while there is no shortage of people over there who have nowhere to live and are camping out. In some industries, there is not enough manpower, while in others it’s excessive. In some places surplus food goes to waste while somewhere else there is not enough of it to meet elementary needs. In some hospitals doctors sit idly by, as there are not enough patients who can afford the treatment, while in others people die as there is not enough staff to save lives in time. 

Generally speaking, in developed countries, there is an oversupply of consumer goods on the market, and a shortage of the population’s effective purchasing power. In consumerism-tainted societies there is an indisputable excess of needs, while a shortage of economic capacity to satisfy them is evident. While an overwhelming majority of us is constantly short of funds to buy what we really need, a lot of entrepreneurs are afflicted by surplus productive capacity which they cannot exploit in a cost-effective manner as there are no buyers for goods they could manufacture. One might say maliciously: there is constantly too much or too little of everything, depending on the angle from which you look at it. In other words, there is nearly always both too much and too little of nearly everything. Of economists, too. 

The greatest deficit in the contemporary economy is most palpable where we need to be moderate. Moderation is generally in short supply. In the future, however, there should be as much of it as possible. And this is one of the fundamental canons of the political economy of the future. It is necessary to create mechanisms for balancing economic flows and resources. One might say, again: that’s nothing new. Well, in the approach suggested here there is a lot of new content, as it does not rely on the deceptive assumption, typical of some other trends in economics that market money mechanisms are capable of solving the problems of deficiencies and surpluses that is of dynamically balancing the economy. If they were, we wouldn’t be going through a time of turmoil, as we are, but would be enjoying an age of prosperity. 

Let me say right away that this will also be the case in the future, because such is intrinsic nature of economy. Mechanisms for balancing demand and supply flows are working, better or worse, in a short term and so are, even in longer time intervals, mechanisms for balancing certain types of needs and possibilities to satisfy them; still, balance can be reached only temporarily. The natural condition of the economy is a permanent imbalance with momentary episodes where lines of supply and demand, output and sales, income and expenditure cross each other. This is true of reality; in theoretical models, on the other hand, balance comes as easy as making relevant assumptions and what should cross at illustrative diagrams will always cross exactly where it’s expected to.