Tag Archives: Joel Kurtzman

Joel Kurtzman is the opposite of Richard Heinberg

I just wanted to start by saying I’ve become much more lackadaisical about these posts recently. My work is getting interesting, so I’m not putting as much time and effort into my research prior to posting. I’m mostly shooting from the hip based on whatever comes to mind. I still enjoy this though so I’ll keep doing it, and I hope my couple of readers don’t mind the decline in quality.

With that said, it’s so interesting that Joel Kurtzman detects the exact opposite problem as Richard Heinberg. For those who remember, Richard Heinberg wrote “The End of Growth” in which he posited that there would be no more economic growth after 2010 (lol, lmao even). He claimed that this was because the world had entered an inextricable supply crunch, there just wasn’t enough stuff to go around (especially oil!) and our economy was already well past the carrying capacity of the planet. This meant that we couldn’t keep growing, because without more stuff to put in our factories we couldn’t make products to sell to people. We would all have to get by with less.

Hilariously, Joel Kurtzman detects the opposite problem from his vantage point in 1987. He detects a severe overproduction of commodities and finished goods caused by the industrialization of the global south and its competition with America, Europe and Japan. In Kurtzman’s thesis, we are entering an inescapable race to the bottom where wages will continue to fall further and further as companies try to make money while the prices of goods fall. Not only that but the nations of the world have financed their overproduction through the accumulation of debt, which they won’t be able to pay off as prices fall meaning there will be a debt collapse and further unemployment.

I’m sure both authors would think me uncharitable towards their theses, but that was my reading from their books.

The point is, I think both of them are suffering from extreme recency bias. Heinberg was writing after a decade of constricted oil supply had caused a rise in prices and had been followed by an economy crash. He thought the constricted supply would continue forever and the low-growth era following the crash was permanent.

Kurtzman was writing after a supply crunch had turned into a supply glut. OPEC’s oil embargo of the 70s had forced the world’s economies to become more efficient and induced many companies to step up their own oil production. In the late 80s, rising oil investment turned into an oil boom, and to maintain market share OPEC countries increased production without the consent of the entire group. This, alongside new technologies to make oil use more efficient, led to an oil glut and depressed prices. Add to this that prices were falling in other sectors, and Kurtzman thought this trend would continue forever.

Both Kurtzman and Heinberg astutely identified trends in their immediate present, and then extrapolated those trends infinitely into the future to arrive at their desired policy goals. For Heinberg: it was degrowth. For Kurtzman: it was protectionism. Both of them failed to understand that actions change with changing conditions. Heinberg didn’t realize that a rise in oil prices would spur investment into new extraction methods (fracking) and more efficient usage of oil (hybrid/electric cars). Kurtzman didn’t understand that falling commodity prices allows companies to produce more for less, nor did he understand that the American economy didn’t need manufacturing jobs to stay highly paid. If more stuff is being produced while still profitable, then consumers win because prices go down. And American consumers won most of all because tech jobs were replacing laborious manufacturing jobs.

I know pontificating is a hard job, I think all the pontifications I’ve made on this blog have been off the mark (though I don’t ask for money). But I find it fascinating that these two authors erred in exactly the same way to arrive at completely divergent answers. I’d love to have Kurtzman from 1987 debate Heinberg from 2010. Don’t let them use historical data, just explain to each other why will commodity prices have to remain high/low for the foreseeable future? I wonder whose head would explode first.

Follow up: what did Joel Kurtzman think of the 90s and 2000s?

I wrote a post last week about Joel Kurtzman’s “The Decline and Crash of the American Economy,” a book from the 80s that posited that America’s best days were behind it. Kurtzman’s central thesis appears to be:

  • Manufacturing is moving overseas, causing America to run a trade deficit
  • To buy foreign goods, America and Americans are becoming indebted to the rest of the world
  • Foreign investment is flooding into American stocks and American debt, causing us to lose control of our own economy
  • The much touted “service jobs” and “information age economy” are a mirage
  • As a result of the above four facts, the American economy is entering a period of decline and crash which can only be solved by strong protectionism and government control of the economy

This was all written in the 80s, and to an old-school leftists I guess it all seemed very sensible. I could imagine Jeremy Corbyn or Bernie Sanders making these exact arguments in 1980, while adding a few more worker-centric chapters of their own. The problem is that this thinking has largely been supplanted by modern economics.

Manufacturing is not the only thing an economy does. The knowledge economy, which Kurtzman scoffed at as the “information age economy,” has rapidly eclipsed all the manufacturing that came before it and continues to propel American forward. Likewise foreign investment flooding into America is by no means bad, as it allowed American companies and the Government to finance themselves with debt or equity. If foreign investment was fleeing America, that would be cause for concern. Being in debt is not a biblical sin for an economy. We all take on debt all the time because the value of having a car or a house now is greater than the value of the money we will use to pay off that debt over 5 to 20 years. The same is true for companies expanding, and foreign investment flooding into America means companies can issue debt much more cheaply than they could otherwise.

Furthermore Kurtzman’s prescription was largely abandoned in the 90s. Both Republicans and Democrats largely made peace with free trade (although the 2 most recent presidents have bucked this trend). There is a strong argument to be made that tariffs on foreign goods hurt the American economy as much as they do the foreign economy for a number of reasons. Tariffs create a walled garden for certain goods, allowing noncompetitive industries to remain in business for longer than they should. In turn these noncompetitive industries suck up investment and compete for resources, making it harder for actually competitive companies to expand as they should be able to. There is only so much supply of money, parts, and workers, if Ford was heavily subsidized by tariffs, would Tesla have been able to take off? Finally tariffs alter the incentive calculus for a company because once tariffs are part of the political equation, companies can increase their profits more by demanding higher and higher tariffs from the government than they can by actually improving production. This caused some Latin American countries to enter a tariff spiral where goods became more and more expensive because rather than compete with the rest of the world, companies put their effort into demanding higher and higher tariffs.

In the 90s and the 2000s America largely abandoned Kurtzman’s thesis and his prescriptions. Angst and newsrooms aside, the trade deficit kept expanding, NAFTA remained in place, the service and information sector were seen as avenues of growth, and debt kept piling up. If Kurtzman then thought the Financial Crisis was proof of his theory, he would have been rather sad that America came out of the crisis much better than most of the nations he said it was indebted to, such as Japan, Latin America, and Europe.

Reading Kurtzman’s book is like reading politics from a bygone age. I once read a book about “the Crime of ’73,” a much maligned bill which removed the right of silver-bullion-holders to have their silver minted into dollars. Pro-silver advocates despised this bill so utterly that it eventually launched William Jennings Bryan as a presidential candidate, a candidacy he might not have gained had the silver movement not been so motivated and powerful. Yet reading it today, it’s hard to understand why this economic debate was filled with such hatred and vitriol. It’s hard to understand the motivations behind the players, and how for them this was the defining issue of their age. Because honestly, America has moved past that debate long ago: silver isn’t money and neither is gold, dollars are. I almost feel the same way with Kurtzman’s book. The last 2 presidents notwithstanding, most of my adult life has been shaped by a bipartisan agreement on free trade and the importance of the information economy over traditional manufacturing. I just wonder what Kurtzman would think now.