Sunday, March 31, 2024

Economy's 3rd quarter growth rate revised to 3.4% from 3.2%

Only economists can probably get so excited about 0.2%. I will explain below. See US economic growth for last quarter is revised up slightly to a healthy 3.4% annual rate by PAUL WISEMAN of AP. Excerpt:

"The U.S. economy grew at a solid 3.4% annual pace from October through December, the government said Thursday in an upgrade from its previous estimate. The government had previously estimated that the economy expanded at a 3.2% rate last quarter."

That might not seem like a big deal, just 0.2% more than before. In my macro courses we read a chapter in the book The Economics of Macro Issues. The chapter discussed how nations with common law systems, where property rights are better protected than in nations with civil law systems, have higher growth rates. I pointed out to my classes that even a small difference in growth rates ends up causing a very big difference in per capita incomes due to the annual compounding effect.

The table below shows how much per capita income would be at various rates after 100 and 200 years. Assume we start with a per capita income of $1,000. If we grow 2.0% per year, after 100 years it will be $7,245. At 2.1% per year, it would be $7,791 or about $700 more. That is how much that little .1% matters. The difference over 200 years is about $11,000. After 100 years at 2.5% per year, per capita income would be $11,814. That is $4,000 more than the 2.0% rate. Small differences in growth rates add up to big differences over time.

Using the latest GDP figures for another example, if we grow 3.4% a year for the next 30 years, and if per capita GDP now is, say, $60,000, it would reach $163,594. But if it only grows 3.2% for 30 years, per capita GDP would be $154,362 . That is about $9,000 less than if we grow 3.4%.

Per Capita Income After 100 and 200 Years At Various Annual Growth Rates (Starting With $1,000)

"The Creative-Destroyers: Are Entrepreneurs Mythological Heroes?" (Part 1)

This is the title of a paper I presented at the Western Economic Association Meetings in 1992 in San Francisco. I will be posting this paper in parts. There will be 5 parts. This last part has the bibliography and a transcript of the radio interview when Joseph Campbell said entrepreneurs are heroes. Part 4 has footnotes.

Part 1. Part 2Part 3. Part 4. Part 5.


The psychology of entrepreneurship can be better understood by comparing it to the hero's adventure (as well as the trickster's) In mythology because myths are often seen as symbolic representations of the psyche. The hero and the entrepreneur are found to be similar in their respective adventures, a three part sequence of separation from the community, initiation into new creative powers and a return to the community with a boon for his fellow citizens. Both are creative, curious, energetic risk takers who are guided by mentors. Entrepreneurship can be seen as a manifestation of a universal human psychological condition, the desire for individual creativity.





It has not been uncommon in the past, and even today, to refer to the entrepreneur as a hero. Burch (1986), for example, writes "In America today, many people view the entrepreneur as the hero of capitalism and the free enterprise system" (p. 24). Another, Gilder (1984), refers to them as "the heroes of economic life" (p. 24) and says we have "An Economy of Heroes." Sarachek (1978) compares them to the heroes found in the myths of Horatio Alger. But what is a hero? None of these authors defines one. The important question is: Are entrepreneurs in any way like the hero from mythology? If these authors are using a standard dictionary definition, then the entrepreneur is the central figure of capitalism and possesses courage, strength, nobility, achievement and "other qualities." Such a conclusion is consistent with what is commonly thought about entrepreneurs by those who would call them heroes. What is important is that the nature of these characteristics possessed by the entrepreneur closely resemble the characteristics of the hero in mythology. It is a standard belief that not only are myths symbolic representations of our psyches, but that the role of the hero in myth is universal and that myths help to instruct individuals in charting a course for their own lives. This assertion is based on the work of psychoanalysis.    This is because in myths, according to Campbell (1968) "symbolic expression is given to the unconscious desires, fears, and tensions that underlie the conscious patterns of human behavior" and that understanding the myth puts us in touch with "the deep forces that have shaped man's destiny and must continue to determine both our private and our public lives" (p. 255-6). Leeming (1973) shares this view (p. 9) along with, according to Barnaby and D'Acierno (1990), a large number of Jungian interpreters (p. 3). Jung  (1951) himself said "Myths are original revelations of the pre-conscious psyche, involuntary statements about unconscious happenings ... " (p. 101).

This paper compares, and finds many similarities between the hero In mythology and the entrepreneur. Finding such similarities has important implications regarding the psychology of entrepreneurship, the nature of capitalism and government control over economies.

            But the importance may be even deeper than this. Myths, to the extent that they are about the hero's journey (which will be summarized later) were stories about spiritual development, self-discovery, and the tapping of great creative power. They teach us how to find these things in ourselves by showing us how the hero does it. To the extent that the hero and the entrepreneur are similar, there may be a heretofore unacknowledged spiritual dimension to capitalism if its essence is seen as entrepreneurship. This added spiritual dimension is important because as Gilder (1981) points out, capitalism is not usually seen for its own inherent but as unheroic and merely not as bad as the other economic (p. 4). Schumpeter (1962), in a way, also saw capitalism as "unheroic." He wrote "I have called the bourgeois rationalist and unheroic. He can only use a rationalist and unheroic means to defend his position or to bend a nation to his will" (p. 137) and "[C]apitalist civilization is rationalistic 'and anti-heroic'" (p. 128).

Showing how the entrepreneur is like the universal hero in mythology might help to show that there is a chance for spiritual and creative fulfillment and self discovery in capitalism through entrepreneurship. If government economic policies and economic systems should be based on human nature (which may be to seek adventure and self discovery) and if the entrepreneurs are like mythological heroes, a strong case can be made for the superiority of capitalism (or some system that allows a large degree of entrepreneurship).

The late mythologist Joseph Campbell, of whom the psychologist James Hillman said "No one in our century, not Freud, not Thomas Mann, or Levi-Strauss, has so brought the mythical sense of the world back into our everyday consciousness" (Cousineau, 1990, p. 178), called the entrepreneur the "real hero" in American capitalist society without rigorously analyzing that thesis (New Dimensions-See Appendix). This paper uses Campbell's description of the hero's journey. Archer Taylor (1964, p. 128) summed up some of the major work on heroes and the patterns of their stories with:


"Four scholars have perceived a biographical pattern in tales. The texts used by Hahn, Rank, and Lord Raglan are stories of gods and heroes. Campbell goes farther and includes a few fairy tales. Propp believes that his formula for fairy tales lead ultimately to a story of a dragons layer, in other words, to the story of Perseus and Andromeda that the three others analyzed. The ways in which these scholars see and describe the tales vary, but the differences could be reconciled with rather little effort. The discovery of a biographical utilization of a pattern is no very surprising result of their labors. It is a natural utilization of a pattern easily inferred from life itself, or from biography, history, and human psychology. The four scholars have declined to go very far beyond pointing out the pattern. Campbell goes further than any of the others in commenting on its variations."


Campbell's model of the hero's adventure is also quite similar to Leeming's (1973) and Mircea Eliade's (1990, p. 39). Segal (1990) shows that Campbell's hero is Jungian (p. 42) and similar to Erik Erickson's in that the hero's journey is a quest for personal identity (p. 34). Jung (1956) himself said that the hero archetype represents this need of the human psyche (p. 178). Eliot (1990) reports that, in fact, Jungian therapists use Campbell's work in guiding their patients' journey (p. 232). Even modern Freudians see myths as a useful tool (Segal, 1990, p. 44). This paper examines the parallels in the role of the hero (which Campbell found to be similar In many of the world's cultures) and the entrepreneur.

A relevant issue here is empiricism. Although this paper presents no original empirical analysis, it does rely on entrepreneurial research that is empirically based (e.g., The Encyclopedia of Entrepreneurship). This is also true of the writings of George Gilder, who used Karl Vesper's New Venture Strategies and the annual Frontiers of Entrepreneurship Research as well as The Encyclopedia of Entrepreneurship to explicate the subject. Bull and Willard (1993) "accept that much of the innovating entrepreneur's decision process is beyond systematic calculation (p. 188)." Bygrave (1993) feels that it may be mathematically impossible to model entrepreneurship "because there is 'an essential non-algorithmic aspect to conscious human action'" (p. 255). Karl Vesper, editor of The Encyclopedia of Entrepreneurship, feels that both empirical and reflective papers are needed to understand entrepreneurship (from personal correspondence). This is intended to be a reflective paper.

The model of the hero's adventure presented here probably does not apply completely to all entrepreneurs. No single model could. But given that the evidence and views compiled here show entrepreneurship to be similar to the hero's adventure, a new and important perspective on the psychology of the entrepreneur is gained. The entrepreneur, however, is seen as a hero, not a saint. The adventure involves both creation and destruction. Negative aspects of entrepreneurship such as business failure and job destruction are just as real as the positive aspects. The entrepreneur, therefore, may be a trickster, another mythic figure, as well as a hero. Tricksters and heroes are both agents of change. Tricksters are as universal as heroes and may be creative or subversive. (Willis, 1993) writes "Mischievous, cunning and humorous, tricksters are often seen as possessing the ability to switch between animal and human personae." (p. 24) A parallel, and very negative view of the entrepreneur comes from Karl Marx:


"Every man speculates upon creating a new need in another in order to force him to a new sacrifice, to place him in a new dependence, and to entice him into a new kind of pleasure and thereby into economic ruin. Everyone tries to establish over others an alien power in order to find there the satisfaction of his own egoistic need. With the increasing mass of objects, therefore, the realm of alien entities to which man is subjected also increases. Every new product is a new potentiality of mutual deceit and robbery. Man becomes increasingly poor as a man; he has increasing need of money in order to take possession of the hostile being. The power of his m 0 n e y diminishes directly with the growth of the quantity of production, i.e. his need increases with the increasing power of money. The expansion of production and of needs becomes an ingenious and always calculating subservience to inhuman, depraved, unnatural and imaginary appetites. Private property does not know how to change crude need into human need; its idealism is fantasy, caprice, and fancy. No eunuch flatters his tyrant more shamefully or seeks by more infamous means to stimulate his jaded appetite, in order to gain some favour, than does the eunuch of industry, the entrepreneur, in order to acquire a few silver coins or to charm the gold from the purse of his dearly beloved neighbour. The entrepreneur accedes to the most depraved fancies of his neighbour, plays the role of pander between him and his needs, awakens unhealthy appetites in him, and watches for every weakness so that later on he may claim the remuneration for this labour of love." (p. 78)


Such critiques of modern advertising are well known. The entrepreneur may be a bringer of death and destruction rather than a creator boons. His or her journey may be one that prepares them for and develops their ability to cause harm to the community rather than to help it. Which ever is true depends upon the motive for starting a new business:  maximization or the spirit of adventure. While economics assumes profit maximization, some research suggests the need to be creative and the spirit of adventure (see p. 17). Even Schumpeter (1983) saw the spirit of adventure and the joy of creating as motives for entrepreneurship. (p. 923) Perhaps, like many human actions, entrepreneurship results from mixed motives. In that case, then, the entrepreneur is both hero and trickster. This makes sense because as Eliade (1969) points out, tricksters often perform heroic deeds. (p. 156) Jung (1964) saw the trickster as a step in the evolution to one's becoming a hero or even a shaman. (p. 147) A recently published book called The New Entrepreneurs: Business Visionaries for the 21st Century sees entrepreneurs as heroes who will contribute to the overall well-being of the community. Just as the trickster evolves into the hero in mythology, the entrepreneur may be evolving into a hero from the trickster of Karl Marx .

Before moving on to the actual comparison, two facts need to be noted.

The first is that the assertion of the universality of entrepreneurship is now being explored by other scholars. One example is a recent study done by Ian MacMillan and Rita Gunther McGrath of the Wharton School's entrepreneurial center. They found that "entrepreneurs think alike, no matter what country they call home" (The Wall Street Journal, February 6, 1992, p. AI). Another is Berger (1991) who shows how entrepreneurship IS a worldwide phenomenon that is transforming economies even in the most unexpected of places.

The second involves the idea of using mythology or psychology in economic analysis. This is not new and there are several notable examples. The first, from O'Donnell (1989), is Keynes's idea that irrational animal spirits are necessary for an adequate level of entrepreneurial initiative (p. 256). The second, from Rostow (1960), is the inclusion of the desire for adventure as an important element in human behavior (p. 149). The third is work done by Ian Mitroff (1983) which uses archetypes to analyze the behavior of stakeholders in social systems. He even cites the work of Joseph Campbell. Fourth, this is an era in which mythology is being used to understand economics. Silver (1991) analyzes the ancient economy  through mythology while Putka (1993) reports that business case studies are now being written which compare literary figures, including heroes, to business managers (p. A1). Even two business professors at Stanford University, Catford and Ray (1991), have written a popular book on mythology partly inspired by Campbell. So it is not surprising that Eliade (1990) wrote "The mythic imagination can hardly be said to have disappeared; it is still very much with us, having only adapted its workings to the material now at hand" (p. 42). Finally, Shapero and Sokol (1982) believe that for a complete understanding of entrepreneurship it will be necessary to delve into such fields as occupational psychology, cultural anthropology, the sociology of religion and personality psychology (p. 74). Mythology is really not too far away from those disciplines.

Saturday, March 30, 2024

How Odysseus Started The Industrial Revolution

Factory work may have been a commitment device to get everyone to work hard. Odysseus tying himself to the mast was also a commitment device. Dean Karlan, Yale economics professor explains how commitment devices work:

"This idea of forcing one’s own future behavior dates back in our culture at least to Odysseus, who had his crew tie him to the ship’s mast so he wouldn’t be tempted by the sirens; and Cortes, who burned his ships to show his army that there would be no going back.

Economists call this method of pushing your future self into some behavior a “commitment device.” [Related: a Freakonomics podcast on the topic is called "Save Me From Myself."] From my WSJ op-ed:
Most of us don’t have crews and soldiers at our disposal, but many people still find ways to influence their future selves. Some compulsive shoppers will freeze their credit cards in blocks of ice to make sure they can’t get at them too readily when tempted. Some who are particularly prone to the siren song of their pillows in the morning place their alarm clock far from their bed, on the other side of the room, forcing their future self out of bed to shut it off. When MIT graduate student Guri Nanda developed an alarm clock, Clocky, that rolls off a night stand and hides when it goes off, the market beat a path to her door."
 See What Can We Learn From Congress and African Farmers About Losing Weight?

Something like this came up recently in the New York Times, in reference to factory work and the Industrial Revolution. See Looking at Productivity as a State of Mind. From the NY Times, 9-27-2014. By SENDHIL MULLAINATHAN, a professor of economics at Harvard. Excerpts:
"Greg Clark, a professor of economics at the University of California, Davis, has gone so far as to argue that the Industrial Revolution was in part a self-control revolution. Many economists, beginning with Adam Smith, have argued that factories — an important innovation of the Industrial Revolution — blossomed because they allowed workers to specialize and be more productive.

Professor Clark argues that work rules truly differentiated the factory. People working at home could start and finish when they wanted, a very appealing sort of flexibility, but it had a major drawback, he said. People ended up doing less work that way.

Factories imposed discipline. They enforced strict work hours. There were rules for when you could go home and for when you had to show up at the beginning of your shift. If you arrived late you could be locked out for the day. For workers being paid piece rates, this certainly got them up and at work on time. You can even see something similar with the assembly line. Those operations dictate a certain pace of work. Like a running partner, an assembly line enforces a certain speed.

As Professor Clark provocatively puts it: “Workers effectively hired capitalists to make them work harder. They lacked the self-control to achieve higher earnings on their own.”

The data entry workers in our study, centuries later, might have agreed with that statement. In fact, 73 percent of them did agree to this statement: “It would be good if there were rules against being absent because it would help me come to work more often.”"
The workers, like Odyssues, tied themselves to the mast to resist the temptation of slacking. This made it possible for factories to generate the large output of the Industrial Revolution.

Here is the link to the Journal of Economic History article by Professor Clark

Factory Discipline

Here is the abstract 

Related post:  

Would you pay someone to make you work hard? (2022)

Can You Mix Economics With Religion? (The ancient Greeks a god of commerce and a god of wealth) (2022)

Are payday-routine videos a commitment device? (2023)