Dr Jan Tinbergen’s (April 12, 1903 – June 9, 1994) work in the areas of economics, operations research and econometrics has important implications for policymakers today. Dr. Tinbergen was a Dutch economist and co-winner of the Nobel Prize in Economics (’69). His work was honored “for having developed and applied dynamic models for the analysis of economic processes.”
In his Nobel Lecture, Dr. Tinbergen called for an updating of scientific arguments in the ongoing competition between various economic systems. This call to action to update scientific arguments is significant because global economic systems must be strong individually, as well as collectively, for the global economy to function. This article will explore ways that the global economy can operate more optimally.
In today’s world, the scientific arguments for capitalism must undergo an evolution in light of events like the Great Recession of ’08. The scientific arguments in favor of Gosplan (Soviet-style state planning) have been marginalized by the dissolution of the old Soviet Union. Lastly, the scientific arguments in favor of the European socialism must be refined in light of the high unemployment in areas of Europe and in pockets throughout the United States.
A period of course correction is needed for the capitalist model post-’08. The correction must deal with stock market excesses in such things as derivative transactions, tighter margin requirements, and enhancements to the Uniform Commercial Code.
In addition, budgets need to be brought closer into balance by keeping debt in a rational proportion to the overall size of the economy and the GDP. Excess consumption taxes may be utilized to collect more revenue and redirect consumer spending into products and services that are vital to everyday subsistence.
On the positive side, the American economic model of capitalism is bolstered by the value of our technology as set forth substantially in the Patent Office. In addition, our huge stock of energy resources in coal, natural gas, oil, coal-gasification processes, solar energy, wind energy, and budding fusion technologies are seen as highly desirable by our trading partners.
The course correction for the European socialist economies requires a tighter management of debt together with keeping spending within rational limits in relation to the GDP. In some of the more difficult cases, debt might require a reclassification into longer-term instruments. Whichever course is selected, socialist economies must aim for containing debt within tolerable limits as confined by the size of their economy and the GDP.
The course correction for Russia and its constituent republics is not as easy to accomplish. Essentially, there is a great divide which loosely determines trade relationships in the former Soviet Union. The economies west of the Ural Mountains are influenced by Europe; whereas economies east of the Urals are within the sphere of influence of Asia. This geographic divide must be the starting point for organizing enhanced economic models in Russia and its republics.
China has a similar problem in advancing economic activity. The coastal regions are more advanced technologically and educationally; whereas, the inner regions are less technologically sophisticated and more oriented toward agriculture. The challenge for China is to integrate these seemingly different cultures both technologically and educationally.
American entrepreneurs have great opportunities for articulating and solving the economic challenges to Russia, its republics, and China. Major assets for overcoming these challenges are American management knowhow, accounting systems, auditing methodologies, and the introduction of new products and services.
All economic systems need to take advantage of global trade as a tool for expanding their economies. Trade wars tend to contract the elliptical Offer Curve while freer trade tends to provide for a more expansive Offer Curve.
Currency wars have downsides too. The basis of domestic and foreign trade is the inherent value and uniqueness of the good or service to the buyer, and not solely the currency (i.e. iPods, 3D copiers, HD TV, Smart Homes).
For instance, a Chinese student seeking to go to an American engineering or medical school is interested in receiving a technologically up-to-date education. The payment for the education in yuans or dollars is not the sole reason for choosing an American college or university. The Chinese student seeks tremendous value in the education and not the U.S. currency per se, although currency valuations do fluctuate.
For the first time in history, new products and services can be delivered utilizing “green technology” to limit adverse weatherization and other negations associated with older and inefficient methods of production and energy consumption.
All economic systems need to take advantage of global trade to expand their economies. The above arguments comport with Dr. Tinbergen’s call for updating the scientific arguments proponents make for choosing from amongst the various global economic systems.
Dr. Tinbergen does not state that one system is better than another. In his Nobel Lecture he simply called for an updating of the arguments in favor of each system. The goal in updating the scientific arguments is to make these global economic systems work better both by themselves and in cooperation with one another during the course of domestic and international trade.