Capital Allocation
Jude Wanniski
February 3, 2005


From:Jude Wanniski
To: James K. Galbraith <galbraith@* * * * *.edu>
Re: Capital Allocation
9:36am 2/3/05

The whole point of a gold standard, I thought I made clear to you a dozen times, is that it provides the only unit of account that the exchange economy can use to allocate capital. A floating unit of account per force throws the capital markets into confusion, if not chaos. Just as capital was surging excessively into hi tech, it stopped completely when it came to energy. This is the basis of my argument that we will never again have oil energy cushions to meet abnormal demand surges until we once again have a fixed unit of account.

As for technological change, of course that's gravy, but only if an economy can afford to utilize it. We were up to our ears in tech advance in 1929 and the Great Depression followed. All of our tech does nothing to halt the poverty of 3.5 billion people. That's what the unibomber was trying to tell us. What you call "basic growth economics" is what you teach, but it is not the way the world works. But go right ahead, you have tenure.

My guess, Jamie, is that we had a moment of common ground, just by accident, but as long as you remain close-minded to any new argument or evidence on how to fix the major things that are wrong with our economy and the world economy, I must pigeon-hole you as a blockhead and not waste any more time with you. If you can find any argument you have made that I have not met squarely within the consistency of my classical model, then you may pigeon-hole me as well on those terms.


At 02:13 AM 2/3/2005, you wrote:

No, it's not ridiculous.  We had market allocation of capital in the 90s and we got a 98% over-capacity rate in optical fiber.  I've often said that's a record that would have embarrassed a central planner in Budapest in the 1950s.  And yes, you can get an increase in productivity without raising the capital labor ratio.  It's called technological change, and it can be labor-saving, capital saving, or neutral.  This is basic growth economics, throwing insults at me will not change the fact that I do know this subject pretty well.   JG