Friday, October 30, 2009

A revolution is not a change in management. It is a change in man.

Forty years ago many writers and thinkers and poets (and even economists) talked of a revolution that was coming. The 'Age of Acquarious', the 'Limits to Capitalism', 'The Greening of America', the 'New World New Mind', the 'Limits to Growth' and 'The End of Certainty' etc.

One of these writers, Carl Rogers [1], wrote about the increasing disbelief in the democratic process in the early 1970s. He also stated unequivocably 'that a revolution was coming', not 'a gun carrying army with banners, not in manifestos or declarations, but through the emergence of a new kind of person, thrusting up through the dying, yellowing, putrefying leaves and stalks of our fading institutions.'

This new kind of person, Rogers wrote, would have the following traits:

** deep concern for authenticity against the climate of half-truth, exaggeration, scandal, sensation and double talk, or talk without meaning at all;

** an opposition to all highly structured, inflexible and impersonal institutions;

** fundamental indifference to material comforts and rewards, although accustomed to affluence [2];

** deep desire for close personal associations, not confined to the old 'familiar areas', with all others excluded;

** a rejection of national and racial discrimination;

** deep distrust of science and established truth with is so much in the 'head' that in fact it suppresses truth;

** strong desire for self-knowledge including dreams, mediation, mysteries and psychic phenomena, and for feeling and understanding rather than 'knowledge' which seems to have no real social value;

** a feeling of closeness to nature, an identification with it, and a desire to act in no way against it;

** an awareness of living in an ever-changing process in which he or she is vitally alive and willing to risk;

** a trust in one's own experience as a validation of life.

Unfortunately governments and political parties have continued to enforced authoritarian and capitalist hegemonies around the world. They "themselves need transformation almost as much as most of the people who elect them, or comprise them. That hegemony is central in control, bureaucratic in form, relying upon leadership, and embarassed at the very idea of liberation" wrote the ousted left-wing radical of the Australian Whitlam Labor Government, Jim Cairns. [3]

Rogers and Cairns were writing words as a silent plea for the world to find the individual and group strength to counter the zero sum game of imperialism, corporatism, and the coups and wars that go with it. Their predicament was dire and so eloquently put in a song by Simon and Garfunkel:

People talking without speaking
People hearing without listening

People writing songs that voices never share
Noone dare
disturb the sound of silence

Fools said I
you do not know
Silence like a cancer grows

Hear my words that I might teach you ...
Take my arms that I might reach you

But my words like silent raindrops fell...[4]

Decades earlier George Orwell appeared to mirror this message when he wrote despairingly that "Traditions are not killed by facts."

[1] 'The Man and His Ideas', Richard I Evans (ed), EP Dutton and Co Inc New York, 1975. As quoted by Jim Cairns (former Australian Deputy Prime Minister in the early 1970s) in 1976 book entitled 'Oil in Troubled Waters'.

[2] "An important question here is whether affluence is needed to produce the new, emerging person." wrote Jim Cairns

[3] Jim Cairns.1976. 'Oil in Troubled Waters'. Page 151.

[4] Lyrics in the song: 'The Sounds of Silence'. Sung by Simon and Garfunkel

Dismantling the Economy

During the New Deal, the government left a legacy of buildings, parks, and public spaces. Gray Brechin deserves great credit for documenting this achievement.

In contrast, the U.S. is engaged in wasteful spending on war and bailouts that will leave a pitifully small legacy. What king of legacy will Obama leave?

I remember when the United States was going to prosper as an information economy, based on the premise that we are either the smartest or the best educated in the world. To ensure success in achieving this vision, the country is engaged in a massive defunding of education. California, of course, is the leader in this respect.

Presumably, imposing requirements multiple choice tests and scripted teaching in the poor neighborhoods will be all we need, once we can break the teachers' unions.

In line with the steady undermining of information in the information economy, the University of California is making some questionable choices. Here is one that has not been widely publicized:

California is contemplating a $10 billion bond to finance a massive statewide water project. One would assume that the state would want to have access to as much information for guidance in such matters.

Yet the University of California is getting ready to mothball its valuable Water Resources Center Archives, which a Sacramento Bee article observed, "For decades it has served as a shrine for engineers, lawyers and academics working to understand and improve the management of water, California's most precious resource." The problem is that the school cannot afford the $230,000 annual cost, probably equal to a couple of superfluous vice presidents.

Weiser, Matt. 2009. "UC Archives on Water Imperiled." Sacramento Bee (26 October): p. B 1.

Workers' Ownership and Management and Work Sharing

If indeed, as the kurzarbeit evidence from Germany suggests, work sharing or other methods of reducing work hours during a recession preserves jobs, then it should be of interest what sorts of economic systems and organizations might lead to more of this. One form that has long been suggested as having this character is worker managed and worker owned firms, more conventionally called "cooperatives." The literature on this is simply huge, and a good summary can be found in John P. Bonin, Derek C. Jones, and Louis Putterman, "Theoretical and Empirical Studies of Producer Cooperatives: Will Ever the Twain Meet?" Journal of Economic Literature, 1991, 31, pp. 1290-1320. Indeed, in such enterprises owner-manager-workers are more likely to share the pain of a fall in demand by a shared cutback. These firms also tend to show greater short-term productive efficiency through flatter managerial hierarchies and the worker-owners monitoring each other for shirking.

The literature also cites possible disadvantages, perhaps a tendency to be reluctant to hire more worker-owners, possible tendencies to engage in ignoring externalities and trying to gain monopoley power, and so on. With a few exceptions, such as the Mondragon cooperatives, these firms rarely become very large, with financing a big issue. A few countries have tried to encourage them, but by and large they remain scarce in most economies, a vision, but not much of a widespread reality.

Issue Lab

Issue Lab:
Job Sharing: Tax Credits to Prevent Layoffs and Stimulate Employment

Contributing Organization(s): Center for Economic and Policy Research

Author(s)/Creator(s): Dean Baker

The unemployment rate is expected to average 10.2 percent for 2010, 9.1 percent for 2011, and 7.3 percent for 2012. With this in mind, this Issue Brief describes a job sharing tax credit, designed to provide a quick and substantial boost to the economy. It would use tax dollars to pay firms to shorten the typical workweek, while keeping pay constant. This should cause employers to want to hire additional workers. A rough estimate of the impact of this tax credit is between 1.3 and 2.7 million jobs created.

Thursday, October 29, 2009

Comprehensive Assessment

foothillsmike October 17th, 2009 at 2:49 pm:
It is my thought that the typical work week should be reduced from 40 hours.
James K. Galbraith October 17th, 2009 at 2:52 pm In response to foothillsmike:
Sacre bleu! The French tried this.

I haven’t seen a comprehensive assessment, but I don’t think that it worked very well as employment policy. It does change patterns of social life … but it’s not very clear that Americans want to spend more time at home.
Well, here's a comprehensive assessment.You may not agree with the author's conclusions but Anders Hayden gives sources so you can dig deeper if you're not satisfied.
Drawing on existing survey and economic data, supplemented by interviews with French informants, this article examines the 35-hour week’s evolution and impacts. Although commonly dismissed as economically uncompetitive, the policy package succeeded in avoiding significant labor-cost increases for business. Most 35-hour employees cite quality-of-life improvements despite the fact that wage moderation, greater variability in schedules, and intensification of work negatively impacted some—mostly lower-paid and less-skilled—workers. Taking into account employment gains, the initiative can be considered a qualified success in meeting its main aims.
But there are two sides to every story: the comprehensive assessment and the relentless media boilerplate that creates an impression of what the truthy truth might be. So below is a reprise of my arrangement of sentences from 17 articles over 12 years in The Economist that tell people what to think without them actually having to do the thinking.

Only So Much Work to Go Round

This idea cannot withstand a nanosecond of thought.

The idea that a fixed quantity of work exists, to be parcelled out among workers, is the so-called lump-of-labour fallacy. It is depressing that supposedly responsible governments continue to pretend to be unaware of the old 'lump of labour' fallacy: the illusion that the output of an economy and hence the total amount of work available are fixed.

The notion that there is a fixed amount of work to be shared out, so that shorter hours for all must mean more jobs, is widely derided by economists as the 'lump of labour' fallacy. The idea of the 35-hour week, derided by many economists as the 'lump-of-labour fallacy', is that if employees work less, companies, spurred by tax concessions, will hire more. Although mocked by economists as a prime example of the 'lump-of-labour' fallacy – the idea that there is only so much work to go around – the government claims that it had created 240,000 jobs by the end of 2000. But to conclude from this that overall employment will decline is to succumb to the lump-of-labour fallacy: the long-disproved idea that there is only a fixed amount of output (and hence work) to go round.

France's own Frédéric Bastiat had pointed out two centuries ago that there is no limit to the work that needs doing. Debunking the 'lump of labour fallacy' before it was even given that label, he suggested that to parcel out the limited amount of work available, people should be required to use only one hand, or even to have a hand chopped off. But -- the lump of labour fallacy strikes again -- the amount of work to be done is not fixed. The quantity of work is not fixed: such a notion is known to economists as the 'lump-of-labour' fallacy.

The lump of labour fallacy also lies behind paranoia about jobs being 'stolen' by low-wage countries. The accusation that migrants steal jobs is a version of the 'lump of labour' fallacy -- that there is only so much work to go around. In effect, export pessimism involves a fallacy of its own -- a 'lump-of-trade' fallacy, akin to the idea of a 'lump of labour' (whereby a growing population is taken to imply an ever-rising rate of unemployment, there being only so many jobs to go round).

This is a classic lump-of-labour fallacy (the idea that there is a fixed quantity of work and that if you take a job it is at my expense). Economists call this the 'lump-of-labour' fallacy. Economists call this the lump of labour (or sometimes the lump of output) fallacy.

The lump of labour fallacy is often to blame for confusion about whether productivity growth (due to more efficient working practices or to new technology) is a good or bad thing. Luddism is also commonly linked to the lump-of-labour fallacy in economics, which first-year students are taught to refute and according to which, as the demand for labour is fixed in the short run, labour-saving machinery is bound to 'kill jobs'. But the assumption that this results in fewer jobs rather than more output (and hence more goods, and more job-stimulating demand, in a beautifully virtuous circle) is based on an economic fallacy known as the 'lump of labour': the notion that there is only a fixed amount of output (and hence work) to go round.

If new technology or foreign competition do lead to net job losses it will not be because the lump of labour has become a fact rather than a fallacy, but because labour is not sufficiently mobile between sectors and regions, or because relative wages have failed to adjust. Nearly all of these mistakes boil down in the end to the most enduring of all economic fallacies: the idea that there is only so much output to be produced, or capital to be invested. (Europe is currently preoccupied with the 'lump of labour' version of this mistake, see page 18.)

A recent piece accused conservatives of embracing the 'lump of labour fallacy', the mistaken claim that there is a fixed quantity of work which governments must strive to allocate equitably. Hmm. Are those arguments entirely incorrect? Yes, entirely. The first is a myth. In fact, the paper he cited did not commit the lump of labour fallacy.

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Every sentence in the above article came from one of the 17 Economist articles published over the past 12 years deriding the chimerical lump-of-labour fallacy. The article used all sentences in those articles that included the phrase "lump of labour" and used each sentence only once.


"Cranks and Proud of It." Economist, 1/20/96, Vol. 338 Issue 7949, p86, 2p
"Eat Your NAFTA." Economist, 11/13/93, Vol. 329 Issue 7837, p15, 2p

"The End of Work?" Economist, 9/28/96, Vol. 340 Issue 7985, Supplement p19, 3p

"Europe Hits a Brick Wall." Economist, 4/5/97, Vol. 343 Issue 8011, p21, 3p

"Everyone Cross." Economist, 2/5/00, Vol. 354 Issue 8156, p47, 2/3p

"Frederic Bastiat." Economist, 7/21/01, Vol. 360 Issue 8231, p64, 1p

"Grinding the Poor." Economist, 9/29/01, Vol. 360 Issue 8241, Special section p10,

“Labours lost.” Economist, 6/15/02, Vol. 363 Issue 8277, p78, 1p

“Myths and reality.” Economist, 2/28/04, Vol. 370 Issue 8364, p53, 2/3p

"One Lump or Two?" Economist, 11/25/95, Vol. 337 Issue 7942, p67, 2p

"One Lump or Two?" Economist, 10/25/97, Vol. 345 Issue 8040, p17, 2/3p

"The One-handed Economist." Economist, 11/15/03, Vol. 369 Issue 8350, p62, 1p

"Room for Improvement." Economist, 3/16/02, Vol. 362 Issue 8264, p69, 3p

“Sharing the burden.” Economist, 11/13/93, Vol. 329 Issue 7837, p18, 2p

"Short Measure." Economist, 1/31/98, Vol. 346 Issue 8053, p79, 1/2p

"Thirty-five Hours of Misery." Economist, 7/17/04, Vol. 372 Issue 8384, p13, 2p

"A World without Jobs?" Economist, 2/11/95, Vol. 334 Issue 7901, p21, 3p.

Since When Was Reductio A One-Way Street?

A self-styled "libertarian" clown (judging by the blog roll) plays reductio ad absurdum with my post, some questions on unemployment for economists. He's only playing with half a deck, though. The first mistake he makes (and it's a doozy) is to equate asking people questions with telling them to "shut the fuck up". On the contrary, when I ask a question, I'm actually inviting someone to speak.

The second mistake is to twist my point about the non-representation of the unemployed in forums on unemployment into a demand that only the unemployed should have a voice.

Based on those two total distortions, "Angus" proceeds to imagine some "logical extensions" of my argument, reductio ad absurdum: "Only the uninsured should have a voice in the health care debate." "Only soldiers should make our military decisions."

We'll no, Angus, that's not how you do a proper reductio. To do it right you must begin from your debate opponent's actual premise to show why his or her argument is absurd. If you first distort the premise, you've demonstrated nothing but your intellectual dishonesty and/or your incompetence.

So let me ask you a question, Angus, is it also your position that the Civil Rights Act of 1964 denied the right to vote to white folks because it upheld the right of African Americans to vote? That's how you do an actual reductio ad absurdum and not a phony one based on glibly distorting your opponent's position.

Having A Kazurbeit With The Sandwichman

So, as part of semi-peacefulness around here, I shall join Sandwichman (and Milkshakeman?) in munching on some of that stuff at the greasy spoon truck stop, particularly the German food, taking a bite of their policy of shortened work hours during the recession known as kazurbeit, of which I do not know all the details. However, I am prepared to say that whatever those details, the apparent evidence suggests that during the past year, Germany has had a relatively low impact of its recession, as measured in decline of GDP, on its unemployment rate. I shall simply present some numbers below, without further comment beyond noting that state governments in the US have also been following something like this with the furlough policy, and also to note that this is something both neoclassicals and Austrians would like, not to mention advocates of cooperatives, as it involves preserving jobs by cutting wages. So, I am going to show for several countries, their 2009 decline in GDP as reported in the 10/10 Economist, along with the Sept. 2008 unemployment rate, and the most recently available unemployment rate (oh, and keep in mind that France largely gave up its limited work hours approach in 2005).

Country 2009 GDP decline Sept. 08 UR Recent UR

Germany -4.9 8.0 8.2 (Sept. 09)
France -2.1 7.9 9.9 (Aug. 09)
UK -4.4 5.5 7.9 (July 09)
US -2.9 6.1 9.8 (Sept. 09)
Netherlands -4.0 2.5 5.0 (Aug. 09)
Switzerland -1.7 3.4 4.1 (Sept. 09)

Rosser's Closet Sandwichman

Over at Mark Thoma's place the real Barkley Rosser channels the late Sandwichman:
"Ah, so much for the aggregate Cobb-Douglas production function! And we were all getting so used to applying it to everything in sight."

Are Those $250 Social Security Checks Just Pandering to Seniors?

David Leonhardt tries to make this case and he would have been well advised to start with this:

The original Social Security legislation had not included an inflation adjustment, which meant benefits did not keep up with the cost of living. A decade later, Ms. Fuller’s checks were worth about 40 percent less in real terms than when she started receiving them. Congress finally increased benefits in 1950 and then continued to do so in fits and starts, sometimes faster than inflation, sometimes slower and usually in an election year. President Richard M. Nixon and a Democratic Congress brought some order to this process in 1972, by automatically tying the benefits to the movement of an inflation index in the previous year. The changes were part of the transformation, during the middle decades of the 20th century, in how this country treated the elderly. In the 1930s, they had little safety net and frequently struggled to meet their basic needs. Four decades later, they were the only group of Americans with guaranteed health care and a guaranteed income. All in all, it was certainly for the good. But by the 1970s, you could start to see the early signs of excess. In their bill, Mr. Nixon and Congress included a little bonus: the increase in Social Security payments could never be less than 3 percent, no matter what inflation was. In the 1980s, Congress reduced the floor to zero — meaning that benefits would be held constant if prices fell — but the principle remained the same: heads, it’s a tie; tails, Social Security recipients win.

The argument would be that even with a zero nominal increase, Social Security recipients see an increase in real income during a period of deflation. Yes – there are the caveats about whether the CPI properly captures the cost of living for seniors especially if the relative price of drugs increases. But why did Mr. Leonhardt start his discussion by talking about the depressed economy and who would be most likely to consume any checks that the government may wish to extend?

If you wanted to help the economy and you had $14 billion to bestow on any group of people, which group would you choose: a) Teenagers and young adults, who have an 18 percent unemployment rate. b) All the middle-age long-term jobless who, for various reasons, are not eligible for unemployment benefits. c) The taxpayers of the future (by using the $14 billion to pay down the deficit). d) The group that has survived the Great Recession probably better than any other, with stronger income growth, fewer job cuts and little loss of health insurance. The Obama administration has chosen option d — people in their 60s and beyond.

Let’s think about the macroeconomic impact of a $14 billion one-time transfer payment in terms of a life-cycle model of consumption. This would be equivalent to a one-time increase in household wealth with the impact effect on consumption being equal to the increase in wealth divided by the number of remaining years of life for the individual receiving the check. If a young person were given $250, he would likely save most of it. If the $250 were given to the elderly instead, then more of the transfer payment would be consumed. Mr. Leonhardt seems to be unhappy with the President’s proposal but his reasoning here seems to be very confused.

Bigness in Capitalism

In 1976 the former Deputy Prime Minister of Australia, Jim Cairns, wrote:

"....outside Australia, the 'economic crisis', the 'oil-food crisis', or 'inflation' whatever it is called is seen to be capitalist and third-world wide, deep seated, crucial, and to be a depression, not just inflation. Finally, there is acceptance that conventional economic thinking cannot deal with it. It looks like the end of an era, but why has it come?

There are, it seems, two main reasons*. First, there is the development of bigness in capitalism. Capitalism was once a very large number of small factories, shops, farms and other production units. Yet now in the USA, and it is little different in Australia, some 2 percent of the companies control about 50 percent of 'gross national product' in some way or another....The other main reason for the end of the era is the fact that the thrid world for a time could raise the price of raw materials and food it supplies to corporate capitalism...."[1]

A few years ago "fifty of the world’s one hundred largest economies [were] multi-national companies and not countries." [2]

When a private company grows to a size exceeding that of nations how can its vast resources not be viewed as social property? After all, the technology that these huge transnational corporations use has been "assembled with direct subsidies, tax write-offs, and other benefits traceable to the public treasury. The social capital of the nation - its air, water, and mineral treasure - has been expended in the process." [3]

Some observers may see (in addition) that many, if not most, of the risks taken by these global 'enterprises' are also, in fact, 'social'. Recent evidence of this is the hundreds of billions of dollars in TARP bailout money given to the large banks and the trillions of dollars that have been added to the US Federal Reserve’s balance sheet at huge social cost.

Part of this huge windfall for the big banks has been put into the acquisition of smaller banks by banks "too large to fail." The result is [even] more financial concentration."… [4]

And so it goes. For how much longer can we remain prisoners of economic labels and false dichotomies. 'Private enterprise' versus 'socialism'.

Corruption thrives in societies where the lines between 'private' and 'public' are blurred. 'Bigness' provides the open invitation.

[1] Jim Cairns 'Oil in Troubled Waters' Widescope International Publishers Pty Ltd, Camberwell Victoria. 1976. pp 133-134

[2] “No Nonsense Guide to Globalisation” p55. As quoted in:

[3] Richard J Barnet and Ronald E Muller, 'Global Reach - the power of the multinational corporations' 1974. page 374

[4] Assistant Secretary to the Treasury blasts economic policy, misleading data
October 7, 12:07 PMLA County Nonpartisan ExaminerCarl Herman

* A useful summary is provided by Geoffrey Barraclough in 'New York Times Review' 27 June 1974, 23 January 1975, 7 August 1975.

Publish and Perish

Wednesday, October 28, 2009

How To Fire A Tenured Faculty Member

We have heard that tenured professors have job security. Awhile ago I posted about the situation of Jonathan Goldstein, whose tenured position at Allegheny College was under attack because he was criticizing his administration. I think his position has been saved, but the hard fact is that administrators succeed in getting rid of uppity faculty all the time, although often it does not get widely reported. Thus, I recently gave a talk at an econ department where someone behaved in a highly and personally aggressive and unpleasant way to me (other members later apologized to me). However, I learned that this was not totally disconnected to the recent firing of a tenured friend of mine from that department for disagreeing with the university administration. I cannot speak further of this because the entire situation is under wraps due to court order. But I can say that my friend was indeed fired for disobeying certain arbitrary administrative rules, the sort of thing that was being thrown at Goldstein, which was simply a method for getting at him for criticizing them on other matters.

At my university there was an effort to fire a tenured prof who was criticizing the administration by eliminating his entire department. This led to a protest against this, which I was involved with. Some of us involved in this received letters from a member of the Board of Visitors above the administration, threatening us with loss of our jobs. Fortunately, this move to eliminate the department was ultimately countermanded, and the administrator causing the trouble was removed as a result of his connection with a murder/prostitution scandal. But I still keep a copy of that threatening letter in my desk, not to mention my membership in the AAUP current.

"The Panacea"

by Zombie Sandwich

American social thought is a toilet that hasn't been flushed in 60 years in a gas station restroom that hasn't been cleaned in 70. Jiggling the handle won't fix it. Americans never recovered from, nor acknowledged the nature of the affluence of the 1950s and 60s. Their technicolor ersatz-Eden was a gift of geography and Air Force bombardment, not the just reward for hard work and sacrifice. Ever since that epoch of illusion, an aberration has been taken for a benchmark.

Sandwichman's sin was to talk about what might have been as if there was still a possibility of its becoming. The eclipse of that possibility was chronicled 20 years ago in a crepuscular flurry of historical retrospectives whose collective title could have been "twilight of reason". Sandwichman lied. Knowingly. Americans have become so used to wallowing in their filth that they recoil in disgust at the thought of living without it. There has evolved an unrepentant political economy of muck. "Give Us More Shit!"

Dean Baker is Shrill!

by Tom Walker

Dean Baker wrote:
Okay, I'm not on vacation, but this is a BTP flashback. My original write-up of this NYT news article was way too positive. This article was essentially a diatribe against Germany's welfare state. To make its case, it turned an incredible success story -- Germany's relatively low unemployment rate -- into a failure.
It is obvious that Dean Baker is on a mission -- the one policy that resolves all social ills. As such, he cannot listen to reason. Fine. Good luck, Dean. Work week reduction (or "work sharing") has never, anywhere, eliminated involuntary unemployment and underemployment; indeed, it has never had a significant effect. These schemes have not increased employment... This WILL NOT create many more jobs. If Dean's trying to engage in a dialogue with the New York Times, it might help if the tone of his blog entry was somewhat less snarky. Perhaps snark attracts more internet traffic, but it doesn't encourage dialogue.
The basic deal is that Germany adopted an explicit policy of encouraging employers to shorten work hours rather than lay off workers. The government allows unemployment benefits to be used to pay workers to cover most of the loss in wages due to the shorter workweek.

As a result, Germany's unemployment rate has barely changed in the downturn. Its unemployment rate at present is 7.7 percent. This is down from 7.8 percent earlier in the year. Germany's unemployment rate in 2007 was 8.4 percent, 0.7 percentage points higher than the current level.

Tuesday, October 27, 2009

"Peter H." Is A Weiner!

"I really don't like this strident new tone of yours, Sandwichman/Walker. What's with all the hostility?" -- Peter H.
Don't even think of coming around the campfire when I'm roastin' marshmallows, Peter H.!

New Thinking With A Blunt Edge

The first round of research grants will be made before the end of the year to cutting-edge scholars working with leading universities around the world. INET’s Executive Director will be Robert Johnson, an economist with long experience in government, academia, and the private sector.
Isn't that an oxymoron? "Cutting-edge"... "leading univerities"? Any way, why not get in on the ground floor? Five million bucks is $5,000,000.00. Age before beauty; pearls before swine.
Dear Robert Johnson,

Love your Mississippi Delta blues guitar-playing, Robert!

Seriously, though, I'm a non-economist who has been doing "new economic thinking" since an over-a-year-long spell of unemployment during the "jobless recovery" of the 1990s. Or, I should say I've been looking at old economic thinking -- pre-World War II and noticing that extremely important parts of the picture that were known at least to some economists in the 1930s -- Keynes, for example -- were simply "assumed" away in the rush to mathematical model building. Post-war "Keynesians" decided to make do with only one of three pillars of Keynes's intellectual theorem.The other two didn't fit in the equation. Robert Skidelsky can tell you more about this. At any rate, I just happen to be finishing up a manuscript that looks at over 200 years of what, for want of a better term, I will call "worktime thought". Some of it is heretical economics, some the masters, Smith, Marx, Keynes. But woven through the whole narrative is the outline of an "economic subject" quite distinct from the Homo economicus or rational economic actor of conventional modern economic analysis.

I guess the issue I want to raise with you has to do with the fragility, artificiality, perhaps even vanity of the idea of "new thinking". There is, as the preacher in Ecclesiastes tells us, "nothing new under the sun." But there is great value in making new again what was already old. In other words, what I have in mind is innovation and improvisation on the basis of a fine tradition that may have been forgotten, set aside and even scorned. I would very much like to hear your thoughts on this matter. I will of course be reading the Institute for New Economic Thinking's website and looking to see if there are any programs or grants that might be suitable for the theme in my manuscript.

Yours sincerely,

Tom Walker

Seven ways to be wise in our time and place

THERE HAS COME a time when it is clear that many Australian citizens have lost sight of the essential nature of things. Where our patterns of thought and behaviour – our everyday social ‘norms’ – are inevitably leading us to an apocalyptical future of deprivation and long-lasting ruin.

In the hills and valleys of Tasmania I see a merger of humans with machine. Where minds have become twisted and adapted to the dreadful logic and form of industrial tools. The vast destruction of our native forests and the attendant poisoning of our natural environment, the overfished seas, and the now vast weed-and-vermin-filled lands of absentee corporate owners, are merely the physical manifestations of a system of laws and inherent structural rules that have trespassed way beyond human ‘morals’ or concerns for community.

It is an automatic momentum that denies recognition of nature and natural processes.
The moving out of our self-imposed subjugation will not require the piling up of facts. Rather it will require the simple anticipation of consequences. To be wise in our time is to: Read more here.

Transcript from the Future

by Tom Walker

A source who has asked to remain anonymous has just handed me a transcript of tomorrow's panel discussion at UC Berkeley on Global Unemployment, featuring Brad DeLong, John Quigley, David Card and Andy Rose. As a courtesy to the participants, I have taken the liberty of concealing who will have said what by substituting pseudonyms for the names of the participants. Similarly, the panelists themselves have taken the wise precaution of using the more genteel euphemism "your daughter's illness" to refer to mass unemployment, lest the latter term unleash widespread lamentations and gnashing of teeth among the unwashed and untenured.
DR TOMÉS. Sir, we have been discussing your daughter's illness, and my own view is that it arises from overheating of the blood. My advice is therefore--bleeding as early as possible.

DR DES-FONANDRÉS. In my opinion the trouble is a putrefaction of humours caused by a surfeit of er--er--something or other. My view is that she should be given an emetic.

DR TOMÉS. In my opinion an emetic would kill her.

DR DES-FONANDRÉS. On the contrary, I maintain that to bleed her now would be fatal.

DR TOMÉS. You would try to be clever!

DR DES-FONANDRÉS. I know what I'm talking about. I can give you points on any professional question.

DR TOMÉS. Don't forget how you cooked that fellow's goose the other day.

DR DES-FONANDRÉS. What about the woman you sent to glory only three days ago?

DR TOMÉS [to THE UNEMPLOYED]. You have my opinion.

DR DES-FONANDRÉS [to THE UNEMPLOYED]. You know what I think.

DR TOMÉS. If you don't have your daughter bled without delay, you can take it she's done for. [Exit.]

DR DES-FONANDRÉS. If you do have her bled, she won't last a quarter of an hour. [Exit.]

THE UNEMPLOYED. Which am I to believe? What's to be done when you get two such different opinions? Gentlemen, I implore you, set my mind at rest, give me an unprejudiced opinion as to which treatment will save my daughter.

DR MACROTIN [drawling]. Sir! On these oc-cas-ions one must pro-ceed with cir-cum-spec-tion and do nothing, as one might say, in pre-cip-it-a-tion, for mis-takes thus commit-ted may well, as our Master Hippocrates observes-have dan-ger-ous cons-equences!

DR BAHYS [in a quick stammering voice]. Yes, one n.n.needs to be cccareful.'s no's play about such c.c.c.cases as And it it's an easy m.m.m.matter to p.put th.things right if.if.if. you m.m.make a m.m.m.mistake. Expcrimentump.p.p.p.p.periculosum, n.need to l.l.look before you l.l.l.leap and weigh th.things w.w.warily, consider the c.c.constitution of the p.p.patient, c.c.cause of the m.m.malady, and the nature of the c.c.c.cure.

THE UNEMPLOYED [aside]. One's as slow as a funeral, t'other c.c.can't s.s.spit it out fast enough!

Professor Randall "Sting" Wray's Non-Reply

by Tom Walker

Previously, Tim Bartik posted a comment in response to the Sandwichman's post about the Last Taboo in employment policy. Jamie Galbraith replied by email and gave permission to post his comment. I regret that although Randall Wray replied by email, he refused permission to publish his reply.

The gist of Professor Wray's position, though, would seem to be, roughly, "when I say something three times with the third time in ALL CAPS, it's true." My asking for evidence only makes it obvious that I cannot listen to reason. Apparently, I have offended Professor Wray by insisting on substance rather than mere assertion. I most humbly apologize for that offense. I don't know where I could have gotten the impression that there is some sort of obstinacy and defensiveness about this issue. As B. Traven might have rewritten it:
"Evidence? To god-damned hell with evidence! We have no evidence. In fact, we don't need evidence. I don't have to show you any stinking evidence, you god-damned cabrón and ching' tu madre! Go back into that shit-hole of yours. I don't want to speak to you."

Some Questions on Unemployment for Economists

by Tom Walker

1. Over the last decade, in how many months have you a) had no income from employment? and b) were unsure how long it would be before you would again receive a paycheck?

2. How many times in your working life have you had to "change careers" because there were meager prospects in the field of work you had become proficient at?

3. How likely do you believe it is that you will be laid off as a professor in a) the next six months? b) the next year? c) the next five years?

4. How many of your fellow tenured economics professors do you know of who are currently laid off from their positions?

5. What do you think of the Pope's views on birth control?

EconoSpeak readers, please contribute your suggestions to this list of questions for economists on unemployment.

No Taxation Without Representation

Remind me again, Brad, which of the panelists is currently unemployed?

Monday, October 26, 2009

Happy Motoring

All I can say is thank God for James Howard Kunstler.
Like a lot of other observer-interlocutors, I'd like to know what folks imagine we are recovering to. To a renewed orgy of credit-card spending? To yet another round of suburban expansion, with the boys in the yellow hard-hats driving stakes out in the sagebrush for another new thousand-unit pop-up "community?" For a next generation of super-cars built to look like medieval war wagons? That's the "hope" that our officials seem to pretend to offer. It's completely inconsistent with any reality-based trend-lines, by the way.

Hurrah! Jobs Crisis Averted!

"Governments have known how to 'stimulate' sickly economies -- usually by war -- as long as they have known anything." -- Skidelsky
Happy Days are here again
The skies above are clear again
So lets sing a song of cheer again
Happy days are here again...

Any resemblance between the ways that governments have always known how to stimulate economies and policies proposed by big-hearted progressives for perpetually stimulating the economy is purely accidental. Trust us.

Note to Self

If an Austrian or a libertarian ever happens to observe that the sky is blue, it would be best to deny it, lest confirmation should backfire or do political damage.

Quote for the Day

by Tom Walker
"For reasons which will become clearer as the book goes on, I have come to see economics as a fundamentally regressive discipline, its regressive nature disguised by increasingly sophisticated mathematics and statistics." -- Robert Skidelsy, Keynes: The Return of the Master
The only quibble I would have with Skidelsky's formulation is that the "disguise" also functions as a screen and turnstile. The way that these "increasingly sophisticated" mathematics and statistics are held together precludes the most salient critical analysis. At the very foundation of the "math" program are a set of ideological assumptions about welfare and "revealed preferences." Remove those patently unwarranted assumptions and the whole edifice comes tumbling down. Oh, but "relax" them cleverly and you might win a dissertation and even an assistant professorship. It is this phony game of provisional relaxation and perpetual restoration that demarcates the bounds of acceptable dissent in the discipline.

Against Oreodoxy!

by Tom Walker

Among tenured economists who fancy themselves heterodox are a considerable number who might better be described as "oreodox". That is to say, they are hetero with regard to method but ortho to the core when it comes to the economic imperative of growth. Post-Keynesians, traditional Marxists, Institutionalists, Minskyites and what have you. Have they never heard of Herman Daly?

I understand the pressures of "fitting in" to the academy, where most colleagues are more concerned with climbing the career ladder (or at least not falling entirely off it) than with the "fate of the planet" or the unemployed. On the other hand, unemployment and/or environmental externalities are always good topics for a seminar, a journal article or an op-ed piece in the local paper. It would be a pity if they could be too easily banished, throwing scores of marginalized, oreodox economists out of a job.

Degrees of orthodoxy can best be gaged by the economist's position on unemployment.
Ultra-orthodox: there is no such thing as unemployment
Orthodox: there is unemployment; it is regrettable but unavoidable
Oreodox: there is unemployment but it can be eliminated by State policy
Reality: unemployment IS the State's policy

Sunday, October 25, 2009

(Berlin) Wall to Wall (Street)

by Tom Walker

Twenty years ago next month, the Berlin Wall fell. One year ago last month, Lehman Brothers collapsed -- the "second shoe" dropped. Just as the dismantling of the wall was the symbolic climax of a long process of disintegration that had begun in the 1970s and was not completed until several years after November 1989, the financial crisis that erupted in 2008 had deep historical roots and it will not be resolved with a recovery to business as usual. At this point it would be prudent to banish the word "recovery" from the analytical vocabulary. This is not a recession. Nor is it a depression. It is the systemic collapse of a system that has rotted from the inside out.

America's Stalin and the new New Deal

In popular mythology, the Soviet system and Western capitalism were polar opposites: communism on the one-hand and free enterprise on the other. In reality, they were very distinctive variations of what Burnham called "managerial society" or, in Galbraith's terminology, "the new industrial state". The Western version may have been more durable than the Soviet one but, on the other hand, it may have lasted longer just because it had a head start in the accumulation of material wealth, which enabled it to "coast" longer on its momentum.

The now largely forgotten corporate accounting scandals of 2001-2002 -- Enron, Arthur Anderson, WorldCom, Adelphia, Dynergy, Duke Energy, Tyco International, etc., etc. -- clearly demonstrated that the accounting system in place in the U.S. was no less prone to manipulation and gaming than had been the account for Soviet state-owned enterprises. The financial crisis of 2008-2009 has shown that the corruption is endemic and not accidental.

None of this, of course, would be of any interest to top rank economists, who operate on phantasmagorical models that bear no resemblance to the actual world where money changes hands. For thirty years, an ideological fig leaf of markets and competition, free trade and tax cuts has covered up for a system of brokered privilege that has little to do with any of those things. Many people believed these fantasies, though, simply because they wanted to believe. Certainly not because the veneer was all that convincing. The alternative was too bleak to acknowledge. But the jig is up. The genie is out of the bottle. The shit has hit the fan.

Since it is clear to too many people that a return to business as usual is not going to happen, what's the alternative? Some folks are putting their faith in the idea of a new New Deal. This involves, first, projecting an old New Deal significantly different from the real deal and, second, dreaming that we can somehow use the fictional successes of that fairy tail New Deal as a guide to future policies.

Similarly, when the Soviet Union was collapsing, there was a fair-sized constituency who looked back on the Stalin period as a time of stability and patriotic victory. Imagine how well a return to Stalinist five-year plans would have worked for Russia in the 1990s. That's the prognosis for a new New Deal in the 2010s. With FDR as the American Stalin. A kinder, gentler Stalin no doubt. But a Stalin in the pure, unadulterated sense of anachronism. In the sense, that is, that a time traveling 1930s American would feel more alien in 2010 America than he or she would in 1930s Russia.

Ladies and Gentlemen, we've already just lived through a pretend nostalgic return to an earlier, "more authentic" era. Hayek, Thatcher and Reagan choreographed a promenade through a Disneyfied 19th century gilded age where laissez faire, rugged individualism, robber barons and that old time religion prevailed. A phonier crock of horse piss you couldn't imagine -- unless it's the wished-for new New Deal.

The oligarchy would prefer to go back to the heyday of neo-liberalism, but they'll settle for a new New Deal because, for one thing, it won't be a real New Deal but only New Deal lite. More importantly, the new New Deal will start from a baseline of the compromises and concessions ironed out during the old one. There will be no Black-Connery Bill or GM Flint factory occupations to threaten a more radical outcome on the horizon. How's that for a negotiating strategy, then? Make your opening offer the absolute worst settlement that you can imagine living with. Then hope for the other side to offer you more than you've asked for.

Separated at Birth?

(Stolen from Re: The People.)

Saturday, October 24, 2009

Sandwichman's Obituary

by Tom Walker

Yesterday -- in response to defamatory allegations from Barkley Rosser that he had "stepped over the line", engaged in "indefensible personal attacks" and "meretricious name calling," was "seriously misrepresentating" reported research and should "clean up your act" -- the Sandwichman asked for a vote of confidence from his EconoSpeak colleagues. So far, the response has been a resounding abstention. Even the plaintiff, Rosser, has expressed his wish that the matter be resolved without any drastic resolution.

Ever feisty but non-litigious, the Sandwichman confided to me that to drink the Hemlock now seemed sweeter to him than swallowing the bile of his colleagues' "impartiality". With that, the Sandwichman began reciting (a tad too melodramatically for my taste) verse from Dante's Inferno:
All of these made a tumult whose presence
Whirled darkly through the timeless air like grains
Of sand in permanent turbulence.

And I, seeking to ease my brain's
Horror, said, " Master, what am I listening to?
Who are these people so defeated by their pains?"

And he to me: " The dismal souls who
Suffer this condition had lives neither odious
Nor commendable; having embraced neither of the two,

They mingle now with that chorus
Of cowardly, self–serving angels who were
Neither faithful to God nor rebellious.

To preserve its beauty heaven kicked them down here,
While deep Hell refused to take them,
Lest they be scapegoats for the wicked there."
In the past, I confess I've been tempted at times to kill off Sandwichman just so I could write his obituary. That's how it is with personae and noms de plume. Brendan Behan once claimed there's no such thing as bad publicity, unless it's your obituary. Michael Jackson proved him wrong by cashing in on his. Given the dank limbo of abstentiousness, it seems reasonable, in a kind of Through the Looking Glass, way to publish Sandwichman's obituary -- or at least the first draft of his obituary -- in advance of the verdict and the execution. Sandwichman can always come back and say that reports of his death were greatly exaggerated. Or maybe not.

Sandwichman, July 11, 2000 - October 24, 2009?

Sandwichman's remit -- believe it or not -- was never about the reduction of working time as "the answer" for unemployment. It was, from the moment of his virgin birth, concerned with discourse about working time. More specifically about how dialogue about the potential benefits of work time reduction has been vigorously and mendaciously suppressed by economists. For centuries. One of the perennial tactics of that suppression has been to ridicule advocates as kooks, quacks and monomaniacal cranks.

Alas, this latter tactic also works when defenders of the exclusion want to change the subject from censorship to some alleged personality disorders of those who document the censorship. But the Sandwichman was not "obsessed", it was his job to carry the prophetic, end-is-'nigh signs he bore. On the Sandwichman's front board was the quote (not from Mark Twain) "'Taint what a man don't know that hurts him; it's what he knows that just ain't so." and on the back, the lines by Bertolt Brecht:
In your house
Lies are roared aloud.
But the truth
Must be silent.
Is it so?
That, not Mary Steward's doggerel about decreasing the hours and increasing the pay, was the Sandwichman's motto.

In the days before his execution, the Sandwichman posted a critique of policy proposals for dealing with unemployment put forward by Jamie Galbraith, Randall Wray and Tim Bartik for the New America Foundation. The substance of the critique hinged on a paradoxical statement by Jamie Galbraith that job guarantees were "the last taboo". The paradox was that two of the three contributors proposed this "last taboo" policy while none of them so much as mentioned work sharing or work time reduction. Sandwichman argued that the real last taboo must be that policy idea on which the contributors remained silent.

As if to vindicate the Sandwichman's snarky complaint, Tim Bartik of the Upjohn Institute responded with a comment that called Dean Baker's policy brief to offer tax credits for work time reduction "interesting" and called attention to an article on short time compensation in the Upjohn Institute newsletter for July. The article, by Katharine Abraham and Susan Houseman argued that "The absence of STC benefits is a significant gap in U.S. social insurance policy that should be plugged." So Tim Bartik obviously knew about Dean's interesting policy brief and the significant gap in policy but still there was no mention of work time policy proposals in the policy roundtable background paper. None. Which of course was the Sandwichman's point.
Job guarantees are roared aloud.
But work sharing
Must be silent.
Which, then, is the last taboo?
As I was writing this obituary, I noticed a new comment appeared on the last taboo post containing an apology of sorts from Barkley Rosser, "I also apologize to anyone who has found my recent tone overdone or inappropriate." What the semanticists call a "no-fault apology." I turned to tell Sandwichman the goods news but was alarmed to see him slumped over in his armchair, the fatal drained cup lying on its side
on the floor, just out of reach of his limp hand.

I must leave off at this point and see if I can revive my friend and avatar...

Friday, October 23, 2009

The Anti-Carbon-Capping Left: Simply Confused

It has to be said: the leftist assault on the very idea of capping carbon emissions stems from deep confusion over what a cap consists of, how taxes would be used, where the leakages lurk, and what effect all these things have on who pays what. Every now and then, I am embarrassed by the public face of the left; this is one of those times.

This diatribe has been provoked by a new wave of silliness in response to tomorrow’s international day of action on climate change. You can read about it on Common Dreams, and you may also butt up against it in your own community, as I have in Olympia. (A fake issue of our local daily newspaper, dubbed The Olympiun, has several articles hyping the anti-cap line.) It’s a veritable anti-cap convergence. Read on for the particulars.

In a nutshell, here’s what the anti-cappers say. 1. A carbon cap means “carbon trading”, and “carbon trading” means that there will be no real emission reduction, because carbon permits will be traded for pseudo-reductions in agriculture, forestry and foreign investment projects. 2. “Carbon trading” is typical neoliberal claptrap, market idolatry, a scheme to pad the pockets of speculators, the next bubble primed to burst. 3. The solution is a carbon tax, which has nothing to do with market idolatry, guarantees real reductions, and makes the true climate villains pay through the teeth.

It’s all wrong, every bit of it.

1. A carbon cap requires a system of permits: you need a permit to emit a certain amount of carbon. Cap the permits and you have a carbon cap. There is nothing the matter yet. The problem comes with all the bells and whistles. (a) Instead of capping carbon upstream at its source (the extraction or import of carbon fuels), you cap it industry by industry. Then you have the coverage problem: which industries or uses are covered by the system, and which are not. The less coverage, the more leakage. (b) Instead of insisting on a permit, you give emitters the alternative of purchasing an “offset”, a promise (hope) that an equivalent amount of emissions will be averted by buying into some land use scheme, a foreign investment, etc. We can expect quite a bit of leakage here too. (c) Instead of auctioning the permits and rebating the revenue to households, you could give them away. Since the value of the permit is there regardless, it will be passed along to consumers, while the recipient of the freebie enjoys windfall profits.

A perfect carbon cap would have none of these defects, and the more coverage, fewer offsets and more auction we can get, the better.

2. A carbon permit system, with a cap on total permits, is what economists would call a quantity control. A tax is a price control. The first, if it can contain leakage, directly controls carbon emissions. The second relies on markets to arrive at whatever emission reduction occurs. Which one is more market-dependent? Moreover, a truly upstream cap would apply to only a handful of energy companies who would have little need to trade their permits between one another. It would be nearly all cap and very little trade—kind of like a cap on fishing permits to protect fish stocks.

3. A perfect carbon tax would be better than a deeply flawed cap (e.g. Waxman-Markey-Boxer-Kerry), but who says our actually existing political system will produce a perfect tax? All the same problems can crop up. (a) A carbon tax can be set too low, as is the case, for instance, in the recently announced French tax. (b) It can have only partial coverage, taxing some activities but not others. (c) It can reduce your tax liability in return for your contribution to an offset, with the additional leakage that implies. (d) It can funnel tax revenue to whatever the policy-makers want: nuclear power plants, biofuels, even coal companies. Nothing about the idea of a tax prevents this.

In the end, the choice of tax vs cap comes down to two things. (a) Since we don’t know how high a price it will take to bring carbon emissions down to a sustainable level, should we set the level and later find out about the price, or set the price and later find out about the level? (b) Can we have a more rational public discussion about what carbon cap to set, or what tax?

You tell me, what’s “leftist” about denouncing a carbon cap and demanding a carbon tax?

Meretricious Economic Theory

by the Sandwichman
meretricious a. of or befitting a prostitute; (of ornament, literary style, etc.) showily but falsely attractive; [f. L meretricius f. meretrix -tricis harlot [mereri be hired; see -trix) + -ous] Concise Oxford

Thursday, October 22, 2009

What Trucker Said!

Blogger Tim said...

"I do think there is merit in trying to move towards shorter annual work hours as in much of Western Europe, not so much because it solves our long-term economic problems, but because it would increase the quality of life."

If economics is not about improving the quality of life then what good is it?
Trucker, I love you, man!

From Giveaways to Charitable Donations: Stavins on Carbon Permit Allocations

For the life of me, I can understand why intelligent, well-educated people end up in the sort of conceptual morass that Robert Stavins finds himself in. In his latest post, Stavins accuses a group of Republican senators of misunderstanding the benign nature of Boxer-Kerry’s carbon permit handouts. This isn’t a giveaway, he says, it’s an honorable contribution to honorable recipients. No doubt these senate holdouts are confused about a great many things, but in this instance it looks like they are basking in enlightenment and Stavins is the clueless one.

To arrive at his judgment, Stavins lumps together the bulk of the free allocations and says, “about 80% of the value of allowances [accrue] to consumers, small business, and public purposes.” Hmmmm. So free handouts to electrical utilities are actually benefits to users? So what gets people to reduce their consumption of electricity in order to meet the carbon caps—brownouts? (Actually, it’s a non-problem because the caps will be illusory—more in a moment.) And giveaways to small businesses aren’t giveaways? And giveaways to businesses in return for getting them to do things more in accord with “public purposes” aren’t giveaways? You could say they are good giveaways to very nice people, but Stavins doesn’t want to defend that position. I don’t blame him.

Still, Stavins admits that handing out carbon permits for free is not the best option. He would prefer using them as government revenue, allowing us to cut other taxes. Since he thinks the efficiency of our economy is hampered by “distortionary” taxes, this would be all to the good. Of course, carbon auction revenues constitute a sales tax, and bear the original sins of such taxes—regressivity and volatility. And nothing more than libertarian ideology supports the view that progressive income taxes are economically harmful. A number of European countries tax at much higher rates than we do and somehow manage to maintain high levels of productivity and income, and even run trade surpluses against lower-taxed America.

Ultimately, if I thought this bill would really protect us against catastrophic climate change, I might overlook a few hundred billion dollars of special interest theft. You have to set priorities. But the loopholes elsewhere in the package, particularly the system for allowing carbon emitters to buy their way out with offsets, will guarantee that targets set for 2020 will not even come close to being realized. From a political standpoint as well, there is no way the bill can squeeze users of carbon fuels enough to get the job done, since almost nothing is allocated to protect household budgets. Imagine a program that deliberately pushes gas, oil and coal prices much higher than they have ever been before and gives nothing back to most households. Imagine being a politician who has voted for this program and has to face the next election.

And Stavins thinks that senators who refuse this kool aid are confused?

Hoisted From Comments

From Tim Bartik, Senior Economist, Upjohn Institute
Several points:

1. We need to distinguish between dealing with the current unemployment crisis and dealing with our long-term labor market problems. Some policy solutions may do both, but many may be more appropriate only as short-term solutions, or only as long-term solutions.

2. The current unemployment crisis is severe enough that we need to explore a variety of solutions. Work-sharing should be considered. Public service jobs should be considered. Some sort of employer tax credit for new job creation should be considered. Counter-cyclical revenue sharing should be considered. The issue for all of these is: what job creation impact are they likely to have, and at what cost.

3. Dean Baker recently has an interesting policy brief at CEPR that presents some numbers on work-sharing as a solution to the short-term unemployment crisis. My colleague Sue Houseman at the Upjohn Institute has an article with Katherine Abraham in our July newsletter that looks at short-time compensation via the UI system as a way of encouraging work sharing.

4. As for work-sharing and our long-term economic problems, I am less convinced than the Sandwichman seems to be that work-sharing is "the answer" to our long-term economic problems. I think this claim requires a high standard of proof, as most deeply rooted economic and social problems do not permit one "answer". I do think there is merit in trying to move towards shorter annual work hours as in much of Western Europe, not so much because it solves our long-term economic problems, but because it would increase the quality of life.

Tim Bartik
Senior Economist, Upjohn Institute

JMK for Dummies, Abridged, Revised and Further Abridged Edition

by the Sandwichman

Once upon a time, Paul Krugman wrote, "Taken in moderation, green cheese can be good for your health." That was good enough for Argentina in 2000. But for the US in 2009, Professor Krugman has revised his prescription in accord with Barry Goldwater's famous maxim, "extremism in the defense of recovery is no vice; moderation in the pursuit of economic growth is no virtue." To put Krugman's green cheese reference in context, though, it would be helpful to examine the evolution of the concept since John Maynard's use of it in his General Theory of Employment, Interest and Money.

The original read as follows:
Unemployment develops, that is to say, because people want the moon; — men cannot be employed when the object of desire (i.e. money) is something which cannot be produced and the demand for which cannot be readily choked off. There is no remedy but to persuade the public that green cheese is practically the same thing and to have a green cheese factory (i.e. a central bank) under public control.
What was needed to operationalize Keynes's prescription was a mathematical model. But even metaphorical green cheese would tend to gum up the works of such a model, so the Harrod and Domar version of Keynesianism dutifully substituted economic growth for full employment.
Unemployment develops, that is to say, because people want employment; — men cannot be employed when the object of desire (i.e. full employment) is something which cannot be produced and the demand for which cannot be readily choked off. There is no remedy but to persuade the public that economic growth is practically the same thing and to have an economic growth factory (i.e. a central bank and expansionary fiscal policy) under public control.
By the late seventies, old time religion Keynesianism was knocked off its pedestal by Hayek and Friedman. So a revised, non-accelerating inflation rate of unemployment edition had to be developed under the editorship of Alan Greenspan:
Inflation develops, that is to say, because people want economic growth; — men cannot be employed without inflation when the object of desire (i.e. growth) is something which cannot be produced and the demand for which cannot be readily choked off. There is no remedy but to persuade the public that embezzlement is practically the same thing and to have an embezzlement factory (i.e. a central bank) under public control.
Superficially, one might assume that with the Greenspan version, green cheese had pretty much reached the end of the road. But no. In keeping with the high-speed communication nature of the Internets, Keynes's General Theory of Employment, Interest and Money can now be expressed as a four letter acronym, "ICHG":
I Can Has Greencheeze?
(Funny cat photo to follow in due course.)

Why Oh Why Can't Jamie Galbraith Be More Like His Dad?

by the Sandwichman

Back in May, John Kay wrote on "A boom based on little more than a bezzle" in his Financial Times column:
Modern accountants... have been taught modern finance theory in which markets are efficient. They handle uncertainty by assuming that the market has already discovered and assessed all relevant information. They have also been taught the skills of pleasing clients....

If a question has no right answer in principle, then people will argue for the answer they want in practice.
"The 'bezzle'," Kay explained, "is one of John Kenneth Galbraith’s best inventions." Here is what Galbraith pere wrote,
To the economist embezzlement is the most interesting of crimes. Alone among the various forms of larceny it has a time parameter. Weeks, months, or years may elapse between the commission of the crime and its discovery. (This is a period, incidentally, when the embezzler has his gain and the man who has been embezzled, oddly enough, feels no loss. There is a net increase in psychic wealth.) At any given time there exists an inventory of undiscovered embezzlement in - or more precisely not in - the country's business and banks. This inventory - it should be called the bezzle. It also varies in size with the business cycle.
Karl Denninger also offered further definition of the bezzle in a March blog post. Note especially that in Galbraith's discussion that there is a period of time in which there is a net increase in psychic wealth. During this time, the bezzle is the measure of this (temporary) increase in (psychic) wealth. Might not even an imaginary increase of temporary wealth be a good thing?

John Maynard Keynes certainly thought so. His view had to do with "animal spirits" and the notion that too much uncertainty leads people to hoard money and thus depress economic activity. So if people thought they were wealthier, perhaps they would spend as if they were wealthier and... voila... they would become so! This is also sometimes known as the Coué method or "the power of positive thinking".

But Keynes wouldn't have been so blunt as to call it embezzlement, would he? Yup. True, he didn't use the word "embezzlement", but he explained his prescription in terms of telling people that green cheese is "practically" the same thing as the moon and using the central bank as a green cheese factory. But let's let JMK tell it:
Unemployment develops, that is to say, because people want the moon;--men cannot be employed when the object of desire (i.e. money) is something which cannot be produced and the demand for which cannot be readily choked off. There is no remedy but to persuade the public that green cheese is practically the same thing and to have a green cheese factory (i.e. a central bank) under public control.
What do you call it when you sell people green cheese and tell them its the moon? In Keynes's defense, he elsewhere explained that this green cheese prescription was meant to be a temporary fix, "first aid". Modern "post-Keynesians" simply don't acknowledge this limitation on the stimulus idea. It is as if the bezzle can go on for ever and when it gets discovered, can simply be replaced with a new and larger bezzle. The second and third applications of Keynes's intellectual theorem -- that is to say income redistribution and work time reduction -- don't exist for thick-as-a-post-Keynesianism.

The moral to this story is that when economic growth is fueled exclusively by debt expansion -- as it has been for the last 30 years -- that growth itself IS the bezzle. Why oh why can't Jamie Galbraith be more like his dad?

Separate Regulation from Statistical Reporting

This is the general principle. Those responsible for regulating an industry should not be the ones to collect and publish the numbers on it. There is an unavoidable conflict of interest: if they are being responsible, regulators want to influence the behavior of the industry they regulate; otherwise they are captured, which is worse. In either case, their motivations can interfere with disinterested data-gathering and the single-minded pursuit of accuracy.

We have already seen this in the field of occupational health and safety. OSHA requires firms to maintain logs of safety incidents, but, hoping to avoid OSHA’s regulatory reach, firms cook the books. There is substantial evidence that the statistics coming out of OSHA are deeply unreliable. Meanwhile, NIOSH, which has no direct hand in regulation. conducts its Census of Fatal Occupational Injuries, which, in its narrower domain, is comprehensive and credible.

So now the call has gone out for more transparency in the monetary and financial data reporting of the Fed. This is a step in the right direction, but the best course would be to hand off the job to another agency, like the Bureau of Economic Analysis, which regulates nothing at all, publishes tons of statistics and does an excellent job.

Wednesday, October 21, 2009

Does Inequality Get a Bad Rap?

A Goldman Sachs International adviser defended compensation in the finance industry as his company plans a near-record year for pay, saying the spending will help boost the economy. “We have to tolerate the inequality as a way to achieve greater prosperity and opportunity for all,” Brian Griffiths, who was a special adviser to former British Prime Minister Margaret Thatcher, said yesterday.

from: Binham, Caroline. 2009. "Goldman Sachs’s Griffiths Says Inequality Helps All." Bloomberg (21 October).

Some economiss actually believe this stuff. I wrote about this theory in The Confiscation of American Prosperity:

According to this theory, markets appropriately reward the rich and powerful because of their superior productivity. Consequently, they deserve every bit of what they earn. Supposedly, the best cure for poverty is to allow natural economic forces to follow their course. These economists are unapologetic about their stance. For example, when Finis Welch, who gave his prestigious Richard T. Ely lecture at the 1999 meeting of the American Economic Association, he provocatively titled his talk, "In Defense of Inequality." There, Welch proclaimed:

I believe inequality is an economic "good" that has received too much bad press .... Wages play many roles in our economy; along with time worked, they determine labor income, but they also signal relative scarcity and abundance, and with malleable skills, wages provide incentives to render the services that are most highly valued .... Increasing dispersion can offer increased opportunities for specialization and increased opportunities to mesh skills and activities. [Welch 1999, pp. 1 and 15]

Ludwig von Mises, an Austrian economist and one of the leading icons of libertarian economics, went even further than Welch, proclaiming: "Inequality of wealth and incomes is the cause of the masses' well‑being, not the cause of anybody's distress. Where there is a 'lower degree of inequality', there is necessarily a lower standard of living of the masses" (von Mises 1955).

Does inequality really get too much bad press, as Finis Welch suggests?

Tuesday, October 20, 2009

The Great Transition

by the Sandwichman

Now this is fun. The new economics foundation in the UK has come up with a report they call "The Great Transition". Here's the BBC viewpoint by Andrew Sims the nef policy director. Below is the description from their website.
A year on from the collapse of major banks, and less than 50 days before the UN Climate Change talks in Copenhagen, the new economics foundation is providing policymakers with the first comprehensive blueprint for an economy based on stability, prosperity, fairness, sustainability and well-being.

The report sets out seven main interventions, including a 'great revaluing' to ensure that prices reflect true social and environmental costs, 'a great rebalancing' that sets out a new productive relationship between markets, society and the state, and 'a great economic irrigation' that builds an 'ecology of finance' so that money and investment flows where it is most needed.

Specific policy proposals include:
  • Creating a universal Citizen's Endowment of between £40,000 and £50,000 to give every adult an equal chance in life and the opportunity to invest in education, a business or local productive assets. This would be funded by a phased rise in inheritance tax on all estates up to 67% and go a major way to reducing the massive inequalities of inherited wealth in the UK.
  • Land and property transferred to state and then redistributed to communities, forming community land trusts, where land is commonly owned and managed on a stewardship basis by communities, underpinning the provision of affordable or social housing.
  • Redistributing working time by instituting a four day working week for all that would enable the 1/3rd reduction in GDP without major loss of jobs
  • A major reorganisation of business, with publicly listed companies progressively transferring shares to their staff, giving them a real stake in and control over the companies where they work. This would lead to the creation of a series of co-operatives, operating in regulated markets, and subject to competition from new companies. Such a process would fundamentally change power relations within workplaces, creating a form of 'economic democracy'.
  • New variable consumption taxes, replacing income tax, reflecting the social and environmental costs of goods. A windfall tax on the profits of fossil fuel companies, for example, could channel funds into clean energy projects.
  • Direct government created credit for large-scale green energy and transport projects, channelled through a national Green Investment Bank
  • A new national Housing Bank, offering people the opportunity to transfer a portion of their mortgage debt into equity and paying social rent on the balance.
  • New regulations on private banks' reserve requirements directly related to the social and environmental value of investments, creating a 'race to the top' and reducing speculation and 'credit bubbles'
This is a bold vision. But nothing short of a Great Transition will be up to the task of tackling climate change, ending cycles of boom and bust and putting a stop to inequality. We show that not only is such a bold vision necessary, it is possible.

Galbraith's "Last Taboo": 84 - 0

by the Sandwichman

At the New America Foundation, James Galbraith, Randall Wray and Timothy Bartik offer their policy proposals for dealing with the jobs crisis. These three gentlemen apparently believe that the jobs crisis is merely a symptom of some mysterious financial or structural crisis that itself needs to be addressed by "better government regulation" or something like that there.

How to treat the symptom? Spend money! Bartik advocates a New Jobs Tax Credit and wage subsidies targeting 'disadvantaged' workers. Wray promotes his version of Hyman Minsky's Job Guarantee idea. Galbraith offers a laundry list of good things the government can spend money on: public sector jobs, higher education, early retirement, weatherizing houses, elder care, rehabilitating foreclosed houses, funding non-profits and last but not least a federal jobs pool such as Wray also advocates.

Galbraith calls the Job Guarantee idea "the last taboo". He is wrong. The last taboo is something none of the three mention: work time reduction. In French it is "la solution interdite." Ironically, Jamie's "last taboo" comment brings to mind his father's more salient insight about "the forbidden question" of resource conservation from some fifty years ago.

Government spending on all those nice things is all very well and good... as long as you don't have to worry about an exit strategy. The spending cure also ignores the real nature of the jobs crisis. Unemployment is not a symptom of the financial crisis. The financial crisis is a symptom of the employment crisis. To put it as simply as possible, industrial economies have failed to collectively adjust the hours of work to reflect the new realities of much higher levels of productivity.

Standard full-time hours of work have remained static over the last 30 years even as productivity has almost doubled in the last 30 years -- an increase of 84 percent -- while average weekly hours have fallen only 7 percent, notwithstanding sectoral and demographic changes in the workforce that have increased the incidence of part-time employment from 16.3 percent of the workforce in 1979 to 19.7 percent in 2009.

Most hours of work adjustment has taken place has been at an individual level rather than a collective one. That is to say more unemployment and underemployment. And this increasing precariousness of work has acted as a drag on wages. Adjusted for inflation, hourly wages have remained virtually flat. In today's dollars, the average hourly wage in September 1979 was three cents higher than the average wage today.

Let me repeat that: an 84 percent increase in hourly labor productivity and a 0 percent increase in hourly wages. WHAT PART OF 84 - 0 DO BARTIK, WRAY AND GALBRAITH NOT UNDERSTAND?

So, how did all the extra stuff get bought? Credit. Personal debt mushroomed over the last 30 years. Bartik, Wray and Galbraith's solution to the collapse of a debt-bubble is... wait for it... DEBT! Undoubtedly, some government deficit spending may be necessary to lubricate the transition. But deficits sufficient to prop up employment cannot go on forever. With Bartik's, Wray's and Galbraith's non-solutions, huge deficits would have to continue indefinitely.

Growth is not the answer. Thirty years of debt-fueled economic growth has eroded the job-creating capacity of growth. In hindsight, we would be a lot better off if workers had taken half of the productivity gains of the last 30 years in shorter working time. With a four-day workweek and a six-hour day, workers could have had roughly the same incomes they had in 1979. That's not a feasible policy solution right now. It takes time to make the adjustment. Any and all of the policy prescriptions offered by Bartik, Wray and Galbraith may be useful during the transition. But put forward as stand-alone cures, they are worthless. A spending policy without an exit strategy is like applying a band-aid where a tourniquet -- and then restorative surgery -- is needed.

Exit Strategy

by the Sandwichman

Wolfgang Münchau in the Financial Times writes:
Our present situation can give rise to two scenarios – or some combination of the two. The first is that central banks start exiting at some point in 2010, triggering another fall in the prices of risky assets. In the UK, for example, any return to a normal monetary policy will almost inevitably imply another fall in the housing market, which is currently propped up by ultra-cheap mortgages.

Alternatively, central banks might prioritise financial stability over price stability and keep the monetary floodgates open for as long as possible. This, I believe, would cause the mother of all financial market crises – a bond market crash – to be followed by depression and deflation.

In other words, there is danger no matter how the central banks react. Successful monetary policy could be like walking along a perilous ridge, on either side of which lies a precipice of instability.

For all we know, there may not be a safe way down.
"For all we know," as long as the solution is forbidden.

Monday, October 19, 2009

Where the Climate Critics Of Superfreakonomics Are Wrong

I have not yet read the now-heavily criticized chapter 5 of Superfreakonomics, due for release tomorrow, and, no, I am not going to defend them. That some of their critics are wrong about something does not make them right, although this particular matter is one that depends on their exact wording, which I have not yet seen. It looks from all the comments that they are probably way off the deep end on many things, way overstating the benefits of geoengineering for resolving global warming (yes, we should have research on it as a possible emergency backstop down the road; no we should not dump other approaches to go with it), focus too much on questionable sources they do not even quote accurately, and say a lot of other dumb things, such as their claim that solar power worsens global warming because the panels are black (no, they are mostly blue and they do combat global warming, although because of their high cost, they will not likely do so much in the near future). Where their critics are wrong is when they characterize the views of climatologists in the 1970s as not at all supporting the hypothesis of global cooling, that this was just a view of a couple of oddballs and some media stories.

The strongest expression of this argument can be found on the blog by climatologist William Connolley at His argument is also picked at Real Climate and is based on a paper he did with Peterson and Fleck in the very respectable Bulletin of the American Meteorological Society about a year ago. available at (if I have gotten that right). It looked at the articles published in top climatology journals during 1965-1979, characterizing them as "pro-global warming," or "pro-global cooling" or "neutral," and concluded that only 12% of them (7) were "pro-cooling," leading to the dismissive commentary. However, this is misleading on various counts. The main one is that there was a period in the early 1970s when the count was not all that far apart. The facts were that there had been global cooling from the late 1930s that lasted well into the 1970s. Researchers were aware of this and aware of a competition between warming CO2 emissions and cooling aerosol/particulates emissions, although not sure about the relative strength of the effects. As time passed, things became clearer, and as of 1975, there were more pro-warming articles cumulatively than cooling-plus-neutral ones, with this balance then shifting more strongly that way afterwards, indeed with no "pro-cooling articles" after 1977. Of course, if Levitt and Dubner characterize the 1970s as a period dominated by a pro-cooling "consensus," then they are clearly wrong. But their critics on this point need to be more careful about how they state things, with many seriously mischaracterizing the situation then.

Fossil Fuels Get Down and Dirty

The New York Times reports today that the united front of gas, oil, coal and electricity generating companies has splintered as climate legislation slowly advances in Congress. Where they once merged their voices, and dollars, in denial of climate change and against any curtailment of carbon emissions, they are now scrambling to secure advantages for their own industry in the fine print of Waxman-Markey-Boxer-Kerry. Gas wants special privileges for its product, since it has a lower carbon content than its fossil siblings. Oil is focused on removing subsidies for biofuels. Electrical utilities are split between those with a higher hydropower component (good for renewable portfolio standards) and those without, but both benefit from free allocation of permits. Only coal sits on the sidelines, denouncing the “hoax” perpetrated by several thousand communist-inspired climate scientists. (Although they will no doubt throw their weight behind carbon capture and storage provisions as the end draws near.)

Is this a good thing or a bad thing?

Mainstream environmentalists are tickled. When the well-heeled hydrocarbon lobbies were solid against climate change legislation, it was difficult to make progress. Now that they are pursuing competing agendas, they can be played off against each other, and some sort of a bill can go through. In fact, you could argue that the particular flavor of cap-and-trade that anchors WMBK is designed to achieve exactly that.

The downside, of course, is that the climate policy regime we end up with will be a product of this dogfight. Each fuel sector will have its own budget of free vs auctioned permits. Moneys collected by the government from whatever permits are auctioned will subsidize the industries with the greatest lobbying heft. Some energy products will see minimal price increases, others a lot. Ostensible carbon caps will have giant loopholes for offsets to benefit still other industries, largely determined by their own lobbying efforts.

The alternative strategy would have been to keep the system simple and without favoritism. Require a permit for extracting or importing hydrocarbon fuels, with a fixed formula for the amount of fuel per permit based on carbon content. Cap the permits to achieve carbon emission targets. Auction all the permits without exception, and return the bulk of the money to households to buffer them against the inevitable price jolt. Make no provision for offset loopholes.

The problem with this approach is that the fossil fuel interests, and the fuel-intensive industries most closely aligned with them, would resist monolithically to the end. The advantage is that such a bill, if passed, would be far more efficient economically, more equitable in its effects on income distribution, and, above all, would actually have a reasonable chance to meet its targets. Instead, we have a much greater chance of passing legislation that is filled with pork, regressive, and is almost guaranteed to fall well short of its headline emission reduction promises.

Sunday, October 18, 2009

Capitalism as an Infectious Disease

Joseph Schumpeter once wrote, "the budget is the skeleton of the state stripped of all misleading ideologies."

Schumpeter, Joseph A. 1954. "The Economic Crisis of the Tax State." International Economic Papers, 4; reprinted in Schumpeter, Joseph A. 1991. The Economics and Sociology of Capitalism, ed. Richard Swedberg (Princeton: Princeton University Press): pp. 99-140.

Yesterday's post dealt with the way that budget choices create pressures that shape pension funds' choices, something like the way that people in desperate states make decisions that they would not make under ordinary circumstances. However, the skeleton ranges across the body of society. For example, ordinary people often must depend their pensions fall victim to a similar logic. In fact, one of the many objectives of the privatization of Social Security was to make workers identify with the objectives of capitalism. Andy Stern of SEIU suggests how that kind of thinking even infects the supposedly progressive union movement. Here is the exchange from Business Week:

Q: Has the recession led you to rethink the way you operate your union? What is the SEIU doing to prepare for a recovery?"

A: "Well, it's made us appreciate that we have to be better partners with our state governments and employers in terms of efficiency. It makes us appreciate that our pension funds are tied to the success of the economy. And it makes us very much want to come together with other Americans and employers and people in the nongovernmental part of our country and say we need to create a 21st-century American economic plan so Team USA can compete and win."

Bartiromo, Maria. 2009. "Union Leader Andy Stern on the Future of Big Labor." Business Week (28 September).

A Big Surprise: Bhagwati Defends Free Market Economics

Jagdish Bhagwati is a poster child for multiple intelligences. He is famous for having manipulated the equations of neoclassical trade theory with consummate skill, but whenever he jumps into a verbal argument he makes embarrassing errors of reasoning and commits the greatest sin of the disputant, failing to understand the views of the other side. When you read his screeds, you wonder why anyone pays attention.

So the first response I had to his latest outburst, Feeble Critiques: Capitalism's Petty Detractors, was to delete it. But then I thought, maybe there is something to learn from a critique of this guy—he can’t be that vacuous, can he? So I read it again. No, he is that vacuous, but now that I’ve invested the time I feel I have to say something about the experience.

Bhagwati is defending “capitalism”, by which he means a primary reliance on free, unconstrained markets in national and international affairs. He seems to be reacting especially against Joe Stiglitz, who has written widely on the inadequacies of neoliberalism, especially in the wake of the ongoing economic crunch. In typical Bhagwati fashion, he introduces his nemesis by mentioning that he shared a Nobel prize with George Akerlof, and then spending several sentences praising the latter to the skies, with nary a mention of the former. (I’m a big fan of Akerlof, but Stiglitz’ innovations in economics are of the highest order.) In other words, pure pettiness.

Then Bhagwati gets down to argument, sort of. He says that the current crisis is just a temporary speedbump on the path to universal riches—but, of course, to simply assert this is to assume what needs to be proved. He should read up on “begging the question”. (Perhaps his background in trade theory, a giant piece of question-begging in its entirety, has preconditioned him in this respect.) He invokes China and India as examples of countries that have adopted liberalism and prospered, without being aware that his critics dispute this. (To regard China as “liberal” is bizarre, and Dani Rodrik has written persuasively on why liberalization should not be seen as the basis for India’s accelerating growth rate.)

There are many pixels spilled over the effort to tar all critics of neoliberalism with the experience of the Soviet Union: you are either with us or with the Stalinists, for free markets or for central planning. What this has to do with someone like Stiglitz I can’t imagine. Add to Bhagwati’s reading list Whither Socialism?, Stiglitz’ post mortem on the formerly-existing mode of production.

What about the claim that trade competition from the poor countries, and especially China, have depressed wages in the US? Bhagwati cites his own work and that of two other authors, but does not given even a brief explanation for why his results should be regarded as a refutation of those who come up with something else. (He does make an ad hominem swipe at Paul Krugman: K’s paper on trade and wages was commissioned by Larry Summers, and, well, you know about him.) Homework assignment: look up “cherry-picking”.

We learn that the Washington Consensus was not imposed, but was taken up “with gusto” by India, China and Russia. This gusto business is a strange descriptor for the ex-USSR, as is “liberalism”, but the main problem is that critics of the Washington Consensus never claimed that China or India were bullied—rather, that most of Latin America, sub-Saharan Africa and southeast Asia were. To put it simply, debt was the lever, and China and India were the only two developing countries not laboring under massive debts to western banks (thanks to the policies Bhagwati deplores).

A few paragraphs later, Bhagwati launches into an attack on financial deregulation. It was an intellectual error, he says, and reflected not only cognitive capture by what he calls the “Wall Street–Treasury Complex”, but also “old-fashioned lobbying”. I was starting to warm to him, but then he attributes regulatory failure to leftists and protectionists. Hank Paulson, you see, is an “ardent environmentalist and graduate of liberal-leaning Dartmouth College” (guilt by matriculation) and Charles Schumer (the only politician identified by name) is a serial Japan-, then India-, then China-basher. If you’re Bhagwati, this proves financial deregulation was a conspiracy by the forces opposed to free markets.

In case you were wondering, it was not the private sector that gave us subprime mortgages either. This was a conspiracy hatched by populists within the government, who wanted to maximize home ownership. Granted, there have been many public programs that unwisely pushed people into mortgages who should have put their scarce savings somewhere else, but surely the folks at Countrywide had something to do with it too, not to mention the securitization bandwagon that was entirely of Wall Street’s doing. And is Bhagwati aware that housing bubbles have had a tendency to appear in the buildup to financial crises throughout modern history, or that there have been recent housing meltdowns in other countries (Spain, Ireland, England) with different sets of laws and policies? Add Reinhart and Rogoff to the man’s bookshelf, and maybe also Chapter 3 of the IMF’s latest World Economic Report.

Bhagwati concludes with a call for charity on the part of the rich and a safety net for the poor. This will keep the population pacified, he hopes, so that economists of a critical bent cannot “enjoy a success that they do not deserve.” Do I hear a rumbling among the ranks? Increase their rations and they won’t cause us any trouble....

On third thought, deletion would have been the best choice.