Friday, June 24, 2016


"If, as a result of Brexit, the economy crashes it will not vindicate the economists, it will simply illustrate once more their failure." -- Ann Pettifor
You can see immigrants. You can't see NAIRU or flexible labor market policies. Most people wouldn't know a NAIRU from a Nehru jacket and have probably never heard of flexible labor market policies.

There is a simple logic behind the "growth through austerity" policies beloved by Cameron and Osborne: "wages are too damn high." But there is also a more technical-sounding  obfuscation. This more convoluted explanation is that there is a long-run, "natural" rate of unemployment that is unaffected by aggregate demand, therefore fiscal stimulus will result in inflation. Thus the only non-inflationary way to reduce unemployment is to fine tune this hypothetical natural rate by removing labor market rigidities.

Sounds plausible? What it means in practice is "wages are too damn high." In the 19th century, this superstition was known as the wages-fund doctrine. Also known as this magazine of untruth.

Another euphemism for these "flexible labor market policies" (i.e., "wages are too damn high.") is "structural reforms." In a press release from the  Center for Economic and Policy Research, Mark Weisbrot pointed out the connection between Brexit and these so-called structural reforms:
"While the movement in the UK to leave the EU had right-wing, anti-immigrant and xenophobic leaders, in most of Europe that is not the driving force of the massive loss of confidence in European institutions. The driving force in most of the European Union is the profound and unnecessary economic failure of Europe, and especially the Eurozone, since the world financial crisis and recession. 
"It has cost European citizens millions of jobs, trillions of dollars in lost income, and is sacrificing a generation of youth at the altar of fiscal consolidation and 'structural reforms.' It has delivered an overall unemployment rate in Europe that is twice the level of the United States; more than seven years of depression in Greece; more than 20 percent unemployment in Spain, and long-term stagnation in Italy. In recent weeks French workers have been fighting against 'structural reforms' that seek to undermine employment protections and the ability of organized labor to bargain collectively."


Magpie said...

Most people wouldn't know a NAIRU from a Nehru jacket

I am a case in point. I had never heard of a Nehru jacket, so I consulted Wikipedia.

This is how the Nehru Jacket entry starts:

The Nehru jacket is a hip-length tailored coat for men or women, with a mandarin collar, and with its front modelled on the Indian achkan or sherwani, an apparel worn by Jawaharlal Nehru, the Prime Minister of India from 1947 to 1964.

I guess Mr. Nehru's tailor must have used very good fabric: that jacket lasted 17 years. :-)

Anonymous said...

But both the "wages-fund doctrine" is approximately true, and the "lump of labour fallacy" is indeed a fallacy:

* It is very easy to create many, many *jobs* at very low rates of pay. There is very large demand for labour at wages of $1 per day in the USA. A lot of people would hire multiple servants at a wage of $1 per day, for example, and dozens of millions of jobs would be re-shored from China etc. if wages in the USA were much lower than in China etc.; there is no lump of labor, there is huge demand for labor if labor is very cheap.

* Growing the wages fund requires either redistributing income from property to labour, and that is politically quite hard, or to make GDP grow faster, which is technically quite hard too in the short term without growing imports a lot. Neither is impossible, but quite hard indeed.

Sandwichman said...

"I guess Mr. Nehru's tailor must have used very good fabric: that jacket lasted 17 years. "

I wish I had said that... (I will)

Sandwichman said...

No, Blissex. The wages-fund doctrine is tautologically true under the assumptions that make it true. The lump of labor fallacy is a negative projection from the wages-fund doctrine, so it is tautologically a fallacy under the assumptions that make the wages-fund doctrine true.

Sandwichman said...

"* It is very easy to create many, many *jobs* at very low rates of pay. "

If you call a cow's tail a leg, how many legs does the cow have? Four. Just because you call something a job doesn't make it one.

"* Growing the wages fund requires either..."

First, assume a can opener...
First, assume a wages fund...

There is NO SUCH THING as a wages fund in the signified world. The wages fund exists only as a signifier in the model world.

C'mon, blissex, you can do better than this. I see your Platonism and raise you one Aristotlean.