Monday, May 21, 2018

Plan B on Iran

Earlier today ne US Secretary of State, Mike Pompeo, presented this administration's "Plan B" at the Heritage Foundation on how to deal with Iran following the US's withdrawal from the nuclear deal, the  JCPOA.  Pompeo presented 12 demands and threatened to impose "the strongest economic sanctions in history."  The Trump administration may wish to do the latter, but the  refusal of all the other parties to the JCPOA to go along with this effort will certainly guarantee that even if the sanctions are strong, they will not match what preceded the negotiation of the JCPOA.  As it is, Jeffrey Sachs (as reported by Juan Cole) has argued that if Trump tries to sanction European companies dealing with Iran through non-dollar currencies, the  EU should take the US to the WTO as well as the UN Security Council and General  Assembly. After all, this extraterritorial action would violate international trade agreements, and given that the JCPOA is an officially recognized agreement by the UN Security Council, the US is in fact in violation of international law with its withdrawal, not that those supporting this recognize this.

As it is, the 12 demands are chock full of hypocrisy and nonsense, some of it unacceptable even to a government that would be secular and pro-US.  I shall not go through all of them, but will note just three that will not be accepted by Iran, to the extent the are even possible to be carried out. One is for Iran to "cease threatening its neighbors."  Well, the problem with this is that it is largely in the minds of such neighbors as Saudi Arabia and UAE that Iran is "threatening" them.  KSA has the third highest level of military spending in the world, but somehow Iran is "threatening" it. KSA has called for the military overthrow of the Iranian government.  I am unaware of the Iranian government doing the same regarding KSA.  Of course many of the demands involve Iraq and Syria, but last time I checked the governments of those nations have invited what Iranian military units are in their nations, with them in Syria battling against rebels backed by KSA and UAE attempting to overthrow that government.  Really, this is just ridiculous, although  Bahrain might  have a complaint about Iran providing some military aid to majority Shia elements in that nation opposed to its dominant Sunni  government, but Bahrain has had a problem with this for a long time.

Another is for Iran to  stop  providing military aid to the "Huthis" in Yemen.  Yikes!  While KSA and US and UAE have loudly claimed Iran is arming the Houthis, most sources say that most of their arms are US ones.  The one thing they may have gotten from Iran are their missiles they have fired off periodically into  KSA.  Certainly KSA is unhappy about this, but none of these has caused any damage or injuries so far.  In contrast, the Saudis with support from the US (and also  UAE) have been massively bombing and embargoing Yemen for several years, with thousands killed and famine and cholera endemic in poverty-stricken Yemen.  Really, it is the Yemenis who have grounds to be making demands here, in contrast to the US and its allies.

Finally we have a demand to halt (forever) all uranium enrichment.  It is clearly the case that what uranium enrichment Iran is engaging in is for its civilian reactor program, which is allowed to Iran, not only under the JCPOA, but also the Nuclear Non-Proliferation Treaty, of which Iran is not only a signatory, but in good standing, with the  IAEA saying they are in conformance with it, as well as the JCPOA.  As it is, while pursuing nuclear weapons and various foreign activities are not popular in Iran, the civilian nuclear program is and has been highly popular in Iran. It was popular with the dissident Green movement in 2009, and no democratically elected government would shut it down.  This demand will only be accepted by a government installed after an invasion by the US and its allies, which this set of demands may be the prelude to.

Barkley Rosser

Is the Job Guarantee a Ponzi Scheme?

“The basic idea is that the government can’t run out of money. It creates money just by spending.” -- Stephanie Kelton
This is true. Government cannot run out of its own money. But what is money? It is a token or pledge that can be redeemed for something of value. If government creates much more money than there are things of value to redeem it for the prices of those things go up. Not to worry, Zach Carter assures us:
But even inflation doesn’t impose a hard limit on policy options. The Federal Reserve can raise interest rates to deal with it, Congress can raise taxes to pull money out of circulation or even impose price controls.
Hyman Minsky expanded on this explanation in his financial instability hypothesis:
The first theorem of the financial instability hypothesis is that the economy has financing regimes under which it is stable, and financing regimes in which it is unstable. The second theorem of the financial instability hypothesis is that over periods of prolonged prosperity, the economy transits from financial relations that make for a stable system to financial relations that make for an unstable system.
In particular, over a protracted period of good times, capitalist economies tend to move from a financial structure dominated by hedge finance units to a structure in which there is large weight to units engaged in speculative and Ponzi finance. Furthermore, if an economy with a sizable body of speculative financial units is in an inflationary state, and the authorities attempt to exorcise inflation by monetary constraint, then speculative units will become Ponzi units and the net worth of previously Ponzi units will quickly evaporate. Consequently, units with cash flow shortfalls will be forced to try to make position by selling out position. This is likely to lead to a collapse of asset values. 
The financial instability hypothesis is a model of a capitalist economy which does not rely upon exogenous shocks to generate business cycles of varying severity. The hypothesis holds that business cycles of history are compounded out of (i) the internal dynamics of capitalist economies, and (ii) the system of interventions and regulations that are designed to keep the economy operating within reasonable bounds.
See? If "the authorities" decide to "exorcise [the demon of] inflation" through taxation or higher interest rates, it won't be the government that goes belly up. It can't run out of money. It will just be those speculative and Ponzi units whose net worth will evaporate. No problem!

It remains a mystery to me why job guarantee proponents point to Minsky as the patron saint of the job guarantee idea. It was, after all, Leon Keyserling who drafted the Full Employment Act of 1946, The Freedom Budget (1966) and job guarantee provisions of Humphrey-Hawkins (1976). Good old "siphoning off the increment to pay for the excrement" NSC-68 Leon. 

Mr. Keyserling was a big fan of spending that "paid for itself" by augmenting growth in the gross national product. His 1966 Freedom Budget was also touted as being financed through an "economic growth dividend." The idea was that economic growth of five percent over a ten year period would generate the revenue to pay for the program.

If it wasn't the government doing it, the method of financing that Keyserling advocated would be a Ponzi scheme because it relied on revenues that would presumably arise solely from disbursements and not from the sales of value-added goods or services. Fortunately, a government cannot operate a Ponzi scheme because "it creates money just by spending."

So, technically speaking, a job guarantee is not a Ponzi scheme. It's only a wee bit Ponzyish.

Jobs, Jobs, Jobs: GUARANTEED! -- May 20 update

Class war? What class war?
Stephanie Kelton Has The Biggest Idea In Washington 
"Everybody wants a piece of Kelton these days because a simple, radical idea she has been workshopping her entire career is the next big thing in Democratic Party politics. She calls it the job guarantee... "
  • "Once an outsider, her radical economic thinking won over Wall Street. Now she's changing the Democratic Party."
  • "A onetime college dropout at California State University in Sacramento, Kelton has managed to earn the esteem of both Sanders and an oddball clique of multimillionaire Wall Street traders."
  • "If you listen to Kelton long enough, you notice that she never refers to “bankers” or “Wall Street” with the derisive tone common among her political allies. She talks instead about “the financial community.”
  • "After all, Wall Street took her under its wing before Democrats took her seriously." 
  • "Her career had changed tracks. She wasn’t just a clever economist with some quirky ideas anymore. Her credibility with Wall Street began to register as academic clout."
  • "There are thousands of left-wing economists. But it’s hard for the economically inexpert to distinguish brilliant creativity from quackery. Kelton’s social credentials with Wall Street helped her stand out."
I dunno what that's about. Something about Wall Street?

Saturday, May 19, 2018

Jobs, Jobs, Jobs -- GUARANTEED!

The current mania for "job guarantee" policies is making the Sandwichman anxious. I've been on the full employment beat for over 20 years so I think I have a pretty good grasp of the terrain. First principle is that there are no panaceas. My favorite policy option -- reduction of working time -- is not a panacea. Neither is yours.

Like my learned friend Max B. Sawicky, I am in favor of a job guarantee -- provided it meets MY criteria. The proposals currently being shopped around don't. That should not be a fatal flaw. Inadequate policy proposals can serve as the starting point for dialog that can lead to better proposals. From the left, Matt Brunig, and from the center?, Timothy Taylor have offered constructive critiques of the current proposals. I would like to offer a bit of critique from history.

Friday, May 18, 2018

The So-called Labour Fund

Note: there was no fully correct answer to the Sandwichman's quiz, 200 Years, 200 Dollars! An anonymous commenter came tantalizingly close but missed on a technicality. The Adam Smith quote was correct but the Karl Marx quote was not a passage from Capital, which is what the question asked for. Below is the passage from Capital: 

THE SO-CALLED LABOUR-FUND

It has been shown in the course of this inquiry that capital is not a fixed magnitude, but is a part of social wealth, elastic and constantly fluctuating with the division of fresh surplus-value into revenue and additional capital. It has been seen further that, even with a given magnitude of functioning capital, the labour-power, the science, and the land (by which are to be understood, economically, all conditions of labour furnished by Nature independently of man), embodied in it, form elastic powers of capital, allowing it, within certain limits, a field of action independent of its own magnitude. In this inquiry we have neglected all effects of the process of circulation, effects which may produce very different degrees of efficiency in the same mass of capital. And as we pre-supposed the limits set by capitalist production, that is to say, pre-supposed the process of social production in a form developed by purely spontaneous growth, we neglected any more rational combination, directly and systematically practicable with the means of production, and the mass of labour-power at present disposable. Classical economy always loved to conceive social capital as a fixed magnitude of a fixed degree of efficiency. But this prejudice was first established as a dogma by the arch-Philistine, Jeremy Bentham, that insipid, pedantic, leather-tongued oracle of the ordinary bourgeois intelligence of the 19th century. Bentham is among philosophers what Martin Tupper is among poets. Both could only have been manufactured in England.  In the light of his dogma the commonest phenomena of the process of production, as, e.g., its sudden expansions and contractions, nay, even accumulation itself, become perfectly inconceivable.  The dogma was used by Bentham himself, as well as by Malthus, James Mill, MacCulloch, etc., for an apologetic purpose, and especially in order to represent one part of capital, namely, variable capital, or that part convertible into labour-power, as a fixed magnitude. The material of variable capital, i.e., the mass of the means of subsistence it represents for the labourer, or the so-called labour-fund, was fabled as a separate part of social wealth, fixed by natural laws and unchangeable. To set in motion the part of social wealth which is to function as constant capital, or, to express it in a material form, as means of production, a definite mass of living labour is required. This mass is given technologically. But neither is the number of labourers required to render fluid this mass of labour-power given (it changes with the degree of exploitation of the individual labour-power), nor is the price of this labour-power given, but only its minimum limit, which is moreover very variable. The facts that lie at the bottom of this dogma are these: on the one hand, the labourer has no right to interfere in the division of social wealth into means of enjoyment for the non-labourer and means of production. On the other hand, only in favourable and exception al cases, has he the power to enlarge the so-called labour-fund at the expense of the "revenue" of the wealthy.

What silly tautology results from the attempt to represent the capitalistic limits of the labour-fund as its natural and social limits may be seen, e.g., in Professor Fawcett. "The circulating capital of a country," he says, "is its wage-fund. Hence, if we desire to calculate the average money wages received by each labourer, we have simply to divide the amount of this capital by the number of the labouring population."  That is to say, we first add together the individual wages actually paid, and then we affirm that the sum thus obtained, forms the total value of the "labour-fund" determined and vouchsafed to us by God and Nature. Lastly, we divide the sum thus obtained by the number of labourers to find out again how much may come to each on the average. An uncommonly knowing dodge this. It did not prevent Mr. Fawcett saying in the same breath: "The aggregate wealth which is annually saved in England, is divided into two portions; one portion is employed as capital to maintain our industry, and the other portion is exported to foreign countries... Only a portion, and perhaps, not a large portion of the wealth which is annually saved in this country, is invested in our own industry."

The greater part of the yearly accruing surplus-product, embezzled, because abstracted without return of an equivalent, from the English labourer, is thus used as capital, not in England, but in foreign countries. But with the additional capital thus exported, a part of the "labour-fund" invented by God and Bentham is also exported.

Wednesday, May 16, 2018

Intercompany Guarantee Fees and Trump’s Lido City Loan

Matthew Yglesias notes:
Trump stands to gain from an Indonesian project that got a $500 million loan right before he flip-flopped on ZTE… But it also happened the same week a Chinese state-owned company came through with hundreds of millions of dollars in loans, some of which will go to facilitate the construction of Trump-branded properties in Indonesia.
Does anyone know what the interest rate will be on this loan? After all, it is highly unlikely that the lender has given Trump’s business an interest fee loan. Let’s speculate that the interest rate is 4% per annum so Trump’s business would be paying $20 million per year in interest expenses. But how would that compare to market rates? The yield on 10-year Chinese government bonds is just over 3.7% according to this source. If Trump’s business got a 4% interest rate on a ten-year loan denominated in RMB (to be fair I do not know the currency of denomination or the term either), then the lender was assuming a AAA credit rating for this business, which sounds incredible to me. Of course it is entirely possible that the lender was receiving some sort of guarantee from the Chinese government in case Trump’s business defaults. Some tax accountant defines intercompany guarantee fees as:
With guarantees between affiliated group companies, the question arises of whether a guarantee fee must be paid to the company giving the guarantee. The credit rating of the company receiving the guarantee is also important when answering this question.
What would be a reasonable credit rating on a standalone basis for Trump’s business? Let’s also speculate that this credit rate would be no better than BB, which would likely imply that a loan on a true arm’s length basis would command an interest rate closely to 7%. In that case, the value of the loan guarantee is 3% or $15 million per year in interest savings. OK – I admit this is all speculative guesses but it does pose a reasonable means for evaluating the extent of the kick back Trump’s business got from deal.

ZTE and the Iran Nuclear Deal

The whiplash that many observers have felt on learning of President Trump's about-face on China's ZTE telecom company from condemning it as violating US national security and violating sanctions rules by selling to North Korea and Iran has been pretty easily explained by our soon thereafter learning that China has provided a mere half a billion dollars to a project in Indonesia where Trump interests are deeply involved.  This is probably the most blatant violation of the Emoluments Clause of the US constitution yet, but do not hold your breath that anything formal will come of it, despite widespread outrage.  Rather his backers will accept that this is necessary for obtaining Chinese support in dealing with Kim Jong-In in the possible forthcoming summit.  This is supposed to trump all other considerations.

Of course the supposed forthcoming summit and related events, such as the  recent release of hostages held by North Korea, have been trumping Trump's withdrawal from the JCPOA nuclear deal with Iran, which has been praised by his supporters as an action that "fulfills a campaign promise" and thus just simply wonderful.  However, a little noticed aspect of this in the US is triggering considerable reverberations abroad. It is the hypocrisy that while Trump seems to be blithely forgiving ZTE for breaking already in-place sanctions against Iran, he and members of his administration such as John Bolton have been unyielding to the Europeans that all of their companies must cease any economic dealings with Iran ASAP now that Trump has scuttled US participation in the deal, even though it is widely accepted in Europe that Iran is in full compliance with the deal.  The spectacle of the freshly arrived US ambassador issuing an immediate "order" to German companies to immediately comply with US demands on this has raised especial hackles.

Pretty clearly the Europeans need to identify some budding Trump Organization project somewhere on the planet that they can dump a pile of money into so that their companies can get exemptions like ZTE has from having their markets in the US cut off if they continue to operate in Iran.

Barkley Rosser

Tuesday, May 15, 2018

The Overhyping of _The Happiness Curve: Why Life Gets Better After 50_

Jonathan Rauch of the Brookings Institution has just published The Happiness Curve: Why Life Gets Better After 50, which seems to be getting a major media push from a bunch of completely uncritical reviewers and commenters, some of whom really should know better.  It is not that this book is totally wrong or bad, but that it way overstates its case, cherry picking data and the views of people he has interviewed, with only the slightest of caveats.  Among those falling all over themselves to unequivocally praise the book are NYU Journalism Professor, Pamela Newkirk, in a review in the Outlook section of the Washington Post this past Sunday (May 13), and Tyler Cowen, who plugged it on Marginal Revolution and also provided a blurb on its back cover (the only professional economist doing so).  Here is back cover blurb, which shows the nature of this hype, as well as indirectly revealing one of the major weaknesses of this book, its personally anecdotal quality.

""Do you wish to understand the arc of your life?  And why you are likely to end up happier than you are right now?  If so, The Happiness Curve is the place to start.  And I write this as someone who can vouch that the upper part of the happiness life curve is very glorious indeed." (Tyler Cowen blurb)

OK, I am glad that Tyler is happier now than he was when he was in his forties, and I am also glad that a bunch of people Rauch interviews also report this as well, with Rauch himself making it clear that he himself experienced this.  His affective happiness, his momentary mood, was generally pretty good, but his evaluative happiness, his broader life satisfaction, was not good.  But now after turning 50, his life has turned all roses pretty much. This is all very nice, and the personal stories recounted in the book, as well as a lot of general philosophizing in its later sections ("old people are wise!"), will probably lead to high sales, especially given the hype it is getting from various people publicly, with almost nobody noting that it has some problems and exaggerates the scholarly consensus on this.

Oh, I guess I should state the main premise of the book.  It is that in general there is a U-curve of happiness related to age.  On average people's life satisfaction declines from age 20 to somewhere in middle age (depending on which country they are in), and then rises after that. Rauch very slightly notes some caveats.  This is a "tendency," not a universal law (although at times he seems to suggest that is almost a universal law).  Individuals might be happy at 45 but miserable at 60, but they are the exceptions with their weird personal circumstances (maybe lost a job, a spouse, or got cancer). 

So let us start with the biggest problem with this book: its main premise as stated is false, or at least  not at all clearly true.  The problem is that this result derives from multiple regression studies that have one of the several competing measures of happiness or life satisfaction as the dependent variable, with some long list of variables on the right hand side that are widely thought to be connected to happiness, such as income, employment, marital status, health, and others.  In such regressions for many nations, especially high income ones, the identified coefficients for age support the finding of the U-curve as described above, people tending to be less happy in middle age than when younger or older.  We then have all these personal anecdotes to support this, a bunch of people recounting how miserable they were in their forties, only to be so much happier later.

The problem is that in the book itself, the broadest measure of the relation between age and happiness at the global average level does not support this at all.  I am talking about the raw relation, not that imputed after taking account of all these other variables. So, there it is on p. 68, a figure entitled "Average life satisfaction by age (unadjusted world estimate, 2010-2012)" with Gallup World Poll and the Brookings Institution the source.  It shows a mildly oscillating line that slowly trends upwards from age 20 to a peak at about 64, after which it drops a bit to hold steady to about age 80, after which it goes back up a but with no reporting beyond age 85.  That's right, just plain old unadjusted happiness does not decline as one moves into middle age: it gradually rises according to this huge global data set.  Of course on the next page, we have the adjusted figure, which shows a smooth U-curve bottoming out around age 50.

But what then is the point or meaning of all these personal tales of woeful misery in the forties but joy and happiness afterwards?  Nothing.  They are irrelevant and go against the evidence reported in this figure on p. 68.  not a single one of these is a report of "taking into account your income, employment, marital status, health, and other variables such as your social relations, how happy were you at different ages?"  No, these are accounts of the unadjusted states of happiness of these individuals.  And indeed, without dragging through particular persons' accounts (some of whom I know personally and have even heard these accounts), I note that quite a few of them involve people having something bad going on with one or another of these other variables, in several cases marital breakups or personal unhappiness related to personal relationships, with this being overcome one way or another after the person hits 50.  But that is not what this is supposed to be about.

Indeed, the not so clearly mentioned point is that in middle age most people are doing well on these other variables.  They are near their maximum income for life.  They are employed.  They are married. And while their health may not be what it was when they were 25, it is not too bad and better than it will be ever again.  In short, on lots of things, most people are doing pretty well on most of the things that are associated with happiness and life satisfaction,so, big surprise that on average around the world we see them being at least slightly happier than they were when younger overall on average.  The people in the book recounting their woeful forties and their rapturous fifties are the exceptions, the people who had one or another of those other variables go bad on them in their forties, but then get better in their fifties.

There is also serious distortion and misreporting of the data for different countries and regions around the world.  The key figure is on p. 79, where we see purported happiness curves (adjusted, of course) for US, UK, Latin America and Caribbean, China, Germany, and Russia, all of this supposedly again from the Gallup World Poll..  Aside from identifying a low point for each, this also shows life expectancy.  A relation is claimed to be found that in the generally happier countries the low turning point is at an earlier age,  Only in Russia does the low point hit just after life expectancy in the late 60s.  Rauch quotes a wisecrack, "Don't be Russian."  Latin America, whose curve looks quite flat (as does Germany's), has a supposed low point just under 50, with a life expectancy just under 75.  So, it is admitted that the happiness curve is not quite universal, almost, but "don't be Russian."

Oh, except there have been serious competing studies that dispute some of this.  A 2014 paper in The Lancet by Andrew Steptoe and Angus Deaton, "Subjective wellbeing, health and ageing," shows strictly declining age lines not just for Russia but all of the former Soviet Union and Eastern Europe. Ah ha, we can dismiss them as just whiny old people who liked communism and got unhappy when their health care and old age pension systems collapsed!  But in fact Steptoe and Deaton (yes, Nobel Prize winner, Deaton) find a clearly declining line all the way for Latin America and the Caribbean, in contrast to what Rauch reports with no hint that his report is not universally accepted.  Maybe these nations are suffering from lack of old age health care and pension systems like Russia, but in contrast to Russia, this region tends to do better compared to what its income is than does Russia and neighbors, who tend to do worse. Also, sub-Saharan Africa simply has a flat line, no relation with age at all. I may have missed it, but Rauch simply never mentions this region of the world, which tends to have low levels of reported life satisfaction anyway.*

Having dumped pretty hard on this book let me say it makes a good read.  The anecdotes are generally interesting. Much of the philosophizing has a feel good character to it.  I do not think anybody is actually misquoted, although I know that some people he quotes about other matters disagree with his main point, and he carefully does not quote them on it.  But vague philosophizing with anecdotes does not prove much. My late ex-mother-in-law claimed she was happiest in her early thirties.  She had youthful vigor and good health (middle age officially starts at 35), but was mature enough to be taken seriously by others and to understand life and be somewhat established.  It all sounded pretty reasonable to me, and still does.

Along those lines it is curious that the first figure Rauch shows (p. 65) agrees with my late ex-mother-in-law  It is a figure from 2014 of apparently unadjusted happiness numbers by age from the UK.  This one shows not a U-curve or a gradually rising while fluctuating one, but a distinct M-curve.  Happiness rises from 20 to peak at the 30-34 age range.  It then falls to 50-54, then rises to another peak at 65-69, after which it declines.  None of this long-increasing misery in the early 30s that Rauch at times talks about, although he mostly focuses on people unhappy in their forties.  In any case, this figure fits pretty well with one in a paper I recently published based on longitudinal studies across several western European nations, "Experience life cycle satisfaction in Europe," by Robson Morgan and Kelsy J.O'Connor, Review of Behavior Economics, 2017, 4(4), 371-396.  They find the earlier peak to be more in the late 20s, and the later peak more about 70, however with lots of variation across individual nations (they do find a low point in middle age for all of them).

Anyway, maybe this book will help depressed Gen-Xers feel better.  Or maybe it will depress older people who are mysteriously unhappy.  I do not know. I know that when I turned 50 two decades ago I saw an article in a newspaper or magazine (not a scholarly one, but then Rauch claims his book is "reportorial" not "scientific") that claimed that 50 was the age of maximum happiness. I felt pretty happy at the time, so I liked it, although vaguely worried about my impending decline of happiness.  Now I can look at this book and other studies and figure out whether I am now at the peak of happiness with a downturn coming, or maybe it is up, up, and away all the way (at least to 85) as Rauch suggests.  I guess I shall find out, :-).

Addendum:  Another oddity about the personal anecdotes in this book: several of those telling them are active happiness economics researchers now in their fifties or early 60s.  When they were in their forties, such research was not getting much attention, and they were professionally frustrated.  Now it is hot stuff, as seen by the publicity about this book (and the attention they get in it personally).  Their careers have done much better after 50 than happens with most people, who are supposed to deal with the failure of their professional dreams as they see themselves reaching their highest level job and are comparing themselves with others of their age who are doing better, but, after 50 they wisely learn to accept the end of their dreams.  OTOH, this group has done much better than their dreams; they are exceptional weirdos on the upside, thus not models for the average wannabe reader.  I note this holds for Tyler Cowen as well, who "personally vouches" for how great it is to be over 50, but like these now renowned happiness researchers in the book, he has done exceptionally well with his career since 50.  His personal vouchsafing is of limited use to the more average possible reader of the book.

*Second Addendum: At one point Rauch discusses a carefully done and econometrically sophisticated longitudinal study of South Africa by Powdthavee.  This one does find a low point in middle age for the adjusted estimate.  Of course, South Africa is not a typical sub-Saharan African nation.

Barkley Rosser

Monday, May 14, 2018

Again, Top 100 Economics Blogs

Folks,

I have received a message from Prateek Agarwal at intelligenteconomist.com that Econospeak has again been selected as a top 100 economics blog.  We reportedly cover news items well and are not for people who do not know some economics.  We also are still in the financial sub-group.

Barkley Rosser

Friday, May 11, 2018

Thoughts I am Not Allowed to Think in the Totalitarian World of PC

I read with interest the article in the New York Times on the Intellectual Dark Web (IDW), a cyber-salon of commentators and intellectuals who are described as fearless opponents of the politically correct thought police.  Two of their number are ex-colleagues of mine at Evergreen, Bret Weinstein and Heather Heying; I even co-taught a course a number of years ago with Heather.

Let’s just say the article is a bit thin in the area of critical judgment and leave it at that.  I did resonate, however, with the plight of Sam Harris, one of the luminaries it profiles.  Harris apparently got into trouble for the unspeakable claim that some cultures are inferior to others, which of course violates relativist orthodoxy.  But what if he’s right?  For instance, imagine a culture that routinely sends its missiles and planes to bomb innocent people in other countries to impose its political order, sets up secret torture chambers around the world, and persists in sabotaging any attempt to respond to urgent, civilization-impairing environmental threats.  Why not just say—oh wait, wrong culture.

Everything You Would Learn about Marxism If You Were Subjected to Two of My Lectures

On this 200th anniversary of Karl Marx’s entry into the world there have been a lot of summings up.  Inspired by Brad DeLong, who posted slides from his lectures on Marx and Marxism, here are mine in the form of two Google Doc files, Historical Materialism and Marxist Economics.  They were the basis of a pair of lectures I gave last winter.  If it seems like there are way too many of them it’s because a lecture period at Evergreen can run as long as three hours.*

*Yes, I know students aren’t supposed to retain much after about 20 minutes, but I break up the lectures into chunks, classes are small, and we have lots of discussion.  That could just be my ideology speaking, of course.

Thursday, May 10, 2018

Economics: The View from 35,000 Feet

Air travel offers an opportunity to catch up on one’s reading.  In my case, this means Marion Fourcade’s “Economics: A View from Below”, which had been sitting in my pile for at least two long weeks.  For those wondering about her title, she has been toying for several years with the actual/mock inferiority felt by other disciplines, such as her own sociology, in the face of the pretensions, authority and worldly success of economics.

This essay is another dancing, enigmatic exploration of this apparently stable dominance, one that survives public embarrassment, like the backwash against its claimed expertise after 2008, and internal fissures.  She plays with Hayek, who denounced economists for their empty pretense of knowledge, and sports with contemporary eminences such as Ricardo Caballero, who have similar objections to the intellectual simulacrum that passes for economic insight.

To cut to the chase and save you from a more detailed reading if you’re not so inclined, Fourcade goes part of the way with Hayek, but recognizes that the critique of pretense is a gun that points in all directions, since there is no position of “postense” from which to aim it.  She, like many others, sees the shared worldview and methodology of economics as the source of its strength, the reason why the discipline can prosper and expand its influence even as it hosts bitter debates among its practitioners; in fact, its capacity to cohere despite apparent fracturing is exactly its greatest asset.  She also sees the discipline’s internal discord reflecting a dialectic between altering the world as a significant participant in it and interpreting it as a reflective bystander—not so different from a priesthood if one recognizes both aspects of what it means to be priestly.  Economics does not converge on consensus because of the dynamic relationship between particular understandings of economic and political life and the ensuing events created by those understandings that themselves become objects of study.

Along the way, Fourcade demonstrates a tendency to be conventional.  Foucault is invoked in a big way, for instance, even though it is now becoming apparent he profoundly misread classical and more modern political economy—a trajectory that ended up as utterly deluded cheerleading for neoliberalism.  We also read that Keynesianism is a response to economic disorder stemming from fixed prices (getting JMK’s critique of his orthodox opponents exactly backwards) and German ordoliberal macroeconomics reflects the country’s experience with hyperinflation (rather than the hyper-austerity that ushered in Hitler).  I get the impression that Fourcade’s method is to critique the conventional wisdom of particular academic specializations by juxtaposing them with the conventional wisdom of others.

On the main point, I think Fourcade gets half the story right: economics has established itself at the pinnacle of academic prestige because its subject matter and data pertain to the core institutions and practices of the modern, capitalist world.  Experts on banks are going to have a lot more sway in this society than experts on pre-schools.  That’s not a deep observation, and Fourcade is hardly the first to have voiced it, but it deserves repeating.

The half she misses is the extraordinary practical force that derives from conjoining positive and normative analysis, something economists do better than anyone else.  Like many others—maybe Fourcade and maybe you—I was misdirected for years by the standard economic protestation that positive analysis is one thing and normative something altogether different.  Analyzing how markets work is an entirely different project from arguing how they should work, or so it was said.

I now see this disclaimer hides exactly its opposite in plain sight.  Economists use modeling and empirical techniques to explain and forecast, spottily in some topic areas and impressively well in others.  The point is, positive claims can be given quite a load of legitimacy by the sophistication of these methods, creating the kind of expectations that fostered disillusionment in the wake of the 2008 financial crisis.  You economists are so clever and have so many sources of data to work with; how come you blew it this time?  The rest of us thought we had reason to expect much better.

But the remarkable thing about the normative side of economics, the welfare interpretation of markets, is that its sole role is to enable positive analysis to yield normative conclusions.  Once you accept the welfarist framework, there is no longer any wall between the two.  Economists can conduct detailed, empirically dense studies of particular markets or policies, and their results can be applied directly to determine the “optimal” actions that ought to be taken by decision-makers.

I realized this in a single epiphany.  I was debating a particular aspect of welfarism with another economist, someone I agreed with on many issues, and after I had (I thought) demolished any defense of providing a welfare interpretation for a set of results we both accepted, he replied, “But how then do we tell the agencies what to do?”  Implied is that it is our job to do this, and there will be a hole in the universe if we don’t.  At that moment it became clear that protestations that positive analysis is over here and normative over there are just window dressing: economists take their core job to be the application of the techniques of positive investigation, predictive modeling and empirical estimation of model parameters, to adjudicating questions of policy.

If I can play that game too, I’d say that welfare economics, which claims to derive judgments of what decisions to take directly from market analysis without any substantive input from other realms of knowledge—like philosophy, psychology, sociology, public health or ecology—is the intellectual basis for Fourcade’s economic “superiority”.  And it would be optimal for society if it could be lopped off from the rest of economic theory and safely disposed of.

Wednesday, May 9, 2018

Blowing Up The Iran Nuclear Deal

This is probably Donald Trump's biggest mistakes, his refusal to certify Iran's compliance with the JCPOA nuclear deal with Iran and his fullout abrogation of it by announcing the reimposition of full economic sanctions against Iran, although we had not fully undone those sanctions anyway.  An immediate victim in the US of this action will be Boeing workers who were to benefit from a $3 billion contract Boeing had with Iran, now cancelled by order of the US government.  Needless to say, Trump has simply lied repeatedly about this matter, claiming the Iranians are not in compliance, when the IAEA and all other parties to the agreement say they are.  Trump has strutted some reports stolen by Israeli intelligence, but those show almost nothing we already did not know, most particularly that Iran did have a covert nuclear weapons program prior to 2003 that it shut down.

I have posted on this topic regularly over a long period of time, going back all the way to the predecessor of this blog, MaxSpeak.  I shall not reiterate all that I have said over those years, although I think my track record has been pretty good.  I have long heavily relied on Juan Cole's Informed Comment for information on what is going on in Iran, and his track record on that has been excellent.

Two conflicting points come out, one suggesting bad things happening, one suggesting maybe not so bad.  The bad is that Trump appears by all reports to simply have no plan beyond reimposing sanctions.  Apparently he and his advisers think they can topple the regime, that economic unhappiness by Iranian citizens frustrated at failing to get much in the way of economic benefits from the JCPOA will rise up and overthrow the regime. But the more likely reaction will be for Iranians to move to support the regime against this clearly unwarranted and hostile act by the US.  Of course apparently the Israeli and Saudi governments might like to have us engage in military action against Iran, which would be truly disastrous, but that does not seem to be in the works anytime soon.  Anyway, it appears that aside from undoing yet another thing Obama did (lots of criticizing Obama and Kerry in his announcement), he really seems not to know what to do next.  What I really wonder is if he truly believes his own lies that the Iranians have not been keeping to the deal.

The more positive fact is that all of the other participants of the deal: Russia, China, UK, France, Germany, and the EU, have all openly criticized Trump for this action and are not reimposing sanctions.  Indeed, they seem to be acting so they can get around the effects through banking by the US to keep doing business with Iran, such as by using the euro instead of the dollar.  This means that while Iranian leaders made noises about exiting the deal themselves and starting up their centrifuges again, maybe they can be talked out of doing that by the other parties to it. That would simply leave the US alone with its unemployed Boeing workers paying the price for this rank stupidity of Trump's.  Let us hope for the best at this bad moment.

Barkley Rosser

Active Measures against the Spectacle

Passivity is a key term in Guy Debord's Society of the Spectacle:
12. The spectacle presents itself as something enormously positive, indisputable and inaccessible. It says nothing more than “that which appears is good, that which is good appears. The attitude which it demands in principle is passive acceptance which in fact it already obtained by its manner of appearing without reply, by its monopoly of appearance.
13. The basically tautological character of the spectacle flows from the simple fact that its means are simultaneously its ends. It is the sun which never sets over the empire of modern passivity. It covers the entire surface of the world and bathes endlessly in its own glory. 
96. The ideology of the social-democratic organization gave power to professors who educated the working class, and the form of organization which was adopted was the form most suitable for this passive apprenticeship.
144. The commodity society, now discovering that it needed to reconstruct the passivity which it had profoundly shaken in order to set up its own pure reign, finds that “Christianity with its cultus of abstract man ... is the most fitting form of religion” (Capital). 
219. One who passively accepts his alien daily fate is thus pushed toward a madness that reacts in an illusory way to this fate by resorting to magical techniques. The acceptance and consumption of commodities are at the heart of this pseudo-response to a communication without response.
What, then, constitutes activity? Debord's reply to this crucial question is inadequate -- rhetorical slogans about an amorphous "revolution." I would suggest instead two things, the autonomous disposal of disposable time and the labor strike (work stoppage or job action).

As should be clear, capital seeks to colonize disposable time with commodity consumption and "The Spectacle." How, then, does one distinguish between active use of disposable time and passive commodity consumption during one's free time? The distinction can be based on the criterion of whether what one does in one's free time will contribute to one's ability to withstand an interruption of income.  Disposable time should be used to prepare for the struggle to obtain more disposable time!

Because, "there is, thank God! no means of adding to the wealth of a nation but by adding to the facilities of living: so that wealth is liberty-- liberty to seek recreation--liberty to enjoy life--liberty to improve the mind: it is disposable time, and nothing more."

Saturday, May 5, 2018

200 Years, 200 Dollars!

In celebration of Karl Marx's 200th birthday, Sandwichman is offering a $200 (Canadian) prize to the first person who answers the following two-part question: 

In what passage of The Wealth of Nations did Adam Smith commit the lump-of-labor fallacy (i.e., assume a fixed amount of work to be done) and in what passage of Capital did Karl Marx disparage the assumption as dogma and prejudice?

Post your answers in comments.

Friday, May 4, 2018

Job Guarantees, Collective Bargaining and the Right to Strike

“Guaranteed jobs programs, creating floors for wages and benefits, and expanding the right to collectively bargain are exactly the type of roles that government must take to shift power back to workers and our communities,” -- Senator Kirsten Gillibrand

"By strengthening their bargaining power and eliminating the threat of unemployment once and for all, a federal job guarantee would bring power back to the workers where it belongs." -- Mark Paul, William Darity, Jr., and Darrick Hamilton,

"Support for workers’ right to organize and collectively bargaining would, of course, be part of any such effort." -- Harry J. Holzer
 "This, then, was the broad issue to which Samuelson and Solow's paper was addressed: Were price stability and full employment – or, as it was sometimes put, were price stability, full employment and collective bargaining – compatible in the America of their times?" -- James Forder
Under conditions of full employment, can a rising spiral of wages and prices be prevented if collective bargaining, with the right to strike, remains absolutely free?  Can the right to strike be limited generally in a free society in peace-time? -- William Beveridge, Full Employment in a Free Society
Everyone is talking about Job Guarantees these days and no one appears to have thought through the implications of such a policy for collective bargaining with anything like the thoroughness that William Beveridge did in 1946. In 1960, Paul Samuelson and Robert Solow concluded their discussion of full employment and inflation with a disclaimer:
We have not here entered upon the important question of what feasible institutional reforms might be introduced to lessen the degree of disharmony between full employment and price stability. These could of course, involve such wide-ranging issues as direct price and wage controls, anti-union and antitrust legislation, and a host of other measures hopefully designed to move the American Phillips' curves downward and to the left.
We are told by the adherents of Modern Monetary Theory that inflation is not a problem. The government just sops up inflation by taxing back some of the money it has created to fund the program expenditures. Correct me if I'm wrong, but that seems like what they say. At the same time, though, at the same time, advocates of a Federal Job Guarantee tout the increased bargaining power that it would give to workers.

Usually that bargaining power is not specified as collective bargaining power. Harry Holzer's comment is the exception. Senator Gillibrand's mention of Job Guarantee and expanding the right to bargain collectively may have just been a smorgasbord of good things and not meant to imply advocacy of collective bargaining specifically for people in the Job Guarantee program. To use a distinction Richard Freeman and James Medoff adopted from Albert O. Hirschman, the "bargaining power" mentioned by Paul, Darity and Hamilton could as easily refer to the "exit" of individual choice as to the "voice" of collective action.

Well, who doesn't want to see workers gain more bargaining power? That is not a rhetorical question. To ask it is to call attention to the very powerful political forces that have seen to it, especially over the last 40 years or so, that they don't. Could it be that the advocates of the Job Guarantee have not done their opposition research? Do they suppose that the regime of supply-side, trickle-down, corporate neo-liberalism was inadvertent? 

I am not so certain that the Kochs and the Waltons and Jeff Bezos and Jamie Dimon are going to shrug their shoulders and say, "O.K., workers, your turn now. Best of luck!" Regardless of whatever MMT says about inflation, the "inflation!" card will be played against any proposed job guarantee election platform, as will the "socialism!" card, the "moochers!" card, the "boondoggle!" card, and, yes, even the "lump-of-labor!" card.

In individual terms, bargaining power comes down to the alternative options if one quits a job -- what is the Best Alternative if There is No Agreement (BATNA). Collectively, bargaining power is determined by strike leverage, which is a mutual perception of the relative capabilities of the two parties to endure a prolonged work stoppage. A Job Guarantee would appear to give additional leverage to unions in the event of a work site closure or the hiring of replacement workers. The amount of leverage depends on what the rules are regarding the eligibility of striking workers for a Job Guarantee. Presumably, workers currently on strike would be ineligible. But what happens if the employer hires scabs (otherwise known as "replacement workers")? What if the company closes down and moves away? Would there be a waiting period before discharged workers become eligible for the Job Guarantee?

And what about the rights of the Job Guarantee workers themselves to collectively bargain and to strike? Until relatively recently public employees were denied the right to collective bargaining and the right to strike. Even today those rights are not universally acknowledged:
All Government employees should realize that the process of collective bargaining, as usually understood, cannot be transplanted into the public service... A strike of public employees manifests nothing less than an intent on their part to obstruct the operations of government until their demands are satisfied. Such action looking toward the paralysis of government by those who have sworn to support it is unthinkable and intolerable.
Who said that? Governor Scott Walker in 2011? Chris Christie? No, Franklin Delano Roosevelt, in a 1937 letter to the president of the National Federation of Federal Employees. Scott Walker cited FDR in a 2013 speech. Could a Job Guarantee program that denied participants the right to strike become a Trojan horse for rolling back public sector unionism? That is not a rhetorical question.

The conspicuous lacunae in the Job Guarantee literature regarding collective bargaining and the right to strike strikes me as an elephant in the room. The fact that no one talks about it could not conceivably be because no one notices it. For what is at stake here is nothing less than the sovereignty of the State and its monopoly on the legitimate use of violence. In an astonishing paragraph in his essay on the "Crtique of Violence," Walter Benjamin makes this not so much "clear" as available for deciphering.

Benjamin's provocative claim, distilled from the writings of Georges Sorel and Carl Schmitt, is that "Organized labor is, apart from the state, probably today the only legal subject entitled to exercise violence." Let that sink in...

Benjamin goes on to offer qualifications and explanations that address the inevitable objections to that statement. By conceding the political right's standard objection to the labor strike as violent, however, Benjamin -- again following Sorel -- has isolated and emphasized the one circumstance in which it is not -- the revolutionary general strike. This is not to discount the inevitability of retaliatory violence from the State.

The insertion of Benjamin's argument into the debate on the Job Guarantee idea may seem esoteric to the casual reader. The reason it doesn't seem esoteric to me is that I have spent the last 20 years studying the history of anti-labor rhetoric of the right and how it gets translated ultimately into seemingly innocuous "policy principles." Public works as an employment stabilizer sounds like a good idea -- what happened to it? Full employment after the war sounds like a good idea -- what happened to it? The reduction of the hours of work sounds like a good idea -- what happened to it? As John Stuart Mill rightly pointed out, "He who knows only his own side of the case, knows little of that."

Thursday, May 3, 2018

On Negotiations In Korea

Let me say that if Donald Trump is able to finalize a serious agreement in Korea that brings an official end to the war there as well as establishing some kind of peaceful settlement in general that leads to some sort of mutually acceptable arrangement between the two Koreas that maintains a peaceful situation for some reasonably lengthy time into the future, pretty much irrespective of the exact details, I shall applaud.  I shall not even hold my nose if somehow he gets the Nobel Peace Prize for it, as advocated by ROK president Moon Jae-in, although it is the latter who is the far more deserving recipient.  But maybe such an award would have several recipients for it, if it happens.  A few observations in any case.

I suspect that the importance of Trump's loud sabre-rattling has been exaggerated, certainly in the US media, but I shall not say it has played no part.  But certainly important has been the substantial heightening of economic sanctions that came in over the past year as DPRK president Kim Jong-un carried out a series of major nuclear weapons and missile tests, culminating with a claim of testing an H-bomb and obtaining a sufficient nuclear weapons stache for deterrent purposes.  Most important in this was China finally enforcing much stricter economic sanctions on the DPRK, either out of trying to please Trump, or out of increasing annoyance with Kim, or more likely a combination of both.  As it is, Kim visited Beijing (by train) just before announcing his willingness to visit the ROK, and in fact China has been easing the economic sanctions since then.  Without doubt this played a huge role, if not all that widely acknowledged, and even as all along pretty much everybody said that DPRK would not act until China put the economic squeeze on, and it finally did.

The other major player, probably the most important one, has been ROK president Moon Jae-in, who has managed cleverly to keep not only Trump but most US commentators and media from realizing that he has successfully manipulated Trump into supporting his diplomatic opening.  It must be remembered that last year when Moon first came to office (and he would have come to office if Hillary was prez), he proposed and advocated a diplomatic opening. This was largely sneered at by Trump and those around him, with Abe of Japan and Xi of China receiving praise from Trump, who rather grudgingly acknowledged Moon as an "ally."  It was Moon who pulled off getting Kim to attend the Winter Olympics in ROK, even though he allowed Trump to take credit for it.  He has been repeatedly giving credit to Trump for everything since, even though most of it has been his own doing.  But he has managed to get Trump on board, and indeed he needs Trump to finalize parts of this, including especially formally ending the Korean War from two thirds of a century ago.

I hope it all turns out well (and I remind any who do not remember, that I have posted here previously on how the hawkish policy by W. Bush after he came into office in 2001 pushed the DPRK to leave the NNPT and acquire the nuclear weapons it has, something not irrelevant to Trump's current approach to the Iranian nuclear deal).

Barkley Rosser


Stock of Debt Held by US Public Has Tripled Over the Last Decade & Other Misleading Information

My title was the heading of Figure 19 in something from Deutsche Bank that has John Cochrane all stressed out over a pending debt crisis again.
This graph is gorgeous. US deficits have, historically, been driven overwhelmingly by the state of the business cycle, and have very little to do with tax policies and spending decisions that dominate press coverage. In booms, income rises, so tax rate times income rises. In busts, the opposite, plus "automatic stabilizer" spending kicks in. Until now. There is a good reason past deficits did not really spook markets. They understood the deficit was a temporary phenomenon, due to temporary poor demand-side economic performance. We do not have that excuse now.
I’m wondering if Cochrane’s goal of late is to make his readers more stupid. First of all – looking at the nominal debt today compared to a decade ago is highly misleading. James Tobin once noted that the tripling of the Federal debt during the 1980’s was misleading as the real debt only doubled. He usually said that with his usual smile. OK – inflation today is a bit lower than it was during the 1980’s but the debt/GDP ratio only doubled over the last decade. Now we should admit that the fiscal stimulus since Trump took office is an alarming trend but it is very much like Reagan’s fiscal stimulus in 1981 in that both cut taxes for the rich and increased defense spending. Oh wait – Cochrane was all supportive of these fiscal moves last year but now he is sounding the alarm bells as Team Republican really does want to cut “entitlements”. To be fair - Cochrane did say:
I do think that roughly speaking we could pay for American social programs with European taxes. That is, 40% payroll taxes rather than our less than 20%; 50% income taxes, starting at very low levels; 20% VAT; various additional taxes like 100% vehicle taxes and gas that costs 3 times ours.
He said a whole lot more that one can take a look at. My only response is that he is echoing another Team Republican line – tax everyone except the rich. But let me directly challenge this nonsense that our deficits have been “overwhelmingly by the state of the business cycle, and have very little to do with tax policies and spending decisions”. Yes – the recent run-up in the debt was due to the Great Recession and not some alleged Obama fiscal stimulus. We had only a temporary stimulus designed to counter the Great Recession. The run-up in the debt/GDP ratio under Reagan and Bush43 were due to tax and spending policies. Fortunately these supposed permanent tax cuts were not so permanent after all.

Tuesday, May 1, 2018

Duncan Foley On Socialist Alternatives to Capitalism

Yes, it is May Day, time to think about workers and socialism, while Vladimir Putin gets himself inaugurated for another term as President of Russia, with military vehicles parading In Red Square like they used to for the glory of the workers, but today for the glory of President Putin.

So, a couple of weeks ago there was a conference at the New School honoring Duncan Foley, who seems to be gradually retiring, half time to quarter time, I am not sure.  It is my understanding that this conference had a lot of emphasis on Duncan's work on Marxist economic theory, with it organized by Roberto Veneziani and Mark Setterfield.  I did not attend, but heard rumors about it.  As it is, this is the second conference there honoring Duncan.  I attended and presented in the first, which resulted in a festschrift volume in 2013, Social Fairness and Economics: Economic essays in the spirit of Duncan Foley, Routledge, an excellent volume.

The first thing that should be noted is that while Duncan is indubitably one of the leading living theorists of Marxist economics, he does not consider himself to be a "Marxist," but rather a student of Marx, if a deeply sympathetic one.  This is a sensitive matter as he was turned down for tenure at Stanford largely because he was accused of being a "Marxist economist" when he started publishing papers and books on Marxist economics.  He has always sais that his true ideology is his religion, Quakerism, the Friends, with him agreeing with their pacifism, which is not an idea inherent in Marxism, indeed, with many Marxists supporting violent revolution.  Nevertheless, there is probably no living economist who is clearly more important as a deep analyst of Mars's economics, with some of his closest rivals in attendance at this latest conference, such as Anwar Shaikh.

How he got into Marxist economics followed on from his earlier work on general equilibrium theory, which was what got him hired at Stanford in the first place (and he still writes on GET). Indeed, he had been hired at MIT from Yale to teach general equilibrium theory to grad students a la Arrow-Debreu-McKenzie, as this was not Paul Samuelson's cup of tea.  The motive for moving to Marx was the problem posed by fitting money into general equilibrium theory, which is generally done in a purely barter form.  This is also a cover for the problem of how to link micro to macro.  He was especially intrigued by Marx's writings on money in the Grundrisse and in Vol. III of Capital, which became the basis for his later interpretations and studies of this.

Again, I do not know what was presented or what he said at this most recent conference, but he has a working paper at New School from Feb. 2017 on "Socialist Alternatives to Capitalism I: From Marx to Hayek," which arguably shows his most recent thinking, not all that far from some of his earlier views, but more influenced by some of his more recent work on history of thought such as Adam's Fallacy, dealing with Adam Smith as well as Ricardo and Malthus.

Indeed, Duncan starts this paper with a discussion of post-Ricardian socialists such as Bray and Thompson, who proposed replacing money with labor-certificates, thus drawing on Ricardo's use of the labor theory of value. While he also briefly discusses the utopian socialists and Marx's reaction to them, he spends much more time on Marx's critique of this labor-certificate idea in the Grundrisse.  At its bottom, Marx in effect says that labor power's value is only instantiated in capitalist commodity exchange. So these labor-certificates will not really move a society towards socialism.  He also notes that in both Grundrisse, but even more so in the first two chapters of Capital Vol. III, Marx takes a long period position, noting that prices and wages may deviate from labor values even over entire rounds of the business cycle; that is only in the long run that prices oscillate about their natural "prices of production" given by labor values.

He then looks at Marx's own prescriptions for socialism in the 1875 Critique of the Gotha Program.  There are two stages, the first essentially being a mixed economy where workers still work in commodity production with markets, but with the surplus being taken by the state or some other entity led by the workers that would use it for public investment, social welfare, or redistribution.  The higher stage is that pure communism where the state withers away, and distribution is based on "from each according to his ability, to each according to his need," which Duncan notes is not backed up by any detailed institutional or other analysis, essentially a nice slogan.

He talks about the history of the early Soviet Union, noting that the NEP of the early 1920s looked like Marx's own first stage, but that it led to both the emergence of a neo-bourgeoisie as well as a "plodding behind the peasant."  This would be replaced by Stalin's command central planning, which achieved rapid industrial growth in the short run, but stagnated in the longer run.

He runs through Pareto and Barone and then the socialist calculation debate with Lange and Lerner and von Mises and Hayek.  He accurately sees the first two as laying the groundwork for an apolitical general equilibrium theory that could implemented either by a capitalist market or a central planner.  He notes that Lange's market socialist response is essentially an updated version of Barone, but trying to take the von Mises critique about appropriate incentives into account.  He says this is what became the policy of Deng Xiaoping in China, essentially a rerun of the 1920s Soviet NEP.

He ends with Hayek, noting his emphasis on information.  He says that Hayek essentially returns to classical political economy and engages in an "existential" redefinition of commodity production.  I am not sure I agree with this, but that is what he argues.  He makes a final critique of Hayek by noting his ignoring of the distributional question, certainly a valid complaint, and one to keep in mind on this May Day, even if Duncan Foley ultimately leaves us hanging on what are the most promising of socialist alternatives to capitalism today.

Addendum, 5/2/18:  So now I have read the follow piece by Duncan Foley, "Socialist Alternatives to Capitalism II: From Vienna to Santa Fe."  Should have read it before posting above. So it directly follows from the first one (and was written at the same time apparently), taking Hayek's redefineition of commodities as information seriously.  This is followed by a disquisition on top-down versus bottom-up socialist approaches.  He sees the Soviet failure as reflecting it top-down and de facto exploitive nature.  He says much nicer things about the worker management system of the former Yugoslavia, although without any analysis of how or why it failed. He bemoans the failure to fully follow through on Lenotief input-output matrices in the US, although the Dept of Commerce does have one that is periodically updated. He then makes a "speculative" effort at proposing a bottom-up form of quasi-socialism for the US, which he calls "Lifenet."  It somewhat resembles cooperatives, but operates through information-sharing systems.  He proposes how this could lead to dynamic adjustements over time in markets, but without accumulating concentrations of wealth and inequality.  I guess this is the Santa Fe of the title.  I can see potential problems with it, and he admits it is not fully worked out and is "speculative," but at least it is something.

Barkley Rosser

LOMPIGHEID: "Omgekeerd omgekeerd."

Last week I was browsing through one of the books on the shelf at work, which had in it three essays by the inter-war German Marxist Karl Korsch. One of the essays, a 1932 introduction to Capital mentioned mentioned a section in Chapter 24, "The So-Called Labour Fund" as exemplary of Marx's critique of political economy. The "labour fund" was more commonly known as the wages-fund, the doctrine famously recanted by John Stuart Mill in 1869.

After it had been repudiated in various degrees by the economists who formerly propounded it, the defunct doctrine became a straw man "fallacy" attributed to precisely the trade unionists who had been the targets of the doctrine's disdain. Marshall dubbed the re-purposed doctrine the fallacy of the fixed work-fund. David F. Schloss christened it the Theory of the Lump of Labour.

As is my habit, I searched on "labour fund" and "lump of labor/labour" to see if anyone had previously made the connection between Marx's critique in Capital and the ubiquitous attributions of the fallacy by economists to non-economists. What I discovered was a six-page discussion of my own historical investigation by a Belgian economist, Walter Van Trier, published in 2013 in the Belgian journal Over-Werk.

The title of the journal is somewhat of a pun as "over" means both "about" and "above" in Dutch, so it could mean both about work and overwork in English. The word lompigheid also contains a bit of a pun -- as one might guess lomp is lump and lompigheit (with a 't') refers to lumpiness, while lompigheid (with a 'd') means rudeness or clumsiness.

I am posting below a translation of the section from Van Trier's article that deals specifically with my analysis of the lump of labor fallacy. The full article, in Dutch, can be found here. Happy May Day!