Friday, January 4, 2008

Mark Thoma Slams Edward Lazear “Growth Policies”

Lazear takes note of the dismal job performance news with:

"We have pushed economic growth policies throughout this administration and we're not going to stop doing that now," Lazear said in a Bloomberg Television interview in Washington. "If there are necessary steps that need to be taken, the president will be considering those over the next few weeks."


Now what good Keynesian could object?



Well I might have one objection but let me outsource this one to Mark Thoma:

Unfortunately, it's stabilization policy, not growth policy, that's needed to combat a recession, and Lazear ought to know the difference. The two are not necessarily the same. The administration has pulled this trick before - using stabilization arguments to justify permanent reductions in tax rates


OK, Mark was outsourcing his reporting of the BLS bad news to my Angrybear post, but his update is so well put that it should be front and center on the eventual debate over stabilization policy this year.

19 comments:

  1. pgl "..I would advocate a more expansionary set of aggregate demand policies be they monetary, fiscal, or a combination."

    Is 'insufficient aggregate demand' the problem with the modern industrial economy? I don't believe so.

    People don't by services and goods for a number of reasons.
    - they're too expensive relative to income;
    - they're in short supply.
    - they fear for the future so would rather hang onto their cash/gold. (This includes fears in regard to the implications for the natural environment as a result of sustained or increased consumption.)
    - they're of general low quality and not worth purchasing;
    - the goods and services are not worth the extra hours of work.
    - the consumer is satiated.

    (any others?)

    Solution:
    Produce goods and services of high quality that are needed, affordable and whose production does not involve damage to the natural environment.

    'Affordability' requires a redistribution of real income and the use of readily available natural resources for production that are in good supply.

    'High quality goods and services' requires financial and other penalities for inbuilt obsolescence and other flaws.

    'Ecological sustainability' requires a redesign of the production mode of goods and services along with new methods of 'disposal'. It also requires a 'slowing down' of industrial activity to give time for forests, air, soil, water, humans and other animals to regenerate. Limitations on advertising.

    'fear alleviation' requires guaranteed social support for individuals and families. Universal provision of basic housing, health services, education, land. Genuine access to legal services and legal protections from corporate and other predators.

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  2. Sorry, I meant to phrase the problem a little better than I did above.

    I should have said that 'insufficient aggregate demand' is merely the facade of much deeper social and ecological problems. That demand can't necessarily be stimulated merely by increasing government spending or making more dollars available to individuals.

    The real causes of a lack of consumer demand need to be exposed first.

    Least of all, it should be recognised that there exists affluent households that are better positioned (in society and on the planet) by limiting or even reducing their present consumption. So, the concept of 'aggregate demand' is not helpful if 25% of consumption is performed by 1% of households who are actually involved in the overconsumption of limited global resources.

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  3. Brenda; http://home.earthlink.net/~lrgoldner/program.html - A L.Goldner thought experiment: Fictitious Capital and the Transition Out of Capitalism

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  4. Brenda

    without reading Juan's citation, i think you have the right idea... but no more hope of stopping the growth train than i have of stopping a real train.

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  5. Brenda - if we are to stimulate consumption, I to would prefer it to be in the form of lower net taxes (which would be in the form of higher transfer payments) to the poor rather than the rich. I'll bet the ranch, however, that this White House proposes something loaded up with more goodies for the rich. After all - this is the Dooh Nibor economics regime.

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  6. Juan, thanks for the link. As it turns out I was struggling to find the term for such a concept as 'pent-up financial accumulations let loose on limited stocks' [immediate post World War I, as described by Charles Kindleberger).

    [“In 1919 and 1920 a short, sharp world-wide boom took place, reflecting mainly a scramble for goods to replace the inventories drawn down during the five years of war. It was especially marked in Britain and the United States [2 ] Pent up financial accumulations were let loose on limited stocks, and prices soared. France, Germany and the rest of the European Continent stood largely aside, lacking the financial resources to participate in the bidding. After a sharp rise in prices, however, there was a sharp fall as production started up and supplies emerged on the market. The swift rise and fall traced a hairpin shape in the price indexes. In all cases, however, the fall, when it came in the [Northern] summer of 1920, and especially the [Northern] spring of 1921, left prices well above 1914…”

    [Forgive me Coberly and pgl as I am about to repeat myself ;-) ]

    Coberly, 'growth trains' are okay. Just rational well-chosen ones.

    PGL, I've always liked the idea of a government for the people by the people. And one that actually does govern. A drop in net taxes would surely make the latter activity much harder??

    More transfer payments to the disadvantaged may mean most of the extra dollars are spent on paying off subprime or arm-reset mortgages and/or paying the inflationary levy built into higher petrol and other (related) price hikes in our time of peak oil. Like, for example, more expensive food and heating bills.

    In any case at this critical time of global environmental collapse why is extra consumption automatically thought of as a desirable outcome? [I go for a change in expenditure patterns, a carefully-designed decline in the consumption of resources, an acceleration in the provision of 'needs'.]

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  7. Brenda

    i hope you noticed that i am agreeing with you. the next pgl post above, however, continues to argue that a "stimulus to growth" is needed to fight the looming recession.

    maybe. and recessions are hardest on the poor.

    but blind growth will only make bigger problems worse.

    as i think you point out, give the poor more money, and their rent goes up. not to mention the landfills. and CO-2 emissions.

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  8. Brenda, I'm not sure what the Kindleberger quote has to do with Goldner's paper. The former, I think, fails to take account of the fairly chaotic sets of price controls (many of which were rising floors) implemented during the post-1914 period.

    A 1920 publication, Preliminary Economic Studies of the War, noted for example that:

    "In the War Department contracts, under the council's guidance, trade organization committees and subcommittees passed upon the prices of the very commodities which they controlled commercially and which at the same time they recommended as fair and just to the contracting officers of the government." (Crowell, J Franklin; Carnegie Endowment.., Oxford U Press, 1920)
    (emphasis added)

    Or:

    "...the War Industries Board and the leading copper interests agreed today upon a course which it felt would make for maximum production, prevent labor disturbances in the mines and place the full resources of the government behind any steps needed for the rehabilitation...

    The subject was discussed at length today by Bernard M. Baruch, Chairman of the War Industries Board...; Daniel Guggenheim, of the American Smelting and Refining Company; C. E. Kelley, of the Anaconda Company; Daniel C. Jackling, of the Utah Copper Company, and R. L. Agassiz, of the Calumet and Hecla Company.

    Principles agreed upon:
    1. The present rate of production is to be maintained...
    2. The present level of prices of the metal and existing wage scale of labor are to be preserved.
    3. The War Industries Board, or such other Government agent as may be designated, is to continue regulation of prices and allocation of the material.
    ...
    It is understood that the present War Industries Board contemplates a similar course in regard to the other raw material industries.
    "
    ...
    (New York Times, November 16, 1918)

    Merely polite expressions for sanctioned war profiteering and overly rapid industrial accumulation that created the basis for the sharp 1920-21 recession with its record one year percentage drop in wholsesale prices. The capital system cannot avoid itself, cannot avoid crises of overproduction of means of production.

    Anyway, the point of my above link was his explanation of the post-1973 period and this list:

    "1) implementation of a program of technology export to equalize upward the Third World.
    2) creation of a minimum threshold of world income.
    3) dismantling of the oil- auto- steel complex, shifting to mass transport and trains.
    4) abolish the bloated sector of the military; police; state bureaucracy; corporate bureaucracy; prisons; FIRE; (finance- insurance- real estate); security guards; intelligence services.
    5) taking the labor power freed by this to begin retraining and reeducation
    around real needs.
    6) crash programs around energy: nuclear fusion power, solar, wind, etc.
    7) application of the “more is less” principle to as much as possible. (examples: satellite phones supersede land-line technology in the Third World, cheap CDs supersede expensive stereo systems, etc. )
    8) a concerted world agrarian program aimed at using food resources of the US,
    Canada, Europe and developing Third World agriculture.
    9) integration of industrial and agricultural production, and the of
    breakup of megalopolitan concentration of population. This implies the abolition of suburbia and exurbia, and radical transformation of cities. The implications of this for energy consumption are profound.
    10) automation of all drudgery that can be automated.
    11) generalization of access to computers and education for full working-class
    participation in global and regional planning.
    12) free health and dental care.
    13) integration of education with production.
    14) the shift of R+D currently connected with the unproductive sector into productive use
    15) the great increase in productivity of labor makes as many basic goods
    free as possible, thereby freeing all workers (e.g. cashiers, etc.) involved in collecting money and accounting for it.
    16) global shortening of work week.
    17) centralization of everything that must be centralized (e.g use of world resources)
    and decentralization that everything that can be decentralized (e.g control of labor process within the general framework)
    18) measures to deal with the atmosphere, most importantly the phasing out of fossil fuel use."

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  9. Juan said: "I'm not sure what the Kindleberger quote has to do with Goldner's paper."

    Juan, I meant to (but didn't) explain that what Kindleberger is describing fits Goldner's definition of 'ficitious capital' because the prices remained well above pre-World-War-I levels. That is, the employment of these 'pent-up financial accumulations' - presumably from forms of war profiteering - didn't result in a level of productivity sufficient to keep the general level of prices uninflated.

    Kindleberger: "Fictitious capital is paper claims on wealth (in the form of profit, interest and ground rent) in excess of the total available surplus value, plus available loot from primitive accumulation.

    Juan said: "[Kindleberger's quote], I think, fails to take account of the fairly chaotic sets of price controls."

    Well, I'm re-reading Kindleberger's 'The World in Depression 1929-1939' again. I haven't yet arrived at the passages on price controls. On page 33 he does talk about the 'sliding-scale wage agreements' that were adopted during wartime as a result of the rise of prices in that period. He says they fell into disfavour when they resulted in wages dropping to pre-war levels in some industries whilst the general price level remained well above what they were before the war. He then writes:

    "For the first time on any substantial scale, the economic system developed an asymmetry: with expansion from full employment, one encountered price and wage increases in the manufacturing sector; with contraction, stubborn resistance of prices and wages and unemployment.."

    However, Kindleberger's conclusion of the 'stubborn resistance of wages' is contradicted by research done by Steve_Broadberry, (University College Cardiff):

    "...Broadberry developed a two-equation model of wage and price determination to test wage adjustment to nominal shocks, such as the return to the gold standard in 1925, and real shocks such as the American great depression. Nominal wages decreased substantially between 1921 and 1923. This was difficult to model adequately, and seemed to be more closely related to the fall in trade union density than to the operation of sliding-scale wage agreements. Taking the period 1924-38, he found that there was some nominal wage rigidity in the short run. In the long run the real wage was flexible with respect to real shocks, being determined jointly by the terms of trade and labour productivity. When these conclusions are set in the longer-run perspective of changes since 1870, they point to an historically high degree of wage flexibility in the interwar period. The high level of interwar unemployment could not be simply explained by labour market rigidities..

    LABOUR MARKETS-THE INTERWAR EXPERIENCE
    http://www.cepr.org/PUBS/Bulletin/meets/402.htm

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  10. Juan: "Anyway, the point of my above link was his explanation of the post-1973 period and this list"

    Thanks again for Loren Goldner's article. I sat up till 2:30am last night reading it and found it very enlightening and helpful.

    Re: The subject was discussed at length today by Bernard M. Baruch, Chairman of the War Industries Board...; Daniel Guggenheim, of the American Smelting and Refining Company; C. E. Kelley, of the Anaconda Company; Daniel C. Jackling, of the Utah Copper Company, and R. L. Agassiz, of the Calumet and Hecla Company...

    This paragraph points out another requirement for better a better economy (and its governance thereof). The separation of business from the process of governance. In fact the various institutions of power - government, business, religion, education, the media - need to have a certain minimum independence that we are a long way from at present.

    Coberly said: "Brenda i hope you noticed that i am agreeing with you..."

    Sorry about that. I tend to be extra pedantic in the early hours of the morning. ;-)

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  11. Brenda,

    Thanks and without going back to the macro history data again, I'd think that with the generalizing of electric motors in the production process and greater production of machines by machines, productivity gains would have been sufficient.

    Rather than 'too low' productivity, I tend to think too much industrial capital had been created and that the consequences of this were becoming evident by at least early 1919 when the U.S. Council of National Defense warned of growing unemployment and initiated a 'buy it now' campaign in hopes of stabilizing the situation. From the same Feb 1919 NYT article, it sounds that deflationary expectations were already present and building but more consequentially for the Council, "Bolshevism, the I.W.W., and similar agitators are likely to thrive..."

    Believe it was later in 1919 that the Fed began raising the discount rate.

    Add the first attempt at war time planning with its jumble of subsidies to capital, wage and labor restrictions then include the partial loss of overseas markets, a number of which had themselves taken part in war induced boom, and "pent up financial accumulations" seems, I'd say, insufficient.

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  12. Juan
    According to Kindleberger's book between 1913-1929 industrial production rose 75% in the US, 10% in Germany, 9% in Britain, 52% in Belgium and 39.5% in France (page 62).

    In the interwar period I think you may be right, with respect to the US, at least. Too much industrial capital with real wages kept low, with consequent limitations on the domestic market, and loss of markets overseas. Financial capital finds its way into speculation on the stockmarket instead.

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  13. OK, now I see why we seem to be (partially) talking by one another. You're initial Kindleberger quote refered to the 1914-1922 period which led me to focus more tightly on that but I gather you had the longer, probably should be 1909-1929, period in mind and especially the speculative phase during the 1920s.

    So, looking at a Dow Jones Industrial Average chart for the 1909-29 period and trying to remember the economic history of the period, it's evident that the first leg of stock market speculative activities began later 1924 and transitioned into mania early-mid 1928. Now, I'd say that at least until the 1926 correction, stock prices and profit of real enterprise should have been in line but not thereafter and especially not after 1927.

    This is a _very temporary_ chart:
    http://www.economagic.com/gif/g4024002130199135863646677257776.gif

    Instead of 'pent up financial accumulations', may be better to think in terms of owners of overaccumulating real industrial capital attempting to offset a weakening rate of industrial profit by engaging in more speculative activities and, with this, also increasing differential between real and financial profit rates, transforming into finance driving finance and initiation of mania, ending as price of fictitious capital reached such divergence from the underlying that it had to collapse, or, price falls to value.

    Which is not too different than what incompletely took place 1999-2002 in the U.S. but had begun somewhat earlier in other parts of this uneven and combined world.

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  14. Juan said: "..Instead of 'pent up financial accumulations', may be better to think in terms of owners of overaccumulating real industrial capital attempting to offset a weakening rate of industrial profit by engaging in more speculative activities and, with this, also increasing differential between real and financial profit rates, transforming into finance driving finance and initiation of mania, ending as price of fictitious capital reached such divergence from the underlying that it had to collapse, or, price falls to value...

    Well, I just don't know Juan. I've been 'thinking out loud' here, as I go. I have yet to research the reasons for the existence of the 'pent-up financial accumulations'. They could result from (and probably did result from) Government war debts and resulting payments to entrepreneurs involved in the production of war goods. In which case, these 'financial accumulations' could be regarded as 'fictional capital' in that there exists a failure to create profitable assets out of which to create real wealth. (Put another way, these debts were created to pay for the young healthy soldiers, the armaments, the uniforms etc. All being destroyed rather than used for further reinvestment/deployment.)

    That would explain the boom of 1919-1920 and the depression of 1920-1923 (without full recovery).

    The war debts and reparation liabilities didn't go away and the Dawes Plan added interest to this 'fictional capital'.

    Then there's the strong deflationary effect in world agricultural and raw material prices. Consumers delaying purchases waiting for prices to deflate further...

    I'm still putting this together.

    I see the agricultural revolution in the 1920s as having a similar effect as that of multinational corporations outsourcing their production to cheap labour in China and India. Creating the same strong deflationary effect on world prices. In the latter case outsourcing was/is simultaneously destroying markets for the products. Structural deflation.

    I see the war debts of the 1920s as having an inflationary effect on prices just as peak oil and depletion of other resources has a similar effect today. Structural inflation.

    Stagflation leading to depression.

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  15. Trying to be less hypothetical,

    Deficit spending, which was far from the norm, did rise sharply in 1916.
    Chart at:
    http://eh.net/graphics/encyclopedia/noll.publicdebt_html_6c7c229b.gif

    Other side, Public debt:
    http://eh.net/graphics/encyclopedia/noll.publicdebt_html_89665ce.gif

    But, if 'boom' is meant to indicate real economy boom, that had begun before 1916:

    1908 76.1000
    1909 93.6000
    1910 96.0000
    1911 92.4000
    1912 106.900
    1913 111.100
    1914 102.100
    1915 114.100
    1916 136.000
    1917 137.100
    1918 134.800
    1919 131.700
    1920 139.700
    1921 108.100
    1922 143.100
    1923 169.800
    [INDEX OF MANUFACTURING PRODUCTION 1863-1930
    http://www.nber.org/databases/macrohistory/contents/chapter01.htm - where you can find a wide assortment of historical production series and begin to see the outlines of the second industrial revolution, roughly 1870-1914, leading into the creation of an entirely new industrial sector, consumer durables, and associated increase in total production capital which, through use of electric motors, machine production of machines, changed form of organization, mass production, etc, was also qualitatively different.

    On the agricultural front, the Homestead Act; creation of the Dept of Agriculture; expanding rail network; from the steel plow to reapers, improvement in farm implements; more than a doubling of cleared acres between 1850 and 1900, >greater extension and productivity, or an ag revolution (and overproduction problems*) which preceded, facilitated, then overlapped quickening industrial development and, 'finally', industrial overaccumulation and Great Depression.

    Anyway, for Income and Employment time series:
    http://www.nber.org/databases/macrohistory/contents/chapter08.html


    If 'pent-up financial accumulation' can be seen in the DJIA, that of 1919 (rise from 81to114) was, absolutely and in percentage terms, less than that of 1915 (from57to97)
    http://www.economagic.com/sp.htm

    Nor was I able to find it in the dividend data.


    *Populism Born in Agrarian Revolt (Krebs)
    http://www.populist.com/02.8.agrarian_populism.html


    1920s financialization and market bubble grew out of industrial overaccumulation, did not cause it. Stagnation, deflationary trends, crisis in agriculture preceded this. Capial's limits are within itself, not exogenous.

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  16. penultimate sentence should be:

    Agricultural crisis and deflationary trends preceded industrial crisis.

    to which i might have added the above's tendency to drive rural residents towards the urban, towards industry.

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  17. Thanks for the information Juan. I'm taking a closer look at agriculture in the 1920s. (Industrial production being closely linked to farm/rural activities in any case).

    "At the turn of the turn of the twentieth century, nearly two-thirds of Americans lived on farms or in villages and towns of less than five thousand residents (Katz and Stern 2006: 8).

    The mass production and sale of light tractors took off in the US in the 1920s and this event appears to be closely-associated with the development of long-term deflation in farm prices. [As you have indicated.]

    "The popularity of tractors soared and, while a handful of only six tractor makers were recorded in the United States in 1905, there were in excess of 160 operating by 1920.."

    "Farm prices [in the US] were to reach a peak in 1920, and the sharp decline in prices that began in the summer of that year initiated a twenty-year period where the highest price level farmers would obtain was 26 percent below the 1920 level..

    Tractor: THE BEGINNINGS OF MASS PRODUCTION
    Posted on Tuesday, October 19 @ 13:12:06 PDT by Cars
    http://www.is-it-a-lemon.com/modules.php?name=News&file=article&sid=412

    "In 1920 1 in 4 workers were in agriculture." [The same as employed in manufacturing. Mining and construction another 8%.]

    Immigrants and Industrialization in the United States, 1880 to 1920
    Charles Hirschman and Liz Mogford,
    www.pop.umn.edu/events/mpc_seminars_series/Abstracts/Immigrants%20and%20Industrialization%204_25_07.doc

    "While the average per capita income in 1929 was $750 a year for all Americans, the average annual income for someone working in agriculture was only $273..

    Main Causes of the Great Depression
    by Paul Alexander Gusmorino III May 13, 1996
    http://www.geocities.com/capitolhill/senate/6854/greatdep.html

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  18. not to 'beat a dead horse' but development of modern ag in the U.S. traces into the

    opening of vast new areas via the, i believe it was 1862, Homestead act and free land,

    improved implements (steel plow, mechanical reaper, threshers, etc),

    transportation network (extension of rail),

    communications (extension of telegraph),

    greater division of labor

    'The Northern Pacific investors hired wheat expert Oliver Dalrymple to develop and manage their demonstration farm. The Cass-Cheney farm (always called the Dalrymple farm by locals) was located about 20 miles west of Fargo. It grew from 5,000 acres in 1877 to 32,000 acres by 1885, and yielded as much as 600,000 bushels of wheat per year. This massive enterprise required 600 men at seed time and 800 at harvest, 200 plows, 200 self-binding reapers, 30 steam threshers, 400 teams of horses or mules, and several managers for each of the 2,500-acre tracts included in the property.' (+ rise of urban flour mills, more...)

    a combined, uneven and dynamic process which helped create the U.S. internal market even as it became increasingly dependent on banking and exports, a process that through provision of relatively low priced staples helped hold the cost of reproduction of labor-power down so facilitated more complete industrial revolution in the post-1870 U.S. - but - also created greater disproportionality between rural and urban to which can be added the increased imbalances within industry itself as the consumer durables sector was created and expanded.

    I think the problem here, Brenda, is that I take a labor value and real market perspective rather than one which focuses primarily on the latter, i.e. that crises are not only market crises but more fundamentally capital's more rapid expansion relative to labor created surplus value, and that this is inherent to this system which cannot escape its own logically contradictory drive to reduce labor to a minimum. Not to say that this can be precisely quantified but it doesn't have to be when the outlines were/are apparent if looking at, e.g., fixed capital formation v number of production workers and hours worked, changes in mass of not-utilized capacity, et cetera.

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  19. Juan: "I think the problem here, Brenda, is that I take a labor value and real market perspective rather than one which focuses primarily on the latter, i.e. that crises are not only market crises but more fundamentally capital's more rapid expansion relative to labor created surplus value, and that this is inherent to this system which cannot escape its own logically contradictory drive to reduce labor to a minimum...

    Juan it wasn't my intention to focus on one perspective or the other. I'm really a novice to economic history and theory.

    I agree with you that the history of agriculture shows the economic 'system' (such that it is) progressing faster than the capacity of nature and man to 'regenerate'. [I wish I could find a better word!]

    "..from the fact that labour depends on nature it follows that the man who possesses no other property than his labour power must, in all conditions of society and culture, be the slave of other men [or institutions] who [own and/or control] the material conditions of labour. He can work only with their permission, hence live only with their permission."

    Brenda R's corrections to Karl Marx's Marginal notes to the programme of the German Workers Party.

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