Saturday, December 6, 2008

Sandwichman's KEYNESIAN Stimulus Plan

by the Sandwichman

The concept of the Sandwichman's stimulus plan is extremely simple: a basic income guarantee of $145.68 a week combined with a voluntary annual cap on hours of work at 1,600 hours. The rationale for this approach is that this is not your grandfather's depression. The nature of work has changed. It is not feasible to continue treating the environment as if it was an economic "externality". Historical evidence and real economic theory (as opposed to textbook lore) support the strategy outlined in the Sandwichman plan.

The Sandwichman plan would create an estimated 12.5 million jobs! Yes, but is is Keynesian?

Although the total cost of the stimulus plan is indeterminate, a maximum is easily calculated at $1 trillion for an annual payments of $5,827.20 to 200 million non-retirement age adults. As the payments themselves will be taxable income, the actual outlays are reduced by, say 15 percent. But even that amount would be reduced again by the fact that some of the payments will act as replacement for current income support payments such as welfare, unemployment insurance, disability pensions and so on. The $5,827.20 amount comes from basing the figure on the median wage ($18.21) times eight hours for 40 weeks (assuming 10 current statutory holidays and two week vacation).

Part-time workers and low-wage earners would get an income boost from the median wage supplement. Similarly, it is proposed that other income support payments should not be reduced by the full amount of the basic income guarantee.

Furthermore, because the hours cap will be voluntary, a portion of the total will be clawed back as the result of higher-income earners choosing to work longer hours. The cap on annual hours of work will provide for a deduction of $18.21 for each hour worked beyond 1,600 a year. Some flexibility could be added by a provision enabling banking of, say, a maximum of 200 hours a year for up to seven years. In such cases the clawed-back amount could be reserved in a registered sabbatical saving account.

The 1,600 hour cap is based on an assumed four-day, 32-hour work week, with two weeks annual vacation. But those 40 freed days could be taken in a block as extra vacation time.

Job creation in the Sandwichman plan results from the massive volume of hours of work "released" back into the labor market through the reduction of the annual hours of work. The raw numbers (from the 2007 American Community Survey) are mind-boggling. There are somewhere around 240 billion hours worked a year in the U.S. Obviously, not all of those hours can be spread around. But according to Bosch (2000) "most studies" find an employment result in the range of 25 to 70 percent of the "arithmetically possible effect."

The Sandwichman, however, is skeptical about the job creating potential of overly long work weeks. In the ACS survey, some people reported working 99 hours a week or more. I don't consider such statistical noise as productive work that can be parceled up into three pieces. To get around that problem, I've marked down to 2400 hours all current annual hours in excess of that amount. That reduces the "arithmetically possible effect" of the stimulus plan to a mere 31,000,000 jobs!

Assuming Bosch's estimate of 25 to 70 percent of that effect, that suggests somewhere between 6.5 million and 18 million jobs, with 12.5 the happy medium between those two figures.


Kevin Carson said...

Keynesianism is overrated. We've got an entire economy of overbuilt plant and equipment that could barely run at full capacity when everybody in the country was running up credit card bills and tapping into home equity to replace all the shit they owned every five years. There is no program of demand management conceivable, IMO, that could restore that level of demand again.

The main thing that solved the American crisis of overproduction and overaccumulation in the last Depression was that most of the productive capital in the world outside the U.S. got blown up, and half the American GDP was nationalized by a government with an extremely high propensity to consume. That solution worked fairly well (at least for the U.S.), but its lifetime was limited to the generation or so it took for Europe and Japan to rebuild their industrial economies.

I don't think we're going to avoid a Depression. And when we come out on the other side of it, the economy's going to look a lot different. Most of the plant and equipment in the old industrial dinosaurs is going to be rust, and a major part of the economy is going to consist of what people produce in the informal and household sectors using spare capacity on capital equipment they own anyway. This article by James Wilson is a good picture of what might happen if things go well.

The main thing the government can do to ease the transition is to stop subsidizing waste, avoid any ass-brained "infrastructure" projects that will prolong false economies of scale and (perhaps fatally) postpone the necessary radical decentralization, and eliminate the licensing and "intellectual property" barriers to production in the informal sector and open-source community.

Anonymous said...

is the .68 a misprint? my own calculations suggest the appropriate guaranteed income is actually an irrational number, which means it can't be computed, and hence no general equilibrium will arrive. so this plan will fail (unless you apprximate it by a rational, or assume constructivist math).

but the real reason this won't work is beccause 'what about the wall street bonuses'. i hear these are around 35$ billion/month, or .5 T a year. the bailout covers these for 5 years or so. without them, there would be no incentive for anyone to do anything. giving money to people who dont produce anything of value like bonuses is immoral, also. (wasnt there a bonus army in history?)

Sandwichman said...

Keynesianism is overrated.


My use of Keynesian is ironic. American textbook Keynesianism is to Keynes as Stalinist Soviet Marxism was to Marx. The Sandwichman plan is a LEISURE stimulus plan, not one designed to stimulate even more wasteful and environmentally destructive consumption or "investment".


With open tuning you can play irrational numbers on some of the more sophisticated financial instruments. The .68 is what you get for your two cents worth after adjusting for inflation.

Eleanor said...

If I understand you, the $148 a week would be pay people for working 8 hours less. Since I already work a 32 hour week, I am all for this.

Yves Smith is worried that a public works program won't get money to the masses fast enough to stop the depression. (Let's call it a depression.) Your plan would, as would increased unemployment and SS payments and money to local government for human services.

What if your employer requires more than 32 hours a week? And what do you do about salaried workers? My partner just asked these questions.

Sandwichman said...


The $148 a week is for freeing people from work once they have worked 32 hours in week (averaged over a year). Because you already work 32 hours a week, you would get your $148 without reducing your hours of work. So yes, it gets money fast to people who need it and are likely to spend it.

As for employers requiring you to work more than 32 hours a week, they could only do so within the 1,600 year total and there need be no change to the overtime regulations for more than 40 hours a week of work. I am not in favor of extending the FLSA overtime regulation to the 32 hour week. So if an employer chose to operate on a 40-hour week, there would have to be vacation time off, preferably funded by accruing the extra eight hours weekly pay into an interest-bearing vacation account.

Salaried workers would have to be converted to hourly equivalents. The whole idea of the "salary" is a bit of a sham these days anyway. These anomalies already occur with the FLSA overtime regs. It would be helpful simply to have some enforcement of existing regs and closing of loopholes.

Anonymous said...

"a basic income guarantee of $145.68..."

I am trying to avoid letting the perfect be the enemy of the good, here, since I really think shorter hours will be forced on society despite its recalcitrance. However, I think it would be easier to just combine the reduced working hours with a reduction in tax rates approximately equal to your income guarantee, Sandwichman.

Kevin Carson said...

Thanks for clarifying, Sandwichman. I appreciate the radical Keynesian spin on Keynes a lot more than the plain vanilla version.

But wouldn't reducing the work week still leave the problem of all that excess industrial capacity, and the economic effects of liquidating it? There's an awful lot of waste production that doesn't contribute to the standard of living, and I don't think it can all be retooled to produce stuff that's actually useful without creating the Midas Plague or Brave New World.

I suppose there's some way to do it so that the rentier classes absorb all the paper losses when the value of capital collapses, and union pension funds or worker buyout committees snatch up all the devalued plant and equipment at fire sale prices and take over production under workers' control (heh heh). And your soc-cred/guaranteed income thing would help prevent a liquidity freeze-up and grease the wheels for financing the transfer of assets.

Kevin Carson said...

BTW, this last line of speculation struck me as resembling Mill on the steady-state economy and Keynes on the gift economy: overaccumulation lowering the rate of profit until labor can hire capital at zero cost. Kind of like vol. 3 of Capital without all the muss and fuss.

Sandwichman said...

Yes, indeed, Kevin, labor hiring capital at zero (or virtually zero) cost is an important element of the 1821 pamphlet, "The Source and Remedy of the National Difficulties," which I will serialize on EconoSpeak. The argument, at its simplest, is that without the constant intervention of the state, the cost of capital would inevitably, through accumulation, be deprived of its "scarcity" rent.

Anonymous said...

i think that a valuable little booklet to pick from the shelves could be Piero Sraffa production of commodities by means of commodities. or if you are all intrigue by erudition and modernism why not pick up Joan Robinson accumulation of capital as a leisure reading over the weekend ,just for completeness.

have a good weekend.
P.S.: maybe if all students' loans were to be waived the evolutionary effect produced by a free from debt education could provoke unexpected explosions of creative cooperative thoughts, even within the obsolete and senile field of economics .