Monday, August 31, 2009

Fawcett: "The Regulation of the Hours of Labour by the State" (abridged) IV

by the Sandwichman

One last note on Fawcett's 1872 lecture. Can an economist talk about the hours of work without invoking the specter of 'fallacy'? Apparently not. Fawcett's charge of fallacy, however, is not the classic lump-of-labor version:
It is, however, probable that motives very different from these actuate many who most earnestly appeal to the State to impose a legal limit upon the day's work. This particular movement may be, to a great extent, regarded as a revival of the old fallacy that the wages of labour can be regulated by law.

Signs are not wanting to show that the opinion widely prevails, although it is rarely distinctly avowed, that if a law were passed reducing the day's work from ten hours to nine hours, as much would ultimately be paid for nine as for ten hours' labour. If, however, this should prove to be the case, then it would appear that the State has the power to regulate the remuneration of labour; it would consequently follow that wages depend upon legal enactments, and are not regulated by the recognised principles of economic science.

I shall not attempt [don't you love those pseudo-disavowals that introduce the mention of something with the phrase, "not to mention..."] to argue the case by referring to such well-known facts as that Parliament for centuries tried to control the wages of labour, and that all the numberless statutes that were passed to effect this object signally failed. Neither shall I refer to the general principles of political economy to establish the conclusion that the wages of labour cannot be controlled by the State. Such reasoning would not, in any way, affect the opinions of those who are most strongly in favour of the hours of labour being regulated by the State. According to their views the interposition of the State in this matter involves very different consequences, and is to be defended by very different arguments from any attempt which may be made to fix the rate of wages by Act of Parliament.
In case you're wondering, Fawcett's argument proceeds from the above to the case argued in installment II of this series: namely, that if the hours of work were indeed too long then employers would in every instance be compelled to yield to demands from the workers to shorten them (in spite of the unprecedented nature of the workers' triumph at Newcastle). The mind reels.

And It Ain't Shinola...

by the Sandwichman

Wherein the Sandwichman documents the appalling intellectual vacuity of Lee E. Ohanian's "What -- or Who -- Started the Great Depression?" so the referees at the Journal of Economic Theory don't have to. Not that they would anyway.

First, let's cut to the chase. Ohanian summarizes his operative theory on pages 48 and 49. I will quote the section in full at the bottom of this post. For now, the two key sentences are "Any monetary explanation of the Depression requires a theory of a very large and very protracted monetary non-neutrality.... The non-neutrality is quantitatively large in the Hoover economy because Hoover's wage maintenance and work-sharing program reduces steady state hours and capital stocks [emphasis added]."

So what is the mechanism by which Hoover's program reduced capital stocks? For the answer to that, we take you back to pages 28-29 to an explanatory footnote about Ohanian's specified model. Again, I will present the full footnote at the bottom, but the key phrases are: "Capital input in this model is variable, and is equal to the capital stock scaled by the length of the workweek, or hours per worker." and "This treatment is also reasonable because there is evidence that worksharing that reduces the number of days an employee works, even keeping the length of the workweek fixed, also reduces output per hour."

The evidence Ohanian refers to is a 2001 article by Lanoie, Raymond and Shearer (hereafter Lanoie), "Work sharing and productivity: Evidence from firm level data." It is fair to point out that Lanoie is the only article in the paper's reference list dealing with the productivity effects of work-sharing. The article in question deals with a single, year-long "experiment" at a Canadian telecommunications firm in the early 1990s.

On first impression, the relevance to Hoover and the Great Depression of this single 1990s example may seem remote. But on closer inspection, it becomes laughable. The program was not simply a work-sharing arrangement. It was also a change in schedule to a nine-hour day precipitously imposed by management. Furthermore, the productivity impacts were found to be task specific. To generalize from this particular example to work sharing during the Hoover administration strains credulity, let alone plausibility. But here, in the authors' own words, are the peculiarities of the Canadian experiment that would be enough to disqualify it as in any way typical or representative of the Hoover-era experience:
These results suggest that the impact of work sharing on productivity is 'task specific' and that longer operations (both types of installations), for which the coordination cost is likely to be higher, are broadly more affected. As discussed earlier, another possible contributing factor to the decrease in productivity is the change in the work schedule that was introduced along with the work sharing programme. Namely that workers changed from working 8 hours a day for 5 days a week to working 9 hours a day for 4 days a week. It is possible that the extra hour tacked on to the end of the day was much less productive than the hours worked on the fifth day of the week. Unfortunately, without information on daily production, the data set does not permit identification of such effects. Certain officials also mentioned that managers were not well prepared to operate in this work sharing environment (the whole operation was implemented with a very short notice), and that coordination problems occurred not only between technicians, but also between technicians and dispatchers. One further possibility is that worker morale may have been negatively affected by the work sharing programme. Given that technicians were not given a choice of whether or not to participate in the programme whereas other types of workers were, technicians may have felt they were being unfairly treated (Akerlof, 1982). The fact that absenteeism increased following the introduction of the programme lends support to this interpretation.
To reiterate:
  • impact on productivity was task specific;
  • change in the work schedule was introduced along with work sharing; from 8 hours a day for 5 days a week to 9 hours a day for 4 days a week;
  • managers were not well prepared to operate in this work sharing environment (the whole operation was implemented with a very short notice;
  • technicians were not given a choice to participate (other employees were); morale may have been negatively affected.
What is absent from Lee Ohanian's article is any explanation of why he thinks the above 'evidence' is remotely relevant to his Great Depression theory. What does this say about the peer review process at the Journal of Economic Theory? Perhaps they should take a lesson from Navin Johnson's father:

Summary of Ohanian's theory, pages 48-49:
Any monetary explanation of the Depression requires a theory of a very large and very protracted monetary non-neutrality. Such a theory has been elusive because the Depression is so much larger than any other downturn, and because explaining the persistence of such a large non-neutrality requires in turn a theory for why the normal economic forces that ultimately undo monetary non-neutrality were grossly absent in this episode. That is, if the Depression is largely the result of monetary forces, then the size and the duration of the monetary non-neutrality were remarkably well outside estimates from any other period.

This paper provides such a theory for a large and protracted monetary non-neutrality. The non-neutrality is quantitatively large in the Hoover economy because Hoover's wage maintenance and work-sharing program reduces steady state hours and capital stocks. The non-neutrality persists in this model because it is a transition from a non-distorted steady state to the Hoover distorted steady state.
Footnote, page 28-29:
Capital input in this model is variable, and is equal to the capital stock scaled by the length of the workweek, or hours per worker. In the model, utilization falls in manufacturing, which is consistent with actual manufacturing utilization during the Depression. It is worth pointing out two issues about tieing [sic] the decline in utilization to hours per worker. One is that some of the decline in utilization was due to plant closings, rather than a shorter workweek across all plants. Another is that some worksharing was such that workers were employed for fewer days, but the plant could have had the same workweek length. I am unaware of data that can provide any type of detail on these distinctions, however, so I will treat the model as a parsimonious tool for capturing low capital input during the Depression, as it will allow the model to be consistent with actual manufacturing output per hour. This treatment is also reasonable because there is evidence that worksharing that reduces the number of days an employee works, even keeping the length of the workweek fixed, also reduces output per hour (see Lanoie, Raymond, and Shearer).

Sunday, August 30, 2009

Letter to a Portuguese Journalist

I was just asked some questions by a Portuguese journalist. Here is my response:

click here: (.pdf) or here: letter-to-a-journalist

Fawcett: "The Regulation of the Hours of Labour by the State" (abridged) III

by the Sandwichman

Henry Fawcett concluded his lecture with an apparently heartfelt panegyric on the humanitarian benefits of shorter hours and the defects of excessive hours.
In making these remarks I should much regret if it were thought that I did not most entirely sympathize with those who desire to see a great diminution in the excessive toil of so many of our workmen. There is nothing perhaps more to be regretted than the fact that extraordinary commercial prosperity and an unprecedented accumulation of wealth have hitherto done so little to shorten the workmen's hours of labour.

As previously remarked, the undue length of time which men have been accustomed to work represents, so far as many branches of industry are concerned, a thoroughly mistaken policy. In many instances it is undeniable that men would not only get through more work, but would do it more efficiently, if they had more opportunity for mental cultivation and for healthful recreation.

No small part of the intemperance which is laid to the charge of our labourers is directly to be traced to excessive toil. When strength becomes exhausted, and the body is over fatigued, there often arises an almost uncontrollable desire to resort to stimulants. Again, it is unreasonable to expect that the moral qualities in man's nature can be duly developed, if life is passed in one unvarying round of monotonous work.

We are constantly being reminded of the ennobling and elevating influence produced by contemplating the beauties of nature, by reflecting on the marvels which science unfolds, and by studying the triumphs of art and literature. Yet no inconsiderable portion of the toiling masses are reared in such ignorance, and surrounded from early childhood to old age by so much squalor and misery, that life could be to them scarcely more dreary or depressing, if there were no literature, no science, and no art, and if nature had no beauties to unfold.

At a meeting recently held at Newcastle by some of the prominent advocates of the nine hours' movement, artisans were encouraged to look forward to a time when the condition of labourers generally throughout the country would be so much improved that they would have time for mental cultivation and various kinds of recreation; a hope was even expressed that the day might come when they and their families would be able to enjoy an annual holiday, gaining health and vigour either from the sea breeze or the mountain air. It is, however, particularly to be remarked, that those who shadowed forth these bright anticipations showed no tendency whatever to seek State intervention.

The leaders of the nine hours' movement at Newcastle, having won a great triumph, have just confidence in their own powers; they truly feel that what they have done might also be done by others, and they therefore object to the demands for State interference, which are constantly being put forward by the members of the International, and by many other workmen.

The speeches, to which I have just referred, were delivered at a meeting of the members of a co-operative engineering company. This society had grown out of the nine hours' dispute. The leaders of the movement, having once learnt the invaluable lesson of self-help, had the practical wisdom to see that the best way to emancipate themselves from what the International calls the tyranny of capital is not to indulge in idle declamation, nor to embark in schemes which are either impracticable or mischievous. They, on the contrary, came to the conclusion that if they wished to render themselves independent of capitalists they might do so by supplying the capital which their own industry requires. They have had little difficulty in gathering together a sufficient amount of money to commence business on their own account.

There is no reason why an establishment thus founded should not gain as great a commercial success as that which has been achieved by any private firm. Even if it should fail, there would be no grounds to feel discouraged. The experience which is obtained from failure often enables the road to be discovered which leads to future success. But whatever may be the fate of this particular experiment, there will still be good ground for the belief that the spirit of self-reliance displayed by these Newcastle workmen will not only do much to improve the lot of the labourer, but will act more powerfully than any other agency to promote the general well being of the whole community.

We didn't know that Panama was bombed in 1989

This week I read for the first time that the US military (under the leadership of Colin Powell) invaded Panama on 20th December 1989. My partner was also not aware of this catastrophe. In fact, I would be surprised if any Australians in my local community know about this.

According to Webster G. Tarpley & Anton Chaitkin [1] 5,000 Panamanian civilians lost their lives, 10,000 were incarcerated in concentration camps and the cost to the Panamanian economy was then estimated to be $7 billion. Why the invasion? See below.


1986-1987 - Noriega (President of Pamana) cooperated with US law enforcement officials in a number of highly effective anti-drug operations.

1987 – June. One month after a US glowing tribute had been written praising Noriega for his anti-drug efforts the US government declared war against Panama, initiating a campaign to destabilize Noriega on the pretexts of lack of democracy and corruption.

1987 – August 10th. "The political crisis follows closely what bankers here saw as a serious breach of bank secrecy regulations. Earlier in 1987, as part of an American campaign against the laundering of drug money, the Panamanian government froze a few suspect accounts here in a manner that bankers and lawyers regarded as arbitrary." These were precisely the actions lauded by Lawn. Had Noriega shut down operations sanctioned by the US intelligence community, or confiscated assets of the New York banks?

1988 – February: Noriega was indicted on US drugs charges, despite a lack of evidence and an even more compelling lack of jurisdiction.

1988 – March 2nd. Economic sanctions, an embargo on trade and other economic warfare measures invoked by the US against Panama.

1989 – April 6th. Bush formally declared that the government of Panama represented an "unusual and extraordinary threat" to US national security and foreign policy. He invoked the National Emergencies Act and the International Emergency Act to declare a state of "national emergency" in this country to meet the menace allegedly posed by the nationalists of little Panama.

1989 – May 1st. The issue of US News and World Report revealed that Bush had authorized the expenditure of $10 million in CIA funds for operations against the Panamanian government. These funds were obviously to be employed to influence the Panamanian elections, which were scheduled for early May.

1989 – May 7th. The US-supported ‘Civic Democratic Alliance’ purchased votes, bribed the election officials, and physically absconded with the official vote tally. The Pananmanian Govt annulled the election.
US forces in Panama began a systematic campaign of military provocations which continued all the way to the December 20 invasion (Operation Blue Spoon)

1989 – Mid December. The US had 24,000 troops in Panama arrayed against 16,000 of the Panamanian Defence Forces of whom only 3,500 were organised and equipped for military combat.

1989 – December 15th. The National Assembly of Panama passed a resolution to take note of the state of affairs that had been forced upon Panama by Bush. It was designed to permit the assumption of emergency powers by the Panamanian Government to meet the crisis. "The Republic of Panama," the statement read, "has for the last two years suffered a cruel and constant harassment by the US government, whose president has made use of the powers of try to subject the will of Panamanians....The Republic of Panama is living under a genuine state of war, under the permanent hounding of the US government, whose soldiers not only daily violate the integrity of the Torrijos-Carter treaties... but trample our sovereign rights in open, arrogant, and shameless violation of the pacts and norms of international law....Therefore be it resolved that the Republic of Panama be declared in a state of war, for as long as the aggression unleashed against the Panamanian people by the US government continues." [43]

Bush Sr takes a leaf out of Hitler’s book copying the tactics Hitler employed to justify the invasion of Poland.
Black and mestizos make up the vast majority of the population of Panama. There would be only one non-white in the new endara cabinet.

Mad Max Thurman sent in the new Stealth and A-7 fighter-bombers, and AC-13 gun ships. El Chorillo was virtually razed along with the working-class district of San Miguelito and large parts of the city of Colon. The Institute of Seismology counted 417 bomb bursts in Panama City alone during the first 14 hours of the US invasion. Retaliatory fire by the Panamanians was to be answered by overwhelming US firepower without regard to the number of civilian casualties. Many civilian dead were secretly buried in unmarked mass graves at night time by US forces. Many other bodies were burned in the bombing holocausts. US official figures of Panamanian dead was 200. Other sources indicated 5,000 civilian victims.

10,000 incarcerated in concentration camps. Many political prisoners were held for months without being charged with any specific offense, a clear violation of habeas corpus.

Cost to the Panamanian economy of the bombings, invasion, and economic warfare: $7 billion. Severe poverty was the lot of most of the population. 15,000 were left homeless. Several thousand public servants purged by the Endara government. Endara and members of his Government involved in drug pushing and money laundering.

[1] George Bush: The Unauthorized Biography
by Webster G. Tarpley & Anton Chaitkin
Chapter -XXIII- The End of History

Saturday, August 29, 2009

Ohanian the Onanian

by the Sandwichman

Brad DeLong takes the exact wrong tack by quibbling with Professor Lee E. Ohanian (Hoover's pro-labor stance helped cause Great Depression, UCLA economist says) instead of simply reading his silly paper and noting the cherry-picked piles of dog shit posing therein as empirical evidence.

It says in the news release, "...the latest UCLA study uses modern economic tools to quantify the impact of the president's wage freeze and job-sharing policies..."

Do modern economic tools include generalizing from a single Canadian firm in the 1990s that went from a five 8-hour days to four 9-hour day compressed work week? "...there is evidence that worksharing that reduces the number of days an employee works, even keeping the length of the workweek also reduces output per hour..." Yup. Never mind that there are piles of historical evidence (and actual economic theory!) suggesting otherwise. What was that about a swallow and a summer?
To evaluate the quantitative impact of Hoover's program, I calculate the equilibrium of a model economy with firms paying the observed real wage in the industrial sector and following the observed workweek. I find that Hoover's program substantially depressed the economy, reducing aggregate output and hours worked by about 20 percent.
Ohanian compares his latest general equilibrium fantasy with a benchmark model from an earlier study in which (lo and behold) he and Harold Cole found, "that wage shocks and banking shocks account for a small fraction of the Great Depression..."
To shed further light on the permanent impact of the policy on the economy, I compare these findings to those of Cole and Ohanian, Table 9, who studied the impact of the same real manufacturing wage sequence in a similar economy, but assuming that the wage distortion was transitory, rather than permanent, and with no workweek restriction.
Got that? Professor Ohanian compared estimations from one general equilibrium model, that relied on a sweeping generalization from a single 1990s Canadian firm with estimations from another general equilibrium model that had been used to find that wage shocks accounted for only a small fraction of the Great Depression to find that Hoover's pro-labor policies accounted for TWO-THIRDS of the economic decline after the stock market crash 1929. I didn't think so.

My own prediction of the depression

In light of the discussion about who predicted the Depression, I thought that I would post the first chapter of The Confiscation of American Prosperity: From Right-Wing Extremism and Economic Ideology to the Next Great Depression

Fawcett: "The Regulation of the Hours of Labour by the State" (abridged) II

by the Sandwichman

In the previous installment, Henry Fawcett chronicled the signal triumph of the 1871 Newcastle Engineers bitter 14-week long strike for a 9-hour day and remarked upon the unprecedented nature of that victory: "The artisans in no previous dispute between Capital and Labour have ever obtained so signal a triumph."

In addressing the productivity argument, though, Fawcett takes another tack, proclaiming: "...the masters would, in every instance, be compelled to yield..."
The following may be considered a correct description of the opinions which are widely held on this subject. It is maintained that in many employments the day's work is a great deal too long, the strain upon the constitution is too severe, and physical strength is so much exhausted that a man is unable to labour hard during the whole time he is at work. It is therefore urged that if the day's labour were shortened, as much or even more work would be done in the shorter as in the longer period; employers would, consequently, be able to pay at least as much for a day's work after its length had been thus shortened.

Many facts can, no doubt, be adduced in support of this opinion. It can be scarcely denied that in some employments the hours of labour are habitually too long. Some very striking examples can be quoted to show that the shortening of the hours of labour confers a most important advantage both upon employers and employed. More work is done in less time, and the greater productiveness which is thus given to labour enables not only the wages of the workmen, but also the profits of the employer, to be increased.

Amongst many remarkable examples of the truth of this statement, it will be sufficient to refer to one case which is mentioned by Mr Macdonnell, in his "Survey of Political Economy." He states, on the authority of M. Chevalier, that a manufacturer employing 4000 hands reduced his spinners' time one half-hour per day, and that this reduction, contrary to all expectation, was accompanied by an increase in production of one-twenty-fourth. An admission that this fact is typical of what would generally take place if the hours of labour were shortened, would undoubtedly afford a powerful inducement and a strong justification to the workmen to extend throughout the country the movement which was commenced at Newcastle.

Such an admission, however, does not, to my mind, supply any argument in favour of a resort being had to State intervention. It has been proved that the workmen can succeed when they have as good a case to urge as they had at Newcastle; and the masters would, in every instance, be compelled to yield, even were it not their interest to do so, when facts can be adduced to warrant the conclusion that the hours of labour prevalent in any particular trade are too long to secure the maximum of industrial efficiency.

Friday, August 28, 2009

Did Heterodox Economists Do Better At "Calling It" Than Mainstream Ones?

In a posting and comments yesterday, Mark Thoma at economists view argued that heterodox economists did not do a better job of "calling" the recent crashes and crises than did mainstream or conventional economists. Of course, part of the issue here involves both who one counts as "calling it," and also how one labels economists. In the comments, a list provided by Steve Keen of 11 who "called it," was invoked, with Thoma, at least, claiming that it did not show any preponderance of the heterodox. The list is as follows:

Dean Baker,US
Wynne Godley, UK
Fred Harrison, UK
Michael Hudson, US
Eric Janszen, US
Stephen Keen, Australia
Jakob Brochner Madsen and Jens Kjaer Sorenson, Denmark
Kurt Richebacher, US
Nouriel Roubini, US
Peter Schiff, US
Robert Shiller, US.

Keen categorizes these as follows in a private communication with me: 5 as Post Keynesian (Baker, Godley, Hudson, Keen, Sorenson), 2 as Austrian (Richebacher, Schiff), 2 as "from neoclassical backgrounds," but "mavericks" (Roubini, Shiller), one sort of a combination of Austrian and Post Keynesian (Janszen), and one unclear (Harrison). This looks about right to me to the extent I know about these people, although I note that Thoma claims that Baker is not "heterodox." I have not asked Dean, and he may not wish to comment, although he was once-upon-a-time a co-blogger on the predecessor to this blog, maxspeak, prior to starting his own punchy blog, Beat the Press. About four of these people I know nothing about.

I also note that there are quite a few others who can make the claim of having "called it" (I like to include myself in that gang, at least to some degree), and I also know that some of those are conventional, more or less, such as Andrew Lo of MIT, although he is now pushing a non-conventional theory about evolutionary financial dynamics. In any case, I think that the heterodox have the edge here, even if it is not clear what constitutes being in that category.

Fawcett: "The Regulation of the Hours of Labour by the State" (abridged) I

by the Sandwichman

The 1958 article by Mark Blaug on "The Classical Economists and the Factory Acts" brought Henry Fawcett's fascinating (and contradictory) 1872 analysis of "The Regulation of the Hours of Labour by the State" to the Sandwichman's attention. Fawcett makes some compelling arguments against state intervention in setting of hours but in the course of doing so appears to strongly uphold collective action by trade unions and the argument that long hours of work are injurious both to productivity and to the well being of the workers.

Nevertheless, Fawcett's apparent enthusiasm for collective self-reliance is marred by a glaring contradiction. In the selection presented below, Fawcett introduces the topic by remarking on the unprecedented nature of the worker's victory in Newcastle. In a latter selection, dealing with productivity, Fawcett claims the (unprecedented) Newcastle victory proves the inevitability of success for workers' struggles to reduce the hours of work. The Sandwichman has amended the paragraphing of these selections and omitted long sections presenting commercial and libertarian objections to state regulation.

"The artisans in no previous dispute between Capital and Labour have ever obtained so signal a triumph."
Early in August, 1871, the engineers of Newcastle formally put forward the demand that a day's work should consist of nine hours. The masters refused to yield. The workmen thereupon carried out their threat to desist from work; and a general strike ensued. Although efforts at conciliation were repeatedly made, the dispute continued to rage fiercely for many weeks. Various persons offered themselves as mediators, in the hope of suggesting some compromise. But compromise after compromise was unceremoniously rejected by the masters.

Many circumstances combined to arouse strong and angry feelings. At the outset a bitter personal enmity had been excited by the workmen being told that the masters would not hold interviews with them, but that they must have their views represented by some legal adviser.

Still more angry passions were aroused when the manufacturers attempted to replace the labour of which they had been deprived, by the importation of foreign workmen. Agents were despatched to Belgium, Germany, and other places to engage at remunerative wages artisans who had been accustomed to engineering work. The English workmen on their side put forth equally strenuous efforts to check this importation of labour. Strong appeals based on international principles were addressed to the continental workmen; they were entreated to be loyal to the cause of labour, and they were told that the employed would be always vanquished unless the labourers of different countries were not only ready to unite, but were also prepared to make some sacrifices for the common cause.

In spite, however, of all these efforts the manufacturers obtained a considerable number of continental workmen. After their arrival, however, not a single moment was lost in bringing every possible kind of pressure to bear upon them to induce them to return. Occasionally the pressure assumed the form of threats of violence to any who might continue to work. Such threats, however, were exceptional; it was generally found that after the exact position of affairs had been explained to these foreign workmen, there was little difficulty in inducing them to return to their own countries if they were provided with the requisite funds. The funds required for this purpose were promptly procured by subscriptions raised among the artisans in every important centre of English industry.

In consequence of these exertions the manufacturers gradually became convinced that it was hopeless for them to expect to keep their works open by substituting foreign for English labour. The alternative therefore which was presented to them was either to suspend business or to grant the demands of those whom they employed.

The adoption of the former course involved many formidable difficulties. It has been often remarked that workmen in the disputes which they have had with their employers have very generally shown themselves to be extremely bad tacticians. They have generally struck work in order to resist a decline in wages consequent upon dull trade. But when trade is dull the victory of the employer is almost insured, for at such a period it costs him little in fact, it is often a positive advantage to him temporarily to suspend his business.

But, whether from accident or design, the Newcastle workmen commenced the Nine Hours' Movement at the very time above all others when they were most likely to obtain success. The engineering trade was in a state of unprecedented activity and prosperity; unusually large profits were being realised, and the order book of every manufacturer was filled with lucrative contracts. Victory therefore was virtually ensured to the employed when they deprived the employer of an adequate supply of labour; for he had the strongest possible inducement not to curtail, much less to suspend his business at a time when it was exceptionally profitable, and when the non-fulfilment of extensive contracts would render him liable to extremely onerous fines. After a struggle which was prolonged for fourteen weeks, the masters were compelled to succumb; and the demands put forward by the workmen were fully conceded to them.

No sooner was the Nine Hours' Movement successful in the engineering trade at Newcastle, than similar demands were immediately put forward by workmen engaged in a great variety of trades in different parts of the country. The battle having been once fairly fought out, employers very generally adopted the wise and prudent conclusion that it was far better not to renew the contest. It has therefore come to pass that in a few weeks, throughout no inconsiderable portion of the industry of the country, the principle has obtained practical recognition that nine hours is to be considered a day's work.

I have thought it important to give this description of the Nine Hours' Movement in order to show that in the course of a few weeks the workmen, entirely relying on their own efforts, and without any resort to State intervention, have secured a valuable concession for themselves, and have introduced a most important social and economic reform. Having thus seen what has been done without resorting to the State, let us proceed to inquire whether the workmen would have secured that which they desired more promptly and more efficiently if, instead of relying on their own efforts and their own powers of organization, they had rested their hopes on State intervention. If the latter course had been adopted, I think there will be little difficulty in showing that the shortening of the hours of labour might be either indefinitely postponed or might be so prematurely and inconsiderately introduced that confusion would be created and more evil than good would result.

If the workmen throughout the country should unite they would at once secure a predominance of power in the legislature. Let it be supposed that having gained this predominance they should at once pass a law applying the Nine Hours' principle to every employment throughout the country. As explained in a previous essay, such legislative interference constitutes a part of the programme of the International; and as there is reason to believe that many who are generally opposed to the doctrines of Socialism would support such a demand, the subject is evidently one of great practical importance at the present time.

Beyond the f-word: Black on Black

by the Sandwichman

Hugo Black was Senator from Alabama from 1927 to 1937 and a Supreme Court Justice from 1937 to 1971. The Black Thirty-Hour Bill was passed by the US Senate, 53-30 on April 6, 1933 (a 1934 version of the bill). According to Hunnicutt, passage of the Black Bill gave the impetus to the Roosevelt administration to develop and implement a recovery program.
The Shorter Work Week and Work Day

By Hugo L. Black

THE desire on the part of the people to adjust the work day and the work week to the needs and demands of the time is in accord with social justice and economic necessity. It is an effort to stimulate human genius to nobler inventive activities; to raise the output of civilization’s vast productive machinery; to supply mankind with more of the comforts Nature has provided for his happiness; to give to labor a fairer return for the expenditure of energy; to provide jobs for all; and to afford opportunities for rest and recreation for all, instead of long hours for some with enforced idleness and misery for others. Those who advocate a shorter work day and work week abhor the 'economy of scarcity' that must inevitably result from long hours and low wages.

Long work hours and low wages, under our complex system of exchange and commerce, do not justify the often asserted, but wholly superficial, excuse that production is thereby increased. Our economic history should now prove to the most hidebound worshiper of inordinate profits and the most subservient student of economic dogmas, that long hours and low wages ultimately lower the level of production, retard the improvement and expansion of the tools and machinery of output, close factories, cause the abandonment of mines, paralyze business, and bring about destitution and human suffering among helpless millions of people.

The so-called boom and prosperity period of the nineteen-twenties was a time when the philosophy of long hours and low 'real' wages was given ample opportunity to bring forth its fruits. Men and women worked ten, fifteen, and even sixteen hours per day. While figures and money payments have been juggled in such manner as to mislead many to believe that wages were high, the cold statistics of that period, gathered by impartial agencies, show that labor received a smaller and smaller proportion of its own products, and that a greater and greater part went to profits and property. The cumulative effects of this unbalancing and unjust distribution of income resulted in decreased ability of the workers to buy. Our economic system produces only to sell. Whatever is the cause of inability of potential customers to buy is likewise the cause of the inability of producers and merchants to sell; of the consequent failure to produce; and of the resulting collapse of employment and business in general.

But, someone says, did not wages go up in the nineteen-twenties? On the contrary, the real wages of industrial workers and wages of farmers (measuring farmers’ wages by farm prices) both descended, in proportion to goods and services produced, and in relation to income flowing to profits and property.

Loss Through Inadequate Incomes

This increase in large incomes and decrease in small incomes by 1929 tells us why savings increased and over-expansion occurred. Theoretically, there was no overexpansion in many industries, because people actually needed the products. Practically, however, there was overexpansion because the output could not be sold. Year by year, the system of distribution of incomes had reduced the chief purchasers in ability to buy, and had increased the proportion of those whose personal wants were already satisfied, and who were therefore unable to buy more, and were compelled to invest.

Since business could not sell at its price, it reduced production, thus intensifying an 'economy of scarcity.' Ten million workers and then fifteen million workers lost all income. Probably fifteen million more worked part-time with reduced income. Production shot down, and the greatest waste in human history began its assault upon American life. It has been estimated that, expressed in dollars, this country has lost since 1929, two hundred to four hundred billion dollars’ worth of production of useful goods and services as a result of idle machinery, plants, lands, equipment, and men. This was not because of shortened hours. It followed long hours and unfair real wages. The loss in actual goods and services is infinitesimal in comparison with the injury to the health and the moral and physical stamina of the millions of harassed and jobless men and women. No money price would be too great to pay in order to remove this blighting disease that threatens our civilization. Already, however, we find a growing group insisting that we accept unemployment as inevitable and get out with the least possible money by adopting the most niggardly and character-destroying dole. They are thus willing to threaten the safety of succeeding generations in order to buy peace at the cheapest price for themselves.

Bargaining Power Needed

More than five years ago I said that this nation must choose between a dole and shorter hours of work; that is still my belief. But, unfortunately for America, the champions of the conditions that make the dole a part of our economic life are apparently gaining ground. Private business in America must support the people either through wages or taxes. It can give jobs or doles.

The only chance for labor to receive enough of the income from our national business system to buy the products of that system is through its own bargaining power or through operation of law. A single laborer in our present complex business system, with its constant oversupply of labor, has no bargaining power. He can work for the price offered, or go hungry. Only about 10 per cent of the workers belong to independent labor unions. Some of this 10 per cent have succeeded in obtaining reasonably fair working conditions and wages. It is a long step, however, to unions with sufficient numerical strength to obtain incomes sufficient to balance purchasing power with production.

A work week and a work day short enough to create an actual scarcity of labor, thereby causing employers once again to bid for labor, would be a wholesome economic tonic for America. Our greatest progress has been made when workers could actually bargain with their employers. Our industry expanded by leaps and bounds when men who were not given a decent wage could go to the unopened farms of the frontier.

It is nothing short of absurd to assert that a thirty-hour week would reduce production in America. As a matter of fact, it would greatly increase production. Every realistic observer of economics and business knows that production responds to effective demand. Desire may be created by skillful advertising, or it may result from an inherent need; but if this desire actually stimulates an increased production, it must be backed up by an ability to buy. The same system that produces and sells must supply the means to buy from such production and sales. If private industry should be compelled today to shorten the hours so as to create labor conditions under which employers would be required to bid for workers, every added dollar paid to labor would return to business. In addition, the effective demand of these workers would speed up production, require more efficient operation, and make useful inventions profitable.

Shorter Week Would Increase Production

To one who is familiar with the oscillations of the so-called 'business cycle' over a period of years, as distinguished from its results during any one particular year, the professed fears of 'reduced production' are laughable. Let us consider briefly the effect on the ten-year period from 1880 to 1940. The first five years of that period are history. Suppose the thirty-hour week, or some other week that would have employed the labor and given it bargaining power, had gone into effect January 1, 1880. (There is no magic in any particular number of weekly hours, so long as the result is obtained.) Certainly there has been no time since 1930 when national production would have been diminished by reason of the adoption of such shorter hours. No one would be so foolish as to predict that the next five years will require such a phenomenal production, if old unregulated hours should continue, as to raise the average for the ten-year period above the thirty-hour level.

In fact, national production would have been greater with a thirty-hour week since 1930, because many jobless with no money would have been transformed into workers and purchasers with money able to buy and stimulate production. Nothing but purchasers with means to buy has ever brought about production under our system, and nothing else ever will.

It is not the fear of laws that makes mills idle. It is not the fear of taxes. It is only the knowledge or belief that the output cannot be sold at a profit. There is no actual shortage of factories, mines, mills, or farms in America today, able to produce what can be sold. There is no shortage of capital. There is no shortage of men and women who want and who need the output of our business system. There is, and there has been for a long time, a shortage of purchasing ability possessed by our greatest customers, namely, the men, women, and children of the United States. Give them jobs. When more is produced, give them their part, exactly as they would get the fruits of their own labor if they were producing under the old handicraft system, where they could see, handle, and control the finished output. Do not subject our American workers to the crushing and destroying competition of ten to fifteen million jobless, eager for work and frequently hungry for food. Shorten the hours fairly and uniformly for all business enterprises that compete with each other, thereby supplying work for the jobless. Do this, and the fantastic, if not fictitious, dream that shortening hours will decrease production will go the way of other dogmas invented from age to age to retard opportunity for the many in order to bestow too much on the few.

Adequate Income Necessary

The farmers, the employees, and the small business and professional groups make up the greater proportion of our population. If farmers and workers secure inadequate incomes to buy the products of farm and factory at fair prices, these products cannot be sold. Unfortunately, our foreign trade has dwindled to the point where it is much less than 10 per cent of our total commerce. The fate of the United States worker and the amount of his income play a most important part in determining the price he can pay for the farmers’ products. It is also true that the price the farmer is able to pay for the goods of the mines and factories is determined by his income from his crops. The disaster that occurs to farmers, factories, mines, railroads, and business in general when the just return of farmers and workers is diverted from them into other channels was seen when business collapsed and folded up following 1929. This diversion from the farmer and the worker has proved that excessive capital in industry eventually helps no one, but injures, and sometimes destroys, both those from whom it was taken and those who took it.

I conclude by saying that no one has proved and no one can prove that a thirty-hour week would reduce production. I insist that it would greatly enhance production in any line of business.

In addition to this, it would put millions of jobless to work, taking them out of the deteriorating atmosphere of the idle and restoring them to the desirable status of self-supporting citizens. From 1920 to 1930 the factory workers’ productivity increased 44 per cent. Since 1930 this productivity has increased another 28 per cent. In March 1935 our factory production reached 91 per cent of the 1923-1925 production, but the factory employment of labor was only 82 per cent and the pay rolls only 71 per cent. This 91 per cent of production occurred with more than eleven million workers still out of work. If production had gone to 100 per cent of normal, we would still have had more than nine million unemployed.

Who can say what labor-saving improvements another generation will develop, and who believes that it is necessary for man to do the work that can now be done with the energy of our wood, our coal, our oil, our running streams, our tides, and perhaps sometime with the energy diffused by the rays of the sun? It has been my observation that most of the eulogies and panegyrics written on the glories of hard physical labor were spoken or written by those who either had never done it themselves or who had ceased to bend their backs or strain their muscles at the very first opportunity.

The Bill and Hold Stimulus

by the Sandwichman
WASHINGTON (AP) -- Consumer spending edged up in July with help from the popular Cash for Clunkers program, but household incomes, the fuel for future spending increases, were flat.

The slight rise in spending reflected a 1.3 percent jump in purchases of durable goods such as cars, a gain propelled by the clunkers program that started at the end of July. Purchases of nondurable goods such as clothing actually fell 0.3 percent last month.
"Bill and hold" is designed to shift sales from future quarters to current ones. It's O.K. when the government does it... Actually, it is perfectly legal for private companies, too. It's just that the consequences can catch up to you.

Some participants in the Cash for Clunkers and First Time Homebuyers Credit programs are people who would have bought cars or house now anyway. Another portion are people who otherwise wouldn't have bought. But how many sales have simply been brought forward to boost current sales at the expense of future sales?

At Sunbeam, "Chainsaw Al" Dunlop sold a lot of electric blankets in the summer of 1997 and outdoor grills in the fall. But in the first quarter of 1998 Sunbeam lost $44.6 million. On June 13, the Sunbeam directors fired Chainsaw Al, "the worst CEO of all time." From Business Week July 6, 1998:
It didn't take long for alarm bells to sound. After the company reported its results in the second quarter of 1997, Shore says he began "getting pangs in my stomach." The numbers showed that Dunlap was building what Shore considered abnormally high inventory levels and accounts receivable. His trade contacts confirmed his suspicions that Sunbeam was giving lucrative terms to dealers to ship products aggressively.

"BILL AND HOLD." "I said to myself: 'Let's play the game a little longer,"' remembers Shore. "No one [had] soured on him yet. Very few picked it up, only the smart shorts at the hedge funds. I thought it would take several more quarters to play out." Shore alerted his clients to the warning signs but continued to recommend the stock because he thought investors would keep bidding it up.

He was right. Sunbeam's shares kept climbing, even though the company's third-quarter results created even greater cause for concern. Shore noted in one of his reports that there were massive increases in sales of electric blankets, usually a fourth-quarter phenomenon. Then, in the fourth quarter of 1997, he was alarmed by enormous increases in sales of grills, at a time when virtually no one buys those products. Still, Shore says, "I didn't think the story was over just yet. The market hadn't caught it."

Although unknown at the time, Dunlap was aggressively trying to push out more and more product. As the company later acknowledged, he began to engage in so-called "bill and hold" deals with retailers in which Sunbeam products were purchased at large discounts and then held at third-party warehouses for delivery later. By booking these sales before the goods were delivered, Dunlap helped boost Sunbeam's revenues by 18% in 1997 alone. In effect, he was shifting sales from future quarters to current ones. The approach was not illegal, but the extraordinary volume made it unusual. Dunlap defended the practice, saying that it was an effort to extend the selling season and better meet surges in demand. Sunbeam's auditors, Arthur Andersen & Co., later insisted it met accounting standards.

Thursday, August 27, 2009

GM Fact of the Day

To spend $200 million on manufacturing, we have to get board approval, with top management involved from an early stage. Yet we spend billions on marketing and delegate that to too many people at the lowest levels. It's insanity.

-Bob Lutz, General Motors Vice-Chairman

Stead, Deborah. 2009. "Bob Lutz, GM Salesman." Business Week (3 August): p. 16.

Beyond the f-word: Green on Black

by the Sandwichman

The Black-Connery Thirty-Hour Bill was strongly backed by the American Federation of Labor President, William Green.
"Would a Thirty-Hour Week Increase Employment?"

President Green urges the 30-hour week as a means to absorb the unemployed, and maintain industrial stability.

by William Green, President, American Federation of Labor

OUR problem of unemployment must be solved. No other question of national policy, whether political, social or economic, must be permitted to obscure this major issue until it is definitely disposed of. It can be disposed of not through half measures but only through courageous and decisive action, jointly undertaken and carried to conclusion by government, management and labor.

The 11 million unemployed do not represent the whole of the vast numbers who are affected by unemployment and its consequences. The failure of our industrial system to provide jobs for these 11 million throws on public relief some 18 million persons and the number is growing larger. Support of this army of those denied an opportunity to earn a living, cannot be continued indefinitely. While the moral degradation of the dole is sapping the sources of individual initiative and the enterprise of these millions of Americans, public credit is being drained by the unsupportable load of unproductive expenditures.

Our economic organism cannot function normally as long as such a substantial portion of the body remains totally paralyzed. The disease is too dangerous and too widespread to be treated merely with palliatives and anaesthetics. It must be cured.

The cure proposed by the American Federation of Labor is the adoption of a work-week which will absorb the unemployed, assuring wage-earners the maintenance of their incomes at previous levels. The proposal rests on two fundamental principles: First, that genuine recovery is impossible unless achieved through the normal channels of production; and, second, that industrial stability can be realized only through a broad stabilization of employment and the assurance of purchasing power adequate to initiate and sustain increased production of wealth.

Recovery and reform cannot be separated. Unbalance in our economic system is of such a degree that automatic recovery is impossible. Thirty hours is both a reform and a recovery proposal.

Founded upon these principles, the thirty-hour week program will achieve the following results:

  1. Through the shortening of hours to thirty per week, it will bring wage-earners now without work into our normal business organization;

  2. Through maintaining existing earnings, and placing effective purchasing power in the hands of those who have been deprived of incomes through unemployment, it will increase total purchasing power;

  3. By releasing a tremendous volume of pent-up consumers’ demand, it will stimulate industrial production in business activity;

  4. By giving unemployed workers jobs in our normal industries and by providing for wage maintenance, it will give the wage-earners that security which they now lack;

  5. By stimulating normal business activity, it will release the flow of credit in private business from the normal consumer, who constitutes the ultimate source of credit;

  6. It will provide material means for higher standards of living for the American people and make effective new and widespread demand for goods and services.

The failure on the part of private industries to achieve a substantial reduction in unemployment brings out the full import of the grave national emergency underlying the present situation. Our proposal is designed to meet this emergency situation.

The opposition to 30 hours follows historical precedent. People who oppose the 30-hour week on the claim that a reduction in hours of work will mean a great decrease in the volume of production, are repeating arguments which were made one hundred years ago against the establishment of the 10-hour day, and fifty years ago against the 8-hour day. These arguments were made and are now made on the assumption of a static society—an assumption which is false, as a glance at history will show. For more than a hundred years there has been a movement in this country for a shorter work week. The fight for the 30-hour week is the present phase of this century-old movement.

There are two ways in which to judge the social import of the thirty-hour week: First, its effect as a remedy for the greatest social evil we have ever known—the unemployment of millions of our population, and the inevitable degeneration of those millions from unemployed to unemployable if unemployment is prolonged. Second, its more positive effect as a means of giving the people of this country the kind of life to which any human being has a right.

Our immediate problem is to provide work. Desperate social illnesses must be met not by mere palliatives, but by correctives comparable to the need. The thirty-hour week will put millions of men and women to work; it will restore the self-respect of those men and women; it will give them confidence in themselves, in their future and in their country; it will fulfill the original purpose of the National Recovery Program.

This does not mean that the 30-hour week is merely a gigantic share-the-work movement. As such, it would lose its fundamental value as a recovery and a reform measure. Wages and hours of work must be fixed at the same time, one in relation to the other. The 30-hour week presupposes that earnings will be maintained at their present weekly, monthly, or yearly level, despite the reduction in hours. The workers must not be asked to continue to bear the burden of unemployment. Nor must the 30-hour bill be looked upon as only a relief measure. It seeks more equitable distribution of income. It is a plan to bring about basic readjustments in our social and economic order.

With the increased leisure which would come with the adoption of the 30-hour week, and with the increased purchasing power which would come from the maintenance of earnings, the workers would have time and money to function as consumers of the products of industry.

The Real Trespassers

Today 23 protesters were arrested outside Parliament House in Hobart Tasmania. They were objecting to fast-track legislation that allows for an assessment and approval of a proposed giant pulp mill to be insulated from any form of legal public objection. The wording of this new 'Pulp Mill Assessment and Approvals Act' (PMAA) is dangerouly ambiguous.

Earlier this year three distressed Tasmanian landowners, concerned about their legal position if the existence and operations of this pulp mill destroyed their businesses, launched a Supreme Court action. They sought to ask the Tasmanian government for the reasons why they granted a permit for the pulp mill to be built in the Tamar Valley. "In July this year Justice Peter Evans dismissed their action, on the grounds that Section 11 of the PMAA prevented those questions from being answered. In response to the decision Tasmanian UTAS law academic, Tom Baxter, said that it removed the rights of any citizen to obtain information about provisions placed on the mill." [1]

This latest judgement follows a consistent pattern of state oppression that has played out here for decades now. Tasmanians are increasingly being treated as 'aliens' at the State Government's 'pleasure'. We can live here as long as we don't express any demands such as a requirement for a safe and habitable environment. Peaceful protest is met with police demands to 'move on' and a refusal to follow such unreasonable demands is met with instant arrest. Or, as Richard Flanagan noted a few years ago "to [merely] question or to comment is to invite the possibility of ostracism and unemployment." [2]

On the other hand, when strong evidence was presented that a Tasmanian Premier had broken the law two years ago "the matter was never investigated" due to the lack of an independent anti-corruption or ethics body in in the state.[3]

Amidst the backdrop, described by Richard Flanagan, of unique temperate rainforests being clearfelled and then burnt with napalm. "Forests of the tallest hardwood trees in the world, eucalyptus regnans being reduced to mud and ash" to be replaced with monocultural tree plantations. Our wildlife poisoned with 1080 lest they graze on plantation seedlings; disent against a giant pulp mill that promises to further sustain this paradigm should be regarded as the highest form of loyalty.

"Ingenuous comrades, there are bad men on the Earth. If you want to be an ecologist, you have to stop being a dummy...if nothing happens even though we're entering an ecological crisis of historic gravity, it's because those who have power in the world want it to be this way."

From Hervé Kempf's 'How the Rich Are Destroying the Planet'

[1] Section 11 Once More
PETER HENNING. 21st August 2009
Subsequent to: Tasmanian political rot: the PMAA revisited

[2] Paradise lost - with napalm,,1197159,00.html

[3] Pulping the truth
Matthew Denholm | November 20, 2008
Article from: The Australian,25197,24677393-5006788,00.html

Wednesday, August 26, 2009

Edward M. Kennedy, RIP

The first time I saw him speak was nearly 40 years ago at the University of Wisconsin, where he was heckled by anti-war protestors (he was slow to become a dove and was in the near aftermath of the unfortunate incident in 1969). I remember when he was first appointed to the Senate to take over his older brother's seat at the legally minimum age of 30. Many complained about nepotism and inexperience. Certainly he had many flaws and problems.

However, over the years he overcame them and became the "liberal lion of the Senate," and I am not going to elaborate on his long record, but passing a decent health care reform would be an appropriate act to memorialize his better works. It is funny that I also remember from when he first entered the Senate someone near the family commenting that he was actually the best politician of the family, and that in particular his skills were especially suited to the legislative branch rather than the executive one. As he never made it in the latter, we do not know for sure, but he did indeed become one of the most effective and progressive Senators in history.

Blaug, Fawcett, Hicks... and Chapman

by the Sandwichman

Mark Blaug has been introduced as "perhaps the best known and most widely published historian of economic theory in the profession today."

Blaug's 1958 article, "The Classical Economists and the Factory Acts - A Re-examination" ends with the sage admonition: "There is a simple moral in all this: for some purposes a theory of economic growth is not enough."

But it is the penultimate paragraph of that article (and a footnote) that struck the Sandwichman early this morning:
In a class by itself is Fawcett's contention that pecuniary motives alone bring about the adoption of a work day that optimizes output per man-hour. This argument is open to the objection that it assumes perfect foresight. Contrariwise, Thornton's thesis amounts to a denial of perfect knowledge on the part of the entrepreneur. We should say today that entrepreneurs may have little incentive to reduce hours since the immediate effect, if wages are kept constant, is to increase costs and decrease output; whereas, a simultaneous reduction in wages under these circumstances is bound to affect efficiency adversely. Thus, employers may fail to maximize output per man-hour owing to an excessive emphasis on profit maximization in the short run. Be that as it may, Fawcett's line of reasoning clearly shows where the classical economists' treatment of hours legislation is deficient: they had no theory of the firm. [emphasis added]
The footnote to the bolded sentence above states:
See J. R. Hicks, The Theory of Wages, pp. 104-10. Even on the assumption of perfect foresight, this is a clear case of private costs diverging from social costs. There is no reason why the classical economists could not have considered this possibility; the distinction between private and social costs is implicit in Adam Smith's discussion of public works.
Only a pedantic Sandwichman would know (or perhaps care) that pp. 104-10 of Hicks's The Theory of Wages is actually a faithful précis of Sydney J. Chapman's Theory of the Hours of Labour! The irony contained in all this is that subsequently, in The Theory of Wages, Hicks went on to set aside the conclusions of Chapman's analysis, which he emphatically acknowledged as theoretically sound, on the "practical" grounds that:
...if the working day has previously been fixed at a length which is greater than the 'output optimum' the Union will not usually need to exert any considerable pressure in order to bring about a reduction" [because a} "very moderate degree of rationality on the part of employers will thus lead them to reduce hours to the output optimum as soon as Trade Unionism has to be reckoned with at all seriously (pp. 217-218).
Compare Hicks's (1932) rationale with Fawcett's (1872):
It has been proved that the workmen can succeed when they have as good a case to urge as they had at Newcastle; and the masters would, in every instance, be compelled to yield, even were it not their interest to do so, when facts can be adduced to warrant the conclusion that the hours of labour prevalent in any particular trade are too long to secure the maximum of industrial efficiency.

One Hundred Years Ago Today...

by the Sandwichman

One hundred years ago today, in Winnipeg, Manitoba, Sydney J. Chapman presented his theory of the hours of labour as his presidential address to the Section on Economic Science and Statistics of the British Academy for the Advancement of Science.

That analysis came to be considered "the classical statement of the theory of 'hours' in a free market." But, curiously economists have "forgotten" Chapman's conclusions, which rather inconveniently undermine much of their standard assumptions about the determination of hours, wages and employment.

Today, as policy makers wring their hands about whether the next economic upturn will follow the course of a succession of "jobless recoveries," they would do well to pause and consider whether the questions they first forgot, then discounted, and eventually dismissed and trivialized might lead to the "ultimate solution" to the problem of full employment.

Last October, the Sandwichman serialized his chronicle of the strange disappearance of S.J. Chapman's Theory of Labour. I have linked up the segments and provide a comprehensive link page after the jump:


Tuesday, August 25, 2009

Joblesse Oblige?

by the Sandwichman

Both the Congressional Budget Office and the White House Office of Management and Budget released economic estimates and projections today showing unemployment averaging around 10% (9.8% OMB, 10.2% CBO) next year and remaining above 8% until at least the end of 2011. Last March, the OMB estimated would average 8.1% in 2009 and decline thereafter.

In short, the unemployment rate is now much worse than anyone expected five months ago, it will get even worse and it will stay worse longer. Where are the proposals to respond to this unacceptable level of unemployment? Where is the political movement to demand a solution?

Should Journals Have To Compete For Papers?

During the course of the discussions in various locations over the matter of proper formatting of papers for journals, the point was made that in some hard science disciplines (not sure which ones) it is acceptable for authors to submit a paper to more than one journal simultaneously. This is a major taboo in economics, with many journals asking specifically if one has submitted the paper elsewhere when one submits. However, it has always struck me as a bit inconsistent that it is OK to submit book proposals to more than one publisher. My thought on how to resolve this was that book proposals involve the author making money, whereas this is almost never the case for journal articles (although in some hard sciences, one has to pay for pages published in a journal).

I am wondering what people think of this. Should economics journals have to compete for the best papers (and the person who noted this in hard sciences said that this happens)? I can see the taboo arising from the interests of editors and referees. There is already a major problem of finding suitable and willing referees who will get reports back in reasonable time (hard sciences referees also tend to get their reports back much more quickly than do economist referees). Would this make it worse? The argument for moving towards the hard science view is that it is more likely to avoid the problem many young professors face of having their paper sit for lengthy periods of time at journals, only to get rejected, and putting them in danger of not having enough publications to get tenure, even if they have written a sufficient number of good papers.

James K. Galbraith On The Current Situation

James K. Galbraith has issued a white paper based on a meeting that occurred in Paris at the Mayer Foundation this past June. It is entitled "Financial and Monetary Issues as the Crisis Unfolds," and is available at either or It is about 9,000 words in total, and the report concludes as follows:
In brief conclusion, the group of experts convened in Paris in June warns that the crisis is not over, that policies so far set in motion are not sufficient, and that the goals set by the authorities so far, which amount to a restoration of previous conditions, are neither desirable nor possible. It is time now to begin to take account of the irreversible characteristics of recent events, to chart a course of new construction instead of reconstruction, and to build the domestic and financial monetary institutions and safeguards necessary to make it possible to pursue that course.

Beyond the f-word: The Teagle Plan

by the Sandwichman

The Teagle Committee was recruited in August 1932 by President Hoover in an attempt to promoted voluntary work-sharing as a palliative to unemployment. It is part of the context for the introduction of the more sweeping Black-Connery Thirty-Hour Bill in 1933.

The Chairman of the Movement Holds That the Burden Is Carried Not Only by Men With Jobs but by Employers Also

In the share-the-work plan of dealing with unemployment, who bears the burden—the employer, the employee, or both? This is a question frequently raised in labor circles. In the article that follows it is answered by the chairman of the Share-the-Work Movement, who is also president of the Standard Oil Company of New Jersey, one of the large employers of labor.


A POPULAR commentator on current affairs in one of our metropolitan journals writes that “there has been altogether too much bunk about share-the-work.” And a telegrapher In Oklahoma writes: “I have worked seven days per week for the last ten years. I would be very agreeable to the five-day week, for I realize It is the only way we will ever put the unemployed to work. Practically every one in my profession would be strongly in favor of this, and I do not see how the railroads could object, for it would not increase their costs. If this could be put in operation at once I know of ten or fifteen men with families that have been cut off the extra board who would be called back to work. It might cut my pay 40 per cent, but I would be glad to give that for the duration of the depression.”

In these two quotations we have the destructive and. constructive views of the move to extend work-sharing throughout the nation.

Most of the criticism has turned upon the allegation that it shoulders the total cost of unemployment on those who are least able to bear it, the wage earners. Sometimes it is characterized as a device for using public philanthropy as a cloak to cover the nakedness of a scheme to lighten tax burdens. The most radical go even further in saying that the movement is a deep-laid plot to get wages down to a subsistence level now so that when business revives and workmen are in demand corporations can make large profits.

The Origin of the Plan.

Sometimes the best way to understand an organism is to investigate its forebears. Let us look at the origin of the plan to help the unemployed.

Work-sharing is not somebody’s pet idea born in the past few months and developed under the careful nursing of theorists. It became established as a product of the times at least two years ago and was in successful operation in many industrial plants before any one gave thought to the matter of attempting to propagate it for wider usefulness. It grew naturally on sheer merit as a logical means of protecting the best interests of employers and workers in a period of poor business.

In 1930 a number of manufacturers began to spread a diminishing quantity of work as an alternative to laying off employees. There was no theory enunciated and no common plan of action agreed upon by those who reduced hours and wages to keep the largest possible number at work. Such a policy was in force at some refineries of Standard Oil Company of New Jersey subsidiaries from the time that the management first faced the necessity of laying off permanently a large number of workers, due to the installation of more efficient refining units; by United States Steel, Bethlehem Steel and International Harvester, among others.

No one thought to criticize this action, to credit its motivation to 'bunk' perhaps because it was essentially so fair and natural. It was not until two years later, when an organization got behind the plan, that any one discovered sinister aspects connected with it. And then the criticism did not emanate from those affected.

Limitations Pointed Out.

As a matter of record, initiation of the movement followed the most careful consideration of its possibilities, bad as well as good. A warning was incorporated in the first piece of literature and has been repeated in every subsequent presentation of the plan, to this effect:

A remedy used unwisely may aggravate the disease for which it is prescribed. Job-sharing has its limitations. While it holds obvious and far-reaching possibilities for improving the business situation, it is an emergency measure to help those without work and should not go beyond a certain point. This limitation is for the community and employer to decide with the cooperation of the employee. Many men and women now at work have incomes barely covering the necessities of life and they cannot in fairness be asked to divide with others.

In view of the emphasis placed on the limitations by proponents, it is strange that adverse criticism should rest on the assumption that the plan will not work after this emergency is over, or on its alleged unfairness to the employee receiving too little to permit him to get along comfortably if his wages are reduced by the amount of time shared.

Again and again the committee has asked support for work-sharing only as a proved remedy immediately available for a severe unemployment crisis. We have said that as business picks up and jobs again begin to seek the man, this movement will evaporate like gasoline in the open air. In every instance where it developed that workers were getting only enough for their needs we have urged that the employer try to see his way clear to the employment of more help without putting the cost on his existing force. In a number of instances, where the labor element is not too large an item in the cost of doing business, employers have shortened the week without reducing wages.

The New Hampshire plan, one of the earliest forms of work-sharing, exacts a financial contribution on a sliding scale from those in the higher wage or salary classifications, and the money thus released is used to pay added workers in lower brackets. In another variation, work-sharing has been accomplished by reducing pay uniformly by a small percentage down to a minimum wage agreed upon. In no case that has come to our notice has the employer taken advantage of the plan to reduce his operating overhead. On the other band, frequently he has assumed part of the cost in order to do his utmost for the relief of unemployment.

Parenthetically, it might be remarked here that the fellow who stands on a sidewalk finding fault with men who are trying to rescue persons involved in a street accident is not contributing anything helpful to the situation. If he knows a better way of effecting rescue he should take his coat off and go to it. To date, none of the critics who have sought to discredit the share-the-work movement has proceeded beyond efforts at belittling. If they have ideas for bettering a distressing situation, they are strangely reticent after finding fault with what others are doing.

Whatever its faults, no one can say the Share-the-Work Movement exists only as a theory. It got to work immediately and has produced far-reaching results exactly in keeping with its objectives. A single participant has 50,000 people In his plants and offices who would not be on his payroll but for his conviction that the times required a division of jobs and payrolls in the common interest; another, 35.000.

While the accomplishments in taking the idle from the street and putting them into jobs have not been so striking, the total thus employed, made up of a few here and a few there in various lines of activity, nevertheless is substantial. It will be much larger if employers of what is euphemistically referred to as the white-collar class will participate as generally as have the manufacturing industries.

Sponsors of the movement have never claimed that they are doing something of permanent value. They advocate it in spite of the feeling that, if carried too far, it has definite points of weakness. The driving thought is that we can meet an emergency situation through use of an emergency measure.

Less frequently the plan has been criticized because it contains no provision for increasing wages. No doubt this would be highly desirable in many lines and would greatly stimulate purchasing by those receiving the higher rewards. How a workman is to persuade his employer that he deserves more pay, with two or three of the idle waiting for his job at lower wages, the critics do not say. It is the man out of work who answers those who ask why the wage scale is not raised in cases where employees receive too little to participate in work sharing.

Some of the opposition to dividing work would disappear if a few fundamental facts about unemployment were thought through. No amount of shuffling him about will put the unemployed man where he is not a burden upon his fellows. We have in the United States a very large number of idle—exactly how many nobody knows because it is impossible to complete a census. Perhaps 10,000,000 is the best estimate. This is about one-fourth of the number gainfully employed outside of agriculture at the height of business activity.

Monday, August 24, 2009

Kepler's Astronomia Nova

by the Sandwichman

I was under the impression that Copernicus definitively established the idea of the heliocentric universe. However:
In Kepler's day three models existed to explain the observed motions of the "wandering stars." However, no clear criteria of physical "truthfulness" existed to discern which of these models corresponded to the actual, physical universe. Each model could be used to predict the future longitude and latitude of planets in the sky for a few years out. All of them became less accurate as time progressed.
Copernicus's model was no more accurate than Ptolemy's because he built his system on Ptolemy's 1,500-year old data!

It was Kepler who painstakingly, over the course of 10 years, worked out the orbits and orbital planes of Mars and Earth and thus established a system for accurate measurement of the movements of the planets solar system.

What was the key to Kepler's intellectual rigor? The "difference between the straight and the curved" or the importance of "incommensurable magnitudes." Now, if we assume, "for simplicities sake" that a line is as good as a curve, we might be able to make short-term predictions, but we're going to miss something essential.

Beyond the f-word: The Odenheimer Plan

by the Sandwichman

Below is the proposal made in November 1932 by Sigmund Odenheimer, a New Orleans cotton manufacturer and written up by Thomas Dabney in a book titled Revolution or Jobs?. Back in the Great Depression, even capitalists proposed radical solutions to unemployment!
We are confronted with a great emergency. It is said that the unemployed in this country equal in numbers the unemployed in all European countries. Nothing appears to be in sight to alleviate this condition. From a humanitarian standpoint, it is the most severe shock we have yet experienced. Viewing it in the light of safety to our institutions, and of the permanence of our present civilization, it is a menace of incalculable proportions. From what I can learn, the problem is growing worse.

There is only one remedy, and I propose that remedy.

It is, Jobs for every one, every week in the year.

We will need legislation to open these jobs; we will need an amendment to the Constitution.

That amendment would give Congress the power to legislate on hours of labor.

Only our government can meet our need in this critical time.

This amendment passed, Congress would create an 'Hours of Labor Commission.' The members would be appointed by the President, and would be responsible to him. The law would make it mandatory that one week after the Commission was appointed, it would issue a proclamation that the hours of labor in all industries, work shops, stores, etc., employing a minimum number of persons—say five—should not exceed a certain total a week.

Penalty for violating this law would be fine AND imprisonment for the employer.

The work-week would be just long enough to give jobs to every one. My estimate is that we need a 20-hour week now. Industry and business could operate as many hours a week as they wish; they would only have to put on more shifts.

This regulation of the work-week would be permanent. The Hours-of-Labor Commission would make the work-week short or long, as economic conditions changed. No matter how much or how little production—that is, work—there was, everybody who wanted a job would have one. We would lose the long line of unemployment; never again would we fall a victim to that unnecessary stupidity.

The present emergency justifies the immediate calling of Congress to pass on the submission of the Constitutional amendment to the Legislatures of the different states. It justifies the immediate convening of the Legislatures, to take action on the amendment.

With everybody employed, the nation would be freed of the terrific strain that is now almost causing it to fly into a thousand pieces, like a crystallized wheel.

The country would be freed of the burden of public and private contributions to support the destitute.

The unemployed would be freed of the misery of doubt about the next meal.

Those who are employed would be freed of the agony of fear that they will lose their jobs.

We would have a confidence which, by comparison with our present condition, would be the return of prosperity.

We would see an immediate pick-up in consumption, for two reasons:

First, employment, even on part-time, would give our present unemployed more money to spend than they now have under the piddling dole of the Reconstruction Finance Corporation;

Second, those who are employed would feel free to spend their hoardings for things they need but are doing without, because they would not be afraid of being thrown upon the street to-morrow.

I do not propose that a full week's pay should be given for a part-week's work. That would be a shock to the economic system which I do not believe it could stand without preparation.

It may be said that this plan would put no more purchasing power into the country than it now has, because it merely divides the present wages among more persons. That is true, in theory, and it would be true in practice, but only for a short time.

I believe that consumption would be so increased by the removal of the fear to spend, that there would be an instant increase in production. This would mean a call for more man-power, which would mean a longer work-week and more pay.

I believe that business would be so stabilized by this confidence, and by the elimination of dumping and rushing upon greater losses, that all employers would be justified in immediately increasing wages at least ten per cent, and probably twenty-five per cent, or even more, after a few weeks.

As conditions improved, I believe we would work into a higher rate of pay than we have seen in the past. The trend of wages has been upward for a century, and if we help that trend, we will be contributing impressively to the development of our country, the enjoyment of its resources, and the living standards of the people who would measure their wealth by consuming power, not by the standards of the past.

Fiscal Policy and Recoveries in Various Large Countries – a National Review Nitwit Opines Before Checking the Facts

It is been a long time since I ventured over to the National Review’s writings on economics but a “friend” suggested I check out Mark Steyn’s Why the Stimulus Flopped:

Meanwhile, in Brazil, India, China, Japan, and much of continental Europe the recession has ended. In the second quarter this year, both the French and German economies grew by 0.3 percent, while the U.S. economy shrank by 1 percent. How can that be? Unlike America, France and Germany had no government stimulus worth speaking of, the Germans declining to go the Obama route on the quaint grounds that they couldn’t afford it. They did not invest in the critical signage-in-front-of-holes-in-the-road sector. And yet their recession has gone away. Of the world’s biggest economies, only the U.S., Britain, and Italy are still contracting. All three are big stimulators, though Gordon Brown and Silvio Berlusconi can’t compete with Obama’s $800 billion porkapalooza. The president has borrowed more money to spend to less effect than anybody on the planet.

Of course the absolute value of our stimulus was larger than that of the UK or Italy but I have to wonder if Steyn bothered to read something Paul Krugman offered:

A number of commenters have argued that Germany’s slight growth in the second quarter proves that you don’t need a fiscal stimulus to fight the slump. Many points here - Germany had a much deeper slump than the US, etc.. But one thing I gather people don’t know is that there’s a dissonance between what Germany says and what it does: the Finance minister denounces Keynesianism, but at least according to the IMF Germany’s actual stimulus package is quite substantial — comparable to that of the United States! Meanwhile, France has suffered a smaller slump, 3.1% over the past year. Not too surprising, given that France didn’t have a big housing bubble and isn’t as dependent on durable manufactured exports as Germany.

Krugman’s post offers two insights that Mr. Steyn seems to have missed: (1) movements in real GDP depend not only on the size of the fiscal stimulus but also on the economic shocks it had to contend with so we should not be surprised that France’s economy is recovering as ours was still declining last quarter (albeit by not as much as before the fiscal stimulus started to work; and (2) Germany did have significant fiscal stimulus. Paul also provided a link to this IMF report with a table entitled “Stimulus Packages in Large Countries (in percent of GDP)”. The totals for 2008 to 2010 for the U.S. and Germany were 4.8% and 3.4% and note that for China, this was 4.4%. Yet Steyn appears to think China did not have significant fiscal stimulus. On the other hand, he thinks the UK and Italy did but their totals were 1.5% and 0.3% respectively as compared to France’s total which was 1.3%. Also note Japan’s total was 2.2% but Steyn thinks Japan has less fiscal stimulus than either Italy or the UK.

It would seem one does not need to know much about the size of the actual fiscal stimuli in different nations to write a comparative analysis on the topic for the National Review.

Sunday, August 23, 2009

Claiming the Social Security Benefits Will Fall

Stephen Ohlemacher must be out to scare people with Millions face shrinking Social Security payments:

Millions of older people face shrinking Social Security checks next year, the first time in a generation that payments would not rise. The trustees who oversee Social Security are projecting there won't be a cost of living adjustment (COLA) for the next two years. That hasn't happened since automatic increases were adopted in 1975. By law, Social Security benefits cannot go down ... Cost of living adjustments are pegged to inflation, which has been negative this year, largely because energy prices are below 2008 levels ... All beneficiaries received a 5.8 percent increase in January, the largest since 1982.

The Social Security Administration states:

Beginning in 1975, Social Security started automatic annual cost-of-living adjustments. The change was enacted by legislation that ties COLAs to the annual increase in the Consumer Price Index (CPI-W) ... Based on the increase in the Consumer Price Index (CPI-W) from the third quarter of 2007 through the third quarter of 2008, Social Security and Supplemental Security Income (SSI) beneficiaries will receive a 5.8 percent COLA for 2009.

CPI-W is the Consumer Price Index for Urban Wage Earners and Clerical Workers – if one is interested in how this index has behaved of late, check this out. When prices rose, nominal benefits also rose so as to keep real benefits the same. In the last year, this price index has declined and appears to be expected to decline for a while. So with unchanged nominal benefits – wouldn’t a better title be real benefits are expected to increase?

Ohlemacher may have a point if the relative price of premiums for the Medicare prescription drug program increases substantially but by his own account, the extra premiums do not appear dramatic enough to justify his scare title.