Sunday, June 17, 2018

Remembering George Leighton

George Leighton, a crusading civil rights lawyer and later a judge, died earlier this month at the ripe age of 105.  He was given an admiring obit in the New York Times.  As stirring as it is, the recap of his life left out one of his longstanding passions: chess.

Leighton was a fixture for many years in the Chicago chess scene.  He was rated an “A” player—not a high flyer like a master or grandmaster, but strong enough to beat the majority of amateurs who play in occasional tournaments.  I played him once in an open event.  To be honest, the game was rather one-sided.  Leighton defended the black side of a Stonewall formation, with black pawns on c6, d5, e6 and f5.  He never got much going on the kingside, and meanwhile I infiltrated on the queenside, took over the center and won in a walk.  I don’t have the score, but my memory is clear; the game was played back in my hippie days and I was a bit apprehensive playing a judge.

But I also remember Leighton himself, his calm demeanor and respectful treatment of the scruffy kid, a fraction of his age, sitting across the board.  And gravitas—I don’t think I’d every experienced gravitas like that before.  I thought to myself, if I ever find myself in front of a judge, I hope it’s someone like him.

This was almost 50 years ago.  I can list only a handful of the hundreds of players I encountered back then, but George Leighton is on that list.

"Deeply Disturbing"

It's not a crime if you brag about it on T.V. In fact, it's hardly worth mentioning.

What is this about?

“We don’t know the answer, but we hope the inspector general will find out.”

Does Greg Mankiw Know the History of U.S. Trade Policy?

Greg offers us a nice speech by Saint Reagan. While Ronald Reagan preached free trade, Jeffrey Frankel notes that his actual record was rather protectionist. The discussion is an excellent account of how Republicans have been protectionist since 1854. But the really weird thing in Reagan’s discussion was how he claimed the U.S. has been a free trade nation since 1776. Of course Congress passed the Tariff Act of 1789:
One of the major early actions of Congress was the passage of the Tariff Act of 1789, which was designed to: raise revenues for the new government by placing a tariff on the importation of foreign goods (averaging more than 8 percent); encourage domestic production in such industries as glass and pottery by taxing the importation of those products from foreign sources.
Someone at Harvard’s history department should visit Mankiw’s office.

Wednesday, June 13, 2018

The Singapore Deal

I have refused to forecast what two unpredictable leaders will do, and I shall continue that, other than to say I do not believe North Korea will denuclearize.  Otherwise, well, the written deal was mostly aspirations while there seem to be disagreements about the verbal deals.  DPRK says US has agreed to lift sanctions but US says no.  As it is, at least it happened and there will be more talk, according to the paper agreement. As some famous person said (forget who), "Jaw jaw is better than war war."

So, let me make people aware of a useful source, which has been putting out things either ahead of regular media or even in disagreement with it recently.  This is North Korean Economy Watch at . Here are some tidbits.

They were the first to report that Chinese-DPRK trade began increasing after Kim Jong-in met with Moon Jae-in at the DMZ.  "Maximum pressure" has been over for some time already.

A further sign that max pressure off is that there were stable prices in DPRK in the month of May, no noticeable shortages.

A group that Kim Jong-in may be paying attention to is the elite in Pyongyang who now have higher incomes and access to western goods.  They would like more.  The rest of the population does not matter to him.

ROK companies are hot to get into DPRK.

ROK has a plan to engage in infrastructure investment in DPRK, much of this for transportation, focusing on three corridors, all of them going north-south: one in the west going to China, one in the center focusing on between the two Koreas, one in the east focusing on reaching Russia at Vladivostock (I have seen commentators unaware that DPRK and Russia have a common border, if just a small one).

Finally, all the talk of DPRK opening up and liberalizing looks overblown, at least in the near term. Just before the summit a major meeting there involved strong statements that there will be no opening up or moves to more marketization, probably to dampen down expectations of most of the population given how much foreigners are talking about it. The ROK companies may need to wait awhile.

Oh, and as a further point, in recent global hacking competitions, North  Korean teams have won.

Barkley Rosser

Is Strengthening Labor Good for Development?

Servaas Storm, who’s always worth reading, has posted on the INET website a summary of a new working paper he coauthored.  This issue goes way back with me—I first started looking into and writing about the labor rights/wage/trade/development nexus back in the 1980s.  Working on my own, I had a lot of false starts, and I’m happy to see others digging much more deeply today.

I won’t comment on the substance of this paper, but I think an important piece is missing: how dual economies articulate, and in particular the role of clientelism.

Countries in which formal sector jobs are highly valuable but scarce, in a sea of abundant but unremunerative informal employment, have to have some mechanism for allocating them.  Some classic economic models to the contrary, it never happens through lotteries.  My hypothesis, based on what I’ve seen and read, is that the predominant mechanism is clientelism.

A brief digression: Most of the literature on clientelism appears in political science, where it refers to the exchange of votes for personally targeted services or transfers by politicians.  I use the term to refer to a much broader phenomenon, the exchange of personally targeted benefits in return for the performance of loyalty between patrons and clients.  Patrons have access to resources from which they can supply benefits to clients, while the extent of client loyalty is a determinant (but not necessarily the only one) of how many resources a patron can command.  Conceptually, the client-patron relationship is a dyad, although clientelist systems are constellations of such exchange relations across whole populations: many dyads, multiple levels (patrons are clients of higher-level patrons), competing networks.

A large gap between formal and informal employment increases the tendency for clientelism to expand as an allocative system.  Clientelism is not all bad—it can moderate frictions that market or formal administrative processes generate—but to the extent it replaces these “modern” alternatives it reduces social efficiency.  For instance, allocating scarce formal sector jobs through client-patron exchanges is relatively harmless if the people getting the jobs are no less qualified than those left out of the system, stuck in the informal sector.  If clientelist networks override formal qualification (administrative) or competitive performance (market) criteria, however, they degrade outcomes.  It’s a matter of degree.

From this perspective, the most important point about labor regulation in a developing country is that it should not exacerbate imbalance, increasing the gap between the formal and informal sectors and loading more weight on clientelist mechanisms.  The best forms of regulation are either universal or written to apply at least as strongly at the bottom of the labor market as at the top.  I’ve written a bit about how that can be done in the realm of health and safety, and there’s no reason it can’t also guide policy in wage regulation, union rights and all other aspects of labor policy.

For instance, take minimum wages.  By definition, these apply only in the formal sector, and if the effect of raising them is to intensify the formal-informal gap, that can be a problem.  But there’s a way to avoid this: for every increase in the minimum wage, pair it with an increase in income transfers or similar social protection measures for those outside minimum wage coverage.  Hold the gap constant or reduce it.  It’s not impossible once you know what you’re aiming at.

My personal experience is that, once you’ve trained your eyes to see clientelism, you notice it everywhere.  It’s not confined to low income countries or economic goods.  It isn’t necessarily harmful, although, when it metastasises and displaces other social and economic arrangements, it can be deadly.  I suspect it is the main factor in differences in x-efficiency, and if true, this makes it one of the main determinants of the wealth of nations.  I find it incredible that organizations like the World Bank could dispense reams of development advice without considering how its proposals will pan out in a clientelist world.

Monday, June 11, 2018

Backstabbing Over Cows

What is it with cows?  I mean their flatulence does add to global warming, but they seem so benign, chewing their cud while producing milk and meat.  Why is it that national leaders get into fits of backstabbing over them, or especially over all that milk they produce?

Well, of course, that is it; they produce a lot of it, and a variety of products come from the milk, which sometimes markets do  not want as much of as some of the other products. This is probably the main reason that in international trade agreements, where highly protected and subsidized agriculture is always a difficult topic, dairy products are often at the top of the list.  For years, the predecessor of the EU, the EEC had "butter mountains" from all the excess butter governments bought to stabilize the market and keep the Danes and the  French from stabbing each other in the back too viciously.  The US also  had a butter mountain problem for a long time, much of it stored in Madison, Wisconsin where it caught fire back in 1991 and burned for 8 days.  Yes, we must protect those Wisconsin Dairy State cows as Trum is struggling to dop!

Back in 1972, when I was a grad student at U of Wisconsin, then Wisconsin Senator William Proxmire thought briefly of running for president (he didn't in the end) and showed up at the econ department one time to give a speech.  For those who do not know, he was very popular and although a Dem had a bipartisan appeal.  A major part of this was a reputation he had for being very clean and not taking money from special interests.  He had an image of saving taxpayers money as he handed out "golden fleece" awards to people or entities he determined were wasting public funds.  So, of course, in his speech "The Prox" went on and on about all his money saving efforts.  At the end one prof asked him, "Senator Proxmire, if you are so much for efficiency and saving money, why do you support dairy import quotas?"  To this The Prox just smiled and said, "Well, after all, I am the senior senator from the state of Wisconsin."

As it has been in Europe, so between the US and Canada since NAFTA a handful of commodities have off and on been the center of trade disputes, with restrictions holding on both sides.  Lumber and dairy have probably been at the top of the list, althought technically dairy is outside of the NAFTA.  As it is, both sides have heavily subsidized and protected dairy in various ways.  Nevertheless, based on rising exports of ultrafiltered milk that can be used to make yogurt and cheese from the US to  Canada, the US has managed to build up a $400 million annual surplus in dairy products trade.  Last year the Canadians reacted to that and engaged in a reclassification of that type of milk and made changes in their internal pricing, which has led to a decline of exports of this product from both New York, home of Senate Dem leader Schumer, and from Wisconsin, home of House Speaker Ryan.  Ah ha, even thought the US dairy trade surplus remains substantial, this is clearly a stab in the back!

So now Canada is the worst enemy of the US and its leader deserves to go to hell, although the now heart-attack-stricken Lawrence Kudlow suggested that perhaps Trump engaged in his tough rhetoric and refusal to sign the G-7 communique after he left to show Kim Jong-In he is a tough guy, able to beat up on the oh so polite Trudeau who refused to buckle while protecting his cows.  Oh, once again those apparently benign beasts have shown us how truly dangerous they are, weapons of mass destruction for sure.

Barkley Rosser

Robert J. Samuelson Also Exaggrates Social Security Problems

Not really a surprise, after all, it is Monday, and RJS has been at this for quite a long time at his post at WaPo.  But the recent release of the Trustees' Report has not only gotten the Associated Press all bent out and shrieking "insolvency," but I think with the push coming from the recent massive tax cuts that are swelling the budget deficit, the usual old gang of "cut the entitlements!" VSPs are out in force and raging pretty hard.  So Samuelson is denouncing "The Cowardice of the political class," just unwilling to cut those benefits like they should, darn them, and calling for us "to rewrite the contract between the generations," even thought about the only new thing in the report is that indeed Medicare is looking more financially troubled, and it has always been in much bigger trouble than Social Security.  But it and Medicaid involve medical care, and we know that is a political nightmare, so time to go  after those Social Security benefits in the name of helping out those young people by cutting their future SS benefits now, because otherwise they might get cut later.

Dean Baker has an excellent post on this today (I am never abler to link to him for some reason) at Beat the Press, and makes lots of valid and excellent points about how totally misguided RJS is, which I shall not repeat here.  I shall simply pound the point in more with some further observations.

One is that while RJS starts out going on about the Trustees report as if it is telling us something new, it really has no new news about Social Security.  While he hyperventilates quite dramatically, late in the column he admits that "The trustees' reports don't help us much, because they focus on the minutiae of various trust funds rather than fundamental questions about the proper role of government" (which should not be to help old people so darned much!).  Darn.  The "us" here, of course is all these ranting VSP ninnies who keep crying out that the sky is falling so the benefits must be cut, but the report simply does not say anything of the sort or particularly support such a push.

Also near the end, RJS does admit that "Yes, taxes have to go up..." but that is it on the tax issue, with not a whisper about the massive tax cut we just had.  No, undoing that nonsense is not the priority, it is cutting those darned benefits now! Maybe we could have cut the benefits more gradually if we had started way back when the VSPs started all their whining about this, but no, now only drastic action will forestall SS recipients in 2034 receiving real benefits equal to what they do now (no, RJS has never heard of the Rosser equation, poor thing).

As it is, he does admit that the art of all this that is rising the fastest is the medical care part, but he does not even nod at doing anything about that, because cuts in Medicare or Medicaid get borne by doctors and hospitals.  Of course, Dean has long pointed out that patents on drugs and the forbidding of doctors to immigrate are major contributors to the outlandish medical care costs we face in the US, but RJS has nothing to say on this.  That out doctors get paid twice what those in other high income nations do?  Not a problem, instead to insure their high incomes we need to cut Social Security benefits, and the sooner the better!

Finally, of course, these hysterical ninnies never compare what is going on in the US with what goes on in other high income nations.  Of course the medical cost situation is simply an outrage, with us far above them for much poorer health outcomes, but that cannot be touched.  But even on Social Security, US demographics, including the retirement ager he wants to see further raised, look good compared to other high income nations.  Many of them pay more than we do, have their people retire younger, have longer life expectancies (RJS is very upset that people are living longer in the US, oh no!), lower birth rates, and lower immigration rates (or used to), but somehow these other nations have managed to pay their old people what they promised them, and with most of their economies not exactly falling totally apart. Again, after the baby boomers finally get fully retired by the mid-2030s or so, the increase in SS payments will only amount to about 1% of the US GDP, not exactly an overwhelming amount, although RJS like others prefers to throw around scary raw numbers rather than a percentage that shows what the order of magnitude of what is involved here really is: not that big of a deal, and certainly not worth all his moaning and wailing and gnashing of teeth.

Yes, the US political class is cowardly, but not because it is afraid to go after Social Security.  I do not think I have to list the many ways they are cowardly that are far worse.

Barkley Rosser

Saturday, June 9, 2018

The Wage[s]-Lump Doctrine -- still dogma after all these years

"The wage-fund doctrine was the quintessential product of what Marx termed vulgar political economy; a dogma concealing real economic relations, on the one hand, and justifying them, on the other. It was a transparent effort to disarm the working-class movement, and an attempt (largely successful) to rally public opinion behind bourgeois resistance to the demands of working people for a better life. It was the principal ideological weapon in the arsenal of capital in its disputes with labor over the level of wages." -- Kenneth Lapides, Marx's Wage Theory in Historical Perspective
The lump-of-labor fallacy CLAIM is the wage-fund doctrine in disguise. The fallacy claim's conclusions about the ultimate futility of workers' demands are indistinguishable from the doctrine's conclusions.. Only the premise from which those conclusions are deduced has been altered. Instead of asserting a certain quantity of work to be done, the fallacy claim attributes that fixed assumption to a designated scapegoat: workers, unions, populists. The claimants' own assumptions are left undefined, as an amorphous "in reality."

That undefined "reality" is a given amount of capital for employing workers that can only be increased or decreased as a result, respectively, of a decrease or increase in the cost of labor. That is to say, a wage-fund lump!

The wage-fund doctrine was debunked in 1826 by Sir Edward West. It was "recanted" in 1869 by John Stuart Mill. The lump-of-labor fallacy CLAIM was shown to rely on the discredited fixed wage-fund assumption by Charles Beardsley in 1893. So why do economists (& CEOs) still cling to this dogma?

Because it conceals real economic relations, on the one hand, and justifies them, on the other.

Because it disarms working-class movements and rallies public opinion behind bourgeois resistance to the demands of working people for a better life.

Because it is the principal ideological weapon in the arsenal of capital in its disputes with labor over the the hours of work.

Wednesday, June 6, 2018

AP Exaggerates Social Security Problems

Dean Baker at Beat-the-Press has pointed out (sorry, not able to link to it) that Associated Press put out a tweet that presents an essentially hysterical story about future prospects for Social Security following the recent release of the Trustees.  This report says that as of 2026 Medicare and as of 2034 Social Security will face a "shortfall."  However, the AP tweeted that what they face is "insolvency."  Needless to  say, "insolvency" is much more serious than "shortfall" and simply feeds the overblown hysteria that so many think about these programs, feeding political pressures to mess with them. 

The new report provides the latest update on what would happen if the forecast happens and nothing is done.  Given that the projection is that Social Security benefits are set to increase by about 20% by 2034, if somehow nothing were done and benefits were set to be reduced so that they could be paid by expected tax revenues, the benefit would be cut back by about that amount to about what they are now in real terms.  In short, this is not the hysterical crisis AP suggested or that so many think is out there. We have seen this nonsense before.

of course, Dean accurately points out that by law the benefits must be paid. This may also be a time to remind everybody that the US is really in much better shape demographically in terms of life expectancies, retirement ages, and expected population growth rates than most other high income nations, with such cases as Japan and Germany in much worse shape than the US.  However, all these nations are making their public old age pension payments.  In the case of Germany the payments are higher than in the US, but the payments are being made, and its economy is humming along very well.  There simply is not basis for any of this hysteria in the US regarding the future of Social Security.

Barkley Rosser

Friday, June 1, 2018

Rejoinder To Rauch's Response To Me On The Happiness Curve Overhyped

On May 15 I posted here on "Overhyping the Happiness Curve," a critique of the recent book by Jonathan Rauch, The Happiness Curve: Why Life Gets Better After 50. After it was linked to on Marginal Revolution, author Jonathan Rauch wrote a Response to my post on May 25, which was also linked to on MR. I did not immediately reply as I was in Santa Cruz and did not have my copy of the book. I shall now comment on his reply.  He makes three main points.

The first is that he says I made a false dichotomy between unadjusted and adjusted studies of the age-happiness relation, and that I failed to recognize his discussion on pp. 69-75 of how factors besides age affect happiness.  Certainly he recognizes that other factors impact happiness, even as his focus is on the particular effect of age, which requires focusing on adjusted relations taking account of the impact of those other factors. He cites Blanchflower and Oswald (the apparent originators of the U-curve idea and among its strongest advocates) to the effect that going from age 20 to 45 reduces happiness by as much as a third of what becoming unemployed does, which is a lot.  Some other studies along such lines are cited.  Then a formulation from psychology is brought in that says that happiness is a function of one's "set range" (basically one's general happiness propensity), of circumstances not under one's control, and of things under one's control.  While he cites Martin Seligman, this argument has been widespread in psychology, with a common finding being that 50% is the set range, 10% is circumstances, and 40% is under one's control, although Rauch does not mention this finding.  As it is, he proposes time as a separate variable, although offhand it would seem to fit in the category of those things we cannot control, "circumstances."  (I have some serious questions about what is under our control and what is not, but let us leave that aside.)

This is all well and good, more or less, but it does not deal with the point I made that a quite a few of these other things that can impact happiness tend to be pushing one towards being happier in middle age than not, which can easily lead to a finding that age makes one unhappy in middle age when one pulls out the estimated effects of these other variables.  Again, we are talking about employment, income, marital status, health, and broader social relations, among others.  Rauch simply never notes this, although it is implicit in his contrasting a global finding that shows unadjusted happiness tending to gradually rise from 20 to 64 with a global finding adjusting for non-age factors that shows the U-curve bottoming at 50.  So, yes, he talks about how other factors are important, but he never addresses their own relationship with age, which is what makes this so difficult to parse out.

The second is that he is unhappy that I said he "cherry picked" studies.  Let me withdraw this term as I recognize that it suggests something worse than what he has done.  Bad cherry picking involves taking a container mostly containing raspberries with just a few cherries, and then  picking out only or mostly cherries and declaring, "Ah hah!  I have container full of cherries!"  This is not what he has done.  What he has done is more like taking a container that is 85% cherries and 15% raspberries, and only picking out maybe 1% raspberries so as to be able to say, "While there may be a very few raspberries, it is nearly all cherries!"  Indeed, he accuses me of cherry picking because I mentioned only one study that questioned his findings, Steptoe, Deaton, and Stone in The Lancet.  But as he admits there are indeed more, although he dismisses them as being "few" and "mostly old," and so on.

I agree that the number of studies that find a U-curve with age in high income nations after adjusting for other variables way outnumbers those that do not.  But, in fact Rauch in his response partly mischaracterizes Steptoe et al, which is quite recent.  He says they do no adjusting for other variables, but in fact they do, although not for as full a set as other studies do.  They mostly adjust for health, which is not surprising given that The Lancet is one of the world's leading medical journals.

As it is, some of those other doubting studies are also by some prominent figures in the field, aside from Nobel Prize winner Deaton.  Probably the most prominent of all is a figure Rauch quotes and discusses, while never mentioning his views on this matter of the age relation: the father of happiness economics himself, Richard Easterlin, whose paper on this was published in 2006 in the Proceedings of the National Academy of Sciences. Here is the irony. I largely accept the argument that there is a U-curve with age in high income nations after adjusting or other variables (and in many even with no adjusting).  I have even argued for it with Dick Easterlin in person about  a year and a half ago.  I was struck by how strongly he disputed the proposition, although indeed he was doing so on the basis of the unadjusted relation.  It is probably the case that what really lay behind my complaint on this matter was a feeling that I needed to channel somewhat the views of Easterlin unreported in the book.

The third response involves the matter of country comparisons, with him citing more recent work by Blanchflower and Oswald on groups of countries supposedly showing the U-curve holding after adjustment.  I do not wish to get into a detailed discussion of their findings other than to note that these relations varied quite a bit across the groups and some did not seem to be as strong as they claim in their summaries, although mostly it seems to be there.  This was indeed the issue where I dragged in Steptoe et al, who failed to find U-curves in some places that Rauch claimed to find them (or he did not mention).  On the particular case of Latin America he uses Carol Graham, who I think is more expert on Latin American data than is Angus Deaton, although again these studies vary on which measure of happiness one is using, time periods, precise nations, and which other variables are being adjusted for and how.  The U-curve shows up, so the argument for a "tendency" has genuine basis (which I granted in my original post), but Rauch has tended to downplay the amount of questioning or disagreeing studies, not wishing to distract readers with how unsettled much of this still is.

Let me close with two comments.  The first is that as I said I think he is basically right on a carefully stated tendency to a U-curve in many nations, and the fact that I argued with Dick Easterlin on signals my basic agreement.  So really my main complaint has been that there was insufficient caveating of all this in the book, although there was some ("Don't be Russian!").  I get it that this messes up the story, but I really think it would not have been that hard to recognize more these contrasting studies, even if this was largely confined to the endnotes.  I realize this may make me seem like Will Ferrell in the old Saturday Night Live skits of recording music where he would always say, "More cowbell!"  Here I am saying "More caveating!"

The final point is that I really do think it is an excellent and well written book.  It has a broad perspective, and the discussions in the later parts are wise and useful.  I did not and do not criticize them.  Indeed, while visiting family I discussed this with a daughter who is a psychiatrist in a VA hospital and who is very interested in this topic.  I strongly recommended the book to her.  So, maybe it could have used more cowbell, I mean caveating, but it is largely a worthy and admirable work.

Addendum:  In private communication with the parties mentioned in this post, David Blanchflower informs me that he and Andrew Oswald have convinced Richard Easterlin that there may be a U-curve related to age in some countries, even for unadjusted data, and is for adjusted data in many others.  It is my observation that Easterlin's concern relates to policy, in particular strong evidence that nations that seem to have declining age-happiness curves have poor social safety nets for old people, and that when those are put in place, happiness for older people improves and one starts to see more of a U-curve, with China perhaps being a recent example.

Barkley Rosser
June 1, 2018

Wednesday, May 30, 2018

When Big Sur Met Silicon Valley: Remembering The Santa Cruz Nonlinear Dynamical Systems Collective

I spent Memorial Day weekend with extended family members in Santa Cruz, near where many of them live, but with none of them right there  It was most pleasant, but explaining the nature of the place and the University of California branch there led me to think more deeply about its real meaning and foundation.  I am not aware of anybody else saying this before, but it struck me that Santa Cruz is a place where some decades ago Big Sur met Silicon Valley.

The place remains a very pleasant Northern California beach town, where tourists like to go and long have.  It was fully crowded this past weekend, difficult to get to the Wharf and Boardwalk downtown and Natural Bridges State Park.  All of this has little to do with these other matters.  But sharp local  observers note that there is an "old" and a "new" Santa Cruz.  The old is symbolized by older wooden houses, some with funky sculptures in the yard and funny, often leaning, mailboxes. This all has a touch of Big Sur somewhat further south along the coast.  One can run into Air Bnb landlords who are cameramen for the Dalai Lama and talk about how well they knew Timothy Leary and own 41 acres in Big Sur and so on.  Yes, really.

The new Santa Cruz is symbolized by newer more expensive places, some with funky mailboxes, but they are not falling over.  Many of these people often earn their substantial money over the Coast mountain range in Silicon Valley a half an hour away.  Big Sur may have been there first, but Silicon Valley is fully there now, and the place is gentrifying fast,.

As it was, from the time that Silicon Valley first got itself going in the 1960s and 1970s, there was a parallel development in Santa Cruz that both fed off of that and in its own way fed into it, if not as much as Stanford University did.  This was the founding in 1966 and subsequent early history of UC-Santa Cruz, sitting on top of a hill northwest of the center of town.  From the beginning it combined an ideal of innovative and progressive education with a highly mathematical, scientific, and technical focus with much emphasis on computers, perfect for its proximity to the developing Silicon Valley.  The former fed off the nearby Big Sur with such places as the Esalen Institute, which was always about serious intellectual and philosophical matters (and still is) as well as the more famous artistic and beat/hippie carryings on there.  On the technical side a curious aid for UCSC upfront was the propitious proximity of the Lick Observatory on Mount Hamilton, then second only to Mount Palomar in size, which helped attract top astronomers, who helped bring in the physicists and the mathematicians and computer scientists.

This curious confluence had a special period in the late 1970s and early1980s, one of those serendipitous agglomerations.  Four physics grad students showed up who would had similar interests and would come to form the Santa Cruz Nonlinear Dynamical Systems Collective, also known as the Santa Cruz Chaos Cabal.  First in the door was Robert Stetson Shaw in 1975, who would receive a MacArthur Fellowship in 1988.  He was at the Institute for Advsanced Study in Princeton for awhile. In 1984 he published the book, The Dripping Faucet as a Model  Chaotic System.  According to James Gleick in his 1988 (pb in 2008) Chaos: Making a New Science, which has one of the longest discussions of this group available, Shaw was not just the first in the door at UCSC, but was the real intellectual star of the group.  However, googling him pretty thoroughly shows him basically disappearing after about 1988, no publications, no places of work, although it appears he is still alive, with a younger brother, Chris, a prominent documentary filmmaker.  I have never met him.

The rest of them came in around two years later.  Two already knew each other from high school in New Mexico, with J. Doyne Farmer, probably the best known of them and the one who has done the most work in economics and finance, a prominent econophysicist and co-founder of the journal, Quantitative Finance.  He is also the one I know the best and has by far the longest Wikipedia entry of the four, with many projects and activities under his belt.  After UCSC he would do a post-doc at the Los Alamos nuclear lab before moving to the Santa Fe Institute, where he remains an external professor, although now mainly based  at Oxford University in the math department where he runs the Complexity Economics Center associated with the Institute for New Economic Thinking (INET). He has also been more involved in various business enterprises than the others.

His old school friend is Norman Packard, now at the Center for Complex Systems Research at the University of Illinois and also maintaining a connection with the Santa Fe Institute. Illinois has long had among the most powerful of supercomputer systems of any university in the US, and Packard has been a major developer of cellular automata and artificial life modeling as well as coining the term "edge of chaos." He also spent time at the Institute for Advanced Study in Princeton and has worked a lot with Stephen Wolfram of Mathematica. He has been involved in some of the econophysics modeling of financial markets with Farmer, as well as some of his business enterprises. While I have not met him, I know much of his work well.

The final  of the four students is James P. Crutchfield, who would go to the physics department at UC-Berkeley after finishing at UCSC.  In the late 1990s he moved to the UC-Davis physics department where he established and leads the Center for Complex Modeling, and he also maintains a relationship with the Santa Fe Institute.  I have met him.  Although officially a physicist, much of his most influential work has involved modeling complex evolutionary dynamics as well as questions of computational complexity. I have probably drawn on his work more than that of these other three in my own work, a big fan of it I am.

Before they became the Santa Cruz Dynamical Systems Collective, they were Eudomaenic Enterprises.  (There is a book about this effort, The Eudomaenic Pie.) They set out to, and succeeded, in developing a system to beat roulette wheels in Las Vegas.  This involved carrying portable computers and a mechanism to measure subtle vibrations of the tables. However, despite a couple of successful trips in which they beat the House by 20% on average, they could not make serious money due to casino security people catching on to them.  Some of this would feed into the main company that Farmer founded, with Packard in tow, the Prediction Company, that did financial market investing.  He sold it in 1999 to the Swiss bank UBS. He has formed or been involved in several other companies since.  I have long found it interesting that while people often say to economists, "If you are so smart, why aren't you rich?" this dictum is taken seriously by the more serious econophysicists, including Didier Sornette and Jean-Philippe Bouchaud, who have also done very well with their own trading companies.

They had two professors who abetted their efforts and helped them get through UCSC to their PhDs, although at the time the physics department at UCSC really did not know how to handle them or fully appreciated what they were up to. The main person who got them through their dissertations was Michael J. Burke, who had been a student of Richard Feynman at Cal Tech and had some interest in nonlinear dynamics. He died in 1996. 

However their main intellectual mentor was a math professor, Ralph Abraham, now 82 years old and emeritus at UCSC, one of the giants of the field of nonlinear dynamics, chaos theory, and complex systems, still active.  He coined the terms "chaotic hysteresis" and "chaostrophe," among numerous other ideas, with his work influencing mine more than any of these others. He was very into visualizing through computer simulations multi-dimensional strange attractors, and some of those he discovered/invented have ended up on tie-dye t-shirts.  He looks like Jerry Garcia, and more than any of these others he is the one with the most serious Big Sur and counterculture connections, with these being encouraged by his even hipper brother, Fred, who wrote Chaos Theory in Psychology and runs the Blueberry Brain Institute in Vermont.  I know and deeply respect both of these brilliant and innovative intellectuals.  In any case, it may be that with his array of interests and discoveries and influence, Ralph Abraham may be the central figure in this weird but creative confluence of Big Sur and Silicon Valley that came to fruition in the late 1970s and early 1980s in Santa Cruz.

Barkley Rosser

Tuesday, May 29, 2018

Projection and Disavowal

I don't believe in intellectual property... I don't believe in compound interest...

Nobody believes in the lump-of-labor fallacy. Mr. Nadella is engaging in a game of projection and disavowal that is as old as capitalism. He is affirming the reality of an event that only happens in the imagination -- the production of something out of nothing. To perform this usurious hat trick, one must assume something one knows is not true -- that money is fertile. The attribution of a bogus "fallacy" to others is a device for distracting attention from the deception involved in simultaneously fetishizing and disavowing the "productivity" of a mere formal claim to entitlement.

Some Say the Earth Is Flat, British Austerity Edition

The New York Times has a mostly insightful article on the effect of almost a decade of austerity on economic and social conditions in England.  It focuses on Liverpool and provides example after example of savage cuts to the programs and institutions people have depended on all their lives: the National Health Service, income support, libraries, parks and recreation, police and fire departments.  It’s an important story, well told.

Except that it flubs the single most important piece, why austerity was imposed in the first place.  Not willing to take a side, the article quotes some Labour-identified people as saying austerity was a political choice and a bad one, while Conservative politicians get to argue that it was a simple matter of arithmetic.
“It’s the ideology of two plus two equals four,” says Daniel Finkelstein, a Conservative member of the upper chamber of Parliament, the House of Lords, and a columnist for The Times of London. “It wasn’t driven by a desire to reduce spending on public services. It was driven by the fact that we had a vast deficit problem, and the debt was going to keep growing.”
These are presented as equally valid perspectives, and the matter is set aside as an unresolved dispute.

But the economics of the situation is one-sided: governments facing a slump always have the option to borrow, at least if they can borrow in their own currency and have a central bank to support their bond issuance.  Both of these boxes are checked for England, so there is no validity at all to the Conservative position: it’s a pseudo-argument, good enough only for those who lack an introductory comprehension of economics.  Granted, that’s a large mob and obviously includes quite a few journalists, but we’ll never make progress unless we hold journalists accountable for a higher standard of performance.

Of course, just because a government can borrow doesn’t mean it should.  There are judgments to be made about the benefits of public programs, how much national income can be sustained through deficit spending (fiscal multipliers), and how large government debts can be before their sustainability is threatened (fiscal space), so I’m not saying economics mandates only one set of policies.  But not every argument is sound, and the argument that denies the very possibility of debt finance in the face of a recession doesn’t make the cut.  False equivalence is just bad journalism.

Monday, May 28, 2018

AIDS and the World of Work: A Global Report

What do I have to show for my sabbatical?  Among other things, this report on the economic and social impact of AIDS I prepared for the International Labor Organization.  It’s just been posted on their website, so it’s yours for the perusing.

Regulation: A Gut Check

How do we get the word out that our underlying conception of how regulations should be designed and enforced needs to change?

The New York Times has an ominous article about the overuse of antibiotics by the livestock industry and its risks for animal health and ours.  Flooding our digestive system with these drugs damages the gut microbiome we depend on for nutrition and waste processing, and it promotes the evolution of resistant strains of bacteria.  The upshot, according to this piece, is that 23,000 Americans die of antibiotic resistance each year, and it adds
A growing body of scientific research also shows that the antibiotics we take as medicine can disrupt our so-called gut microbiome, the bacteria that live happily in our stomach and intestines and that are the key to our ability to properly digest food and process fats. This disruption has been linked to the rise of noncommunicable diseases such as obesity, juvenile diabetes, asthma and allergies. Some researchers also believe that alterations in the gut microbiome have led to an increase in the incidence of autism, Alzheimer’s and Parkinson’s disease.
Ranchers lace their feed with antibiotics to speed up animal growth because it’s profitable.  The risks are difficult for the public to appreciate, and the externality of reducing the effectiveness of legitimate antibiotic treatment is unpriced.  This is a serious problem.

Regulation came to the rescue, sort of, in 2017 with the issuance of a rule by the Food and Drug Administration that requires livestock owners to get veterinary approval for administering antibiotics, with the criterion that the purpose has to be prevention of disease and not growth acceleration.  That sounds like it should have been a solution, right?  You don’t want to ban antibiotics altogether because sometimes there’s a valid reason for using them, so you require professionals to certify that only “good” uses are taking place.

The problem, as the article points out, is that it isn’t clear how much progress, if any, has been made in reducing the routine use of antibiotics in livestock feed.  Ranchers are under pressure to continue pumping up growth, and veterinarians are under pressure to give the ranchers what they demand.  An industry—any industry, including livestock—is an ecosystem, not a machine, with lots of unwritten rules and relationships, incentives, and local exigencies.  You can specify how it’s supposed to work, but it may not work that way.

Fortunately, we have a paradigm for this: adaptive management, which in this case means adaptive regulation.  Every regulation issued by an agency should have three components.  First, it should have a set of rules for people to follow, as all of them do.  But second, it should set up a system of data collection to assess how well the rules are working, and in what way.  And third, it should specify a regular cycle of review and revision to put accumulated knowledge into practice.

The FDA antibiotic regs did #1 but not #2 or #3.  It was a one-off, over-and-out performance, as most of our regulation tends to be.  Regulators did not set up a surveillance or sampling system to see how and where antibiotic use was changing, much less build in an ongoing process of evaluating and improving the regulation itself.  The upshot is that years have to go by, and the political forces for reform have to be assembled all over again to replace a defective rule by a better one.  The NYT article is part of that process, which is good, but it’s a lousy process.

So: how do we get the word out that our underlying conception of how regulations should be designed and enforced needs to change?

(Source for image:

Thursday, May 24, 2018

Iran Responds to Plan B

Juan Cole reports that Iran's supreme leader, Ayatollah Khameini has responded to Trump's withdrawal from the JCPOA and Pompeo's Plan B 12 demands with 6 demands for Europe: 1) condemn the US withdrawal, 2) stop pressing Iran on missile development, 3) criticize any further US boycotts, 4) undo damage to Iran economy of boycotts especially to buy any oil not able to be exported because of them, 5) support financing of Iran economy, and 6) respond rapidly to these demands.  According to Cole they are not optimistic the European nations will be able to withstand the US sanctions, with the impending withdrawal of France's Total a harbinger.  Macron may be key.

If demands not met, Iran will return to enriching uranium to 19.75%, enough for medical use and to fuel a nuclear submarine (Iran has none), but not to make a weapon.  Oh such fun.

Barkley Rosser

Tuesday, May 22, 2018

Gorz: "The Right to an Income and the Right to Work," part two

From "Orientations and Proposals -- The Reduction of Working Time: Issues and Policies" of Andre Gorz's Critique of Economic Reason (1989) translated by Gillian Handyside and Chris Turner. I am posting the section on "The Right to an Income and the Right to Work" in two parts (go to part one). This is part two:

The right to work, the duty to work and one's rights as a citizen are inextricably linked. 

In a Left conception, the point is therefore not to guarantee an income independent of any work; what must be guaranteed is both the income and the quantity of social labour corresponding to it. In other words, the point is to guarantee an income which does not diminish as socially necessary labour time is reduced. Income should not become independent of work itself, but of working time.
In this way, however intermittent work may become and however short the time spent on it, the income guaranteed to each person throughout their lives in exchange for a corresponding quantum of work will always be an earned income to which she or he has acquired a right by her or his labour.
I shall attempt to give a more precise account of this proposition in order to distinguish it from the forms of guaranteed minimum and universal grants.

(a) Guaranteed Income. Rightist Version 

The guaranteed minimum is an income granted by the state, financed by direct taxation. It starts out from the idea that there are people who work and earn a good living and others who do not work because there is no room for them on the job market or because they are (considered) incapable of working. Between these two groups, no lived relation of solidarity emerges. This absence of solidarity (this society deficit) is corrected by a fiscal transfer. The state takes from the one group and gives to the other.

The legitimacy of this transfer will always be more or less openly contested, since through it those who do not work appear to be making the others work in their stead. The state will therefore always be suspected of promoting parasitic behaviour and idleness. It will always tend to disarm that suspicion by spicing the right to a social income with more or less humiliating and harassing checks and controls. The recipients of these benefits will remain at the mercy of a taxpayers' revolt or a political change. And this will be the case even if the income guarantee takes the form of the universal, unconditional payment of a basic allowance, as the Charles Fourier collective and the German eco-libertarians have suggested. This basic income runs the risk, moreover, of serving as a pretext for the unchecked growth of low-grade and badly paid casual jobs, regarded by employers as a top-up income. It also runs the risk of serving as a justification for increased discrimination against women. There will be a tendency to confuse the guaranteed minimum with a 'wage for housework' or a maternal wage, justifying the confinement of women to the domestic sphere and (to borrow a formula used by Jacques Chirac in 1987) the official recognition of the 'profession of housewife and mother'.

The guaranteed minimum or universal grant thus form part of a palliative policy which promises to protect individuals from the decomposition of wage-based society without developing a social dynamic that would open up emancipatory perspectives for them for the future.

(b) Guaranteed income. Left version 

From a Left perspective, the guarantee of an adequate income to those whom society marginalizes must neither be the final goal nor the starting point of the political project. The starting point must be the diminution of the quantity of economically necessary labour; the objective must be to eliminate not only poverty and involuntary unemployment, but also the lack of time, harassing working conditions and the obligation to work full time throughout one's entire working life. The point is not to ensure that there are welfare benefits for those who are excluded from the production process, though these may have to be provided as a temporary measure. The point is to do away with the conditions which have led to the exclusion of those people.

This objective demands, as we have seen, a policy of redistribution of the economically necessary quantity of work. This will gradually, by stages, reduce the full-time norm from the current 1,600 hours per year to an average of 1,400, 1,200 and, finally, 1,000 in the space of some 15 to 20 years. These annual 1,000 hours will be considered the normal extent of full-time working and will entitle you to a normal wage which corresponds to your level of skills or qualifications, just as the current 1,600-hour year is considered the full-time norm and gives you the right to draw a full wage (which is four or five times greater in purchasing power than that received by a worker putting in some 3,200 hours per year at the beginning of the century).

I have demonstrated above that, as the length of annual working time decreases, work tends to become more and more intermittent. A thousand hours in a year may be done as two days' work a week, ten days a month, two fortnights every three months, one week in two, one month in two or sixth months a year, and so on, entitling you to a full wage (in the form of two cheques) throughout the year, just as you do today for 1,600 hours spread over two hundred days a year.

The idea of determining the number of working hours that entitles a person to receive a full income not over a year but over a five or ten year period follows logically from this new organization of time. This idea is not as 'utopian' (in the pejorative sense) as is commonly thought in France. The Swedish economist, Gosta Rehn, was the first to propose it on the occasion of the 1960 reform of the Swedish old-age-pension system: he proposed that everyone should be free to take an extended period of leave at any age which would be counted as an instalment of their retirement, the beginning of which would be correspondingly delayed. This "drawing right," he explained to me, "means the right to exchange one form of life for another during selected periods ... For me this means freeing man [woman] from the obligation to be 'economically productive' all the time."

It is precisely such a liberation which the determination of working hours on a yearly or five-yearly or career scale at last allows, when the norm for full-time working has greatly diminished. Just as 1,000 hours a year will be a normal full-time quota and will entitle you to a full income throughout the year, 3,000 hours over three years or 5,000 hours over five years will be a normal full-time quota entitling you to a full income for three or five years, even if the work concerned has been performed in a discontinuous fashion with breaks of six months of even two years. Your income during these breaks will be your normal income, sometimes paid in advance, sometimes in arrears, the income to which normal work entitles you, in no way different in principle from the income you are entitled to today during paid holidays for example, though the mode of financing it will be different. This possibility of periodically interrupting your working life for six months or two years at any age will enable anyone to study or resume their studies, to learn a new occupation, to set up a band, a theatre group, a neighbourhood cooperative, an enterprise or a work of art, to build a house, to make inventions, to raise your children, to campaign politically, to go to a Third World country as a voluntary worker, to look after a dying relative or friend, and so on. And the same reasoning which applies over the three-year or five-year period holds good over the period of one's entire life with its twenty or thirty years of work (20,000 to 30,000 hours): there is no reason not to envisage these being spread out over forty or fifty years of one's life or concentrated into ten or fifteen years. There is also no reason not to let people plan their lives or a second (or third) start in life.

One could elaborate endlessly upon this type of system, refine it and make provision for bonuses or penalties and for fiscal incentives or disincentives to work either uninterruptedly or intermittently. One could stipulate whether there would or would not be a ceiling to the amount of the second cheque, whether it would or would not be reduced if your break from work lasted beyond a certain time, and so forth. And one might also raise a whole host of objections: some may fear that this will require excessively cumbersome bureaucracy (quite wrongly, since the management of a work-time account is no different from the management of a pension fund, family allowances or a current bank account); or others might be concerned about 'those who just don't want to work at all' fearing that a guaranteed income linked to the right (and obligation) to work, however intermittently, will bring about 'compulsory labour', as if the right to be paid for doing nothing were a well-established constitutional right which I had somehow had the bad taste to violate. This last objection ('what will you do about those who don't want to work at all') could be raised in respect of any type of obligation (paying your restaurant bill, stopping at a red light, taking a shower before entering a swimming-pool). It is a particularly specious objection in this case since the compulsion in question is merely alleviated; it is not something new that would require new forms of surveillance or repression. If someone got particularly into arrears with his working hours, he would receive a first and possibly a second warning letter informing him that his right to receive his second cheque would expire on such and such a date. The letter would be sent by the computer managing the social account of the person concerned, which regularly sends him a statement just as one receives a monthly or bi-monthly statement for a bank account. Everyone knows the rules: you can't have an unlimited overdraft at your bank, nor could you at the social fund paying the second cheque. The openness and fairness of this rule mean that it cannot be considered oppressive and authoritarian. It is the rule for everybody. It seems to me greatly preferable to the blind constraints of anarcho-liberal non-society and to the social-statism which grants a 'civic income' to everyone and then leaves them to 'slug it out'.

The essential aspect of an obligation to work in exchange for a guaranteed full income is that this obligation provides the basis for a corresponding right: by obliging individuals to produce by working the income which is guaranteed to them, society obliges itself to guarantee them the opportunity to work and gives them the right to demand this. The obligation it imposes on them is the basis for the right they have over it, the right to be full citizens, individuals like any other, assuming their -- increasingly light -- share of the burden of necessities and free, by that very token, to be unique persons who, during the rest of their time, may develop their multiple capacities, if such is their desire. I do not claim here to have responded to all the questions and objections that may be raised. I do not know if there is a need to set an age limit for entry into active life; or whether the person who at 35 has already done all the work that is due must be discouraged from continuing at the same rate nor whether one should continue to advocate, as Gunnar Adler Karlsson does, a division into two economic sectors, a socialized sector ensuring that all necessities are provided in the most economical conditions for workers and users, and a free sector providing the optional goods and services and so on, but I know that the vision of a society where each person may earn their living by working, but by working less and less and increasingly intermittently, in which each person is entitled to the full citizenship which work confers and to a 'second life', whether private, micro-social or public, enables workers and the unemployed, the new social movements and the labour movement to join together in a common struggle.

Unlike the 'universal grant' or social assistance to non-workers, which depend entirely on central government, a project for a society in which everyone may work, but work less and less while having a better life, may be carried through by a strategy of collective action and popular initiatives. Unlike the formulas of the 'guaranteed minimum' or 'universal grant', this project does not break with the traditional logic of trade-union struggle, since full payment during occasional and annual holidays and during maternity or paternity leave and training periods or sabbaticals, and so on is prefigured in a number of collective agreements. And lastly, I know that a policy of a staged reduction in working hours, accompanied by a guaranteed income, cannot fail to enliven thinking, debate, experimentation, initiative and the self-organization of the workers on all the different levels of the economy and therefore to be more generative of society and democracy than any social-statist formula. This is the essential point: that control over the economy should be exercised by a revitalized society.
Here then is the reasoning behind my proposals. They are not the only possible proposals. You could make other ones based on other reasoning, but you could not avoid, in the name of realism, all debate about the future society which will no longer be a work-based society. Evading the issue and. the need for radical innovations and change implies that you simply accept the fact that society, as it decomposes, will go on engendering increasing poverty, frustration, irrationality and violence. 'If you don't want Gorz's model or mine', said Gunnar Adler Karlsson at a recent trade-union seminar, 'then build your own models. But please suggest something new. If you gave me one hundredth of the staff and the economists who are working on conventional employment theories to work out my theories and Gorz's, we would find solutions to a whole host of problems.'

Gorz: "The Right to an Income and the Right to Work," part one

From "Orientations and Proposals -- The Reduction of Working Time: Issues and Policies" of Andre Gorz's Critique of Economic Reason (1989) translated by Gillian Handyside and Chris Turner. I am posting the section on "The Right to an Income and the Right to Work" in two parts. This is part one:

The Right to an Income and The Right to Work 

When the production process demands less work and distributes less and less wages, it gradually becomes obvious that the right to an income can no longer be reserved for those who have a job; nor, most importantly, can the level of incomes be made to depend on the quantity of work furnished by each person. Hence the idea of guaranteeing an income to every citizen which is not linked to work, or the quantity of work done.

This idea haunts all the industrialized capitalist world of today. It has as many supporters on the Right as on the Left. To look only at recent history, it was (re)launched in the USA at the end of the 1950s by left Democrats and libertarians on the one hand and by neo-liberals (principally Milton Friedman) on the other. Since the end of the 1960s, several local experiments with a local basic income guarantee have been conducted in the USA. Richard Nixon tabled a bill to introduce a measure of this kind in 1972 and it was narrowly defeated. In the same year, George McGovern, the Democratic presidential candidate, included the guaranteed income in his programme. The object was to find a cure for poverty, which showed up more in the USA than elsewhere on account of the absence of a nationwide statutory social insurance system. The guaranteed income was meant as a substitute for such a scheme. European neo-liberals now dream of substituting such a basic income guarantee for the existing welfare-state institutions.

In Europe, discussion of an income dissociated from work revived in the early eighties. The Netherlands, Denmark and Great Britain had already implemented the idea. It was in the Federal Republic of Germany that the most sophisticated debate developed, after 1982, at the instigation of the Greens, who were soon joined in the debate by conservatives and social democrats. Everyone was agreed on the principle, formulated in these terms by Claus Offe: 'We must break with a development which has led the majority of the population to depend for their subsistence on the labour market.' The labour market, quite obviously, could no longer guarantee to everyone the possibility of earning their living. In other words, the right to an income could no longer be equated with the right to a wage. It was to be decided, however, whether the right to an income was also to be dissociated from the right to work (in the economic sense).

It was on this latter question that the Right/Left dichotomy gradually reappeared, at least in Germany. In France, where the guaranteed basic income was still being rejected, even in 1983, as utopian (in the pejorative sense of the term), the greater part of the Left, Right and centre suddenly found themselves in agreement on the necessity for it (if not on the form it should take): Aide a Toute Detresse, the abbe Pierre, the 'Restaurants du Creur' and the increasing spread of begging and poverty had made their mark. There were men and women who had never worked, and others at 45 who would never work again; there were the handicapped, the sick, the unstable, single-parent families of varying sizes, and so on. They could not simply all be allowed to sink; something would therefore 'have to be done' and, since it was an emergency, one would have to attack the effects without trying to locate the causes.

The emergency thus served as an alibi for avoiding any debate on the societal implications' that are involved here: will the guaranteed minimum be a temporary palliative whilst we wait to see the policies of redistributing work come to fruition? Is it to begin the transition towards a society where work (in the economic sense) will become intermittent for all and where the second cheque will ensure a normal standard of living during the periods when one is not working? Or will it be the 'opium of the people which allows a third of the population to be reduced to inactivity and silence so that the other two thirds can between them enjoy society's wealth in peace'? Will it serve to render an extension of unemployment and marginality socially tolerable, these things being considered inevitable consequences (if not indeed conditions) of economic rationalization?

The question is as old as the industrial revolution itself or, in other words, as the disintegration of society by capitalism. For the first forms of guaranteed minima reach back as far as the beginnings of industrialization: to the Speenhamland decision in 1795 followed by the Poor Laws which took a great variety of forms over the years and the traces of which are still discernible in British social legislation today. These Poor Laws, introduced from the end of the eighteenth century onwards, were supposed to ensure each inhabitant of the rural parish received a minimum subsistence income indexed to the price of bread. Just like certain forms of social minimum envisaged by today's neo-liberals, the Speenhamland decision was accompanied by the suppression of the forms of social protection which the landless workers in the rural areas had enjoyed up to that point. They had in the past always had the right to grow a little grain and some vegetables on the common land and to graze a few sheep here. This right was taken away from them when common property was abolished and lands were enclosed and allotted to landowners. This measure had a dual objective: to develop commercial farming at the expense of the growing of foodstuffs for one's own consumption and to force the landless countryfolk to sell their labour to the landowners.

These latter had no need, however, to employ a permanent additional labour force. The Poor Laws would relieve them of the need to do this and, by ensuring the survival of the unemployed, spare them any bad conscience. There was an even worse side to it: whereas in the past the landowners had maintained a labour force that was large enough so that they would not be short of hands during ploughing or harvesting, the Poor Laws would allow them to replace their permanent workers with journeymen whom they packed off back home once the harvest was in to live on the subsistence minimum which the parish was required to pay to the poverty-stricken. We can see the parallel with the present situation. Today, too, the reduction of the proportion of permanent waged workers and the increase in the number of casual or temporary workers, consigned to unemployment for part of the year, presuppose that a subsistence minimum be paid to those men and women who cannot find work for long enough periods to qualify for unemployment benefit.

This is why the debate on the amount of the guaranteed minimum, however important it may be in the short term for the victims of 'rationalization', masks the deep significance of the very principle of this form of guarantee. It is not, in fact, paid out of solidarity, but as an act of institutional charity. And like every charitable institution, it is conservative in intention: instead of combating the segmentation and South Africanisation of society, it tends to make these things more acceptable. The guaranteed minimum functions as the wages of marginality and social exclusion. Unless it is explicitly presented as a transitional measure (and the end situation to which the transition was directed would have to be clearly specified), the guaranteed minimum is a Right-wing idea.
From this we may discern what the Left's alternative must consist of. It will not accept the growth of unemployment as something inevitable and will not accept that its goal must be to make this unemployment and the forms of marginalization it entails tolerable. It must be based on the rejection of a splitting of society into one section who are by rights permanent workers and another which is excluded. It is not therefore the guarantee of an income independent of work that will be at the centre of a Left project, but the indissoluble bond between the right to an income and the right to work. Each citizen must have the right to a normal standard of living; but every man and woman must also be granted the possibility (the right and the duty) to perform for society the labour-equivalent of what she or he consumes: the right, in short, to 'earn their living'; the right not to be dependent for their subsistence on the goodwill of the economic decision-makers. This indissoluble unity of the right to an income and the right to work is the basis of citizenship for every man and woman.

In effect, as I have shown in relation to work in the economic sense as emancipation, one belongs to society (more exactly to modern democratic and not slave-owning society) and one has rights in that society or is partially excluded from it according to whether or not one participates in the process of production organized on the scale of the whole society. The work one exchanges not with society as a whole but with the members of a particular community (one's family, habitat, village, district) remains particular work, subject to particular rules, which are themselves the result of a particular relation of forces, interests or particular bonds. Conversely, work in an economic sense, socially determined and remunerated, is governed by universal rules and relations which liberate the individual from particular bonds of dependence and define her or him as a universal individual, that is, as a citizen: her or his paid activity is socially recognized as work in general having a general social utility. I can sell this work to an indefinite number of enterprises without having to form any personal and private relationship with those who are paying me. They pay me for the general social utility of my skills and not for a personal service I am rendering. They are, in a sense, merely the intermediaries between an impersonal demand on the part of society as a whole (whether it be expressed through the market, the plan or an order from a public body) and the work by which I can contribute to satisfying that demand.

The emancipatory character of work in the economic sense derives from this: it confers upon me the impersonal reality of an abstract social individual, as capable as any other of occupying a function within the social process of production. And precisely because what is involved is a function which is impersonal in its essence, which I occupy as an interchangeable person among others, work does not, as is generally claimed, confer a 'personal identity' upon me, but the very opposite: I do not have to engage the whole of my person, the whole of my life in it; my obligations are circumscribed by the nature of my occupation, by my work contract and by social legislation. I know what l owe to society and what it owes me in return. I belong to it by virtue of social capacities which are not personal, during a limited number of hours specified by contract and, once I have satisfied my contractual obligations, I belong only to myself, to my own family, to my grassroots community.

We should never lose sight of the dialectical unity of these two factors: work in the economic sense, by its very impersonal abstractness, liberates me from particular bonds of dependence and reciprocal belonging that govern relations in the micro-social and private sphere. And this sphere can only exist as a sphere of sovereignty 'and voluntary reciprocity because it is the obverse of a clearly circumscribed sphere of clearly defined social obligations. If I am relieved of any social obligation and more precisely of the obligation to 'earn my living' by working, be it only for a few hours, I cease to exist as an 'interchangeable social individual as capable as any other': my only remaining existence is private and micro-social. And I cease to experience this private existence as my personal sovereignty because it is no longer the obverse of compelling social obligations. The customary balance of living in a macro-socially organized society is upset: I no longer negate myself as private individual by my 'work in general' nor do I negate myself as an individual in general by my private activity. My existence collapses into the private sphere where, being subject to no general social obligation, to no socially recognized necessity, I can only be or do or not do what I have decided myself, without anyone asking anything of me: 'Excluded from every group and every enterprise, a pure consumer of air, water and other people's labour, reduced to the boredom of living, an acute consciousness of my contingency', I am a 'supernumerary of the human species'.

This is the condition of those who are involuntarily unemployed; and the guarantee of a social minimum will do nothing to change that (nor indeed will giving him or her an unreal job, a job which is not needed by society, but which has deliberately been created to occupy people for whom there are no real jobs and to justify the allowance allocated to them). Whatever the size of the guaranteed minimum, it can do nothing to alter the fact that society expects nothing of me, thus denies me a reality as a social individual in general. It pays me an allowance without asking anything of me, thus without conferring any social rights upon me. By this payment, it holds me in its power: what it grants me today, it can take away bit by bit, or altogether, tomorrow, since it has no need of me, but I have need of it.

It is for all these reasons that the right to an income and the right to macro-social work must not be dissociated or -- which amounts to the same thing -- that the right to an income must be linked to the duty to work, however little, to produce that income. I do not propose this in order to save 'work-based society', the work ethic or biblical morality, but to maintain the indispensable dialectical unity between rights and duties. There can be no rights without corresponding obligations. My duty is the basis of my rights and to relieve me of all duties is to deny me the status of a person having rights. Rights and duties are always two sides of the same coin: my rights are the duties of others towards me; they imply my duty towards these others. In so far as I am one of them (one among others), I have fights over them; in so far as I am one of them, they have rights over me. It is through these rights -- and therefore through the duties they give me -- that they recognize me as one of them. In so far as I belong to society, it has the right to ask me to do my appropriate share of social labour. It is through the duties it gives me that it recognizes me as belonging to it. If it asks nothing of me, it rejects me.

The right to work, the duty to work and one's rights as a citizen are inextricably linked. 

Monday, May 21, 2018

Plan B on Iran

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

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

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

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

Barkley Rosser

Is the Job Guarantee a Ponzi Scheme?

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

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

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

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

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

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

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

Saturday, May 19, 2018

Jobs, Jobs, Jobs -- GUARANTEED!

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

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

Friday, May 18, 2018

The So-called Labour Fund

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


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

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

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

Wednesday, May 16, 2018

Intercompany Guarantee Fees and Trump’s Lido City Loan

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