Of course in several chapters of the General Theory (especially # 12) Keynes discussed the vagaries of financial markets and how they can crash. But in general that is not the main mechanism for macro fluctuations in Keynes. While there were predecessors to Keynes who can be seen as emphasizing broader shifts in aggregate demand, including Malthus, Sismondi, and Marx, the more common model of macro fluctuations posited by classical economists of the nineteenth century often focused on investment declines after bank failures after the crash of a speculative bubble, with the Panic of 1837 and its subsequent recession in the US an example (due to a crash of a speculative bubble in cotton lands). I shall indulge by quoting at length John Stuart Mill on speculative bubbles, who certainly saw this as the main source of macro fluctuations in the manner described above (J.S. Mill, Principles of Political Economy, Book II, Chap. 9, Section 3, 1848):
"The inclination of the mercantile public to increase their demand for commodities by making use of all or much of their credit as a purchasing power depends on their expectation of profit. When there is a general impression that the price of some commodity is likely to rise from an extra demand, a short crop, obstruction to importation, or any other cause, there is a disposition among the dealers to increase their stocks in order to profit by the expected rise. This disposition tends in itself to produce the effect that it looks forward to - a rise of price; and, if the rise is considerable and progressive, other speculators are attracted, who, as long as the price has not begun to fall, are willing to believe that it will continue rising. These by further purchases, produce a further advance, and thus a rise in price, for which there were originally some rational grounds, is often heightened by merely speculative purchases, until it greatly exceeds what the original grounds will justify. After a time this begins to be perceived, the price ceases to rise, and the holders, thinking it time to realize their gains, are anxious to sell. The the price begins to decline, the holders rush into the market to avoid a still greater loss, and, few being willing to buy in a falling market, the price falls much more suddenly than it rose. Those who have bought at a higher price than reasonable calculation justified, and who have been overtaken by the revulsion before they had realized, are losers in proportion to the greatness of the fall and to the quantity of the commodity which they hold, or have bound themselves to pay for."
Friday, October 24, 2008
Economic and Social Importance of the Eight-Hour Movement
Frequent contact with enjoyable conditions creates desire for them, and by repeated satisfaction the desire grows into a taste, and tastes into absolute wants, which ultimately become a part of the habits and fixed character, or second nature.
Since the established wants of a people govern its industrial activities and social relations, and these in turn establish its habits or social conduct, whatever effects human wants exercises a commensurate influence upon the character of the people. Accordingly, we find the world over, that the social character of every community is elevated and refined, civilization most advanced, and of course wages the highest, and the well-being of the masses the most complete where the normal wants of the people are the most numerous, and their social life the most complex. Obviously, therefore, the real fulcrum upon which to place the lever with which to lift social character and thereby advance civilization is human wants.
Nor is the influence of a want confined to its own satisfaction. In accordance with the principle, that the strength of a desire increases with its gratification, does the complete satisfaction of a want tend to give rise to new desires. Each new want calls forth a new effort for its gratification, and thereby enlarges the field of experience by making more frequent and varied social intercourse necessary from which new desires naturally arise. Thus it is that frequent contact with enjoyable conditions creates desire for them, and by repeated satisfaction the desire grows into a taste, and tastes into absolute wants, which ultimately become a part of the habits and fixed character, or second nature. In fact, there is no conceivable limit to the development of man's social wants, and his ability to satisfy them, except those fixed by his opportunities.
The power of social influences in shaping man's desires, wants, habits and character is everywhere manifest. It is the recognition of this fact that makes us so solicitous about what our children shall hear and see, or where they shall go, the school they shall attend, the company they shall keep, the amusement they shall have, etc. Even parents who are in the habit of frequenting saloons will forbid their children going to such places, and none but the most degraded will allow their children to see them do so.
Indeed, the whole history of the human race is one continuous stream of evidence of the universal operation of this principle. Wherever man's social opportunities have been the most restricted, his wants, tastes and desires are the most limited and his industrial and political character has made the least progress, and vice versa. For the same reason that the extent of man's wants and the development of his character is the measure of social progress; so, too, the extent of his opportunities to increase those wants and develop that character is the true measure of civilization. Therefore, how to increase the wants, develop the character, and. consequently advance the wages of the laboring classes, ultimately resolves itself into the question: How can the social opportunities of the masses be enlarged?
The Future is Now!
In the year 2008:
* "The single most important item in 2008 households is the computer." Check.
* "Money has all but disappeared." Check.
* "People have more time for leisure activities in the year 2008. The average work day is about four hours."
* "The single most important item in 2008 households is the computer." Check.
* "Money has all but disappeared." Check.
* "People have more time for leisure activities in the year 2008. The average work day is about four hours."
Thursday, October 23, 2008
Maestro Finds A Flaw
by the Sandwichman
Greenspan: "I discovered a flaw in the model that I perceived is the critical functioning structure that defines how the world works."
Ira Steward, 1865: "It is but little more than three [now four and a half] hundred years since everybody believed that the sun revolved around the earth. But Copernicus finally exploded this mistake and proved that the earth goes around the sun; and many have been the cases in which men have been forced to admit that the truth was exactly the reverse of all their past opinions or experiences."
Hey, shit happens.
Greenspan: "I discovered a flaw in the model that I perceived is the critical functioning structure that defines how the world works."
Ira Steward, 1865: "It is but little more than three [now four and a half] hundred years since everybody believed that the sun revolved around the earth. But Copernicus finally exploded this mistake and proved that the earth goes around the sun; and many have been the cases in which men have been forced to admit that the truth was exactly the reverse of all their past opinions or experiences."
Hey, shit happens.
Plea for comments
I need to submit a proposal to a major publication tomorrow. I have had to rush it off. Any comments would be appreciated.
How is it that the American dream suddenly morphed into a nightmare? The subprime crisis is a symptom of something larger and far more dangerous. Even the meltdown of Wall Street is a symptom of something larger and even more threatening. Without extreme care, the intended cure is likely to make matters worse. Papering over a crisis, even with a trillion dollar bailout, may temporarily eliminate the symptoms, perhaps even making the economy look healthy again, but the underlying problems are almost certain to break out again in a more virulent form.
A rational response to the crisis requires recognizing the deeper, systemic dimensions of the problem. On the most superficial level, the public face of problem was a group of people buying houses they could not afford. This perspective is misleading, especially because many of the loans were to people who were already homeowners or small-time speculators who were looking to flip houses.
Like a Russian nesting doll, another face is below the surface: predatory lenders, who were pushing deceptive loans that could never be repaid. Pulling away these predatory lenders exposes a more complex presence: the great banking institutions now on the public dole. These supposedly respectable businesses, protective of their public face, do not allow their corporate names to be used by the predatory lenders, but they represent a very profitable component of their businesses. At the next levels, first a dysfunctional financial system appears and, then, something more abstract -- a political movement fanatically committed to deregulation, which allowed the whole financial system to go haywire.
Recent scrutiny has exposed most of these actors, but even deeper forces have gone unnoticed. To get a handle of these forces requires looking back at the pattern of crisis and response over many decades. Since comparisons of the current crisis with the Great Depression have become commonplace, that period may be a good place to start.
The Depression of the 1930s had disastrous human consequences, but it made the economy stronger in the long run. In effect, the depression drew much of the poison from the system. It swept away outdated, inefficient, and obsolete businesses, plant, and equipment. Under extraordinary market pressure, business found ways to improve efficiency. Finally, the Depression wiped out a great deal of debt, while New Deal legislation allowed unions to lift wages. The World War II economy built up considerable wealth in the U.S. while the economies of international competitors were left in ruins. This constellation of forces left business and the public able to purchase goods and services once employment recovered.
Shortly after the war ended, the U.S. enjoyed what economists call the Golden Age, because of the extraordinary economic performance of the time. Business came to expect that the experience of the Depression had taught government how to make those good times last forever. Obviously, they did not.
By the late 1960s, falling profits created enormous dissatisfaction for business. Both business and the public tended to hold the Democrats responsible for the faltering economy. In the decades that followed, the Democrats managed to elect only two presidents, both of whom governed like traditional Republicans, while the Republicans became increasingly ruthless about promoting business interests. The underlying obsession of both parties was to resurrect the profitability of the Golden Age.
I will tell the story of the people and policies that set out to recreate the economic performance of the Golden Age. The reader will see how, instead of a Golden Age, they gave the world a jerry-rigged Gilded Age -- one in which the gilding covered up an increasingly dilapidated economy. Profits still rose, approaching their pre-Depression peak, but their recovery marked deeper problems.
Normally, one would expect healthy profits to be a payoff from a productive economic structure, based on intelligent investments in plant, equipment, and a well-trained workforce. Instead, the improvement in profits reflected a combination of cheap labor (real hourly wages peaked in 1972), deregulation, low interest rates, and financial manipulation. The driving force of this new Gilded Age was credit rather than income for the majority of workers. Recurrent crises should have signaled the need for fundamental change. Instead, government and business chose to treat the symptoms.
How is it that the American dream suddenly morphed into a nightmare? The subprime crisis is a symptom of something larger and far more dangerous. Even the meltdown of Wall Street is a symptom of something larger and even more threatening. Without extreme care, the intended cure is likely to make matters worse. Papering over a crisis, even with a trillion dollar bailout, may temporarily eliminate the symptoms, perhaps even making the economy look healthy again, but the underlying problems are almost certain to break out again in a more virulent form.
A rational response to the crisis requires recognizing the deeper, systemic dimensions of the problem. On the most superficial level, the public face of problem was a group of people buying houses they could not afford. This perspective is misleading, especially because many of the loans were to people who were already homeowners or small-time speculators who were looking to flip houses.
Like a Russian nesting doll, another face is below the surface: predatory lenders, who were pushing deceptive loans that could never be repaid. Pulling away these predatory lenders exposes a more complex presence: the great banking institutions now on the public dole. These supposedly respectable businesses, protective of their public face, do not allow their corporate names to be used by the predatory lenders, but they represent a very profitable component of their businesses. At the next levels, first a dysfunctional financial system appears and, then, something more abstract -- a political movement fanatically committed to deregulation, which allowed the whole financial system to go haywire.
Recent scrutiny has exposed most of these actors, but even deeper forces have gone unnoticed. To get a handle of these forces requires looking back at the pattern of crisis and response over many decades. Since comparisons of the current crisis with the Great Depression have become commonplace, that period may be a good place to start.
The Depression of the 1930s had disastrous human consequences, but it made the economy stronger in the long run. In effect, the depression drew much of the poison from the system. It swept away outdated, inefficient, and obsolete businesses, plant, and equipment. Under extraordinary market pressure, business found ways to improve efficiency. Finally, the Depression wiped out a great deal of debt, while New Deal legislation allowed unions to lift wages. The World War II economy built up considerable wealth in the U.S. while the economies of international competitors were left in ruins. This constellation of forces left business and the public able to purchase goods and services once employment recovered.
Shortly after the war ended, the U.S. enjoyed what economists call the Golden Age, because of the extraordinary economic performance of the time. Business came to expect that the experience of the Depression had taught government how to make those good times last forever. Obviously, they did not.
By the late 1960s, falling profits created enormous dissatisfaction for business. Both business and the public tended to hold the Democrats responsible for the faltering economy. In the decades that followed, the Democrats managed to elect only two presidents, both of whom governed like traditional Republicans, while the Republicans became increasingly ruthless about promoting business interests. The underlying obsession of both parties was to resurrect the profitability of the Golden Age.
I will tell the story of the people and policies that set out to recreate the economic performance of the Golden Age. The reader will see how, instead of a Golden Age, they gave the world a jerry-rigged Gilded Age -- one in which the gilding covered up an increasingly dilapidated economy. Profits still rose, approaching their pre-Depression peak, but their recovery marked deeper problems.
Normally, one would expect healthy profits to be a payoff from a productive economic structure, based on intelligent investments in plant, equipment, and a well-trained workforce. Instead, the improvement in profits reflected a combination of cheap labor (real hourly wages peaked in 1972), deregulation, low interest rates, and financial manipulation. The driving force of this new Gilded Age was credit rather than income for the majority of workers. Recurrent crises should have signaled the need for fundamental change. Instead, government and business chose to treat the symptoms.
Tax Progressivity: Adam Smith as a Socialist?
Steve Coll reminds us of this passage from the Wealth of Nations:
Coll has also been watching Faux News so we don’t have to:
I guess Adam Smith would also scare Joe the Plumber!
The necessaries of life occasion the great expense of the poor. . . . The luxuries and vanities of life occasion the principal expense of the rich, and a magnificent house embellishes and sets off to the best advantage all the other luxuries and vanities which they possess. . . . It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion.
Coll has also been watching Faux News so we don’t have to:
Smith’s notion of reasonableness did not anticipate the Fox News Channel, however. Last Tuesday, Wurzelbacher appeared on that network, where he denounced Obama’s comments as “socialist.” He said that Obama “scared me,” because he “wants to distribute wealth.”
I guess Adam Smith would also scare Joe the Plumber!
Wednesday, October 22, 2008
Mussey/Douglas on Eight-Hour Theory
by the Sandwichman
From his vantage point in the mid-1920s, Henry Mussey ("Eight-Hour Theory in the American Federation of Labor" in Economic Essays, edited by Jacob H. Hollander, Macmillan Company, 1927) admired the political pragmatism of Samuel Gompers’s use of eight-hour philosophy to nurture the fledgling American Federation of Labor. "No student of American labor history," Mussey wrote, "can fail to be struck with the extraordinary importance of the eight-hour issue in union thinking during the formative years of the American Federation of Labor."
Mussey himself comes across in his article as somewhat agnostic on the matter of that economic orthodoxy. "Any cub productivity theorist," he remarked, "can upset the idea [of increasing employment by spreading existing work among a larger number of workers working shorter hours] by a mere reference to long-time effects on wages, but the unionists were blissfully ignorant of such theories, and confident of the union’s power to maintain living standards and wages, so the theoretical fallacy did not trouble them." Does a "mere reference" by a "cub" productivity theorist add up to a decisive rebuttal of the eight-hour theory or is it a wry commentary on the superficiality of the pro forma academic dismissal of the theory? Was the "blissful ignorance" of the unionists a defect or a blessing? Mussey left it ambiguous as to exactly where his irony stood on the question.
Only five years after publication of Mussey’s account, Dorothy W. Douglas ("Ira Steward on Consumption and Unemployment," The Journal of Political Economy, August 1932) was extolling Steward’s eight-hour theory as a "philosophy of American wages and unemployment that sounds strangely apposite today." What had intervened decisively between Mussey’s 1927 ambivalence and Douglas’s 1932 enthusiasm was a financial collapse and the start of a deep depression.
Douglas condensed the two main aspects of Steward’s theory and their interconnection:
The problem with this Goldilocks theory of unemployment (not too high, not too low, but just right), as Steward pointed out, is that there is, in effect, a multiplier effect. "An unemployed man is the most deadly fact that exists outside of a graveyard... Without raising a hand he takes more bread from others than he himself can eat.. more clothes than he can ever wear..." This specter of unemployment makes those who are still employed willing to work for longer hours and lower wages in "the deadly competition between those who have nothing to do and those who do too much for fear of doing nothing." Furthermore, the still employed workers become reluctant to spend what income they have for fear of future unemployment. "The most cautious and calculating laborers, who are not themselves discharged, are sufficiently alarmed by the first few discharges that occur about them to wait before buying." Meanwhile, employers find themselves with no choice but to lay off workers in response to the contraction of business.
Ironically, though, and again in contrast to Mussey, Douglas judged Steward’s practical proposals to be naive. Mussey had hailed the practical success of a labor strategy founded on Steward’s theory but doubted the soundness of that theory. Douglas admired the theoretical side, while discounting the likelihood of its practical political implementation. As things have turned out, both the theoretical and practical dimensions have been abandoned by economists and unionists, respectively.
Unbeknownst (apparently) to either Mussey or Douglas, Steward’s theory was given powerful, independent support in the neoclassical theory of the hours of labor expounded by Sydney Chapman, a star pupil of Alfred Marshall. Practically, a policy prescription quite similar to Steward’s was articulated by John Maynard Keynes in 1943. There is no indication that either Chapman or Keynes was familiar with Steward’s theory or its endorsement by the AF of L.
From his vantage point in the mid-1920s, Henry Mussey ("Eight-Hour Theory in the American Federation of Labor" in Economic Essays, edited by Jacob H. Hollander, Macmillan Company, 1927) admired the political pragmatism of Samuel Gompers’s use of eight-hour philosophy to nurture the fledgling American Federation of Labor. "No student of American labor history," Mussey wrote, "can fail to be struck with the extraordinary importance of the eight-hour issue in union thinking during the formative years of the American Federation of Labor."
It is the ideas underlying the movement, especially in its earlier period down to 1892, with which we are concerned. Why did the men who were to unify the American labor movement take up first the question of hours, and for ten years make the shorter workday the central demand in their positive platform? The opinion may be hazarded that it is because the theory of the eight-hour day happened to fit particularly well the practical needs of their situation, and was therefore a tool well-nigh indispensable to them in their hard task of organization.Mussey was less convinced of the theoretical soundness of the Federation’s eight-hour philosophy, pioneered by Ira Steward in the 1860s. His apparent skepticism was in keeping with the almost obligatory disdain of academic economists toward populist panaceas for unemployment. Academic economists proclaimed the shorter-hours theory false, most of them apparently without bothering to read it. It didn’t conform to their preconceptions -- so it must be wrong and not worth examining.
Mussey himself comes across in his article as somewhat agnostic on the matter of that economic orthodoxy. "Any cub productivity theorist," he remarked, "can upset the idea [of increasing employment by spreading existing work among a larger number of workers working shorter hours] by a mere reference to long-time effects on wages, but the unionists were blissfully ignorant of such theories, and confident of the union’s power to maintain living standards and wages, so the theoretical fallacy did not trouble them." Does a "mere reference" by a "cub" productivity theorist add up to a decisive rebuttal of the eight-hour theory or is it a wry commentary on the superficiality of the pro forma academic dismissal of the theory? Was the "blissful ignorance" of the unionists a defect or a blessing? Mussey left it ambiguous as to exactly where his irony stood on the question.
Only five years after publication of Mussey’s account, Dorothy W. Douglas ("Ira Steward on Consumption and Unemployment," The Journal of Political Economy, August 1932) was extolling Steward’s eight-hour theory as a "philosophy of American wages and unemployment that sounds strangely apposite today." What had intervened decisively between Mussey’s 1927 ambivalence and Douglas’s 1932 enthusiasm was a financial collapse and the start of a deep depression.
Douglas condensed the two main aspects of Steward’s theory and their interconnection:
One, the stimulating effect of leisure and leisure-time consumption upon the standard of living and hence the wage demands of the lowest classes of labor... and the other, the stimulating effect of this more expensive labor upon the technique of production itself -- the effect of "driving" labor saving machinery. Finally, uniting the two, is a plea, now familiar to our ears of mass demand as alone making mass production possible.What impressed Douglas most about Steward’s theory was his argument that unemployment and low wages lay at the root of economic depressions. According to Steward (in Douglas’s words), capitalists "assume that just a little surplus labor is good for business." Too much unemployment would be an inconvenience and even a scandal. But employers welcome just enough unemployment to discourage demands for higher wages. As an aside, such an attitude is evident in the acceptance in mainstream economics since the 1970s of the idea of a "natural" or "non-accelerating inflation rate of unemployment"(NAIRU).
The problem with this Goldilocks theory of unemployment (not too high, not too low, but just right), as Steward pointed out, is that there is, in effect, a multiplier effect. "An unemployed man is the most deadly fact that exists outside of a graveyard... Without raising a hand he takes more bread from others than he himself can eat.. more clothes than he can ever wear..." This specter of unemployment makes those who are still employed willing to work for longer hours and lower wages in "the deadly competition between those who have nothing to do and those who do too much for fear of doing nothing." Furthermore, the still employed workers become reluctant to spend what income they have for fear of future unemployment. "The most cautious and calculating laborers, who are not themselves discharged, are sufficiently alarmed by the first few discharges that occur about them to wait before buying." Meanwhile, employers find themselves with no choice but to lay off workers in response to the contraction of business.
Ironically, though, and again in contrast to Mussey, Douglas judged Steward’s practical proposals to be naive. Mussey had hailed the practical success of a labor strategy founded on Steward’s theory but doubted the soundness of that theory. Douglas admired the theoretical side, while discounting the likelihood of its practical political implementation. As things have turned out, both the theoretical and practical dimensions have been abandoned by economists and unionists, respectively.
Unbeknownst (apparently) to either Mussey or Douglas, Steward’s theory was given powerful, independent support in the neoclassical theory of the hours of labor expounded by Sydney Chapman, a star pupil of Alfred Marshall. Practically, a policy prescription quite similar to Steward’s was articulated by John Maynard Keynes in 1943. There is no indication that either Chapman or Keynes was familiar with Steward’s theory or its endorsement by the AF of L.
UNEMPLOYMENT, HOURS & WAGES
Job Losses Accelerate, Signaling Deeper Distress"Read More" from IRA STEWARD ON CONSUMPTION AND UNEMPLOYMENT by Dorothy W. Douglas (1932)"...a philosophy of American wages and unemployment that sounds strangely apposite today.":
As reports of layoffs continue to pile up around the country, executives at Randstad said they have noticed a shift in psychology among job seekers.
"Employees are much more willing to work extra hours and to take on additional duties to enhance job security and improve their employability," said Eric Buntin, managing director for marketing and operations at Randstad. "In a changing market, they know that's a valuable resource."
They are also willing to make less money, even as the cost of living goes up. Cline said some call center jobs that were paying $9 an hour in the Tucson area last year are now paying $8.50. "Their option becomes to take the job or not have the job," she said.
"The capitalists are unmindful of the first danger signals, the beginnings of a redundant labor supply. Tacitly they assume that a little surplus labor is good for business...."
Now machinery is only a blessing "provided the wealth more rapidly produced is consumed as fast as days' works are destroyed * . . .but if this blessing is to continue to bless, wages must continue to rise. If wages stop rising, machinery stops blessing." Ultimately "production gains upon consumption." That is the underlying fact. "Wealth is more rapidly produced than consumed in the leading nations ... . This fact combined with the poverty and misery of the rest of mankind [outside the charmed circle] is the mainspring of enforced idleness [within it]. And enforced idleness is the real secret of the financial convulsions and bankruptcy which from time to time sweep over the most prosperous countries of the civilized world." The capitalists are unmindful of the first danger signals, the beginnings of a redundant labor supply. Tacitly they assume that a little surplus labor is good for business. "They do not want the number of unimployed (sic) so large as to occasion inconvenience or the scandall (sic) of starvation, but they are quite alike in the inexpressed wish that the number of unemployed (sic) shall be so large that those employed shall have as little power as possible to dictate the terms of their employment." This is especially their attitude at a time when wages are rising and business is still brisk.
"An unemployed man is the most deadly fact that exists outside of a graveyard."
But "when the first laborer is discharged, he stops buying." And from then on his powers for evil multiply indefinitely. Then begins "the deadly but natural competition existing between those who are employed and those who are not." "An unemployed man is the most deadly fact that exists outside of a graveyard. He is the source of all that is bad ... . Without raising his hand, he takes far more bread from others than he himself can eat .... more clothes than he can ever wear .... more opportunities than he alone could improve."
He makes his fellows, who are still at work, willing to work for longer hours (". . . . the deadly competition between those who have nothing to do and those who do too much for fear of doing nothing") as well as lower wages ("Discharges must occur first, before wages can fall to any appreciable or serious extent"); and besides, he makes them afraid to spend what little they have. "The most cautious and calculating laborers, who are not themselves discharged, are sufficiently alarmed by the first few discharges that occur about them to wait before buying ....... Meanwhile the individual employer is helpless to stem the tide. "The capitalist is forced to discharge today, for the blunders of his class five or ten years ago.'"
"I Work Hard... I Work 10-12 Hours a Day"
by the Sandwichman
Nothing seems to dramatize "The American Dream" quite as insistently as the hard-work-and-long-hours parable. There's just one problem with the parable: long hours of work result in reduced output -- not just reduced productivity per hour but reduced total output. Those who brag about working "10, 12 hours a day" spend the last two to four hours sacrificing their leisure time (and yours) to a false idol. The fact that they get paid -- and sometimes handsomely -- for this conspicuous waste of time is due solely to cultural norms known as "the wage" and "the overtime premium" neither of which is calibrated to actual measures of output or productivity.
It is "un-American" to point out the baselessness of this myth. That's because the "regular Joe" who works overtime to support his family, buy a house, go into business and put his kid through college is a genuine "American Hero." No, he is not. He's a SCAB. At one time, even conservative American unionists understood, as Samuel Gompers declared: "The answer to all opponents to the reduction of the hours of labor could well be given in these words: 'That so long as there is one man who seeks employment and cannot obtain it, the hours of labor are too long.'"
"Well, the reason why I ask you about the American Dream I mean, I work hard. I'm a plumber, I work 10-12 hours a day..."
"Two things have always marked out the financial masters of the universe from the rest of us. First, their souped-up salaries, and then their souped-up working hours. We mortals understood that these were connected. The rewards were so high because the hours were so long."
Nothing seems to dramatize "The American Dream" quite as insistently as the hard-work-and-long-hours parable. There's just one problem with the parable: long hours of work result in reduced output -- not just reduced productivity per hour but reduced total output. Those who brag about working "10, 12 hours a day" spend the last two to four hours sacrificing their leisure time (and yours) to a false idol. The fact that they get paid -- and sometimes handsomely -- for this conspicuous waste of time is due solely to cultural norms known as "the wage" and "the overtime premium" neither of which is calibrated to actual measures of output or productivity.
It is "un-American" to point out the baselessness of this myth. That's because the "regular Joe" who works overtime to support his family, buy a house, go into business and put his kid through college is a genuine "American Hero." No, he is not. He's a SCAB. At one time, even conservative American unionists understood, as Samuel Gompers declared: "The answer to all opponents to the reduction of the hours of labor could well be given in these words: 'That so long as there is one man who seeks employment and cannot obtain it, the hours of labor are too long.'"
Can Destabilizing Speculation Both Be Profitable and Help Obama Win the Election?
Paul Krugman treats us to a recent rightwing claim that a bunch of rich socialists have generated the recent financial crisis in order to assure that Obama wins the election. Paul reminds us that this same crowd back in 2004 claimed George Soros would do the same in order to help John Kerry.
OK but aren’t there a lot of rich people who want McCain to win? If the rich lefties are engaged in what amounts to be destabilizing activity – couldn’t the rich righties make money by engaging in stabilizing speculation? Interestingly, Marxist.com brings us the thoughts of Milton Friedman on this issue:
So are these rightwingers saying that Friedman got this issue wrong?
OK but aren’t there a lot of rich people who want McCain to win? If the rich lefties are engaged in what amounts to be destabilizing activity – couldn’t the rich righties make money by engaging in stabilizing speculation? Interestingly, Marxist.com brings us the thoughts of Milton Friedman on this issue:
Milton Friedman asserted that destabilising speculation was impossible. This was supposed to be the case because speculators who ‘got it wrong’ would be buying dear and selling cheap. They would lose money and soon disappear.
So are these rightwingers saying that Friedman got this issue wrong?
Economic and Social Importance of the Eight-Hour Movement
The wants of mankind are everywhere simple or complex according to the quality of the habits and Customs of the society in which he moves. Habit not only governs our social wants, but it exercises an important influence over our physical wants also.
As wages are governed by the standard of living, and the standard of living is governed by the social wants of the laborer, how then are the social wants determined? A little observation will show that the wants of mankind are everywhere simple or complex according to the quality of the habits and Customs of the society in which he moves. Habit not only governs our social wants, but it exercises an important influence over our physical wants also. While it does not determine whether or not we shall eat, it does decide how and what we shall eat, the clothes we shall wear, the kind of house we shall live in; nay, more, the very language we speak, the morals we adopt, and the religion we profess, are all determined by the habits and customs of those among whom we live. Whether we are Christians, Mohammedans or Buddhists; whether we eat with chop-sticks, or use knives and forks; whether we live upon rice, wear wooden shoes and a cotton frock, or eat black bread and dress in sheep-skins, or enjoy the comforts and luxuries of modern civilization, mainly depends upon the prevailing social habits and customs of the country we happen to live in. In fact, habit is the strongest force in human affairs. It is more powerful than governments, armies or absolute despotism. It is at once the motor force and ratchet wheel of human progress. Wants push the car of civilization forward, the habits and customs prevent it from slipping backward. In short, the habits and customs of a people constitute its real social character.
Tuesday, October 21, 2008
Components of GDP Growth Since 2000
If a picture is worth a thousand words, let’s present three of them – each of them drawing from the real GDP index numbers presented in NIPA table 1.1.3 from this source. Real GDP is about 19.5% higher than it was in 2000, which translates into an annual growth rate just over 2.3%. Not exactly what I would call a Bush Boom. Our first graph shows a couple of things. Private consumption (Con) grew more rapidly than GDP, while government purchases at first grew more rapidly but ended up being only 19.6% higher than we observed in 2000. One could say we got fiscal restraint towards the latter part of the Bush administration just as we had to worry about a possible recession.
At the end of the day, however, national savings as a share of GDP has declined since 2000 but the components are fascinating. Export demand started weak but rebounded rising by over 40% during the period. Offsetting that, however, was the over 30% increase in imports. Business or nonresidential investment (Nonresid) began with a decline but eventually rose to 16.2% of its 2000 level. So business investment actually declined relative to GDP despite all those tax breaks designed to give us some sort of supply-side miracle. And the big news is that residential investment, which was almost 35% higher in 2005 than it was in 2000, has plummeted to less than 83% of its 2000 level.
Our last graph shows the components of government purchases. Defense spending is 42.6% higher than it was in 2000, while even Federal nondefense spending is almost 23% higher. So why is overall government purchases not dramatically higher as a share of GDP now versus 2000? Well, it seems that state & local government purchases have gone up by 11.5%.
And yet, the White House can send Dana Perino out to say this:
Ms Perino said Democratic leaders in Congress had floated ideas – such as infrastructure spending and help for state and local governments – that “we did not think would actually stimulate the economy, so we would want to take a look at anything very carefully”.
The election is only two weeks away and then this incompetent crew will be lame ducks!
Saudis Succeed in Keeping Us Hooked on Oil
So, the price of oil has now plunged to nearly $70/per barrel, and in most of the US the pump price is below $3 per gallon and falling. In an article in yesterday's Washington Post, one of the designers of the Toyota Prius, Bill Reinert, warned that at $2.50 per gallon, few people are interested in buying hybrid cars, much less the more expensive plug-in electrics that reportedly will cost $8,000 more to purchase than standard cars. Also, it takes five years to "ramp up production" of a totally new automobile. While several automakers are working on plug-in electrics, which looked good at $140 per barrel of oil, it is some years before they will come on line, and one producer, Tesla Motors, has already canceled a project for a mid-cost sedan due to financing problems.
So, clearly there was a speculative bubble in oil this past summer, but the turnaround has also had fundamental components. Part of it is the oncoming global recession reducing demand, but part of it was due to production increases that were little noted at the time earlier this year. Those came in Iraq, where production has now gotten back up to where it was prior to the fall of Saddam, and in Saudi Arabia. The total between them amounted to about 1 million barrels per day. Needless to say, the Saudis have nothing to offer the world other than their oil, and will do what is needed to make sure that we remain dependent on them. That means killing any serious alternatives to the internal combustion engine before too many of them get on the road by getting production up enough to keep the price of gasoline down enough to do so, even if some other OPEC members are unhappy about it, wanting their oil revenues now.
So, clearly there was a speculative bubble in oil this past summer, but the turnaround has also had fundamental components. Part of it is the oncoming global recession reducing demand, but part of it was due to production increases that were little noted at the time earlier this year. Those came in Iraq, where production has now gotten back up to where it was prior to the fall of Saddam, and in Saudi Arabia. The total between them amounted to about 1 million barrels per day. Needless to say, the Saudis have nothing to offer the world other than their oil, and will do what is needed to make sure that we remain dependent on them. That means killing any serious alternatives to the internal combustion engine before too many of them get on the road by getting production up enough to keep the price of gasoline down enough to do so, even if some other OPEC members are unhappy about it, wanting their oil revenues now.
Economic and Social Importance of the Eight-Hour Movement
The standard of living in any community is always high or low, according as the social life of the masses is simple or complex; that is to say, as the number of the habitual daily wants of the people is large or small.
Wages being governed by the standard of the laborer's living, whatever directly or indirectly effects that must affect wages. The standard of living in any community is always high or low, according as the social life of the masses is simple or complex; that is to say, as the number of the habitual daily wants of the people is large or small. It is lower in Asia than in Europe, lower in Europe than America, lower on Mott Street than on Fifth Avenue, for the reason that the wants of the people in the former places are fewer, and their social life simpler than those in the latter. In proportion as man's wants are limited to his physical necessities, does he remain brutal and barbarous. And only as his desires for things which enter into his social life, and the use of which exercises an elevating and refining influence upon his character, are intensified into wants, does he rise in the scale of social, intellectual and moral development. This is why we always find the quantity of wealth produced is the smallest, the methods employed the crudest, and the scale of civilization the lowest, in those countries where the social wants of the people are the fewest.
Monday, October 20, 2008
Economic and Social Importance of the Eight-Hour Movement
The general rate of wages, in any given class, group or industry, is determined by the standard of living of the most expensive families furnishing the necessary part of the supply of labor in that country, class, group or industry.
Other things being the same, the cost of his living will be determined by the number of his habitual wants. Thus, the cost of producing labor is ultimately determined by the socially-accepted standard of living; that is to say, the state of material comfort and social refinement which is customary in, and therefore demanded by, the social status of the class to which one belongs, and below which he cannot permanently go without being put to social disadvantage. Again, the standard of living as here stated does not mean that of the individual merely, but of his family. Nor does this mean that the wages of the workers in each family are determined by the cost of living of that particular family, but it means that the general rate of wages, in any given class, group or industry, is determined by the standard of living of the most expensive families furnishing the necessary part of the supply of labor in that country, class, group or industry. The reason for this is very clear. The laborer will not work for less than what will furnish him a living. He will, as experience shows, often work for less than will supply him with exceptional comforts and luxuries, but he will not continuously work for less than will furnish him that which, by constant repetition and force of habit, have become necessities. Rather than forego these he will refuse to work, will inaugurate strikes, tots, and other means to endanger the peace and prosperity of the community. If $2 per day is the minimum amount upon which a certain portion of a given class of laborers can or will consent peaceably to live, then that amount must be paid them in order to obtain their labor; what the. most expensive portion must receive the remainder therefore may and will receive. In other words, the minimum amount that the most expensive laborers will consent to accept, determines the maximum amount any portion of the class can obtain, and therefore fixes the general rate of wages in their class. The reason for this is equally clear. In modern industry; with the concentration of capital and the use of factory methods and the division and aggregation of labor, it becomes economically impossible to pay different rates of wages to different individuals for the same kind and quantity of work, especially where piece-work prevails, which is increasing as the factory methods extend. Consequently, we find that the general rate of wages in the same industry and locality is nearly uniform. We know, for instance, that weavers, spinners, shoemakers, carpenters, bricklayers, painters, etc., in the same shop or factory, or on the same job, get the same rate of pay for work at their respective trades, whether they are single or married, have large or small families, or live more or less expensively than their fellow-laborers. We also know that the most expensive among them must obtain for his service sufficient to supply his family with what to them (as a class) are necessities. What will be sufficient to supply the urgent necessities of the most expensive portion of any class of laborers, and barely induce them to continue to work, will furnish all those whose cost of living is less with a margin proportionate to the difference, which may be spent in what to them are luxuries, dress, amusement, travel, literature, etc.
This explains why we always find those whose families are the largest, or those who have more cultivated tastes and wants, and therefore a higher cost of living than the bulk of their class, are constantly chafing under the pressure of their unsatisfied demands. This pressure increases in severity in proportion as the standard of living rises above that of the lowest. Consequently, we find in every class of laborers a portion who are in almost perpetual rebellion against the smallness of their wages, while the single men, and those whose families are smaller, or who maintain a lower standard of living, can either save money or use it in dissipation. Indeed, it is a law throughout society which all history demonstrates that every step in progress, social, political, moral, or religious, has always been obtained through the energies of a small portion, seldom 20 per cent, of the class or country who received the advantages. This affords the explanation of what has hitherto been an economic enigma, namely, why the members of the trades unions, and the leaders in strikes, and other forms of agitation for the advance of wages and industrial reforms, are always the most intelligent and best-paid laborers. Why the six-cent-a-day laborers in Asia do not strike half as frequently as do the two or three-dollar-a-day laborers in America, and why in all strikes there is a large proportion of the laborers who are reluctant to leave their work and always anxious to return. The reason is that this portion of the class do not feel the pressure or necessity for an increase because their wages are determined by the twenty per cent. of their class whose standard of living is more expensive than their own. This law also explains the reason why European and Asiatic laborers can come to this country and accumulate wealth (or dissipate) upon wages which will barely supply the laborer's family in America with the necessaries of life. Tue fact that the foreigner can save money while the American laborer can hardly make two ends meet, is frequently cited as the evidence of the superior character of the foreign laborer. But if this be true why did they not give evidence of this superiority by saving money iii their own country? We may be told that it is because the general rate of wages there was so low that no margin was left above what would give them a bare living; but this only raises the next question: Why is there no margin in their own country?
Why is there no margin for the best class of Chinamen in China, of Germans in Germany, Englishmen in England, and Americans in America, while there is a margin in almost every country in Continental Europe for the Asiatic, a margin in England for both the Asiatic and Continental laborer, and a margin in the United States for the laborers of every other country, but no margin for the American laborer in any country in the world. The answer is very clear. There is no margin upon which the best class of laborers can save in their own country, simply because there the general rate of wages is determined by their own standard of living. They can get wages which will leave them a margin over the cost of living, only by going where the price of labor is determined by the social character and standard of living higher than their own, or, if in their own country, by adopting a standard of living lower than that of the highest of the class to which they belong. Why the foreign laborer who can hardly procure a living at home, can accumulate here, while the American laborer can only obtain sufficient to satisfy his normal social needs, is for the first time explained by the operation of this economic law. And should the standard of the American laborer ever be reduced to the level of that of the European or Asiatic, then it would be as impossible for the foreign laborer to save money here as in his native country, and for the same reason.
It will thus be seen that the rate of wages is not kept up and promoted by the influence of those whose standard of living is below the average, but by the constant pressure of the unsatisfied desires of those whose standard of living is the highest in their classes. Thus it is, that in accordance with the same principle that production is finally determined by consumption, the laborer's income, under wage-conditions, is governed by his expenditures. In other words, the standard of living is the economic law of wages.
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