Hours of Labour 11

by Sydney J. Chapman (translated and condensed by the Sandwichman)

All advanced industrialism today feels the strain of an accumulation of forces tending to bring about a reduction of the working day and will continue to be. However, a firm limit is imposed on the reduction of hours by the steep interest and depreciation charges on machinery when it works only a fraction of the time for which interest must be paid. Buildings deteriorate in value at least as much when shut up as when they are occupied; machinery continues to wear out, and sometimes rapidly, when it is idle; and the reserve fund necessary because the market may contract at any time and because machinery may at any time be rendered obsolete, is independent of the length of the working day. Many inventions involve an extended use of capital per head. Interest and depreciation charges, on the one hand, discourage the use of some innovations that require heavier capital investment, and, on the other hand, prevent those applied from reducing hours so much as they otherwise would.

To what extent depreciation and interest charges discourage shortening of the hours of labor depends, of course, on the relation between wages and payments for capital in the expenses of a business, which varies by industry. A rough calculation, nevertheless, for a particular industry of the saving in hours that might be effected by the continuous running of plant may be relevant. In the industry for which I have obtained figures, interest and depreciation would be reckoned ordinarily at 10 percent on the capital, about half for each, while wages would be in the neighborhood of 12 percent. Now, it being assumed provisionally that the depreciation charge varies as the hours worked, that the rate of interest is a constant, that the equipment of the industry remains as before and labor tends neither to leave the industry nor to flood into it, and that other costs of production are not affected, we find that hours could be reduced from ten to eight without any loss of wages, were the continuous running of plant substituted for the ten hours' day.

Actually, of course, some of the gain would be taken in the form of higher wages. Further, it must be noticed that the assumptions made do not accurately correspond with fact, though they are satisfactory for the purposes of a first approximation. On the one hand they lead to an over-estimate of the advantages of continuous running, because twenty-four hours of work could not possibly be squeezed into a twenty-four hours' day, and because the cost of artificial light during night work is disregarded, as are also the costs connected with awkward points in organzation, with the sharing of responsibility for the proper treatment of machinery, and with the fact, universally experienced, that night-shifts are not so productive as day-shifts. On the other hand, they lead to an under-estimate of the advantages of continuous running, because the cost of depreciation, as we have seen, is not proportional to the daily hours of work, because the shorter hours would raise the efficiency of labor, and because the demand for capital would be reduced, as would also the demand for land for manufacturing purposes. The inevitable contraction of the demand for capital is a point to be emphasized. If working hours per day were raised from ten to twenty-four, then, the reaction on the efficiency of labor still being disregarded, the old output could be obtained with five-twelfths of the old capital; the consequence would be a fall in interest, an augmentation of the amount of the plant per head of the people working with it at one time, and, therefore, an increased output per head.

In view of its great economies, the shift system calls for very careful consideration. The magnitude of the advantages that the wage-earners might hope to derive from its more extensive application has been denied, on the ground both of theory and of experience of those businesses in which it has been tried. But theoretic objections of a fundamental nature will be found to reduce to false doctrine concerning the determination of wages; and it must be remembered that as the benefits accruing from the comparatively few cases in which the shift system is practiced are by competition spread over the whole community, the gain of any individual is cut down to a very small figure. It must not be supposed that the effect of its universal adoption would be equally negligible.

Without general recourse to shift systems I cannot see any immediate prospect of much additional leisure for the mass of the population. Shifts could be designed so that no one shift would be particularly disagreeable to work in, and, if all shifts did not offer equal advantages, the workers could be moved round, being assigned for so many weeks to each shift. The shifts for foremen, and the management generally, which would have to be strengthened, might be arranged to run over a portion of two workers' shifts, so as to cement the new work on to the old; and the connecting of the work of each shift with that of the shift that it followed could also be secured by arranging that the unit of labor should be a group of partners, consisting of one man from each shift, it being the duty of each man before commencing work to see his partner in the displaced shift and receive instructions from him.

Naturally, a shift arrangement could only be introduced gradually. Are the objections to shifts of such gravity as to counteract their immense economies? The fact that objections were decisive in the past is no proof that they would be today in England, or even in industrial Canada. Conditions have been revolutionized in the last fifty years. Improvements in artificial lighting and in intra-urban transportation alone have swept away a mass of the unfavorable conditions that used to be associated with night work. And two or three shifts of approximately seven hours each, or three or four shifts of approximately six hours each – I state a not immediate attainable ideal – are very different in their effects upon social life, exclusive of those associated with the shorter period of toil for each workman, from two shifts of some ten or eleven hours each. With the shorter shift in use, arrangements could be made without much difficulty for all workers to get most of their sleep in the night, if they so wished, and to enjoy most of their leisure in daylight. But it is not my intention in this address to make a practical proposal or argue points of detail. I merely present certain theoretic corollaries that have incidentally been derived from our analysis of conditions determining the length of the working day. In conclusion, I may quote Dr. Marshall's final judgment that were shift systems more extensively adopted "the arts of production would progress more rapidly; the national dividend would increase; working men would be able to earn higher wages without checking the growth of capital, or tempting it to migrate to countries where wages are lower: and all classes of society would reap benefit from the change."

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A Journalist Out of His Depth

by the Sandwichman

"It is characteristic of journalists to be long on social commentary and perception and short on conceptual analysis, and [John] Rae is no exception."

Who the heck was John Rae? The Scottish journalist was a key figure in originating the lump of labor myth, as it pertains to shorter working time. He didn't use the term lump of labor but instead decried the

"gross but evidently very seductive economic fallacy, which leads so many persons to think that they will all increase the wealth they individually enjoy by all diminishing the wealth they individually produce..."

Rae's argument was not that shorter hours of work diminished per capita output. On the contrary, Rae argued that shorter work time could not relieve unemployment because it would increase output per worker and thus obviate the need to hire more workers.

Intuitively, Rae's reasoning may seem persuasive until one realizes that Rae is assuming that the increased productivity will have no effect on cost, price, purchasing power of the workers or effective demand. An American economist, Charles Beardsley made short shrift of Rae's conclusions.

Nevertheless, Rae's rhetorical riposte to shorter hours as a remedy to unemployment got incorporated into employer objections to the eight-hour demand of unions while his empirical observations about productivity were noted by Sydney Chapman. The irony being that the 'dead' rhetorical part of his analysis has survived, handed down from textbook lore to blackboard dogma, while the 'living' empirical part has perished from the memory of mainstream economists!

So I was delighted to come across the following discussion by Aaron Fuller (2003) of Rae's characteristic "shotgun" style as deployed on another topic, Henry George's economics.

Rae's three-part critical examination of George's ideas is presented much like a set of "even-if" arguments encountered in the formal argumentation of a legal brief. He first rejects George's ideas because they are inconsistent with the empirical evidence—poverty is not increasing with progress. But, he contended, even if poverty were increasing, a second reason to reject George's ideas, independent of the empirical evidence, is George's alleged theoretical error and confusion. Finally, he maintained that even if the empirical evidence and the analytical arguments were on George's side, a third independent reason to reject George is that his solutions to the problems he identifies are either incorrect or inadequate. Such a scattered array of independent arguments is sometimes called the "shotgun" approach to argumentation. Potentially deadly at the close quarters of journalistic and legal persuasion where the form of the argument may be more important than its contents, it is less effective at the longer range of analytical scholarship where logical and factual consistency weigh more heavily than persuasiveness. Rae's journalistic shotgun approach to criticism, composed of scattered independent arguments, did little serious analytical damage to George's analyses. But serious analytical damage may not have been Rae's intent; instead, he may have been trying to persuade his readers that George was a dangerous agitator who, like the socialists discussed elsewhere in Contemporary Socialism, threatened to disrupt British institutions.

Fears of Inflation

Jack Healy reports on the current lack of inflation:

Consumer prices in the United States did not budge last month, easing, for now, concerns that the record deficit and huge new government spending would spur inflation. “It could be a very large long-run problem,” said Mickey Levy, Bank of America, chief economist. “But in the near-term, it’s not a problem at all.” The drift in prices suggests that enormous slack remains in the American economy, even as the recession bottoms out and some industries jump-start production. There are 14.5 million unemployed people in the United States, retail sales are sluggish, and many businesses and factories are still running at less than full capacity. The Labor Department reported on Friday that its consumer price index was unchanged from June on a seasonally adjusted basis, and that prices this summer were 2.1 percent lower than last July, when soaring oil costs drove gasoline prices to $4 a gallon and lifted the cost of food and other products.

One would not expect inflation given the enormous slack in this economy even with a significant fiscal stimulus which of course has yet to eliminate this slack. And why is Mickey Levy trying to tell us we have a very large long-run inflation problem? I just checked here for the Federal Reserve’s most recent reporting on nominal and real interest rates on 20-year government bonds. The former is 4.37% and the latter is 2.24%. So the market is expecting a long-term inflation rate around 2%. That’s a very large problem?

To V or Not to V? Is That the Question?

by the Sandwichman

The Sandwichman is not 'optimistic' about a 'V' shaped recession. Ultimately the economy is not a numbers game. The numbers are epiphenomena. That is to say secondary symptoms, mere concomitants. Divining numbers from numbers is a fool's pass time.

The policy responses to the recession so far have not addressed the fundamental imbalance in the economy, which is the concentration of income shares and market power at the top of the pyramid.

Debt can be useful for pump-priming to the extent that it makes available in the present purchasing power that is expected to materialize in the future. But to the extent that a more prosperous future fails to materialize, accumulated debt becomes a drag on present consumption. The humus of broken promises leaves a barren soil for sowing new ones.

The homeostatic key to re-balancing incomes, consumption and labor supply is, in a word, leisure. Leisure is distinct from idleness in that it is valued free time. Unemployment is not leisure because no unemployed person would pay to stay unemployed longer.

The distinctive property of leisure as leisure that distinguishes it from ('other') commodities is that you cannot hoard it or accumulate it beyond the 24-hour per day per person allotment. This also explains why capital is jealous of leisure.

The depreciation of leisure that underpins the current economic crisis has been of long duration. We are looking at about a half a century of log jam. Even if there is one last band-aid in the first aid kit, it won't measure up to the bleeding.

'V' my ass.

Will Dr. V Bounceback (Jim Morley) Prove Right?

I am increasingly of the more optimistic view that we may see a strong recovery of GDP growth in the near future in the US, if not a full V, then a U with a short bottom followed by a strong upswing. I am not usually a fan of WSJ polls of forecasters, but most of them are looking for at least a sort of V, see Menzie Chinn at http://www.econbrowser.com for link and discussion, including about debt ratios and implied multipliers.

I do not have a link, but did see recently that the much-less closely followed Case-Shiller index of housing price-to-rent ratios has now returned to long-term historical averages (partly driven by rising rents, ugh). Thus I think we have hit bottom on housing prices in the US, despite the likely continued pressure from more foreclosures to come. I do think Morley's inventory adjustment mechanism will be weaker now than in the past, and consumers will be saving more, thus weakening the multipliers, but there will be some of this inventory adjustment effect that bounces back more from deeper falls. More important to me is that the main mass of the spending fiscal stimulus (and not just in the US but elsewhere, with some other countries also showing signs of turning around) is yet to hit, with only about 10% of it out there (that figure including the weak tax cuts). The main spending stimulus will come next year, which should help put the boost in if the economy really does turn around.

Further Decline of Economic Blogging?

I note that Brad Setser has announced that he will no longer be blogging. This is not due to disillusionment with blogging, but his taking a job with the National Economic Council. Nevertheless, this is a loss as he has had the best coverage of a variety of international financial issues, especially regarding reserve balances and China, since he started initially five years ago while still working with Nouriel Roubini. He will be missed.

Another that I suspect may be a disillusionment has been the lack of any postings since June 18 at the high quality http://rodrik.typepad.com, where he has at times in the past questioned whether blogging is a good use of time for a top flight academic economist. Perhaps he has decided not for himself, although without getting around to telling all of us, or maybe he is just on vacation or very busy.

Why Deficits Have Not Increased Interest Rates: Brad DeLong Makes Me Go Huh?

Brad DeLong makes an interesting observation:

it is astonishing. Between last summer and the end of this year the U.S. Treasury will expand its marketable debt liabilities by $2.5 trillion--an amount equal to more than 20% of all equities in America, an amount equal to 8% of all traded dollar-denominated securities. And yet the market has swallowed it all without a burp

If Brad wanted to mock the standard new classical belief that we are always near full employment so any significant fiscal stimulus would drive up interest rates, this observation would be a nice rebuttal along the lines of the old fashion Keynesian notions that we are both below full employment and are in a liquidity trap. But what he writes seems to combine two very different propositions as if they were the same thing:

The standard Chicago "Ricardian equivalence" argument is that government deficits have no effect on nominal aggregate demand because private savings rise dollar-for-dollar with the government's deficit. The magnitude of the tax cuts associated with the stimulus package are running at about $25 billion per quarter--an extremely small share of the rise in Treasury borrowings. Otherwise, Chicago says, supply-and-demand are supposed to rule--and a sharp increase in Treasury borrowings is supposed to carry a sharp increase in interest rates along with it to crowd out other forms of interest sensitive spending.

If all of the fiscal stimulus had been in the form of tax cuts (what the Republicans advocated), Ricardian equivalence would hold that none of it would have been consumed, which would mean no outward shift of the IS curve. Of course, interest rates did not increase as the national savings schedule was unaffected. That what the first sentence in this passage says - but then the last sentence does something else. It talks about what would happen if fiscal policy did lower the national savings schedule and hence shift out the IS curve under new classical thinking.

To be fair, much of the Obama fiscal stimulus was in the form of higher government purchases (note some of us wanted all of it in the form of higher purchases) which would shift outward the IS curve. That this occurred with no increase in interest rates strikes me as evidence that we are both below full employment and are in a liquidity trap. I suspect this is what Brad is trying to say here.

Hours of Labour 10

by Sydney J. Chapman (translated and condensed by the Sandwichman)

It would seem, therefore, that at least two reasons can be derived from economic theory for state intervention in the matter of the hours of labor, if it is assumed that the state can discover what is best for the country. One is to correct the tendency of people engaged in industry to agree upon an amount of sacrifice to money-making, which means a large future loss, involving the next generation, for a small present gain; the other is to fortify, if needful, the resistance of workers to the disposition of some employers to secure a greater product at the expense of the workers' convenience. This conclusion would, however, be too hasty a deduction.

Economic matters are settled, not merely by the self-regarding forces that we have hitherto emphasized, but also by social conceptions, embodied in public opinion and class notions of what is right and proper that defy expert analysis and any accurate evaluation as influences. These social conceptions, which are not deliberately framed on a rationalistic basis, but proceed insensibly as it were from the needs of human life, are less intermixed with religious elements now than they used to be, but are none the less powerful. Resting on the seventh day is not at present a religious observance to the extent it was in the past, but it has not universally been found necessary to supplement the declining religious sanction with a legal sanction. How far progress that runs counter to tendencies determined solely by self-regarding forces may be left to the operation of these incalculable motives that sway every community can be settled only by careful observation. It is sufficient now to recognize their existence, and to point to the reductions of the hours of labor in recent years.

I do not propose to consider here the merits of legislation for establishing standards for the hours of labor, except to observe, first, that Government interference aimed at securing reasonable hours for adult males in all the diversified industries of a country would entail elaborate, elastic, and frequent legislation and would no doubt be accompanied by many grave errors; and secondly, that a prima facie case can be made out for the regulation of the hours even of adult males by authoritative boards or by statute, when labor is weakly combined and hours are evidently sweated hours, and evidence is forthcoming that they are detrimental to health or vigor. Nor do I propose to consider whether it might not be better to suffer for a time present ills in the hope that there would grow up in the community an adequate power of self-regulation, possibly accompanied by valuable social consequences that otherwise might never have been elicited. I am hopeful that public opinion, directed by economic and ethical enlightenment will in the future become an increasingly effective factor in progress, apart from its expression in law. Even to-day, in view of the dependence of producers on demand, neither employers nor trade unions can afford to brave for long public sentiment, though unorganized, when it is aroused. Public sentiment in the years ahead may be expected to respond more sensitively to incidents in its surroundings that offend against social conceptions of what is right and proper. The cases of children, young persons, and women, which bring in special considerations, must be ruled off from the subject matter of this address.

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"Technological Unemployment" Redux

by the Sandwichman

A while ago, an anonymous commentator on this blog made the sage observation that the phrase "technological unemployment" is an unfortunate one and a distraction from the real issue -- "a feint to blame on technology what is simply a matter of economic policy."

The Sandwichman agreed with the point but was resigned to continue using the phrase. No longer. Last week in a Washington Post op-ed, Gregory Clark demonstrated the utter infelicity of the idea behind the phrase. In Clark's fevered imagination, robots were on the brink of permanently displacing human labor of the more ordinary sort and the only solution was to increase taxes on the "winners" to support the "losers".

So, how do we operate a society in which a large share of the population is socially needy but economically redundant? There is only one answer. You tax the winners ... to provide for the losers.

Clark's dystopian musings evoked a colossal harrumph from the usual free marketeer suspects such as Will Wilkinson and Tim Worstall, including the charge that Clark committed a lump of labor fallacy.

In this case, the Sandwichman upholds the objection. Clark commits the fallacy! Perhaps he got his future scenario from the Flight of the Conchords send up:

The distant future, the year 2000...

The future is quite different to the present.
Yes, what with there being no more stairs and all.
And most importantly, no more humans.
Finally, robotic beings rule the world.

The humans are dead,
The humans are dead.
We used poisonous gases
And we poisoned their asses.
The humans are dead.
(Yes they are dead.)
The humans are dead.
(I confirm they are dead.)
It had to be done
(They look like they`re dead)

O.K., let's reboot this untechnological unemployment misnomer.

Technology doesn't destroy jobs. What technology does is make possible and make necessary either increased consumption, increased leisure or both. Unemployment results not from a quantity of jobs deficit but from an adjustment deficit. Unemployment results, that is to say, from a failure to establish a new income, consumption and work time regime commensurate with the new production potential offered by the technological advance.

Furthermore, adjustment is no more "automatic" than is technological change. Hello? Has anyone ever heard of "patents"? Or of government financial subsidies to research and development. On the contrary, adjustment should be considered an inherent part of the reciprocal process of technological innovation. Why it is not treated as such by so-called economists is a question 26,000,000 unemployed and underemployed Americans deserve an answer to.

The Wild Lives of Early Economists

To give you a flavor of where my new book is heading:

Here is the first & only sentence of the introduction and the first sentence of the book:

Besides describing some of the brilliant accomplishments of the colorful founders of economics, this book will also discuss their dark side, including a few murders, over and above crimes more commonly associated with economists. At the same time, these economists’ lives and work will throw light on both contemporary economics and economies.

Before discussing the work and life of William Petty (1623-1687), it might be of interest to note that he has the unique distinction of being the only economist in history credited with having brought a person back from the dead. We will get back to that feat later.

William Petty and Global Warming

I'm working on a book about 17th century and early 18th economics, beginning with William Petty. After describing his wild personal life, I'm trying to make the connection between Petty's emergence and the global climate at the time. Please tell me if this is too far-fetched.

The Sun Shines on William Petty

Mother Nature may have smiled upon William Petty, whose maturity coincided with a short, but welcome break in the Little Ice Age. Shortly before Petty's death in 1687, the cold weather returned. For example, the winter of 1683‑4 was particularly harsh (Lamb 1982, p. 223).

Today, when the threat of global warming looms large, people might be more sensitive to the profound effects of the weather. In earlier periods of cold weather created equally harmful results. One long‑term study of the effects of weather over the centuries concluded: "cooling impeded agricultural production, which brought about a series of serious social problems, including price inflation, then successively war outbreak, famine, and population decline successively. The findings suggest that worldwide and synchronistic war‑peace, population, and price cycles in recent centuries have been driven mainly by long‑term climate change" (Zhang et al. 2007, p. 19215).



David Hackett Fischer's The Great Wave: Price Revolutions and the Rhythm of History paints the stark picture of the times of Petty's youth:

"Famine, pestilence, and economic depression were accompanied by war. During the entire century from 1551 to 1650, peace prevailed throughout the continent only in a single year 1610. These conflicts were remarkable not only for their frequency but also their ferocity."


"During the early seventeenth century, the armies of Europe reached their largest size since the Roman era. Their upkeep imposed heavy costs at the same time that public revenues were reduced by the combined effect of famine, pestilence, war, depression, regressive taxation and monetary inflation. They also were put to use in most of Europe." [Fisher 1996, pp. 96‑97]

Fisher went on to add: "The greatest works of literature, painting, philosophy and theology in this era commonly expressed a mood of increasing pessimism and despair" (Fisher 1996, p. 100). During the second half of the Seventeenth Century, conditions were improving grain prices tended to fall (Fisher 1995, p. 105).

None of this is meant to suggest that the world suddenly became a comfortable place of peace and prosperity. The winter of 1683‑4 was particularly cold. In addition, Petty's own work with the Royal Society was closely associated with preparing for military adventures. Some of his later writings suggested that the prospects for war with France were favorable. And finally, an optimistic belief in progress was not unknown during the cold period. Samuel Hartlib, Petty's own promoter was a case in point.

Nonetheless, the optimistic swagger of Petty's proposals fell on more fertile ground as future prospects were looking better. More broadly, economic thinking tends to follow one of two paths. First, some give an ideological justification of the status quo, arguing that what is happens to be the optimal arrangement for now and for the future. Others offer proposals for improvement. At times, such as the warming mid‑seventeenth century, when new possibilities seem to be opening, such proposals are more likely to fall on fertile ground.

For example, even though Hartlib's musings about information might seem quite modern in light of the Internet, he never exercised much influence. Petty, who also had his share of far‑fetched ideas, was generally recognized as an "universal
ercised much influence. Petty, who also had his share of far‑fetched ideas, was generally recognized as an "universal genius," even by many who disagreed with him.

Hours of Labour 9

by Sydney J. Chapman (translated and condensed by the Sandwichman)

I now would like to compare specifically the effect on wages with the effect on the working day of the mechanical action of pure competition. In the matter of wages, if workers were too weak to have much influence in settling their pay, competition between employers, were it keen and unchecked by combination, would at least secure to the workers as a wage, for a given working day, their marginal worth (within limits set by social friction) in view of their then state of efficiency. Thus in the circumstances supposed the worker would tend to get approximately the utmost possible – apart from the question of the reaction of wages on efficiency – in an active society based on free enterprise, for we may take it that in such a society the bidding of individuals against one another for labor would continue at least up to the known marginal worth of labor.


Observe, however, that the existence of such bidding may imply that new businesses are being established, or that old-established employers are anxious to make considerable extensions because old-established employers, knowing that similar workmen must be paid the same, might avoid a course of action that resulted in a gain less than the loss involved in the elevation of wages. It is doubtful whether employers would as a rule assume that if they did take steps leading to an advance in wages others would do so, for, not unnaturally, employers are commonly indisposed to disturb rates of wages except for strong reasons. Even if employers were endowed with a powerful telescopic faculty, they would not necessarily invest in paying wages in excess of the workers' present marginal productivity (for the purpose of enhancing their future physical and mental vigor) because of the danger that some workers would find employment elsewhere, thus transferring to rival employers the returns from the long-sighted investments made in them.

Other things being equal, of course, the higher the efficiency of labor the greater is the gain, not only of the workman, but also of the employer. Now, as regards the working day, we have already seen that uncombined employers might keep it longer than would be desirable from their point of view, for the same reasons for which they might keep wages lower than would be desirable from their point of view. These reasons are, I repeat again, short-sightedness, or fear of incurring an expense the fruits of which other employers might reap. In this respect competition between employers is equally defective in its bearing on wages and in its bearing on the length of the working day. But, from the perspective of the quality of life of the workers, it has an additional defect in its bearings on the length of the working day; for although competition between employers in an competitive economy would bring about the length of working day that the workers would choose at the wages making it possible, the choice of the workers is apt to be distorted by a limited awareness of the positive effect of shorter hours on productivity and hence wages.

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My Youthful Encounter with Nuclear Warfare

Today is the anniversary of the dropping of the atomic bomb. It brings to mind a useful experience.

Sometime in the mid- or early-1950s, I was having dinner at my great aunt's house with my brother, my parents, and my mother's cousin, Morris Fiterman (sp?). Morris was a medical doctor, who served in the Army as an hospital administrator and was a close friend of the President's son, John Eisenhower. Morris was telling us about his work on any military commission to decide whether or not to use nuclear weapons against North Korea. He said that military rejected the idea only because the prevailing winds would have brought too much radiation down upon South Korea and the US soldiers.

I don't remember any of the other details, except what he told us about the Bataan Death March in which the Japanese army supposedly starved American prisoners. He said that the rations given to the Americans were identical to the Japanese. He also said that the Japanese prisoners complained that their American captors were putting their lives at risk by feeding them unpalatable food, such as bacon and eggs.

Lindsey Graham Frames the Health Insurance Debate

Ezra Klein interviews the Republican Senator from South Carolina with the highlight line being:

My belief is that no private-sector entity can survive over a long period of time competing against the government.

Peter Harbage and Karen Davenport a few months ago argued that this is the essential reason we need a public option – a theme being echoed by progressives recently:

Lack of competition in this critical marketplace means poor transparency and accountability, resulting in costly health care that harms our national health, bleeds our personal finances and the federal budget, and hinders our economic competitiveness. None of this is acceptable amid the worst slide in economic growth in 60 years. Fortunately, our nation’s health insurance market can be fixed with a big dose of what fixes most sectors of our economy—healthy, well-supervised competition. One of the best ways to introduce this much-needed competition is for the federal government to offer a public health insurance plan that can compete with private insurers within an insurance “exchange” that ensures public and private health insurance plans compete equally and transparently in the public marketplace.

Maybe someone should ask Senator Graham whether he supports this lack of competition or whether he has an alternative means for introducing more competition.

Calling Spirits fron the Misty Deep: Bob Eisner edition

The Administration needs to get people out there - such as Jared - hammering away at the difference between government consumption and government investment and drawing the relevant consequences for thinking about the effects of budget deficits. High deficits, for example, as the economy moves back towards potential output, will raise the level of the real interest rate relative to what it would have been. But if the deficits are to finance bridges to somewhere, and especially if it is for public investment that complements rather than substitutes for private investment, then worrying about the higher rate is just as misplaced as worrying about the interest rate consequences of a private investment boom. The neat thing about judicious public investment is that it's good for stimulus and good for growth. It's good for stimulus because it doesn't lower and may raise permanent income and so need not lower consumption at all, or even increase it, increasing the bang for the buck of G. And it's good for growth: does anyone think that the post-war to '73 golden age of growth had nothing at all to do with things like the construction of the interstate highway system and the GI bill? And Jared, or someone, could hammer away at the differences in the investment composition of the G we got from Bush's gang versus now, and how that would matter in a rational accounting - with the capital budgeting the late Bob Eisner called for - of the big bad Deficit.