The Bill and Hold Stimulus

by the Sandwichman

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

The slight rise in spending reflected a 1.3 percent jump in purchases of durable goods such as cars, a gain propelled by the clunkers program that started at the end of July. Purchases of nondurable goods such as clothing actually fell 0.3 percent last month.

"Bill and hold" is designed to shift sales from future quarters to current ones. It's O.K. when the government does it... Actually, it is perfectly legal for private companies, too. It's just that the consequences can catch up to you.

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

At Sunbeam, "Chainsaw Al" Dunlop sold a lot of electric blankets in the summer of 1997 and outdoor grills in the fall. But in the first quarter of 1998 Sunbeam lost $44.6 million. On June 13, the Sunbeam directors fired Chainsaw Al, "the worst CEO of all time." From Business Week July 6, 1998:

It didn't take long for alarm bells to sound. After the company reported its results in the second quarter of 1997, Shore says he began "getting pangs in my stomach." The numbers showed that Dunlap was building what Shore considered abnormally high inventory levels and accounts receivable. His trade contacts confirmed his suspicions that Sunbeam was giving lucrative terms to dealers to ship products aggressively.

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

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

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

GM Fact of the Day

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

-Bob Lutz, General Motors Vice-Chairman

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

Beyond the f-word: Green on Black

by the Sandwichman

The Black-Connery Thirty-Hour Bill was strongly backed by the American Federation of Labor President, William Green.

"Would a Thirty-Hour Week Increase Employment?"

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

by William Green, President, American Federation of Labor

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

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

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

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

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

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

1. Through the shortening of hours to thirty per week, it will bring wage-earners now without work into our normal business organization;
   
   
2. Through maintaining existing earnings, and placing effective purchasing power in the hands of those who have been deprived of incomes through unemployment, it will increase total purchasing power;
   
   
3. By releasing a tremendous volume of pent-up consumers’ demand, it will stimulate industrial production in business activity;
   
   
4. By giving unemployed workers jobs in our normal industries and by providing for wage maintenance, it will give the wage-earners that security which they now lack;
   
   
5. By stimulating normal business activity, it will release the flow of credit in private business from the normal consumer, who constitutes the ultimate source of credit;
   
   
6. It will provide material means for higher standards of living for the American people and make effective new and widespread demand for goods and services.
   

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

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

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

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

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

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

The Real Trespassers

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

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

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

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

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

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

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



[1] Section 11 Once More
PETER HENNING. 21st August 2009
Subsequent to: Tasmanian political rot: the PMAA revisited
http://tasmaniantimes.com/index.php?/weblog/article/section-11-once-more/

[2] Paradise lost - with napalm
http://www.guardian.co.uk/comment/story/0,,1197159,00.html
By RICHARD FLANAGAN

[3] Pulping the truth
Matthew Denholm | November 20, 2008
Article from: The Australian
http://www.theaustralian.news.com.au/story/0,25197,24677393-5006788,00.html

Edward M. Kennedy, RIP

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

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

Blaug, Fawcett, Hicks... and Chapman

by the Sandwichman

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

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

But it is the penultimate paragraph of that article (and a footnote) that struck the Sandwichman early this morning:

In a class by itself is Fawcett's contention that pecuniary motives alone bring about the adoption of a work day that optimizes output per man-hour. This argument is open to the objection that it assumes perfect foresight. Contrariwise, Thornton's thesis amounts to a denial of perfect knowledge on the part of the entrepreneur. We should say today that entrepreneurs may have little incentive to reduce hours since the immediate effect, if wages are kept constant, is to increase costs and decrease output; whereas, a simultaneous reduction in wages under these circumstances is bound to affect efficiency adversely. Thus, employers may fail to maximize output per man-hour owing to an excessive emphasis on profit maximization in the short run. Be that as it may, Fawcett's line of reasoning clearly shows where the classical economists' treatment of hours legislation is deficient: they had no theory of the firm. [emphasis added]

The footnote to the bolded sentence above states:

See J. R. Hicks, The Theory of Wages, pp. 104-10. Even on the assumption of perfect foresight, this is a clear case of private costs diverging from social costs. There is no reason why the classical economists could not have considered this possibility; the distinction between private and social costs is implicit in Adam Smith's discussion of public works.

Only a pedantic Sandwichman would know (or perhaps care) that pp. 104-10 of Hicks's The Theory of Wages is actually a faithful précis of Sydney J. Chapman's Theory of the Hours of Labour! The irony contained in all this is that subsequently, in The Theory of Wages, Hicks went on to set aside the conclusions of Chapman's analysis, which he emphatically acknowledged as theoretically sound, on the "practical" grounds that:

...if the working day has previously been fixed at a length which is greater than the 'output optimum' the Union will not usually need to exert any considerable pressure in order to bring about a reduction" [because a} "very moderate degree of rationality on the part of employers will thus lead them to reduce hours to the output optimum as soon as Trade Unionism has to be reckoned with at all seriously (pp. 217-218).

Compare Hicks's (1932) rationale with Fawcett's (1872):

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

One Hundred Years Ago Today...

by the Sandwichman

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

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

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

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

1
2
3
4
5
6
7
8
9
10
11
12
Conclusion
Bibliography

Joblesse Oblige?

by the Sandwichman

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

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

Should Journals Have To Compete For Papers?

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

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

James K. Galbraith On The Current Situation

James K. Galbraith has issued a white paper based on a meeting that occurred in Paris at the Mayer Foundation this past June. It is entitled "Financial and Monetary Issues as the Crisis Unfolds," and is available at either http://www.epsusa.org/projects/crisisworkinggroups/financeandbanking.htm or http://www.levy.org/vtype.aspx?doctype=9. It is about 9,000 words in total, and the report concludes as follows:

In brief conclusion, the group of experts convened in Paris in June warns that the crisis is not over, that policies so far set in motion are not sufficient, and that the goals set by the authorities so far, which amount to a restoration of previous conditions, are neither desirable nor possible. It is time now to begin to take account of the irreversible characteristics of recent events, to chart a course of new construction instead of reconstruction, and to build the domestic and financial monetary institutions and safeguards necessary to make it possible to pursue that course.

Beyond the f-word: The Teagle Plan

by the Sandwichman

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

THE SHARE-THE-WORK PLAN: TEAGLE ANSWERS ITS CRITICS

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

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

By W. C. TEAGLE.

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

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

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

The Origin of the Plan.

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

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

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

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

Limitations Pointed Out.

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

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

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

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

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

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

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

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

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

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

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

Kepler's Astronomia Nova

by the Sandwichman

I was under the impression that Copernicus definitively established the idea of the heliocentric universe. However:

In Kepler's day three models existed to explain the observed motions of the "wandering stars." However, no clear criteria of physical "truthfulness" existed to discern which of these models corresponded to the actual, physical universe. Each model could be used to predict the future longitude and latitude of planets in the sky for a few years out. All of them became less accurate as time progressed.

Copernicus's model was no more accurate than Ptolemy's because he built his system on Ptolemy's 1,500-year old data!

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

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

Beyond the f-word: The Odenheimer Plan

by the Sandwichman

Below is the proposal made in November 1932 by Sigmund Odenheimer, a New Orleans cotton manufacturer and written up by Thomas Dabney in a book titled Revolution or Jobs?. Back in the Great Depression, even capitalists proposed radical solutions to unemployment!

We are confronted with a great emergency. It is said that the unemployed in this country equal in numbers the unemployed in all European countries. Nothing appears to be in sight to alleviate this condition. From a humanitarian standpoint, it is the most severe shock we have yet experienced. Viewing it in the light of safety to our institutions, and of the permanence of our present civilization, it is a menace of incalculable proportions. From what I can learn, the problem is growing worse.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Claiming the Social Security Benefits Will Fall

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

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

The Social Security Administration states:

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

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

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