Only Another Dinosaur

In 1970, Lewis Mumford wrote an interesting paragraph - under the image of New York's World Trade Centre, as above. In his book 'They Myth of the Machine - The Pentagon of Power' the following text appears:

"The Port of New York Authority's World Trade Center, 110 stories high, is a characteristic example of the purposeless giantism and technological exhibitionism that are now eviscerating the living tissue of every great city. The Port authority, a quasi-governmental corporation, was in origin a happy political invention, first installed in London; but unfortunately its social functions have been subordinated to pecuniary motivations: and its executives have conceived it their duty to funnel more motor traffic into the city, through new bridges and tunnels, than its streets and its parking spaces can handle - while contributing to the lapse of a more adequate system of public transportation that included railroad, subway, and ferry. This policy has resulted in mounting traffic congestion, economic waste, and human deterioration - though with a constant rise in land values and speculative profits. These baneful results were anticipated and graphically depicted by Clarence S Stein, then Chairman of the New York State Housing and Regional Planning Commission, in his article on 'Dinosaur Cities' in the 'Survey Graphic', May 1925. Stein there described the breakdown - already quite visible - resulting from housing congestion, water shortage, sewerage pollution, street clogging, traffic jams, and municipal bankruptcy. But Dinosaurs were handicapped by insufficient brains, and the World Trade Centre is only another Dinosaur."

I deeply suspect, as Lewis Mumford does, that disastrous designs and decisions at the highest levels of world society will perpetuate to (likely imminent and global) catastrophe.

"The suppression of personality is already so complete in an automated economy that the reputed heads of our great organizations are as incapable of changing its goals as the lowliest filing clerk. It is the system itself that, once set up, gives orders."

And It Ain't Shinola... II

by the Sandwichman

Wherein the Sandwichman assesses the validity of the claim by Lanoie, Raymond and Shearer that:

...little empirical work has been done to measure the consequences of work sharing. ...data that would permit the direct measurement of the productivity effects of work sharing has generally not been available....

Counterpoised to the above statement is the observation made by Chris Nyland in Reduced worktime and the management of production (1989) that a "vast mass of [empirical] research has been undertaken into how the relationship among effort, efficiency and time manifests itself within the production process (page 45)."

(see also And It Ain't Shinola, Part I)

To be sure, "work sharing" is only a particular application of reduced worktime and, for the most part, the "vast mass" of research deals with circumstances that differ in important ways. However, that broader research also bears on the narrow issue of work sharing in important ways. Most important is the issue of isolating the effects of the worktime change on output. This is difficult to do at the best of times. When the matter is clouded by poor implementation, short time horizons and a simultaneous increase in the length of the working day, the results have to be taken as fundamentally inconclusive.

To Lanoie, et al.'s credit, they do acknowledge several of the confounding factors. However, their cursory theoretical discussion and even shallower grounding in the specialized literature lead them to understate the ambiguity of their empirical findings and thus to vastly overstate the significance of their results: "the results suggest that work sharing has induced a significant reduction in productivity." The results suggest no such thing. On the contrary, what the results suggest to someone with a grounding in the working time literature is that it may be a misnomer to even call the schedule change "work sharing". Why not call it a 10% pay cut with an attempted speed-up?

The "classical" empirical studies of working time and output are Abbe's analysis of the introduction of an eight-hour day at the Carl Zeiss optical works in 1900, Vernon's investigation of work schedules in British munitions factories during World War I and Kossoris's study in the U.S. during World War II. All of these studies found significant gains in productivity from shorter work days and work weeks and even larger productivity losses from increased days and weeks. Another important finding was the time lag of several months before the productivity gains would take hold. In Abbe's research and several of the Vernon and Kossoris case studies reductions in working time resulted in actual gains in aggregate output per worker, not just gains in hourly productivity.

In 1924, Otto Lipmann of the Institute of Applied Psychology in Berlin collected all of the then known material on the relation between the hours of work and volume of production. The volume presented "about 700 separate data on the effects of changes in hours of work on output... and a bibliography of about 400 works." Sounds more like Nyland's vast mass than Lanoie's little empirical work. However, Lipmann pointed out, "A comparatively small portion only of the data collected and compiled by the Institute is scientifically satisfactory." Lipmann ventured a general impression of the then already vast mass of data:

The more exact the observations on which a report is based the more frequently do they represent the effects of a reduction in hours as good, or explain the absence of good effects by other causes. On the other hand information based on estimates very frequently reports bad effects of reductions in hours of work.

By 1965, Lipmann's vast mass of data would seem only half vast by comparison with the "huge empirical literature on the relationship between working hours and productivity" reviewed by D.G. Brown (cited by Scott and Spadavecchia): 1,233 firm level studies from the U.S. and U.K., "52 per cent of observations involving a decrease in hours indicated that this did not significantly reduce output."

This is not to say that reducing the hours of work always causes higher productivity. The circumstances of the change and how it is implemented can be as important -- sometimes more important -- than the particular change in hours. In particular, "work sharing" may not conform to the productivity boost because of workers' fear of a shortage of demand. They may, consciously or not, slow down in an effort to "make the job last." Of course, if there is an actual shortage of work, there may also be more involuntary down time during the course of the working day. An increased capacity for work may not be matched by an increased opportunity to use that capacity. Nevertheless, a fall in output isn't necessarily evidence that the change in schedule caused that decline. Again, Lipmann,

The relation between hours of work and hourly output is by no means simple or direct, that is to say, a change in hourly output occurring simultaneously with a change in hours of work is not necessarily (post hoc ergo propter hoc) an effect of the latter change.

In addition to Nyland's book, cited above, another text that surveys the empirical work on hours of work and output is Stress and performance effectiveness by Alluisi and Fleishman, some of which is taken from earlier contract research Alluisi did for NASA. They state:

From the very earliest studies, improvements in industrial productivity have generally been found following reductions in the total hours of work in both the workday and the workweek.

This broad consensus contradicts Ohanian's assertion that the SINGLE study by Lanoie et al, "is evidence that worksharing that reduces the number of days an employee works, even keeping the length of the workweek fixed, also reduces output per hour." The error of such a conclusion is amplified by Lanoie et al.'s evident (self-reported) lack of familiarity with the (vast) empirical literature related to their study.

What bank 'deregulation' really means. The case of Iceland

The recent financial history of Iceland (see below) presents a birds-eye-view of capitalism left completly to its own devices. When its most ardent defenders - inevitably a mere handful of individuals - are left completely unfettered in their commercial exploits from morals, ethics, rules and law. Here lies a contemporary tribute to the formidable nonsense of the modern 'free market'. A small number of insiders are deemed to have superior wisdom due to their ability to confound the great majority of people as to the real meaning of their actions. They are then 'free' to print money and raid public and common assets at will.

"Gigantic loans, it has been revealed, were taken out abroad by a few individuals and without the full knowledge of the Icelandic people. Now the nation seems to be responsible for having to pay them back….."[1]

The modern version of the Viking Raiders set out to buy up Britain's High Street using $250,000 of borrowed money for every man, woman and child in Iceland.


2009 – February 1st. Following the resignation of the previous cabinet (see January 26, 2009), a new government is formed in Iceland by the Left-Green Movement and the Social Democratic Alliance. The new government will be in office for only a few months, until fresh elections in the spring.

2009 – January 26th. The Government of Iceland resigns.

2009 – January 25th. Power to the People! The Minister of Commerce and Banking announced his resignation this morning. He moreover announced that he had dismissed the director and board of the Financial Supervisory Authority. Meanwhile, the Central Bank board operates under the auspices of the Prime Minister who has done nothing but declare his unfailing devotion to Davíd Oddsson and his cronies at the bank. elections will be held this spring. That’s definite. And it’s a huge relief, although the greatest worry is that there won’t be any renewal within the political parties and that all we will have is the same old people, whom nobody trusts any more.

2009 – January 23rd. Prime Minister of Iceland Geir Haarde calls a general election for the spring, two years early.

2009 – January 20th. The Icelandic finance ministry says the country’s economy is forecast to shrink by 9.6 percent in 2009. In addition, it predicts no growth in 2010.

2009 – January 20th. It’s 10 pm and the protests are intensifying

2008 – December 24th. 2008 – December 24th. A crowd gathers outside an Icelandic bank. “Pay your own debts,” they yelled as they visited one bank office after another in Iceland’s capital. “Don’t make the children pay.”

2008 – December 18th. IMF Says Financial Stability of Iceland Has Improved

2008 – December 2nd. Icelanders Storm Central Bank

2008 – November 26th. The annual rate of inflation in Iceland rises to a record high of 17.1 percent.

2008 – November 20th. Credit collapse numbs Icelanders. Some analysts are predicting that inflation will reach up to 30% this winter. Jobs are being lost at a rate of up to 5,000 a month. In a country whose entire population is only 300,000, the impact is huge. Many monthly mortgage payments doubled overnight when the value of the Icelandic Krona crashed.

2008 – November 20th. IMF approves loan to Iceland. Iceland becomes the first Western European nation to get an IMF loan since Britain in 1976.

2008 – November 15th. ‘The Big Chill”. Gigantic loans, it has been revealed, were taken out abroad by a few individuals and without the full knowledge of the Icelandic people. Now the nation seems to be responsible for having to pay them back….. And here is the nub. Iceland's banks borrowed more than $250,000 for every man, woman and child in Iceland, and placed an impossible burden on the modest reserves of the central bank in the event of default. And default they have. 23
2008 – November 3rd. Inflation in Iceland (caused by high levels of borrowing in the country and by large investment sums flowing in, in response to high interest rates) was exacerbated by the practice of the Central Bank of Iceland issuing liquidity loans to banks on the basis of newly-issued, uncovered bonds— effectively, printing money on demand.

2008 – October 28th. Icelandic Central Bank Raises Interest Rate to 18% from 12% due to problems in the country’s banking system.

2008 – October 20th. Iceland’s financial authorities formally announce the establishment of new Glitnir, Landsbanki, and Kaupthing banks. The old banks were taken over by the government two weeks previously as their condition had deteriorated due to the global credit crisis.

2008 – October 17th. Iceland Defaults Triggering More CDO Woes

2008 – October 15th. Iceland Cuts Interest Rates from Record High of 15.5% down to 12%.

2008 – October 9th. The Economist noted that Icelandic households took on a large amount of debt, equivalent to 213% of disposable income, which led to inflation.

2008 – October 8th. Britain uses anti-terror legislation against Iceland. Icelandic Government seizes the country’s largest bank, Kaupthing. The assets of Landsbanki were frozen by the British Government.

2008 – October 7th. Icelandic Government takes control of the country’s second and third largest banks - Landsbanki and Glitnir.

2008 – October 6th. Icelandic Government guarantees all deposits in local banks. Trading in Major Icelandic Shares Suspended.

2008 – October 5th. A rumour that Iceland is in danger of not being able to get food and oil due to the lack of credibility of its currency. Iceland’s currency is in free fall as inflation and interest rates rage upward.

2008 – September 29th. Icelandic Government takes large stake in the country’s third-largest bank, Glitnir. The bank ran into short-term funding problems.

2008 – September 22nd. Qatari Royal Buys Stake in Soon-to-Collapse Icelandic Bank

2008 – September. In the 12 months leading up to September 2008 the inflation rate in Iceland was 14% compared to a target of 2.5%. The Central Bank of Iceland held interest rates high (15.5%). Overseas investor money poured into the country in response, leading to monetary inflation. The money supply grew 56.5% in the twelve months to September 2008. This compared with 5.0% GDP growth.

2008 – May 19th. Scandinavians arrange emergency funds to keep hedge fund pirates from destroying Iceland.

2008 – March. The cost of private deposit insurance for deposits in Landsbanki and Kaupthing was already far higher (6–8½% of the sum deposited) than for other European banks.

2008 – February 22nd. Financial Website Warns of Icelandic Bank’s Instability, Bank Will Later Collapse

2007 – February 1st. The króna, which was ranked by The Economist in early 2007 as the most overvalued currency in the world (based on the Big Mac Index),[115] . The Icelandic currency further suffered from the effects of carry trading.

2001 – Banks deregulated in Iceland. This set the stage for the Icelandic banks to acquire huge debt when foreign companies were accumulated.
__________________oOo__________________

[1] The big chill
Financial Times, Sat 15 November 2008
By Robert Jackson
http://www.ft.com/cms/s/0/8641d080-b2b4-11dd-bbc9-0000779fd18c.html?ftcamp=rss&nclick_check=1

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

by the Sandwichman

One last note on Fawcett's 1872 lecture. Can an economist talk about the hours of work without invoking the specter of 'fallacy'? Apparently not. Fawcett's charge of fallacy, however, is not the classic lump-of-labor version:

It is, however, probable that motives very different from these actuate many who most earnestly appeal to the State to impose a legal limit upon the day's work. This particular movement may be, to a great extent, regarded as a revival of the old fallacy that the wages of labour can be regulated by law.

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

I shall not attempt [don't you love those pseudo-disavowals that introduce the mention of something with the phrase, "not to mention..."] to argue the case by referring to such well-known facts as that Parliament for centuries tried to control the wages of labour, and that all the numberless statutes that were passed to effect this object signally failed. Neither shall I refer to the general principles of political economy to establish the conclusion that the wages of labour cannot be controlled by the State. Such reasoning would not, in any way, affect the opinions of those who are most strongly in favour of the hours of labour being regulated by the State. According to their views the interposition of the State in this matter involves very different consequences, and is to be defended by very different arguments from any attempt which may be made to fix the rate of wages by Act of Parliament.

In case you're wondering, Fawcett's argument proceeds from the above to the case argued in installment II of this series: namely, that if the hours of work were indeed too long then employers would in every instance be compelled to yield to demands from the workers to shorten them (in spite of the unprecedented nature of the workers' triumph at Newcastle). The mind reels.

And It Ain't Shinola...

by the Sandwichman

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

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

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

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

On first impression, the relevance to Hoover and the Great Depression of this single 1990s example may seem remote. But on closer inspection, it becomes laughable. The program was not simply a work-sharing arrangement. It was also a change in schedule to a nine-hour day precipitously imposed by management. Furthermore, the productivity impacts were found to be task specific. To generalize from this particular example to work sharing during the Hoover administration strains credulity, let alone plausibility. But here, in the authors' own words, are the peculiarities of the Canadian experiment that would be enough to disqualify it as in any way typical or representative of the Hoover-era experience:

These results suggest that the impact of work sharing on productivity is 'task specific' and that longer operations (both types of installations), for which the coordination cost is likely to be higher, are broadly more affected. As discussed earlier, another possible contributing factor to the decrease in productivity is the change in the work schedule that was introduced along with the work sharing programme. Namely that workers changed from working 8 hours a day for 5 days a week to working 9 hours a day for 4 days a week. It is possible that the extra hour tacked on to the end of the day was much less productive than the hours worked on the fifth day of the week. Unfortunately, without information on daily production, the data set does not permit identification of such effects. Certain officials also mentioned that managers were not well prepared to operate in this work sharing environment (the whole operation was implemented with a very short notice), and that coordination problems occurred not only between technicians, but also between technicians and dispatchers. One further possibility is that worker morale may have been negatively affected by the work sharing programme. Given that technicians were not given a choice of whether or not to participate in the programme whereas other types of workers were, technicians may have felt they were being unfairly treated (Akerlof, 1982). The fact that absenteeism increased following the introduction of the programme lends support to this interpretation.

To reiterate:

• impact on productivity was task specific;
  
• change in the work schedule was introduced along with work sharing; from 8 hours a day for 5 days a week to 9 hours a day for 4 days a week;
  
• managers were not well prepared to operate in this work sharing environment (the whole operation was implemented with a very short notice;
  
• technicians were not given a choice to participate (other employees were); morale may have been negatively affected.

What is absent from Lee Ohanian's article is any explanation of why he thinks the above 'evidence' is remotely relevant to his Great Depression theory. What does this say about the peer review process at the Journal of Economic Theory? Perhaps they should take a lesson from Navin Johnson's father:



Summary of Ohanian's theory, pages 48-49:

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

This paper provides such a theory for a large and protracted monetary non-neutrality. The non-neutrality is quantitatively large in the Hoover economy because Hoover's wage maintenance and work-sharing program reduces steady state hours and capital stocks. The non-neutrality persists in this model because it is a transition from a non-distorted steady state to the Hoover distorted steady state.

Footnote, page 28-29:

Capital input in this model is variable, and is equal to the capital stock scaled by the length of the workweek, or hours per worker. In the model, utilization falls in manufacturing, which is consistent with actual manufacturing utilization during the Depression. It is worth pointing out two issues about tieing [sic] the decline in utilization to hours per worker. One is that some of the decline in utilization was due to plant closings, rather than a shorter workweek across all plants. Another is that some worksharing was such that workers were employed for fewer days, but the plant could have had the same workweek length. I am unaware of data that can provide any type of detail on these distinctions, however, so I will treat the model as a parsimonious tool for capturing low capital input during the Depression, as it will allow the model to be consistent with actual manufacturing output per hour. This treatment is also reasonable because there is evidence that worksharing that reduces the number of days an employee works, even keeping the length of the workweek fixed, also reduces output per hour (see Lanoie, Raymond, and Shearer).

Letter to a Portuguese Journalist

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

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

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

by the Sandwichman

Henry Fawcett concluded his lecture with an apparently heartfelt panegyric on the humanitarian benefits of shorter hours and the defects of excessive hours.

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

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

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

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

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

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

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

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

We didn't know that Panama was bombed in 1989

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

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

AN INVASION TIMELINE

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

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

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

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

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

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

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

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

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

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

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

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

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

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

[1] George Bush: The Unauthorized Biography
by Webster G. Tarpley & Anton Chaitkin
Chapter -XXIII- The End of History
http://killtown.911review.org/bushbio/chapter23.html

Ohanian the Onanian

by the Sandwichman

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

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

Do modern economic tools include generalizing from a single Canadian firm in the 1990s that went from a five 8-hour days to four 9-hour day compressed work week? "...there is evidence that worksharing that reduces the number of days an employee works, even keeping the length of the workweek also reduces output per hour..." Yup. Never mind that there are piles of historical evidence (and actual economic theory!) suggesting otherwise. What was that about a swallow and a summer?

To evaluate the quantitative impact of Hoover's program, I calculate the equilibrium of a model economy with firms paying the observed real wage in the industrial sector and following the observed workweek. I find that Hoover's program substantially depressed the economy, reducing aggregate output and hours worked by about 20 percent.

Ohanian compares his latest general equilibrium fantasy with a benchmark model from an earlier study in which (lo and behold) he and Harold Cole found, "that wage shocks and banking shocks account for a small fraction of the Great Depression..."

To shed further light on the permanent impact of the policy on the economy, I compare these findings to those of Cole and Ohanian, Table 9, who studied the impact of the same real manufacturing wage sequence in a similar economy, but assuming that the wage distortion was transitory, rather than permanent, and with no workweek restriction.

Got that? Professor Ohanian compared estimations from one general equilibrium model, that relied on a sweeping generalization from a single 1990s Canadian firm with estimations from another general equilibrium model that had been used to find that wage shocks accounted for only a small fraction of the Great Depression to find that Hoover's pro-labor policies accounted for TWO-THIRDS of the economic decline after the stock market crash 1929. I didn't think so.

My own prediction of the depression

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

http://michaelperelman.wordpress.com/2009/08/29/confiscation-of-american-prosperity-chapter-1/

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

by the Sandwichman

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

In addressing the productivity argument, though, Fawcett takes another tack, proclaiming: "...the masters would, in every instance, be compelled to yield..."

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

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

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

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

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

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

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

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

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

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

by the Sandwichman

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

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

"The artisans in no previous dispute between Capital and Labour have ever obtained so signal a triumph."

Early in August, 1871, the engineers of Newcastle formally put forward the demand that a day's work should consist of nine hours. The masters refused to yield. The workmen thereupon carried out their threat to desist from work; and a general strike ensued. Although efforts at conciliation were repeatedly made, the dispute continued to rage fiercely for many weeks. Various persons offered themselves as mediators, in the hope of suggesting some compromise. But compromise after compromise was unceremoniously rejected by the masters.

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

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

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

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

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

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

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

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

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

Beyond the f-word: Black on Black

by the Sandwichman

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

The Shorter Work Week and Work Day

By Hugo L. Black

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

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

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

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

Loss Through Inadequate Incomes

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

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

Bargaining Power Needed

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

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

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

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

Shorter Week Would Increase Production

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

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

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

Adequate Income Necessary

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

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

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

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

The Bill and Hold Stimulus

by the Sandwichman

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

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

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

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

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

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

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

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

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