"Ah, so much for the aggregate Cobb-Douglas production function! And we were all getting so used to applying it to everything in sight."
Thursday, October 29, 2009
Rosser's Closet Sandwichman
Over at Mark Thoma's place the real Barkley Rosser channels the late Sandwichman:
Are Those $250 Social Security Checks Just Pandering to Seniors?
David Leonhardt tries to make this case and he would have been well advised to start with this:
The argument would be that even with a zero nominal increase, Social Security recipients see an increase in real income during a period of deflation. Yes – there are the caveats about whether the CPI properly captures the cost of living for seniors especially if the relative price of drugs increases. But why did Mr. Leonhardt start his discussion by talking about the depressed economy and who would be most likely to consume any checks that the government may wish to extend?
Let’s think about the macroeconomic impact of a $14 billion one-time transfer payment in terms of a life-cycle model of consumption. This would be equivalent to a one-time increase in household wealth with the impact effect on consumption being equal to the increase in wealth divided by the number of remaining years of life for the individual receiving the check. If a young person were given $250, he would likely save most of it. If the $250 were given to the elderly instead, then more of the transfer payment would be consumed. Mr. Leonhardt seems to be unhappy with the President’s proposal but his reasoning here seems to be very confused.
The original Social Security legislation had not included an inflation adjustment, which meant benefits did not keep up with the cost of living. A decade later, Ms. Fuller’s checks were worth about 40 percent less in real terms than when she started receiving them. Congress finally increased benefits in 1950 and then continued to do so in fits and starts, sometimes faster than inflation, sometimes slower and usually in an election year. President Richard M. Nixon and a Democratic Congress brought some order to this process in 1972, by automatically tying the benefits to the movement of an inflation index in the previous year. The changes were part of the transformation, during the middle decades of the 20th century, in how this country treated the elderly. In the 1930s, they had little safety net and frequently struggled to meet their basic needs. Four decades later, they were the only group of Americans with guaranteed health care and a guaranteed income. All in all, it was certainly for the good. But by the 1970s, you could start to see the early signs of excess. In their bill, Mr. Nixon and Congress included a little bonus: the increase in Social Security payments could never be less than 3 percent, no matter what inflation was. In the 1980s, Congress reduced the floor to zero — meaning that benefits would be held constant if prices fell — but the principle remained the same: heads, it’s a tie; tails, Social Security recipients win.
The argument would be that even with a zero nominal increase, Social Security recipients see an increase in real income during a period of deflation. Yes – there are the caveats about whether the CPI properly captures the cost of living for seniors especially if the relative price of drugs increases. But why did Mr. Leonhardt start his discussion by talking about the depressed economy and who would be most likely to consume any checks that the government may wish to extend?
If you wanted to help the economy and you had $14 billion to bestow on any group of people, which group would you choose: a) Teenagers and young adults, who have an 18 percent unemployment rate. b) All the middle-age long-term jobless who, for various reasons, are not eligible for unemployment benefits. c) The taxpayers of the future (by using the $14 billion to pay down the deficit). d) The group that has survived the Great Recession probably better than any other, with stronger income growth, fewer job cuts and little loss of health insurance. The Obama administration has chosen option d — people in their 60s and beyond.
Let’s think about the macroeconomic impact of a $14 billion one-time transfer payment in terms of a life-cycle model of consumption. This would be equivalent to a one-time increase in household wealth with the impact effect on consumption being equal to the increase in wealth divided by the number of remaining years of life for the individual receiving the check. If a young person were given $250, he would likely save most of it. If the $250 were given to the elderly instead, then more of the transfer payment would be consumed. Mr. Leonhardt seems to be unhappy with the President’s proposal but his reasoning here seems to be very confused.
Bigness in Capitalism
In 1976 the former Deputy Prime Minister of Australia, Jim Cairns, wrote:
A few years ago "fifty of the world’s one hundred largest economies [were] multi-national companies and not countries." [2]
When a private company grows to a size exceeding that of nations how can its vast resources not be viewed as social property? After all, the technology that these huge transnational corporations use has been "assembled with direct subsidies, tax write-offs, and other benefits traceable to the public treasury. The social capital of the nation - its air, water, and mineral treasure - has been expended in the process." [3]
Some observers may see (in addition) that many, if not most, of the risks taken by these global 'enterprises' are also, in fact, 'social'. Recent evidence of this is the hundreds of billions of dollars in TARP bailout money given to the large banks and the trillions of dollars that have been added to the US Federal Reserve’s balance sheet at huge social cost.
Part of this huge windfall for the big banks has been put into the acquisition of smaller banks by banks "too large to fail." The result is [even] more financial concentration."… [4]
And so it goes. For how much longer can we remain prisoners of economic labels and false dichotomies. 'Private enterprise' versus 'socialism'.
Corruption thrives in societies where the lines between 'private' and 'public' are blurred. 'Bigness' provides the open invitation.
[1] Jim Cairns 'Oil in Troubled Waters' Widescope International Publishers Pty Ltd, Camberwell Victoria. 1976. pp 133-134
[2] “No Nonsense Guide to Globalisation” p55. As quoted in:
THE MONEY –GO –ROUND
GLOBALISATION AND THE DESTRUCTION OF FARMING
SUSAN ATKINSON
www.agribusinessaccountability.org/pdfs/276_Money-Go-Round.pdf
[3] Richard J Barnet and Ronald E Muller, 'Global Reach - the power of the multinational corporations' 1974. page 374
[4] Assistant Secretary to the Treasury blasts economic policy, misleading data
October 7, 12:07 PMLA County Nonpartisan ExaminerCarl Herman
http://www.examiner.com/x-18425-LA-County-Nonpartisan-Examiner~y2009m10d7-Assistant-Secretary-to-the-Treasury-blasts-economic-policy-misleading-data
* A useful summary is provided by Geoffrey Barraclough in 'New York Times Review' 27 June 1974, 23 January 1975, 7 August 1975.
"....outside Australia, the 'economic crisis', the 'oil-food crisis', or 'inflation' whatever it is called is seen to be capitalist and third-world wide, deep seated, crucial, and to be a depression, not just inflation. Finally, there is acceptance that conventional economic thinking cannot deal with it. It looks like the end of an era, but why has it come?
There are, it seems, two main reasons*. First, there is the development of bigness in capitalism. Capitalism was once a very large number of small factories, shops, farms and other production units. Yet now in the USA, and it is little different in Australia, some 2 percent of the companies control about 50 percent of 'gross national product' in some way or another....The other main reason for the end of the era is the fact that the thrid world for a time could raise the price of raw materials and food it supplies to corporate capitalism...."[1]
A few years ago "fifty of the world’s one hundred largest economies [were] multi-national companies and not countries." [2]
When a private company grows to a size exceeding that of nations how can its vast resources not be viewed as social property? After all, the technology that these huge transnational corporations use has been "assembled with direct subsidies, tax write-offs, and other benefits traceable to the public treasury. The social capital of the nation - its air, water, and mineral treasure - has been expended in the process." [3]
Some observers may see (in addition) that many, if not most, of the risks taken by these global 'enterprises' are also, in fact, 'social'. Recent evidence of this is the hundreds of billions of dollars in TARP bailout money given to the large banks and the trillions of dollars that have been added to the US Federal Reserve’s balance sheet at huge social cost.
Part of this huge windfall for the big banks has been put into the acquisition of smaller banks by banks "too large to fail." The result is [even] more financial concentration."… [4]
And so it goes. For how much longer can we remain prisoners of economic labels and false dichotomies. 'Private enterprise' versus 'socialism'.
Corruption thrives in societies where the lines between 'private' and 'public' are blurred. 'Bigness' provides the open invitation.
[1] Jim Cairns 'Oil in Troubled Waters' Widescope International Publishers Pty Ltd, Camberwell Victoria. 1976. pp 133-134
[2] “No Nonsense Guide to Globalisation” p55. As quoted in:
THE MONEY –GO –ROUND
GLOBALISATION AND THE DESTRUCTION OF FARMING
SUSAN ATKINSON
www.agribusinessaccountability.org/pdfs/276_Money-Go-Round.pdf
[3] Richard J Barnet and Ronald E Muller, 'Global Reach - the power of the multinational corporations' 1974. page 374
[4] Assistant Secretary to the Treasury blasts economic policy, misleading data
October 7, 12:07 PMLA County Nonpartisan ExaminerCarl Herman
http://www.examiner.com/x-18425-LA-County-Nonpartisan-Examiner~y2009m10d7-Assistant-Secretary-to-the-Treasury-blasts-economic-policy-misleading-data
* A useful summary is provided by Geoffrey Barraclough in 'New York Times Review' 27 June 1974, 23 January 1975, 7 August 1975.
Wednesday, October 28, 2009
How To Fire A Tenured Faculty Member
We have heard that tenured professors have job security. Awhile ago I posted about the situation of Jonathan Goldstein, whose tenured position at Allegheny College was under attack because he was criticizing his administration. I think his position has been saved, but the hard fact is that administrators succeed in getting rid of uppity faculty all the time, although often it does not get widely reported. Thus, I recently gave a talk at an econ department where someone behaved in a highly and personally aggressive and unpleasant way to me (other members later apologized to me). However, I learned that this was not totally disconnected to the recent firing of a tenured friend of mine from that department for disagreeing with the university administration. I cannot speak further of this because the entire situation is under wraps due to court order. But I can say that my friend was indeed fired for disobeying certain arbitrary administrative rules, the sort of thing that was being thrown at Goldstein, which was simply a method for getting at him for criticizing them on other matters.
At my university there was an effort to fire a tenured prof who was criticizing the administration by eliminating his entire department. This led to a protest against this, which I was involved with. Some of us involved in this received letters from a member of the Board of Visitors above the administration, threatening us with loss of our jobs. Fortunately, this move to eliminate the department was ultimately countermanded, and the administrator causing the trouble was removed as a result of his connection with a murder/prostitution scandal. But I still keep a copy of that threatening letter in my desk, not to mention my membership in the AAUP current.
At my university there was an effort to fire a tenured prof who was criticizing the administration by eliminating his entire department. This led to a protest against this, which I was involved with. Some of us involved in this received letters from a member of the Board of Visitors above the administration, threatening us with loss of our jobs. Fortunately, this move to eliminate the department was ultimately countermanded, and the administrator causing the trouble was removed as a result of his connection with a murder/prostitution scandal. But I still keep a copy of that threatening letter in my desk, not to mention my membership in the AAUP current.
"The Panacea"
by Zombie Sandwich
American social thought is a toilet that hasn't been flushed in 60 years in a gas station restroom that hasn't been cleaned in 70. Jiggling the handle won't fix it. Americans never recovered from, nor acknowledged the nature of the affluence of the 1950s and 60s. Their technicolor ersatz-Eden was a gift of geography and Air Force bombardment, not the just reward for hard work and sacrifice. Ever since that epoch of illusion, an aberration has been taken for a benchmark.
Sandwichman's sin was to talk about what might have been as if there was still a possibility of its becoming. The eclipse of that possibility was chronicled 20 years ago in a crepuscular flurry of historical retrospectives whose collective title could have been "twilight of reason". Sandwichman lied. Knowingly. Americans have become so used to wallowing in their filth that they recoil in disgust at the thought of living without it. There has evolved an unrepentant political economy of muck. "Give Us More Shit!"
American social thought is a toilet that hasn't been flushed in 60 years in a gas station restroom that hasn't been cleaned in 70. Jiggling the handle won't fix it. Americans never recovered from, nor acknowledged the nature of the affluence of the 1950s and 60s. Their technicolor ersatz-Eden was a gift of geography and Air Force bombardment, not the just reward for hard work and sacrifice. Ever since that epoch of illusion, an aberration has been taken for a benchmark.
Sandwichman's sin was to talk about what might have been as if there was still a possibility of its becoming. The eclipse of that possibility was chronicled 20 years ago in a crepuscular flurry of historical retrospectives whose collective title could have been "twilight of reason". Sandwichman lied. Knowingly. Americans have become so used to wallowing in their filth that they recoil in disgust at the thought of living without it. There has evolved an unrepentant political economy of muck. "Give Us More Shit!"
Dean Baker is Shrill!
by Tom Walker
Dean Baker wrote:
Dean Baker wrote:
Okay, I'm not on vacation, but this is a BTP flashback. My original write-up of this NYT news article was way too positive. This article was essentially a diatribe against Germany's welfare state. To make its case, it turned an incredible success story -- Germany's relatively low unemployment rate -- into a failure.It is obvious that Dean Baker is on a mission -- the one policy that resolves all social ills. As such, he cannot listen to reason. Fine. Good luck, Dean. Work week reduction (or "work sharing") has never, anywhere, eliminated involuntary unemployment and underemployment; indeed, it has never had a significant effect. These schemes have not increased employment... This WILL NOT create many more jobs. If Dean's trying to engage in a dialogue with the New York Times, it might help if the tone of his blog entry was somewhat less snarky. Perhaps snark attracts more internet traffic, but it doesn't encourage dialogue.
The basic deal is that Germany adopted an explicit policy of encouraging employers to shorten work hours rather than lay off workers. The government allows unemployment benefits to be used to pay workers to cover most of the loss in wages due to the shorter workweek.
As a result, Germany's unemployment rate has barely changed in the downturn. Its unemployment rate at present is 7.7 percent. This is down from 7.8 percent earlier in the year. Germany's unemployment rate in 2007 was 8.4 percent, 0.7 percentage points higher than the current level.
Tuesday, October 27, 2009
"Peter H." Is A Weiner!
"I really don't like this strident new tone of yours, Sandwichman/Walker. What's with all the hostility?" -- Peter H.Don't even think of coming around the campfire when I'm roastin' marshmallows, Peter H.!
New Thinking With A Blunt Edge
The first round of research grants will be made before the end of the year to cutting-edge scholars working with leading universities around the world. INET’s Executive Director will be Robert Johnson, an economist with long experience in government, academia, and the private sector.Isn't that an oxymoron? "Cutting-edge"... "leading univerities"? Any way, why not get in on the ground floor? Five million bucks is $5,000,000.00. Age before beauty; pearls before swine.
Dear Robert Johnson,
Love your Mississippi Delta blues guitar-playing, Robert!
Seriously, though, I'm a non-economist who has been doing "new economic thinking" since an over-a-year-long spell of unemployment during the "jobless recovery" of the 1990s. Or, I should say I've been looking at old economic thinking -- pre-World War II and noticing that extremely important parts of the picture that were known at least to some economists in the 1930s -- Keynes, for example -- were simply "assumed" away in the rush to mathematical model building. Post-war "Keynesians" decided to make do with only one of three pillars of Keynes's intellectual theorem.The other two didn't fit in the equation. Robert Skidelsky can tell you more about this. At any rate, I just happen to be finishing up a manuscript that looks at over 200 years of what, for want of a better term, I will call "worktime thought". Some of it is heretical economics, some the masters, Smith, Marx, Keynes. But woven through the whole narrative is the outline of an "economic subject" quite distinct from the Homo economicus or rational economic actor of conventional modern economic analysis.
I guess the issue I want to raise with you has to do with the fragility, artificiality, perhaps even vanity of the idea of "new thinking". There is, as the preacher in Ecclesiastes tells us, "nothing new under the sun." But there is great value in making new again what was already old. In other words, what I have in mind is innovation and improvisation on the basis of a fine tradition that may have been forgotten, set aside and even scorned. I would very much like to hear your thoughts on this matter. I will of course be reading the Institute for New Economic Thinking's website and looking to see if there are any programs or grants that might be suitable for the theme in my manuscript.
Yours sincerely,
Tom Walker
Seven ways to be wise in our time and place
THERE HAS COME a time when it is clear that many Australian citizens have lost sight of the essential nature of things. Where our patterns of thought and behaviour – our everyday social ‘norms’ – are inevitably leading us to an apocalyptical future of deprivation and long-lasting ruin.
In the hills and valleys of Tasmania I see a merger of humans with machine. Where minds have become twisted and adapted to the dreadful logic and form of industrial tools. The vast destruction of our native forests and the attendant poisoning of our natural environment, the overfished seas, and the now vast weed-and-vermin-filled lands of absentee corporate owners, are merely the physical manifestations of a system of laws and inherent structural rules that have trespassed way beyond human ‘morals’ or concerns for community.
It is an automatic momentum that denies recognition of nature and natural processes.
The moving out of our self-imposed subjugation will not require the piling up of facts. Rather it will require the simple anticipation of consequences. To be wise in our time is to: Read more here.
In the hills and valleys of Tasmania I see a merger of humans with machine. Where minds have become twisted and adapted to the dreadful logic and form of industrial tools. The vast destruction of our native forests and the attendant poisoning of our natural environment, the overfished seas, and the now vast weed-and-vermin-filled lands of absentee corporate owners, are merely the physical manifestations of a system of laws and inherent structural rules that have trespassed way beyond human ‘morals’ or concerns for community.
It is an automatic momentum that denies recognition of nature and natural processes.
The moving out of our self-imposed subjugation will not require the piling up of facts. Rather it will require the simple anticipation of consequences. To be wise in our time is to: Read more here.
Transcript from the Future
by Tom Walker
A source who has asked to remain anonymous has just handed me a transcript of tomorrow's panel discussion at UC Berkeley on Global Unemployment, featuring Brad DeLong, John Quigley, David Card and Andy Rose. As a courtesy to the participants, I have taken the liberty of concealing who will have said what by substituting pseudonyms for the names of the participants. Similarly, the panelists themselves have taken the wise precaution of using the more genteel euphemism "your daughter's illness" to refer to mass unemployment, lest the latter term unleash widespread lamentations and gnashing of teeth among the unwashed and untenured.
A source who has asked to remain anonymous has just handed me a transcript of tomorrow's panel discussion at UC Berkeley on Global Unemployment, featuring Brad DeLong, John Quigley, David Card and Andy Rose. As a courtesy to the participants, I have taken the liberty of concealing who will have said what by substituting pseudonyms for the names of the participants. Similarly, the panelists themselves have taken the wise precaution of using the more genteel euphemism "your daughter's illness" to refer to mass unemployment, lest the latter term unleash widespread lamentations and gnashing of teeth among the unwashed and untenured.
DR TOMÉS. Sir, we have been discussing your daughter's illness, and my own view is that it arises from overheating of the blood. My advice is therefore--bleeding as early as possible.
DR DES-FONANDRÉS. In my opinion the trouble is a putrefaction of humours caused by a surfeit of er--er--something or other. My view is that she should be given an emetic.
DR TOMÉS. In my opinion an emetic would kill her.
DR DES-FONANDRÉS. On the contrary, I maintain that to bleed her now would be fatal.
DR TOMÉS. You would try to be clever!
DR DES-FONANDRÉS. I know what I'm talking about. I can give you points on any professional question.
DR TOMÉS. Don't forget how you cooked that fellow's goose the other day.
DR DES-FONANDRÉS. What about the woman you sent to glory only three days ago?
DR TOMÉS [to THE UNEMPLOYED]. You have my opinion.
DR DES-FONANDRÉS [to THE UNEMPLOYED]. You know what I think.
DR TOMÉS. If you don't have your daughter bled without delay, you can take it she's done for. [Exit.]
DR DES-FONANDRÉS. If you do have her bled, she won't last a quarter of an hour. [Exit.]
THE UNEMPLOYED. Which am I to believe? What's to be done when you get two such different opinions? Gentlemen, I implore you, set my mind at rest, give me an unprejudiced opinion as to which treatment will save my daughter.
DR MACROTIN [drawling]. Sir! On these oc-cas-ions one must pro-ceed with cir-cum-spec-tion and do nothing, as one might say, in pre-cip-it-a-tion, for mis-takes thus commit-ted may well, as our Master Hippocrates observes-have dan-ger-ous cons-equences!
DR BAHYS [in a quick stammering voice]. Yes, one n.n.needs to be cccareful. Th.th.there's no ch.ch.child's play about such c.c.c.cases as th.th.this. And it it's no.no.not an easy m.m.m.matter to p.put th.things right if.if.if. you m.m.make a m.m.m.mistake. Expcrimentump.p.p.p.p.periculosum,y.you n.need to l.l.look before you l.l.l.leap and weigh th.things w.w.warily, consider the c.c.constitution of the p.p.patient, c.c.cause of the m.m.malady, and the nature of the c.c.c.cure.
THE UNEMPLOYED [aside]. One's as slow as a funeral, t'other c.c.can't s.s.spit it out fast enough!
Professor Randall "Sting" Wray's Non-Reply
by Tom Walker
Previously, Tim Bartik posted a comment in response to the Sandwichman's post about the Last Taboo in employment policy. Jamie Galbraith replied by email and gave permission to post his comment. I regret that although Randall Wray replied by email, he refused permission to publish his reply.
The gist of Professor Wray's position, though, would seem to be, roughly, "when I say something three times with the third time in ALL CAPS, it's true." My asking for evidence only makes it obvious that I cannot listen to reason. Apparently, I have offended Professor Wray by insisting on substance rather than mere assertion. I most humbly apologize for that offense. I don't know where I could have gotten the impression that there is some sort of obstinacy and defensiveness about this issue. As B. Traven might have rewritten it:
Previously, Tim Bartik posted a comment in response to the Sandwichman's post about the Last Taboo in employment policy. Jamie Galbraith replied by email and gave permission to post his comment. I regret that although Randall Wray replied by email, he refused permission to publish his reply.
The gist of Professor Wray's position, though, would seem to be, roughly, "when I say something three times with the third time in ALL CAPS, it's true." My asking for evidence only makes it obvious that I cannot listen to reason. Apparently, I have offended Professor Wray by insisting on substance rather than mere assertion. I most humbly apologize for that offense. I don't know where I could have gotten the impression that there is some sort of obstinacy and defensiveness about this issue. As B. Traven might have rewritten it:
"Evidence? To god-damned hell with evidence! We have no evidence. In fact, we don't need evidence. I don't have to show you any stinking evidence, you god-damned cabrón and ching' tu madre! Go back into that shit-hole of yours. I don't want to speak to you."
Some Questions on Unemployment for Economists
by Tom Walker
1. Over the last decade, in how many months have you a) had no income from employment? and b) were unsure how long it would be before you would again receive a paycheck?
2. How many times in your working life have you had to "change careers" because there were meager prospects in the field of work you had become proficient at?
3. How likely do you believe it is that you will be laid off as a professor in a) the next six months? b) the next year? c) the next five years?
4. How many of your fellow tenured economics professors do you know of who are currently laid off from their positions?
5. What do you think of the Pope's views on birth control?
EconoSpeak readers, please contribute your suggestions to this list of questions for economists on unemployment.
1. Over the last decade, in how many months have you a) had no income from employment? and b) were unsure how long it would be before you would again receive a paycheck?
2. How many times in your working life have you had to "change careers" because there were meager prospects in the field of work you had become proficient at?
3. How likely do you believe it is that you will be laid off as a professor in a) the next six months? b) the next year? c) the next five years?
4. How many of your fellow tenured economics professors do you know of who are currently laid off from their positions?
5. What do you think of the Pope's views on birth control?
EconoSpeak readers, please contribute your suggestions to this list of questions for economists on unemployment.
Monday, October 26, 2009
Happy Motoring
All I can say is thank God for James Howard Kunstler.
Like a lot of other observer-interlocutors, I'd like to know what folks imagine we are recovering to. To a renewed orgy of credit-card spending? To yet another round of suburban expansion, with the boys in the yellow hard-hats driving stakes out in the sagebrush for another new thousand-unit pop-up "community?" For a next generation of super-cars built to look like medieval war wagons? That's the "hope" that our officials seem to pretend to offer. It's completely inconsistent with any reality-based trend-lines, by the way.
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