LONG-TERM PROBLEM OF FULL EMPLOYMENT: the third phase

"As the third phase comes into sight; the problem stressed by Sir H. Henderson begins to be pressing. It becomes necessary to encourage wise consumption and discourage saving,-and to absorb some part of the unwanted surplus by increased leisure, more holidays (which are a wonderfully good way of getting rid of money) and shorter hours."

THE LONG-TERM PROBLEM OF FULL EMPLOYMENT

J.M. Keynes (May 1943):

1. It seems to be agreed today that the maintenance of a satisfactory level of employment depends on keeping total expenditure (consumption plus investment) at the optimum figure, namely that which generates a volume of incomes corresponding to what is earned by all sections of the community when employment is at the desired level.

2. At any given level and distribution of incomes the social habits and opportunities of the community, influenced (as it may be) by the form and weight of taxation and other deliberate policies and propaganda, lead them to spend a certain proportion of these incomes and to save the balance.

3. The problem of maintaining full employment is, therefore, the problem of ensuring that the scale of investment should be equal to the savings which may be expected to emerge under the above various influences when employment, and therefore incomes, are at the desired level. Let us call this the indicated level of savings.

4. After the war there are likely to ensure [sic] three phases-
(i) when the inducement to invest is likely to lead, if unchecked, to a volume of investment greater than the indicated level of savings in the absence of rationing and other controls;
(ii) when the urgently necessary investment is no longer greater than the indicated level of savings in conditions of freedom, but it still capable of being adjusted to the indicated level by deliberately encouraging or expediting less urgent, but nevertheless useful, investment;
(iii) when investment demand is so far saturated that it cannot be brought up to the indicated level of savings without embarking upon wasteful and unnecessary enterprises.

5. It is impossible to predict with any pretence to accuracy what the indicated level of savings after the war is likely to be in the absence of rationing. We have no experience of a community such as ours in the conditions assumed, with incomes and employment steadily at or near the optimum level over a period and with the distribution of incomes such as it is likely to be after the war. It is, however, safe to say that in the earliest years investment urgently necessary will be in excess of the indicated level of savings. To be a little more precise the former (at the present level of prices) is likely to exceed £m1000 in these years and the indicated level of savings to fall short of this.

6. In the first phase, therefore, equilibrium will have to be brought about by limiting on the one hand the volume of investment by suitable controls, and on the other hand the volume of consumption by rationing and the like. Otherwise a tendency to inflation will set in. It will probably be desirable to allow consumption priority over investment except to the extent that the latter is exceptionally urgent, and, therefore, to ease off rationing and other restrictions on consumption before easing off controls and licences for investment. It will be a ticklish business to maintain the two sets of controls at precisely the right tension and will require a sensitive touch and the method of trial and error operating through small changes.

7. Perhaps this first phase might last five years,-but it is anybody's guess. Sooner or later it should be possible to abandon both types of control entirely (apart from controls on foreign lending). We then enter the second phase, which is the main point of emphasis in the paper of the Economic Section. If two-thirds or three-quarters of total investment is carried out or can be influenced by public or semi-public bodies, a long-term programme of a stable character should be capable of reducing the potential range of fluctuation to much narrower limits than formerly, when a smaller volume of investment was under public control and when even this part tended to follow, rather than correct, fluctuations of investment in the strictly private sector of the economy. Moreover the proportion of investment represented by the balance of trade, which is not easily brought under short-term control, may be smaller than before. The main task should be to prevent large fluctuations by a stable long-term programme. If this is successful it should not be too difficult to offset small fluctuations by expediting or retarding some items in this long-term programme.

8. I do not believe that it is useful to try to predict the scale of this long-term programme. It will depend on the social habits and propensities of a community with a distribution of taxed income significantly different from any of which we have experience, on the nature of the tax system and on the practices and conventions of business. But perhaps one can say that it is unlikely to be less than 7 per cent or more than 20 per cent of the net national income, except under new influences, deliberate or accidental, which are not yet in sight.

9. It is still more difficult to predict the length of the second, than of the first, phase. But one might expect it to last another five or ten years and to pass insensibly into the third phase.

10. As the third phase comes into sight; the problem stressed by Sir H. Henderson begins to be pressing. It becomes necessary to encourage wise consumption and discourage saving,-and to absorb some part of the unwanted surplus by increased leisure, more holidays (which are a wonderfully good way of getting rid of money) and shorter hours.

11. Various means will be open to us with the onset of this golden age. The object will be slowly to change social practices and habits so as to reduce the indicated level of saving. Eventually depreciation funds should be almost sufficient to provide all the gross investment that is required.

12. Emphasis should be placed primarily on measures to maintain a steady level of employment and thus to prevent fluctuations. If a large fluctuation is allowed to occur, it will be difficult to find adequate offsetting measures of sufficiently quick action. This can only be done through flexible methods by means of trial and error on the basis of experience, which has still to be gained. If the authorities know quite clearly what they are trying to do and are given sufficient powers, reasonable success in the performance of the task should not be too difficult.

13. I doubt if much is to be hoped from proposals to offset unforeseen short-period fluctuations in investment by stimulating short-period changes in consumption. But I see very great attractions and practical advantage in Mr Meade's proposal for varying social security contributions according to the state of employment.

14. The second and third phases are still academic. Is it necessary at the present time for Ministers to go beyond the first phase in preparing administrative measures? The main problems of the first phase appear to be covered by various memoranda already in course of preparation. insofar as it is useful to look ahead, I agree with Sir H. Henderson that we should be aiming at a steady long-period trend towards a reduction in the scale of net investment and an increase in the scale of consumption (or, alternatively, of leisure) but the saturation of investment is far from being in sight to-day The immediate task is the establishment and the adjustment of a double system of control and of sensitive, flexible means for gradually relaxing these controls in the light of day-by-day experience

I would conclude by two quotations from Sir H. Henderson's paper, which seem to me to embody much wisdom.

"Opponents of Socialism are on strong ground when they argue that the State would be unlikely in practice to run complicated industries more efficiency than they are run at present. Socialists are on strong ground when they argue that reliance on supply and demand, and the forces of market competition, as the mainspring of our economic system, produces most unsatisfactory results. Might we not conceivably find a modus vivendi for the next decade or so in an arrangement under which the State would fill the vacant post of entrepreneur-in-chief, while not interfering with the ownership or management of particular businesses, or rather only doing so on the merits of the case and not at the behests of dogma?

"We are more likely to succeed in maintaining employment if we do not make this our sole, or even our first, aim. Perhaps employment, like happiness, will come most readily when it is not sought for its own sake. The real problem is to use our productive powers to secure the greatest human welfare. Let us start then with the human welfare, and consider what is most needed to increase it. The needs will change from tune to time, they may shift, for example, from capital goods to consumers' goods and to services. Let us think in terms of organising and directing our productive resources, so as to meet these changing needs, and we shall be less likely to waste them."

Why I am a Sadist

Come along, my friend, come along
Get aboard and ride this train
Nothing on this train to lose
Everything to gain

One lesson I have learned over the past 15 years is that those with "nothing to lose and everything to gain" are the last people in the world who will board this train. In 1967 or 68 I saw the film of the Peter Weiss play, Marat/Sade. A while later I found that a nearby library had an LP recording of the performance and I listened to it over and over, taking to heart the Marquis de Sade's speech to Marat as Charlotte Corday was trying to gain entry to his apartment:

SADE: that's how it is Marat
That's how they see your Revolution
They have toothache
and need their teeth pulled
Their soup's burnt
They shout for better soup
A woman finds her husband too short she wants a taller one
A man's shoes pinch
he sees his neighbor's shoes fit comfortably
A poet runs out of poetry
and desperately gropes for new concepts
For hours an angler casts his line
Why aren't the fish biting
And so they join the revolution
thinking the revolution will give them everything
a fish
a new pair of shoes
a poem
a new husband
a new wife
So they storm all the citadels
and there they are
and everything is just the same
the soup burnt
verses botched
a worn and stinking partner in bed
and all that heroism
which drove us down to the sewers
well we can talk about it to our grandchildrem
if we have any grandchildren

More Dean

On The Arena at POLITICO:

"In November, voters are going to be thinking about jobs. If the unemployment rate is over 10.0 percent, as is widely projected, there is little doubt that they will blame the Democrats. This means that he must start generating jobs quickly. Fortunately, we know how to do this. If the United States were to go the route of work sharing, using flexible employment credits to provide an incentive to employers to reduce work hours while leaving pay unchanged, then we can quickly get back to more levels of employment.

"The basic logic is very simple. If everyone works 5 percent fewer hours, then we need 5 percent more workers. That would translate into 7 million additional jobs in an economy with 140 million workers. We don't have to speculate as to whether this policy can work. We already know that it can. Germany has suffered a sharper drop in output than the United States, yet its unemployment rate is 7.6 percent, the same as it was before the downturn. In the United States we are experiencing the recession with 15 million people unemployed, in Germany they are experiencing the recession in the form of shorter workweeks and longer vacations.

"President Obama can also do something to make the (honest) deficit hawks happy. He can impose a tax on financial speculation. The sort of short-term trading that helped get us into these mess. A modest tax on this speculation can easily raise more than $1 trillion over the next decade, while helping to make the financial markets more stable.

"Resetting towards an agenda that creates jobs quickly and kicks Wall Street speculators in the face will make President Obama and the Democrats very popular next November."

A prelude to collapse is more unpaid work

Some economic thinkers believe that a greater level of unpaid work is an 'economic necessity' in our current time of crisis.

The long evolution to disorder that we now find ourselves in has incorporated the emergence of a grossly distorted system of currency exchange rates and a trading system where the essence of 'trade' has come to mean international cross-border transactions within the same corporations or network of corporations. Non-trade in essence.

Peter Dorman points out in his article 'The Financial Crisis Through the Lens of Global Imbalances' that "a substantial portion of the world’s capital stock is obsolete" now because its tied up with the dead-end dynamics of global imbalances and that exporters also possess capacity in many industries which far exceeds domestic demand. Peter goes on to say that the US failed to invest in capacity to reduce its dependence on the key non-renewable fossil fuel - oil.

William Catton long foresaw this crisis and describes it in his article entitled 'The Unrecognised Preview'

Both Peter Dorman and William Catton say that new institutions and policies are (or were) needed to accommodate more sustainable growth strategies. Catton pointed out that by the 1970s mankind had taken over for human use about one eighth of the annual total net production of organic matter by contemporary photosynthesis in all the vegetation on all the earth's land. That much was being used by man and his domestic animals.* It would require taking over more than the other seven-eighths to provide from organic sources the vast quantities of energy we were deriving from fossil fuels to run our mechanized civilization, even if economic growth and human increase were halted by the year 2000.

Catton concludes that we have been a long time in ecological overshoot. His predictions are frightening.

I hope Catton is wrong but whether he is correct or not in his pronouncements is irrelevant to the nature of the steps that I see are now needed to at least reduce destructive outcomes.

Vast new sustainable infrastructure whose design is guided by the principle of 'biogeochemical circularity' described by Catton is needed urgently. Systems of production need to move away from drawdown of non-renewable resources.

Such an immense transformation can't happen when many millions of people are unavailable to participate. Work, whether it occurs in a capitalist or ecologically sustainable paradigm, needs to be rewarded if it is to proceed apace. Whilst our production paradigms are now obsolete, the concept of paid work isn't.

* Odum 1971 (listed among references for Ch. 6), p. 55.

Dean Baker Press Release

Statement on President Obama's Job Summit

For Immediate Release: December 2, 2009
Contact: Alan Barber, (202) 293-5380 x 115

Washington, D.C.- Center for Economic and Policy Research Co-Director Dean Baker issued the following statement on President Obama's upcoming jobs summit:

It is encouraging to see the Obama administration return its focus to job creation. The stimulus bill passed last February was an important factor in stopping the steepest economic downturn since the Great Depression. The latest report from the Congressional Budget Office indicates that the ARRA of 2009 may have been responsible for creating as many as 1.6 million jobs, lowering the unemployment rate by as much as a full percentage point.

Nonetheless, the downturn has been markedly worse than was predicted last winter. The unemployment rate is at an unacceptably high level and is now projected to remain high long into the future, remaining in double digits for most of 2010, and not falling below 7.0 percent until late 2012. President Obama has rightly decided that this baseline is unacceptable.

There are four steps that can be taken to reduce the unemployment rate quickly:

1. Flexible employment credits to allow employers to shorten work hours instead of laying off workers: Each month, employers are laying off close to 2 million workers. If the government gave employers tax credits to shorten work time while leaving pay unchanged, it could reduce these layoffs. If the number of layoffs fell by just 10 percent, this would have the same effect on employment as adding 200,000 jobs a month or 2.5 million a year. Germany has used this mechanism to keep its unemployment rate from rising, even though it has experienced a steeper recession than the United States.

2. Support for education, health care and other vital state and local government services: Under budget pressure, state and local governments across the country are cutting these services and laying off workers. Aid from the federal government can allow these workers to keep their jobs and services to continue to be provided.

3. Direct job creation: There are parts of the country where the unemployment rate now exceeds 25 percent, with youth unemployment well above 40 percent. To prevent a generation of young people from being locked out of the job market, it is important to have public service jobs that can employ people immediately.

4. Right to rent for homeowners facing foreclosure: If homeowners facing foreclosure had the right to remain in their homes as tenants paying the market rent for a substantial period (5-10 years), it would provide substantial housing security to millions of families while stemming the nation's rising number of foreclosures. This policy could also provide an economic boost since it would free up money for millions of homeowners who are now struggling with mortgage debts that they cannot pay. This would in turn lead to a boost in consumption that would increase demand in the economy.

These steps would go far in reducing layoffs, fostering job growth and giving relief to the millions of Americans suffering as a result of the economic crisis.

Doggerel for Escalation.

A song for the war season. One critic, who wishes to remain anonymous, says that "This is great art, certainly, and of political import..."

"I Am Changing My Name To Lyndon"

[To the tune of “I’m changing my name to Chrysler” by Tom Paxton.]

[With many deep apologies to Tom Paxton. Some wide swaths of lyrics were stolen outright from him. Plagiarism, of course, is a crucial part of what Pete Seeger has called the "folk process."]

Oh, the price of gold is rising out of sight,
And GDP is in sorry shape tonight.
What charisma used to get us
Now won't get a head of lettuce.
No, my political future isn't bright.
But amidst the clouds I spot a shining ray,
I begin to glimpse a new and better way.
I’m finally getting traction,
Worked it down to the last fraction,
And it’s going into action here today:

Chorus:
I am changing my name to Lyndon,
In my White House down in Washington D.C.
I will tell that War-hawk salon,
That “what we did to Saigon
Would be perfectly acceptable to me.”
I am changing my name to Lyndon,
I am toeing the Wise Men’s Party Line.
When we blow a billion grand there,
And troops rush in without a pray’r,
Yes sir, they’ll be mine.

When the voters come screaming for my head,
Asking “why not health and welfare instead?”
They may try to yell and holler,
Since we wasted their last dollar.
As endless streams of Afghans turned up dead.
I’ll be glad to tell my troops what to do.
It’s a matter of a thousand lives or two.
It’s not mere colonization;
It’ll spread our civilization,
Makes me wish my terms number’d more than two.

Chorus.

Since the first amphibian crawled out of the slime,
We've been struggling in an unrelenting climb.
We were hardly up and walking
Before money started talking,
And contribut’d to campaigns all the time.
It's been that way a century or three;
Now it seems there is something new to me.
If you're a imperial Titanic
And your failure is gigantic,
The Pentagon will hang you on a tree.

Chorus.

Listening to the Past

In 1959 Senator Eugene McCarthy was chair of the Special Senate Committee on Unemployment, which held hearings outside of Washington and invited widespread testimony. "Although this committee considered the proposal to reduce work hours, it was not recommended because the committee members felt that other remedies ought to be tried first."

Thirty years later, McCarthy co-wrote a book with Bill McGaughey called Nonfinancial Economics: The Case for Shorter Hours of Work pointing out that the other, conventional remedies that were actually pursued had failed to arrest the steady upward creep of unemployment.

There was a note of pessimism to McCarthy and McGaughey's book in that they recognized that:

The main reason that leisure is in disrepute among Treasury Department officials is that they can't tax it. A proposal such as the shorter workweek, which would redistribute the burden of work and its income more evenly, would reduce the tax collector's take from a given volume of economic activity. Therefore, it cannot be.

When that simple truth is acknowledged, the whole debate about "jobs" takes on a different perspective. Or, as Larry Summers so eloquently put it, "It may be desirable to have a given amount of work shared among more people. But that's not as desirable as expanding the total amount of work." Jobs? We don't have to show you any stinkin' jobs!

The first pandemic since 1968 - a timeline for 2009

2009 – November 29th. The virus is mutating. No need to worry….at least for now, says WHO.

2009 – November 29th. More than 1,000 deaths in the past week.

2009 – November 28th. Swine flu vaccination is vital (The Guardian)

2009 – November 25th. China expert warns of swine flu virus mutation. “China must be alert to any mutation or changes in the behavior of the H1N1 swine flu virus because the far deadlier H5N1 bird flu virus is endemic in the country…”



2009 – November 20th. The swine flu virus activity may have peaked in the U.S. and some European countries, while other countries report sharp increases.

2009 – November 17th. Novavax, Inc., announced it will begin studies in Mexico on a new vaccine against H1N1. Initially, about 1,000 people will participate.

2009 – November 12th. Headlines state CDC officials calculate over 4,000 deaths (as opposed to about 1,200 currently reported) are due to H1N1 flu.

2009 – October 25th. Obama declares a national pandemic emergency in the US

2009 – September 17th. The new H1N1 virus was also detected recently in turkeys in Chile, proving that it has the capacity to jump to birds, another potential source for reassortment. + “the CDC recently launched experiments in the agency’s labs [University of Maryland] in which they infected ferrets with both the new H1N1 virus and the highly lethal H5N1 avian flu virus to see if they might “reassort” to create a new hybrid…. Other experiments conducted so far suggest the new H1N1 virus isn’t terribly prone to doomsday changes. Viruses can change through either mutation of genetic material, or by reassorting with another flu virus. The new virus is lacking certain characteristics that would allow it to mutate to become more virulent, said Nancy Cox, chief of the CDC’s influenza division…[BUT] “Influenza is really unpredictable,” Cox said

2009 – July 30th. Military to Deploy on U.S. Soil to "Assist" with Pandemic Outbreak

2009 – June 23rd. Experts were concerned about how the flu was developing in Australia and South America, said Joerg Hacker, head of the Robert Koch Institute for infectious diseases. "It's possible the virus has mutated…. According to WHO’s latest figures, more than 230 people have been killed by the flu worldwide from 52,000 confirmed cases, mostly in the United States and Mexico.

2009 – June 11th. WHO declares the global flu outbreak a pandemic and given the highest possible alert level. This was the first pandemic on this level since 1968. WHO declares swine flu pandemic – “WHO chief Dr Margaret Chan said the move did not mean the virus was causing more severe illness or more deaths.” The last pandemic was in 1968 when a million people were killed… There is concern that the virus might mutate in the southern hemisphere over its winter and become more virulent, but there's no sign of that yet.

2009 – May 5th. Why the flu may turn deadly

2009 – May 1st. What scientists know about swine flu

2009 – April 29th. WHO raised the worldwide pandemic alert level to Phase 5 – pandemic imminent.

2009 – April 27th. Swine flu outbreak threatens pandemic. “In April both the WHO and the United States Centers for Disease Control and Prevention (CDC) expressed serious concerns about this novel strain, because it apparently transmits from human to human, has had a relatively high mortality rate in Mexico, and because it has the potential to become a flu pandemic……The new strain is derived in part from human influenzavirus A (subtype H1N1), and in part from two strains of swine influenza as well as an avian influenza.”

2009 – April 17th. The first cases of the pandemic flu in the U.S. were reported in Southern California.

2009 – early in the year. Baxter pharmaceuticals is reported to have sent out a mix of two different live viruses in a flu vaccine.

2009 – February 19th. Novartis Pharmaceuticals of Basel, Switzerland worked with scientists at the U.S. Army Institute of Pathology ­ Ft. Detrick, Maryland, to create a "novel" strain of weaponized "influenza" virus by means of "reverse engineering" the deadly 1918 killer strain ­ ...Novartis applied for just such a patent on Nov. 4, 2005, and the U.S. Patent Office accepted this application and granted US 20090047353A1 for a "Split Influenza Vaccine with Adjuvants" on February 19, 2009.

Adam Smith on Too Big to Fail

"To restrain private people, it may be said, from receiving in payment the promissory notes of a banker for any sum, whether great or small, when they themselves are willing to receive them; or, to restrain a banker from issuing such notes, when all his neighbours are willing to accept of them, is a manifest violation of that natural liberty, which it is the proper business of law not to infringe, but to support. Such regulations may, no doubt, be considered as in some respects a violation of natural liberty. But those exertions of the natural liberty of a few individuals, which might endanger the security of the whole society, are, and ought to be, restrained by the laws of all governments; of the most free, as well as of the most despotical. The obligation of building party walls, in order to prevent the communication of fire, is a violation of natural liberty, exactly of the same kind with the regulations of the banking trade which are here proposed."

TheMilitary-Industrial Complex from an Ecological Perspective

I found this wonderful article tonight. 20th Century history where humans inhabit the landscape as "detritovores":

"...When General Eisenhower, as retiring president, warned the American people to beware of unwarranted influence wielded by the military-industrial complex, it was presumably political and economic influence that he had in mind.

But the military-industrial complex was a vast conglomeration of occupational niches. As such, it wielded an altogether different (and even more insidious) kind of influence. The military-industrial complex helped perpetuate the illusion that we still had a carrying capacity surplus; it made it profitable for the living generation to extract and use up natural resources that might otherwise have been left for posterity. It absorbed for a while most of the excess labor force displaced by technological progress from older occupational niches that had been less dependent on drawing down reservoirs of exhaustible resources. It thus helped us believe that the Age of Exuberance could go on.

Nor was General Eisenhower alone in missing the ecological significance and over-emphasizing the political elements in the trends of' his time. His young, articulate, and sophisticated Bostonian successor launched a new administration with an inaugural address whose inspirational quality lay partly in its eloquent resolution of American ambivalence. If we wanted to maintain full employment, we dreaded achieving it by means of an arms race. Subtly, and with the gloss of' high idealism, John F. Kennedy reassured the nationwide television audience on that crisp, brilliant January day in 1961 that the temporary occupational niches of the military-industrial complex could be long-lasting and could be made more honorable than horrible. There was to be a "new Alliance for Progress," and we were to hope for emancipation from the "uncertain balance of terror that stays the hand of' mankind's final war." But the conflict-bred niches would last, for "the trumpet summons us again . . . to bear the burden of a long twilight struggle year in and year out . . . against the common enemies of man: tyranny, poverty, disease and war itself." Under both parties, the military-industrial complex enabled us to be preoccupied with matters that helped us ignore resource limits. It helped thereby to obscure the fact that population was expanding to fill niches that could not be permanent because they were founded upon drawing down prehistoric savings, exhaustible fossil energy stocks.

The human family, even if it were soon to stop growing, had committed itself to living beyond its means. Homo sapiens, as we saw in Chapter 9, was capable of transforming himself into new "quasi-species." By the Industrial Revolution humans had turned themselves into "detritovores," dependent on ravenous consumption of long-since accumulated organic remains, especially petroleum...."[1]

Industrialization: Prelude to Collapse
by William Catton
(Excerpt from Overshoot: The Ecological Basis of Revolutionary Change)
http://dieoff.org/page15.htm

Bad Policy, Bad Politics

Galbraith vs. Galbraith

Richard Parker, John Kenneth Galbraith: His life, his politics, his economics p. 532-3: "In virtually every respect, from Galbraith's point of view, Humphrey-Hawkins represented the worst of liberal remedies... (Leon Keyserling was among the bill's most vocal proponents, because, as Galbraith quipped, it was 'all Keyserling and no Keynes.')... To Galbraith, Humphrey-Hawkins was a mistake from the start, not only bad policy but bad politics."

Jamie Galbraith, introducing Bruce Bartlett: "Bruce was a resolute supply-sider, having drafted the Kemp-Roth tax cuts. I was a resolute Keynesian, who had helped draft the Humphrey-Hawkins Full Employment Act. His specialty was taxation, mine was monetary policy. We were both twenty-nine years old."

Keyserling vs. Keynes

Casebeer: "In your view was [the Black thirty-hour bill] a misguided approach to recovery?"

Keyserling: Yes, because I didn’t believe in sharing unemployment instead of creating jobs. The thirty-hour bill was an attempt to share unemployment by having a lot of people unemployed ten hours per week instead of a smaller number of people unemployed full time. My opposition to the shortened workweek has gone much further. When I was working closely with Walter Reuther many years later, when he was one of the main financial supporters of the Conference on Economic Progress, the labor movement started developing support for a shorter workweek, and Reuther asked me to help him oppose it. He said he just didn’t believe that the solution to the unemployment problem was shortening the workweek. He said we ought to have a shortening of the workweek only when we came to prefer more leisure rather than more work, and when we were productive enough to justify that, and our production needs were more fully met. But as an employment measure, he opposed it. Later, when we had so many recessions and so much unemployment, the labor pressure for a shorter workweek became so insistent even within the ClO, and later within the AFL-CIO, that Reuther stopped actively opposing it because it was futile, but he never actively supported it.

Keynes

"...the full employment policy by means of investment is only one particular application of an intellectual theorem. You can produce the result just as well by consuming more or working less. Personally I regard the investment policy as first aid. In U.S. it almost certainly will not do the trick. Less work is the ultimate solution (a 35 hour week in U.S. would do the trick now)."

"As the third phase comes into sight... say 10-15years after the end of the war, when investment demand is so far saturated that it cannot be brought up to the indicated level of savings without embarking upon wasteful and unnecessary enterprises... It becomes necessary to encourage wise consumption and discourage saving, --and to absorb some part of the unwanted surplus by increasing leisure, more holidays (which are a wonderfully good way of getting rid of money) and shorter hours."

Ike: September 23, 1952, the speech he didn't give

UPDATE, January 16, 2011: reposted at Ecological Headstand.

Ours is an age of interdependence. We all know this. We all know that no man and no nation can live alone.

So it is that all the problems we face—economic or political, domestic or international are intimately related. Last night In Cincinnati, I spoke to a great audience on the issues of war and peace; and in the course of that speech, I spoke of the grave menace of inflation.

Tonight, speaking to you mainly of inflation itself, I shall also be talking to you about war and peace. For, as you know, the inflation that afflicts our economy also affects the living standards and the political fate of nations all around the globe.

What I mean when I talk to you about inflation tonight is simply this: The continuing shrinkage of the buying power of our dollar.

The first fact about inflation is that it pervades every single aspect of our individual and national life. It aggravates the ceaseless struggle of the individual worker who feeds and clothes his family, no less than the global struggle to hold back the pressure of communism and the danger of war.

Secondly: I am going to state how the present Administration has let this peril grow to its dread size today.

Thirdly: I am going to state how the new Republican Administration will deal with the forces that are destroying the value of our dollar.

To begin with, it is not easy for any one of us to realize how close to him this peril is. To the casual eye, our economy looks as healthy and serene—and rewarding—as a stretch of rich Ohio farmland. But the eye that looks sharp and deep will find in this agreeable prospect a concealed minefield.

It is true that there is more money in existence, more being made today, than ever before in our history. But you know, just, as I know, that today's money simply doesn't go as far as the money we were paid in five years ago. Of course, everybody likes the comforting feeling of more money in his pocket, because it should mean that he is getting ahead. But today, we know that the comforting feeling is only an illusion. This illusion the Administration in Washington has systematically nourished and exploited for political gain for many years.

Here are some facts that will dispel the illusion:

The average American family had an income of $3550 in 1945. This average income had come up to $4800 by 1951. What did these higher earnings mean in the typical American home? Rising prices ate up nine tenths of the gain; rising taxes took the rest and a little more. The result: the family could actually buy less with its 1951 income than with its 1945 income.

This is a measure of the achievement of an Administration which loudly claims: Millions will vote for us—because "they never had it so good."

The peril, however, is not just of the present. Already it has begun to plunder our future. Individual plans for security in later years have shrivelled with the value of the money set aside. A $5000 policy written in 1945 has a purchasing power of only $3350 today. Pension plans have suffered the same fate, and so have savings accounts. If yours was an average family in 1945, you had savings of cash and securities of $430. Today that saying is worth only $300.

The Administration has so mismanaged our economy that in order to lose $130 in five years, a man needed only to deposit $430 in a savings account—and leave it there to waste away.

What a topsy-turvy triumph of an Administration whose press agents brag of its concern—of all things—for the American people's security.

Now all this strikes me with particular force for a particular reason. I have spent a number of years in western Europe, as you know, trying to help our friends there set their houses in order and in strength. I have seen these war-shaken countries grapple with terrible problems of shortages and prices. And, along with many other Americans, I have warned: You must strengthen your currencies, beat back inflation, set your economic affairs straight—or you will lose the battle with communism without a gun being fired.

How little we in our own United States have followed this sound course of action.

Clemenceau once said that war is too serious a matter to be left to the generals. Today someone might well say inflation is too critical a matter to be left to the politicians of expediency.

Now in what specific ways has the present Administration acted, or failed to act, so as to whittle away the purchasing power of the dollar? For here as in all great issues we face, the failures of the present Administration are the lessons of the next.

The inflation we suffer is not an accident; it is a policy. It is not, as the Administration would have us believe some queer and deadly kind of economic bacteria breathed into the atmosphere by Soviet communism.

This is the way a recent editorial in a great metropolitan newspaper put it: "Inflation is the calculated policy of the White House on the labor front, the fiscal front, the agricultural front." The point and purpose of this policy I have already indicated: to fool the people with a deceptive prosperity. The method is very simple: to give more people more money that is worth less.

The resort to "cheap money," like the resort to cheap politics, is not new. It is one of the oldest, most standard devices of a regime dedicated to perpetuating itself in power.

It is the mark of an Administration that cares more for the next election than for the next generation.

Back through the centuries, to the days of the Romans and beyond, governments have cheated their people by this simple process. It used to be called "coin-clipping." When feudal lords and local officials in the Middle Ages tried to make fortunes at clipping coins, they often ended by getting the severest punishment an outraged people could give, cutting off their hands.

We have a more humane and more effective remedy for today's coin-clipper—cutting them off from public office.

Now the weakness of the Democratic Party for "cheap" or "soft" money is well known. For the last 20 years, it has practiced this policy faithfully. Of late, it has given it a new twist: it is now called "controlled inflation." But this name does not mean what it says.

It really means inflation plus controls.

The way this policy has worked out is easy to describe. With one hand the Administration has been turning up the water pressure at the hydrant, while with the other hand it has been trying to check the water's flow. The Administration's controls over prices are nothing but weak stop-gaps. The really effective controls — those over money and credit—were ignored by the Administration. Resort to those controls would have paralysed their scheme to use "cheap money" for their own ends.

Now the Administration's liking for this idea of "useful inflation" confused even many of its own economists. A number of these men, angry or baffled—among them, Edwin Nourse and Marriner Eccles—resigned. Another result has been the spectacle of a struggle between the Federal Reserve Board and the Treasury Department over our country's credit and money policies. What would happen to an airplane in flight if the pilot and the copilot fought over the controls?

With the end of Wor1d War II and the scarcity of goods for people to buy, the Nation faced the threat of rapidly rising prices. You did not have to be an economic expert to know that these prices would soar unless sound credit and money restraints were used. The Federal Reserve Board has power to impose such restraints. But under a Fair Deal Administration, the power of this independent agency was hamstrung.

The conflict between the economists of the Federal Reserve Board and the politicians in the Treasury has been costly for the American people. Here is a brief lesson in Fair Deal economics:

The Federal Reserve Board in the last seven years repeatedly wanted to tighten money control~—to strengthen money by credit restrictions. The Treasury until very recently, refused to go along. To restrict credit and raise interest rates, would have meant an increase in the interest paid on Government bonds. Otherwise Government bonds could not compete in the open market and their sale would fall off. Such an increase in interest rates might have cost the Treasury a maximum of two billion dollars annually in the post-war years. So—to save this two billion—the Treasury vetoed the controls, thereby promoting a postwar inflation that has raised the cost of our defense program by some 70 billion dollars.

Public arguments about economics often leave many of us hopelessly confused. There is a great temptation to conclude that it is all too complex and that no one can do anything about it.

But this is not the case. For the matter of the Administration's failure to fight inflation wisely is almost beyond partisan debate. A distinguished Democrat from the State of Illinois, Sen. Paul H. Douglas, described the Administration's policies in three words: "Lax, confused and imprudent."

Of the way the Administration faced the price and credit problems right, after World War II, Sen. Douglas has said bluntly:

"The failure to take, restraining measures promptly and the actual supplying of more than a billion dollars of additional bank reserves . . . was, in my judgment, a gross blunder which far outweighed any offsetting gains to the American economic system."

This is the record of how the Administration got us where we are. In the process, it has collected and spent in seven years more taxes than all 35 previous administrations put together through 156 years of national existence. That is quite a price to pay for the kind of economic leadership we have been getting!

How, then, do we go about repairing this damaged and reclaiming our future? How do we get out of this mess?

Here—as in foreign policy and most other areas—the blunders of the past are our soundest lessons for the future.

First of all: We must erase the pernicious Administration maxim that says, "Inflation is the best policy." Here—as in every field of our Government—. It is not too late to go back to the simple truth that honesty is he best policy. It means an end to cheapening money. It means remembering an injunction of that forgotten man of the Democrat Party, Thomas Jefferson: "If we can prevent government from wasting the labors of the people under the pretense of taking care of them, they must become happy."

The next step—after we have a sane and honest economic program again—will be to carry it out efficiently. We shall not allow our Government agencies to fight at the expense of the American people. We shall create an atmosphere in which the Federal Reserve Board, as an independent agency, and the Treasury Department act not as political enemies, but as economic allies in the war upon inflation.

Next: The effective beginning of this war upon inflation must be an intelligent, planned attack on the spending program of our Federal Government.

Let us stop for a moment and see just what this means.

It means at the outset that businesslike methods must be applied to every program of the Federal Government to bring about efficiency and real savings.

We must, of course, meet the carrying charges on the national debt, fulfill our responsibilities to our veterans. Some other inescapable charges against the Federal tax dollar include the costs of Social Security and farm price supports. These are planks of the floor under our national well-being and money must be spent to maintain them. The danger is that the dry rot of inflation will eat still deeper into its planks.

These national programs urgently need the strength of a sound economy and a sound currency.

But today most of our dollars—2 out of every 3 in fact— are spent not on these programs, but on defense. Herein the area of greatest cost to the American taxpayer—I know that savings can be made. This does not mean slowing the speed or cutting the size of the rearmament program we need. No responsible citizen could foster such folly in today's world. it means subjecting all the Pentagon's costly operations to the scrutiny of business and professional examiners who can speak for the executive with expert knowledge.

I tell you this from my own experience: Informed, intelligent scrutiny of military spending can effect substantial savings in our huge defense program.

We must save those other sums, taken out of American pockets and bank accounts, that have for years bought nothing but governmental waste and corruption. How much this amounts to, we cannot know. We cannot expect the Administration to be eager to tell us.

But we can and will find ourselves, starting next January.

Now these simple steps:

Knocking down the Administration idol of cheap money, getting unified action from our economic agencies. And slicing the fat out of the Federal budget—these are serious, important beginnings in toughening our economy. It is clear that the major attack we make has to be on a front wider than just money and credit policies.

As I said at the outset: all our problems today are tied to one another, and none can be solved by itself. With tens of billions spent on armaments, another six to seven billion yearly on foreign aid, we see again that the soundness of our financial health at home depends on the soundness of our foreign policy.

The blunt truth is this: we cannot bear this huge burden indefinitely. We cannot—year after year, decade after decade— both maintain our standard of living, finance huge armaments, and help to rebuild economies of nations all around the globe. We cannot, in short, win the peace with foreign policy of drift, makeshift, and make-believe.

We must 'honestly face the fact that such a policy not only fails to secure the peace: it also places the hopes of the free world in jeopardy by the strain it puts on our economy., and by the confusion it creates in other lands.

There is in certain quarters the view that national prosperity depends on the production of armaments and that any reduction in arms output might biring on another recession. Does this mean, then that the continued failure of our foreign policy is the only way to pay for the failure of our fiscal policy? According to this way of thinking, the success of our foreign policy would mean a depression.

THERE is, of course, one answer to such an argument that the Administration on its record cannot give. That is a soundly conceived program of tax reduction, Such an approach would seek to fill the economic gap left when rearmament can be reduced. Tax reduction is a way to boost consumer buying power and to let the people spend their own money instead of the Government spending it for them. ft is a way to breathe new life into industries throttled by Federal sales or excise taxes. It Is a. way to open new opportunities to the genius of American businessmen and the skill of American labor. Here, too, is the way to give State and local governments—in need of help for long-delayed school projects and highway programs — a fairer share of the tax dollar.

Such an approach—tax reduction is an essential part of our program to achieve prosperity without war. To this theme I shall return more fully at a later time In this campaign.

I have confidence in the good sense and skill of leaders of American business and labor. Because of this confidence I cannot share in any forecast of economic doom. But my concern for America’s future is tOo keen for me to leave unchallenged those who boast our prosperity is sound and deeply rooted. Much as we wish that it were, there stirs in Americans today a haunting sense of insecurity.

Prosperity—like peace—is not just a skirmish, but a continuing campaign to be vigilantly waged.

Prosperity—like peace—cannot be won by policies that never rise above the level of playing by ear or of seeking votes.

Prosperity—like peace—cannot be won by a Government divided against Itself.

I remain hopeful of our future. The party, too long In I power—worn and weary in office—threatens Americans with bogeys from the past.

They offer to us Americans only one choice: the choice between today and yesterday. But that is not the choice we have. The true choice is between an uneasy today and a confident tomorrow that can be abundant and secure. [?] Americans will make that choice.

King of Hearts

Primitive Communism Or Anarchism In Tanzania?

The December 2009 issue of National Geographic has an article about a tribe I had never heard of before, one of the last hunter-gatherer groups in the world, the Hadza of northern Tanzania, now under pressure from outsiders to end their way of life. They are apparently very selfish, grabbing food without any sharing or order, and not particularly caring about each other too obviously, with someone just being thrown into a hole in the ground when they die without any ceremony. However, they do represent that vision of that primitive communisim/anarchism and all its idealized purity, although the author, Michael Finkel, may be romanticizing. Anyway, here is a quote from near the end of the article (p. 118)

There are things I envy about the Hadza -- mostly, how free they appear to be. Free from possessions. Free of most social duties. Free from religious strictures. Free from family responsibilities. Free from schedules, jobs, bosses, bills, taxes, laws, and money. Free from worry. Free to burp and fart without apology, to grab food and smoke and run shirtless through the thorns.

Have I Been Wrong About Iran And Nukes?

I have long argued going back to the old Maxspeak that US attitudes towards the Iranian nuclear program were hysterical, given the fatwa against nuclear weapons by its Supreme Leader, Ayatollah Khamenei. That they did not have a nuclear weapons program was long supported by the highly respected director of the IAEA, Mohammed ElBaradei. Now, his last act before stepping aside on Dec. 1 has been to censure Iran for secrecy in its program and pulling back from the agreement with the US I praised quite recently, with Russia, China, and India joining in on the censure. Have I been wrong all along on this?

Maybe, but maybe not. Juan Cole at http://www.juancole.com argues that Iran is still not actively pursuing nuclear weapons, but that there is a power struggle going on within it, with Khamenei on one side and the more militant Revolutionary Guard on the other, with the latter winning. He says they want the "Japan option," a "rapid breakout capability," but not actual weapons, and they are defeating Khamenei on this. It is their rise that explains the pullback of Iran from the agreement with Obama, which was negotiated by a personal representative of Khamenei, who has now been repudiated. None of this is good news, but it is also not the end of the world exactly either.