Though the two companies are expected to argue that a merger would bring a host of strategic benefits, it would nevertheless count as a so-called corporate inversion. Many American companies have looked toward taking over foreign companies, and then moving their headquarters abroad, to lower their overall tax bill … The American corporate tax rate is about 35 percent, while Canada’s is about 15 percent. But people briefed on the deal negotiations said that the main driver in the talks was not taxes. Burger King already pays a tax rate of roughly 27 percent, and would shave off only a couple of percentage points by moving to Canada, according to the people briefed on the matter. And Burger King does not have a significant amount of cash held abroad, these people said. Companies often pursue inversions to gain access to their overseas cash without being hit by a big American tax bill.Canada’s corporate tax rate is 26.5% not 15%. But if one takes a look at Burger King’s 10-K, you’ll see that foreign taxes relative to foreign sourced income is around 15%. You’ll also see that about 80% of its income is sourced abroad even though half of its stores are in the U.S. This screams out transfer pricing abuse, which of course Greg Mankiw ignored in his op-ed. Burger King has reported an effective tax rate near 27% precisely because they have been paying the repatriation tax, which is likely why they don’t have a lot of cash abroad. But without the repatriation tax, their effective tax rate would have been less than 20%. So when the NY Times says this “would shave off only a couple of percentage points”, they are incredibly wrong.
Monday, August 25, 2014
Burger King Inversion - Dealbook Misses the Mark
In addition to that disappointing op-ed from Greg Mankiw, The New York Times missed the facts on the Burger King merger with Tim Horton:
Saturday, August 23, 2014
Mankiw v. Kleinbard on Corporate Inversions
Greg Mankiw discusses the corporate inversion issue:
If tax inversions are a problem, as arguably they are, the blame lies not with business leaders who are doing their best to do their jobs, but rather with the lawmakers who have failed to do the same. The writers of the tax code have given us a system that is deeply flawed in many ways, especially as it applies to businesses. The most obvious problem is that the corporate tax rate in the United States is about twice the average rate in Europe ... A main feature of the modern multinational corporation is that it is, truly, multinational. It has employees, customers and shareholders around the world. Its place of legal domicile is almost irrelevant. A good tax system would focus more on the economic fundamentals and less on the legal determination of a company’s headquarters. Most nations recognize this principle by adopting a territorial corporate tax.I find this an incredibly naïve discussion. I’ll be the first to admit that the U.S. tax code insistence on a repatriation tax is a bit weird as U.S. based multinationals are incredibly adept at not paying it. So we have an effective territorial system anyway as Eric Kleinbard notes:
Corporate executives have argued that inversions are explained by an "anti-competitive" U.S. tax environment, as evidenced by the federal corporate tax statutory rate, which is high by international standards, and by its "worldwide" tax base. This paper explains why this competitiveness narrative is largely fact-free, in part by using one recent articulation of that narrative (by Emerson Electric Co.’s former vice-chairman) as a case study. The recent surge in interest in inversion transactions is explained primarily by U.S. based multinational firms’ increasingly desperate efforts to find a use for their stockpiles of offshore cash (now totaling around $1 trillion), and by a desire to "strip" income from the U.S. domestic tax base through intragroup interest payments to a new parent company located in a lower-taxed foreign jurisdiction.When Mankiw talks about a good tax system focusing on economic fundamentals, he is assuming there is no transfer pricing abuse. Kleinbard and many others have noted how incredibly abusive the transfer pricing practices of highly profitable multinationals has become. In fact, this concern is why the OECD is so concerned about Base Erosion and Profit Shifting. Is Greg Mankiw another Rip van Winkle being asleep for the last 20 years and missing this key portion of the discussion? Then again, he later notes his real agenda here:
So here’s a proposal: Let’s repeal the corporate income tax entirely, and scale back the personal income tax as well. We can replace them with a broad-based tax on consumption.I see – ignore transfer pricing abuse entirely as you are writing another op-ed for Team Republican where the real agenda is to shift the tax burden away from capital income entirely.
Autor's Alibi and the Lump of Jackson Hole
According to M. I. T. economics professor David Autor, in a paper presented yesterday at Jackson Hole:
Professor Autor made a slight amendment to the textbook explanation of the lump of labor. Instead of a "fixed amount of work to be done," he referred to the fallacy of supposing "there is only a finite amount of work to do." Hypothetically, there may be an "infinite" amount of work to do in the universe in an eternity. But there is most certainly a finite amount of human labor that can be performed during any given period of time and only a fraction of that can be paid employment.
Aside from the grandiose delusion of an infinite amount of work to do, the bland boilerplate Autor recited is certified nonsense-on-stilts. The textbook version of the lump of labor is a sardonic restatement of the old wages-fund doctrine of classical political economic. Alfred Marshall used the phrase "fixed Work-fund" to emphasize the equivalence. The fallacy of a fixed amount of work is customarily refuted by the adage "technology creates more jobs than it destroys," a 20th century version of the "supply creates its own demand" interpretation of Say's Law. Finally, Say's Law is predicated on the truth of the wages-fund doctrine. Summing up, then, A = not A: Liar's Paradox.
But something is going on here besides mere paradox or glib foolishness. Autor is not alone in his rote recitals of the archaic fallacy myth. The fraternity of economists will, I'm sure, nod inattentively to Autor's lumpish refrain without raising an objection to either its logical contradiction or its irrelevance.
The fallacy claim is not part of an analysis. It is an alibi. Capital -- or "the competitive market system" -- is in the dock.
Where to begin? Or, rather, elsewhere to begin. In criminal law, an alibi is a defense based on the claim that the defendant was in some other place when the crime was committed and therefore physically could not have done it. Alibi is Latin for elsewhere. In common usage, alibi has come to signify any kind of excuse, often with the connotation of being a lame one.
The distinctive feature of an alibi story is that it revolves around an absence. What actually occurs at the other place is insignificant. What matters is the crime. The only significance of the alibi story is that it renders the action of committing the crime impossible for the accused.
Economics makes extensive use of alibi narratives. Private property entails the right to exclude others from access to and to alienate, or dispose of, the things owned. Alienate shares the Latin root alius with alibi. Unemployment highlights the displacement of workers from the usual condition of being employed. The enclosures of the commons in pre-industrial Britain excluded commoners from their former, collectively-cultivated fields, making those fields into an elsewhere for them. In "The Political Economy of the Sign," Jean Baudrillard identified "the strategic logic of the commodity" to be the treatment of use value as "a satellite of and an alibi for" exchange value.
The crown jewel of economic alibi, though, is equilibrium, the supposed tendency (or disposition) of demand and supply to move toward balance, guided by changes in price. Autor invoked this presumed inclination toward equilibrium as "theory" when he observed in his conclusion that "the long-run effects of these developments should in theory be positive..." In his conclusion, Autor confused static and dynamic analysis. Equilibrium, John Maurice Clark explained (87 years ago):
The lesson that two alibis are not better than one is also illustrated by an anecdote in the American Bar Association Journal from March 1951:
"Economists have historically rejected the concerns of the Luddites as an example of the 'lump of labor' fallacy, the supposition that an increase in labor productivity inevitably reduces employment because there is only a finite amount of work to do."Autor's paper, "Polanyi’s Paradox and the Shape of Employment Growth," was also featured in articles in the Wall Street Journal and the New York Times.
Professor Autor made a slight amendment to the textbook explanation of the lump of labor. Instead of a "fixed amount of work to be done," he referred to the fallacy of supposing "there is only a finite amount of work to do." Hypothetically, there may be an "infinite" amount of work to do in the universe in an eternity. But there is most certainly a finite amount of human labor that can be performed during any given period of time and only a fraction of that can be paid employment.
Aside from the grandiose delusion of an infinite amount of work to do, the bland boilerplate Autor recited is certified nonsense-on-stilts. The textbook version of the lump of labor is a sardonic restatement of the old wages-fund doctrine of classical political economic. Alfred Marshall used the phrase "fixed Work-fund" to emphasize the equivalence. The fallacy of a fixed amount of work is customarily refuted by the adage "technology creates more jobs than it destroys," a 20th century version of the "supply creates its own demand" interpretation of Say's Law. Finally, Say's Law is predicated on the truth of the wages-fund doctrine. Summing up, then, A = not A: Liar's Paradox.
The fallacy claim is not part of an analysis. It is an alibi. Capital -- or "the competitive market system" -- is in the dock.
Where to begin? Or, rather, elsewhere to begin. In criminal law, an alibi is a defense based on the claim that the defendant was in some other place when the crime was committed and therefore physically could not have done it. Alibi is Latin for elsewhere. In common usage, alibi has come to signify any kind of excuse, often with the connotation of being a lame one.
The distinctive feature of an alibi story is that it revolves around an absence. What actually occurs at the other place is insignificant. What matters is the crime. The only significance of the alibi story is that it renders the action of committing the crime impossible for the accused.
Economics makes extensive use of alibi narratives. Private property entails the right to exclude others from access to and to alienate, or dispose of, the things owned. Alienate shares the Latin root alius with alibi. Unemployment highlights the displacement of workers from the usual condition of being employed. The enclosures of the commons in pre-industrial Britain excluded commoners from their former, collectively-cultivated fields, making those fields into an elsewhere for them. In "The Political Economy of the Sign," Jean Baudrillard identified "the strategic logic of the commodity" to be the treatment of use value as "a satellite of and an alibi for" exchange value.
The crown jewel of economic alibi, though, is equilibrium, the supposed tendency (or disposition) of demand and supply to move toward balance, guided by changes in price. Autor invoked this presumed inclination toward equilibrium as "theory" when he observed in his conclusion that "the long-run effects of these developments should in theory be positive..." In his conclusion, Autor confused static and dynamic analysis. Equilibrium, John Maurice Clark explained (87 years ago):
"...is an abstraction based on observation of the relative stability of economic values, and of oscillations whose behavior suggests a normal level toward which the economic forces of gravity exert their pull. The key to dynamics is a different problem: that of processes which do not visibly tend to any complete and definable static equilibrium." -- J. M. Clark, "The Relation Between Statics and Dynamics"So Autor's "in theory" may best be understood as a colloquialism, rather than an allusion to actual economic theory, in the same way that alibi may refer loosely to any lame excuse rather than to the technical legal defense of being somewhere else. In his essay on static and dynamic economic analyses, Clark also raised the issue of the paradoxical character of reason,
"when it takes the form of 'rationalizing' or evolving ostensible motives for actions, where the real motive is one which civilized standards deem less respectable, or one which might even have to be suppressed unless it could be successfully disguised."In his critique of "The Theory of Compensation as regards the Workpeople Displaced by Machinery," Marx satirized the disingenuous rationalizing of the "bourgeois economist" who "implicitly declares his [Luddite] opponent to be stupid enough to contend against, not the capitalistic employment of machinery, but machinery itself." Marx's satire shanghaied the Dickens villain from Oliver Twist, Bill Sikes, and scripted for him an imaginary plea to the jury:
"Gentlemen of the jury, no doubt the throat of this commercial traveler has been cut. But that is not my fault; it is the fault of the knife! Must we, for such a temporary inconvenience, abolish the use of the knife? Only consider! Where would agriculture and trade be without the knife? Is it not as beneficial in surgery as it is in anatomy? And in addition a willing help at the festive table? If you abolish the knife -- you hurl us back into the depths of barbarism.""Alibi Ike" is a short story by Ring Lardner, first published in the Saturday Evening Post in 1915. Ike is a baseball player. "His right name was Frank X. Farrell, and I guess the X stood for "Excuse me." Because he never pulled a play, good or bad, on or off the field, without apologizin' for it." Ike's habit of making up excuses for everything leads him inexorably into incriminating self-contradiction and ultimately into romantic troubles when he can't resist the urge to disown his true feelings during a conversation with his teammates.
The lesson that two alibis are not better than one is also illustrated by an anecdote in the American Bar Association Journal from March 1951:
"As court and council gathered in the robing room after an acquittal... the judge said to the successful lawyer, 'That was the most convincing alibi that I have ever had proved before me.'
"'Thank you, sir', replied the lawyer, 'it is particularly gratifying to hear you say that. I value your judgment most highly and I am pleased to find that in this case it coincides with mine. I chose that alibi as the best of three that the defendant had.'"
What makes an alibi believable has, apparently, only recently come to be a focus of systematic research. The proliferation of discrepant alibi stories is one indicator that something may not be quite right. Other factors include, coherence, consistency, the presence or absence of physical evidence or witness testimony and the ease or difficulty of fabricating such evidence. In a future post, I hope to discuss some of the recent literature on alibi evaluation and consider its relevance to economic discourse.
Christian Right Hypocritically Ruins Reputation Of Oldest English Governorship In North America
That would be the governorship of the Commonwealth of Virginia, a position continuously dating from about four centuries, which has had such individuals as Thomas Jefferson and Patrick Henry holding it, but now facing for the first time having one of its own on trial for a felony corruption charge, Robert McDonnell. McDonnell is trying to get out of this charge by blaming his troubled wife, even though he and his sons accepted numerous extravagant golfing outings on the bill of a donor without reporting any of this to the appropriate authorities. It is bad enough that this reprehensible cad could have saved his wife and family from the massive humiliation they are currently undergoing if he had accepted a relatively minor plea bargain offered him (yeah, it involved him confessing a felony, but with minor consequences).
However, the really bad part of this that has not been reported on as this degrading and embarrassing spectacle has proceeded is the hypocrisy involved here. It is fine for someone like WaPo's Petula Dvorak to point out how much support his wife, Maureen, provided him in many ways in his many campaigns, before he dumped her under the bus. But the part that nobody talks about, and basically has not since he was elected governor, is his past as a Christian Right fanatic, not really a past given that he carried out a major reduction of womens' rights by sharply reducing abortion providing facilities in the state, even if his more fanatical AG, the now-defeated Cuccinelli, was pushing this more than him. McDonnell is a pure creature and creation of the hypocritical Christian Right in Virginia.
His Masters degree came from a place that does not deserve to be called a "university," Pat Robertson's Regents University. Robertson is the son of former VA Sen. Willis Robertson (D-VA), which gives him more VA roots than the late Jerry Falwell who founded the equally disreputable and academically embarrassing Liberty "University," which has shown what a joke it is by hiring McDonnell to lecture there since he ended his governorship. Anyway, his Masters thesis at Regents was all about how women should obey their husbands or any other nearby male authority. I can imagine that his wife, Maureen, is laughing over this, although she is most certainly nothing to write home about as a decent human being, much less a wife of anybody.
So, there we have it, ultimate Christian Right hypocrisy. This man oversaw massive shutdowns of abortion clinics in VA and many other egregious reductions of womens' rights as first AG and then as governor. He played blowdry moderate image, but when in office he took a hard line and followed up on what his thesis said: put women in their place. His violation and betrayal of his wife in the court of law, when he could have taken a low key plea bargain, is not only a disgusting display of a lack of husbandly and manly behavior, but a massive manifestation of Christian Right hypocrisy.
Barkley Rosser
However, the really bad part of this that has not been reported on as this degrading and embarrassing spectacle has proceeded is the hypocrisy involved here. It is fine for someone like WaPo's Petula Dvorak to point out how much support his wife, Maureen, provided him in many ways in his many campaigns, before he dumped her under the bus. But the part that nobody talks about, and basically has not since he was elected governor, is his past as a Christian Right fanatic, not really a past given that he carried out a major reduction of womens' rights by sharply reducing abortion providing facilities in the state, even if his more fanatical AG, the now-defeated Cuccinelli, was pushing this more than him. McDonnell is a pure creature and creation of the hypocritical Christian Right in Virginia.
His Masters degree came from a place that does not deserve to be called a "university," Pat Robertson's Regents University. Robertson is the son of former VA Sen. Willis Robertson (D-VA), which gives him more VA roots than the late Jerry Falwell who founded the equally disreputable and academically embarrassing Liberty "University," which has shown what a joke it is by hiring McDonnell to lecture there since he ended his governorship. Anyway, his Masters thesis at Regents was all about how women should obey their husbands or any other nearby male authority. I can imagine that his wife, Maureen, is laughing over this, although she is most certainly nothing to write home about as a decent human being, much less a wife of anybody.
So, there we have it, ultimate Christian Right hypocrisy. This man oversaw massive shutdowns of abortion clinics in VA and many other egregious reductions of womens' rights as first AG and then as governor. He played blowdry moderate image, but when in office he took a hard line and followed up on what his thesis said: put women in their place. His violation and betrayal of his wife in the court of law, when he could have taken a low key plea bargain, is not only a disgusting display of a lack of husbandly and manly behavior, but a massive manifestation of Christian Right hypocrisy.
Barkley Rosser
Thursday, August 21, 2014
SCIOD 9: This Magazine of Untruth
"Political economy," observed Frederic Harrison in his 1872 review of Thomas Brassey's Work and Wages, "professes to be a science based on observation."
Perhaps Mill's dictum could be more clearly expressed as a positive, qualified statement rather than a negative proposition: it is the supply of capital (not the demand for commodities) that constitutes the demand for labor. Or, supply (of capital) creates its own demand (for labor). A cheap labor market is always full of employers. From this perspective there is no such thing as involuntary unemployment, only overpriced labor. That is what Harrison meant by "the bitter pedantry" that "usually assumes its facts, after it has rounded off dogmas to suit its clients ." British trade unionist George Howell wrote of the wages-fund doctrine in 1878:
Conventional political economists were hardly unaware that there was a relationship between wages and the productivity of labor. It just wasn't central to their elaboration of the supposed wages-fund until Brassey's evidence proved too much to ignore. "With evidence like this before us," exclaimed Harrison in his review:
Under the weight of this complicating influence, the wages-fund doctrine retreated into the twilight of editorial boilerplate, old-school textbook orthodoxy and perpetual antiquarian controversy. Marginal utility theory stepped in -- gradually, very gradually -- to fill the void.
"In economics," Paul Samuelson once claimed, "it takes a theory to kill a theory; facts can only dent the theorist's hide." Perhaps. But perhaps the coup de grace can't be administered until the facts have given the old doctrine a thorough hiding.
But the bitter pedantry which often usurps that name usually assumes its facts, after it has rounded off dogmas to suit its clients. In practice this magazine of untruth escapes detection for two reasons. One is that the facts relating to labour are invariably seen through the spectacles of capital. ... The second reason which obscures the truth about industry is, that the facts about capital are almost never honestly disclosed....The decade of the 1870s was an auspicious time for political economy. On the eve of the decade, John Stuart Mill recanted the orthodox dogma known as the wages-fund doctrine, which has a curious relationship to Say's Law. Dudley Dillard referred to Say's law of markets as "a corollary of the wages-fund doctrine in the context of the fourth proposition on capital." Mill's fourth proposition maintains that "demand for commodities is not demand for labour."
Perhaps Mill's dictum could be more clearly expressed as a positive, qualified statement rather than a negative proposition: it is the supply of capital (not the demand for commodities) that constitutes the demand for labor. Or, supply (of capital) creates its own demand (for labor). A cheap labor market is always full of employers. From this perspective there is no such thing as involuntary unemployment, only overpriced labor. That is what Harrison meant by "the bitter pedantry" that "usually assumes its facts, after it has rounded off dogmas to suit its clients ." British trade unionist George Howell wrote of the wages-fund doctrine in 1878:
Perhaps no single doctrine has been more persistently or mischievously urged by political economists against the claims of the working classes than the dogmatic assumption that there is a certain wage fund which constitutes a definite portion of the existing wealth of the country for the payment of wages, and that this amount will be wholly used for that purpose, and that not one penny more can be so used.In Work and Wages, Thomas Brassey didn't reject the wages-fund doctrine. He did something far more lethal to the glib propaganda value of the dogma. He complicated it. Brassey was not a political economist. He was an industrialist, heir to an international railroad construction enterprise, started by his father, that was one of the largest employers in Britain at the time. He also inherited his father's vast accumulation of evidence on labor costs and their variation in response to different geographic, social, political and economic circumstances. From his analysis of this data, Brassey concluded that output per unit of wage cost was approximately equal, regardless of variations in the wage rate. Wages rates thus should be understood to incorporate differences in productivity of labor as well as fluctuations in supply and demand.
Conventional political economists were hardly unaware that there was a relationship between wages and the productivity of labor. It just wasn't central to their elaboration of the supposed wages-fund until Brassey's evidence proved too much to ignore. "With evidence like this before us," exclaimed Harrison in his review:
…we may well hesitate to accept the professorial dicta of so-called economists. They give us almost daily lectures based on the assumption that high wages inevitably imply dear goods and low profits…. And it is an axiom with some of these philosophers that every rise in wages is a fresh tax on British industry. Of course a rise in wages does not imply of necessity cheaper production; but it is, in a healthy state of trade, perfectly compatible with it. In point of fact economy in production has a progress far more steady, constant, and silent, than any advance in wages.In his comprehensive critique of the wages-fund doctrine, American economist, General Francis Amasa Walker, cited the authoritative status of Brassey's evidence:
[B]y far the most important body of evidence on the varying efficiency of labor is contained in the treatise of Mr. Thomas Brassey, M.P., entitled Work and Wages, published in 1872. Mr. Brassey's father was perhaps the greatest "captain of industry" the world has ever seen… The chief value of Mr. Brassey, Jr.'s work is derived from his possession of the full and authentic labor-accounts of his father's transactions....In turn, in what is "regarded to be the first modern economic textbook," Alfred Marshall credited Walker for "forcing constantly more and more attention to the fact that highly paid labour is generally efficient and therefore not dear labour…" Marshall judged that fact to be "more full of hope for the future of the human race than any other… [although it] will be found to exercise a very complicating influence on the theory of Distribution."
Under the weight of this complicating influence, the wages-fund doctrine retreated into the twilight of editorial boilerplate, old-school textbook orthodoxy and perpetual antiquarian controversy. Marginal utility theory stepped in -- gradually, very gradually -- to fill the void.
"In economics," Paul Samuelson once claimed, "it takes a theory to kill a theory; facts can only dent the theorist's hide." Perhaps. But perhaps the coup de grace can't be administered until the facts have given the old doctrine a thorough hiding.
On Glenn Hubbard’s Federal Taxes Being 18% of GDP
Hubbard was the chief economic advisor to President George W. Bush when he pushed through his tax cuts in 2001. The tax cuts, along with the recession and the wars in Afghanistan and Iraq, pushed the budget from a surplus of 2.5 percent of GDP in 2000, to deficits of more than 3.5 percent of GDP in 2003 and 2004. While running large deficits was the right move for the economy in response to the recession created by the collapse of the stock bubble (although there were far better uses for the money than tax cuts to rich people and fighting unnecessary wars), there is more than a bit of inconsistency in Hubbard's apparent willingness to use deficits to boost the economy out of a recession in the last decade while at the same time disparaging President Obama's efforts to use deficits to lift the economy out of a far deeper hole.This is a lot more to Dean’s rebuttal, but I want to lift one sentence from what Glenn wrote:
The still larger problem lies with Republicans who refuse to face facts. “Starve the beast” has been the mantra of conservatives since Ronald Reagan was president, a belief that, if taxes were low enough for long enough, rational Democrats would have no choice but to agree to bring federal spending down as well. Even though total federal revenue held level at around 18 percent of gross domestic product in recent decades, spending soared.Glenn wants us to believe that spending is the problem – not a lack of tax revenues. But this last sentence does not square with the facts as our graph of the Federal tax revenue to GDP ratio from 1977 to 2013 shows. Yes, this ratio rose above 18 percent under President Carter. But then we got the Reagan tax cuts. OK, Clinton’s tax increase pushed this ratio near 20 percent by the time George W. Bush took office. And as Dean notes – Team Republican (Glenn being a member) decided to cut taxes again. Over the 2001 to 2013 period, this ratio has averaged only 16.3 percent. In defense of Republican politicians – how can they face the facts if their own economic advisors don’t present them?
Wednesday, August 20, 2014
Aspen Strategy Group Overstates Russia's Problems
In today's Washington Post, the usually sharp David Ignatius reports on closed discussions at the Aspen Strategy Group by "senior current and former officials, plus some think tank leaders and journalists" ("Crafting a policy for Russia"). Supposedly a bit more hawkish than the administration, this group is presented as a bipartisan group of wise people who really know what they are talking about as they craft policies for the US to deal with Russia. Much of what Ignatius reports is sensible ("Don't give in to Putin, but don't give up on Russia" and that the US should "play what one former Cabinet official called 'the long game'" in the face of "Russia's humiliation after the crackup of the U.S.S.R.").
Nevertheless, a disturbing aspect of Ignatius's report on this meeting of supposedly Very Smart (and Serious) People is how out of touch with basic facts they apparently are, mouthing old cliches that are no longer true. So this group heard (not reported who was handing this stuff out) that Russia faces a "demographic disaster: a shrinking population, a chronic health crisis that puts Russia between Tanzania and Angloa in male life expectancy, and a dearth of entrepreneurship..."
Sorry, but the demographic disaster was an accurate story some years ago, but has come sharply to an end. Population growth has been positive since 2009, with an extra three million added with the annexation of Crimea. Male life expectancy hit a low in 1994 of just below 58 years, but it rose after that for a few years only to fall again nearly to 58 by 2005, finally turning around and steadily increasing since then to be about 64 years. That level, and overall life expectancy of just over 70, are just about back to where they both were at their previous peak in 1986, the last year of positive economic growth prior to the collapse of the Soviet Union. Male life expectancy in Tanzania is just about 60.
Certainly many things are not all that great in Russia. Positive economic growth, now pretty much zero, has mostly been due to higher oil prices, with military exports really the only other major growth sector. Corruption and many other things hold back the economy, quite aside from the impact of the economic sanctions that have been imposed by foreigners on Russia for Putin's unnecessary adventurism abroad. But it must be recognized that Putin has succeeded in reviving favorable self-image in Russia, the land "humiliated" by the end of the USSR.
I do not know if this change in image is what lies behind the improving health and demographic situation (birth rate has also been rising), but it certainly serves no purpose for supposedly wise US VSPs to continue to believe out of date horror stories about what is going on there. According to Ignatius these people were only debating about whether Russia's supposedly inevitable decline will be gradual or sudden. That they seem to be completely unconscious that at least the demographic part of this story is simply total garbage is not encouraging. I would hope that those who are actually advising Obama rather than just bloviating in Aspen know the facts rather than the right wing think tank fantasies left over from the past.
Barkley Rosser
Nevertheless, a disturbing aspect of Ignatius's report on this meeting of supposedly Very Smart (and Serious) People is how out of touch with basic facts they apparently are, mouthing old cliches that are no longer true. So this group heard (not reported who was handing this stuff out) that Russia faces a "demographic disaster: a shrinking population, a chronic health crisis that puts Russia between Tanzania and Angloa in male life expectancy, and a dearth of entrepreneurship..."
Sorry, but the demographic disaster was an accurate story some years ago, but has come sharply to an end. Population growth has been positive since 2009, with an extra three million added with the annexation of Crimea. Male life expectancy hit a low in 1994 of just below 58 years, but it rose after that for a few years only to fall again nearly to 58 by 2005, finally turning around and steadily increasing since then to be about 64 years. That level, and overall life expectancy of just over 70, are just about back to where they both were at their previous peak in 1986, the last year of positive economic growth prior to the collapse of the Soviet Union. Male life expectancy in Tanzania is just about 60.
Certainly many things are not all that great in Russia. Positive economic growth, now pretty much zero, has mostly been due to higher oil prices, with military exports really the only other major growth sector. Corruption and many other things hold back the economy, quite aside from the impact of the economic sanctions that have been imposed by foreigners on Russia for Putin's unnecessary adventurism abroad. But it must be recognized that Putin has succeeded in reviving favorable self-image in Russia, the land "humiliated" by the end of the USSR.
I do not know if this change in image is what lies behind the improving health and demographic situation (birth rate has also been rising), but it certainly serves no purpose for supposedly wise US VSPs to continue to believe out of date horror stories about what is going on there. According to Ignatius these people were only debating about whether Russia's supposedly inevitable decline will be gradual or sudden. That they seem to be completely unconscious that at least the demographic part of this story is simply total garbage is not encouraging. I would hope that those who are actually advising Obama rather than just bloviating in Aspen know the facts rather than the right wing think tank fantasies left over from the past.
Barkley Rosser
Tuesday, August 19, 2014
SCIOD 8: The Secret Basis of Glut
Even though it appeared "when the factory system was comparatively but little developed," Marx observed that Ure's work, "perfectly expresses the spirit of the factory, not only by its undisguised cynicism, but also by the naïveté with which it blurts out the stupid contradictions of the capitalist brain." The most glaring contradiction Marx pointed to involved the relationship between unionism and the pace of technological change. In the early pages of the book, Ure noted the "instructive warning to workmen to beware of strikes," posed by the invention of the dressing machine, which proved:
The section in Capital immediately following Marx's critique of Ure examines "The theory of compensation as regards the workpeople displaced by machinery." One might expect to find there a critique of Say's Law – or rather of the maxim that eventually came to be known as Say's Law. Instead, Marx referred to the insistence of "James Mill, MacCulloch, Torrens, Senior, John Stuart Mill, and a whole series besides…"
The only mention of Jean-Baptiste Say appears in a footnote referring to "a disciple of Ricardo, in answer to the insipidities of J. B. Say…" It repays the effort to ferret out the anonymous pamphlet cited by Marx, "An Inquiry into those Principles Respecting the Nature of Demand," &c. The anonymous pamphleteer presented a comprehensive critique of Say's maxim in pages 14 to 33 and returned to that topic on page 72, comparing specialized labour to fixed capital, in the passage Marx cited:
It is curious that Marx didn't take the opportunity to directly confront Say, particularly as his discussion of the pamphlet in Theories of Surplus Value bears directly on the issue of crises of overproduction. After quoting the author's observation that "glut is synonymous with high profits," Marx affirmed that this was, "indeed the secret basis of glut." A few paragraphs later, his summary response to the pamphlet's argument is a succinct expression of Marx's crisis theory:
…how surely science, at the call of capital, will defeat every unjustifiable union which labourers may form… Were it not for unions, the vicissitudes of employment, and the substitution of automatic for hand work, would seldom be so abrupt as to distress the operative.Yet in the third section, Ure asserted that:
[h]ad it not been for the violent collisions and interruptions resulting from erroneous views among the operatives, the factory system would have been developed still more rapidly and beneficially for all concerned than it has been…"Perhaps, though, the contradiction is not quite as stark as it appears. Maybe Ure is assuming that capitalists would introduce different, more benign machines if they could confidently rely on docile workers? In that case, though, the contradictions are only displaced from the nature of machines to equally naïve and cynical assumptions about the inherent benevolence of the masters and malevolence of the "hands" (as Ure frequently referred to workers).
The section in Capital immediately following Marx's critique of Ure examines "The theory of compensation as regards the workpeople displaced by machinery." One might expect to find there a critique of Say's Law – or rather of the maxim that eventually came to be known as Say's Law. Instead, Marx referred to the insistence of "James Mill, MacCulloch, Torrens, Senior, John Stuart Mill, and a whole series besides…"
The only mention of Jean-Baptiste Say appears in a footnote referring to "a disciple of Ricardo, in answer to the insipidities of J. B. Say…" It repays the effort to ferret out the anonymous pamphlet cited by Marx, "An Inquiry into those Principles Respecting the Nature of Demand," &c. The anonymous pamphleteer presented a comprehensive critique of Say's maxim in pages 14 to 33 and returned to that topic on page 72, comparing specialized labour to fixed capital, in the passage Marx cited:
The habits of the labourers, where division of labour has been carried very far, are applicable only to the particular line they have been used to; they are a sort of machines. Then, there is a long period of idleness, that is, of labour lost; of wealth cut off at its root. It is quite useless to repeat, like a parrot, that things have a tendency to find their level. We must look around us, and see that they cannot for a long time find a level: that when they we cannot but see, that they are unable to find their level for a long time; and that when they do, it will be a far lower level than they set out from.In Theories of Surplus Value, Marx described the pamphlet as "one of the best of the polemical works of the decade," notwithstanding disparaging remarks about "the infinite narrow-mindedness of these fellows" when examining capital. There he addressed "Say’s earth-shaking discovery that “commodities can only be bought with commodities…" and again quoted the above passage regarding the effects of division of labour. A few paragraphs later, he remarked, "What the author writes about Say is very true." "The theory of compensation as regards the workpeople displaced by machinery" can be read as a veiled response specifically to Say's maxim. Marx's critique owes a great deal to the anonymous pamphleteer, whom he both praised and disparaged.
It is curious that Marx didn't take the opportunity to directly confront Say, particularly as his discussion of the pamphlet in Theories of Surplus Value bears directly on the issue of crises of overproduction. After quoting the author's observation that "glut is synonymous with high profits," Marx affirmed that this was, "indeed the secret basis of glut." A few paragraphs later, his summary response to the pamphlet's argument is a succinct expression of Marx's crisis theory:
Over-production, the credit system, etc., are means by which capitalist production seeks to break through its own barriers and to produce over and above its own limits. Capitalist production, on the one hand, has this driving force; on the other hand, it only tolerates production commensurate with the profitable employment of existing capital.Bernice Shoul mentioned neither the anonymous pamphlet nor the section in Capital on the theory of compensation in her 1957 article, "Karl Marx and Say's Law."
Monday, August 18, 2014
Immigration analysis on job market "refuted" with red herring
Dear Bob Birrell and Carla Wilshire,
In her attempt to refute Bob Birrell's analysis, Carla Wilshire makes the following claim:
http://krugman.blogs.nytimes.com/2013/02/10/still-says-law-after-all-these-years/
http://krugman.blogs.nytimes.com/2014/02/21/hearsay-economics-2/
The problem with the supposed refutation of the supposed lump-of-labour fallacy goes deeper than that, though. Ultimately the refutation is based on the same hidden assumption as the alleged "fallacy" -- what was known in classical political economy as the wages-fund doctrine. In short, the fallacy and its supposed refutation are simply two sides of a paradox that arises from the static nature of analysis, similar to Zeno's paradox of the arrow.
Wilshire uses the word "dynamic" incorrectly. Wilshire is making the mistake of assuming that the colloquial connotation of "dynamic" is the same as the technical one. This is not acceptable in the context of claims about economic theory (see John Maurice Clark's discussion of "The Relation between Statics and Dynamics" or Alfred Marshall's discussion in "Distribution and Exchange").
What she presumably means by "dynamic effects" are the 'long term' effects of economic growth. But "what labour economists have long known" about the number of jobs in a growing economy is itself based on another static analysis, not on a dynamic analysis. The assumptions of the latter static analysis may be more realistic to the extent that they are based on empirical observation but that doesn't make the analysis dynamic. Often, though, the refutation is not based on empirical observation, in which case it is pure, empty assertion. There is nothing "inevitable" about economic growth.
Ms. Wilshire may have an alibi for her misuse of dynamic in that economists often make the same error of referring to static analyses as "dynamic" just because they incorporate a few rudimentary moving parts ( for example, DSGE: "dynamic" stochastic general equilibrium models). This is like referring to an animated GIF file as a "full-length moving picture."
Of course, Bob Birrell will be quite aware that he didn't assume a "fixed amount of work" (which is not the same thing as "only so many jobs to go around"). If at time "t" there are 10 jobs and 11 workers and at time "t+1" there are 12 jobs and 14 workers, then the amount of work is clearly not fixed but the number of unemployed has doubled and the unemployment rate has increased from 9% to 14%. The allegation of a belief in a "fixed amount" of work here is clearly inapplicable.
Accusing one's opponent of committing a lump-of-labour fallacy is such a hackneyed, inadequate argument, that it immediately raises suspicions that the person making the claim has no substantive argument to make.
Yours sincerely,
Tom Walker, author of
"Why economists dislike a lump of labor" and
"The "lump-of-labor" case against work-sharing: populist fallacy or marginalist throwback?"
In her attempt to refute Bob Birrell's analysis, Carla Wilshire makes the following claim:
Birrell chooses to ignore the dynamic effects of the labour market. The assumption that there are only so many jobs to go around has been roundly rejected. Labour economists have long known the number of jobs is not fixed. According to Nobel Laureate Paul Krugman, this lump of labour fallacy “encourages fatalism” and “feeds protectionism”. The trouble with promoting such notions is that policy-makers stop thinking about ways to create jobs.There are so many errors in that brief paragraph, it is hard to know where to begin. But let's start with Paul Krugman. Krugman has indeed criticized the lump-of-labor assumption but he has also criticized, as "equally fallacious," the counter assumption (often referred to as Say's Law), that demand for labour increases with its supply. In fact, Paul Krugman has spent far more time recently refuting Say's Law than he has the lump of labor.
http://krugman.blogs.nytimes.com/2013/02/10/still-says-law-after-all-these-years/
http://krugman.blogs.nytimes.com/2014/02/21/hearsay-economics-2/
The problem with the supposed refutation of the supposed lump-of-labour fallacy goes deeper than that, though. Ultimately the refutation is based on the same hidden assumption as the alleged "fallacy" -- what was known in classical political economy as the wages-fund doctrine. In short, the fallacy and its supposed refutation are simply two sides of a paradox that arises from the static nature of analysis, similar to Zeno's paradox of the arrow.
Wilshire uses the word "dynamic" incorrectly. Wilshire is making the mistake of assuming that the colloquial connotation of "dynamic" is the same as the technical one. This is not acceptable in the context of claims about economic theory (see John Maurice Clark's discussion of "The Relation between Statics and Dynamics" or Alfred Marshall's discussion in "Distribution and Exchange").
What she presumably means by "dynamic effects" are the 'long term' effects of economic growth. But "what labour economists have long known" about the number of jobs in a growing economy is itself based on another static analysis, not on a dynamic analysis. The assumptions of the latter static analysis may be more realistic to the extent that they are based on empirical observation but that doesn't make the analysis dynamic. Often, though, the refutation is not based on empirical observation, in which case it is pure, empty assertion. There is nothing "inevitable" about economic growth.
Ms. Wilshire may have an alibi for her misuse of dynamic in that economists often make the same error of referring to static analyses as "dynamic" just because they incorporate a few rudimentary moving parts ( for example, DSGE: "dynamic" stochastic general equilibrium models). This is like referring to an animated GIF file as a "full-length moving picture."
Of course, Bob Birrell will be quite aware that he didn't assume a "fixed amount of work" (which is not the same thing as "only so many jobs to go around"). If at time "t" there are 10 jobs and 11 workers and at time "t+1" there are 12 jobs and 14 workers, then the amount of work is clearly not fixed but the number of unemployed has doubled and the unemployment rate has increased from 9% to 14%. The allegation of a belief in a "fixed amount" of work here is clearly inapplicable.
Accusing one's opponent of committing a lump-of-labour fallacy is such a hackneyed, inadequate argument, that it immediately raises suspicions that the person making the claim has no substantive argument to make.
Yours sincerely,
Tom Walker, author of
"Why economists dislike a lump of labor" and
"The "lump-of-labor" case against work-sharing: populist fallacy or marginalist throwback?"
Sunday, August 17, 2014
Robots, again?
This time its a viral Youtube video by CGP Grey. A million and a half views in four days. For those who don't have the attention span to sit through a 15-minute video, the script is posted at CGPGrey and concludes:
What a machine can do is strictly limited by the properties of the materials that it works on and is powered by and by the physical properties incorporated in it by its designer. What dazzles observers is simply the disclosure of the physical properties of matter and energy and the ingenuity of human science and applied social organization in revealing and operating on those physical properties.
The machinery debate that has been going on for two and a half centuries is a diversion. The "demon" in this debate, the alleged automaton, is an illusion -- at worst a hoax -- that distracts from the scale of human intervention required make the automaton's motion appear autonomous. The more remotely human intervention can take place, the more effective is the illusion. The operator has an alibi.
It was not, after all, the sheep who enclosed the commons and evicted the tenants.
This video isn't about how automation is bad -- rather that automation is inevitable. It's a tool to produce abundance for little effort. We need to start thinking now about what to do when large sections of the population are unemployable -- through no fault of their own. What to do in a future where, for most jobs, humans need not apply.
Joshua Gans at Digitopoly presents an inadequate counter-argument to that conclusion, based on static analysis and wishful thinking: "I have faith that if it is in the interests of both business and consumers that money go from the employed to unemployed, it will. It will happen." and:
If the worker owns the robot, the quality advantage accrues to them. But in terms of their willingness to pay, there is an important difference between the two. If the capitalist does not own the robot, they can employ the worker (with their robot) as they always have done and so will they will appropriate part of the quality advantage. By contrast, if the worker does not own the robot, the worker gets nothing.As I've been arguing in the Supply Creates Its Own Demon series, the problem is much, much more complicated than that. It can't be solved by static economic analysis. To put it as simply as possible: machines don't have the fantastic generative powers that have been attributed to them.
What a machine can do is strictly limited by the properties of the materials that it works on and is powered by and by the physical properties incorporated in it by its designer. What dazzles observers is simply the disclosure of the physical properties of matter and energy and the ingenuity of human science and applied social organization in revealing and operating on those physical properties.
The machinery debate that has been going on for two and a half centuries is a diversion. The "demon" in this debate, the alleged automaton, is an illusion -- at worst a hoax -- that distracts from the scale of human intervention required make the automaton's motion appear autonomous. The more remotely human intervention can take place, the more effective is the illusion. The operator has an alibi.
It was not, after all, the sheep who enclosed the commons and evicted the tenants.
Elsewhere and Nowhere: Alibi and Utopia
Such is the strategic logic of the commodity which makes [use value] a satellite of and an alibi for [exchange value]. -- Jean Baudrillard, The Political Economy of the Sign.
As court and council gathered in the robing room after an acquittal... the judge said to the successful lawyer, "That was the most convincing alibi that I have ever had proved before me."
"Thank you, sir", replied the lawyer. "it is particularly gratifying to hear you say that. I value your judgment most highly and I am pleased to find that in this case it coincides with mine. I chose that alibi as the best of three that the defendant had." -- "No Alibi," ABA Journal, March 1951.
...alongside the eighteenth-century emergence of the realistic, but fictional, narrative form later called the novel, the word alibi also entered into ordinary English discourse. Technically the legal plea of 'elsewhere,' culturally speaking, an alibi indicated the mounting of a realistic story narrated in a law court. (This initial, specific sense of alibi as a story told in court contrasts with its use since the beginning of the twentieth century, when it began also to refer to a story that keeps one out of court or to any form of excuse tale.) -- Jonathan Grossman, The Art of Alibi: English Law Courts and the Novel.
If the elasticity of substitution is not constant, what is crucial is what happens to the elasticity asymptotically as resource input goes to zero. In these cases the produced input is sufficiently substitutable for the natural resource that the decrease in supply of the natural resource can be compensated for by an increased supply of capital. Of the two cases, the Cobb-Douglas case is clearly the most interesting for there natural resources are essential in the sense that some input of the natural resource is required for production (the isoquants never do hit the axes). But a small input of natural resource can be compensated for by a sufficiently large input of capital, and whether that is feasible for the economy depends simply on the relative shares of the two. -- Joseph Stiglitz, "Neoclassical Analysis of Resource Economics."
"...this is not the only force driving men to thievery. There is another that, as I see it, applies more specially to you Englishmen."
"What is that?" said the Cardinal.
"Your sheep", I said, "that commonly are so meek and eat so little; now, as I hear, they have become so greedy and fierce that they devour human beings themselves. They devastate and depopulate fields, houses and towns. For in whatever parts of the land sheep yield the finest and thus the most expensive wool, there the nobility and gentry, yes, and even a good many abbots -- holy men -- are not content with the old rents that the land yielded to their predecessors. Living in idleness and luxury without doing society any good no longer satisfies them; they have to do positive harm." -- Sir Thomas More, Utopia, Book 1.
An escapist fiction, Book 2 allows the negotiator of wool contracts an alibi for being "elsewhere" just as it affords England the luxury of being purified as myth. As Richard Marius points out in his biography of More, there was a distinct need for the writer of Utopia to have available just such an alibi, so much are the circumstances of Utopia's composition at odds with its idealistic pretensions:
It has usually gone unnoticed that More's embassy on which he began writing Utopia was intended to increase commerce, especially in wool, and that while he penned these immortal lines, he was working hard to add to the wealth of those classes in English society whom Raphael castigates for their heartless greed.
At this stage in the composition of Utopia, the hedging off of the island from historical contingencies reflects More's own personal situation. -- John Freeman, "Discourse in More's Utopia: Alibi/Pretext/Postscript"
Another offender of this class [of overworked words] is "alibi." Alibi is a legal term, meaning a plea on the part of the accused that he was somewhere else when the alleged act was committed.. I imagine that somebody came out of a court house one day after hearing this term used, and since it was new to him, and he fancied the sound of it, he began making use of it himself in a pedantic sort of way whenever opportunity offered. Finally his friends and admirers took it up, and now eight people out of ten think it quite the thing to do, when denying any sort of innocent accusation, to say, "I can prove an alibi." But a mere denial is not an alibi. -- M. V. P. Yeaman, "Speech Degeneracy."
In a legal context to be elsewhere necessitates the supporting details and corroboration provided by a narrative account of being elsewhere. Here—reversing the cliché—it is deeds without words that are empty. Alibi is thus especially well suited for narrative, for there is always a story or relevant sequence of events that depicts being elsewhere.
…narrative alibis draw on the special significance of an absence. Beyond the legal context, an alibi is thus something we can give whenever we are called to account for ourselves. When we speak of whether someone "has" an alibi or not, we implicitly allude to the importance that having a story, being able to tell the story of oneself, holds for modern identity (even if it is the possession of a kind of absence).
An alibi is an unusual form of narrative precisely because it is generated by absence, and thus alibi is a small, well-defined instance of the philosophical concept of negativity. Though a negative concept, an alibi does real work; it functions in a system of legally binding processes and confers a status upon those who employ it rhetorically. An alibi is a speech act rendering the real act, the crime, impossible, at least for the accused. The narrative opposite of a confession, it exculpates rather than implicates. An alibi is an account of not being there. So, an alibi is a kind of anticonfessional narrative. -- Justin Weir, Leo Tolstoy and the Alibi of Narrative.
Anatomically homologous to the two largest bones found in the human finger, the pastern was famously mis-defined by Samuel Johnson in his dictionary as "the knee of a horse". When a lady asked Johnson how he came to do so, he gave the much-quoted reply: "Ignorance, madam, pure ignorance." -- Wikipedia, "Pastern."
Friday, August 15, 2014
Everyone Should Have The Right To Marry Whom They Wish To Marry.
In 1975 in Helsinki a Cold War negotiation led to the Helsinki Accords, much derided at the time by various parties in various nations, but nevertheless ultimately officially signed on to by all the major parties of that now distant era, including the USA and the then existing USSR. Many did not take it seriously, including individuals in the US State Department as late as 1986, when at the Reykyavik, Iceland summit those who were legally engaged as were me and my now wife, Marina Rostislavna Vcherashnaya Rosser (not to be imprecise here, although there are alternative transliterations of her last name from the Cyrillic) were not supported by the US negotiaters, despite a personal promise made to me at the time by then Deputy Secretary of State, John Whitehead.
This would lead to me not too long after having a showdown with Thomas Simon, the Assistant Secretary for European Affairs, over this matter, after Whitehead's promise in front of a large group of people over this matter, with me holding a press conference in front of the State Department in which I publicly denounced both the US and USSR governments for conspiring to keep people legally engaged to marry from marrying, and my wife Marina and I had become legally engaged to marry on November 13, 1984 at 3 PM according to the Soviet Ministry of Marriages, "ZAGS." I crucially had a piece of paper documenting this, which did not happen because the Soviet government refused to let me have a visa to re-enter the country to marry her at that time, after having received the official permission to do so in writing at that time from ZAGS. We were unable to marry at the designated time, and my then legally designated fianceee, Marina, was subsequentlny fired from her job as a Senior Economist at the Institute for World Economy and International Relations (aka IMEMO). Only on April 4, 1987 would she be allowed to go to the US, with us marrying finally on May 24, 1987.
We were the first such marriage to be allowed after much personal suffering and international protest. We were the first to be approved,with the US State Department finally supporting us after protests by me and others. Our case rewrote the rules, although it would still take lovers to provide written evidence of their having been blocked from legally getting married abroad to receive US official approval and support officially as well as in Helsinki in 1975. Needless to say, we fully support the extension of this right to same sex couples, which the most recent court rulings appear to be about to allow such marriages to take place in Virginia. We look forward to celebrating with our friends who will be marrying soon here.
Barkley Rosser
This would lead to me not too long after having a showdown with Thomas Simon, the Assistant Secretary for European Affairs, over this matter, after Whitehead's promise in front of a large group of people over this matter, with me holding a press conference in front of the State Department in which I publicly denounced both the US and USSR governments for conspiring to keep people legally engaged to marry from marrying, and my wife Marina and I had become legally engaged to marry on November 13, 1984 at 3 PM according to the Soviet Ministry of Marriages, "ZAGS." I crucially had a piece of paper documenting this, which did not happen because the Soviet government refused to let me have a visa to re-enter the country to marry her at that time, after having received the official permission to do so in writing at that time from ZAGS. We were unable to marry at the designated time, and my then legally designated fianceee, Marina, was subsequentlny fired from her job as a Senior Economist at the Institute for World Economy and International Relations (aka IMEMO). Only on April 4, 1987 would she be allowed to go to the US, with us marrying finally on May 24, 1987.
We were the first such marriage to be allowed after much personal suffering and international protest. We were the first to be approved,with the US State Department finally supporting us after protests by me and others. Our case rewrote the rules, although it would still take lovers to provide written evidence of their having been blocked from legally getting married abroad to receive US official approval and support officially as well as in Helsinki in 1975. Needless to say, we fully support the extension of this right to same sex couples, which the most recent court rulings appear to be about to allow such marriages to take place in Virginia. We look forward to celebrating with our friends who will be marrying soon here.
Barkley Rosser
Thursday, August 14, 2014
Common Pools and Wage Funds -- A Reply to Simon Wren-Lewis
Simon Wren-Lewis raises an extremely important issue regarding Inequality and the common pool problem: "there is a clear connection between the rise in incomes at the very top and lower real wages for everyone else."
Wren-Lewis explains the common-pool problem as being "about how the impact of just one fisherman extracting more fish on the amount of fish in the lake is small, but if there are lots of fishermen doing the same we have a problem." This needs a bit more explanation. The problem has to do with the difficulty of excluding fishermen (or limiting the catch of any particular fisherman) and with the limitation on the amount of fish in the lake. The essential reference on this is Elinor Ostrom's discussion of common-pool resources.
Two caveats: difficult does not mean impossible and limited doesn't mean non-renewable or fixed in quantity.
When it comes to income, it is easy to get lost in a money illusion. Yes, incomes are measured and paid in money amounts. But what they provide are rights of access to material things -- goods and services, "the power of purchasing; a certain command over all the labour, or over all the produce of labour, which is then in the market" (Smith).
Nominally, the amount of income can increase without limit. But in real terms, increases in income are constrained by the amount of goods and services available in the market. That last qualification, the amount of goods and services available in the market, has led to a prodigious amount of confusion in economic thought. The classical wages-fund doctrine assumed that the amount of wage goods available at any given time was fixed. Accordingly, if one group of workers formed a union to enforce a wage increase, their gain would be at the expense of other workers.
The amount of goods and services in the market at any given time is not fixed. But the key to the confusion is not the stipulated quantity but the imaginary temporal dimension of a "given time." Zeno's paradox of the arrow involves the same logical conundrum of dividing time into points.
In 1869, W. T. Thornton argued persuasively that the wages-fund doctrine was erroneous and John Stuart Mill concurred and "recanted" the wages-fund doctrine. Exactly what Mill recanted may be in dispute but that is beside the point -- the classical doctrine was consigned to the dustbin of history of political economy. Or so we are told...
By virtue of one of the most miraculous metamorphoses imaginable, the old wages-fund doctrine, used by polemicists as a club against unions demanding higher wages was transformed into the theory of the lump-of-labor, allegedly assumed by trade unionists, whose fallacy was used by economists as a club against unions demanding higher wages. "Heads I win" seamlessly became "tails you lose."
But, getting back to Wren-Lewis, isn't his contention that higher executive pay "has to come from somewhere [that is, from the other 99%]" a reversion to the wages-fund -- or lump of labor -- doctrine/fallacy? No, it isn't. But this requires more explanation. There are not one, but two illusions at work here. One is the money illusion. The other is the point-in-time illusion. Combined, these two illusions constitute a powerful temptation to cognitive dissonance.
To dispel those two illusions, let's first go back to Adam Smith's definition of wealth: "a certain command over all the labour, or over all the produce of labour, which is then in the market." 'Labor' appears to refer to a definite quantity and 'then' appears to refer to a definite point in time. Labor is not, however, a discrete distinction and a "point" in time is strictly conceptual. The amount of work to be done at any point in time is not only "not fixed" it is also not "an amount."
Just as with Zeno's arrow, no labor is performed in a "point in time." Labor can only be performed over a duration, be it an hour, a day, a week, a year or a lifetime. Furthermore, the amount of labor performed by one person during any interval of time is variable. It is not infinitely variable but it is flexible within certain definite limits. The expression labor-power indicates this characteristic of labor as potentially equivalent to a given quantity of production.
So, we can now amend Smith's definition as follows: income represents command over a portion of the labor-power in the market during a given extension of time. This definition could be further refined but the point that I want to get to is that it is the labor-power that constitutes the common-pool resource. The amount of goods and services that corresponds to this amount of labor-power is not fixed -- but neither is it "infinitely" variable.
The extent to which real GDP may vary depends on people's capacity to work, on their motivation and on their opportunities for employment, all of which may be affected by the distribution of income. In other words, great inequalities of income may well diminish the common pool of goods and services -- and ultimately of labor-power itself -- from which incomes are derived.
That is, executive pay may be taking a bigger slice of a pie that is smaller than it would be if executives weren't taking such a big slice of it. Or to put it bluntly, they may be being richly rewarded for a negative contribution to social production that results from their excessive incomes!
There is much more that can said (and has been said) about both the implications and the background of the analysis of labor-power as a common-pool resource. I will pause for now to see how the conversation unfolds.
Wren-Lewis explains the common-pool problem as being "about how the impact of just one fisherman extracting more fish on the amount of fish in the lake is small, but if there are lots of fishermen doing the same we have a problem." This needs a bit more explanation. The problem has to do with the difficulty of excluding fishermen (or limiting the catch of any particular fisherman) and with the limitation on the amount of fish in the lake. The essential reference on this is Elinor Ostrom's discussion of common-pool resources.
Two caveats: difficult does not mean impossible and limited doesn't mean non-renewable or fixed in quantity.
When it comes to income, it is easy to get lost in a money illusion. Yes, incomes are measured and paid in money amounts. But what they provide are rights of access to material things -- goods and services, "the power of purchasing; a certain command over all the labour, or over all the produce of labour, which is then in the market" (Smith).
Nominally, the amount of income can increase without limit. But in real terms, increases in income are constrained by the amount of goods and services available in the market. That last qualification, the amount of goods and services available in the market, has led to a prodigious amount of confusion in economic thought. The classical wages-fund doctrine assumed that the amount of wage goods available at any given time was fixed. Accordingly, if one group of workers formed a union to enforce a wage increase, their gain would be at the expense of other workers.
The amount of goods and services in the market at any given time is not fixed. But the key to the confusion is not the stipulated quantity but the imaginary temporal dimension of a "given time." Zeno's paradox of the arrow involves the same logical conundrum of dividing time into points.
In 1869, W. T. Thornton argued persuasively that the wages-fund doctrine was erroneous and John Stuart Mill concurred and "recanted" the wages-fund doctrine. Exactly what Mill recanted may be in dispute but that is beside the point -- the classical doctrine was consigned to the dustbin of history of political economy. Or so we are told...
By virtue of one of the most miraculous metamorphoses imaginable, the old wages-fund doctrine, used by polemicists as a club against unions demanding higher wages was transformed into the theory of the lump-of-labor, allegedly assumed by trade unionists, whose fallacy was used by economists as a club against unions demanding higher wages. "Heads I win" seamlessly became "tails you lose."
But, getting back to Wren-Lewis, isn't his contention that higher executive pay "has to come from somewhere [that is, from the other 99%]" a reversion to the wages-fund -- or lump of labor -- doctrine/fallacy? No, it isn't. But this requires more explanation. There are not one, but two illusions at work here. One is the money illusion. The other is the point-in-time illusion. Combined, these two illusions constitute a powerful temptation to cognitive dissonance.
To dispel those two illusions, let's first go back to Adam Smith's definition of wealth: "a certain command over all the labour, or over all the produce of labour, which is then in the market." 'Labor' appears to refer to a definite quantity and 'then' appears to refer to a definite point in time. Labor is not, however, a discrete distinction and a "point" in time is strictly conceptual. The amount of work to be done at any point in time is not only "not fixed" it is also not "an amount."
Just as with Zeno's arrow, no labor is performed in a "point in time." Labor can only be performed over a duration, be it an hour, a day, a week, a year or a lifetime. Furthermore, the amount of labor performed by one person during any interval of time is variable. It is not infinitely variable but it is flexible within certain definite limits. The expression labor-power indicates this characteristic of labor as potentially equivalent to a given quantity of production.
So, we can now amend Smith's definition as follows: income represents command over a portion of the labor-power in the market during a given extension of time. This definition could be further refined but the point that I want to get to is that it is the labor-power that constitutes the common-pool resource. The amount of goods and services that corresponds to this amount of labor-power is not fixed -- but neither is it "infinitely" variable.
The extent to which real GDP may vary depends on people's capacity to work, on their motivation and on their opportunities for employment, all of which may be affected by the distribution of income. In other words, great inequalities of income may well diminish the common pool of goods and services -- and ultimately of labor-power itself -- from which incomes are derived.
That is, executive pay may be taking a bigger slice of a pie that is smaller than it would be if executives weren't taking such a big slice of it. Or to put it bluntly, they may be being richly rewarded for a negative contribution to social production that results from their excessive incomes!
There is much more that can said (and has been said) about both the implications and the background of the analysis of labor-power as a common-pool resource. I will pause for now to see how the conversation unfolds.
SCIOD 7: The Frankenstein Factory
Andrew Ure's The Philosophy of Manufactures owes a considerable debt to Tufnell's Royal Commission report. The books 150-page third section, "Moral Economy of the Factory System" relies almost entirely on evidence from the Tufnell report. Ure shared Tufnell's antipathy toward trade unions and makes no secret of his admiration for this "masterly report" by a "most able and candid observer." So fond was Ure of Tufnell's argument that he adopted some of the text, word for word, without quotation marks or attribution.
Ure was trained as a physician but practiced medicine for only three years until he was appointed professor of chemistry and philosophy at Glasgow University. His writing on chemistry, displayed "a fatal facility… for discovering exact mathematical laws in a mass of inaccurate measurements."
In November of 1818, in collaboration with Dr. Jeffray, a professor of anatomy, Ure performed a series of galvanic experiments on the corpse of a freshly-executed criminal named Clydesdale. These experiments took place in the same year that Mary Shelley's Frankenstein was published. Speculation that Ure was the model for Victor Frankenstein, however, would be anachronistic since the novel was published in March, eight months before the experiments took place and even longer before they were publicized. Nevertheless, Ure's account of his experiments is ghastly and adds a further insight into his eagerness to leap to astonishing (and self-aggrandizing) conclusions based on flimsy evidence:
Ure's ideal, then is for the factory system to perform as a "vast automaton, composed of various mechanical and intellectual organs, acting in uninterrupted concert for the production of a common object, all of them being subordinated to a self-regulated moving force." Ure preceded this image of the automaton factory with three pages of discussion of automatons, including the "chess-player of M. Maelzel" which "imitates very remarkably a living being, endowed with all the resources of intelligence, for executing the combinations of profound study." Ure appears to have been unaware that the chess-player had been frequently suspected of being a hoax. His next paragraph, though, mentions a harpsichord automaton that "was found to contain an infant performer."
Although he mocked Ure as the "Pindar of the automatic factory," Karl Marx borrowed liberally from his imagery, only reversing its political polarity. The following passage from Capital is unmistakably a critical tribute to the central metaphors of Ure's vision:
Ure was trained as a physician but practiced medicine for only three years until he was appointed professor of chemistry and philosophy at Glasgow University. His writing on chemistry, displayed "a fatal facility… for discovering exact mathematical laws in a mass of inaccurate measurements."
In November of 1818, in collaboration with Dr. Jeffray, a professor of anatomy, Ure performed a series of galvanic experiments on the corpse of a freshly-executed criminal named Clydesdale. These experiments took place in the same year that Mary Shelley's Frankenstein was published. Speculation that Ure was the model for Victor Frankenstein, however, would be anachronistic since the novel was published in March, eight months before the experiments took place and even longer before they were publicized. Nevertheless, Ure's account of his experiments is ghastly and adds a further insight into his eagerness to leap to astonishing (and self-aggrandizing) conclusions based on flimsy evidence:
The subject of these experiments was a middle-sized, athletic, and extremely muscular man, about thirty years of age. He was suspended from the gallows nearly an hour, and made no convulsive struggle after he dropped; while a thief, executed along with him, was violently agitated for a considerable time. He was brought to the anatomical theatre of our university in about ten minutes after he was cut down. His face had a perfectly natural aspect, being neither livid nor tumefied; and there was no dislocation of his neck.What makes this ghoulish, galvanizing episode relevant to Ure's Philosophy of Manufacture is the overarching use in that book of the body as a metaphor for the factory. It is not just any image of a body – an automaton body. Ure described manufacturing as having "three principles of action, or three organic systems: the mechanical, the moral and the commercial, which may not unaptly be compared to the muscular, the nervous, and the sanguiferous systems of an animal." Predictably, the mechanical system corresponds with the interests of the workers and should always be subordinated to the moral constitution," which is to say the factory owner. "The principle of the factory system this is, to substitute mechanical science for hand skill," with the eventual objective of eliminating skilled labor and replacing it with "mere overlookers of machines."
…
In the judgment of many scientific gentlemen who witnessed the scene, this respiratory experiment was perhaps the most striking ever made with a philosophical apparatus. Let it also be remembered, that for full half an hour before this period, the body had been well nigh drained of its blood, and the spinal marrow severely lacerated. No pulsation could be perceived meanwhile at the heart or wrist; but it may be supposed, that but for the evacuation of the blood,—the essential stimulus of that organ,—this phenomenon might also have occurred.
…
…by running the wire in my hand along the edges of the last trough, from the 220th to the 270th pair of plates: thus fifty shocks, each greater than the preceding one, were given in two seconds. Every muscle in his countenance was simultaneously thrown into fearful action; rage, horror, despair, anguish, and ghastly smiles, united their hideous expression in the murderer's face, surpassing far the wildest representations of a Fuseli or a Kean. At this period several of the spectators were forced to leave the apartment from terror or sickness, and one gentleman fainted.
…
In deliberating on the above galvanic phenomena, we are almost willing to imagine, that if, without cutting into and wounding the spinal marrow and blood-vessels in the neck, the pulmonary organs had been set a-playing at first, (as I proposed), by electrifying the phrenic nerve, (which may be done without any dangerous incision), there is a probability that life might have been restored. This event, however little desirable with a murderer, and perhaps contrary to law, would yet have been pardonable in one instance, as it would have been highly honourable and useful to science.
Ure's ideal, then is for the factory system to perform as a "vast automaton, composed of various mechanical and intellectual organs, acting in uninterrupted concert for the production of a common object, all of them being subordinated to a self-regulated moving force." Ure preceded this image of the automaton factory with three pages of discussion of automatons, including the "chess-player of M. Maelzel" which "imitates very remarkably a living being, endowed with all the resources of intelligence, for executing the combinations of profound study." Ure appears to have been unaware that the chess-player had been frequently suspected of being a hoax. His next paragraph, though, mentions a harpsichord automaton that "was found to contain an infant performer."
Although he mocked Ure as the "Pindar of the automatic factory," Karl Marx borrowed liberally from his imagery, only reversing its political polarity. The following passage from Capital is unmistakably a critical tribute to the central metaphors of Ure's vision:
An organised system of machines, to which motion is communicated by the transmitting mechanism from a central automaton, is the most developed form of production by machinery. Here we have, in the place of the isolated machine, a mechanical monster whose body fills whole factories, and whose demon power, at first veiled under the slow and measured motions of his giant limbs, at length breaks out into the fast and furious whirl of his countless working organs [emphasis added].
Subscribe to:
Posts (Atom)