Whew! Here's Robert Anton Wilson trying to get people into a state of
generalized agnosticism, not agnosticism about God .... but agnosticism about the everything; even the free market!
"“Privilege implies exclusion from privilege, just as advantage implies disadvantage," Celine went on. "In the same mathematically reciprocal way, profit implies loss. If you and I exchange equal goods, that is trade: neither of us profits and neither of us loses. But if we exchange unequal goods, one of us profits and the other loses. Mathematically. Certainly. Now, such mathematically unequal exchanges will always occur because some traders will be shrewder than others. But in total freedom—in anarchy—such unequal exchanges will be sporadic and irregular. A phenomenon of unpredictable periodicity, mathematically speaking. Now look about you, professor—raise your nose from your great books and survey the actual world as it is—and you will not observe such unpredictable functions. You will observe, instead, a mathematically smooth function, a steady profit accruing to one group and an equally steady loss accumulating for all others. Why is this, professor? Because the system is not free or random, any mathematician would tell you a priori. Well, then, where is the determining function, the factor that controls the other variables? You have named it yourself, or Mr. Adler has: the Great Tradition. Privilege, I prefer to call it. When A meets B in the marketplace, they do not bargain as equals. A bargains from a position of privilege; hence, he always profits and B always loses. There is no more Free Market here than there is on the other side of the Iron Curtain. The privileges, or Private Laws—the rules of the game, as promulgated by the Politburo and the General Congress of the Communist Party on that side and by the U.S. government and the Federal Reserve Board on this side—are slightly different; that's all. And it is this that is threatened by anarchists, and by the repressed anarchist in each of us," he concluded, strongly emphasizing the last clause, staring at Drake, not at the professor.”
― Robert Anton Wilson, The Golden Apple
Tuesday, November 18, 2014
Sunday, November 16, 2014
The Ultimate Irrelevance of Grubergate
So, many people have gone hysterical over the publicity surrounding revelations of embarrassing quotations and video clips from Jon Gruber talking about aspects of Obamacare. SCOTUS is taking on a case that might remove federal subsidies from individuals on state exchange insurance plans that are not linked to the federal system thanks to some publicized remarks by Gruber, even though he has never been a member of Congress, and numerous commentators are carrying on about how Obamacare would never never never have passed Congress if people had known what Gruber said about how those fines are really taxes just like SCOTUS later said, not to mention how much he looks like the epitome of pompous arrogance when he declared that "voters are stupid." Hot stuff.
So, if SCOTUS decides that those subsidies won't get paid if the state exchanges do not hook up with the federal one, well, there is apparently some easy way to do this without changing how the state's system works. Of course, there may be some states with exchanges run by tea party GOPsters who may just take advantage of this to actually let insurance premia from their state exchanges go up sharply for their citizens just to show how anti-Obamacare they are. Of course, it is harder to raise such premia on people with insurance than simply refusing to extend coverage to people who do not have it as is going on in lots of those states where local anti-Obamacarers are refusing to accept money from the federal government to extend Medicaid to their poorer citizens who do not have any, which option would not even be happening if SCOTUS had not broken precedent to let states opt out of this Medicaid expansion.
As for this matter of how revealing that those fines are really taxes way back when would have killed the possibility of passing Obamacare, one should keep in mind that it had been revealed by opponents that Obamacare would give us death panels, would never work because nobody would sign up for it, and it would cause insurance premia to soar to infinity, not to mention that the medical profession would probably not take any patients with such plans. This probably explains why all along polls have shown that when asked, most Americans say they oppose "Obamacare," even as they say they support all of its individual provisions. And, hey, if it had been known that the fines were taxes, all those Republican congressional representatives and senators who voted for Obamacare because Obama had granted their requests for changes in the law would not have done so, thereby tanking it, given how we know that Republicans are so against tax increases (just kidding, folks, for anybody who thinks that I thought there were any Republicans who did vote for it... )..
Barkley Rosser
So, if SCOTUS decides that those subsidies won't get paid if the state exchanges do not hook up with the federal one, well, there is apparently some easy way to do this without changing how the state's system works. Of course, there may be some states with exchanges run by tea party GOPsters who may just take advantage of this to actually let insurance premia from their state exchanges go up sharply for their citizens just to show how anti-Obamacare they are. Of course, it is harder to raise such premia on people with insurance than simply refusing to extend coverage to people who do not have it as is going on in lots of those states where local anti-Obamacarers are refusing to accept money from the federal government to extend Medicaid to their poorer citizens who do not have any, which option would not even be happening if SCOTUS had not broken precedent to let states opt out of this Medicaid expansion.
As for this matter of how revealing that those fines are really taxes way back when would have killed the possibility of passing Obamacare, one should keep in mind that it had been revealed by opponents that Obamacare would give us death panels, would never work because nobody would sign up for it, and it would cause insurance premia to soar to infinity, not to mention that the medical profession would probably not take any patients with such plans. This probably explains why all along polls have shown that when asked, most Americans say they oppose "Obamacare," even as they say they support all of its individual provisions. And, hey, if it had been known that the fines were taxes, all those Republican congressional representatives and senators who voted for Obamacare because Obama had granted their requests for changes in the law would not have done so, thereby tanking it, given how we know that Republicans are so against tax increases (just kidding, folks, for anybody who thinks that I thought there were any Republicans who did vote for it... )..
Barkley Rosser
Saturday, November 15, 2014
Wrath of the Yurt
I like a lot of what John Quiggin has to say. That's why I find it disturbing when he lapses into an unprovoked ad hominem swipe at people living in yurts. Not only is it disturbing but distinctly peculiar.
Of course we're all supposed to understand that Quiggin isn't really talking about yurt dwellers when he refers to yurt dwellers. It's code. The label of yurt dweller is supposed to allude to some undefined fringe of political-economic non-conformists.
I have a problem with that. It is holding people up to ridicule, not for what they believe but for a mocking image of their (presumably) idiosyncratic personal attributes that is arbitrarily substituted for their opinions. This is what we used to refer to as stereotyping.
Exactly who is being ridiculed is left ambiguous. By a process of elimination, it is not the climate-change deniers on the right nor is it the "sensible" ecological modernizers in the center who Quiggin is mocking. That leaves the tree-hugging enviros on the left metaphorically dwelling in those patchouli-infested yurts. Like Naomi Klein. Or Herman Daly. Or Tim Jackson. Or Duncan Foley.
The trouble with the yurt dweller label is that it is infinitely expandable. To Senator Inhofe, people who accept the scientific consensus on climate change are yurt dwellers. Nicholas Stern, John Quiggin, William Nordhaus, Al Gore, the IPCC. Yurt dwellers all.
Of course we're all supposed to understand that Quiggin isn't really talking about yurt dwellers when he refers to yurt dwellers. It's code. The label of yurt dweller is supposed to allude to some undefined fringe of political-economic non-conformists.
I have a problem with that. It is holding people up to ridicule, not for what they believe but for a mocking image of their (presumably) idiosyncratic personal attributes that is arbitrarily substituted for their opinions. This is what we used to refer to as stereotyping.
Exactly who is being ridiculed is left ambiguous. By a process of elimination, it is not the climate-change deniers on the right nor is it the "sensible" ecological modernizers in the center who Quiggin is mocking. That leaves the tree-hugging enviros on the left metaphorically dwelling in those patchouli-infested yurts. Like Naomi Klein. Or Herman Daly. Or Tim Jackson. Or Duncan Foley.
The trouble with the yurt dweller label is that it is infinitely expandable. To Senator Inhofe, people who accept the scientific consensus on climate change are yurt dwellers. Nicholas Stern, John Quiggin, William Nordhaus, Al Gore, the IPCC. Yurt dwellers all.
A Reverse Milgram
No, it’s not a wrestling move. I’m wondering if anyone else has noticed that the collaboration of a portion of the psychology profession with state-sponsored torture during the Bush Jr. years is like the famous Stanley Milgram experiments, except that the psychologists are the ones turning the dials.
It’s an interesting question I suppose, if you put aside the fact that this torture, unlike Milgram’s, was real, whether the guys in the white coats are as susceptible to violating fundamental human rights if those in authority tell them to. And the results of this experiment confirm and extend Milgram’s original findings.
Professional psychologists were brought in to assist the Bush administration’s torture program, and there was apparently no shortage of willing participants. But the American Psychological Association has a code of ethics that would seem to make torture a form of professional misconduct. To address this problem, the APA amended its code in 2002 to say that whenever ethics come into conflict with legally issued instructions, psychologists could just follow orders. The sorry tale is summarized in this important article in the New York Times by James Risen, who has played a large role in uncovering the dark side of the “war on terror”.
A modern Milgram experiment would never pass an institutional review board, but we can now have this natural quasi-experiment with real subjects and real torture.
It’s an interesting question I suppose, if you put aside the fact that this torture, unlike Milgram’s, was real, whether the guys in the white coats are as susceptible to violating fundamental human rights if those in authority tell them to. And the results of this experiment confirm and extend Milgram’s original findings.
Professional psychologists were brought in to assist the Bush administration’s torture program, and there was apparently no shortage of willing participants. But the American Psychological Association has a code of ethics that would seem to make torture a form of professional misconduct. To address this problem, the APA amended its code in 2002 to say that whenever ethics come into conflict with legally issued instructions, psychologists could just follow orders. The sorry tale is summarized in this important article in the New York Times by James Risen, who has played a large role in uncovering the dark side of the “war on terror”.
A modern Milgram experiment would never pass an institutional review board, but we can now have this natural quasi-experiment with real subjects and real torture.
Friday, November 14, 2014
Daesh/ISIL/ISIS Calls For Terror Attacks On Saudi Arabia And Plans To Mint Money
Juan Cole has reported on a just released recording that may be by recently wounded Ibrahim al-Samarra'i, more widely known as Abu-Bakr al-Baghdadi, although apparently reverting to "Irahim" since he declared himself Caliph (Khalifa) of the Islamic State (Ibrahim is the Arabic version of Abraham). He calls for terror attacks to be made on Saudi Arabia, for Shi'a to be specifically attacked both in Saudi Arabia and also in Yemen where the Houthi Zaydi Shi'a have seized control of Sana'a, the capital of Yemen, and also their plans to "mint money" to save the Islamic state from the "infidel finance" imposed on "Muslims by the West." It has not been verified that the recording is by him, but at least probably reflects his thinking, and also does seem to be his response to being wounded in the US attack near Mosul, which Daesh now recognizes happened.
One remark on this is that Saudi Arabia is arguably the fountainhead of the particular brand of Islam that al-Samarra'i espouses, Wah'habism. I have posted here previously on the close relationship between it and Salafism, which is regularly muddled in most ignorant western commentary. They overlap, but have some differences and origins, and while Daesh is clearly influenced by both, it looks like the Saudi Wah'habism is more important. So, Saudi Arabia's alliance with the US makes them the "head of the snake" according to this message that must be "cut off."
On the matter of minting money, there are two aspects of this. Of course, strict Islamists support interest-free banking, so-called Islamic banking,which in fact exists in many countries, including the US. It is well established, although only a handful of countries impose it as the only allowed form.
The other aspect is probably bullionism, which is found in the Qur'an. Money should only be gold and silver. Indeed, the very strict Saudis have silver threads in their paper money to obey this, and the late Nelson Bunker Hunt got current Saudi King Abdullah to lose a few billion in the great silver bubble and crash of the early 80s on a claim that the world was going to go on a silver standard. I do not know what form this Islamic State money will take, but I suspect they may imitate what the Saudis do and adhere to bullionism.
Barkley Rosser
One remark on this is that Saudi Arabia is arguably the fountainhead of the particular brand of Islam that al-Samarra'i espouses, Wah'habism. I have posted here previously on the close relationship between it and Salafism, which is regularly muddled in most ignorant western commentary. They overlap, but have some differences and origins, and while Daesh is clearly influenced by both, it looks like the Saudi Wah'habism is more important. So, Saudi Arabia's alliance with the US makes them the "head of the snake" according to this message that must be "cut off."
On the matter of minting money, there are two aspects of this. Of course, strict Islamists support interest-free banking, so-called Islamic banking,which in fact exists in many countries, including the US. It is well established, although only a handful of countries impose it as the only allowed form.
The other aspect is probably bullionism, which is found in the Qur'an. Money should only be gold and silver. Indeed, the very strict Saudis have silver threads in their paper money to obey this, and the late Nelson Bunker Hunt got current Saudi King Abdullah to lose a few billion in the great silver bubble and crash of the early 80s on a claim that the world was going to go on a silver standard. I do not know what form this Islamic State money will take, but I suspect they may imitate what the Saudis do and adhere to bullionism.
Barkley Rosser
Hatch’s Excuse to Repeal the Medical Device Excise Tax
I recently noted a report by Jane G. Gravelle and Sean Lowry of the Congressional Research Service:
A July 2014 report issued by the Treasury Inspector General for Tax Administration (TIGTA) found that the number of medical device excise tax filings and the amount of associated revenue reported are lower than estimated … The IRS estimated between 9,000 and 15,600 quarterly Form 720 tax returns with excise tax revenue of $1.2 billion for this same, two-quarter period. In other words, actual medical device tax collections were 76.1% of projected collections during this period.I suggested that the shortfall could have been the result of transfer pricing abuse with respect to the constructive price – that is the arm’s length price that the manufacturing division of the larger medical device companies would charge the wholesale distribution division. If a wholesale distributor would get between a 25% and a 35% gross margin, then this constructive price would be between 65% and 75% of the actual price, which means the effective tax rate is really between 1.5% and 2.5% of the actual price and not 2.3%. I then asked how some of the major medical device companies might get away with paying half this estimated amount?
Because the Big Four accounting firms are arguing for discounts that are twice my answer. How on earth do they justify this extreme result? It is called the Cost Plus Method with production costs being 25% of sales and a contract manufacturer return equal to 5% of sales. Of course, the $3.5 billion difference between the Big Four answer and the 35% discount rate under the Resale Price Method represents the value of the product intangibles of the medical device manufacturer. Under arm’s length pricing, no manufacturer would fail to include this amount in their price to a distributor. So how are the Big Four writing these reports with a straight face? The answer is simple – they are advocacy reports based on the assumption that the IRS is stupid.It seems the senior Senator from Utah has a different take, which reminds me why I tend to call him Whorin Hatch. From a recent Bloomberg BNA story:
“They'll say they need the money for Obamacare, but in all honesty they're going to get less money than they ever thought because a lot of the companies that can't make a profit but have this tax on their sales, they're going out of business or going offshore,” Hatch said.Rest assured – Covidien, J&J, and Medtronic are not going out of business as they are incredibly profitable. And it does not matter that Covidien did a corporate inversion, the excise tax applies to any U.S. sales regardless of where the device is manufactured. But are we surprised that a Republican Senator turns a blind eye to tax evasion via manipulative transfer pricing and then uses the revenue shortfall as an excuse to gut the tax? While the rest of the world is concerned about Base Erosion and Profit Shifting, Republicans have gut the IRS budget and advocate getting rid of the repatriation tax. We have the ability to enforce the tax laws on the rich and the powerful providing we have the political will to do so. But with the Republicans in charge, this political will is nonexistent.
Thursday, November 13, 2014
Rules and Standards
Peter's discussion of policy rules reminds me of the tale of the highway design standard reputedly based on the height of dead dog in the middle of the road. University of Toronto Civil Engineering Professor, Ezra Hauer tells this story:
Recall that one of the parameters in the design procedure [for highway crest curves] is the height of the obstacle to be seen by the driver in time. Originally (already in 1940) American engineering standards set the obstacle height at 4". Those who wrote this standard did not have any particular obstacle in mind (although, rumour has it that some refer to it as the ‘dead dog’ criterion). …the 4" was selected not because lower obstacles are not a threat to safety but because the selection of a higher obstacle would not save much in construction cost. Since, at that time, nobody knew how many crashes are due to obstacles on the road, what kinds of obstacles these are, and what fraction of crashes would not have occurred had the crest been flatter, the standards committee did what was sensible. They made a decision on the basis of what was known, namely the cost of construction.
For two decades everybody was designing roads using exacting calculations to make 4"-high obstacles visible in time to stop. Then, around 1961, it became apparent that in the newer model cars the average driver's eye was much lower than a decade or two earlier. Thus, drivers of newer cars could not really see 4" objects at the prescribed stopping sight distance... The solution to the predicament was not difficult. Since the 4" obstacle neither was some real object nor has it been selected on the basis of some factual relationship to safety, the Committee on Planning and Design Policies had no compunction noting that "the loss in sight distance resulting from lower eye height could be offset . . . by assuming an object higher than four inches . . . ” Indeed in the 1965 AASHO Blue Book, 6" obstacles became the standard of design.
At the time the standard for the design of crest curves came into being, little was known about safety. Today we know that only 0.07 percent of reported crashes involve objects less than 6" high. We also know that, till today, no link has been found between the risk of collisions with small fixed objects on crest curves and the available sight distance. On the contrary, “Crash rates on rural two-lane highways with limited stopping sight distance (at crest curves) are similar to the crash rates on all rural highways.” Thus, the assumption invoked at the dawn of highway design history which allowed the formulation of a design procedure based on the avoidance of dead dogs in the middle of the road seems to have little to do with real road safety. Still, till today, the same standard stands, the same exacting but illusory constructs are used in the design of crest curves. Only the size of the dog and of other parameters is changing.
Rules versus Discretion in Macropolicy
Economists really like policy rules. Remember the monetarist bubble of the late 70s? Just follow a rule for steady expansion of M2, and let the rest of the economy take care of itself. That didn’t turn out very well, partly because no single measure of the money stock is tightly linked to the outcomes people care about, like inflation and output. So then we had inflation targeting (and still do in the eurozone), but it turned out there wasn’t a fixed long run NAIRU (non-accelerating inflation rate of unemployment) like we were promised, and simple inflation targeting was leaving too many outcomes of concern unmanaged. More recently we’ve had the Taylor Rule, targeting inflation and unemployment. Like the other rules, it aspires to robotic implementation: just multiply the output and inflation gaps by their corresponding coefficients, and out spits the central bank’s policy interest rate. Simple!
Unfortunately, the evidence is piling up that this formula doesn’t do the job either. Without endorsing their particular policy shifts, it’s clear that some central bankers, along with many economists, are now worried about the impacts of monetary policy on the potential for asset price bubbles. Forestalling bubbles wasn’t a feature of policy prior to 2008, but now it has grabbed a lot of attention. Meanwhile, it is clear that the Fed is unhappy with the headline unemployment rate as an indicator of labor market conditions, especially since stagnant wages seem to signal continuing slack.
The problems with policy rules are many. The goals of macropolicy—the things we care about, like low unemployment, price stability, financial stability, satisfactory growth—don’t all move together, and their co-movements change over time. The usefulness of the available indicators for progress on these goals fluctuates as well, since there is no single, perfect measurement of any of them, and the relationship between different indicators keeps changing. What, for instance, is full employment, exactly? Is it the same today as it was five years ago? How should the target reflect the changing composition of jobs, wage rates and labor force participation? In addition, the effectiveness of policy instruments, like open market operations and fiscal balances, is contextual and uncertain; for a run of years slight alterations in central bank bond purchases can have powerful impacts on expectations and economic performance, and then you are in a zero lower bound world in which all sorts of exotic measures—the various types of quantitative easing—go mainstream.
So why are economists enamored of policy rules? One reason is that they are seen as more efficient, since policy impact depends on how much sway it has over the public’s expectations of future variables, like inflation and aggregate demand. Rules are favored, since they ostensibly remove uncertainty from policy stances. You can trust the central bank or fiscal authorities to not reverse tomorrow what they’ve announced today because they’re just following rules that govern their actions, and the rules don’t change. That’s a nice theory, but it doesn’t make the problem of policy credibility disappear; it just loads it all onto the commitment of policy-makers to follow whatever rule is currently in force. But as we’ve seen, the rules have never performed in a predictable, satisfactory way, so simply pledging allegiance to the latest iteration doesn’t remove the rational doubt that today’s rule will be superceded by tomorrow’s, with corresponding skepticism toward policy consistency.
A darker motive is distrust of “politics”. If we don’t constrain authorities to follow fixed rules, won’t they do stupid things under the influence of whatever special interests have captured them? For some time the ruling fear was populism: if we don’t have ironclad policy rules, the temptation will always be for monetary and fiscal authorities to reach for short run, unsustainable increases in incomes. The result will be periodic inflationary surges accompanied by boom-and-bust cycles whose harm vastly exceeds the momentary benefits of populist expansion. (This was what Timothy Geithner no doubt had in mind when he told Christina Romer back in 2010 that fiscal stimulus is “sugar”.) Ironically, however, the overriding political failure post-2008 has not been populism but its opposite, the craving for investor “confidence” by way of austerity. Does this mean there is now a reason for the expansionistas to demand their own policy rule?
But rules don’t bypass politics; they are politics. There are, after all, many candidate rules, and all of them have a tenuous relationship to how real economies function. What’s the point of making rule selection rather than policy selection the object of political contest?
Make these arguments in the company of economists, and you are almost certain to hear, so wise guy, what’s your alternative? If there are no rules, doesn’t this mean policy-makers are free to follow whatever absurd theory supports their own prejudices? This is a bit like the claim, variously attributed to Dostoevsky and Nietsche, that if god is dead all is permitted. But just as moral reasoning is possible without a sacred text, so is rational macropolicy without fixed rules.
It should be obvious, in fact. Economies are extremely complex, evolving systems. Interventions have uncertain consequences, and what holds at time A does not necessarily hold at time B. Even observation is uncertain, and the relationship between what you think you see and what’s actually going on can change unexpectedly. But this is also true for the natural world, and in the domain of restoration ecology and similar fields we have the paradigm of adaptive management. This is an approach that takes complexity and evolution as starting points, emphasizing the role of learning and the need for flexible decision-making in response to ongoing feedback. I would argue that, whether they know it or not, central bankers and other policy authorities are already operating in that mode. The god of policy rules died some time ago, and they have no choice but to weigh data according to their current understanding and reconcile themselves to the error part of trial-and-error. Bringing transparency and open debate to this process will make it better, and this means dropping the pretense, finally, that authorities can or should follow fixed rules.
Unfortunately, the evidence is piling up that this formula doesn’t do the job either. Without endorsing their particular policy shifts, it’s clear that some central bankers, along with many economists, are now worried about the impacts of monetary policy on the potential for asset price bubbles. Forestalling bubbles wasn’t a feature of policy prior to 2008, but now it has grabbed a lot of attention. Meanwhile, it is clear that the Fed is unhappy with the headline unemployment rate as an indicator of labor market conditions, especially since stagnant wages seem to signal continuing slack.
The problems with policy rules are many. The goals of macropolicy—the things we care about, like low unemployment, price stability, financial stability, satisfactory growth—don’t all move together, and their co-movements change over time. The usefulness of the available indicators for progress on these goals fluctuates as well, since there is no single, perfect measurement of any of them, and the relationship between different indicators keeps changing. What, for instance, is full employment, exactly? Is it the same today as it was five years ago? How should the target reflect the changing composition of jobs, wage rates and labor force participation? In addition, the effectiveness of policy instruments, like open market operations and fiscal balances, is contextual and uncertain; for a run of years slight alterations in central bank bond purchases can have powerful impacts on expectations and economic performance, and then you are in a zero lower bound world in which all sorts of exotic measures—the various types of quantitative easing—go mainstream.
So why are economists enamored of policy rules? One reason is that they are seen as more efficient, since policy impact depends on how much sway it has over the public’s expectations of future variables, like inflation and aggregate demand. Rules are favored, since they ostensibly remove uncertainty from policy stances. You can trust the central bank or fiscal authorities to not reverse tomorrow what they’ve announced today because they’re just following rules that govern their actions, and the rules don’t change. That’s a nice theory, but it doesn’t make the problem of policy credibility disappear; it just loads it all onto the commitment of policy-makers to follow whatever rule is currently in force. But as we’ve seen, the rules have never performed in a predictable, satisfactory way, so simply pledging allegiance to the latest iteration doesn’t remove the rational doubt that today’s rule will be superceded by tomorrow’s, with corresponding skepticism toward policy consistency.
A darker motive is distrust of “politics”. If we don’t constrain authorities to follow fixed rules, won’t they do stupid things under the influence of whatever special interests have captured them? For some time the ruling fear was populism: if we don’t have ironclad policy rules, the temptation will always be for monetary and fiscal authorities to reach for short run, unsustainable increases in incomes. The result will be periodic inflationary surges accompanied by boom-and-bust cycles whose harm vastly exceeds the momentary benefits of populist expansion. (This was what Timothy Geithner no doubt had in mind when he told Christina Romer back in 2010 that fiscal stimulus is “sugar”.) Ironically, however, the overriding political failure post-2008 has not been populism but its opposite, the craving for investor “confidence” by way of austerity. Does this mean there is now a reason for the expansionistas to demand their own policy rule?
But rules don’t bypass politics; they are politics. There are, after all, many candidate rules, and all of them have a tenuous relationship to how real economies function. What’s the point of making rule selection rather than policy selection the object of political contest?
Make these arguments in the company of economists, and you are almost certain to hear, so wise guy, what’s your alternative? If there are no rules, doesn’t this mean policy-makers are free to follow whatever absurd theory supports their own prejudices? This is a bit like the claim, variously attributed to Dostoevsky and Nietsche, that if god is dead all is permitted. But just as moral reasoning is possible without a sacred text, so is rational macropolicy without fixed rules.
It should be obvious, in fact. Economies are extremely complex, evolving systems. Interventions have uncertain consequences, and what holds at time A does not necessarily hold at time B. Even observation is uncertain, and the relationship between what you think you see and what’s actually going on can change unexpectedly. But this is also true for the natural world, and in the domain of restoration ecology and similar fields we have the paradigm of adaptive management. This is an approach that takes complexity and evolution as starting points, emphasizing the role of learning and the need for flexible decision-making in response to ongoing feedback. I would argue that, whether they know it or not, central bankers and other policy authorities are already operating in that mode. The god of policy rules died some time ago, and they have no choice but to weigh data according to their current understanding and reconcile themselves to the error part of trial-and-error. Bringing transparency and open debate to this process will make it better, and this means dropping the pretense, finally, that authorities can or should follow fixed rules.
Wednesday, November 12, 2014
Planning, the Theory of Growth and the Myth of Decoupling
Guardian: Rich countries subsidising oil, gas and coal companies by $88bn a year
Put in perspective, eighty-eight billion dollars probably isn't all that much compared to Gross World Product of roughly 1000 times that amount. It's the principle of the thing. And as Kin Hubbard has taught us, "When a fellow says, 'It ain't the money but the principle of the thing,' it's the money."
It IS the money. Subsidizing expanded fossil fuel extraction is consistent with economic growth theory. The subsidies are rational, given the priorities of the rich countries' governments (say what you will about $20 bottles of Two Buck Chuck and the tribal moralism of preaching against big cars).
Faced with the dilemma of building socialism in a backward, peasant society, Soviet economists in the late 1920's hit on the idea of accelerating investment in the means of production, Marx's Department I. "But it would be absurd to say that economic growth is a new subject," Evsey Domar confessed long ago:
The problem with economics as a "positive science" is that it is no less prescriptive for all its disavowal. Economists lie. They wrap their ethical judgements in a patriotic flag of euphemism. Full employment is GOOD, right? Growth is GOOD, right? Therefore full employment is IMPOSSIBLE without growth! Growth is impossible without investment. Investment is impossible without profit. And profit is impossible without tax breaks to encourage fossil fuel discovery and development. What's normative about that? It is just the way it is.
In some Cloud Cuckoo Land it would be possible to decouple economic growth from greenhouse gas emissions. But in the planned economy we occupy, where full employment depends on growth, which depends on fossil fuel consumption, "decoupling" is a euphemism for "we have a secret plan to end the war."
Put in perspective, eighty-eight billion dollars probably isn't all that much compared to Gross World Product of roughly 1000 times that amount. It's the principle of the thing. And as Kin Hubbard has taught us, "When a fellow says, 'It ain't the money but the principle of the thing,' it's the money."
It IS the money. Subsidizing expanded fossil fuel extraction is consistent with economic growth theory. The subsidies are rational, given the priorities of the rich countries' governments (say what you will about $20 bottles of Two Buck Chuck and the tribal moralism of preaching against big cars).
Faced with the dilemma of building socialism in a backward, peasant society, Soviet economists in the late 1920's hit on the idea of accelerating investment in the means of production, Marx's Department I. "But it would be absurd to say that economic growth is a new subject," Evsey Domar confessed long ago:
In economic literature, growth models, interpreted broadly, have appeared a number of times, at least as far back as Marx. Of the several schools of economics the Marxists have, I think, come closest to developing a substantial theory of economic growth, and they might have succeeded had they given less time and effort to defending their master's virtue. Some highly elaborate and interesting growth models did, however, appear in Soviet literature."These Soviet models are more fully developed than similar attempts made in the West..." Domar continued in a footnote, "See, for instance, G. A. Feldman [Fel'dman], "K Teorii Tempov Narodnogo Dokhoda," Planovoe Khoziaistvo, November, 1928, pp. 146-170, and December, 1928, pp. 151-178... They were evidently written in response to immediate practical problems of planning."
The present interest [May, 1952] in growth is not accidental; it comes on the one side from a belated awareness that in our economy full employment without growth is impossible and, on the other, from the present international conflict which makes growth a condition of survival.
...
Our problem can now be formulated as follows: assuming that output and capacity are in balance at the outset, under what conditions will this balance be preserved over time, or in other words, at what rate should they grow to avoid both inflation and unemployment.Sounds like a plan! Now Sandwichman is not hostile to the idea of planning. After all, where would the Panama Canal be without a plan? Sandwichman just thinks that when you have a plan, you call it "The Plan," not "Growth." as if it is some spontaneous organic process that happens all by itself.
The problem with economics as a "positive science" is that it is no less prescriptive for all its disavowal. Economists lie. They wrap their ethical judgements in a patriotic flag of euphemism. Full employment is GOOD, right? Growth is GOOD, right? Therefore full employment is IMPOSSIBLE without growth! Growth is impossible without investment. Investment is impossible without profit. And profit is impossible without tax breaks to encourage fossil fuel discovery and development. What's normative about that? It is just the way it is.
In some Cloud Cuckoo Land it would be possible to decouple economic growth from greenhouse gas emissions. But in the planned economy we occupy, where full employment depends on growth, which depends on fossil fuel consumption, "decoupling" is a euphemism for "we have a secret plan to end the war."
A Double Irish Dutch Sandwich for EconoKash
Kash is back to blogging with a focus on transfer pricing:
Ireland has long been a favorite country for multinationals to set up shop in, thanks in part to its 12.5% corporate tax rate – one of the lowest in the world. A typical situation would be for a multinational based in the US or Asia to set up an Irish subsidiary as the principal entity from which to run its European business, thereby allowing it to legally record a significant portion of its European income in Ireland.Actually 12.5% is far from being one of the lowest in the world but I’ve interrupted:
why does Germany treat Ireland so differently from Cyprus when it comes to providing financial assistance? One possible explanation is that the corporate tax rate in Cyprus, which had been set at 10%, was seen by Germany as being more egregious than Ireland’s rate.But Cyprus may not be more egregious than Ireland as explained by Jesse Drucker:
Google cut its taxes by $3.1 billion in the last three years using a technique that moves most of its foreign profits through Ireland and the Netherlands to Bermuda. Google’s income shifting -- involving strategies known to lawyers as the “Double Irish” and the “Dutch Sandwich” -- helped reduce its overseas tax rate to 2.4 percentThe rest of this discussion is well worth the read. Look – international tax law can be challenging at times as effective rates can be much lower than statutory rates. A bigger challenge is why the national tax authorities allow transfer pricing mechanisms to shift so much income to places like Bermuda.
Tuesday, November 11, 2014
Two Types of Preferences and the Relevance of Cost-Benefit Analysis
Here is another in the string of posts inspired by my weekly class on cost-benefit analysis. Last night’s topic was stated preference methods, like contingent valuation. These are controversial because they are often used to put prices on things people don’t normally think of as having prices, like the “existence value” of whole species, pristine natural environments or the avoidance of risks to public health.
My view is that many of the confusions in economics can be traced to ambiguities in language. We often use words to mean multiple things and then try to apply what works for one meaning to a different meaning, where it doesn’t. Case in point: preferences. I prefer A to B means I want state-of-the-world A to occur rather than state-of-the-world B, whether A and B are two pairs of shoes that could sit in my closet or two destinies for wild salmon along rivers that drain the Olympic mountains in northwestern Washington State. They are similar in the sense that both pertain to my wanting something, but they are also different.
I propose two kinds of preferences based on different motivations. One I will call normative; this reflects my judgments regarding what I deem to be right or wrong. The other is experiential, what I want based on how I would personally benefit from it. Economists sometimes say that ethical judgments are essentially experiential, since you derive pleasure from seeing right triumph over wrong, but I disagree. Experiential preferences cause you to want A over B because A makes you happier or gives you more “utility”. Normative preferences give you happiness or utility if a choice process selects A, and you believe A is ethically preferred to B. These are clearly not the same thing. In the first case utility is a cause, in the second an effect.
An example of a fundamentally normative preference is the one exercised by a jury deliberating a civil or criminal dispute. It would be absurd to have verdicts determined by jurors expressing a willingness to pay to convict or acquit, and then adding up the totals to see which is greater. This is because juries are supposed to deliberate based on a conception of justice, not on what’s in it for them, personally. An example of a fundamentally experiential preference is the question of whether to publicly subsidize a sports stadium in a city. Taxpayers’ preferences will be based on the degree to which the team that plays in the stadium gives them some sort of personal excitement, satisfaction or pride. This could well be captured by a technique that measures their willingness to pay for the stadium.
Of course, preferences that are primarily normative can have a secondary experiential component, and vice versa. In the stadium example, for instance, one effect of a subsidy is to transfer public money to private investors in professional sports teams. This has an ethical aspect, which may play a role in how preferences are established. In fact, in a society with glaring shortfalls in public programs for health, education and other essential services, like Brazil, the ethical component may become primary, as we saw in the protests over the World Cup. Where public funds are not so constrained and the gaps not so severe, the decision turns on what the local population expects to derive, personally, from better facilities for professional sports, and questions of ethics are secondary.
Most existence values for environmental goods, I would argue, are essentially normative preferences. They are about what people believe to be right or meritorious, not what gives them personal satisfaction. Willingness to pay in these circumstances makes about as much sense as a decision tool as it does in jury trials. We might be misled by elements of experiential preference that enter the mix, but our well-being as members of a society that makes choices of this kind is an effect, not a cause of what we wish to see happen.
If this analysis is correct, CBA can help us put numbers on the experiential aspects of a policy choice, recognizing that some other process is needed to assess its normative merits.
My view is that many of the confusions in economics can be traced to ambiguities in language. We often use words to mean multiple things and then try to apply what works for one meaning to a different meaning, where it doesn’t. Case in point: preferences. I prefer A to B means I want state-of-the-world A to occur rather than state-of-the-world B, whether A and B are two pairs of shoes that could sit in my closet or two destinies for wild salmon along rivers that drain the Olympic mountains in northwestern Washington State. They are similar in the sense that both pertain to my wanting something, but they are also different.
I propose two kinds of preferences based on different motivations. One I will call normative; this reflects my judgments regarding what I deem to be right or wrong. The other is experiential, what I want based on how I would personally benefit from it. Economists sometimes say that ethical judgments are essentially experiential, since you derive pleasure from seeing right triumph over wrong, but I disagree. Experiential preferences cause you to want A over B because A makes you happier or gives you more “utility”. Normative preferences give you happiness or utility if a choice process selects A, and you believe A is ethically preferred to B. These are clearly not the same thing. In the first case utility is a cause, in the second an effect.
An example of a fundamentally normative preference is the one exercised by a jury deliberating a civil or criminal dispute. It would be absurd to have verdicts determined by jurors expressing a willingness to pay to convict or acquit, and then adding up the totals to see which is greater. This is because juries are supposed to deliberate based on a conception of justice, not on what’s in it for them, personally. An example of a fundamentally experiential preference is the question of whether to publicly subsidize a sports stadium in a city. Taxpayers’ preferences will be based on the degree to which the team that plays in the stadium gives them some sort of personal excitement, satisfaction or pride. This could well be captured by a technique that measures their willingness to pay for the stadium.
Of course, preferences that are primarily normative can have a secondary experiential component, and vice versa. In the stadium example, for instance, one effect of a subsidy is to transfer public money to private investors in professional sports teams. This has an ethical aspect, which may play a role in how preferences are established. In fact, in a society with glaring shortfalls in public programs for health, education and other essential services, like Brazil, the ethical component may become primary, as we saw in the protests over the World Cup. Where public funds are not so constrained and the gaps not so severe, the decision turns on what the local population expects to derive, personally, from better facilities for professional sports, and questions of ethics are secondary.
Most existence values for environmental goods, I would argue, are essentially normative preferences. They are about what people believe to be right or meritorious, not what gives them personal satisfaction. Willingness to pay in these circumstances makes about as much sense as a decision tool as it does in jury trials. We might be misled by elements of experiential preference that enter the mix, but our well-being as members of a society that makes choices of this kind is an effect, not a cause of what we wish to see happen.
If this analysis is correct, CBA can help us put numbers on the experiential aspects of a policy choice, recognizing that some other process is needed to assess its normative merits.
Sunday, November 9, 2014
Plug and Play: The "New" Welfare Economics
Lionel Robbins (1929) "The economic effects of variations of hours of labour":
Did it matter whether or not the theoretical ball bearings upon which Budget Circular A-47 rolled were round? Of course not. No one ever read Barone. They just plugged his handy-dandy formula into theirs. But, hey, no interpersonal comparisons of utility were made. Sometimes you have to take a big leap of faith for Science.
"The days are gone when it was necessary to combat the naïve assumption that the connection between hours and output is one of direct variation, that it is necessarily true that a lengthening of the working day increases output and a curtailment diminishes it."Enrico Barone (1908)"The ministry of production in the collectivist state":
"It is convenient to suppose – it is a simple book-keeping artifice, so to speak – that each individual sells the services of all his capital and re-purchases afterwards the part he consumes directly. For example, A, for eight hours of work of a particular kind which he supplies, receives a certain remuneration at an hourly rate. It is a matter of indifference whether we enter A's receipts as the proceeds of eight hours' labour, or as the proceeds of twenty-four hours' labour less expenditure of sixteen hours consumed by leisure."So much for combating naïve assumptions. Apparently all one had to do back in 1938 to avoid combat was "suppose" conveniently what in days gone by had been assumed naïvely and that was enough to ground the "New" Welfare Economics in mathematical tractability. None of which would have worked if the connection between hours and output was not one of direct variation. A simple book-keeping artifice, indeed!
Did it matter whether or not the theoretical ball bearings upon which Budget Circular A-47 rolled were round? Of course not. No one ever read Barone. They just plugged his handy-dandy formula into theirs. But, hey, no interpersonal comparisons of utility were made. Sometimes you have to take a big leap of faith for Science.
Economics, History and Economic History, Misread
My curmudgeonly moment today is devoted to the latest issue of The Nation, which has published a review article by Timothy Shenk on several recently released books on the history of capitalism. A standard complaint is that the author you’re criticizing has managed to make so many errors in so few lines, but Shenk’s review is bloated and circles endlessly around very little substance, so perhaps his ratio is more commonplace. Still, the errors were annoying.
Unless you have too much time on your hands you won’t want to read the original, so here’s a short synopsis. According to Shenk, economists and historians used to be cut from the same cloth, but they diverged in the twentieth century as economics became more technical and history more cultural. Historians abandoned economics, and economists were interested only in issues related to national policies and economic growth. Now a new cohort of “historians of capitalism” are boldly defining a sphere in which historians can explore the grand issues that economics has abandoned. But the historians have identified capitalism as economic growth. This has helped them make sense of institutions like slavery that were formerly seen as outside the capitalist penumbra, but it is problematic in other respects. Economists and ecologists now agree that rapid growth is over, perhaps growth itself, so the new direction these historians are taking is of little value for the future.
I often resort to lists in these posts because I don’t have time to craft a proper essay that knits everything together. It’s the same today.
1. Economic history as a subfield of economics has been ill-treated by the profession, but it has continued unabated. What about Douglass North? Cliometrics? Business history? The current fascination with the longue durée in economic life? The history of finance? Economic history is a massive enterprise and has asked every sort of question, large and small.
2. And historians never stopped debating the origins and meaning of capitalism. There has been a vigorous literature on how to explain the divergence of Europe from the less dynamic trajectories of India and China in the early modern era and intense disputes over the evolution of living standards during the industrial revolution. A lot of environmental history is also transparently a history of capitalism. So also the history of science and technology. So where does this idea that historians dropped the study of capitalism come from?
3. According to Shenk, the 1960s gave history its radicals committed to bottom-up narratives and economics its Friedmanites. Actually, economics got its radicals too but had little institutional space for them. And the market fundamentalists surged in the 1970s and ‘80s for largely unrelated reasons.
4. Normal long run per capita economic growth under capitalism is a modest 1-2%. There are temporary exceptions in miracle economies and miracle decades, but the point Piketty and others are making is that mature capitalist economies should expect to see slow rates of growth in the future, as they had in the past. Secular stagnation adds slower technological change and demographic transition to the mix. The first is supply-side and the second results from demand since, as a population ages, its rate of investment falls.
5. Secular stagnation has nothing to do with the Malthusian fantasies of some parts of the environmental movement. One could be true and the other false, or maybe they are both false. Shenk’s reference to the end of “unlimited” economic growth gives away his confusion: economic growth is always limited by a wide range of factors including the cost of material inputs. I’ve gone after the degrowth thing elsewhere and won’t take it up now, but I do want to register a complaint about the notion that the expectation (and fear) on the part of some economists that future economic growth will be sluggish has some connection to environmental beliefs that growth and ecological responsibility are incompatible. They stem from completely different concerns, and they view growth in completely different ways.
It’s a sign of the times in the US that a house organ like The Nation has so few articles by economists and prints long (and I do mean long) pieces like this one about economics with no apparent fact-checking.
Incidentally, I’m interested in the books under review and would love to read something that discusses what they have to say.
Unless you have too much time on your hands you won’t want to read the original, so here’s a short synopsis. According to Shenk, economists and historians used to be cut from the same cloth, but they diverged in the twentieth century as economics became more technical and history more cultural. Historians abandoned economics, and economists were interested only in issues related to national policies and economic growth. Now a new cohort of “historians of capitalism” are boldly defining a sphere in which historians can explore the grand issues that economics has abandoned. But the historians have identified capitalism as economic growth. This has helped them make sense of institutions like slavery that were formerly seen as outside the capitalist penumbra, but it is problematic in other respects. Economists and ecologists now agree that rapid growth is over, perhaps growth itself, so the new direction these historians are taking is of little value for the future.
I often resort to lists in these posts because I don’t have time to craft a proper essay that knits everything together. It’s the same today.
1. Economic history as a subfield of economics has been ill-treated by the profession, but it has continued unabated. What about Douglass North? Cliometrics? Business history? The current fascination with the longue durée in economic life? The history of finance? Economic history is a massive enterprise and has asked every sort of question, large and small.
2. And historians never stopped debating the origins and meaning of capitalism. There has been a vigorous literature on how to explain the divergence of Europe from the less dynamic trajectories of India and China in the early modern era and intense disputes over the evolution of living standards during the industrial revolution. A lot of environmental history is also transparently a history of capitalism. So also the history of science and technology. So where does this idea that historians dropped the study of capitalism come from?
3. According to Shenk, the 1960s gave history its radicals committed to bottom-up narratives and economics its Friedmanites. Actually, economics got its radicals too but had little institutional space for them. And the market fundamentalists surged in the 1970s and ‘80s for largely unrelated reasons.
4. Normal long run per capita economic growth under capitalism is a modest 1-2%. There are temporary exceptions in miracle economies and miracle decades, but the point Piketty and others are making is that mature capitalist economies should expect to see slow rates of growth in the future, as they had in the past. Secular stagnation adds slower technological change and demographic transition to the mix. The first is supply-side and the second results from demand since, as a population ages, its rate of investment falls.
5. Secular stagnation has nothing to do with the Malthusian fantasies of some parts of the environmental movement. One could be true and the other false, or maybe they are both false. Shenk’s reference to the end of “unlimited” economic growth gives away his confusion: economic growth is always limited by a wide range of factors including the cost of material inputs. I’ve gone after the degrowth thing elsewhere and won’t take it up now, but I do want to register a complaint about the notion that the expectation (and fear) on the part of some economists that future economic growth will be sluggish has some connection to environmental beliefs that growth and ecological responsibility are incompatible. They stem from completely different concerns, and they view growth in completely different ways.
It’s a sign of the times in the US that a house organ like The Nation has so few articles by economists and prints long (and I do mean long) pieces like this one about economics with no apparent fact-checking.
Incidentally, I’m interested in the books under review and would love to read something that discusses what they have to say.
"There is no such thing as a secondary benefit"
Arthur Maass, "Benefit-Cost Analysis: Its Relevance to Public Investment Decisions" (1966):
There is no such thing as a secondary benefit. A secondary benefit, as the phrase has been used in the benefit-cost literature, is in fact a benefit in support of an objective other than efficiency. The word benefit (and the word cost, too) has no meaning by itself, but only in association with an objective; there are efficiency benefits, income redistribution benefits, and others. Thus, if the objective function for a public program involves more than economic efficiency — and it will in most cases — there is no legitimate reason for holding that the efficiency benefits are primary and should be included in the benefit-cost analysis whereas benefits in support of other objectives are secondary and should be mentioned, if at all, in separate subsidiary paragraphs of the survey report.
…
The executive agencies have painted themselves into the efficiency box. In 1950 the Subcommittee on Benefits and Costs of the Federal Inter-Agency River Basin Committee gave overwhelming emphasis to the efficiency ranking function in its now well-known “Green Book” report. In 1952 the Bureau of the Budget, in a Budget Circular that neither required nor invited formal review and approval by the Congress, nailed this emphasis into national policy, adopting it as the standard by which the Bureau would review agency projects to determine their standing in the President’s program. And soon thereafter agency planning manuals were revised, where necessary, to reflect this Budget Circular. In this way benefits to all became virtually restricted to benefits that increase national product.
The federal bureaucrats, it should be noted, were not acting in a vacuum; they were reflecting the doctrines of the new welfare economics which has focused entirely on economic efficiency.
Saturday, November 8, 2014
Remedies Are Made of This... (cornmeal and potatoes edition)
"Mayor Wood of New York in 1857 suggested employing on public works everybody who would work, payment to be made one-quarter in cash and the balance in cornmeal and potatoes." -- Otto T. Mallery, "The Long Range Planning of Public Works," chapter XIV of Business Cycles and Unemployment, President's Conference on Unemployment, 1923.Chapter XIX of John Maurice Clark's Studies in the Economics of Overhead Costs contains a section on "Remedies for the Business Cycle," in which Clark anticipated his later, much more extensive discussion in Planning for Public Works:
"For filling up the hollows [of the business cycle], the most positive and definite prescription is that government should plan an elastic schedule for public works of a postponable sort, and should save certain works to be prosecuted only in time of depression and unemployment, or prosecute the entire program more actively at such times."Two years before Clark's book on overhead costs was published, President Warren G. Harding's Conference on Unemployment convened to consider how to relieve unemployment resulting from the 1921 depression. Commerce Secretary Herbert Hoover chaired the conference. Philadelphia playground pioneer Otto T. Mallery wrote the chapter on public works for the National Bureau of Economic Research's report to the conference.
After citing the opinion of the Minority Report of the 1909 Royal Commission on Poor Laws and Relief of Distress that "it is now administratively possible, if it is sincerely wished to do so, to remedy most of the evils of unemployment..." Mallery concluded his chapter with the observation that "flexible distribution of public works merits careful consideration as a factor in limiting the swing of the industrial pendulum and in lessening the shocks of unemployment." Thus was optimism kindled for combatting what John R Commons reckoned to be "the greatest defect of our capitalistic system, its inability to furnish security of the job."
Ninety-some odd years later and how are those "remedies for the business cycle" working out? This is not to suggest that the various remedies proposed in 1923 by the President's Conference -- unemployment insurance, counter-cyclical spending on public works, improved economic statistics, responsive monetary policy -- were inappropriate or ill-conceived. The conference report may even be viewed as somewhat of a blueprint for the New Deal.
As time went by "various kinds of remedies" were replaced by aggregate demand management which was superseded by "real business cycle" focus on the supply side. Jean-Baptiste Say was rehabilitated. "If labour markets were allowed to function freely," the supply-side ideology claimed, "protracted unemployment would be cured automatically." In other words, the cure for unemployment is... unemployment.
Ninety-one years ago, Commons summed up the then prevailing interpretations of unemployment:
The older economists held that the elasticity of modern business was provided for in the rise and fall of prices through the law of supply and demand. But they assumed that everybody was employed all the time and that all commodities were on the markets and were being bought and sold all the time. If commodities in some directions were abundant then their prices would fall, which meant that the prices of other commodities would rise Then the disparity would equalize itself by capital and labor shifting from the low-priced and over-supplied industries to the high-priced and undersupplied industries. The rise and fall of prices through oscillations of demand and supply made the system elastic and harmonious.
Seventy years ago Karl Marx came upon the scene with exactly the opposite interpretation. He rejected the law of demand and supply, with its oscillation of prices, and held that the elasticity of modem capitalism is found in the reserve army of the unemployed: Just as modern business must have a reserve fund in the banks and a reserve stock of goods on the shelves and in the warehouses, in order to provide for elasticity, so it must have a reserve army of that other commodity, labor, which it can draw upon in periods of prosperity and then throw upon its own resources in periods of adversity.
It was seventy years ago, also, that modem trade-unionism started in England and America. It started on the same hypothesis of unemployment, but it retained the economist's doctrine of demand and supply. There is not enough work to go around [!], because the wage fund is limited, and therefore the workman must string out his job; must go slow; must restrict output; must limit apprenticeship, must shorten the hours, in order to take up the slack of the unemployed.
This theory is not peculiar to labor unions. It is the common conviction of all wage-earners, burned into them by experience. Willing, ready and able to work, needing the work for themselves and families, there is no demand for their work. Trade unionists differ from unorganized labor in that they have power to put into effect what the others would do if they could.
And who shall say that they are not right? Two years ago business men, newspapers, intellectuals, were calling upon the laborers to work harder; their efficiency had fallen off a third or a half; they were stringing out the jobs. Then suddenly several millions of them were laid off by the employers. They had produced too much. The employers now began to restrict output. Where labor restricted output in 1919 and 1920 in order to raise wages and prolong jobs, employers restrict output in 1921 in order to keep up prices and keep down wages.
The Marxian and trade-unionist critiques and prescriptions have been vanquished. Keynesian advocates of aggregate demand management are reduced to kibitzing from the sidelines. The "older economists" are back in the saddle. Everything old is new again.
Or is it?
There's nothing you can do that can't be done
Nothing you can sing that can't be sung
Nothing you can say but you can learn how to play the game
It's easy
All you need is growthIs growth "all you need"? One hundred and five years ago, a Royal Commission minority surmised, "it is now administratively possible, if it is sincerely wished to do so, to remedy most of the evils of unemployment,.."
All you need is growth
All you need is growth, growth
Growth is all you need
If it is sincerely wished to do so.
Those who insist there are no "limits to growth" seem to forget that the evils of unemployment have not been remedied -- even though it was believed by some, over a century ago, that it was administratively possible to do so. If, in more than one hundred years, unemployment could neither be remedied administratively nor "decoupled" from economic growth, what foundation does one have for faith that economic growth can be "decoupled" from carbon dioxide emissions or other natural resources and ecological impacts?
Or was that transition too sudden? What I am saying -- and have been saying all along -- is that there are not one but two couplings implicated in the environment/economy nexus. To say that GDP growth can be decoupled from natural resource consumption is to speculate about only one of those couplings. We have no data from the future that can confirm or deny such speculation.
We do, however, have data on the persistence of business cycle fluctuations that result in unemployment. Remedies for climate change face precisely the same political and ideological barriers as do remedies for the business cycle. There is no reason on earth that one would be given a free pass while the other is held hostage to rapacity.
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