Robert Stavins has expressed great pleasure with the outcome of the Paris talks. Yes, it does not guarantee more clearly the $100 billion per year fund to help poorer countries with their mitigation efforts, but clear goals and transparent mechanisms for moving to achieve them have been agreed upon by nearly 200 nations, with those responsible for 96% of world emissions providing more concrete plans for what they plan to do.
The loudest naysayer is climate scientist James Hansen. He declares this to have been all talk and "no action" as reported by The Guardian. Why? Because it did not include a carbon tax. I have already argued that this was not remotely on the table and is not even necessarily the best plan. In fact, as I forecast would be the case if there was agreement here, it has encouraged international trading in carbon permits. This already exists in the European system and China is implementing one in 2017. There are many arguments for this, which I have already laid out here before.
The agreement looks about as good as could be hoped for. Non-economist Hansen declaring the carbon tax to be the only acceptable action is just making a big fool of himself. He should stick to climate scence.
Barkley Rosser
Sunday, December 13, 2015
Friday, December 11, 2015
Doctor Krugman and Mister Trump
Mark Thoma cites a Paul Krugman column on Empowering the Ugliness in which the latter concludes that ."..this ugliness has been empowered by the very establishments that now act so horrified..." Professor Krugman was referring to a contemporary ugliness that is -- to use a discrete circumlocution -- not unprecedented in American political culture, as the above pamphlet cover from the American Federation of Labor illustrates.
Of course, A.F. of L. President Samuel Gompers's advocacy of Chinese Exclusion -- like Donald Trump's proposal for Muslim (and Mexican) Exclusion -- was "not inspired by a scintilla of prejudice of any kind, but with the best interests of our country uppermost in our mind..." Not a scintilla!
Sam Gompers also said, "So long as there is one man who seeks employment and cannot find it, the hours of work are too long." I mention this because both anxiety about immigration and advocacy of shorter working time as a remedy for unemployment have been ridiculed by economists -- including Krugman -- as products of a mistaken "lump-of-labor" belief in a fixed amount of work.
Thanks in part to decades of condescension by economists (including Paul Krugman), the shorter working time remedy is now conveniently "off the agenda." According to Krugman, he doesn’t "get too worked up about this kind of misunderstanding anymore; it doesn’t have political power behind it, the way right-wing fallacies do."
But what about unemployment? "Yes," Krugman conceded in his 1997 hot dogs and buns rebuttal to William Greider, "technological change has led to a shift in the industrial structure of employment. But there has been no net job loss; and there is no reason to expect such a loss in the future." Which could be paraphrased as yes, immigration has led to a shift in the ethnic composition of employment. But there has been no net job loss; and there is no reason to expect such a loss in the future." Here is why we shouldn't have to get worked up about unemployment anymore:
Except that's not the end of the story. That insight which Krugman called "the essence of Keynesian economics"? There was more than one application of the principle, according to the man himself:
Of course, A.F. of L. President Samuel Gompers's advocacy of Chinese Exclusion -- like Donald Trump's proposal for Muslim (and Mexican) Exclusion -- was "not inspired by a scintilla of prejudice of any kind, but with the best interests of our country uppermost in our mind..." Not a scintilla!
Sam Gompers also said, "So long as there is one man who seeks employment and cannot find it, the hours of work are too long." I mention this because both anxiety about immigration and advocacy of shorter working time as a remedy for unemployment have been ridiculed by economists -- including Krugman -- as products of a mistaken "lump-of-labor" belief in a fixed amount of work.
Thanks in part to decades of condescension by economists (including Paul Krugman), the shorter working time remedy is now conveniently "off the agenda." According to Krugman, he doesn’t "get too worked up about this kind of misunderstanding anymore; it doesn’t have political power behind it, the way right-wing fallacies do."
But what about unemployment? "Yes," Krugman conceded in his 1997 hot dogs and buns rebuttal to William Greider, "technological change has led to a shift in the industrial structure of employment. But there has been no net job loss; and there is no reason to expect such a loss in the future." Which could be paraphrased as yes, immigration has led to a shift in the ethnic composition of employment. But there has been no net job loss; and there is no reason to expect such a loss in the future." Here is why we shouldn't have to get worked up about unemployment anymore:
But wait--what entitles me to assume that consumer demand will rise enough to absorb all the additional production? One good answer is: Why not? If production were to double, and all that production were to be sold, then total income would double too; so why wouldn't consumption double? That is, why should there be a shortfall in consumption merely because the economy produces more?
Here again, however, there is a deeper answer. It is possible for economies to suffer from an overall inadequacy of demand -- recessions do happen. However, such slumps are essentially monetary -- they come about because people try in the aggregate to hold more cash than there actually is in circulation. (That insight is the essence of Keynesian economics.) And they can usually be cured by issuing more money -- full stop, end of story. An overall excess of production capacity (compared to what?) has nothing at all to do with it.Full stop. End of story.
Except that's not the end of the story. That insight which Krugman called "the essence of Keynesian economics"? There was more than one application of the principle, according to the man himself:
The full employment policy by means of investment is only one particular application of an intellectual theorem. You can produce the result just as well by consuming more or working less. Personally I regard the investment policy as first aid. In U.S. it almost certainly will not do the trick. Less work is the ultimate solution.In other words, "So long as there is one man who seeks employment and cannot find it, the hours of work are too long." So, what'll be -- meat or rice?
Monday, December 7, 2015
Why Is The Pigou Club So Out Of Synch With The Paris Climate Negotiaters?
Organized officially in 2006 by Greg Mankiw, the Pigou Club has never had more dominance among economists in terms of opinion. A petition supporting a carbon tax was sent for the opening of the current Paris climate negotiations with 32 names on it, including three econ Nobelists: Kenneth Arrow, Thomas Schelling, and Joseph Stiglitz, all of whom I greatly respect. An even longer list of prominent economists (although without Arrow or Schelling) along with their individual arguments, as well as some climatologists such as James Hansen, is here. About the only prominent environmental economist not on the list is Harvard's Robert Stavins, who is attending the conference and supports a cap-and-trade proposal as do I. Why are we so alone among economists and even many activists, but why is it that cap-and-trade is far more likely to come out of Paris, if any specific proposal does?
The Pigou Club argues that a carbon tax is simpler and more efficient. At times some of its members even claim that support from professional economists is "near unanimous." Maybe, but it is not unanimous, and economists are likely to get left standing at the altar all alone when it comes down to it. As it is, there are many nations that have some sort of carbon or energy tax, although none of these seem to apply to all fuels and none are coordinated in any way with any other nations. Most focus largely on gasoline (and we have gas taxes in the US, but not focusing on carbon content) or new cars. It turns out that getting a coordinated carbon tax across national boundaries may be difficult to impossible, even without the apparently absolute opposition of the political elite in Washington (or at least its Republican component) to any new taxes of any sort (even revenue neutral ones), although the GOP at this time seems to be allergic to any climate proposals at all (I mean, their really smart leaders have figured out that all this global warming stuff is just a hoax, right?), and the Senate blocked Obama-supported Waxman-Markley in 2010, an attempted and much flawed cap-and-trade bill that managed to pass the still-Dem-dominated House (although some of the arguments given against it by GOPsters were that it would be "just like a tax increase"). The supporters of a revenue neutral carbon tax also criticize the in-place from Kyoto European CO2 Trading System (ETS) as having experienced volatile prices, having been subject to "gaming" and theft, and a lot of sectors escaping from it, although a tax can also involve fraud and sectors getting out of it thanks to political pressure.
Tim Taylor here reviews arguments from a forthcoming Journal of Perpectives article by Richard Schmalensee and Robert Stavins discussing past efforts at cap and trade (originally known as "tradable emissons permits"). The largest and most successful such program was for SO2 trading done in the US after the Clean Air Act amendment of 1990, with even most proponents of carbon taxes recognizing that this one worked out pretty well. But the argument is that we were lucky with that one, and that it is a much smaller deal than a global carbon trading system. Schmalensee and Stavins also report on an earlier successful use of it for reducing lead in gasoline between refineries as well as some successful use of it for NOX emissions. They recognize that the ETS has had problems, but some of those seem to have been due to a lack of information at the beginning of the system along with too many industries being exempt. However, they note that China will be implementing a cap and trade system in 2017, and given that the Europeans adopted their system as part of the Kyoto Protocol under pressure from the US, these parties are really not at all interested in following a bunch of mostly US-based economists in replacing their ETS with a carbon tax, even though quite a few European countries have limited carbon taxes in place already.
However, none of this gets at why carbon taxes are simply not being seriously considered in Paris. Maybe no agreement on a mechanism to meet the likely 2 degrees Celsius maximum increase target that is being bandied about much (with more endangered nations arguing for tightening that to just a 1.5 degree increase) will happen. But if one is, it will almost certainly be some version of cap-and-trade with subsidies for poor countries rather than a carbon tax (or its popular-with-activists variation, fee and dividend). The real reason is quite simple. If one is aiming for a specific targeted limit on temperature increase, then given current science that implies a specific quantitative emissions limit. It is well known that a tax only stabilizes/guarantees the price. It does not stabilize the quantity emitted. To do that, one must impose a specific quantity limit, and it is also completely well known that a properly set-up cap-and-trade system will be the most cost effective way to achieve such a limit. This is why cap-and-trade is on the table in Paris, but the carbon tax is not.
I must admit that I may be partly biased in favor of cap-and-trade having been peripherally involved in setting up the very first government-established such system ever in the world back in the mid-to-late 1970s in the state of Wisconsin for BOD emissions on the Fox River that flows into Green Bay, with that river having many BOD-intensive pulp and paper mills along it (Fort Howard Paper, Kimberly-Clark, etc.) who traded with municipal sewage treatment plants. That plan is still in place and operative, last time I checked, if pretty low key these days (some of those mills have since closed, but not because they had arbitrary quantity emssions limits placed on them in the 70s)..
I also am aware that Copenhagen was a nearly total flop, aside from some agreements about improving information gathering (something very important as the problems with setting up the ETS show), this problem still a big deal in China where we have just learned that they have been burning 17% more coal than previously reported.. It will be hard enough to get any kind of serious agreement out of Paris. This is all the more reason to go for something that is not only the most suited to achieving what is needed, a specific quantity emissions limit, but also the most acceptable to the diplomats and politicians in most of the nations that are engaging in these very difficult negotations. Really, I am a bit amazed and even shocked that all these prominent and intelligent economists have not figured this one out.
Barkley Rosser
The Pigou Club argues that a carbon tax is simpler and more efficient. At times some of its members even claim that support from professional economists is "near unanimous." Maybe, but it is not unanimous, and economists are likely to get left standing at the altar all alone when it comes down to it. As it is, there are many nations that have some sort of carbon or energy tax, although none of these seem to apply to all fuels and none are coordinated in any way with any other nations. Most focus largely on gasoline (and we have gas taxes in the US, but not focusing on carbon content) or new cars. It turns out that getting a coordinated carbon tax across national boundaries may be difficult to impossible, even without the apparently absolute opposition of the political elite in Washington (or at least its Republican component) to any new taxes of any sort (even revenue neutral ones), although the GOP at this time seems to be allergic to any climate proposals at all (I mean, their really smart leaders have figured out that all this global warming stuff is just a hoax, right?), and the Senate blocked Obama-supported Waxman-Markley in 2010, an attempted and much flawed cap-and-trade bill that managed to pass the still-Dem-dominated House (although some of the arguments given against it by GOPsters were that it would be "just like a tax increase"). The supporters of a revenue neutral carbon tax also criticize the in-place from Kyoto European CO2 Trading System (ETS) as having experienced volatile prices, having been subject to "gaming" and theft, and a lot of sectors escaping from it, although a tax can also involve fraud and sectors getting out of it thanks to political pressure.
Tim Taylor here reviews arguments from a forthcoming Journal of Perpectives article by Richard Schmalensee and Robert Stavins discussing past efforts at cap and trade (originally known as "tradable emissons permits"). The largest and most successful such program was for SO2 trading done in the US after the Clean Air Act amendment of 1990, with even most proponents of carbon taxes recognizing that this one worked out pretty well. But the argument is that we were lucky with that one, and that it is a much smaller deal than a global carbon trading system. Schmalensee and Stavins also report on an earlier successful use of it for reducing lead in gasoline between refineries as well as some successful use of it for NOX emissions. They recognize that the ETS has had problems, but some of those seem to have been due to a lack of information at the beginning of the system along with too many industries being exempt. However, they note that China will be implementing a cap and trade system in 2017, and given that the Europeans adopted their system as part of the Kyoto Protocol under pressure from the US, these parties are really not at all interested in following a bunch of mostly US-based economists in replacing their ETS with a carbon tax, even though quite a few European countries have limited carbon taxes in place already.
However, none of this gets at why carbon taxes are simply not being seriously considered in Paris. Maybe no agreement on a mechanism to meet the likely 2 degrees Celsius maximum increase target that is being bandied about much (with more endangered nations arguing for tightening that to just a 1.5 degree increase) will happen. But if one is, it will almost certainly be some version of cap-and-trade with subsidies for poor countries rather than a carbon tax (or its popular-with-activists variation, fee and dividend). The real reason is quite simple. If one is aiming for a specific targeted limit on temperature increase, then given current science that implies a specific quantitative emissions limit. It is well known that a tax only stabilizes/guarantees the price. It does not stabilize the quantity emitted. To do that, one must impose a specific quantity limit, and it is also completely well known that a properly set-up cap-and-trade system will be the most cost effective way to achieve such a limit. This is why cap-and-trade is on the table in Paris, but the carbon tax is not.
I must admit that I may be partly biased in favor of cap-and-trade having been peripherally involved in setting up the very first government-established such system ever in the world back in the mid-to-late 1970s in the state of Wisconsin for BOD emissions on the Fox River that flows into Green Bay, with that river having many BOD-intensive pulp and paper mills along it (Fort Howard Paper, Kimberly-Clark, etc.) who traded with municipal sewage treatment plants. That plan is still in place and operative, last time I checked, if pretty low key these days (some of those mills have since closed, but not because they had arbitrary quantity emssions limits placed on them in the 70s)..
I also am aware that Copenhagen was a nearly total flop, aside from some agreements about improving information gathering (something very important as the problems with setting up the ETS show), this problem still a big deal in China where we have just learned that they have been burning 17% more coal than previously reported.. It will be hard enough to get any kind of serious agreement out of Paris. This is all the more reason to go for something that is not only the most suited to achieving what is needed, a specific quantity emissions limit, but also the most acceptable to the diplomats and politicians in most of the nations that are engaging in these very difficult negotations. Really, I am a bit amazed and even shocked that all these prominent and intelligent economists have not figured this one out.
Barkley Rosser
Sunday, December 6, 2015
Something’s Rotten in the State of Reporting About Denmark
A report on budget cuts to alternative energy programs in Denmark in today’s New York Times provides a depressing example of siloed journalism. The piece is abuzz with righteous green indignation at the decision of Denmark’s new right wing government to defund programs that support innovation in renewable energy, particularly as it coincides with COP21 in Paris. I share its anger.
But there’s another side to the story. The new energy minister, quoted in support of the cuts, gives the motivation as budget balancing. And the article seems to endorse him, saying in the second paragraph that the new ruling coalition is “determined to tighten spending and balance the budget in a program to grow the economy.”
Is growing the economy a good idea? Sure:
(Source: OECD)
This is Denmark’s real GDP growth, quarter on quarter, since the beginning of 2011: sluggish at best and possibly returning to negative territory.
But this is an argument for increasing spending, not cutting it. There is no reputable economic theory that justifies reducing government spending as a means to accelerate economic growth. If the government of Denmark makes this claim it should be reported as a sign of either its ignorance or duplicity.
Suppose for comparison the esteemed minister had said, “We are cutting public support for renewable energy because climate change is a hoax perpetrated by a devious cult of scientists who hate capitalism and want to get bigger grants.” (Politicians in other countries have been known to claim this.) Would the Times have told us that the newly elected government is “determined to oppose the hoax of climate scientists” and leave it at that? Well, there’s no difference. BS is BS, whether it’s climate denialism or economic nonsense.
Incidentally, Denmark has vast fiscal space to maintain and even increase its borrowing to finance green investments. (The country maintains its own currency.) 10-year bonds are currently paying about .9%, which is just half a percent in real terms. Markets are eager to fund Danish debt at rock-bottom rates, so even projects with a marginally positive rate of return easily clear the hurdle.
Question: if the article had been about economics, and a government spokeman had invoked absurdities about the climate, would the Times have been as passive? Why is economic literacy optional for journalists?
UPDATE: Dean Baker is on the case too.
But there’s another side to the story. The new energy minister, quoted in support of the cuts, gives the motivation as budget balancing. And the article seems to endorse him, saying in the second paragraph that the new ruling coalition is “determined to tighten spending and balance the budget in a program to grow the economy.”
Is growing the economy a good idea? Sure:
This is Denmark’s real GDP growth, quarter on quarter, since the beginning of 2011: sluggish at best and possibly returning to negative territory.
But this is an argument for increasing spending, not cutting it. There is no reputable economic theory that justifies reducing government spending as a means to accelerate economic growth. If the government of Denmark makes this claim it should be reported as a sign of either its ignorance or duplicity.
Suppose for comparison the esteemed minister had said, “We are cutting public support for renewable energy because climate change is a hoax perpetrated by a devious cult of scientists who hate capitalism and want to get bigger grants.” (Politicians in other countries have been known to claim this.) Would the Times have told us that the newly elected government is “determined to oppose the hoax of climate scientists” and leave it at that? Well, there’s no difference. BS is BS, whether it’s climate denialism or economic nonsense.
Incidentally, Denmark has vast fiscal space to maintain and even increase its borrowing to finance green investments. (The country maintains its own currency.) 10-year bonds are currently paying about .9%, which is just half a percent in real terms. Markets are eager to fund Danish debt at rock-bottom rates, so even projects with a marginally positive rate of return easily clear the hurdle.
Question: if the article had been about economics, and a government spokeman had invoked absurdities about the climate, would the Times have been as passive? Why is economic literacy optional for journalists?
UPDATE: Dean Baker is on the case too.
Saturday, December 5, 2015
You Can Buy A Gun, But You Cannot Fly
Thus spake the US Senate. OTOH, if you are a convicted felon you can fly but might not be able to buy a gun, unless you go to one of those loophole gun shows.
I see some editorials and columns and comments about this outrageous Senate vote. Its defenders argue that the no fly list is not fully reliable. Some people not really suspected of terrorism are on it and would be deprived of their right to buy a gun. I know the NY Times just had a front page editorial about stopping the gun epidemic, but somehow this Senate vote strikes me as being so far beyond the pale of anything remotely defensible or even sane (Obama called it "insane," and I agree), that I would expect more noise than there has been. But somehow there has not been quite the level of outrage I would think is appropriate.
I guess this is just a sign of how many completely ridiculous and unacceptable things have been happening. When one comes along that is completely bonkers, so many of us do not even notice any more or even care all that much.
Barkley Rosser
I see some editorials and columns and comments about this outrageous Senate vote. Its defenders argue that the no fly list is not fully reliable. Some people not really suspected of terrorism are on it and would be deprived of their right to buy a gun. I know the NY Times just had a front page editorial about stopping the gun epidemic, but somehow this Senate vote strikes me as being so far beyond the pale of anything remotely defensible or even sane (Obama called it "insane," and I agree), that I would expect more noise than there has been. But somehow there has not been quite the level of outrage I would think is appropriate.
I guess this is just a sign of how many completely ridiculous and unacceptable things have been happening. When one comes along that is completely bonkers, so many of us do not even notice any more or even care all that much.
Barkley Rosser
Wednesday, December 2, 2015
Congressional Aid to Multinationals Avoiding Taxes
The OECD’s Base Erosion and Profit Shifting (BEPS) initiative is an effort by the G20 to curb the abuse of transfer pricing by multinationals. Senator Hatch is not a fan:
Throughout this process we have heard concerns from large sectors of the business community that the BEPS project could be used to further undermine our nation’s competitiveness and to unfairly subject U.S. companies to greater tax liabilities abroad. Companies have also been concerned about various reporting requirements that could impose significant compliance costs on American businesses and force them to share highly sensitive proprietary information with foreign governments. I expect that we’ll hear about these concerns from the business community and others during today’s hearing.Indeed we heard from some lawyer representing The Software Coalition who was there to mansplain to us how BEPS is evil. I learned two startling things. First – Bermuda must be part of the US tax base. Secondly, if Google is expected to pay taxes in the UK, it will take all those 53,600 jobs which are mainly in California and move them to Bermuda:
in particular how the changes to the international tax rules as developed under BEPS will significantly reduce the U.S. tax base and create disincentives for U.S. multinational corporations (MNCs) to create R&D jobs in the United StatesYes – I find his testimony absurd at so many levels. Let’s take Google as an example. When they say foreign subsidiaries – think Bermuda. Over the past three year, Google’s income has average $15.876 billion per year but its income taxes have only average $2.933 billion for an effective tax rate of only 18.5%. How did that happen? Well – 55% of its income is sourced to these foreign subsidiaries and the average tax rate on this income is only 6.5%. Nice deal! Google’s tax model is not only easy to explain but is also a very common one for those in the Software Coalition. While all of the R&D is done in the U.S. and 45% of its sales are in the U.S. – U.S. source income is only 45% of worldwide income. Very little of the foreign sourced income ends up in places like the UK even 11% of Google’s sales are to UK customers. Only problem is that income ends up on Ireland’s books with the UK getting a very modest amount of the profits. Now you might be wondering how Google got to the foreign taxes to be only 6.5% of foreign sourced income since Ireland’s tax rate is 12.5%. But think Double Irish Dutch Sandwich and you’ll get how the profits ended up in Bermuda as well as perhaps a good lunch! But what about that repatriation tax you ask. Google’s most recent 10-K proudly notes:
“We have not provided U.S. income taxes and foreign withholding taxes on the undistributed earnings of foreign subsidiaries”.In other words, they are not paying that repatriation tax. Besides the Republicans want to eliminate. Let’s be honest – Congress has hamstringed the IRS efforts to enforce transfer pricing. The BEPS initiative arose out of this failure. And now the Republicans in Congress are objecting to even these efforts. And if Europe has the temerity of expecting its fair share of taxes, U.S. multinationals will leave California and relocate in Bermuda? Who is this lawyer kidding?
Monday, November 30, 2015
It's Monday, So "Silent Samuelson" Wants To Cut Social Security Benefits (Yet Again)
How surprising. It is Monday, and on the editorial pages of the Washington Post, constant critic of Social Security, Robert J. Samuelson is yet again calling for "some benefit cuts or tax increases, though unpopular...Gradual increases in eligibility ages, starting now, would similarly represent a common-sense adjustment to a graying society." This is the sort of thing Dean Baker usually roasts him over, but Beat the Press seems inaccessible today, so I guess I shall have to do the beating.
While this is just par for the course for RJS, today's twist involves emphasizing how there ought to be generational warfare going on, but for strange reasons it does not seem to be happening. He quotes the ridiculous column by WaPo's new economics columnist/blogger, Jim Tankersley, whom several of us bashed pretty hard, but with RJS apparently unaware that his column has pretty much been torn to shreds by everybody who has commented on it and does not write for WaPo. (My critique of it can be found here.)
Another new twist is that while Samuelson has long claimed to be a boomer while bashing the boomers and calling for benefit cuts for them, he finally outs himself as having been born in 1945, the last year of the Silent Generation, just before the front end of the boomers. This is actually kind of funny because in that special Outlook section of WaPo where Tankersley's silly piece appeared there was a discussion about how many Silents identify themselves as boomers. Weird.
So part of the claim by Silent Samuelson and Gen-Xer Tankersley is that the boomers were "born into some of the strongest job growth in the history of the US." Unfortunately for them, that is not as true as claimed. The strongest job growth period was the Golden Age of 1945-1973, which only the front end of the boomers managed to get into a little bit of. Since then job growth has been less dramatic, and median real wages have barely moved. The people who really got the benefits of that Golden Age were the later stage Greatest Generation and most dramatically the Silent Generation, Samuelson's generation. So when he brags in this column today about how he "saved adequately for retirement," well, whoop-de-doo! He is a Silent, the real ripoff generation. But he does not call for them to pay anything. It is those spoiled rotten boomers who must pay, without him saying a word about how the Greenspan Commisson of 1983 already imposed the retirement age increases he calls for as well as a pretty hefty tax increase so that the boomers would "pay for their retirement."
What is really weird is that while he seems to think that introducing more gradual increases in eligible retirement age will somehow make the current or even boomer elderly pay more, it is those future generations who will get hardest by such increases, the hapless Gen Xers as well as the millennials. Maybe the millennials have figured this out, although with half of them reportedly thinking that they will get nothing from Social Security, I remain highly doubtful about their level of economic knowledge. They have been bamboozled by the relentless propaganda emanating from the likes of Silent Samuelson.
I will give RJS credit for an insight he makes in the later part of his column. While accurately noting that indeed many millennials are currently hurting with the recent bad economy and student debts and so on, he notes that they also seem to be optimistic about their future prospects. He finally puts it together that one reason they might be so is indeed this awful wave of retirements of boomers that he mostly rants about as awful: those retirements will open up a lot of opportunities for not only more jobs but also promotions for the millennials. Not all is lost for the millennials, and Silent Samuelson sort of admits it, even if he wants to hit them with all these retirement age increases, which maybe they are not looking forward to having implemented.
Barkley Rosser
While this is just par for the course for RJS, today's twist involves emphasizing how there ought to be generational warfare going on, but for strange reasons it does not seem to be happening. He quotes the ridiculous column by WaPo's new economics columnist/blogger, Jim Tankersley, whom several of us bashed pretty hard, but with RJS apparently unaware that his column has pretty much been torn to shreds by everybody who has commented on it and does not write for WaPo. (My critique of it can be found here.)
Another new twist is that while Samuelson has long claimed to be a boomer while bashing the boomers and calling for benefit cuts for them, he finally outs himself as having been born in 1945, the last year of the Silent Generation, just before the front end of the boomers. This is actually kind of funny because in that special Outlook section of WaPo where Tankersley's silly piece appeared there was a discussion about how many Silents identify themselves as boomers. Weird.
So part of the claim by Silent Samuelson and Gen-Xer Tankersley is that the boomers were "born into some of the strongest job growth in the history of the US." Unfortunately for them, that is not as true as claimed. The strongest job growth period was the Golden Age of 1945-1973, which only the front end of the boomers managed to get into a little bit of. Since then job growth has been less dramatic, and median real wages have barely moved. The people who really got the benefits of that Golden Age were the later stage Greatest Generation and most dramatically the Silent Generation, Samuelson's generation. So when he brags in this column today about how he "saved adequately for retirement," well, whoop-de-doo! He is a Silent, the real ripoff generation. But he does not call for them to pay anything. It is those spoiled rotten boomers who must pay, without him saying a word about how the Greenspan Commisson of 1983 already imposed the retirement age increases he calls for as well as a pretty hefty tax increase so that the boomers would "pay for their retirement."
What is really weird is that while he seems to think that introducing more gradual increases in eligible retirement age will somehow make the current or even boomer elderly pay more, it is those future generations who will get hardest by such increases, the hapless Gen Xers as well as the millennials. Maybe the millennials have figured this out, although with half of them reportedly thinking that they will get nothing from Social Security, I remain highly doubtful about their level of economic knowledge. They have been bamboozled by the relentless propaganda emanating from the likes of Silent Samuelson.
I will give RJS credit for an insight he makes in the later part of his column. While accurately noting that indeed many millennials are currently hurting with the recent bad economy and student debts and so on, he notes that they also seem to be optimistic about their future prospects. He finally puts it together that one reason they might be so is indeed this awful wave of retirements of boomers that he mostly rants about as awful: those retirements will open up a lot of opportunities for not only more jobs but also promotions for the millennials. Not all is lost for the millennials, and Silent Samuelson sort of admits it, even if he wants to hit them with all these retirement age increases, which maybe they are not looking forward to having implemented.
Barkley Rosser
Sunday, November 29, 2015
On That Video Where Some Egyptians Allegedly Say Obama Is Insane And On Drugs And Should Be Removed From Office
An old and close, but very conservative and increasingly out of touch with reality friend of mine posted a video some days ago on Facebook. He indicated that he thought it was both funny and also insightful. It seemed highly suspicious to me, so I googled it and found that the person who uploaded it onto you tube stated in the comments on it that it is a spoof. Here is a link that discusses why it is known it is a spoof as well as linking to the video itself and its comments. It has reportedly been widely distributed on the internet by many conservatives who think it is for real, and when I pointed out it is a spoof, my friend defriended me from Facebook. I am frustrated.
So, for those who do not view it, it purports to show a talk show in Egypt where a brief clip of Obama speaking last May to graduating military officers about how climate change is and will be a serious national security issue, something the Pentagon has claimed. He did not say it was the most serious such issue, and at least in the clip he said nothing about Daesh/ISIS/ISIL, although of course he has said a lot about it and not only has US drones attacking it but reportedly we have "boots on the ground" now against them in the form of some Special Ops.
So, the video then goes back to the supposed talk show where they are speaking in Arabic with English subtitles. According to these subtitels, which are partly accurate translations but also wildly inaccurate in many places (my Arabic is good enough that I have parsed out what is what there) the host asks, "Is he insane?" A guest suggests he is on drugs. Another claims he just does what Michelle says and that his biceps are small. Finally a supposed retired general pounds the table and denounces him over Libya policy (that part is for real, although his name is never mentioned) and suggests that Americans should act to remove him from office. Again, conservative commentators have found hilarious and very insightful, with this even holding among commenters to the video aware that it is a mistranslated spoof. Bring these guys on more. Obviously they would be big hits on Fox News.
So, I would like to simply comment further on why Egyptians would be especially upset about Libya, but that them being so against the US is somewhat hypocritical (I also note that there is reason to believe that the supposed general is not a general). Of course Libya is just to the west of Egypt with its eastern portion (Cyrenaica under Rome) often ruled by whomever was ruling Egypt at various times in the past. So there is a strong cultural-historical connection. It is understandable that they would take Libyan matters seriously, and indeed things in Libya have turned into a big mess.
However, the move to bring in outside powers to intervene against Qaddafi in 2011 was instigated by an Egyptian, Abu Moussa. This was right after Mubarak had fallen in the face of massive demonstrations in Egypt. Moussa was both leader of the Arab League and wanting to run for President of Egypt. He got nowhere with the latter, but he did get somewhere with getting
the rest of the world to intervene in Libya. He got the Arab League to support such an intervention, with that move going to the UN Security Council and convincing Russia and China to abstain on the anti-Qaddafi measure. Putin has since complained that those who intervened, UK and France most vigorously with US "leading from behind" on the effort.went beyond the UN mandate. But in any case, Qaddafi was overthrown, not to be replaced by any stable or central power, with Libya an ongoing mess that has remained fragmented since, especially between its historically separate eastern and western parts, something I have posted on here previously.
So, that went badly, but Egyptians blaming the US for this seems to me to be a bit much, pretty hypocritical. It happens to be a fact that the US and Obama are now very unpopular in Egypt. I looked at a poll from a few months ago, and the only nations where the US and Obama were viewed less favorably (although a few not polled such as North Korea) were in order: Russia, Palestinian Territories, Belarus, Lebanon, Iran, and Pakistan, with me suspecting there is now a more favorable view in Iran since the culmination of the nuclear deal. I can appreciate that many Egyptians are frustrated that the US supported an election process that did not give them Moussa or El-Baradei, but the Muslim Brotherhood, who proceeded to behave badly, leading to them being overthrown by an new military dictatorship with a democratic veneer, basically a new improved version of the Mubarak regime, with the US supporting it, if somewhat reluctantly.
Yes, this is all pretty depressing, but I must say that ultimately the Egyptians are responsible for what has gone down in their own nation. And even if those Egyptian commentators, whoever they actually are, are as angry about Obama as they are depicted as being, the fact is that Obama is still more popular there than was George W. Bush at the same time in his presidency, something all these US conservatives so enamored of this bizarre video seem to conveniently forget.
Addenda, 5:10 PM:
1) The people on that video come across almost like The Three Stooges, which highlights the comedic aspect that even fans of Obama are supposed to appreciate, although it does not add to the credibility of the remarks of those so carrying on like a bunch of clowns.
2) Another reason Egyptians may be especially upset about the situation in Libya is that indeed Daesh has a foothold in a port city not too far from the Egyptian border in Surt, as reported as the top story today in the NY Times.
3) Arguably once the rest of the world got in, the big problem was a failure to follow through with aiding establishing a central unified government, although that was always going to be a problem, something not recognized by all too many involved, including Abu Moussa. As it was once his proposal got going, it was then Sec. of State Hillary Clinton who was the main person leading the charge for the US to get in over the reluctance of Obama. This was probably her biggest mistake in all this, even though most Republicans think the irrelevant sideshow of the unfortunate incident in Benghazi is the big deal.
4) Needless to say, Republican views at the time of the intervention were just completely incoherent, as symbolized at one point by Senator Lindsey Graham, who within the space of a single sentence simultaneously argued for the US to do nothing and also to go in full force with the proverbial "boots on the ground."
Further Addendum, 7:10 PM:
One of the pieces of evidence given that supposedly shows that the video is a spoof is that the supposed retired Brigadier General Mahmoud Mansour cannot be found if one googles his name, except in connection with this video. There are some other Egyptians named Mansour who show up, but this guy does not. However, it occurs to me that he might be for real, but simply obscure. After all, Brigadier is the lowest rank of General, one star, with Majors being two star, Lieutenants being three star (even though Majors are above Lieutenants), and with four and five star not having any other rank assigned to them. Furthermore, Egypt has a large military that has run the country for decades, so there may well be a lot of these Brigadier Generals, with many of them amounting to nothing. So, if he is for real, his claim to fame will be from jumping up and down, pounding on a table and calling for the overthrow of the POTUS.
Barkley Rosser
So, for those who do not view it, it purports to show a talk show in Egypt where a brief clip of Obama speaking last May to graduating military officers about how climate change is and will be a serious national security issue, something the Pentagon has claimed. He did not say it was the most serious such issue, and at least in the clip he said nothing about Daesh/ISIS/ISIL, although of course he has said a lot about it and not only has US drones attacking it but reportedly we have "boots on the ground" now against them in the form of some Special Ops.
So, the video then goes back to the supposed talk show where they are speaking in Arabic with English subtitles. According to these subtitels, which are partly accurate translations but also wildly inaccurate in many places (my Arabic is good enough that I have parsed out what is what there) the host asks, "Is he insane?" A guest suggests he is on drugs. Another claims he just does what Michelle says and that his biceps are small. Finally a supposed retired general pounds the table and denounces him over Libya policy (that part is for real, although his name is never mentioned) and suggests that Americans should act to remove him from office. Again, conservative commentators have found hilarious and very insightful, with this even holding among commenters to the video aware that it is a mistranslated spoof. Bring these guys on more. Obviously they would be big hits on Fox News.
So, I would like to simply comment further on why Egyptians would be especially upset about Libya, but that them being so against the US is somewhat hypocritical (I also note that there is reason to believe that the supposed general is not a general). Of course Libya is just to the west of Egypt with its eastern portion (Cyrenaica under Rome) often ruled by whomever was ruling Egypt at various times in the past. So there is a strong cultural-historical connection. It is understandable that they would take Libyan matters seriously, and indeed things in Libya have turned into a big mess.
However, the move to bring in outside powers to intervene against Qaddafi in 2011 was instigated by an Egyptian, Abu Moussa. This was right after Mubarak had fallen in the face of massive demonstrations in Egypt. Moussa was both leader of the Arab League and wanting to run for President of Egypt. He got nowhere with the latter, but he did get somewhere with getting
the rest of the world to intervene in Libya. He got the Arab League to support such an intervention, with that move going to the UN Security Council and convincing Russia and China to abstain on the anti-Qaddafi measure. Putin has since complained that those who intervened, UK and France most vigorously with US "leading from behind" on the effort.went beyond the UN mandate. But in any case, Qaddafi was overthrown, not to be replaced by any stable or central power, with Libya an ongoing mess that has remained fragmented since, especially between its historically separate eastern and western parts, something I have posted on here previously.
So, that went badly, but Egyptians blaming the US for this seems to me to be a bit much, pretty hypocritical. It happens to be a fact that the US and Obama are now very unpopular in Egypt. I looked at a poll from a few months ago, and the only nations where the US and Obama were viewed less favorably (although a few not polled such as North Korea) were in order: Russia, Palestinian Territories, Belarus, Lebanon, Iran, and Pakistan, with me suspecting there is now a more favorable view in Iran since the culmination of the nuclear deal. I can appreciate that many Egyptians are frustrated that the US supported an election process that did not give them Moussa or El-Baradei, but the Muslim Brotherhood, who proceeded to behave badly, leading to them being overthrown by an new military dictatorship with a democratic veneer, basically a new improved version of the Mubarak regime, with the US supporting it, if somewhat reluctantly.
Yes, this is all pretty depressing, but I must say that ultimately the Egyptians are responsible for what has gone down in their own nation. And even if those Egyptian commentators, whoever they actually are, are as angry about Obama as they are depicted as being, the fact is that Obama is still more popular there than was George W. Bush at the same time in his presidency, something all these US conservatives so enamored of this bizarre video seem to conveniently forget.
Addenda, 5:10 PM:
1) The people on that video come across almost like The Three Stooges, which highlights the comedic aspect that even fans of Obama are supposed to appreciate, although it does not add to the credibility of the remarks of those so carrying on like a bunch of clowns.
2) Another reason Egyptians may be especially upset about the situation in Libya is that indeed Daesh has a foothold in a port city not too far from the Egyptian border in Surt, as reported as the top story today in the NY Times.
3) Arguably once the rest of the world got in, the big problem was a failure to follow through with aiding establishing a central unified government, although that was always going to be a problem, something not recognized by all too many involved, including Abu Moussa. As it was once his proposal got going, it was then Sec. of State Hillary Clinton who was the main person leading the charge for the US to get in over the reluctance of Obama. This was probably her biggest mistake in all this, even though most Republicans think the irrelevant sideshow of the unfortunate incident in Benghazi is the big deal.
4) Needless to say, Republican views at the time of the intervention were just completely incoherent, as symbolized at one point by Senator Lindsey Graham, who within the space of a single sentence simultaneously argued for the US to do nothing and also to go in full force with the proverbial "boots on the ground."
Further Addendum, 7:10 PM:
One of the pieces of evidence given that supposedly shows that the video is a spoof is that the supposed retired Brigadier General Mahmoud Mansour cannot be found if one googles his name, except in connection with this video. There are some other Egyptians named Mansour who show up, but this guy does not. However, it occurs to me that he might be for real, but simply obscure. After all, Brigadier is the lowest rank of General, one star, with Majors being two star, Lieutenants being three star (even though Majors are above Lieutenants), and with four and five star not having any other rank assigned to them. Furthermore, Egypt has a large military that has run the country for decades, so there may well be a lot of these Brigadier Generals, with many of them amounting to nothing. So, if he is for real, his claim to fame will be from jumping up and down, pounding on a table and calling for the overthrow of the POTUS.
Barkley Rosser
Tuesday, November 24, 2015
Tax Policy and the Magic Investment Channel
OK, someone has to do it. There was a dreadful column on tax policy in today’s New York Times, and none of the usual suspects (Dean, where are you?) has jumped on it yet, so I guess it’s up to me.
The column tells us that shifting from an income to a consumption tax is something that “many economists in both parties applaud”. We learn that “Democratic economists, like their Republican counterparts, say taxing consumption encourages savings, investment and greater economic growth.” The only trick is to avoid making a national sales tax too regressive, so we’ll have to work on that.
Now tell me: exactly how is a consumption tax supposed to increase investment? Like, by what channel? Is there a dearth of savings that prevents business from being able to finance new projects? We have a savings glut. Will a flood of savings lower interest rates? Current rates on business borrowing are just about all risk premium at this point. And what’s the evidence that savings rates are so responsive to taxes anyway? Yes, I know that countries with VAT’s tend to save more, but there’s massive endogeneity there. Look at it this way: I live in Washington State, which finances itself with an 8% sales tax, while our next door neighbor, Oregon, has an income tax. Is there any evidence that savings are so much greater here than there?
So exactly what is the channel that’s supposed to lead from taxing consumption to greater business investment?
Incidentally, if you happen to be of a Keynesian persuasion, you believe savings are more a consequence of investment than a cause of it, and you would also expect that, at times of macroeconomic slack, consumption crowds in investment through rate of return effects. Just saying.
The column tells us that shifting from an income to a consumption tax is something that “many economists in both parties applaud”. We learn that “Democratic economists, like their Republican counterparts, say taxing consumption encourages savings, investment and greater economic growth.” The only trick is to avoid making a national sales tax too regressive, so we’ll have to work on that.
Now tell me: exactly how is a consumption tax supposed to increase investment? Like, by what channel? Is there a dearth of savings that prevents business from being able to finance new projects? We have a savings glut. Will a flood of savings lower interest rates? Current rates on business borrowing are just about all risk premium at this point. And what’s the evidence that savings rates are so responsive to taxes anyway? Yes, I know that countries with VAT’s tend to save more, but there’s massive endogeneity there. Look at it this way: I live in Washington State, which finances itself with an 8% sales tax, while our next door neighbor, Oregon, has an income tax. Is there any evidence that savings are so much greater here than there?
So exactly what is the channel that’s supposed to lead from taxing consumption to greater business investment?
Incidentally, if you happen to be of a Keynesian persuasion, you believe savings are more a consequence of investment than a cause of it, and you would also expect that, at times of macroeconomic slack, consumption crowds in investment through rate of return effects. Just saying.
Monday, November 23, 2015
Offing "The Agenda" Before the Agenda Offs Us
Dean Baker writes:
As long as adopting shorter work weeks and years to achieve full employment is off the agenda, doing something meaningful about climate change is also off the agenda. Shorter hours is not a panacea for full employment or slowing man-made climate change. But excluding shorter hours from the policy mix is the opposite of a panacea — guaranteed toxic.
It is no mistake that shorter hours are off the agenda. It is not happenstance or serendipity. The best way to describe the thinking behind the exclusion is a kind of rentiers’ marxism-in-reverse. Marx’s model of capitalism predicts an “increasing organic composition” of capital. In the absence of capital devaluing crises, such an increase makes labor increasingly scarce relative to capital.
Shorter hours would make labor even scarcer relative to capital. Price of labor goes up, returns to capital go down. Can’t let that happen. This is America, where “free enterprise” rules and the rich buy the public policy regime — and whatever economic policy rationale justifies it — that suits them.
So achieving full employment and mitigating climate change are off the respectable economists’ agenda. The question is what are we prepared to do about that?
The time has long since passed when we should be arguing about whether global warming is happening or whether the consequences will be serious. The question is what we are prepared to do about it.And the answer is… “set targets”?
As long as adopting shorter work weeks and years to achieve full employment is off the agenda, doing something meaningful about climate change is also off the agenda. Shorter hours is not a panacea for full employment or slowing man-made climate change. But excluding shorter hours from the policy mix is the opposite of a panacea — guaranteed toxic.
It is no mistake that shorter hours are off the agenda. It is not happenstance or serendipity. The best way to describe the thinking behind the exclusion is a kind of rentiers’ marxism-in-reverse. Marx’s model of capitalism predicts an “increasing organic composition” of capital. In the absence of capital devaluing crises, such an increase makes labor increasingly scarce relative to capital.
Shorter hours would make labor even scarcer relative to capital. Price of labor goes up, returns to capital go down. Can’t let that happen. This is America, where “free enterprise” rules and the rich buy the public policy regime — and whatever economic policy rationale justifies it — that suits them.
So achieving full employment and mitigating climate change are off the respectable economists’ agenda. The question is what are we prepared to do about that?
Off the Agenda? Off the Agenda!
Dean Baker:
"We could try to get to full employment with shorter work weeks and years, through measures such as work sharing, paid family leave, and paid vacations, but this route is also largely off the agenda."Off the agenda! (as in "off the pig!")
Sunday, November 22, 2015
Sandwichman's Lump-of-Labor Odyssey, Part II
Back in July, I posted Sandwichman's Lump-of-Labor Odyssey with the intention of posting a second installment. The next day, I left for a week in California and part two fell by the wayside. Larry Summers's recent comments on the so-called Luddite fallacy have caused me to resurrect my earlier plan.
This is not the first time Summers has sung this refrain. Back in February, he told the same story to a Brookings policy forum on "The Future of Work in the Machine Age." The earlier renunciation of the fallacy claim concluded with this prudent qualification:
Ironically, it was precisely the obstinate hostility toward transforming lower demand for workers into leisure that propelled the bogus fallacy claim in the first place. Understanding this inversion of motive and rationale is crucial. It was not because they thought there would always be plenty of jobs to reabsorb displaced workers that employers' organizations and newspaper editorialists opposed shorter hours; it is because they opposed shorter hours that they insisted there would always be plenty of jobs.
In other words, macroeeconomic thinking is not, in the words of Action from West Side Story, "depraved on account I'm deprived." It has been deprived -- of the insight of its own theoretical tradition -- because it is depraved!
Sneering at the so-called Luddite fallacy under the conviction that productivity would inevitably create more jobs than it destroyed used to be known as the "economic law" that "supply creates its own demand" -- a faith that was once said, by John Kenneth Galbraith, to have "sank without trace" in the wake of John Maynard Keynes's refutation of it.
Although he generously credits the teachings of Bob Solow, Summers must know that it was his own Uncle Paul Samuelson, who promulgated the lump-of-labor fallacy ruse year after year in his universally prescribed introductory textbook. As I mentioned in part one of the Odyssey, when I wrote to Samuelson in the late 1990s, asking about the source of the fallacy claim his reply was gracious but uninformative. He informed me that the fallacy "was widespread during the Great Depression 1929-1935 and is still encountered in today's France."
"A standard move in the rhetoric of reaction"
My inquiry to Samuelson followed up a listserv discussion I had earlier in 1999 with Summers acolyte Brad DeLong, in which he referred to the wages-fund doctrine of classical political economy as "a standard move in the rhetoric of reaction." DeLong correctly associated the lump-of-labor fallacy with the wages-fund doctrine. What DeLong didn't grasp at the time was that fallacy claim reinstated the old doctrine by purporting to refute a mirror image of itself. Here is the transcript of that exchange, which I previously posted to EconoSpeak in August of 2014.
Sandwichman:
DeLong (bracketed interpolations in original):
This is not the first time Summers has sung this refrain. Back in February, he told the same story to a Brookings policy forum on "The Future of Work in the Machine Age." The earlier renunciation of the fallacy claim concluded with this prudent qualification:
And I would want to leave you with that concern as there whether you think it's due to technology or whether you think it's due to globalization, or whether you think it's due to the maldistribution of political power, something very serious is happening in our society.That is to say, regardless of what caused it, the lower demand for workers is a reality that must be faced. In his post on Summers's latest recantation, Peterson Institute president Adam S. Posen observed that the implications are scary "[u]nless we can somehow transform that sustained lower demand for workers into the widespread leisure of the sort imagined by Keynes and some science fiction writers, with the income redistribution to support it,"
Ironically, it was precisely the obstinate hostility toward transforming lower demand for workers into leisure that propelled the bogus fallacy claim in the first place. Understanding this inversion of motive and rationale is crucial. It was not because they thought there would always be plenty of jobs to reabsorb displaced workers that employers' organizations and newspaper editorialists opposed shorter hours; it is because they opposed shorter hours that they insisted there would always be plenty of jobs.
In other words, macroeeconomic thinking is not, in the words of Action from West Side Story, "depraved on account I'm deprived." It has been deprived -- of the insight of its own theoretical tradition -- because it is depraved!
Sneering at the so-called Luddite fallacy under the conviction that productivity would inevitably create more jobs than it destroyed used to be known as the "economic law" that "supply creates its own demand" -- a faith that was once said, by John Kenneth Galbraith, to have "sank without trace" in the wake of John Maynard Keynes's refutation of it.
Until Keynes, Say's Law had ruled in economics for more than a century. And the rule was no casual thing; to a remarkable degree acceptance of Say was the test by which reputable economists were distinguished from the crackpots. Until late in the '30s no candidate for a Ph.D. at a major American university who spoke seriously of a shortage of purchasing power as a cause of depression could be passed. He was a man who saw only the surface of things, was unworthy of the company of scholars. Say's Law stands as the most distinguished example of the stability of economic ideas, including when they are wrong.The old nostrum didn't "sink without trace" at all. It simply slipped into a disguise. In that disguise, it performed EXACTLY the same function as had previously been performed by the vulgar version of Say's Law -- separating the "crackpots" and "stupid people" who worried about technological unemployment from the "smart people" who duly memorized and recited the mantra,
"Well the technology will remove the jobs. If there’s more productivity than people are going to have more money and if people have more money, they’re going to spend it and then everybody’s going to be employed."Was that even "macroeconomic thinking"? Of course not. It is precisely the same old, same old classical political economy orthodoxy in an even more archaic, anti-mercantilist bottle.
Although he generously credits the teachings of Bob Solow, Summers must know that it was his own Uncle Paul Samuelson, who promulgated the lump-of-labor fallacy ruse year after year in his universally prescribed introductory textbook. As I mentioned in part one of the Odyssey, when I wrote to Samuelson in the late 1990s, asking about the source of the fallacy claim his reply was gracious but uninformative. He informed me that the fallacy "was widespread during the Great Depression 1929-1935 and is still encountered in today's France."
"A standard move in the rhetoric of reaction"
My inquiry to Samuelson followed up a listserv discussion I had earlier in 1999 with Summers acolyte Brad DeLong, in which he referred to the wages-fund doctrine of classical political economy as "a standard move in the rhetoric of reaction." DeLong correctly associated the lump-of-labor fallacy with the wages-fund doctrine. What DeLong didn't grasp at the time was that fallacy claim reinstated the old doctrine by purporting to refute a mirror image of itself. Here is the transcript of that exchange, which I previously posted to EconoSpeak in August of 2014.
Sandwichman:
But, Brad, while we're asking for examples, can you give me an example of any economist who has challenged the sources of Samuelson and Nordhaus's perennial lump-of-labor fallacy? If anthropologists were as accommodating as economists, Piltdown man would still be in our evolutionary family tree.DeLong:
Samuelson and Nordhaus's "lump of labor" fallacy is the Classical doctrine that fiscal and monetary policy cannot affect the total amount of employment--that the number of hours worked is fixed, unchangeable, unresponsive to government policies. And that the best we can do (when confronted with a situation like Europe's 10% unemployment today, or America's 25% unemployment in the Great Depression) is to spread the (limited) amount of work around fairly.
But what Samuelson and Nordhaus want to argue--I think correctly--is that we know very well how to get to a better outcome in which unemployment is low not because a lot of us are working part-time (when we would rather be working full-time), but because demand for labor is high...Sandwichman:
Ah, now we're getting somewhere. Wouldn't that Classical doctrine be what is known as the wages-fund doctrine, Brad?DeLong (ellipsis in original):
Yep. But it remains alive, a standard move in the rhetoric of reaction to use against demands that the government do something to make the economy behave better...Sandwichman:
You bet the wages-fund doctrine remains alive as a standard move in the rhetoric of reaction. One need only peel back the textbook onion one layer from Samuelson and Nordhaus to the Raymond Bye and William Hewett textbooks of the previous generation (1930s, 1940s, 1950s). There you find the same hoary lump-of-labor fallacy forthrightly likened to the "general overprodution fallacy". Here is Bye's explanation of why the lump-of-labor fallacy is a fallacy:
"Every laborer creates a product which is offered in exchange for the products of other laborers. The demand for labor thereby grows as fast as its supply; the one cannot be greater or less than the other, for they are the same thing."According to this explanation, then, any monetary or fiscal action of the government for the purpose of "creating jobs" is futile because all it can do is divert the means for employing labour from its natural course (determined by the identity of supply and demand), "at the expense of the other laborers who would have been employed, and at the expense of society, which has less wealth than might have been."
I have another question, Brad, at what point in the history of political economy did the workers, trade unions, and social democratic politicians suddenly and inexplicably embrace the reactionary doctrine of the wages-fund? I'm puzzled because all I can ever find is attribution of this theory of the lump of labor to the workers, trade unions etc. On the other hand, I can find quite a bit of repudiation and denunciation of the wages-fund doctrine from socialists, trade unionists etc. Not the least from a certain K. Marx.DeLong (ellipsis in original):
that I do not know. Let me hunt around and see if I can find anything...Sandwichman:
I'd be much obliged.
A year and a half later (August 2000), though, the question of the lump of labor arose again in Brad's admiration of some passages in Paul Krugman's book The Accidental Theorist.
DeLong (bracketed interpolations in original):
But my most favorite pieces of the book of all are three passages that go to the heart of Krugman's commitments--both moral and intellectual. The first is a biting denunciation of William Greider for being an "accidental" theorist: someone who does not think issues through, but who just looks at surfaces without peering into depths or thinking coherently and whose thought is thus shaped by implicit, unexamined theories of which he is not conscious:Sandwichman:
" ...reducing the number of workers it takes to make [manufactures] reduces the number of jobs in the [manufactures] sector but creates an equal number in the [services] sector, and vice versa. Of course, you would never learn that from talking to [manufacturing] producers, no matter how many countries you visit; you might not even learn it from talking to [services] manufacturers. It is an insight that you can gain only... by engaging in [economic] thought experiments."
Ironically (and ironic is too mild a term for it), the position from which Krugman criticizes Greider is itself based on an implicit, unexamined theory of which he is not conscious. That accidental theory holds that increasing the volume of trade is the only and certain way to expand employment (and, by implication, raise wages).
BUT WAIT! Krugman's own "accidental theory" has a name. And I'm sure he's heard of it. I know Brad has. It is the wages-fund theory of classical political economy [correction 2014: I should have said "Say's Law, which depends on the wages-fund doctrine"] -- sometimes referred to as the discredited wages-fund doctrine. So Krugman beats Greider over the head with a defunct doctrine and Brad applauds.
This indeed reminds one of Keynes. To be exact, it reminds one of Brad's "most favorite" Keynes quotes:
"Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back..."Brad and I had a brief exchange about the wages-fund theory a while back and I quote his characterization of it: "Yep. But it remains alive, a standard move in the rhetoric of reaction to use against demands that the government do something to make the economy behave better..." Putting two and two together, then, one of Brad's most favorite pieces of Krugman is when he employs a standard move in the rhetoric of reaction. Hmmmm.
But just to carp on this theme a few moments longer, I shudder to mention that Krugman's allegation against Greider (and it is only an allegation -- a speculation really about how his thought has been "shaped") is that he, Greider, is making a static assumption, ultimately based on what was once called (Wilson, 1871), a "Unionist reading of the wages-fund theory."
I asked Brad some time ago just when it was that workers, trade unions and social democratic politicians (not to mention populist muckrakers) enthusiastically but implicitly embraced the reactionary doctrine of the wages-fund theory. He replied: "that I do not know. Let me hunt around and see if I can find anything. . ."
Brad didn't get back to me on that.Sandwichman's Lump-of-Labor Odyssey Part III
Please allow me to introduce myself
I've always considered this site the property of its contributors, so if any take umbrage at my arrival, I'll be happy to stagger out. No hard feelings, there can't be after all, because . . . see above.
As Barkley could tell you, while living I was a great economist. Alas, death has sapped my prodigious mathematical faculties. Sadly, eating brains doesn't help, though it does hit the spot. That stuff would be over your heads anyway. I'm mostly verbal now, in a post-mortem kind of way. (Not post-modern. That would be worse than dead.)
I expect to write more about politics, since economics is looking pretty dead these days too. Utility theory got killed by behavioral economics, or maybe Barkley's brainwaves monitors. Monetarism and real business cycles, long dead. New Keynesian macro, deeply infirm, its representative consumer aimlessly roaming the countryside, trying to optimize current and future consumption when he has no idea what the hell the future will bring. Lumps of labor being posited everywhere.
Ditto the current crop of presidential candidates, though I would make an exception for Bernie Sanders, who actually could pass for dead but is really the only live option among the contenders.
With that I will sign off, since we undead take some getting used to, and I'm getting hungry.
Saturday, November 21, 2015
"Some Big Changes in Macroeconomic Thinking from Lawrence Summers"
This post's title refers to Adam Posen's blog post about the keynote address by Larry Summers: "Is It (just) Hysteresis? Disentangling the Cyclical from the Structural," Conference: Making Sense of the Productivity Slowdown, Peterson Institute for International Economics, Washington, DC, November 16, 2015:
"The 'Lump-of-Labor' Case Against Work-Sharing: Populist Fallacy or Marginalist Throwback?" Tom Walker in "Working Time: International trends,'theory and policy perspectives, Lonnie Golden and Deborah Figart (eds), Routledge, 2000.
"Why economists dislike a lump of labor," Tom Walker, Review of Social Economy Volume 65, Issue 3, 2007, pp. 279-291.
...basically what we were taught were that there were these smart people who were exemplified by Bob Solow and there were the stupid people who were exemplified by a bunch of sociologists.
And the stupid people said that technology was going to remove the jobs and the smart people said, “Well the technology will remove the jobs. If there’s more productivity than people are going to have more money and if people have more money, they’re going to spend it and then everybody’s going to be employed. And so, it’s like the Luddite fallacy to think that technological progress reduces jobs and this is stupid. And that’s basically what I believed and you know, that’s basically what I went through life believing because that’s what I’ve been taught and it seemed to me to make sense.
And then at some point, it sort of occurred to me that suppose the stupid people were right, what would it look like? Well what it would it look like would be there’ll be some large categories of labor who would see their relative wage go way down.O.K. fine, but Sandwichman would just love it if Larry Summers would send a little credit his way for documenting FIFTEEN YEARS AGO the vacuity of the stupid people fallacy claim.
"The 'Lump-of-Labor' Case Against Work-Sharing: Populist Fallacy or Marginalist Throwback?" Tom Walker in "Working Time: International trends,'theory and policy perspectives, Lonnie Golden and Deborah Figart (eds), Routledge, 2000.
"Why economists dislike a lump of labor," Tom Walker, Review of Social Economy Volume 65, Issue 3, 2007, pp. 279-291.
What Has Not Been Said About The Late Herbert Scarf
Economic theorist Herbert Scarf recently died. There have been a number of blog posts about him and his work. A good one is by Tim Taylor here. He notes innovative work Scarf did on inventory theory and the theory of indivisibilities. Other commentators have pointed out his work on the relationship between general equilibrium and the core. I have no complaint with any of this, although many may not know of it or care about it as it was some time ago and has largely gotten built into the grad theory textbooks, especially the stuff on GE and core. All of this makes him look like a sort of minor panjandrum of very orthodox theory, orthodox now almost to the point of boring. However, I personally think that he has been under-appreciated and under-recognized.
In this regard let me mention just two items. One is his reasonably well known demonstration of how easy it is for a general equilibrium to be unstable. That has gotten into a lot of the textbooks, but it seems to get overlooked a lot, even though we have seen some pretty dramatic examples of major instability in the real economy, most notably involving speculative bubbles and their crashes, with one of these bringing about a global economic crisis worse than anything since the Great Depression. People like Kenneth Arrow and others definitely recognized the importance of Scarf's work, and indeed it is indeed in the textbooks that the conditions for stability of GEs are very strong and unlikely to be met, even as many macroeconomists blithely assume not only that GE holds, but that it is unique and stable, thinking that this somehow shows how rigorous and theoretically astute they are. Herb Scarf knew better.
The other is much more obscure, and arguably less important. It came out of his concern for the issues surrounding actually calculating general equilbria, which many microeconomists do all the time with CGE models, whose usefulness I am not going to totally deny, although Scarf's work raises warning flags. In particular he was more than any of the other general equilibrium theorists aware of the deep mathematical issues involved in actually precisely computing equilibria, issues related to constructivist critiques of classical mathematics over such things as assuming the Axiom of Choice and the Law of the Excluded Middle, issues raised in recent years by K. Vela Vellupillai, although with most economists ignoring him. Maybe they are right to do so, but I happen to know from talking with both of them at the same time a few years ago that Herb Scarf took these issues seriously, and Velupillai has credited him with being the only serious general equilibrium theorist to appear to be aware of them and to have discussed them, which he did in his famous book on computing general equilibria.
Anyway, a sad loss of fine man and an under-appreciated brilliantly innovative scholar.
Barkley Rosser
In this regard let me mention just two items. One is his reasonably well known demonstration of how easy it is for a general equilibrium to be unstable. That has gotten into a lot of the textbooks, but it seems to get overlooked a lot, even though we have seen some pretty dramatic examples of major instability in the real economy, most notably involving speculative bubbles and their crashes, with one of these bringing about a global economic crisis worse than anything since the Great Depression. People like Kenneth Arrow and others definitely recognized the importance of Scarf's work, and indeed it is indeed in the textbooks that the conditions for stability of GEs are very strong and unlikely to be met, even as many macroeconomists blithely assume not only that GE holds, but that it is unique and stable, thinking that this somehow shows how rigorous and theoretically astute they are. Herb Scarf knew better.
The other is much more obscure, and arguably less important. It came out of his concern for the issues surrounding actually calculating general equilbria, which many microeconomists do all the time with CGE models, whose usefulness I am not going to totally deny, although Scarf's work raises warning flags. In particular he was more than any of the other general equilibrium theorists aware of the deep mathematical issues involved in actually precisely computing equilibria, issues related to constructivist critiques of classical mathematics over such things as assuming the Axiom of Choice and the Law of the Excluded Middle, issues raised in recent years by K. Vela Vellupillai, although with most economists ignoring him. Maybe they are right to do so, but I happen to know from talking with both of them at the same time a few years ago that Herb Scarf took these issues seriously, and Velupillai has credited him with being the only serious general equilibrium theorist to appear to be aware of them and to have discussed them, which he did in his famous book on computing general equilibria.
Anyway, a sad loss of fine man and an under-appreciated brilliantly innovative scholar.
Barkley Rosser
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