Peak Robot: the Fragment on Machines

Martin Sklar's disaccumultion thesis is a restatement and reinterpretation of passages in Marx's Grundrisse that have come to be known as the "fragment on machines." Compare, for example, the following two key excerpts.

Marx:

...to the degree that large industry develops, the creation of real wealth comes to depend less on labour time and on the amount of labour employed than on the power of the agencies set in motion during labour time, whose ‘powerful effectiveness’ is itself in turn out of all proportion to the direct labour time spent on their production, but depends rather on the general state of science and on the progress of technology, or the application of this science to production. ... Labour no longer appears so much to be included within the production process; rather, the human being comes to relate more as watchman and regulator to the production process itself. (What holds for machinery holds likewise for the combination of human activities and the development of human intercourse.)

Sklar:

In consequence [of the passage from the accumulation phase of capitalism to the "disaccumlation" phase], and increasingly, human labor (i.e. the exercise of living labor-power) recedes from the condition of serving as a ‘factor’ of goods production, and by the same token, the mode of goods-production progressively undergoes reversion to a condition comparable to a gratuitous ‘force of nature’: energy, harnessed and directed through technically sophisticated machinery, produces goods, as trees produce fruit, without the involvement of, or need for, human labor-time in the immediate production process itself. Living labor-power in goods-production devolves upon the quantitatively declining role of watching, regulating, and superintending.

The main difference between the two arguments is that for Marx, the growing contradiction between the forces of production and the social relations produce "the material conditions to blow this foundation sky-high." For Sklar, with the benefit of another century of observation, disaccumulation appears as simply another phase in the evolution of capitalism -- albeit with revolutionary potential. But also with reactionary potential in that the reduced dependence on labor power also suggests a reduced vulnerability to the withholding of labor power.

The Accidental Conspiracy Theorist Redux

Kellyanne Conway, "The Microeconomic Effects of the Terrorist Attacks on September 11: Americans Helping Americans," 16 Notre Dame J.L. Ethics & Pub. Pol'y 101 (2002).

It took the slaughter of innocent people, the evisceration of the national economy, and the realization that all is not secure on the home front to reconnect with basics like faith and freedom, and to unify and marshal the public.  

A united and inspired America is no small feat. More than one year ago, the nation was deadlocked about a presidential contest "too close to call" that was not resolved some thirty-six days after Election Day.' For the third consecutive time, Americans elected a President with less than 50% of the popular vote.

Paging Paul Krugman...

Banana Republic and Auerbach’s Destination-Based Cash Flow Tax

I’m hoping Santa brings me a new winter coat but if he is comparison shopping between Old Navy and Banana Republic, note they are both owned by the GAP. Bruce Blonigen is right when he challenges this old canard:

Do large mergers benefit or harm consumers? Over the years, corporations and economists have argued that mergers benefit consumers by increasing efficiency, reducing production costs, and, in turn, lowering prices.

But the real reason I thought about shopping for apparel comes from CNBC:

It's a border-adjustment tax for goods that are imported. About 95 percent of clothing and shoes sold in the U.S. are manufactured overseas, which means imports make up a vast majority of many U.S. retailers' merchandise ... A retailer like the Gap buys a sweater from its overseas manufacturer for $80. Gap has an additional $15 in other expenses associated with that sweater (like transporting it). Gap sells the sweater to a shopper for $100. So tax is calculated by taking that $100 in revenue, subtracting the $80 cost of the good, subtracting the $15 other costs, leaving $5 in profit. If Gap pays a typical 35 percent tax rate on the $5 profit, its tax bill for that sweater is $1.75.

Hey, a $100 coat would be nice but I’ll question this example in a bit. The topic is the tax proposal from Alan Auerbach that I’ve been critiquing:

I think the real issue here is that this proposal smooshes together two very different ideas sort of like how shimmer was a floor wax and a dessert topping. Auerbach has been pushing a tax on economic profits instead of accounting profits for a long time. But typically profits taxes are sourced based not residence based. Now it is true that developing nations don’t like the idea of paying royalties to developed nations so they have favored residence based approaches but the OECD has favored sourced based approach to taxing income. Then again, a company like Apple neither declares its foreign based income in the US or in China but in places like Bermuda…we would repeal the corporate profits tax for multinationals but then give them a payroll subsidy. Whether this violates current WTO rules, it certainly is a distortion facing sourcing production in Detroit over Windsor. Maybe Trump might like this idea but this is precisely because he wants to use tax policy to shift production away from foreign sources and back to places like Michigan.

CNBC focus on the trade distortion. While Auerbach fires back with the notion that a dollar appreciation exactly offsets any trade distortion, CNBC’s discussion assumes a fixed exchange rate. The economists at Goldman Sachs take an intermediate view:

The “idealized version” is that standard proposition of the Mundell-Fleming model that trade protection under floating exchange rates would have no net effect on net exports. Of course the transfer pricing implications are a bonus for highly profitable US based multinationals who want to do massive income shifting and declare it all “perfectly legal”. This is a horrific idea which should not become law.

Let’s return to this transfer pricing in a bit but permit me to critique the CNBC example by noting what one would learn by looking at the financials for the GAP. Their operating profits are actually 15% of sales – not 5% - and their recorded operating expenses are 25% of sales not 15%. Cost of goods sold are only 60% of sales and that includes occupancy expenses, which are defined as:

Occupancy costs refer to expenditure required to occupy and maintain the physical space a business inhabits

Let’s assume that these represent 10% of sales. The cost to the GAP of that $100 coat I hope Santa gets me is only $50 – not $80. As Brad Setser thinks about the transfer pricing aspects of what may become Trump’s new tax and trade policy, he seems to be hoping Santa brings him a new iPhone:

The iPhone, famously, is designed in California and is assembled in China out of parts manufactured (mostly) in Asia .. No one questions that the iPhone is designed in the United States. And a lot of the software that makes an iPhone an iPhone is also created in the United States. And the export of intellectual property rights—the U.S. design and engineering embedded in a “designed in California” iPhone sold in Asia or Europe—should in theory enter into the balance of payments as a services export. I would think it should show up in the line item for the export of “charges for the use of intellectual property, computer software” though in practice it may enter as a payment for research and development services

Brad notes, however, that much of Apple’s profits end up offshore:

Apple here is really a metaphor. It is the most high profile case, but it is—judging from the size of reinvested earnings in the balance of payments and the cash balances various firms have built up abroad—far from unique. Certainly the profits that U.S. firms report in low-tax jurisdictions—Ireland, the Netherlands, Luxembourg, the Caribbean, Singapore—are now large relative to U.S. exports of software and research and development services.

Check out Brad’s comment section and they get into this Auerbach tax. I was wondering how much of GAP’s income is sourced offshore as apparel multinationals are notorious for such income shifting. It turns out, however, that GAP sources very little income offshore. So OK Santa – buy my coat there. Happy Holidays everyone!

PEAK ROBOT: Accumulation and its Dis-contents

Jared Bernstein is wrong. The "robots did it!" story DOES NOT require an acceleration in productivity growth, as conventionally measured. Dean Baker, who shares Jared's certainty about the relationship between robots and productivity measurement, is also wrong. Mike Beggs is wrong. James Livingston is wrong. And Larry Kudlow is wrong. Everyone is wrong!

Why are they all wrong? The answer is to be found in a portentous passage in an article by Martin J. Sklar, "On the Proletarian Revolution and the End of Political-Economic Society," published in 1969 in the SDS journal, Radical America:

In consequence [of the passage from the accumulation phase of capitalism to the "disaccumlation" phase], and increasingly, human labor (i.e. the exercise of living labor-power) recedes from the condition of serving as a ‘factor’ of goods production, and by the same token, the mode of goods-production progressively undergoes reversion to a condition comparable to a gratuitous ‘force of nature’: energy, harnessed and directed through technically sophisticated machinery, produces goods, as trees produce fruit, without the involvement of, or need for, human labor-time in the immediate production process itself. Living labor-power in goods-production devolves upon the quantitatively declining role of watching, regulating, and superintending.

Except, there is no "gratuitous" force of nature. Sklar's "gratuitous force of nature" did for his argument exactly what he criticized Herbert Marcuse of doing, naturalized the historical. Forces of nature were treated as gratuitous within a particular historical mode of production.

What does this have to do with Jared Bernstein -- or for that matter with Larry Kudlow? (Not to mention Mike Beggs, James Livingston and Dean Baker).

Let's start with Kudlow, an SDS activist at the University of Rochester in the late 1960s and favorite of Sklar, according to Livingston. For Kudlow, tax cuts function as a "gratuitous force of nature" -- or more precisely as the removal of fetters on a gratuitous entrepreneurial "energy" that will subsequently be "harnessed and directed through technically sophisticated machinery" etc. etc.

You can take the ex-SDS activist out of the Grundrisse but you can't take the Grundrisse out of the ex-activist. Or, to paraphrase Trotsky, Kudlow may have forgotten about disaccumulation but disaccumulation does not permit Kudlow to escape from its net.

So much for Kudlow, how does this criticism apply to Livingston, Beggs, Bernstein or Baker?

I'll take Livingston first, since his aversion to "full employment" is most compatible with my own view. Livingston advocates "detach[ing] the receipt of income from the production of goods." This is a sensible idea in that most income today is already detached from all but symbolic connection to the production of goods. Unlike Kudlow, Livingston explicitly ties this imperative to Sklar's disaccumulation thesis:

But the bottom line is this. Most jobs aren’t created by private, corporate investment, so raising taxes on corporate income won’t affect employment. You heard me right. Since the 1920s, economic growth has happened even though net private investment has atrophied.

Can you spot the gratuitous force of nature in Livingston's argument? "Since the 1920s, economic growth has happened even though..."

Mike Beggs takes issue with the sort of income detaching solution that Livingston advocates. Beggs challenges the underlying notion of technological unemployment with the age-old refrain that new jobs "always come along" to reabsorb the workers displaced by automation:

But the idea that machines are about to supplant workers is a trope as old as capitalism itself. It always looks plausible because so many particular tasks are always in the process of being automated, and new wonders are always just around the corner. And yet new jobs have always come along.

Beggs admits those new jobs are not always as remunerative as the old ones. "Almost all net job growth in the United States since 1990 has been in low-productivity growth sectors: construction, retail, hospitality, health care, education, government, and finance." For the last decade, you can leave out construction. Net job growth has been confined to "sectors with average hourly pay and weekly hours much lower than the economy-wide average."

"But," Beggs argues, "there is no technological reason that such jobs be low paid and insecure." To explain why not, Beggs digresses at length on the history of Milton Friedman's "natural rate of unemployment" and the "awful but more literal 'non-accelerating inflation rate of unemployment."

The upshot of all this is that liberal policies for full employment "are predicated on labor's weakness." The left "should be calling [the] liberals' bluff". Beggs doesn't specify exactly what full employment policies should be advocated by the left but he does cite Dean Baker's and Jared Bernstein's Getting Back to Full Employment.

Baker and Bernstein's prescriptions include improving the trade balance, public investment, public jobs and work sharing, all of which sound like good ideas. But here our old repressed nemesis, disaccumulation, returns in the form of denial that "robots and other new technologies will diminish the need for human labor in the years ahead." "History is littered with such predictions," B&B, recite, in a trope as old as capitalism itself, "and there are many aspects to today’s version that don’t hold up to scrutiny." Why doesn't today's version hold up to scrutiny? Because, they explain, job displacement by robots would "imply an acceleration of productivity growth in recent years, but that has not occurred." Is that so?

Let's go over that again because it is subtle. Beggs agrees with Baker and Bernstein that history is littered with the old trope about automation displacing workers. But Beggs's claim that net job growth since 1990 in the U.S. has been in low-productivity sectors contradicts Baker's and Bernstein's assertion that the displacement of workers  by automation would imply faster productivity growth economy wide. Why not faster productivity growth in sectors that are declining in relative importance being more than offset by the expansion of low-productivity sectors?

I would side with Beggs on that later point but argue further that this discrepancy between Beggs and Baker and Bernstein arises from a fundamental flaw in the claim that "new jobs have always come along." Where have those new jobs come along from? From the same place that "economic growth has happened even though." A gratuitous force of nature has produced new jobs and economic growth "as trees produce fruit."

Isn't it time that we gave a name to this allegedly gratuitous force of nature? In the late 17th century, that name was "African slaves." In the 19th century, it was "wage labor and coal." In the disaccumulation phase of capitalism, it is "fossil fuel."

A century and a half ago William Stanley Jevons linked the consumption of coal and the creation of jobs in a way that has been overlooked by most commentators on the infamous Jevons Paradox. "It is wholly a confusion of ideas," wrote Jevons in The Coal Question, "to suppose that the economical use of fuel is equivalent to a diminished consumption. The very contrary is the truth." He went on to explain:

As a rule, new modes of economy will lead to an increase of consumption according to a principle recognised in many parallel instances. The economy of labour effected by the introduction of new machinery throws labourers out of employment for the moment. But such is the increased demand for the cheapened products, that eventually the sphere of employment is greatly widened. Often the very labourers whose labour is saved find their more efficient labour more demanded than before.

The new jobs have come along from the increased demand for the more efficient labor, which has been brought about by the introduction of new machinery, which has increased, rather than diminished the consumption of fuel.This is fundamentally different from what I will call the naïve Jevons Paradox,  the idea that fuel efficiency per se leads inevitably and directly to an increase in the consumption of fuel.

That is the good news.

The bad news is that the same reservation applies to the naïve, policy-induced resurrections of "Say's Law" in both its demand-side and supply-side variants. Those panaceas perform either a tacit or an overt denial of climate change and resource limits.

This is admittedly unfair to those proponents of a "green new deal" with its emphasis on eco-technological modernization. They are not so much tacitly denying climate change and resource limits as "watching for the card so high and wild that they'll never need to deal another." Just because such a breakthrough is conceivable, doesn't make it imminent, though -- or, for that matter immanent.

In practice, job creation requires increased fuel consumption. Robots require a fuel source. An unplugged robot neither liberates nor displaces workers.

Yes, Virginia, there is no gratuitous force of nature.

Trump Goes To Hell On Nuclear Weapons Policy

OK, so maybe this is another thing we should ignore, but Trump coming out with his call for the US to increase its stockpile of nuclear weapons, as well as upgrading them, is seriously off the wall.  One reason I had no doubt about voting for Clinton, despite disliking both aspects of her positions and her personality, was his occasional wild remarks about nuclear weapons (e.g. "Why can't we just use them when we feel like it?" or something like that).  One would have hoped he would get past that after getting elected, but I see nothing good coming out of this at all, with not a nation on the planet supporting this, not even UK or Israel, and plenty disliking it and quite possibly setting off a new nuclear arms race, just what many past presidents have been carefully trying to undo.

Of course the Chinese will hate this, but an irony is that this might upend one of the few possible bright spots in foreign policy Trump has offered.  I have not been a fan of his ass kissing of Putin, but in fact I had begun to hope that maybe Putin might just behave better in some parts of the world, Baltics and Ukraine in particular, to please his new pet president.  But I seriously doubt that Vladdie is going to like this at all.  This particular honeymoon may be over before it even begins.  Time to bottle back up all that now drunk champagne in Moscow.

The only real question is if this is just Trump himself shooting off his mouth thoughtlessly yet again or whether this reflects advice from any of his new national security team.  Some of these people seem not entirely unreasonable, including the wildly named "Mad Dog" Mattis, incoming SecDef.  If indeed this is being pushed by an adviser, I suspect the conspiracy-minded NSC guy, Flynn.  If it is just Trump, however, maybe they can walk him back off this.

As it is, it  may be just as well that the late Tom Schelling did not liive to see this awfulness.

Addendum at 11:10 PM:  I have now learned that Putin put out an unpleasantly aggressive statement about enhancing the Russian nuclear weapons stockpile so  that it can penetrate various defenses in Europe shortly before Trump issued his tweet.  I am not sure if Trump's tweet was specifically a reply to that or not, but this does put a different spin on this, with it looking like the honeymoon was ended by Putin rather than Trump before Trump could even get in office.  Wow, what a sucker Trump was with all  that falling all over Putin, not to mention the reportedly 37% of Republicans who supposedly now think that Putin is just great since Trump has been saying so  many nice things about him.  Just gag all the way around.

Barkley Rosser

Did Obama Save The World From A Second Great Depression?

That is a claim made on Monday by Robert J. Samuelson in the Washington Post, who argues that while he "had plenty of help, including from his predecessor, George W. Bush, and from top officials at the Treasury  Department and Federal Reserve," his bailout of General Motors and Chrysler and his projecting "reason and calm when much of the nation was fearful and frazzled," and, oh so briefly, "He also championed a sizable budget 'stimulus'," not to mention his somehow generating a stock market boom were all crucial to the turnaround.  OK.

Now I am usually denouncing RJS on this site, but I am not going to do so too  much here today, even though I shall express some problems with this.  For better or worse, I am more going to pick on my old friend Dean Baker, who is all over RJS on this, just dumping on him like we both usually do.  But as RJS is a bit off, so is good old Dean, who spends most of his energy denouncing the TARP bank bailout, which RJS accurately notes was put in place by Bush, not Obama, so not relevant either way to a judgment on what Obama did or did not do (although he did not undo it, and did support it when Bush proposed it, so grant that to Dean).

Dean has long argued that TARP should not have been done and that instead we should have let the big banks fail, paying off depositers with FDIC funds, although those would have run out quickly.  But then he also says Obama could have run a much bigger fiscal stim than he did, even though most think he got about as big a one as he could given the political views in the Congress at the time, and letting FDIC go bust would need to have been undone by Congressional action, which may or may not have been forthcoming.  However, if depositers could have been paid, maybe we could have restructured the bankrupted parts of those big banks without too much turmoil or negative repercussions throughout the economy.  But that is not at all certain, and we shall never know.  After all, what happened in 1931 that turned an unpleasant recession into the Great Depression was indeed a massive financial collapse involving a global set of related bank failures, starting with the Creditanstalt in Austria in May and then spreading through Eastern Europe and then through Germany and France and Britain, finally to hit the US by the end of the summer, with the Fed doing nothing about it, and there also being no  FDIC to save the depositers who lost big when their banks failed.

As it is regarding Obama and the banks, probably what he did that stabilized the financial system, and was not a financial gimme to the banks as TARP was (although from the standpoint of the taxpayers, TARP was a money maker, just barely), was the stress tests that happened in March, 2009, and went well, and seem to have coincided with a turning around of many markets and a lowering of major risk spreads in the economy.  It is possible that this was at least as important as the fiscal  stimulus (which the expectation of it kicking in also hit about that time)  for helping to  turn around the economy, although Samuelson said nothing about those stress tests, even though they were probably more important than the auto company bailouts he makes a big fuss about.

So, if  neither RJS nor Dean really has it down as to what kept us out of a second Great Depression, and indeed that is what I am arguing, what was?  Oh, that would be the actions of  Ben Bernanke and his Fed colleagues at the precise instant of the Minsky Moment on the weekend of September 18, 2008, actions not widely known or recognized, but where indeed Bernanke showed his knowledge  of the events of 1931 and acted to avoid that outcome. As the crash unfolded over  the weekend, the most dangerous part of it came in Europe, where several of the biggest banks, including Deutsche Bank and BNP Paribas, were in danger of collapsing after the AIG branch in London went down.  The ECB was under pressure trying to  buy up their stuff made junk by the AIG collapse and was failing to do so as a crash of the euro began, with European (and other) money rushing into the safe haven of the US dollar (this involved similar events in some non-European nations as well).

The decision was made to put on the Fed balance sheet in swaps, where one can find this in the historical record with it labeled as such, about $600 billion of this (mostly) euro junk that the ECB was having trouble absorbing.  This action after that weekend stabilized the euro and ended the immediate crisis, which indeed threatened a full-scale global financial meltdown a la 1931.  These balances were then quietly rolled off and sent home after the crisis ended over about a six month period to be replaced by US mortgage-backed securities  (MBSs).  I  first heard of this from the inimitable Perry Mehrling, and one can find a pretty good account of it in Neil Irwin's The Alchemists, but very few people know about it, with most like Dean and RJS getting all worked up about such secondary matters as TARP and the fiscal stimulus.  Without that weekend save, these would have been flying against a much deeper crash and plunge into depression than they were.

BTW, it is even harder to separate out what was responsible for what as the ending of the rolling off the Fed balance sheet of all that eurojunk came about the same time in March,2009 as did the stress tests and the passing of the fiscal stimulus.  Good times would be coming one way or another, even if it would take a long time given the depth of the fall.

Why do so few people know about this?  Well, this was one of those deals involving confidence,  or the fear of losing it.  Folks at the Fed, who got very little sleep on the weekend of Sept. 18, 2008, did not want to aggravate the crisis coming out of Euorpe (which in turn was triggered by events in the US), so they wanted as little publicity as possible about the fact that there was such a serious world-economy-threatening crisis, as well as also not wanting to let people know that they were doing anything about it, with the extremely bad condition of the assets the Fed was putting on its balance sheet to be especially not made known, buried under the obscure label of "currency swaps."  And the fact that their actions were successful, arguably then reinforced later by various actions discussed by Samuelson and Baker, led to those assets becoming less toxic over the next few months and thus able to be quietly sent back to Europe where they came from.

Needless to say, neither Obama nor Bush had doodley-squat to do with those events or the decisions by the Fed that probably were more  important in saving the world from a second Great Depression than anything done later by them or anybody else.  Credit should be given where it is due on this.

Addendum, 1:30 PM, Dec. 21:

A couple of further remarks.  Much of what has Dean Baker and many others annoyed about TARP was that a bunch of bad guys got away with it.  He and many others, including many who supported Bernie over  Hillary and some who voted for Trump over her as well (even though Trump is dumping on them by appointing Goldman Sachs types and other billionaires to his cabinet), have been unhappy that TARP saved the behinds of these big CEOs, whose Big Four banks look now "too big to fail"and sitting very pretty.  (Probably the stupidest thing Hillary did  was giving those paid speeches to those Wall Street fat cats).  I see two related but separate issues here, none of them having to do with the Fed swap bailout of Europe,and a third further unmentioned but related issue also.

One is  this matter of punishment and retribution.  So, I regret indeed that Obama did not have the DOJ or somebody go after some of these high level CEOs.  Many of them clearly guillty guilty. guilty.  There was a danger this could have turned into an excessive witch hunt, but as it was a bunch of guilty people got off very scot-free, in some cases a lot richer than they started out as.

I suspect that the decision not to go after them was related to the decision not to break up those biggest banks.  That in turn reflected a policy coming from the Fed and predating the full crash, that it was preferable to have larger banks take over smaller failing ones rather than let those smaller one outright fail.  Some of this may have been a matter of trying to prop up confidence, e.g. Bear Stearns, although some of it may have also been wanting to avoid putting the limited FDIC funds in danger by having to deal with too  many bank failures.  Of course, this led to the increasing size of these  behemoths that bought up these banks,with some of them suffering as a result, still not fully digesting what they bought, with Bank of America especially sticking out on this.  There certainly is a case now for busting up some of these big banks, especially now that we are way out of the old danger zone. However, at the time, even Dean admits that there would have been a major decline if the banks had all been left to fail, not just Lehman, with his invoking a not-likely-to-happen World War II level fiscal stimulus to overcome the aftermath of that.

The third issue, not  mentioned by either Samuelson or Baker,although Dean has written about it in the past and is fully aware of it, is what to do about all the homeowners who ended up with underwater mortgages, at one point as many as about a quarter of all mortgage holders.  These people clearly took a big hit, and RJS vaguely mentioned them when he referred in his article to "asset value losses," which clearly went beyond the stock market.  This matter is still a hangover from the Great Recession, with many people still in this underwater condition, which is most depressing.  Their condition of course was related to the problems in the banks and financial markets more broadly, but has persisted even after the bank crisis settled down.  At times Obama and others made noises about doing something for  these people, but there was always political resistance and not just from Republicans.  Such moves were basically unpopular because of annoyance by mortgage holders who were not underwater, many of whom saw those in the underwater situation as being personally responsible for their own financial problems.  Why should the rest of us bail out these fools who took  out overblown mortgages on overly highly priced real estate?  I cannot answer that one,but I note that the failure to bail these people out, who arguably were more deserving than the big banks, has been a major drag on the recovery and still is.


Barkley Rosser

Universal Basic Income: Two Corrections

The UBI must be gaining headway; it got a big writeup in today’s New York Times.  The article centers on an experiment underway in Finland, where a random sample of households is getting the benefit.  Here are two things you should know that the Times failed to report:

1. Despite the claims of the article, the case for UBI has next to nothing to do with fighting income inequality.  It moves some  money from the rest of the population to the bottom of the distribution but does nothing at all about the concentration taking place at the top.  At best it is about ameliorating the conditions at the bottom, period.

2. It so happens that we’ve been here before: the Seattle-Denver Income Maintenance Experiment of the 1970s.  The results were favorable from a labor supply standpoint, but lots of women saw the income guarantee as an off ramp from unsatisfactory relationships.  The program’s primary sponsor, Daniel Patrick Moynihan, gave up on it in the interest of “saving the family”:

in 1978....Senator Daniel Patrick Moynihan announced in a speech on the Senate floor that evidence of high rates of family dissolution among recipients in the Seattle-Denver experiment had caused him to question his earlier advocacy of a negative income tax.

How soon we forget.

Reconstruction/Deconstruction

There’s a nice chart in today’s New York Times, part of which I’m taking the liberty to reproduce here; it shows were Donald Trump stands in the ranks of elected presidents with respect to their share of the popular vote.  Only one president was selected by the electoral college with a greater deficit, Rutherford B. Hayes.  Aficionados of US history will recall that Hayes triumphed as a result of the Hayes-Tilden deal which ended Reconstruction, an event many regard as the greatest scandal in our nation’s political record.  Hayes, then Trump.

Note that Adams was selected by Congress; the rest were annointed by the electoral college.

Health Care “Reform” and Tax Cuts for the Rich

Kevin Drum spots a rare bit of honesty from Rich Lowry:

It’s easy to see things like the Carrier deal, the jawboning of the likes of Boeing, and the saber-rattling against China on trade being quite popular, at the same time the truly big things happening in Washington aren’t, such as Obamacare “repeal” without a replacement, a deficit-increasing traditional Republican “tax cut for the rich,” and even — although this is much less likely — Medicare reform.

Lowry not only admits that the GOP tax agenda is tax cuts for the rich but he also concedes that this may increase the deficit if not offset by things like “Medicare reform” which is not reform but repeal. Of course Lowry also penned something on repealing Obamacare. As Brian Faler notes:

The big winners in Republican plans to repeal Obamacare are likely to be the rich. Rescinding the Affordable Care Act means not only taking away health coverage from some 20 million Americans. It also means scrapping two big tax increases Democrats imposed on the wealthy to help pay for it all.

That is the entire GOP agenda – more tax cuts for the rich.

The Accidental Conspiracy Theorist

All play and no work makes Paul Krugman a tinfoil hat conspiracy theorist.

What is Krugman's implicit assumption in the above tweet? That 9/11 was a false flag operation? That Donald J. Trump is not merely an untrustworthy demagogue but a ticking time-bomb? Can you see why implicit assumptions attributed to someone by somebody else are not valid?

Nearly 20 years ago, in an essay titled The Accidental Theorist, Krugman wrote:

Greider's theorizing is all the more speculative and simplistic because he is an accidental theorist, a theorist despite himself--because he and his unwary readers imagine that his conclusions simply emerge from the facts, unaware that they are driven by implicit assumptions that could not survive the light of day.

Greider's "accidental theory" was the infamous lump of labor fallacy -- the supposed implicit assumption that "there is a fixed amount of work to be done in the world, so any increase in the amount each worker can produce reduces the number of available jobs."

The Current Account Deficit: Low National Savings Redux

I have been reading something Lawrence Summers wrote over 12 years ago. A lot of interesting comments but let me pick out one key segment:

Tautologously, a current account deficit is the difference between national savings and national investments; or, equivalently, between net national savings and net national investment, removing the effects of depreciation. It is natural to look at the U.S. current account deficit and ask whether its level and its deterioration is better attributed to increased investment or to reduced saving. In the last year, the net national savings rate of the United States has been between 1 and 2 percent.

Taking a look at this source and updating what Summers said for 2015, it seems net investment was only 5.5% of NNP. With the trade deficit running at about 3.75% of GDP, net national savings is still only 1.75% of NNP. As Brad DeLong notes:

Let me disagree a bit with Paul: although evidence does suggest that we are near full employment, we are not at full employment--and the suggestion that we are near full employment is a very weak one

Brad was responding to Paul Krugman who also noted:

Trump deficits won’t actually do much to boost growth, because rates will rise and there will be lots of crowding out. Also a strong dollar and bigger trade deficit, like Reagan’s morning after Morning in America.

With a national savings rate of only 1.75%, we should not repeat the mistake of 1981 giving the rich another massive tax break which would further reduce national savings and make the trade deficit worse. We should instead think in terms of how to get investment demand – be it public infrastructure or private investment – higher. As Brad notes, lower interest rates and infrastructure investment would be good policy.

The Passing Of Thomas C. Schelling

Tom Schelling died yesterday at age 95. Serious people argue that by arguing behind the scenes for his Nobel-Prize-winning idea of a focal point that there be no first use of nuclear weapons he was more responsible than anybody else for the fact that we did not have a nuclear war during the Cold War, a period during which on several occasions we came much closer than most people realized.  Unfortunately it seems that with his death we seem to have moved into an era in which his old norm has broken down, and people ranging from some around the current president of Russia as well as his great fan, the president-elect of the Untied States, have taken to talking loosely about such use of nuclear weapons.  This is the greatest single worry I have about the near future, and I suspect that it was shared by the late Thomas C. Schelling.

I attach a link here to a post I made about him and this issue at much greater length back in August.  At that time I announced that he would be making a speech at James Madison University on September 14.  I believe he wanted to make that speech, and confirmed that he would a few weeks before it, only to have his wife send me a message a few hours later stating that he would be unable to due to health reasons. Clearly those health reasons were serious, and I deeply regret his passing.  He was a kind and humble as well as very wise man, for all his brilliance. The world will miss him.

Barkley Rosser

Slavery and Capitalism Redux

The Chronicle of Higher Ed has a piece on the ongoing tussle between quantitative economic historians and “historians of capitalism” over a recent spate of books claiming that slavery was crucial for the development of capitalism—especially The Half Has Never Been Told by Edward Baptist, but also Empire of Cotton by Sven Beckert.

First a disclaimer.  I read Empire of Cotton and found it wonderful.  Not every page convinced me, but the depth and sweep of the research was awe-inspiring, and the overall story (as I interpreted it, more on this in a moment) seemed right to me.  I put down The Half well before I had read half.  It was tendentiously written, with more concern for political performativity than argumentation, and it was obvious that Baptist was prone to error and exaggeration.  The last thing I’m looking for in a history treatise is an unreliable narrator.

The main point I want to make here, however, is that the Chronicle serves us a false dichotomy, either a history informed by culture that explains the inner logic of capitalist development or a reductionist, statistically-driven exercise in model-fitting that adheres to a rather narrow conception of science.  Either we infer from the sequence of events by which slavery in its later stages coevolved with capitalism the intrinsic necessity of that process, or we test counterfactuals to determine whether capitalism could have emerged in a hypothetical world in which slavery had never existed.

No and no.

The core problem here is reification, treating both slavery and capitalism as if they were discrete, homogeneous things instead of rather loose categories we assign to social and economic systems that differ across a multitude of dimensions.  Would some form of capitalism have developed in the US and other countries without the contributions of slavery?  Almost certainly.  Would it look and feel just like the capitalism we have today?  Almost certainly not.

From this perspective, Beckert’s superiority over Baptist is obvious.  Baptist does argue that slavery was essential to capitalist development, while Beckert, if you read him carefully, doesn’t.  In fact, Beckert’s story is one of constant improvisation and experimentation as the conditions for a global-scale market in textile inputs and outputs were painstakingly assembled.  It not only could have happened in other ways; it did.  And it is a mistake to read determinism into Beckert’s account of “war capitalism” (an unfortunate phrase), in which the use of imperial force and direct labor coercion were commingled with market formation, as if the entire history of trade embedded in force (the Vikings, anyone?) had never existed, and early modern capitalists could simply invent an economic order from scratch.

I’ll sign up as a loyal devotee of model-fitting and a student of the contingency of human history embedded in a cultural nexus.

Incidentally, I’m struck by the willingness of people who should know better to defend Baptist.  (The two examples of his methodological errors cited in the Chronicle piece are devastating.)  My hunch is that this is a product of the “good begets good” heuristic, or more precisely its “bad begets bad” corollary.  People have a tendency to think that if something is good it is good in all respects, and similarly if something is bad.  Slavery is bad.  Left historians want to argue that capitalism is bad.  Therefore, showing that slavery begot capitalism demonstrates that capitalism is bad.  Of course, logically it’s all nonsense: good can beget bad and bad can beget good, as they do all the time.  If the purpose is historical understanding, however, the issue is not good or bad, but how and why.

Two Things to Keep in Mind about Allegations of Russian Interference in the US Election

This weekend we’re being treated to claims the CIA is convinced the Russian government used its hacking prowess to support Trump’s election this year, along with equally vehement claims that, in the absence of publicly provided evidence, we have every reason to be skeptical of US intelligence assertions.

Do I have any more access to the intelligence backstory than you do?  No.  But from what I do know, I suggest two starting points for making sense of this tangle.

1. To the extent they have evidence for their claims, US intelligence agencies are unable to reveal them.  The specifics of this evidence would make it clear what methods were used to obtain it, which would make those methods worthless from that point on.  Moreover, the techniques for acquiring defensive information on how US sites have been hacked are largely the same as those used for the US hacking of foreign sites.  If the disclosures were only defensive in nature, a stronger case could be made that it is in the interest of the intel folks to come clean, but they are unlikely to disavail themselves of offensive weapons.

2. Security breaches of the type exemplified by possible Russian hacking of the RNC, DNC and other sites are likely commonplace; they certainly occur much more often than reported.  (It is not in the interest of hacked entities to publicize this fact unless their hand is forced.  They may not even know it has happened.)  Before we bewail our victim status, however, we should note that the US government, and private and semi-private actors in the US, play this game like everyone else.  In the end, if the allegations about Russia are true, what we have experienced in this country is a PSYOP action not so dissimilar in intent and effect from similar actions launched from here.

I’d like to see a debate over whether aggressive exploitation of foreign cyber vulnerabilities by US agencies comes at the expense of domestic cybersecurity and the security of the overall transnational system.  The US has enjoyed first mover advantage in many areas of weaponized technology, but the long term consequence is, or will be, that these methods will eventually return to threaten us.

Comic Book Hayek:The Planners Promise Utopia

In his neo-Confederate "Mein Kampf," Whither Solid South, Charles Wallace Collins quoted a full paragraph from Hayek's The Road to Serfdom regarding the emptying out of the meaning of words.

My instinct would be not to condemn Hayek for the politics of those who quote him. Even the Devil quotes Shakespeare.

But after taking another look at the Look magazine comic book edition of Hayek's tome, I realized that Collins's depiction of full employment as a sinister Stalinist plot was, after all, remarkably faithful to the comic-book version of Hayek's argument. With only a little digging, one can readily infer that what the comic book refers to as "The Plan" is a policy also known as full employment (or, if you want to get specific, William Beveridge's Full Employment in a Free Society). "Planners" translates as cartoon Hayek's alias for Keynesian economists and their political acolytes.