Esther George’s Excuse for Raising Interest Rates Has It All Backwards

Dean Baker is rightfully not happy with a recent speech from Esther George. George pushes this concern:

Keeping monetary policy easy to achieve higher inflation has the potential to push rents still higher, negatively affecting a large percentage of households. Consequently, I am not as enthusiastic or encouraged as some when I see inflation moving higher, especially when it has been driven by a sector like housing. Inflation is a tax and those least able to afford it generally suffer the most.

Dean notes:

First, the people who are denied work as a result of higher interest rates will be disproportionately those at the bottom of the ladder: African Americans, Hispanics, and workers with less education. Furthermore, higher unemployment rates mean that the workers who have jobs will have less bargaining power and be less able to push up their wages. It's hard to see how people who lose jobs and get lower pay increases will benefit from a slightly lower inflation rate. The other reason why the argument doesn't quite work is that even the modest inflation we have seen in recent years is driven almost entirely by rising rents. Higher interest rates could actually make rental inflation worse. An immediate effect of higher interest rates is lower construction. This will reduce the supply of housing in cities with rapidly rising rents, making the shortage of housing units worse. This will compound the negative effect of reduced labor market opportunities. That hardly seems like a winning policy option for the poor.

Let me just add that the same Bloomberg report that Dean cites has a link to a recent paper by Olivier Coibion, Yuriy Gorodnichenko, Lorenz Kueng, and John Silvia:

We study the effects of monetary policy shocks on—and their historical contribution to—consumption and income inequality in the United States since 1980 as measured by the Consumer Expenditure Survey. Contractionary monetary policy systematically increases inequality in labor earnings, total income, consumption and total expenditures. Furthermore, monetary policy shocks account for a non-trivial component of the historical cyclical variation in income and consumption inequality. Using detailed micro-level data on income and consumption, we document some of the different channels via which monetary policy shocks affect inequality, as well as how these channels depend on the nature of the change in monetary policy.

The Bloomberg report notes:

Many economists remember a 1998 study by Christina and David Romer. It concluded that while expansionary monetary policy can reduce poverty in the short run by juicing economic growth, in the longer run everyone will benefit more from policies that aim for low and stable inflation because those measures improve the economy’s overall efficiency. Although it is true that high inflation in itself can sometimes disadvantage the poor -- the idea is that wealthier people are able to more-easily diversify their savings into assets less susceptible to inflation -- it’s only a small part of the story when it comes to the implications for monetary policy, according to Olivier Coibion, an economics professor at the University of Texas in Austin. In a recent study, Coibion and his co-authors found that over the period from 1980 to 2008, the inflation-as-regressive-tax argument was swamped by other benefits of accommodative monetary policy that pushed in the opposite direction, leading to a conclusion somewhat at odds with the Romers’ findings.

Their findings amplify what Dean Baker has been saying. I hope that he gets to read their new paper. We all should – especially members of the Federal Reserve.

"Russia Is Our Friend"

So chanted a group of torch-bearing demonstraters last night in Charlottesville, VA who were protesting a city plan to remove statues of Robert E. Lee and Stonewall Jackson from downtown city parks currently named for them.  These demonstraters were also carrying Confederate flags.  So it  seems that the racist neo-Confederate alt-right is fine with Trump being closest buddies with Vladimir Putin and the Russian leadership.  It is just fine that all his aides were talking to the Russian ambassador and lying about it and that he had the Russian foreign minister and ambassador in the Oval  Office with no US media allowed and the fact that the ambassador was there only learned publicly after the only media allowed, Russia's Tass, published photos of the meeting.

Of course, these folks are probably upset with Trump because he upset Putin by firing Tomahawk missiles at a Syrian air base after it was learned that the Assad government was engaging in chemical weapons attacks out of that base.  But, hey, not to worry.  Our people warned both the Syrians and the Russians ahead of time that the missile attack  was coming so  that they could get anything serious, including personnel, out of there before it happened.  So,  still pretty friendly.

As for Ukraine, Estonia, Poland, Sweden, Germany, France, the UK, and other countries not so happy about Russian behavior towards its neighbors, well, obviously these nations are not our friends.  To heck with them, and keep on waving those Confederate battle flags!

Barkley Rosser

Remembering The Open Arts Be-In A Half Century Later

A half century ago today, Saturday (yes, same day of week) May 13, 1967 was the first (and I think only) Human Be-In in Madison, Wisconsin, which was on Picnic Point, a wooded spit of land sticking out into Lake Mendota.  It was organized by a group called Open Arts, which was led by Zack Berk, who had long black  hair and was indubitably a Very Groovy Guy.  It was a beautiful sunny day.  The star of the event was Beat poet Allen Ginsberg, who chanted for some time near the entrance.  He had read poetry the previous evening in the famously odiferous Stock Pavilion, in conjunction with a performance by The Fugs, who sang their  most famous song, "Kill for Peace,"among others.  I knew a lot of people at the Be-In. One good friend was Rod Clark who sat near Ginsberg while he chanted, nodding and grinning broadly.  Rod is now the editor of the literary magazine, Rosebud, and independently coined the term "econophysics," in his science fiction novel, Redshift: Greenstream from 2000, in which he used the term not too differently from academics, although I am unaware of him attempting to estimate power law distributions from financial time-series ever.  Another person there I did not know then but do now was Econospeak's own Peter Dorman.

It was a day of full-blown idealistic enthusiasm, with the assembled hippies wandering and grinning among the trees while looking at the lake.  Anything seemed possible.  In particular, there was a lot of mumbling about how Flower Power was going to Sweep The World and bring us all Peace, Love, and Happiness.  Would that it had turned out to be so. But it was not to be.

Indeed, just over five months later on October 19, 1967, students demonstrating against the Dow Chemical Company at the University of Wisconsin there ended up clashing with police in what most Google links label a  "riot."  The billy clubs and the tear gas came out and people ended up in the hospital.  My friend Rod Clark got his skull pretty badly bashed in.  In this case he was dealing with real power laws.  It changed a lot of attitudes, and the flowers were nowhere to be seen.

This change would culminate nearly three years later on August 24, 1970 when the so-called New Year's Gang would bomb Sterling Hall in an attempt to  get at the Army Mathematics Research Center, then directed by my late father.  A physics grad student, Robert Fassnacht, would die in the blast.  The dream of a half century ago was fully dead, and there has  been no going back since.

Barkley Rosser

Addendum:  One can read a very detailed account of the runup, the events, and the aftermath of the Dow demonstration/riot at UW in the 2003 best selling book by David Maraniss, They Marched into Sunlight: War and Peace America and Vietnam 1967.  It also deals with a simultaneous not-widely-publized battle that US troops lost in Vietnam that apparently convinced LBJ that the US could not win that war.  Maraniss, author of widely praised bios of Bill Clinton and Barack Obama, is the son of a longtime former editor of the progressive Capital Times newspaper in Madison and was at the Dow demo/riot.  I do not know if he was on Picnic Point for the earlier  Open Arts Human Be-In.

Coming Home To America

This is a personal observation at an odd point in time.  I just spent nearly four months out of the US, mostly in Florence, Italy, but also in China, Israel, Malta, Spain, Croatia, Ireland, UK, Poland, and France.  I gave talks at various universities; I saw and talked with many people, and I read newspapers in local languages in several of these nations as well as experiencing their media.  I lived abroad long enough to get a strong feel for how people in many nations abroad think, even if arguably my sample was skewed to some extent.  However, I have now been back long enough to see what is going on here in the USA, to experience it, especially after this past week, while still not fully back into the groove here, still having as a short term memory of these perspectives from abroad. So I want to share how that is.

It is not pretty, as most reading this will not be surprised to learn.  Even among conservative foreigners who do not know one, if you are an American and you are speaking with them at all seriously for more than a few seconds, one of the first things they will want to know if if you are "one of  them," you know, supporters of Donald J. Trump.  They were all relieved when I informed them that, no, I was not.  Now I know that there are many people in other countries who are sympathetic to  him, and he has been sympathetic back, those who support authoritarian nationalism, and some countries contain many such types. But since Trump won in the US, these people have been losing elections pretty much all over, with the exception of Erdogan's referendum in Turkey, which Trump congratulated him on, even though it was close with allegations of fraud, and, of course Erdogan celebrated his victory and Trump's congratulations by arresting and torturing several more thousands of people.

There are some contradictory polls out there. So one poll from last year claimed that 77% of the world's people supported Trump over Clinton. Maybe, but probably not.  Specific polls in some nations supported that, especially in Russia, where Trump was definitely popular, maybe more so than anywhere else in the world, big surprise.  He also appears to have been quite popular in Poland according to one poll. Certainly various authoritarian leaders supported him, with Hungary's Oban and Egypt's al-Sissi and Turkey's Erdogan on the list along with Putin, of course.  The Saudi leaders have and continue to support him, although polls suggest their enthusiasm is not shared by their populace.  Likewise in Israel, Netanyahu has been all for him, even though prior to the election more people supported Clinton than him. In most other nations he has had terrible poll ratings, with one poll from last year showing only 9% of Europeans as a whole supporting him.  And it looks like he has gone down hill in support in most places, just as the polls show as well in the US.  Thus to go to his once most supportive nation, Russia,  a poll at the end of April had only 13% supporting him against 39% against.  No wonder their foreign minister appears to view him with contempt as exhibited by his reaction when SecState Tillerson told him before he met with Trump that Trump had just fired the FBI director: "You're kidding."  This is a man who played the ultimate role in helping the Iran nuclear deal negotiations come to a successful conclusion, not a fool.

And of course in our neighbor and major trading partner, Mexico, only 3% support him, with even that level surprising given his behavior toward that nation, long a US friend and ally, if not always.

I also checked polls for the Most Admired Person In The World, finding the most recent one from slightly over a year ago on May 7, 2016 from yougov.  The top three men were Bill Gates, Barack Obama, and Xi Jinping.  Putin was 6th, with the Dalai Lama at 8th, Pope Francis at 13th, and Bernie Sanders at 20th, the farthest down they went. Trump was not on the list.  The top three women were Angelina Jolie, Queen Elizabeth, and Hillary Clinton, with Angela Merkel at 8th and Marine Le Pen at 20th.  A Gallup poll of Americans in December had Obama as the most respected, far ahead of Trump.  In any case, all of  this just reinforces that Trump is viewed very negatively around the world, even in countries where the leaders are making friendly noises to him, such as in Japan.

 So how do  I feel about all this?  I must say that I am glad to have been out of the country for the last few months, to have some distance from the grind of partisan media and social media that is here, which I am now experiencing full blast, and seeing how it just sucks one in.  I pay attention to Fox and some other rightist outlets, but I see how the bubbles are really strong, how one just gets caught up in the scandal  of the moment and so on.  Heck, just to note, so many think this is it for Trump, but so many thought that a year ago after his "grab 'em by their pussies" remark came out, and here he is president.  Those of you seeing him about to be impeached, sorry, no, his support is hanging in there at well over 30% and the GOP in Congress remains more afraid of Trumpist primary challengers than of Dem opponents doing them in, although the health care issue may yet change all that.  But that is not an impeachment issue, that is a midterm election issue, and it is normal for an incumbent president to lose badly in midterms.  Reagan did so in 1982, and he took 49 states two years later, not that I am predicting that for Trump in 2020.  But a lot of you need to step outside of your bubble, and I am addressing those I agree with.

What really concerns me is the bubble of the hanging-in-there Trump supporters.  I must confess that my long absence where everyone I have met has viewed them as people beyond belief and utterly beneath contempt has affected me, and that is how they are viewed, like they are no better than Nazis, really.  Yes, I recognize that Trump has not done many bad things he promised he would do (and is not a Nazi), but from what the rest of the world thinks, he looks like a total disaster of an incompetent and unpredictable president, profoundly frightening because he has his finger on the nuclear trigger and can end the world in a flash of fitful anger.  I know that support for him has been drifting downward in the US, and the opposition/Resistance to him has been ferocious here.  But his core supporters in their Fox News/alt-right media bubble continue to hang on, although it seems that they may be becoming somewhat desperate.  I have been watching Fox and I am astounded at how much time they are spending conjuring up how the new FBI director will restart the investigations of Hillary Clinton, and how Trump goes to  rallies where these people continue to chant "Lock her up,"when he is clearly the most criminal and corrupt president in the history of the nation. They are getting further and further disconnected from reality in their desperation to believe in their man.

If anything has shocked me it has been how ferocious and bitter these people have become, viciously and wildly attacking others they disagree with on social media in a frenzy unlike what I saw before I left, before Trump became president.  It is clear that many of them are seriously disillusioned and upset, but those hanging in there are lashing out irrationally at those criticizing their hero.   I am deeply worried about this and where it could lead.  I sort of intellectually realized this might be the case before I returned, but seeing it after I got here is really upsetting.  I do not see how this is going to end, and I fear it will be very hard for these people ultimately.

Objectively I have to say that anybody still supporting Trump is one of at least the following three, or three and a half things: stupid, crazy, or a fascist racist.  I might have said that before I left, but no, I would not as I knew many loyal and reasonable Republicans who supported him out of party loyalty, if without enthusiasm.  But after what has gone down over the last few months, which my absence has made me see very clearly, this sort of view is no longer acceptable.  The only possible excuse now is that one has simply gotten totally ensconced in the media bubble supporting him and pays no attention to anything else.  So, yes, I recognize that there are still at least semi-intelligent and not insane or totally socially awful people who continue to support  him sitting in these bubbles.  But the bubble is getting really stretched out and thin, and pretty much the rest of the world can see it, even in places like Russia where they once liked Trump.  They now view him as seriously dangerous for the whole world, and chanting "America First" will not change that reality.

Barkley Rosser

The "Tapes" Threat

This may be so obvious it needs no explanation -- but allow me to explain. This tweet puts on notice anyone who has a conversation with the POTUS that whatever they say MAY be recorded and selectively "leaked" for the purpose of blackmail, extortion and/or intimidation.

That should be an effective strategy for ensuring candid, confidential communication and advice. Mitch McConnell and Paul Ryan may be too stupid to realize the implications or too corrupt to care but there is no putting this genie back in the bottle.

Immiseration Revisited: The four phases of working time

Is there a neo-classical theory of immiseration?

Below is the marvelous Chapman hours of labor diagram (follow the link for a more detailed explanation). It looks complicated but it really only contains four curves representing, roughly, long-term and short-term productivity, income [correction: actually income minus the value of leisure foregone] and fatigue. But there is more to it than Chapman realized or that I have previously noticed.

The context for this diagram is William Stanley Jevons's discussion of work effort in his Theory of Political Economy:

A few hours' work per day may be considered agreeable rather than otherwise; but so soon as the overflowing energy of the body is drained off, it becomes irksome to remain at work. As exhaustion approaches, continued effort becomes more and more intolerable.

The "L" curve in Chapman's diagram echoes the lower curve in Jevons's figure VIII, presented to illustrate the "painfulness of labour in proportion to produce":

In this diagram the height of points above the line ox denotes pleasure, and depth below it pain. At the moment of commencing labour it is usually more irksome than when the mind and body are well bent to the work. Thus, at first, the pain is measured by oa. At b there is neither pain nor pleasure. Between b and c an excess of pleasure is represented as due to the exertion itself. But after c the energy begins to be rapidly exhausted, and the resulting pain is shown by the downward tendency of the line cd.

Chapman was primarily concerned with the length of the day optimal for output, which would be measured on the X axis of his diagram by the distance Ob. The optimal working day from the workers' perspective, however, would be On and would terminate at the point where the marginal income from another time unit of work would just equal the marginal pain of working.

But the intervals from n to i and from i to b add another dimension to the diagram that has been overlooked. From n to i the worker gives up proportionally more in work effort than he or she receives in extra income [minus the value of leisure foregone]. Finally, during the interval from i to b, workers endure additional pain in exchange for a decrease in total income minus leisure. Beyond b, the incomes of both workers and employers are reduced.

The four phases of working time can be labeled cooperation, exploitation, immiseration and ruin. The incentive for employers is to progress inexorably toward the last phase unless regulated by legislation or collective bargaining. The following animation illustrates the contrast between the workers' gains (green) and losses from lengthening of the working day and the employers' gains (blue) and loses.

The conflict between labor and capital over the length of the working day can also be illustrated less kinetically by the following close-up of the X axis from Chapman's diagram. The green arrows indicate income gains, the red arrows income losses or pain cost:

The bottom line, showing the social aggregate, indicates that the income gain for capital at the optimal point b for output is essentially a transfer of income from labor, which also has to invest additional work effort to accomplish that transfer. Up to the output optimum point there is a small net surplus of income that is, however, dwarfed by the quantity of work effort pain cost required to generate it. This does not even qualify for the Kaldor-Hicks compensation criteria. From capital's perspective, however, the small net return and larger transfer appears to be all simply gain from expanded output -- growth is good! (Just don't look under the hood).

Chapman gave no indication of being aware of the immiseration implications of his analysis. John Hicks gave even clearer indication that he was not aware of the immiseration implications of Chapman's analysis. Hicks observed that "it had never entered the heads of most employers that it was at all conceivable that hours could be shortened and output maintained" but asserted that trade unions "will not usually need to exert any considerable pressure in order to bring about a reduction" in circumstances where the working day exceeded the output optimum. As if workers should be content to be ground down into wretched poverty provided they didn't drag their employer down with them! The output optimum is not a good place on the X axis for workers to be.

Only the Marxist economist, Maurice Dobb, appears to have noticed the importance of the relationship between wages and "the worker's expenditure of energy and his 'wear and tear.'"

What was implied in the economists' retort to the advocates of the so-called Work-Fund leads to the apparent paradox that the more the workers allow themselves to be exploited, the more their aggregate earnings will increase (at least in the long run), even if the result is for the earnings of the propertied class to increase still faster. And on this base is erected a doctrine of social harmony between the classes. But it does not follow that the workers will prefer to be exploited to a maximum degree, or that attempts to limit this exploitation are based on fallacious reasoning.

There is no scale on the Chapman diagram and this turns out to be a useful feature. Different occupations, technologies, individuals and wage levels generate a variety of scales. One could conceive of aggregating these scales either in an overall average or clustered in quintile or decile groups. The latter procedure would be valuable in exploring whether a substantial number of workers were being pushed into conditions of immiseration even though the overall average was still safely in the exploitation range.

It is worth remarking that based on the relative length of the segments in Chapman's diagram, the optimal length of the day for workers would be less that 72 percent of the optimal output day. For example, if the optimal length of the workweek for output was 48 hours, the optimal week for workers would be 34.4 hours. Of course Chapman's diagram is not based on empirical measurement but Chapman had investigated in depth the extensive statistical and experimental data available at the time he was formulating his theory, so, while his proportions cannot be assumed to be precise they probably represent an informed impression -- a ballpark estimate -- of general relationships.

In conclusion, yes, there is a neo-classical immiseration theory. The economists who propounded it apparently were unaware that it was such a theory. By extension, that immiseration theory is a crisis theory. There is no built-in mechanism of negative feedback from prices that militates against the passage from the immiseration phase to the ruin phase. Hicks assumed that a "very moderate degree of rationality on the part of employers will thus lead them to reduce hours to the output optimum as soon as Trade Unionism has to be reckoned with at all seriously [emphasis added]." But by the time exploitation has progressed to the immiseration phase, trade unionism doesn't have to be "reckoned with at all seriously" by employers. The trade unions would already have been defeated somewhere between point n and point b on the Chapman diagram's X axis.

Messing Up Badly In Korea

In many areas where many were worried that President Trump would do this that or the other crazy thing he has held back for one reason or another.  But one very serious location where he has recently made a total botch of things has been in Korea, a series of unforced errors.  Of course before he got into it in Korea it looked like he might get in a shooting war with China, but then he decided that Xi Jinping is a great guy after the Chinese paid his family gobs of money and Trump realized that he needed to make nicey nice with Xi in order to deal with unquestionably serious problem of the North Korean nuclear weapons program, possibly the most dangerous situation in the world right now.

So then he proceeded to talk tough on North Korea, making noises about starting a war with them if they tested a nuclear weapon (which they did not, making a failed rocket test instead) with this supposedly being backed up by him supposedly sending the USS Carl Vinson to back up his threats, only to have it come out a few days later that the Vinson was sailing off into the Indian Ocean.  I gather it has finally shown up in the neighborhood, but now Trump has messed up with longtime US  ally South Korea, the only party involved in this arguably more important than China even.

South Korea is in the middle of a snap election happening May 9 brought about by the impeachment of now former President Park Geun-ye, daughter of former dictator Park Chung-he, who was assassinated by his top intel guy.  Park is from the more conservative of South Korea's political parties and had agreed under pressure from Trump to install the THAAD anti-missile defense system.  Doing this has upset China, which has put in place a strong economic boycott against South Korea.  Nevertheless Trump pushed on and has had the THAAD system installed and up and running, even though the politician most likely to win the upcoming election, Moon Jae-in of the more left-liberal party, has said that he would like to think about this and that it should not be fully installed yet.  But to add insult to injury, Trump demanded that the South Koreans pay for the THAAD system, completely outraging pretty much everybody there.  He has backed off that, but has now added a threat to unilaterally end the South Korea-US trade agreement. Maybe that is a bad agreement, but given everything else that is going on, this seems like an abysmally stuipid moment to bring up such an issue.  The South Koreans are enraged and likely to elect Moon on an anti-US platform.  Surely Trump should have been trying to make nicey nice with the South Koreans as he has with the Chinese, but maybe they have not paid Ivanka enough money yet.  This is just messing up very badly in a very important and serious part of the world.

Curiously this resembles in some ways a former messup there made by then President George W. Bush in March, 2001, which I have posted about here.  
In 1994 North Korea stopped pursuing a plutonium weapons program by shutting down its Yongbyan plant in exchange for various economic and security promises.  This was followed by the "sunshine" policy from South Korea, still going on when Bush became president in January, 2001.  Kim Dae-jung was South Korean president at the time and very much wanted support from the new administration of this policy.  Some supported him, notably SecState Colin Powell, and Kim thought he had full support.  He  came to Washington on March 7, 2001 to meet with Bush, but at the last minute Cheney and Rumsfeld convinced Bush not to support the policy for a variety of in retrospect stupid reasons.  Kim went home humiliated and angry.  At the end of 2002 it was found that North Korea was starting to enrich uranium, which was not part of the agreement, but the US said that this violated the agreement and stopped shipping materials to North Korea under the agreement.  This led to North Korea fully pulling out.  It restarted the Yongbyan plant and made its earliest nuclear weapons out of plutonum from that plant.  Of course soon thereafter most attention was taken up by Bush's even more disastrous invasion of Iraq, but his early blundering in Korea paved the way for  North Korea to get the nuclear  weapons that are now such a problem.

Barkley Rosser

A Climate of Capitalist Dominance

We’ve now had a chance to see Stephens #2, the second column on climate change by the new NY Times voice on the right, Bret Stephens, and unlike the first (which reasoned—sort of—back from its conclusions in true hackish fashion), this one isn’t so bad.  He argues that government action on climate change has done as much harm as good, pointing to the biofuels fiasco and shortcomings in the European (Carbon) Trading System (ETS) and Germany’s Energiewende as cases in point.  I agree.  What he says about these programs deserves to be said, especially since too many self-styled progressives won’t.  There’s a lot of really sketchy climate policy out there.

So what does he miss?  The first omission, and it’s an important one, is that he considers only the failures of government, not those of business and the market.  Above all, the continued operation of, and even investment in, a fossil fuel-based economy in the face of what we know about climate risk, is a massive fail, greater than every error committed by governments.  That doesn’t justify bad policy, but it puts government malfeasance in perspective.

To see the second omission we need to drill down a bit.  Consider the three examples Stephens brings up; what do they have in common?

Biofuels: Rather than taking action to remove fossil fuels from our energy base, government policy boosted a supposed “green” energy source derived from commercially grown crops.  This generated substantial profits for agribusiness, but, as Stephens rightly argues, it did little if anything to forestall greenhouse gas accumulation while producing a number of serious economic and social costs.

The ETS: Despite howls of protest from the scientific community, European politicians made decision after decision that eviscerated their carbon pricing system, handing out carbon permits for free, setting meaningless targets and removing large sectors of the economy from regulation.  The system has essentially broken down, but not before, as Stephens mentions, bilking European households of billions in energy costs, which went directly into corporate coffers.

Energiewende: While the achievements of solar and wind energy promotion in Germany are remarkable, the overall strategy prioritizes expansion of renewables and avoids taking any action to simultaneously restrict carbon fuels.  The result is that Germany has both record-setting increases in renewable capacity and hardly any reduction in carbon emissions.

All of these examples have a common theme: governments seem unable to frame climate policy in any terms other than subsidies for corporate investment and profit.  A biofuels initiative is easy to advance, since it funnels public money to agribusiness.  The only ETS element that had any effect is the one that temporarily increased electricity prices and allowed privately-owned utilities to reap all the profits.  Energiewende supports firms that invest in the renewable sector but overlooks firms that continue to profit from burning carbon.

The common denominator is overweening capitalist power.  Climate policy is constrained by the determination of wealth-holders to protect and expand their wealth.  An effective response to the threat of a climate catastrophe, on the other hand, would unavoidably deplete their wealth—not only the stranded assets of the fossil energy sector but a range of other investments that would be devalued by a rapid shutdown of oil, gas and coal.  (I’ve done a back of the envelope estimate that the wealth hit to non-energy assets would be approximately as great as that to carbon energy.)

So I’m on board with what Stephens is against but not what he’s for.  Rather than dismiss all action on the climate front as misguided, I would like to see the non-wealth-obsessed interests in society mobilize to overcome capitalist power.

Against the Subjective Theory of Knowledge

The story begins in France, post-1968 and post-decline-and-fall-of-the-French-Communist-Party.  The legitimacy of power in France, the country of the Grandes Écoles, historically depended on claims to expertise, and the Communists had offered a pole of opposition based on “scientific” Marxism.  When Communism collapsed, how could the French left oppose power?  The response was to refound the movement on a posture of radical subjectivism: the experts’ claims to truth, derived from their so-called master narrative, would be refuted by a deeper truth derived from the subjective experience of the oppressed.  Their subjectivity would no longer be reduced to a chunk of data to be processed by the ruling experts; no, being the very substance of truth, it would be available only to those who had actually lived this experience and would have precedence over all external claims.  Take that, technocrat!

This radical subjectivism was smuggled into the United States, wrapped in innocent-looking volumes of cultural criticism, where the context was different.  Elite claims to power in the US are not generally based on expertise in the French manner, and in any case there had been a deep debate between Left and Right over the question of democracy versus technocracy in the 1920s, Dewey against Lippmann.  The US Left, in the decades following this debate largely adopted the optimistic view that radical democracy could embrace expertise, and the belief that science and political radicalism are compatible can still be seen in current activism over climate change, among other topics.  (True, a minority current on the left appeared in the 1970s which challenged scientific claims to knowledge, and it still exists, but it has little political influence.)

Initially the subjective theory of knowledge presented itself in the American context as a more radical assertion of freedom and personal difference.  It fed a pre-existing expressive conception of what it means to engage in political action, which has always had an appeal in the US, but before long it attached itself to identity politics.  According to the new subjectivism, racism came to be understood as the result of a discourse grounded in white non-experience of racial oppression, and so also sexism, a product of male discourse.  Such oppression, it was believed, could be challenged only by counterposing to these discourses of exclusion the truth inhering in the experience of people of color, women and other marginalized groups.  In this process the critique of expertise became a critique of rationalism applied to issues involving identity.  Rationalism was regarded as a rigged contest, a fig leaf for the dominant discourse, against which resistance could be grounded only in direct personal experience.  If you didn’t have the experience of oppression, no matter how cleverly you argued, you couldn’t know, and if you had it no one could tell you otherwise.  Voice was not a means for putting forward evidence; voice removed the need for evidence.

To be very clear, I am not arguing against subjective experience as a basis for knowledge.  Experience is real, and so is the meaning we attach to it.  An examination of racism or any other social problem would be seriously incomplete and probably misguided if it didn’t take account of how this condition is experienced subjectively.  I am not making a case for a supposed “objective” approach to understanding (a false ideal), nor for categorically putting externally observable data above subjective self-report.  That would be extreme.

Nevertheless, two types of problems have arisen from adhering to the opposite extreme that privileges subjective experience beyond all other forms of knowing, one at the individual level and the other collective.

The individual problem is that our experience, and the inferences we draw from it, is often a poor guide not only to the external world but also ourselves—who we are, what motivates us, and how we interact with others.  Cognitive psychology is nothing if not a litany of human foibles.  Autobiography is valuable, but not necessarily more truthful than biography written by others.  Your friends can tell you things about yourself you scarcely imagined.  A foreigner can often observe aspects of a culture that are invisible to those immersed in it.  Knowledge from within is valuable, but so is knowledge from without, which means radical subjectivism is lousy epistemology.

This problem has practical consequences.  In the 1980s America went through a period in which the subjective reports of children concerning possible child abuse were privileged over virtually any external evidence, and the result was the persecution of many innocent daycare workers and a wave of dubious “repressed memory” denunciations of parents.  Of course, many children were and are abused, and many adults are culpable, but the categorical privileging of child testimony or memory over all other forms of evidence clearly resulted in gross injustices.  The same critique can be applied to recent formal and informal determinations of violation and oppression on the basis of gender and race that privilege the self-reports of the (presumably) violated and oppressed.  When Rolling Stone messed up in its false exposé of “A Rape on Campus” two years ago, for instance, it had clearly been led off the rails by its assumption that the rape testimony of a woman possesses an existential truth that normal journalistic evidence-gathering cannot evaluate—but testimony can be wrong, even if it is offered in all sincerity.  Again, this is not to devalue what people say they have experienced; personal testimony is always crucial evidence.  But it can’t be the only evidence, or even the evidence that overrules all other.  Us humans are simply too fallible.

The collective problem exists because individual experiences vary.  It’s one thing to hear the testimony of a single voice describing what it means to be oppressed, but when issues like racism and sexism are discussed at a social level, how can the subjective experiences of thousands or even millions of individuals be combined into a composite voice to settle issues in dispute?  After all, if each experience is its own truth, without some further processing you would have a very large number of different truths, many of them contradictory.  There’s no escaping the need for an organization that offers its own voice on behalf of the many, so the rest of us can learn this composite truth.  But who gets to do this, and what experiences do they incorporate or set aside?

The politics of this representation is always fraught.  Sometimes open competition breaks out between different groups that each wish to express the general subjectivity but selected and combined according to different criteria.  Even when groups giving voice to identity are united there is often tension between individuals whose subjectivity is downplayed or ignored and the groups that claim to speak for them.  Given the underlying philosophy of radical subjectivism, there is no basis for individuals to contest the selection process that may have excluded them, since there are no criteria for selecting subjectivities, which in any case is not supposed to happen.  (No group openly states it performs this role; their rhetoric is always universal.)  Thus identity dissidents are effectively expelled from the entire framework.  Conservatives actively seek to locate these individuals, offering them support so they can draw them into their network.  The biographies of many black conservatives, for instance, fit this pattern.

As much as I respect the role that subjective knowledge needs to play in everyday life and social science, I think the extreme version, which holds that subjective experience is immune from challenge by any other mode of knowing, is causing great damage to the left.  The first step in freeing ourselves from it is to recognize it for what it is.

Climate of Complete Incomprehension

I finally got around to reading the NY Times new “responsible conservative”, Bret Stephens’, call for skepticism and moderation on climate change.  He adopts an attitude that exudes reasonableness and rejection of hubris.  Complicated modeling is an uncertain business and often fails; just look at Hilary Clinton’s Big Data campaign gurus.  Climate change is such a difficult, uncertain business, so why don’t liberals just back off and stop invoking a “scientific consensus” to bludgeon common people who don’t think decarbonization is the be-all and end-all?

If this is the outer limit of right-wing sanity, we’ve really got our work cut out for us.

First off, the guy seems to live in a binary, pre-probability universe.  At least, that’s the only sense I can make of a paragraph like

Anyone who has read the 2014 report of the Intergovernmental Panel on Climate Change knows that, while the modest (0.85 degrees Celsius, or about 1.5 degrees Fahrenheit) warming of the earth since 1880 is indisputable, as is the human influence on that warming, much else that passes as accepted fact is really a matter of probabilities. That’s especially true of the sophisticated but fallible models and simulations by which scientists attempt to peer into the climate future. To say this isn’t to deny science. It’s to acknowledge it honestly.

Well, yes.  I’ve read the latest assessment reports and the ones that preceded them, and it’s true that each claim is assigned a rough probability.  But to counterpose “fact” and “probability” is to really not understand how modern science works.  Science is always a matter of probability.  When I do a statistical test, I don’t sum it up by saying that it proves that my result is a “fact”, but that I can assign a provisional probability to it, or a confidence interval or (best yet) a plausible probability distribution around my best guess of what’s going on.  This is the basis for all modern work in the empirical sciences, and singling out the use of probabilities by IPCC as somehow demanding less credence or urgency is to demonstrate his own ignorance.

And there’s more.  Implicit in the entire piece is that the uncertainty is one-sided, that climate change might be as bad as the models predict, or it might be a more minor problem.  It never dawns on him that probability distributions have two tails, and the consequences of foregoing climate action might be much more severe, catastrophic even, than the mean prediction suggests.  This makes it clear that Stephens’ use of “probabilistic” to denigrate concern on climate change is pure ideology: he’s using the word to blow smoke over the issue rather than to illuminate it.

This is just op-ed #1 from their new guy, but it already looks like the Times has hired a hack.

Shorter hours -- If not now, when?

The litany of shorter work week prophecy is prodigious. Keynes famously predicted a 15-hour work week for "our grandchildren" in 1930. Fifteen years later, in a letter to T.S. Eliot, Keynes parenthetically suggested a 35-hour work week for the U.S. in the immediate post-war period.

In 1961, Clyde Dankert cited a New York Times article from 1949 in which a "well known labor economist" predicted a 20-hour work week by 1990 and a ten hour week by 2050. Eight years later, a vocational educator forecast the 20-hour week by 2000. Also in 1961, Dankert himself suggested 1980 as the year by which, "the thirty-hour workweek should be widely established and some progress made toward the twenty-five-hour week." Three years later, he was somewhat more circumspect, "In time we should reach the 30-hour week and even the 25-hour week, but despite all the talk about the leisure society, that time is not now and will not be for quite some years.

In a 1957 newsletter, First National City Bank of New York calculated that it would take 31 years to achieve a 32-hour work week if productivity increased at an average of between two and three percent a year and if workers chose to take the benefits in the same proportions of wages and hours as they had from 1909 to 1941. Alternatively, a four-day work week could be attained in eight years if productivity gains were applied exclusively to work time reduction. A similar calculation had been made by Fortune editor, Daniel Seligman in 1954:

A calculation made by Fortune for the years since 1929 suggests that in the past quarter-century U.S. workers have been taking about 60 per cent of the productivity pie in the form of income, about 40 per cent as leisure. Assuming that the four-day week for non-agricultural employees will be attained when the total work week is in the vicinity of 32 hours, that productivity continues to increase at an average of 2 or 3 per cent a year, and that something on the order of the recent 60-40 ratio for income and leisure continues in effect, the 32-hour week should be spread throughout the whole non-farm economy in about 25 years. 

As did the City Bank forecast, Seligman noted that the shorter work week could be achieved even sooner if workers were willing to forego wage increases.

In fact, productivity gains from 1954 to 1979 averaged 2.4 percent per year. From 1957 to 1988, annual productivity gains averaged 2.2 percent. Assuming 40 percent of actual historical productivity gains, ten paid holidays, and four weeks annual vacation, a 32-hour workweek should have been realized by around 1990 -- aside from the likelihood that progressive reduction of the hours of work would have accelerated productivity gains.

Using the same assumptions, the work week in 2016 should be around 26 hours. Or perhaps people would prefer to continue with the 32-hour week and take three months annual vacation. These calculations overlook the fact that reduction of the hours of work had already stagnated in the early post-war period. If we backdate the 40 percent of productivity reduction to 1950, the 32-hour mark could have been reached seven years earlier.

Edward Denison estimated that 10% of historical productivity gains could be attributed directly to hours reduction. The chart below factors in that additional 10% productivity gain and compares actual average annual hours, 1950 - 2015 with potential hours if reduced according to Seligman's and Denison's assumptions:

But you can't have it now. You just can't. How about a tax cut for the richest, instead?

Is Authoritarian Nationalism Mostly A Rural Phenomenon?

Offhand it looks like maybe it is.  In the US Trump won overwhelmingly in rural areas while losing all of the largest cities.  Yes, he took some mid-size declining industrial ones like Youngstown, OH and Erie, Pa, while losing some rural areas in places like Vermont as well as areas with minority groups the majority of the population.  But in general it holds, he won the countryside and lost the big cities.

In France, Marine Le Pen is also leading in some declining industrial cities of the Northeast for the upcoming presidential second round, but she loses in the larger growing cities such as Paris and Toulouse.   Recently The Economist reported a study showing that as one goes from downtown Paris outward there is a linear and substantial increase in support for her.  Again, the countryside is her base.

The Brexit vote was more for nationalism than authoritarianism, but in England it was the same pattern, countryside and declining industrial cities for it while London was strongly for Remain.  Of course in Scotland, every county was pro-Remain, but that is a special case.

In Russia, where Putin apparently remains very popular, his base is also  the countryside.  The main location where one finds open opposition to him?  Moscow, the largest, richest, and capital city.

So it looks like there is a pattern here, but there are some exceptions.  One is to some extent Turkey, where authoritarian President Erdogan has long had strong support in the largest city, Istanbul. That support fell in the recent referendum vote increasing his  power, which he narrowly won, possibly through fraudulent ballot stuffing. But it was more for him than Ankara and Izmir.  But in fact it was rural areas that provided the base for the referendum to pass, although it was a near draw in very large Istanbul.

Another is Poland, where the Law and Justice Party has strong support in capital city Warsaw, despite its being full of high tech yuppies and all that.  But the now dead Lech Kaczynski was its mayor from 2002-05 before he became president, only to  die in a controversial plane crash in 2010.  However, Law and Justice also has a strong base in certain rural areas, especially the poor and traditional Southeast.

I think in both of these cases what is involved is religion.  Certainly the authoritarian nationalist movements in all these nations are pushing religion or using it, even if just in opposition to other religious groups, especially Muslims.  But in both Turkey and Poland the majority local religions are making comebacks from long periods of suppression and trying to really take over their societies.  In both of them, there are large numbers of strong followers of the nationally predominant religion in these particular large cities, and this may explain why we see these somewhat different outcomes in them compared to so many other nations experiencing this  surge of ugly politics.

Barkley Rosser

Reader Mail and Rand A'Pauling

Responding to my post chastising Woodford for (in effect) assuming that housing prices prior to the unwinding contained no bubble component, reader Narina writes:

"I am a private lender, my company provides loans of all kinds with an interest rate of 2% only. It is a financial opportunity at your door step, apply today and get your quick loans."


Thanks for that astute comment, Narina!  It's wonderful to have such close readers of what one writes, able to hone in on  the weak points of one's argument with lasar-like precision. I stand corrected. I did overlook the fact that there is a "financial opportunity at my doorstep," - which ought to have tempered my criticism of Woodford. 


Meanwhile, the  invaluable Josh Marshall points out that Senator Rand Paul has signed up to teach a course at GWU on dystopian visions. Who better? Libertarianism: the war of all against all.

Financial Times Messes Up On Italy

I have for a long time thought the Financial Times to be the best newspaper in the world, but now I am going to play Dean Baker beating the press on it.  I think they are slipping, and the sign is a story that appeared in today's issue about Matteo Renzi in Italy, about whom I have posted here previously.

The story reported that he is likely to finally nail down the leadership of the Democratic Party in Italy this Saturday over two rivals.  It then praised him and compared him to Canada's Trudeau and France's Macron as a bright young guy all new and blah blah, even as it recognized that he stepped down in December as PM after losing a referendum he pushed.  It said he has learned his lesson.

Now it did briefly recognize that he might have a problem in the general election next year as the opposition Five Star movement now has 50% support in the polls, although so what.  The one thing that they mentioned as possibly causing problems for him would be the problems of Alitalia.

There was zero mention of the corruption problem of his father, zero.  I note that over the last several weeks basically every day on the front pages of all the newspapers in Italy have been stories about this matter, and it has badly damaged Renzi in the polls.  The Alitalia story is back pages. Heck, that airline is always in trouble, in "crisis."  Big nothing.  But his old man being corrupt completely upends this story of him being the reformed young Trudeau-Macron.  He has a serious problem, and it could be a serious problem for the EU next year, if Renzi cannot get this under control.

But the Fin Times somehow completely missed this story.  I guess their reporter listened to some PR guy out of the Renzi camp and never bothered to check on the Italian press.  I am sorry to learn that the FT has joined so many other newspapers in just going down the toilet of bad reporting.

Ciao you all.

Barkley Rosser 

Poland: "What Are These People Complaining About?"

Thus spake Jeffrey Sachs in January 1994 at the ASSA/AEA meetings shortly after the Solidarity government of Lech Walesa was defeated in an election over plans to cut old age pensions, which Sachs thought were too high. He has since recanted some of his views from that time, but indeed Poland had been the poster boy for the Washington Consensus on transition, with its "shock therapy" approach of sudden change that looked like it was doing well.  Poland had sharply reduced inflation from triple to single digits and after a 7% GDP decline in 1990 had turned to positive growth before any other transition economy and was growing impressively with sharply falling unemployment.  What were these people complaining about?

This parallels more recent developments.  Poland was the only European nation not to fall into recession in 2009, able to devalue its zloty as not in the Eurozone and able to continue exporting to strong neighbor Germany.  Its unemployment rate has remained fairly low and its poverty rate falling and below that of the US.  Yet in 2015 the Civic Platform party was ousted by the Law and Justice Party, which has since taken to shutting down free press and judiciary and otherwise engaging in general demagogic and populist authoritarianism along with hyper-nationalism.  Well, thank the Civic Platform raising the retirement age for those large pensions back in 2012, which the Law and Justice Party hammered them on hard.  Part of why Poland has done well has been that indeed it has not undone its social safety net inherited from the communist period, even as so many outsiders and insiders have said they should do, including at some points the mastermind of shock therapy and the finance minister who put it in place, Leszek Balcerowicz.

Poland's problem looks like that of most of the transition economies, especially given that indeed it has been one of the best performing of them, still a poster boy of "successful transition."  As a group  they were catching up to Western Europe during prior to the Great Recession, but since then have not been doing so, falling back if anything, although less so for Poland.  Indeed, if one compares the ranking of European nations by real per capita income a quarter of a century ago with today it is amazingly stable, very little change.  There have been a handful of large movers,  Ireland zooming from not all that well off to, yes, second place now behind only Luxembourg, and Albania moving from dead last to ahead of five others at the bottom, while Ukraine has fallen hard down to second from the bottom, ahead of only Moldova, and Greece falling hard, although still above all but two of the transition nations.  The change of perspective can be seen in that while Poland may have in the past compared itself to neighboring Ukraine, now it compares itself to Germany and the UK, and indeed the "Polish plumber" is the iconic immigrant to UK that helped drive the Brexit vote there.

I note some details about the Polish transition not all that widely known. I heard about the original plan from Leszek Balcerowicz back in 1988 when he was traveling around the US promoting it.  At the time I did  not take it  all that seriously as it was far from obvious that the  Communist government would be replaced the following year and Balcerowicz would be in a position to implement his plan.  But, while he would change his position later, at the time a part not widely remembered but implemented was that privatization would occur slowly.  Indeed, even today Poland has one of the highest rates of state ownership of enterprises of any of the transition nations, quite in contrast with its image.  At the time much of this was nationalistic, fear of Germans in particular coming in and taking over the economy.  But it prevented corrupt and inefficient privatizations as occurred in many other such nations, such as Russia.

I close this by noting that I am in Warsaw right now, and observing that indeed the economy does seem to be mostly operating pretty well on the surface, despite this underlying unhappiness about being behind other nations.  But part of the appeal of the nationalistic  and populist Law and Justice Party has been that Poland has suffered in the past from outside nations, partitioned in the late 1700s by Russia, Prussia, and Austria for over  a century, and then conquered by Nazi Germany and then by Communist Russia/USSR with little support from outsiders.  Their paranoia is not entirely unjustified, even if right now it does not seem that they are being threatened all that much by others, and the conspiracy mongering over the 2010 plane crash that killed then President and Law and Justice Party leader, Lech Kaczynski is being overdone, especially with his twin brother, Jaroslaw effectively running the party.  Nevertheless, they look to have more reason for hysterical and paranoid behavior than some other nations currently engaging in extreme nationalism and hysteria, with the US under Trump probably the outstanding and most egregious example.

Barkley Rosser