Ohmigod, he really did this. At the Institute for Advanced Study in Tel Aviv, during a major conference honoring his profoundly wise and honorable uncle, the late Kenneth Arrow, Larry did this. The vast majority of his talk is an outstanding discussion of Ken Arrow as an economist and a person, full of interesting details, all leading to the conclusion that his uncle was both one of the most brilliant economists who ever lived as well as a deeply wise, personable, morally incorruptible, and all but impeccable as well as just a plain nice guy.
I did not know Ken nearly as well as him, of course, but all that I ever saw of him, as well as everything I have heard of him personally through my sources, completely supports this. To the extent he had noticeable faults they were those of an absent-minded professor who is also a genius. He paid no attention to obvious simple things. He was out of touch with various mundane realities, sometimes embarrassingly so. I shall add a detail not in Larry's account that I have from a primary source. In his old age he would sometimes wander the halls of the Stanford econ dept with his fly unzipped. Nobody ever suggested or remotely thought that there was any ill intent in that. It was like Joe Stiglitz before he became a big star, tying his shoelaces together, something a distracted and brilliant person far beyond anybody around him would do out of absent-mindedness, although Arrow was far beyond Stigitz intellectually and historically, not even close.
So let me deal with the odd matters where on such an august occasion Larry made such an ass of himself. One is a matter of debate, and he put it out there: he and Arrow disagreed with how the post-Soviet transition should be handled. He recognizes that Ken disagreed with his policy as Treasury Secretary under Bill Clinton in the mid-to-late 90s about how to deal with the former USSR. He approved AID funds for Andrei Shleifer and a few others to "assist" in the transition process there, which ended up with Harvard University paying out over $22 million to end a suit by the US Treasury Dept against Shleifer for his conduct there. Summers's attempt to cover for Shleifer, involving him lying in an open meeting to the senior members of the Harvard faculty was the bottom line on why Larry was fired from being Harvard's president. Unsurprisingly, his wise uncle Arrow knew better, but, of course, Larry did not remotely tell the story of what went down there, implying that Ken was somehow unwisely out of touch with US policy as determined by him. (Dave Warsh has written decisively on this matter.) Ooooooooooooooog.
Which brings us to this astounding and utterly despicable bit about Joan Robinson and his other uncle, the late Paul A. Samuelson. So the bottom line outcome of the Cambridge capital theory debates as they came to a head in 1966 in the QJE was that Samuelson's effort to paper over the critique about aggregate neoclassical production functions coming from Joan Robinson and Piero Sraffa was wrong. He admitted it in his "Summing Up"paper in the fall 1966 issue of the QJE when such figures as Garegnani and Pasinetti showed that the attempt to dismiss the general presence of capital theoretic anomalies, more precisely, the general presence of non-monotonicity in the steady-state relations between the rate of profit and level of long term per capita consumption implied that "the foundations of economic theory are based on quicksand."
The bottom line is that he admitted he was wrong in his claims about the "surrogate production function," and that Joan Robinson and Piero Sraffa were right. In many later publications he maintained this position. Indeed, when I first met him personally in the early 70s and confronted him with all the details of the Cambridge Controversies in the Theory of Capital, he admitted that Cambridge, UK was right. He completely disarmed me at that point, of course. Yes, Joan Robinson and Piero Sraffa were right. Capital is only meaningfully discussed as being heterogeneous, ironically a position that Hayek came to before he abandoned the topic. What could I say?
Oh, but now we have his nephew in the venue of honoring his other uncle, the deeply impeccable Kenneth Arrow, reporting this snide wisecrack from Paul Samuelson. I have no doubt that Paul Samuelson made the remark, frustrated undoubtedly as he was with this most serious intellectual defeat of his entire (and very long) career. The occasion was a party celebrating Arrow's receipt of the Nobel Prize in 1972 at a point in time that the only other US Nobel recipient was Paul Samuelson. They were discussing all kinds of mathematical issues long after all the guests were gone and their wives were bored, and here we have Samuelson making inappropriate and nasty remarks about the woman who intellectually humiliated him. But somehow Larry Summers decided in his remarks on Ken Arrow at this very serious and offical commemoration to ever so quietly slip this utterly unjustified jibe at Joan Robinson in. Really, this is shameful.
Barkley Rosser
Sunday, July 16, 2017
Wednesday, July 12, 2017
Comparing Companies to Nations
Asher Schechter raises a good point in How Market Power Leads to Corporate Political Influence but this comparison is troublesome:
In 2016, the advocacy group Global Justice Now published a report showing that 69 of the world’s largest 100 economic entities are now corporations, not governments. With annual revenues of $485.9 billion, Walmart topped all but nine countries.GDP is a value-added concept – revenue is not. So what is the right metric? Walmart may have had this much revenue but its pretax income was only $20.5 billion and its operating income was $22.8 billion. Profits understate value-added and since Walmart has over $100 billion in operating expenses (think all those workers surviving on $9 an hour), Walmart’s gross profit is likely the right metric to compare to the GDP of nations and this figure in 2016 was $124.6 billion. So yea – it is a mega corporation but its value-added does not put it in the top 10 of governments.
Tuesday, July 11, 2017
Was Thomas Jefferson A Monstrous Rapist?
It is quite likely that I shall be on the receiving end of some strong opprobrium for this post, but, well, here it goes anyway.
So, Shaun King in the New York Daily News in an article being spread around the internet has accused Thomas Jefferson of being a "rapist" (in the article headline) and "monstrous" in the body of the article for his relationship with his slave, Sally Hemings, who bore him six children, with her and them not ever being freed by the in-debt Jefferson. Much of the article is accurate, including that last point, as well as that he owned more than 600 slaves (sorry, having trouble linking to article itself). The main point is that because he legally owned her she had no ability to consent or not consent, so therefore any sex between them was rape, indeed, monstrous rape, with in fact it appearing that this all started when she was about 14, so adding in by current standards statutory rape, although that point was not made in the article.
I would contend that the correct point in the article is that slavery was itself a monstrous system, and that anybody trying to defend it because some slavemasters were not as cruel as some others is unjustified. It cannot be justified. It was monstrous. And, indeed, the nature of it profoundly morally polluted all interpersonal relations that occurred within it, including sexual ones.
Well, I would say that we do not know whether or not she consented or not. Those pointing out that she could not refuse are, of course, correct. But that does not mean that she did not consent. There is a parallel, although less so, with ongoing situations where male bosses impose themselves on female subordinates, where the surbordinate may really not be able to give up the job because of economic reasons, needing to support a family, no alternative jobs available. OK, this is not as bad as slavery, but it is also very similar. Yes, that is now illegal, but we call in sexual harassment, not monstrous rape, with rape still involving a clear unwillingness of the person supposedly being raped. In the case of Sally Hemings, we simply do not know,
Let me note a possible alternative view on what happened between them, although this may not be true, and Jefferson's failure to free her does not speak at all well of him. None of this is mentioned in Shaun King's article. So, when Jefferson (TJ) took Sally Hemings (SH) with him to Paris when she was 14 and he became ambassador, he was 44. This is noted in the article, hence, of course the further statutory rape aspect. But what King left out is that at the time TJ was a widower and alone. Furthermore, the really important detail, SH was the half sister of his dead wife, with both of them sharing the same father. Now today we consider all of this not only to be monstrous, but an abomination, really horrendous. But at the time, it was not at all uncommon, quite widespread in fact.
So it is not at all impossible that TJ himself fell in love with this slave who so reminded him of his dead wife, and she may well have been sympathetic and understanding and not at all in a mood to resist or reject him, in fact, the feeling may have been mutual, although we shall probably never know. Now at this point somebody might say, "well, why did he not do the right thing and free her and marry her?!" There is a very simple and obvious reason. It would have been against the law. Miscegnation was outlawed in Virginia in the 1690s and that law would remain on the books until a half century ago when the SCOTUS famously overturned it in Loving versus Virginia, the ruling that basically ended all anti-miscegenation laws throughout the US. Maybe he was just a monstrous rapist, but it is also quite possible that they were both oppressed by this law and system where they could not do what they really wanted.
So, he had to cover it up, although one can certainly ding him on his hypocrisy in certain writings that are not favorable to African-Americans. But then we know that for him, he was deeply hypocritical, the slaveowner who wrote all those stirring words in the Declaration of Independence that would later by used by civil rights leaders like Martin Luther King, Jr. to advance their cause.
Barkley Rosser
So, Shaun King in the New York Daily News in an article being spread around the internet has accused Thomas Jefferson of being a "rapist" (in the article headline) and "monstrous" in the body of the article for his relationship with his slave, Sally Hemings, who bore him six children, with her and them not ever being freed by the in-debt Jefferson. Much of the article is accurate, including that last point, as well as that he owned more than 600 slaves (sorry, having trouble linking to article itself). The main point is that because he legally owned her she had no ability to consent or not consent, so therefore any sex between them was rape, indeed, monstrous rape, with in fact it appearing that this all started when she was about 14, so adding in by current standards statutory rape, although that point was not made in the article.
I would contend that the correct point in the article is that slavery was itself a monstrous system, and that anybody trying to defend it because some slavemasters were not as cruel as some others is unjustified. It cannot be justified. It was monstrous. And, indeed, the nature of it profoundly morally polluted all interpersonal relations that occurred within it, including sexual ones.
Well, I would say that we do not know whether or not she consented or not. Those pointing out that she could not refuse are, of course, correct. But that does not mean that she did not consent. There is a parallel, although less so, with ongoing situations where male bosses impose themselves on female subordinates, where the surbordinate may really not be able to give up the job because of economic reasons, needing to support a family, no alternative jobs available. OK, this is not as bad as slavery, but it is also very similar. Yes, that is now illegal, but we call in sexual harassment, not monstrous rape, with rape still involving a clear unwillingness of the person supposedly being raped. In the case of Sally Hemings, we simply do not know,
Let me note a possible alternative view on what happened between them, although this may not be true, and Jefferson's failure to free her does not speak at all well of him. None of this is mentioned in Shaun King's article. So, when Jefferson (TJ) took Sally Hemings (SH) with him to Paris when she was 14 and he became ambassador, he was 44. This is noted in the article, hence, of course the further statutory rape aspect. But what King left out is that at the time TJ was a widower and alone. Furthermore, the really important detail, SH was the half sister of his dead wife, with both of them sharing the same father. Now today we consider all of this not only to be monstrous, but an abomination, really horrendous. But at the time, it was not at all uncommon, quite widespread in fact.
So it is not at all impossible that TJ himself fell in love with this slave who so reminded him of his dead wife, and she may well have been sympathetic and understanding and not at all in a mood to resist or reject him, in fact, the feeling may have been mutual, although we shall probably never know. Now at this point somebody might say, "well, why did he not do the right thing and free her and marry her?!" There is a very simple and obvious reason. It would have been against the law. Miscegnation was outlawed in Virginia in the 1690s and that law would remain on the books until a half century ago when the SCOTUS famously overturned it in Loving versus Virginia, the ruling that basically ended all anti-miscegenation laws throughout the US. Maybe he was just a monstrous rapist, but it is also quite possible that they were both oppressed by this law and system where they could not do what they really wanted.
So, he had to cover it up, although one can certainly ding him on his hypocrisy in certain writings that are not favorable to African-Americans. But then we know that for him, he was deeply hypocritical, the slaveowner who wrote all those stirring words in the Declaration of Independence that would later by used by civil rights leaders like Martin Luther King, Jr. to advance their cause.
Barkley Rosser
Friday, July 7, 2017
Here is a Little Economics Lesson
Here’s a little economics lesson: supply and demand. You put the supply out there, and demand will follow. -- Rick Perry, U.S. Secretary of EnergyWhile the media is having fun at the expense of Secretary Perry's asinine "economics lesson" it is worth pointing out that the very same publications that ridicule Perry perpetually peddle the exact same theory under the guise of "debunking" the imaginary lump-of-labor fallacy. Here is The Economist from yesterday telling its readers that the demand for goods and services is infinite:
By the 1990s governments and employers realised they were making pension promises they would not be able to keep. The idea that there is only a finite number of jobs to go round—the "lump of labour"—was more widely exposed as a fallacy. It became fashionable to argue that "we must work till we drop."Just for the record, the number of jobs to go round is indeed finite. The demand for goods and services is limited by the funds and credit available to consumers to purchase them and the time available to consume them. Those funds and credit are, in principle, limited even though those limits are, in practice, quite malleable and difficult to pinpoint. Expansion of credit beyond those limits invariably leads to collapse when debt loses its "credibility" -- which is to say the reasonable expectation that the debtor can continue to service the debt.
Perry may be a total fool but he is only parroting what he has been taught by... "economists."
Thursday, July 6, 2017
Did Kevin Hassett Ever Hear About the Solow Growth Model?
Why did Brad DeLong dig up some 2007 nonsense by Kevin DOW 36000 Hassett?
When Kenneth Arrow was awarded the Nobel Prize in Economics in 1972, one of the contributions the awards committee cited was his miraculous “impossibility” theorem. Decades from now, Arrow’s theorem, originally drawn in his doctoral dissertation, will be viewed as the 20th-century idea that best anticipated the 21st century. While mathematical in origin, the impossibil¬ity theorem is simple to describe in words: A government is really just a mechanism that makes collective decisions for a large number of cit¬izens who have different preferences. I might want to spend our tax dollars on dog parks; you might prefer more police. The government’s job is to work it out.I guess by now you may be wondering where this is going. It seems Hassett is making a case for dictatorship based on stimulating economic growth:
An organization called Freedom House rates the level of political freedom of the world’s nations on a scale of 1 to 7, with 1 the most free. For example, according to the 2006 sur¬vey, countries like the United States and Italy are rated 1, while Singapore is rated 4.5, China and Saudi Arabia 6.5, and North Korea 7 ... nfree China had a growth rate of 9.5 percent from 2001 to 2005.By contrast, the U.S. growth rate averaged only 2.5%. So much for the Bush boom! Then again – U.S. per capita income was considerably higher than that of Chinese per capita income so would not one expect higher Chinese growth – assuming one bothered to have learned the Solow growth model?
Monday, July 3, 2017
Dean Baker v. Paul Krugman on Trump’s Tariffs
Paul Krugman goes after Trump on his trade war agenda, which alas prompts Dean Baker to go holier (more progressive) than thou on Krugman. While there are passages where Dean is making sense, some of this is bait and switch in my view.
This prospect has many folks, including Paul Krugman, terrified. I don’t share his fear.Not only is Paul not terrified, Dean later notes that high tariffs on Chinese goods such bad policy that he might be terrified. Can we stop we these cheap shots? Here is the basic underlying premise of Dean’s substantive comments:
I should also say that tariffs are not my preferred way of dealing with the country’s trade deficit, which I do consider a problem. Anyone who thinks secular stagnation (i.e. not enough demand in the economy) is a problem should believe the trade deficit is a problem. If the trade deficit were 1.0 percent of GDP rather than 3.0 percent of GDP we would have been approaching full employment many years ago.In other words, Dean is assuming we are not close to full employment so we can go all Keynesian here. Look, I agree we are not at full employment so I will go all Keynesian too. If Dean is suggesting Paul does not share this view when we are below full employment, he is not being honest with his audience. And yes I know some think we are at full employment right now. Can we simply say these folks are wrong? Dean continues:
But the normal mechanism for reducing a trade deficit is an adjustment in currency values. This means that the currency of the country (the United States) with the deficit falls and the country with surplus (much of the rest of the world) rises. When the dollar falls in value relative to other currencies, U.S. made goods and services become more competitive internationally. That will lead to more U.S. exports, and fewer imports, bringing trade closer to balance.Not disagreement here or from Paul I would presume. But now Dean goes a bit off the rails:
This adjustment in currency values has not taken place primarily because foreign governments have bought up massive amounts of dollars. This is partly as a reserve currency to protect themselves against financial crises.Does Dean really think we are in a world of pegged exchange rates? Maybe China was doing currency manipulation a decade ago but they are not now. The main reason that the dollar is too strong is that the ECB is adopting easier monetary policies than we are. Dean notes that Trump has finally abandoned this currency manipulation nonsense and is going for trade wars. Of course the folly of both trade wars or currency manipulation was exposed by Joan Robinson in 1937 when at least some countries were under a pegged exchange rate regime. But I challenge Dean to think about tariffs under floating exchange rates. If we adopt Trumps tariffs, the dollar would further appreciate hurting export sectors even if it helps the favored import sectors. Dean to his credit wants to talk about the distributional aspects of all of this but he needs to address what Paul wrote:
the tariffs now being proposed would boost capital-intensive industries that employ relatively few workers per dollar of sales; these tariffs would, if anything, further tilt the distribution of income against labor.I’m sure Dean has heard of the Stopler-Samuelson theorem which in this application would imply higher profits and lower wages. So explain to me – how is Dean being more progressive than Paul on this issue?
It Is Monday, And Robert Samuelson At The Washington Post Is Bashing Social Security Yet Again
Yet again.
I grant that he did not do it at length or present a lot of clearly incorrect nonsense. But bash Social Security he did, using an old ruse to do so, combining it with Medicare to invoke a long term deficit danger due to the two of them together, when in fact it is well known that it is the Medicare part of that projection of future spending that leads to all the scary looking deficit numbers, not the Social Security part.
Most of the column by Robert J. Samuelson today,"Everybody's mad at somebody," is a lament about political polarization in the US today, and the obnoxious effect this has policy making. Fred Hiatt has a similar column, "Trump's wasted opportunity," although I would say that for once Hiatt avoided saying anything too silly, noting possible political compromises on a carbon tax, immigration policy, and tax reform, that might have been possible if Trump had been willing to be a nonpartisan leader, but that look unlikely to happen given his descent into cheap partisanship, as well as his general ignorance and incompetence. Most of Samualson's column deals with past history of compromises made and how we got to not doing that anymore. However, his misguided statement on Social Security appears in a single paragraph, which I shall quote in its entirety now, regarding supposed compromises or issues that need compromising that are not likely to be.
"To take two familiar examples: The Republican promise to repeal and replace Obamacare while also reducing premiums and expanding coverage was never possible. It was make-believe. Similarly, the Democratic refusal to deal with the escalating costs of Medicare and Social Security is crushing other worthy government programs - a strange position for a pro-government party."
So here is RJS back to playing the role of WaPo Very Serious Person, or whatever, calling for a compromise between the supposedly equally unwise positions of the two parties. But, the hard fact is that his analysis of the impossibility of the GOP position is completely accurate. He falls down when he gets to the Dem side. Again, there is a rising trend of medical care costs, which affects Medicaid as well as Medicare. If he had replaced Social Security with Medicaid, he would have been much more accurate, and clearly we need some sort of program to get rising medical care costs under control
But throwing in Social Security there instead of Medicaid (which the GOP is trying to cut without cost controls, just throw people off) as part of their Obamacare repeal and replace, muddies the waters, although it fits in with the longstanding campaign by the WaPo ed board to slash Social Security. And it does have RJS back on his regular Monday spot playing that old game, even if he did not make too much of a silly fuss about it this time. But some of us have our eyes on him, and will call him out when he pulls this nonsense, when we catch him. And he was at it again here.
BTW, Happy Fourth of July, you all.
Barkley Rosser
I grant that he did not do it at length or present a lot of clearly incorrect nonsense. But bash Social Security he did, using an old ruse to do so, combining it with Medicare to invoke a long term deficit danger due to the two of them together, when in fact it is well known that it is the Medicare part of that projection of future spending that leads to all the scary looking deficit numbers, not the Social Security part.
Most of the column by Robert J. Samuelson today,"Everybody's mad at somebody," is a lament about political polarization in the US today, and the obnoxious effect this has policy making. Fred Hiatt has a similar column, "Trump's wasted opportunity," although I would say that for once Hiatt avoided saying anything too silly, noting possible political compromises on a carbon tax, immigration policy, and tax reform, that might have been possible if Trump had been willing to be a nonpartisan leader, but that look unlikely to happen given his descent into cheap partisanship, as well as his general ignorance and incompetence. Most of Samualson's column deals with past history of compromises made and how we got to not doing that anymore. However, his misguided statement on Social Security appears in a single paragraph, which I shall quote in its entirety now, regarding supposed compromises or issues that need compromising that are not likely to be.
"To take two familiar examples: The Republican promise to repeal and replace Obamacare while also reducing premiums and expanding coverage was never possible. It was make-believe. Similarly, the Democratic refusal to deal with the escalating costs of Medicare and Social Security is crushing other worthy government programs - a strange position for a pro-government party."
So here is RJS back to playing the role of WaPo Very Serious Person, or whatever, calling for a compromise between the supposedly equally unwise positions of the two parties. But, the hard fact is that his analysis of the impossibility of the GOP position is completely accurate. He falls down when he gets to the Dem side. Again, there is a rising trend of medical care costs, which affects Medicaid as well as Medicare. If he had replaced Social Security with Medicaid, he would have been much more accurate, and clearly we need some sort of program to get rising medical care costs under control
But throwing in Social Security there instead of Medicaid (which the GOP is trying to cut without cost controls, just throw people off) as part of their Obamacare repeal and replace, muddies the waters, although it fits in with the longstanding campaign by the WaPo ed board to slash Social Security. And it does have RJS back on his regular Monday spot playing that old game, even if he did not make too much of a silly fuss about it this time. But some of us have our eyes on him, and will call him out when he pulls this nonsense, when we catch him. And he was at it again here.
BTW, Happy Fourth of July, you all.
Barkley Rosser
Friday, June 30, 2017
Sandwichman in the FT
Financial Times: "The minimum wage wars are heating up: A new study fails to prove its claim that Seattle wage floor hurts workers" by Martin Sandbu, at Free Lunch on FT Alphaville
First, the numerical result struggles to pass an intuitive “smell test”. As the Angry Bear blog [cross posted at EconoSpeak!] points out, employment in Seattle was booming throughout the period: average wages increased by 18 per cent (!) in the time covered by the study; as did the number of hours worked at all wage rates. It is important to note that the researchers have data on jobs, not on individual workers — so even if there are fewer low-paid jobs than before, it does not follow that workers have lost as many jobs rather than moved into better ones.
...
Fifth, there is a simple arithmetical issue with the methodology. If "low-paid" is defined as below a fixed threshold wage ($19/hour in this study), higher average wage growth in one group relative to an initially similar control group will necessarily take more people out of the low-wage bracket. Such wage bracket creep means that the higher wage growth will "cause" a "loss" of low-wage work through mechanical arithmetics even if nothing causal is happening (indeed even if everyone stays in the same job).
Thursday, June 29, 2017
Muhammed Bin Nayef Bin Abdulaziz Al Sa'ud Confined To His Palace
In Jidda, according to the New York Times today. So the story about the now deposed 57-year old former Crown Prince of Saudi Arabia and former Minister of the Interior, Muhammed bin Nayef (MbN), putting out a video supporting his own removal appears to be phony propaganda. The Saudis instead have been broadcasting a video of the new Crown Prince, 31-year old Muhammed bin Salman (MbS) kissing the hand of (MbN). Presumably he did that back in the day when MbN was the Crown Prince and MbS was his supposed loyal deputy. We have no video of MbN kissing the hand of MbS.
As it is, the story also reports that when MbS's elevation was announced, MbN returned to his palace to find his guards replaced by ones loyal to his successor. He and his daughters have since been confined to the palace and also forbidden to leave the country, although the latter would seem to be impossible if they cannot leave the palace.
MbN has been replaced as Minister of the Interior by his nephew, Muhammed bin Saud bin Nayef, whose father is governor of the Eastern Province. Reportedly US intelligence officials are "outraged" at this, having worked long and well with MbN, who was reportedly the key figure behind squashing al Qaeda in Saudi Arabia, He is viewed by these people as very competent, and his successor has apparently no experience at all in the area. Wonderful. But these people are constrained from speaking openly because of the clear support by President Trump and his son-in-law, Jared Kushner, of the elevation of MbS, as well as his aggressive warmongering in Yemen, against Qatar, and also against Iran.
Of course, we have also seen the spectacle of SecState Rex Tillerson repeatedly making it clear that he at least does not support the diplomatic and economic moves against Qatar. SecDef Mattis has laid lower on the matter, but has also made it clear that the US intends to maintain its major CENTCOM air base in Qatar and is engaging in actions such as selling Qatar fresh fighter jets that go completely against the Saudi-led move that has been pushed by the warmongering and irresponsible new Crown Prince, Muhammed bin Salman, so stupidly supported by our lunatic president.
In any case, the confinement of Muhammed bin Nayef to his palace suggests that not only does he not accept his double demotion, but that King Salman and his pushy but apparently incompetent son are afraid that all this may not go over all that well with other senior members of the royal family, so MbN must be kept out of public attention, although confining him like this might back fire, just as the failed efforts to militarily escalate in Yemen, not to mention to isolate Qatar, appear to be doing.
Oh, King Salman has also now appointed another son, 28-year old Khalid bin Salman, to be ambassador to the US. Let us hope he is not as gonzo off-the-wall as his brother.
Oh, and on the matter of the late Hassa bint Ahmed al-Sudairi, mother of the current king, I have been unable to find when she really died. The source for the Wikipedia entry and pretty much everything else out there readily accessible claim that she died in 1969 is a 2005 article in the Daily Telegraph, with no identified author, on the death of her most powerful son, the late King Fahd. Deep in the article his mother was mentioned, along with the claim she died in 1969. But I know from primary sources that she was alive much later and running the country through her sons, whom she demanded regular meetings with and complete obeisance to her wishes. I checked the authoritative book from 1981 by Robert Lacey, The Kingdom. He reports on how Abdulaziz went for her as a child and first married her when she was 13. She had a son for him, Sa'ad, who died early, after when Abdlulaziz divorced her, so she married his brother, Muhammed. But Abdulazis was in love with her, reportedly beautiful as well as strong-willed, and he later made Muhammed divorce her, although she produced sons for him, and he remarried her, keeping her as a wife until his death. It was during this second marriage that she produced the Sudairi Seven, one of whom, Salman, is now king. Lacey does not report on her having died in his 1981 book.
Barkley Rosser
As it is, the story also reports that when MbS's elevation was announced, MbN returned to his palace to find his guards replaced by ones loyal to his successor. He and his daughters have since been confined to the palace and also forbidden to leave the country, although the latter would seem to be impossible if they cannot leave the palace.
MbN has been replaced as Minister of the Interior by his nephew, Muhammed bin Saud bin Nayef, whose father is governor of the Eastern Province. Reportedly US intelligence officials are "outraged" at this, having worked long and well with MbN, who was reportedly the key figure behind squashing al Qaeda in Saudi Arabia, He is viewed by these people as very competent, and his successor has apparently no experience at all in the area. Wonderful. But these people are constrained from speaking openly because of the clear support by President Trump and his son-in-law, Jared Kushner, of the elevation of MbS, as well as his aggressive warmongering in Yemen, against Qatar, and also against Iran.
Of course, we have also seen the spectacle of SecState Rex Tillerson repeatedly making it clear that he at least does not support the diplomatic and economic moves against Qatar. SecDef Mattis has laid lower on the matter, but has also made it clear that the US intends to maintain its major CENTCOM air base in Qatar and is engaging in actions such as selling Qatar fresh fighter jets that go completely against the Saudi-led move that has been pushed by the warmongering and irresponsible new Crown Prince, Muhammed bin Salman, so stupidly supported by our lunatic president.
In any case, the confinement of Muhammed bin Nayef to his palace suggests that not only does he not accept his double demotion, but that King Salman and his pushy but apparently incompetent son are afraid that all this may not go over all that well with other senior members of the royal family, so MbN must be kept out of public attention, although confining him like this might back fire, just as the failed efforts to militarily escalate in Yemen, not to mention to isolate Qatar, appear to be doing.
Oh, King Salman has also now appointed another son, 28-year old Khalid bin Salman, to be ambassador to the US. Let us hope he is not as gonzo off-the-wall as his brother.
Oh, and on the matter of the late Hassa bint Ahmed al-Sudairi, mother of the current king, I have been unable to find when she really died. The source for the Wikipedia entry and pretty much everything else out there readily accessible claim that she died in 1969 is a 2005 article in the Daily Telegraph, with no identified author, on the death of her most powerful son, the late King Fahd. Deep in the article his mother was mentioned, along with the claim she died in 1969. But I know from primary sources that she was alive much later and running the country through her sons, whom she demanded regular meetings with and complete obeisance to her wishes. I checked the authoritative book from 1981 by Robert Lacey, The Kingdom. He reports on how Abdulaziz went for her as a child and first married her when she was 13. She had a son for him, Sa'ad, who died early, after when Abdlulaziz divorced her, so she married his brother, Muhammed. But Abdulazis was in love with her, reportedly beautiful as well as strong-willed, and he later made Muhammed divorce her, although she produced sons for him, and he remarried her, keeping her as a wife until his death. It was during this second marriage that she produced the Sudairi Seven, one of whom, Salman, is now king. Lacey does not report on her having died in his 1981 book.
Barkley Rosser
Arithmetic is Hard: Wage-Bracket Creep
There has been a lot of very good critique of the methodology of the University of Washington's study of the minimum wage increase in Seattle. However, I want to repeat and emphasize a very simple point that jumps out.
See how much worse off the treatment group is than the control group? The yellow cell occupants haven't lost their jobs, they have simply been excluded from their respective groups because their wage now exceeds the static cutoff amount.
Of course, I wondered if the study authors could be making such a simple arithmetic mistake. So I reached out to one of the authors, who generously replied but appeared to confirm that they relied on a static threshold. I say appeared because some of the replies were, shall we say, "ambiguous" but did not disclaim use of a static threshold when I sought explicit confirmation or denial.
A static low-wage cutoff point, whether it be $19 or $100, automatically reduces the size of the treatment group (Seattle) if wages in the treatment group are increasing faster than the wage of the control group.This is not erudite statistical methodology. This is simple arithmetic. If the wages in the treatment group increase at a higher percentage rate than the wages in the control group, more workers are lifted above the $19 threshold in the treatment group than in the control group. This is true if the treatment group and the control group are otherwise absolutely identical. This is what I call wage-bracket creep. The extremely simplified example below shows how this looks, the yellow cells represent workers whose jobs and hours would be "lost" (to the study) as they pass the $19 threshold:
See how much worse off the treatment group is than the control group? The yellow cell occupants haven't lost their jobs, they have simply been excluded from their respective groups because their wage now exceeds the static cutoff amount.
Of course, I wondered if the study authors could be making such a simple arithmetic mistake. So I reached out to one of the authors, who generously replied but appeared to confirm that they relied on a static threshold. I say appeared because some of the replies were, shall we say, "ambiguous" but did not disclaim use of a static threshold when I sought explicit confirmation or denial.
Counseling Politics
Bear with me. I’m going to try out an idea that may be completely off-base, or maybe not. I would very much like to hear what you think of it.
When I was young, long ago, organizations sometimes employed a few counselors or advocates, people whose job was to help clients or other members of the public navigate the bureaucratic tangle of rules, forms, preconditions and other procedures that often stood between them and and the benefits they sought to obtain. A hospital, for instance, might employ a patient advocate who could advise how to access care that, in principle, ought to be available to all. When I was an undergraduate there was a small advising office at my university that helped students figure out how to complete their requirements and get the services and support they needed.
I have the impression that, in the last few decades, this job category has rapidly expanded, not only in the number of its practitioners but also the scope of their assignment. This trend has attracted a lot of attention in higher education, where counseling has expanded at the expense of teaching, at least in its increasing command of limited budgets. Other social service organizations have turned to counselors, advocates, advisors and similar sorts in increasing numbers.
And counseling has taken on a new ideology, a particular way of defining the set of problems it addresses and the forms solutions should take. The old, narrow understanding was that people often lacked knowledge of available resources and the procedures for accessing them. The solution was conveying the relevant information or maybe even changing the rules. Many counselors still practice this art. But there is also a new view that the core problem is disempowerment, a psychological condition that prevents people from solving their own problems. The solution is (of course) empowerment via facilitation whose purpose is to invoke a sense of agency on the part of clients, so people can make decisions they feel comfortable with.
The old view of counseling located the problems of this world in institutions—their complexities and irrationalities. The new view identifies the core problem as a need for a different type of consciousness.
Now take a further step: suppose this ideology centered on the transformation of consciousness has spread its influence widely through our culture. One marker might be the distinctive language that “counselorship” employs. I haven’t investigated the matter quantitatively, but my impression is that the phrase “advocate for” has steadily displaced “advocate” in a wide range of uses in recent decades. Once upon a time, one advocated policies and occasionally, if one were in the counseling trade, one advocated for a client or group that needed support. Roughly speaking, if you were for the means to achieve a goal, like a law or policy initiative, you advocated it, and on those rare occasions when you were speaking on behalf of particular human beings (who are ends in themselves) you advocated for them. But now most English speakers are advocates for exclusively: they advocate for lower or higher taxes, fuel efficiency standards, whatever. Counseling language has taken over.
Perhaps the counseling perspective has begun to transform politics as well. If so, we would see a tendency to redefine problems away from the discussion of particular laws or procedures and toward new mindsets/paradigms/discourses/consciousnesses that, by empowering the oppressed or aggrieved, constitute in themselves the objectives of political action. According to such a perspective, the problem of climate change, to take one example, is not explained by quantitative accounts of the carbon cycle and fossil fuel releases, but as stemming from a failure of consciousness. People have been disempowered by false conceptions of the true costs and benefits of consumption, their relationship to nature, etc., and “solving” the problem must take the form of transforming consciousness along these dimensions.
What I’m trying to understand is this: I could agree that altering consciousness would be important if it were part of a thought-out political strategy. Imagine the argument went something like, “if we change the consciousness of x% of the population, they will vote for politicians who will enact laws that restrict carbon extraction, and so on”—then yes, consciousness change is important. (I don’t think this is how political change happens, but that’s a topic for another day.) But I sense a widespread commitment to a type of politics in which consciousness change is the whole story; it’s not an element in a larger process—it is the process.
It could be that the perspective centered on transformation of consciousness is actually driving the spread of counseling-ism, rather than taking hold as a result of it. I might be confusing cause and effect. Or maybe it’s just coincidental. I need help in understanding this.
What I do think I am observing, though, is a systematic shift, especially in large parts of the left, toward a view that social problems and solutions can be understood almost entirely as deficiencies of consciousness (“colonized” by oppressive mindsets) to be overcome by transformations of consciousness that empower the marginalized and dispossessed.
I don’t know what empirical evidence would look like on this topic. I am proceeding from a small set of case studies, including one I have been living through intimately at my place of work. At this point, if an explanation seems to work for a particular case, that’s a point in its favor. Useful responses to this very speculative blog post would take the form of cases that either exhibit or contradict its argument.
When I was young, long ago, organizations sometimes employed a few counselors or advocates, people whose job was to help clients or other members of the public navigate the bureaucratic tangle of rules, forms, preconditions and other procedures that often stood between them and and the benefits they sought to obtain. A hospital, for instance, might employ a patient advocate who could advise how to access care that, in principle, ought to be available to all. When I was an undergraduate there was a small advising office at my university that helped students figure out how to complete their requirements and get the services and support they needed.
I have the impression that, in the last few decades, this job category has rapidly expanded, not only in the number of its practitioners but also the scope of their assignment. This trend has attracted a lot of attention in higher education, where counseling has expanded at the expense of teaching, at least in its increasing command of limited budgets. Other social service organizations have turned to counselors, advocates, advisors and similar sorts in increasing numbers.
And counseling has taken on a new ideology, a particular way of defining the set of problems it addresses and the forms solutions should take. The old, narrow understanding was that people often lacked knowledge of available resources and the procedures for accessing them. The solution was conveying the relevant information or maybe even changing the rules. Many counselors still practice this art. But there is also a new view that the core problem is disempowerment, a psychological condition that prevents people from solving their own problems. The solution is (of course) empowerment via facilitation whose purpose is to invoke a sense of agency on the part of clients, so people can make decisions they feel comfortable with.
The old view of counseling located the problems of this world in institutions—their complexities and irrationalities. The new view identifies the core problem as a need for a different type of consciousness.
Now take a further step: suppose this ideology centered on the transformation of consciousness has spread its influence widely through our culture. One marker might be the distinctive language that “counselorship” employs. I haven’t investigated the matter quantitatively, but my impression is that the phrase “advocate for” has steadily displaced “advocate” in a wide range of uses in recent decades. Once upon a time, one advocated policies and occasionally, if one were in the counseling trade, one advocated for a client or group that needed support. Roughly speaking, if you were for the means to achieve a goal, like a law or policy initiative, you advocated it, and on those rare occasions when you were speaking on behalf of particular human beings (who are ends in themselves) you advocated for them. But now most English speakers are advocates for exclusively: they advocate for lower or higher taxes, fuel efficiency standards, whatever. Counseling language has taken over.
Perhaps the counseling perspective has begun to transform politics as well. If so, we would see a tendency to redefine problems away from the discussion of particular laws or procedures and toward new mindsets/paradigms/discourses/consciousnesses that, by empowering the oppressed or aggrieved, constitute in themselves the objectives of political action. According to such a perspective, the problem of climate change, to take one example, is not explained by quantitative accounts of the carbon cycle and fossil fuel releases, but as stemming from a failure of consciousness. People have been disempowered by false conceptions of the true costs and benefits of consumption, their relationship to nature, etc., and “solving” the problem must take the form of transforming consciousness along these dimensions.
What I’m trying to understand is this: I could agree that altering consciousness would be important if it were part of a thought-out political strategy. Imagine the argument went something like, “if we change the consciousness of x% of the population, they will vote for politicians who will enact laws that restrict carbon extraction, and so on”—then yes, consciousness change is important. (I don’t think this is how political change happens, but that’s a topic for another day.) But I sense a widespread commitment to a type of politics in which consciousness change is the whole story; it’s not an element in a larger process—it is the process.
It could be that the perspective centered on transformation of consciousness is actually driving the spread of counseling-ism, rather than taking hold as a result of it. I might be confusing cause and effect. Or maybe it’s just coincidental. I need help in understanding this.
What I do think I am observing, though, is a systematic shift, especially in large parts of the left, toward a view that social problems and solutions can be understood almost entirely as deficiencies of consciousness (“colonized” by oppressive mindsets) to be overcome by transformations of consciousness that empower the marginalized and dispossessed.
I don’t know what empirical evidence would look like on this topic. I am proceeding from a small set of case studies, including one I have been living through intimately at my place of work. At this point, if an explanation seems to work for a particular case, that’s a point in its favor. Useful responses to this very speculative blog post would take the form of cases that either exhibit or contradict its argument.
Wednesday, June 28, 2017
Comments on Profit and Capital
Yeah, I know, Marx wrote three volumes on this, and in 2014 Piketty published in English a more than 700 page book on it that ended up on the bestseller list, although neither of these resolved the long-running debates about the nature of profit or of capital, which continue to swirl. We have seen recently someone claiming that distinguishing between retained and distributed earnings is the key to understanding profit, and failing to do so means all of economics as we know it is wrong. But then there have been many other views that this view does not remotely address. Regarding capital itself, which profit is usually thought of as being one of the sources of income related to, let me quote the following that notes a range of views out there.
"What really is capital and what does it mean for value, growth, and distribution? Is it a pile of produced means of production? Is it dated labor? Is it waiting? Is it roundaboutness? Is it an accumulated pile of finance? Is it a social relation? Is it an independent source of value? The answers to these questions are probably matters of belief."
From Catastrophe to Chaos: A General Theory of Economic Discontinuities, Kluwer, 1991, p. 125.
I leave it the imagination (or googling) of the reader as to who the author of that book is, although I note that the quotation appeared in the second edition of the book that came out in 2000.
So there are surface issues regarding the nature of profit and capital, and there are deeper issues. This quotation lists some of the deeper arguments that have been made by different schools of economics. The "pile of produced means of production" is basically a Principles textbook orthodox position, which rules out financial definitions, with many "people in the street " thinking it is an "accumulated pile of finance," a later answer in the list. People teaching intro econ courses like to pound on wrongness of this popular view, ultimately falling back on the argument that capital is a "factor of production," which means that whatever it is one must be able to use it in actual production processes." Machinery and buildings and other such "produced means of production" do that, so they count, and the building of them is what "real investment" is, not just somebody using some money to buy some financial assets, which is what the person in the street usually means by "investing my capital." We spend lots of time disabusing them of their delusions, we who know that "money is an illusion," and that while finance is very important in the functioning of modern economies, piles of money or financial assets do not in and of themselves actually produce something. Rather they are indicators and means for determining who gets to own those actually productive forms of "real capital," oh to throw out another term.
So some of the later definitions seek to get at the foundations of where this producing of these productive means of production come from, all that "real capital investment." So, if we are inclined to a Ricardo or Marx labor theory of value view, then all we see about is either produced by current or past labor. That truck over there was put together by workers with machines in a factory, with those machines made by worker and some other machines, which in turn were made further in the past by yet other workers and other machines, and so on and on until we can reduce all of those produced means of production to being really a bunch of current labor plus a whole string of past labor going way back into the depths of time from many many now-dead workers.
Curiously, although the Austrians abjure the labor theory of value, the theory of "roundaboutness" is theirs, notably Bohm-Bawerk anyway, and he derived it precisely from looking at this sort of Ricardo-Marx argument that I laid out. So past time gets dragged in, with the longer that stream of past labor goes into the past, well, the more roundaboutness, and this is what he said was capital, and to get at another question raised, how it came to be an "independent source of value," from just current labor time.
But dragging in time gets us to"waiting," which also drags in finance, given that we are talking about saving, which is usually done by piling up financial assets of one sort or another, some of which may pay yet another source of capital income, namely interest. Proto-neoclassical, Nassau Senior, got on this one, although this is deeply part of the official neoclassical canon, which in the formulation of Irving Fisher had the real rate of interest being that which established the intertemporal equilibrium between the willingness to wait by not consuming today, and effectively the marginal product of infestment, or capital is you prefer, coming from the production side, those produced means of production, with an implicit assumption that what does not get consumed and so saved, ends up being invested to create that "real capital," waiting being crucial to all this.
Of course the "social relation" answer is the deeper Marxist view, the part that distinguishes Marx from Ricardo.
Quite aside from this there is the surface aspect of profit and capital, which turns out to be quite complicated, even the trivial surface matter of accounting to measure it. I said in an earlier post that it is at one level simple, for a firm at least, profit is revenues minus costs. But agreeing on the proper accounting measure of that gets messy, even for the simplest of firms. One has to pick a time unit, although a year is pretty conventional for tax reasons, if nothing else. But what gets counted as revenues? Sales? How about money gained from lawsuits? How about money from illegal bribes that is unreported?
But it is on the cost side where things get really hairy, and some of those disputes end up with the schools of economics also. So, we know that since Marchall standard economists have counted the "opportunity cost of capital" and indeed of other factors in principle, as costs, with accountants most definitely not counting those. Accountants like things to be easily measured and straightforward, whereas deciding what is the "niormal rate of return" throws one into much messier territory without a definite answer. But even avoiding that sort of thing, there are competing schools of accounting. So does one look af FIFO or LIFO? In looking at the costs of a machine, is it the original amount paid for it or the cost of replacing it, and so on? In short, even the surface matters of accounting are a huge mess once one looks beneath the surface at all,
And none of this, not the deeper issues, nor even the surface accounting issues, are remotely resolved by declaring that one must focus on the division between retained and distributed earnings. Heck, that does not even fully explain firm investments, as only about half of the funding for investments comes from retained earnings, at least in the US economy. But, maybe this does not matter if one is trying to build a general theory of all economics on such a shallow and empty accounting identity.
Addendum: There is far far far more I could talk about here, but let me add just a few remarks on one issue that has had a lot of attention recently, the rising share of capital income at the aggregate level, which, whle not the whole explanation of it, has correlated with the rising income inequality going on in most nations of the world during the last several decades. Of course this was the main theme of Piketty's book. He had the data, but his theoretical explanations drew lots of criticism, including from me. He fell back on his r> g argument, which was good for marketing the book, but was easily shown not to do the trick to explain the rising capital income share even on a garden variety aggregate neoclassical production function analysis. Of course, Cobb-Douglas such functions are useless in this matter as they generate constant factor shares. And then there is the whole Cambridge capital theory critique of aggregate capital and aggregate production functions, ironically a critique at least partly shared by more sophisticated Austrian economists as well. Many dumped on him for throwing in land with the capital stock and returns to land as capital income, which some have argued carries a lot of the weight on the empirical findings. In the end when pushed, he has tended to fall back on waving his hands about politics and the collapse of unions and social-political power trends for at least part of his explanation, which looks to me to be playing a big part of it. Needless to say, focusing on the division between retained versus distributed profits does not remotely address the question of how much of national income is going to capital forms of income.
Barkley Rosser
"What really is capital and what does it mean for value, growth, and distribution? Is it a pile of produced means of production? Is it dated labor? Is it waiting? Is it roundaboutness? Is it an accumulated pile of finance? Is it a social relation? Is it an independent source of value? The answers to these questions are probably matters of belief."
From Catastrophe to Chaos: A General Theory of Economic Discontinuities, Kluwer, 1991, p. 125.
I leave it the imagination (or googling) of the reader as to who the author of that book is, although I note that the quotation appeared in the second edition of the book that came out in 2000.
So there are surface issues regarding the nature of profit and capital, and there are deeper issues. This quotation lists some of the deeper arguments that have been made by different schools of economics. The "pile of produced means of production" is basically a Principles textbook orthodox position, which rules out financial definitions, with many "people in the street " thinking it is an "accumulated pile of finance," a later answer in the list. People teaching intro econ courses like to pound on wrongness of this popular view, ultimately falling back on the argument that capital is a "factor of production," which means that whatever it is one must be able to use it in actual production processes." Machinery and buildings and other such "produced means of production" do that, so they count, and the building of them is what "real investment" is, not just somebody using some money to buy some financial assets, which is what the person in the street usually means by "investing my capital." We spend lots of time disabusing them of their delusions, we who know that "money is an illusion," and that while finance is very important in the functioning of modern economies, piles of money or financial assets do not in and of themselves actually produce something. Rather they are indicators and means for determining who gets to own those actually productive forms of "real capital," oh to throw out another term.
So some of the later definitions seek to get at the foundations of where this producing of these productive means of production come from, all that "real capital investment." So, if we are inclined to a Ricardo or Marx labor theory of value view, then all we see about is either produced by current or past labor. That truck over there was put together by workers with machines in a factory, with those machines made by worker and some other machines, which in turn were made further in the past by yet other workers and other machines, and so on and on until we can reduce all of those produced means of production to being really a bunch of current labor plus a whole string of past labor going way back into the depths of time from many many now-dead workers.
Curiously, although the Austrians abjure the labor theory of value, the theory of "roundaboutness" is theirs, notably Bohm-Bawerk anyway, and he derived it precisely from looking at this sort of Ricardo-Marx argument that I laid out. So past time gets dragged in, with the longer that stream of past labor goes into the past, well, the more roundaboutness, and this is what he said was capital, and to get at another question raised, how it came to be an "independent source of value," from just current labor time.
But dragging in time gets us to"waiting," which also drags in finance, given that we are talking about saving, which is usually done by piling up financial assets of one sort or another, some of which may pay yet another source of capital income, namely interest. Proto-neoclassical, Nassau Senior, got on this one, although this is deeply part of the official neoclassical canon, which in the formulation of Irving Fisher had the real rate of interest being that which established the intertemporal equilibrium between the willingness to wait by not consuming today, and effectively the marginal product of infestment, or capital is you prefer, coming from the production side, those produced means of production, with an implicit assumption that what does not get consumed and so saved, ends up being invested to create that "real capital," waiting being crucial to all this.
Of course the "social relation" answer is the deeper Marxist view, the part that distinguishes Marx from Ricardo.
Quite aside from this there is the surface aspect of profit and capital, which turns out to be quite complicated, even the trivial surface matter of accounting to measure it. I said in an earlier post that it is at one level simple, for a firm at least, profit is revenues minus costs. But agreeing on the proper accounting measure of that gets messy, even for the simplest of firms. One has to pick a time unit, although a year is pretty conventional for tax reasons, if nothing else. But what gets counted as revenues? Sales? How about money gained from lawsuits? How about money from illegal bribes that is unreported?
But it is on the cost side where things get really hairy, and some of those disputes end up with the schools of economics also. So, we know that since Marchall standard economists have counted the "opportunity cost of capital" and indeed of other factors in principle, as costs, with accountants most definitely not counting those. Accountants like things to be easily measured and straightforward, whereas deciding what is the "niormal rate of return" throws one into much messier territory without a definite answer. But even avoiding that sort of thing, there are competing schools of accounting. So does one look af FIFO or LIFO? In looking at the costs of a machine, is it the original amount paid for it or the cost of replacing it, and so on? In short, even the surface matters of accounting are a huge mess once one looks beneath the surface at all,
And none of this, not the deeper issues, nor even the surface accounting issues, are remotely resolved by declaring that one must focus on the division between retained and distributed earnings. Heck, that does not even fully explain firm investments, as only about half of the funding for investments comes from retained earnings, at least in the US economy. But, maybe this does not matter if one is trying to build a general theory of all economics on such a shallow and empty accounting identity.
Addendum: There is far far far more I could talk about here, but let me add just a few remarks on one issue that has had a lot of attention recently, the rising share of capital income at the aggregate level, which, whle not the whole explanation of it, has correlated with the rising income inequality going on in most nations of the world during the last several decades. Of course this was the main theme of Piketty's book. He had the data, but his theoretical explanations drew lots of criticism, including from me. He fell back on his r> g argument, which was good for marketing the book, but was easily shown not to do the trick to explain the rising capital income share even on a garden variety aggregate neoclassical production function analysis. Of course, Cobb-Douglas such functions are useless in this matter as they generate constant factor shares. And then there is the whole Cambridge capital theory critique of aggregate capital and aggregate production functions, ironically a critique at least partly shared by more sophisticated Austrian economists as well. Many dumped on him for throwing in land with the capital stock and returns to land as capital income, which some have argued carries a lot of the weight on the empirical findings. In the end when pushed, he has tended to fall back on waving his hands about politics and the collapse of unions and social-political power trends for at least part of his explanation, which looks to me to be playing a big part of it. Needless to say, focusing on the division between retained versus distributed profits does not remotely address the question of how much of national income is going to capital forms of income.
Barkley Rosser
Seattle Minimum Wage
Words cannot describe the torment experienced by the data before they confessed what the University of Washington team got them to confess. I can only urge readers with an open mind to study Table 3 carefully. The average wage increase, from the second quarter of 2014 to the third quarter of 2016, for all employees of single site establishments was 18 percent. Eighteen percent! That is an annual increase of almost 8 percent. For two and a quarter years in a row. Not bad. And the number of hours worked of ALL employees of single site establishments? Up 18 percent in a little over two years. That too is an increase of almost 8 percent per annum.
Now multiply that wage by those hours and the total payroll for all employees rose 39.5 percent over the course of nine quarters. An annual rate of increase of 17.5 percent. These are BIG numbers. They are freaking HUGE numbers.
It must have taken a team of at least six academics to extract a 9.4 percent decline in hours from the 86,842 workers (out of a total of 336,517) earning under $19 dollars an hour at these single-site establishments. Look at the Table and weep.
Tuesday, June 27, 2017
The Seattle Study: Increasing the Minimum Wage as a Way to Boost High Income Jobs
As labor market mavens all know by now, the University of Washington team chosen by the city of Seattle to evaluate its minimum wage law has issued a new report. This one is particularly juicy since it covers the increase from $11 to $13 an hour, which moved Seattle into new territory, beyond what has been studied elsewhere. The report makes much of its use of Washington State data which include not only numbers but also hours worked, allowing (in this respect) a more precise analysis of the effect of changes in the statutory minimum on employment.
The headline result is that the elasticity of hours worked to changes wages actually paid is in the vicinity of -300%. The key paragraph is this:
The backdrop to this, of course, is the economic performance of the city of Seattle itself, which has been about as strong as any city in the country. During the period of the latest minimum wage increase Seattle has experienced essentially full employment, as reflected in an unemployment rate of about 3%. Thus, any negative impact in one part of the city’s economy had to have been offset by positive impacts elsewhere.
And this in fact is also a finding of the Seattle minimum wage study, although its authors don’t mention it. They restrict their sample of affected workers to those in the low wage labor market, and they employ a range of cutoffs to see how truncating the sample in different ways affect their results, but their empirical methods intrinsically apply to workers at all wage levels. This is because their strategy for identifying employment impacts is to use various control groups, actual or synthetic, and compare employment between Seattle and these controls before and after the change in the minimum wage. The employment impact is whatever comes out of this comparison.
Well, guess what? The treatment-versus-control methods that generate employment losses in the lower-wage segment of the labor market are nearly exactly offset by employment gains in the higher wage segment. This stands to reason, because Seattle as a whole is doing great: it hasn’t suffered overall from the rise in minimum wages, so dips in some parts of its economy imply bumps in others.
The calculations that make this explicit are performed by Ben Zipperer and John Schmitt of the Economic Policy Institute. They do this for the overall city economy and also for the restaurant sector. With its narrower focus, this second approach is especially informative. The key paragraph here is:
One interpretation is that the Seattle study’s methodology didn’t sufficiently control for factors that have caused upward movements in wages (moving workers out of lower and into higher wage categories) in Seattle compared to other communities. That’s what the EPI folks think. I prefer to take the results at face value: by increasing the minimum wage we can, by some currently unknown process, cause a big upward shift in wages, not just around the minimum, but all the way up to the stratospheric reaches of the labor market. That negative elasticity for the lower-paid is fully offset by a positive elasticity for the middle and upper class.
Magic.
The headline result is that the elasticity of hours worked to changes wages actually paid is in the vicinity of -300%. The key paragraph is this:
Our preferred estimates suggest that the Seattle Minimum Wage Ordinance caused hours worked by low-skilled workers (i.e., those earning under $19 per hour) to fall by 9.4% during the three quarters when the minimum wage was $13 per hour, resulting in a loss of 3.5 million hours worked per calendar quarter. Alternative estimates show the number of low-wage jobs declined by 6.8%, which represents a loss of more than 5,000 jobs. These estimates are robust to cutoffs other than $19. A 3.1% increase in wages in jobs that paid less than $19 coupled with a 9.4% loss in hours yields a labor demand elasticity of roughly -3.0, and this large elasticity estimate is robust to other cutoffs.This has got the labor econ blogosphere quite excited: finally, after years of published studies that largely downplayed the labor demand disincentive effects of minimum wage laws, a report has been issued that finds immense negative effects—vastly larger in fact than those that have appeared in the past.
The backdrop to this, of course, is the economic performance of the city of Seattle itself, which has been about as strong as any city in the country. During the period of the latest minimum wage increase Seattle has experienced essentially full employment, as reflected in an unemployment rate of about 3%. Thus, any negative impact in one part of the city’s economy had to have been offset by positive impacts elsewhere.
And this in fact is also a finding of the Seattle minimum wage study, although its authors don’t mention it. They restrict their sample of affected workers to those in the low wage labor market, and they employ a range of cutoffs to see how truncating the sample in different ways affect their results, but their empirical methods intrinsically apply to workers at all wage levels. This is because their strategy for identifying employment impacts is to use various control groups, actual or synthetic, and compare employment between Seattle and these controls before and after the change in the minimum wage. The employment impact is whatever comes out of this comparison.
Well, guess what? The treatment-versus-control methods that generate employment losses in the lower-wage segment of the labor market are nearly exactly offset by employment gains in the higher wage segment. This stands to reason, because Seattle as a whole is doing great: it hasn’t suffered overall from the rise in minimum wages, so dips in some parts of its economy imply bumps in others.
The calculations that make this explicit are performed by Ben Zipperer and John Schmitt of the Economic Policy Institute. They do this for the overall city economy and also for the restaurant sector. With its narrower focus, this second approach is especially informative. The key paragraph here is:
The spurious results are clear in the case of the restaurant industry, as we illustrate in Figure B, where the authors’ own methodology and estimates imply that the Seattle minimum wage increase caused an incredible 20.1 percent growth in restaurant jobs paying above $19.00 per hour. While this number is not directly reported in their paper, it can be precisely inferred from their other results. To make this inference, we first note that when Jardim et al. focus on the restaurant industry, they estimate that the minimum wage increase to $13.00 caused restaurant jobs paying less than $19.00 hour to fall by an average of 10.7 percent (see their Table 9, averaging the estimates provided for the employment fall in 2016). At the same time, they find that the minimum wage caused essentially zero change in the number of all restaurant jobs, regardless of their wage rate. Because jobs under $19.00 comprised 65.4 percent of the restaurant industry prior to the first minimum wage increase (see Jardim et al.’s Table 3 for the 2014Q2–2015Q1 period), and because these jobs shrank by 10.7 percent while overall employment held steady, it follows that Jardim et al.’s estimates imply that the Seattle minimum wage increased the number of restaurant jobs paying over $19.00 per hour by about 20.1 percent.Remember that these employment estimates are based on comparisons of Seattle to its constructed controls; measured differences are assumed to be due solely to the minimum wage hike that took place in Seattle but not in the comparitors.
One interpretation is that the Seattle study’s methodology didn’t sufficiently control for factors that have caused upward movements in wages (moving workers out of lower and into higher wage categories) in Seattle compared to other communities. That’s what the EPI folks think. I prefer to take the results at face value: by increasing the minimum wage we can, by some currently unknown process, cause a big upward shift in wages, not just around the minimum, but all the way up to the stratospheric reaches of the labor market. That negative elasticity for the lower-paid is fully offset by a positive elasticity for the middle and upper class.
Magic.
Monday, June 26, 2017
Asking The Man in the Street: Research v. Rhetoric
Richard Layard, How to Beat Unemployment, 1986:
In your 1986 book, "How to Beat Unemployment," you wrote: "If you ask the man in the street (not Wall Street) what has caused our unemployment, nine times out of ten he will say that it is machines displacing people. In fact for this reason he is often deeply pessimistic about whether we could ever have full employment again."
I am curious. Did you ask "the man in the street"?
Cheers,
The Sandwichman
"If you ask the man in the street (not Wall Street) what has caused our unemployment, nine times out of ten he will say that it is machines displacing people. In fact for this reason he is often deeply pessimistic about whether we could ever have full employment again."Dear Professor Layard,
In your 1986 book, "How to Beat Unemployment," you wrote: "If you ask the man in the street (not Wall Street) what has caused our unemployment, nine times out of ten he will say that it is machines displacing people. In fact for this reason he is often deeply pessimistic about whether we could ever have full employment again."
I am curious. Did you ask "the man in the street"?
Cheers,
The Sandwichman
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