Wednesday, June 17, 2015

For the Abolition of the Wages System!

Once more, with feeling:
Instead of the conservative motto: "A fair day's wage for a fair day's work!" they ought to inscribe on their banner the revolutionary watchword: "Abolition of the wages system!"
With that sentence Karl Marx concluded the second part of his address on the topic of wage-labor, prices and profit to the Central Council of the International Workingmen's Association. To the end of his exposition, Marx appended three proposed resolutions, the last of which proclaimed:
Trades Unions work well as centers of resistance against the encroachments of capital. They fail partially from an injudicious use of their power. They fail generally from limiting themselves to a guerilla war against the effects of the existing system, instead of simultaneously trying to change it, instead of using their organized forces as a lever for the final emancipation of the working class, that is to say, the ultimate abolition of the wages system.
In his address, Marx refuted the wages-fund doctrine of classical political economy, four years before John Stuart Mill famously recanted his defense of the doctrine in reply to William Thornton's critique. Three years later, the final nail was hammered into the coffin of classical political economy with the publication of Thomas Brassey's Work and Wages, whose conclusions Alfred Marshall predicted "will be found to exercise a very complicating influence on the theory of Distribution."

Before Mill recanted the wages-fund doctrine, it had been the chief "scientific" weapon for denying the legitimacy of trade unionism and the possibility of raising real wages through collective action. After Mill recanted the doctrine, the chief propaganda weapon against unions, higher wages and shorter hours became the claim that the unionists clung to a version of the discredited wages-fund doctrine. This supposed mistaken belief was eventually given the name of the Theory of the Lump of Labour.

In short, until around 1869, unions were wrong because they didn't subscribe to the wages-fund doctrine. After 1870, unions were wrong because they did subscribe. One things was certain. They were always wrong no matter what they believed.

June 27, 2015 is the one-hundred and fiftieth anniversary of Marx's call for the abolition of the wages system -- a fitting occasion for renewing that call. .
We do not forget that we are fighting with effects, but not with the causes of those effects; that we are retarding the downward movement, but not changing its direction; that we are applying palliatives, not curing the malady. We shall not, therefore, be exclusively absorbed in these unavoidable guerilla fights incessantly springing up from the never ceasing encroachments of capital or changes of the market. We understand that, with all the miseries it imposes upon us, the present system simultaneously engenders the material conditions and the social forms necessary for an economical reconstruction of society. Instead of the conservative motto: "A fair day's wage for a fair day's work!" we inscribe on our banner the revolutionary watchword: "Abolition of the wages system!"

Monday, June 8, 2015

The Incredible Shrinking Blog

Over the past few days, the Sandwichman has been downloading Ecological Headstand blog posts and reverting them to draft. About three-quarters of the blog is now unpublished. Most of the remainder of posts are ones that I have cross posted at EconoSpeak.

The downloaded blog posts total around 440 pages and 220,000 words. The idea is to herd that rambling collection of texts into a book. Or two.

Monday, May 25, 2015

Keynes "hadn't got round to it"

...all the difficulties and rigidities which go into modern Keynesian income analysis have been shunted aside. It is not my contention that these problems don’t exist, nor that they are of no significance in the long run... Robert M. Solow, "A Contribution to the Theory of Economic Growth," 1956.
...the shunting aside opened up the opportunity for real-business-cycle theorists such as Finn Kydland and Prescott to use Solow’s steady-state model... for their explanation of short-run fluctuations. Harald Hagemann, "Solow's 1956 Contribution in the Context of the Harrod-Domar Model," 2009.
Far too much has been shunted aside.

The aim of Harrod's and Domar's models, according to Hageman, was "to extend Keynes's analysis into the long run by considering under what conditions a growing economy could realize full-capacity utilization and full employment." As for "the modern type of dynamic [that is, 'growth'] theory," according to Sir Roy Harrod, Keynes "hadn't got round to it":
Mr.  Nicholas Dimsdale:  Why is there so little in the General Theory on the direction of principal determinants of economic growth (which has, of course, been very much the concern of economic policy in the post-war period), and particularly did Keynes see this as a natural extension of handling the problems of unemployment? 
Sir Roy Harrod: I think the answer is no. I think of the timetable of it. Here was Keynes giving all his brains to the General Theory which is not, though it is what you call macroeconomics, dynamic. It is a general theory of how incomes and employment are determined at a given point of time. Then, poor man, he gets ill, the war breaks out, he writes this little booklet of which Austin Robinson has spoken just now, and he is entirely immersed in the war. You see, the use of growth as a regular economic concept had hardly come in before the war:  it has all blossomed among various writers since the war. I don’t see how Keynes can have been expected to have systematic ideas on growth; his systematic ideas related to full employment. The modern type of dynamic theory about what happens through time - he just hadn't got round to it. I am sure that he would have got round to and dealt with it very well; but the timetable of his life and death did not give him an opportunity.
In a 1965 New York Times retrospective on the Keynesian "revolution," John Kenneth Galbraith credited Leon Keyserling as a "tireless exponent of the [Keynesian] ideas. And he saw at an early stage the importance of enlarging them to embrace not only the prevention of depression but the maintenance of an adequate rate of economic expansion." In a subsequent interview, Keyserling was less bashful about the magnitude of his contribution.
Coming over to economic growth in particular, everybody talks about the influence of Keynesian economics. The Keynesian economics is really a static economics. It doesn't deal with economic growth at all. Furthermore, it was developed at a time of worldwide depression. Even Ken Galbraith, in an article in the New York Times a couple of years ago, when he was talking about the influence of Keynesian economics, mentioned me specifically as the one who had introduced the fundamental new factor of the dynamics of economic growth.
Keyserling was a member of President Truman's Council of Economic Advisers, became acting chairman in 1949.and chairman in 1950. His influence can be seen in the evolution of "economic growth" in successive volumes of the Economic Report of the President. In the January 1947 annual report, the term "growth" did not occur. In the midyear report, "economic growth" appeared once. The January 1948 volume contained 17 references directly to economic growth and featured a cheerleading section titled "Our Ability to Grow."

All of this alleged "extending" and "enlarging" of Keynes's analysis had little to do with Keynes's analysis -- other than shunting it aside -- and nothing to do with Keynes's own views about the long term problem, as outlined in his 1943 Treasury memorandum, "The Long-Term Problem of Full Employment" and re-iterated in a 1945 letter to T.S. Eliot:
Not long ago I was at a Conference where the Australians urged that all the Powers in the world should sign an international compact in which each undertook to maintain full employment in their own country. I objected on the ground that this was promising to be 'not only good but clever'. Civis, like the Australians, takes exactly the opposite line. He thinks that we can reach the goal by promising to be 'not so much clever as good '. 
It may turn out, I suppose, that vested interests and personal selfishness may stand in the way. But the main task is producing first the intellectual conviction and then intellectually to devise the means. Insufficiency of cleverness, not of goodness, is the main trouble. And even resistance to change as such may have many motives besides selfishness. 
That is the first, ought-to-be-obvious, not-very-fundamental point. Next the full employment policy by means of investment is only one particular application of an intellectual theorem. You can produce the result just as well by consuming more or working less. Personally I regard the investment policy as first aid . In U.S. it almost certainly will not do the trick. Less work is the ultimate solution (a 35 hour week in U.S. would do the trick now). How you mix up the three ingredients of a cure is a matter of taste and experience, i.e. of morals and knowledge.
It would be anachronistic to fault growth theorist for ignoring Keynes views on the long term problem of full employment. Presumably, Keynes's memorandum and his letter to T.S. Eliot were not available to early "dynamic" theorists. They were published in 1980 in volume 27 of Keynes's Collected Writings. One might wonder, though, why modern growth theorists have subsequently shown no interest whatsoever in re-evaluating their theories in light of those documents.

More remarkable is the complete lack of connection between growth theory and growth as a policy slogan. No, this is not the difference between map and territory. The theoretical models are maps of an abstract territory in which some kinds of features have the same names as the kinds of features on the actual territory -- "labor", "income", "output," "capacity utilization" -- but those labels remain undefined in any way that would correspond to the real features with the same name.

At the other end of the theory/sloganeering spectrum -- in the targeting of increases in GNP/GDP -- the features are also not defined in a way that would enable a consistent and durable system of measurement. Simon Kuznets's 1947 essay on "Measurement of Economic Growth" outlined many of the biases and obstacles in the way of defining and measuring growth." In a subsequent review of the Commerce Department\s National Income and Product Accounts, Kuznets argued that problems of duplication and of ignoring non-market production had not been overcome. In its reply to Kuznets, the department's economists pointed out it would not have been feasible to meet several of his standards. They had a point. But non-feasibility of the alternative does not in itself affirm the adequacy of the status quo.

In conclusion, Keynes's analysis was not "extended" by modern dynamic growth theory nor was it "enlarged" by Leon Keyserling's siphoning off and his sloganeering growthmanship. The analysis was -- in Solow's apt phrase -- shunted aside for a tautological model, just as the policy goal of full employment was shunted aside for the indistinct slogan of "growth."

Who needs a Keynesian policy goal of full employment anyway when the neoclassical model can simply assume full employment?

Wednesday, May 20, 2015

Napoleon Solow and the Phantom Mechanism

I would like to say why I think that the Doomsday Models are bad science and therefore bad guides to public policy. ... The basic assumption is that stocks of things like the world’s natural resources and the waste-disposal capacity of the environment are finite, that the world economy tends to consume the stock at an increasing rate (through the mining of minerals and the production of goods), and that there are no built-in mechanisms by which approaching exhaustion tends to turn off consumption gradually and in advance. You hardly need a giant computer to tell you that a system with those behavior rules is going to bounce off its ceiling and collapse to a low level. -- Robert M. Solow, 1973
Sandwichman is agnostic on the built-in mechanism fable.

On the one hand, Solow's "built-in mechanism" is a metaphor -- a depiction -- and of course there is no "mechanism" strictly speaking, just as God is not an old man with a long, white beard. There are instead more or less spontaneous reflexes of economic actors that in the aggregate have observable effects. Such reflexes, however, are multitude. The probability of all these reflexes co-ordinating themselves spontaneously and independently -- without help from a Maxwellian demon, Walrasian auctioneer or Invisible Hand -- to produce a conjectured effect far in the future is infinitesimal.
Suppose someone sits down where you are sitting right now and announces to me that he is Napoleon Bonaparte. The last thing I want to do with him is to get involved in a technical discussion on cavalry tactics at the Battle of Austerlitz. If I do that, I’m getting tacitly drawn into the game that he is Napoleon Bonaparte. -- Robert M. Solow
Aside from the multiplicity of so-called mechanisms, there is the slight inconvenience that a homeostatic regulator itself consumes energy to do its work (also known as 'transaction costs'). The more vast and complex the organism being regulated, the more energy the regulator will need to consume. When what is being regulated is the consumption of energy, a contradiction emerges: progressively more energy needs to be consumed to reduce the consumption of energy. There is thus a ceiling on vastness and complexity and a floor on reducing consumption.

It is not the finiteness of resource stocks, but the fragility of self organized natural cycles that we have to fear. Unfortunately, the services provided by these cycles are part of the global commons. They are priceless, yet ‘free’. Markets play no role in the allocation of these resources. There is no built-in mechanism to ensure that supply will grow to meet demand. Indeed, there is every chance that the supply of environmental services will dwindle in the coming decades as the demand, generated by population growth and economic growth, grows exponentially. -- Robert U. Ayres, 1998
Ayres highlighted another fly in the built-in mechanism ointment. To be fair, Solow did acknowledge the externality flaw in the price system. Fixing the flaw, he assured, would be simple and virtually painless:
The flaw can be corrected, either by the simple expedient of regulating the discharge of wastes to the environment by direct control or by the slightly more complicated device of charging special prices — user taxes — to those who dispose of wastes in air or water.  
What stands between us and a decent environment is not the curse of industrialization, not an unbearable burden of cost, but just the need to organize ourselves consciously to do some simple and knowable things.
Now that we know how that organizing ourselves consciously has turned out, couldn't we please have a built-in mechanism to do that part too? What if there is a built-in mechanism in the price and profit system that militates against the social capacity "to organize ourselves consciously to do some simple and knowable things"?

Finally, even if there was a built-in self-stabilizing market mechanism, it's interaction with natural systems may not lead to the gradual, advance adjustment that Solow conjectured:

We identify and prove that the interaction between a stable natural system and a self-stabilizing market mechanism can lead to cyclical or even chaotic behaviour. A built-in self-stabilizing market mechanism will not always serve the function of stabilization. Under certain conditions, it may increase the amplitude of fluctuations and have the effect of destabilization, as demonstrated in this paper. Therefore, by incorporating a self-stabilizing market mechanism, this model yields a result that contradicts Solow's (1973) conjecture that the market mechanism will have the effect of smoothing the time path of the world economy. -- Hans Gottinger, 1998

Tuesday, May 19, 2015

Mathiness, Growth and Increasing Returns

The following was originally posted on Ecological Headstand in October, 2012 under the title, Endogenous Growth Theory and Ecological Unequal Exchange: linkage, displacement and deflection of 'diminishing returns'. Paul Romer's rant on mathiness has provoked a response from Lars Syll regarding the issue of increasing returns to scale, which I discussed in this post.

What the late Stephen G. Bunker wrote bears repeating:
The crucial difference between production and extraction is that the dynamics of scale in extractive economies function inversely to the dynamics of scale in the productive economies to which world trade connects them.
Rather than repeat what Bunker wrote, though, I'm going to cite, later, a longer piece by Nicholas Kaldor from his 1985 Hicks Lecture that makes a somewhat similar point. But first, I want to present some background on an old debate and a 'new' theory.

In December 1926, The Economic Journal published an article by Piero Sraffa dealing with "that difficult branch of economic theory" -- the theory of increasing returns. Over the next five years it published responses from Cecil Pigou, G. F. Shove, Lionel Robbins and Allyn Young and, in March 1930, a symposium on the topic by D. H. Robertson, Sraffa and Shrove.

Almost exactly 60 years later, in October 1986, The Journal of Political Economy, published Paul D. Romer's "Increasing Returns and Long-Run Growth," an important contribution to so-called New Growth Theory. Romer took his cue explicitly from Young's 1928 paper, "Increasing Returns and Economic Progress" and although he mentioned the precedents of Adam Smith's pin factory and Alfred Marshall's distinction between internal and external economies, he skipped over the rest of the debate in which Young's contribution had appeared.

Critics have argued that Romer's usage of increasing returns and external economies is not faithful to Young's formulation, in that it "overlooked Young's emphasis on the reciprocal relations between the division of labor and the feed-back into aggregate demand as a requirement for growth," "neglected Young's categorical rejection of the usefulness of Walrasian general equilibrium models" and wrested "Marshall's microeconomic concepts of internal and external economies out of his theory of value and price to serve as a basis for amending constant return production functions to exhibit increasing returns for the macroeconomy" (Rima 2004, 181-182).

My concern here is with a more conspicuous omission in Romer's analysis -- the distinction between increasing returns as characteristic of manufacturing and diminishing returns as dominant in agriculture and extractive industries (Young 1928, 528-529). The words "agriculture," "land" and "rent" do not appear in Romer's 1986 article. When Romer mentions diminishing returns, it is only in the context of research activity or the limiting assumptions of classical conventional growth models. But diminishing returns is a specific limitation, not a generality that can be indiscriminately "offset" by increasing returns. In a lecture given at Harvard in 1974, "What is Wrong with Economic Theory," Kaldor explained that "it is the income of the agricultural sector, (given the "terms of trade") that really determines the level and the rate of growth of industrial production, according to the formula:"
Or, in prose, economic growth depends on either a relative reduction in the income of agriculture or increased demand from agriculture for industrial products. And, of course, increased demand from agriculture implies increased agricultural production, which at some point confronts the problem of diminishing returns. In his 1985 Hicks Lecture, Kaldor explained the inverse dynamics of scale between industrial and agricultural areas, parenthetically, in terms of the "differing manner of operation of perfect and imperfect competition":
The basic requirement of continued economic growth is that the various complementary sectors expand in due relationship with each other -- that is to say that general expansion is not held up by "bottlenecks" in key sectors. However, in the course of time, under the influence of technical progress, both of the natural-resource saving and labour-saving kind, the requirements of expansion may become considerably modified. In the manufacturing sector which becomes more important as real incomes rise, there are considerable economies of scale, as a result of which manufacturing activities are subject to a "polarization process" -- they are likely to develop in a few successful centres, and their success has an inhibiting effect on similar developments in other areas. The realisation of these economies of scale normally requires also that numerous processes of production which are related to each other are carried out in close geographical proximity.

As a result different regions experience unequal rates of growth of output and of population. The industrial areas experience a growing demand for labour which may involve immigration from other areas once their own surplus labour is exhausted. Technological development in primary production on the other hand, tends to be more labour-saving than land-saving, so that the growth of output may go hand in hand with a falling demand for labour; and though output per head may grow fast in real terms, the level of wages will tend to remain low (and may even be falling) as a result of a growing surplus population. Since labour cost per unit of output is the most important factor in determining selling prices (at any rate under competitive conditions) the low wages prevailing, in terms of industrial products, will mean that the terms of trade will move unfavourably to primary producers, which may be the main factor, along with the low coefficient of labour utilisation, for their state of "under-development" characterised by low standards of living. The important contrast -- which I regard as a major factor in the growing inequality of incomes between rich and poor countries -- resides in the fact that the benefit of labour saving technical progress in the primary sector tends to get passed on to the consumers in the secondary sector in lower prices, whereas in the industrial sector its benefits are retained within the sector through higher wages and profits. (The main reason for this difference lies in the differing manner of operation of perfect and imperfect competition.)
Kaldor's parenthetical explanation suggests more than it reveals. Sraffa's 1926 discussion is the key to unpacking why Kaldor specifies perfect competition as characteristic of primary production and associates imperfect competition with manufacturing industry. The key determinants, in that view, are the shapes of the firms' supply curves (increasing or diminishing returns) and the nature of external economies.

Externality and Ecological Overshoot

Marshall's notion of "external economies" has gone through a series of modifications to become today's "externalities." Pigou extended the concept beyond Marshall's industrial agglomerations and distinguished between “incidental uncharged disservices” and "incidental uncompensated services." The former became known as negative externalities and the latter as positive externalities, although typically it is the negative environmental externalities that are referred to simply as externalities. There is a seeming but misleading symmetry to the two terms and a similarly illusory quality of reciprocity within each of them. When a disservice is uncharged or a service is uncompensated there is a presumption that there might otherwise have been a "whom" to charge or to compensate and that the missing invoice could have been denominated in currency. In other words, the charging and compensating would appear to be a financial transaction between two parties, both of whom must be assumed to be legal persons. In reality, the services or disservices performed may (or may not!) be extremely indirect and the parties affected incredibly diffuse, both in space and time. Mundane examples of factory soot and laundry hanging out to dry may be more mystification than illumination.

In the case of the external economies of increasing returns and diminishing returns, respectively, although they function inversely to one another it is a double inversion that ultimately produces parallel incentives to firms in manufacturing and agricultural or extractive industries. In other words, while firms in the manufacturing center are routinely considered to be the beneficiaries of external economies that generate increasing returns in the sense that they receive uncompensated services, firms in the extractive periphery may also benefit from the externalization of diminishing returns in that they are able to avoid being charged for the environmental disservices they inflict. In effect, the cost of diminishing returns is first displaced to poor regions where it is then deflected onto society and the environment. Unequal exchange thus takes place, that is to say, in the global external economies, "behind the back", so to speak, of formal monetary transactions.

Sunday, April 19, 2015

Viral Gyro Spiral

"We need campaign finance reform. We do not need 'heroes' who take meaningless flights of fancy." -- Marsha Mercer, Richmond Times-Dispatch
Have you ever wondered what politicians do with all that campaign finance money? They don't keep it (or at least not most of it). They spend it. On campaigning. A lot of it on advertising. Which means buying time and space in the media. Including the Richmond Times-Dispatch.

That media is not going to bite the hand that feeds it, is it? So, it's a bit rich when a columnist scolds a citizen for taking a "meaningless flight of fancy." What would Marsha Mercer do?

Labelling Doug Hughes's gyrocopter flight "meaningless" is what Mercer did. So we don't really need to ask what she "would" do. The job of the media is to spin and frame dissent as either trivial or terroristic. In an oligarchy, all dissent is either trivial or it is terror. Thus, by definition, no dissent can be "meaningful" in the sense of being both effectual and legitimate.

This is precisely the eye of the needle that Hughes threaded with his marvelous stunt. Superficially, it is about oligarchy and corruption of democracy by big money. But more profoundly -- and metaphorically -- it is about the hermetically-sealed "closed air space" over Washington. D.C. In his letter to all 535 members of Congress, Hughes quoted John Kerry on the corrosion of money in politics and it's contribution to "the justifiable anger of the American people. They know it. They know we know it. And yet nothing happens."

Kerry went on to point out how the corruption of money in politics "muzzles more Americans than it empowers." How does it do this? Well, for one, those same media outlets that profit from the spending of that corrupting money to buy advertising space also get to pass judgment on the wisdom or folly of dissenting speech: "Sit down, sit down, sit down, sit down! Sit down, you're rocking the boat!"

We need a lot more than campaign finance reform. We do not need minders and muzzlers from the media to tell us what is "meaningful" and what is not.

Wednesday, April 15, 2015

Never Mind the Bollocks. Here's the Gyro.

Hughes on First?

Have to admit, the spectre of mailman flying a gyrocopter onto the lawn of the Capitol building appeals to the Sandwichman's weakness for eccentric idealists.

From the Tampa Bay Times, here is the letter that Doug Hughes was delivering to 535 members of both houses of Congress.
Dear ___________,
Consider the following statement by John Kerry in his farewell speech to the Senate —
"The unending chase for money I believe threatens to steal our democracy itself. They know it. They know we know it. And yet, Nothing Happens!" — John Kerry, 2-13
In a July 2012 Gallup poll, 87% tagged corruption in the federal government as extremely important or very important, placing this issue just barely behind job creation. According to Gallup, public faith in Congress is at a 41-year record low, 7%. (June 2014) Kerry is correct. The popular perception outside the DC beltway is that the federal government is corrupt and the US Congress is the major problem. As a voter, I'm a member of the only political body with authority over Congress. I'm demanding reform and declaring a voter's rebellion in a manner consistent with Jefferson's description of rights in the Declaration of Independence. As a member of Congress, you have three options.
  1. You may pretend corruption does not exist.
  2. You may pretend to oppose corruption while you sabotage reform.
  3. You may actively participate in real reform.
If you're considering option 1, you may wonder if voters really know what the 'chase for money' is. Your dismal and declining popularity documented by Gallup suggests we know, but allow a few examples, by no means a complete list. That these practices are legal does not make them right! Obviously, it is Congress who writes the laws that make corruption legal.
1. Dozens of major and very profitable corporations pay nothing in taxes. Voters know how this is done. Corporations pay millions to lobbyists for special legislation. Many companies on the list of freeloaders are household names — GE, Boeing, Exxon Mobil, Verizon, Citigroup, Dow … 
2. Almost half of the retiring members of Congress from 1998 to 2004 got jobs as lobbyists earning on average fourteen times their Congressional salary. (50% of the Senate, 42% of the House) 
3. The new democratic freshmen to the US House in 2012 were 'advised' by the party to schedule 4 hours per day on the phones fund raising at party headquarters (because fund raising is illegal from gov't offices.) It is the donors with deep pockets who get the calls, but seldom do the priorities of the rich donor help the average citizen. 
4. The relevant (rich) donors who command the attention of Congress are only .05% of the public (5 people in a thousand) but these aristocrats of both parties are who Congress really works for. As a member of the US Congress, you should work only for The People. 
1. Not yourself.
2. Not your political party.
3. Not the richest donors to your campaign.
4. Not the lobbyist company who will hire you after your leave Congress. 
There are several credible groups working to reform Congress. Their evaluations of the problem are remarkably in agreement though the leadership (and membership) may lean conservative or liberal. They see the corrupting effect of money — how the current rules empower special interests through lobbyists and PACs — robbing the average American of any representation on any issue where the connected have a stake. This is not democracy even if the ritual of elections is maintained. 
The various mechanisms which funnel money to candidates and congress-persons are complex. It happens before they are elected, while they are in office and after they leave Congress. Fortunately, a solution to corruption is not complicated. All the proposals are built around either reform legislation or a Constitutional Amendment. Actually, we need both — a constitutional amendment and legislation. 
There will be discussion about the structure and details of reform. As I see it, campaign finance reform is the cornerstone of building an honest Congress. Erect a wall of separation between our elected officials and big money. This you must do — or your replacement will do. A corporation is not 'people' and no individual should be allowed to spend hundreds of millions to 'influence' an election. That much money is a megaphone which drowns out the voices of 'We the People.' Next, a retired member of Congress has a lifelong obligation to avoid the appearance of impropriety. That almost half the retired members of Congress work as lobbyists and make millions of dollars per year smells like bribery, however legal. It must end. Pass real campaign finance reform and prohibit even the appearance of payola after retirement and you will be part of a Congress I can respect. 
The states have the power to pass a Constitutional Amendment without Congress — and we will. You in Congress will likely embrace the change just to survive, because liberals and conservatives won't settle for less than democracy. The leadership and organization to coordinate a voters revolution exist now! New groups will add their voices because the vast majority of Americans believe in the real democracy we once had, which Congress over time has eroded to the corrupt, dysfunctional plutocracy we have.
The question is where YOU individually stand. You have three options and you must choose. 
Douglas M. Hughes

Multivariate analysis indicates that economic elites and organized groups representing business interests have substantial independent impacts on U.S. government policy, while average citizens and mass-based interest groups have little or no independent influence. The results provide substantial support for theories of Economic-Elite Domination and for theories of Biased Pluralism, but not for theories of Majoritarian Electoral Democracy or Majoritarian Pluralism.
See also, Souter dissent:
"This century-long tradition of legislation and judicial precedent rests on facing undeniable facts and testifies to an equally undeniable value. Campaign finance reform has been a series of reactions to documented threats to electoral integrity obvious to any voter, posed by large sums of money from corporate or union treasuries, with no redolence of 'grassroots' about them. Neither Congress’s decisions nor our own have understood the corrupting influence of money in politics as being limited to outright bribery or discrete quid pro quo; campaign finance reform has instead consistently focused on the more pervasive distortion of electoral institutions by concentrated wealth, on the special access and guaranteed favor that sap the representative integrity of American government and defy public confidence in its institutions. From early in the 20th century through the decision in McConnell, we have acknowledged that the value of democratic integrity justifies a realistic response when corporations and labor organizations commit the concentrated moneys in their treasuries to electioneering."

Tuesday, April 14, 2015


Hillary's campaign logo has come in for quite a bit of criticism.
The logo's designer, Michael Bierut, is a graphic design superstar. Maybe he knows what he is doing? Here's what he wrote a few years back on the Occupy Wall Street "communications arsenal":
Consider, on the other hand, the genius of that simple #occupywallstreet hashtag. Three little words, with a call to action built right in. And, also right there was the potential for an articulated brand architecture that any corporate identity expert could envy. "Occupy" sits in the master brand position. Fill in the blanks for a potentially infinite number of user-generated subbrands, from Occupy Amarillo to Occupy Zurich. Elsewhere in the OWS communications arsenal, we find other slogans ("We Are The 99%") and some visual tropes (the Guy Fawkes mask popularized by Anonymous, now an emerging public "face" for the protest). But no typeface guidelines, no color standards, no official logos.
Could it be, as Bierut writes in his final paragraph that "Sometimes, the key to political change isn't designing a logo or poster"? He makes the same point several times in his post: "I suspect that many of its supporters would insist that the last thing OWS needs is something as simple and reductive as a logo." "conventional graphic design seems like an inefficient way to make a point, never mind to create or fuel a political movement"

I suspect there may be a method to the Hillary logo's banality. It is extremely simple to repurpose. Initially, even the Sandwichman had a few yucks:

All of which only serves to commit the blasted thing to memory! But if conventional graphic design is an inefficient way to make a point, what about the conventional political candidate?

Wednesday, April 8, 2015

Of Bathtubs, Bombshells and Boilerplate

The bathtub in question is the analogy Linda Booth Sweeney and John Sterman use to illustrate a dynamic stock-flow system, such as the relationship between greenhouse gas emissions (a flow) and the accumulation of greenhouse gases in the atmosphere (a stock). Gernot Wagner and Martin Weitzman stress the importance of the bathtub analogy in their new book, Climate Shock.

What's fascinating about the bathtub analogy is how consistently people get the dynamics of accumulation wrong. Or at least how often business school graduate students with backgrounds in science, technology, math and economics get it wrong. Sterman has pioneered a cottage industry publishing articles about the inability of large numbers of students to correctly identify the effects of flow variations on stock levels. A frequent source of error is something Booth Sweeney and Sterman call "correlation heuristic": students often expect that changes in stock will have the same shape as changes in flow. 
This common error has implications for people's attitudes about the action and policy needed to mitigate climate change, Booth Sweeney and Sterman point out. According to the correlation heuristic logic, many people would assume that a reduction in greenhouse gas emissions would directly translate into less greenhouse gas emissions in the atmosphere. It doesn't.

A bombshell dud

A few weeks ago, Scientific American called the International Energy Agency's announcement a week earlier that global GHG emissions for the generation of energy were unchanged in 2014 from 2013 a "bombshell" that "flew in the face of established economic wisdom." The article went on to point out that scientists had "mixed opinions" about the long term significance of this momentary and sector-limited decoupling of emissions from GDP growth. Some thought it was a hopeful sign that decoupling is already happening. Others warned that emissions were likely to resume their upward trend in 2015.

The article neglected to mention that even if total global emissions were to remain flat for years to come, the concentration of GHGs in the atmosphere would continue to increase relentlessly. Annual emissions would need to be cut to around half their current levels just to stabilize atmospheric concentrations at current levels. That's the difference between stocks and flows.

Happy talk about decoupling GDP growth from resource consumption and waste generation to achieve "green growth" ignores this crucial distinction. Even the more sober "prosperity without growth" critique that highlights the huge disparity between relative decoupling and absolute decoupling ignores this distinction. Accumulation is the bottom line. No mitigation without disaccumulation.

From shocks to stocks and flows... to lumps

The boilerplate is not Paul Guinan's imaginary steampunk contraption -- shown at left -- but the proverbial "fixed amount of work to be done" which has performed oh-so-much work for lazy journalists and economists assuaging those unfounded fears about unemployment that emanate from the economic illiterati. Come to think of it, though, a make-believe robot makes a good mascot for an oft-told tale about a make-believe fallacy. 

Do the erring graduate students in Sterman's and Booth Sweeney's experiments assume there is a fixed amount of water in the bathtub? No, they don't. They realize that the change in flow of water into the tub affects the accumulation of stock in some way. But they systematically mis-specify the timing and magnitude of the effects.

What happens if we dial back the preposterous "fixed amount of work" assertion of the lump-of-labor fallacy claim to a more plausible "correlation heuristic"? Instead of assuming that there is only so much work to go 'round, the benighted Luddites, trade unionists and other economic populists might be suspected merely of committing the more common error of assuming that job losses in the economy as a whole are homologous to losses in a particular trade as the result of labor-saving technology. From a distance the two fallacies may appear indistinguishable. But there is a difference -- several differences, actually.

For starters, the correlation heuristic has been experimentally documented, not just asserted. Evidence trumps mere allegation. Secondly, the heuristic is not as obviously preposterous as the belief in a fixed amount of work. It seems more likely that people -- even Luddites -- would make a plausible error than an implausible one. But perhaps most importantly, the correlation heuristic error may pertain equally to those who allege the fallacy as to those who are alleged to commit it.

How so? Economists making the lump-of-labor fallacy claim insist that the price mechanism automatically adjusts the demand for labor to accommodate changes in the supply of labor. In terms of the bathtub analogy, this is the same as saying that the outflow of the drain self-adjusts to correlate with the inflow from the faucet. One can indeed imagine a device that could accomplish this feat -- a bulb, floating on the surface of the water, attached by a chain of a given length to a plug in an auxiliary drain, such that when the water rises above a certain level, the floating bulb pulls the plug out of the auxiliary drain.

It could work...

Unfortunately, as Mr. Keynes explained long ago, the propensity to consume doesn't float like a bulb on the surface of income. The economists' cherished notion of equilibrium remains a heuristic and nothing more. The pot has been calling the kettle black.

Out of the bathtub and into the frying pan

Why does the Sandwichman keep harping on this arcane specimen of journalistic and economic boilerplate? Because heuristics aside, there are statistical series that seriously, relentlessly correlate: energy consumption and hours of paid employment. Energy intensity per dollar of industrial production has declined for nearly a century. That's relative decoupling. Energy intensity per hour of paid employment does not decline. Greenhouse gas emissions per hour of paid employment does not decline. There is no relative decoupling, let alone absolute decoupling or -- sustainable pie in the sky -- disaccumulation of GHGs in the atmosphere.

To cut greenhouse gas emissions in half, we must cut hours of paid employment at least in half. What would John Sterman say to that?
With a few important exceptions (the work of Herman Daly and colleagues, e.g., Daly and Townsend 1993 ; see also Princen et al. 2002 ; Meadows et al. 2004 ; DeGraaf et al. 2005 ; Whybrow 2005 ; Victor 2008 ; Schor 2010 ), most of the research, teaching, and popular discourse on sustainability continues to focus on technological solutions—more energy, more resources, more efficient eco-friendly growth—while the actual leverage point—voluntarily limiting our consumption—remains largely undiscussable, particularly among our business and political leaders.
DeGraaf 2005, Victor 2008 and Schor 2010, by the way, all prescribe reductions of working time as key to reducing emissions. Wagner and Weitzman on Sterman's bathtub analogy: "climate scientists -- and the rest of us -- would be well advised to remind ourselves daily of its significance." Paul Krugman on Martin Weitzman's fat tail analysis: "So what I end up with is basically Martin Weitzman’s argument: it’s the non-negligible probability of utter disaster that should dominate our policy analysis. And that argues for aggressive moves to curb emissions, soon "

  1. the possibility of disaster...
  2. the significance of the bathtub analogy...
  3. the actual leverage point... 
  4. measured rather than heuristic correlations

Monday, March 30, 2015

IS-LMist Fundamentalism and the Quest for Ignorance

"So I don't care whether Hicksian IS-LM is Keynesian in the sense that Keynes himself would have approved of it, and neither should you. What you should ask is whether that approach has proved useful -- and whether the critics have something better to offer." -- Paul Krugman, "Unreal Keynesians"
The issue, of course, is not whether 'the master' would have approved of the IS-LM gadget but whether it represents an analytical advance or a regression from the insights that Keynes achieved. In a 1980 "explanation," Hicks conceded that "as time has gone on, I have myself become increasingly dissatisfied with it." In a commentary on Hicks's explanation, though, G.L.S. Shackle was less ambivalent. I have selected and re-arranged passages from Shackle's commentary to highlight his central point -- that uncertainty and equilibrium are fundamentally incompatible concepts.
The one big thing in Keynes' ultimate conception is our unknowledge of what will create itself in time-to-come. "We simply do not know." The author of A Treatise on Probability expressly rejects the notion that probability can turn this unknowledge into its opposite. When we accept this view, the possibility of involuntary unemployment becomes self-evident. 
Sir John Hicks' paper was the first presentation of IS-LM and has been for forty and more years the most famous and the most influential interpretation of Keynes. Central and essential to its argument is a notion of equilibrium. 
Sir John still does not seem to me to acknowledge the essential point: the elemental core of Keynes' conception of economic society is uncertain expectation, and uncertain expectation is wholly incompatible and in conflict with the notion of equilibrium. 
In the literature of economics the word equilibrium covers a multitude of ideas and of vacuous substitutes for thought. Its pervasive presence and the ascendancy its serious meanings have exercised show plainly that it "does something" for the economic theoretician. What does it do? It enables him to exhibit the economic world as determinate, explicable, calculable, and even predictable. Equilibrium is orderliness, harmony, the advancement of one's own interest by serving that of others. Equilibrium is interactive rationality, the recognition that society is an organism. Above all, it is the necessary condition, the basis and sanction of proof. Pride in proof is legitimate. Proof is certainty, an end to debate, and it is more, in the scale of values and sensibilities of many of us. Proof is beauty. If economic theory is to validate its claim to be a deductive system, a science, then the equilibrium idea is indispensable. But proof can exist only in a closed world. It depends upon "givens." If we are not supplied with "givens," and if we are not defended from things not given, of which we were not told, things which can blow in on us in the cold draught from time-to-come, there is no proving things.
Shackle doesn't go far enough. Well, he probably goes far enough in outlining the incompatibility of the notion of equilibrium with the conception of uncertain expectations. But I think it is possible to go a further step in comprehending the incompatibility of the notion of equilibrium with itself. That is to say, the essential incongruity of the notion of equilibrium. 

In an appendix to Significance and Basic Postulates of Economic Theory, T.W. Hutchison admonished, "It is high time to put these theories [laissez faire and equilibrium doctrines] firmly back in their place as Utopian constructions." He cited S. Bauer's 1931 article, "Origine utopique et métaphorique de la théorie du “laissez faire” et de l’équilibre naturel."

Prominent in Bauer's discussion of the origins of the notions of laissez faire and equilibrium is the role of Baltasar Gracian's Oráculo Manual -- which was translated into French by Amelot de la Houssaie in 1684 -- in popularizing both the notion and the term, laissez faire. Pierre le Pesant Boisguilbert is credited with introducing the term into political economic thought in a book published in 1707. Below is the maxim extolling the art of leaving things alone:

Where this story of equilibrium starts to get convoluted is in the Spanish Baroque's philosophical tradition of radical skepticism that Gracian exemplified. In the introduction to his English translation of Gracian's Pocket Oracle, Jeremy Robbins describes the "world of deception and illusion" central to Baroque thought:
Gracián posits a world of deception and illusion, in which appearances predominate and malice and cunning are omnipresent. Hence the distrust, pessimism and misanthropy that characterize his world-view. The key concept here is deceit (engaño): this covers, for Gracián, not simply the deception of one individual by another, but our self-deception as to the true nature and value of the world, and hence our deception by the world. It is a term at once moral and epistemological: to fail to know the world for what it is condemns us to moral error and to failure. Because of our tendency to accept appearances and to follow our desires, passions and emotions, we are mired in a world of deceit. There is consequently an urgent need for disillusionment (desengaño), the other key concept of the Spanish Baroque, For Gracián and his contemporaries, disillusionment means the realization of the true worth of things, seeing them as they really are: in essence, that this world and all within it is worthless. For many writers, this means explicitly viewing things not from a human or worldly perspective, but from the perspective of eternity, on the grounds that the here and now, being transient, amounts to mere appearance, true reality being what awaits us after death.
Robbins is the author of an introduction to seventeenth century Spanish literature titled The Challenges of Uncertainty, in which he argues that Spanish literature, "creatively responded to the unprecedented sense of uncertainty fostered by developments across Europe... it was above all this scepticism which led Spaniards to employ literature and art to question the boundaries of reality and illusion." 

Something weird is going on here. An aesthetic response to uncertainty about the bounds of reality and illusion has been adapted and transformed into a fundamental assumption about the nature of the the world. Uncertainty has been overcome by... an imaginary Utopia,

In "The Quest for Ignorance or the Reasonable Limits of Skepticism" Stephen Pepper argued that "Utter skepticism -- a skepticism void of all knowledge -- could not know itself and stands refuted in its very utterance." There are limits to what we cannot know. The Utopia of equilibrium is not simply incompatible with uncertainty -- it is an inevitable symptom of unreasonable uncertainty. Pepper asked, "How little can we know? What is the maximum of a reasonable unbelief?" His answer relied on the acknowledgement, first, of what he called "middle-sized facts":
These middle-sized facts are the matrix of all knowing. We are so immersed in them all the day long that we ordinarily miss their significance. The common man does not think about them, because he is moving among them; and the specialist does not think about them, because he has made assumptions that raise him above them. They get left out in most discussions of knowledge and fact. But they constitute the lowest limit of skepticism.

Sunday, March 8, 2015

Fortune and the Four-day Workweek

What economists of the 1950s and 60s disparaged with the "lump-of-labor" hand, they typically celebrated with the "inevitable", "productivity gains", "income-leisure choice" hand. Based on past trends, the four-day week could be expected to arrive by 1980 -- presumably without legislative or collective bargaining "coercion." By now, 2015, workers would be enjoying the three-day, 21-hour week or, alternatively, three-month annual vacations. Didn't happen. But what's odd is how little thought is given to why it didn't happen and to what happened instead. The dots do connect. Rising inequality, financialization, economic instability and precarious employment -- all these cannot be entirely unrelated to the euthanasia of union arguments for shorter hours.

The Four-day week: How soon?

Daniel Seligman
Fortune -- July 1954

How far off is the four-day week? The standard five-day week has been lodged in American life for only a decade or so. Yet for some reason it is widely regarded today as something natural and immutable. Recently, Fortune mailed a questionnaire about the feasibility of a four-day week to fifty large industrial firms (more than 30,000 employees) and fifty medium-sized companies (300 to 3,000 employees). If there is a single U. S. company whose spokesmen are willing to affirm that a four-day week is possible and desirable in the fairly near future, it has not been found.

The fact that most American businessmen regard any future four-day week with misgivings and even hostility does not, of course, mean it is never coming. A quarter of a century ago there was a great debate about the five-day week. Speaking for the affirmative, but almost alone among businessmen, was Henry Ford. He had introduced the five-day week, he said shortly after the event, “because without leisure the working men— who are the largest buyers in the country—cannot have the time to cultivate a higher standard of living and, therefore, to increase their purchasing power.” Virtually all the businessmen who addressed themselves to the subject found differently. In general, they had three major objections to the five-day week: the cost would be prohibitive; the workers would not know what to do with their leisure time; and there was Biblical sanction for the six-day week.

An important reason for the cautiously noncommittal attitude of business men today is that their employees have been unionized. To declare that a four-day week might soon be feasible would be to give, gratis, a large bargaining counter to the union. On the other hand, to suggest that employees cannot look for any more leisure time would be inept public relations.

Labor leaders also appear to he preoccupied elsewhere. It is true that both the major labor federations have clearly defined ideas about affording more leisure for the American worker. But these do not include the four-day week—yet.

If both labor and management are uninterested in the four-day week, what good reasons are there for talking about it? Briefly, two kinds of reasons might be adduced: The four day week would be desirable, both for business and employees; and it would almost certainly be attainable.

The major reason for thinking a four-day week feasible is, of course, the continually increasing productivity of U. S. industry. Productivity—i.e., output per man-hour—has been rising by 2 or 3 per cent a year, taking the economy as a whole, for more than fifty years now. And, barring a war or a prolonged depression, Americans clearly have some further benefits in store. The question is whether they will take these benefits in the form of increased income, increased leisure time, or in a combination of both.

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.

If the four-day week seemed sufficiently appealing, of course, it could be achieved much sooner. A lot of Americans might, in other words, he willing to work nine hours a day. That, theoretically, would enable them to enjoy the four-day week when total hours of work were down to 36. If they made such a decision—if they traded the eight-hour day for the three-day weekend—then the great event would he scheduled to arrive, not around 1980, but in the 1960’s.

A large number of business men maintain that the four-day week has no applicability to their own operations. The following problems are suggestive of the wide variety of “insurmountable” obstacles that would he encountered:
Manufacturing companies with three-shift operations would run into formidable scheduling difficulties if the nine-hour day were introduced.
Companies whose total hours of operation could not be reduced would have to hire more employees.
Retailing provides a peculiarly difficult situation. To remain open six days and give their employees a four-day week, department stores would have to hire 25 per cent more workers than they now employ. 
A final question must be considered. Do workers really want more leisure? Many employers are still convinced they do not. Now there is no doubt that, given more time off, some workers might drink too much, or beat their wives, or go insane watching daytime television. Others might work themselves to death on second jobs. But the $30-billion leisure market, the remarkable emergence, almost from nowhere, of a huge, new do-it-yourself market, and even the familiar Sunday-afternoon sight of cars crawling along bumper to bumper, suggest strongly that most American workers have a pretty good idea of what to do with their time off.

Meanwhile, in the income-leisure choice for the years ahead, there will be one strong pressure for leisure: The workers who have been energetically pushing their way into the middle-income class have, naturally, become increasingly preoccupied with federal tax demands. "If we get more dough," said one AFL man recently, "the government can take back part of it. But they haven’t yet figured out a way to tax your day off."

Friday, March 6, 2015

"Unemployment and Shorter Hours" -- Howard G. Foster

The following hypothetical example was developed by Howard G. Foster -- then a teaching assistant at the New York State School of Industrial and Labor Relations at Cornell -- and published in the April, 1966 Labor Law Journal. It can best be understood as a direct reply to arguments in the pamphlet, The Shorter Workweek by Marcia L. Greenbaum, published three years earlier by Cornell ILR. Both Foster and Greenbaum went on to distinguished careers as labor arbitrators.

A common reason given by economists who reject the proposal of a shorter workweek is based on what they call the "lump of labor" fallacy. Labor's analysis, they suggest, assumes that an employer has a fixed amount of work that must be done. If hours are reduced with no cut in weekly pay, the employer will react just as he would to any wage increase —that is, cut back output until marginal cost (which has risen) again equals marginal revenue. To suppose that the employer will maintain production in the face of a substantial cost hike is said to be clearly fallacious.

A complete listing of the numerous arguments set forth by economists disapproving of shorter hours is beyond the scope of this paper. Some of them have been cited in preceding pages, and others will be treated in the final section of the paper when possible technical and social problems will be explored. The point to be emphasized here is that shorter hours is one issue on which labor has received virtually no support outside of its own circles. This conclusion is verified by a comprehensive study made by Marcia Greenbaum, a research associate at Cornell University, in which she states:
"If this chapter has painted a gloomy picture of the economic implications of the shorter workweek, it is simply reflecting the nearly unanimous opinion of economists outside of the labor movement. Every other labor proposal for coping with unemployment . . . receives support from at least some economists and public officials. In their plea for shorter hours, however, union leaders stand alone, attacked even by the leading officials of a friendly Administration."
With this in mind, let us now turn to an analysis of the immediate effects of a reduction in hours. 

...does it follow that a rise in cost is a necessary concomitant of a cut in the workweek? A moment's reflection leads one to answer "no." The key to such a conclusion is the assumption that productivity is continually moving upward. This means either that a firm can produce more goods and/or services with the same amount of input than it could before the productivity increase, or that it can produce the same amount with less input. ...consider the following hypothetical situation.

Suppose a company employs 100 men who work 40 hours a week. Suppose further that average hourly pay is $1.00. Thus the average worker grosses $40 a week and the employer's total weekly payroll is equal to $4,000 (ignoring, for the moment, other employment costs such as social security payments, fringe benefits, etc.). Now let us assume that the union contract is about to expire, and during the course of the contract— two years—the company's productivity has risen by 5 per cent. This is not an unreasonable assumption, as the average annual productivity increase in American industry is estimated to be about 3.2 per cent. Now what might happen at the negotiations for a new contract?

Since productivity has risen by 5 per cent, the union will demand a share of the gains. If returns to all factors of production are to remain constant, labor would call for a 5 per cent increase in hourly wages. This is the same as saying that labor will receive the same amount relative to sales as before. Let us assume, however, that product demand has not changed. Total payroll, therefore, will have to remain at $4,000. Since hourly wages should be boosted by 5 per cent, then weekly pay can be maintained with a 5 per cent drop in weekly hours. This works out nicely, since the workers can still produce as much as before because of the productivity increase. To illustrate:

One might wish to interject at this point, "So what? You haven't improved the employment situation at all. The work force still numbers 100." This is all very true indeed, but it might be useful to reflect on just what would have happened had this particular sequence of events not occurred. Whether or not the union demands an hourly wage increase, the employer finds himself in a position where he can meet his production needs with 5 per cent fewer man-hours. So what are his alternatives? He can either cut back hours by 5 per cent or cut back men by 5 per cent—in other words, lay off five men. In the first instance he did the former. He can just as easily do the latter, as illustrated in row (b) of the table below:

In this situation, there are fewer men working at a higher weekly wage. Since we have proceeded from the premise that a certain number of men working at, for example, 38 hours is better than fewer men working at 40 hours, we must conclude that situation (a) above is preferable to (b). 

What is the significance of this? It is true that employment has not been increased in situation (a), but obviously the hours reduction has forestalled a decrease in employment. If hours were not cut, then five more men might be out of work. In policy terms there is little difference between steps to decrease unemployment and steps to prevent it from increasing. Furthermore, it should be noted that it appears to make little difference to the employer whether he cuts man-hours through cutting men or hours. It might be argued that in situation (a) the company is obliged to incur some extra cost over situation (b) in the form of fringe benefits, social security and unemployment compensation payments, and other costs which are dependent on the number of workers employed rather than the number of hours worked. It should be added, however, that the employer has the advantage in situation (a) of retaining men who are experienced and whom he could use in case of a spurt in demand without going to the trouble of hiring and training additional workers. At any rate, both of these factors would seem to be relatively minor cost considerations, since only 5 per cent of the work force is involved. Now let us expand the argument a bit. In the foregoing, it was assumed that demand for our employer's product had remained constant. It is not unreasonable to assume that in some cases demand will have risen. For the sake of simplicity, let us assume that sales have increased by 5 per cent, the same amount as the productivity increment. In such a situation, the employer will want to retain the same number of man-hours as before, since by definition the same input can turn out 5 per cent more output. Thus the company might simply raise hourly wages by 5 per cent, and everything would be fine. The situation would look like this (assuming that in 1963 8,000 units had been sold at $1.00 apiece, and that in 1965 the market will take 8.400 units at the same price):

Now suppose the union forces the company to cut the standard workweek to 38 hours. In such a case total payroll will have remained the same. Since the employer was willing to pay out an additional $200 in wages in the first place, he should have no objection to using that money in order to hire the extra workers he needs to meet the demand for his product. Thus we have the following situation:

At this point a critic might protest that the marginal cost of hiring five additional workers is greater than simply the total of their wages. There are administrative costs, benefit and tax costs, and training costs. This, of course, is a valid objection, but the problem is not insuperable. One way the difficulty could be circumvented might be to allow the employer sufficient leeway in the hours reduction to meet the extra costs. In other words, the union might agree to cut weekly hours by only 4 per cent, with no increase in weekly wages, allowing the employer 1 per cent of total payroll with which to pay the expenses of hiring new workers. Thus, again, it should make little difference to the employer how the complement of man-hours is composed— of 100 men and 40 hours, or 105 men and 38.4 hours (that is, a 4 per cent reduction of hours). Two possible situations have been examined, and with each two alternative ways of facing them have been suggested. First it was hypothesized that weekly sales had remained the same, and second, that sales had increased. It should be obvious that any other possibility can be reasoned out in the same manner. If, for example, sales should increase by, say, only 2.5 per cent, then the alternatives would look like this:

Tables representing situations in which sales are held to be any other amount may be similarly devised. Two points might be noted and emphasized here. First, it is evident that any increase in sales concurrent with a productivity increase opens the possibility of creating jobs. The more that sales rise, the more jobs can be found. Secondly, in all the above examples, the standard workweek was reduced without a rise in unit labor costs. This should at least suggest that in principle hours reduction might indeed be an instrument by which to alleviate the unemployment problem and is worth further study.

Finally, the hypothetical situations described above assumed that the employer's annual rate of productivity increase was 2.5 per cent. To be sure, all companies do not enjoy such good fortune. Since the average rate has been estimated at 3.2 per cent, however, some industries must have a rate of increase that is even higher; and in these areas of the economy, hours reduction should have its greatest effect. In industries with low rates of productivity gains, the proposal will be less effective. It seems reasonable to suggest, however, that any company willing to grant a wage increase in the first place, for any reason, can do it just as easily by cutting hours as by raising weekly wages. As stated above, productivity is the key to the shorter-hours proposal in that productivity is the principal factor which enables wage increases in any form to be granted. So long as productivity in American industry continues to rise, hours of work can be cut without inflating unit costs and in this way labor may indeed be able to "create jobs" at the bargaining-table.

Five years later, H. D. and N. J. Marshall wrote in their textbook, Collective Bargaining:
The arithmetic of the theory is simple. lf there are 50 million people presently working forty hours per week, let them now work for only thirty-five hours. The resulting reduction of 250 million hours of labor will create openings for more than 7 million (250 divided by 35) additional workers.  
Few businessmen or economists have been convinced of the validity of this reasoning...
The arithmetic IS indeed simple, just not so stupid. The Marshalls' argument is even simpler: ignore the argument that is made; substitute a flimsy straw man; knock down the straw man. Few businessmen or economists are not convinced of the validity of their reasoning. Witness the Hamilton Project's February 2015 framing paper, The Future of Work in the Age of the Machine.

Wednesday, March 4, 2015

Break Their Haughty Frames

They have taken untold millions that they never toiled to earn,
But without our brain and muscle not a single wheel can turn.
We can break their haughty power, gain our freedom when we learn
That the union makes us strong.
The Hamilton Project bills its "The Future of Work in the Age of the Machine" as a "framing paper." The "frame" (or frame-up) appears on page two of the paper:
The Luddites, as they were called, were revolting against a phenomenon that would fundamentally alter the economies of the world. Technological change would dramatically increase the productivity of labor, creating new possibilities in manufacturing, agriculture, mining, and transportation. While these changes ultimately raised the standard of living in industrialized countries, the Luddites, and many others, saw their jobs disappear (Easterly 2001).
Those "Luddites" (as they were called) were notorious for breaking frames. They were also framed.

From the report of the proceedings of the trial of George Melior (or Mellor), William Thorpe and Thomas Smith for the murder of William Horsfall of Huddersfield, Yorkshire, it would appear (to this reader at least) as though the defendants were indeed guilty as charged. So in what sense am I claiming they were "framed"? The prosecutor, Mr. Richardson saw fit to present his "general observations on the case" -- unsupported by the testimony of witness -- regarding a certain "delusion that has prevailed... amongst the lower orders."

Mr. Horsfall is represented to me to have been a man, who had upwards of four hundred persons at work under him, extremely beloved by his men, and they greatly attached to him. He had very large manufactories, of course, from the employment of so many men; and he employed the machinery which was the object of the abuse of these misguided people. I have not the means of making such observations as I have frequently and lately heard made, upon the delusion which has prevailed upon that subject, amongst the lower orders. It has been supposed that the increase of the machinery by which manufactures are rendered more easy, abridges the quantity of labour wanted in the country. It is a fallacious argument: it is an argument, that no man, who understands the subject at all, will seriously maintain. I mention this, not so much for the sake of you, or of these unfortunate prisoners, as for the sake of the vast number of persons who are assembled in this place. 
I hope that my learned Friend on the other side, will give me credit, that I mean to state no facts as bearing upon the prisoners at the bar, that I shall not, as I conceive, bring home to them. But I cannot help making general observations upon the subject, to draw their Lordships' attention, and yours, to the case itself. I would rather, for perspicuity's sake, go to the facts which constitute the crime, and then apply it to the prisoners. Mr. Horsfall was a man, I understand, of warm feelings, of great and good understanding, and who saw the fallacy of these arguments; and he, perhaps imprudently (though I do not think so, for I do not think any man acts imprudently in stating his sentiments on a subject which has been under his full consideration) he, I say, stated he would support this species of machinery, because he was sure it was advantageous to the country. He was perfectly well known, in consequence of the part he has taken in reference to these disturbances; and it was proposed by some persons, that he should be taken off.
Catch that? "I have not the means of making such observations..." "I mean to state no facts as bearing upon the prisoners at the bar, that I shall not, as I conceive, bring home to them." In short, this peroration was a digression. It was admittedly incidental to the matter at trial. But it was politically crucial. Not only was Mr. Richardson concerned with securing a conviction for murder but, perhaps even more urgently, with establishing, for the record, the collective guilt of those "lower orders" for "outrages" arising from their delusion and their fallacious argument. Those lower orders had no grounds for complaint.

The authors of the Hamilton Project framing paper cited William Easterly as the source for their digression on the Luddites (as they were called). Easterly called his passage on the Luddites "an aside about the Luddite fallacy." Apparently not having consulted Mr. Richardson's Indictment, Easterly claimed that "the intellectual silliness came later":
Some people believe labor-saving technological change is bad for the  workers because it throws them out of work. This is the Luddite fallacy, one of the silliest ideas to ever come along in the long tradition  of silly ideas in economics. …  
The original Luddites were hosiery and lace workers in Notting  ham, England, in 181 1. They smashed knitting machines that embodied new labor-saving technology as a protest against unemployment (theirs), publicizing their actions in circulars mysteriously  signed “King Ludd.” … The intellectual silliness came later, when some thinkers generalized the Luddites’ plight into the Luddite fallacy: that an economy-wide technical breakthrough enabling production of the same amount  of goods with fewer workers will result in an economy with—fewer  workers. Somehow it never occurs to believers in Luddism that there’s another alternative: produce more goods with the same number of workers.
Actually the allegation of intellectual silliness came three decades earlier -- in the form of a pamphlet by the Lancashire magistrate, Dorning Rasbotham, Thoughts on the Use of Machines in the Cotton Manufacture. Accusing frame breakers of irrational techno-phobia became a commonplace in industrializing Britain. That way you don't have to acknowledge or deal with their grievances.The Luddite fable serves the same purpose today  Opponents of austerity, pension cutbacks, neo-liberal trade policies and labor-market deregulation, along with proponents of work-time reduction can be glibly dismissed without having to acknowledge their arguments. Those lower orders are all deluded. They assume that their is only a fixed amount of work to be done. \There's no point listening to their silly ideas or reasoning with them. 
Is there aught we hold in common with the greedy parasite,
Who would lash us into serfdom and would crush us with his might?
Is there anything left to us but to organize and fight?
For the union makes us strong.

Monday, March 2, 2015

Bad Faith Economics: A Cheap Market Will (almost) Always (tend to) Be Full of Customers (except when it isn't)

As a rule, new modes of economy will lead to an increase of consumption according to a principle recognised in many parallel instances. The economy of labour effected by the introduction of new machinery throws labourers out of employment for the moment. But such is the increased demand for the cheapened products, that eventually the sphere of employment is greatly widened. Often the very labourers whose labour is saved find their more efficient labour more demanded than before. -- William Stanley Jevons, The Coal Question, 1865.
In other words, technology creates more jobs than it destroys. Or, to be precise: as a rule, technology often, eventually creates more jobs than it destroys. What's the difference between those two statements?

This old saw appears to form the theoretical core of neo-liberal industrial policy. Witness the Hamilton Project's February 2015 "framing paper" The Future of Work in the Age of the Machine. After the obligatory swipe at Luddites -- "The Luddites, as they were called, were revolting against a phenomenon that would fundamentally alter the economies of the world" -- the Wall Street Democrats' think-tank presents a qualified version of the platitude:
There is a consensus that, historically, technological progress has created winners and losers, but over the long run, new technology has tended to create more jobs than it has destroyed, while increasing society’s productivity and wealth.
What is the counter-statement to the principle that technology creates more jobs than it destroys? Is it "technology destroys more jobs than it creates"? "Technology doesn't necessarily create more jobs than it destroys"? "There is a fixed amount of work to be done"?

Surely it can't be the third statement because there could be a situation where the amount of work to be done increased but the number of jobs still decreased. A fixed amount of work is overkill. The first counter-statement is the mirror image of the dogmatic assertion of the principle. The second is actually consistent with the more contingent, provisional version of the principle.

There is no way to predict whether people disputing the dogmatic claim that technology creates more jobs than it destroys do so on the basis of belief in counter-statement one, two or three. As a rule, however, it is discourteous to attribute to an opponent the least plausible motivation for their beliefs. It would be more respectful -- and more prudent -- to attribute the most plausible and defensible motivation.

There is no evidence for the claim that union arguments for shorter hours assume a fixed amount of work and thus commit a lump-of-labor fallacy. There is, however, proof that those who make the accusation actually do commit the fallacy.

The first proof was by Charles Beardsley in 1895. I discussed it in my "Why economists dislike a lump of labor." Pigou in 1913 and Dobb in 1928 demonstrated other fallacies committed by the "fixed Work-Fund" plaintiffs. In Some Leading Principles of Political Economy, published in the 1870s, John Elliott Cairnes bitterly denounced on page 251 the "profound, pernicious fallacy," which is a restatement of the wages-fund doctrine he had obstinately defended back on page 174.

Below is a typical example of the case against the "more refined" 1960s union arguments for shorter hours, which suggested that labor cost increases could be mitigated by the productivity gains resulting from the reduction in fatigue, etc. It is from Collective Bargaining by H. D. Marshall and N. J. Marshall (1971):
Two points need to be made with respect to future gains in productivity resulting from a shortening of hours. First the truer the statement is, the less valid is the union argument that a reduction in hours serves as a solution to the problem of unemployment. The original "lump of work" argument was that if each worker did less work, there would be more work available for others. However, if the reduction in hours induces the worker to produce nearly as much (or even possibly more) than he did on a longer time schedule, the increased availability of work for others will be at least partially lost. Union leaders have often presented these arguments side by side without realizing that they are inherently contradictory.
Subtle. The truer the statement about productivity is, the less valid is the supposed lump of work argument as a solution to unemployment. What the authors overlook, though, is that "future gains in productivity" are -- no less than the introduction of new machinery -- "new modes of economy" and thus may be expected as a rule to eventually widen the sphere of employment. (Unless, of course, the amount of work to be done is fixed.)