Relevant and even prescient commentary on news, politics and the economy.

Gates & Reuther v. Baker & Bernstein on Robot Productivity

In a comment on Nineteen Ninety-Six: The Robot/Productivity Paradox, Jeff points out a much simpler rebuttal to Dean Baker’s and Jared Bernstein’s uncritical reliance on the decline of measured “productivity growth”:

Let’s use a pizza shop as an example. If the owner spends capital money and makes the line more efficient so that they can make twice as many pizzas per hour at peak, then physical productivity has improved. If the dining room sits empty because the tax burden was shifted from the wealthy to the poor, then the restaurant’s BLS productivity has decreased. BLS productivity and physical productivity are simply unrelated in a right-wing country like the U.S.

Jeff’s point brings to mind Walter Reuther’s 1955 testimony before the Joint Congressional Subcommittee Hearings on Automation and Technological Chang:

Every tool on every operation has a green light, a yellow light, and a red light; and when all the green lights are on, it means that all the tools at each work station are operating up to standard. When a yellow light comes on, on tool No. 38, it means that the tool is still performing, but the tool is becoming fatigued and that is a warning sign, so that the operator sitting there looking at these panels will know that he has to get a replacement tool for tool No. 38. He stands by at that position on the automated machine, and at the point the red light would kick on, on the board, he walks over — the machine automatically stops — he puts the new tool in the place of the tool that is worn out, and automatically the green light comes on and the machine goes on.

When I went through this plant the first time I was told by a top official of the Ford Motor Co.: ‘Mr. Reuther, you are going to have trouble collecting union dues from all of these machines.

And I said: ‘You know that is not bothering me. What is bothering me is that you are going to have more trouble selling them automobiles.‘ That is the real significance. We have mastered the know-how of mass production, and what we need to do is to develop comparable distribution know-how so that we will have markets for the tremendous volume of production that automation now makes possible.

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The 24 Trillion Dollar Bezzle

At the beginning of 2007, net worth of households and non-profit organizations exceeded its 1947-1996 historical average multiple, relative to GDP, by some $16 trillion. It took 24 months to wipe out eighty percent, or $13 trillion, of that colossal but ephemeral slush fund.

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Nineteen Ninety-Six: The Robot/Productivity Paradox

For nearly a half a century, from 1947 to 1996, real GDP and real Net Worth of Households and Non-profit Organizations (in 2009 dollars) both increased at a compound annual rate of a bit over 3.5%. GDP growth, in fact, was just a smidgen faster — 0.016% — than  growth of Net Household Worth.

From 1996 to 2015, GDP grew at a compound annual rate of 2.3% while Net Worth increased at the rate of 3.6%.

Responding to an editorial in the New York TimesJared Bernstein reprised a theme that Dean Baker has been stressing for a while — that productivity and investment measures don’t support the “robots are stealing jobs” story. I agree with Jared and Dean that it is policy, not robots that are stealing the jobs. But I am skeptical about using productivity numbers as evidence against the role of labor-saving technology in displacing people from employment.

The reason for my skepticism is that labor productivity is a ratio between two very broad aggregates — GDP and hours worked — that lump together a myriad of disparate economic factors. Here is the argument I made to Dean back in December. He was not persuaded:

The difficulty I have with the evidence you [Dean] use for your argument has to do with the changing composition of the aggregate measures that make up the productivity calculation and the possibility that confounding variables in each of those aggregates may be “compounding the confounding” when used for year-to-year comparison.

As Block and Burns pointed out, the National Research Project that developed the original productivity estimates argued that “no such thing exists in reality” as the productivity of a group of diverse products. Instead they presented two calculations of productivity, using different weighting, to show that the “measurement” depended in part on the weighting of the variables.

The shift from physical output to GDP measures obscured the fact that there is “no such thing” as the productivity of a diverse collection of products. Monetary value converts those diverse products into so much “leets” — to use Joan Robinson’s sarcastic term. Obviously the mix of goods and services that make up the GDP differs from year to year. The GDP deflator is intended to adjust for price changes and quality improvements but doesn’t deal with distributional changes and product substitution.

The government services component of national income has been a particular issue, the critique of which goes back to Kuznets’s 1947 criticism of the Commerce Department’s GNP and Kaldor’s statistical appendix to Wm. Beveridge’s Full Employment in a Free Society. Kuznets argued that much of government services should be treated as intermediate goods rather than final consumption goods. Kaldor considered the inflationary affects of government deficit spending, arguing that some of that “inflation” simply reflected the increased share of collective consumption. Warsh and Minard offered a critique of “inflation” in the 1970s that could easily have referenced Kuznets’sand Kaldor’s arguments. Their idea was basically that as government expenditure increases as a percentage of GDP, much of the taxation to pay for it is passed on to the consumer in the form of higher prices. It is an argument about the incidence of taxation.

Finally, there is the question of the “productivity” of hours of work themselves. Presumably there is an optimal length (or innumerable optimal lengths) of the working day, workweek or year and variation above or below that optimum will result in lower output per hour. Aggregate hours of work and average annual or weekly hours do not reflect changes in the dispersion of hours of work that may in turn be affecting the productivity of hours. Computationally, this injects a circular reference into the measurement of productivity. If you tried to do this on an Excel spreadsheet you would get an error message. It is only by ignoring the feedback effect of changes in hours and changes in dispersal of hours that productivity can be calculated as GDP/Hours.

By definition, new technology introduces changes in product mix and changes in work arrangements. But also, by definition, the two components of the productivity calculation assume “no change” in product mix or work arrangements. So I’m having trouble seeing how a ratio that relies on an assumption of no change could be adequate to measure the effects of change.

When Jared posted his commentary, I wanted a quantitative illustration of the point I was trying to make. I had already been wondering about the question raised by Bill Gates about taxing robots and the idea that wealth creation might be “bypassing” income, so I looked up the net worth statistics.

After a bit of number crunching, I am astonished at what I see in the numbers. It is not just the discrepancy between GDP and net worth that impresses me but also the long period prior to 1996 during which the two numbers grew at a very similar rate. In the chart below, I have indexed both series to 100, with 1996 as the reference date. The smooth curve is actually two trend lines based on the 1947 to 1996 trend for each series:

Logically speaking, and using the plain language meaning of the terms, wealth is something that is produced. So increases in wealth presumably are predicated on increases in production. It makes intuitive sense that over the long run there would some sort of stable relationship between the growth rates of GDP and of wealth. I was not anticipating, however, such a close fit between the two series from 1947 to 1996. It only accentuates the disjuncture between GDP growth and growth of Net Worth after 1996.

The above chart only goes to the end of 2015, so it doesn’t include the recent stock market boom. Nevertheless, it presents an unsettling picture.

Returning to the puzzle of productivity, the point that I was trying to illustrate is that the comparability of the productivity measure requires a good deal of faith in the proportional stability of the economic relationships over time. If there are significant shifts in employment by sector, technology, resource availability, trade arrangements and/or consumption tastes, then comparing productivity between periods is futile. There is too much noise in the component aggregates to begin with — but using a ratio between them amplifies the noise.

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The “Imperative Mandate” — Recall: An Annotated Bibliography

Recall of elected officials is both the essence of Populism, the “imperative mandate” and consistent with good business principles.

You’re fired!, the voters’ version of “The Apprentice”: An analysis of local recall elections in California.” Rachel Weinstein, Southern California Interdisciplinary Law Journal, Vol , 15. 2005-2006.

The title of this 2005 article contains the delicious irony of referencing Resident Dump’s reality T.V. show, “The Apprentice.” As the title indicates, the article analyzes the characteristics of local recall elections in California, looking specifically at such elements as community size, property values, signature requirements, campaign spending, motivations of elected officials, interest groups and the ability of citizens to monitor government activity. There is a brief comment in passing on the notion of national recall elections:

At a national conference on direct legislation organized by the Populist Party in 1896, delegates affirmed their commitment to direct legislation at the municipal, state, and national levels of government, but after a prolonged debate they withdrew a motion to include the recall, which they termed the “imperative mandate” as part of direct legislation.

Functions of the Initiative, Referendum, and Recall,” Jonathan Bourne, Jr. The Annals of the American Academy of Political and Social  Sciences (September, 1912).

Jonathan Bourne, Jr. was the Republican U.S. Senator from Oregon when he wrote this article. The Republican Party did not nominate him to run for re-election in 1912 and ran instead under the Popular Government banner, coming in third. The preamble of this article, dealing with the initiative and referendum is a rousing denunciation of the extent to which popular sovereignty has been usurped by political manipulation and the commercialization of politics. Bourne argued that recall was a precautionary measure and that its existence “will prevent the necessity for its use.” “Adoption of the recall,” he wrote, “is nothing more than the application of good business principles to government affairs.”

Every wise employer reserves the right to discharge an employee whenever the service rendered is unsatisfactory. The right of the employer to discharge his employee rests upon exactly the same basis as the right of the employee to quit. The principle is recognized throughout the business world, and it is put in practice by every large and successful corporation. Consider the absurdity of the recognition of the right of a public officer to quit his position at any time and the denial of the right of his employers to discharge him. To assert the right in one instance and deny it in the other is to maintain a one-sided contract, the discrimination being against the whole people and in favor of the individual. If we can trust an individual to deal justly with the people when he considers tendering his resignation, we can also trust the people to deal justly with a public servant when they consider discharging him.

Bourne stopped short of prescribing the recall for national office, stating somewhat ambiguously, “I think no one proposes, at present, to extend the recall to any federal official except those elected by the people of the several states,” even though he had preceded that demurral with an explicit reference to the election of the President:

It is generally conceded that the American people have intelligence and honesty enough to be trusted with the power to select their public servants, even to choose a President of the United States. If it be granted that the people have intelligence enough to choose a President of the United States, no man can consistently contend that they have not the intelligence to act wisely upon the question of discharging a state, county, or municipal officer.

“Presidents, Impeachment, and Political Accountability.” MC Havens, DM McNeil – Presidential Studies Quarterly, 1978.

This article contains a brief historical note on recall and discussion of the implications of recall for the U.S. Presidency:

The idea of the recall election found its greatest popularity in the period between 1910 and 1920 when progressive politicians were interested in “cleaning up government.”24 At that time, the recall election was viewed as the most effective means available for insuring the accountability of public officials and particularly executives. The first proponents of the argument concentrated their efforts on local and state officials, but by extending the scope of the concept national recall elections might be used to remove a malfeasant or incapacitated President. The thrust of this argument is that this means of removal leaves the ultimate responsibility for the unseating of a President in the hands of his national constituency. This would, of course, mean that many of the people who voted to put the President into office would be required to reverse their position and vote to oust him. Theoretically, this would insure that the President’s crime, malfeasance, or incompentency would be of sufficient degree to erode not only his professional political support but his popular and party support as well. Such action could not be taken lightly. Second, it could be argued that the recall would decrease the trauma involved in the impeachment/removal process. Presumably by exercising their own political power through the vote, people would feel an increase in their sense of efficacy rather than a decreasing of their faith in government as the result of the ouster of a President.

The article follows the above by noting the principle defects of recall, which would include the prolonged time that would be required to effect a recall petition and election and the ability of the incumbent to manipulate national crisis in order to defeat the recall.

“The 2003 California gubernatorial recall.” Floyd Feeney, Creighton Law Review,Vol. 41, 2007.

This article deals primarily with the mechanics of the recall of California governor Gray Davis, including the more than twenty lawsuits that were initiated during the recall effort. The article also contains a brief historical note on the recall idea

In the America of the late 1800s, hard pressed farmers and workers, particularly in the Western states, viewed their legislatures as being under the thumb of special interests, especially the railroads. To cure this problem, Populists in the late 1890s and Progressives in the early 1900s advocated more direct control by the people themselves— through the initiative, the citizen-initiated referendum, and the recall. Although there were antecedents going back as far as ancient Rome, this agenda was clearly borrowed in major part from Switzerland, particularly Zurich where the Socialist Karl Buerkli was using the initiative and the citizen-initiated referendum to push reforms aimed at helping workers. Although the recall had existed in canton Schaffhausen, perhaps since the 1820s, even in Switzerland the recall was more novel and less developed than the citizen-initiated referendum and the initiative. The recall idea, however, had early American roots that helped to create a fertile climate. In 1776, Pennsylvania recalled its delegates to the Continental Congress when they refused to sign the Declaration of Independence.  And in 1778, even before they had completed winning their independence, the thirteen American colonies included in the Articles of Confederation a provision specifically authorizing the recall of delegates. Because these home grown procedures relied primarily on local legislative bodies to trigger the recall, however, the Swiss idea of using citizen signatures was an important innovation.

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Emails from the “Voter Fraud” Crypt

Why, oh why is there not an effective opposition party in the U.S. Congress?

The last time “voter fraud” was as high on the GOP’s agenda as it now is on Trump’s, it led to the politically-motivated firing of nine U.S. Attorneys, which caused a scandal that resulted in the resignation of Attorney General Alberto Gonzales.

During the Congressional investigation into the firings, it was revealed that millions of emails were missing, some of which were germane to the issue at hand. They had been stored on a private RNC email server.

Here is some relevant detail from a Newsweek story published September 12, 2016:

The supposedly lost emails also prevented Congress from fully investigating, in 2007, the politically motivated firing of nine U.S. attorneys. When the Democrat-led Senate Judiciary Committee subpoenaed related emails, Bush’s attorney general, Alberto Gonzalez, said many were inaccessible or lost on a nongovernmental private server run by the RNC and called gwb43.com. The White House, meanwhile, officially refused to comply with the congressional subpoena.

Senate Judiciary Chairman Patrick Leahy (D-Vt.) called the president’s actions “Nixonian stonewalling” and at one point took to the floor in exasperation and shouted, “They say they have not been preserved. I don’t believe that!” His House counterpart, Judiciary Chairman John Conyers (D-Mich.), said Bush’s assertion of executive privilege was unprecedented and displayed “an appalling disregard for the right of the people to know what is going on in their government.”

In court in May 2008, administration lawyers contended that the White House had lost three months’ worth of email backups from the initial days of the Iraq War. Bush aides thus evaded a court-ordered deadline to describe the contents of digital backup believed to contain emails deleted in 2003 between March—when the U.S. invaded Iraq—and September. They also refused to give the NSA nonprofit any emails relating to the Iraq War, despite the PRA, blaming a system upgrade that had deleted up to 5 million emails. The plaintiffs eventually contended that the Bush administration knew about the problem in 2005 but did nothing to fix it.

Eventually, the Bush White House admitted it had lost 22 million emails, not 5 million. Then, in December 2009—well into Barack Obama’s administration—the White House said it found 22 million emails, dated between 2003 and 2005, that it claimed had been mislabeled. That cache was given to the National Archives, and it and other plaintiffs agreed, on December 14, 2009, to settle their lawsuit. But the emails have not yet been made available to the public.

The Senate Judiciary Committee was operating on a different track but having no more luck. In a bipartisan vote in 2008, the committee found White House aides Karl Rove and Joshua Bolten in contempt of Congress for refusing to comply with subpoenas in the investigation of the fired U.S. attorneys. The penalties for contempt are fines and possible jail time, but no punishment was ever handed down because a D.C. federal appeals court stayed the Senate’s ruling in October 2008, while the White House appealed. Rove’s lawyer claimed Rove did not “intentionally delete” any emails but was only conducting “the type of routine deletions people make to keep their inboxes orderly,” according to the Associated Press.

By then, Obama was weeks away from winning the election, so the Bush administration basically ran out the clock. And neither the Obama administration nor the Senate committee pursued the matter.

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Why is Donald Trump Covering Up ALIEN ABDUCTIONS?

“We’re gonna launch an investigation to find out. And then the next time, and I will say this: Of those votes cast, none of ’em come to me, none of ’em come to me. They would all be for the other side. None of ’em come to me. But when you look at the people that are registered: dead, illegal and in two states, and in some cases maybe three states. We have a lot to look into.” — Donald J. Trump

I regret to inform you that the nincompoop quoted above is President of the United States. When told that his claim of voter fraud had been debunked, the congenital fantasist-in-chief cited a 2012  Pew study. When the interview pointed out that the author of that study, David Becker, said they had found no evidence of fraud, the wack-doodle accused Becker of “groveling.” Say what? Here is the transcript:

Muir: You say you’re going to launch an investigation into (voter fraud).

Trump: Sure. Done.

Muir: What you have presented so far has been debunked. It’s been called false —

Trump: No it hasn’t. Take a look at the Pew report.

Muir: I called the author of the Pew report last night. He told me they found no evidence of voter fraud.

Trump: Really? Then why did he write the report?

Muir: He said no evidence of voter fraud.

Trump: Excuse me. Then why did he write the report? Look at the Pew Report. Then he’s groveling again. You know, I always talk about the reporters that grovel when they wanna write something you wanna hear. But not necessarily millions of people want to hear, or have to hear

Muir: So you’ve launched an investigation.

Trump: We’re gonna launch an investigation to find out. And then the next time, and I will say this: Of those votes cast, none of ’em come to me, none of ’em come to me. They would all be for the other side. None of ’em come to me. But when you look at the people that are registered: dead, illegal and in two states, and in some cases maybe three states. We have a lot to look into.

This is not even about lying. It is about mental incompetence at lying. The jackass refutes his own alibi two sentences after presenting it.

The Pew report is not the only research paper on voter fraud out there. There are two others. It only gets worse.

One paper by Richman and Earnest was based on an online survey of citizens. It included a question about citizenship. Nearly 19.000 people completed the survey. A relative handful — probably fewer than 100 — non-citizens took the survey. The minuscule number of people who reported both voting and being non-citizens 4 (four!) is extremely likely to be entirely a classification error resulting from less than .1% of the 18,878 citizens checking the wrong box for citizenship status. In short, Richman and Earnest’s estimate was based on a very small sample of non-citizens and was probably entirely an error artifact. The methodological flaw was described in detail in two-page 2015 article titled, “The perils of cherry picking low frequency events in large sample surveys.

Let me repeat the substance of the Richman and Earnest finding: 4 people among nearly 20,000 who completed an online survey identified themselves as non-citizens who voted in either 2010 or 2012. The statistical likelihood of that having resulted from a citizenship classification error is virtually 1 out of 1.

There is a third study of voter fraud that is worth mentioning, “Alien abduction and voter impersonation in the 2012 US general election,” It employed a technique called “survey list experiment” to try to elicit survey responses regarding sensitive or illegal behaviors that people may ordinarily be reluctant to report on a survey. Instead of admitting specific actions, respondents are only asked to report a number of items from a list. Sensitive items are tested for by having a control group that is given only innocuous items while the experimental group is given the innocuous items plus a sensitive one.

The list experiment found that about 2.5% of their sample reported have voted under a name that wasn’t their own. Although a relatively small number, this might seem to be a significant factor in a close election, especially if the impersonations were predominantly on behalf of one party. However, the researchers argued that the result is most likely to be explained by respondent error. Most of the respondents reporting impersonation is accounted for by respondents choosing the maximum number, possibly to complete the survey more quickly. To test whether choosing the maximum number explained their voter impersonation results, the researchers conducted a second experiment, this time including an “impossible event,” namely being abducted by an alien.

The second experiment found that more people reported having been abducted by aliens than having voted using a name that wasn’t theirs. In fact, nearly the same percentage of respondents (2.4%) reported having been abducted by aliens and being audited by the IRS during the past twelve months as had reported having voted under a false name (2.5%). This was despite the fact that the IRS audit rate for 2013 was a little less than 1%! In short, survey respondent were two and half times as likely to be both abducted by aliens and audited by the IRS in the same year as the general public was to be audited by the IRS. Period.

Donald Trump claims that he is under audit by the IRS. Donald Trump claims that there was massive voter fraud in the 2016 which denied him the popular vote victory. Donald Trump claims that the Pew report is evidence for his accusation of voter fraud. But notably, Donald Trump is SILENT on the vital national security aspect of this whole episode: ALIEN ABDUCTION!

Why is Donald Trump covering up ALIEN ABDUCTIONS?

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Fuck You’s Inaugural Address

Dave Moss: What’s your name? 

Blake: Fuck you. That’s my name. You know why, mister? ‘Cause you drove a Hyundai to get here tonight. I drove an $80,000 BMW. THAT’s my name.

Long before Alec Baldwin did his Saturday Night Live impression of Donald J. Trump, Trump appropriated Baldwin’s sadistic “motivational” character, Blake, from Glengarry Glen Ross. Blake is a caricature of the salesman-as-sociopath. Baldwin refers to him as “an asshole.” Trump dialed the “you’re fired” performance down a notch with a wink of tongue-in-cheekiness.

Watch the “always be closing” scene and judge for yourself which impersonation came first:

The tenth anniversary DVD of Glengarry Glen Ross includes a special feature in which the documentary film maker, Albert Maysles recounted the story of a sales manager who,  as he approached the prospect’s door, started swaying his body and shuffling his feet. After the sale, the manager asked Maysles if he had noticed the odd movement and then explained,”when you’re moving your body this way it’s very hard for somebody listening to turn you down.”

This calls attention to the erotic dimension of the sales transaction. Sometimes the commodity isn’t the most auspicious thing being exchanged. Cue the traveling salesman jokes… did you hear the one about Amway Dream Night?

Where pathos rules, where pathos is finally derived, a character has fought a battle he could not possibly have won. The pathetic is achieved when the protagonist is, by virtue of his witlessness, his insensitivity, or the very air he gives off, incapable of grappling with a much superior force. — Arthur Miller, Tragedy and the Common Man

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T. Rex: Engineering Fantasies

Global warming? “It’s an engineering problem, and it has engineering solutions.”

According to Rex Tillerson, Donald Trump’s choice for Secretary of State, adapting to climate change is an engineering problem that has an engineering solution. A soundbite from a Council on Foreign Relations presentation by Tillerson has been widely reported. But it is worthwhile to consider his full answer and its context.

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Comic Book Hayek:The Planners Promise Utopia

In his neo-Confederate “Mein Kampf,” Whither Solid SouthCharles Wallace Collins quoted a full paragraph from Hayek’s The Road to Serfdom regarding the emptying out of the meaning of words.

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

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


To be sure, Hayek’s sole reference to full employment in the book is unobjectionable — even estimable… almost:

That no single purpose must be allowed in peace to have absolute preference over all others applies even to the one aim which everybody now agrees comes in the front rank: the conquest of unemployment. There can be no doubt that this must be the goal of our greatest endeavour; even so, it does not mean that such an aim should be allowed to dominate us to the exclusion of everything else, that, as the glib phrase runs, it must be accomplished “at any price”. It is, in fact, in this field that the fascination of vague but popular phrases like “full employment” may well lead to extremely short-sighted measures, and where the categorical and irresponsible “it must be done at all cost” of the single-minded idealist is likely to do the greatest harm.

Yes, single-minded pursuit at all costs of any nebulous objective will no doubt be short-sighted and possibly harmful. But is that really what “the planners” were advocating?

Hayek elaborated his views on full employment policy in a 1945 review of Beveridge’s Full Employment in a Free Society, in which he glibly characterized Keynes’s theory of employment as “all that was needed to maintain employment permanently at a maximum was to secure an adequate volume of spending of some kind.”

Beveridge, Hayek confided, was “an out-and-out planner” who proposed to deal with the difficulty of fluctuating private investment “by abolishing private investment as we knew it.” You see, single-minded pursuit of any nebulous objective will likely be short-sighted and even harmful unless that objective is the preservation of the accustomed liberties of the owners of private property, in which case it must be done at all cost!


Further insight into Hayek’s objection to Keynesian full-employment policy can be found in The Constitution of Liberty. The problem with full employment is those damn unions. On this matter, he quoted Jacob Viner with approval:

The sixty-four dollar question with respect to the relations between unemployment and full employment policy is what to do if a policy to guarantee full employment leads to chronic upward pressure on money wages through the operation of collective bargaining.

and

…it is a matter of serious concern whether under modern conditions, even in a socialist country if it adheres to democratic political procedures, employment can always be maintained at a high level without recourse to inflation, overt or disguised, or if maintained whether it will not itself induce an inflationary wage spiral through the operation of collective bargaining

Sharing Viner’s anxiety about those damn unions inducing an inflationary wage spiral “through the operation of collective bargaining” was Professor W, H, Hutt, author of the Theory of Collective Bargaining, who “[s]hortly after the General Theory appeared… argued that it was a specific for inflation.”

Hutt, whose earlier book on collective bargaining “analysed [and heralded] the position of the Classical economists on the relation between unions and wage determination,” had his own plan for full employment. It appeared in The South African Journal of Economics in September, 1945 under the title “Full Employment and the Future of Industry.” I am posting a large excerpt from Hutt’s eccentric full employment “plan” here because it makes explicit principles that are tacit in the neo-liberal pursuit of “non-inflationary growth”:

Full employment and a prosperous industry might yet be achieved if what I propose to call the three “basic principles of employment” determine our planning.

The first basic principle is as follows. Productive resources of all kinds, including labour, can be fully employed when the prices of the services they render are sufficiently low to enable the people’s existing purchasing power to absorb the full flow of the product. 

To this must be added the second basic principle of employment. When the prices of productive service have been thus adjusted to permit full employment, the flow of purchasing power, in the form of wages and the return to property is maximised

continued…. 

The assertion that unemployment is “voluntary” and can be cured by reducing wages is the classical assumption that Keynes challenged in the theory of unemployment. Hutt’s second principle, that full employment, achieved by wage cuts, will maximize the total of wages, profit and rent thus would be not be likely to command “more or less universal assent,” as Hutt claimed. But even if it did, Hutt’s stress on maximizing a total, regardless of distribution of that total between wages and profits, is peculiar. Why would workers be eager to work more hours for less pay just to generate higher profits? Hutt’s principles could only gain “more or less universal assent” if they were sufficiently opaque that no one could figure out what he was getting at, which Hutt’s subsequent exposition makes highly unlikely.

Hutt’s proposed full employment plan consisted of extending the hours of work, postponing retirement and encouraging married women to stay in the work force. He advertised his idea as a reverse lump-of-labor strategy. Instead of insisting — as contemporary economists do — that immigrants (older workers, automation or imports) don’t take jobs, Hutt boasted they create jobs, specifically because they keep wages sufficiently low and thus maximize total returns to property and wages combined. He may have been wrong but he was consistent. Nor did he conceal his antagonism toward trade unions and collective bargaining behind hollow platitudes about inclusive growth.

The U.S. has been following Hutt-like policies for decades now and the results are in:

For the 117 million U.S. adults in the bottom half of the income distribution, growth has been non-existent for a generation while at the top of the ladder it has been extraordinarily strong.

Or perhaps Hutt was right and what has held back those at the bottom of the income distribution is that wages have not been sufficiently low to insure full employment and thus to maximize total returns to labor and capital. The incontestable thing about Hutt’s theory is that no matter how low wages go, it will always be possible to claim that they didn’t go sufficiently low enough to enable people’s purchasing power to absorb the full flow of their services.

 

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From Full Employment To “Inclusive Growth”

This is the third of three posts on full employment. The unifying thread is that “full employment” has always been a political and not an economic problem. The first two posts were The Electoral College, White Supremacy and Full Employment as “Reign of Terror” and Full Employment and the Myth of the General Strike.

Employing Sorel’s distinction between myth and utopia, full employment has always been a utopia. But it is a utopia long abandoned by economists, who have substituted the totem of economic growth for the utopia of full employment.

The term “full employment” did not appear in the speech given yesterday (December 5) by Mark Carney, Governor of the Bank of England. Instead, he mentioned the term “inclusive growth” six times.

“The cry for more inclusive growth starts with a crisis of growth itself.”

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