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After All These Years

Adam Smith’s been dead for more than 230 years now; Karl Marx for 138. The industrial age began around 1760; ended around 1960. Around 1950, we entered the information & technology age, an age every bit as epochal as the industrial age. Missing to date in this new age is the Adam Smith equivalent to rationalize it; the Karl Marx equivalent to analyze it. Hopefully, one or more of their big minded equivalents will appear forthwith.

Will the next Adam/Amanda eat from the tree of capitalism, carrying forth the Darwinesque evolution of economics, or will he or she be able to see clearly, to truly think anew? It would be good and proper if it be that they do think anew.

Took the world some 170 years to iron most of the wrinkles out of the industrial age. Perish the thought of taking an equivalent time to figure out the information & technology age. What with Climate Change and all on our plates; there’s isn’t time this time to muddle.

So far, we have mostly seen attempts to bring Smith’s economics of the 18th forward (and, are witnessing the consequences of doing so). Be more relevant if Smith were here in his prime to give us his assessment of this new age. No reason to doubt that Marx could do the analysis if he were around. There is no way that Marx would confuse the information & technology age with the industrial; would try applying the capital and labor issue of then to the capital and automation issue of today.

Meanwhile, in the absence of those of such big minds, why not attempt an analyses ourselves; look at the realities involved and try coming up with ways of dealing with them? The information & technology age is so different that, unless one is really hung up on history and or Darwin, there isn’t a lot to bring forward from the industrial age. It must have been startling for the 18th century populace to watch the rapid rise of manufacturing plants employing thousands of workers. It surely was to see the onset of offshoring and automation beginning in the 1970s, the pace with which they proceeded, and the unintended consequences. We the people haven’t figured it out, yet. Nor have the experts.

Might There Be A V-Shaped Economic Recovery After All?

Might There Be A V-Shaped Economic Recovery After All?


This is a matter where if it happens, I shall be proven wrong.  I have mostly emphasized how much uncertainty and lack of knowledge we face about the pandemic as well as the economy in this situation, and have as a result largely stayed away from making specific or definite forecasts on those matters.  However, here and in other places on the internet, I have made a lot of forecasts that the time path of GDP is likely to look like a “lazy J” or “whoosh,” a pattern of slow recovery after the very rapid decline, with a possible W if a second wave of the pandemic hits hard.  What I often dismissed, sometimes rather pompously to people who seemed to push it for blind political or ideological reasons was that there might be a rapid bounceback, a V-shaped recovery.  Now that it looks like it might happen, or at least a modest version of it, so I may be wrong on my past forecasts.

Curiously, as noted in a fairly recent post, I was one who was not surprised by the net increase in employment in May, given the evidence noted in still earlier posts of a likely turnaround in GDP that probably dates back even into late April and probably not later than early May, looking at figures on gasoline demand and carbon emissions.  It seemed not surprising that this turnaround would lead to some new hiring, even as further layoffs were clearly happening.  But most of this data seemed consistent with the Whoosh scenario, with these renewed increases occurring at rates much lower than the rates of preceding decline.  So the net increase in hiring in May was only 2.5%, large for normal time, but only beginning to offset the double-digit plunge that had happened before it.

The Wage[s]-Lump Doctrine — still dogma after all these years

The Wage[s]-Lump Doctrine — still dogma after all these years

“The wage-fund doctrine was the quintessential product of what Marx termed vulgar political economy; a dogma concealing real economic relations, on the one hand, and justifying them, on the other. It was a transparent effort to disarm the working-class movement, and an attempt (largely successful) to rally public opinion behind bourgeois resistance to the demands of working people for a better life. It was the principal ideological weapon in the arsenal of capital in its disputes with labor over the level of wages.” — Kenneth Lapides, Marx’s Wage Theory in Historical Perspective

The lump-of-labor fallacy CLAIM is the wage-fund doctrine in disguise. The fallacy claim’s conclusions about the ultimate futility of workers’ demands are indistinguishable from the doctrine’s conclusions.. Only the premise from which those conclusions are deduced has been altered. Instead of asserting a certain quantity of work to be done, the fallacy claim attributes that fixed assumption to a designated scapegoat: workers, unions, populists. The claimants’ own assumptions are left undefined, as an amorphous “in reality.”

That undefined “reality” is a given amount of capital for employing workers that can only be increased or decreased as a result, respectively, of a decrease or increase in the cost of labor. That is to say, a wage-fund lump!

The wage-fund doctrine was debunked in 1826 by Sir Edward West. It was “recanted” in 1869 by John Stuart Mill. The lump-of-labor fallacy CLAIM was shown to rely on the discredited fixed wage-fund assumption by Charles Beardsley in 1893. So why do economists (& CEOs) still cling to this dogma?

Because it conceals real economic relations, on the one hand, and justifies them, on the other.

Because it disarms working-class movements and rallies public opinion behind bourgeois resistance to the demands of working people for a better life.

Because it is the principal ideological weapon in the arsenal of capital in its disputes with labor over the the hours of work.

It’s not about regulating markets, after all! It’s about regulating the individual!

by Beverly Mann

Ah! It’s not about regulating markets, after all! It’s about regulating the individual!

ATLANTA — In perhaps the weightiest of the dozens of challenges to the Obama health care law, a panel of appellate judges grappled Wednesday with the essential quandary of the case: if the federal government can require Americans to buy medical insurance, what constitutional limit would prevent it from mandating all manner of purchases and activities?
Kevin Sack, New York Times, Jun. 8

In my last post, Markets and the ACA: Why the Supreme Court Will Uphold the ACA, I wrote:

[Santa Clara law prof. and ACA-litigation blogger Brad Joondeph is] right (see my earlier post), but only if, as he says earlier, the market for health insurance is defined so narrowly that health insurance is viewed as a commodity, a product, independent of the product’s purpose and effect. And then, the constitutional issue would not, I think, be whether Congress has the authority under the Commerce Clause, aided by the Necessary and Proper Clause, to regulate the health insurance market, but instead whether this violates some other constitutional limitation. You know: the slippery-slope-to-government-compelled-consumption-of-broccoli argument.

Turns out I was onto something.

Dan posted the post on Thursday, a day after the oral argument in the 11th Circuit court of Appeals in what is broadly viewed as the key ACA lawsuit because the plaintiffs include 26 states and because the trial-court judge, Pensacola-based Roger Vinson, struck down the entire ACA because he ruled that the Act’s individual-mandate requirement is unconstitutional and said the entire statute is too dependent on the individual-mandate provision to “sever” that provision from the rest of the statute. But I’d written my post on Tuesday, in anticipation of the oral argument, and posted it on my blog that day.

But from reports I’ve read about the oral argument on Wednesday, it looks to me like that appellate panel will decide the case not on the basis of the limits of the Commerce Clause but instead on a more general civil liberties ground. They may cloak it as a Commerce Clause issue—and certainly that is what Paul Clement, the attorney representing the 26 states wants the court to do—but, really, given the questioning and comments from the swing judge on that appellate panel, and therefore the basis on which that panel will decide the case, this would be an improper conflation of Commerce Clause issues and what is known as “substantive due process” issues. And I think, ultimately, it is the substantive due process question on which the Supreme Court will decide the case. This is so even though conservative legal types detest the very concept of substantive due process.

Substantive due process is a doctrine of constitutional law that holds that there are limits, inherent within the Constitution, to the extent to which the government can interfere with basic personal choices, irrespective of how much procedural due process that individual is accorded. It’s a concept completely independent of procedural due process—the right to due process of law before the courts can strip you of life, liberty or property.

Procedural due process is all about the limits of what courts can do. Substantive due process, by contrast, is almost always about the limits of what a legislature can do. The doctrine holds that there are some personal choices that are inviolate under the Constitution. It is the much-ridiculed-by-right-wingers legal principal on which Roe v. Wade was based. Roe v. Wade, for its part, was based on a 1965 Supreme Court case called Giswold v. Connecticut, which created the substantive-due-process right of individuals to make deeply personal decisions for themselves and struck down as an unconstitutional violation of that privacy right a state statute that prohibited the use of contraceptives. And it is the principal on which in an eloquent 2003 opinion, Lawrence v. Texas, by Justice Kennedy, the Court struck down Texas’s anti-sodomy criminal statute.

Rehnquist, Scalia and Thomas dissented in Lawrence on the ground that, in their view, there is no such substantive-due-process right—no privacy right concerning intimate personal decisions—in the Constitution. Scalia and Thomas might change their minds, though, but only about the intimate decision not to buy health insurance, especially because that right is just too similar to the intimate right not to eat broccoli.

The 11th Circuit panel members are Joel Dubina, a conservative Reagan appointee to the district (trial-court level) court and a G.H.W. Bush appointee to the appellate court, whose daughter is a freshman Alabama congresswoman who campaigned on a promise to try to repeal the ACA; Frank (female, despite her name) Hull, a moderate Clinton appointee; and Stanley Marcus, a moderate-to-conservative G.H.W. Bush appointee to the district court and Clinton appointee to the appellate court.

According to one report I read, Marcus early in the hearing said he viewed the central issue in the case—the constitutionality of the individual-mandate provision—as less a Commerce Clause issue than a civil liberties issue: Does the mandate violate the civil liberties of individuals by requiring them to obtain healthcare insurance? That’s a different question, and a broader one, I think, then whether Congress has the authority under the Commerce Clause, aided by the Necessary and Proper Clause, to mandate the purchase of healthcare insurance by those who can afford to buy it. Congress may have that authority under the Commerce Clause, but the legislation still might be unconstitutional if it violates another provision of the Constitution, here presumably the substantive due process right to be compelled to buy something. Presumably, because no one, least of all Clement, used the term “substantive due process right”. But he sure the words “compel,” “liberty” and “individual.” Early and quite often:

“The Commerce Clause only gives Congress the power to regulate, not to compel.” …

“It boils down to the question of whether the federal government can compel people into commerce to better regulate the individual.” …

“In 220 years, Congress never saw fit to use this power, to compel a person to engage in commerce.” …

“The whole reason we do this is to protect individual liberty.” …

When Hull said she believed the decision not to buy insurance involved some “economic activity” that impacts the healthcare market (and that therefore, under the Supreme Court’s interpretation of Commerce Clause powers, Congress has the authority under the Commerce Clause, coupled with the Necessary and Proper Clause, to regulate), Clement reportedly responded that, despite this, Congress has no constitutional authority to force people to act to buy coverage.

Clement attempts to thread a needle.

In 2005, in Gonzales v. Raich, the Court held that under the Commerce Clause, aided by the Necessary and Proper Clause, Congress has the power to prohibit an individual from growing marihuana, not for sale, much less for sale in interstate commerce but instead for his personal use, because this effects the interstate market for marijuana. Only O’Connor and Thomas dissented. The challengers to the constitutionality of the ACA’s individual-mandate provision have focused on the “compel” part; sure, the Congress can prohibit activity something under the Commerce Clause, but it can’t compel activity under the Commerce Clause. But once you acknowledge that the failure to obtain health insurance impacts the interstate market for healthcare by directly impacting who pays the uninsureds’ emergency medical costs, you’ve pretty much conceded—logically, at least—that the Commerce Clause, assisted by the Necessary and Proper Clause, allows Congress to regulate this, irrespective of whether it does this by compelling the purchase of insurance or instead in some other way.

This is true whether the acknowledger is the lawyer for the challengers to the constitutionality of the law or instead the judges hearing the case.

All three of the judges on that panel acknowledged the obvious: that the failure to obtain health insurance impacts the interstate market for healthcare by directly impacting who pays the uninsureds’ emergency medical costs. And Clement didn’t deny it. So much for, “It boils down to the question of whether the federal government can compel people into commerce to better regulate the individual.” It boils down to that only if the federal government isn’t compelling people into commerce also to better regulate the healthcare-coverage market. Most laws, federal as well as state and local ones—including the federal one at issue in Raich—regulate the individual. Whether they better regulate the individual or not.

Clement understands this, of course, but also recognizes the need for a straw to grasp at other than the Commerce Clause one. Thus the civil liberties straw, which the judges themselves offered the statute’s challengers even before Clement (who argued after the federal government’s lawyer, acting solicitor general Neal Katyal, did) began his argument:

Marcus: “If they could compel this, what purchase could they not compel?” …

Dubina: “I can’t find any case like this. If we uphold this, are there any limits [on the power of the federal government]? …

Marcus: “I can’t find any case [in which the courts upheld the constitutionality of] telling a private person they are compelled to purchase a product in the open market…. Is there anything that suggests Congress can do this?”

Well, no, not precisely. But there are Supreme Court cases that upheld what, for civil liberties purposes, amounts to the same thing. They’re the cases that upheld the constitutionality of the Social Security Act and the Medicare Act by allowing the government to compel contributions to these separate funds, which are not part of the general tax revenue fund (OK, in theory, anyway), for the sole purpose of insuring a retirement income and health insurance for those over age 65. True, the specific “enumerated” Constitutional authority Congress used to enact those laws was the taxing power, not the commerce-regulation power. But that matters only if the commerce-regulation power isn’t broad enough to reach this. If it is—and under Supreme Court precedent, it is, if the failure to have health insurance significantly impacts the healthcare market, which it does—then this distinction is without a difference. You know. A meaningful (or as lawyers say, a material) difference.

In questioning Katyal, the judges were asking for a so-called “limiting principle,” a logical line beyond which federal regulatory authority cannot go. But if the issue is individual liberty, is it really logical to have that line depend on whether the compelled payment is for a product in the open market rather than for a similar product issued by the government? Isn’t the civil liberties issue really what the goal and effect are? That’s certainly the issue in most civil-liberties challenge to the constitutionality of a statute. Why isn’t it, here?

Blowing away the smokescreen erected by the focus on the individual-mandate provision’s use of private insurance—and isn’t it just a smokescreen, really?—why does this infringe on liberty more than the Social Security and Medicare taxes do?

The bottom line, in my opinion, is that the Commerce Clause gives Congress the power to regulate, including the power to compel, without infringing on civil liberties, if what Congress is compelling is what it could compel through its taxing power, without infringing on civil liberties. Congress couldn’t (to use the conservatives’ preferred example) compel Americans, via the tax code, to eat broccoli. Or to buy it. That pretty clearly would violate substantive due process rights, a.k.a. individual liberty rights, even if under the taxing power Congress otherwise would have that authority. But Congress could, for example, extend Medicare to all Americans and amend the Medicare tax law to pay for it, without violating the Constitution’s individual-liberty guarantees.

That’s the limiting principle. At least it should be.

Postscript regarding Paul Clement

In his May 8 article about Wednesday’s oral argument in the 11th Circuit in the ACA case in which Paul Clement is representing 26 states in challenging the constitutionality of the statute, New York Times reporter Kevin Sack wrote that those states are paying Clement $250,000 to handle the appeal in that court and eventually in the Supreme Court.

That’s a stunning amount, even though the amount each state will pay is relatively small. These are two appeals in a single case that involves, entirely, arguments of law. There is no trial transcript, nor trial-court orders on motions, nor volumes of business records—the things that usually raise appellate legal fees to astronomical heights. And the legal arguments are the standard ones being discussed ad nauseam in legal circles. Clement’s hourly fee on this will turn out to be something close to $1,000, I’d bet.

Maybe lines like, “It boils down to the question of whether the federal government can compel people into commerce to better regulate the individual,” as he told the panel on Wednesday, makes this guy worth his price. But if so, it’s only because the judges will assume that since he’s Paul Clement rather than, say, another lawyer, that line makes sense.

Still Sleazy After All These Years

Robert Waldmann

David Stockman (yes Reagan’s OMB director David Stockman) denounces the Republican Party for its irresponsible love of tax cuts for the rich. This is wonderful. With such a large target, he manages many hits. He also manages to demonstrate that he is still intellectually dishonest, as is shown after the jump.

Stockman argues that, under Bush Jr the Republicans spent like drunken sailors. This is true. However, it does not justify presenting nominal figures without correcting for inflation and population growth (if not GNP growth). Stockman writes “my statistics are still damn lies” oops I mean “George W. Bush surrendered on domestic spending cuts, too — signing into law $420 billion in non-defense appropriations, a 65 percent gain from the $260 billion he had inherited eight years earlier.” The New York Times disgraces itself. It should have a policy that all comparisons are, at least, in constant dollars. Also the numbers are weirdly low. Stockman clearly refers to non-defence discretionary spending not to all non-defence appropriations. I suppose the “signing into law” might make the difference.

Worse Stockman asserts that the non depository banking system couldn’t have grown (and growh relative to depositary institutions) if it’s deposits weren’t insured (huh ?!?!) and it couldn’t borrow from the Fed’s discount window (as it couldn’t until 2008)

As a result, the combined assets of conventional banks and the so-called shadow banking system (including investment banks and finance companies) grew from a mere $500 billion in 1970 to $30 trillion by September 2008.

But the trillion-dollar conglomerates that inhabit this new financial world are not free enterprises. They are rather wards of the state, extracting billions from the economy with a lot of pointless speculation in stocks, bonds, commodities and derivatives. They could never have survived, much less thrived, if their deposits had not been government-guaranteed and if they hadn’t been able to obtain virtually free money from the Fed’s discount window to cover their bad bets.

This is dishonesty and also idiocy. Stockman must understand that shadow banks don’t take deposits and don’t benefit from deposit insurance. He should also know that they are not allowed to borrow from the discount window, although the Fed can (at least could before the FinReg bill) loan as much as it wanted to anyone.

Stockman notes the growth of the shadow banking system. He must know that it grew relative to depository institutions, then he asserts that the shadow banking system couldn’t grow, because finance can’t grow without deposit insurance and access to the discount window.

Notably, Mr Stockman worked in finance after leaving public service. He does help us understand the problem. The Financial system destoyed itself because it was managed by idiots not because of deposit insurance and the discount window.

Or maybe he knows his claim is false (he presents the proof) and is just lying. I don’t know or care.

Finally he manages, rather impressively, to present propose policy even worse than that advocated by Republicans in Congress

“the modern Republican Party offers the American people an irrelevant platform of recycled Keynesianism when the old approach — balanced budgets, sound money and financial discipline — is needed more than ever.”

He presents no rationale whatsoever for his policy recommendations. Then again, he never has.

Maybe Songsmith isn’t Completely Useless after all

After the first round, I was convinced that Microsoft’s songsmith was at best, a way to produce mash-ups for the tonally impaired.

Kieran Healy has convinced me otherwise, with this piece: capitalism in action, set to music:

I believe this is what we meant when we talked about “creative destruction,” back in the days when economists weren’t just trying to eviscerate the safety net to “balance” the budget (and whose previous efforts worked so well we should certainly have faith in their current proclamations).

Maybe I Should Line Up For A Prius After All

When we moved to our “new” house, which is located in car-based suburbia à la 1930 about a mile from the end of the nearest — now vanished — streetcar line, I figured proximity to the University of Wisconsin campus (1-1/2 miles) and my office (3 miles) wouldn’t hurt us, given that we had to pay a near-peak price for the house. Hedge or speculation? Both. (See also Stephen Karlson‘s rollicking read for the Pigou Club.)

I started commuting to work by bike in the fall of 2005, just in time to see the Katrina gas price spike; now my human-powered local travel project has reached the point where my bike is accumulating miles faster than my car. So I’ve figured that I just don’t drive enough to recover the hybrid price premium. (*)

Of course, that’s assuming $4-ish gas. One of the oil supply mysteries is what the Saudis really can do, and BW got hold of some documents that suggest it’s not that much more than they’re doing now:

[T]the detailed document, obtained from a person with access to Saudi oil officials, suggests that Saudi Aramco will be limited to sustained production of just 12 million barrels a day in 2010, and will be able to maintain that volume only for short, temporary periods such as emergencies. Then it will scale back to a sustainable production level of about 10.4 million barrels a day, according to the data. BusinessWeek obtained a field-by-field breakdown of estimated Saudi oil production from 2009 through 2013.

H/T Balloon Juice and others.

This isn’t exactly a shock, but still, wheeeeee! The market’s late reaction to the Saudis seems to reflect this sort of assessment of their excess capacity, but if BW’s source is right, sign me on with the rest of the blogiverse in not expecting big longer-term price declines.

(*) If you drive a more typical American amount, which is to say a lot, hybrids will usually pay for themselves well within their batteries’ lifetimes, say 3-5 years depending on how you account for the hybrid premium. The exceptions from the current market are the GM mild hybrids (recently discussed a bit in the comments), which have most of the cost of more economical hybrids without much fuel economy improvement over the comparable four-cylinder models. I wonder if someone looked at cup holders in German cars and decided to do those hybrids in the worst possible way to learn those hippy tree-hugger suckers.

So War is Expensive After All

Rumsfeld was in Kuwait hoping to cheer up the troops but faced a few tough questions:

One soldier, identified by The Associated Press as Army Spc. Thomas Wilson of the 278th Regimental Combat Team, a Tennessee National Guard outfit, asked Rumsfeld why more military combat vehicles were not reinforced for battle conditions. “Why do we soldiers have to dig through local landfills for pieces of scrap metal and compromised ballistic glass to uparmor our vehicles?” Wilson asked, prompting cheers from some of the approximately 2,300 troops assembled in the large hangar to hear Rumsfeld deliver a pep talk.

Rumsfeld said armored military vehicles have been brought to the region “from all over the world, from where they’re not needed to a place they’re needed.” A Pentagon spokesman said later Wednesday that 450 armored Humvees are being produced each month. This is up from August 2003 when only 15 per month were made. “It’s essentially a matter of physics, not a matter of money,” Rumsfeld said. “It’s a matter of production and the capability of doing it.” In April, the Pentagon said it was spending $400 million to replace the Army’s thin-skinned Humvees in Iraq with the so-called “uparmored” reinforced versions.

When they say it’s not about money …I guess promising to win this thing and to give the rich a tax cut at the same time is causing some grief for this Administration. Soldiers unnecessarily killed or wounded do not show up in the budget deficit numbers. Now who was it that decided we had to rush into this invasion?

To Quote Brad DeLong: So the WaPost is a Newspaper, After All

From the front page of today’s Washington Post:

$3 Trillion Price Tag Left Out As Bush Details His Agenda

The expansive agenda President Bush laid out at the Republican National Convention was missing a price tag, but administration figures show the total is likely to be well in excess of $3 trillion over a decade.

A staple of Bush’s stump speech is his claim that his Democratic challenger, John F. Kerry, has proposed $2 trillion in long-term spending, a figure the Massachusetts senator’s campaign calls exaggerated. But the cost of the new tax breaks and spending outlined by Bush at the GOP convention far eclipses that of the Kerry plan.

My only question is this: why haven’t Bush’s hypocrisies been of the front page of newspapers all year?


Producer Prices rose 1.3% in January After Rising 0.8% over All of 2020

Commenter and writer RJS describes himself as “unencumbered by education, affiliations, beliefs or agenda and im not advocating anything.” Market Watch 666

The seasonally adjusted Producer Price Index (PPI) for final demand rose 1.3% in January, as prices for finished wholesale goods were on average 1.4% higher, while margins of final services providers increased by 1.3%  .  .  .  that followed a revised December report that now shows the PPI was up 0.3%, with prices for finished wholesale goods up 1.0% while margins of final services providers were 0.1% lower, a revised November report that shows the PPI was 0.1% higher, with prices for finished wholesale goods rising 0.3% while margins of final services providers decreased 0.2%, a revised October report that indicates the PPI was 0.5% higher, with prices for finished wholesale goods rising 0.6% and margins of final services providers rising 0.5%, and a revised September report that indicates the PPI was 0.3% higher, with prices for finished wholesale goods 0.4% higher and margins of final services providers 0.2% higher . . . revisions to prior reports with this release reflect the routine annual recalculation of seasonal adjustment factors and affect previously published seasonally adjusted indexes and percent changes for January 2016 through December 2020; it appears that at least part of the reason for the large jump in January producer prices was due a recalibration of weight allocations used to calculate the overall indexes to more accurately reflect recent sales patterns, which would have thus increased the weighting of commodities and services in greatest demand  .  .  .  on an unadjusted basis, producer prices are now 1.7% higher than a year ago, up from the 0.8% year over year increase indicated by last month’s report, while, the core producer price index, which excludes food, energy and trade services, rose by 1.2% for the month, and is now 2.0% higher than in January a year ago, up from the 1.1% year over year increase as was shown in December .