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

C’mon, M’Honey, URINE THE MONEY! (you’ve got a lot of what it takes to get along.)

The REAL Trump pee-tape was a urine sampling pyramid scheme.

Whatever happened to Trump neckties?” asks  Zane Anthony, Kathryn Sanders and David A. Fahrenthold at the Washington Post, “They’re over. So is most of Trump’s merchandising empire.” Among the products that Trump lent his name to, for a fee, was a vitamin supplement, supposedly custom formulated based on the results of a urine test:

“Take a snapshot of the most critical metabolic markers in your body’s natural waste fluids,” said the website for the Trump Network, a vitamin company that sent its customers urine-sample kits with the Trump logo on them. The tests would be used to determine what vitamins the customer needed, according to archived versions of the Trump Network website.

As usual, the authors of this article miss the point of the enterprise, despite the Washington Post Wonkblog having covered it two years earlier. The overpriced vitamin supplements and quack urine tests were only window dressing. The real “product” the Trump Network sold was the “opportunity” to get rich quick by selling pseudo-scientific piss takes.

YouTube videos of Trump doing his urine test pitch have surprisingly few views, considering the man is “President of the United States” and his performance selling a get-rich-quick scam is, word-for-word and gesture-for-gesture, all he is and all he has ever been: pure flim-flam and puffery.

What bothers me, though, is not Don-the-con selling pie-in-the-sky schemes to suckers. What bothers me is what his kind of swindle reveals about the “legitimate” economy. The difference between a crude Ponzi scheme and conventional economic policy  is a question of degree, not of kind.
Hyman Minsky argued that there are both “legitimate” and “fraudulent” forms of Ponzi finance. The distinction seems to hinge on matters of perceptions and intentions. Ponzi finance thus may be regarded as legitimate if dividends are paid on the basis of income that has been accrued but hasn’t yet been received. Whether that income has actually been accrued and is going to be received is a matter of judgment about asset quality. A term deposit at the bank is one thing, a horde of Bitcoin is something else.
The quality of assets changes over time and is influenced by economic policy. “Everything that you do to encourage investment,” Minsky claimed, “encourages debt financing. This increases instability.” Here is the congressional testimony where he said that almost 40 years ago: June 20, 1978, from Special Study on Economic Change, Hearings before the Joint Economic Committee, Congress of the United States, Ninety-Fifth Congress, Second Session, page 858:

Representative BOLLING: I would like to begin by asking Mr. Minsky a question due to my own ignorance. This is my weakest area. I don’t claim to be an economist, just a political economist. I need to know some things. In your statement, next to the last page — the second sentence in the first full paragraph — there are few words and a lot said. I want to be sure I understand it.

To decrease the emphasis on debt, the full employment rather than economic growth should become the proximate objective of policy;

Now, I would like you to explain that to me. I don’t understand exactly what you mean.

Mr. MINSKY: I don’t believe it is an accident that we have had increased instability and increased inflation since the emphasis shifted toward economic growth during the Kennedy-Johnson administration.

Everything that you do to encourage investment encourages debt financing. This increases instability. The simple example is that during the 10 years it takes to put a nuclear power plant on stream the workers producing that nuclear power plant are receiving income, spending that income on consumer goods, and not producing any consumer goods in exchange. So every time you increase the ratio of investment expenditures to consumer goods expenditures in the economy, prices rise.

Any time a higher proportion of a wage bill is used to pay for people who are earning investment income compared to the wage bill that is used in the production of consumer goods, consumer goods prices will increase. This, in turn, means that the wages of workers will go up. This is a very simple idea.

It takes 10 years before you get a kilowatt out of a nuclear power plant. People all the way back to the producers of input into that complicated thing meanwhile are spending. Every time you build a plant that does not quickly pay off you are producing inflation in the country.

Every time England goes out and builds a Concorde you produce inflation. Any banker and businessman knows that for every investment project worth doing there are thousands that are not. Everything you do to increase growth by way of increasing investment, offer incentives to undertake things that are not worth doing in a pure private account, you produce inflation.

Perhaps Minsky’s “very simple idea” was a bit too simple. What if economic policy was used to encourage investment and debt financing but suppress the wages of workers? Voila! Perpetual, non-inflationary growth! A non-accelerating inflation rate of unemployment! Instead of letting the instability and inflation infect the whole economy, why not target it on those dumb fucks who have no political traction anyway? If the rabble become restive, they can always be placated by chauvinist circuses and slick get-rich-quick scams.

So much winning! As John Kenneth Galbraith observed, “Weeks, months or years may elapse between the commission of the crime and its discovery. (This is a period, incidentally, when the embezzler has his gain and the man who has been embezzled, oddly enough, feels no loss. There is a net increase in psychic wealth.)”

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 In a TED talk, “3 myths about the future of work and why they are not true” from December 2017, Daniel Susskind channels Sandwichman:

Now the third myth, what I call the superiority myth. It’s often said that those who forget about the helpful side of technological progress, those complementarities from before, are committing something known as the lump of labor fallacy. Now, the problem is the lump of labor fallacy is itself a fallacy, and I call this the lump of labor fallacy fallacy, or LOLFF, for short. Let me explain. The lump of labor fallacy is a very old idea. It was a British economist, David Schloss, who gave it this name in 1892. He was puzzled to come across a dock worker who had begun to use a machine to make washers, the small metal discs that fasten on the end of screws. And this dock worker felt guilty for being more productive. Now, most of the time, we expect the opposite, that people feel guilty for being unproductive, you know, a little too much time on Facebook or Twitter at work. But this worker felt guilty for being more productive, and asked why, he said, “I know I’m doing wrong. I’m taking away the work of another man.” In his mind, there was some fixed lump of work to be divided up between him and his pals, so that if he used this machine to do more, there’d be less left for his pals to do. Schloss saw the mistake. The lump of work wasn’t fixed. As this worker used the machine and became more productive, the price of washers would fall, demand for washers would rise, more washers would have to be made, and there’d be more work for his pals to do. The lump of work would get bigger. Schloss called this “the lump of labor fallacy.”

And today you hear people talk about the lump of labor fallacy to think about the future of all types of work. There’s no fixed lump of work out there to be divided up between people and machines. Yes, machines substitute for human beings, making the original lump of work smaller, but they also complement human beings, and the lump of work gets bigger and changes.

But LOLFF. Here’s the mistake: it’s right to think that technological progress makes the lump of work to be done bigger. Some tasks become more valuable. New tasks have to be done. But it’s wrong to think that necessarily, human beings will be best placed to perform those tasks. And this is the superiority myth. Yes, the lump of work might get bigger and change, but as machines become more capable, it’s likely that they’ll take on the extra lump of work themselves. Technological progress, rather than complement human beings, complements machines instead.


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The Unsolved Riddle of Poverty Reduction

The Unsolved Riddle of Poverty Reduction

A submission to the B.C. Poverty Reduction Strategy engagement process
March 23. 2018

“What makes one poor is not the lack of means. The poor person, sociologically speaking, is the individual who receives assistance because of the lack of means.” – Georg Simmel

“A tight labor market is important for all workers, but especially for historically disadvantaged groups.” – Janelle Jones, Economic Policy Institute


Forty percent of the 678,000 British Columbians living below the poverty line are working adults. This submission focuses on the reduction of poverty among employed adults.

“What do you think are the best ways to reduce poverty in British Columbia?” (p. 3)

Poverty is not simply a problem of insufficient wherewithal but more fundamentally a problem of disparities of political and social power grounded in grossly disproportionate wealth. Reduction of the hours of work is an economic solidarity strategy whose greatest benefit is the enhancement of the collective bargaining strength of employees relative to that of employers.

An unsound economic theory of “leisure choice” has obscured the crucial role that work time reduction plays in mitigating social, economic and political inequality. Although this theory has been systematically refuted, it continues to dominate economic thinking and consequently public policy through sheer institutional and intellectual inertia. This obstacle to social justice must be repudiated.

“What can we do as a province, a community or as individuals to reduce poverty and contribute to economic and social inclusion?” (p. 6)

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Will Boilerplate Kill the Invisible Hand?

Will Automation Kill Our Jobs? by Walter E. Williams appeared in the Gaston GazetteCharleston Gazette-Mail, Daily Tribune, Frontpage Mag, Richmond Times-Dispatch, Townhall, Holmes County Times-AdvertiserNational Interest, Rocky Mount Telegram and CNS News (not to mention the Dogpatch Völkischer-Beobachter). It features the following cutting edge (& pasting) analysis:

People always want more of something that will create a job for someone. To suggest that there are a finite number of jobs commits an error known as the “lump of labor fallacy.” That fallacy suggests that when automation or technology eliminates a job, there’s nothing that people want that would create employment for the person displaced by the automation.

Williams is a professor of economics at George Mason University. His column is syndicated by the Creators Syndicate. Apparently there is still a HUGE market for cuts ‘n pastes of well-aged boilerplate. The Trump-bots on twitter eat this shit up.

Let’s see what Professor Williams thinks of Adam Smith’s lump of labor fallacy:

Dear Professor Williams,

I was interested to read the other day your account of the “lump of labor fallacy” in the Charleston Gazette-Mail. As you pointed out, the number of jobs is unlimited as long as there are people who want more of something that requires work to be done.

I had previously read a statement by a famous economist claiming that the number of workers who can be employed cannot exceed a certain proportion of the capital of the particular society the workers live in. I am wondering if you can clarify for me whether that economist has committed a lump of labor fallacy by suggesting that the number of jobs is limited by something other than the demand for goods or services, which — for all intents and purposes — is unlimited, as you have pointed out.

Furthermore, I am intrigued by the idea that people contribute to the public good without intending to when they are only pursuing what they perceive as their own self-interest within a free and competitive system of market exchange. Would such a contribution to the public good result even if their notion of their self-interest was “erroneous,” as in the lump of labor fallacy?

For example, if truck drivers were afraid that self-driving vehicles would put them out of work, they would presumably be acting in their self-interest if they made campaign contributions to candidates who promised to ban such vehicles on the grounds that they would create unemployment. Such contributions would be free speech, as defined by the U.S. Supreme Court. But wouldn’t such a ban, at least on those grounds, be based on a fallacious assumption?

Finally, I have been wondering who actually said that there is “a fixed amount of work to be done” or that “there is only a certain quantity of work to be done.” I have seen numerous rebuttals to such a view but no positive statements of it from representatives of organized labor. I would be grateful if you could identify sources who actually commit the lump of labor fallacy in plain words.


Tom Walker

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All Economists Are Bastards — Except Us

All Economists Are Bastards — Except Us

Peter Frase has a very interesting post up about the role of popular culture in legitimizing the police.  Frase recounted a forum he attended with Alex Vitale  talking about his book, The End of Policing. In response to a question about why people believe that the function of policing is to maintain peace in the liberal order when its actual practice and history suggest otherwise, Vitale cited television cop shows like  as “a relentless machine for producing and reproducing the legitimacy of policing in the public mind.”

This is what called to Frase’s mind the perpetual plot line he calls “‘ACAB-EU’: All Cops Are Bastards, Except Us.”:

The trope works by consistently portraying its central characters as liberal fantasies of the good cop–whether it’s the pseudo-scientists of CSI, the workaday victim-protectors of SVU, or the magical profiler-geniuses of Criminal Minds. At the same time, it makes a seeming concession to concerns about police misconduct, by constantly putting its protagonists in conflict with “bad cops” and their enablers, whether it be a rapist Corrections Officer or a corrupt small town department whose cover-up leads all the way to the Governor.

Of course this trope works for politicians too. And economists.

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Rumble on Wall St. — No Other Way of Keeping Profits Up!

Rumble on Wall St. — No Other Way of Keeping Profits Up!

At Jacobin, Seth Ackerman did an interview with J.W. Mason about The Class Struggle on Wall Street that considers the trade-off between relative profit and wage shares of income. Whether you agree with his analysis or not, Josh teases out some of the implications of the relationship, both for profit expectations and for political prospects.

One assertion I would question is “there is absolutely no reason to expect an uptick in inflation.” Well, yes, no one expects the Spanish Inquisition, either. While there may indeed be no reason to expect inflation, inflation’s chief weapon is surprise… surprise and fear… and ruthless efficiency,

And this is also why I think it would be impossible to empirically confirm Egmont Kakarot-Handtke’s “law” of profit. There is no “real” yardstick with which to measure aggregate profit. If Egmont is right that “[m]acroeconomic profit depends in the most elementary case alone on deficit spending, that is, on the change of private or public debt,” then he is wrong that his profit “law” can be tested empirically and “will be confirmed without exception.”

Josh Mason also talks about the “tightrope we have to walk” in thinking about the relationships between profits, wages, inflation and productivity. Not only is the rope tight, it is also tied in knots with “inflation” and “productivity” referring to ratios between incomes, costs and outputs. Egmont’s theory reminds us of yet another tightrope — the tightrope central bank authorities must walk between inflating the money supply through the expansion of credit and persuading the public that such inflation is not inflationary.

The conventional persuader is unemployment. One doesn’t have to subscribe to the NAIRU doctrine that insufficient unemployment accelerates inflation to concede that policy-induced unemployment tips the scales against wage increases and thus insulates the profit share of income from the latent inflationary consequences of credit expansion. Yes, the trick here is how to sustain compound profit inflation without accelerating priceinflation! How to debase the coin of the realm without debasing the coin of the realm. It’s a beauty contest.

There is, after all, no other way of keeping profits up!

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Watch Out for Charlie Kirk’s Treacle Tart

“There’s many a fly got stuck in there.”

Who is Charlie Kirk? He is the 24-year old executive director and founder of Turning Point USA. Jane Meyer profiled the organization in the New Yorker in December:

Based outside of Chicago, Turning Point’s aim is to foment a political revolution on America’s college campuses, in part by funneling money into student government elections across the country to elect right-leaning candidates. But it is secretive about its funding and its donors, raising the prospect that “dark money” may now be shaping not just state and federal races but ones on campus.

A couple of weeks ago in The Baffler, Maximillian Alvarez described the tactics employed by TPUSA to harass and silence opposition to their “free market” totalitarianism. If you like Tomi Lahren, Sebastian Gorka, Donald Trump Jr. and Sean Hannity, you’ll love Charlie Kirk.

Charlie Kirk is a Charlatan.

Last Friday, the Sandwichman posted Is the “Invisible Hand” a lump of labor? to EconoSpeak and Angry Bear. It received a little over 300 views on EconoSpeak and a total of three comments on both blogs. Charlie Kirk’s twitter video on the “socialist myth of the ‘fixed pie'” was tweeted three days earlier. It has so far received 3,300 “likes” and 1,688 comments.

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Is the “Invisible Hand” a lump of labor?

The first premise of Adam Smith’s famous metaphor about an “invisible hand” leading individuals to promote the public interest, although they intend only private gain, was that there is only so much work to go ’round. That is, Smith assumed there was a certain quantity of work to be done — a “lump of labor.” He didn’t tacitly assume it — he stated it plainly:

As the number of workmen that can be kept in employment by any particular person must bear a certain proportion to his capital, so the number of those that can be continually employed by all the members of a great society must bear a certain proportion to the whole capital of that society, and never can exceed that proportion.

Smith didn’t present his invisible hand metaphor until six paragraphs later. But the argument about individuals promoting the public good in spite of seeking only private advantage is in the paragraph immediately following the above passage. The subsequent reference to an invisible hand merely emphasized and amplified the argument.

Smith’s premise about the proportion between the number of workers and the amount of capital defined, with minor modification, what came to be known as the wages-fund doctrine of classical political economy. Instead of the whole capital restricting the number of workers that could be employed, however, the wages-fund argument specified that it was only that portion of capital that consisted of wage-goods that imposed the limitation.

Few authors have noted the connection between the classical wages-fund doctrine and Smith’s version of it. One was Henry Hoyt, who was governor of Pennsylvania from 1879 to 1883. In Protection versus Free Trade (1886), Hoyt credited Smith with having “laid down, as quite fundamental, this proposition… [as] one of the pillars of his free-trade system.” He then categorized Smith’s statement as a version of the wages-fund doctrine:

We shall see later on the essential vice of this statement as a statement of fact. It is not true that industry is limited by capital, and, as a matter of fact, there has never been any limitation on the employment of labor by reason of lack of capital. It is one mode of formulating the wages-fund theory.

Thirty years after Hoyt, Leopold Amery delivered a series of lectures in which he evaluated The Fallacies of Free Trade, paying particular attention to Smith’s “terminological inexactitude.” Smith’s concept of capital viewed the capital of a nation as merely an aggregate of individual capitals. The difference, Amery explained, was that an individual’s capital “is the result of saving, and grows by saving from profits or by credit based on profits” while the capital of a nation, “grows by the exercise of the qualities and energies of which it consists.” In the jargon of systems dynamics, Smith mistook a stock for a flow.

Amery subsequently served as a conservative Member of Parliament from 1911 to 1945 and was best known for a Commons speech he gave in 1940, following the Allied retreat from Norway. In that speech he criticized the government’s conduct of the campaign and concluded with a quotation from Oliver Cromwell, “You have sat too long for any good you have been doing lately. Depart, I say, and let us have done with you. In the name of God, go!” Three days later, after surviving a motion of no confidence with a greatly reduced majority, the Conservative government of Neville Chamberlain resigned.

As Hoyt had done, Amery identified Smith’s error with the wages-fund doctrine but also with “its daughter fallacy,” which he specified as “the restriction of output”:

It is upon this confusion, upon this terminological inexactitude, that they have based their exposition of many a plausible and mischievous fallacy – the long since exploded “wages fund” theory for instance, with its enduring legacy of class hatred, and with its daughter fallacy, the restriction of output, a fallacy involving most harmful consequences to the prosperity of the working man…

In contrast to the wages-fund doctrine, which was boldly proclaimed by the champions of free trade and laissez faire, this so-called “daughter fallacy” — also known as the “theory of the lump of labour” — had no suitors. This peculiar lack of utterance was sometimes noted by its detractors.

James McCleary, who served in the U.S. House of Representatives from 1893 to 1907, claimed there was an “oft-repeated error” behind statements from union leaders made to the congressional committee on labor on which he sat. “It was rarely if ever put into words,” McClary wrote in 1912, “but it was the unspoken major premise of many an attempted syllogism, the unstated basis of many an appeal.”

Half a century later, steel industry executive William Caples observed that the alleged fallacy was “one of the most tenaciously held and generally least articulated of trade union beliefs…” Least articulated by the trade unionists themselves, that is. Opponents of trade unionism never tired of attributing the belief to those who “rarely if ever” professed it.

McCleary’s and Caples’s perception of an absence of overt statement is confirmed by full-text searching of thousands upon thousands of historical documents, newspapers, pamphlets, books and journal articles using synonyms and cognate phrases for the proverbial fixed amount of work to be done. Up until the 1860s declarative statements of those phrases occurred exclusively in texts authored by political economists, propounding some version of the orthodox wages-fund doctrine. When trade union leaders or advocates used the phrases, it was invariably either with conditional if-clauses or in refutations of the claims of orthodox political economy.

In the 1860s and after a remarkable metamorphosis took place. Just as the wages-fund doctrine was being refuted, repudiated and recanted by economists, there emerged a chorus of remonstrance against what John Wilson in the Quarterly Review called a “Unionist reading of the Wage-fund theory.” As usual, no evidence was given of unionists stating any such view, only indignant assertions.

Leo Amery’s analysis of terminological inexactitude is useful here to help understand what is going on in the incongruous transformation from avowed principle to alleged error. The first step was to deploy, as Smith had done, an individualist concept of accumulated capital in place of a societal concept of exercised capacities – substituting the stock for the flow. The second step was to uphold this ideal of aggregate capital accumulation as the standard by which the workers’ self-interest must be gauged. To attempt to restrict the accumulation of capital was thus denounced as delusional. This argument led to what Maurice Dobb later called “the apparent paradox that the more the workers allow themselves to be exploited, the more their aggregate earnings will increase (at least in the long run), even if the result is for the earnings of the propertied class to increase still faster.” The illegitimate “daughter” was thus conceived entirely in the image of the banished father.

Let me try to explain that once more because the sleight of hand of the operation makes it difficult to follow what’s going on. In order to allege the derivative restriction-of-output fallacy, the plaintiff needed both to commit AND to disavow the original wages-fund fallacy. This was accomplished by accepting both the “terminological inexactitude” and the conclusion of the original (social benefit from individuals pursuing self-interest) while failing to acknowledge the conclusion’s disgraced premise (the number of workers proportionate to accumulated capital).

Even if we understand how the derivative fallacy claim works the question still remains, why is it widely persuasive? I would propose two parts of an answer to that question. First, regardless of the invalidity of its premises, there is a compelling kernel of truth in Smith’s invisible hand metaphor. Actions that are wholly motivated by self-interest can, and often do, indeed have “unintended” social benefits. An avid gardener may care little about the pleasure the garden provides to neighbours and passers-by. Commerce certainly enables a wider and presumably preferable variety of commodities than would otherwise be available. On the other hand, the social costs of actions motivated wholly by self-interest may be diffuse and deferred and thus hard to trace.

The second reason is both an historical and a theological one. As such it can only be briefly alluded to here. Smith’s fable is a theodicy of sorts. Instead of addressing the question of how there can be evil in the world if God is omniscient, omnipotent and good, it addressed the paradox of the persistence of poverty in the midst of plenty. The intellectual climate of the Enlightment was awash in rationalistic theodicies. The legacy of those intellectual pursuits during the emergence of supposedly secular political economy has been addressed elsewhere in depth, for example, by John Milbank in “Political Economy as Theodicy and Agonistics,” by Michael Sonenscher in “Physiocracy as a Theodicy,” and most recently by Joseph Vogl in The Spectre of Capital.

Vogl identified what he called the “oldest and most deep seated convictions” of liberal economics as arising from “the conviction that market activity is an exemplary locus of order, integration mechanisms, harmonization, appropriate allocation, and hence social rationality, and that it demands to be represented in a coherent, systematic way.” At the core of such representations is the notion of individual actions motivated only by self-interest leading unintentionally to socially-beneficial outcomes.

A recurring feature of theodicy is the assumption of a closed system, “characterized by constancy of sum and the preservation of energy,” as Vogl described Leibniz’s metaphysics. In other words, the desire to be reassured about the ultimately benign nature of God, the universe or the economic system – especially when confronted with disconcerting evidence to the contrary – leads inexorably back to the notion of equilibrium, a self-correcting mechanism that presupposes a closed system. That is the narrative box we are in. It is how that story goes. No one is immune from the desire for reassurance.

The question that has to be asked, though, is whether the detachment and complacency enabled by such reassurance is not itself the greater evil. To paraphrase Leopold Amery, quoting Oliver Cromwell, “Depart, Invisible Hand, and let us have done with you. In the name of God, go!”

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Stranded Assets Rewind

Stranded Assets Rewind

There’s a Dangerous Bubble in the Fossil-Fuel Economy, and the Trump Administration Is Making It Worse…

“In reversing many of Obama’s keystone climate and environmental policies, Pruitt and Trump are conveniently ignoring these market signals in order to help out the fossil-fuel millionaires and billionaires who put them in office. Their actions could have disastrous consequences, not only for the climate but also for the global economy.”

Where are the economists on this? Oh, right — talking about tax cuts and Fed rate hikes. Using Economist’s View as my sample, I found no links whose title indicated it was about the stranded assets carbon bubble in the two weeks following publication of the above article by Carolyn Kormann in the New Yorker on October 19th. Zero.

I actually think that Kormann is unduly optimistic in her analysis. My suspicion is that there was already a massive carbon bubble prior to the 2016 election that was being wound down excruciatingly slowly. The election of the coal-guzzling orange groper stopped that winding-down in its tracks and ushered in a fossil-fueled feeding frenzy at The Last Chance Texaco.

And where are the economists?

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