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

A “Wild and Dangerous” Scheme!

“…a scheme at once wild and dangerous.”
“…a trick, too, of the clumsiest description…”

I was hunting for the exact location of “Prince’s Tavern” in Manchester in 1833 when I stumbled upon an Economist article from March 30, 1844 addressing the “practical consequences” of  reducing the length of the factory working day from 12 hours to 10. I am always fascinating by the profound and enduring hostility of a faction of employers — amplified by their mouthpieces in academia and the press — to the reduction of working time. I’m amazed how often their bile and zeal leads them to compound the error of biased, unfounded assumptions with boneheaded accounting mistakes. There is nothing so edifying as the sharp-eyed calculation of a businessman who has naught but the most important boon (far beyond any amount of benevolent sympathy or charity!) to the moral and physical independence of the operative at heart!

I’m going to leave this snippet here and invite commentators to identify the egregious accounting error the author commits. Later, I will demonstrate another instance of the exact same error, performed some 27 years later by an employer. These people weren’t merely wrong, they were systematically and consistently mathematically illiterate and intellectually bereft. Frederic Harrison was on the mark when he called the purported “economic science” of his day “this magazine of untruth.

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Standing on the shoulders of cranks

Standing on the shoulders of cranks

I use the term “crank” affectionately. The figure below is a valiant effort by Arthur O. Dahlberg to depict the “socio-economic process” as a network of troughs, pipes and valves. Even this elaborate contraption is confined to “the movement of the major social variables.”
Dahlberg believed that his chart technique communicated his analysis more effectively than words could. What the chart communicates to me, besides Dahlberg’s intense commitment is “it’s complicated” and “everything is connected to everything else.” That’s not nothing.

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“What is the Most Useful Idea in Economics?”

NPR’s Planet Money went to the 2020 American Economic Association conference in San Diego where they asked economists, “what is the most useful idea in economics?” David Autor appears near the end of the episode (minute 16:00) to talk about the lump-of-labor fallacy. Almost exactly 87 years earlier, on January 18, 1933, Arthur Dahlberg appeared before a Senate subcommittee to give testimony on the thirty-hour work week bill. The lump-of-labor fallacy would be a useful idea indeed if it would show economists how little they have learned and how much they have forgotten in the intervening 87 years.

In his Planet Money interview, Autor rehearses the standard refrain about there not being a “finite” amount of work to be done so we are not in danger of running out of jobs. Then he introduces the caveat that although we will not run out of jobs, that doesn’t mean that there is nothing to worry about — some people will end up in worse jobs than they previously had or would have had. Autor’s remedy for this is to develop policy that will improve people’s skills so they qualify for better jobs or raise the productivity in personal service jobs so they pay more.

Eighty-seven years earlier, Dahlberg also disagreed with the idea that machines create technological unemployment. He also saw that the new jobs created by technological change would be different than the old ones. But Dahlberg carried his analysis several steps further than Autor. In Dahlberg’s view many of the new jobs would differ from those they replaced in that the demand for their products or services would not be spontaneous but would need to be artificially induced by, for example, advertising.

Autor acknowledges something similar when he mentions that a hundred years ago 70 percent of consumer spending was on necessities compared to only around 40 percent now. But Dahlberg raised the issue that wages are determined by bargaining and the shift away from spontaneously-demanded goods and services undermines labor’s relative bargaining power, resulting in a smaller labor share of income. Recipients of capital income may spend their larger share either on personal consumption or investment but eventually they will want to “cash in” on that investment. Spending on new investment will decline faster than spending on consumption rises. Dahlberg thus invoked the business cycle as the “slow-moving effect” of the introduction of labor-saving technology.

Here is a link to the transcript of the Planet Money interview with David Autor. Below is the transcript of Arthur Dahlberg’s testimony to the Senate subcommittee on the thirty-hour work week:

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2020 Hindsight: Why the world is not zero-sum

According to a report, Global Waves of Debt, pre-published by the International Bank for Reconstruction and Development:

Waves of debt accumulation have been a recurrent feature of the global economy over the past fifty years. In emerging and developing countries, there have been four major debt waves since 1970. The first three waves ended in financial crises—the Latin American debt crisis of the 1980s, the Asia financial crisis of the late 1990s, and the global financial crisis of 2007-2009.

A fourth wave of debt began in 2010 and debt has reached $55 trillion in 2018, making it the largest, broadest and fastest growing of the four. While debt financing can help meet urgent development needs such as basic infrastructure, much of the current debt wave is taking riskier forms. Low-income countries are increasingly borrowing from creditors outside the traditional Paris Club lenders, notably from China. Some of these lenders impose non-disclosure clauses and collateral requirements that obscure the scale and nature of debt loads. There are concerns that governments are not as effective as they need to be in investing the loans in physical and human capital. In fact, in many developing countries, public investment has been falling even as debt burdens rise.

We hear from time to time that “the world is not zero sum.” Rarely is that dictum explained in other than mystical terms (e.g. “supply creates its own demand,” “human wants are insatiable,” etc.). The explanation, however, is simple: debt. Without debt there would be no “economic growth.”
Debt finances growth; growth services debt. And they all lived happily ever after. But some debt takes “riskier forms.” Hyman Minsky wrote about the first of those four debt waves in “The Bubble in the Price of Baseball Cards.” In that paper Minsky addressed the price of baseball cards, the Latin American debt crisis, the Japanese, Korean and Taiwanese real estate and equity booms of the ’80s, and “[o]ne of the puzzles of the 1980s… the rapid rise in the financial wealth of Donald Trump.”
What the rise in Trump’s wealth had in common with the Latin American debt crisis was that they both were predicated on a precarious differential between real interest rates and increases in asset values that could change very suddenly with an increase in the former or a decrease in the latter.
One of Minsky’s best shots was a drive-by — relating the regional increase in real estate prices to “rapid increase in incomes in banking and financial services — sort of a derived demand from the financial success of Drexel Burnham.” That Drexel Burnham “success” was, of course, transitory and involved fraud. The inference was that Trump’s financial success, too, was ultimately — at least indirectly — fraudulent.
John Kenneth Galbraith coined the term “bezzle” for the amount by which total wealth is inflated by embezzlement in the period before the embezzlement is discovered:

At any given time there exists an inventory of undiscovered embezzlement in—or more precisely not in—the country’s business and banks. This inventory – it should perhaps be called the bezzle – amounts at any moment to many millions of dollars. It also varies in size with the business cycle.

Any large quantity of debt includes an inventory of embezzlement. A certain amount of it will never be paid back. Some was never intended to be repaid. As the debt increases relative to income, the proportion of prospective embezzlement also increases.

Happy New Year!

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What quid did the president quo and when did he quo it?

What quid did the president quo and when did he quo it?

Aside from the headline news about a July 26 phone call, I learned four big things from the impeachment inquiry hearing this morning. First, the specific corruption surrounding Burisma Holidings had to do with self dealing by company founder Mykola Vladislavovich Zlochevsky — issuing oil and gas licences to his own company when he was Minister of Ecology and Natural Resources. In other words, Zlochevsky did exactly what Donald J. Trump attempted to do with his Doral Golf Club and the G7 summit.

The second thing I learned is that President Trump was nursing a grudge against Ukraine because some Ukrainian politicians said some nasty things about him after he made a comment about letting Russia have Crimea. That’s why he felt Ukraine “owed” him. The third thing is that the Ukraine shit made fanfall just about exactly the time that Trump was extemporizing about Hurricane Dorian hitting Alabama. Who knew Trump could multi-task?

The fourth thing I learned is the big one. There was not one quid pro quo but two. One involved Zelensky, the other Putin. That’s the significance of the timing of the Trump-Zelensky phone call — the day after Robert Mueller’s congressional testimony was a dud. Humiliating Zelensky by forcing him to make a public announcement of a politically-motivated investigation of Biden-Burisma-2016 would hand to Putin his reward — a weakened negotiating partner — for the favor of having helped put Trump in the White House. The art of the deal, indeed.

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“Are Robots Stealing Your Job?” is the Wrong Question

Andrew Yang says, “Yes, Robots Are Stealing Your Job” in an op-ed at the New York Times. Paul Krugman thinks they’re not and advises, “Democrats, Avoid the Robot Rabbit Hole.” This is, of course, a classic case of asking the wrong question.

The real question is: will robots burn down your house and kill your grandchildren? Let’s imagine that all those self-driving trucks and the computers needed to guide them will run on electricity generated by wind turbines and solar panels. Will the robots in the truck factories and the robots in the computer factories also run on wind and sunshine? How about the robots in the wind turbine factories and the solar panel factories and so one ad infinitum? I know an old lady who swallowed a fly…

Let’s assume that it is feasible to phase out all current fossil fuel consumption by 2050 and replace it with renewable, zero-carbon energy. Does that mean it is equally feasible to provide the additional energy needed to run all those job-stealing robots? Or to put the question in proper context, would it be feasible to do it without an uncorruptable, omniscient global central planning authority?

The hitch in all this robot speculation is a little paradox known as Jevons paradox conjoined at the hip, so to speak, with it’s counterpart, “Say’s Law.” The former paradox says that greater fuel efficiency leads to more fuel consumption, the latter paradox tells us that labor-saving machines create more jobs than they destroy. Here are two inseparable positive feedback loops that together generate an incongruous outcome. “Yes the planet got destroyed. But for a beautiful moment in time we created a lot of value for shareholders.” Or lots of jobs, jobs, jobs. Or a monthly $1,000 payment to every adult “so that we can build a trickle-up economy,” Choose your poison.

There is, they say, “a certain quantity of work to be done.” Who says that? Good question. In the beginning, it was the political economists — even proto political economists — who said it. But around 1870 economists realized that the maxim conflicted with other things they had in mind so instead of professing it they began to condemn it and to attribute the idea to others — to Luddites, Malthusians or Lump-of-Laborers. The idea that a people could always do more work was just too great a temptation. In principle, the amount of work that could be done is infinite! The robots will not replace us! The robots will not replace us!

What this job-stealing robot debate is really all about is an economics version of theodicy. “Why does evil exist if God, the creator, is omnipotent, omniscient and good?” This theological question is echoed in the puzzle about poverty in the midst of plenty and in Mandeville’s “Fable of the Bees,” where private vices promote public virtues. If it seems like robots are stealing your job, have faith, all is for some ultimate purpose in this best of all possible worlds, as Candide’s tutor Dr. Pangloss would assure him.

Taking the Panglossian philosophy into account, it becomes clear that both Andrew Yang and Paul Krugman are on the same page. They are just reading different paragraphs. Although they disagree on what the solution is, they agree that there is a solution and it doesn’t really require a fundamental change in the way we think about limits to the “certain quantity of work to be done.”


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The Hurricane/Picture of Dorian Gray: A Perfect Moral Storm in Three Texts

The Hurricane/Picture of Dorian Gray: A Perfect Moral Storm in Three Texts

Andreas Malm, Fossil Capital:

The temporal aspect is particularly striking,’ writes philosopher Stephen Gardiner, who has done perhaps more than anyone to foreground it, in A Perfect Moral Storm: The Ethical Tragedy of Climate Change: it catches us in a bind. Given that global warming is ‘seriously backloaded’ (every moment experiencing a higher temperature posted from the past) and ‘substantially deferred’ (the cumulative effects of current emissions arriving in the future), a warped ethical structure arises. The person who harms others by burning fossil fuels cannot even potentially encounter his victims, because they do not yet exist. Living in the here and now, he reaps all the benefits from the combustion but few of the injuries, which will be suffered by people who are not around and cannot voice their opposition. Each generation, reasons Gardiner, thus faces a perverse incentive to ‘pass the buck’ to the next, which also profits from its own fossil fuel combustion while dodging the pain from it, and so on, in a vicious cycle of infliction of harm.

James P. Kossin, “A global slowdown of tropical-cyclone translation speed”:

As the Earth’s atmosphere warms, the atmospheric circulation changes. These changes vary by region and time of year, but there is evidence that anthropogenic warming causes a general weakening of summertime tropical circulation.

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Prudence, Vice and Misery

In his newly published Limits: Why Malthus Was Wrong and Why Environmentalists Should Care, Giorgos Kallis challenges what has become the conventional perversion of Robert Malthus’s economic argument. Far from being a “prophet of doom” predicting the inevitable overshoot by population growth of food supplies, Malthus was an advocate of industrial progress as the antidote to a providential discrepancy between the tendency of humans to reproduce and the capacity of the land to feed them. The theodicy of Malthus’s position was explicit and undisguised: “Evil exists in the world not to create despair but activity.”

At the core of the misinterpretation of Malthus is his famous comparison between the tendency for population to increase at a geometrical rate (1, 2, 4. 8. 16…) but for subsistence to increase at only an arithmetical rate (1, 2, 3, 4, 5…). Much of subsequent debate focused on the validity and/or logical consistency of this comparison rather than the conclusions it was intended to support.

What Malthus was trying to show, however, was not that population inevitably will outrun subsistence but that the presumed tendency of population to outrun subsistence constitutes an incentive to industry unless that incentive is blunted by public assistance. For his part, Malthus was remarkably sanguine about the controversy generated by such a rash assertion:

It has been said that I have written a quarto volume to prove, that population increases in a geometrical, and food in an arithmetical ratio; but this is not quite true. The first of these propositions I considered as proved the moment the American increase was related, and the second proposition as soon as it was enunciated. The chief object of my work was to enquire, what effects those laws, which I considered as established in the first six pages, had produced, and were likely to produce, on society; a subject not very readily exhausted.

Defenders of Malthus argue that he meant those propositions only as tendencies, which he subsequently qualified by talking about the actual checks that occur on population. However, the rest of his discussion of “a subject not very readily exhausted” is predicated on the truth of ever-present threat of scarcity presumably demonstrated by those propositions. The logical inconsistency of comparing a constrained tendency of increase in food with an unconstrained one for population can’t be readily dismissed.

Classical political economy readily incorporated the drift of Malthus’s scarcity argument into it’s theory of wages, setting aside quibbles about geometrical and arithmetical tendencies. This is the notorious wages-fund doctrine used to argue for the futility of collective action to raise wages. The defunct doctrine is what underlies the unshakable conviction of “Econ 101” devotees that raising the minimum wage will increase unemployment.

One of the circumstances that no doubt focused a good deal of anxiety on over-population was the emergence of “neo-Malthusianism” in the early 19th century. Neo-Malthusianism is a bit of a misnomer to the extent that it offered a solution to the population problem that Malthus himself expressly rejected as immoral and improper — namely contraception. In Illustrations and Proofs of the Principles of Population (1822), Francis Place directly addressed what “Mr. Malthus seems to shrink from discussing…” Actually, Malthus didn’t shrink from discussing contraception, he rejected it unequivocally:

I have never adverted to the check suggested by Condorcet without the most marked disapprobation. Indeed I should always particularly reprobate any artificial and unnatural modes of checking population, both on account of their immorality and their tendency to remove a necessary stimulus to industry.

Nancy Folbre gives a brilliant account of this mostly unheralded episode in Chapter 8, “Self-love, Triumphant” of Sex, Lust and Gender: A History of Economic Ideas. Folbre points out that a year after Place published his Illustrations, he followed up with illegal and “obscene” handbills titled, “To the Married of Both Sexes,” in which he described a method of birth control. Seventeen-year old John Stuart Mill was arrested for distributing one of those handbills.

By the late 1860s, “Malthusianism” had become the discrete euphemism used to refer to advocacy of those “odious doctrines” and “monstrous propositions” that sheltered “under the phrase ‘limiting the number of children born…'”

So, why was Malthus wrong and why should environmentalists care? To begin with, Kallis points out that Malthus equated happiness with exponential population growth. “‘The happiness of a country,’ Malthus writes, ‘depends upon the degree in which the yearly increase in food approaches to the yearly increase of an unrestricted population.'”

Secondly, Malthus’s formula proclaimed a principle of scarcity as a law of nature. In this view, scarcity is inevitable because human desires are unlimited. As Kallis says, this is the “conception of nature that lies at the heart of modern economics and, to an extent, environmentalism.” Malthus was thus not a prophet of doom, but of perpetual growth — growth of production to feed an ever growing population.

Many environmentalists, Kallis argues, have largely adopted the neo-Malthusian side of the coin. Mid-20th century neo-Malthusian Paul Ehrlich raised the specter of an apocalyptic “Population Bomb.” Garrett Hardin advocated lifeboat ethics and coercive restriction on population. Hardin occupied the margin where environmentalist neo-Malthusianism shaded over into political white nationalism.

Neo-Malthusianism concedes the scarcity principal that is central to Malthus and to modern growth economics. Kallis offers an analysis that views scarcity as an artifact of a particular historical culture rather than as a law of nature. As a counter-example to the modern culture of insatiable consumption and growth, Kallis posits the ancient Greeks as cultivating limits as a path to self-awareness and fulfillment. This is not to say that the remedy for climate change is for everyone to suddenly adopt ancient Greek traditions and rituals. It is only to show that Malthus’s logically flawed model of geometric and arithmetic progression doesn’t have to be the only game in town.

This post is a sequel to my earlier Goats and Dogs, Eco-Fascism and Liberal Taboos. I am thinking of re-working the two parts into a comprehensive whole but in the meanwhile will leave it to the reader to discover or disregard the linkages between them.

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Goats and Dogs, Eco-Fascism and Liberal Taboos

When remembered at all, Edward Abbey is mostly thought of as an environmentalist and anarchist but there is no gainsaying the racism and xenophobia on display in his 1983 essay, “Immigration and Liberal Taboos.” The opinion piece was originally solicited by the New York Times, which ultimately declined to publish it — or to pay him the customary kill fee. It was subsequently rejected by Harper’s, The Atlantic, The New Republic, Rolling Stone, Newsweek, Mother Jones and Playboy before finally being published in the Phoenix New Times as “The Closing Door Policy.”

Various white nationalist blogs applaud what they view as Abbey’s foresightedness and forthrightness regarding immigration, presumably oblivious to how those views relate to his ideas about wealth inequality, industrial development and authoritarianism. Conversely, Abbey fans on the left who seek to insulate his nature writing from the taint of his anti-immigrant bigotry ignore the way in which, as Michael Potts put it, “a xenophobic and racist image of the immigrant as pollution… map[s] cultural and ethnic prejudices on to an idealised landscape.” (Dumping Grounds: Donald Trump, Edward Abbey and the Immigrant as Pollution) Abbey’s admirers on both the right and the left thus resort either to blinkers or lame apologetic to redeem him for their political preferences.

My interpretation is that Abbey was a curmudgeon and contrarian whose intended target was liberal hypocrisy. Immigrants were merely “collateral damage” of his colorful diatribes. In the pursuit of being provocative, though, he revealed more than he bargained for about his prejudices. It is precisely this flawed complexity, though, that makes Abbey’s writing a kind of Rosetta Stone for deciphering the dire social hieroglyphics of our time. Presumably, Abbey did not think of himself as racist. He was indignant when accused of racism. But the institutions of the society he grew up in transmit racism in their DNA.

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