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

Wages and The Market

In the 19th century, employers stove off employee demands by bringing in immigrants willing to work under existing conditions. In the 20th Century, consequent the Great Depression, prohibition of child labor, immigration reform, … it was no longer so easy for employers to ignore workers demands. Unions took root and membership grew and so did the workers’ wages and benefits; welcome: the end of child labor, the 40 hour week, living wages, and paid vacations.

Fast forward to the late 1960s: Beginning of the end for US manufacturing dominance. Unionized industries moved south in quest of lower wages; thence to Mexico, … Fewer and fewer union jobs, fewer and fewer union members. 1970S, manufacturing exodus to Asia begins; labor becoming more and more irrelevant in US, unadjusted wages stay the same. 1980S, Immigrants from Mexico, Central America, and Asia brought in to work for less. Wages continue decline. 2000, Bush II mounts assault on labor and small business. They didn’t call; it that, but that is what it was. The intent was to put labor in its place. Dems remain on sideline, clueless. 2008-2016, Dems still clueless, went with rhetoric and old fashioned religion. 2016, Trump. 2020, Dems still clueless, keeping talking about the good old days, the good old union days.

To Do I, II, & III

The COVID-19 Pandemic, the inadequate response thereto, and the incompetency of the Trump Presidency in general, combined, have exposed our nation’s weaknesses and failings to an extent unknown since at least the Great Depression. This is likely a do or die moment for America. Recovery will be difficult. Improbable unless we are careful in our choice of goals and daring in our efforts to achieve them. The margins for error do not allow for dawdling. Attempting to just return to a time before Trump and The Pandemic would be disastrous. A time like this should also be seen as a time of opportunity.

First, we must rid ourselves of denominational economics such as Capitalism, Socialism, Hayekism, Free Marketism, … These, but ideologies, dogmas, that some would impose on economics, on the rest of us; have done the Nation great harm. They are, at their very best, reasonings of a time past. As likely to be the answer to today’s problems as Adam Smith is to rise from his grave.

As a first step toward becoming again competitive in today’s world; we must stop blindly paying twice as much for inferior healthcare, internet, and cellphone service,… as is being paid in other developed nations; and while we are at it, we need to solve our homeless problem. These are all essential services that should be provided to all. In the grand competition of things; we’re losing. Have been for a while. Were before the pandemic. Ideology is a luxury we can no longer afford.

Let’s pay for these things that need to be done, and help with our wealth distribution problem, too, by taxing the piss out of the too rich and too profitable. Apple, Google, Amazon, Facebook, Microsoft, Sheldon, Warren, …; fun and games are over guys, time for you to pay up.

Let’s pay for these things that need to be done by cutting the ‘Defense’ Budget in half. Halve the number of Generals, the number of Admirals, the number of Aircraft Carriers, the number of Missiles, …; and full-stop attacking other nations. Half of $720+Billion is $360+Billion; $360+Billion is aplenty for Defense, nothing for Attack, and about right for expanding Medicare to Medicare For All. Ike was right about that and Harry was right about health care.

I. Internet Access and Cellular Networks

All those fireman who died because of poor communication on 9/11/2001 should have taught us the need for an ubiquitous cellular network. Mobile radio networks separate cellular networks should have shown us the need for one network. A police car with a half dozen radio antennas on the roof is ridiculous.

So, too, the fact that our cell phone uses a cellular network, our computers use a cable based internet service, and that we need a WIFI router to use our laptops. What’s now the cellular network should be the WIFI router and these routers should be all over our homes, all over every floor in every building, everywhere on our streets, and all across and over rural America. Ubiquitous. Today, thousands and thousands of teachers across America are trying to remotely teach kids, many of whom have very limited internet access, over an internet system that is not reliable. When the fires struck Santa Rosa, the cell towers went down. The internet w/ phones must work at all times during normal times and during times of emergency; needs to be bullet proof. This new inclusive internet is too critical to be trusted to the ‘Market’. Cell phone and Internet should be one and that one should be regulated as a public utility; a service, as a service application, and, as always, the application dictates. Not the ‘Market’.

As a Post Office service, maybe?

In order to fully utilize our Nation’s productivity, better fulfill our personal lives, and assist in times of emergency, the Internet needs be ubiquitous and bulletproof. We should be able to access the internet from our backyards, on a hike, in the mountains, in transit, …; from anywhere we are or can be. It was a big mistake letting cable companies have the internet and the cell phone companies the phone towers. Let the cable companies have Cable TV. Internet and cell phone transmission should be one and the same; should be a Public Utility. It isn’t about ideology, it’s about how it should be; what should be. Half-arsed won’t get it. If we continue to stick with ideology and dogma, China, Japan, and the EU will continue to eat our lunch.

Tone Deaf

Working-class Black and Latino Americans, more likely to be paid lower wages, less likely to own significant assets; feel that they are being deprived of a fair share; see this as a consequence of white privilege. Meanwhile, white working-class American’s see themselves as less than privileged, barely hanging on; feel that such demands by Blacks and Latinos amount to a threat to their meager share, their livelihood. Neither group is the other group’s problem, the two groups have a common problem; America’s wealth and income distribution problem.

In a prosperous nation with more than 800 billionaires, no one should have to work for low wages, work multiple jobs, in order to survive. Yet, not enough is coming down to the working class for sharing. Robbing Peter to pay Paul is not the answer. It is because of America’s unfair income distribution that the two groups are being pitted against one another in their struggle to eke out a living. More needs to come down to the working class in toto. Less needs to go up to the already wealthy.

While the Democratic Party seeks to attract the vote of working-class Blacks and Latinos, Republicans have made significant progress in attracting votes from the white working-class; thus splitting, thereby negating, the working-class vote. Choosing sides is not the answer. These are the same group with an artificial distinction being made on the basis of race and ethnicity. There is only one side here – that’s the side of the working class; the side of a majority of Americans.

Catching up with wages, income, and layoffs

Catching up with wages, income, and layoffs

Yesterday and today have seen several significant data releases. Let’s catch up.

Wages

The Employment Cost Index was released for Q2 this morning. This is a particularly important release because unlike the monthly “average hourly wages” number, this report normalizes by job category, e.g., it compares clerks’ wages in Q1 with clerks’ wages in Q2. So if clerks have experienced widespread wage cuts, it should show up here. Given the many anecdotes of wage cuts I have read and heard about since the pandemic began, I have been waiting to see what this number would be.

And the answer is . . . Wages did rise, albeit at one of the slowest rates in over 10 years, less than 0.4%, in Q2:

Because consumer prices fell close to -0.9% in Q2, in real inflation adjusted terms wages for equivalent jobs rose even more for the quarter:

I was expecting very bad news, so I will take this “less good” news with a sigh of relief.

Income

Personal income and spending for June were also released this morning. The bottom line is that income declined slightly, while spending rose:

Boosted by the $1200 relief check in April, and supplemental unemployment assistance of $600/month, income remains 5% higher than in February. Spending, meanwhile, has made up more than 1/2 of its April decline. This is also a positive – but one month ago. Since the supplemental payments end as of today, this picture is likely to change in the high-frequency data beginning in a week or two, although it won’t show up in the monthly data until August’s is released at the end of September.

Layoffs

Yesterday’s initial and continuing claims continued the recent string of bad news. While the important non-seasonally adjusted initial claims did make a pandemic low, these were still over 1.2 million for last week. On an adjusted basis, initial claims rose again:

Continuing claims for two weeks ago also rose on both an adjusted and non-seasonally adjusted basis:

In other words, both layoffs and unemployment are likely increasing. We’ll find out next week with the July employment report whether new hires and rehires continued to outpace layoffs, as they have in the past two months, or not.

So the good news – at least for now – is that we do not appear to be in a wage-deflationary spiral. The bad news is that the underpinnings of the good news has started to go away in the past few weeks.

Stephen Miller’s Racist Fix for Race Relations

Word is circulating that Stephen Miller is writing Donald Trump’s speech on race relations. I’m going to go out on a limb and predict that Trump’s “solution” to the current malaise in the U.S. will involve extending a ban on immigration and expanding enforcement and expulsion of undocumented individuals. This seems like a safe bet to me because Miller really is a one-trick pony and Trump relishes rehashing his greatest hits. Maybe Miller will toss in some “enterprise zones” or other ornamental trivia but the meat will be anti-immigration.

They playbook for this will be Miller’s Immigration Handbook for a New Republican Majority that he wrote for Jeff Sessions in 2015. Footnote 21 of that handbook states that, “Amnesty and uncontrolled immigration disproportionately harms African-American workers, and has been
described by U.S. Civil Rights Commission member Peter Kirsanow as a ‘disaster.'” The handbook also cites a poll commissioned by Kellyanne \Conway, one finding of which was that “86% of black voters and 71% of Hispanic voters said companies should raise wages and improve working conditions instead of increasing immigration.”

Two years ago, I posted a couple of pieces discussing Miller’s handbook in more detail: The Lump That Begot Trump and Goebbels or Gompers?: A Closer Look at Stephen Miller’s Immigration Manifesto. I hope these pieces provide some insight into just how dangerous and effective Miller’s and Trump’s anti-immigration rhetoric can be, especially given the hypocrisy of neo-liberal promotion of immigration as exemplified by Tony Blair’s and Gerhard Schroeder’s “Third Way” advocating “a new supply-side agenda for the left“. To put it bluntly, “Third Way” immigration policy was intended to create jobs by keeping wages low through an abundant supply of labor. The transfer of income from the working class to the wealthy would provide ample funds for “investment.”

In short, Miller’s and Trump’s anti-immigrant rhetoric is dangerous and effective because Blair and Schroeder (and Clinton and Obama) enacted right-wing, supply-side economic policies in the name of “the [‘responsible’] left.”

THE Important Graphic from April’s Unemployment Report

What happens when you downsize a large number of people? Well, it depends on the cohort downsized. In this case,

Figure 1

That’s correct; Average Hourly Earnings skyrocketed from $28.67 to $30.01: up $1.34.

For context, that one-month change matches the average hourly earnings growth from September/October of 2018 until March of this year–18 months of increases in a month. And all it took was eliminating the jobs of about 6% of the U.S. population (not just workers).

From Social Distance to Social Justice: An Unsolved Riddle

In the last two weeks of March and the first week of April, 2020 16.5 million new claims for unemployment were filed in the U.S. After the novel coronavirus is successfully contained some but not all of those jobs will return. The post-pandemic economy will not be the same as the economy before and to assume a return to business-as-usual economic growth would be folly.

There will need to be immediate share-the-work policies along with basic income guarantees. These must be viewed not as temporary measures to be abandoned as soon as “normality” returns but as transitional steps toward an entirely new regime of work, income and common wealth. Addressing climate change has momentarily taken a back seat to the urgent immediacy of the pandemic. But the irreversible long-term consequences of failing to free ourselves from the fossil-fueled treadmill of growth will make Covid-19 seem like a flash in the pan.

In The Unsolved Riddle of Social Justice, published shortly after the end of World War I (and, incidentally, the flu epidemic of that time), Stephen Leacock observed that the surprising resilience of industry during the recent war had “thrown its lurid light upon the economics of peace.” The coronavirus pandemic has once again “thrown its lurid light upon the economics of peace.” What the lurid light of war revealed to Leacock was the immense superfluity of peacetime employment. “Not more than one adult worker in ten…” Leacock speculated, “is employed on necessary things.”

Leacock’s estimate of superfluous workers may seem high but, to be honest, we don’t really know how much of the work that is done is necessary to sustain a society. If even one-fifth or one-quarter of the work being done was unnecessary, that would be a compelling rationale for suspending the growth imperative. Why not phase out current waste before producing even more waste?

But what if the proportion of superfluous to necessary work is even larger than that? How would we know it isn’t? As commentators from Simon Kuznets and Robert F. Kennedy to Marilyn Waring and Joseph Stiglitz have pointed out, national income accounts do not distinguish between “good” and “bad” commodities. They do not differentiate between necessities, comforts, luxuries and ugly Christmas sweaters that go from the closet to the trash. Furthermore, they do not account at all for the prodigious production of waste by-products. Nobody buys the carbon dioxide emissions from burning fossil fuels – even though somebody, someday, will indeed pay for them – with their lives if not money.

The absence of authoritative metrics serves as a convenient alibi for keeping things as they are or for actively making them worse. Efforts to construct alternative indices to the national income accounts, such as the Genuine Prosperity Index, have provided glimmers of insight but have ended up abandoned orphans that national governments have disdained to adopt.

What I am proposing here as an alternative to these global metrics focusing on the average number of hours that individuals work annually and the hours per capita worked in the economy as a whole. How many of those hours are devoted to wasteful production – built-in obsolescence, excess productive capacity, propaganda, disposable fashion, and other forms of sheer waste? For the answer, we turn to Arthur Dahlberg’s analysis of the effect of long hours on labor’s share of income.

Real wages declined slightly in Q4 2019; nearly flat since last January

Real wages declined slightly in Q4 2019; nearly flat since last January

In December consumer inflation was +0.2%. Since in last Friday’s jobs report average hourly earnings also increased +0.1%, real average hourly earnings declined slightly:

In a longer term perspective, this means that real wages also declined from 97.8% to 97.5% of their all time high in January 1973:

 

Importance of Imports

It is standard analysis to see real and nominal imports as a share of GDP quoted to estimate the importance of imports in the economy. Currently that shows nominal imports are about  15% of GDP and real imports are some 18% of real GDP.

But I suspect that this comparison understates the role of imports in the economy because services are some 45% of GDP but only about 16% of imports.  As my high school algebra teacher was fond of saying, you are adding crabs and apples. Rather, you should compare real goods imports to real goods GDP. On this basis imports are some 46% of GDP, a much larger share than standard analysis shows.  (second chart fixed….Dan)

Mankiw Misrepresents a Story on Senator Sanders Campaign Worker Negotiations

Mankiw Misrepresents a Story on Senator Sanders Campaign Worker Negotiations

Greg Mankiw reads this story and writes:

Staffers in the Sanders campaign, who are working on salary, complain that they are paid less than the $15 per hour that Senator Sanders advocates for the minimum wage. So Sanders raises their hourly wage. Does that increase their income? No, because he raised the hourly wage by cutting the number of hours they work! Of course, if a President Sanders raised the federal minimum wage, I am sure he would be confident that the change would not have any adverse employment effects. Downward-sloping demand curves may describe socialist political campaigns, but back in the actual capitalist economy, the laws of supply and demand work completely differently.

OK – he started his post by saying it is a wonderful story, which is true. But as I read the story, I saw a very different tale than the one Mankiw suggested:

Field organizers say they make a salary of $36,000 annually but work 60 hours per week, which is an average of $13 per hour … Sanders’ 2020 campaign was the first to unionize in March 2019. The union then made an agreement with the campaign that field workers were to be paid $36,000 annually. The contract, which began on May 2, also provides platinum level health care, paid vacation, sick leave and other benefits. Shakir also told Newsweek that leadership at the campaign previously offered a pay increase for field organizers, but that the offer was rejected in a formal vote. According to the Post, Shakir offered organizer pay to be raised to $42,000 annually and extend the workweek to six days. The offer was reportedly rejected because it would have elevated staff to a pay level in which they’d be responsible to pay more of their own health care costs.

Let’s note what Mankiw did not. The negotiations also involved what appears to be a decent level of fringe benefits in addition to a $36,000 per year salary. These workers are apparently working 60 hours a week, which if they did so for 50 weeks would indeed translate into 3000 hours per year at $12 per hour. Does Harvard require its faculty to put in such an incredibly demanding schedule? I hope not as we know Mankiw loves to spend time with his children. Now if one worked 6 days a week and 8 hours a day for 50 weeks, then $36,000 per year translates into $15 an hour. How Mankiw interprets this story into evidence that we are seeing a competitive labor market moving along a downward sloping demand curve is beyond me. I’m sure he can explain this all to his students at Harvard.