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

Child Labor Defended by the Left

by Peter Dorman (from Econospeak)

Child Labor Defended by the Left

Well, some of the left, but they probably represent the main currents of progressive thought among intellectuals.  Those who not part of the charmed circle of researchers, activists and policy-makers in the realm of child labor may not know that a storm has been whipped up over regulation of children’s work.  A number of academics and heads of NGOs have stepped forward to say that lots of child labor is OK, and the blanket condemnation of it is oppressive.  They want to scrap international agreements that set restrictions on the employment of children, and they support efforts at the national level to repeal child labor regulations.

The flashpoint is Bolivia, where the laws were rewritten to allow children as young as 10 to work alongside their parents and to enter formal employment at 12.  “To eliminate work for boys and girls would be like eliminating people’s social conscience,” says Bolivia’s president, Evo Morales.  This was the culmination of a campaign led by UNATsBO, an organization representing Bolivian working children, led by children with advice from adults.  One of their adult advisors is Manfred Liebel, a German political scientist.  His writings combine familiar radical tropes with passionate belief in the virtue of child labor.

Here are a couple of representative snippets from one of his articles dating from 2003, the year that UNATSBO was founded:

[Working children’s organizations are] questioning traditional age hierarchies and establishing new, more egalitarian relationships between the generations.  But they also personify a massive criticism of different aspects of the western bourgeois way of thinking and behaviour and pave the way for an understanding of the subject until now unknown or unaccepted in the western world.

In accordance with other social movements of repressed and excluded population groups in the South, the working children’s organizations reclaim and practise a subject-understanding and a subject-existence based on human dignity and the respect for human life.  (p. 273)

The subject-understanding and the subject-praxis of the working children’s organizations also go beyond the modern western understanding ofchildhood. According to this understanding, the children are indeed granted a certain autonomy and given protection from risks, but these concessions happen at the cost of an active and responsible role for the children in society. The children are practically excluded from adult life and assigned to special reservations in which they are ‘raised’, ‘educated’ and prepared for the future. Their possible influence on this future is confined to the individual ‘qualification’ of each person, yet not to decisions about the arrangement of social relationships. These remain reserved for the adults or the power elite. (p. 274)

Well, you get the idea.  The attempt to eliminate child labor denies the essential humanity of children.  It wants to impose a capitalist conception of their role in society which prioritizes their future productivity at the expense of what they can do in the present.  It is hierarchical and expresses a colonial, eurocentric mindset.

Pet Peeve: An America that Sees Only Itself

by Peter Dorman (from Econospeak)

Pet Peeve: An America that Sees Only Itself

This is a small but typical example: the New York Times today ran a story about frictions in the switch to embedded-chip credit cards.  The process has been bumpy, and retailers think the banks and payment processors have been exploiting them, while the processors blame the retails for dragging their feet.  I don’t know anything at all about this, but one thing I do know is that the same transition occurred years ago in Europe.  You’d think a reporter delving into this topic would contact sources in Chipland, so our experience could be compared to theirs.  Maybe we could learn something that would help us sort out the tangle of charges and countercharges (so to speak).

But no.  Not a single word about the world beyond our borders.

I see this all the time.  People fulminate about the role of money in politics and the sins of Citizens United but pay no attention to the various forms business influence takes in other developed countries with a variety of campaign finance laws.  We can have a big debate about the economics of Bernie Sanders’ proposal to make public higher education tuition-free without so much as a glance at the many countries where that has been a reality for decades—one of which is right over the border to the north.

The problem isn’t American exceptionalism, it’s American self-absorption.

Good Jobs for Non-College Grads

by Peter Dorman  (originally  from Econospeak)

Good Jobs for Non-College Grads

It’s good to see that Katherine Newman has spoken up for really investing in kids who aren’t going on to college, which will always be a substantial chunk of them, no matter what.  If there’s any sort of social contract worth defending, it has to include them.  This means high quality technical programs in high school, staffed by teachers who are well respected and remunerated.  Read her op-ed piece.

But that’s only one side of the story, the supply side.  The demand side, the willingness of firms to hire well-trained young people to good jobs with long-term career possibilities, is the other.  Newman makes a passing reference to Germany’s apprenticeship system, which has become fashionable.  But German firms find places for these apprentices, actually paying them to learn the ropes—unlike the unpaid internships that are proliferating over here.  Companies design jobs to be staffed by skilled, committed workers, so the requirement of a credential is not just a formality.

And behind it all, the reason why these commitments are still (mostly) honored, is codetermination—worker participation in management—in large firms and the central role played by public financial institutions in financing small and medium size enterprises.  The German labor movement has been saying out loud that this system is under attack, and a major reason for the decline of the SPD is the criticism that they are not standing up for workers at a critical moment.  Even so, however, the role of production workers in German firms is light years ahead of the situation in the US.

It’s necessary but not sufficient to promote widespread technical training; there have to be jobs that take advantage of skill and reward it accordingly.  That means a politics of changing who runs firms and for what purposes.

Reading the story, asking normal business questions

Peter Dorman at Econospeak writes a gem of a post asking readers to ask simple questions when offered a morality tale by journalists, or an implied cause and effect tale, and how it takes no special skill to ask simple business questions that the journalist should at least ask, even if not o tanswer all of them.

Peter Dorman writes:

The Spin on Tires

It would be nice to have economic literacy in journalism.  Take this morning’s story in the New York Times about a pair of tire factories in Amiens.  One is managed by Dunlop; its workers agreed to a schedule of constantly shifting workweeks and shift work, and it is still operating.  The other is managed by Goodyear.  There the workers rejected the disruptive schedule, and the factory is shutting down.  The comparison is presented as a morality tale, where the responsible workers, recognizing the new demands of productivity and competitiveness in a globalized economy, did the right thing, while their obstinate counterparts, representative of all that’s wrong with France, preferred heroic self-annihilation.

Reading the article, I couldn’t help but think that this analysis of The Real Reason the French Economy is Sputtering was there all along, looking for a story to attach itself to.

But an economist might ask a few simple questions.  First, what is the elasticity of the total production cost of a tire with respect to the changes in work hours?  I realize the reporter wants to emphasize the symbolism, the importance of workers bending to the employer’s will as a virtue in and of itself, but perhaps there is a factual dimension worth looking into.  Just a suggestion.

Second, what is the market for these tires?  In particular, who if anyone will pick up the market share being abandoned by Goodyear?  Is this about outsourcing of a portion of tire production to lower-cost producers in developing countries?  Or is it about a shrinking domestic market that no longer needs the output of both plants?  Or some combination of the two or something else?

In particular, it is interesting that both factories, despite their different nameplates, are owned by the same company, Goodyear Dunlop.  Thus, this story describes a consolidation.  The very least an enterprising journalist can do is to inquire into the company’s overall capacity.  Is it cutting back elsewhere in Europe?  Are they shifting production geographically?  Is it possible that they might want only one operation in Amiens in any case, and that the only result of the contest over worker concessions is which plant it will be?

All of this is speculative, because I don’t know the tire market in France.  That’s what I would want to learn from a newspaper story, a rather long one at that, on the subject.  This might also help me understand why the US, where few workers are unionized and none have the will or ability to resist whatever schedule is dictated to them, is not blanketed in tire factories.

Incidentally, there has been a ton of research in the past decade documenting the health effects of exactly the sort of work schedule being imposed at Dunlop.  It is associated with significantly elevated levels of a wide range of diseases; arguably it represents the single greatest occupational safety and health threat experienced in developed countries.  An informed journalist might want to weave that into the story too.

(re-posted with permission of the author)

How to Think About Aggregate Labor Markets

Peter Dorman at Econospeak takes a look at economics and models. (Re-posted with authors consent)

How to Think About Aggregate Labor Markets

The remarkable Tyler Cowen has me scratching my head again. Here he is at the beginning of a critique of minimum wage laws and sticky-price Keynesianism. (The latter is an oxymoron, as anyone who knows the history of Keynes’ dispute with the “Treasury view” knows, but we’ll let it pass.)
Let’s say your labor is worth $10 an hour but you won’t go back to work for less than $12, thereby leading to the unemployment of you.
In essence you are self-imposing a minimum wage on that market, but the employer is responding by leaving you jobless.
You can guess where this is headed.

The interesting thing is that Cowen apparently has no inkling that most people would find his opening sentence insulting. It implies that some significant portion of the unemployed are simply worth less than they think they are. Imagine going up to someone who’s been without a job for a while and saying, “I’m sorry, but have you considered the possibility that your abilities are really not very valuable, and your job search has failed because of this delusion?” If you insist on saying this, I’d advise doing it from a distance.

Now, of course some people have an inflated sense of self-worth, and others are too bashful. It might be an interesting research project to see whether the distribution of these types is correlated with employment status. I don’t have any priors about which would predominate where—do you?

What makes this interesting to an economist is that the popular perception of unemployment actually fits how we model the aggregate labor market pretty well. Let me explain. The view of most unemployed people, according to the interviews I’ve seen, goes something like this: “I’m looking for a job, and I’m willing to take something that’s worse than what I used to have, but I haven’t found anything yet.” The unemployed person hopes that the job is out there but that the connection hasn’t been made.

This formalizes to the now-standard model of search and matching, for which Peter Diamond and especially Dale Mortensen and Christopher Pissarides split a Nobel. Equilibrium in such models does not occur where the Beveridge curve crosses the 45-degree line, which it would if the criterion were supply equals demand, but depends on a larger array of factors. The model is used to explain why the ratio of unemployed workers to vacant jobs is typically greater than one, even in “full employment”.

This is how knowledgeable economists study aggregate labor markets today. Supply and demand, as deployed by Cowen, is a special and highly unlikely case that assumes away the complications that make the theory empirically relevant. If you see someone drawing supply and demand curves for labor and trying to explain unemployment as a result of too-high wages, you know they are employing outmoded methods.

What’s striking is that the more high-powered model actually conforms better to popular intuition. You have to have a rather uncharitable view of human behavior to believe that excess unemployment is due to people overestimating their true worth.

Risk = Freedom?

Peter Dorman at Econospeak speaks to the current selling of big idea models of the world (re-posted with permission from the author):

There’s a review on the Dissent website by Steve Randy Waldman of Freaks of Fortune: The Emerging World of Capitalism and Risk in America by Jonathan Levy. The book sounds interesting, but it is apparently based on a commonplace but false understanding of the relationship between freedom and risk-taking.

At the individual level it is absolutely true that we face a tradeoff between risk and freedom. You can opt for a secure life, but only at the expense of creativity, individualism, moral courage and all the other Emersonian goodies. Each one of us, every day, faces this choice. Mostly it is just a matter of a tiny bit of risk-taking, but these moments add up, and from time to time there is a fundamental fork in the road. We make our own freedom.

But the social level is another story. Individuals take the array of risks as given; society can choose how much risk its members will face and what their risk-freedom tradeoffs will be, at least up to a point. If the objective is to minimize all risk of any sort, especially all risks to health and income, the result will be stultifying. But that’s not where we are on the Great Risk Curve.

 Rather, the debates we have are about whether to cut back or extend social insurance programs like Social Security and Medicare, social protections like TANF and Medicaid, and more or less regulation of finance, pollution and such. It seems clear to me that more security of this sort, which limits the downside risk individuals face in their personal lives, reduces the cost of living freely.

Examples are everywhere. Ample unemployment insurance makes it easier to work for a startup or switch jobs in general rather than being held down by too strong a need for job security. A stronger public pension system encourages entrepreneurship: people can hazard their savings by starting a business rather than hoarding everything for old age. Social guarantees for basic needs make it possible for artists to risk making art their day job. Professors with tenure (big time risk reduction) can take more controversial positions on public issues. (I don’t say they always do this, but they do it more than they would if all professors were temps.) In each case there is a real tradeoff between freedom and security at the individual level, but society can create programs that relax it, so it takes less courage to live freely.

That’s what I don’t like about the nanny state rhetoric. Yes, of course the state can go too far and overprotect us from risks we would do better to face ourselves. But the state we actually live in goes too far in the other direction. With a stronger safety net we could have less risk and more freedom.

Economics an Almost Social Science

Peter Dorman at Econospeak discusses problems with microfoundations, and in a more thorough paper at Association Economique politique explores the Political Econonomic Outlook for Capitalism.

Mark Thoma had pointed to this Business/behavioral science can help guide economic-policy view notion of looking at incentives in an empirical way.

The Main Point

Peter Dorman at Econospeak brings us another reminder about policy decisions on the economy.  Reposted from Econospeak:

The Main Point

Macroeconomics is complicated and political economy is devilish, so it is easy to get lost in the details. From time to time, it’s good to come up for air—to remember what the fundamental issue is. In a way, the debate over structural versus cyclical factors invites us to do just that.

Suppose the current recession/depression is mainly structural. Suppose it is due to an immense misallocation of capital and labor, a failure to foresee what our economy would really demand in the years ahead. According to this story, we have trained too many masons and anthropologists and invested in too many building cranes and liberal arts colleges, and it will take years to shift our human and produced resources to more valuable pursuits. (Actually, I think there continues to be an enormous misallocation of investment, but this will become apparent only when the threat of global warming is taken seriously.) If the structuralist story is right, the ongoing slump is necessary and unavoidable and will end only when we have fashioned the resources for producing the right stuff.

If the cyclical story is predominately true, however, we have neither the wrong people nor the wrong capital stock. We have all the ingredients it takes to have a vibrant economy that can fully employ our populations and generate a standard of living that surpasses what we had in the past and that keeps growing further. But think about it: if we have the wherewithal to resume prosperity, what holds us back? And why should rational people accept any excuses for policies that delay it?

Repeat: we have everything we need, right now, to restart our economies. All the unemployment, the hardship, the lost opportunities are unnecessary. That’s the main point.

The secondary point is about the why. There are ultimately two reasons why economies like ours get stuck in a cyclical rut. The first is that there is a reinforcing cycle of insufficient demand and insufficient investment. This is where standard countercyclical policy comes in: through fiscal deficits the government increases demand on its own initiative, and through monetary easing an impetus is added to investment. We are near the limit of what easing can do (diminishing returns to the QE’s), but not anywhere near the limit of fiscal expansion.

The second reason arises in balance sheet recessions: too much private borrowing has taken place, debtors find it difficult to sustain debt service, and both debtors and creditors retrench. In this case, which is ours, the essential problem is that fulfillment of claims on wealth—both credit claims and equity claims on debt-related assets—interferes with the conditions required for restarting growth. In other words, the shadow of past wealth creation is depriving new wealth creation of sunlight. While respecting wealth claims is desirable during normal times, since it supports long-term planning, there come episodes in which a choice must be made between the past and the future. This is such a time. Wealth claims need to be trimmed, quickly and sufficiently, in order to reduce leverage and permit economies to return to growth. We shouldn’t forget the main point, which is that economic growth produces the stuff of which real wealth is made, while satisfying the claims inherited from yesterday only allocates this stuff. (And in a slumping economy the claims can’t be honored anyway.)

If you accept the cyclical story, and the evidence certainly weighs in its favor, you should not accept another month, much less year after year, of excuses for austerity.

Bankrupt Rhetoric

Peter Dorman at Econospeak comments:

 Bankrupt Rhetoric

 I woke up this morning to Paul Ryan, describing his budget proposal, as quoted in the New York Times: “This is about putting an end to empty promises from a bankrupt government.”

Bankrupt government? Let’s consider this more closely. The normal meaning of bankrupt is negative net worth, as when your liabilities exceed your assets. By this standard, the US government is hardly bankrupt, since it has enormous hard assets and an even larger soft one, the legal right to tax the income, transactions and property of all individuals and organizations subject to US law. We should all be so bankrupt!

So I guess Ryan is not using the normal business meaning of the word. Perhaps for him bankrupt means having negative earnings over some period of time. Here is the federal government’s fiscal record since 1929:

So during what periods has the federal government been “bankrupt”? During every year when outlays exceeded revenues? That would include nearly all of modern history since the 1960s. Or when the fiscal deficit exceeded, say, 5% of GDP? That’s a smaller time frame—basically the past few years since the financial crisis hit and WWII. But if the government is bankrupt now, how bankrupt was it in the days of FDR and the struggle against Germany and Japan? And what does it mean to be bankrupt if the US could be really, really bankrupt in the 1940s and then bounce back to fiscal health almost immediately as soon as the troops came home?

And if the US government is bankrupt today, how come it can raise money at approximately a zero real interest rate?

And on a philosophical level, how does Ryan measure the financial health of government when its purpose is not to make itself rich but to support the prosperity of everyone else?
My translation of the way Ryan uses the word “bankrupt” would be “I want to scare everyone about the current fiscal deficit, and the best way to do it is to use a business-sounding term that has no meaning at all in this situation and hope that the public, and especially the journalists, are too dumb to notice.”