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Neoliberalism as a Cause of Structural Unemployment in the USA

News  Over 50 and unemployed Recommended Links The problem of inequality Computers eat people Underemployment Eroding Western living standards
The neoliberal myth of human capital Perma Temps Adverse Selection The problem of inequality Productivity Myth and "Rising labor costs" hypocrisy Scapegoating and victimization of poor  
Neoliberalism as a New Form of Corporatism Corporatism Casino Capitalism If Corporations Are People, They Are Psychopaths Toxic Managers Office Stockholm Syndrome Learned helplessness
Unemployment after graduation Fake Employment Statistics Destructiveness of GDP Mania   Financial Sector Induced Systemic Instability

Economics Pseudo Theories

Notes on Republican Economic Policy
John Kenneth Galbraith Invisible Hand Hypothesis Inflation vs. Deflation Lysenkoism Financial Humor Humor  Etc

Unemployment offices, homeless shelters,  hospitals, prisons and casinos. and are the only real growth industries of Obama Administration. In Jan 2010 35 millions, or one in eight Americans, were on food stamps.

Obama's  biggest — and only major — jobs program is the U.S. military


When I was a kid they told us that automation would "free" us from working long hours. What they didn't tell us what that they weren't going to pay us for all this leisure time we'd get.

Mass unemployment is the primary indication of the collapse of a given form of society -- James Burnham


Introduction


"Unemployment" statistics has been the political advertising media for every Administration in modern times

From comment in
The Rise of Invisible Unemployment
 The Atlantic, Nov 9, 2014

 

The institutions of neoliberal capitalism, while promoting an expanded role in the economy for "market forces" (read "financial oligarchy")  simultaneously transform labor relations. The “market” under neoliberalism certainly no longer refers to competition as a form of the production and distribution goods and services. Instead, it means something more along the lines of international financial monopolies protected by collusion between captured vassal state institutions (including neoliberal fifth column domination in the all major branches of government, especially executive and  legislative branches, educational institutions and media) and multinationals, which pay money to sustain this social order. The term “Free markets” under neoliberalism means letting rich people do what they want, not promoting efficient allocation of resources through competition and the price mechanism. The core of the fifth column are local oligarchs and so called "Chicago boys": sons and daughters of local elite who are trained for and indoctrinated for this purpose in Western universities. As aptly noted Neoliberalism – the ideology at the root of all our problems ( The Guardian,  April 15, 2016)

We internalize and reproduce its creeds. The rich persuade themselves that they acquired their wealth through merit, ignoring the advantages – such as education, inheritance and class – that may have helped to secure it. The poor begin to blame themselves for their failures, even when they can do little to change their circumstances.

Never mind structural unemployment: if you don't have a job it's because you are unenterprising. Never mind the impossible costs of housing: if your credit card is maxed out, you're feckless and improvident. Never mind that your children no longer have a school playing field: if they get fat, it's your fault. In a world governed by competition, those who fall behind become defined and self-defined as losers.

Under neoliberalism labor relations assumes the form of full domination of labor by capitalists. Unions are officially suppressed and large part of middle class is brainwashed to hate using set of propaganda stories about unions corruption, welfare quinsy, lack of competitiveness in unionized industries (with Detroit as a prime story), etc.  In this sense crushing by Reagan of the strike of air controllers was one of the first manifestation of this dominance. Workers again are downgraded to the role of debt slaves, who should be glad to get subsistence wages. And, for example, wages in Wal-Mart are really on subsistence level, no question about it (Making Change at Wal-Mart » Fact Sheet – Wages):

Wal-Mart jobs are poverty-level jobs.
Wal-Mart's average sale Associate makes $8.81 per hour, according to IBISWorld, an independent market research group. This translates to annual pay of $15,576, based upon Wal-Mart's full-time status of 34 hours per week1. This is significantly below the 2010 Federal Poverty Level of $22,050 for a family of four. The Wall Street Journal reported that the average Wal-Mart cashier makes just $8.48 an hour, far below the $11.22 national average for all cashiers.

This contrasts with the capital-labor compromise that characterized the state capitalism that existed several post-WWII decades and that was crushed by neoliberalism in 1970th. Neoliberalism also brought change in the relation between financial and non-financial capital: financial capital now again like in 1920th plays a dominant role dictating the rules of the game to manufacturing sector and controlling it via banks.

Under neoliberalism the wealthy and their academic servants, see inequality as a noble outcome. University professors of economics form the most corrupt part of intellectual elite – they are nothing more than employees of the financial oligarchy paid to administer intellectual anesthetic to those among debt slaves, who still have enough time to ask what’s going on. They want to further enrich top 1%, shrink middle class making it less secure, and impoverish poor.  That's an officially state goal. Then in 1992, when asked what Iran-Contra was really all about, Bush I replied that it was done for "...the continuous consolidation of money and power into higher, tighter and righter hands."

The upward redistribution of wealth requires high unemployment to weep prols into unconditional obedience.  In other words neoliberalism and high unemployment are twins.

Under the disguise of "free market" Newspeak  neoliberals promote a type of economy which is often called a plantation economy. In this type of the economy all the resources and power are in the hands of a wealthy planter class who then gives preference for easy jobs and the easy life to their loyal toadies. The wealthy elites like cheap labor: it's much easier to  dictate their conditions of employment when unemployment is high.

Keynesian economics values the middle class and does not value unemployment or cheap labor, so it is incompatible with neoliberal ideology and needs to be suppressed.  Neoliberals created the system which richly reward stooges of neoliberalism for their loyalty to the top 1%  bestowing on them an easier life than they otherwise merit. In a meritocracy where individuals receive public goods and services that allow them to compete on a level playing field, many neoliberal academic toadies would be losers who cannot compete.

One of the most important measures of the health of an economy is the following criteria: how many fulfilling, living-wage jobs are created or destroyed (most other economic factors can be distilled to this.). For example, widely used measure of economic growth, GDP is too influenced by financial masturbation and does not distinguish useful activity from harmful or irrelevant. 

Under neoliberalism the elite revived Roman emperor Septimius Severus advice to his sons before he died at Eboracum (York) on  February 4, 211:

"Avoid infighting, pay well the soldiers, and ignore everybody else" . 

So during the Great Recession Congress simply tuned backs to unemployed. With the implicit message you just need to die out folks ;-).

Military budget at the same time was greatly expanded and several unnecessary wars were launched.  Brainwashed American public eats all those neoliberal policies like real lemmings, demonstrating the level of groupthink and lack of critical thinking that is typical for high demand cults. So the myth about highly conscious "proletariat" that Marxists cherished remains a myth. Moreover quite opposite tendencies to creation of "enlightened lower classes" show their ugly face (Chris Hedges America is a Tinderbox naked capitalism):

ictus92, July 21, 2013 at 5:07 pm

To paraphrase Madeline Albright: “What’s the point of creating a totalitarian police state if you’re not going to use it?”

So where is the American totalitarian state going? If you look at the NDAA and the discussion around repealing the Posse Comitatus Act, the key words include quelling “domestic civil unrest”… So what are the “deep government” types anticipating so hysterically?

Well, the financial crisis keeps grinding away and is about to enter another phase of collapse as “quantitative easing” has run its course. Interest rates are rising, posing “technical insolvency” of the Federal Reserve itself. What this means is that time’s up for the 46 million in the Food Stamp Supplemental Program; 56 million getting Social Security retirement or disability benefits; and at least 20 million more needing full time employment. Obviously there’s some overlap, but the total number of people living on the margins of subsistence pushes 30% of the population.

For these, they face an immediate “Final Solution”… not exactly direct extermination, but death by deprivation, illness etc. Can work camps be far off for these tens of millions and the many millions more living paycheck to paycheck? This population and their sympathizers comprise the tinder for “civil unrest”. Hence the corollary to the famous “Collect it all” (communications) is “control it all” (civil disorder following further economic collapse).

Furthermore, prolonged neglect of key infrastructure will lead inevitably to severe food, water and electric power access shortages — another source of civil unrest potential.

Of course, overseas the totalitarian police state eliminates all expression of opposition that can change policies in the quest for “Permanent War” and “full spectrum” military dominance. This ends in global military confrontation… just as the financial crisis of the 30’s gave rise to another World War… only this time around world war will pitch towards thermonuclear war in short order. That’s how totalitarian regimes collapse into catastrophe, dragging the rest of us to an unpleasant demise.

Unfortunately, I don’t think there’s a damn thing any of us can do to arrest this beserk Levithan…

tongorad, July 20, 2013 at 3:21 pm

This is America, not Denmark. In this country, tens of millions of people choose to watch FoxNews not simply because Americans are credulous idiots or at the behest of some right-wing corporate cabal, but because average Americans respect viciousness.

They are attracted to viciousness for a lot of reasons. In part, it reminds them of their bosses, whom they secretly adore. Americans hate themselves for the way they behave in public, always smiling and nodding their heads with accompanying really?s and uh-huhs to show that they’re listening to the other person, never having the guts to say what they really feel. So they vicariously scream and bully others into submission through right-wing surrogate-brutes. Spending time watching Sean Hannity is enough for your average American white male to feel less cowardly than he really is.

The left won’t accept this awful truth about the American soul, a beast that they believe they can fix “if only the people knew the Truth.”

But what if the Truth is that Americans don’t want to know the Truth? What if Americans consciously choose lies over truth when given the chance–and not even very interesting lies, but rather the blandest, dumbest and meanest lies? What if Americans are not a likeable people? The left’s wires short-circuit when confronted with this terrible possibility; the right, on the other hand, warmly embraces Middle America’s rank soul and exploits it to their full advantage. The Republicans know Americans better than the left. They know that it’s not so much Goering’s famous “bigger lie” that works here, but the dumber and meaner the lie, the more the public wants to hear it repeated.”

“We, The Spiteful” by Mark Ames

http://exiledonline.com/we-the-spiteful/

Dave, July 20, 2013 at 8:18 pm

Please consider that the “right” is far more realistic in their assessment of human nature. The “left” wants things to be according to what they think it should be, mostly because of their left wing educators. The majority of humans are not perfectible.

Even Asians, with their highly socialized societies, have behaved very badly towards those outside their country.

This tendency of self-deception of "blue color America" and resonating of Republican Party ideas within "working poor" and lower middle class, two strata of the US society that typically votes against its own economic interests is analyzed in   What's the matter with Kansas  And to fight neoliberal machine is not easy as media dominance is total, and on a new technological level, which does not require silencing of opponents, just ignoring them, approach the level typical for the USSR or Nazi Germany.  And even if some people question the system, like (at the very beginning) Tea Party did, or later "Occupy Wall Street" movement did, they are mercilessly co-opted or crashed by well paid guard labor. The latter is one of the few  types of employment which prospers under neoliberal empire. See  The Rise of Guard Labor (dollarsandsense.org)

The reality is that many rich countries including the USA now face two problems. One is a shortage of jobs, especially middle class jobs.  The other is stagnant (or falling) wages for those outside top 1%.  This is not a temporary problem. Despite all the propaganda smoke this is an immanent feature of neoliberal regimes that now dominate in the USA and most other countries.  Neoliberalism requires high unemployment as a way to keep workers in check and prevent attempts to slow down redistribution of wealth toward the top.

As George Bush Sr . noted in November 1992 neoliberalism is "the continuous consolidation of money and power into higher, tighter and righter hands". The essence is  the consolidation of money and power to the top 0.1% or even 0.01%.  In a very deep sense our new lords from financial and political oligarchy are not that different from feudal aristocracy, may be only less educated, more prone to avoid military service and much more greedy. 

Unlike Keynesian economy which put middle class in the center of society serving a buffer between rich and poor,  under neoliberalism  middle class is no longer needed as a buffer between aristocracy and proles, as repressive power of the state and regime of total surveillance (National Security State) makes an organized opposition practically impossible. The fate of "Occupy Wall Street" movement is nice illustration here.

On the other hand neoliberalism as an ideology, while discredited by event of 2008 still does not have any viable alternative.  Socialism was discredited by collapse of the USSR (which in reality was a neoliberal counterrevolution by Soviet nomenklatura including part of KGB).  Authoritarian versions of state capitalism does not look too attractive, despite being quite effective as was proven by economic progress of "Asian tigers".

Other important factors are also in play. Technology has stripped away the ability for many to hold a job and the trend continues.  In other words automation eats jobs. Outsourcing eats jobs too. Between those two trends almost no job growth left. This is a structural situation, not transitional caused by recession due to aftermath of 2008 financial bubble bust.  In other words jobs that disappeared will never return. And jobs in construction sector and finance were artificial and unsustainable in any case, crisis or no crisis (as in "what can't last forever eventually stops." )

We are in the midst of slow motion employment collapse. Eurozone unemployment recently reached 12%. The US has probably 20% rate of involuntary unemployment now. The official unemployment "rate" is lower, but that is because both 60-65 years old and 20 to 24 year olds are dropping out of the wage force.

Add to this "peak energy" problem and the situation looks really bleak. That's the funny thing about oil and modern civilization -- almost everybody in large western urban centers is dependent on mass produced technology (much of which was invented before we were born) and cheap oil (and generally cheap energy), Those who live in those urban centers no longer have any direct control or ability to produce own food or transportation energy or heating. those three activities are completely outsourced. See Peak Oil Demand is Already a Huge Problem.

Globalization is yet another problem. I was actually surprised by how many jobs large corporations managed to shred during 2008-2013 without negatively affecting  profitability.  The impression is that it is no low limit.  Usual wisdom is that if you shred too much, this labor shortage will bite you in a couple of years. This is no longer the case in the USA. No visible backlash at all.  Even consumption that should be suffering due to destruction of middle class in this process is no suffering much, because it was already mostly top 1% game and, as such, is recession proof. Here is one interesting comment form Krugman column Globalization and Macroeconomics - NYTimes.com

Floxo Australia

The analysis is flawed. The issue is not goods trade - on its own, this is relatively benign. The real problem is the associated capital drain. Owners of capital will transfer productive capital abroad for better returns. This process creates deep structural problems for all developed economies. Here are some basic predictions:

Recessions are difficult to manage and may become protracted. In a downturn, capital formation dries up but the capital drain continues. This erodes the output gap. A fiscal stimulus now has less headroom for expansion. On top of that, an increase in domestic demand may be met by investment in productive capital abroad; the domestic investment response is missing. This may even cause a fall in labor productivity ( UK productivity puzzle?).

In short, globalization IS the problem.

Unemployment and well being

Recessions generate inequality in both income and well-being: people who lose their jobs bear a disproportionate burden of the recession.  As Kathleen Geier noted the impact of unemployment on well-being it’s even worse than you thought

While reading this odd and meandering New York Times op-ed this morning, I stumbled upon a link to a fascinating study from last year on the impact of unemployment on non-monetary well-being. It was conducted by Stanford sociologist Cristobal Young, who discovered that unemployment has an even more catastrophic effect on personal happiness that we thought.

The study produced three major findings. The first is the devastating impact job loss has on personal well-being. Job loss, says Young, “produces a large drop in subjective well-being”:

Job loss into unemployment, however, is a different matter; this brings on deep distress that is greater in magnitude than the effect of changes in family structure, home-ownership or parental status. The distress of job loss is also hard to ameliorate: family income does not help, unemployment insurance appears to do little and even reemployment does not provide a full recovery [italics mine].

The second finding is that while unemployment insurance (UI) is successful as a macroeconomic stabilizer, it doesn’t make unemployed people any happier. UI, says Young:

is not central to their sense of well-being… [Snip] …[ I]t does little to support their identity, sense of purpose or self-regard.

Third, job loss has a strong, lasting negative impact on well-being that may persist for years:

[J]ob loss has consequences that linger even after people return to work. Finding a job, on average, recovers only about two thirds of the initial harm of losing a job. It is not clear how long it takes for the nonpecuniary effect of unemployment to heal.

Other research suggests that what Young refers to as “the scarring effect” of job loss can last from three to five years, or even longer. He also notes that “the more generalized fear of becoming jobless” may persist.

Young’s discussion of these findings stresses the inequality theme. He points out that “recessions generate inequality in both income and well-being: people who lose their jobs bear a disproportionate burden of the recession.” He suggests job-sharing as a way to reduce the concentrated misery of unemployment. That’s a great idea that unfortunately never seems to go anywhere. Employers today seem more interested in squeezing as much labor out of employees as possible for the lowest cost. They’re looking to shrink their payroll rather than expand it. And unfortunately, there are very few public policies that promote job-sharing, let alone do it effectively.

The sheer human misery created by the economic downturn has been stunning. The economic damage is, in some ways, the least of it. Another study shows that the long-term unemployed experience shame, loss of self-respect, and strained relationships with friends and family. They even suffer significantly higher rates of suicide.

Yesterday, Paul Krugman and others discussed the impact of economic inequality vs. unemployment on income. Krugman argued that inequality has had the greater impact, and I agree. Among other things, inequality is also the root cause of the unemployment problem. Special interests which have disproportionate power in our political system prevented more stimulus and inflicted an austerity agenda, which has had a disastrous effect on employment. Enacting an economic equality agenda will be huge political challenge, but it’s the only way I can see of ultimately resetting the priorities of our government so that it starts working on behalf of ordinary Americans again.

Official measures of unemployment

There are two popular unemployment measured U3 (commonly cited as "official unemployment rate", which dramatically understates real unemployment) and U6, which is close to actual unemployment rate as was measured during the Great Depression. U3 is often as low as half of U6 (that's why it sometimes called 50 cents unemployment rate). As The Big Picture note in the entry Unemployment Reporting

Its been pretty obvious for sometime that the Financial Media are doing a disservice to their readers by only reporting U3, given how dramatically it understates Unemployment. Indeed, consumer sentiment reports are at deep negative levels that only occur when Unemployment is much than what U3 has been saying. It is painfully obvious that U3 does not paint an accurate view of the Employment situation.

Here's the experiment I propose: Let's start reporting both, with appropriate descriptions of each. Report U3, add U6, provide monthly and year over year changes. Let the reader see the full picture, via BLS data.

See Table A-12. Alternative measures of labor underutilization

Factors that make the current unemployment structural

I would like to stress it again: many factors point to the fact that the current level of unemployment is mostly structural. In other words jobs eliminated will not be coming back. Among the most important factors we can mention:

  1. Neoliberal ideology, which prevents strong government action and direct employment by government on infrastructure projects like during New Deal. Related to the dominance of neoliberalism the hypertrophy of financial sector lead to games with "Main street" after which high, self-sustainable (aka structural) unemployment for in now a destiny for millions. Making the whole society sick.
     
  2. Outsourcing (which partially is due to much better communication channels available and computerized navigation)
     
  3. Computerization (which directly "eats jobs" much like during industrial revolution in the UK).
     
  4. High price of energy, which serves as strong depressing factor. If I remember correctly, a decade ago price of oil above $100 was considered an equivalent to permanent recession. This is never mentioned today, but still might be as true today as it was ten years ago: with the high price of oil the economic recovery is simply impossible. The only option, the only trajectory for economy is permanent stagnation.
     
  5. Growth of "lumpen-proletariat". Narcoaddicts, alcoholics, single mothers from poor families with just high school diplomas,  people with "generosity-based" high school (considerable part of Afro-Americans) and university diplomas from "diploma mills" (essentially fake diplomas),  various categories of handicapped, people with criminal records (substantial part of Afro-American male population), etc.  

The first three factors changed the distribution of power between labor and capital in favor of capital; and those guys are not inclined to take prisoners, when there is a chance to fatten their pockets.  None of the first three factors will probably be reversed soon, although neoliberal ideology is after 2008 entered a zombie state.

Also computerization and Internet allowed capital and political forces behind it much better organize politically. So like in in previous human history well organized and wealthy minority dictates its will less-organized poor majority.

I think that financial capital might eventually experience some setbacks. This bacchanalia of greed with those hedge fund  which hack financial system left and right  might come to an abrupt end with the rise of the price of oil. Even now price of oil indirectly pressure "masters of the universe".  And remember famous slogan of 2008 "Jump suckers" ;-). It reflects the society attitude to financial oligarchy and as such entail certain dangers of "blowback" for all those derivatives games.

Not under Obama watch as he is essentially a sock puppet of financial oligarchy. But eventually setback for "big finance" can happen. At the end of the day it is oil that is the real convertible currency and when oil production is diminishing or flat,  financial oligarchy will be pushed back. 

Measures taken by political elite to save financial institutions after 2008 collapse means that unemployment is a part of a general political problem with neoliberalism as a social system. Under neoliberal regime the elite can't care less about long term unemployment. National Security State ensures the security of the neoliberal elite. Elections in the USA are a sham as two party system effectively blocks candidates outside the list approved by the current elite.  The latter might even see sharp division of the society into "have" and "have nots"  as a solution of oil depletion problem (Economist's View):

bakho:

Exactly.

Monetary policy does not operate in a vacuum. Monetary policy operates in an economic system that includes fiscal and regulatory tools. It is a mistake to lock the fiscal and regulatory tools in a shed.

Fiscal policy ALWAYS operates in a recession, at least in the form of automatic stabilizers, (UI, etc.) and sometimes in the form of additional stimulus.

The meagre automatic stabilizers currently in place are enough for a mild recession, but are woefully short of what is needed in a recession like the recent one.

The primary objection to fiscal policy manipulations is that fiscal policy is more easily politicized. This overlooks the fact that monetary policy is not only political, but bankers (who constitute a wealthy special interest) have an agenda that tilts monetary policy to their own self interests.

The primary objection to using fiscal stimulus to address our unemployment crisis is POLITICAL. Wealthy special interests want pay less taxes and short term stimulus would interfere with their political agenda to roll back spending and reduce spending as a percent of GDP.

Wealthy special interests have the upper hand at the moment because enough politicians are dependent on their campaign donations. However, this politicalization of fiscal policy, doing too little to address unemployment, is the prime force behind the Fed keeping interest rates low. If enough fiscal stimulus was enacted to quickly return to full employment and inflation at or slightly above the target, the Fed would not have to consider extraordinary measures.

Anyone unhappy about extraordinary monetary measures should be urging Congress to fix unemployment now. This is not what our elites are doing. They are complaining about extraordinary monetary measures AND about additional stimulus. This suggests that these policy elites care nothing about social problems of long term unemployment, are content to have the US become a divided nation between haves and have nots and are content to oversee the creation of an underclass in order to concentrate wealthy upward.

When one is saying that unemployment became a structural problem that means that it is immune to the business cycle. For example, during the last economic expansion (Jan 2002 -Dec 2007), the median US household income dropped by $2,000. In other words many Americans were worse off at the end of an economic cycle as jobs went outsourced to low wage countries due to wage arbitrage... 

Collapse of Casino Capitalism and unemployment

The collapse of “casino capitalism” model in 2008-2009 was so profound that all sectors of the economy became depressed. As securitization mess exploded in the face of their creators as it became clear to everybody that the king is naked. Debt overhand of financial industry is tremendous and it was just socialized, not removed. Essentially it became the problem of the USA government debt. In many ways problems the USA faces now are more serious then the problems the country faced during Great Depression because economic crisis doubles as the crisis of dominant ideology -- the ideology of neoliberalism.  And the Great Recession, despite Economic Cycle Institute premature desire to bury it, is still with us. Five years in the making as of 2013.

Ideology on which FIRE sector dominance was based is now questioned and that creates additional problems both nationally and internationally, much more internationally. Internationally it means a substantial loss of the USA "soft power", the factor that played tremendous role in the decade of 1990-2000.  When other country laugh at the US financial oligarchy tribulations it is difficult to open new markets selling old neoliberalism doctrine. due to debt overhand the US dollar is replaced by currency swaps in national currency for several major trading partners of China such as Brazil and Russia.   First of all that makes the crisis even deeper and analogies between the USSR and the USA more sinister. As with Stalinists in USSR who destroyed the country economically, there is a powerful block of republican dead enders and democratic supporters of financial oligarchy (blue dogs) who  will continue to promote the current neoliberal course with its deification of "free markets" (free as in "free shooting zone"), oblivious to consequences of neoliberal policies which eat the society and protected by the size of their accounts. There is nothing new here. Oligarchic  democracies can commit suicide. Actually none lasted long. And with such a formidable political wrecking crew in action and gridlock in Congress even over minor reforms that became less probable.

For all practical purposes two party system actually works like one-party system: democrats were also captured by FIRE industries to the extent that they should not be considered an independent party, but as a slightly more moderate wing of the Republican Party. Similarly by all accounts Obama is a moderate Republican with the policies to the right of such Republican Presidents as Dwight Eisenhower and Theodore Roosevelt. In a way, Democratic Party perform the role of spoiler: it exists for the sole purpose of attracting disgruntled left-wing electorate away from more radical parties. Republicans play symmetrical role for right wing crazies. None can or want to became the agent of change. In this sense Obama electoral slogan "change we can believe in" was a nasty, cruel joke of political insiders over political outsiders.  Note how unceremoniously Obama dumped labor after his reelection, while courting it during his reelection campaign.

As private sector is still downsizing, and government can't be the employer of last resort due to dominance of neoliberal ideology, the whole situation looks more and more like Japanese lost decade. The only area where government can expand workforce are defense contractors (military keysianism):

Minsky, however, argued for a “bubble-up” approach, sending money to the poor and unskilled first. The government - or what he liked to call “Big Government” - should become the “employer of last resort,” he said, offering a job to anyone who wanted one at a set minimum wage. It would be paid to workers who would supply child care, clean streets, and provide services that would give taxpayers a visible return on their dollars. In being available to everyone, it would be even more ambitious than the New Deal, sharply reducing the welfare rolls by guaranteeing a job for anyone who was able to work. Such a program would not only help the poor and unskilled, he believed, but would put a floor beneath everyone else’s wages too, preventing salaries of more skilled workers from falling too precipitously, and sending benefits up the socioeconomic ladder.

It is important to understand that the USA is not just coping with the largest financial crisis in history, the USA is also going through a major restructuring of the American economy as well as the world economy due to plato in oil extraction. This transformation, which was postponed by two decades due the collapse of the USSR (which gave the USA companies half billion of new consumers and huge area to dollarize and buy assets for pennies on a dollar), will be very long, very painful and very slow. One additional factor that complicates the picture of "peak oil", is that it is  more properly can be called "end of cheap oil", as at higher prices more oil became economically available. So this is  not a peak but long plato.

As GDP is highly correlated with the energy consumption, the side effect of peak oil will probably be stagnant (close to zero after inflation) growth and with it speed up in permanent decline of the standard of living for middle class 

Also complicating the situation is the status of baby boomers which lost significant part of their savings during last two bubble bursts and now need to retire or will be pushed out of workforce. Pensions are already cuts either directly or indirectly (via inflation). For example, defined benefit pensions almost disappeared outside of government job force. After housing crash middle class no longer has a realistic prospect to fund their retirement and need to work longer: that increases competition for jobs. For middle aged professionals who are unemployed now the odds of finding reasonably paid work are low and they create additional competition for young people entering work force from universities. People over 50 now face especially poor job prospects.

At the same time corporate executives became corporate aristocracy (with differences in pay raising from 10-20 to 100-200 more of average corporate salary; this is the differences close to what used to exist in feudal societies). Most corporations are taking a lazy way out of the crisis with relentless cost-cutting.  This is a self-defeating strategy as cost cuttings eventually returns back via supply chain and bite the corporation which performs it. But so far this did not happened.

In addition productive sectors of economy are now under pressure of rampant financial speculation which serves as a huge tax on productive sectors of economy. Financial system is controlled by small number of large firms that permanently shifted their main activity into gambling and hacking of the financial system. There is some justice that computers which fueled all this crazy gambling on the strength of global reserve currency led to outsourcing of IT professionals to the extent that this part of US economy was destroyed and became a shadow of its former self in just ten years (2000-2010).

Another important sign of stagnation is that new college graduates face extremely bad job market which squeezes out anybody without substantial experience so for them it's Catch 22. Only graduates form Ivy League colleges has real prospect to get a job after graduation. Plus those with good family connections. In a way education is no longer a guarantee for better paying job, the same situation what was typical for the USSR and other countries of Eastern block during Brezhnev's stagnation.

There is also an interesting transformation of the quality of the education that also parallel transformation  experienced by the USSR in post-war period, but in especially acute form, three decades before the collapse. Private education became more like subprime lending.  It's quality became fake, as the term "diploma mills" suggests.  This rat rate to the lowest possible quality (quality instead of quality) was the central tendency in Brezhnev's USSR. 

In the USA in addition to devaluation of education caused by low quality "everything passes, everybody graduates, just pay" modus operandi of diploma mills, graduates from lower middle class families are now overloaded with debt, which creates for them really difficult situation and push many of them into low level service jobs like waiting. In other words excessive debt after college make getting into workforce using acquired specialty even more difficult as there is no space for long job search, relocation is more difficult and so on and so forth. 

There is also huge criminal industry that flourished around people desperate attempts to find well paying jobs. Many educational scams like "we will make you an ultrasound technician in six month; 90% of our graduates found jobs that pay over $60K in the first month after graduation"  or " software tester in four month; 100% of our graduates find jobs" are trying to capitalize of people desperate to find job, any job and getting into crushing debt trying to improve their chances in job market. Those criminals are not prosecuted.  For more information see:

The main source on new jobs is service sector and the lion share of new positions are McJobs

The employment growth comes mainly from the service sector which feeds off of consumer spending. It was hit by outsourcing especially in such areas as IT. Manufacturing no longer create jobs – outsourcing and computers eat them and you no longer need more people to make more stuff. 

Peter Dornan at EconoSpeak has the following comment which perhaps looks deeper at why the elite is so indifferent to mass unemployment and growing poverty in the U.S.

“…The process is more complicated: where one sits in society and the kinds of problems one typically has to solve leads to a way of thinking, and this manner of thinking then informs politics.

For centuries, the finance perspective has played a central role in economic theorizing, and there is ordinarily a body of research to support it. What I am proposing is this: economic orthodoxy is regaining control over policy because it reflects the outlook of those who occupy the upper reaches of government and business….”

http://economistsview.typepad.com/economistsview/2010/05/a-political-economy-moment.html

IMHO to get the economy out of this mess, government should concentrate on direct job creation (like was the case with Roosevelt administration), not on propping zombie banks hoping that they will generate credit necessary for creation o new jobs. Growth of credit will not happen and if it will happen it will not generate new jobs: most of it  is pushed into speculation.  Spectacular rise of S&P500 in first half of 2013 is a pretty good illustration of the process.

Long term high unemployment is a disaster for the country and disaster for the people, despite the fact that it is irrelevant for banksters, too busy playing in the huge casino they created. Failure to address this problem directly by Obama administration (which in economic terms is the second Summers-Bush administration making a joke in the slogan "change we can believe in") make Obama a real serial betrayer of people who elected him, the role he seems enjoy playing. 

Additional factors the complicates the picture

There are several additional factors that makes addressing the problem of chronic, structural unemployment even more difficult:

  1. The economic crisis coincides with deep ideological and political crisis.

    One can't solve the current problems the US are facing without the reform of the political system and institutions. Power of lobbyists need to be curtailed. Senate needs to be reformed.  Republican Party probably should be dissolved or temporary prohibited like Communists after the dissolution of the USSR as it is unable to reform. As there is no political will for political changes the crisis is structural and little people have to suffer.
     

  2. Real economy was damaged by excessive growth of  FIRE sector and associated "fictional" economy.  Real economy can't support the current size of FIRE sector and it needs now to downsized. There is no smooth, painless route back to the easy-money based false prosperity of Reagan-Clinton-Bush era (age of leveraging). A new economy needs to be created for sustainable recovery because the old, FIRE-based was unsustainable. In 2010 housing probably will decline further. Both commercial and residential construction continues to decline. States continue to cut back budgets creating negative feedback loop. Personal bankruptcies are up, more defaults are on the horizon. The U.S. economy needs to be re-structured, both on the "technical" and inter-sectoral level. That amounts to a collective, system-wide Chapter 11 re-organization. Obama administration has totally failed to sell the public on the validity of "stimulus", however named. Suspicion that this administration is a puppet of big banks had grown sharply. Trying to kick the can down the road will yield Republican Congressional majorities in both houses.
  3. The USA is experiencing the process of separation of workforce into two-tiers, with an elite class of highly paid employees at top companies and a subclass of minimal wage and part time laborers who work for less pay, have less job security and receive fewer benefits.
  4. Foreign wars have substantial financial costs and are an important drag on the USA economy. In the book True Cost of the Iraq Conflict, Joseph Stiglitz was estimated he cost at three trillion dollars of which probably only one trillion was offset by looting of Iraq resources. Afghanistan is about  $2 billion a week, and unless all heroin trade is controlled by CIA there is little that can offset those costs. This is the longest ongoing conflict in U.S. history.  And since Joseph Stiglitz book was written things became worse.

    The disability rates are higher. The cost of caring for the disabled are higher. Almost one out of two people coming back from Iraq and Afghanistan are disabled. This is an unfunded liability of—we calculate now to be almost a trillion dollars, over $900 billion. So, one of the big ways of reducing our deficit is a—is cut back some expenditures....

    With Libya and Syria added to the list, the hidden costs of foreign wars will weight on weakened economics more heavily. Annual cost per soldier oversees is approximately $1 Million per year.
  5. Rent that hypertrophied financial sector  extracts from the rest of the society continues to be a serious drag on the economy. This drag adds to substantial drag caused by foreign wars and military bases as well as huge military industrial complex. While parasites are omnipresent in nature, two large parasites instead of one might spells trouble for the host. Moreover the ascendancy of the financial sector and the decline of manufacturing in the U.S. ("Casino Capitalism" ) has implications similar to consequences of an organized crime running the country.  The creation of tangible products whose utility/quality can be more or less objectively measured were phased out in favor of "financial products," whose utility/quality is much easier to conceal behind legal/technical jargon and junk economics. That created a huge new class of white collar criminals. While Blankfein is out claiming that GS is doing God’s work, the reality is quite different: it became a training ground for new type of ruthless criminals, much more dangerous then bank robbers. Killing of Glass-Steagall by Clinton and leverage obtained by financial sector operating without regulatory limit created prerequisites to the financial panic of 2008. Glass-Steagall enshrined two principles that were abandoned:

    The violation of the second principle directly leads to a regulatory capture in which anything goes and a corresponding observed "need" to accommodate indiscretions, as with the Greenspan/Bernanke put. It perhaps should be identified as THE primary cause, since it left Wall Street with the well-founded (LTCM, Latin America debt crisis, etc. ) and since-proved belief that prudence and capital were quite unnecessary, and that reckless, sociopathic deal making is profitable. Four examples :

  6. Capture of the government and the media by financial sector makes the necessary reforms unlikely. “Failed Regulatory Oversight” is a politically correct term for corruption. The latter was probably the second reason of the current high unemployment . See Toxic Sludge is Good For You: Lies, Damn Lies and the Public Relations Industry by John C. Stauber
  7. Effects of coming CRE crash on unemployment and economy in general might be underestimated of official forecasts.  The occupancy rate is the malls and commercial buildings is still declining. Many strip malls in the country are still are empty. Nice office buildings with signs "for rent" are feature of landscape in 2013. Many buildings, even large well designed buildings with datacenter infrastructure are vacant for years and eventually are demolished.  A full scale commercial real-estate crash can also hurt the economy in a way similar to residential home estate crash. Loans that were made in 2005-2007 were refinanced for three years in 2009-2011. And again in 2012-2013. But eventually they will be coming home to roost.  This also affects the construction  sector.  Only $400 billion of loans came due by the end of 2009, but nearly $2 trillion was refinanced by 2012.  

    The collapse in the U.S. commercial real estate market is fought by the government will maximum force but government resources to fight the crisis are diminishing too. in 2011 state financial crises led to cuts in state budget. In addition, in June 2013 municipal bonds came under fire, making financing more costly.  Commercial debt is approximately one third of the size of the total residential debt and it is concentrated in the same places creating double whammy. In Florida commercial loans, broadly defined, are bigger then residential. Unlike residential real estate, problem with commercial real estate are not solved by growth of population and creation of new families.

    Retail and white-collar positions will be directly impacted by CRE crash. As stores and offices close, mall and office building owners suffer from cuts in cash flow and severely limited prospects for new tenants. Insurance companies, hedge funds and regional banks are heavily invested in CRE and are next in line so some financial jobs will be lost too. Extend and pretend might work but the question is if there is enough liquidity to stretch loans.
     

  8. Computers eat people jobs. Automation and the recent advances in robotic and computers make more and more workers redundant.  The latest victims are cashiers in supermarkets. Manufacturing jobs continue to disappear not only due to outsourcing, but also due to new computerized technologies. The reality is that manufacturing employs a mere 11.5 million workers in the U.S.A., or 9% of the workforce and this percentage will never increase substantially.

    My feeling is that even in corporate IT after drastic cuts that were the standard game for large corporations in 2008-2009, additional cuts are possible. But the situation on the ground is somewhat paradoxical as real cuts runs deeper that you would assume from headcount: a lot of current IT personnel belongs to "untouchable" caste -- wives of somebody higher up in this or linked by the supply chain company, sons of somebody important and so on. I can't give you percentage, but probably 10%-20% of "untouchables" would be an educated guess. So removing of at least 10% of the current IT workforce means removal of 12% or more those who do actual work. 

    Another factor is that cuts in IT are one way street as they stimulate replacing of people with technology and there are still tremendous potential for computerization of many areas including first of all IT itself.

    For example all this cloud initiatives are in disguise politically correct way to move things in the direction of higher automation and outsourcing because under the surface there is not much innovation in those "new" technologies.
     

  9. Oil prices despite coming down in September 2011 are back to $85-$90 level.  That level is putting additional stress on manufacturing, transportation and agriculture. Solid US growth of the past decade and earlier was dependent on two factors:

    With the rising oil all bets for re-inflating the economy (aka kicking the can down the road) are off.
     

  10. Indirect job creation strategies via stimulus to businesses seized to produce meaningful job generation. Reaganomics has put the U.S. economy into a high-unemployment equilibrium when the high-rate of labor unemployment is reinforced by the shortage (or absence) of idle, but useful capital stock due to offshoring and  outsourcing as well as chronically low consumer demand due to high level of debt. Only service sector and financial jobs can be generated with minimum capital infrastructure (for financial jobs internet connection and computer are almost all that needed). Automation of production lead to less and less workers.
     
  11. Confidence is really low.  Businesses have no confidence that customers ever return, therefore are not hiring much and scaling down the production. This chicken-egg-chicken-egg cycle has to be broken, but I am really puzzled how that is going to happen without large government role in the economy, which is big no-no for ideological consideration (the USA preaches neoliberalism as a "civil religion" similarly like USSR and other "communist" countries preached Marxism). Without large government projects employees have no confidence in their jobs, therefore are not consuming much.
     
  12. In the face of growing unemployment the current administration proved to be as incompetent as Bush administration in case of Hurricane Katrina. And that means totally incompetent.

Effects on population

Unemployment is a very harsh condition, that traumatize the workers greatly (Sliding into the Great Depression)

At first the unemployed searched eagerly and diligently for alternative sources of work. But if four months or so passed without successful reemployment, the unemployed tended to become discouraged and distraught.

After eight months of continuous unemployment, the typical unemployed worker still searches for a job, but in a desultory fashion and without much hope.

And within a year of becoming unemployed the worker is out of the labor market for all practical purposes: a job must arrive at his or her door, grab him or her by the scruff of the neck, and through him or her back into the nine-to-five routine if he or she is to be employed again.

The USA as a whole is facing the worst labor market prospects since 1929. In terms of duration of elevated unemployment we already rival the early 80s. But in no way we can expect a steep decline in the rate of unemployment in the way that happened in 1983 when unemployment declined at a brisk 2%. And permanent high unemployment creates economic conditions that feel like the USA brought back slavery. The new reserve army of the unemployed drives wages down, while average productivity continues to rise, as a way to generate surpluses to be channeled into executive bonuses. The whole sectors like IT were decimated by outsourcing. Unfortunately given the current overcapacity and ample supply of qualified job seekers in many occupations, I certainly don't expect labor arrangements and employment conditions to become more favorable.

Looks like 7% unemployment is going to become the "new normal". In any case government statistics is very suspect (see Fake Employment Statistics) and actually unemployment is higher. For example, the declining participation in work force means that actual unemployment rate is higher then reported.

Obama-Bush administration saved banks waiting most of taxpayers money and piling up debt in hopes that they restore credit flow in the economy. But this was a fallacy: banks aren’t lending to prospective home buyers, small businesses and real estate developers because bankers recognize the obvious — many of those loans won’t get repaid. Of course, as bankers refuse to lend, the stagnation becomes a self-fulfilling prophecy. But since society is burdened with too much debt, piling on more debt would not be the solution in any case.

There is no smooth, painless route back to the easy-money based false prosperity of Reagan-Clinton-Bush era (age of leveraging). We entered the age of deleveraging. Obama’s “you owe us” message to the banks is the height of naïveté’ and tells us a lot about him. In 2013 our problems are worse than they were in 2007 before the crisis. Peak credit is as dangerous for the economy as peak oil...

Corruption of economic profession

The inability of the economics profession to forecast unemployment in the short, medium, or long run would be downright comical, if not for the human tragedy involved. While the Occam Razor approach suggests incompetence as a culprit, I think it's a manifestation of the corruption of the profession by financial interests (with some "don't rock the boat" variations).  First of all, economists much like elected officials and Wall Street executives have a vested interest in keeping the perception of a robust economy. The employment data announced each month are critical to this perception. That's why government "prints up jobs out of thin air" the same way the Federal Reserve prints money. This is economic propaganda and as such it is not that much different from the over-stated earnings practiced by companies of all striped and colors.

The second problem is that fiscal policy cannot solve the problem of job creation in all circumstances, especially in deleveraging environment. Position of people like The Fed Can Help, But Fiscal Policy Is The Key To Job Creation ) is a step in right direction. But without something like Jobs Corps to get out of the current situation is very difficult. In 1982 SETH S. KING wrote in NYT (PROPOSAL FOR JOB CORPS RECALLS ROOSEVELT PLAN):

Few of this city's recent celebrations of Franklin Delano Roosevelt's 100th birthday have passed without nostalgic references to the Civilian Conservation Corps, that President's cherished vehicle for getting thousands of jobless, hungry youths off the streets and putting them to work refurbishing the nation's parks and forests.

With today's unemployment rate nearing a postwar high and new thousands of young people again unable to find work, Congress is preparing to wrestle with the Reagan Administration for money to start a new youth job training program and reconstitute the Job Corps, the pale copy of the old C.C.C. that emerged in the Carter days.

But there is little in these plans that is likely to reproduce those Depression era pictures of sturdy, bare-chested young men planting trees, building bridges and saving the nation's battered farmlands.

Nor is today's procedure-encumbered Washington, where a year usually elapses between idea and action, likely to duplicate the astonishing start on the C.C.C., which four months after being conceived had been approved by Congress and had more than 300,000 young men being clothed, housed, fed and paid $30 a month while they breathed all that fresh air.

In this crisis the main lesson was that theologically captured by free market fundamentalism government can destroy economy at a really staggering rate. This is "Back in the USSR" situation. Eight years of Clinton and eight years of Bush administration (see The Economic Consequences of Mr. Bush, by Joseph E. Stiglitz) are as good proof of this as one can ever get. Clinton and Bush regimes (especially Rubin-Greenspan alliance and "vice president from an undisclosed location" activities)  proved to be a real wrecking crew. But that does not mean that government cannot put it weight on easing the unemployment burden. Incentives such a investment tax credit matters. Not tax cuts for the rich, but direct investment credit. direct job creation which is anathema to market fundamentalism would be even better and less costly. Roosevelt administration did it, so why not capitalize on positive experience and develop it further ?

In this crisis the main lesson was that theologically captured by free market fundamentalism government can destroy economy at a really staggering rate.

In any case socializing losses and privatizing gain (crony capitalism) should be downsized. Insurance for gambling by big banks should be cut.

As long as economists believe their report card is the rise in GDP (GDP Mania), we will remain in a failure mode. A country is not defined by GDP but by the quality of life of its citizens. And quality of life cannot be assessed by a simplistic, one-dimensional metric such as GDP. The key dimensions for well-being are: employment, earnings, wealth, health, infrastructure, and living conditions. In that particular order. With employment as the critical factor: the USA looks like an underdeveloped banana republic by the current measure of unemployment and in many respect has became such.

It looks like high persistent unemployment became the defining feature of this recession. Jobs creation prospect in 2014 look pretty grim -- there is no sector other then government that can absorb redundant workforce and automation in manufacturing makes sure that those who are unemployed right now will stay unemployed in the foreseeable future. Most jobs cut are permanent, not temporary, especially in such sectors as IT (structural shift). As Robert Reich noted:

...The basic assumption that jobs will eventually return when the economy recovers is probably wrong. Some jobs will come back, of course. But the reality that no one wants to talk about is a structural change in the economy that's been going on for years but which the Great Recession has dramatically accelerated.

Under the pressure of this awful recession, many companies have found ways to cut their payrolls for good. They’ve discovered that new software and computer technologies have made workers in Asia and Latin America just about as productive as Americans, and that the Internet allows far more work to be efficiently outsourced abroad.

This means many Americans won’t be rehired unless they’re willing to settle for much lower wages and benefits. Today's official unemployment numbers hide the extent to which Americans are already on this path. Among those with jobs, a large and growing number have had to accept lower pay... Or they've lost higher-paying jobs and are now in a new ones that pays less.

The current crisis also means that financial services and real estate (FIRE) economy, this gigantic casino that the US government was trying to build for the last 25 years is now in trouble and shed workers in vast numbers (although working condition in financial industry are still good or very good depending on your position in the food chain). But the profitability of large banks and can achieved only by oversees expansion and derivatives games with foreign assets. The most profitable essentially converted themselves into hedge funds, getting most profits from trading operations, not from the traditional banking activities.

The simplest and the most obvious solution in the current situation is to cut work week and hours of work (4 days six hours a day). That will put enough people to work to make unemployment bearable and it might slightly help entertainment and hospitality industries which now is suffering more that others. From the other point of view if lower standard of living is inescapable, why not to make the transition smoother and more fun by cutting work hours.

Military Keynesianism no longer works

But that's not enough. The USA needs drastically cut military budget. Military Keynesianism no longer works as expected.  As John Maudin in his e-letter proposed (see Thoughts on the Economy- Problems and Solutions):

Mauldin: Unemployment is likely to continue to rise and last longer than ever before. We have to take care of the basic needs of those who want work but can't find it. Unemployment insurance should be extended to those who are still looking for work past the time for benefits to expire, and some program of local volunteer service should be instituted as the price for getting continued benefits after the primary benefits time period runs out. Not only will this help the community, but it will get the person out into the world where he is more likely to meet someone who can give him a job. But the costs of this program should be revenue-neutral. Something else has to be cut.

Mish: Can we deal with 15 million volunteers? Somehow I doubt it.

Mauldin: We have to re-think our military costs (I can't believe I am writing this!). We now spend almost 50% of the world's total military budget. Maybe we need to understand that we can't fight two wars and support hundreds of bases around the world. If we kill the goose, our ability to fight even one medium-sized war will be diminished. The harsh reality is that everything has to be re-evaluated. As an example, do we really need to be in Korea? If so, why can't Korea pay for much of the cost? They are now a rich nation. There are budgetary fiscal limits to being the policeman for the world.

Mish: Bingo. We can easily slash our military budget by 70% and still be the most powerful nation in the world. Moreover, it is time to declare the war in Iraq and Afghanistan over, pack our bags and leave. Gradually, over the next 5-8 years we should bring home all our troops from literally every county they are stationed.

This chart shows the absurdity of our spending.

Chart courtesy of Global Issues - World Military Spending.

By the way that chart does not include the latest increase in the US military budget. Please consider US lawmakers pass 680-billion-dollar defense budget bill

The US House of Representatives passed a 680-billion-dollar defense authorization bill on Thursday that includes funds to train Afghan security forces and more mine-resistant troop carriers.

Lawmakers defied President Barack Obama's veto threat and approved 560 million dollars to continue work on an alternative engine for the F-35 fighter jet built by General Electric and British manufacturer Rolls-Royce.

The compromise legislation would also raise military pay by 3.4 percent -- half a percentage point higher than Pentagon recommendations -- and assign 6.7 billion dollars for mine-resistant armored vehicles known as MRAPs, which is 1.2 billion dollars more than the administration had proposed.

Nearly $700 billion dollars of "defense" spending. The amount needed for actual defense is 20% of that at most, and more likely 5%. Balancing the budget is easy if you start here.

Mauldin: Glass-Steagall, or some form of it, should be brought back. Banks, which are subject to taxpayer bailouts, should not be in the investment banking and derivatives-creating business. Derivatives, especially credit default swaps, should be on an exchange, and too big to fail must go. Banks have enough risk just making loans. Leverage should be dialed down, and hedge funds selling what amounts to naked call options in any form, derivative or otherwise, should be regulated.

Mish: What we need to do is get rid of the Fed, FDIC, and fractional reserve lending. Regulation has failed every step of the way. Regulation created Fannie Mae, Freddie Mac, and the Fed. Regulation by the SEC anointed Moodys, Fitch, and the S&P as debt rating companies. We do not need more regulation, we need less regulation, a sound currency, and no Fed. Regulation is clearly the problem, yet the cries for still more regulation come from nearly every corner save the Austrian economists.

Mauldin: Let me see, is there any group I have not offended yet? But something like I am suggesting is going to have to be done at some point. There is no way we can continue forever on the current path. At some point, we will hit the wall. The fight between the bug and the windshield always ends in favor of the windshield. The bond market is going to have to see a credible effort to get back to a reasonable deficit, or we risk a very difficult economic environment. The longer we wait, the worse it will be.

Mish: "Is there any group I have not offended yet?" Yes. You failed to offend those on public pension plans. Not to fear, I did that myself in Five Major Pension Problems - One Simple Solution.

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[Apr 19, 2017] Paul Krugman Gets Retail Wrong: They are Not Very Good Jobs

Apr 19, 2017 | economistsview.typepad.com
anne , April 17, 2017 at 05:55 AM
http://cepr.net/blogs/beat-the-press/paul-krugman-gets-retail-wrong-they-are-not-very-good-jobs

April 17, 2017

Paul Krugman Gets Retail Wrong: They are Not Very Good Jobs

Paul Krugman used his column * this morning to ask why we don't pay as much attention to the loss of jobs in retail as we do to jobs lost in mining and manufacturing. His answer is that in large part the former jobs tend to be more white and male than the latter. While this is true, although African Americans have historically been over-represented in manufacturing, there is another simpler explanation: retail jobs tend to not be very good jobs.

The basic story is that jobs in mining and manufacturing tend to offer higher pay and are far more likely to come with health care and pension benefits than retail jobs. A worker who loses a job in these sectors is unlikely to find a comparable job elsewhere. In retail, the odds are that a person who loses a job will be able to find one with similar pay and benefits.

A quick look at average weekly wages ** can make this point. In mining the average weekly wage is $1,450, in manufacturing it is $1,070, by comparison in retail it is just $555. It is worth mentioning that much of this difference is in hours worked, not the hourly pay. There is nothing wrong with working shorter workweeks (in fact, I think it is a very good idea), but for those who need a 40 hour plus workweek to make ends meet, a 30-hour a week job will not fit the bill.

This difference in job quality is apparent in the difference in separation rates by industry. (This is the percentage of workers who lose or leave their job every month.) It was 2.4 percent for the most recent month in manufacturing. By comparison, it was 4.7 percent in retail, almost twice as high. (It was 5.2 percent in mining and logging. My guess is that this is driven by logging, but I will leave that one for folks who know the industry better.)

Anyhow, it shouldn't be a mystery that we tend to be more concerned about the loss of good jobs than the loss of jobs that are not very good. If we want to ask a deeper question, as to why retail jobs are not very good, then the demographics almost certainly play a big role.

Since only a small segment of the workforce is going to be employed in manufacturing regardless of what we do on trade (even the Baker dream policy will add at most 2 million jobs), we should be focused on making retail and other service sector jobs good jobs. The full agenda for making this transformation is a long one (higher minimum wages and unions would be a big part of the picture, along with universal health care insurance and a national pension system), but there is one immediate item on the agenda.

All right minded people should be yelling about the Federal Reserve Board's interest rate hikes. The point of these hikes is to slow the economy and reduce the rate of job creation. The Fed's concern is that the labor market is getting too tight. In a tighter labor market workers, especially those at the bottom of the pecking order, are able to get larger wage increases. The Fed is ostensibly worried that this can lead to higher inflation, which can get us to a wage price spiral like we saw in the 70s.

As I and others have argued, *** there is little basis for thinking that we are anywhere close to a 1970s type inflation, with inflation consistently running below the Fed's 2.0 percent target, (which many of us think is too low anyhow). I'd love to see Krugman pushing the cause of full employment here. We should call out racism and sexism where we see it, but this is a case where there is a concrete policy that can do something to address it. Come on Paul, we need your voice.

* https://www.nytimes.com/2017/04/17/opinion/why-dont-all-jobs-matter.html

** https://www.bls.gov/news.release/empsit.t19.htm

*** http://cepr.net/blogs/beat-the-press/overall-and-core-cpi-fall-in-march

-- Dean Baker

Fred C. Dobbs -> anne... , April 17, 2017 at 06:17 AM
PK: Consider what has happened to department stores. Even as Mr. Trump was boasting about saving a few hundred jobs in manufacturing here and there, Macy's announced plans to close 68 stores and lay off 10,000 workers. Sears, another iconic institution, has expressed "substantial doubt" about its ability to stay in business.

Overall, department stores employ a third fewer people now than they did in 2001. That's half a million traditional jobs gone - about eighteen times as many jobs as were lost in coal mining over the same period.

And retailing isn't the only service industry that has been hit hard by changing technology. Another prime example is newspaper publishing, where employment has declined by 270,000, almost two-thirds of the work force, since 2000. ...

(To those that had them, they were probably
pretty decent jobs, albeit much less 'gritty'
than mining or manufacturing.)

BenIsNotYoda -> anne... , April 17, 2017 at 06:42 AM
Dean is correct. Krugman just wants to play the racism card or tell people those who wish their communities were gutted that they are stupid.
JohnH -> BenIsNotYoda... , April 17, 2017 at 06:48 AM
Elite experts are totally flummoxed...how can they pontificate solutions when they are clueless?

Roger Cohen had a very long piece about France and it discontents in the Times Sunday Review yesterday. He could not make heads or tails of the problem. Not worth the read.
https://www.nytimes.com/2017/04/14/opinion/sunday/france-in-the-end-of-days.html?rref=collection%2Fcolumn%2Froger-cohen&action=click&contentCollection=opinion&region=stream&module=stream_unit&version=latest&contentPlacement=2&pgtype=collection&_r=0

And experts wonder why nobody listens to them any more? Priceless!!!

BenIsNotYoda -> JohnH... , April 17, 2017 at 07:34 AM
clueless experts/academics. well said.
paine -> anne... , April 17, 2017 at 08:27 AM
Exactly dean
Tom aka Rusty -> anne... , April 17, 2017 at 07:39 AM
Krugman is an arrogant elitist who thinks people who disagree with him tend to be ignorant yahoos.

Sort of a Larry Summers with a little better manners.

anne -> Tom aka Rusty... , April 17, 2017 at 08:18 AM
Krugman is an arrogant elitist who thinks people who disagree with him tend to be ignorant yahoos.

[ This is a harsh but fair criticism, and even the apology of Paul Krugman was conditional and showed no thought to the other workers insulted. ]

cm -> Tom aka Rusty... , April 17, 2017 at 08:11 AM
There is a lot of elitism to go around. People will be much more reluctant to express publicly the same as in private (or pseudonymously on the internet?). But looking down on other people and their work is pretty widespread (and in either case there is a lot of assumption about the nature of the work and the personal attributes of the people doing it - usually of a derogatory type in both cases).

I find it plausible that Krugman was referring those widespread stereotypes about job categories that (traditionally?) have not required a college degree, or have been relatively at the low end of the esteem scale in a given industry (e.g. in "tech" and manufacturing, QA/testing related work).

It must be possible to comment on such stereotypes, but there is of course always the risk of being thought to hold them oneself, or indeed being complicit in perpetuating them.

As a thought experiment, I suggest reviewing what you yourself think about occupations not held by yourself, good friends, and family members and acquaintainces you like/respect (these qualifications are deliberate). For example, you seem to think not very highly of maids.

Of course, being an RN requires significantly more training than being a maid, and not just once when you start in your career. But at some level of abstraction, anybody who does work where their autonomy is quite limited (i.e. they are not setting objectives at any level of the organization) is "just a worker". That's the very stereotype we are discussing, isn't it?

anne -> cm... , April 17, 2017 at 08:26 AM
Nicely explained.
paine -> anne... , April 17, 2017 at 08:40 AM
Yes
anne -> Tom aka Rusty... , April 17, 2017 at 08:24 AM
Krugman thinks nurses are the equivalent of maids...

[ The problem is that Paul Krugman dismissed the work of nurses and maids and gardeners as "menial." I find no evidence that Krugman understands that even after conditionally apologizing to nurses. ]

paine -> anne... , April 17, 2017 at 08:42 AM
Even if there are millions of mcjobs
out there
none are filled by mcpeople

[Apr 17, 2017] If you put the two trends together-increased individual income inequality and increased corporate savings-what were witnessing then is increasing private control over the social surplus

Notable quotes:
"... Wealthy individuals and large corporations are able to capture and decide on their own what to do with the surplus, with all the social ramifications associated with their decisions to invest where and when they want-or not to invest, and thus to accumulate cash, repay debt, and repurchase their own equity shares. ..."
"... Any proposals to decrease tax rates for wealthy individuals and corporations will only increase that private control. ..."
Apr 17, 2017 | economistsview.typepad.com
RGC , April 16, 2017 at 07:23 AM
Why is it anyone would want to save such an economic system?

April 11, 2017

from David Ruccio

"If you put the two trends together-increased individual income inequality and increased corporate savings -- what we're witnessing then is increasing private control over the social surplus.

Wealthy individuals and large corporations are able to capture and decide on their own what to do with the surplus, with all the social ramifications associated with their decisions to invest where and when they want-or not to invest, and thus to accumulate cash, repay debt, and repurchase their own equity shares.

Any proposals to decrease tax rates for wealthy individuals and corporations will only increase that private control.

Why is it anyone would want to save such an economic system?"

https://rwer.wordpress.com/2017/04/11/why-is-it-anyone-would-want-to-save-such-an-economic-system/#more-28993

[ Tie that to the private banking system ]

anne -> RGC... , April 16, 2017 at 07:40 AM
Possibly I do not understand the matter, but I can find no evidence that corporate "saving" as a share of GDP in the United States is increasing. Actually, the reverse.
RGC -> anne... , April 16, 2017 at 07:50 AM
http://voxeu.org/article/global-corporate-saving-glut
anne -> RGC... , April 16, 2017 at 08:00 AM
https://fred.stlouisfed.org/graph/?g=dnZ6

January 30, 2017

Net Corporate Saving * as a share of Gross Domestic Product, 1948-2016

* Undistributed profits

https://fred.stlouisfed.org/graph/?g=dnYR

January 30, 2017

Net Corporate Saving * as a share of Gross Domestic Product, 1980-2016

* Undistributed profits

anne -> anne... , April 16, 2017 at 06:12 PM
Again, I was and am right.

I can find no evidence that corporate "saving" as a share of GDP in the United States is increasing. Actually, the reverse:

https://fred.stlouisfed.org/graph/?g=dnZ6

anne -> RGC... , April 16, 2017 at 08:03 AM
http://voxeu.org/article/global-corporate-saving-glut

April 5, 2017

The global corporate saving glut: Long-term evidence

By Peter Chen, Loukas Karabarbounis, and Brent Neiman

Corporate saving has increased relative to GDP and corporate investment across the world over the past three decades, reflecting how the global decline in the labour has led to increased corporate profits. This column characterises these trends using national income accounts and firm-level data, and relates them to firm characteristics and the accumulation of financial assets. In response to declines in the components of the cost of capital, a model with capital market imperfections generates an increase in corporate saving similar to that found in the data.

[ I am grateful for the reference, but I had already read the paper carefully and found no reason to agree with the assertion that there is long term evidence of a corporate saving glut. ]

RGC -> anne... , April 16, 2017 at 02:55 PM

2.2 National Accounts Structure and Identities

National accounts data include sector accounts that divide the economy into the corporate sector, the government sector, and the household and non-profit sector.

For most economies, the corporate sector can be further disaggregated into financial and non-financial corporations and the household sector can be distinguished from the non-profit sector.

National accounts data also include industry accounts that divide activity according to the International Standard Industrial
Classification, Rev. 4 (SIC).

A set of accounting identities that hold in the aggregate as well as at the sector or industry
level serve as the backbone for the national accounts.

In these accounts, the value of final
production (i.e. production net of intermediate goods) is called gross value added (GVA). When
aggregated to the economy level, GVA equals GDP less net taxes on products. GVA is detailed
in the generation of income account and equals the sum of income paid to capital, labor, and
taxes:


GVA = Gross Operating Surplus (GOS) + Compensation to Labor
+ Net Taxes on Production.


GOS captures the income available to corporations and other producing entities after paying for labor services and after subtracting taxes (and adding subsidies) associated with production.


The distribution of income account splits GOS into gross saving, dividends, and other payments to capital such as taxes on profits, interest payments, reinvested foreign earnings, and other transfers:


GOS = Gross Saving (GS) + Net Dividends | {z } Accounting Profits
+ Taxes on Profits + Interest
− Reinvested Earnings on Foreign Direct Investment + Other Transfers.


Net dividends equal dividends paid less dividends received from subsidiaries or partially-owned entities. Other transfers include social contributions and rental payments on land.

In our analyses, we define (accounting) profits as the sum of gross saving and net dividends.


The capital account connects the flow of saving to the flow of investment as follows:

GS = Net Lending + Gross Fixed Capital Formation + Changes in Inventories + Changes in Other Non-Financial Produced Assets.

The net lending position is defined as the excess of gross saving over investment spending.

https://minneapolisfed.org/research/wp/wp736.pdf

RGC -> RGC... , April 16, 2017 at 03:22 PM
GOS = Gross Saving (GS) + Net Dividends + Taxes on Profits + Interest − Reinvested Earnings on Foreign Direct Investment + Other Transfers.
reason -> RGC... , April 16, 2017 at 07:51 AM
"Wealthy individuals and large corporations are able to capture and decide on their own what to do with the surplus, with all the social ramifications associated with their decisions to invest where and when they want-or not to invest, and thus to accumulate cash, repay debt, and repurchase their own equity shares."

Or in the case of say Bill Gates in deciding which causes get assistance and which not rather than people voting on it (not that I think Bill Gates is necessarily doing harm - but why should he get to decide?).

RC AKA Darryl, Ron -> reason... , April 16, 2017 at 09:33 AM
$democracy
RGC -> reason... , April 16, 2017 at 03:25 PM
Right. And private banks get to do it routinely.

[Apr 16, 2017] The most common characteristic of people running their own business was that theyd been fired twice

Notable quotes:
"... things might have worked out with better luck on timing), you need your head examined to start a small business ..."
"... If you can tolerate the BS, it is vastly better to be on a payroll. 90% of all new businesses fail and running one is no picnic. ..."
"... And new business formation has dived in the US, due mainly IMHO to less than robust demand in many sectors of the economy. ..."
"... You're so right. It used to be that there were set asides for small businesses but nowadays Federal and State Governments are only interested in contracts with large businesses. The SBA classification for small business is based on NAICS code (used to be SIC code) is usually $1-2 million or up to 500 employees. I wonder how they can be small businesses! ..."
"... To survive, small businesses need to sell their goods/services to large businesses. Most of the decision makers who purchase these items are unreachable or already have their favorites. Unless your small business has invented a better mousetrap you're SOL! ..."
Apr 16, 2017 | www.nakedcapitalism.com
Yves Smith, April 16, 2017 at 5:00 pm

As someone who has started three businesses, two of them successful (I went to Australia right before the Gulf War started, which led to new business in Sydney coming to a complete halt for six months; things might have worked out with better luck on timing), you need your head examined to start a small business. The most common characteristic of people running their own business was that they'd been fired twice.

If you can tolerate the BS, it is vastly better to be on a payroll. 90% of all new businesses fail and running one is no picnic.

And new business formation has dived in the US, due mainly IMHO to less than robust demand in many sectors of the economy.

steelhead , April 16, 2017 at 5:41 pm

Unless your family fully bankrolls you until BK kicks in (snark). I would have loved to write as a career. Unfortunately, at the time, promises that had been made were broken and I had to go to work for a F500 just to survive right after my undergraduate degree was completed. Fate and Karma.

oh , April 16, 2017 at 5:56 pm

You're so right. It used to be that there were set asides for small businesses but nowadays Federal and State Governments are only interested in contracts with large businesses. The SBA classification for small business is based on NAICS code (used to be SIC code) is usually $1-2 million or up to 500 employees. I wonder how they can be small businesses!

To survive, small businesses need to sell their goods/services to large businesses. Most of the decision makers who purchase these items are unreachable or already have their favorites. Unless your small business has invented a better mousetrap you're SOL!

[Apr 12, 2017] The Despair of Learning That Experience No Longer Matters

Apr 12, 2017 | economistsview.typepad.com
RGC , April 12, 2017 at 06:41 AM
The Despair of Learning That Experience No Longer Matters

By Benjamin Wallace-Wells April 10, 2017

.....................

The arguments about Case and Deaton's work have been an echo of the one that consumed so much of the primary campaign, and then the general election, and which is still unresolved: whether the fury of Donald Trump's supporters came from cultural and racial grievance or from economic plight. Case and Deaton's scholarship does not settle the question. As they write, more than once, "more work is needed."

But part of what Case and Deaton offer in their new paper is an emotional logic to an economic argument. If returns to experience are in decline, if wisdom no longer pays off, then that might help suggest why a group of mostly older people who are not, as a group, disadvantaged might become convinced that the country has taken a turn for the worse. It suggests why their grievances should so idealize the past, and why all the talk about coal miners and factories, jobs in which unions have codified returns to experience into the salary structure, might become such a fixation. Whatever comes from the deliberations over Case and Deaton's statistics, there is within their numbers an especially interesting story.

http://www.newyorker.com/news/benjamin-wallace-wells/the-despair-of-learning-that-experience-no-longer-matters

[Apr 12, 2017] Why losing your job leads to a very long-lasting decline in your lifetime wages

Apr 12, 2017 | lse.ac.uk
Gregor Jarosch (2015, Chicago, Stanford): Jarosch writes a model to explain why losing your job leads to a very long-lasting decline in your lifetime wages. His hypothesis is that this is due to people climbing a ladder of jobs that are increasingly secure, so that when one has the misfortune of losing a job, this leads to a fall down the ladder and a higher likelihood of having further spells of unemployment in the future. He uses administrative social security data to find some evidence for this hypothesis.

[Apr 11, 2017] Legacy systems written in COBOL that depends on a shrinking pool of aging programmers to baby

Notable quotes:
"... Of course after legacy systems [people] were retrenched or shown the door in making government more efficient MBA style, some did hit the jack pot as consultants and made more that on the public dime . but the Gov balance sheet got a nice one time blip. ..."
"... In the government, projects "helped" by Siemens, especially at the Home and Passport Offices, cost billions and were abandoned. At my former employer, an eagle's nest, it was Deloittes. At my current employer, which has lost its passion to perform, it's KPMG and EY helping. ..."
"... My personal favourite is Accenture / British Gas . But then you've also got the masterclass in cockups Raytheon / U.K. Border Agency . Or for sheer breadth of failure, there's the IT Programme That Helped Kill a Whole Bank Stone Dead ( Infosys / Co-op ). ..."
"... I am an assembler expert. I have never seen a job advertised, but a I did not look very hard. Send me your work!!! IBM mainframe assembler ..."
"... What about Computer Associates? For quite a while they proudly maintained the worst reputation amongst all of those consultancy/outsourcing firms. ..."
"... My old boss used to say – a good programmer can learn a new language and be productive in it in in space of weeks (and this was at the time when Object Oriented was the new huge paradigm change). A bad programmer will write bad code in any language. ..."
"... The huge shortcoming of COBOL is that there are no equivalent of editing programs. ..."
"... Original programmers rarely wrote handbooks ..."
"... That is not to say that it is impossible to move off legacy platforms ..."
"... Wherefore are ye startup godz ..."
Apr 11, 2017 | www.nakedcapitalism.com
After we've been writing about the problem of the ticking time bomb of bank legacy systems written in COBOL that depends on a shrinking pool of aging programmers to baby them for now nearly two years, Reuters reports on the issue. Chuck L flagged a Reuters story, Banks scramble to fix old systems as IT 'cowboys' ride into sunset, which made some of the points we've been making but frustratingly missed other key elements.

Here's what Reuters confirmed:

Banks and the Federal government are running mission-critical core systems on COBOL, and only a small number of older software engineers have the expertise to keep the systems running . From the article:

In the United States, the financial sector, major corporations and parts of the federal government still largely rely on it because it underpins powerful systems that were built in the 70s or 80s and never fully replaced

Experienced COBOL programmers can earn more than $100 an hour when they get called in to patch up glitches, rewrite coding manuals or make new systems work with old.

For their customers such expenses pale in comparison with what it would cost to replace the old systems altogether, not to mention the risks involved.

Here's what Reuters missed:

Why young coders are not learning COBOL . Why, in an era when IT grads find it hard to get entry-level jobs in the US, are young programmers not learning COBOL as a guaranteed meal ticket? Basically, it's completely uncool and extremely tedious to work with by modern standards. Given how narrowminded employers are, if you get good at COBOL, I woudl bet it's assumed you are only capable of doing grunt coding and would never get into the circles to work on the fantasy of getting rich by developing a hip app.

I'm sure expert readers will flag other issues, but the huge shortcoming of COBOL is that there are no equivalent of editing programs. Every line of code in a routine must be inspected and changed line by line.

How banks got in this mess in the first place. The original sin of software development is failure to document the code. In fairness, the Reuters story does allude to the issue:

But COBOL veterans say it takes more than just knowing the language itself. COBOL-based systems vary widely and original programmers rarely wrote handbooks, making trouble-shooting difficult for others.

What this does not make quite clear is that given the lack of documentation, it will always be cheaper and lower risk to have someone who is familiar with the code baby it, best of all the guy who originally wrote it. And that means any time you bring someone in, they are going to have to sort out not just the code that might be causing fits and starts, but the considerable interdependencies that have developed over time. As the article notes:

"It is immensely complex," said [former chief executive of Barclays PLC Anthony] Jenkins, who now heads startup 10x Future Technologies, which sells new IT infrastructure to banks. "Legacy systems from different generations are layered and often heavily intertwined."

I had the derivatives trading firm O'Connor & Associates as a client in the early 1990s. It was widely recognized as being one of the two best IT shops in all of Wall Street at the time. O'Connor was running the biggest private sector Unix network in the world back then. And IT was seen as critical to the firm's success; half of O'Connor's expenses went to it.

Even with it being a huge expense, and the my client, the CIO, repeatedly telling his partners that documenting the code would save 20% over the life of the software, his pleas fell on deaf ears. Even with the big commitment to building software, the trading desk heads felt it was already taking too long to get their apps into production. Speed of deployment was more important to them than cost or long-term considerations. 1 And if you saw this sort of behavior with a firm where software development was a huge expense for partners who were spending their own money, it's not hard to see how managers in a firm where the developers were much less important and management was fixated on short term earnings targets to blow off tradeoff like this entirely.

Picking up sales patter from vendors, Reuters is over-stating banks' ability to address this issue . Here is what Reuters would have you believe:

The industry appears to be reaching an inflection point, though. In the United States, banks are slowly shifting toward newer languages taking cue from overseas rivals who have already made the switch-over.

Commonwealth Bank of Australia, for instance, replaced its core banking platform in 2012 with the help of Accenture and software company SAP SE. The job ultimately took five years and cost more than 1 billion Australian dollars ($749.9 million).

Accenture is also working with software vendor Temenos Group AG to help Swedish bank Nordea make a similar transition by 2020. IBM is also setting itself up to profit from the changes, despite its defense of COBOL's relevance. It recently acquired EzSource, a company that helps programmers figure out how old COBOL programs work.

The conundrum is the more new routines banks pile on top of legacy systems, the more difficult a transition becomes. So delay only makes matters worse. Yet the incentives of everyone outside the IT areas is to hope they can ride it out and make the legacy system time bomb their successor's problem.

If you read carefully, Commonwealth is the only success story so far. And it's vastly less complex than that of many US players. First, it has roughly A$990 billion or $740 billion in assets now. While that makes it #46 in the world (and Nordea is of similar size at #44 as of June 30, 2016), JP Morgan and Bank of America are three times larger. Second, and perhaps more important, they are the product of more bank mergers. Commonwealth has acquired only four banks since the computer era. Third, many of the larger banks are major capital markets players, meaning their transaction volume relative to their asset base and product complexit is also vastly greater than for a Commonwealth. Finally, it is not impossible that as a government owned bank prior to 1990 that not being profit driven, Commonwealth's software jockeys might have documented some of the COBOL, making a transition less fraught.

Add to that that the Commonwealth project was clearly a "big IT project". Anything over $500 million comfortably falls into that category. The failure rate on big IT projects is over 50%; some experts estimate it at 80% (costly failures are disguised as well as possible; some big IT projects going off the rails are terminated early).

Mind you, that is not to say that it is impossible to move off legacy platforms. The issue is the time and cost (as well as risk). One reader, I believe Brooklyn Bridge, recounted a prototypical conversation with management in which it became clear that the cost of a migration would be three times a behemoth bank's total profit for three years. That immediately shut down the manager's interest.

Estimates like that don't factor in the high odds of overruns. And even if it is too high for some banks by a factor of five, that's still too big for most to stomach until they are forced to. So the question then becomes: can they whack off enough increments of the problem to make it digestible from a cost and risk perspective? But the flip side is that the easier parts to isolate and migrate are likely not to be the most urgent to address.

____
1 The CIO had been the head index trader and had also help build O'Connor's FX derivatives trading business, so he was well aware of the tradeoff between trading a new instrument sooner versus software life cycle costs. He was convinced his partners were being short-sighted even over the near term and had some analyses to bolster that view. So this was the not empire-building or special pleading. This was an effort at prudent management.

Clive , April 11, 2017 at 5:51 am

I got to the bit which said:

Accenture is also working with software vendor Temenos Group AG to help

and promptly splurted my coffee over my desk. "Help" is the last thing either of these two ne'redowells will be doing.

Apart from the problems ably explained in the above piece, I'm tempted to think industry PR and management gullibility to it are the two biggest risks.

Marina Bart , April 11, 2017 at 6:06 am

As someone who used to do PR for that industry (worked with Accenture, among others), I concur that those are real risks.

skippy , April 11, 2017 at 6:07 am

Heaps of IT upgrades have gone a bit wonky over here of late, Health care payroll, ATO, Centerlink, Census, all assisted by private software vendors and consultants – after – drum roll .. PR management did a "efficiency" drive [by].

Of course after legacy systems [people] were retrenched or shown the door in making government more efficient MBA style, some did hit the jack pot as consultants and made more that on the public dime . but the Gov balance sheet got a nice one time blip.

disheveled . nice self licking icecream cone thingy and its still all gov fault . two'fer

Colonel Smithers , April 11, 2017 at 7:40 am

Thank you, Skippy.

It's the same in the UK as Clive knows and can add.

In the government, projects "helped" by Siemens, especially at the Home and Passport Offices, cost billions and were abandoned. At my former employer, an eagle's nest, it was Deloittes. At my current employer, which has lost its passion to perform, it's KPMG and EY helping.

What I have read / heard is that the external consultants often cost more and will take longer to do the work than internal bidders. The banks and government(s) run an internal market and invite bids.

Clive , April 11, 2017 at 9:33 am

Oh, where to start!

My personal favourite is Accenture / British Gas . But then you've also got the masterclass in cockups Raytheon / U.K. Border Agency . Or for sheer breadth of failure, there's the IT Programme That Helped Kill a Whole Bank Stone Dead ( Infosys / Co-op ).

They keep writing books on how to avoid this sort of thing. Strangely enough, none of them ever tell CEOs or CIOs to pay people decent wages, not treat them like crap and to train up new recruits now and again. And also fail to highlight that though you might like to believe you can go into the streets in Mumbai, Manila or Shenzhen waving a dollar bill and have dozens of experienced, skilled and loyal developers run to you like a cat smelling catnip, that may only be your wishful thinking.

Just wait 'til we get started trying to implement Brexit

Raj , April 11, 2017 at 12:10 pm

Oh man, if you only had a look at the kind of graduates Infosys hires en masse and the state of graduate programmers coming out of universities here in India you'd be amazed how we still haven't had massive hacks. And now the government, so confident in the Indian IT industry's ability to make big IT systems is pushing for the universal ID system(aadhar) to be made mandatory for even booking flight tickets!

So would you recommend graduates do learn COBOL to get good jobs there in the USA?

Clive , April 11, 2017 at 12:22 pm

I'd pick something really obscure, like maybe MUMPS - yes, incredibly niche but that's the point, you can corner a market. You might not get oodles of work but what you do get you can charge the earth for. Getting real-world experience is tricky though.

Another alternative, a little more mainstream is assembler. But that is hideous. You deserve every penny if you can learn that and be productive in it.

visitor , April 11, 2017 at 1:36 pm

Is anybody still using Pick? Or RPG?

Regarding assembler: tricky, as the knowledge is tied to specific processors - and Intel, AMD and ARM keep churning new products.

Synoia , April 11, 2017 at 3:40 pm

I am an assembler expert. I have never seen a job advertised, but a I did not look very hard. Send me your work!!! IBM mainframe assembler

visitor , April 11, 2017 at 10:02 am

What about Computer Associates? For quite a while they proudly maintained the worst reputation amongst all of those consultancy/outsourcing firms.

How does Temenos compare with Oracle, anyway?

Clive , April 11, 2017 at 10:05 am

How does Temenos compare with Oracle, anyway?

Way worse. Yes, I didn't believe it was possible, either.

MoiAussie , April 11, 2017 at 6:13 am

For a bit more on why Cobol is hard to use see Why We Hate Cobol . To summarise, Cobol is barely removed from programming in assembler, i.e. at the lowest level of abstraction, with endless details needing to be taken care of. It dates pack to the punched card era.

It is particularly hard for IT grads who have learned to code in Java or C# or any modern language to come to grips with, due to the lack of features that are usually taken for granted. Those who try to are probably on their own due to a shortage of teachers/courses. It's a language that's best mastered on the job as a junior in a company that still uses it, so it's hard to get it on your CV before landing such a job.

There are potentially two types of career opportunities for those who invest the time to get up-to-speed on Cobol. The first is maintenance and minor extension of legacy Cobol applications. The second and potentially more lucrative one is developing an ability to understand exactly what a Cobol program does in order to craft a suitable replacement in a modern enterprise grade language.

MartyH , April 11, 2017 at 12:53 pm

Well, COBOL's shortcomings are part technical and part "religious". After almost fifty years in software, and with experience in many of the "modern enterprise grade languages", I would argue that the technical and business merits are poorly understood. There is an enormous pressure in the industry to be on the "latest and greatest" language/platform/framework, etc. And under such pressure to sell novelty, the strengths of older technologies are generally overlooked.

@Yves, I would be glad to share my viewpoint (biases, warts and all) at your convenience. I live nearby.

vlade , April 11, 2017 at 7:52 am

"It is particularly hard for IT grads who have learned to code in Java or C# or any modern language to come to grips with"

which tells you something about the quality of IT education these days, where "mastering" a language is more often more important than actually understanding what goes on and how.

My old boss used to say – a good programmer can learn a new language and be productive in it in in space of weeks (and this was at the time when Object Oriented was the new huge paradigm change). A bad programmer will write bad code in any language.

craazyboy , April 11, 2017 at 9:32 am

IMHO, your old boss is wrong about that. Precisely because OO languages are a huge paradigm change and require a programmer to nearly abandon everything he/she knows about programming. Then get his brain around OOP patterns when designing a complex system. Not so easy.

As proof, I put forth the 30% success rate for new large projects in the latter 90s done with OOP tech. Like they say, if it was easy, everyone would be doing it.

More generally, on the subject of Cobol vs Java or C++/C#, in the heyday of OOPs rollout in the early 90s, corporate IT spent record amounts on developing new systems. As news of the Y2K problem spread, they very badly wanted to replace old Cobol/mainframe legacy systems. As things went along, many of those plans got rolled back due to perceived problems with viability, cost and trained personnel.

Part of the reason was existing Cobol IT staff took a look at OOP, then at their huge pile of Cobol legacy code and their brains melted down. I was around lots of them and they had all the symptoms of Snow Crash. [Neil Stephenson] I hope they got better.

Marco , April 11, 2017 at 12:21 pm

It never occurred to me that the OOP-lite character of the newer "hipster" languages (Golang / Go or even plain old javascript) are a response to OOP run amok.

Arizona Slim , April 11, 2017 at 9:35 am

A close friend is a retired programmer. In her mind, knowing how to solve the problem comes​ first.

MartyH , April 11, 2017 at 12:54 pm

@Arizona_Slim: I agree with her. And COBOL lets you write business logic with a minimum of distractions.

Mel , April 11, 2017 at 11:36 am

In the university course I took, we were taught Algol-60. Then it turned out that the univ. had no budget for Algol compiles for us. So we wrote our programs in Algol-60 for 'publication' and grading, and rewrote them in FORTRAN IV to run in a cheap bulk FORTRAN execution system for results. Splendid way to push home Turing's point that all computing is the same. So when the job needed COBOL, "Sure, bring it on."

rfdawn , April 11, 2017 at 1:30 pm

My old boss used to say – a good programmer can learn a new language and be productive in it in in space of weeks (and this was at the time when Object Oriented was the new huge paradigm change). A bad programmer will write bad code in any language.

Yes. Learning a new programming language is fairly easy but understanding existing patchwork code can be very hard indeed. It just gets harder if you want to make reliable changes.

HR thinking, however, demands "credentials" and languages get chosen as such based on their simple labels. They are searchable on L**kedIn!

A related limitation is the corporate aversion to spending any time or money on employee learning of either language or code. There may not be anyone out there with all the skills needed but that will not stop managers from trying to hire them or, better still, just outsourcing the whole mess.

Either choice invites fraud.

reslez , April 11, 2017 at 2:02 pm

Your boss was correct in my opinion - but also atypical. Most firms look for multi-years of experience in a language. They'll toss your resume if you don't show you've used it extensively.

Even if a new coder spent the time to learn COBOL, if he wasn't using it on the job or in pretty significant projects he would not be considered. And there aren't exactly many open source projects out there written in COBOL to prove one's competence. The limiting factor is not whether you "know" COBOL, or whether you know how to learn it. The limiting factor is the actual knowledge of the system, how it was implemented, and all the little details that never get written down no matter how good your documentation. If your system is 30+ years old it has complexity hidden in every nook and cranny.

As for the language itself, COBOL is an ancient language from a much older paradigm than what students learn in school today. Most students skip right past C, they don't learn structural programming. They expect to have extensive libraries of pre-written routines available for reuse. And they expect to work in a modern IDE (development environment), a software package that makes it much easier to write and debug code. COBOL doesn't have tools of this level.

When I was in the Air Force I was trained as a programmer. COBOL was one of the languages they "taught". I never used it, ever, and wouldn't dream of trying it today. It's simply too niche. I would never recommend anyone learn COBOL in the hopes of getting a job. Get the job first, and if it happens to include some COBOL get the expertise that way.

d , April 11, 2017 at 4:04 pm

having seen the 'high level code' in C++, not sure what makes it 'modern'.its really an out growth of C, which is basically the assembler language of Unix. which it self is no spring chicken. mostly what is called 'modern' is just the latest fad, has the highest push from vendors. and sadly what we see in IT, is that the IT trade magazines are more into what they sell, that what companies need (maybe because of advertising?)

as to why schools tend to teach these languages than others? mainly cause its hip. its also cheaper for the schools, as they dont have much in the way of infrastructure to teach them ( kids bring their own computers). course teachers are as likely to be influenced by the latest 'shinny;' thing as any one else

craazyboy , April 11, 2017 at 4:34 pm

C++ shares most of the core C spec but that's it. [variables and scope, datatypes, functions sorta, math and logic operatives, logic control statements] The reason you can read high level C++ is because it uses objects that hide the internal code and are given names that describe their use which if done right makes the code somewhat readable, along with a short comment header, and self documenting.

Then at high level most code is procedural and/or event driven, which makes it appear to function like C or any other procedural language. Without the Goto statements and subroutines, because that functionality is now encapsulated within the C++ objects. {which are a datatype that combines data structures and related functions that act on this data)

ChrisPacific , April 11, 2017 at 5:31 pm

Well put. I was going to make this point. Note that the today's IT grads struggle with Cobol for the same reason that modern airline pilots would struggle to build their own airplane. The industry has evolved and become much more specialized, and standard 'solved' problems have migrated into the core toolsets and become invisible to developers, who now work at a much higher level of abstraction. So for example a programmer who learned using BASIC on a Commodore 64 probably knows all about graphics coding by direct addressing of screen memory, which modern programmers would consider unnecessary at best and dangerous at worst. Not to mention it's exhausting drudgery compared to working with modern toolsets.

The other reason more grads don't learn COBOL is because it's a sunset technology. This is true even if systems written in COBOL are mission critical and not being replaced. As more and more COBOL programmers retire or die, banks will eventually reach the point where they don't have enough skilled staff available to keep their existing systems running. If they are in a position where they have to fix things anyway, for example due to a critical failure, they will be forced to resort to cross-training other developers, at great expense and pain for all concerned, and with no guarantee of success. One or two of these experiences will be enough to convince them that migration is necessary, whatever the cost (if their business survives them, which isn't a given when it comes to critical failures involving out of date and poorly-understood technology). And while developers with COBOL skills will be able to name their own price during those events, it's not likely to be a sustainable working environment in the longer term.

It would take a significant critical mass of younger programmers deciding to learn COBOL to change this dynamic. One person on their own isn't going to make any difference, and it's not career advice I would ever give to a young graduate looking to enter IT.

I am an experienced developer who has worked with a lot of different languages, including some quite low level ones in my early days. I don't know COBOL, but I am confident that I could learn it well enough to perform code archaeology on it given enough time (although probably nowhere near as efficiently as someone who built a career on it). Whether I could be convinced to do so is another question. If you paid me never-need-to-work-again money, then maybe. But nobody is ever going to do that unless it's a crisis, and I'm not likely to sign up for a death march situation with my current family commitments.

Steve , April 11, 2017 at 6:47 am

"Experienced COBOL programmers can earn more than $100 an hour"

Then the people hiring are getting them dirt cheap. This is a lot closer to consulting than contracting–a very specialized skill set and only a small set of people available. The rate should be $200-300/hour.

reslez , April 11, 2017 at 2:46 pm

I wonder if it has something to do with the IRS rules that made that guy fly a plane into an IRS office? Because of the rules, programmers aren't allowed to work as independent consultants. Since their employer/middleman takes a huge cut the pay they receive is a lot lower. Coders with a security clearance make quite a bit but that requires an "in", getting the clearance in the first place which most employers won't pay for.

d , April 11, 2017 at 4:05 pm

not any place i know of. maybe in an extreme crunch. cause today the most COBOL jobs have been offshored. and maybe thats why kids dont lean COBOL.

ChrisPacific , April 11, 2017 at 5:31 pm

I had the same thought. Around here if you want a good one, you would probably need to add another zero to that.

shinola , April 11, 2017 at 6:52 am

Cobol? Are they running it on refrigerator sized machines with reel-to-reel tapes?

ejf , April 11, 2017 at 8:45 am

you're right. I've seen it on cluckny databases in a clothing firm in NY State, a seed and grain distribution facility in Minnesota and a bank in Minneapolis. They're horrible and Yves is right – documentation is completely ABSENT

d , April 11, 2017 at 4:06 pm

in small business, where every penny counts, they dont see the value in documentation. not even when they get big either

Disturbed Voter , April 11, 2017 at 7:05 am

No different than the failure of the public sector to maintain dams, bridges and highways. Basic civil engineering but our business model never included maintenance nor replacement costs. That is because our business model is accounting fraud.

I grew up on Fortran, and Cobol isn't too different, just limited to 2 points past the decimal to the right. I feel so sorry for these code jockies who can't handle a bit of drudgery, who can't do squat without a gigabyte routine library to invoke. Those languages as scripting languages or report writers back in the old days.

Please hire another million Indian programmers they don't mind being poorly paid or the drudgery. Americans and Europeans are so over-rated. Business always complains they can't hire the right people some job requires 2 PhDs and we can't pay more than $30k, am I right? Business needs slaves, not employees.

d , April 11, 2017 at 4:08 pm

COBOL hasnt been restricted to 2 points to the right of decimal place. for decades

clarky90 , April 11, 2017 at 7:06 am

The 'Novopay debacle'

This was a "new payroll" system for school teachers in NZ. It was an ongoing disaster. If something as simple (?) as paying NZ teachers could turn into such a train-wreck, imagine what updating the software of the crooked banks could entail. I bet that there are secret frauds hidden in the ancient software, like the rat mummies and cat skeletons that one finds when lifting the floor of old houses.

https://en.wikipedia.org/wiki/Novopay

"Novopay is a web-based payroll system for state and state integrated schools in New Zealand, processing the pay of 110,000 teaching and support staff at 2,457 schools .. From the outset, the system led to widespread problems with over 8,000 teachers receiving the wrong pay and in some cases no pay at all; within a few months, 90% of schools were affected .."

"Many of the errors were described as 'bizarre'. One teacher was paid for 39 days, instead of 39 hours getting thousands of dollars more than he should have. Another teacher was overpaid by $39,000. She returned the money immediately, but two months later, had not been paid since. A relief teacher was paid for working at two different schools on the same day – one in Upper Hutt and the other in Auckland. Ashburton College principal, Grant McMillan, said the 'most ludicrous' problem was when "Novopay took $40,000 directly out of the school bank account to pay a number of teachers who had never worked at the college".

Can you imagine this, times 10,000,000????

d , April 11, 2017 at 4:12 pm

this wasnt COBOL. or even a technology problem. more like a management one. big failures tend to be that way

vlade , April 11, 2017 at 7:48 am

"but the huge shortcoming of COBOL is that there are no equivalent of editing programs. Every line of code in a routine must be inspected and changed line by line"
I'm not sure what you mean by this.

If you mean that COBOL doesn't have the new flash IDEs that can do smart things with "syntactic sugar", then it really depends on the demand. Smart IDEs can be written for pretty much any languages (smart IDEs work by operating on ASTs, which are part and parcel of any compiler. The problem is more of what to do if you have an externalised functions etc, which is for example why it took so long for those smart IDEs to work with C++ and its linking model). The question is whether it pays – and a lot of old COBOL hands eschew anything except for vi (or equivalent) because coding should be done by REAL MEN.

On the general IT problem. There are three problems, which are sort of related but not.

The first problem is the interconnectedness of the systems. Especially for a large bank, it's not often clear where one system ends and the other begins, what are the side-effects of running something (or not running), who exactly produces what outputs and when etc. The complexity is more often at this level than cobol (or any other) line-by-line code.

The second problem is the IT personell you get. If you're unlucky, you get coding monkeys, who barely understand _any_ programming language (there was time I didn't think people like that get hired. I now know better), and have no idea what analytical and algorithmic thinking is. If you're lucky, you get a bunch of IT geeks, who can discuss the latest technology till cows come home, know the intricate details of what a sequence point in C++ is and how it affects execution, but don't really care that much about the business. Then you get some possibly even brilliant code, but often also get unnecessary technological artifacts and new technologies just because they are fun – even though a much simpler solution would work just as well if not better. TBH, you can get this from the other side too, someone who understands the business but doesn't know even basic language techniques, which generally means their code works very well for the business, but is a nightmare to maintain (a typical population of this groups are front office quants).

If you are incredibily lucky, you get someone who understands the business and happens to know how to code well too. Unfortunately, this is almost a mythical beast, especially since neitehr IT nor the business encourage people to understand each other.

Which is what gets me to the thirds point – politics of it. And that's, TBH, is why most projects fail. Because it's easier to staff a project with 100 developers and then say all that could have been done was done, than get 10 smart people working on it, but risk that if it fails you get told you haven't spent enough resources. "We are not spending enough money" is paradoxically one of the "problems" I often see here, when the problem really is "we're not spending money smartly enough". Because in an organization budget=power. I have yet to see an IT project that would have 100+ developers that would _really_ succeed (as opposed to succeed by redefining what it was to deliver to what was actually delivered).

Oh, and last point, on the documentation. TBH, documentation of the code is superfluous if a) it's clear what business problem is being solved b) has a good set of test cases c) the code is reasonably cleanly written (which tends to be the real problem). Documenting code by anything else but example is in my experience just a costly exercise. Mind you, this is entirely different from documenting how systems hang together and how their interfaces work.

Yves Smith Post author , April 11, 2017 at 7:52 am

On the last point, I have to tell you I in short succession happened to work not just with O'Connor, but about a year later, with Bankers Trust, then regarded as the other top IT shop on Wall Street. Both CIOs would disagree with you vehemently on your claim re documentation.

vlade , April 11, 2017 at 8:25 am

Yes, in 90s there was a great deal of emphasis on code documentation. The problem with that is that the requirements in real world change really quick. Development techniques that worked for sending the man to the moon don't really work well on short-cycle user driven developments.

90s was mostly the good old waterfall method (which was really based on the NASA techniques), but even as early as 2000s it started to change a lot. Part of it come from the realization that the "building" metaphor that was the working approach for a lot of that didn't really work for code.

When you're building a bridge, it's expensive, so you have to spend a lot of time with blueprints etc. When you're doing code, documenting it in "normal" human world just adds a superfluous step. It's much more efficient to make sure your code is clean and readable than writing extra documents that tell you what the code does _and_ have to be kept in sync all the time.

Moreover, bits like pretty pictures showing the code interaction, dependencies and sometimes even more can now be generated automatically from the code, so again, it's more efficient to do that than to keep two different versions of what should be the same truth.

Yves Smith Post author , April 11, 2017 at 8:31 am

With all due respect, O'Connor and Bankers Trust were recognized at top IT shops then PRECISELY because they were the best, bar none, at "short cycle user driven developments." They were both cutting edge in derivatives because you had to knock out the coding to put new complex derivatives into production.

Don't insinuate my clients didn't know what they were talking about. They were running more difficult coding environments than you've ever dealt with even now. The pace of derivative innovation was torrid then and there hasn't been anything like it since in finance. Ten O'Connor partners made $1 billion on the sale of their firm, and it was entirely based on the IT capabilities. That was an unheard of number back then, 1993, particularly given the scale of the firm (one office in Chicago, about 250 employees).

vlade , April 11, 2017 at 9:23 am

Yves,

I can't talk about how good/bad your clients were except for generic statements – and the above were generic statements that in 90s MOST companies used waterfall.

At the same time please do not talk about what programming environments I was in, because you don't know. That's assuming it's even possible to compare coding environments – because quant libraries that first and foremost concentrate on processing data (and I don't even know it's what was the majority of your clients code) is a very very different beast from extremely UI complex but computationally trivial project, or something that has both trivial UI and computation but is very database heavy etc. etc.

I don't know what specific techniques your clients used. But the fact they WANTED to have more documentation doesn't mean that having more documentation would ACTUALLY be useful.

With all due respect, I've spent the first half of 00s talking to some of the top IT development methodologists of the time, from the Gang Of Four people to Agile Manifesto chaps, and practicing/leading/implementing SW development methodology across a number of different industries (anything from "pure" waterfall to variants of it to XP).

The general agreement across the industry was (and I believe still is) that documenting _THE CODE_ (outside of the code) was waste of time (actually it was ranging from any design doc to various levels of design doc, depending on who you were talking to).

Again, I put emphasis on the code – that is not the same as say having a good whitepaper telling you how the model you're implementing works, or what the hell the users actually want – i.e. capturing the requirements.

As an aside – implementation of new derivative payoffs can be actually done in a fairly trivial way, depending on how exactly you model them in the code. I've wrote an extensive library that did it, whose whole purpose was to deal with new products and allow them to be incubated quickly and effectively – and that most likely involved doing things that no-one at BT/O'Conner even looked at in early 1990s (because XVA wasn't even gleam in anyone's eye at that time).

Clive , April 11, 2017 at 9:54 am

Well at my TBTF, where incomprehensible chaos rules, the only thing - and I do mean the only thing - that keeps major disasters averted (perhaps "ameliorated" is putting it better) is where some of the key systems are documented. Most of the core back end is copiously and reasonably well documented and as such can survive a lot of mistreatment at the hands of the current outsourcer de jour.

But some "lower priority" applications are either poorly documented or not documented at all. And a "low priority" application is only "low priority" until it happens to sit on the critical path. Even now I have half of Bangalore (it seems so, at any rate) sitting there trying to reverse engineer some sparsely documented application - although I suspect there was documentation, it just got "lost" in a succession of handovers - desperate in their attempts to figure out what the application does and how it does it. You can hear the fear in their voices, it is scary stuff, given how crappy-little-VB6-pile-of-rubbish is now the only way to manage a key business process where there are no useable comments in the code and no other application documentation, you are totally, totally screwed.

visitor , April 11, 2017 at 3:51 pm

Your TBTF corporation is ISO 9000-3,9001/CMM/TickIt/ITIL certified, of course?

Skip Intro , April 11, 2017 at 11:48 am

It seems like you guys are talking past each other to some degree. I get the sense that vlade is talking about commenting code, and dismissing the idea of code comments that don't live with the code. Yves' former colleagues are probably referring to higher level specifications that describe the functionality, requirements, inputs, and outputs of the various software modules in the system.
If this is the case, then you're both right. Even comments in the code can tend to get out of date due to application of bug fixes, and other reasons for 'drift' in the code, unless the comments are rigorously maintained along wth the code. Were the code-level descriptions maintained somewhere else, that would be much more difficult and less useful. On the other hand the higher-level specifications are pretty essential for using, testing, and maintaining the software, and would sure be useful for someone trying to replace all or parts of the system.

Clive , April 11, 2017 at 12:30 pm

In my experience you need a combination of both. There is simply no substitute for a brief line in some ghastly nested if/then procedure that says "this section catches host offline exceptions if the transaction times out and calls the last incremental earmarked funds as a fallback" or what-have-you.

That sort of thing can save weeks of analysis. It can stop an outage from escalating from a few minutes to hours or even days.

Mathiasalexander , April 11, 2017 at 8:22 am

They could try building the new system from scratch as a stand alone and then entering all the data manually.

Ivy , April 11, 2017 at 10:39 am

There is some problem-solving/catastrophe-avoiding discussion about setting up a new bank with a clean, updated (i.e., this millennium) IT approach and then merging the old bank into that and decommissioning that old one. Many questions arise about applicable software both in-house and at all those vendor shops that would need some inter-connectivity.

Legacy systems lurk all over the economy, from banks to utilities to government and education. The O'Connor CIO advice relating to life-cycle costing was probably unheard in many places besides
The Street.

d , April 11, 2017 at 4:24 pm

building them from scratch is usually the most likely to be a failure as to many in both IT and business only know parts of the needs. and if a company cant implement a vendor supplied package to do the work, what makes us think they can do it from scratch

visitor , April 11, 2017 at 9:44 am

I did learn COBOL when I was at the University more than three decades ago, and at that time it was already decidedly "uncool". The course, given by an old-timer, was great though. I programmed in COBOL in the beginnings of my professional life (MIS applications, not banking), so I can provide a slightly different take on some of those issues.

As far as the language itself is concerned, disregard those comments about it being like "assembly". COBOL already showed its age in the 1980s, but though superannuated it is a high-level language geared at dealing with database records, money amounts (calculations with controlled accuracy), and reports. For that kind of job, it was not that bad.

The huge shortcoming of COBOL is that there are no equivalent of editing programs.

While in the old times a simple text editor was the main tool for programming in that language, modern integrated, interactive development environments for COBOL have been available for quite a while - just as there are for Java, C++ or C#.

And that is a bit of an issue. For, already in my times, a lot, possibly most COBOL was not programmed manually, but generated automatically - typically from pseudo-COBOL annotations or functional extensions inside the code. Want to access a database (say Oracle, DB2, Ingres) from COBOL, or generate a user interface (for 3270 or VT220 terminals in those days), or perform some networking? There were extensions and code generators for that. Nowadays you will also find coding utilities to manipulate XML or interface with routines in other programming languages. All introduce deviations and extensions from the COBOL norm.

If, tomorrow, I wanted to apply for a job at one of those financial institutions battling with legacy software, my rusty COBOL programming skills would not be the main problem, but my lack of knowledge of the entire development environment. That would mean knowing those additional code generators, development environments, extra COBOL-geared database/UI/networking/reporting modules. In an IBM mainframe environment, this would probably mean knowing things like REXX, IMS or DB2, CICS, etc (my background is DEC VMS and related software, not IBM stuff).

So those firms are not holding dear onto just COBOL programmers - they are desperately hoarding people who know their way around in mainframe programming environments for which training (in Universities) basically stopped in the early 1990s.

Furthermore, I suspect that some of those code generators/interfaces might themselves be decaying legacy systems whose original developers went out of business or have been slowly withdrawing from their maintenance. Correcting or adjusting manually the COBOL code generated by such tools in the absence of vendor support is lots of fun (I had to do something like that once, but it actually went smoothly).

Original programmers rarely wrote handbooks

My experience is that proper documentation has a good chance to be rigorously enforced when the software being developed is itself a commercial product to be delivered to outside parties. Then, handbooks, reference manuals and even code documentation become actual deliverables that are part of the product sold, and whose production is planned and budgeted for in software development programmes.

I presume it is difficult to ensure that effort and resources be devoted to document internal software because these are purely cost centers - not profit centers (or at least, do not appear as such directly).

That is not to say that it is impossible to move off legacy platforms

So, we knew that banks were too big to fail, too big to jail, and are still too big to bail. Are their software problems too big to nail?

d , April 11, 2017 at 4:27 pm

actually suspect banks like the rest of business dont really care about their systems, till they are down, as they will find the latest offshore company to do it cheaper.

Yves Smith Post author , April 11, 2017 at 5:58 pm

Why then have I been told that reviewing code for Y2K had to be done line by line?

I said documentation, not handbooks. And you are assuming banks hired third parties to do their development. Buying software packages and customizing them, as well as greater use of third party vendors, became a common practice only as of the 1990s.

JTMcPhee , April 11, 2017 at 10:33 am

I'm in favor of the "Samson Option" in this area.

I know it will screw me and people I care about, and "throw the world economy into chaos," but who effing cares (hint: not me) if the code pile reaches past the limits of its angle of repose, and slumps into some chaotic non-form?

Maybe a sentiment that gets me some abuse, but hey, is it not the gravamen of the story here that dysfunction and then collapse are very possible, maybe even likely?

And where are the tools to re-build this Tower of Babel, symbol of arrogant pride? Maybe G_D has once again, per the Biblical story, confounded the tongues of men (and women) to collapse their edifices and reduce them to working the dirt (what's left of it after centuries of agricultural looting and the current motions toward temperature-driven uninhabitability.)

Especially interesting that people here are seemingly proud of having taken part successfully in the construction of the whole derivatives thing. Maybe I'm misreading that. But what echoes in my mind in this context is the pride that the people of Pantex, https://en.wikipedia.org/wiki/Pantex_Plant , have in their role in keeping the world right on the ragged edge of nuclear "Game Over." On the way to Rapture, because they did G_D's work in preparing Armageddon. http://articles.chicagotribune.com/1986-09-05/features/8603060693_1_pantex-plant-nuclear-weapons-amarillo

"What a wondrous beast this human is "

lyman alpha blob , April 11, 2017 at 10:57 am

So is it time to go long on duct tape and twine?

ChrisAtRU , April 11, 2017 at 11:19 am

#Memories

My first job out of uni, I was trained as a MVS/COBOL programmer. After successfully completing the 11-week pass/fire course, I showed up to my 1st work assignment where my boss said to me, "Here's your UNIX terminal."

;-) – COBOL didn't strike me as difficult, just arcane and verbose. Converting to SAP is a costly nightmare. That caused to me to leave a job once had no desire to deal with SAP/ABAP. I'm surprised no one has come up with an acceptable next-gen thing . I remember years ago seeing an ad for Object-Oriented-COBOL in an IT magazine and I almost pissed myself laughing. On the serious side, if it's still that powerful and well represented in Banking, perhaps someone should look into an upgraded version of the language/concepts and build something easy to lift and shift COBOL++?

Wherefore are ye startup godz

#OnlyHalfKidding

#MaybeNot

Peewee , April 11, 2017 at 12:22 pm

This sounds like an opportunity for a worker's coop, to train their workers in COBOL and to get back at these banks by REALLY exploiting them good and hard.

MartyH , April 11, 2017 at 12:57 pm

@Peewee couldn't agree more! @Diptherio?

susan the other , April 11, 2017 at 1:02 pm

so is this why no one is willing to advocate regulating derivatives in an accountable way? i almost can't believe this stuff. i can't believe that we are functioning at all, financially. 80% of IT projects fail? and if legacy platforms are replaced at great time and expense, years and trillions, what guarantee is there that the new platform will not spin out just as incomprehensibly as COBOL based software evolved, with simplistic patches of other software lost in translation? And maybe many times faster. Did Tuttle do this? I think we need new sophisticated hardware, something even Tuttle can't mess with.

Skip Intro , April 11, 2017 at 3:40 pm

I think it is only 80% of 'large' IT projects fail. I think it says more about the lack of scalability of large software projects, or our (in-) ability to deal with exponential complexity growth

JimTan , April 11, 2017 at 2:34 pm

Looks like there are more than a few current NYC jobs at Accenture, Morgan Stanley, JPMorgan Chase, and Bank of America for programmers who code in COBOL.

https://www.indeed.com/jobs?q=mainframe+Cobol+&l=New+York%2C+NY

[Apr 11, 2017] Trump administration betrayed students depply in debt

Apr 11, 2017 | economistsview.typepad.com
im1dc April 11, 2017 at 04:48 PM SoE DeVos is dangerously stupid and incompetent

"DeVos's decision to reverse some of her work "with no coherent explanation or substitute" effectively means that the Trump administration is placing the welfare of loan contractors above those of student debtors"

https://www.bloomberg.com/news/articles/2017-04-11/devos-undoes-obama-student-loan-protections

"DeVos Undoes Obama Student Loan Protections"

'Trump's education secretary wants to limit costs at a time when more than 1 million Americans are annually defaulting'

by Shahien Nasiripour...April 11, 2017...2:46 PM EDT

"Education Secretary Betsy DeVos on Tuesday rolled back an Obama administration attempt to reform how student loan servicers collect debt.

Obama issued a pair (PDF) of memorandums (PDF) last year requiring that the government's Federal Student Aid office, which services $1.1 trillion in government-owned student loans, do more to help borrowers manage, or even discharge, their debt. But in a memorandum (PDF) to the department's student aid office, DeVos formally withdrew the Obama memos.

The previous administration's approach, DeVos said, was inconsistent and full of shortcomings. She didn't detail how the moves fell short, and her spokesmen, Jim Bradshaw and Matthew Frendewey, didn't respond to requests for comment.

DeVos's move comes a week after one of the student loan industry's main lobbies asked for Congress's help in delaying or substantially changing the Education Department's loan servicing plans. In a pair of April 4 letters to leaders of the House and Senate appropriations committees, the National Council of Higher Education Resources said there were too many unanswered questions, including whether the Obama administration's approach would be unnecessarily expensive.

A recent epidemic of student loan defaults and what authorities describe as systematic mistreatment of borrowers prompted the Obama administration, in its waning days, to force the FSA office to emphasize how debtors are treated, rather than maximize the amount of cash they can stump up to meet their obligations.

Obama's team also sought to reduce the possibility that new contracts would be given to companies that mislead or otherwise harm debtors. The current round of contracts will terminate in 2019, and among three finalists for a new contract is Navient Corp. In January, state attorneys general in Illinois and Washington, along with the U.S. Consumer Financial Protection Bureau, or CFPB, sued Navient over allegations the company abused borrowers by taking shortcuts to boost its own bottom line. Navient has denied the allegations.

The withdrawal of the Obama administration guidelines could make Navient a more likely contender for that contract, government officials said. Navient shares moved higher after the government released DeVos's decision around 11:30 a.m. New York time. Navient stock ended up almost 2 percent.

The Obama administration vision for how federal loans would be serviced almost certainly meant the feds would have to increase how much they pay loan contractors to collect monthly payments from borrowers and counsel them on repayment options. Already, the government annually spends around $800 million to collect on almost $1.1 trillion of debt. DeVos, however, made clear that her department would focus on curbing costs.

"We must create a student loan servicing environment that provides the highest quality customer service and increases accountability and transparency for all borrowers, while also limiting the cost to taxpayers," DeVos said.

With her memo, DeVos has taken control of the complex and widely derided system in which the federal government collects monthly payments from tens of millions of Americans with government-owned student loans. The CFPB said in 2015 that the manner in which student loans are collected has been marred by "widespread failures."

DeVos's move "will certainly increase the likelihood of default," said David Bergeron, a senior fellow at the Center for American Progress, a Washington think tank with close ties to Democrats. Bergeron worked under Democratic and Republican administrations over more than 30 years at the Education Department. He retired as the head of postsecondary education.

During Obama's eight years in office, some 8.7 million Americans defaulted on their student loans, for a rate of one default roughly every 29 seconds.

Former Deputy Treasury Secretary Sarah Bloom Raskin worked on student loan policy during the latter years of the Obama administration, in part over concern that borrowers' struggles were affecting the management of U.S. debt. DeVos's decision to reverse some of her work "with no coherent explanation or substitute" effectively means that the Trump administration is placing the welfare of loan contractors above those of student debtors, she said.

In a statement Tuesday, Illinois Attorney General Lisa Madigan, who is suing Navient, agreed: "The Department of Education has decided it does not need to protect student loan borrowers."
libezkova -> im1dc... , April 11, 2017 at 05:24 PM

Thank you ! A very good finding.

[Apr 09, 2017] Time to do some fact checking on this right wing spin

Apr 09, 2017 | economistsview.typepad.com
DeDude , April 08, 2017 at 12:31 PM
Now isn't that amazing. When you increase the income of the consumer class workers you grow the economy.

http://ritholtz.com/2017/04/new-seattle-post/

Nobody could have predicted that - at least not if they were addicted to right wing narratives.

pgl -> DeDude... , April 08, 2017 at 12:31 PM
Ritholtz has had a field day debunking the right wing intellectual garbage of Martin Perry but today he turns on right wing toadie Tim Worstall.

Great link!

pgl -> pgl... , April 08, 2017 at 12:38 PM
Worstall:

https://www.forbes.com/sites/timworstall/2017/04/05/seattles-2-9-unemployment-rate-tells-us-nothing-about-the-effects-of-seattles-minimum-wage-rise/#782d373068b8

"Sure, it's lovely that unemployment in Seattle dips under 3%. But an attempt to tie that drop in the unemployment rate to the minimum wage isn't going to work. For we can as easily note that the unemployment rate has dropped everywhere in the US over this same time period and the minimum wage hasn't risen everywhere over that time period. We've not even got a consistent correlation between minimum wages and unemployment that is.mWhat we've actually got to do is try to work out some method of what would have happened in Seattle from all of the effects of everything else other than the minimum wage, then compare it to what did happen with the minimum wage. The difference between these two will be the effect of the minimum wage rise. Seattle City Council know this, which is why they asked the University of Washington to run exactly such a study."

Worstall reaches back to this July 2016 paper:

https://evans.uw.edu/sites/default/files/MinWageReport-July2016_Final.pdf

Time to do some fact checking on this right wing spin.

[Apr 09, 2017] the Nordic model of inequality reduction is pretty simple: use broad-based transfers to increase everyones gross income and balance that fiscally by levying taxes that increase with income

Apr 09, 2017 | economistsview.typepad.com

Peter K. , April 08, 2017 at 11:14 AM
This might be the way to go:

http://www.demos.org/blog/3/26/15/why-fiscal-progressivity-discussions-are-so-muddled

Why Fiscal Progressivity Discussions Are So Muddled

Posted by Matt Bruenig on March 26, 2015

Yesterday I wrote about the mistaken way that I think some commentators discuss cross-country tax progressivity. Based on OECD tables and the work of Monica Prasad, the conventional wisdom is that low-inequality countries use extremely progressive transfers rather than progressive taxes to get that way. But when you look at transfer levels in these countries broken down by income decile, you often see something like this:

[chart]

That sure doesn't seem like progressive transfer spending, does it? So how can the conventional wisdom be right if the graph looks like that? Why does this graph seem on first glance to so challenge the conventional wisdom? The answer lies deep in the methodological weeds. Explaining it helps to reveal why I find these discussions to be so muddled and why I think the conveying of the conventional wisdom tends to be broadly unhelpful to normal (and often even very sophisticated) audiences.

...

Treatments of this topic that fail to convey this (and I think many of them do, often because even the writer doesn't understand what's going on) darken more than they illuminate. Really, the "progressivity" discussions in general do that, making the topic far more complicated and muddled than it needs to be.

Which is especially sad because the Nordic model of inequality reduction is pretty simple: use broad-based transfers to increase everyone's gross income and balance that fiscally by levying taxes that increase with income.

pgl -> Peter K.... , April 08, 2017 at 12:18 PM
Some of what he writes makes a little sense but this is really dumb:

"The bigger problem with the regressivity objection, in my view, is that dividing taxes paid by income seems to obscure the more important point. What really matters in all of this is how many dollars you are scraping from poor, middle class, and rich people."

Not considering the level of income - just how much a person pays in taxes? Heck - that makes the head tax OK. Dumbest metric for the fairness of the tax system ever.

Peter K. -> pgl... , April 08, 2017 at 01:22 PM
Learn how to read...

"Which is especially sad because the Nordic model of inequality reduction is pretty simple: use broad-based transfers to increase everyone's gross income and balance that fiscally by levying taxes that increase with income."

[Apr 06, 2017] Approximately 10 million males ages 25-54 are unemployed. Fifty-seven percent of these are on disability

Apr 06, 2017 | economistsview.typepad.com
New Deal democrat , April 05, 2017 at 05:56 AM
Via Business Insider
http://www.businessinsider.com/jamie-dimon-ceo-letter-jpmorgan-on-education-and-labor-force-participation-2017-4

This is from Jamie Dimon's letter to stockholders:

"If the work participation rate for this group [men ages 25-54] went back to just 93% – the current average for the other developed nations – approximately 10 million more people would be working in the United States. Some other highly disturbing facts include: Fifty-seven percent of these non-working males are on disability"

I don't know where he got the statistic from, but if it is true it is potent evidence that the main factor behind the 60 year long decline in prime age labor force participation by men is an increase in those on disability, probably due to both the expansion of the program, and better longevity and diagnostics -- and probably also tied in to opiate addiction as well.

pgl -> New Deal democrat... , April 05, 2017 at 08:14 AM
So does Jamie sitting on his mountain of other people's money have some magic solution that will get this EPOP back to 93%? I guess if we all bank at JPMorganChase, all will be fine? C'mon Jamie.
New Deal democrat -> pgl... , April 05, 2017 at 08:54 AM
I'm only citing him for the disability stat.

Do you happen to have any source material that would indicate whether that stat is correct or not?

pgl -> New Deal democrat... , April 05, 2017 at 09:37 AM
There has been a bit of a discussion on this - most of which I sort of found unconvincing. Sorry but I am not the expert on this one. And I doubt Jamie Dimon is not either.
EMichael -> New Deal democrat... , April 05, 2017 at 08:26 AM
Never, ever listen to Jamie Dimon about anything.

"This is another common explanation for the drop in male participation. But again it doesn't explain more than a fraction of the phenomenon.

There's not much doubt that Social Security Disability Insurance takes people out of the workforce, often by inelegant design. In order to qualify for disability payments, people typically have to prove that they cannot work full-time. SSDI critics say this policy sidelines many people who might otherwise be able to contribute to the economy.

But how many people does SSDI really remove? From 1967 to 2014, the share of prime-age men getting disability insurance rose from 1 percent to 3 percent. There is little chance that this increase is entirely the result of several million fraudulent attempts to get money without working. But even if it were, SSDI would still only explain about one-quarter of the decline in the male participation rate over that time. There are many good reasons to reform disability insurance. But it's not the singular driving force behind the decline of working men."

https://www.theatlantic.com/business/archive/2016/06/the-missing-men/488858/

pgl -> EMichael... , April 05, 2017 at 08:28 AM
When Dimon makes a recommendation re regulating his own sector, the best thing to do is just the opposite.

[Apr 04, 2017] Americans Want More Than Just Money to Live On

Apr 04, 2017 | www.bloomberg.com

APRIL 3, 2017 9:00 AM EDT

Donald Trump's election as president should have reminded liberals that Americans want more than money from their work. They responded to Trump's promise of jobs more than to Hillary Clinton's promise of government benefits because in addition to money, people also need dignity, a sense of self-reliance and respect within their community. For centuries, jobs have provided all of those.

To say that work is disappearing would be an exaggeration. But despite the low unemployment rate, fewer Americans have jobs than in years past:

[chart]

This new class of non-workers may be able to survive on the government dole, the charity of friends and family or via black-market activities like drug sales. But they've probably lost some of the dignity and respect that used to come with working for a living. Falling employment has been linked to declining marriage rates, reduced happiness and opiate abuse. Some economists even blame disappearing jobs for the recent rise in mortality rates afflicting white Americans.

What's more, the longer people stay out of the labor force, the more trouble they will have getting back into it. They lose work ethic, skills and connections, and employers become suspicious of the large gaps in the resumes. Economists Brad DeLong and Larry Summers have shown that this so-called labor-market hysteresis can have potentially large, long-lasting negative effects on the economy.

When the economy is in recession, the best approach is probably a combination of fiscal and monetary stimulus. But when the labor-force dropout problem is chronic, as it is now, a different kind of policy may be needed -- a government-job guarantee.

The U.S. has used an approach like this before. In 1935, the administration of President Franklin Roosevelt established the Works Progress Administration, which employed millions of American men, mostly in public-works projects. WPA employees received hourly wages similar to other unskilled workers in the surrounding area. Most of them built infrastructure and buildings, but a few were paid to make art and write books. The total cost of the program was high -- $1.3 billion a year, or about 1.7 percent of U.S. gross domestic product. An equivalent expenditure now would be a little more than $300 billion, or about half of federal defense spending. But the popularity of the program is hard to deny, given Roosevelt's resounding victory in his reelection bid in 1936.

The idea of a new work program isn't a new one -- economists on all sides of the political spectrum have been kicking it around for years now. It has received support from Stephanie Kelton, an adviser to the Bernie Sanders presidential campaign, and from Kevin Hassett, who is reportedly Trump's pick to lead the Council of Economic Advisers. Jeff Spross has an excellent article in Democracy exploring the idea in depth.

William Darity of Duke University has been a particularly avid promoter of a job guarantee. He describes it thus:

Any American 18 years or older would be able to find work through a federally funded public service employment program -- a "National Investment Employment Corps." Each National Investment Employment Corps job would offer individuals non-poverty wages, a minimum salary of $20,000, plus benefits including federal health insurance. The types of jobs offered could address the maintenance and construction of the nation's physical and human infrastructure, from building roads, bridges, dams and schools, to staffing high quality day care.
There is no shortage of work to be done. Even beyond the tasks Darity lists, the U.S. is full of jobs that need doing, from elder care to renovation of old decaying buildings, to cleanup of lead and other pollution, to construction and staffing of transit systems.

Darity estimates the cost of the program at $750 billion a year, Spross at $670 billion. That's about equivalent to all of the U.S.'s current anti-poverty programs, and would be about twice the size of the old WPA. So this would be a very big deal. But the true cost to society would be considerably less, because the jobs would provide value. Better infrastructure, more child care and elder care, and a cleaner, healthier environment would make the nation a richer, better place to live -- in other words, those benefits should defray much of the program's cost. Also, the program would take people off of the welfare rolls and cut government anti-poverty spending. Finally, even when the economy isn't in a recession, more income will probably increase demand in the local economy.

All told, the program could end up being a bargain. And if the guarantee is limited to distressed, low-employment areas, which could lower the costs down even more, and allow for pilot programs to establish the viability of the concept.

Many people on the left and elsewhere don't like this idea. They doubt that government make-work will provide dignity. And they believe strongly in the theory that automation will soon put large numbers of people out of a job entirely. The only solution, they say, is to change U.S. culture and values to make work less important, and to rely on programs like universal basic income. On the right, some would inevitably see the plan as a first step on the road to socialism.

Maybe the critics will prove right in the long run. But for now, forcing a dramatic change on American culture is a lot harder than simply giving people jobs. Robot-driven unemployment and new social values are still mostly in the realm of science fiction, while the American public wants jobs now. A job guarantee looks like a very good thing to try.

Peter K. said in reply to Peter K.... Do both, the UBI and Job Guarantee.

Why doesn't Noah Smith discuss Fed Fail in detail and about how conservatives forced unprecedented austerity on the economy.

This is not just "natural" or the evolution of technology, demographics and innovation.

He should be supporting an NGDP target, etc.

At very least run the economy hot.

Reply Tuesday, April 04, 2017 at 12:08 PM Peter K. said in reply to Peter K.... What Smith does not discuss is how the Fed is currently raising rates to kill jobs. Reply Tuesday, April 04, 2017 at 12:09 PM

[Apr 04, 2017] Yes progress was made from 1960 to 1975. But what after that? To dismiss the rise in inequality by saying one can reconfigure the CPI index is Heritage level nonsense.

Apr 04, 2017 | economistsview.typepad.com
pgl , April 03, 2017 at 12:21 PM
Mankiw alert. He is hyping this:

http://www.nber.org/papers/w23292

"Despite the large increase in U.S. income inequality, consumption for families at the 25th and 50th percentiles of income has grown steadily over the time period 1960-2015. The number of cars per household with below median income has doubled since 1980 and the number of bedrooms per household has grown 10 percent despite decreases in household size. The finding of zero growth in American real wages since the 1970s is driven in part by the choice of the CPI-U as the price deflator; small biases in any price deflator compound over long periods of time. Using a different deflator such as the Personal Consumption Expenditures index (PCE) yields modest growth in real wages and in median household incomes throughout the time period. Accounting for the Hamilton (1998) and Costa (2001) estimates of CPI bias yields estimated wage growth of 1 percent per year during 1975-2015. Meaningful growth in consumption for below median income families has occurred even in a prolonged period of increasing income inequality, increasing consumption inequality and a decreasing share of national income accruing to labor."

Yes progress was made from 1960 to 1975. But what after that? To dismiss the rise in inequality by saying one can reconfigure the CPI index is Heritage level nonsense.

[Apr 04, 2017] In Neo-classical Economics as a Stratagem Against Henry George

Notable quotes:
"... As with any major reform movement, the corporate backlash was predictable. In Neo-classical Economics, Gaffney reveals that this backlash took two main forms. The first was the Red Scare (1919-1989), overseen by J Edgar Hoover as Assistant Attorney General and later as FBI director. ..."
"... The second was more insidious and involved the deliberate reframing of the classical economic theory developed by Adam Smith, Locke, Hume, and Ricardo as so-called neoclassical economics. ..."
Apr 04, 2017 | economistsview.typepad.com
RGC , April 03, 2017 at 06:36 AM
Karl Marx vs Henry George

by Stuart Jeanne Bramhall / August 12th, 2013


Why do American children study Karl Marx, the villain we love to hate, in school? Yet Henry George, whose views on land and tax reform gave rise to the Progressive and Populist movements of the 1900s, is totally absent from US history books.

During the 1890s George, author of the 1879 bestseller Progress and Poverty, was the third most famous American, after Mark Twain and Thomas Edison. In 1896 he outpolled Teddy Roosevelt and was nearly elected mayor of New York.

In Neo-classical Economics as a Stratagem Against Henry George (2007), University of California economist Mason Gaffney argues that George and his Land Value Tax pose a far greater threat than Marx to America's corporate elite.

America's enormous concentration of wealth has always depended on the inherent right of the wealthy elite to seize and monopolize vast quantities of land and natural resources (oil, gas, forests, water, minerals, etc) for personal profit.

Adopting an LVT, which is far easier than launching a violent revolution, would essentially negate that right. What's more, every jurisdiction that has ever implemented an LVT finds it works exactly the way George predicted it would. Productivity, prosperity, and social wellbeing flourish, while inflation, wealth inequality, and boom and bust recessions and depressions virtually vanish.

When Progress and Poverty first came out in 1879, it started a worldwide reform movement that in the US manifested in the fiercely anti-corporate Populist Movement in the 1880s and later the Progressive Movement (1900-1920). Many important anti-corporate reforms came out of this period, including the Sherman Antitrust Act (1890), a constitutional amendment allowing Americans to elect the Senate by popular vote (prior to 1913 the Senate was appointed by state legislators), and the country's first state-owned bank, The Bank of North Dakota (1919).

The Corporate Elite Strikes Back

As with any major reform movement, the corporate backlash was predictable. In Neo-classical Economics, Gaffney reveals that this backlash took two main forms. The first was the Red Scare (1919-1989), overseen by J Edgar Hoover as Assistant Attorney General and later as FBI director.

The second was more insidious and involved the deliberate reframing of the classical economic theory developed by Adam Smith, Locke, Hume, and Ricardo as so-called neoclassical economics.

The latter totally negates Adam Smith's basic differentiation between "land", a limited, non-producible resource. and "capital", a reproducible result of past human production. Smith, Locke, Hume, and Ricardo all held that individuals have no right to seize and monopolize scarce natural resources, such as land, minerals, water, and forests. They believed that because these resources are both limited and essential for human survival, they should belong to the public.

Neoclassical economics, which first developed in the 1890s, was based on the premise that growth and development can only occur if a handful of rent-seekers are allowed to monopolize scarce land and natural resources for their personal profit. Henry George, who publicly debated the early pioneers of neoclassical economics, claimed the science of economics was being deliberately distorted to discredit him. Gaffney agrees. Because George's proposal to replace income and sales tax with single land value taxed is based on logical concepts of land, capital, labor, and rent advanced by Adam Smith, Locke, Hume, and Ricardo, they all had to be discredited.

Gaffney believes neoclassical economic theory undermines George's arguments for a single Land Value Tax in two basic ways: 1) by claiming that land is no different from other capital (ironically Marx made the identical argument) and 2) by portraying the science of economics as a series of hard choices and sacrifices that low and middle income people must make. Some examples:

If we want efficiency, we must sacrifice equity.

To attract business, we must lower taxes and shut libraries and defund schools.

To prevent inflation, we must keep a large number of Americans unemployed.

To create jobs, we must destroy the environment and pollute the air, water, and food chain.

To raise productivity, we must fire people.

Gaffney's book traces the phenomenal public support Georgism enjoyed before the tenets of neoclassical economics took hold in American universities. In addition to inspiring the Populist and Progressive movements, an LVT to fund irrigation projects in California's Central Valley made California the top producing farm state. In 1916 the first federal income tax law was introduced by Georgist members of Congress (Henry George Jr and Warren Bailey) and included virtually no tax on wages. In 1934 Georgist Upton Sinclair was almost elected governor of California.


Gaffney also identifies the robber barons whose fortunes financed the economics departments of the major universities who went on to substitute neooclassical economics for classical economic theory. At the top of this list were

Ezra Cornell (owner of both Western Union and Associated Press) – founder of Cornell University

John D Rockefeller – helped fund the University of Chicago and installed his cronies in its economics department.

J. P Morgan – investment banker and early funder of Columbia University

B&O Railroad – John Hopkins University

Southern Pacific Railroad – Stanford University

The final section of Gaffney's book lays out the tragic economic, political, and social consequences of allowing the Red Scare and neoclassical economics to stifle America's movement for a single Land Value Tax:

Economic Consequences

The corporate elite has privatized, or is privatizing, most of the public domain (including fisheries, the public airwaves, water, offshore oil and gas, and the right to clean air) without compensation to the public.

The rate of saving and capital formation continues to fall rapidly. This is the main reason there is no recovery.
Although profits soar, corporations have no incentive to invest in expansion and jobs. Instead they invest their profits in real estate, derivatives, and commodities speculation.

American capital is decayed and obsolete. The US has lost much of its steel and auto industries. Power plants and oil refineries are ancient and polluting. Most public capital (infrastructure) is old and crumbling.

The number of American farms has fallen from 6 million in 1920 to 1 million in 2007.

The USA, once so self-sufficient, has grown dangerously dependent on importing raw materials and foreign manufacturers.

The US financial system is a shambles, supported only by loading trillions of dollars of bad debts onto the taxpayers.

Real wage rates have continued to fall since 1975,
Unemployment has risen to chronically high levels.
Inequality in wealth and income continues to increase rapidly.

Political Consequences

The corporate elite has nullified all the Progressive Era electoral reforms by pouring money into politics and "deep lobbying," at all levels of government, including our institutions of higher learning and our public schools.

The corporate elite continue to pour ever more of our tax money into prisons.

Social Consequences

Homelessness has risen to new heights, in spite of decades of subsidies to home-building and, favorable tax treatment of owner-occupied homes

Hunger is rampant.

Street begging, once rare, is everywhere

Americans have experienced a sharp loss of community, honor, duty, loyalty and patriotism.

In the shadow world between crime and business there is now the vast, gray underground economy that includes tax evasion, tax avoidance, and drug-dealing.

The US which once led the world in nearly every endeavor, has fallen far behind in infant survival, in longevity, in literacy, in numeracy, in mental health.

American education no longer leads the world. Privatized education in the form of commercial TV has largely superseded public education.

http://dissidentvoice.org/2013/08/karl-marx-vs-henry-george/

[Apr 01, 2017] The General Theory of Employment, Interest, and Money

Apr 01, 2017 | economistsview.typepad.com
anne -> RC AKA Darryl, Ron... , April 01, 2017 at 11:43 AM
http://ebooks.adelaide.edu.au/k/keynes/john_maynard/k44g/chapter12.html

1936

The General Theory of Employment, Interest, and Money
By John Maynard Keynes

The State of Long-Term Expectation

[ The passage is important, but a reference is ecessary. ]

[Mar 31, 2017] Professor Thoma has the unique ability to pick up interesting links.

Mar 31, 2017 | economistsview.typepad.com
Peter K. , March 31, 2017 at 05:42 AM
David Glasner discusses how essential Professor Thoma's blog is to the Econosphere... Funny given that the web address for Uneasy Money refuses appear in Typepad.

A Tale of Three Posts
by David Glasner

March 30, 2017

Since I started blogging in July 2011, I have published 521 posts (not including this one). A number of my posts have achieved a fair amount of popularity, as measured by the number of views, which WordPress allows me to keep track of. Many, though not all, of my most widely viewed posts were mentioned by Paul Krugman in his blog. Whenever I noticed an unusually large uptick in the number of viewers visiting the blog, I usually found Krugman had linked to my post, causing a surge of viewers to my blog.

The most visitors I ever had in one day was on August 7, 2012. It was the day after I wrote a post mocking an op-ed in the Wall Street Journal by Arthur Laffer ("Arthur Laffer, Anti-Enlightenment Economist") in which, based on some questionable data, and embarrassingly bad logic, Laffer maintained that countries that had adopted fiscal stimulus after the 2008-09 downturn had weaker recoveries than countries that had practiced fiscal austerity. This was not the first or last time that Krugman linked to a post of mine, but what made it special was that Krugman linked to it while he on vacation, so that for three days, everyone who visited Krugman's blog found his post linking to my post, so that on August 7 alone, my post was viewed 7885 times, with 3004 viewing the post on August 8, 1591 on August 9, and 953 on August 10. In the entire month of August, the Laffer post was viewed 15,399 times. To this day, that post remains the most viewed post that I have ever written, having been viewed a total 17,604 times.

As you can see, the post has not maintained its popular appeal, over 87 percent of all views having occurred within three and a half weeks of its having been published. And there's no reason why it should have retained its popularity. It was a well-written post, properly taking a moderately well-known right-wing economist to task for publishing a silly piece of ideological drivel in a once-great newspaper, but there was nothing especially profound or original about it. It was just the sort of post that Krugman loves to link to, and I was at the top of his blog for three days before he published his next post.

...

But over the past six months, suddenly since October, a third post ("Gold Standard or Gold Exchange Standard: What's the Difference?"), originally published on July 1, 2015, has been attracting a lot of traffic. When first published, it was moderately successful, drawing 569 visits on July 2, 2015, which is still the most visits it has received on any single day, mostly via links from Mark Toma's blog and Brad DeLong's blog. The post was not terribly original, but I think it did a nice job of describing that evolution of the gold standard from an almost accidental and peculiarly British, institution into a totem of late nineteenth-century international monetary orthodoxy, whose principal features remain till this day surprisingly obscure even to well trained and sophisticated monetary economists and financial experts.

...

The other amazing thing about the burst of traffic to this post is that most of the visitors seem to be coming from India. Over the past 30 days since February 28, this blog has been viewed 17,165 times. The most-often viewed post in that time period was my gold-exchange standard post, which was viewed 7385 times, i.e., over 40% of all views were of that one single post. In the past 30 days, my blog was viewed from India 6446 times while my blog was viewed from the United States only 4863 times. Over the entire history of this blog, about 50% of views have been from within the US. So India is clearly where it's at now.

...

PS I realized that, by identifying Paul Krugman's blog as the blog from which many of my most popular posts have received the largest number of viewers, I inadvertently slighted Mark Thoma's indispensible blog (Economistsview.typepad.com), which really is the heart and soul of the econ blogosphere. I just checked, and I see that since my blog started in 2011, over 79,000 viewers have visited my blog via Mark's blog compared to 53,000 viewers who have visited via Krugman. And I daresay that when Krugman has linked to one of my posts, it's probably only after he followed Thoma's link to my blog, so I'm doubly indebted to Mark.

Peter K. -> pgl... , March 31, 2017 at 05:57 AM
High praise from Glasner:

"Mark Thoma's indispensible blog (Economistsview.typepad.com), which really is the heart and soul of the econ blogosphere."

Too bad you and people like you are trying to ruin it with your bullying and trolling.

Peter K. -> Peter K.... , March 31, 2017 at 06:09 AM
I also enjoy David Beckworth's podcasts. Funny enough Typepad doesn't like his website either.

His latest podcast with Jeffrey Frankel is good.

http://macromarketmusings blogspot com/2017/03/macro-musings-podcasts-jeffrey-frankel.html

At the end they have a good discussion about NGDP targetting.

I really don't understand why progressive economists don't get behind this more. The more mainstream economists seem more interested in promoting the Democrats' policy agenda and defending it from the left and from the right.

Economists could/can help social movements push policies like a higher minimum wage, UBI, guaranteed jobs, unionization/economic democracy and an NGDP target for the Fed.

Seems like Progressive [center-left] economists are more interested in defending the Federal Reserve except for DeLong who criticizes it in an indirect, oblique manner. They're in a defensive crouch all of the time.

Seems like a big blind spot to me.

paine -> Peter K.... , March 31, 2017 at 09:08 AM
The comments should never be confused
with the posts and posted links
Conjecture

We commenteers long dince lost

Large readership

Peter K. -> paine... , March 31, 2017 at 10:16 AM
"The comments should never be confused with the posts and posted links"

Did I confuse them?

libezkova -> paine... , March 31, 2017 at 10:32 AM
"The comments should never be confused with the posts and posted links"

That's wrong ! There is a strong interdependency.

Professor Thoma has the unique ability to pick up interesting links. I wonder where he finds time to read all those articles, as probably to post a dosen of links, as he often does, you need to read at least twice more articles. Probably much more the twice.

I think that this quality attracts a lot of people.

And I noticed that on average, his "Links" posts attract more comments that regular posts. Probably by the factor of two on average. Most Links posts attract over 100 comments with high number around 300.

It might also be that commenting on "Links", commenters often post their own findings and quotes, which sometimes is of high, or very high value and add to the value. Anne is one such persons.

Another interesting feature of this blog is that the "core" group of commenters is reasonably stable with many commenting for five years or more. I belong to "episodical" commenters, but I follow the blog for a long time and after a couple of years I start recognizing probably 80% of names and even now has some vague information about their personal histories.

And some of the members of the core group systematically produce a number of high quality comments almost each day. That also attracts people.

Discussions, when two commenters have opposite views of the subject to me is the most interesting part. Despite occasional shouting matches.

So it is the quality of links and posts attracts quality commenters, which in turn, further enhance the quality of the blog.

In any case: Bravo Professor Thoma !!!

Julio -> libezkova... , March 31, 2017 at 11:26 AM
Absolutely! I was originally attracted to this blog by the quality of the comments even more than the quality of Prof. Thoma's selections.

It's ironic that paine seems to be arguing that comments are relatively unimportant. His posts are always thought-provoking and foster good discussions, and one of the reasons I became a regular reader.

[Mar 31, 2017] How America's Most Prestigious Universities Bilk the U.S. Taxpayer Zero Hedge

Mar 31, 2017 | www.zerohedge.com

alphasammae , Mar 30, 2017 9:30 PM

Ivy League alumni like the illuminatis Clinton and Bushes are prepared and vetted to run Goldman Sachs, the White House and the justice system etc. A merry go 'round, this for that but at the end rather than creating personal foundations they should be creating foundations for their alma mater instead of their library mausoleum. Clinton foundation raised over $1.2 billion to be run by daughter. Sick.

old_cynic , Mar 30, 2017 11:21 PM

Flawed, sensationalistic report, clickbait for jealous masses who can't make the cut into the ivy league.

Most of the $ comes from research grants. Wouldn't you expect the best schools in the country to get research grants? Look at all the top state schools, they also attract loads of federal $.

As for endowment income being non-taxable for universities, that's a good thing IMO. Would you rather have the endowment funds for all other nonprofits taxed too? Think about hospitals and churches as examples.

dvfco -> buckstopshere , Mar 30, 2017 8:58 PM

$71,000+ for incoming class at Georgetown this fall.

$0 at U.S. Naval Academy.

Hmmm.

Cardinal Fang , Mar 30, 2017 6:19 PM

It's a big club and you ain't in it.

I worked for a Billionaire who actually said this to me.

He meant it.

This is how they think.

Notice I said 'worked'...

He tried to be a man of the people but couldn't fake it at times.

No_More , Mar 30, 2017 6:35 PM

At $120K/student/year, I'd consider perpetual studenthood at an Ivy (assuming the $120K was paid direct to me).

Talk about your pricey name brand Free Shit though (as compared to SNAP or an ObamaPhone).

pitz , Mar 30, 2017 7:32 PM

The Ivy League universities are also prolific H-1B abusers, and they use tax-free "scholarship" endowment fund earnings to advance their liberal causes.

Time to tax them properly and stop the scam of 'scholarships' and H-1B abuse.

khakuda , Mar 30, 2017 7:44 PM

Harvard and Yale each have endowments on the order of $25-$35 billion, yet always have their hands out for more.

Anteater , Mar 30, 2017 7:56 PM

The US has 1,000 Generals. Count 'em. We have 33 brigade combat teams, who comprise in battalions, companies and platoons, roughly 1,000 combat platoons. Do the math. We have so many excess Generals, each General could partner with an LT leading a platoon into battle. That's FU. Let's cut that number back to 33, one per BCT, and find KP duty for the 967, until they find the $6,000,000,000,000 of our last life savings that the Pentagon 'lost track of' and is now forever MIA.

The US has 1,000 Admirals. Count 'em. We have 430 fighting ships, if you go all the way down to fuel barges, PT boats and LSTs. Do the math. We have so many excess Admirals, each Admiral could partner with an LT leading an LST onto the beach, and still have 570 Admirals to wade ashore and declare the beachhead secured. That's FU. Let's cut that number back to 7, one per fleet, and find KP duty for the 993, until they find the $6,000,000,000,000 of our last life savings that the Pentagon 'lost track of' and is now forever MIA.

Somebody knows where our savings went! There are over 1800 unnecessary Admirals and Generals who could defend America and earn their $250,000 a year salaries for life, by ferreting out the moles, rats, leeches and gribbles at the Pentagon, clean house, right-size the armed forces, re-fund yhe VA, then hang all the MIC lobbyists from the yardarms for treason.

Faeriedust -> Anteater , Mar 30, 2017 9:06 PM

It's worse. From having relatives inside the Pentagon budget process, I've been made aware for decades that at least 1/3 of our military manpower exists not because there is any rational need for those troops, OTHER than having sufficient forces to justify retaining and promoting more high-ranking (and highly-paid) Brass.

The hierarchical structure of the military assures that there are relatively few pay billets at the top. This means that officers sitting on promotion boards are constantly faced with the demand to "pass over" and thus doom to early separation/retirement fellow officers who are perfectly competent at their jobs, just not needed by the numbers.

In the immediate post WWII era, service leaders were nervous about letting good talent go and get settled in civilian life, only to need them for the Next Big One in a few years' time. Those few years have since become six decades, and the system of holding onto popular people by "creative" billeting has become institutionalized. The Armed Forces DON'T need AT LEAST 1/3 of their personnel, especially in the higher ranks. But the higher the rank, the more personal favors are owed to them, and the more likely that a new job will be created requiring even more stars, in order to assure that they stay employed at least until they can collect retirement.

The Pentagon is the world's one and and only truly functional socialist system.

[Mar 29, 2017] The reason UK economics students revolted

Notable quotes:
"... And that's the reason UK economics students revolted: "Few mainstream economists predicted the global financial crash of 2008 and academics have been accused of acting as cheerleaders for the often labyrinthine financial models behind the crisis. Now a growing band of university students are plotting a quiet revolution against orthodox free-market teaching, arguing that alternative ways of thinking have been pushed to the margins. ..."
"... why economists failed to warn about the global financial crisis and for having too heavy a focus on training students for City jobs. ..."
"... But the answer to their question is very simple. Neoliberals are in power and they dictate what is to be taught in Economics courses. They also promote and sustain "willing charlatans" like Mankiw, who poisons and indoctrinates students with neoclassical junk. ..."
Mar 29, 2017 | economistsview.typepad.com
JohnH -> Peter K.... , March 27, 2017 at 06:51 PM
So true; "SWL has never addressed what is happening in the real world."

And that's the reason UK economics students revolted: "Few mainstream economists predicted the global financial crash of 2008 and academics have been accused of acting as cheerleaders for the often labyrinthine financial models behind the crisis. Now a growing band of university students are plotting a quiet revolution against orthodox free-market teaching, arguing that alternative ways of thinking have been pushed to the margins.

Economics undergraduates at the University of Manchester have formed the Post-Crash Economics Society, which they hope will be copied by universities across the country. The organisers criticise university courses for doing little to explain why economists failed to warn about the global financial crisis and for having too heavy a focus on training students for City jobs."
https://www.theguardian.com/business/2013/oct/24/students-post-crash-economics

... ... ...

libezkova -> JohnH... , March 27, 2017 at 09:40 PM
"why economists failed to warn about the global financial crisis and for having too heavy a focus on training students for City jobs."

https://www.theguardian.com/business/2013/oct/24/students-post-crash-economics"

That's a very good link. Thank you !

But the answer to their question is very simple. Neoliberals are in power and they dictate what is to be taught in Economics courses. They also promote and sustain "willing charlatans" like Mankiw, who poisons and indoctrinates students with neoclassical junk.

[Mar 28, 2017] It is ironic that Krugman is cited as a voice for reform -- he represents the neo-Keynesian hell weve got stuck in

Notable quotes:
"... Ironic that Krugman is cited as a voice for reform - he represents the neo-Keynesian hell we've got stuck in. ..."
"... I'm an economics student at the University of Glasgow, in second year as part of a compulsory course we were taught about alternative economic theories in comparison to Neoclassical models. ..."
"... The course has only been running for a few years but in response students have set up a very similar society to promote alternative thinking on economics. Even just half a semester on Post-Keynesian Economic theory has really opened our eyes to the alternatives within economics. ..."
"... I studied neoclassical 'economics' (it really isn't economics, just garbage) for five years. Began to take my graduate degree in the autumn of 2008 when everything was falling apart and I had no idea why. No clue whatsoever. After my masters degree in neoclassical 'economics' I still had no clue what had happened. ..."
"... Orthodox economics: Ignore money. Hence, ignore debt. Let the overall leverage of the economy increase until Ponzi finance fails and financial crisis begins. The debt deflation that follows means money gets even more concentrated towards the financial/political elite than before the crisis. Neo-feudalism makes way - finally war. ..."
"... Orthodox economists don't understand capitalism. They can't. The long time failed axioms underlying everything else in their theories don't allow them to do that. ..."
Mar 28, 2017 | discussion.theguardian.com
Febo , 25 Oct 2013 15:16

Ironic that Krugman is cited as a voice for reform - he represents the neo-Keynesian hell we've got stuck in.

JmkSweeney, 25 Oct 2013 18:46

I'm an economics student at the University of Glasgow, in second year as part of a compulsory course we were taught about alternative economic theories in comparison to Neoclassical models.

The course has only been running for a few years but in response students have set up a very similar society to promote alternative thinking on economics. Even just half a semester on Post-Keynesian Economic theory has really opened our eyes to the alternatives within economics.

DisconnectMe -> JmkSweeney , 26 Oct 2013 13:54

I studied neoclassical 'economics' (it really isn't economics, just garbage) for five years. Began to take my graduate degree in the autumn of 2008 when everything was falling apart and I had no idea why. No clue whatsoever. After my masters degree in neoclassical 'economics' I still had no clue what had happened.

Then I stumbled across Post-Keynesian economics and it took me about six months to dismiss the neoclassical garbage. If I hadn't studied that garbage for five years it would have taken me a few days.

DisconnectMe , 26 Oct 2013 02:42

Orthodox economics: Ignore money. Hence, ignore debt. Let the overall leverage of the economy increase until Ponzi finance fails and financial crisis begins. The debt deflation that follows means money gets even more concentrated towards the financial/political elite than before the crisis. Neo-feudalism makes way - finally war.

Then the cycle starts again.

Orthodox economists don't understand capitalism. They can't. The long time failed axioms underlying everything else in their theories don't allow them to do that.

What a waste of economic thinking.

[Mar 28, 2017] Economics taught by neo-classical economics is like the Natural Sciences departments being run by creationists

Notable quotes:
"... This has echoes of a protest by students in 2011 at Harvard when a group of students walked out of the lectures by Dr Gregory Manilow. What has happened to them? ..."
"... Good for them. The economics profession has been dominated by neoliberal theoreticians for far too long. It needs bringing back to the real world. ..."
"... i went to the LSE to study maths and statistics with a sprinkling of economics (my first taste of it at the time). after a few months i was of the opinion it is based on terrible assumptions. e.g. the needs of the average consumer, which are then blown up into fantastical macroeconomical proportions which only led to flawed arguments. The subsequent financial crisis only backed this up. ..."
Mar 28, 2017 | discussion.theguardian.com
RobinS , 25 Oct 2013 5:20

What a ghastly indictment of Manchester, and other economics departments - obviously being very economic with their subject. Sounds a bit like the Natural Sciences departments being run by creationists.

ResponsibleWellbeing , 25 Oct 2013 5:23

This should be the first class for the whole students in economics.
What are the limits in ecology ecosystem? And what are the needs/capacities for human flourishing?

Adventures in New Economics 2: Donut Economics, Kate Raworth

http://www.youtube.com/watch?v=VieEtdcmjtI

This is an open/complex map with a compass in values that I've built trying to go through both main concepts. It's valid for personal development / companies / communities / nations / whole planet.

bit.ly/1775pbV

Jed Bland , 25 Oct 2013 5:36

This has echoes of a protest by students in 2011 at Harvard when a group of students walked out of the lectures by Dr Gregory Manilow. What has happened to them?

I personally have observed in other disciplines that teaching tends to be a generation behind current thinking, Particularly when it has more to do with ideology than science.

Some ten years ago, a movement called the Post-Autistic Ecomoncs Movement had a considerable influence in Europe but has no doubt disappeared in the face of the greed which is central supporting feature of today's neoliberalism.

SteveTen , 25 Oct 2013 5:44

Good for them. The economics profession has been dominated by neoliberal theoreticians for far too long. It needs bringing back to the real world.

skyblueravo , 25 Oct 2013 5:45

i went to the LSE to study maths and statistics with a sprinkling of economics (my first taste of it at the time). after a few months i was of the opinion it is based on terrible assumptions. e.g. the needs of the average consumer, which are then blown up into fantastical macroeconomical proportions which only led to flawed arguments. The subsequent financial crisis only backed this up.

I commend this thinking by the students but if I was one of their parents forking out 27k i would probably tell them to pass the exams they need to and get out and start earning.

LSE is a godawful uni also, unless you have given spawn to gordon gekko dont bother with it.

kongshan , 25 Oct 2013 5:46

Alternative theories and models??? Well they are currently practiced by North Korea and these students will be more than welcomed by the Kim family to ply their trade there.

UnlearningEcon -> kongshan , 25 Oct 2013 7:58

Actually, "alternative theories" were practiced by South Korea, which has been quite a success story. It's not either the status quo or state communism, you know.

[Mar 28, 2017] The robber barons and their useful idiots have certainly achieved what they set out to do.

Mar 28, 2017 | discussion.theguardian.com
radicalchange 25 Oct 2013 6:41

For an understanding of how we came to have thrust upon us the "Dismal Science" of neo-classical economics, which took shape in the 1880's - 1890's, I recommend reading "The Corruption of Economics" by Mason Gaffney.

Here is a link to some excerpts from his book,
http://www.politicaleconomy.org/gaffney.htm

Essentially, economic thinking was hijacked by the robber barons who through building and funding universities were able to subvert the teaching of economics to suit their own agenda. Classical economics with a sound basis of three factors of production was replaced by voodhoo economics which reduced the three factors of production to only two. Whereas once "land" was a factor of production in its own right alongside "capital" and "labour", it was magicked away to be incorporated as "capital" for the purpose of the land owning robber barons.

As anyone with a few braincells would know, "land" is a distinct factor of production in its own right, and not only that, it is the primary factor since neither "capital" or "labour" would exist without it. But "land" can exist without both the other two factors which makes it unique and makes it primary and yet voodhoo economics has managed to hide this fact so well through the employment of clever mathematics to create an illusion of being a solid discipline.

http://www.henrygeorge.org/pcontents.htm

Neoclassical economics is the idiom of most economic discourse today. It is the paradigm that bends the twigs of young minds. Then it confines the florescence of older ones, like chicken-wire shaping a topiary. It took form about a hundred years ago, when Henry George and his reform proposals were a clear and present political danger and challenge to the landed and intellectual establishments of the world. Few people realize to what a degree the founders of Neoclassical economics changed the discipline for the express purpose of deflecting George, discomfiting his followers, and frustrating future students seeking to follow his arguments. The stratagem was semantic: to destroy the very words in which he expressed himself.


To most modern readers, probably George seems too minor a figure to have warranted such an extreme reaction. This impression is a measure of the neo-classicals' success: it is what they sought to make of him. It took a generation, but by 1930 they had succeeded in reducing him in the public mind. In the process of succeeding, however, they emasculated the discipline, impoverished economic thought, muddled the minds of countless students, rationalized free-riding by landowners, took dignity from labor, rationalized chronic unemployment, hobbled us with today's counterproductive tax tangle, marginalized the obvious alternative system of public finance, shattered our sense of community, subverted a rising economic democracy for the benefit of rent-takers, and led us into becoming an increasingly nasty and dangerously divided plutocracy.

Not one economics graduate have I met that has heard of Henry George but yet they have all heard of Karl Marx. The robber barons and their useful idiots have certainly achieved what they set out to do.

radicalchange -> radicalchange , 25 Oct 2013 6:45

As clarification the two paragraphs in italics are excerpts from the "Corruption of Economics" by Mason Gaffney. The link to Henry George's "Progress and Poverty" is, http://www.henrygeorge.org/pcontents.htm

[Mar 28, 2017] I taught Economics for forty years and over 30 of those to Singaporean scholars destined to Oxford, Cambridge and Ivy League universities; in all those years I was aware of the lies I had to teach in order to pass university entrance exams.

Notable quotes:
"... Then Economic History was virtually withdrawn from university Economics and other courses so that only the"lies" would be taught backed up by unquestioned (i.e. purely deductive) Mathematics. It is an academic crime ..."
Mar 28, 2017 | profile.theguardian.com
ptah , 25 Oct 2013 7:55

If a viable economic solution emerged from the universities - one which remedied the classical models and trumped the broken neo-liberal systems, how would we recognise it?

To provide some context - and I am in no way qualified to discuss this topic really but, the first machines to produce logic emerging from Bletchley park were not fully recognised for their potential - the computer revolution took place elsewhere. The UK is absolute rubbish at recognising innovation!

Good luck to the students. I hope many more get involved in this debate.

ID2322670 , 25 Oct 2013 8:24

I taught Economics for forty years and over 30 of those to Singaporean scholars destined to Oxford, Cambridge and Ivy League universities; in all those years I was aware of the lies I had to teach in order to pass university entrance exams.

I attempted to follow the thesis that every economic theory however old or new was attempting to answer a unique contemporary economic problem and therefore only Economic History was of relevance in understanding a theory be Adam Smith or Keynes or even (unacademically) Thatcherism.

My students found all such information useless to passing Economics exams but interesting for "life".

Then Economic History was virtually withdrawn from university Economics and other courses so that only the"lies" would be taught backed up by unquestioned (i.e. purely deductive) Mathematics. It is an academic crime.

[Mar 28, 2017] Zombie theories continue on their path of destruction.

Notable quotes:
"... Neoliberal economics not only led to the crash of 2007/8 it is continuing to wreak havoc. A good current example is pension schemes - something we will depend on one day. They are valued using the purest form of free market thinking: the efficient markets hypothesis - the idea that asset markets always perfectly embody all relevant information. It is akin to belief in magic. ..."
"... It is amazing to read how narrow economics education is in modern Britain. It is not only intellectually unenlightened and literally dangerous, given the power many economics graduates can wield, amplified by the extraordinary sums and resources they manage, it also does a great disservice to people who are entitled to a proper education which, clearly, they are not receiving in this monotheistic model. ..."
"... It reminds me precisely of the so-called "religious education" I received in Ireland which was nothing of the sort. All I got was instruction in Catholic doctrine and ethics; there was no instruction in the beliefs of any other Christian sects, let alone what goes on in the other major world religions such as Hinduism, Judaism, or Islam. What I know about them I taught myself in later life. ..."
"... It seems that the same shameful parochial narrowness, intellectual provincialism, and "one true religion" ethic prevails in British economic so-called "education". ..."
"... On another matter, the revelation that economists "ignore empirical evidence that contradicts mainstream theories" destroys any notion that economics is a science, a silly claim I have always opposed. All that it reveals is that economists have no idea what science is. ..."
Mar 28, 2017 | discussion.theguardian.com
harrybuttle, 26 Oct 2013 7:25

Neoliberal economics not only led to the crash of 2007/8 it is continuing to wreak havoc. A good current example is pension schemes - something we will depend on one day. They are valued using the purest form of free market thinking: the efficient markets hypothesis - the idea that asset markets always perfectly embody all relevant information. It is akin to belief in magic.

Yet many professionals who run pension schemes and the government regulator all support it's use because it suits them - it deflects responsibility from them while they continue to be paid. It's effects on society are disastrous as it leads us to believe are insolvent. The government and actuarial profession accepted all this and enshrined it in law.

A topical example is the universities pension scheme the USS which BBC Newsnight and Radio 4 have just told us has a 'black hole' of a deficit.

Many of us thought that the EMH would ditched after its spectacular failure but no. Zombie theories continue on their path of destruction.

Josifer , 27 Oct 2013 01:00
It is amazing to read how narrow economics education is in modern Britain. It is not only intellectually unenlightened and literally dangerous, given the power many economics graduates can wield, amplified by the extraordinary sums and resources they manage, it also does a great disservice to people who are entitled to a proper education which, clearly, they are not receiving in this monotheistic model.

It reminds me precisely of the so-called "religious education" I received in Ireland which was nothing of the sort. All I got was instruction in Catholic doctrine and ethics; there was no instruction in the beliefs of any other Christian sects, let alone what goes on in the other major world religions such as Hinduism, Judaism, or Islam. What I know about them I taught myself in later life.

It seems that the same shameful parochial narrowness, intellectual provincialism, and "one true religion" ethic prevails in British economic so-called "education". Intellectuals ought to be utterly ashamed to propagate such blinkered views. Anyone who has never heard of Keynes is culturally illiterate; that an economics student, in particular, has never heard of Keynes is a disgrace.

On another matter, the revelation that economists "ignore empirical evidence that contradicts mainstream theories" destroys any notion that economics is a science, a silly claim I have always opposed. All that it reveals is that economists have no idea what science is.

[Mar 28, 2017] Priests of neoliberal economics need to recognize that they operate in a political environment in which their work will be seized upon by financial oligarchy, and will have real influnce of justifing thier often destrcutive for the majoroity of population policies

Delong is a typical neoliberal stooge, not that different from Mankiw, or Summers
Note that the terms "neoliberalism", "neo-classical economics" and "financial oligarchy" were never used...
Notable quotes:
"... "DeLong's takeaway is that economists do need to recognize that they operate in a political environment (the sewers of Romulus) in which their work will be seized upon by interested groups, with real practical outcomes. " ..."
"... UE's conclusion is that mainstream economics needs to be taken down several notches, which would open more space for alternative approaches to economics and, indeed, alternative approaches to policy that place more weight on human outcomes, broadly understood, than the formalistic criteria of efficiency, etc. ..."
"... Simon-Wren Lewis (SWL) and Chris Dillow have both recently argued that criticising economics for the 2008 financial crisis distracts from the real source of the blame, which is banks, and therefore undermines the progressive cause. While I don't disagree that the banks deserve blame, I want to push back a bit on their argument that economics as a discipline has little to do with regressive ideas. ..."
"... Consider the case of monopoly. The economics textbooks may be against monopoly, but this is largely on the grounds that it reduces consumer welfare by increasing prices. Building on this logic, the Chicago School of anti-trust regulation has shifted the focus of anti-trust law to lowering prices for consumers. As this recent article on Amazon details, this has hidden other forms of monopoly abuse such as predatory pricing, market dominance and reduced bargaining power for workers, consumers and smaller companies. ..."
"... Or consider Reinhart and Rogoff's famous '90% debt threshold', where their statistics purportedly showed that after a country reaches 90% of sovereign debt, its growth would stall. This was used by many politicians, including George Osborne, to justify austerity - until it was revealed to be based on 'statistical errors'. Sure, R & R received a fair amount of flak for this, but they have been incredibly stubborn about the result. Where was the formal, institutional denunciation of such a glaring error from the economics profession, and of the politicians who used it to justify their regressive policies? Why are R & R still allowed to comment on the matter with even an ounce of credibility? The case for austerity undoubtedly didn't hinge on this research alone, but imagine if a politician cited faulty medical research to approve their policies - would institutions like the BMA not feel a responsibility to condemn it? (Answer: yes, even when the politician was in another country). ..."
"... There are many more examples like this, such as Andrei Shleifer, who despite being prosecuted for fraud in post-Soviet Russia was awarded the John Bates Clark medal, probably the second most prestigious prize in the discipline, was subsequently allowed to publish papers in respected journals about how well privatisation went in Russia, and was eventually bailed out of the case by his incredibly wealthy university to the tune of $26 million. This is not to mention the disastrous Russian privatisation as a whole and the role of certain economists/economic ideas in it. ..."
"... Even worse were the Chicago boys, who advised Augusto Pinochet's horrific economic policies (and no, they were not just humble advisors, they were knee deep in the absolute worst excesses of the regime.) Without any substantive ethical code and without procedures for weeding out corrupt, dishonest or discredited work, the profession creates an environment where people can act like this and get away with it, all under the banner of the intellectual credibility 'economics' seems to confer on people. ..."
"... Mainstream economists have used mathematics to hide ideology. ..."
"... They have cherry-picked mathematical constructions with highly restrictive, idealized properties and then wedged-in economic parameters to fit their purposes. That is the case with the neoclassical production function and with the Arrow-Debreu general equilibrium model. The objective was to "prove" that economies free from government control were "natural" and best. They have been sophists from their first emergence. ..."
"... Science is not capable of devising a theory that adequately explains all the human elements and serendipitous effects of an economy - and may never be capable. However, humans are capable of organizing a society according to their needs and wants. They do it on a corporate scale all the time. It isn't perfect but it works pretty well. ..."
"... Mainstream economists have fought against a managed economy because it would reduce the influence of themselves and their plutocrat sponsors. ..."
Mar 28, 2017 | economistsview.typepad.com
Peter K. -> pgl... March 27, 2017 at 07:25 AM
Peter Dorman:

"DeLong's takeaway is that economists do need to recognize that they operate in a political environment (the sewers of Romulus) in which their work will be seized upon by interested groups, with real practical outcomes. "

.... ... ...

Peter K. , March 27, 2017 at 07:20 AM
... ... ...

http://econospeak.blogspot.com/2017/03/economics-part-of-rot-part-of-treatment.html

SUNDAY, MARCH 26, 2017

Economics: Part of the Rot, Part of the Treatment, or Some of Each?

Is mainstream economics, with its false certitudes and ideological biases, one of the reasons for the dismal state of policy debate in countries like the UK and the US, or are its rigorous methods an important antidote to the ruling political foggery? That's being debated right now, live online.

Our starting point is a post on Unlearning Economics, dated March 5, which argues that the flaws of mainstream economics contribute to lousy policy on several fronts: downplaying the role of monopoly, cheerleading for the shareholder value imperative in the corporate world, knee-jerk support for trade agreements under the banner of comparative advantage, and regressive macroeconomic policy, among others. A particularly pointed paragraph brought up the Reinhart-Rogoff 90% affair and accused the economics profession of dereliction of duty by not taking action to rebuke the wrongdoers:

Where was the formal, institutional denunciation of such a glaring error from the economics profession, and of the politicians who used it to justify their regressive policies?

UE's conclusion is that mainstream economics needs to be taken down several notches, which would open more space for alternative approaches to economics and, indeed, alternative approaches to policy that place more weight on human outcomes, broadly understood, than the formalistic criteria of efficiency, etc.

Simon Wren-Lewis responded by arguing that UE has it exactly backwards. Restricting himself to UE's critique of macroeconomics, SWL says, yes, reactionary politicians have invoked "economics" to support austerity, but "real" economists for the most part have not gone along. True, there were a few, like Reinhart and Rogoff and those in the employ of the British financial sector ("City economists") who took a public stand against sensible Keynesian policies in the wake of the financial crisis, but they were a minority, and, in any case, what would you want to do about them? Economists, like professionals in any field, will disagree sometimes, and having a centralized agency to enforce a false consensus would ultimately work against progressives and dissenters, not for them. Let's put the blame where it really belongs, says SWL-on the politicians and pundits who have brushed aside decades of theoretical and empirical work to promulgate a reactionary, fact-free discourse on economic policy.

Yes-but, adds Brad DeLong. He largely agrees with SWL, but delves more deeply into the Reinhart-Rogoff affair. He shows that, even without the famed Excel glitch, a cursory look would reveal that R-R were trumpeting nonexistent results:

So the R-R claim that fiscal consolidation was necessary and urgent was unfounded from the get-go, and these two were both respected mainstream economists, so what can we infer? DeLong's takeaway is that economists do need to recognize that they operate in a political environment (the sewers of Romulus) in which their work will be seized upon by interested groups, with real practical outcomes. In this situation, the profession as a whole has a responsibility to assess high profile but dubious work. Although he isn't explicit, my reading is that DeLong wants some sort of professional quality control, but not institutionalized in the way UE seems to call for.

...

pgl -> Peter K.... , March 27, 2017 at 07:44 AM
Yep - try reading this portion:

"reactionary politicians have invoked "economics" to support austerity, but "real" economists for the most part have not gone along. True, there were a few, like Reinhart and Rogoff and those in the employ of the British financial sector ("City economists") who took a public stand against sensible Keynesian policies in the wake of the financial crisis, but they were a minority, and, in any case, what would you want to do about them? Economists, like professionals in any field, will disagree sometimes, and having a centralized agency to enforce a false consensus would ultimately work against progressives and dissenters, not for them. Let's put the blame where it really belongs, says SWL-on the politicians and pundits who have brushed aside decades of theoretical and empirical work to promulgate a reactionary, fact-free discourse on economic policy."

Peter K. , March 27, 2017 at 07:27 AM
https://medium.com/@UnlearningEcon/no-criticising-economics-is-not-regressive-43e114777429#.gihe5thlj

Unlearning EconomicsFollow
Mar 5

No, Criticising Economics is not Regressive

Simon-Wren Lewis (SWL) and Chris Dillow have both recently argued that criticising economics for the 2008 financial crisis distracts from the real source of the blame, which is banks, and therefore undermines the progressive cause. While I don't disagree that the banks deserve blame, I want to push back a bit on their argument that economics as a discipline has little to do with regressive ideas.

But firstly, it is my view that criticising economics needn't have an ideological motivation. Many critics, myself included, simply believe that neoclassical economics has severe shortcomings and that in order to understand the economic system properly we need better ideas. In many cases criticisms of neoclassical economics are so abstract that it's not even clear to me what the political implications of either side would be (e.g. the fact that Arrow-Debreu equilibrium might be unstable has no bearing on my view of whether capitalism itself is). I respect both SWL and Dillow immensely, but taken alone I consider this line of argument a rather feeble attempt to shut down an important scientific and philosophical debate.

Despite this, the point has some force to it: why devote so much intellectual effort to criticising economics when we could be devoting it to getting the big banks and other corporate wrongdoers? And here I think SWL and Dillow both paper over the extent to which economics has served those in power, as I will try to illustrate with a number of examples. To be clear, I'm not 'blaming' economists for all of these occurrences, but I do think the discipline seems to eschew responsibility for them, and that progressive economists have a blind spot when it comes to the practical consequences of their discipline.

Economics in Practice

I've always acknowledged that economists themselves are probably more progressive than they're usually given credit for. Nevertheless, the absence of things like power, exploitation, poverty, inequality, conflict, and disaster in most mainstream models - centred as they are around a norm of well-functioning markets, and focused on banal criteria like prices, output and efficiency - tends to anodise the subject matter. In practice, this vision of the economy detracts attention from important social issues and can even serve to conceal outright abuses. The result is that in practice, the influence of economics has often been more regressive than progressive.

Consider the case of monopoly. The economics textbooks may be against monopoly, but this is largely on the grounds that it reduces consumer welfare by increasing prices. Building on this logic, the Chicago School of anti-trust regulation has shifted the focus of anti-trust law to lowering prices for consumers. As this recent article on Amazon details, this has hidden other forms of monopoly abuse such as predatory pricing, market dominance and reduced bargaining power for workers, consumers and smaller companies.

Similarly, textbook ideas about profit maximisation and rational agents responding to incentives featured prominently in the promotion of shareholder value by Milton Friedman and other economists, which has been dominant over the past few decades and has been instrumental in increasing inequality and corporate short-termism. The potential macroeconomic impacts of corporate concentration have also been ignored by discipline until very recently - a consequence, perhaps, of the narrowing of particular subfields and the neglection of more critical systemic analysis (something similar could perhaps be said for the 2016 Prize in contract theory, though I am no expert in this area).

One type of institution which is dominated by economic ideas is central banks, yet many of their policies have had regressive elements. For instance, SWL praises economists at the Bank of England for implementing Quantitative Easing, but forgets that the Bank itself admitted that this has disproportionately benefited the wealthy. This problem goes even deeper: as J W Mason has argued, inflation targeting - a key central bank policy across the world - in practice results in workers' wages being kept down and their jobs being made more insecure in the name of combating inflation. In both cases what is painted as a relatively benign process - reducing interest rates and managing inflation, respectively - actually has quite serious social consequences, which generally aren't discussed in class or by policymakers.

In the realm of international trade, economists have been all too inclined to support trade deals - often quite vociferously - on the basis of simple ideas like comparative advantage, while ignoring (a) the actual details of the trade deals, which as Dean Baker frequently points out, tend to favour the rich and corporations and (b) their own more complex economic models, which as Dani Rodrik frequently points out, do imply that trade will harm some people while benefitting others. Uneven and unfair international trade has been a key element of the harm to workers over the past few decades, and was undoubtedly a factor in the election of Trump.

Global trade institutions like the IMF and World Bank have been dominated by economics since their inception, and using economics they inflicted massive pain through their free market 'structural adjustment' policies, which can only be described as regressive but which were fundamentally based on context-free neoclassical ideas about markets. True, these institutions may have softened somewhat in recent years, but that doesn't undo the harm they have caused. In fact, even their more recent 'bottom up' policies such as microcredit and Randomised Control Trials - both inspired by economic ideas - often seem to have benefited global and local elites at the expensive of the poorest. As Jamie Galbraith once noted in the context of the financial crisis, the discipline just has a blind spot for how ideas interact with power to produce unfair outcomes, sometimes taking the form of outright abuse and fraud. Which leads me nicely to my next argument.

Abusing Economics

Economists may complain that economic ideas have been misused by vested interests, and that this isn't their responsibility. But a huge problem with the discipline of economics is that it has virtually no institutional shields against mistakes and wrongdoing. Merton and Scholes won the biggest prize in the profession for their model of financial markets - which had become commonly adopted in options trading - in 1997. A year later those same economists required a hefty bailout when the use of their model was implicated in the collapse of the hedge fund Long-Term Capital Management, where they were both partners. Was the prize revoked? No. Were they discredited? No. Actually, even the model is still widely used, despite massively underestimating fat tails and therefore being implicated in a number of other financial crises, including 2008.

Or consider Reinhart and Rogoff's famous '90% debt threshold', where their statistics purportedly showed that after a country reaches 90% of sovereign debt, its growth would stall. This was used by many politicians, including George Osborne, to justify austerity - until it was revealed to be based on 'statistical errors'. Sure, R & R received a fair amount of flak for this, but they have been incredibly stubborn about the result. Where was the formal, institutional denunciation of such a glaring error from the economics profession, and of the politicians who used it to justify their regressive policies? Why are R & R still allowed to comment on the matter with even an ounce of credibility? The case for austerity undoubtedly didn't hinge on this research alone, but imagine if a politician cited faulty medical research to approve their policies - would institutions like the BMA not feel a responsibility to condemn it? (Answer: yes, even when the politician was in another country).

There are many more examples like this, such as Andrei Shleifer, who despite being prosecuted for fraud in post-Soviet Russia was awarded the John Bates Clark medal, probably the second most prestigious prize in the discipline, was subsequently allowed to publish papers in respected journals about how well privatisation went in Russia, and was eventually bailed out of the case by his incredibly wealthy university to the tune of $26 million. This is not to mention the disastrous Russian privatisation as a whole and the role of certain economists/economic ideas in it.

Even worse were the Chicago boys, who advised Augusto Pinochet's horrific economic policies (and no, they were not just humble advisors, they were knee deep in the absolute worst excesses of the regime.) Without any substantive ethical code and without procedures for weeding out corrupt, dishonest or discredited work, the profession creates an environment where people can act like this and get away with it, all under the banner of the intellectual credibility 'economics' seems to confer on people.

And this leads me to my last point, which is the rhetorical power that invoking 'economics' has in contemporary politics. 'You don't understand economics' is - rightly or wrongly - a common refrain of those attacking progressive policies such as Ed Miliband's proposed energy price freeze, the minimum wage, or fiscal expansion. As with the above abuses of economics, those such as SWL complain (perhaps correctly) that these are inaccurate representations of the field.

But these same economists then invoke 'economics' in a similar way to justify their own policies. In my opinion, this only reinforces the dominance of economics and narrows the debate, a process which is inherently regressive. The case against austerity does not depend on whether it is 'good economics', but on its human impact. Nor does the case for combating climate change depend on the present discounted value of future costs to GDP. Reclaiming political debate from the grip of economics will make the human side of politics more central, and so can only serve a progressive purpose.

Peter K. -> Peter K.... , March 27, 2017 at 07:29 AM
Think about how Republicans use "Science" and scientists fight back against their misuse. In recent decades Republicans have left the field and now "scientist" has become a bad word for them.

Same thing needs to happen with Economics.

RGC -> Peter K.... , March 27, 2017 at 09:25 AM
Mainstream economists have used mathematics to hide ideology.

They have cherry-picked mathematical constructions with highly restrictive, idealized properties and then wedged-in economic parameters to fit their purposes. That is the case with the neoclassical production function and with the Arrow-Debreu general equilibrium model. The objective was to "prove" that economies free from government control were "natural" and best. They have been sophists from their first emergence.

RGC -> RGC... , March 27, 2017 at 09:33 AM
Consider the Arrow-Debreu model:

In the 1950s, Arrow and others proved a theorem that, many economists believe, put a rigorous mathematical foundation beneath Adam Smith's idea of the invisible hand. The theorem shows -- in a highly abstract model -- that producers and consumers can match their desires perfectly, given a particular set of prices.

In this rarified atmosphere of "general equilibrium," economic activity might take place efficiently without any central coordination, simply as a result of people pursuing their self-interest.

It's an insight that economists have used to argue for de-unionization, globalization and financial deregulation, all in the name of removing various frictions or distortions that prevent markets from achieving the elusive equilibrium.

Yet the theorem trails a dense cloud of caveats, which Arrow himself recognized could be more important than the proof itself. For one, it worked only in a perfect world, far removed from the one humans actually inhabit.

Equilibrium is merely one of many conceivable states of that world; there's no particular reason to believe that the economy would naturally tend toward it. Beautiful as the math may be, actual experience suggests that its magical efficiency is purely theoretical, and a poor guide to reality.

Remarkably, academic macroeconomists have largely ignored these limitations, and continue to teach the general equilibrium model -- and more modern variants with same fatal weaknesses -- as a decent approximation of reality.

Economists routinely use the framework to form their views on everything from taxation to global trade -- portraying it as a value-free, scientific approach, when in fact it carries a hidden ideology that casts completely free markets as the ideal.

Thus, when markets break down, the solution inevitably entails removing barriers to their proper functioning: privatize healthcare, education or social security, keep working to free up trade, or make labor markets more "flexible."

Those prescriptions have all too often failed, as the 2008 financial crisis eloquently demonstrated. The result is widespread distrust of economic experts and rejection of globalization.

In his recent book "Economism: Bad Economics and the Rise of Inequality," James Kwak credits conservative think tanks funded by corporations and the wealthy for spreading the oversimplified belief in markets as wise machines for producing optimal social outcomes. He certainly has a point, yet such propaganda stemmed from an intellectual model that had been lurking at the center of economics all along -- and remains there now, still widely revered.

This perversion isn't Arrow's fault. He merely helped to prove a mathematical theorem, and was no blind advocate for markets. Indeed, he actually thought the theorem illustrated the limitations of capitalism, and he was prescient in understanding how economic inequality might come to impair the workings of democratic government.

Perhaps it would be best to use his own words: "In a system where virtually all resources are available for a price, economic power can be translated into political power by channels too obvious for mention. In a capitalist society, economic power is very unequally distributed, and hence democratic government is inevitably something of a sham."

https://www.bloomberg.com/view/articles/2017-03-09/the-misunderstanding-at-the-core-of-economics

RGC -> RGC... , March 27, 2017 at 09:47 AM
Note that neo-classical(mainstream) economists did NOT do what scientists do.

They did not observe phenomena and then try to construct a theory to explain the phenomena.

Rather, they constructed a theory that supported their ideology and then tried to argue that the theory was representative of the real world.

anne -> RGC... , March 27, 2017 at 02:55 PM
I do appreciate this essay.
Egmont Kakarot-Handtke , March 27, 2017 at 07:50 AM
The non-existence of economics

Comment on Simon Wren-Lewis on 'On criticizing the existence of mainstream economics'

There is no such thing as economics, there are FOUR economixes and they are constantly played against each other. First, there is theoretical and political economics. The crucial distinction within theoretical economics is true/false, the crucial distinction within political economics good/bad. Economics exhausts itself since 200+ years in crossover discussion, that is, by NOT keeping science and politics properly apart. As a result, it got neither science nor politics right.

Heterodox economists say that orthodox economics is false and in this very general sense they are right. Heterodox economists have debunked much of Orthodoxy but this has not enabled them to work out a superior alternative. The proper task of Heterodoxy is not the repetitive critique of Orthodoxy but to fully replace it, that is, to perform a paradigm shift: "The problem is not just to say that something might be wrong, but to replace it by something ― and that is not so easy." (Feynman)

Because Heterodoxy has never developed a valid alternative it advocates pluralism, more precisely, the pluralism of false theories. The argument boils down to: if Orthodoxy is allowed to sell their rubbish in the curriculum, Heterodoxy must also be allowed to sell their rubbish. Economics is not so much a heroic struggle about scientific truth but about a better place at the academic trough.

The fact of the matter is that neither Orthodoxy nor Heterodoxy has the true theory and that, by consequence, the political arguments of BOTH sides have NO sound scientific foundation.

Traditional Heterodoxy knows quite well that it has nothing to offer in the way of progressive science and therefore argues for dumping scientific standards altogether and to focus on politics pure and simple: "The case against austerity does not depend on whether it is 'good economics', but on its human impact. Nor does the case for combating climate change depend on the present discounted value of future costs to GDP. Reclaiming political debate from the grip of economics will make the human side of politics more central, and so can only serve a progressive purpose."

This is a good idea, economists should no longer pretend to do science but openly push their respective political agendas, after all, this is what they have actually done the past 200+ years. Neither Orthodoxy nor traditional Heterodoxy satisfies the scientific criteria of material and formal consistency. So, both, orthodox and heterodox economists have to get out of science because of incurable incompetence.

It was John Stuart Mill who told economists that they must decide themselves between science and politics: "A scientific observer or reasoner, merely as such, is not an adviser for practice. His part is only to show that certain consequences follow from certain causes, and that to obtain certain ends, certain means are the most effectual. Whether the ends themselves are such as ought to be pursued, and if so, in what cases and to how great a length, it is no part of his business as a cultivator of science to decide, and science alone will never qualify him for the decision."

Both, orthodox and heterodox economists violate the principle of the separation of science and politics on a daily basis. Economics is what Feynman famously called cargo cult science and neither right wing nor left wing economic policy guidance has a sound scientific foundation since Adam Smith/Karl Marx. It is high time that economics frees itself from the corrupting grip of politics.

Egmont Kakarot-Handtke

RGC -> Egmont Kakarot-Handtke ... , March 27, 2017 at 11:33 AM
Science is not capable of devising a theory that adequately explains all the human elements and serendipitous effects of an economy - and may never be capable. However, humans are capable of organizing a society according to their needs and wants. They do it on a corporate scale all the time. It isn't perfect but it works pretty well.

Mainstream economists have fought against a managed economy because it would reduce the influence of themselves and their plutocrat sponsors.

Peter K. , March 27, 2017 at 08:22 AM
I like that Thoma is linking to Campbell who has some interesting blog posts, like in today's links:

http://douglaslcampbell.blogspot.com/2017/03/corporations-in-age-of-inequality.html

"The story of inequality they tell is also one which is essentially technology based (IT and outsourcing), as they find that inequality is almost entirely driven by changes in between firm inequality. They deserve credit for presenting an interesting set of facts.

However, while intriguing, I'm not yet totally convinced this is the key to understanding inequality. Macromon [sic] also had an excellent discussion of this research awhile back...

...

I took issue with this comment "Since 1980, income inequality has risen sharply in most developed economies". As my blog readers know, income inequality has not risen dramatically in Germany, France, Japan, or Sweden according to Alvaredo et al.. Thus, this comment threw me: "This means that the rising gap in pay between firms accounts for the large majority of the increase in income inequality in the United States. It also accounts for at least a substantial part in other countries, as research conducted in the UK, Germany, and Sweden demonstrates." Right, but the increases in inequality in Germany and Sweden have been quite minor relative to the US, and are also associated with changes in top marginal tax rates. So, between firm inequality isn't actually explaining much is what I'm hearing.

..."

Peter K. , March 27, 2017 at 08:22 AM
pgl -> Peter K....
Try this single line:

"the profession as a whole has a responsibility to assess high profile but dubious work."

As in that awful paper by Gerald Friedman. Peter Dorman ripped it. I ripped. And yes the Romers ripped it.

That is what economists are suppose to do. But you have whined about this for the last 14 months.

Reply Monday, March 27, 2017 at 07:47 AM

Yes it was a priority to demonize Friedman b/c he was coming from the left and was supposedly supporting Bernie Sanders. It was a way for the center-left to discredit Bernie Sanders and call him "unPresidential" and "unserious" as Hillary did.

Meawhile PGL continuously name-drops Mankiw as if he has a man crush on him.

[Mar 28, 2017] The neoliberals also have strong views on the kind of society they would like to create, but they prefer to hide it because very few people would vote for it

Notable quotes:
"... You don't need to look very far to see the neoliberal ideal; it is all around us: everything a commodity, including human beings; massive differentials in life chances; sweat shops for producers juxtaposed with unimaginable wealth for the owners of capital; everybody on their own, the rolling back of collective provision and no such thing as society. ..."
"... Instead, the neoliberals talk of freedom and choice, but in reality it is freedom for the few to exploit the many and the choice to take whatever crumbs are offered to you or starve. ..."
"... Agree, but it's not that they don't talk about it. The use mathematics as a way to underscore what is essentially an ideological position. It gives them an aura of objectivity, impartiality and scientific truth which, given their prepositions about utility maximization and unbounded growth, they frankly don't have. ..."
Mar 28, 2017 | discussion.theguardian.com
archeeros , 25 Oct 2013 3:50

Keynes viewed economics as a branch of philosophy. At its heart are two questions - What is the nature of man? and What sort of society should we create? The focus on mathematical models, based upon free-market theories, has long been a victory for ivory towers over reality. Sure, they have an important role to play, but when they are at the centre of what is taught at universities something has gone wrong.

SteveTen -> archeeros , 25 Oct 2013 5:57

The neoliberals also have strong views on the kind of society they would like to create, but they don't talk about it often, because very few people would vote for it.

You don't need to look very far to see the neoliberal ideal; it is all around us: everything a commodity, including human beings; massive differentials in life chances; sweat shops for producers juxtaposed with unimaginable wealth for the owners of capital; everybody on their own, the rolling back of collective provision and no such thing as society.

Instead, the neoliberals talk of freedom and choice, but in reality it is freedom for the few to exploit the many and the choice to take whatever crumbs are offered to you or starve.

Usignolo -> SteveTen , 25 Oct 2013 6:18

Agree, but it's not that they don't talk about it. The use mathematics as a way to underscore what is essentially an ideological position. It gives them an aura of objectivity, impartiality and scientific truth which, given their prepositions about utility maximization and unbounded growth, they frankly don't have.

[Mar 28, 2017] Mainstream economics, with its false certitudes and ideological biases, is one of the reasons for the dismal state of policy debate in countries like the UK and the US, sustaining the ruling neoliberals political foggery?

Notable quotes:
"... Few mainstream economists predicted the global financial crash of 2008 and academics have been accused of acting as cheerleaders for the often labyrinthine financial models behind the crisis. Now a growing band of university students are plotting a quiet revolution against orthodox free-market teaching, arguing that alternative ways of thinking have been pushed to the margins. ..."
"... Our starting point is a post on Unlearning Economics, dated March 5, which argues that the flaws of mainstream economics contribute to lousy policy on several fronts: downplaying the role of monopoly, cheerleading for the shareholder value imperative in the corporate world, knee-jerk support for trade agreements under the banner of comparative advantage, and regressive macroeconomic policy, among others. A particularly pointed paragraph brought up the Reinhart-Rogoff 90% affair and accused the economics profession of dereliction of duty by not taking action to rebuke the wrongdoers: ..."
"... Simon Wren-Lewis responded by arguing that UE has it exactly backwards. Restricting himself to UE's critique of macroeconomics, SWL says, yes, reactionary politicians have invoked "economics" to support austerity, but "real" economists for the most part have not gone along. True, there were a few, like Reinhart and Rogoff and those in the employ of the British financial sector ("City economists") who took a public stand against sensible Keynesian policies in the wake of the financial crisis, but they were a minority, and, in any case, what would you want to do about them? Economists, like professionals in any field, will disagree sometimes, and having a centralized agency to enforce a false consensus would ultimately work against progressives and dissenters, not for them. Let's put the blame where it really belongs, says SWL-on the politicians and pundits who have brushed aside decades of theoretical and empirical work to promulgate a reactionary, fact-free discourse on economic policy. ..."
Mar 28, 2017 | economistsview.typepad.com
JohnH -> Peter K.... March 27, 2017 at 06:51 PM

So true; "SWL has never addressed what is happening in the real world."

And that's the reason UK economics students revolted: "Few mainstream economists predicted the global financial crash of 2008 and academics have been accused of acting as cheerleaders for the often labyrinthine financial models behind the crisis. Now a growing band of university students are plotting a quiet revolution against orthodox free-market teaching, arguing that alternative ways of thinking have been pushed to the margins.

Economics undergraduates at the University of Manchester have formed the Post-Crash Economics Society, which they hope will be copied by universities across the country. The organisers criticise university courses for doing little to explain why economists failed to warn about the global financial crisis and for having too heavy a focus on training students for City jobs."
https://www.theguardian.com/business/2013/oct/24/students-post-crash-economics

pgl is a classic example. He regularly preaches what theory says but is clueless to explain what's really happening.

Peter K. , March 27, 2017 at 07:20 AM
I like Peter Dorman much, much better than PGL. He always has interesting things to say. Here he stays on topic, unlike PGL.

http://econospeak.blogspot.com/2017/03/economics-part-of-rot-part-of-treatment.html

SUNDAY, MARCH 26, 2017

Economics: Part of the Rot, Part of the Treatment, or Some of Each?

Is mainstream economics, with its false certitudes and ideological biases, one of the reasons for the dismal state of policy debate in countries like the UK and the US, or are its rigorous methods an important antidote to the ruling political foggery? That's being debated right now, live online.

Our starting point is a post on Unlearning Economics, dated March 5, which argues that the flaws of mainstream economics contribute to lousy policy on several fronts: downplaying the role of monopoly, cheerleading for the shareholder value imperative in the corporate world, knee-jerk support for trade agreements under the banner of comparative advantage, and regressive macroeconomic policy, among others. A particularly pointed paragraph brought up the Reinhart-Rogoff 90% affair and accused the economics profession of dereliction of duty by not taking action to rebuke the wrongdoers:

Where was the formal, institutional denunciation of such a glaring error from the economics profession, and of the politicians who used it to justify their regressive policies?

UE's conclusion is that mainstream economics needs to be taken down several notches, which would open more space for alternative approaches to economics and, indeed, alternative approaches to policy that place more weight on human outcomes, broadly understood, than the formalistic criteria of efficiency, etc.

Simon Wren-Lewis responded by arguing that UE has it exactly backwards. Restricting himself to UE's critique of macroeconomics, SWL says, yes, reactionary politicians have invoked "economics" to support austerity, but "real" economists for the most part have not gone along. True, there were a few, like Reinhart and Rogoff and those in the employ of the British financial sector ("City economists") who took a public stand against sensible Keynesian policies in the wake of the financial crisis, but they were a minority, and, in any case, what would you want to do about them? Economists, like professionals in any field, will disagree sometimes, and having a centralized agency to enforce a false consensus would ultimately work against progressives and dissenters, not for them. Let's put the blame where it really belongs, says SWL-on the politicians and pundits who have brushed aside decades of theoretical and empirical work to promulgate a reactionary, fact-free discourse on economic policy.

Yes-but, adds Brad DeLong. He largely agrees with SWL, but delves more deeply into the Reinhart-Rogoff affair. He shows that, even without the famed Excel glitch, a cursory look would reveal that R-R were trumpeting nonexistent results:

So the R-R claim that fiscal consolidation was necessary and urgent was unfounded from the get-go, and these two were both respected mainstream economists, so what can we infer? DeLong's takeaway is that economists do need to recognize that they operate in a political environment (the sewers of Romulus) in which their work will be seized upon by interested groups, with real practical outcomes. In this situation, the profession as a whole has a responsibility to assess high profile but dubious work. Although he isn't explicit, my reading is that DeLong wants some sort of professional quality control, but not institutionalized in the way UE seems to call for.

...

[Mar 28, 2017] Economics students aim to tear up free-market syllabus

Notable quotes:
"... It was an eye opener that Universities are teaching only the neo-liberal model as the core syllabus. This is not education but indoctrination. Fair play to the group then who were passionate about the need for change and realise that it is up to them to effect that change. Good luck to them, I hope that they are successful in re-claiming education as a means of furthering understanding through questioning prevailing orthodoxy. ..."
"... Good luck. You may need it. You will be surprised at how much opposition you encounter and how remorseless and relentless it is. Look up the book "Political economy now!", about the experience at the University of Sydney. ..."
"... Economics is so discredited a subject that even students who have barley started studying realise that - with a few exceptions like Stiglitz or Schiller - it is total fabricated bullshit paid for by people with enough money to benefit from the lies it spreads. ..."
"... One of the biggest lies ever told the free market, as its never ever been a reality. ..."
"... Economists, like scientists and the rest of us, are always employed by someone and therein lies the problem: the conflict between what we believe to be the truth and what we are paid to do (or teach) to keep our job. Many economists (like investors & politicians) knew the crash would burst at some point but only those who enjoyed a seat outside the system would benefit from its prediction. ..."
Oct 24, 2013 | www.theguardian.com
Few mainstream economists predicted the global financial crash of 2008 and academics have been accused of acting as cheerleaders for the often labyrinthine financial models behind the crisis. Now a growing band of university students are plotting a quiet revolution against orthodox free-market teaching, arguing that alternative ways of thinking have been pushed to the margins.

Economics undergraduates at the University of Manchester have formed the Post-Crash Economics Society , which they hope will be copied by universities across the country. The organisers criticise university courses for doing little to explain why economists failed to warn about the global financial crisis and for having too heavy a focus on training students for City jobs.

A growing number of top economists, such as Ha-Joon Chang, who teaches economics at Cambridge University, are backing the students.

Next month the society plans to publish a manifesto proposing sweeping reforms to the University of Manchester's curriculum, with the hope that other institutions will follow suit.

Joe Earle, a spokesman for the Post-Crash Economics Society and a final-year undergraduate, said academic departments were "ignoring the crisis" and that, by neglecting global developments and critics of the free market such as Keynes and Marx, the study of economics was "in danger of losing its broader relevance".

Chang, who is a reader in the political economy of development at Cambridge, said he agreed with the society's premise. The teaching of economics was increasingly confined to arcane mathematical models, he said. "Students are not even prepared for the commercial world. Few [students] know what is going on in China and how it influences the global economic situation. Even worse, I've met American students who have never heard of Keynes."

In June a network of young economics students, thinkers and writers set up Rethinking Economics , a campaign group to challenge what they say is the predominant narrative in the subject.

Earle said students across Britain were being taught neoclassical economics "as if it was the only theory".

He said: "It is given such a dominant position in our modules that many students aren't even aware that there are other distinct theories out there that question the assumptions, methodologies and conclusions of the economics we are taught."

Multiple-choice and maths questions dominate the first two years of economics degrees, which Earle said meant most students stayed away from modules that required reading and essay-writing, such as history of economic thought. "They think they just don't have the skills required for those sorts of modules and they don't want to jeopardise their degree," he said. "As a consequence, economics students never develop the faculties necessary to critically question, evaluate and compare economic theories, and enter the working world with a false belief about what economics is and a knowledge base limited to neoclassical theory."

In the decade before the 2008 crash, many economists dismissed warnings that property and stock markets were overvalued. They argued that markets were correctly pricing shares, property and exotic derivatives in line with economic models of behaviour. It was only when the US sub-prime mortgage market unravelled that banks realised a collective failure to spot the bubble had wrecked their finances.

In his 2010 documentary Inside Job, Charles Ferguson highlighted how US academics had produced hundreds of reports in support of the types of high-risk trading and debt-fuelled consumption that triggered the crash.

Some leading economists have criticised university economics teaching, among them Paul Krugman, a Nobel prize winner and professor at Princeton university who has attacked the complacency of economics education in the US.

In an article for the New York Times in 2009, Krugman wrote : "As I see it, the economics profession went astray because economists, as a group, mistook beauty, clad in impressive-looking mathematics, for truth."

Adam Posen, head of the Washington-based thinktank the Peterson Institute, said universities ignore empirical evidence that contradicts mainstream theories in favour of "overly technical nonsense".

City economists attacked Joseph Stiglitz, the former World Bank chief economist, and Olivier Blanchard, the current International Monetary Fund chief economist, when they criticised western governments for cutting investment in the wake of the crash.

A Manchester University spokeman said that, as at other university courses around the world, economics teaching at Manchester "focuses on mainstream approaches, reflecting the current state of the discipline". He added: "It is also important for students' career prospects that they have an effective grounding in the core elements of the subject.

"Many students at Manchester study economics in an interdisciplinary context alongside other social sciences, especially philosophy, politics and sociology. Such students gain knowledge of different kinds of approaches to examining social phenomena many modules taught by the department centre on the use of quantitative techniques. These could just as easily be deployed in mainstream or non-mainstream contexts." Since you're here

we've got a small favour to ask. More people are reading the Guardian than ever, but far fewer are paying for it. Advertising revenues across the media are falling fast. And unlike many news organisations, we haven't put up a paywall – we want to keep our journalism as open as we can . So you can see why we need to ask for your help. The Guardian's independent, investigative journalism takes a lot of time, money and hard work to produce. But we do it because we believe our perspective matters – because it might well be your perspective, too.

If everyone who reads our reporting, who likes it, helps to support it, our future would be much more secure.

SmashtheGates , 25 Oct 2013 00:07

Good luck to this group. They are on the right lines.

Post-Autistic Economics has been around for quite a while, now, and has developed into the World Economics Association. Take a look ...........

http://www.worldeconomicsassociation.org/ Reply Share

GreatGrandDad SmashtheGates , 25 Oct 2013 04:02
Good luck to this group. They are on the right lines.
Post-Autistic Economics has been around for quite a while....

and so has CASSE.

I hope these students can insist on For the Common Good (Daly and Cobb 1992) becoming a central text for their course.

The quotations from the 'grand-daddy' of Heterodox (as opposed to Orthodox) Economics, Kenneth Goulding,
will give them plenty of ammunition.

I particularly like: Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist. and
Economists are like computers. They need to have facts punched into them.

But my favourite is Mathematics brought rigor to Economics. Unfortunately, it also brought mortis.

littlepump SmashtheGates , 25 Oct 2013 09:42
@ SmashtheGates 25 October 2013 12:07am . Get cifFix for Firefox .

Good luck to this group. They are on the right lines.

Agreed, but they are fighting an uphill battle. Just look at how few (accademic) heterodox economists actually work in economics departments. I think almost every heterdox economist I know works in an non-economics school/faculty (i.e. schools/facultues of the environment, sustainability, sociology, land use etc).
GreatGrandDad Conrad33 , 25 Oct 2013 04:33
Again the Economists have their heads buried in stats rather than in the trenches.

Nice one, and a neat summary of what the economists had to tell the Queen in answer to her question as to why there was not forewarning of the crash.

Chrisk79 , 25 Oct 2013 00:36
I spoke with some of the Post Crash group at a Peoples Assembly meeting recently. It was an eye opener that Universities are teaching only the neo-liberal model as the core syllabus. This is not education but indoctrination. Fair play to the group then who were passionate about the need for change and realise that it is up to them to effect that change. Good luck to them, I hope that they are successful in re-claiming education as a means of furthering understanding through questioning prevailing orthodoxy.
hamstrung Chrisk79 , 25 Oct 2013 01:53
Well said that man. Very well said. Unquestioning indoctrination has led us (all countries in the world be they active participants or 'victims) to this sorry pass.

Basic economics should include the very basic idea that money is no more and no less than a tool. If you strip money / the tool away from folk then they will either try and take your tool from you or, if life becomes savage enough, they will fall by the wayside.

Does this generation and successive ones really want to walk over the bodies of others?

Without a profound readjustment and realignment of economic thinking, that is precisely what is in store. Indeed, it is what has been set in motion already. Time for an urgent re-think before more bodies litter the highways.

GreatGrandDad hamstrung , 25 Oct 2013 04:40
Time for an urgent re-think...

I heard recently about one man who had had such a re-think.

He was an American financial executive who was asked why he was taking early retirement and going off to live in a little valley in the hills.

He replied: "Well, it is a lovely property with great scenery, fertile land and its own microhydroelectricity-----but the really big attraction is that it puts 300 miles of armed hillbillies between me and the nearest city"!!.

callaspodeaspode GreatGrandDad , 25 Oct 2013 11:28
I do hope the chap in question doesn't end up regretting that he has deliberately placed himself into a situation where there are 300 miles of armed hillbillies between himself and the nearest city.

These things can cut both ways. Reply Share

GazInOz , 25 Oct 2013 02:27
Good luck. You may need it. You will be surprised at how much opposition you encounter and how remorseless and relentless it is. Look up the book "Political economy now!", about the experience at the University of Sydney.

http://purl.library.usyd.edu.au/sup/9781921364051

marukun GazInOz , 25 Oct 2013 05:22
Exactly - the clue is in this statement from the University authorities...

It is also important for students' career prospects that they have an effective grounding in the core elements of the subject.

Or in other words...

Students should be familar with the free market fair tales thrown up by rich, greedy bankers and the right wing in order to earn money pandering the "correct" line

Economics is so discredited a subject that even students who have barley started studying realise that - with a few exceptions like Stiglitz or Schiller - it is total fabricated bullshit paid for by people with enough money to benefit from the lies it spreads.

Paul Flanagan , 25 Oct 2013 02:34
One of the biggest lies ever told the free market, as its never ever been a reality.

Restrictions or prejudices ensure this, so such a philosophy deserves tearing up just like their supporters who believe community and care are bad ideals. They call it socialism but it is far from being a dirty word as it is about looking after all people on a more equal level, so as to ensure the most vulnerable people in society are not left in a helpless and hopeless position.

GreatGrandDad hamstrung , 25 Oct 2013 04:40
Time for an urgent re-think...

I heard recently about one man who had had such a re-think.
He was an American financial executive who was asked why he was taking early retirement and going off to live in a little valley in the hills.
He replied: "Well, it is a lovely property with great scenery, fertile land and its own microhydroelectricity-----but the really big attraction is that it puts 300 miles of armed hillbillies between me and the nearest city"!!.

Squiff811 , 25 Oct 2013 07:28
Thatcherist 'Reaganomics' was their response to the hissy fit Maggie threw at the 'grubby little terrorist' Nelson Mandela when he started to put the kibosh on the elites cash cow of South African apartheid, 4 decades of 'starving the beast' and media complicity in pushing the benefits of supply side while pruning demand to the core by cutting back public investment which is the only source of high velocity currency in a debt based economy where cash is simply printed to commission public gods, services and infrastructure for a civilised society and withdrawn through tax to mitigate inflation.

Only as we approach their ideology of fiscal apartheid do the courtiers perceive that without demand a bleak future awaits everyone but the very few already excessively wealthy.

Nicoise , 25 Oct 2013 07:41
Economists, like scientists and the rest of us, are always employed by someone and therein lies the problem: the conflict between what we believe to be the truth and what we are paid to do (or teach) to keep our job. Many economists (like investors & politicians) knew the crash would burst at some point but only those who enjoyed a seat outside the system would benefit from its prediction.

[Mar 28, 2017] Outragious speaker fees at US universities events are a sign of corruption

Notable quotes:
"... $32K to hear Snooki speak at the Rutgers commencement? Are the administrators nuts? ..."
"... the Post and the legislator have certain attitudes, ideological biases if you will, towards public universities in general, and college students and the terms of their crushing college debt. ..."
"... And there was some thought that some elements in the legislature were perturbed that Rutgers did invite author Toni Morrison to speak at commencement, and did pay her $30,000 for it. And God knows what they payed Mr. Obama. ..."
"... Thank God they did not invite Hillary. ..."
"... For my son's Rutgers graduating class of 2014, the University had engaged Miss Condoleezza Rice, of Bush Administration State Department fame, to speak at that their commencement. For a $35,000 by the way. ..."
"... The professional class tends to defend the prerogatives of their own, sticking to their 'no consequences' principle for themselves and the acts of their peers, including the financiers. ..."
"... In the case of Secretary Rice, the students and faculty thought that it was hypocrisy to award an honorary law degree to someone who had consciously worked to circumvent the law, encouraged an aggressive war on contrived evidence, and helped permit the use of torture in violation of our nation's long standing principles. ..."
"... Rice signed off to give the CIA authority to conduct their torture tactics for gathering information from detainees as well. These are clearly human rights issues. By inviting her to speak and awarding her an honorary degree, we are encouraging and perpetuating a world that justifies torture and debases humanity ..."
"... I found it highly hypocritical of the Republican legislator and the arch-conservative Post to phrase their own stand against high commencement fees in such an incorrect manner, and dare I say false news . The Post and the politician knew better. They just did not give a damn in making their point. ..."
Mar 28, 2017 | jessescrossroadscafe.blogspot.com
From Jeri-Lynn Scofield over at Naked Capitalism who picked up this piece in the NY post:
Snooki inspires legislation to limit state university speaker fees NY Post. Moi: Speaking as a born and bred Jersey girl, I applaud the state legislature's action. Nice to see the state of my birth lead the way in something other than corruption or toxic waste. And about time– $32K to hear Snooki speak at the Rutgers commencement? Are the administrators nuts? And the proposed $10k cap is too high. Why should any speaker receive more than expenses and a modest honorarium, e.g., $1K– which incidentally, anyone with any class would immediately donate back to the university.
I don't normally read the Post, except perhaps for financial pieces by John Crudele, so I was glad to see this at a site where I do read on occasion.

This is no knock on Jeri-Lynn whose major point remains intact, that commencement fees may be far too generous.

And as an old fogey, it seems to me to be a correct sentiment about paying far too much money and attention to these reality tv stars, our current President notwithstanding.

Except that this even with Snooki never happened, at least not in the way that the NY Post and the state legislator Republican Assemblyman John DiMaio portray.

And I suspect strongly that they carelessly framed the story the way in which they did, because the Post and the legislator have certain attitudes, ideological biases if you will, towards public universities in general, and college students and the terms of their crushing college debt.

Miss Nicole Snooki Polizzi, of Jersey Shore fame, never spoke at the Rutgers commencement, or any commencement that I could find. And she was not paid any money by the University administration for anything. Period.

She was paid $32,000 for two evening's 'performances' of a reality show nature for student audiences by the student run entertainment committee, which is an autonomous organization controlled by students. They book over 140 events per year. While the University does collect the money which in this case amounted to roughly 90 cents per student from a pool of general fees at the very large New Brunswick campus.

In other words, Snooki, who back in 2011 apparently had a following amongst the younger set, was a hired entertainer engaged by the students themselves without active involvement of University officials. And unless we wish to try and legislate the entertainment which college students may employ with their own money, and not allow it to be an issue for student government, I don't think that the esteemed GOP legislator's and the Post's points apply.

Here is a contemperaneous article , in which the University set the record straight.

Rutgers University officials made no apologies today for Snooki's $32,000 appearance at a pair of student-run events on the Piscataway campus. The "Jersey Shore" reality TV star was invited and paid by students, who are allowed to select their own entertainment, a campus spokesman said.

"The students use funds designated for student programming. The university does not censor the speakers students choose to invite to campus," said E.J. Miranda, a Rutgers spokesman.

I remembered this incident quite well, because my number one son was a student there at the time, and I kidded him about it. He pretty much shrugged it off to the liberal arts and music school crowd over the other side of the river, himself being ensconced at the Livingston and Bush campuses for engineering, business and medical/pharmaceutical students.

And there was some thought that some elements in the legislature were perturbed that Rutgers did invite author Toni Morrison to speak at commencement, and did pay her $30,000 for it. And God knows what they payed Mr. Obama.

But it seemed snarky to attack that indirectly by throwing Snooki in, albeit falsely, thinking it played better with those who think that all public projects are foolish wastes of money, and students deserved all the bad fortune they may incur.

Thank God they did not invite Hillary. Those sort of stratospheric speaking fees are the domain of private enterprise, like the boys on Wall Street, who exercise their private judgement more precisely to get the most for their hard earned dollars. And as I recall they are also paid by the for-profit private education institutions, which have been generous with fees and sinecures for certain politicians, for example.

Let's face it. A certain amount of foolishness is a part and parcel of the coming of age rite that is a college education, or the period between high school and family life, for most participants Sowing a few wild oat when one is young is hardly an alien concept.

As I recall, I spent a huge sum on foolishness in my college career. I was a commuting student who worked as an auto mechanic three or four days a week throughout. But I hate to see what my total beer tab amounted to during that four year period.

I seem to recall consuming rather heroic volumes of beer at the school student 'mixers, and local college beer dives, with quaint names like The Downunder, Agora, and Rathskeller while in pursuit of good times and companionship of the female persuasion.

For my son's Rutgers graduating class of 2014, the University had engaged Miss Condoleezza Rice, of Bush Administration State Department fame, to speak at that their commencement. For a $35,000 by the way.

But I was grateful to be spared sitting through that on a hot day because of widespread objections to her honorarium from the University community, both faculty and students. And the faculty involvement in this was notable. And it angered our NJ Republican politicians, very much.

It also disappointed Barack Obama , by the way, who in his own subsequent commencement address to take the students to task at a later commencement address but that is another story. The professional class tends to defend the prerogatives of their own, sticking to their 'no consequences' principle for themselves and the acts of their peers, including the financiers.

And granting our betters public venues where the common people are forced to listen, but not allowed to answer back, is hardly an open sharing of ideas. I think the political parities had a close and personal organizational experience that in the recent elections.

A one-way commencement address is one thing, a debate with various viewpoints is quite another. And so the University community did what people in a weaker position always tend to do when confronted with the unspeakable- they protested against it. And far too often, protests against what the public views as outrages are crushed. That is what happened to Occupy Wall Street.

And now the out of power liberal establishment asks, why are so few protesting? Duh.

In the case of Secretary Rice, the students and faculty thought that it was hypocrisy to award an honorary law degree to someone who had consciously worked to circumvent the law, encouraged an aggressive war on contrived evidence, and helped permit the use of torture in violation of our nation's long standing principles. Condoleezza Rice Declines to Speak at Rutgers after Student Protests.

" Rice signed off to give the CIA authority to conduct their torture tactics for gathering information from detainees as well. These are clearly human rights issues. By inviting her to speak and awarding her an honorary degree, we are encouraging and perpetuating a world that justifies torture and debases humanity ."
I found it highly hypocritical of the Republican legislator and the arch-conservative Post to phrase their own stand against high commencement fees in such an incorrect manner, and dare I say false news . The Post and the politician knew better. They just did not give a damn in making their point.

And it also fits their own political bias against public works, like Universities, and any thought of relief for students who are being crushed by debt at rates significantly higher than their parents just provided to Wall Street to bail those contemptible jokers out.

[Mar 28, 2017] This corrupt neoliberal stooge Brad DeLong and conversion of university economics departments into neoliberal propaganda departments

Notable quotes:
"... Lately certain unrepentant members of that disgraced profession, some of whom claim to be the consciences of the liberal establishment, have been expressing concern about the disrepute of the 'experts' and the need to allow the technocrats to take control of policy and the economy. ..."
"... Brad DeLong, by the way, banned me from his site comments noting, 'Alan Greenspan never made a decision with which I disagreed.' Since then even Alan Greenspan has admitted he does not agree with some of his decisions, in a sniveling and sneaky kind of a non-apologetic way. ..."
"... But the specific factual point from Brad's piece that got me going was this: ..."
"... "Merton and Scholes's financial math was correct, and the crash of their hedge fund did not require any public-money bailout" ..."
"... I think it is less than trivial to know where and how the B-S risk model fails as math, as illustrated so well by Benoit Mandelbrot in his book The Misbehaviour of Markets. The math fails in its selection choice of variables and assumptions. Naseem Taleb has made a cottage industry and a personal fortune understanding this error. ..."
jessescrossroadscafe.blogspot.com
Moving along, 'liberal' economist Brad DeLong of the University of California at Berkeley history of economics penned a recent column cited over at the excellent Economist's View run by Mark Thoma. The title of Brad's column is The Need for a Reformation of Authority and Hierarchy Among Economists in the Public Sphere.

Ok I have to admit that the title alone got me into a cranky mood. Lately certain unrepentant members of that disgraced profession, some of whom claim to be the consciences of the liberal establishment, have been expressing concern about the disrepute of the 'experts' and the need to allow the technocrats to take control of policy and the economy.

Granted, they may look like the lesser of two evils in some cases, as in the current nascent administration, and in their own minds. But their policy consensus and economic recommendations of the past thirty years or so, starting with the Fed chairmanship of Alan Greenspan at least, only look good in their own selective memories. Brad DeLong, by the way, banned me from his site comments noting, 'Alan Greenspan never made a decision with which I disagreed.' Since then even Alan Greenspan has admitted he does not agree with some of his decisions, in a sniveling and sneaky kind of a non-apologetic way.

For everyone else this cycle of growing inequality, policy skews to the wealthy few, and asset bubbles and bust that serve as wealth transfer mechanisms has been particularly trying.

But the specific factual point from Brad's piece that got me going was this:

"Merton and Scholes's financial math was correct, and the crash of their hedge fund did not require any public-money bailout"
Yeah, right. Let's put aside the nicety of a Fed brokered bailout of LTCM by Wall Street money as technically not requiring public bailout money, in order to save the financial system from an epic overleveraged mispricing of risk based on that correct math.

I think it is less than trivial to know where and how the B-S risk model fails as math, as illustrated so well by Benoit Mandelbrot in his book The Misbehaviour of Markets. The math fails in its selection choice of variables and assumptions. Naseem Taleb has made a cottage industry and a personal fortune understanding this error.

And what makes it most egregious is that the error hs been known among those with mathematical minds for some time. I myself read Mandelbrot's book in 2001 and said, 'holy shit.'

Let's be clear. This was not some dumb error on the part of these fellows, or some sneaky trick. They could not resolve their math without making a certain assumption, and they did it openly and consciously. And as the write of the essay below notes, there has not been anything better produced yet to his knowledge.

It is not the theory itself that is 'bad.' It is the use and misuse to which it is put by opportunists and financial predators in misrepresenting it.

But the people who use the assumptions on risk contained in the model don't care. Like the efficient market hypothesis, it is an intellectual fig leaf that covers an epic era of looting and plundering bases on what is essentially a con game. If you assume that risk is a rare event, you can persuade the regulators and the very important people to let you run on leverage at extreme levels, especially if you can use other people's money.

Like some of the other accepted truths from the turn of the century greed is good crowd, it is a meme with which to silence the protests and permit the widespread mispricing of risk in order to reap enormous short term profits for a very few wealthy insiders. This had been going on for so long that it is almost accepted as a normal way of doing business.

Here is what an essay in Criticality had to say about the Merton-Scholes math. I suppose that the sophist would say that the math was indeed right. It was just the assumptions they used to construct the model was wrong. So 3+5 does equal 8. Its just that in the real world case there were three more factors that were tossed aside and ignored because they messed up the path to the more easily determined and reassuring result.

"This implies that rather than extreme market moves being so unlikely that they make little contribution to the overall evolution, they instead come to have a very significant contribution. In a normally distributed market, crashes and booms are vanishingly rare, in a pareto-levy one crashes occur and are a significant component of the final outcome.

It has taken years for this to be taken seriously, and in the mean time financial theory has gone on using the assumption of normally distributed returns to derive such results as the Black-Scholes option pricing equation, ultimately winning an Nobel Prize in Economics for the discoverers Scholes and Merton (Black having already died), not to mention Modern Portfolio theory (also winning Nobels). That modern finance ignored Mandelbrot's discovery and went onto honor those working under assumptions shown to be false has clearly annoyed Mandelbrot immensely and as mentioned previously he spends much of the book telling us of his prior discoveries and how he was ignored.

It is like allowing tobacco companies to widely distribute their products while a bevy of hired gun experts and media pundits and PR organizations promote the theory that tobacco is not a highly addictive substance that causes a wide range of debilitating diseases, including cancer. They know damn well that it is and it does, but they do not give a damn as long as the money is rolling in. And pity the fool who tries to stand up and tell the truth.

And so to has it been with the Banks. Indeed, the PR campaign and political donations they handled through their intermediaries during the 1990s to deregulate and overturn Glass-Steagal has to be one of the great propaganda accomplishments of the twentieth century. And the follow on campaign for the US to invade Iraq in retribution for 9/11 is not far behind it for the twenty first.

The greater point is not that the B-S model is based on faulty assumptions that greatly diminish the potential risks. Rather it is how such 'laws' of economics are so often of a dodgy, optionated and theoretical nature such that taking them as a given in forming public policy is a huge mistake in judgement.

Why? Because they may embody assumptions about what is true, and what is a priority, and what our principles and objectives may be, and propagate those assumptions (biases) into a general policy of our society that ends up causing great harm to many innocent participants. Indeed, as Obama said, there is a great need to discussion and understanding. It is just that it cannot be monopolized by a particular group of insiders who adhere to certain assumptions and professional courtesies of their own, dare I say it, class.

So there are my two corrections to the mainstream media and their writing of the public record- to suit themselves and their wealthy patrons. It seems like modern America spends an enormous amount of its intellectual capital and time on finding ways to scam the public. If we could somehow reorder the paybacks on financial corruption to even a third of what it is today we could probably cure cancer in five years or less. That is what it would take to 'make America great again,' for real and not just in the funny papers.

I would like to again stress that I am not finding fault with either of the two bloggers involved, both of whom I enjoy and admire for what they do. Mark Thoma is a class act, and even when he disagrees is very fair and open minded about it. And he keeps this site in his blogroll despite some special interests who have argued for its removal. That is more than I can say for some others.

Rather, I am trying to correct a couple of things from the broader media that seem to be factually wrong, purposely, and further, to help caution the reader that things that appear in the mainstream media written by bona fide members of the certified and qualified professional establishment cannot always be taken at face value.

The deterioration of the quality of the news is startling. I think it has a lot to do with the takeover of the media by a relatively few number of large corporations (thank you Slick Willy) Yeah, there is a lot of nutty stuff on the internet and in blogs. I spend a lot of time assessing it and avoiding it where I can. But to say that the mainstream is somehow authoritative, objective and pure is self-serving baloney at best, and a thin veneer for official propaganda when it serves the purpose at worst.

[Mar 25, 2017] Its Not Just Unfair: Inequality Is a Threat to Our Governance

Notable quotes:
"... As recognized since ancient times, the coexistence of very rich and very poor leads to two possibilities, neither a happy one. The rich can rule alone, disenfranchising or even enslaving the poor, or the poor can rise up and confiscate the wealth of the rich. The rich tend to see themselves as better than the poor, a proclivity that is enhanced and even socially sanctioned in modern meritocracies. The poor, with little prospect of economic improvement and no access to political power, "might turn to a demagogue who would overthrow the government - only to become a tyrant. Oligarchy or tyranny, economic inequality meant the end of the republic." ..."
"... Some constitutions were written to contain inequalities. In Rome, the patricians ruled, but could be overruled by plebeian tribunes whose role was to protect the poor. There are constitutions with lords and commoners in separate chambers, each with well-defined powers. Sitaraman calls these "class warfare constitutions," and argues that the founding fathers of the United States found another way, a republic of equals. The middle classes, who according to David Hume were obsessed neither with pleasure-seeking, as were the rich, nor with meeting basic necessities, as were the poor, and were thus amenable to reason, could be a firm basis for a republic run in the public interest. There is some sketchy evidence that income and wealth inequality was indeed low in the 18th century, but the crucial point is that early America was an agrarian society of cultivators with an open frontier. No one needed to be poor when land was available in the West. ..."
"... Jefferson was proud of his achievement in abolishing the entail and primogeniture in Virginia, writing the laws that "laid the ax to the root of Pseudoaristocracy." He called for progressive taxation and, like the other founders, feared that the inheritance of wealth would lead to the establishment of an aristocracy. ..."
"... Madison tried to calculate how long the frontier would last, and understood the threat to the Constitution that industrialization would bring; many of the founders thought of wage labor as little better than slavery and hoped that America could remain an agrarian society. ..."
"... In perhaps the most original part of his book, Sitaraman, an associate professor of law at Vanderbilt Law School, highlights the achievements of the Progressive movement, one of whose aims was taming inequality, and which successfully modified the Constitution. There were four constitutional amendments in seven years - the direct election of senators, the franchise for women, the prohibition of alcohol and the income tax. To which I would add another reform, the establishment of the Federal Reserve, which provided a mechanism for handling financial crises without the need for the government to be bailed out by rich bankers, as well as the reduction in the tariff, which favored ordinary people by bringing down the cost of manufactures. Politics can respond to inequality, and the Constitution is not set in stone. ..."
"... It's interesting that the language of inequality is the language of technocrats, however worthy. It's a way to talk about the politics without referring to Marxist or populist/labor traditions which often involve social movements. ..."
Mar 25, 2017 | economistsview.typepad.com
anne : March 25, 2017 at 11:26 AM
https://www.nytimes.com/2017/03/20/books/review/crisis-of-the-middle-class-constitution-ganesh-sitaraman-.html

March 20, 2017

It's Not Just Unfair: Inequality Is a Threat to Our Governance
By ANGUS DEATON

THE CRISIS OF THE MIDDLE-CLASS CONSTITUTION
Why Economic Inequality Threatens Our Republic
By Ganesh Sitaraman

President Obama labeled income inequality "the defining challenge of our time." But why exactly? And why "our time" especially? In part because we now know just how much goes to the very top of the income distribution, and beyond that, we know that recent economic growth, which has been anemic in any case, has accrued mostly to those who were already well-heeled, leaving stagnation or worse for many Americans. But why is this a problem?

Why am I hurt if Mark Zuckerberg develops Facebook, and gets rich on the proceeds? Some care about the unfairness of income inequality itself, some care about the loss of upward mobility and declining opportunities for our kids and some care about how people get rich - hard work and innovation are O.K., but theft, legal or otherwise, is not. Yet there is one threat of inequality that is widely feared, and that has been debated for thousands of years, which is that inequality can undermine governance. In his fine book, both history and call to arms, Ganesh Sitaraman argues that the contemporary explosion of inequality will destroy the American Constitution, which is and was premised on the existence of a large and thriving middle class. He has done us all a great service, taking an issue of overwhelming public importance, delving into its history, helping understand how our forebears handled it and building a platform to think about it today.

As recognized since ancient times, the coexistence of very rich and very poor leads to two possibilities, neither a happy one. The rich can rule alone, disenfranchising or even enslaving the poor, or the poor can rise up and confiscate the wealth of the rich. The rich tend to see themselves as better than the poor, a proclivity that is enhanced and even socially sanctioned in modern meritocracies. The poor, with little prospect of economic improvement and no access to political power, "might turn to a demagogue who would overthrow the government - only to become a tyrant. Oligarchy or tyranny, economic inequality meant the end of the republic."

Some constitutions were written to contain inequalities. In Rome, the patricians ruled, but could be overruled by plebeian tribunes whose role was to protect the poor. There are constitutions with lords and commoners in separate chambers, each with well-defined powers. Sitaraman calls these "class warfare constitutions," and argues that the founding fathers of the United States found another way, a republic of equals. The middle classes, who according to David Hume were obsessed neither with pleasure-seeking, as were the rich, nor with meeting basic necessities, as were the poor, and were thus amenable to reason, could be a firm basis for a republic run in the public interest. There is some sketchy evidence that income and wealth inequality was indeed low in the 18th century, but the crucial point is that early America was an agrarian society of cultivators with an open frontier. No one needed to be poor when land was available in the West.

The founders worried a good deal about people getting too rich. Jefferson was proud of his achievement in abolishing the entail and primogeniture in Virginia, writing the laws that "laid the ax to the root of Pseudoaristocracy." He called for progressive taxation and, like the other founders, feared that the inheritance of wealth would lead to the establishment of an aristocracy. (Contrast this with those today who simultaneously advocate both equality of opportunity and the abolition of estate taxes.) Madison tried to calculate how long the frontier would last, and understood the threat to the Constitution that industrialization would bring; many of the founders thought of wage labor as little better than slavery and hoped that America could remain an agrarian society.

Of course, the fears about industrialization were realized, and by the late 19th century, in the Gilded Age, income inequality had reached levels comparable to those we see today. In perhaps the most original part of his book, Sitaraman, an associate professor of law at Vanderbilt Law School, highlights the achievements of the Progressive movement, one of whose aims was taming inequality, and which successfully modified the Constitution. There were four constitutional amendments in seven years - the direct election of senators, the franchise for women, the prohibition of alcohol and the income tax. To which I would add another reform, the establishment of the Federal Reserve, which provided a mechanism for handling financial crises without the need for the government to be bailed out by rich bankers, as well as the reduction in the tariff, which favored ordinary people by bringing down the cost of manufactures. Politics can respond to inequality, and the Constitution is not set in stone.

What of today, when inequality is back in full force? ...

Angus Deaton, a professor emeritus at Princeton, was awarded the Nobel in economic science in 2015.

anne -> anne... , March 25, 2017 at 11:26 AM
https://www.brookings.edu/wp-content/uploads/2017/03/6_casedeaton.pdf

March 17, 2017

Mortality and morbidity in the 21st century
By Anne Case and Angus Deaton

Summary

We build on and extend the findings in Case and Deaton (2015 * ) on increases in mortality and morbidity among white non-Hispanic Americans in midlife since the turn of the century. Increases in all-cause mortality continued unabated to 2015, with additional increases in drug overdoses, suicides, and alcoholic-related liver mortality, particularly among those with a high-school degree or less. The decline in mortality from heart disease has slowed and, most recently, stopped, and this combined with the three other causes is responsible for the increase in all-cause mortality. Not only are educational differences in mortality among whites increasing, but mortality is rising for those without, and falling for those with, a college degree. This is true for non-Hispanic white men and women in all age groups from 25-29 through 60-64. Mortality rates among blacks and Hispanics continue to fall; in 1999, the mortality rate of white non-Hispanics aged 50-54 with only a high-school degree was 30 percent lower than the mortality rate of blacks in the same age group; by 2015, it was 30 percent higher. There are similar crossovers between white and black mortality in all age groups from 25-29 to 60-64.

Mortality rates in comparable rich countries have continued their pre-millennial fall at the rates that used to characterize the US. In contrast to the US, mortality rates in Europe are falling for those with low levels of educational attainment, and are doing so more rapidly than mortality rates for those with higher levels of education.

Many commentators have suggested that the poor mortality outcomes can be attributed to slowly growing, stagnant, and even declining incomes; we evaluate this possibility, but find that it cannot provide a comprehensive explanation. In particular, the income profiles for blacks and Hispanics, whose mortality has fallen, are no better than those for whites. Nor is there any evidence in the European data that mortality trends match income trends, in spite of sharply different patterns of median income across countries after the Great Recession.

We propose a preliminary but plausible story in which cumulative disadvantage over life, in the labor market, in marriage and child outcomes, and in health, is triggered by progressively worsening labor market opportunities at the time of entry for whites with low levels of education. This account, which fits much of the data, has the profoundly negative implication that policies, even ones that successfully improve earnings and jobs, or redistribute income, will take many years to reverse the mortality and morbidity increase, and that those in midlife now are likely to do much worse in old age than those currently older than 65. This is in contrast to an account in which resources affect health contemporaneously, so that those in midlife now can expect to do better in old age as they receive Social Security and Medicare. None of this implies that there are no policy levers to be pulled; preventing the over-prescription of opioids is an obvious target that would clearly be helpful.

* http://www.pnas.org/content/early/2015/10/29/1518393112

Peter K. -> anne... , March 25, 2017 at 01:18 PM
"Of course, the fears about industrialization were realized, and by the late 19th century, in the Gilded Age, income inequality had reached levels comparable to those we see today. In perhaps the most original part of his book, Sitaraman, an associate professor of law at Vanderbilt Law School, highlights the achievements of the Progressive movement, one of whose aims was taming inequality, and which successfully modified the Constitution. There were four constitutional amendments in seven years - the direct election of senators, the franchise for women, the prohibition of alcohol and the income tax. To which I would add another reform, the establishment of the Federal Reserve, which provided a mechanism for handling financial crises without the need for the government to be bailed out by rich bankers, as well as the reduction in the tariff, which favored ordinary people by bringing down the cost of manufactures. "

It's interesting that the language of inequality is the language of technocrats, however worthy. It's a way to talk about the politics without referring to Marxist or populist/labor traditions which often involve social movements.

[Mar 25, 2017] Its interesting that the language of inequality is the language of technocrats, however worthy. Its a way to talk about the politics without referring to Marxist or populist/labor traditions which often involve social movements

Mar 25, 2017 | economistsview.typepad.com
anne -> anne... , March 25, 2017 at 11:26 AM
https://www.brookings.edu/wp-content/uploads/2017/03/6_casedeaton.pdf

March 17, 2017

Mortality and morbidity in the 21st century
By Anne Case and Angus Deaton

Summary

We build on and extend the findings in Case and Deaton (2015 * ) on increases in mortality and morbidity among white non-Hispanic Americans in midlife since the turn of the century. Increases in all-cause mortality continued unabated to 2015, with additional increases in drug overdoses, suicides, and alcoholic-related liver mortality, particularly among those with a high-school degree or less. The decline in mortality from heart disease has slowed and, most recently, stopped, and this combined with the three other causes is responsible for the increase in all-cause mortality. Not only are educational differences in mortality among whites increasing, but mortality is rising for those without, and falling for those with, a college degree. This is true for non-Hispanic white men and women in all age groups from 25-29 through 60-64. Mortality rates among blacks and Hispanics continue to fall; in 1999, the mortality rate of white non-Hispanics aged 50-54 with only a high-school degree was 30 percent lower than the mortality rate of blacks in the same age group; by 2015, it was 30 percent higher. There are similar crossovers between white and black mortality in all age groups from 25-29 to 60-64.

Mortality rates in comparable rich countries have continued their pre-millennial fall at the rates that used to characterize the US. In contrast to the US, mortality rates in Europe are falling for those with low levels of educational attainment, and are doing so more rapidly than mortality rates for those with higher levels of education.

Many commentators have suggested that the poor mortality outcomes can be attributed to slowly growing, stagnant, and even declining incomes; we evaluate this possibility, but find that it cannot provide a comprehensive explanation. In particular, the income profiles for blacks and Hispanics, whose mortality has fallen, are no better than those for whites. Nor is there any evidence in the European data that mortality trends match income trends, in spite of sharply different patterns of median income across countries after the Great Recession.

We propose a preliminary but plausible story in which cumulative disadvantage over life, in the labor market, in marriage and child outcomes, and in health, is triggered by progressively worsening labor market opportunities at the time of entry for whites with low levels of education. This account, which fits much of the data, has the profoundly negative implication that policies, even ones that successfully improve earnings and jobs, or redistribute income, will take many years to reverse the mortality and morbidity increase, and that those in midlife now are likely to do much worse in old age than those currently older than 65. This is in contrast to an account in which resources affect health contemporaneously, so that those in midlife now can expect to do better in old age as they receive Social Security and Medicare. None of this implies that there are no policy levers to be pulled; preventing the over-prescription of opioids is an obvious target that would clearly be helpful.

* http://www.pnas.org/content/early/2015/10/29/1518393112

Peter K. -> anne... , March 25, 2017 at 01:18 PM
"Of course, the fears about industrialization were realized, and by the late 19th century, in the Gilded Age, income inequality had reached levels comparable to those we see today. In perhaps the most original part of his book, Sitaraman, an associate professor of law at Vanderbilt Law School, highlights the achievements of the Progressive movement, one of whose aims was taming inequality, and which successfully modified the Constitution. There were four constitutional amendments in seven years - the direct election of senators, the franchise for women, the prohibition of alcohol and the income tax. To which I would add another reform, the establishment of the Federal Reserve, which provided a mechanism for handling financial crises without the need for the government to be bailed out by rich bankers, as well as the reduction in the tariff, which favored ordinary people by bringing down the cost of manufactures. "

It's interesting that the language of inequality is the language of technocrats, however worthy. It's a way to talk about the politics without referring to Marxist or populist/labor traditions which often involve social movements.

[Mar 25, 2017] Angry Bear " U.S. Has Worst Wealth Inequality of Any Rich Nation, and It's Not Even Close

Mar 25, 2017 | angrybearblog.com
U.S. Has Worst Wealth Inequality of Any Rich Nation, and It's Not Even Close

Kenneth Thomas | March 19, 2017 6:07 am

Hot Topics I've discussed the Credit Suisse Global Wealth Reports before, an excellent source of data for both wealth and wealth inequality. The most recent edition , from November 2016, shows the United States getting wealthier, but steadily more unequal in wealth per adult and dropping from 25th to 27th in median wealth per adult since 2014. Moreover, on a global scale, it reports that the top 1% of wealth holders hold 50.8% of the world's wealth (Report, p. 18).

One important point to bear in mind is that while the United States remains the fourth-highest country for wealth per adult (after Switzerland, Iceland, and Australia) at $344,692, its median wealth per adult has fallen to 27th in the world, down to $44,977. As I have pointed out before, the reason for this is much higher inequality in the U.S. In fact, the U.S. ratio of mean to median wealth per adult is 7.66:1, the highest of all rich countries by a long shot.

The tables below illustrate this. First, I will present the 29 countries with median wealth per adult over $40,000 per year, from largest to smallest. The second table also includes mean wealth per adult and the mean/median ratio, sorted by the inequality ratio.

1. Switzerland $244,002
2. Iceland $188,088
3. Australia $162,815
4. Belgium $154,815
5. New Zealand $135,755
6. Norway $135,012
7. Luxembourg $125,452
8. Japan $120,493
9. United Kingdom $107,865
10. Italy $104,105
11. Singapore $101,386
12. France $ 99,923
13. Canada $ 96,664
14. Netherlands $ 81,118
15. Ireland $ 80,668
16. Qatar $ 74,820
17. Korea $ 64,686
18. Taiwan $ 63,134
19. United Arab Emirates $ 62,332
20. Spain $ 56,500
21. Malta $ 54,562
22. Israel $ 54,384
23. Greece $ 53,266
24. Austria $ 52,519
25. Finland $ 52,427
26. Denmark $ 52,279
27. United States $ 44,977
28. Germany $ 42,833
29. Kuwait $ 40,803

Source: Credit Suisse Global Wealth Databook 2016, Table 3-1

Now that I've got your attention, let me remind you why this low level of median wealth is a BIG PROBLEM. Quite simply, we are careening towards a retirement crisis as Baby Boomers like myself find their income drop off a cliff in retirement. As I reported in 2013 , 49% (!) of all private sector workers have no retirement plan at all, not even a crappy 401(k). 31% have only a 401(k), which shifts all the investment risk on to the individual, rather than pooling that risk as Social Security does. And many people had to borrow against their 401(k) during the Great Recession, including 1/3 of people in their forties . The overall savings shortfall is $6.6 trillion! If Republican leaders finally get their wish to gut Social Security, prepare to see levels of elder poverty unlike anything in generations. It will not be pretty.

Let's move now to the inequality data, where I'll present median wealth per adult, mean wealth per adult, and the mean-to-median ratio, a significant indicator of inequality. These data will be sorted by that ratio.

1. United States $ 44,977 $344,692 7.66
2. Denmark $ 52,279 $259,816 4.97
3. Germany $ 42,833 $185,175 4.32
4. Austria $ 52,519 $206,002 3.92
5. Israel $ 54,384 $176,263 3.24
6. Kuwait $ 40,803 $119,038 2.92
7. Finland $ 52,427 $146,733 2.80
8. Canada $ 96,664 $270,179 2.80
9. Taiwan $ 63,134 $172,847 2.74
10. Singapore $101,386 $276,885 2.73
11. United Kingdom $107,865 $288,808 2.68
12. Ireland $ 80,668 $214,589 2.66
13. Luxembourg $125,452 $316,466 2.52
14. Korea $ 64,686 $159,914 2.47
15. France $ 99,923 $244,365 2.45
16. United Arab Emirates $ 62,332 $151,098 2.42
17. Norway $135,012 $312,339 2.31
18. Australia $162,815 $375,573 2.31
19. Switzerland $244,002 $561,854 2.30
20. Netherlands $ 81,118 $184,378 2.27
21. New Zealand $135,755 $298,930 2.20
22. Iceland $188,088 $408,595 2.17
23. Qatar $ 74,820 $161,666 2.16
24. Malta $ 54,562 $116,185 2.13
25. Spain $ 56,500 $116,320 2.06
26. Greece $ 53,266 $103,569 1.94
27. Italy $104,105 $202,288 1.94
28. Japan $120,493 $230,946 1.92
29. Belgium $154,815 $270,613 1.75

Source: Author's calculations from Credit Suisse Global Wealth Databook 2016, Table 3-1

As you can see, the U.S. inequality ratio is more than 50% higher than #2 Denmark and fully three times as high as the median country on the list, France. As the title says, this is not even close.

The message couldn't be clearer: Get down to your town halls and let your Senators and Representatives know that it's time to raise Social Security benefits and forget the nonsense of cutting them.

Cross-posted from Middle Class Political Economist .

[Mar 25, 2017] It's Not Just Unfair: Inequality Is a Threat to Our Governance

Mar 25, 2017 | economistsview.typepad.com
anne : March 25, 2017 at 11:26 AM

, March 25, 2017 at 11:26 AM
https://www.nytimes.com/2017/03/20/books/review/crisis-of-the-middle-class-constitution-ganesh-sitaraman-.html

March 20, 2017

It's Not Just Unfair: Inequality Is a Threat to Our Governance
By ANGUS DEATON

THE CRISIS OF THE MIDDLE-CLASS CONSTITUTION
Why Economic Inequality Threatens Our Republic
By Ganesh Sitaraman

President Obama labeled income inequality "the defining challenge of our time." But why exactly? And why "our time" especially? In part because we now know just how much goes to the very top of the income distribution, and beyond that, we know that recent economic growth, which has been anemic in any case, has accrued mostly to those who were already well-heeled, leaving stagnation or worse for many Americans. But why is this a problem?

Why am I hurt if Mark Zuckerberg develops Facebook, and gets rich on the proceeds? Some care about the unfairness of income inequality itself, some care about the loss of upward mobility and declining opportunities for our kids and some care about how people get rich - hard work and innovation are O.K., but theft, legal or otherwise, is not. Yet there is one threat of inequality that is widely feared, and that has been debated for thousands of years, which is that inequality can undermine governance. In his fine book, both history and call to arms, Ganesh Sitaraman argues that the contemporary explosion of inequality will destroy the American Constitution, which is and was premised on the existence of a large and thriving middle class. He has done us all a great service, taking an issue of overwhelming public importance, delving into its history, helping understand how our forebears handled it and building a platform to think about it today.

As recognized since ancient times, the coexistence of very rich and very poor leads to two possibilities, neither a happy one. The rich can rule alone, disenfranchising or even enslaving the poor, or the poor can rise up and confiscate the wealth of the rich. The rich tend to see themselves as better than the poor, a proclivity that is enhanced and even socially sanctioned in modern meritocracies. The poor, with little prospect of economic improvement and no access to political power, "might turn to a demagogue who would overthrow the government - only to become a tyrant. Oligarchy or tyranny, economic inequality meant the end of the republic."

Some constitutions were written to contain inequalities. In Rome, the patricians ruled, but could be overruled by plebeian tribunes whose role was to protect the poor. There are constitutions with lords and commoners in separate chambers, each with well-defined powers. Sitaraman calls these "class warfare constitutions," and argues that the founding fathers of the United States found another way, a republic of equals. The middle classes, who according to David Hume were obsessed neither with pleasure-seeking, as were the rich, nor with meeting basic necessities, as were the poor, and were thus amenable to reason, could be a firm basis for a republic run in the public interest. There is some sketchy evidence that income and wealth inequality was indeed low in the 18th century, but the crucial point is that early America was an agrarian society of cultivators with an open frontier. No one needed to be poor when land was available in the West.

The founders worried a good deal about people getting too rich. Jefferson was proud of his achievement in abolishing the entail and primogeniture in Virginia, writing the laws that "laid the ax to the root of Pseudoaristocracy." He called for progressive taxation and, like the other founders, feared that the inheritance of wealth would lead to the establishment of an aristocracy. (Contrast this with those today who simultaneously advocate both equality of opportunity and the abolition of estate taxes.) Madison tried to calculate how long the frontier would last, and understood the threat to the Constitution that industrialization would bring; many of the founders thought of wage labor as little better than slavery and hoped that America could remain an agrarian society.

Of course, the fears about industrialization were realized, and by the late 19th century, in the Gilded Age, income inequality had reached levels comparable to those we see today. In perhaps the most original part of his book, Sitaraman, an associate professor of law at Vanderbilt Law School, highlights the achievements of the Progressive movement, one of whose aims was taming inequality, and which successfully modified the Constitution. There were four constitutional amendments in seven years - the direct election of senators, the franchise for women, the prohibition of alcohol and the income tax. To which I would add another reform, the establishment of the Federal Reserve, which provided a mechanism for handling financial crises without the need for the government to be bailed out by rich bankers, as well as the reduction in the tariff, which favored ordinary people by bringing down the cost of manufactures. Politics can respond to inequality, and the Constitution is not set in stone.

What of today, when inequality is back in full force? ...


Angus Deaton, a professor emeritus at Princeton, was awarded the Nobel in economic science in 2015.

anne -> anne... , March 25, 2017 at 11:26 AM
https://www.brookings.edu/wp-content/uploads/2017/03/6_casedeaton.pdf

March 17, 2017

Mortality and morbidity in the 21st century
By Anne Case and Angus Deaton

Summary

We build on and extend the findings in Case and Deaton (2015 * ) on increases in mortality and morbidity among white non-Hispanic Americans in midlife since the turn of the century. Increases in all-cause mortality continued unabated to 2015, with additional increases in drug overdoses, suicides, and alcoholic-related liver mortality, particularly among those with a high-school degree or less. The decline in mortality from heart disease has slowed and, most recently, stopped, and this combined with the three other causes is responsible for the increase in all-cause mortality. Not only are educational differences in mortality among whites increasing, but mortality is rising for those without, and falling for those with, a college degree. This is true for non-Hispanic white men and women in all age groups from 25-29 through 60-64. Mortality rates among blacks and Hispanics continue to fall; in 1999, the mortality rate of white non-Hispanics aged 50-54 with only a high-school degree was 30 percent lower than the mortality rate of blacks in the same age group; by 2015, it was 30 percent higher. There are similar crossovers between white and black mortality in all age groups from 25-29 to 60-64.

Mortality rates in comparable rich countries have continued their pre-millennial fall at the rates that used to characterize the US. In contrast to the US, mortality rates in Europe are falling for those with low levels of educational attainment, and are doing so more rapidly than mortality rates for those with higher levels of education.

Many commentators have suggested that the poor mortality outcomes can be attributed to slowly growing, stagnant, and even declining incomes; we evaluate this possibility, but find that it cannot provide a comprehensive explanation. In particular, the income profiles for blacks and Hispanics, whose mortality has fallen, are no better than those for whites. Nor is there any evidence in the European data that mortality trends match income trends, in spite of sharply different patterns of median income across countries after the Great Recession.

We propose a preliminary but plausible story in which cumulative disadvantage over life, in the labor market, in marriage and child outcomes, and in health, is triggered by progressively worsening labor market opportunities at the time of entry for whites with low levels of education. This account, which fits much of the data, has the profoundly negative implication that policies, even ones that successfully improve earnings and jobs, or redistribute income, will take many years to reverse the mortality and morbidity increase, and that those in midlife now are likely to do much worse in old age than those currently older than 65. This is in contrast to an account in which resources affect health contemporaneously, so that those in midlife now can expect to do better in old age as they receive Social Security and Medicare. None of this implies that there are no policy levers to be pulled; preventing the over-prescription of opioids is an obvious target that would clearly be helpful.

* http://www.pnas.org/content/early/2015/10/29/1518393112

Peter K. -> anne... , March 25, 2017 at 01:18 PM
"Of course, the fears about industrialization were realized, and by the late 19th century, in the Gilded Age, income inequality had reached levels comparable to those we see today. In perhaps the most original part of his book, Sitaraman, an associate professor of law at Vanderbilt Law School, highlights the achievements of the Progressive movement, one of whose aims was taming inequality, and which successfully modified the Constitution. There were four constitutional amendments in seven years - the direct election of senators, the franchise for women, the prohibition of alcohol and the income tax. To which I would add another reform, the establishment of the Federal Reserve, which provided a mechanism for handling financial crises without the need for the government to be bailed out by rich bankers, as well as the reduction in the tariff, which favored ordinary people by bringing down the cost of manufactures. "

It's interesting that the language of inequality is the language of technocrats, however worthy.

It's a way to talk about the politics without referring to Marxist or populist/labor traditions which often involve social movements.

[Mar 23, 2017] I love the smell of money-greased credentialism in the morning.

Mar 23, 2017 | www.nakedcapitalism.com
ewmayer , March 22, 2017 at 7:29 pm

Received a "new academic programs" missive from my alma mater in today's mail, containing the following:

How to Make Innovation Happen in Your Organization

The Certified Professional Innovator (CPI) program is intended to develop the competency of high potential leaders in the theory and practice of innovation. It is rooted on the principle that innovation can only be learned by doing and through many short bursts of experimentation.

The certification is comprised of a 12-week curriculum with specific syllabus and assignments for each week, including videos, workbook assignments, and reports. During the program, participants, functioning as a cohort, communicate and collaborate with each other and faculty through a series of webinars and discussions. The program culminates in project pitches.

"It is rooted on [sic] the principle that innovation can only be learned by doing and through many short bursts of experimentation" - OK, fine there, but it is also rooted in the notion that such creativity can be taught in a formal academic setting, here monetized and condensed into a 12-week program. As for me, I'm gonna hold out for the following surely-in-development mini-courses:

o Certified Professional Serial Disruptor (CPD)
o Certified Professional Innovative Thought Leader (CPCTL)
o Certified Professional Smart Creative (CPSC)

I love the smell of money-greased credentialism in the morning.

Synoia , March 22, 2017 at 10:12 pm

Certified Real Accounting Professional.
Certified Real Estate Experienced Professional

[Mar 23, 2017] Inequality is a real threat to any remnants of democracy in the USA

Mar 23, 2017 | economistsview.typepad.com
anne : March 22, 2017 at 10:27 AM , 2017 at 10:27 AM
https://www.nytimes.com/2017/03/20/books/review/crisis-of-the-middle-class-constitution-ganesh-sitaraman-.html

March 20, 2017

It's Not Just Unfair: Inequality Is a Threat to Our Governance
By ANGUS DEATON

THE CRISIS OF THE MIDDLE-CLASS CONSTITUTION
Why Economic Inequality Threatens Our Republic
By Ganesh Sitaraman

President Obama labeled income inequality "the defining challenge of our time." But why exactly? And why "our time" especially? In part because we now know just how much goes to the very top of the income distribution, and beyond that, we know that recent economic growth, which has been anemic in any case, has accrued mostly to those who were already well-heeled, leaving stagnation or worse for many Americans. But why is this a problem?

Why am I hurt if Mark Zuckerberg develops Facebook, and gets rich on the proceeds? Some care about the unfairness of income inequality itself, some care about the loss of upward mobility and declining opportunities for our kids and some care about how people get rich - hard work and innovation are O.K., but theft, legal or otherwise, is not. Yet there is one threat of inequality that is widely feared, and that has been debated for thousands of years, which is that inequality can undermine governance. In his fine book, both history and call to arms, Ganesh Sitaraman argues that the contemporary explosion of inequality will destroy the American Constitution, which is and was premised on the existence of a large and thriving middle class. He has done us all a great service, taking an issue of overwhelming public importance, delving into its history, helping understand how our forebears handled it and building a platform to think about it today.

As recognized since ancient times, the coexistence of very rich and very poor leads to two possibilities, neither a happy one. The rich can rule alone, disenfranchising or even enslaving the poor, or the poor can rise up and confiscate the wealth of the rich. The rich tend to see themselves as better than the poor, a proclivity that is enhanced and even socially sanctioned in modern meritocracies. The poor, with little prospect of economic improvement and no access to political power, "might turn to a demagogue who would overthrow the government - only to become a tyrant. Oligarchy or tyranny, economic inequality meant the end of the republic."

Some constitutions were written to contain inequalities. In Rome, the patricians ruled, but could be overruled by plebeian tribunes whose role was to protect the poor. There are constitutions with lords and commoners in separate chambers, each with well-defined powers. Sitaraman calls these "class warfare constitutions," and argues that the founding fathers of the United States found another way, a republic of equals. The middle classes, who according to David Hume were obsessed neither with pleasure-seeking, as were the rich, nor with meeting basic necessities, as were the poor, and were thus amenable to reason, could be a firm basis for a republic run in the public interest. There is some sketchy evidence that income and wealth inequality was indeed low in the 18th century, but the crucial point is that early America was an agrarian society of cultivators with an open frontier. No one needed to be poor when land was available in the West.

The founders worried a good deal about people getting too rich. Jefferson was proud of his achievement in abolishing the entail and primogeniture in Virginia, writing the laws that "laid the ax to the root of Pseudoaristocracy." He called for progressive taxation and, like the other founders, feared that the inheritance of wealth would lead to the establishment of an aristocracy. (Contrast this with those today who simultaneously advocate both equality of opportunity and the abolition of estate taxes.) Madison tried to calculate how long the frontier would last, and understood the threat to the Constitution that industrialization would bring; many of the founders thought of wage labor as little better than slavery and hoped that America could remain an agrarian society.

Of course, the fears about industrialization were realized, and by the late 19th century, in the Gilded Age, income inequality had reached levels comparable to those we see today. In perhaps the most original part of his book, Sitaraman, an associate professor of law at Vanderbilt Law School, highlights the achievements of the Progressive movement, one of whose aims was taming inequality, and which successfully modified the Constitution. There were four constitutional amendments in seven years - the direct election of senators, the franchise for women, the prohibition of alcohol and the income tax. To which I would add another reform, the establishment of the Federal Reserve, which provided a mechanism for handling financial crises without the need for the government to be bailed out by rich bankers, as well as the reduction in the tariff, which favored ordinary people by bringing down the cost of manufactures. Politics can respond to inequality, and the Constitution is not set in stone.

What of today, when inequality is back in full force? I am not persuaded that we can be saved by the return of a rational and public-spirited middle class, even if I knew exactly how to identify middle-class people, or to measure how well they are doing. Nor is it clear, postelection, whether the threat is an incipient oligarchy or an incipient populist autocracy; our new president tweets from one to the other. And European countries, without America's middle-class Constitution, face some of the same threats, though more from autocracy than from plutocracy, which their constitutions may have helped them resist. Yet it is clear that we in the United States face the looming threat of a takeover of government by those who would use it to enrich themselves together with a continuing disenfranchisement of large segments of the population....


Angus Deaton, a professor emeritus at Princeton, was awarded the Nobel in economic science in 2015.

libezkova -> anne... , March 22, 2017 at 04:58 PM
Thank you Anne.

As for ".. it is clear that we in the United States face the looming threat of a takeover of government by those who would use it to enrich themselves together with a continuing disenfranchisement of large segments of the population...."

that was accomplished in 1980 by Reagan. That's why we now can speak about "a colony nation" within the USA which encompasses the majority of population.

libezkova -> libezkova... , March 22, 2017 at 04:59 PM
Neoliberals vs the rest of population is like slave owners and the plantation workers.

[Mar 22, 2017] The Men Who Stole the World

Notable quotes:
"... History will look back at us with the same wonder that we look back on the mad excesses of certain nations founded in devotion to extreme, almost other-worldly, ideologies of the last century. ..."
"... Apparently the slashing of health benefits for the unfortunate is not severe enough in the proposed Trump/Ryan plan. Our GOP house neo-liberals are enthusiastic to unleash the wonders of the cure-all deregulated market on the American public, again. Like a dog returns to its vomit. ..."
Mar 22, 2017 | jessescrossroadscafe.blogspot.com
"The problem of the last three decades is not the 'vicissitudes of the marketplace,' but rather deliberate actions by the government to redistribute income from the rest of us to the one percent. This pattern of government action shows up in all areas of government policy."

Dean Baker

"When the modern corporation acquires power over markets, power in the community, power over the state and power over belief, it is a political instrument, different in degree but not in kind from the state itself. To hold otherwise - to deny the political character of the modern corporation - is not merely to avoid the reality.

It is to disguise the reality. The victims of that disguise are those we instruct in error."

John Kenneth Galbraith

And unfortunately the working class victims of that disguise are going to be receiving the consequences of their folly, and then some.

Secure in their monopolies and key positions with regard to reform and the law, the corporations are further acquiring access to the protections of the rights of individuals as well, it appears, at least according to Citizens United .

Maybe our leaders and their self-proclaimed technocrats will finally do the right thing. I personally doubt it, except that if they do it will probably be by accident.

More likely, the right thing will eventually come about the old-fashioned way- under the duress of a crisis, and the growing protests of the much neglected and long suffering.

History will look back at us with the same wonder that we look back on the mad excesses of certain nations founded in devotion to extreme, almost other-worldly, ideologies of the last century.

... ... ...

Apparently the slashing of health benefits for the unfortunate is not severe enough in the proposed Trump/Ryan plan. Our GOP house neo-liberals are enthusiastic to unleash the wonders of the cure-all deregulated market on the American public, again. Like a dog returns to its vomit.

Better if they start breaking up corporate health monopolies and embrace real reform at the sources of the soaring costs. The US pays far, far too much for drugs and healthcare, and deregulating the markets is not the solution. We do have the example of the rest of the developed world for what to do about this. It is called 'single payer.'

But players keep on playing. And politicians and their enablers in the professions will not see what their big money donors do not wish them to see. And that is one of their few bipartisan efforts.

Might one suggest that our political animals stop trying to do all the reforming and cost controls bottom up, while applying the stimulus top down? That approach they have been flogging to no avail for about thirty years is a recipe for a dying middle class.

Here is a short video from the Bernie Sanders WV town hall that shows The Face of American Desperation. By the way, the governor of West Virginia is a Democrat. He wasn't there.

...

[Mar 22, 2017] Stephen Williamson New Monetarist Economics What is full employment anyway, and how would we know if we are there

Mar 22, 2017 | newmonetarism.blogspot.com
Sunday, March 19, 2017 What is full employment anyway, and how would we know if we are there? What are people talking about when they say "full employment?" Maybe they don't know either? Whatever it is, "full employment" is thought to be important for policy, particularly monetary policy. Indeed, it typically enters the monetary policy discussion as "maximum employment," the second leg of the Fed's dual mandate - the first leg being "price stability."

Perhaps surprisingly, there are still people who think the US economy is not at "full employment." I hate to pick on Narayana, but he's a convenient example. He posted this on his Twitter account:

Are we close to full emp? In steady state, emp. growth will be about 1.2M per year. It's about *twice* that in the data. (1) Employment is growing much faster than long run and inflation is still low. Conclusion: we're well below long run steady state. end
Also in an interview on Bloomberg, Narayana gives us the policy conclusion. Basically, he thinks there is still "slack" in the economy. My understanding is that "slack" means we are below "full employment."

So what is Narayana saying? I'm assuming he is looking at payroll employment - the employment number that comes from the establishment survey. In his judgement, in a "steady state," which for him seems to mean the "full employment" state, payroll employment would be growing at 1.2M per year, or 100,000 per month. But over the last three months, the average increase in payroll employment has exceeded 200,000 per month. So, if we accept all of Narayana's assumptions, we would say the US economy is below full employment - it has some catching up to do. According to Narayana, employment can grow for some time in excess of 100,000 jobs per month, until we catch up to full employment, and monetary policy should help that process along by refraining from interest rate hikes in the meantime.

Again, even if we accept all of Narayana's assumptions, we could disagree about his policy recommendation. Maybe the increase in the fed funds rate target will do little to impede the trajectory to full employment. Maybe it takes monetary policy a period of time to work, and by the time interest rate hikes have their effect we are at full employment. Maybe the interest rate hikes will allow the Fed to make progress on other policy goals than employment. But let's explore this issue in depth - let's investigate what we know about "full employment" and how we would determine from current data if we are there or not.

Where does Narayana get his 1.2M number from? Best guess is that he is looking at demographics. The working age population in the United States (age 15-64) has been growing at about 0.5% per year. But labor force participation has grown over time since World War II, and later cohorts have higher labor force participation rates. For example, the labor force participation rate of baby-boomers in prime working age was higher than the participation rate of the previous generation in prime working age. So, this would cause employment growth to be higher than population growth. That is, Narayana's assumptions imply employment growth of about 0.8% per year, which seems as good a number as any. Thus, the long-run growth path for the economy should exhibit a growth rate of about 0.8% per year - though there is considerable uncertainty about that estimate.

But, we measure employment in more than one way. This chart shows year-over-year employment growth from the establishment survey, and from the household survey (CPS): For the last couple of years, employment growth has been falling on trend, by both measures. But currently, establishment-survey employment is growing at 1.6% per year, and household survey employment is growing at 1.0% per year. The latter number is a lot closer to 0.8%. The establishment survey is what it says - a survey of establishments. The household survey is a survey of people. The advantages of the establishment survey are that it covers a significant fraction of all establishments, and reporting errors are less likely - firms generally have a good idea how many people are on their payrolls. But, the household survey has broader coverage (includes the self-employed for example) of the population, and it's collected in a manner consistent with the unemployment and labor force participation data - that's all from the same survey. There's greater potential for measurement error in the household survey, as people can be confused by the questions they're asked. You can see that in the noise in the growth rate data in the chart.

Here's another interesting detail: This chart looks at the ratio of household-survey employment to establishment-survey employment. Over long periods of time, these two measures don't grow at the same rate, due to changes over time in the fraction of workers who are in establishments vs. those who are not. For long-run employment growth rates, you should put more weight on the household survey number (as this is a survey of the whole working-age population), provided of course that some measurement bias isn't creeping into the household survey numbers over time. Note that, since the recession, establishment-survey employment has been growing at a significantly higher rate than household-survey employment.

So, I think that the conclusion is that we should temper our view of employment growth. Maybe it's much closer to a steady state rate than Narayana thinks.

But, on to some other measures of labor market performance. This chart shows the labor force participation rate (LFPR) and the employment-population ratio (EPOP). Here, focus on the last year. LFPR is little changed, increasing from 62.9% to 63.0%, and the same is true for EPOP, which increased from 59.8% to 60.0%. That looks like a labor market that has settled down, or is close to it.

A standard measure of labor market tightness that labor economists like to look at is the ratio of job vacancies to unemployment, here measured as the ratio of the job openings rate to the unemployment rate: So, by this measure the labor market is at its tightest since 2001. Job openings are plentiful relative to would-be workers.

People who want to argue that some slack remains in the labor market will sometimes emphasize unconventional measures of the unemployment rate: In the chart, U3 is the conventional unemployment rate, and U6 includes marginally attached workers (those not in the labor force who may be receptive to working) and those employed part-time for economic reasons. The U3 measure is not so far, at 4.7%, from its previous trough of 4.4% in March 2007, while the gap between current U6, at 9.2% and its previous trough, at 7.9% in December 2006, is larger. Two caveats here: (i) How seriously we want to take U6 as a measure of unemployment is an open question. There are problems even with conventional unemployment measures, in that we do not measure the intensity of search - one person's unemployment is different from another's - and survey participants' understanding of the questions they are asked is problematic. The first issue is no worse a problem for U6 than for U3, but the second issue is assuredly worse. For example, it's not clear what "employed part time for economic reasons" means to the survey respondent, or what it should mean to the average economist. Active search, as measured in U3, has a clearer meaning from an economic point of view, than an expressed desire for something one does not have - non-satiation is ubiquitous in economic systems, and removing it is just not feasible. (ii) What's a normal level for U6? Maybe the U6 measure in December 2006 was undesirably low, due to what was going on in housing and mortgage markets.

Another labor market measure that might be interpreted as indicating labor market slack is long term unemployment (unemployed 27 weeks or more) - here measured as a rate relative to the labor force: This measure is still somewhat elevated relative to pre-recession times. However, if we look at short term unemployment (5 weeks or less), this is unusually low: As well, the insured unemployment rate (those receiving unemployment insurance as a percentage of the labor force) is very low: To collect UI requires having worked recently, so this reflects the fact that few people are being laid off - transitions from employment to unemployment are low.

An interpretation of what is going on here is that the short-term and long-term unemployed are very different kinds of workers. In particular, they have different skills. Some skills are in high demand, others are not, and those who have been unemployed a long time have skills that are in low demand. A high level of long-term unemployed is consistent with elevated readings for U6 - people may be marginally attached or wanting to move from part-time to full-time work for the same reasons that people have been unemployed for a long time. What's going on may indicate a need for a policy response, but if the problem is skill mismatch, that's not a problem that has a monetary policy solution.

So, if the case someone wants to make is that the Fed should postpone interest rate increases because we are below full employment - that there is still slack in the labor market - then I think that's a very difficult case to make. We could argue all day about what an output gap is, whether this is something we should worry about, and whether monetary policy can do much about an output gap, but by conventional measures we don't seem to have one in the US at the current time. In terms of raw economic performance (price stability aside), there's not much for the Fed to do at the current time. Productivity growth is unusually low, as is real GDP growth, but if that's a policy problem, it's in the fiscal department, not the monetary department.

But there is more to Narayana's views than the state of the labor market. He thinks it's important that inflation is still below the Fed's target of 2%. Actually, headline PCE inflation, which is the measure specified in the Fed's longer-run goals statement, is essentially at the target, at 1.9%. I think what Narayana means is that, given his Phillips-curve view of the world, if we are close to full employment, inflation should be higher. In fact, the long-run Fisher effect tells us that, after an extended period of low nominal interest rates, the inflation rate should be low. Thus, one might actually be puzzled as to why the inflation rate is so high. We know something about this, though. Worldwide, real rates of interest on government debt have been unusually low, which implies that, given the nominal interest rate, inflation will be unusually high. But, this makes Narayana's policy conclusion close to being correct. The Fed is very close to its targets - both legs of the dual mandate - so why do anything?

A neo-Fisherian view says that we should increase (decrease) the central bank's nominal interest rate target when inflation is too low (high) - the reverse of conventional wisdom. But maybe inflation is somewhat elevated by increases in the price of crude oil, which have since somewhat reversed themselves. So, maybe the Fed's nominal interest rate target should go up a bit more, to achieve its 2% inflation target consistently.

Though Narayana's reasoning doesn't lead him in a crazy policy direction, it would do him good to ditch the Phillips curve reasoning - I don't think that's ever been useful for policy. If one had (I think mistakenly) taken Friedman to heart (as appears to be the case with Narayana), we might think that unemployment above the "natural rate" should lead to falling inflation, and unemployment below the natural rate should lead to rising inflation. But, that's not what we see in the data. Here, I use the CBO's measure of the natural rate of unemployment (quarterly data, 1990-2016): According to standard Friedman Phillips-curve logic, we should see a negative correlation in the chart, but the correlation is essentially zero.

Posted by Stephen Williamson at 1 comment:

  1. Avraam J Dectis March 21, 2017 at 7:58 AM

    .
    Nice insightful column.

    One thing I wonder about is the possibility that policy implementing economists are a bit insulated from reality. It seems possible their personal experiences might reinforce a feeling that everything is all right.

    Meanwhile countervailing data may subconsciously be given short shrift. A shrinking middle class, stagnant wages, declining labor force participation of adult males all seem ignored.

    Could it be argued that full employment is characterized by a robust and growing middle class? Economics is both a hard and social science and social criteria may belong in the definition of full employment.

    Is it wise to try to throttle growth as soon as policy mandates are achieved, thus seeking to maintain a virtuous steady state equilibrium? Might it not be better to attempt more of a sine wave economic policy, deliberately overshooting targets to bring the marginal sidelined workers into the economy where they can gain experience and then, if necessary, briefly overshooting constraining measures to quickly contain possible excesses?

[Mar 21, 2017] Robots and Inequality: A Skeptics Take

Notable quotes:
"... And all costs are labor costs. It it isn't labor cost, it's rents and economic profit which mean economic inefficiency. An inefficient economy is unstable. Likely to crash or drive revolution. ..."
"... Free lunch economics seeks to make labor unnecessary or irrelevant. Labor cost is pure liability. ..."
"... Yet all the cash for consumption is labor cost, so if labor cost is a liability, then demand is a liability. ..."
"... Replace workers with robots, then robots must become consumers. ..."
"... "Replace workers with robots, then robots must become consumers." Well no - the OWNERS of robots must become consumers. ..."
"... I am old enough to remember the days of good public libraries, free university education, free bus passes for seniors and low land prices. Is the income side of the equation all that counts? ..."
Mar 21, 2017 | economistsview.typepad.com
Douglas Campbell:
Robots and Inequality: A Skeptic's Take : Paul Krugman presents " Robot Geometry " based on Ryan Avent 's "Productivity Paradox". It's more-or-less the skill-biased technological change hypothesis, repackaged. Technology makes workers more productive, which reduces demand for workers, as their effective supply increases. Workers still need to work, with a bad safety net, so they end up moving to low-productivity sectors with lower wages. Meanwhile, the low wages in these sectors makes it inefficient to invest in new technology.
My question: Are Reagan-Thatcher countries the only ones with robots? My image, perhaps it is wrong, is that plenty of robots operate in Japan and Germany too, and both countries are roughly just as technologically advanced as the US. But Japan and Germany haven't seen the same increase in inequality as the US and other Anglo countries after 1980 (graphs below). What can explain the dramatic differences in inequality across countries? Fairly blunt changes in labor market institutions, that's what. This goes back to Peter Temin's " Treaty of Detroit " paper and the oddly ignored series of papers by Piketty, Saez and coauthors which argues that changes in top marginal tax rates can largely explain the evolution of the Top 1% share of income across countries. (Actually, it goes back further -- people who work in Public Economics had "always" known that pre-tax income is sensitive to tax rates...) They also show that the story of inequality is really a story of incomes at the very top -- changes in other parts of the income distribution are far less dramatic. This evidence also is not suggestive of a story in which inequality is about the returns to skills, or computer usage, or the rise of trade with China. ...

mulp : , March 21, 2017 at 01:54 AM

Yet another economist bamboozled by free lunch economics.

In free lunch economics, you never consider demand impacted by labor cost changed.

TANSTAAFL so, cut labor costs and consumption must be cut.

Funny things can be done if money is printed and helicopter dropped unequally.

Printed money can accumulate in the hands of the rentier cutting labor costs and pocketing the savings without cutting prices.

Free lunch economics invented the idea price equals cost, but that is grossly distorting.

And all costs are labor costs. It it isn't labor cost, it's rents and economic profit which mean economic inefficiency. An inefficient economy is unstable. Likely to crash or drive revolution.

Free lunch economics seeks to make labor unnecessary or irrelevant. Labor cost is pure liability.

Yet all the cash for consumption is labor cost, so if labor cost is a liability, then demand is a liability.

Replace workers with robots, then robots must become consumers.

reason -> mulp... , March 21, 2017 at 03:47 AM
"Replace workers with robots, then robots must become consumers." Well no - the OWNERS of robots must become consumers.
reason : , March 21, 2017 at 03:35 AM
I am old enough to remember the days of good public libraries, free university education, free bus passes for seniors and low land prices. Is the income side of the equation all that counts?
anne : , March 21, 2017 at 06:37 AM
https://medium.com/@ryanavent_93844/the-productivity-paradox-aaf05e5e4aad#.brb0426mt

March 16, 2017

The productivity paradox
By Ryan Avent

People are worried about robots taking jobs. Driverless cars are around the corner. Restaurants and shops increasingly carry the option to order by touchscreen. Google's clever algorithms provide instant translations that are remarkably good.

But the economy does not feel like one undergoing a technology-driven productivity boom. In the late 1990s, tech optimism was everywhere. At the same time, wages and productivity were rocketing upward. The situation now is completely different. The most recent jobs reports in America and Britain tell the tale. Employment is growing, month after month after month. But wage growth is abysmal. So is productivity growth: not surprising in economies where there are lots of people on the job working for low pay.

The obvious conclusion, the one lots of people are drawing, is that the robot threat is totally overblown: the fantasy, perhaps, of a bubble-mad Silicon Valley - or an effort to distract from workers' real problems, trade and excessive corporate power. Generally speaking, the problem is not that we've got too much amazing new technology but too little.

This is not a strawman of my own invention. Robert Gordon makes this case. You can see Matt Yglesias make it here. * Duncan Weldon, for his part, writes: **

"We are debating a problem we don't have, rather than facing a real crisis that is the polar opposite. Productivity growth has slowed to a crawl over the last 15 or so years, business investment has fallen and wage growth has been weak. If the robot revolution truly was under way, we would see surging capital expenditure and soaring productivity. Right now, that would be a nice 'problem' to have. Instead we have the reality of weak growth and stagnant pay. The real and pressing concern when it comes to the jobs market and automation is that the robots aren't taking our jobs fast enough."

And in a recent blog post Paul Krugman concluded: *

"I'd note, however, that it remains peculiar how we're simultaneously worrying that robots will take all our jobs and bemoaning the stalling out of productivity growth. What is the story, really?"

What is the story, indeed. Let me see if I can tell one. Last fall I published a book: "The Wealth of Humans". In it I set out how rapid technological progress can coincide with lousy growth in pay and productivity. Start with this:

"Low labour costs discourage investments in labour-saving technology, potentially reducing productivity growth."

...

* http://www.vox.com/2015/7/27/9038829/automation-myth

** http://www.prospectmagazine.co.uk/magazine/droids-wont-steal-your-job-they-could-make-you-rich

*** https://krugman.blogs.nytimes.com/2017/02/24/maid-in-america/

anne -> anne... , March 21, 2017 at 06:38 AM
https://twitter.com/paulkrugman/status/843167658577182725

Paul Krugman @paulkrugman

But is Ryan Avent saying something different * from the assertion that recent technological progress is capital-biased? **

* https://medium.com/@ryanavent_93844/the-productivity-paradox-aaf05e5e4aad#.kmb49lrgd

** http://krugman.blogs.nytimes.com/2012/12/08/rise-of-the-robots/

If so, what?

https://krugman.blogs.nytimes.com/2012/12/26/capital-biased-technological-progress-an-example-wonkish/

11:30 AM - 18 Mar 2017

anne -> anne... , March 21, 2017 at 07:00 AM
This is an old concern in economics; it's "capital-biased technological change," which tends to shift the distribution of income away from workers to the owners of capital....

-- Paul Krugman

anne -> anne... , March 21, 2017 at 06:40 AM
http://krugman.blogs.nytimes.com/2012/12/08/rise-of-the-robots/

December 8, 2012

Rise of the Robots
By Paul Krugman

Catherine Rampell and Nick Wingfield write about the growing evidence * for "reshoring" of manufacturing to the United States. * They cite several reasons: rising wages in Asia; lower energy costs here; higher transportation costs. In a followup piece, ** however, Rampell cites another factor: robots.

"The most valuable part of each computer, a motherboard loaded with microprocessors and memory, is already largely made with robots, according to my colleague Quentin Hardy. People do things like fitting in batteries and snapping on screens.

"As more robots are built, largely by other robots, 'assembly can be done here as well as anywhere else,' said Rob Enderle, an analyst based in San Jose, California, who has been following the computer electronics industry for a quarter-century. 'That will replace most of the workers, though you will need a few people to manage the robots.' "

Robots mean that labor costs don't matter much, so you might as well locate in advanced countries with large markets and good infrastructure (which may soon not include us, but that's another issue). On the other hand, it's not good news for workers!

This is an old concern in economics; it's "capital-biased technological change," which tends to shift the distribution of income away from workers to the owners of capital.

Twenty years ago, when I was writing about globalization and inequality, capital bias didn't look like a big issue; the major changes in income distribution had been among workers (when you include hedge fund managers and CEOs among the workers), rather than between labor and capital. So the academic literature focused almost exclusively on "skill bias", supposedly explaining the rising college premium.

But the college premium hasn't risen for a while. What has happened, on the other hand, is a notable shift in income away from labor:

[Graph]

If this is the wave of the future, it makes nonsense of just about all the conventional wisdom on reducing inequality. Better education won't do much to reduce inequality if the big rewards simply go to those with the most assets. Creating an "opportunity society," or whatever it is the likes of Paul Ryan etc. are selling this week, won't do much if the most important asset you can have in life is, well, lots of assets inherited from your parents. And so on.

I think our eyes have been averted from the capital/labor dimension of inequality, for several reasons. It didn't seem crucial back in the 1990s, and not enough people (me included!) have looked up to notice that things have changed. It has echoes of old-fashioned Marxism - which shouldn't be a reason to ignore facts, but too often is. And it has really uncomfortable implications.

But I think we'd better start paying attention to those implications.

* http://www.nytimes.com/2012/12/07/technology/apple-to-resume-us-manufacturing.html

** http://economix.blogs.nytimes.com/2012/12/07/when-cheap-foreign-labor-gets-less-cheap/

anne -> anne... , March 21, 2017 at 06:43 AM
https://fred.stlouisfed.org/graph/?g=d4ZY

January 30, 2017

Compensation of employees as a share of Gross Domestic Income, 1948-2015


https://fred.stlouisfed.org/graph/?g=d507

January 30, 2017

Compensation of employees as a share of Gross Domestic Income, 1948-2015

(Indexed to 1948)

supersaurus -> anne... , March 21, 2017 at 01:23 PM
"The most valuable part of each computer, a motherboard loaded with microprocessors and memory, is already largely made with robots, according to my colleague Quentin Hardy. People do things like fitting in batteries and snapping on screens.

"...already largely made..."? already? circuit boards were almost entirely populated by machines by 1985, and after the rise of surface mount technology you could drop the "almost". in 1990 a single machine could place 40k+/hour parts small enough they were hard to pick up with fingers.

anne : , March 21, 2017 at 06:37 AM
https://krugman.blogs.nytimes.com/2017/03/20/robot-geometry-very-wonkish/

March 20, 2017

Robot Geometry (Very Wonkish)
By Paul Krugman

And now for something completely different. Ryan Avent has a nice summary * of the argument in his recent book, trying to explain how dramatic technological change can go along with stagnant real wages and slowish productivity growth. As I understand it, he's arguing that the big tech changes are happening in a limited sector of the economy, and are driving workers into lower-wage and lower-productivity occupations.

But I have to admit that I was having a bit of a hard time wrapping my mind around exactly what he's saying, or how to picture this in terms of standard economic frameworks. So I found myself wanting to see how much of his story could be captured in a small general equilibrium model - basically the kind of model I learned many years ago when studying the old trade theory.

Actually, my sense is that this kind of analysis is a bit of a lost art. There was a time when most of trade theory revolved around diagrams illustrating two-country, two-good, two-factor models; these days, not so much. And it's true that little models can be misleading, and geometric reasoning can suck you in way too much. It's also true, however, that this style of modeling can help a lot in thinking through how the pieces of an economy fit together, in ways that algebra or verbal storytelling can't.

So, an exercise in either clarification or nostalgia - not sure which - using a framework that is basically the Lerner diagram, ** adapted to a different issue.

Imagine an economy that produces only one good, but can do so using two techniques, A and B, one capital-intensive, one labor-intensive. I represent these techniques in Figure 1 by showing their unit input coefficients:

[Figure 1]

Here AB is the economy's unit isoquant, the various combinations of K and L it can use to produce one unit of output. E is the economy's factor endowment; as long as the aggregate ratio of K to L is between the factor intensities of the two techniques, both will be used. In that case, the wage-rental ratio will be the slope of the line AB.

Wait, there's more. Since any point on the line passing through A and B has the same value, the place where it hits the horizontal axis is the amount of labor it takes to buy one unit of output, the inverse of the real wage rate. And total output is the ratio of the distance along the ray to E divided by the distance to AB, so that distance is 1/GDP.

You can also derive the allocation of resources between A and B; not to clutter up the diagram even further, I show this in Figure 2, which uses the K/L ratios of the two techniques and the overall endowment E:

[Figure 2]

Now, Avent's story. I think it can be represented as technical progress in A, perhaps also making A even more capital-intensive. So this would amount to a movement southwest to a point like A' in Figure 3:

[Figure 3]

We can see right away that this will lead to a fall in the real wage, because 1/w must rise. GDP and hence productivity does rise, but maybe not by much if the economy was mostly using the labor-intensive technique.

And what about allocation of labor between sectors? We can see this in Figure 4, where capital-using technical progress in A actually leads to a higher share of the work force being employed in labor-intensive B:

[Figure 4]

So yes, it is possible for a simple general equilibrium analysis to capture a lot of what Avent is saying. That does not, of course, mean that he's empirically right. And there are other things in his argument, such as hypothesized effects on the direction of innovation, that aren't in here.

But I, at least, find this way of looking at it somewhat clarifying - which, to be honest, may say more about my weirdness and intellectual age than it does about the subject.

* https://medium.com/@ryanavent_93844/the-productivity-paradox-aaf05e5e4aad#.v9et5b98y

** http://www-personal.umich.edu/~alandear/writings/Lerner.pdf

Shah of Bratpuhr : , March 21, 2017 at 07:27 AM
Median Wealth per adult (table ends at $40k)

1. Switzerland $244,002
2. Iceland $188,088
3. Australia $162,815
4. Belgium $154,815
5. New Zealand $135,755
6. Norway $135,012
7. Luxembourg $125,452
8. Japan $120,493
9. United Kingdom $107,865
10. Italy $104,105
11. Singapore $101,386
12. France $ 99,923
13. Canada $ 96,664
14. Netherlands $ 81,118
15. Ireland $ 80,668
16. Qatar $ 74,820
17. Korea $ 64,686
18. Taiwan $ 63,134
19. United Arab Emirates $ 62,332
20. Spain $ 56,500
21. Malta $ 54,562
22. Israel $ 54,384
23. Greece $ 53,266
24. Austria $ 52,519
25. Finland $ 52,427
26. Denmark $ 52,279
27. United States $ 44,977
28. Germany $ 42,833
29. Kuwait $ 40,803

http://www.middleclasspoliticaleconomist.com/2017/03/us-has-worst-wealth-inequality-of-any.html

reason -> Shah of Bratpuhr... , March 21, 2017 at 08:17 AM
I think this illustrates my point very clearly. If you had charts of wealth by age it would be even clearer. Without a knowledge of the discounted expected value of public pensions it is hard to draw any conclusions from this list.

I know very definitely that in Australia and the UK people are very reliant on superannuation and housing assets. In both Australia and the UK it is common to sell expensive housing in the capital and move to cheaper coastal locations upon retirement, investing the capital to provide retirement income. Hence a larger median wealth is NEEDED.

It is hard otherwise to explain the much higher median wealth in Australia and the UK.

Shah of Bratpuhr : , March 21, 2017 at 07:28 AM
Median Wealth Average Wealth

1. United States $ 44,977 $344,692 7.66
2. Denmark $ 52,279 $259,816 4.97
3. Germany $ 42,833 $185,175 4.32
4. Austria $ 52,519 $206,002 3.92
5. Israel $ 54,384 $176,263 3.24
6. Kuwait $ 40,803 $119,038 2.92
7. Finland $ 52,427 $146,733 2.80
8. Canada $ 96,664 $270,179 2.80
9. Taiwan $ 63,134 $172,847 2.74
10. Singapore $101,386 $276,885 2.73
11. United Kingdom $107,865 $288,808 2.68
12. Ireland $ 80,668 $214,589 2.66
13. Luxembourg $125,452 $316,466 2.52
14. Korea $ 64,686 $159,914 2.47
15. France $ 99,923 $244,365 2.45
16. United Arab Emirates $ 62,332 $151,098 2.42
17. Norway $135,012 $312,339 2.31
18. Australia $162,815 $375,573 2.31
19. Switzerland $244,002 $561,854 2.30
20. Netherlands $ 81,118 $184,378 2.27
21. New Zealand $135,755 $298,930 2.20
22. Iceland $188,088 $408,595 2.17
23. Qatar $ 74,820 $161,666 2.16
24. Malta $ 54,562 $116,185 2.13
25. Spain $ 56,500 $116,320 2.06
26. Greece $ 53,266 $103,569 1.94
27. Italy $104,105 $202,288 1.94
28. Japan $120,493 $230,946 1.92
29. Belgium $154,815 $270,613 1.75

http://www.middleclasspoliticaleconomist.com/2017/03/us-has-worst-wealth-inequality-of-any.html

spencer : , March 21, 2017 at 08:06 AM
Ryan Avent's analysis demonstrates what is wrong with the libertarian, right wing belief that cheap labor is the answer to every problem when in truth cheap labor is the source of many of our problems.
reason -> spencer... , March 21, 2017 at 08:22 AM
Spencer,
as I have said before, I don't really care to much what wages are - I care about income. It is low income that is the problem. I'm a UBI guy, if money is spread around, and workers can say no to exploitation, low wages will not be a problem.
Sanjait : , March 21, 2017 at 09:32 AM
This looks good, but also reductive.

Have we not seen a massive shift in pretax income distribution? Yes ... which tells me that changes in tax rate structures are not the only culprit. Though they are an important culprit.

reason -> Sanjait... , March 21, 2017 at 09:40 AM
Maybe - but
1. changes in taxes can affect incentives (especially think of real investment and corporate taxes and also personal income taxes and executive remuneration);
2. changes in the distribution of purchasing power can effect the way growth in the economy occurs;
3. changes in taxes also affect government spending and government spending tends to be more progressively distributed than private income.

Remember the rule: ceteris is NEVER paribus.

Longtooth : , March 21, 2017 at 12:28 PM
Word to the wise:

Think: Services and Goods

Composite Services labor hours increase with poor productivity growth - output per hour of labor input. Composite measure of service industry output is notoriously problematic (per BLS BEA).

Goods labor hours decrease with increasing productivity growth. Goods output per hour easy to measure and with the greatest experience and knowledge.

Put this together and composite national productivity growth rate can't grow as fast as services consume more of labor hours.

Simple arithmetic.

Elaboration on Services productivity measures:

Now add the composite retail clerk labor hours to engineering labor hours... which dominates in composite labor hours? Duh! So even in services the productivity is weighted heavily to the lowest productivity job market.

Substitute Hospitality services for Retail Clerk services. Substitute truck drivers services for Hospitality Services, etc., etc., etc.

I have spent years tracking productivity in goods production of various types ... mining, non-tech hardware production, high tech hardware production in various sectors of high tech. The present rates of productivity growth continue to climb (never decline) relative to the past rates in each goods production sector measured by themselves.

But the proportion of hours in goods production in U.S. is and has been in continual decline even while value of output has increased in each sector of goods production.

Here's an interesting way to start thinking about Services productivity.

There used to be reasonably large services sector in leisure and business travel agents. Now there is nearly none... this has been replaced by on-line computer based booking. So travel agent or equivalent labor hours is now near zippo. Productivity of travel agents went through the roof in the 1990's & 2000's as the number of people / labor hours dropped like a rock. Where did those labor hours end up? They went to lower paying services or left the labor market entirely. So lower paying lower productivity services increased as a proportion of all services, which in composite reduced total serviced productivity.

You can do the same analysis for hundreds of service jobs that no longer even exist at all --- switch board operators for example when the way of buggy whip makers and horse-shoe services).

Now take a little ride into the future... not to distant future. When autonomous vehicles become the norm or even a large proportion of vehicles, and commercial drivers (taxi's, trucking, delivery services) go the way of horse-shoe services the labor hours for those services (land transportation of goods & people) will drop precipitously, even as unit deliveries increase, productivity goes through the roof, but since there's almost no labor hours in that service the composite effect on productivity in services will drop because the displaced labor hours will end up in a lower productivity services sector or out of the elabor market entirely.

Longtooth -> Longtooth... , March 21, 2017 at 12:42 PM
Economists are having problems reconciling composite productivity growth rates with increasing rates of automation. So they end up saying "no evidence" of automation taking jobs or something to the effect "not to fear, robotics isn't evident as a problem we have to worry about".

But they know by observation all around them that automation is increasing productivity in the goods sector, so they can't really discount automation as an issue without shutting their eyes to everything they see with their "lying eyes". Thus they know deep down that they will have to be reconcile this with BLS and BEA measures.

Ten years aog this wasn't even on economist's radars. Today it's at least being looked into with more serious effort.

Ten years ago politicians weren't even aware of the possibility of any issues with increasing rates of automation... they thought it's always increased with increasing labor demand and growth, so why would that ever change? Ten years ago they concluded it couldn't without even thinking about it for a moment. Today it's on their radar at least as something that bears perhaps a little more thought.

Not to worry though... in ten more years they'll either have real reason to worry staring them in the face, or they'll have figured out why they were so blind before.

Reminds me of not recognizing the "shadow banking" enterprises that they didn't see either until after the fact.

Longtooth -> Longtooth... , March 21, 2017 at 12:48 PM
Or that they thought the risk rating agencies were providing independent and valid risk analysis so the economists couldn't reconcile the "low level" of market risks risk with everything else so they just assumed "everything" else was really ok too... must be "irrational exuberance" that's to blame.
Longtooth : , March 21, 2017 at 01:04 PM
Let me add that the term "robotics" is a subset of automation. The major distinction is only that a form of automation that includes some type of 'articulation' and/or some type of dynamic decision making on the fly (computational branching decision making in nano second speeds) is termed 'robotics' because articulation and dynamic decision making are associated with human capabilities rather then automatic machines.

It makes no difference whether productivity gains occur by an articulated machine or one that isn't... automation just means replacing people's labor with something that improves humans capacity to produce an output.

When mechanical leverage was invented 3000 or more years ago it was a form of automation, enabling humans to lift, move heavier objects with less human effort (less human energy).

Longtooth -> Longtooth... , March 21, 2017 at 01:18 PM
I meant 3000 years BC.... 5000 years ago or more.

[Mar 19, 2017] When inequality is driven by extremes at the tail, using median means that you dont see much change in the demographics

Mar 19, 2017 | economistsview.typepad.com
libezkova : March 16, 2017 at 09:51 PM , 2017 at 09:51 PM
"the U.S. middle class - with household incomes ranging from two-thirds to double the national median"

Median household income in the US in 2015 was less the $60K. Two-thirds is $40K. That's almost poverty not middle class.

Sociologically the middle class is a quasi-elite of professionals and managers, who are largely immune to economic downturns and trends such as out-sourcing.

reason -> libezkova... , March 17, 2017 at 04:24 AM
The definition game? Define something to something else as is being talked about and then claim, claims based on a completely different definition are false?
Lyle -> libezkova... , March 17, 2017 at 12:47 PM
Actually with the change in ratio professionals and managers now tend to upper middle class, (29% of us is upper middle now, 32% middle).

One of the influences is that post WWII it was possible to be middle class and work on an assembly line in a job that was described as check your brain at the door. Automation and process changes have wiped the high pay of such jobs out. Steel makers for example thru mainly process changes (electric furnaces using scrap, continuous casting and the like) mean that it takes 1/5 the hours to produce a ton of steel in did in the 1970s.

The movement of assembly line jobs to the middle class occured because there was a period where the US was much less involved with the rest of the world economically, because their industries had all been destroyed. The change started during the Johnson admin, and showed up in the high inflation of the Nixon admin.

cm -> libezkova... , March 17, 2017 at 10:48 PM
Most "professionals and managers" are nowhere near being immune to downturns and outsourcing, in aggregate.

You could likewise claim that "low skilled" or any other occupations are "immune" as somewhere around 70-80% of their members continue being employed through tough times, in aggregate.

If you take "tech", companies laying off around 5-10% or even more of their staff in busts is a frequent enough occurrence. And that's in addition to the "regular" age discrimination and cycling of workers justified with "outdated skills". Being young and (supposedly) impressionable is a skill!

D. C. Sessions -> libezkova... , March 18, 2017 at 10:16 AM
"the U.S. middle class - with household incomes ranging from two-thirds to double the national median"

That's almost tautological. By definition, there can't be a whole lot of change in the population of groups defined relative to median. Income and wealth of those groups, though, can be enlightening.

Substitute "mean" for "median" and watch what happens. When inequality is driven by extremes at the tail, using "median" means that you don't see much change in the demographics. (Hint: if "middle class" is defined as half to twice the average income, there are damned few in that bracket.)

[Mar 17, 2017] The best existing research suggests that modest increases in minimal wage have had little or no employment-reducing impact.

Mar 17, 2017 | economistsview.typepad.com
Denis Drew : March 17, 2017 at 08:29 AM , 2017 at 08:29 AM
Re: America's employment problem - Lane Kenworthy

"It can do so by increasing the federal minimum wage to $10 per hour and indexing it to inflation. The best existing research suggests that modest increases such as this have had little or no employment-reducing impact. And the government should also increase the Earned Income Tax Credit, a refundable tax credit for workers, for people who don't have children (a strategy Brooks endorses)."

Here we go again. First, I thought we had left EITC behind as any kind of substantial answer to underpaid Americans: redistributing all of 1/2 of one percent of overall income when 45% of our workforce is earning less than what we think the minimum wage should be, $15 an hour.

$15 may be the most fast food can pay. Sometimes in McDonald's there are more people behind the counter than in front (most customers come through the drive through). If fast food (33% labor costs) can pay $15, then maybe Target (10%-15%) can pay $20, and maybe super efficient WalMart (7%) can pay $25.

Always keeping in mind that labor bought and sold sort of on margin. Doubling Walmart's pay could add only 7% to prices.

Bottom 45% of workforce now takes 10% share of overall income -- used to be 20%. Top 1% now 20% instead of 10%. How to get that 10% back -- how to supply the economic and political muscle to TAKE IT BACK: just put some teeth in the (federal) law that already says union busting is illegal.

States can do this without any fear of confronting federal preemption. States can make it a crime for wholesalers for instance to pressure individual retailers from combining their bargaining power -- same such law can overlap federal labor area; especially since fed left blank for 80 years. Blank or not: may overlap as with min wage.

No need for complicated policy researches; no need to spend a dime: states just make union busting a felony and let people organize if they wish to -- and get out of their way. :-)

Back to min wage. If you sell fewer labor hours for more dollars that works out better for labor than for potatoes -- because in the labor market the potatoes get the money to spend -- and they are more likely to spend it more on other potatoes than more upscale. Why min wage raises often followed by higher min wage employment. (Higher wage jobs lost -- everybody looking in wrong place.)

***************************

My minimum wage worksheet

(2013 dollars)
yr..per capita...real...nominal...dbl-index...%-of

68...15,473....10.74..(1.60)......10.74......100%
69-70-71-72-73 *
74...18,284.....9.43...(2.00)......12.61
75...18,313.....9.08...(2.10)......12.61
76...18,945.....9.40...(2.30)......13.04........72%
77 *
78...20,422.....9.45...(2.65)......14.11
79...20,696.....9.29...(2.90)......14.32
80...20,236.....8.75...(3.10)......14.00
81...20,112.....8.57...(3.35)......13.89........62%
82-83-84-85-86-87-88-89 *
90...24,000.....6.76...(3.80)......16.56
91...23,540.....7.26...(4.25)......16.24........44%
92-93-94-95 *
96...25,887.....7.04...(4.75)......17.85
97...26,884.....7.46...(5.15)......19.02........39%
98-99-00-01-02-03-04-05-06 *
07...29,075.....6.56...(5.85)......20.09
08...28,166.....7.07...(6.55)......19.45
09...27,819.....7.86...(7.25)......19.42........40%
10-11-12-13-14-15-16-17 *

anne -> Denis Drew ... , March 17, 2017 at 08:45 AM
https://fred.stlouisfed.org/graph/?g=d30R

January 4, 2017

Real Federal Minimum Hourly Wage for Nonfarm Workers, 1964-2016

(Indexed to 2016)

Denis Drew -> Denis Drew ... , March 17, 2017 at 09:05 AM
Re: The Man Who Made Us See That Trade Isn't Always Free - Noah Smith

"Instead, he and his co-authors found that trade with China in the 2000s left huge swathes of the U.S. workforce permanently without good jobs -- or, in many cases, jobs at all.

"This sort of concentrated economic devastation sounds like it would hurt not just people's pocketbooks, but the social fabric. In a series of follow-up papers, Autor and his team link Chinese import competition to declining marriage rates and political polarization. Autor told me that these social ills make the need for new thinking about trade policy even more urgent."

Here we go again. US manufacturing going from 16% of employment from 2000 to 12% in 2016 (half due automation) nowhere near as sucking-all-the-oxygen-out-of-life as the the bottom 45% of earners taking 10% of overall income, down from 20% over two generations -- more and more being recognized due to the loss of collective bargaining power ...

... for which loss the usual litany of causatives NEVER seem to include one mention of the complete lack of teeth protecting union organizing from market power in US labor law.

Simple answer: no studies or research needed, not a dollar appropriated: simply make union busting a felony at state level -- and get out of people's way.

States can do this without conflict with federal preemption. States can make it a crime for wholesalers for instance to pressure individual retailers from combining their bargaining power -- same such law can overlap federal labor area; especially since fed left blank for 80 years. Blank or not: may overlap as with min wage.

Don't do this and you'll never bring back collective bargaining power -- and all the genuine populist politics that goes with it!

anne -> Denis Drew ... , March 17, 2017 at 09:10 AM
http://www.bls.gov/webapps/legacy/cpslutab3.htm

January 15, 2017

United States Union Membership Rates, 1992-2016

Private wage and salary workers

1992 ( 11.5)
1993 ( 11.2) Clinton
1994 ( 10.9)

1995 ( 10.4)
1996 ( 10.2)
1997 ( 9.8)
1998 ( 9.6)
1999 ( 9.5)

2000 ( 9.0)
2001 ( 8.9) Bush
2002 ( 8.6)
2003 ( 8.2)
2004 ( 7.9)

2005 ( 7.8)
2006 ( 7.4)
2007 ( 7.5)
2008 ( 7.6)
2009 ( 7.2) Obama

2010 ( 6.9)
2011 ( 6.9)
2012 ( 6.6)
2013 ( 6.7)
2014 ( 6.6)

2015 ( 6.7)
2016 ( 6.4)

[Mar 17, 2017] "Meals on Wheels America," one such national meal delivery program, says the organization can provide meals for senior citizens for one year for roughly the same cost as just

Mar 17, 2017 | economistsview.typepad.com
im1dc : March 16, 2017 at 11:16 AM

, 2017 at 11:16 AM
OMG, to give himself and his $Billionaire buddies a big tax break Trump's Budget cuts Meals on Wheels programs that feed the elderly and disabled...

How cold and cruel is this man?

http://www.marketwatch.com/story/this-is-how-much-it-costs-meals-on-wheels-to-feed-one-elderly-person-for-a-year-2017-03-16

"This is how much it costs 'Meals on Wheels' to feed one elderly person for a year"

By Quentin Fottrell, Personal Finance Editor...Mar 16, 2017...1:01 p.m. ET

"Among the services that could be impacted under President Trump's budget proposals: Meals on Wheels.

The administration's cuts target the Department of Housing and Urban Development and call for the elimination of the $3 billion Community Development Block Grant, which helps fund programs including Meals on Wheels services, which deliver food (and human interaction) to elderly, disabled and poor recipients. "The federal government has spent over $150 billion on this block grant since its inception in 1974, but the program is not well-targeted to the poorest populations and has not demonstrated results," the budget proposal states. "The budget devolves community and economic development activities to the state and local level, and redirects federal resources to other activities."

"Meals on Wheels America," one such national meal delivery program, says the organization can provide meals for senior citizens for one year for roughly the same cost as just one day in a hospital. The annual meal cost is $2,765 for 250 days, while the cost of one day in the hospital is around $2,271, according to the Henry J. Kaiser Family Foundation, a nonprofit, private operating foundation based in Menlo Park, Calif. For "Meals on Wheels People," a Portland, Ore.-based service and one of the largest in the country, says it costs us around $2,500 annually to provide daily meals to a homebound senior, while cost of institutional care for a year in Oregon is around $60,000."...

[Mar 17, 2017] The rise of elite dynasties, economic inequality, and the vast concentrations of global wealth in recent times means that the role of the family office in our society demands

Mar 17, 2017 | economistsview.typepad.com
im1dc : March 16, 2017 at 09:55 AM

, 2017 at 09:55 AM
"Ultra-rich protect wealth with spread of 'family offices'"

Not really a new idea. The Rockefeller Family and one or two others had these from early days of American Dynastic Wealth, however, what is new is the number of wealthy and the amount of wealth they control, not only within a nation but Globally which makes them a new threat to global prosperity and equality - iow, they won't share theirs willingly and must be forced to pay up, the Anti-Trump way.

http://www.bbc.com/news/education-39285037

"Ultra-rich protect wealth with spread of 'family offices'"

By Sean Coughlan, Education correspondent...BBC...16 March 2017

"The ultra-rich in London are increasingly protecting their wealth through the use of "family offices", says research from the London School of Economics.

These are teams of professionals - such as lawyers, financiers and psychologists - employed to ensure the "dynastic wealth" of the super-rich.

These offices work for families worth at least £200m, says the study.

Researcher Luna Glucksberg says their role "demands scrutiny".

The study, from the LSE's International Inequalities Institute, says more attention should be paid to the rise of such "shadowy" family offices, which are employed full-time to protect the interests of their "elite families".

The study describes how they support a "bunkered" and "fortified" way of life of the "global super-rich".

Family offices have grown alongside the concentrations of the ultra-rich in cities such as London - and researchers say they have moved on a step from buying in specialist advisers.

These are full-time professional staff, which could include investment experts, property advisers, economists, trust fund advisers and lawyers, who work for a single family, in the way that a corporation might have its own dedicated staff.

The study quotes a US report from 2010 that found that 50 of the wealthiest such family offices were looking after $500bn (£407bn).

Rather than getting external advice from bankers and financiers, these family offices will keep such information private and in-house.

Their role "goes far beyond that of private bankers", says Dr Glucksberg.

"They are about creating dynasties, ensuring generational transfers of wealth," she says.

As well as maximising financial interests and investments, such family offices can look after every aspect of the private lives of their employers.

This can be everything from buying clothes and organising holidays to arranging divorces and making financial arrangements to prevent money being lost to in-laws.

The study says that for an individual family to have a family office, they would need to be worth at least £200m and probably much more.

But there are cases of "multi-family offices" - where families worth from £80m upwards could share such services.

The growth of extreme wealth, alongside poverty and low-income families, means that there needs to be more analysis of how such wealth is perpetuated, the study suggests.

These family offices "play a crucial role" in how advantages are handed on between generations, with full-time staff able to make long-term, strategic planning, says the study.

"The rise of elite dynasties, economic inequality, and the vast concentrations of global wealth in recent times means that the role of the 'family office' in our society demands scrutiny," says Dr Glucksberg."

[Mar 17, 2017] While I think primary education especially has suffered tremendously in the US, education is a terribly necessary but far from sufficient solution to the problems.

Mar 17, 2017 | economistsview.typepad.com

Longtooth : March 16, 2017 at 08:08 PM While I think primary education especially has suffered tremendously in the US, education is a terribly necessary but far from sufficient solution to the problems.

The far greater problem, imo, is the distribution of incomes which create the divergences in primary & secondary education.. which is a direct outgrowth of educational funding by school districts, which is differentiated by the tax base, which of course then determines the quality of the education. Add this to poorer lower and lower middle class neighborhoods where both parents work (mostly) in low wage and low benefits jobs and the environment rubs off directly on the kids.

Why do we promote divergence in neighborhood wealth? This is a direct result of and part of income inequality so it's not just the 1% that are the problem.. they're just a popular and clear-cut indicator of it. We create these ghetto-like islands by a political and belief system that promotes "individualism", that believes if you've got a good high paying job that it's because you "earned it" yourself and therefore "deserve it".

Education will not solve the upward mobility issue we now have in spades and which spirals to less mobility by feed-back loops.

[Mar 17, 2017] Tax cuts kill jobs. Plain and simple.

Notable quotes:
"... Tax cuts kill jobs. Plain and simple. You can't create jobs by cutting the amount you paid workers. Taxes are prices that workers .pay You dodge taxes by underpaying workers. If taxes are cut, both paying workers is cut AND paying workers to dodge taxes is cut. ..."
Mar 17, 2017 | economistsview.typepad.com
mulp -> DrDick ... March 16, 2017 at 09:54 AM , 2017 at 09:54 AM
Forecasting is done to change human behavior to invalidate the forecasts.

Thus forecasts are by design never accurate about the future.

This is different than designing systems using natural laws.

A plane is designed to fly, because every forecast for it crashing has resulted in design changes to invalidate that forecast.

Conservatives hate forecasts because they hate changing their plans. To forecast slower gdp growth and job creation, or even contraction from tax cuts and spending cuts is unacceptable. Thus they strive to change forecasts or discredit them to get their policy implemented.

My forecast in the late 90s and early 00s was for economic disaster as a result of conservative policy eventually being implemented.

Tax cuts kill jobs. Plain and simple. You can't create jobs by cutting the amount you paid workers. Taxes are prices that workers .pay You dodge taxes by underpaying workers. If taxes are cut, both paying workers is cut AND paying workers to dodge taxes is cut.

That would have been the forecast in the 60s.

Today even Krugman and Bernie support job killing tax cuts based on that creating jobs. Lots of bad forecasting is done to back tax cuts. The tax cuts fail to create jobs, so the bad forecasts are blamed so every forecast is ignored, even the good ones.

New Deal democrat -> John Williams... , March 16, 2017 at 08:02 AM
That ecosystem forecasting system is safe until the animals and plants learn how to read. ;-)
Thi$ World$ Banker$ -> New Deal democrat... , March 16, 2017 at 09:03 AM

Believe it!

When Congressional critters learned to read, 45th POTUS was suddenly and permanently unable to drain the swamp of critters who grow fat on the pork-barrel-legislation that drains the public treasure of We the Workers and Savers.

These parasitic critters will grow fat and strong, strong enough to gobble up the the once brave workers who feed the fat in DC.

Thanks,
NDD
!

[Mar 17, 2017] America's Two-Track Economy

Mar 17, 2017 | economistsview.typepad.com
Median household income in the USA in 2015 was $ 53,889. Census money income is defined as income received on a regular basis before payments for taxes, social security, etc. and does not reflect noncash benefits....
Peter Dizikes at the MIT News Office:
America's two-track economy : For many people in America, being middle class isn't what it used to be.
Consider: In 1971, the U.S. middle class - with household incomes ranging from two-thirds to double the national median - accounted for almost 60 percent of total U.S. earnings. But in 2014, middle-class households earned just about 40 percent of the total national income. And, adjusted for inflation, the incomes of goods-producing workers have been flat since the mid-1970s.
"We have a fractured society," says MIT economist Peter Temin. "The middle class is vanishing."
Now Temin, the Elisha Gray II Professor Emeritus of Economics in MIT's Department of Economics, has written a book exploring the topic. "The Vanishing Middle Class: Prejudice and Power in a Dual Economy," published this month by MIT Press, examines the plight of middle-income earners and offers some prescriptions for changing our current state of affairs.
The "dual economy" in the book's title also represents a bracing reflection of America's class schism. Temin, a leading economic historian, draws the term from the work of Nobel Prize winner W. Arthur Lewis, who in the 1950s applied the model of a dual economy to developing countries. In many of those nations, Lewis contended, there was not a single economy but a two-track economy, with one part containing upwardly-mobile, skilled workers and the other part inhabited by subsistence workers.
Applied to the U.S. today, "The Lewis model actually works," Temin says. "The economy can grow, but it detaches from the [subsistence] sector. Simple as it is, the Lewis model offers the benefit that a good economic model does, which is to clarify your thinking."
In Temin's terms, updated, America now features what he calls the "FTE sector" - people who work in finance, technology, and electronics - and "the low-wage sector." Workers in the first sector tend to thrive; workers in the second sector usually struggle. Much of the book delves into how the U.S. has developed this way over the last 40 years, and how it might transform itself back into a country with one economy for all.
Headwinds for workers
As Temin sees it, there are multiple reasons for the decline in middle-class earning power. To cite one: The decline of unionization, he contends, has reduced the bargaining power available to middle class workers.
"In the [political and economic] turmoil of the '70s and '80s, the unions declined, and the institutions that had been keeping labor going along with rising productivity were destroyed," Temin says. "It's partly [due to] new technology, globalization, and public policy - it's all of these things. What it did was disconnect wages from the growth in productivity."
Indeed, from about 1945 until 1975, as Temin documents in the book, U.S. productivity gains and the wage gains of goods-producing workers tracked each other closely. But since 1975, productivity has roughly doubled, while those wages have stayed flat.
Where "The Vanishing Middle Class" moves well beyond a discussion of basic economic relations, however, is in Temin's insistence that readers consider the interaction of racial politics and economics. As he puts it in the book, "Race plays an important part in discussions of politics related to inequality in the United States."
To take one example: Again starting in the 1970s, incarceration policies led to an increasing proportion of African-Americans being jailed. Today, Temin notes, about one in three African-American men will serve jail time, which he calls "a very striking figure. You can see how that would just destroy the fabric of a community." After all, those who become imprisoned see a significant reduction in their ability to obtain healthy incomes over their lifetimes.
For that matter, Temin observes, incarceration has expanded so dramatically it has affected the ability of society to pay for prisons, which may be a factor that limits their further growth. At the moment, he notes in the book, the U.S. states pay roughly $50 billion a year for prisons and roughly $75 billion annually to support higher education.
Solutions?
Temin contends in the book that a renewed focus on education is a principal way to distribute opportunities better throughout society.
"The link between the two parts of the modern dual economy is education, which provides a possible path that children of low-wage workers can take to move into the FTE sector," Temin writes.
That begins with early-childhood education, which Temin calls "critically important" - although, he says, "in order to continue those benefits, [students] have to build on that foundation. That goes all the way up to college."
And for students in challenging social and economic circumstances, Temin adds, what matters is not just the simple acquisition of knowledge but the classroom experiences that lead to, as he puts it, "Knowing how to think, how to get on with people, how to cooperate. All the social skills and social capital [are] going to be critically important for kids in this environment."
In the book Temin bluntly advocates for greater investment in public schools as well as public universities, saying that America's "educational system was the wonder of the 20th century." It still works very well, he notes, for kids at good public schools and for those college students who graduate without burdensome debt.
But for others, he notes, "We don't have a path for the next generation to have what we expect for a middle-class life [and] not everyone wants to finance it."
"The Vanishing Middle Class" comes amid increasing scrutiny of class relations in the U.S., but at a time when the public discussion of the topic is still very much evolving. Gerald Jaynes, a professor in the departments of Economics and African American Studies at Yale University, calls Temin's new book "a significant addition to the existing literature on inequality."
Temin, for his part, hopes that by the end of "The Vanishing Middle Class," readers will agree that a society paying for more education will have made a worthy investment.
"The people in this country are the resource we have," Temin says. "If we maintain the character of our fellow citizens, that is really our national strength."

Posted by Mark Thoma on Thursday, March 16, 2017 at 12:58 PM in Economics , Income Distribution | Permalink Comments (48) Peter K. : , March 16, 2017 at 01:34 PM

The [neoliberal] Democrats like Sanjait and PGL deliver a two-track economy and wonder why voter turn-out is low and the white working class are susceptible to demagogues like Trump.

Why did Michigan, Wisconsin, Pennsylvania and Ohio go for a laughable reality TV star like Trump.

They expend a lot of energy trying to explain away the obvious like globalization and attacking heretics like Bernie Sanders.

EMichael says it all about race but ignores the obvious.

"Indeed, from about 1945 until 1975, as Temin documents in the book, U.S. productivity gains and the wage gains of goods-producing workers tracked each other closely. But since 1975, productivity has roughly doubled, while those wages have stayed flat."

Interesting that neoliberalism really took off around the 1980s, with Clinton moving the Democrats to the right and endorsing corporate globalization.

Kaleberg -> Peter K.... , March 16, 2017 at 04:17 PM
The unions got their power during the New Deal. They were under serious attack in the 1970s with its inflation and its oil shocks. When the government started insisting that blacks get some of the New Deal goodies, conservative whites balked. When push came to shove, they voted for Reagan who promptly killed the unions. It was a suicide deal. If whites had to share prosperity with blacks, then not being prosperous was better. That attitude is around today.

Neoliberalism was part of it. The Democrats did move to the right. People forget that it was Carter who deregulated the airlines, not Reagan. It was Carter who bought the nonsense about balancing the budget. Hell, it was Carter who started getting tough with the USSR after Nixon's detente.

Mr. Bill -> Mr. Bill... , March 16, 2017 at 07:17 PM
The dual economy, they say, as if it were an abstract.

My Dad was shot in the face in Germany. The Unions were established by the people who established our society.

The sentiments being expressed here by the people whose existence would not even be possible without the efforts of my Dad, and men like him, are breathtaking.

Mr. Bill -> Mr. Bill... , March 16, 2017 at 07:34 PM
Is economics, as a political science, that corrupt ? That it presumes to transcend common decency, and sense ?
Mr. Bill -> Mr. Bill... , March 16, 2017 at 07:39 PM
The current "thinking" and bloviation of main stream Economics, seems to be, that they're wishful thinking, contradicts the accepted, published foundations.
Mr. Bill -> Mr. Bill... , March 16, 2017 at 07:43 PM
And thereby, they should be given a pint, and not be recognized as the charlatans that they are,l nut instead, be honored.

Didn't Shakespeare discuss this very conundrum ?

Mr. Bill -> Mr. Bill... , March 16, 2017 at 08:41 PM
Barrack O'Bama may have been the worst President of all time. Except for George Bush, Bill Clinton, the other Bush, and our favorite life-guard, Ronald Reagan.
Mr. Bill -> Mr. Bill... , March 16, 2017 at 09:16 PM
The United States of America.
MANKIND being originally equals in the order of creation, the equality could only be destroyed by some subsequent circumstance: the distinctions of rich and poor may in a great measure be accounted for, and that without having recourse to the harsh ill-sounding names of oppression and avarice. Oppression is often the CONSEQUENCE, but seldom or never the MEANS of riches; and tho' avarice will preserve a man from being necessitously poor, it generally makes him too timorous to be wealthy.

But there is another and great distinction for which no truly natural or religious reason can be assigned, and that is the distinction of men into KINGS and SUBJECTS. Male and female are the distinctions of nature, good and bad the distinctions of Heaven; but how a race of men came into the world so exalted above the rest, and distinguished like some new species, is worth inquiring into, and whether they are the means of happiness or of misery to mankind.

In the early ages of the world, according to the scripture chronology there were no kings; the consequence of which was, there were no wars; it is the pride of kings which throws mankind into confusion. Holland, without a king hath enjoyed more peace for this last century than any of the monarchical governments in Europe. Antiquity favours the same remark; for the quiet and rural lives of the first Patriarchs have a snappy something in them, which vanishes when we come to the history of Jewish royalty.

Government by kings was first introduced into the world by the Heathens, from whom the children of Israel copied the custom. It was the most prosperous invention the Devil ever set on foot for the promotion of idolatry. The Heathens paid divine honours to their deceased kings, and the Christian World hath improved on the plan by doing the same to their living ones. How impious is the title of sacred Majesty applied to a worm, who in the midst of his splendor is crumbling into dust!

As the exalting one man so greatly above the rest cannot be justified on the equal rights of nature, so neither can it be defended on the authority of scripture; for the will of the Almighty as declared by Gideon, and the prophet Samuel, expressly disapproves of government by Kings.

All anti-monarchical parts of scripture have been very smoothly glossed over in monarchical governments, but they undoubtedly merit the attention of countries which have their governments yet to form. "Render unto Cesar the things which are Cesar's" is the scripture doctrine of courts, yet it is no support of monarchical government, for the Jews at that time were without a king, and in a state of vassalage to the Romans.

Mr. Bill -> Mr. Bill... , March 16, 2017 at 09:29 PM
Thomas Paine

The Pamphlet

http://www.ushistory.org/paine/commonsense/sense3.htm

Peter K. : , March 16, 2017 at 01:39 PM
It's funny how Sanjait and PGL don't want to talk about what Krugman wrote in his latest blog post:

"This ties in with an important recent piece by Zack Beauchamp on the striking degree to which left-wing economics fails, in practice, to counter right-wing populism; basically, Sandersism has failed everywhere it has been tried. Why?

The answer, presumably, is that what we call populism is really in large degree white identity politics, which can't be addressed by promising universal benefits. Among other things, these "populist" voters now live in a media bubble, getting their news from sources that play to their identity-politics desires, which means that even if you offer them a better deal, they won't hear about it or believe it if told. For sure many if not most of those who gained health coverage thanks to Obamacare have no idea that's what happened.

That said, taking the benefits away would probably get their attention, and maybe even open their eyes to the extent to which they are suffering to provide tax cuts to the rich.

In Europe, right-wing parties probably don't face the same dilemma; they're preaching herrenvolk social democracy, a welfare state but only for people who look like you. In America, however, Trumpism is faux populism that appeals to white identity but actually serves plutocrats. That fundamental contradiction is now out in the open."

https://krugman.blogs.nytimes.com/2017/03/14/populism-and-the-politics-of-health/

The 1950, 1960 and 1970s saw the civil rights movement, anti-war movement and feminist movements.

Economics helps with white and male supremacy.

But the EMichaels, Sanjaits, PGLs, Democrats, Krugmans want to make either/or.

Peter K. -> Peter K.... , March 16, 2017 at 01:40 PM
And the rise of the environmental movement!

And Krugman is against all of that? WTF!

RGC : , March 16, 2017 at 01:59 PM
The division isn't between 2 groups of middle class.

The division to worry about is between the 99% and the 1%.

More BS and diversion from mainstream economists.

Deindustrialization never mentioned by economists - Youngstown was created by free trade policies : , March 16, 2017 at 03:42 PM
Economists never mention massive deindustrialization as a reason for our country's transformation into a Lewis-modeled developing country.
pgl : , March 16, 2017 at 04:35 PM
Peter Temin's CV:

http://economics.mit.edu/faculty/ptemin/cv

He is now 79 years old. He has written some brilliant analyzes over his incredible career. His latest is something I must read as this discussion is so spot on regarding the current debate.

[Mar 14, 2017] No wonder the unemployed increasingly kill themselves, or others. The whole economy tells them, indirectly but unmistakably, that their human value does not exist.

Mar 14, 2017 | economistsview.typepad.com
Noni Mausa : March 13, 2017 at 04:13 PM

What the wealthy right wing has decided in the past 40 years is that they don't need citizens. At least, not as many citizens as are actually citizens. What they are comfortable with is a large population of free range people, like the longhorn cattle of the old west, who care for themselves as best they can, and are convenient to be used when the "ranchers" want them.

Of course, this is their approach to foreign workers, also, but for the purpose of maintaining a domestic society within which the domestic rich can comfortably live, only native born Americans really suit.

With the development of high productivity production, farming, and hands-off war technology the need for a large number of citizens is reduced. The wealthy can sit in their towers and arrange the world as suits them, and use the rest of the world as a "farm team" to supply skills and labour as needed.

Proof of this is the fact that they talk about the economy's need for certain skills, training, services and so on, but never about the inherent value of citizens independent of their utility to someone else.

No wonder the unemployed increasingly kill themselves, or others. The whole economy tells them, indirectly but unmistakably, that their human value does not exist. ken melvin : , March 13, 2017 at 04:48 PM

Can someone get me from $300 billion tax cut for the rich to getting the markets work for health care?
ken melvin : , March 13, 2017 at 04:54 PM
It isn't about 'markets', never is. It is about extraction of as much profit as possible using whatever means necessary. This is what the CEOs of insurance companies get payed to do. Insurance policies they don't pay out, the ones Ryan is referring to, are as good as any for scoring.
libezkova : , March 13, 2017 at 07:09 PM
"It isn't about 'markets', never is. It is about extraction of as much profit as possible using whatever means necessary. This is what the CEOs of insurance companies get payed to do."

What surprises me most in this discussion is how Obamacare suddenly changed from a dismal and expensive failure enriching private insurers to a "good deal".

Lesseevilism in action ;-)

ilsm : , March 13, 2017 at 01:41 PM
When the PPACA band-aid is pulled off the US health care mess the gusher will be blamed on "the Russians running the White House".

Cuba does better than the US despite being economically sanctioned for 55 years. Distribution of artificially scarce health care resources is utterly broken. This failed market is financed by a mix of 'for profit' insurance and medicare (which sublets a big part to 'for profit' insurance).

Coverage!!! PPACA added taxpayers' money to finance a bigger failed market. It did nothing to address the market fail!

Single payer would not address the market failure. Single payer would put the government financing most of the failed market.

Democrats have put band-aids on severe bleeds since Truman made the cold war more important than Americans.

At least we know what Trump stands for!

jeff fisher said in reply to ilsm... , March 13, 2017 at 01:58 PM
Cuba is the shining example of how doing the first 20% of healthcare well for everyone gets you 80% of the benefit cheap.

The US is the shining example of how refusing to do the first 20% of healthcare well for everyone only gets you 80% of the benefit no matter how much you spend.

jonny bakho : , March 13, 2017 at 12:09 PM
Mark's very nice argument does nothing to address The Official Trump Counter Argument:

[Shorter version: Obamacare is doomed, going to blow up. Any replacement is therefore better than Obamacare; Facts seldom win arguments against beliefs]

"During a listening session on healthcare at the White House on Monday, President Donald Trump said Republicans "are putting themselves in a very bad position by repealing Obamacare."

Trump said that his administration is "committed to repealing and replacing" Obamacare and that the House Obamacare replacement will lead to more choice at a lower cost. He further stated, "[T]he press is making Obamacare look so good all, of a sudden. I'm watching the news. It looks so good. They're showing these reports about this one gets so much, and this one gets so much. First of all, it covers very few people, and it's imploding. And '17 will be the worst year. And I said it once; I'll say it again: because Obama's gone."

He continued, "And the Republicans, frankly, are putting themselves in a very bad position - I tell this to Tom Price all the time - by repealing Obamacare. Because people aren't gonna see the truly devastating effects of Obamacare. They're not gonna see the devastation. In '17 and '18 and '19, it'll be gone by then. It'll - whether we do it or not, it'll be imploded off the map."

He added, "So, the press is making it look so wonderful, so that if we end it, everyone's going to say, 'Oh, remember how great Obamacare used to be? Remember how wonderful it used to be? It was so great.' It's a little bit like President Obama. When he left, people liked him. When he was here, people didn't like him so much. That's the way life goes. That's human nature."

Trump further stated that while letting Obamacare collapse on its own was the best thing to do politically, it wasn't the right thing to do for the country.

http://www.breitbart.com/video/2017/03/13/trump-republicans-putting-bad-position-repealing-obamacare/

[Mar 10, 2017] Michael Hudson: Retirement? What Social Obligation?

Notable quotes:
"... This was Alan Greenspan's trick that he pulled in the 1980s as head of the Greenspan Commission. He said that what was needed in America was to traumatize the workers – to squeeze them so much that they won't have the courage to strike. Not have the courage to ask for better working conditions. He recognized that the best way to really squeeze wage earners is to sharply increase their taxes. He didn't call FICA wage withholding a tax, but of course it is. His trick was to say that it's not really a tax, but a contribution to Social Security. And now it siphons off 15.4% of everybody's pay check, right off the top. ..."
"... The effect of what Greenspan did was more than just to make wage earners pay this FICA rake-off out of their paycheck every month. The charge was set so high that the Social Security fund lent its surplus to the government. Now, with all this huge surplus that we're squeezing out of the wage earners, there's a cut-off point: around $120,000. The richest people don't have to pay for Social Security funding, only the wage-earner class has to. Their forced savings are lent to the government to enable it to claim that it has so much extra money in the budget pouring in from social security that now it can afford to cut taxes on the rich. ..."
"... So the sharp increase in Social Security tax for wage earners went hand-in-hand with sharp reductions in taxes on real estate, finance for the top One Percent – the people who live on economic rent, not by working, not by producing goods and services but by making money on their real estate, stocks and bonds "in their sleep." That's how the five percent have basically been able to make their money. ..."
"... The Federal Reserve has just published statistics saying the average American family, 55 and 60 years old, only has about $14,000 worth of savings. This isn't nearly enough to retire on. There's also been a vast looting of pension funds, largely by Wall Street. That's why the investment banks have had to pay tens of billions of dollars of penalties for cheating pension funds and other investors. The current risk-free rate of return is 0.1% on government bonds, so the pension funds don't have enough money to pay pensions at the rate that their junk economics advisors forecast. The money that people thought was going to be available for their retirement, all of a sudden isn't. The pretense is that nobody could have forecast this! ..."
"... In Chile, the Chicago Boys really developed this strategy. University of Chicago economists made it possible, by privatizing and corporatizing the Social Security system. Their ploy was to set aside a pension fund managed by the company, mostly to invest in its own stock. The company would then set up an affiliate that would actually own the company under an umbrella, and then leave the company with its pension fund to go bankrupt – having already emptied out the pension fund by loaning it to the corporate shell. ..."
"... We have the highest healthcare costs in the world, so out of your paycheck – which is not increasing – you're going to have to pay more and more for FICA withholding for Social Security, more and more for healthcare, for the pharmaceutical monopoly and the health insurance monopoly. You'll also have to pay more and more to use public services for transportation to get to work, because the state is not funding that anymore. We're cutting taxes on the rich, so we don't have the money to do what social democracies are supposed to do. You're going to privatize the roads, so that now you're going to have to pay to use the road to drive to work, if you don't have public transportation. ..."
"... "Classical and neo-classical economics, as dominant today, has used the deductive methodology: Untested axioms and unrealistic assumptions are the basis for the formulation of theoretical dream worlds that are used to present particular 'results'. As discussed in Werner (2005), this methodology is particularly suited to deriving and justifying preconceived ideas and conclusions, through a process of working backwards from the desired 'conclusions', to establish the kind of model that can deliver them, and then formulating the kind of framework that could justify this model by choosing suitable assumptions and 'axioms'. In other words, the deductive methodology is uniquely suited for manipulation by being based on axioms and assumptions that can be picked at will in order to obtain pre-determined desired outcomes and justify favoured policy recommendations. It can be said that the deductive methodology is useful for producing arguments that may give a scientific appearance, but are merely presenting a pre-determined opinion." ..."
"... "Progress in economics and finance research would require researchers to build on the correct insights derived by economists at least since the 19th century (such as Macleod, 1856). The overview of the literature on how banks function, in this paper and in Werner (2014b), has revealed that economics and finance as research disciplines have on this topic failed to progress in the 20th century. The movement from the accurate credit creation theory to the misleading, inconsistent and incorrect fractional reserve theory to today's dominant, yet wholly implausible and blatantly wrong financial intermediation theory indicates that economists and finance researchers have not progressed, but instead regressed throughout the past century. That was already Schumpeter's (1954) assessment, and things have since further moved away from the credit creation theory." ..."
"... "Although commercial banks create money through lending, they cannot do so freely without limit. Banks are limited in how much they can lend if they are to remain profitable in a competitive banking system." ..."
"... it insults the intelligence of the audience, ..."
"... we would now call ..."
"... totally insupportable on its face. ..."
"... as a corporate, spiritually mandated obligation, ..."
"... You're going to privatize the roads, so that now you're going to have to pay to use the road to drive to work, if you don't have public transportation. ..."
"... Henry Ford II: Walter, how are you going to get those robots to pay your union dues? Walter Reuther: Henry, how are you going to get them to buy your cars? ..."
"... "You're turning the economy into what used to be called feudalism. Except that we don't have outright serfdom, because people can live wherever they want. But they all have to pay to this new hereditary 'financial/real estate/public enterprise' class that is transforming the economy." ..."
"... "The industrial capitalists, these new potentates, had on their part not only to displace the guild masters of handicrafts, but also the feudal lords, the possessors of the sources of wealth. In this respect, their conquest of social power appears as the fruit of a victorious struggle both against feudal lordship and its revolting prerogatives, and against the guilds and the fetters they laid on the free development of production and the free exploitation of man by man. The chevaliers d'industrie, however, only succeeded in supplanting the chevaliers of the sword by making use of events of which they themselves were wholly innocent. They have risen by means as vile as those by which the Roman freedman once on a time made himself the master of his patronus. ..."
"... The starting point of the development that gave rise to the wage labourer as well as to the capitalist, was the servitude of the labourer. The advance consisted in a change of form of this servitude, in the transformation of feudal exploitation into capitalist exploitation. " ..."
Mar 10, 2017 | www.nakedcapitalism.com
Posted on March 9, 2017 by Yves Smith Yves here. This Real News Network interview is from a multi-part series about Michael Hudson's new book, J is for Junk Economics. And after a lively discussion by readers of the economic necessity of many to become expats to get their living costs down to a viable level, a discussion of the disingenuous political messaging around retirement seemed likely. Among the people in my age cohort, the ones that managed to attach themselves to capital (being in finance long enough at a senior enough level, working in Corporate America and stock or stock options) are generally set to have an adequate to very comfortable retirement. The ones who didn't (and these include people I know who are very well paid professionals but for various reasons, like health problems or periods of unemployment that drained savings, haven't put much away) will either have to continue working well past a normal retirement age (even charitably assuming they can find adequately compensated work) or face a struggle or even poverty.

https://www.youtube.com/embed/cdv9EvWxkdc

SHARMINI PERIES: It's The Real News Network. I'm Sharmini Peries, coming to you from Baltimore. I'm speaking with Michael Hudson about his new book J Is For Junk Economics: A Guide to Reality in the Age of Deception.

Thanks for joining me again, Michael.

MICHAEL HUDSON: Good to be here.

SHARMINI PERIES: So, Michael, on page 260 of your book you deal with the issue of Social Security and it's a myth that Social Security should be pre-funded by its beneficiaries, or that progressive taxes should be abolished in favor of a flat tax. Just one tax rate for everyone you criticize. We talked about this earlier, but let's apply what this actually means when it comes to Social Security.

MICHAEL HUDSON: The mythology aims to convince people that if they're the beneficiaries of Social Security, they should be responsible for saving up to pre-fund it. That's like saying that you're the beneficiary of public education, so you have to pay for the schooling. You're the beneficiary of healthcare, you have to save up to pay for that. You're the beneficiary of America's military spending that keeps us from being invaded next week by Russia, you have to spend for all that – in advance, and lend the money to the government for when it's needed.

Where do you draw the line? Nobody anticipated in the 19th century that people would have to pay for their own retirement. That was viewed as an obligation of society. You had the first public pension (social security) program in Germany under Bismarck. The whole idea is that this is a public obligation. There are certain rights of citizens, and among these rights is that after your working life you deserve to live in retirement. That means that you have to be able to afford this retirement, and not have to beg in the street for money. The wool that's been pulled over people's eyes is to imagine that because they're the beneficiaries of Social Security, they have to actually pay for it.

This was Alan Greenspan's trick that he pulled in the 1980s as head of the Greenspan Commission. He said that what was needed in America was to traumatize the workers – to squeeze them so much that they won't have the courage to strike. Not have the courage to ask for better working conditions. He recognized that the best way to really squeeze wage earners is to sharply increase their taxes. He didn't call FICA wage withholding a tax, but of course it is. His trick was to say that it's not really a tax, but a contribution to Social Security. And now it siphons off 15.4% of everybody's pay check, right off the top.

The effect of what Greenspan did was more than just to make wage earners pay this FICA rake-off out of their paycheck every month. The charge was set so high that the Social Security fund lent its surplus to the government. Now, with all this huge surplus that we're squeezing out of the wage earners, there's a cut-off point: around $120,000. The richest people don't have to pay for Social Security funding, only the wage-earner class has to. Their forced savings are lent to the government to enable it to claim that it has so much extra money in the budget pouring in from social security that now it can afford to cut taxes on the rich.

So the sharp increase in Social Security tax for wage earners went hand-in-hand with sharp reductions in taxes on real estate, finance for the top One Percent – the people who live on economic rent, not by working, not by producing goods and services but by making money on their real estate, stocks and bonds "in their sleep." That's how the five percent have basically been able to make their money.

The idea that Social Security has to be funded by its beneficiaries has been a setup for the wealthy to claim that the government budget doesn't have enough money to keep paying. Social Security may begin to run a budget deficit. After having run a surplus since 1933, for 70 years, now we have to begin paying some of this savings out. That's called a deficit, as if it's a disaster and we have to begin cutting back Social Security. The implication is that wage earners will have to starve in the street after they retire.

The Federal Reserve has just published statistics saying the average American family, 55 and 60 years old, only has about $14,000 worth of savings. This isn't nearly enough to retire on. There's also been a vast looting of pension funds, largely by Wall Street. That's why the investment banks have had to pay tens of billions of dollars of penalties for cheating pension funds and other investors. The current risk-free rate of return is 0.1% on government bonds, so the pension funds don't have enough money to pay pensions at the rate that their junk economics advisors forecast. The money that people thought was going to be available for their retirement, all of a sudden isn't. The pretense is that nobody could have forecast this!

There are so many corporate pension funds that are going bankrupt that the Pension Benefit Guarantee Corporation doesn't have enough money to bail them out. The PBGC is in deficit. If you're going to be a corporate raider, if you're going to be a Governor Romney or whatever and you take over a company, you do what Sam Zell did with the Chicago Tribune: You loot the pension fund, you empty it out to pay the bondholders that have lent you the money to buy out the company. You then tell the workers, "I'm sorry there is nothing there. It's wiped out." Half of the employee stock ownership programs go bankrupt. That was already a critique made in the 1950s and '60s.

In Chile, the Chicago Boys really developed this strategy. University of Chicago economists made it possible, by privatizing and corporatizing the Social Security system. Their ploy was to set aside a pension fund managed by the company, mostly to invest in its own stock. The company would then set up an affiliate that would actually own the company under an umbrella, and then leave the company with its pension fund to go bankrupt – having already emptied out the pension fund by loaning it to the corporate shell.

So it's become a shell game. There's really no Social Security problem. Of course the government has enough tax revenue to pay Social Security. That's what the tax system is all about. Just look at our military spending. But if you do what Donald Trump does, and say that you're not going to tax the rich; and if you do what Alan Greenspan did and not make higher-income individuals contribute to the Social Security system, then of course it's going to show a deficit. It's supposed to show a deficit when more people retire. It was always intended to show a deficit. But now that the government actually isn't using Social Security surpluses to pretend that it can afford to cut taxes on the rich, they're baiting and switching. This is basically part of the shell game. Explaining its myth is partly what I try to do in my book.

SHARMINI PERIES: If the rich people don't have to contribute to the Social Security base, are they able to draw on it?

MICHAEL HUDSON: They will draw Social Security up to the given wage that they didn't pay Social Security on, which is up to $120,000 these days. So yes, they will get that little bit. But what people make over $120,000 is completely exempt from the Social Security system. These are the rich people who run corporations and give themselves golden parachutes.

Even for companies that have engaged in massive financial fraud, the large banks, City Bank, Wells Fargo – all these have golden parachutes. They still are getting enormous pensions for the rest of their lives. And they're talking as if, well, corporate pensions are in deficit, but for the leading officers, arrangements are quite different from the pensions to the blue collar workers and the wage earners as a whole. So there's a whole array of fictitious economic statistics.

I describe this in my dictionary as "mathiness." The idea that if you can put a number on something, it somehow is scientific. But the number really is the product of corporate accountants and lobbyists reclassifying income in a way that it doesn't appear to be taxable income.

Taking money out and giving it to the richest 5%, while making it appear as if all this deficit is the problem of the 95%, is "blame the victim" economics. You could say that's the way the economic accounts are being presented by Congress to the American people. The aim is to popularize a "blame the victim" economics. As if it's your fault that Social Security's going bankrupt. This is a mythology saying that we should not treat retirement as a public obligation. It's becoming the same as treating healthcare as not being a public obligation.

We have the highest healthcare costs in the world, so out of your paycheck – which is not increasing – you're going to have to pay more and more for FICA withholding for Social Security, more and more for healthcare, for the pharmaceutical monopoly and the health insurance monopoly. You'll also have to pay more and more to use public services for transportation to get to work, because the state is not funding that anymore. We're cutting taxes on the rich, so we don't have the money to do what social democracies are supposed to do. You're going to privatize the roads, so that now you're going to have to pay to use the road to drive to work, if you don't have public transportation.

You're turning the economy into what used to be called feudalism. Except that we don't have outright serfdom, because people can live wherever they want. But they all have to pay to this new hereditary "financial/real estate/public enterprise" class that is transforming the economy.

SHARMINI PERIES All right, Michael. Many, many, many things to learn from your great book, J Is For Junk Economics: A Guide to Reality in the Age of Deception. Michael is actually on the road promoting the book. So if you have an opportunity to see him at one of the places he's going to be speaking, you should check out his website, michael-hudson.com

So I thank you so much for joining us today, Michael. And as most of you know, Michael Hudson is a regular guest on The Real News Network. We'll be unpacking his book and some of the concepts in it on an ongoing basis. So please stay tuned for those interviews.

Thank you so much for joining us today, Michael.

craazyman , March 9, 2017 at 10:10 am

It's 10 bagger time for sure. A house in the tropics with servants at your beck and call. Breakfast on the veranda. Lunch at the club. An afternoon sail. Dinner at the house of a famous author. Or some native woman who cooks spicy food and is hotter than the sun. No shuffleboard and pills! You need to stay buff if you wanna live like this. You can't be flabby and short of breath.

j84ustin , March 9, 2017 at 10:21 am

Thanks for this.

flora , March 9, 2017 at 11:47 am

+1. Yes. Great post. Very clear explanation of Greenspan's SocSec bait-and-switch.

PhilM , March 9, 2017 at 10:32 am

Yves's remark on retirement by sector is apt. I laugh bitter tears when I see that a financial CEO contract always includes a "pension," as if the tens of millions of dollars in salary and bonuses weren't enough.

A "pension" is for those who, broken by a life of hard physical labor, finally can't work any more for their crust of bread. It's not another revenue line-item that's barely enough to refuel the yacht.

There was a time when people "saved for retirement." With real rates of return being negative, and all assets priced arbitrarily at the whim of the central bank's policy du jour, I am perfectly frank when people ask "what should they invest in": nothing. Pay down your debt, and spend whatever you have beyond an emergency cushion right now, while you can enjoy it. Savings will inevitably be wasted, by inflation, the "health-care system," or financial-sector scammers. Do not ask for whom the bell tolls; if you have to ask, you can't afford it.

This is all in the context of the Federal Government already spending 20% of GDP, a number that was never designed to happen. It is the States that were supposed to be in charge of the people's welfare, not the national authority. So the argument that we should increase Federal taxes to somehow redistribute wealth is also wrong, because that wealth will simply be wasted, spent by people who are responsible to no one.

At moments like this there are no good choices. Most Europeans have long learned to live with governments that were hostile to them, and that is where we stand now.

Tocqueville's Democracy In America is tough going in spots, but my gosh, what a beautiful world he depicts, when the average Pennsylvanian's tax liability beyond his township was $4 a year.

a different chris , March 9, 2017 at 12:56 pm

I won't argue too hard about your "Federal vs State" argument, but note that if the state is in charge of most taxation then Richy Rich can live in a low tax state next door and employ the well-educated, healthy (single-payer) people in your state.

Sound of the Suburbs , March 9, 2017 at 10:38 am

Just got my copy of "J is for Junk Economics"

Other people are on the same wavelength.

Professor Werner moving from reality to fantasy:

"Classical and neo-classical economics, as dominant today, has used the deductive methodology: Untested axioms and unrealistic assumptions are the basis for the formulation of theoretical dream worlds that are used to present particular 'results'. As discussed in Werner (2005), this methodology is particularly suited to deriving and justifying preconceived ideas and conclusions, through a process of working backwards from the desired 'conclusions', to establish the kind of model that can deliver them, and then formulating the kind of framework that could justify this model by choosing suitable assumptions and 'axioms'. In other words, the deductive methodology is uniquely suited for manipulation by being based on axioms and assumptions that can be picked at will in order to obtain pre-determined desired outcomes and justify favoured policy recommendations. It can be said that the deductive methodology is useful for producing arguments that may give a scientific appearance, but are merely presenting a pre-determined opinion."

"Progress in economics and finance research would require researchers to build on the correct insights derived by economists at least since the 19th century (such as Macleod, 1856). The overview of the literature on how banks function, in this paper and in Werner (2014b), has revealed that economics and finance as research disciplines have on this topic failed to progress in the 20th century. The movement from the accurate credit creation theory to the misleading, inconsistent and incorrect fractional reserve theory to today's dominant, yet wholly implausible and blatantly wrong financial intermediation theory indicates that economists and finance researchers have not progressed, but instead regressed throughout the past century. That was already Schumpeter's (1954) assessment, and things have since further moved away from the credit creation theory."

"A lost century in economics: Three theories of banking and the conclusive evidence" Richard A. Werner

http://www.sciencedirect.com/science/article/pii/S1057521915001477

Even the BoE has quietly come clean about money.

http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf

Leaving Paul Krugman looking rather foolish

" banks make their profits by taking in deposits and lending the funds out at a higher rate of interest" Paul Krugman, 2015.

No, it doesn't work like that Paul.

Sound of the Suburbs , March 9, 2017 at 10:46 am

The facts tell all.

Francis Fukuyama talked of the "end of history" and "liberal democracy" in 1989.

Capitalism had conquered all and was the one remaining system left that had stood the test of time.

With such a successful track record, everything was being changed to a new neo-liberal ideology and globalization was used to test this new ideology everywhere.

The Great Moderation seemed to indicate that the new ideology was a great success.

"Seemed" is the operative word here.

A "black swan" arrives in 2008 and nothing is the same again, the Central Bankers pump in trillions to maintain the new normal of secular stagnation.

Sovereign debt crises erupt, the Euro-zone starts to disintegrate, austerity becomes the norm., no one knows how to restore growth and the populists rise.

A new ideology comes in that is rolled out globally and seems to work before 2008.

What happened in 2008?

This is the build up to 2008 that can be seen in the money supply (money = debt):

http://www.whichwayhome.com/skin/frontend/default/wwgcomcatalogarticles/images/articles/whichwayhomes/US-money-supply.jpg

Everything is reflected in the money supply.

The money supply is flat in the recession of the early 1990s.

Then it really starts to take off as the dot.com boom gets going which rapidly morphs into the US housing boom, courtesy of Alan Greenspan's loose monetary policy.

When M3 gets closer to the vertical, the black swan is coming and you have an out of control credit bubble on your hands (money = debt).

The theory.

Irving Fisher produced the theory of debt deflation in the 1930s.

Hyman Minsky carried on with his work and came up with the "Financial instability Hypothesis" in 1974.
Steve Keen carried on with their work and spotted 2008 coming in 2005.

You can see what Steve Keen saw in the graph above, it's impossible to miss when you know what you are looking for but no one in the mainstream did.

The hidden secret of money.

Money = Debt

From the BoE:
http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf

If you paid off all the debt there would be no money.

Money and debt are opposite side of the same coin, matter and anti-matter.

The money supply reflects debt/credit bubbles.

Monetary theory has been regressing for over 100 years to today's abysmal theory where banks act as intermediaries and don't create and destroy money.

The success of earlier years was mainly due to money creation from new debt (mainly in housing booms) globally feeding into economies leaving a terrible debt over-hang.

Jam today, penury tomorrow.

This is how debt works.

Twelve people were officially recognised by Bezemer in 2009 as having seen 2008 coming, announcing it publicly beforehand and having good reasoning behind their predictions (Michael Hudson and Steve Keen are on the list of 12).

They all saw the problem being excessive debt with debt being used to inflate asset prices (US housing).

The Euro's periphery nations had unbelievably low interest rates with the Euro, the risks were now based on common debt service. Mass borrowing and spending occurs at the periphery with the associated money creation causing positive feedback.

Years later, it was found the common debt service didn't actually exist and interest rates correct for the new reality.

Jam today, penury tomorrow.

Why doesn't austerity work? (although it has been used nearly everywhere)

You need to understand money, debt, money creation and destruction on bank balance sheets and its effect on the money supply. Almost no one does.

Richard Koo does:

https://www.youtube.com/watch?v=8YTyJzmiHGk

Ben Bernanke read Richard Koo's book and stopped the US going over the fiscal cliff by cutting government spending.

Sound of the Suburbs , March 9, 2017 at 11:20 am

Alternative and I would say much more accurate realities:

1) Michael Hudson "Killing the Host", "J is for Junk Economics"

The knowledge of economic history and the classical economists that has been lost and the problems this is causing. Ancient Sumer had more enlightened views on debt than we have today.

2) Steve Keen "De-bunking Economics"

His work is based on that of Hyman Minsky and looks into the effects of private debt on the economy and the inflation of asset bubbles with debt.

3) Richard Werner "Where does money come from?"

The only book generally available that tells the truth about money, I don't think there are any other modern books that do and certainly not in economics textbooks

4) Richard Koo's study on the Great Depression and Japan after 1989 showing the only way out of debt deflation/balance sheet recessions.

https://www.youtube.com/watch?v=8YTyJzmiHGk

Sound of the Suburbs , March 9, 2017 at 11:55 am

The BoE:

http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf

The BoE have made a mistake.

"Although commercial banks create money through lending, they cannot do so freely without limit. Banks are limited in how much they can lend if they are to remain profitable in a competitive banking system."

The limit for money creation holds true when banks keep the debt they issue on their own books.

The BoE's statement was true, but is not true now as banks can securitize bad loans and get them off their books.

Before 2008, banks were securitising all the garbage sub-prime mortgages, e.g. NINJA mortgages, and getting them off their books.

Money is being created freely and without limit, M3 is going exponential before 2008.

Dead Dog , March 9, 2017 at 1:02 pm

Thanks SOS, agree. We're at that 08 point now, in fact it's worse.

Pensions should just be a click of the computer, no borrowings, savings or taxes needed and they need to be sufficient to live on.

No, we aren't 'winning'

In Australia, we used to give people the 'aged' at 60 for women and 65 for men. Now its 67 for both, the woman's aged cut in was raised for 'equality' reasons, and it going up to 70 for my kids.

Politicians, judges, CEOs and the c-class, all those 'shiny bums', they can often work well into their 60s. The rest of us experience age discrimination in a tight job market and are forced into menial jobs just when society should be funding their well earned retirement.

diogenes , March 9, 2017 at 10:41 am

The whole "there aren't enough workers to support retirees" meme is risible.

Example: Jane funds an IRA for 30 years. For those 30 years, there is one person paying in, and zero taking out. When Jane retires, the IRA flips to one person taking out, and zero paying in.

Disaster, or working as advertised?

That Serious Thinkers, elected officials and the SSA themselves advance this trope to explain why SS is hopeless is proof of willful mendacity.

Now if these folks admit, well yuh, you paid in over all of these years, but the money ain't there no more, then first, that's an admission of mismanagement (unsurprising), and second, bail us the fuck out like you did Wall Street.

inhibi , March 9, 2017 at 11:48 am

Most every purported "help" by the government is the exact opposite: your paying into a black hole.

Look around you. What around you was paid for by the government? The answer is none of it was. Taxes are a way to keep the bureaucratic structure afloat. What is very clear is that once government reaches a certain size it begins to massively leach off of those that work and gives it to those that "manage".

Look at any industry today and you will find, in the private sector, declining or stagnant wages for the "drones". Then look at the public sector: expanding, better benefits, better wages, less work etc. Thinking about it makes my blood boil. I see truckers making less now then 10 years ago, yet, the industry keeps crying that they "don't have enough workers". Yeah, sorry no one wants to work 25/8 driving around in the day time, sleeping in a truck at night, getting tracked through GPS & get penalized for going above speed limits when they can work for the DMV, make the same amount, and sit at a desk for 7 hours a day with plenty of benefits and vacation time.

Its about time for this system to implode. I see globalization and government expansion as a huge force that will eventually cause a revolution in the States.

Art Eclectic , March 9, 2017 at 12:12 pm

Globalization and the government are simply red herrings meant to distract Trump voters while shareholder value driven corporate overlords continue looting.

a different chris , March 9, 2017 at 1:09 pm

Look around you . The government employs less people than pretty much for my whole life. Please get informed before you go off on a multi-paragraph rant.

http://historyinpieces.com/research/federal-personnel-numbers-1962

If you want a job join the military. Do you think that's a good option?

jrs , March 9, 2017 at 7:01 pm

maybe noone should work in trucking, freight trains are much more energy efficient as far as a means of transporting goods over long distances. Nah I'm not faulting truckers, just saying it makes no societal sense is all except maybe for the last few miles, but then neither do a lot of things. I doubt many people want to work at the DMV, but then maybe the benefits are enough to make a distasteful job seem worth it.

Arizona Slim , March 9, 2017 at 12:37 pm

ISTR reading that the creators of the 401k saying that they never intended it to be a replacement for a pension.

PhilM , March 9, 2017 at 11:05 am

As usual, the abuse of history is the outstanding credibility-buster in this piece. When an author says this,

Nobody anticipated in the 19th century that people would have to pay for their own retirement. That was viewed as an obligation of society.

why should I believe anything else that he has to say?

The sole instance given is of Bismarck's Germany, actually ground-breaking in its social welfare policies, which came only in the last part of the 19th century.

For most of the 19th century, just about everywhere, nobody who worked for a living expected to live long enough to retire.

Indeed, retirement in past centuries had a different denotation. Its common use was among the aristocracy, when one of that number determined to remove himself from active (urban) social or political life and withdraw (hence the etymology, "re-tirer"), usually to the country.

Haygood had to resuscitate "rusticate" for the other day, to achieve a modern equivalent of that.

All of this is common knowledge. In case you don't think so, spend five minutes with any book of demographics or social history; and that's just for Europe. Don't let's even ask what "nobody expected to pay for their retirement" meant in early nineteenth-century Alabama.

By the way, Hudson does this all the time. When I can fact-check offhand, from my fund of common knowledge, he is often casually abusing the truth. I can be pretty sure that the rest of what he says is just as unreliable.

Arizona Slim , March 9, 2017 at 12:39 pm

Didn't Bismarck create those social welfare programs in order to prevent unrest in a recently unified Germany?

MBC , March 9, 2017 at 12:52 pm

You may be correct about the 19th century, but it is 2017. And his points about the US tax system, the banks, the wealthiest 1% and our gov't deceiving the middle and lower class are solid. A very basic retirement and healthcare should be provided to all in any decent marginally successful society. Not to mention a supposedly "great" one.

Rick Zhang , March 9, 2017 at 7:21 pm

I think this is where some progressive get tripped up and don't understand why their policies aren't more popular to the wide swaths of America outside of their bubble.

Often times, these people (I use this term loosely to include working class whites in Appalachia as well as Silicon Valley libertarians) like to provide a fair and wide safety net. However, most policies that are advanced are strictly means tested. This causes significant resentment among those just outside of the cutoff lines. Think: Social Security has essentially blanket coverage. Yes, there's some redistribution going on behind the scenes, but if I pay in for 30 years I will get most of my money back. It's wildly popular, while welfare programs are not.

The same applies for health care – Medicare is popular and Medicaid is not. If I pay in for a government program, I want to be able to take advantage of it. Save me the crap about not wanting to subsidize the lifestyles of the 1%; they pay in far more than they would take out of the program. It's a small price to pay to have universal coverage and buy in from all segments of society. So extending Medicare down to everyone is a better political strategy than extending Medicaid upwards to encompass higher income levels.

More reading: https://www.nytimes.com/2017/03/07/business/economy/trump-budget-entitlements-working-class.html

Rick Zhang @ Millennial Lifehacker

Hans Suter , March 9, 2017 at 12:57 pm

why don't try to educate yourself, you may start here https://eh.net/encyclopedia/economic-history-of-retirement-in-the-united-states/

a different chris , March 9, 2017 at 1:12 pm

You read a great deal into a statement that you didn't at all prove was untrue. Not impressive.

The question is, did society believe that it had a responsibility of care for people that got too old to work? You didn't even address that. Yes we know life was "nasty, brutish and (most often) short. That doesn't invalidate what he said.

Dead Dog , March 9, 2017 at 1:13 pm

PhilM 'I can be pretty sure that the rest of what he says is just as unreliable.'

No mate, he speaks truth and may have exaggerated, but the point remains that here, the UK, most of Europe – then the state funds your pension if you need one. It is now a social obligation. Only in the US, do you have this class of people (the working class) who don't deserve retirement and must fund their own meagre pensions, and if the 'pool which funds the pensions' becomes insufficient, well you know the rest.

Taxes see, they fund things, or more often don't, because it's a widely accepted lie to keep the private bank money creation bullshit going forever.

PhilM , March 9, 2017 at 1:41 pm

That's the problem, Dog, I generally agree with his point, and with the responders to my comment, on policy grounds. My point is that leading with something that is provably false, and even probably false to common knowledge, is not a winning tactic; some would say it insults the intelligence of the audience, even.

To me this site, if it's about anything, is about filtering out the BS that is used by people with an agenda to "enhance" their arguments. Lambert does this with a Lancelot-sized skewer. And part of the beauty is the crowd-sourced fact-checking from an extraordinarily informed, and sceptical, community.

I may not have much to add to their expertise, but one thing I do know is some European history, and it drives me berzerk to see people just misuse history as if it strengthens their argument. If they don't know that what they are saying is true, they should not say it. And by "know it is true," I mean, know the source, and the source of the source, and be able to judge its reliability. That is what scholarship is all about: seeing how far down the turtles go.

So when someone just tosses out an assertion about "what the past thought was right," as if that created a moral obligation or not in 2017 (which as MBC quite rightly observed it does not, at least not without a clearer argument), they should be critiqued. When their assertion is based on sloppy cherry-picked facts and wrongly generalized, they should be called out as either uninformed or malicious, in hopes they will be less so in the future.

That's all I was saying; I did not have a point to make about pensions, because I agree with Hudson's viewpoints almost all the time, which is why it is so sad to see him turn out to be so cheesy, so often.

My personal experience of pensions is this: they are a total scam to lock people into exploitive, nearly intolerable working conditions on the flimsiest of promises in the private sector; and in the public sector, they are a way of adding to the debt burden of generations yet to come without the assent of the people: taxation without representation, in effect.

I have seen professionals crumble morally thanks to the force of the pension. It is despicable corporate oppression at the subtle level, because it looks as if they are doing a good thing, which of course they are not. It's more subtle than their obvious screaming cruelties to people and animals and the land, which, it must also be said, nobody does anything about either.

Dead Dog , March 9, 2017 at 2:37 pm

Thanks for replying Phil. Good points.

Yes pension systems aren't perfect, but some people don't have family or money to fall back on when they get old. I am seeing more and more of my own friends in their 60s struggling to earn money through work. They want to stop, but can't afford to.

And, I am dismayed and disheartened of seeing people on the sidewalks that could be my parents. Or, shit, me

Rick Zhang , March 9, 2017 at 7:25 pm

I have no sympathy for these people. Read Hillbilly Elegy and see the perspective from the white working class. More often than not, people who are "struggling" in mid life are those who made bad choices. They abused drugs, had kids out of wedlock, or didn't make a career for themselves. Often, they spend poorly – on luxury items and consuming excessively.

I live now just like how I did when I was a poor student – with a carefully limited budget and spending within my means (more on experiences than products). I save 80% of my income and plan to retire early. More people can do the same.

My mentor/hero bought a fixer upper house that she repaired by herself. She bikes to work every day in the snow, and buys her clothes from thrift stores. She makes a six figure salary.

Save for an uncertain future, folks, and you won't find yourself in dire straits later on in life.

– Rick Zhang @ Millennial Lifehacker

Moneta , March 9, 2017 at 7:52 pm

If everyone saved like you did, the economy would be smaller so there would be even more unemployment and no money for savings

Rick Zhang , March 9, 2017 at 8:26 pm

Tragedy of the commons, eh?

If everyone saved more, we'd reach a happier and more balanced equilibrium. Plus, money that's saved is recycled into the economy through lending.

Or maybe you're arguing that the poor should save more and the wealthy should consume more and keep the economy humming.

– Rick Zhang @ Millennial Lifehacker

Jagger , March 9, 2017 at 1:18 pm

For most of the 19th century, just about everywhere, nobody who worked for a living expected to live long enough to retire.

I suspect your children or your extended family, were your retirement if you lived long enough pre-20th century times. Also I cannot imagine there was any sort of defined retirement prior to 20th century for the masses. People simply did whatever they could within their families until they couldn't. Work loads probably just decreased with the fragility of old age.

Also many people did live long lives. IIRC, heavy mortality was primarily concentrated in children and childbirth and maybe the occasional mass epidemic or bloody war. Dodge those and you could probably live a fairly long life.

PhilM , March 9, 2017 at 3:38 pm

Quite right; there was a bimodal or multimodal curve, which is why mean averages of life expectancy are not all that enlightening. But the fact is that most people who worked or fought, worked or fought their whole lives, until they were incapacitated; then there was their family, or the Church, or the poorhouse, or starvation, usually leading to mortal illness, if it had not done so before then.

The other side of that story is that the old folk were there as part of the social and economic unit: helping to pick the harvest with the very youngest; sharing skills and knowledge across four or five generations, century after century-rather than being shuffled off to die in some wretched cubby, doing "retirement" things. There's a terrific little book, Peter Laslett's The World We Have Lost, that gives a well-sourced and interesting picture of pre-industrial family life that pushes people to overcome some of their self-satisfaction about this kind of thing.

watermelonpunch , March 9, 2017 at 5:39 pm

I remember reading where they found a Neanderthal remains that showed that this guy was definitely disabled to the point where he couldn't have survived alone. Which means someone else helped him live longer.
That's what humans have always done pretty much, before money. People paid in by being part of society, and then their community helped them later. Social insurance is just the money big civilization version of it isn't it?

I'm just thinking of the people with aging parents and children with parent cosigned student loans And what if they were responsible for paying the $90,000+ / year nursing home payment and all the medical bills, instead of Social Security, Medicare, Medicaid On top of trying to help their kids get through college.

The whole scenario is a bad joke and getting worse.

Moneta , March 9, 2017 at 1:19 pm

There wasn't 15-20% of the population expecting to live 30 years in retirement and the next generations to pay for their still mortgaged McMansions and trips to the tropics.

I have no issues paying for retirees. I have issues with asking the younger generations to pay for lifestyles that are bigger than theirs. The Western retirement lifestyle is too energy and resource intensive.

jrs , March 9, 2017 at 2:48 pm

I don't think most people collecting a social security check actually have a big lifestyle, much less trips to the tropics, that's a Charles Schwab commercial, not a reality for most people. What Social Security has done is mostly reduce the number of old people living in poverty. Ok so young and middle age people are still living in poverty, making everyone live in poverty including people that are old and frail and sick is not an improvement. Are retired people's lifestyles actually shown to be more energy intensive, I think in many ways they would be less so, ie not making that long commute to the office everyday anymore etc..

polecat , March 9, 2017 at 2:58 pm

This ! Without adequate resources and, most importantly, energy, there are no pensions ! indeed, there is no middle class as well !!

Anonymouse , March 9, 2017 at 4:04 pm

Sorry, but your comment is delusional. It is impossible for someone retired on only Social Security to "pay for their still mortgaged McMansions and trips to the tropics". In what universe is that possible on a MAXIMUM annual income of less than $32,000? Googling "maximum social security benefits" generates the following info:
"The maximum monthly Social Security benefit payment for a person retiring in 2016 at full retirement age is $2,639. However, the maximum allowable benefit amount is only payable to those who had the maximum taxable earnings for at least 35 working years. Depending on when you retire and how much you made while working, your benefits may be considerably less. The estimated average monthly benefit for "all retired workers" in 2016 is $1,341."

jrs , March 9, 2017 at 6:51 pm

I suspect a lot of people (younger than boomers) might be still mortgaged to a small degree when they retire as housing costs have gone up so that people can't afford a mortgage when they are young, so if they buy real estate at all it's at middle age, buy the first home in their 30s or 40s or 50, for a 30 year mortgage. But McMansions have nothing to do with that.

Moneta , March 9, 2017 at 9:01 pm

First of all I did specify that a 15-20% group is doing quite well.

– Debt in retirement is increasing
http://www.investopedia.com/financial-edge/1012/boomers-staying-in-debt-to-retire-in-comfort.aspx

-Average/median square footage house 1973 vs. 2010. https://www.census.gov/const/C25Ann/sftotalmedavgsqft.pdf

-Social Security represents half of retirement income for half of retirees. https://www.fool.com/investing/general/2016/02/28/how-much-of-my-income-will-social-security-replace.aspx

-Income distribution (see page 9)
https://www.federalreserve.gov/pubs/bulletin/2014/pdf/scf14.pdf

************

The income distribution table shows that the younger retirees 65-75 are not suffering when compared to the working population they seem to have a good thing going for them

Merging all these data points, it becomes quite apparent that there is a large percentage of retirees who still carry debt while collecting social security.

Increasing social security to some group means making another group pay

PlutoniumKun , March 9, 2017 at 1:59 pm

As usual, the abuse of history is the outstanding credibility-buster in this piece. When an author says this,

Nobody anticipated in the 19th century that people would have to pay for their own retirement. That was viewed as an obligation of society.

why should I believe anything else that he has to say?

The sole instance given is of Bismarck's Germany, actually ground-breaking in its social welfare policies, which came only in the last part of the 19th century.

For most of the 19th century, just about everywhere, nobody who worked for a living expected to live long enough to retire.

Indeed, retirement in past centuries had a different denotation. Its common use was among the aristocracy, when one of that number determined to remove himself from active (urban) social or political life and withdraw (hence the etymology, "re-tirer"), usually to the country.

Historically, he is right and you are entirely wrong, which is not surprising as Michael Hudson is originally a philologist and historian and has specialised in economic history.

The modern conception of retirement is mostly a 20th Century invention, but throughout history, there are many versions of 'retirement', and they were almost always paid out of current expenditures. Roman soldiers were paid lump sums and frequently given land on reaching retirement age through the Aerarium Militare. Militaries throughout ancient and medieval history had similar schemes, and not just for officers, but again, these were rarely if ever paid out of a contribution scheme – it was considered an obligation of the State.

In many, if not most societies, it was accepted that aristocratic employers and governments had obligations to elderly staff – for example, fuedal workers would keep their homes when they were no longer capable of working, and this extended well into the 19th Century. Organised religions would almost always have systems for looking after retired religious members, again, always paid out of current revenues, not some sort of investment fund. The concept of a fixed retirement age (outside of the military) is a relatively modern one, but the concept of 'retirement' is not modern at all.

PhilM , March 9, 2017 at 5:40 pm

This is the worst strawmanning bull**** I have seen in a while; it is simply infuriating. I don't have the time to put all of what follows into perfect order, but here's what I can tap out in a minute or two.

If, PK, you are trying to prove that some people in the past have stopped work and still gotten paid, as part of their lifetime compensation for the work they have done, and that this is, de facto, compensation during what we would now call "retirement," you win. Straw man knocked over.

So let me again quote what Hudson says, just so your argument can be demonstrated as the pointless distraction that it is:

"Nobody anticipated in the 19th century that people would have to pay for their own retirement. That was viewed as an obligation of society."

That couldn't be clearer. "Nobody anticipated," as in "nobody." Meaning it was a generally accepted social value that . what follows. What follows is "people," as in "people"; not just soldiers, or priests, or servants; "people," ie, Gesellschaft; and then, "their own retirement," (which can only imply a period when they were old enough still to do something productive that earned money, but chose not to, instead; because otherwise it would be called "disability," right?). "That was viewed as an obligation of society," meaning, it was a right, not a privilege or gift or compensation, and it was universal, because it applied to "people," and "nobody" thought otherwise.

There is just nothing there that is justifiable in any way based on the history of the nineteenth century. The only exception is Bismarck's Germany, which is adduced as proof of the statement, which is totally insupportable on its face.

If you stand by that, and are trying to suggest that "retirees," meaning as a group everyone in society beyond a pre-defined age, as opposed to the disabled, were ever perceived as having a societally based right to welfare support before the very late nineteenth or early twentieth century, and that only in a very few, very advanced places, you fail three times over.

You do this in classically ahistorical ways: you conflate Gesellschaft with Gemeinschaft; you adduce the military of the ancient world, which is just hilariously anachronistic, but even those prove you wrong when examined closely; you completely misconstrue the rules of the corporately organized ancien regime, which by the way was ancient history as far as the post-Dickensian industrializing Europe that Hudson speaks of; you adduce the military and the priesthood as if they were representatives of "society" as a whole, which they were not–they were adherents of the body that made the rules, and liked to keeps its friends close, and could reward them. The same, while you are at it, was true of some different varieties of public servants–but not many, and again, not before the late nineteenth century, and certainly not in the US:

"Like military pensions, pensions for loyal civil servants date back centuries. Prior to the nineteenth century, however, these pensions were typically handed out on a case-by-case basis; except for the military, there were few if any retirement plans or systems with well-defined rules for qualification, contributions, funding, and so forth. Most European countries maintained some type of formal pension system for their public sector workers by the late nineteenth century. Although a few U.S. municipalities offered plans prior to 1900, most public sector workers were not offered pensions until the first decades of the twentieth century. Teachers, firefighters, and police officers were typically the first non-military workers to receive a retirement plan as part of their compensation."

https://eh.net/encyclopedia/public-sector-pensions-in-the-united-states/

Your ad hominem appeal to Hudson's authority as a historian is amusing: it is actually not surprising that Hudson is wrong, and I am right; because he is an economic historian, with a special faculty, apparently, for conducting contemporary policy polemics; and I would be happy to give you my professional authority, except that this is the internet, so appeals to professional authority don't mean anything at all, but I'll just put it to you that it is more than sufficient; but leaving that aside, I am without a polemical agenda, except just this one: that the past needs to be respected in its totality, and that even when being used to score points in contemporary policy arguments. I know which of us has more credibility here just by reading Hudson's sentences, which are devoid of historical meaning or sensitivity; and I know that I, as a historian, would never knowingly misuse the past to make a point about the present, because that is being a bad, bad doctor.

You bring up three cases: military, clergy, and servants. Those are exactly not what Hudson is talking about when he mentions Bismarck, or the nineteenth century, or retirement and its old age provisions as a whole, so you basically proved my point just by failing to address the actual argument. What Hudson is referring to-because he says so with his one example-is the Bismarckian "Gesellschaft" obligation to what had in previous centuries been called the the third estate in generic terms. Not, mind you, the first and second estates and their servants and adherents. If Hudson were talking about pensions for the military, he would have said so, and his argument would have ended there, in a paragraph, because they are fully protected in that regard and have been, at least more than the average citizen, since the GI Bill. Pensions for the military is not part of some kind of "social obligation" for retirees; it is a reward for long service, and therefore not some kind of "right of social welfare," but a kind of compensation, and it was not much, at that, in the 19th century.

The regular clergy, which made up most of the clergy until the dissolutions, did not retire: their jobs were for life, because they lived a life of prayer, and that was not something that ever ended. The Church supported all clergy as a corporate, spiritually mandated obligation, not as a generalized "social obligation" like social security, or what Bismarck instituted. If your point is that certain corporate groups took care of their privileged members when they no longer worked, that is one thing; if your point is that "retirement" as a condition that merited social welfare, in general, the clergy don't make that for you. They were exceptions to the general rule that people had to fend for themselves, a rule that applied to the entire third estate by definition from time immemorial.

Lastly, servants: those who "retired" in the nineteenth century very often did not have the same treatments as servants in the ancien regime, many of whom died in harness in any case. But, if their employing families did continue to provide for them, they did so not out of a sense they were meeting the "obligation of society to the retired," but as a matter of family or community duty, noblesse oblige. It was completely at the mercy and discretion of the family involved. It was a matter of personal honor, and still is, when servants have been your friends and companions and have prepared and eaten the same food you have, and cleaned your mess and watched your back and brushed your horses and trained you to ride, and seen your youthful foolishness, sometimes for generations. Those are not "obligations of society"; they are personal and family and moral obligations. So Cato the Elder took some heat for his recommendations on discarding old and broken down slaves, but nobody suggested it was up to the Republic to pay for them instead. Since you're going to the ancient world, you might better have used that example than that of the soldiers.

And so all that is what Hudson is not talking about. He's talking about Bismarck's social security as a moral precedent, reflecting a widely held belief in the popular right to a social safety net after a certain age.

So of course some people were "pensioned." They were called "pensioners," and many of them were not at all "retired," but had gone on to work at other things, like soldiers who opened up fish-and-chips shops (q.v.). That does not mean that there was ever a Gesellschaft-like concept of "retirement" as a condition that brought the right to support by the commonwealth; not before Bismarck. That's what Hudson's reference tries to imply, that such a concept was common in the 19th century, at a widespread societal level in Western Civilization, and it is provably, demonstrably, obviously wrong. If it weren't, why would the Old-Age Pensions Act 1908 have ever been passed?

"Nobody anticipated in the 19th century that people would have to pay for their own retirement. That was viewed as an obligation of society."

You simply cannot construe that to have any truth, given the facts of the century. You can straw-man me about the concept of "retirement" all you like, although you are still wrong there, because the groups you name aren't people who "work for a living," which is the third estate; they are the first and second estates, and their adherents: those who fight for a living, and pray for a living, and those who obey them.

So the fact remains that Hudson's statement was just polemical fluff, and no historian worth the name should have uttered it. I guess I'll sit here and wait for his response, because yours, well .

fresno dan , March 9, 2017 at 11:05 am

"He didn't call FICA wage withholding a tax, but of course it is."

This just drives me to apoplexy. 1, that it is not called a tax, and 2, that wage taxes are never ever reduced.
Incessant yammering about "incentives" – but doesn't a wage tax disincentivise both employers and employees with regard to wage work? – – Endless talk about how CEO's can't do ANYTHING unless their taxes are REDUCED!!!!!!! But somehow .that just goes out the window when it comes to wages – TAXES MUST GO UP.
Cheney – deficits don't matter .except apparently with regard to social security ..

The other scam about FICA and its "separate" funding is that social security being in balance is OH SO IMPORTANT – deficits will be the death of it. Yet the general fund is in deficit (see Mish today for a bunch of stuff on the hypocrisy of repubs on the deficit) and ever more deficit and nobody seriously cares about it or worries about it. MONEY can always be found for invading for Iraq, and paying for invading anybody is NEVER a problem. Feeding old folks, on the other hand, sure strains the resources
Its like it is as important to keep a reserve army of the impoverished as it is to keep the empire.

Dead Dog , March 9, 2017 at 1:22 pm

FD -'This just drives me to apoplexy' Breathe, buddy.

Yes, mate, feeding old folks – looking after the oldies so they have health care, decent food and a home.

How well each country does it reflects their views on whether it's a social obligation. For many countries, there is no safety net and families provide the care, if they can.

It's becoming that way in the west too. I don't see many governments increasing welfare for our poorest people, benefits are being gutted and those that did save for retirement are seeing their funds looted and zero interest paid

Hemang , March 9, 2017 at 11:17 am

Life in Indian joint family is great- no retirement work- food for life for a member- great lack of boredoms and lonely depressions- life, life ,- exquisite vegetarian food fit for Gods- low tech human scale towns- GREAT TO BE ALIVE ON 3 dollars a day! This talk of retirement and working and senior junior savings is so pathetic that my sex drive just evaporated into thin air reading it! Get a life.

Disturbed Voter , March 9, 2017 at 12:51 pm

Destruction of the family by public and private corporations, with the assistance of disruption by multiple industrial revolutions is key.

Sluggeaux , March 9, 2017 at 11:25 am

It's good to read Michael Hudson's call-out of FICA as a mechanism to crush workers and transfer wealth to the already rich.

FICA is indeed the worse sort of deductive reasoning. It is based on the premise that the rich are entitled to be rich, and that the masses want to take their money from them. In America in particular, wealth has historically been based on grants from the sovereign to loot the commons (timber, agriculture, mineral extraction, railroads, military procurement, data mining, etc.). These grants to loot the commons have nearly always been based on corrupt practices of cronyism and bribery. Alchemists like Greenspan simply provide theo-classical mumbo-jumbo after-the-fact justification for their piracy.

Ironically, I was just reading about impending failure of the Oroville Dam, a prime example of America as the seat of greed. It was well-known that the spillways were inadequate and crumbling due to 50 years of use. However, the Reagan-ites of Southern California refused to tax themselves in order to save Oroville and Yuba City, 450 miles away.

It's sad that everyone, especially the rich, think that they can blow-up the United States and then fly to their bolt-hole in New Zealand or Australia - or if you're not so rich to a shack in Panama or Thailand. I suspect that we will soon find ourselves to be unwelcome pariahs in those places.

Arizona Slim , March 9, 2017 at 12:41 pm

And, if you're a freelancer like I am, you get to pay both sides of the FICA tax, employee and employer. Fun, fun!

Dead Dog , March 9, 2017 at 1:24 pm

They may be unwelcome by the masses, but money still talks and, if you haven't got any, well you just stay right where you are.

mk , March 9, 2017 at 1:25 pm

200,000 people (even if they all voted) is not a political threat to the state and feds.

Rick Zhang , March 9, 2017 at 8:30 pm

How is FICA a redistribution to the wealthy? If anything, what you pay in buys you a share of the distributions when you retire. That means the output is roughly proportional to the input you contribute. The wealthy stop contributing after roughly the $120,000 limit, but that doesn't mean they take an outsized distribution. They take home exactly the same (pre-tax) as someone who only made $120,000 per year.

If anything there's a bit of redistribution behind the scenes that favours the poor. See my earlier post. If you make too many changes to Social Security such that it becomes another welfare program, it will lose its popular backing and eventually get axed.

– Rick Zhang @ Millennial Lifehacker

MMT is the Key , March 9, 2017 at 12:30 pm

Neoliberalism is OUT-DATED. Rather, for the past four decades, it's been fiat currency for the .01% and gold standard straitjacket ideology for everyone else.

"The mainstream view is no longer valid for countries issuing their own non-convertible currencies and only has meaning for those operating under fixed exchange rate regimes,

'The two monetary systems are very different. You cannot apply the economics of the gold standard (or USD convertibility) to the modern monetary system. Unfortunately, most commentators and professors and politicians continue to use the old logic when discussing the current policy options. It is a basic fallacy and prevents us from having a sensible discussion about what the government should be doing. All the fear-mongering about the size of the deficit and the size of the borrowings (and the logic of borrowing in the first place) are all based on the old paradigm. They are totally inapplicable to the fiat monetary system' (Mitchell, 2009).

We might now consider the opportunity afforded by the new monetary reality, effectively modelled by MMT. A new socio-political reality is possible which throws off the shackles of the old. The government can now act as a currency issuer and pursue public purpose. Functional finance is now the order of the day. For most nations, issuing their own fiat currency under floating exchange rates the situation is different to the days of fixed exchange rates. Since the gold window closed a different core reality exists – one which, potentially at least, provides governments with significantly more scope to enact policies which benefit society.

However, the political layer, in the way it interacts with monetary reality, has a detrimental effect on the power of democratic governments to pursue public purpose. In the new monetary reality political arrangements that sprang up under the old regimes are no longer necessary or beneficial. They can largely be considered as self-imposed constraints on the system; in short the political layer contains elements which are out-of-date, ideologically biased and unnecessary. However, mainstream economists have not grasped this situation – or perhaps they cannot allow themselves to- because of the vice-like grip that their ethics and 'traditional' training has on them.

MMT provides the best monetary models out there and highlights the existence of additional policy space acquired by sovereign states since Nixon closed the gold window and most nations adopted floating exchange rates. We just need to encourage the use of the space to enhance the living standards of ordinary people."

Heterodox Views of Money and Modern Monetary Theory (MMT) by Phil Armstrong (York College) 2015

https://www.youtube.com/watch?v=d57M6ATPZIE

PhilM , March 9, 2017 at 2:08 pm

Hear, hear!

A new socio-political reality is possible which throws off the shackles of the old. The government can now act as a currency issuer and pursue public purpose. Functional finance is now the order of the day. For most nations, issuing their own fiat currency under floating exchange rates the situation is different to the days of fixed exchange rates. Since the gold window closed a different core reality exists – one which, potentially at least, provides governments with significantly more scope to enact policies which benefit society.

What I especially like about your post is that it finally takes the mask off and openly admits what everyone who tries to learn about MMT has realized at once: that for all of its utility in understanding money systems, it is designed and propounded with an agenda: to undermine the mores underlying centuries of private-property-based liberal capitalism. Those mores, which remain more than illusions despite the encroachments of central banks, are the last barrier to prevent state capitalism from becoming completely authoritarian, because as long as "taxation" is, at least theoretically, the limit on state spending and therefore power, then "representation" actually means something, and so representative democracy and property rights, which are the keys to a functioning productive civil society and underlie all human progress for eight hundred years, can survive a bit longer.

The very real and useful core of MMT, which describes what we see happening since the gold standard fell, and is therefore unimpeachable from a certain objective turn of mind, is Janus-faced. On the one hand, it acknowledges what the Framers knew intuitively when they gave the Federal government the power of issuing money: the sovereign makes the money. On the other, as often used here, and especially in your comment, it is a rationale for a government unrestrained by property rights and representative constraints on its power of expenditure. That will not end well, simply because it will not last long, and it will end in a military despotism or landed aristocracy (if you're lucky). Because it always has, and you are not going to change that, are you?

Jim , March 9, 2017 at 4:25 pm

In one of the recently discovered lectures (1940) by Karl Polanyi, in referring to post-war Europe (post 1918) he argued:

"The alternative was between an integration of society through political power on a democratic basis, or if democracy proved too weak, integration on an authoritarian basis in a totalitarian society, at the price of the sacrifice of democracy."

It is still the same issue today which PhilM nicely illuminates when he states: "..What I especially like about your post is that it finally takes the mask off and openly admits what everyone who tries to learn about MMT has realized at once: that for all of its utility in understanding money systems, it is designed and propounded with an agenda to undermine the mores underlying centuries of private-property-based liberal capitalism. These mores, which remain more than illusions despite the encroachments of central banks, are the last barrier to prevent state capitalism from becoming completely authoritarian, because as long as "taxation" is, at least theoretically, the limit on state spending and therefore power, then "representation" actually means something "

The national security state already has a potentially totalitarian hold on us and in the future the MMT scenario "as a rationale for a government unrestrained by property rights and representative constraints on its powers of expenditure" might nicely finish us off.

It would no longer be the neo-liberal present where the whole of society must be subordinated to the needs of the market system, but the other extreme, where the whole of society must be subordinated to the needs of the state supposedly working in the "public interest."

PhilM , March 9, 2017 at 5:48 pm

Thank you for your reply. You said it better than I did, especially with the citation of Polanyi, one of my personal heroes.

Grebo , March 9, 2017 at 7:27 pm

it is designed and propounded with an agenda: to undermine the mores underlying centuries of private-property-based liberal capitalism.

You say that like it's a bad thing :-)

the last barrier to prevent state capitalism from becoming completely authoritarian

State capitalism? If this is supposed to be a topical reference I don't get it.

as long as "taxation" is, at least theoretically, the limit on state spending and therefore power, then "representation" actually means something

How so? Did "taxation" restrain Bush from spending trillions on invasions? Can't you have representation without taxation?

representative democracy and property rights, which are the keys to a functioning productive civil society and underlie all human progress for eight hundred years

I thought that was the Catholic Church
"Property rights"-the private monopolisation of the gifts of nature-at least in their traditional form, seem to me to be the third fundamental flaw in our political economy, along with Capitalism (narrowly defined) and our bogus monetary ludibrium. We need a new Church.

Allegorio , March 9, 2017 at 2:20 pm

MMT: great stuff. With you 100%. The issue is corruption and this culture of privilege and corruption we live in. You better believe the government will be issuing currency for other than the public interest. The fact is we live in an MMT economy now, it's just that the currency created by the government is being passed out to the ethnically privileged .001%. The talk of deficits and national debt is all a smoke screen to cover up this fact. It is way past time to educate the masses on this theme, kudos to Michael Hudson & Steve Keen.

Katy , March 9, 2017 at 12:31 pm

J is for Junk Economics: Amazon's "#1 New Release in Business & Professional Humor." Facepalm.

Sluggeaux , March 9, 2017 at 1:02 pm

OMFG, you're not making this up!

Bezos really is a contraction of Beelzebub

Disturbed Voter , March 9, 2017 at 12:54 pm

One part of society parasitical on the productive part .. starts small. $1 per $1000, then $10 per $1000 until it gets to $1000 per $1000. Neither bought politicians, nor bought citizens, stays bought.

Of course we shouldn't expect women and children to work that is destructive of reproduction and child raising. Some women should work some children should work but only a few. Otherwise obvious system dynamics will reduce the net population in quality and quantity.

djrichard , March 9, 2017 at 1:13 pm

You're going to privatize the roads, so that now you're going to have to pay to use the road to drive to work, if you don't have public transportation.

This is a zero-sum game for the elite. They're already soaking us. If they soak us on tolls, they'll have to take less money soaking us another way.

In contrast, Fed Gov reducing spending is not a zero-sum game for the elite. That means less money to be soaked up from the public. Unless of course, the public compensates by taking out more private debt. In which case, ka ching for the elite again.

That said, I don't think the mind-set really is to reduce Fed Gov spending. Rather, the mind-set is to reduce entitlements so that other Fed Gov spending can be increased, namely on defense, intelligence communities, etc. And I really don't think the elite have much of a dog in that fight. After all, the elite suck up all the money regardless of how it's spent by the Fed Gov. So my guess is that this campaign to reduce entitlement spending is being waged by the other agencies in the Fed Gov and the eco-system that feeds off them.

susan the other , March 9, 2017 at 1:28 pm

In the 1980s Greenspan pushed for massive increases in FICA. And Reagan spent it on Star Wars. Recently I've read that that wasn't really a missile shield project but a cyber technology project. Today we read that the CIA has disseminated all this accumulated and obsolete technology; leased it out to private contractors; or variously bribed the Europeans with it. Etc. Fast-back to the 1930s and FDR took the same SS money for WW2. In the 60s, JFK agonized about the budget and the value of the dollar and could see no reason to go into Vietnam, but oops. LBJ bulldozed through Congress our Medicare plan, which upped SS contributions, and he went promptly into Vietnam, spending it all and stuffing the retirement funds with treasuries. Shouldn't we all be looking at how transitory these achievements (or disasters) have been. Maybe nothing more than boosting the economy for a few years every other decade or so. Money could achieve much more than this if we accepted as fact the fleeting benefits of misspending it and instead concentrated on a steady economy benefiting all. Hubris rules, but it doesn't ever make things better.

Jim Haygood , March 9, 2017 at 1:34 pm

'it's a myth that Social Security should be pre-funded by its beneficiaries' - Sharmini Peries

If it's a myth, it's one that's incorporated in the Social Security Act of 1935, as well as (for private pensions) the ERISA Act of 1974.

After about a century of experimentation, we know how to fund pensions securely: estimate the present value of the future liability using an appropriate discount rate, and then keep it funded on a current basis.

Social Security grossly violates this model in three respects. First, it is only about 20 percent funded, headed for zero in 2034 according to its own trustees.

Second, because Social Security does not avail itself of the Capital Asset Pricing Model developed in the 1960s, it invests in low-return Treasuries, which causes required contributions to be cruelly high. Had Soc Sec been invested in a 60/40 mix of stocks and bonds, FICA taxes could have been half their current level and funded higher benefits.

Third and finally, Social Security is treated as an off balance sheet obligation in the Financial Report of the United States. Unlike the legally enforceable obligation of private pension sponsors to make good on their promises, the government refuses to take responsibility and put itself on the hook. The Supreme Court has ruled that Social Security essentially is a welfare program, which Congress can cut back or cancel at will. So much for "security" - there isn't any.

Social Security is part of a general pattern of government taking a sleazy, second-rate approach to its social promises, by exempting itself from well-established prudential rules mandating best practices. Frank Roosevelt wanted his constituents to be forever dependent on the kindness of perfidious politicians. He got his wish.

a different chris , March 9, 2017 at 4:18 pm

>we know how to fund pensions securely: estimate the

C'mon Jim you can do better than that. Here is dictionary.com, do you see the problem with your statement?

know:
verb (used with object), knew, known, knowing.
1. to perceive or understand as fact or truth; to apprehend clearly and with certainty:

estimate
verb (used with object), estimated, estimating.
1.to form an approximate judgment or opinion regarding the worth, amount, size, weight, etc., of; calculate approximately:

ajea , March 9, 2017 at 8:15 pm

If it's a myth, it's one that's incorporated in the Social Security Act of 1935, as well as (for private pensions) the ERISA Act of 1974.

You're incorrect.

Read Luther Gulick's memo to FDR. Read to the end:
https://www.ssa.gov/history/Gulick.html

Jim A , March 9, 2017 at 2:10 pm

When you lend money to the profligate, they are happy. When you ask to be repaid, they are furious. It turns out that is just as true when workers who payroll taxes on their whole income "lend money" to the wealthy by paying excess amounts to the SS trust fund which in turn, enabled tax cuts for the wealthy. The wealthy are incensed that the SS trust fund, which has "lent" trillions to the treasury is now demanding to be "repaid" with interest.

Tim , March 9, 2017 at 2:40 pm

That's the trick about S.S. that gets me. You cannot pay in 15% of your income with some amount of reasonable compounding interest for your entire career and not have a massive nest egg at the end. But the math is done straight up such that there never was interest on the payments, so we are entitled to very little, despite every other form of investing on the planet returning some kind of interest.

It's one of the reasons I argue for a Sovereign Wealth Fund to retain and manage all SS recepts, so at least the contributions and return on investment are accounted for in plain sight, so nobody can bait and switch.

And heaven forbid the Sovereign wealth fund could also be used as government bank that loans (our) money direct to citizens, without private banks getting a cut.

It ain't utopia, but it is a way of playing their game and still winning results and the pr war even in the face of the most anti-sociailst conservative.

Tim , March 9, 2017 at 2:33 pm

We need to keep up with the Feudalism 2.0 Moniker.

We continue to refine society towards only 4 classes of people:
Warlords/Politicians
Productivity Owners
Rent Extractors
The Oppressed

Over the last 35 years the productivity owners have been making a run, vacuuming up all the productivity improvements leaving everybody else stagnant, before considering inflation, but with the robotic age coming, they are just getting warmed up.

a different chris , March 9, 2017 at 4:23 pm

>but with the robotic age coming, they are just getting warmed up.

Hmmm.

Henry Ford II: Walter, how are you going to get those robots to pay your union dues?
Walter Reuther: Henry, how are you going to get them to buy your cars?

Apparently not an actual quote, but one Reuther certainly endorsed.

You know "they" are just planning to kill 2/3 of us off, don't you? The elite are evil and sure many of them are stupid, but far from all of them.

ChrisAtRU , March 9, 2017 at 4:07 pm

"You're turning the economy into what used to be called feudalism. Except that we don't have outright serfdom, because people can live wherever they want. But they all have to pay to this new hereditary 'financial/real estate/public enterprise' class that is transforming the economy."

Spot.On.

From Marx's "Capital", Chapter 26 (The Secret of Primitive Accumulation):

"The industrial capitalists, these new potentates, had on their part not only to displace the guild masters of handicrafts, but also the feudal lords, the possessors of the sources of wealth. In this respect, their conquest of social power appears as the fruit of a victorious struggle both against feudal lordship and its revolting prerogatives, and against the guilds and the fetters they laid on the free development of production and the free exploitation of man by man. The chevaliers d'industrie, however, only succeeded in supplanting the chevaliers of the sword by making use of events of which they themselves were wholly innocent. They have risen by means as vile as those by which the Roman freedman once on a time made himself the master of his patronus.

The starting point of the development that gave rise to the wage labourer as well as to the capitalist, was the servitude of the labourer. The advance consisted in a change of form of this servitude, in the transformation of feudal exploitation into capitalist exploitation. "

[Mar 03, 2017] The crazy works iof IT hiring

Mar 03, 2017 | economistsview.typepad.com
"Back in the mid/late 90's, there was a running joke that tech companies were looking for people with more years of experience with certain programing languages than the programming languages even existed (in a form to be usable for commercial work)."

That's a very good and historically accurate point(in 90th Java was a crush ;-). And this type of parasitism continues to flourish even now. Just with the new buzzwords...

When employee's complain that that can't fill open positions that often means that they painstakingly define the position is such a way that the person deemed suitable can hit ground running on the first day or week on the job. No retraining period is needed. Like a new brake pads in a car. Totally replaceable.

To say nothing that in reality Google and other giants (Amazon, Microsoft, Facebook, etc) are to a large extent "cemeteries" for IT talent. What's so exciting is creating Gmail and many other Google products ? Absolutely nothing. This is a pretty disgusting reimplementation work.

cm -> New Deal democrat... March 01, 2017 at 07:55 AM , 2017 at 07:55 AM

One issue that you both don't mention is lags. Translating a demand for skill into available skill takes years to decades in the best of circumstances. Even for many so called "low skilled" jobs, people have to be trained commonly for several years. For "knowledge work" or "new technology paradigms", you basically have to bring up a new generation of school/college graduates.

Expecting training to happen "just like that", or to be funded by the workers themselves, is a non-starter.

And when the business has to pay for the training (with the risk that some of the cost cannot be recouped because trained up people may leave), then we are back at "lack of profitability".

Back in the mid/late 90's, there was a running joke that tech companies were looking for people with more years of experience with certain programing languages than the programming languages even existed (in a form to be usable for commercial work).

reason -> cm... , March 01, 2017 at 07:57 AM
"Back in the mid/late 90's, there was a running joke that tech companies were looking for people with more years of experience with certain programing languages than the programming languages even existed (in a form to be usable for commercial work)."

The trouble is, I think that was no joke, it was literally true. Which means that were deliberately recruiting liars. Maybe that explains a lot.

cm -> reason ... , March 01, 2017 at 08:24 AM
Yes, the joke was based on true anecdotes. Not sure about "deliberately", my most plausible assumption is that they just plugged the "skill" description into the standard job ad templates.

Looking for about 5 years experience - enough to (presumably) be able to do stuff, but not yet too old/tainted.

cm -> reason ... , March 01, 2017 at 08:27 AM
Also it is not necessary to have exactly all the asked experiences, at least when your resume will be selected/reviewed by a human. Of course if the recruiting process has been made "efficient" that will filter resumes by strict criteria, then the honest/modest applicants will be disproportionately screened out.
cm -> reason ... , March 01, 2017 at 08:30 AM
In a lot of big corps, the early stages of recruiting (processing/screening incoming resumes) are often outsourced to HR who obviously have little idea about the subject matter of the work, and can only go by buzzwords, possibly using computer software (OCR processing of resumes).

I have heard the story often that hiring managers are presented with unsuitable resumes/candidates, and often find better matches going through the raw data themselves. But that costs time ("inefficient").

Anachronism -> cm... , March 01, 2017 at 09:44 AM
I can tell you that, from a consulting standpoint, I have been on several contracts where we've interviewed someone who had great skills, and the person who showed up had zero. So now companies will Skype with people to make sure they're talking to the actual consultant.
DrDick -> cm... , March 01, 2017 at 11:28 AM
Sadly, that is true of far too many companies of all sorts today, who refuse to train their workers and expect them to come preprogrammed with the company's proprietary software.

[Mar 03, 2017] In praise of credentialism

crookedtimber.org

Crooked Timber

That's the title of my latest piece in Inside Story. The crucial para
The term "credentialism" is used in many different ways, some of them contradictory, but the implication is consistent: too many young people are getting too much formal