Discussion nuggets #1

Merijn Knibbe – 30 November
I do think that a flexible labor market does not necessarily increase the number of jobs or hours: it’s a bit like ‘musical chairs’. Quite a lot of tension, movement and shifting of chairs – but the tension and the like does not increase or decrease the number of chairs. Other factors however do – just look at the job statistics of the Bureau of Labor Statistics, the OECD or Eurostat. A very alarming statistic is however that the USA at the moment does seem to have something of a ‘Lump of Labor’: the 2010 number of jobs is not larger than the 1999 number of jobs. While the 1999 number was much larger than the 1988 number and the 1988 number was much larger than the… etcetera.

 

Peter Radford – 30 November
What happened after 1990?

An entire generation of managers educated in neoclassical economics took up the reins of management and pressed forward with notions of shareholder value as their primary, explicit, goal. Squeezing layers out of management – remember that? – was the first step. Reducing union power was next. Then came efficiency; “re-engineering” and any number of other management fads promulgated by the big consulting firms and the MBA schools. Modern finance undergirding all this is inherently the stepchild of orthodox economics and is deeply embedded as the acceptable managerial technology. Those ideas still motivate the business bureaucracies that oversee our biggest businesses.

Implicitly, of course, this drive for efficiency – aka higher returns on equity – was driven by the spread of asymmetrical incentive structures that rewarded upper management for the production of ever higher short term profits.

Thus the post war contract between labor and management was sundered and an ever increasing proportion of the gains from productivity was syphoned off to profit.

Indeed, I would go further: the entire purpose for increasing productivity became the boost to profits that it provided. It is no accident that the only major economic indicator to flourish in the past decade has been corporate profits. Wages have languished. That this would eventually lead to declines in demand and thus investment and so on, eludes this generation of managers. And, presumably, the people who taught them.

 

Helge Nome – 3 December
The jobs will come back when we North Americans once again create most of the stuff we need to live a modern life, instead of exporting all the jobs overseas.
As technology takes over the menial jobs, more and more people will be able to pursue more creative and mentally rewarding work and still be rewarded financially in an adequate way.
However, in order for this to happen, political control of our affairs has to wrestled away from vested self interest groups.

That means that a political re-awakening must take place in North America.
That’s the key.

 

Sharon – 4 December
In most areas of the developed world, compulsory schooling is the norm. It is my belief that compulsory schooling breeds few critical thinkers. In fact, compulsory schooling (you, the “learning” environment) consists almost exclusively of “Sit down, shut up, turn to page xx to yy) read, then answer the questions as the end of the chapter(s)–which questions have only one right answer. Then, testing, testing, testing–which tests are primarily structured to enable/facilitate grading, grading, grading. Finally, a young person who has dutifully followed the regime’s guidelines, will pass from one grade level to the next, and come out the other end with the magic diploma. In post-secondary environments, little is different, although the image and culture of those learning environments are thinly disguised versions of the K-12 schooling. Worse, while the appearance of “choice” and self-motivated learning is everywhere, it cannot be denied that students of every post-secondary institution are there for the magic degree and letters after their name. 

Upon emerging into the “real world”, the tools for critical thinking about anything are either rusted or non-existent; in fact, the pursuit of business/academic cache and credibility supposedly leading to and ensuring a higher income is all there is.

The environment of “make me learn” and the accolades and prestige of academic rewards leaves little room or motivation to hone–let alone learn–critical thinking skills. Further, this kind of ubiquitous academic motivation leaves us (however you wish to define/constrain that word) with folks who cannot seem to DO anything; don’t know how to build anything or fix anything, don’t care about the challenges and responsibilities (and rewards) of citizenship and active participation in the shaping of policy.

 

Helge Nome – 5 December
I have degenerated to a point where I question the very nature of all these numbers.
What are they based on and who compiles them? There is so much vested interest involved in their creation that integrity is the last thing one would expect.

For example, the toxic paper that banks acquired during the increasing asset bubble period prior to 2008 has now been effectively hidden away from balance sheet bottom lines.

Unemployment figures do not include those that have dropped out of the job market and have become grow-op entrepreneurs instead.

And so on.

 

Merijn Knibbe – 6 December
Capital: just divide capital into its statistical categories: roads, houses, buildings, equipment, cattle – and it turns out that only a small amount of capital exists of equipment – about 75% consists of buildings, roads and houses (and indeed, the land on which these are build).

 

Peter Radford – 6 December
I, for one, cannot envisage a theory of economics having traction in the real world without being thoroughly embedded in its social and political context. But to imagine that there are no causes and effects at all is not realistic either. The entire history of economics, as I see it has been characterized as a struggle between those who see deep, apolitical, mechanistic forces as being the only subject worth studying, and those who take a more holistic and system-wide perspective embracing the context of the economy. I find myself in the latter camp simply because it speaks to a more pragmatic interpretation of events. The error of the mechanistic crowd, in my view, is their false vision of tightly coupled causes and effects. They see clear relationships where I see muddied effects twisted by the pull of the social and political milieu. Thus, in today’s economy, the massive effect of income inequality and the ability of some to engage in blatant rent seeking behavior, is a factor to be taken into account when drawing up policy. To ignore those things dooms policy to failure.

 

Peter Radford – 7 December
When I think about models, I take climate models as my paradigm case of good development, noting the continual addition of new factors after checking against the environment for degree of fit, the rejection of early models as unrealistic, and the strong association with research into the historical record.

When I think about the study of humanity, I think history is the strongest discipline. It keeps trying to get closer to what really happened, based on all the evidence that can be brought to bear, and all the issues involved.

Economics could learn from these two – but I doubt it will.

 

A. J. Sutter – 9 December
It’s pointless to update models if the assumptions on which they’re based don’t have any empirical foundation to begin with. The problem with neoclassical economics is less that it’s “soo 19th century” than that it’s always been “soo” wrong.

 

Tony – 8 December
A few weeks ago, I wrote to the Irish Times newspaper (the ‘newspaper of record’) pointing out (i) that Ireland had not been hit by an asteroid or a tsunami – hence its productive capacity was the same as a year or more ago (ii) that the country (still) has people with the skills to provide the public services which are required and (iii) as Ireland has been feeding, clothing and keeping these people supplied with their other needs, nothing is gained by making them unemployed; quite the contrary, in fact. The ‘problem’, I suggested, must lie somewhere else – perhaps with the monetary and financial system?

But such is ‘conventional wisdom’ – my letter was not published!

 

Ken Zimmerman – 8 December
While he never actually uttered the quote for which he is most famous, Willie Sutton, bank robber, did say, “Go where the money is…and go there often.” Adam Smith and the classical economists agree. It’s their view that taxes are fairest and lead to the greatest revenue when they are levied on property, especially property that is not otherwise economically productive. That way those owning the most property pay the most and those owning property they inherited or gained through unproductive means would pay the most of this group. Translated to today’s world this would have those at the top of the personal and corporate wealth pyramid paying the highest rates, without exception, including hedge funds, investments bankers, and high powered financial CEOs. So the old saying I heard as a boy in Russia does now apply both in Russia and the US — “Das Capital” and “The Wealth of Nations” are often mentioned and praised as economically fundamental but seldom actually applied as such.

 

George Hallam – 8 December
The UK needs 5 million extra jobs to end unemployment

There are over 39 million people in the UK between the ages of 18 and 65 of these:
29 million are working either full time or part-time.

2½ million unemployed and are looking for work

Together these 31 or so million are counted as the ‘economically active’ population

There are over 8 million people of working age who are ‘economically inactive’, that is not in the work force. These include many who have taken early retirement because they have given up hope of finding work and 2 million on incapacity benefit who want to work.

There are also 1½ million part-time workers count as ‘employed’ but who are looking for more hours. And this is without mentioning the millions of people who are over 65 but who would like to work one or two days a week if they had the chance.

To give work to all these people will require the equivalent of at least 5 million full-time jobs (i.e. the equivalent of a full-time job = 40 hours of work per week.)

 

Peter Radford – 10 December
The economy is littered with large scale structures that influence behavior and, ultimately, things like the distribution of wealth. Class is one of them. The enormous shift in that distribution over the last three decades is not accidental. It reflects a series of deliberate decisions, not the workings of some abstract machinery such as that envisaged by the orthodox economists. Consequently, I think we need to acknowledge the existence of these large scale structures when we theorize about economics. Someone is doing something to someone else. Willfully, and repeatedly. Ultimately the imbalance will tilt and society will have to find a way to rebalance itself.

 

Sid Eschenbach, December 11
There are lots of forces that shape business decisions, and profit is one of them. No business will knowingly make themselves uncompetitive, but if they have confidence that laws are coming that will redesign the rules of the game, then they will take other decisions.

Business is no more evil than any other human endeavor… it’s just when we give them (all humans) no rules, they create systems that are not necessarily in any interests other than their own. That’s what society is for… to make the rules and shape the behavior so it’s generally beneficial, not detrimental.

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