Home > jobs, The Economy > Bad jobs report distracts from the real bad economic news

Bad jobs report distracts from the real bad economic news

from Dean Baker

The May jobs numbers were pretty bad news regardless of how you look at them. Job growth over the last three months has averaged slightly less 100,000 a month, roughly the pace needed to keep up with labor force growth. The unemployment rate ticked up to 8.2 percent and the employment to population ratio is still just 0.4 percentage points above its trough for the downturn. And real wages almost certainly declined in May.

However bad this story is, the usual gang of pundits cited in the media had their usual burst of over-reaction. There were many talking of a worldwide slowdown and a possible recession. This is a serious misreading of the jobs report and other recent economic data.

The main story of the apparent weakness of the last three months is the apparent strength of the prior three months. In other words, the story is still the weather. The relatively strong growth in jobs and other measures that was the result of a relatively mild winter meant that we would see weaker growth than normal in the spring.

If companies hire people because demand picked up in February rather than April, then they will not be doing as much hiring in the spring as would ordinarily be the case. The same story applies to consumer demand. Families that took advantage of unusually mild winter weather to buy a car in January or February don’t go out and buy another one in the spring.

The weak job growth of the last few months will not persist. The underlying rate of growth of the economy is still in a 2.5-3.0 percent range. Investment in equipment and software is likely to continue to rise at close to a double digit rate. House prices have finally stabilized nationally, and some of the hardest hit cities like Phoenix and Miami are even seeing a mini-boom.

The chaos and recession in the euro zone are a drag on growth in the United States, as is the slower growth that seems to be facing China. But exports to the European Union are less than 2.0 percent of GDP and exports to China are less than 0.8 percent of GDP. Even large drop-offs in these categories of demand will have only a limited impact on growth. This is not the story of recession.

The excessive negativism matters for the same reason that it mattered last summer when the double-dip crowd was ranting about the weak economic numbers in the spring of 2011. Creating an overly negative view of the economy lays the basis for excessive optimism like what we saw last fall, when the recovery was actually following an extremely mediocre course.

These swings from excessive pessimism to excessive optimism and back again are preventing the public from understanding the real picture of the economy, which is awful. This is like baseball fans standing up and cheering wildly when their pitcher throws a strike, then falling into despair when the next pitch is a ball, ignoring the fact that their team is losing 12-0.

The discussions of the economy have lost sight of the basic score. The U.S. economy is operating at close to 6 percent below its potential with employment down by almost 10 million compared with its trend level. This is an incredible waste of resources. It is also devastating to the unemployed workers and their families.

The basic story of this downturn remains incredibly simple. We lost close to $1.4 trillion in annual demand when the housing bubble collapsed. The construction boom that was fueled by the bubble went into reverse with new construction falling to its lowest levels in more than 50 years. The consumption boom fueled by bubble-generated equity collapsed when that equity disappeared.

We cannot return to full employment until we have something to replace the demand that had been generated by the housing bubble. This is simple arithmetic.

Unfortunately, both parties in the United States refuse to talk about filling the hole created by the collapse of the housing bubble in a serious way. The Republicans talk about giving everything to “job creators,” with the idea that if we are generous enough to the rich they will show their gratitude by creating jobs.

There is zero evidence to support this view. Are we supposed to believe that investment will somehow increase by 50 percent as a share of GDP just because we are nice to rich people? The world doesn’t work that way. Firms create jobs when they have more demand, not because we are nice to their rich owners.

President Obama and the Democratic leadership have refused to put forward a serious alternative path. While they have been willing to argue that rich people should have to pay some taxes, they have not come to grips with the nature of this downturn, as if hoping that somehow the economy will just jump back to its pre-recession level of output through some magical process.

There is no black magic that will allow the economy to over-ride arithmetic. In the short-term only the government can provide the boost necessary to support the economy. Over the longer term we will need to get the trade deficit down through a more competitive dollar.

It’s a simple story. But as long as people are obsessed with short-term weather-induced fluctuations, we will not see a serious discussion of the underlying state of the economy.

See article on original website

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Categories: jobs, The Economy
  1. john mcdonald
    June 5, 2012 at 3:15 pm | #1

    For 10 years my wife and I saved like crazy for retirement from rather small incomes, then for 15 years from only one less-than-average income. We got lucky in the ballooning stock market and got very lucky by getting out with most of our “skin.” All that time we watched most of our friends, neighbors and family spending/borrowing because they thought they were getting rich watching their houses and stocks climb. Rather than saving they spent their future retirement! Their house balloon burst; their stock balloon burst (and re-inflated thanks to Ben) and is ready to burst again. My wife and I have retired; our friends are working or looking for work. They “own” a house and a vacation cabin or two(!), their garages and lake property are full of “toys,” they have been on cruises, European tours and winter breaks to warm sunny beaches. Indeed, they have already enjoyed their retirement years. Now they have to pay for them. Who do they owe? In real terms, what do they pay with? I suppose they owe the 1% and my wife and me. I am afraid the 1% don’t want to be paid with many of the products my friends make…auto mechanical repairs; high school English, math and wood shop; bakery products, concrete highway construction and so on. And neither do we. And so I wonder how my friends are going to pay off their debts? I also wonder, as taxpayers, how they are going to pay off your proposed increased public projects? I am embarrassed to be in the cat-bird-seat with the 1%, but am happy to be retired without a lot of toys in the garage that are rusting because it is under water. I am not happy, however, with either your or Ben’s instance on further increasing debt as a solution to a debt crisis. Doesn’t that “can” have enough dents in it yet this far down the road?

  2. Polat Guney
    June 5, 2012 at 3:31 pm | #2

    John, congratulations on your foresight and good fortune. However, there is a thing called ‘demand’. It was explained in some detail in the post you commented on. Odd that you overlooked that. At any rate, there isn’t enough of this demand thing. The 1% are not going to create it. The post argues for an approach that has created it in the past. It is likely to work again. We should at least consider it, don’t you agree?

    And, aw shucks, I too have worked for years at a job with a rather small income, but was not run over by this recession (yet) and so on and so forth. But most of the people that I know who are underwater don’t have garages full of toys. I guess we live in much different neighborhoods.

  3. john mcdonald
    June 5, 2012 at 5:19 pm | #3

    I thought I was talking about the lack of demand when I wondered who was going to buy “the products my friends make.” I also thought I was talking about the past five years of fiscal and monetary attempts to create demand via increased deficit spending and continued easy money policies when I pointed to the dented can. Isn’t that enough years of arithmetic to conclude it ain’t working this time? Is that because we are not experiencing a business cycle downturn, but rather a 30 year build up of financial concentration promoted and blessed by “our” worship of so-called free market magic? Black magic indeed!

  4. June 5, 2012 at 6:14 pm | #4

    “This is like baseball fans standing up and cheering wildly when their pitcher throws a strike, then falling into despair when the next pitch is a ball, ignoring the fact that their team is losing 12-0.”

    Spot on, Dean!

  5. henry1941
    June 5, 2012 at 6:17 pm | #5

    Looking at this problem from a Keynesian perspective is not going to produce a solution. The problem is not shortage of demand, it is shortage of supply. Keynes failed to identify the blockage on the supply side. There is no shortage of willing labour. There is no shortage of capital. There is a third factor in production that is so obvious that it passes unnoticed – land.

    No economic activity can take place without a suitable location for it. The amount of vacant and under-used land is clear proof that land rents and prices do not fall to market-clearing levels. That gives rise to a blockage on the supply size. Nobody seems to want to talk about it. Workers get accused of asking for excessive wages and the absurd claim is made that benefits encourage laziness.

    The real idleness is idle land. Idle land causes idle men. The remedy follows from that recognition.

    http://www.landvaluetax.org/theory/unemployment-idle-men-unfulfilled-wants.html

    Keynesian theory really needs to be reviewed and much of it ditched. The counter-cyclical idea would be sound provided it was matched by a sound theory of taxation.

  6. Podargus
    June 5, 2012 at 6:49 pm | #6

    The trade deficit is not likely to go down much,if at all,via a weaker dollar. The US has managed to destroy swags of its industry (and jobs) through the ideological obsession with globalization and free trade. When you reverse that course then your trade deficit might improve.

  7. robert r locke
    June 6, 2012 at 5:55 am | #7

    You know the joke, that was told to me at UMIST as a luncheon guest hosted by a group of engineers When the subject of economists came up one said: “If you get 10 economists in a room,, you get 11 opiniona,” “Eleven,” I said, taking the bate “Yes,” he answered to general hiliarity: “The Keynsian has two.” That is what engineers think about economists; the former are doers, the latter confused thinkiers Just read this blog to see why “confused” is appropriate. Hitler took over office with mass employment in Germany; within a few months there was not only full employment but a labor shortage. How did he do it? He hired the engineers to build roads and bridges and armaments. Where did he get the money? Don’t ask; it was dangerous in Nazi Germany to question the leader; So the economists, the confused thinkers, in their courageous way fell silent.

    • henry1941
      June 6, 2012 at 8:06 am | #8

      If the analytical rigorousness necessary in engineering is applied to economics, the result is understanding. Unfortunately it usually is not. Engineering is not, for example, about “creating jobs”, but reducing the amount of work needed to achieve desired results. Knocking down bridges built by engineers, for example, would create jobs for boatbuilders and boatmen, who were put out of work when the bridges were built. That is the logic of the widespread view which I refer to as “Job Creationism”. It is implicit in Keynesian theory and drives economic policy around the world.

      Engineering theory begins with tightly defined terms. In economics, on the other hand, fundamental terms like wealth and capital are bandied around with no agreement as to their precise meaning. Inevitably, problems with the economy appear to be intractable.

      To make matters worse, the best-known body of economy theory with engineering rigour, that developed by Henry George, is sidelined by mainstream economists.

      Applying the Henry George theory to the recent boom and subsequent bust, a positive feedback loop can be identified, the credit-fuelled land price bubble. Now as engineers know, positive feedback systems are prone to instability and oscillation. Which is exactly what can be observed. There appears to be an 18 year land price cycle. The last three conform to this pattern – 1974, 1992 and 2010. George proposed a fiscal reform that would have introduced what in engineering terms would be described as a negative feedback loop.

      Unless the policies proposed by Henry George are properly implemented, another can be expected in 2028. Despite the amount of “noise” in the data, this 18 year cycle can be traced back to around 1800.

    • merijnknibbe
      June 6, 2012 at 9:40 am | #9

      “Where did they get the money”? Your comment led me to do something I intended to do quite some time ago – to read a little about Hjalmar Schacht, the guy who ended the German inflation in the twenties and who reflated the German economy in the thirties. What did he do? In both cases he issued a new currency. The first one was founded upon a mortgage on all German land. The second one (MEFO-bills) were in fact founded upon, well, nothing (theoretically they could be changed in Reichsmarks after some time, but that did not seem to have happened) and indeed a ‘don’t ask’ , secret currency, intended to hide re-armament activities. But it worked. I’m surely not an expert on the issue, so don’t take my words on this as the truth. But it seems that these engineers were to an extent paid by – money out of thin air (and a very flimsy promise). Any lesson in this for Greece and Spain?

    • davetaylor1
      June 6, 2012 at 10:31 am | #10

      Super comment, Merijn. Sounds better than borrowing money from reserve banks at interest.

      Henry: “Engineering theory begins with tightly defined terms”. Spot on. Confidence tricks begin with ambiguous and otherwise deceptive terms. So how would you define money, ownership, wealth etc?

      • henry1941
        June 6, 2012 at 8:45 pm | #11

        Wealth “natural products that have been secured, moved, combined, separated, or in other ways modified by human exertion to fit them for the gratification of human desires. Their value depends on the amount of labor that, on average, would be required to produce things of like kind. In other words, it is labor impressed upon matter so as to store up the power of human labor to satisfy human desires, as the heat of the sun is stored in coal.”

        Money = Medium of exchange. It can be anything. If you write “I promise to pay the bearer the sum of XXX”, you will be able to circulate that amongst your acquaintances if they trust you and xXX is not too large an amount. Try it and see. The piece of paper with your name on it could become money. If you are the sovereign then piece of paper with your portrait on them will be widely accepted as a medium of exchange. The success or otherwise of the system depends on credit, which is the same thing as trust.

        Ownership: the recognition by everyone else that an individual or household has the right to exclusive use of an item, including the right to dispose of that item to whom, and how, they wish.

  8. davetaylor1
    June 6, 2012 at 10:15 am | #12

    Henry, your diagnosis convinces me. The individualists can’t “have their cake and eat it”; if we are individuals then we need our individual parcels of land, which is precisely what the proto-Capitalists deprived people of at the end of the feudal period. If we form an economic system then “cutting off our nose will spite our face”.

    I am not so sure about your (enforced) land value tax prescription. It seems to me the obstacle is an ethical one: the politicians – afraid of getting it wrong, or perhaps hoping Malthusian policies will enable evolution to kill off the poor – are unwilling to prescribe any medicine.

    I’m glad Robert has taken up your Keynesian argument, the relevant point being there are two Keynesian opinions: that of Keynes and the misrepresentations of his opinion put about by his false friends. The Keynesian one – mindful but not fearful of the politicians – not only moved from theory based on gaseous equilibrium towards one anticipating the information-based control theory developed by engineers after the Hitler war, it also looked forward to further development along the lines proposed by Gesell.

    I’m tired of hearing all this ungrateful deprecation of Keynes. By way of analogy, I wouldn’t criticise George Stevenson for developing Trevithick’s “Catch-me who-can” only into his functional if inelegant Rocket, just because time has passed during which steam engine design has been superseded by electric and diesel technology.

    I agree it is time to review Keynes, but in light of electric and both sides of information technology: its “hardware” logical infrastructure and the grammar of its artificial “software” languages. The prime issues are the logical status and attractiveness of land and money. Should we tax what is attractive (land and money), or (like Gesell) tax the holding of symbolic money and (as in the Christian “stewardship” argument) treat the holding of land legally as a real debt to the rest of mankind, written off by returning it in good order (e.g. at death)?

    It would seem fitting to bury the great “grabbers” in pauper’s graves!

    • henry1941
      June 6, 2012 at 9:03 pm | #13

      It is unfair on Stephenson to compare him to Keynes. His locomotive was successful and all other subsequent steam locomotives work on the same principle, including recent ones built for service on tourist lines in Europe. These latter proved to be more efficient than the diesels they replaced.

    • henry1941
      June 8, 2012 at 4:41 pm | #14

      There is, incidentally, another lesson to be learnt from Stephenson, and for that matter some of the other leading locomotive engineers. They were not very original. Their contribution was to look at existing best practices and put them together. Churchward was another example.

  9. john mcdonald
    June 6, 2012 at 2:00 pm | #15

    “It would seem fitting to bury the great “grabbers” in pauper’s graves!” Now I think we are on the right road. We are pretty reluctant to question the distribution of “stuff.” Instead, we argue about how to make more stuff. Yes engineers know how to make stuff but they are no better than economists or kindergarteners at learning how to share. Don’t y’all think we have a growing distribution problem that is causing our “demand” problem? Don’t the increasingly skewed wealth and income distribution figures tell us something about the problem?

    • davetaylor1
      June 6, 2012 at 2:37 pm | #16

      With respect, John, kids just do what they are able to do, like knock things down. It is financiers rather than engineers who want to sell everything wholesale and make it [them?] unmendable, rather than share improved techniques and enjoy the sight of them being used where they are needed. Aren’t large parts of engineering in any case precisely about distributing electricity, fuel, water etc and enabling others to distribute other goods, not forgetting ourselves? If some engineers are also money-grabbers, what do you expect when engineers are human and the ethos of human society has degenerated into money-grabbing?

  10. robert r locke
    June 6, 2012 at 4:27 pm | #17

    If engineers are people too and, therefore, in our times just like other people, money-grabbers, then how can I say in my piece on Reform of Finance Education in US Business Schools (RWER, No. 58) that engineer-economists from the Ecole Polytechnique served the public (the reconstruction of postwar France) and that finance-economists in US business schools served private greed? Is there something about the subject and purpose of engineering and engineering education that makes engineers more ethical beings than the subject and purpose of business school education or are these peculiar specificities?

    • davetaylor1
      June 7, 2012 at 6:00 am | #18

      Robert, please note my significant word “some”. Given the combinations of nature and nurture, and of Catholic and commercial culture, then engineers are more likely to have become so because they are motivated by and find satisfaction in resolving problems, and Catholic ones are more likely to be aware of other-oriented, non-commercial ethics. (Perhaps these also stay Catholics in part because they see Catholic ethics resolving problems which commercial/legal mores deny and thus leave for customers/subjects to deal with). I’m speaking from personal experience, of course: not claiming to be any better than anyone else, but recognising that my temptations and limitations are different from those of, e.g., my wife and some of my children.

      For background on this you might read Edward de Bono’s “The Happiness Purpose” and the Jungian/Myers-Briggs book by Goldsmith and Wharton: “Knowing Me, Knowing You”. [De Bono is a doctor, i.e. a human maintenance engineer, and Wharton a bishop]. Here I think we also need to foreground the difference between Old Testament morality [God's Law] as secularised by Hobbes and particularly Adam Smith’s mentor Hume(“Treatise” vol 3: “Of Morals”), and the New Testament ethos of “love covering a multitude of sins”, which interpets the pursuit of virtue in Aristotle’s “Ethics” as more modestly a correction of faults.

      • henry1941
        June 7, 2012 at 6:34 am | #19

        Interesting that you should mention Catholicism. It seems to re-orientate people to give them a completely different set of priorities and aims. Were it more widespread and taken more seriously, society would change drastically and for the better.

        But the difficulty with Catholic teaching on economics is that it is simply deficient. The social teaching documents from Rerum Novarum onwards completely fudged the issue of land rights by referring to land as “property”. In reality, land, as a “given”, which makes it very different from man-made property such as household chattels or the artisan’s tools.

        The latest encyclical draws a line under the whole thing by declaring that justice is the true basis of charity. This idea is revolutionary in the Catholic church and needs to be developed.

      • robert r locke
        June 7, 2012 at 8:32 am | #20

        There are two educational issues involved here. One is the social catholic movment. I ran into it when studying the 19th centuryFrench coal and metalllurgial industry, people like Benoist d’Azy, Frederic Le Play, Albert du Mun; who were preoccupied with the social question, and justice for the working classes (i.e., health iinsuance, pension plans, etc.). Many of fhe leaders were engineers, e.g., Le Play, Benoist d’Azy’s two sons, Paul and Charles, who worked out private pension and medical plans for their workers. I have published some correspondance about this in Les forges et fonderies d’Alais 1829-l874). The second educational issue is quite different. It comes from the State engineerring schools, Ecole Polytechnique, Ponts et Chaussees, and Ecoles des Mines (which produced the ingenieurs-economistes i write about in the article). The Ecole polytechnique is a military school. The nearest US equivalent is West Point, whose graduates coincidntally managed the building of 19th century US railroads. They served the nation. But were replaced in US management by accountants, financiers, and controllers. US MBAs don’t take oaths about honneur, patrie, service. The ambience in which MBAs are embedded is one of private self-serving greed, justified by the deux ex machina called “markets” putting things right. The equivants of The social catholics movement in France and the state service elite, who run French industry, cannot be found in the United States. When push comes to shove, and there isn’t enough plenty in the US for everybody to get more (if unequal) slices of an expanding pie, the elite takes it all for themselves and the 99% borrow money — until borrowinng capacity is reached, and then the declining demand factor appears. Ethics be damned for an educational system that has none.

  11. davetaylor1
    June 7, 2012 at 2:38 pm | #21

    One of my faults is addressing problems and not answering questions directly.

    In answer to your first question at #16, Robert, you seem to have answered it yourself at an intellectual level in your RWER 58 paper, one not being motivated by what one is not aware of. “As Allais noted: “The statistical and mathematical techniques which the engineer-economists need are not techniques specific to economics; their application is general and these techniques apply to all natural sciences.” A major criticism of economic teaching being that its mathematics is applicable only to the interpretation of economic practice, which is dominated by greedy people, it follows that engineer-economists are more able to think “outside the box”. Just as importantly, in Catholic-led post-war France they were more able to get a hearing.

    In answer to your second question, I think engineers CAN BE more ethical than economists, rather than ARE. I’ve already suggested that from the personality aspect engineers tend to have different priorities; they are also responsible for ensuring that what they design or maintain won’t go irretrievably wrong. Whereas Adam Smith emphasised specialisation, with specialists seeing the economy through their own role, and J S Mill an aim including the happiness of the staff, marginal economics focused on the interests of owners who, like those of a ship want a quick return on their investment without thought for the roles and training of the captain, his officers, steersmen and lookout, to say nothing of the ship’s engineer and doctor, whose concern with reliable capability requires a more holistic understanding than concern with efficient performance. What happens when the captain gets the owners on his back was of course vividly portrayed by the sinking of the Titanic.

    John at #14, yes I do think “we have a growing distribution problem that is causing our demand problem”, and yes, “the increasingly skewed wealth and income distribution figures” do tell us something about the problem. They tell me we need a different type of leadership, not just different leaders trained in the same old traditions of Empire, Machiavelli, Hume and Ricardo. I’m also sympathetic with your position at #1, as I’ve done what you’ve done. Broad engineering training has, however, made me aware how many major scientific breakthroughs (those of Copernicus and Newton, to name but two) have been made by reversing what looks obvious: here, that our indebtedness is monetary rather than real, and to the money-lenders rather than to society at large. So when Dean Baker says “There is no black magic that will allow the economy to over-ride arithmetic”, I disagree. There is the power of love and the sufficiency of more than enough. These are exemplified in hitch-hiking, where we express our gratitude not by paying our benefactor but by giving lifts ourselves, when we are able.

    Now my turn to ask a question! Tell me more about these wonderful new steam engines “more efficient” than diesels, Henry. Do you mean “more financially economical”? Or are you just having another ill-informed, ungrateful and ungracious niggle at Keynes?

    • henry1941
      June 7, 2012 at 8:27 pm | #22

      I am definitely having a niggle at Keynes. He never addressed the fundamental issues in economics such as how the economic process actually functions. That is more than something to niggle about.

      As for the more efficient steam locomotives, SLM of Winterthur built a batch in 1993 for use on mountain railways in Switzerland and Austria, where the original steam locomotives were getting worn-out and were inefficient, but their diesel replacements were unattractive to tourists. They were designed to run on ordinary diesel, which was just burnt in a combustion chamber. After a while it was found that they were consuming less fuel than the diesels, which was not in accordance with the theory. This led to an audit of fuel consumption and the causes were eventually established.

      http://www.dlm-ag.ch

  12. robert r locke
    June 7, 2012 at 4:05 pm | #23

    Dave, the French saying is De la discussion jaillit la lumiere, which is exactly what my discussion with you specifically and with others in this exchange has done for me.

    • davetaylor1
      June 7, 2012 at 4:59 pm | #24

      Thank you, Robert.

  13. Lou Lou
    June 7, 2012 at 9:33 pm | #25

    Lordy, Lordy guys – this whole thread reads like a mental game of Econ pocket pool.

    Let’s review: Greenspan decides fraud is a myth and opens the path to massive deregulation in finanical markets. Financiers go hog wile inflating their personal bonuses via ‘financial inovation’ and bad loans, globally. One weekend (just for fun!) a bunch of traders get together and start a rumor that Lehman’s insolvent, refuse to act as LEH counterparties, tell all their friends to do so, and the whole house of cards comes crashing down.

    Hobbisan, Lockian, Novickian, Keynesian, Neo-classical, pseudo-neo-classical, Hayekian, Volkan, Dr. Bob Kaveshian, or Dr. Seussian … is IRRELEVANT.

    To jump-start the economy, we need to re-institute Glass-Steagall, mark-to-market all residential mortgages, launch a massive CCC-like jobs corps program, federalize all election campaign funding, close the free lunch (I mean Discount) Window at The Fed, and hang some bankers. That would be a good start. There are many more components to the solution (regulation of derivative contracts, for example…), but NONE of them involve applying more traditional economic ‘thought’ to the problem.

    … or is it just me, and my propensity to Archie Bunkerism?

    • Lou Lou
      June 7, 2012 at 9:36 pm | #26

      … Hobbsian … sorry, even my fingers were frustrated.

    • henry1941
      June 8, 2012 at 8:04 am | #27

      You do not need to do any of the things that you are proposing, apart from dealing with the fraud in the criminal courts. The underlying causes are deep. Please read Progress and Poverty in a good edition eg Hogarth Press.

      Glass-Stegall and all the other measures were just plasters on a festering sore, and they did not work when they were needed. If you read Progress and Poverty you will quickly realise the nature of that festering sore.

      Otherwise we can expect a rerun of this wretched business, around 2028.

      • Lou Lou
        June 8, 2012 at 3:00 pm | #28

        I’ve read it. Yet still remain unconvinced that (effectively) eliminating private property is the cure for all evil.

      • henry1941
        June 8, 2012 at 4:54 pm | #29

        Henry George never proposed eliminating private property. I proposed collecting the rental value of land as public revenue. Since the notion of land as private property is a philosophical nonsense, what exactly was he proposing to eliminate. One can no more own land than one can own air. The ILLUSION of land ownership comes about because government gives titles to land holders and will protect and defend those titles against other comers and claimants. This advantage is surely worth paying those who acknowledge the land holding ie the rest of society?

      • davetaylor1
        June 8, 2012 at 4:44 pm | #30

        Lou Lou @ #24. Comparing your solution to Henry’s Georgean land tax, I’m reminded of the economic adage, “An engineer can produce for a penny what any fool can produce for a pound”. Eh, Robert?

        Henry George summarised his solution in six words in a 500 page book about the facts of the problem and the justification of the solution: “We must make land common property”. The “stewardship of land” is an interpretation of that which transforms the legal privilege of absolute inheritable private ownership into a right of own responsible private use, where you can’t off-load or take the responsibilities with you when you die, and accepting the responsibilities are a condition of purchase or inheritance.

        That can be read into Henry’s position. What it still fails to take care of is money being the root of all evil, where recognising that money is created as debt and thus represents negative rather than positive value needs to be recognised as complementary. If own use of land is the “mother” of the solution, I see monetary incomes reduced to automated adjustment of credit card limits as an effective contender for “father”. We wouldn’t then need all the complications of obnoxious tax to pay for bank loans, pensions and public service, debt being written off insofar as our joint work replaces what we use.

    • Alice
      June 8, 2012 at 11:29 pm | #31

      Lou Lou – I find a kindred spirit in your Bunkerist common sense.

  14. henry1941
    June 8, 2012 at 5:00 pm | #32

    davetaylor1 :
    Lou Lou @ #24. Comparing your solution to Henry’s Georgean land tax, I’m reminded of the economic adage, “An engineer can produce for a penny what any fool can produce for a pound”. Eh, Robert?
    Henry George summarised his solution in six words in a 500 page book about the facts of the problem and the justification of the solution: “We must make land common property”. The “stewardship of land” is an interpretation of that which transforms the legal privilege of absolute inheritable private ownership into a right of own responsible private use, where you can’t off-load or take the responsibilities with you when you die, and accepting the responsibilities are a condition of purchase or inheritance.
    That can be read into Henry’s position. What it still fails to take care of is money being the root of all evil, where recognising that money is created as debt and thus represents negative rather than positive value needs to be recognised as complementary. If own use of land is the “mother” of the solution, I see monetary incomes reduced to automated adjustment of credit card limits as an effective contender for “father”. We wouldn’t then need all the complications of obnoxious tax to pay for bank loans, pensions and public service, debt being written off insofar as our joint work replaces what we use.

    But money is not the root of all evil. The phrase is a mis-quote from 1 Timothy 6:10. The actual phrase is “For the love of money is the root of all evil: which while some coveted after, they have erred from the faith, and pierced themselves through with many sorrows.”

    Money is, after all, nothing more than a convenient medium of exchange. Better than barter. And paper money is credit money and there is nothing wrong with that either, provided that the issuers of the paper are honest.

    The real problem is that when all land is enclosed and the rent of land is left in private hands, some people become rich and others become poor and that starts off the whole moneylending business, which is condemned by scripture. Moneylending is not the same as credit, which is a legitimate and necessary process.

    The recent problems have been caused by the abuse of credit, for the purchase of land. Credit should never be given for this purpose.

  15. Lou Lou
    June 8, 2012 at 5:58 pm | #33

    More mental floss from the Henry George fans. You’re welcome to pull that floss back and forth as much as you like, but as far as I’m concerned:

    1. Private property is NOT the root of wealth inequality,
    2. ‘Labor’ is not an undifferentiated commodity,
    3. The wild raspberry I pick is NOT theft of community property,
    4. ‘Rent’ does NOT swallow-up all increases in wealth …

    Need I go on? The solutions to our current economic questions are not to be found in Georgism either, in my opinion.

    • henry1941
      June 8, 2012 at 9:05 pm | #34

      1. 12 people land on an island and share out all the land between them. Another 12 arrive. What happens then? They can have a fight and the winners take all. Otherwise, the newcomers have no option but to work on whatever terms the first comers deign to give them. They newcomers are effectively slaves.

      2. Who claimed that labour was an undifferentiated commodity? However, there is a large range of work that can be done by anyone, with minimal training. And whilst we are on the subject, it should be remembered that taxation of the wages of labour is theft.

      3 The wild raspberry that you pick here in Sweden is not theft of community property because we have an ancient Right of Public Access. The wild raspberry that you pick in England is theft of the landowner’s property. You have no right to go and pick a wild raspberry on his land unless you have his agreement, for which he could make a charge because it is “his land”. In reality the land belongs to the Sovereign and the owner should be paying the Sovereign for the right of freehold but that has not happened for many centuries.

      4 Rent does not swallow up all increases in wealth. Only most increases. There is nowhere else for it to go. When all land has been enclosed, wages are the least that the labourer will accept, whilst the return to capital is pretty much fixed – when the return tends to rise, then more capital is produced which makes the rate of return drop back again.

      If you do not want to look at the proposals put forward by George, then you must live with the consequences. Doesn’t both me in dear little Sweden.

    • June 8, 2012 at 10:17 pm | #35

      Land value taxation in undoubtedly part of the solution but it’s not a panacea.

  16. davetaylor1
    June 9, 2012 at 10:18 am | #36

    Henry @ #31. I appreciate what you are saying, but actually, Henry, both Timothy and I are interpreting the First Commandment: “Thou shalt not love the Image more than the Reality”. [The Golden Calf more than the invisible God]. Timothy’s slant is NOT TO LOVE money, mine is WHY WE ARE INCLINED TO LOVE IT. Whether or not the issuers of paper money are honest, the naive, still imagining money being as valuable as gold, not seeing that “all that glitters is not gold”, are still being taken in by “Fool’s Gold”. Gesell’s idea, appreciated by Keynes, was to tarnish that a little.

    Lou Lou @ #32. Thank you Henry for your response to this at #33, but Lou Lou, the issues are serious: we need to get beyond what in our “opinion” won’t work to agree on something that will.

    Your “mental floss” abuse comes from Marx, who of course agreed with George that “We must make land common property” (so may have been self-abusing in frustration at his own inability to do so). They differ, of course, in that George wants the state to tax the proceeds of it, Marx for it to take and own the land on people’s behalf. The older Christian scheme had been for local communities (churches) to give and pool their surplus voluntarily, hence parish/monastic community buildings and land endowments.

    You’ve started an even more valuable hare with this Marx reference, but let me briefly deal first with the value of theoretical opinion. Before the invention of telescopes and microscopes sciene (knowledge) had to rely on sifting through what we could see. Thereafter, we needed maps and theories of how things work to show us what a few scientists have been able to see through their instruments. Standing in the street you can see what is going on but not where you are, nor what happened yesterday. Marx would have been delighted with our materialisation of Maxwell’s radio communication theory in Satnavs and CCTV.

    Looking back though the CCTV of history, Marx developed Hegel’s logic of dialectic into his own theory of Dialectical Materialism; Newman and Darwin developed similar ideas as The Development of Doctrine and Evolution. From a mathematical view the same pattern can be seen Al Khorismi’s arabic number system and repetitive computer algorithms. Henry George’s way of showing what happens over time became the game of Monopoly, replacing Marx’s frame by frame analysis of CCTV footage of what has happened with a step-by step simulation of what will happen, given the rules of the game.

    In each of these you go through a three-stage, circuital process in which the starting point is changed and the result – Hegel’s synthesis – becomes the new starting point. The Monopoly game makes the result very obvious, but it is interesting to make the rules more realistic. See what happens when you require interest on money from the Bank, tax for the Community Chest and those who lose to get no supper. Restarting with new players inheriting the results of the previous game won’t work without a class society in which new entrants are able to bypass the expensive areas.

    Compare these with the two-stage oscillatory process of the Econ’s Icons (https://rwer.wordpress.com/2012/06/06/life-among-the-econ/), which represent the ups-and down positions of a see-saw with the 1% on one end and however many of the 99% will fit on the other, the IS/LM version distinguishing consumption of wages from consumption of food. Both ignore the Keynesian recognition that the Fat Cats get fatter and will eventually leave the others stuck up in the air and the Fat Cats, like honey-stuffed Pooh stuck in Rabbit’s hole, having to live off their fat unless a Keynesian supertax helps them by emptying their pockets. Pushing more of us off the end will of course make the situation worse, not better.

  17. Alice
    June 9, 2012 at 10:39 am | #37

    Hang on Dave

    You ignored the practical suggestions by Lou Lou
    “To jump-start the economy, we need to re-institute Glass-Steagall, mark-to-market all residential mortgages, launch a massive CCC-like jobs corps program, federalize all election campaign funding, close the free lunch (I mean Discount) Window at The Fed, and hang some bankers. That would be a good start. There are many more components to the solution (regulation of derivative contracts, for example…), but NONE of them involve applying more traditional economic ‘thought’ to the problem.”

    Yes I agree ( I stop short of hanging but some jail sentences for fraudulent bankers – more than a tiny $dollar slap on the wrist they can well afford as a cost of doing business)

    • davetaylor1
      June 10, 2012 at 7:10 am | #38

      But Alice, I didn’t ignore them. I dismissed them as non-serious as kindly as I could by siding with Henry’s line, subject to adding what is necessary to bump start the economy, which is disempowering international banking system credit by legalising local credit.

      You may reflect that I am a Brit, not a Yank, but more seriously, Lou Lou came out with a load of American economic jargon related to the existing system, none of it connected with eliminating the export of jobs and most of it impractical in the sense that it has already been rejected by the powers that be, and then says that these proposals to tinker with the existing system don’t involve “applying traditional economic ‘thought’”! So do they involve thought at all? Her offence at summary historical reference to systems of thought suggests she doesn’t even understand the difference between old and traditional. But did you really need all this spelling out? I had thought not. I tried instead to accept our personality differences and be positive.

      So Alice, are YOU going to ignore the convergence on real solutions I found by trying to learn something from Lou Lou’s contribution?

      To avoid being unfair, I have tried to find out what ‘mark-to-market’ actually means. In the context of residential mortgages, perhaps what I mean when I write about writing down credit as well as debt? The explanations I found were themselves so jargon-ridden I’m still not
      sure.

  18. Alice
    June 9, 2012 at 10:40 am | #39

    and especially federalize all election funding – that would hit the mark faster than any idealistic land tax a la the georgists.

    Its so obvious as to be alomost to simple for economists.

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