The Present's so Bright...

Another near-five percent output growth quarter, accompanied by a growth of labor input that I measure as about 1.6 percent at an annual rate. That means productivity growth at more than three percent per year.

So why aren't real wages rising faster? Why does labor demand growth appear so weak?

Comments

[Iain Babeu]

This post has a question. Possibly dumb.

If a US based company purchases services from abroad, and that service allows them to reduce their labor demand, would that show up as an increase in worker productivity?

If a company takes on more work and all their workers are in the US then you see employment go up. But if a company takes on more work and much of the marginal labor is being done abroad it is not reflected in employment figures. The service shows up in the good old expense column, not the payroll column, and does not touch number of employees.

It's almost like counting GDP and not being sure if the transaction you're looking at is final or not.

Second question: would the effect be large enough to measure and show up?

[P O'Neill]

It's almost as if the gods are trying to make social security solvent forever.

[anne]

P O'Neill

"It's almost as if the gods are trying to make social security solvent forever."

Precisely :) and more besides. Imagine what we might do were we to leave Iraq at once.

[anne]

http://www.calvorn.com/gallery/photo.php?photo=5286&u=17|63|...

Prothonotary Warbler Taking a Drink
New York City-Central Park Lake.

Oh my :)

[Derelict]

Brad asks why real wages aren't rising faster. The rest of us ask why real wages are actually falling in the face of such productivity gains.

Then, too, some of us remember that the Dept. of Labor rewrote the overtime rules a couple of years ago. Under the rewrite, tens of thousands of workers who were employed on an hourly basis (and thus entitled to overtime) were suddenly reclassified as "salaried management" and could be compelled to work unlimited overtime with no compensation beyond a vague promise of maybe perhaps someday getting some time off. Maybe.

And we wonder what impact that has had on the amazing productivity growth and the fact of falling real wages.

[trostky]

If labor demand is so slack, what's with the million new unskilled Mexican immigrants arriving every year?

[sm]

Are the numbers real?

[Denis Drew]

Sooner or later Americans are going to realize that working in a unionless economy guarantess permanent wage losses: ratchet down, ratchet down all around.

Best solution of all: German style, legally mandated, sector-wide collective bargaining agreements: wherein all employees doing the same job in the same geographic locale work under one common contract, even for different companies -- sometimes called de facto minimum wages.

A quarter of American workers now earn less than L.B.J.'s $9.25/hr minimum wage (1968) -- even though the per person economic pie has doubled since. The money is there anytime American labor decides to wake up.

[Chris]

It was just a year or two ago that people were wondering "if this is a recovery, where are the jobs?". Now the question is, "If we have a demand for labor, where's the wage growth?". This is progress.

I think the next stage is "If we have wage growth, where is the inflation?", and so on all the way around the cycle until eventually we're reading articles wondering where the jobs are again...

[Charles]

Chris, we are much more likely to be asking where former Bush Administration officials are as we attempt to sort out Great Depression II.

It is no trick to make an economy grow on borrowed money. The trick is in borrowing it without aggravating the bond market.

But as we see with Ken Lay, fast-talking Texans are able to create money out of thin air.

For a time.

[christofay]

You believe the government numbers? This is the Prezident's not getting recognition for the strong economy week.

Solution to this poor mouthing of the economy, arrest all the democrats.

Exept Lieberman.

[Charles]

As for the question Brad asks, there is no mathematical connection between productivity and wages.

The only mathematical connection is between the boss's wallet and wages.

Trostky asks an interesting question. Millions of undocumented workers, working off the books, not receiving any benefits, often getting paid less than minimum wage or even nothing at all. So, there's very strong labor demand... but in a different labor market, namely coerced labor.

Americans like to avert their eyes from what their economic policies have done to Mexico. Mexico's internal politics have also done damage, and even more damage has been done by the Vatican's policy on contraception. However, the Vatican's policy has been promoted by Reagan and the corporate right in its drive to create a huge pool of labor desperate enough to accept any wage.

That labor is, fundamentally, coerced.

That pool of desperate labor undercuts American wages, American national security, public health and many other things we claim to value. And, as Spartacus was to Rome, it may very well be one of the forces that overthrows what has been an unjust-- and often murderous--US policy in Latin America.

[Les Brunswick]

Wages don't go up because the government, operating on the behalf of corporations and the rich, has rigged the system.

When you look at how civilizations go into decline and fall, usually one key element is the elites using their power to take more and more wealth for themselves and leaving less and less for everyone else. American conservative politicians have decided to help this process out as much as they can.

[David Yaseen]

I think both capital and labor are insecure. The former isn't willing to give raises to ensure productivity, and labor--scared to death of becoming homeless--goes along to get along, working harder day by day.

The idea is that one should be thankful for one's job. Harkens back to the Riis era. When you have no solid security, everything presented to you seems reasonable, so long as you aren't scraped off the payroll.

[trotsky]

Charles,

On at least one point, times seem to have changed. Here's the key sentence from a recent story in the Arizona Republic (http://tinyurl.com/q7mrw):

"After decades of decline, the national fertility rate dropped to a milestone 2.1 children per woman last year, according to Mexico's National Population Council."

And for all the recent talk about raising the minimum wage in California (where it's already almost $2/hour higher than the federal minimum), in practice there's a growing farm labor shortage because any hard-working unskilled laborer can start at $10/hour (which won't make your rich but isn't a starvation wage either) on the abundant construction sites of California.

And, excuse me, was Mexico a rich country before we got our NAFTA-grubby hands on it? I think not.

[S.W. Anderson]

"So why aren't real wages rising faster? Why does labor demand growth appear so weak?"

There would've been considerable downward pressure on wages, even in a time of steady increases in productivity, because of technological changes: computerization, robotics, telecommunications, etc.

But on top of that, over the past quarter century, the business of business has been finding ways to do more with fewer people on the payroll. How few is few enough? It's all relative. Like Republicans and taxation, no matter how low it goes, it's never low enough.

But that's only part of the story. Special thanks go to president Clinton and the tireless efforts of a steady string of dedicated U.S. trade representatives for selling out those who work for a paycheck.

Rather than risk competing with foreign producers or trying to invade and conquer foreign markets, U.S.-based corporations have opted to offshore and outsource as many jobs, businesses and whole industries as possible.

Even when production remains in this country, U.S. workers are in direct, wide-open competition with an infinite number of Third-World folks willing to work long and hard for much less than what basic subsistence costs in the U.S.

An added factor, as has been mentioned, is that corporate America, having bought the Republicans and in turn the government, has for all practical purposes realized its dream of drastically weakening and shrinking unions.

Thus, everything, in almost every way, is stacked against American paycheck workers. It's an employer's market.

That being the case, employers can and will satisfy their greed with gusto, while cheapskating their workers.

[DJ]

As an Econ student at Berkeley about 15 years ago I was already disappointed with the misinformation taught us about what causes wage growth. Productivity leads to wage growth was the mantra but that was obviously too simple.

Productivity will set an upper limit on wages, above which it is not profitable to pay workers. But, wages are determined by the supply and demand of labor. An excess supply of labor will cause wages to fall below the cap established by productivity. Globalization is partly responsible for increasing the supply of labor and depressing wages.

I paid for a BA Economics and an MBA Finance and I had to learn that on my own thanks to working minimum wage jobs as a kid. The more I busted my butt, the less I got paid per unit of productivity.

Brad, the better question is when are Economists going to do better by their field by applying real research to the wage and disparity of wealth/income issues?

[Blissex]

Perhaps the mystery of rising productivity and all those desperate immigrants are related -- there was a paper some years ago arguing that workers are undercounted, because many are illegal immigrants and are paid (little) cash, but output is not.

Every businesswoman with a couple of unreported maids at home can work longer with much less worry.

Every small businessman whose office miraculously are always clean even if he has no cleaners on his official payroll makes his official workers look more productive.

[Blissex]

«But that's only part of the story. Special thanks go to president Clinton and the tireless efforts of a steady string of dedicated U.S. trade representatives for selling out those who work for a paycheck.»

You are blaming Clinton on trade, I would blame more Reagan and all those that have laboured relentlessly to destroy the unions and make every worker a ''free agent'', free to accept ever worse deals.

Among those that have worked relentlessly to destroy the trade unions are ahem the trade unions themselves, that have behaved as irresponsible bullies to protect their members at the expensive of everybody else that Reagan and others have managed to have popular acquiescence if not support in their destruction.

Finally, a very important point I found in in an article a few years ago: only 5% of the population, the top 5%, donate to campaign funds. In other words, these guys indirectly are the employers of Congress. Guess the result...

[Blissex]

«If labor demand is so slack, what's with the million new unskilled Mexican immigrants arriving every year?»

A fine if minor example of intellectual dishonesty here: this bit of prevarication is based on the fallacy that demand DOES NOT DEPEND ON PRICE, and thus increasing demand is always based on increased need, not decreasing prices.

Of course demand for labour increases when salaries go down -- and salaries go down when demand for labour is slack; and ''slack demand'' means "insufficient to employ people at the current wage".

It is just demand and supply.

Labour compensation (which includes wages plus benefits) has been going down _a lot_ over the past few years at the lower end of the scale where poor desperate immigrants beg for jobs.

It is a question of willing workers vs. willing employers: workers willing not to starve, employers willing to take advantage of that.

What matters in any price negotiation is leverage: and masses of voters that are not organized and cannot vote have very little leverage.

[don't go to econ grad school]

"As an Econ student at Berkeley about 15 years ago I was already disappointed with the misinformation taught us about what causes wage growth. Productivity leads to wage growth was the mantra but that was obviously too simple."

Ahh, but it's mathematically elegant! Who cares that it's so incomplete as to be essentially useless for understanding how the world works?

I always feel a certain grim, bitter amusement when reality smacks economic theory in the head with a two by four, leading an academic economist to ask plaintively "hey, we've made a boatload of extremely questionable assumptions in our models, and then we did a lot of fancy math, but the models don't work. How come?"

[Sandwichman]

Blame it on the lump of labor.

[Bruce Webb]

Productivity leads to wage growth when workers have pricing power. Which in the final analysis means having the central organs of production being unionized. The economic Right has largely sold the idea that unions are an obstacle to the free movement of wages in response to supply and demand, and in doing that sweeping the pricing power of employers under the rug.

All of which ignores history. The 40 hour week, OSHA, mine safety (since shafted), employer covered health benefits, none of that came out of nowhere or as the result of millions of individuals negotiating millions of contracts with thousands of employers. It all came from collective, and too often, violent action by self-conscious groups of workers, which in most cases meant unions. And the benefits spilled over to all Americans. If you work in a non-union shop and have the benefit of time and a half after 40 hours and employer paid health it is a direct result of your employer having to compete with union employers. And what do you know? Over the last twenty years as unions have been beaten down employers are backing off those benefit programs. Because they can. They are no longer afraid of losing their workers to a union shop because in most cases there is no union shop to move to. They are not afraid of losing their customers because the days of "Look for the Union label" are long gone.

Long gone but not forgotten. This is the weekend before the storm. Per Atrios the month-long delayed Report of the Trustees of Social Security will be released on Monday and the numbers should be damning. Simply put the numbers in the last Report were not honest. Nobody really expected 2.0% productivity for 2005. And it didn't happen. On Friday growth numbers for Q1 were released, and ballyhooed by the President's men, that suggest that 2006 growth is clocking in somewhere north of 3% (per our host's calculations - thanks Brad!). The juxtaposition should be jarrring.

The 2005 Report of the Trustees of Social Security was released on March 23, 2005 and should rightly have had the impact of a turd in the punch bowl. 2.1% productivity was the top end, optimistic number? (Low Cost). 2.0% productivity was the best guess for likely outcome? (Intermediate Cost). These were not serious numbers and among the actual players in the debate were acknowledged as such. Not a single person has ever, once defended the productivity numbers of the 2005 Report. And on Monday we will see the release of a data-set that not only has to accomodate real world 2005, but not fail the laugh test set by Friday's report on Q1 2006 growth.

I hope Atrios is right and that the Report will be released on Monday. In fact I took the day off just in case. I fully intend to be the first person in America to download the PDF and order the paper copy at http://www.ssa.gov/OACT/pubs.html . Assuming they use the same filename conventions as last year I already have broken out links to the components of the Report at http://bruceweb.blogspot.com/2006/02/2006-report-forthcoming-and-incoming.html

In ways that are not always recognized Capital has used Social Security depletion as a club to drive down worker compensation in the short term, that is in the terms of this post deny workers their share of productivity gains. Their argument boils down to "We will have to bail out Social Security in the end - or not. The choice is up to us, so step back while we try to grow the economy enough so that we can - if we choose, actually pay you that check FDR promised." This whole Reagan inspired narrative shatters on encountering Social Security Solvency. Whereupon workers will be freed to get up from their defensive crouch and say "Hey you see that productivity gain, wrung out of me producing more with less? Well I want some sugar. Now. Or else."

[paradoctor]

I know a way to solve the illegal immigration problem. The problem is, it will work, and therefore work too well.

The problem is that undocumented workers, being legally vulnerable, can be coerced into accepting low wages and bad conditions; and this has a negative effect on other workers.

Here is my proposal; that we offer quick citizenship to any illegal immigrant willing and able to come forward and prove that his employer violated U.S. labor and safety laws. This simple program (which probably doesn't even need new legislation, just restrategizing prosecutions) if consistently and robustly followed, will have these effects:

1. We will suddenly find the true extent of illegal immigration, and also of labor-law illegality.
2. The economics of hiring illegals will radically change to unprofitability
3. The bargaining power of American workers will increase
4. Illegal immigration will decrease

In short, I predict that targeting the subminimum-wage hirers via their exploited employees will "solve the illegal-immigration problem" with startling efficiency. But that is precisely the problem with this proposal, and why it will not be implemented. To achieve 4, we must accept 1, 2, and most troublesome of all, 3. That is a price that the folks in charge do not wish to pay.

From labor's point of view, enforcing labor law solves the illegal-immigration problem. From management's point of view, permitting illegal immigration solves the labor-law problem.

[wjd123]

I think the answer to illegal immigration is not allowing illegals to find work.

This can be done through the use of a national identity card using the latest technology and attached to a federal data bank. That way verifying whether a worker is illegal or not will be taken out of the hands of employees who will no longer be able to get around the law by saying "How was I to know his or her papers were bogas."

The two other measures that need to go along with a national identity card to keep employers from ignoring it are sever sanctions placed on those who do and an effective means of enforcement.

When you can't work without a national identity card illegals won't be able to find work here and will go home on their own and won't continue coming here for work.

A national identity card will reaffirm respect for the law, something congress hasn't shown for the last 20 years when it come to illegal immigration.

A national identity card is also something we have needed since 9/11 as a secruity measure.

And if used correctly the increase in tax revenues brought in by forcing the underground economy above ground will more than pay for its cost and maintaince.

One last thing. The ultimate answer to bringing back respect for the law starts with sending Bush and all the incumpants in Congress home.

[anne]

http://www.nytimes.com/2006/04/30/obituaries/30galbraith.html?ex=1304049600&en=c486b75860ff8fb3&ei=5090&partner=rssuserland&emc=rss

April 30, 2006

John Kenneth Galbraith; Economist Held a Mirror to Society
By HOLCOMB B. NOBLE and DOUGLAS MARTIN

John Kenneth Galbraith, the iconoclastic economist, teacher and diplomat and an unapologetically liberal member of the political and academic establishment that he needled in prolific writings for more than half a century, died yesterday at a hospital in Cambridge, Mass. He was 97.

Mr. Galbraith lived in Cambridge and at an "unfarmed farm" near Newfane, Vt. His death was confirmed by his son J. Alan Galbraith.

Mr. Galbraith was one of the most widely read authors in the history of economics; among his 33 books was "The Affluent Society" (1958), one of those rare works that forces a nation to re-examine its values. He wrote fluidly, even on complex topics, and many of his compelling phrases — among them "the affluent society," "conventional wisdom" and "countervailing power" — became part of the language.

An imposing presence, lanky and angular at 6 feet 8 inches tall, Mr. Galbraith was consulted frequently by national leaders, and he gave advice freely, though it may have been ignored as often as it was taken. Mr. Galbraith clearly preferred taking issue with the conventional wisdom he distrusted.

He strived to change the very texture of the national conversation about power and its nature in the modern world by explaining how the planning of giant corporations superseded market mechanisms. His sweeping ideas, which might have gained even greater traction had he developed disciples willing and able to prove them with mathematical models, came to strike some as almost quaint in today's harsh, interconnected world where corporations devour one another.

"The distinctiveness of his contribution appears to be slipping from view," Stephen P. Dunn wrote in The Journal of Post-Keynesian Economics in 2002.

Mr. Galbraith, a revered lecturer for generations of Harvard students, nonetheless always commanded attention.

Robert Lekachman, a liberal economist who shared many of Mr. Galbraith's views on an affluent society that they both thought not generous enough to its poor or sufficiently attendant to its public needs, once described the quality of his discourse as "witty, supple, eloquent, and edged with that sheen of malice which the fallen sons of Adam always find attractive when it is directed at targets other than themselves."

From the 1930's to the 1990's, Mr. Galbraith helped define the terms of the national political debate, influencing the direction of the Democratic Party and the thinking of its leaders.

He tutored Adlai E. Stevenson, the Democratic nominee for president in 1952 and 1956, on Keynesian economics. He advised President John F. Kennedy (often over lobster stew at the Locke-Ober restaurant in their beloved Boston) and served as his ambassador to India.

Though he eventually broke with President Lyndon B. Johnson over the war in Vietnam, he helped conceive Mr. Johnson's Great Society program and wrote a major presidential address that outlined its purposes. In 1968, pursuing his opposition to the war, he helped Senator Eugene J. McCarthy seek the Democratic nomination for president.

In the course of his long career, he undertook a number of government assignments, including the organization of price controls in World War II and speechwriting for Franklin D. Roosevelt, Kennedy and Johnson.

He drew on his experiences in government to write three satirical novels. One in 1968, "The Triumph," a best seller, was an assault on the State Department's slapstick attempts to assist a mythical banana republic, Puerto Santos. In 1990, he took on the Harvard economics department with "A Tenured Professor," ridiculing, among others, a certain outspoken character who bore no small resemblance to himself.

At his death Mr. Galbraith was the Paul M. Warburg emeritus professor of economics at Harvard, where he had taught for most of his career. A popular lecturer, he treated economics as an aspect of society and culture rather than as an arcane discipline of numbers.

Keeping It Simple

Mr. Galbraith was admired, envied and sometimes scorned for his eloquence and wit and his ability to make complicated, dry issues understandable to any educated reader. He enjoyed his international reputation as a slayer of sacred cows and a maverick among economists whose pronouncements became known as "classic Galbraithian heresies."

But other economists, even many of his fellow liberals, did not generally share his views on production and consumption, and he was not regarded by his peers as among the top-ranked theorists and scholars. Such criticism did not sit well with Mr. Galbraith, a man no one ever called modest, and he would respond that his critics had rightly recognized that his ideas were "deeply subversive of the established orthodoxy."

"As a matter of vested interest, if not of truth," he added, "they were compelled to resist." He once said, "Economists are economical, among other things, of ideas; most make those of their graduate days last a lifetime."

Nearly 40 years after writing "The Affluent Society," Mr. Galbraith updated it in 1996 as "The Good Society." In it, he said that his earlier concerns had only worsened: that if anything, America had become even more a "democracy of the fortunate," with the poor increasingly excluded from a fair place at the table.

Mr. Galbraith gave broad thought to how America changed from a nation of small farms and workshops to one of big factories and superstores, and judgments of this legacy are as broad as his ambition. Beginning with "American Capitalism" in 1952, he laid out a detailed critique of an increasingly oligopolistic economy. Combined with works in the 1950's by writers like David Reisman, Vance Packard and William H. Whyte, the book changed people's views of the postwar world.

Mr. Galbraith argued that technology mandated long-term contracts to diminish high-stakes uncertainty. He said companies used advertising to induce consumers to buy things they had never dreamed they needed.

Other economists, like Gary S. Becker and George J. Stigler, both Nobel Prize winners, countered with proofs showing that advertising is essentially informative rather than manipulative.

Many viewed Mr. Galbraith as the leading scion of the American institutionalist school of economics, commonly associated with Thorstein Veblen and his idea of "conspicuous consumption." This school deplored the universal pretensions of economic theory, and stressed the importance of historical and social factors in shaping "economic laws."

Some, therefore, said Mr. Galbraith might best be called an "economic sociologist." This view was reinforced by Mr. Galbraith's nontechnical phrasing, called glibness by the envious and antagonistic.

Mr. Galbraith's pride in following in the tradition of Veblen was challenged by the emergence of what came to be called the new institutionalist school. This approach, associated with the University of Chicago, claimed to prove that economics determines historical and political change, not vice versa.

Some suggested that Mr. Galbraith's liberalism crippled his influence. In a review of "John Kenneth Galbraith: His Life, His Politics, His Economics" by Richard Parker (Farrar, 2005), J. Bradford DeLong wrote in Foreign Affairs that Mr. Galbraith's lifelong sermon of social democracy was destined to fail in a land of "rugged individualism." He compared Mr. Galbraith to Sisyphus, endlessly pushing the same rock up a hill that always turns out to be too steep.

Amartya Sen, a Nobel Prize-winning economist, maintains that Mr. Galbraith not only reached but also defined the summit of his field. In the 2000 commencement address at Harvard, Mr. Parker's book recounts, Mr. Sen said the influence of "The Affluent Society" was so pervasive that its many piercing insights were taken for granted.

"It's like reading 'Hamlet' and deciding it's full of quotations," he said....

[anne]

http://www.foreignaffairs.org/20050501fareviewessay84312/j-bradford-delong/sisyphus-as-social-democrat.html?mode=print

June, 2005

Sisyphus as Social Democrat
By J. Bradford DeLong - Foreign Affairs

John Kenneth Galbraith: His Life, His Politics, His Economics.
By Richard Parker.

Summary: John Kenneth Galbraith's dazzling career as an economist and public intellectual has left an oddly thin legacy. A new biography sets out to explain why -- tracing, in the process, the rise and fall of twentieth-century American liberalism.

If there were justice in the world, John Kenneth Galbraith would rank as the twentieth century's most influential American economist. He has published several books that are among the best analyses of modern U.S. history, played a key role in midcentury policymaking, and advised more presidents and senators than would seem possible in three lifetimes. Yet today, Galbraith's influence on economics is small, and his influence on U.S. politics is receding by the year.

In this lively and thoughtful biography, Richard Parker sets himself the task of explaining Galbraith's career: why it was so dazzling, and why its long-term impact has turned out to be so much less than expected. The result is not only the story of a smart, witty, and important man, but also a fascinating meditation on the rise and fall of twentieth-century American liberalism.

A MAN FOR ALL SEASONS

That Galbraith's career has been dazzling nobody can dispute. Professors of post-World War II American history can still do no better than to assign his books The Affluent Society and The New Industrial State to teach students how the midcentury U.S. economy came to dominate the world (and what should have been done to make it work better). Anyone wanting to learn about the beginning of the Great Depression should start with The Great Crash; there is no other history of the stock-market crash of 1929 that is as short and even half as worthwhile. During World War II, Galbraith helped run the Office of Price Administration, working to square the growth-inflation circle by pushing production far above economists' measures of potential output without sparking runaway price increases that would threaten the economic mobilization. And after the war, his work on the Defense Department's "United States Strategic Bombing Survey" made Washington rethink the efficacy of its standard war-fighting policy -- staying high in the sky and dropping lots of explosives on all kinds of people far below -- although perhaps the rethinking did not go far enough.

Lots of ideas in the background of contemporary U.S. political and economic thought are Galbraith's. His work as an economist was a scattered but comprehensive attempt to think through the consequences of the transition from a nation of small farms and workshops to one of large factories and superstores. In doing so, he took on many of the questions most central to the new U.S. economic landscape: How much can advertising shape demand? In a world of passive shareholders, autonomous managers and engineers, and firm decisions that emerge out of internal bureaucratic contests, just what are the objectives that drive big firms? How does competition work when its principal dimensions are quality and marketing rather than price? And critically, how do the limits of polite discourse allow the system to hold itself together while constraining its flexibility?

For decades, Galbraith's influence in politics was unmatched by any other economist. The pieces of his advice best remembered are those that went against the "conventional wisdom" (a now ubiquitous phrase that Galbraith coined): strategic bombing did not win World War II; Vietnam was a strategically unimportant quagmire where the United States would do more harm than good; macroeconomic "fine tuning" is likely to blow up in the face of policymakers; the businessman's capacity for self-delusion is nearly infinite. Galbraith sees the United States as a would-be social democracy that has lost its way, assuming that if only the self-serving declarations of the right could be wiped away, the benefits of a bigger, more activist government would become obvious to everyone. The right-wing claim that the most efficient economy is one in which the gales of perfect competition scour the land is, in Galbraith's view, nonsense. Modern industrial and post-industrial production is a large-scale process, large-scale processes require planning, and planning requires stability -- which means that the gales of the market must be calmed.

This political vision, however, has been in retreat since the early 1980s. Nobody wants to hear about the importance of Big Government, Big Bureaucracy, or Big Labor (which hardly even exists). Galbraith's economic views have undergone an even more distressing eclipse. Among economists (excluding economic historians), the 70-year-olds have read Galbraith and think he is very important; the 50-year-olds have read Galbraith and know that the 70-year-olds think he is important but are not sure why; and the 30-year-olds have not even read him....

[anne]

We should consider Benjamin Friedman a systematic extender of Galbraith's philosophy of economics:

http://www.harvardmagazine.com/on-line/010678.html

January, 2006

An Economist's Take On the Moral Consequences Of Material Progress
By J. Bradfold Delong

The Moral Consequences of Economic Growth
By Benjamin M. Friedman

Economists have always been very good at detailing the material consequences of modern economic growth. It makes us taller: we are perhaps seven inches taller than our preindustrial ancestors. It makes us healthier: babies today have life expectancies in the seventies, not the twenties (and more than half that improvement is not directly related to better medical technology, narrowly defined). It provides us with leisure: eight-hour workdays (rather than "Man's work is from sun to sun, and woman's work is never done.") It provides us with enough clothing that we are not cold, enough shelter that we are not wet, and enough food that we are not hungry. It provides us with amusements and diversions, so that there is more to do in the evenings than huddle around the village campfire and listen yet again to that blind poet from the other side of the Aegean tell the only long story he knows—the one about Achilles and Agamemnon. As time passes, what were luxuries become, first, conveniences, and then necessities; what were utopian dreams become first luxuries and then conveniences; and what was unimagined even in wild fantasy becomes first utopian dreams and then luxuries.

Economists have been less good at detailing the moral consequences of economic growth. There are occasional apothegms: John Maynard Keynes observed that it is better for a man to tyrannize over his bank balance than his fellows (a rich society has an upper class that focuses on its wealth as power-over-nature, rather than on its power as power-over-people). Adam Smith wrote about how wealth made it attractive for the British aristocracy to abandon their feudal armies and private wars and move to London to take up positions in society and at court. Voltaire (who not even I can claim was an economist) observed that people who in other circumstances would try to kill each other for worshipping the wrong god (or the right god in the wrong way) were perfectly polite and civil when they met each other as potential trading partners on the floor of the London Exchange. Albert Hirschman (who is an economist) wrote a brilliant little book, The Passions and the Interests, about the eighteenth-century idea that commercial society made humans "sweet": polite, courteous, and civilized, viewing one another as potential partners in mutually beneficial market exchanges, rather than as clan members to be helped, clan enemies to be killed, or strangers to be robbed. But focus on the moral consequences of economic growth has—from the economists' side, at least—been rare....

[wjd123]

anne,

Who is focusing on the moral consequences of today's free trade where the seperation of the haves and have nots widens, power is dispursed upwards, and democratic countries particularly in Latin America reject leaders who espouse free trade capitalism.

With international standards, sanctions, and the means to enforce them we could greatly improve the conditions of the have nots.

[ilsm]

The parallels to declining Rome are rampant.

All we need do now is find out the Texas National Guard pilots gave W the call sign "Little Boots", while they missed him at flight training periods.

[anne]

http://select.nytimes.com/search/restricted/article?res=F20812FC34580C708CDDAA0894DB404482

March 3, 2003

Why Mexico's Small Corn Farmers Go Hungry
By Tina Rosenberg

MEXICO CITY - Macario Hernández's grandfather grew corn in the hills of Puebla, Mexico. His father does the same. Mr. Hernández grows corn, too, but not for much longer. Around his village of Guadalupe Victoria, people farm the way they have for centuries, on tiny plots of land watered only by rain, their plows pulled by burros. Mr. Hernández, a thoughtful man of 30, is battling to bring his family and neighbors out of the Middle Ages. But these days modernity is less his goal than his enemy.

This is because he, like other small farmers in Mexico, competes with American products raised on megafarms that use satellite imagery to mete out fertilizer. These products are so heavily subsidized by the government that many are exported for less than it costs to grow them. According to the Institute for Agriculture and Trade Policy in Minneapolis, American corn sells in Mexico for 25 percent less than its cost. The prices Mr. Hernández and others receive are so low that they lose money with each acre they plant.

In January, campesinos from all over the country marched into Mexico City's central plaza to protest. Thousands of men in jeans and straw hats jammed the Zócalo, alongside horses and tractors. Farmers have staged smaller protests around Mexico for months. The protests have won campesino organizations a series of talks with the government. But they are unlikely to get what they want: a renegotiation of the North American Free Trade Agreement, or Nafta, protective temporary tariffs and a new policy that seeks to help small farmers instead of trying to force them off the land.

The problems of rural Mexicans are echoed around the world as countries lower their import barriers, required by free trade treaties and the rules of the World Trade Organization. When markets are open, agricultural products flood in from wealthy nations, which subsidize agriculture and allow agribusiness to export crops cheaply. European farmers get 35 percent of their income in government subsidies, American farmers 20 percent. American subsidies are at record levels, and last year, Washington passed a farm bill that included a $40 billion increase in subsidies to large grain and cotton farmers.

It seems paradoxical to argue that cheap food hurts poor people. But three-quarters of the world's poor are rural. When subsidized imports undercut their products, they starve. Agricultural subsidies, which rob developing countries of the ability to export crops, have become the most important dispute at the W.T.O. Wealthy countries do far more harm to poor nations with these subsidies than they do good with foreign aid.

While such subsidies have been deadly for the 18 million Mexicans who live on small farms -- nearly a fifth of the country -- Mexico's near-complete neglect of the countryside is at fault, too. Mexican officials say openly that they long ago concluded that small agriculture was inefficient, and that the solution for farmers was to find other work....

[anne]

Yes; critical problems such as farmers through Latin America are confronting are actively discussed by Stiglitz and Sachs and Friedman. This is taking economics beyond a mere utilitarian foundation to Kantian equity.

[anne]

http://www.nytimes.com/2005/09/22/international/africa/22niger.html?ex=1285041600&en=9be0fc0627db213f&ei=5090&partner=rssuserland&emc=rss

September 22, 2005

In Place Where the Hungry Are Fed, Farmers May Starve
By NATASHA C. BURLEY

NIAMEY, Niger - The images coming out of this impoverished, West African nation have been unrelentingly grim: hungry children with stick-thin arms and swollen bellies, mothers carrying babies hundreds of miles to look for food after a poor harvest and high prices put local staples out of reach. A few months ago, those images prompted a torrent of food aid from Western donors.

But now, after a season of good rains, Niger's farmers are producing a bumper crop of millet, the national staple. This should be a cause for rejoicing, yet in one of the twists that mark life in the world's poorest countries, the aid that was intended to save lives could ruin the harvest for many of Niger's farmers by driving down prices.

The newly harvested millet and the donated food will reach market stalls at the same time, and with prices depressed, poor farming families may be forced to sell crops normally set aside for their own use and use the money to pay off debts. The effect would be a new cycle of hunger and poverty.

Dr. Edward Clay of the Overseas Development Institute, an independent research organization in London, said by e-mail that because the donated food was delayed, "there is a real risk that late arrival will disrupt recovery in Niger and distort agricultural trade within West Africa."

Millet is grown by almost all of the nation's farmers, but the crop has become one of the factors that work against the people of Niger and in favor of malnutrition and hunger. A distant cousin of corn, it is a hardy crop but provides almost no protein or other nutrients essential for the diets of children, and requires hours of daily pounding to be made edible.

Amadou Hassane, a millet farmer north of Niamey, has begun harvesting some of the millet in his fields for his family. "It is wonderful to be able to give millet to my wife to pound," he said, proudly fiddling with his tall stalks. "This year promises to be plentiful, and we're grateful."

But he said he would sell much of his harvest to repay debts incurred to buy seedlings after last year's drought devastated his millet plants and left him with nothing to sell.

"I'll keep no more than half of my harvest as stock for myself, and sell the rest to pay back my debts," he said. "I badly need cash." Since he, and most other farmers in the muddy village of Fala, borrowed money, he will have to sell a greater proportion of his harvest if prices are low.

To survive the lean season - the period after household stocks are gone and before the new harvest - Mr. Hassane engaged in a sort of futures market, borrowing against his next harvest so he could buy seed.

Sani Laoualy, a researcher with the government program that provides information about agricultural markets, said millet began arriving in markets in noticeable quantities in the first two weeks of September, and prices were beginning to fall....

[anne]

http://www.nytimes.com/2004/12/28/international/americas/28guatemala.html?ex=1261976400&en=fd8a7c7a170acbf5&ei=5090&partner=rssuserland

December 28, 2004

Supermarket Giants Crush Central American Farmers
By CELIA W. DUGGER

PALENCIA, Guatemala - Mario Chinchilla, his face shaded by a battered straw hat, worriedly surveyed his field of sickly tomatoes. His hands and jeans were caked with dirt, but no amount of labor would ever turn his puny crop into the plump, unblemished produce the country's main supermarket chain displays in its big stores.

For a time, the farmer's cooperative he heads managed to sell vegetables to the chain, part owned by the giant Dutch multinational, Ahold, which counts Stop & Shop among its assets. But the co-op's members lacked the expertise, as well as the money to invest in the modern greenhouses, drip irrigation and pest control that would have helped them meet supermarket specifications.

Squatting next to his field, Mr. Chinchilla's rugged face was a portrait of defeat. "They wanted consistent supply without ups and downs," he said, scratching the soil with a stick. "We didn't have the capacity to do it."

Across Latin America, supermarket chains partly or wholly owned by global corporate goliaths like Ahold, Wal-Mart and Carrefour have revolutionized food distribution in the short span of a decade and have now begun to transform food growing, too.

The megastores are popular with customers for their lower prices, choice and convenience. But their sudden appearance has brought unanticipated and daunting challenges to millions of struggling, small farmers.

The stark danger is that increasing numbers of them will go bust and join streams of desperate migrants to America and the urban slums of their own countries. Their declining fortunes, economists and agronomists fear, could worsen inequality in a region where the gap between rich and poor already yawns cavernously and the concentration of land in the hands of an elite has historically fueled cycles of rebellion and violent repression.

"It's like being on a train with a glass on a table and it's about to fall off and break," said Prof. Thomas Reardon, an agricultural economist at Michigan State University. "Everyone sees the glass on the table - but do they see it shaking? Do they see the edge? The edge is the structural changes in the market."

In the 1990's supermarkets went from controlling 10 to 20 percent of the market in the region to dominating it, a transition that took 50 years in the United States, according to researchers at Michigan State and the Latin American Center for Rural Development in Santiago, Chile.

Brazil, Argentina, Chile, Costa Rica and Mexico are furthest along. While the changes have happened more slowly in poorer, more rural Central American countries, they have begun to quicken here, too. In Guatemala, the number of supermarkets has more than doubled in the past decade, as the share of food they retail has reached 35 percent.

The hope that small farmers would benefit by banding together in business-minded associations has not been borne out. Some like Aj Ticonel, in the city of Chimaltenango, have succeeded. But the evidence suggests that the failure of Mr. Chinchilla's co-op is the more common fate....

[don't go to econ grad school]

You can spend eight years studying economics in these days and never hear Galbraith's name. Big Brother has won, Galbraith's name has been erased from the cirriculum. The victory of the intellectual barbarians is complete, and economics is doomed to wander forever in a wasteland of sterile irrelevance, while the "non-economists" do the real economics!

[anne]

Brad DeLong has regretfully agreed that Galbraith is much forgotten and more neglected, as do I. Then, we can well remember him for the philosophical approach to economics is entirely fresh if we ask that it be so.

[Rebecca Allen, PhD, ARNP]

I don't see the mystery here. Increased productivity means decreased need for workers. So the employment-to-population ratio keeps decreasing as productivity increases, and the labor market stays weak. What's surprising about any of this?

[wjd123]

Rebecca Allen,

Nothing surprising. The problem is that the gap between the haves and have not is widening.

The reason for that is globalization kills morality. Why should the economic sphere be free from the moral sphere? Why shouldn't there be international governments with standards, sanctions, and the means to enforce them to bring laws and regulations to free trade?

Economists like to point to growth as justification for free trade. A reason unto itself that more and more the very people whom growth is supposed to help are rejecting.

[rvman]

This question really is stuff that can be explained by 2nd-week Econ 101 material. It doesn't take complex models or conspiracy theories. The price of a good, in competitive equilibrium, sets marginal benefit equal to marginal cost.

In the case of labor, that means the wage is equal to the marginal revenue product. The government statistics, though, are AVERAGE productivity. If the marginal revenue product curve gets steeper, but the intercept with the Labor supply curve doesn't move (the marginal revenue product stays the same, roughly) or labor supply moves outward fast enough to keep the intercept at the same wage, then the wage stays the same while average productivity rises.

The 'marginal' minimum wage-type jobs haven't changed in their output - gardeners can still mow the same area as 20 years ago. Other types of jobs have had serious increases in marginal productivity, seemingly, but immigration(1980-now), women entering the workforce(1965-~2000), and native population growth(boomers -1965-1985 or so) allow for a labor supply curve which shifts outward faster than labor demand does. (The increase in product demand from new labor being offset by the increased supply suggested by the increased average productivity, reducing the implied increase in labor demand to produce goods to cover the increased goods demand.) Thus, wages have been flat for a while now. (Since the '70s, with a small rise in the '90s after women's LFPR had stabilized and native population stabilized. Since about 2000(really the mid-90s, but it takes time to adjust to a new situation) the transaction costs of utilizing overseas labor have dropped dramatically.

Hypothesis: Worldwide average wages have increased dramatically in the last several years, probably more-or-less in concert with increased worldwide productivity. Most of these increases have come to low-wage countries, thus reducing, slightly, the worldwide income inequality measures. (Capital returns have increased, so that might partly offset the Gini coefficient effects.) Anyone have good worldwide wage/productivity data?

[wjd123]

"This question really is stuff that can be explained by 2nd-week Econ 101 material. It doesn't take complex models or conspiracy theories. The price of a good, in competitive equilibrium, sets marginal benefit equal to marginal cost."

This sounds like a 2-week Econ 101 answer, one removed from the real world.

"Hypothesis: Worldwide average wages have increased dramatically in the last several years, probably more-or-less in concert with increased worldwide productivity. Most of these increases have come to low-wage countries, thus reducing, slightly, the worldwide income inequality measures. (Capital returns have increased, so that might partly offset the Gini coefficient effects.) Anyone have good worldwide wage/productivity data?"

Do they teach how to lie with statistics in Econ 101. If I make a million dollars a year and the 99 employees that work for me make $2,000 a year that would mean the average wage in my company is $11,980. It's a paper figure meant to deceive.

Hypothesis: Globally you have factor price equalization working its was through national economies. At first the difference in power, which globalization helps to create, between capital and labor allows capital to make greater profits at labors expense. As time go on profit margins are squeezed as competition stiffens. The weak will be weeded out and monopolies arise. Once they do labor may be able to claim a greater share of productivity if they can get themselves organized internationally.

Better to put together international standards now and save labor pain and society strife.