Harvard’s ignorant gay-bashing bloviating right-wing infotainment historian

Niall Ferguson, Harvard’s gay-bashing bloviating right-wing infotainment historian, has also revealed his profound scholarly ignorance.

Ferguson is ignorant because he doesn’t understand that Keynes’s quip, “In the long run we are all dead,” was a critique of the “classical” (including neoclassical) focus on the “long run,” in which all markets have adjusted and full employment is secured. That was and remains the excuse not to do anything to boost employment in the short run. It’s the reason Keynes argued that “The long run is a misleading guide to current affairs.”

Ferguson also displays his scholarly ignorance by failing to mention the fact that the childless, gay Keynes he mocked actually did write an essay about the long run, ironically titled (at least from the perspective of Niall Ferguson) “Economic Possibilities for our Grandchildren.”

Apparently, Ferguson did apologize for his gay-bashing comments. But he should also issue an apology for his profound ignorance of Keynes’s writings.

Shortening the workweek?

I often ask my students in what year the United States passed a law limiting the length of the workweek. And they dutifully respond: 1919? 1928? 1935?

Well, of course, it’s a trick question. There is no legally mandated limit on the length of the workweek. Such a law has never been passed in the United States. And one of the consequences is that Americans now work longer hours than any other rich nation: 1787 hours a year per worker in 2011, close to the OECD average of 1776 and much longer than such countries as the Netherlands (1379), Germany (1399), and the United Kingdom (1625).

But apparently we came close, in 1933. On 6 April of that year, the Black-Connery Bill passed in the United States Senate by a wide margin.* The bill fixed the official American work week at five days and 30 hours, with severe penalties for overtime work. The bill was opposed by Franklin Delano Roosevelt and was subsequently buried in the House, when it emerged five years later as the Fair Labor Standards Act with all its 30-hour teeth pulled.

As Benjamin Kline Hunnicutt explains,

Certainly, the end of the shorter hour movement has many dimensions and causes which must be explored. But the short narrative of events presented in this essay suggest two important dimensions and causes-one social, the other political. Among the reasons for the ending of the shorter hour movement was the fact that American attitudes toward free time changed. For over a century, American workers and their supporters valued shorter hours. They did so for a variety of reasons-some economic and some non-pecuniary. Only higher wages competed with this issue for workers’ attention. During the 1920s and early 1930s labor and other groups and individuals saw in “the progressive shortening of the hours of labor” a practical foundation for liberal idealism as well as a necessary remedy for economic ills. But during the Depression, free time took the form of massive unemployment. Instead of accepting labor’s 30 hour week remedy, Roosevelt and the majority of Americans saw this free time as a tragedy that had to be eliminated by increasing economic activity-an activity stimulated by government spending if necessary. The concept of free time as leisure-a natural part of economic advance and a foil to materialistic values was abandoned. The reform continuum in this one area was broken by Roosevelt’s New Deal and by the modern adherence to economic growth as the great liberal goal.

The result is that, today, American workers are forced to have the freedom to remain on the job for at least 40 hours a week, while millions of their fellow workers remain jobless, and my question to students remains a trick one.

* I haven’t been able to find an on-line version of the 1933 bill. But here’s a link to the 1934 version:

Whereas our private productive system is dependent for its own customers chiefly upon its own employees, who cannot buy the output of the system unless producers give them jobs at wages adequate to exchange for the products; and Whereas private business has not been able, and is not now able, to give jobs to those who need them, on past or existing hours of labor . . .

SEC. 2. (a) No article or commodity shall be purchased by the United States, or any department or organization thereof, from any business enterprise operating contrary to any provision of this Act, or if such article or commodity was produced or manufactured in any mine, quarry, mill, cannery, workshop, factory, or manufacturing establishment situated in the United States, in which any person, except officers, executives, and superintendents, and their personal and immediate clerical assistants, was employed, after the date this Act takes effect, more than five days in any week or more than six hours in any day.

Economist of the day

my conclusion is that I should stop calling the current episode the Lesser Depression. Yes, its shape is different from that of the Great Depression; but, so far at least, there is no reason to rank it any lower in the hierarchy of macroeconomic disasters.

J. Bradford DeLong, “Let It Bleed?”

Chart of the day

These charts compare the changes in gross domestic product and unemployment in the United States during the five years after 1929 with the changes in Greece during the five years after 2007.

Five years into the Great Depression, one out of five workers in the United States was unemployed. The economy was nearly 20 percent smaller in 1934 than it had been at the peak, in 1929.

The Greeks can only wish they had it so good.

Hiding their heads in the sand

We now know, thanks to the release of the minutes of the 7 August 2007 meeting of the Federal Open Market Committee, that those in attendance were acting like ostriches: foolishly ignoring the mounting economic problems, while hoping they would magically vanish.

Here, for example, is William Poole, president of the Federal Reserve Bank of St. Louis:

My own bet is that the financial market upset is not going to change fundamentally what’s going on in the real economy. First of all, bank capital is not impaired. So unlike in some past cases, when losses on real estate impaired bank capital and thus affected the lending in areas that had nothing to do with real estate, I don’t think that’s the case this time. Second, the fact that some LBO deals fall through isn’t going to change what those companies are producing. The fact that the ownership hasn’t changed doesn’t change the company’s profit-maximizing level of production in the short run. Obviously, that could change, but it seems to me that the best information that we now have is that this financial market upset is going to settle out and not have major repercussions on the real economy, putting the housing part aside. Thank you. (p. 57)

As it turns out, the Board of Governors of the Fed performed a similar ostrich-like move back in February 1929.* As you can see from the extracts pasted below, Adolph C. Miller was clearly aware of increased speculation in the stock market (a month before the crash in March) but he and a majority of the other members of the board chose not to make a public statement.

Apparently, the officials in charge of the Federal Reserve acted—in 2007 as in 1929—like ostriches with their heads in the sand, hoping the accumulating stresses and strains in the economy would magically vanish.

And, of course, they didn’t—leaving us in both cases on the road to a great depression.

 

*The minutes of the 2 February meeting are available as a pdf file here.

Austerity—not if but how much

Friends continue to remind me that, back in the day, when Obama first announced his plans to run for the presidency, I explained to them that, based on watching him in Illinois, he was one of the smartest and at the same time most moderate, middle-of-the-road Democrats around. He was not then, nor would he ever become, a “progressive.” Instead, he (along with much of the Democratic Party) was firmly in the middle of the mainstream consensus that austerity was inevitable. The only question was, how much?

Tim Duy, after witnessing Obama in the most recent negotiations over the fiscal cliff, comes to much the same conclusion.

From day one this has been a debate about the extent of the austerity, not a debate about austerity itself.  Does anyone have the sense that President Obama does not fundamentally believe in the pursuit of deficit reduction sooner than later?  I keep coming back to this observation from Bruce Bartlett:

In a little-noticed comment on Spanish-language television on December 14, Obama himself confirmed this typology of today’s political spectrum. Said Obama, “The truth of the matter is that my policies are so mainstream that if I had set the same policies that I had back in the 1980s, I would be considered a moderate Republican.”

I think this is correct and explains a great deal about why Obama refuses to use his leverage to pursue liberal policies and keeps inviting Republicans back to the negotiating table again and again on the budget. He wants a deal, he wants to cut spending and balance the budget if possible. This may or may not be a wise course for a Democratic president to follow, but that is who Obama is.

I frequently see commentators saying that Obama is terrible at the bargaining table, but I can’t help thinking that he is getting pretty much what he wanted.  Despite all the hate heaped upon him by the right, Obama just isn’t a progressive, and we shouldn’t expect him to seek a deal as if he was one.  After all, what progressive ensures a tax hike on the lower and middle classes (the expiration of the payroll tax cut with no offsetting cut elsewhere)?  Obama seems to believe the best deal is the one no one likes. . .

My guess is that Obama already knows that the outcome of that debate will be one in which he looks like he retreated over time.  But I also believe that the place he retreats to will be where he wanted to go in the first place; indeed, I suspect he never believed he would get 100% of the Bush tax cuts reversed in the fiscal cliff negotiations.  Note too that, to DeLong’s complaint, the next debate will again be an issue of how much austerity.  And expect that Obama will allow the negotiations to drag out to the eleventh hour, thereby forcing both Republicans and Democrats to choke down a meal – some combination of tax hikes and entitlement cuts – they both find distasteful.

But, we should remember, Franklin Delano Roosevelt wasn’t a progressive either. He and his administration moved in a more progressive direction, with the New Deal, because of sustained criticism from progressive economists, pressure from the left-wing of the Democratic Party, and, of course, organizing on the part of the Left and the threat of mass rebellion in the streets of America.

Their absence today makes the choice between two different paths to austerity the only game in town.

Finance and monopoly

Not surprisingly, the story of Monopoly is even more complicated than I knew and related before. It’s a history of not only landlords but also finance and monopoly.

The story [ht: ja] does, in fact, begin with Elizabeth Magie, in 1904. But, before we get to the modern version of Monopoly, there was another game, created by Dan Layman: Fortune. Fortune was first produced by Electronic Laboratories and then by Knapp Electric. By 1935, Finance was outselling Monopoly 10 to 1. That year, Monopoly again came to the attention of Parker Brothers, when they decided to purchase and produce the game.

Parker Brothers wanted a “monopoly” on Monopoly so they began trying to squash the competition. George Parker went to visit Lizzie Magie-Phillips to try to acquire her 1924 Landlord’s Game patent. The two knew each as Parker Brothers had published some of her games in the past and she considered George Parker the “King of Games”. The negotiation over the purchase was an easy one, Parker Brothers would pay Mrs. Magie-Phillips $500 and agree to publish a few more of her games including The Landlords Game (this was done in 1939 again with very little success). Patent number 1,509,312 now belonged to Parker Brothers.

Knapp (Electronics Laboratories) was another story. Already outselling Monopoly and beginning to market the game on a national level they weren’t convinced as easily. It took $10,000 of Parker Brothers Money (a huge amount in depression torn 1935) to convince Knapp to sell. Parker Brothers then changed Finance completely and, hiding behind a dummy company (The Finance Game Company), filled Knapp’s outstanding orders. In 1936 the board and rules were again changed slightly and Finance became a Parker Brothers game.

Parker Brothers wasn’t about to put all its eggs in one basket though. They had Darrow file for a patent, but knowing the true history of Monopoly they decided to produce their own version of the game. Fortune was the result of this work. As few as 5,000 of these games were made in 1935 before patent 2,026,082 was granted giving Parker Brothers proprietary rights to Monopoly. The name Fortune was then added to Finance which became Finance and Fortune until Parker Brothers used the name Fortune for another game in 1958.

So, as it turns out, the real history of Monopoly is the story of landlords, finance, and monopoly during the First Gilded Age and the First Great Depression.

I wonder what games will have been created based on the finances and fortunes of the Second Gilded Age and the Second Great Depression.

On the myth of job creation

The spectacular failure of private markets and private employers to create enough jobs in the United States is now obvious for anyone to see. The solution, too, is obvious.

The problem and the solution are so obvious the New York Times can safely opine that the government does create jobs. Lots of them. Necessary jobs.

including teachers, police officers, firefighters, soldiers, sailors, astronauts, epidemiologists, antiterrorism agents, park rangers, diplomats, governors (Mr. Romney’s old job) and congressmen (like Paul Ryan).

And, of course, it can create even more, at the local, state, and federal levels.

Which, precisely, is what makes private-market devotees like Robert Samuelson absolutely crazy—so much so he feels the need to write a column refuting an editorial.

Job creation in the private sector is mostly a spontaneous and circular process. People buy things they need and want. Or businesses and private investors take risks by investing in new products, technologies and factories. All this spending, driven by self-interest and the profit motive, supports more jobs. In a smoothly functioning market economy, the process feeds on itself. By contrast, public-sector employment grows only when government claims some private-sector income to pay its workers. Government is not creating jobs. It’s substituting public-sector workers for private-sector workers.

Notwithstanding his equivocation on the fiscal multiplier (which, like climate-change denial, needs only the admission that some people disagree with the emerging consensus), Samuelson has to admit there is an exception:

There is one glaring exception to the logic I’ve outlined. When the economy is in a deep slump, government can — in theory — increase hiring by borrowing and spending when consumers and businesses are retrenching. If the Times had confined its argument about government job creation to this possibility, it would have been on more solid ground.

What both the Times and Samuelson are dancing around is the irrationality of an economic system in which enormous resources and productive capacity sit idle while millions of workers remain jobless. We know, for example, that 27.4 million Americans are either unemployed or underemployed. At the same time, the capacity utilization rate of U.S. industry stood at less than 80 percent (78.3 percent, to be exact) in September.

That’s the insanity of the current situation: idle machinery and idle workers, and the inability of private markets to solve the problem by matching the two up.

No wonder honest observers are turning to (and others, like Samuelson, attempting to deny) the lessons of the First Great Depression, when in the midst of a similar situation the government directly employed millions of jobless workers.

But to do so would involve admitting that capitalists and capitalism have failed. Spectacularly. And so the myth of private “job creators” lives on, just like the myth of trickle-down economics.

Economics and politics in the Second Great Depression

The partisan knives are out on both wings of mainstream economics.

On the conservative side, John B. Taylor and other Romney advisers (including Kevin Hassett and and Glenn Hubbard), relying on the historical research of Michael Bordo and Joseph Haubrich [pdf], claim that the current economic crisis is an exception to the rule, and that Obama’s policies have failed. So, in their view, it’s time for a new (Romney) administration, which as if by magic will lead to a real recovery.

Then, on the liberal side, there’s Paul Krugman who, drawing from the historical research of Carmen M. Reinhart and Kenneth S. Rogoff, accuses Taylor and Company of denying the fact that financial-crisis-induced recessions are characterized by slow recoveries. So, it’s not Obama but, instead, the debt overhang that is to blame—and Romney’s one-point plan (tax cuts for the rich) won’t solve that problem.

The fact is, the historical research by both teams supports the proposition that the crisis that began in 2007-08 is unlike most downturns in U.S. history, save one: the First Great Depression.

Here is the comparison from Bordo and Haubrich’s paper (focusing on Gross Domestic Product from the peak):

  

And here’s the comparison (using different numbers, GDP per capita and unemployment rates) from Reinhart and Rogoff:

 

The only conclusion one can reach based on the historical research of both teams—Bordo and Haubrich and Reinhart and Rogoff—is that we’re in the midst of the Second Depression. And neither group of economists or presidential candidate is proposing a solution to that problem.

It is the worst of times, it is the best of times

The current “recovery” is the worst, by almost every measure, since the First Great Depression—but it’s the best in one sense: corporate profits.

Actually, according to Catherine Rampell, there are economic recoveries (especially the short-lived recovery beginning in July 1980) that, at least on one or another measure, are worse than the present one. But the current recovery is worse than the “typical” postwar economic recovery on almost every measure: GDP growth, consumer spending, private residential investment, private nonresidential investment, equipment and software, exports, imports, government spending, and payrolls.

The only major metric I looked at wherein today’s recovery outperformed the average expansion of the previous 60 years was corporate profits.

In the average postwar recovery, corporate profits rose 38 percent from trough to peak. So far into this recovery, they have risen 45 percent.

That is not the largest increase of any postwar expansion, as the recoveries that lasted from November 1982 to July 1990 and from November 2001 through December 2007 both saw corporate profits increase by more than 60 percent. That record for the current recovery is still quite impressive, though, especially given how poor the job market still is.

In fact, the total level of corporate profits reached an all-time high, even after adjusting for inflation, in the last quarter of 2011, despite the fact that unemployment averaged 8.7 percent that quarter.

And that’s the main reason we’re still in the Second Great Depression: it is the worst of times (for most people, on most measures), it is the best of times (for corporate profits).