Yo mamma

If you’re still looking for a present [ht: ja] for that special someone. . .

Charts of the year

Let’s end the year with some important charts assembled by Steven Rattner.

Yes, economic growth picked up and financial markets soared to new record highs. But—and it’s a big but—wages remained stagnant (barely budging in real terms), income inequality got worse (increasing from already grotesque levels), the tiny minority at the top made out like bandits (just as they were doing before 2007), and government programs (even with a Democratic president and Senate) did little to ameliorate the effects of stagnant wages and growing inequality.

That’s what 2014 looked like in the United States. And nothing about 2015 looks to change those trends.

Cartoon of the day

Chart of the day

 

source

Here’s another chart summarizing data from Ed Wolff’s study, “Household Wealth Trends in the United States, 1962-2013: What Happened over the Great Recession?”

As Wolff explains,

In 2013 the richest one percent of households held about half of all outstanding stock, financial securities, trust equity, and business equity, and a third of non-home real estate. The top 10 percent of families as a group accounted for about 85 to 90 percent of stock shares, bonds, trusts, and business equity, and over three quarters of non-home real estate. Moreover, despite the fact that 46 percent of households owned stock shares either directly or indirectly through mutual funds, trusts, or various pension accounts, the richest 10 percent of households accounted for 81 percent of the total value of these stocks, though less than its 91 percent share of directly owned stocks and mutual funds.

In contrast, owner-occupied housing, deposits, life insurance, and pension accounts were more evenly distributed among households. The bottom 90 percent of households accounted for 59 percent of the value of owner-occupied housing, 33 percent of deposits, 35 percent of life insurance cash value, and 35 percent of the value of pension accounts. Debt was the most evenly distributed component of household wealth, with the bottom 90 percent of households responsible for 74 percent of total indebtedness.

Wolff’s research helps explains why the recovery has been so disappointing to the majority of the population. Housing has regained its ground only slowly while corporate profitability (on both Main Street and Wall Street) has boomed. In other words, we’ve seen slow growth in the major asset of the bottom 90 percent but substantial growth in the assets held by the wealthy elite in society.

Cartoon of the day

In search of lost time

In a piece forwarded to me by a former student [ht: jm], the Economist reminds us of John Maynard Keynes’s 1930 prediction [pdf] that, in one hundred years, a new age of abundance and leisure would mean we’d have to do very little work—perhaps three hours a day, just “to satisfy the old Adam in most of us.”

Well, sixteen years shy of Keynes’s century, we’re still working many more hours than we need to. And not because we don’t know what to do with our leisure time. It’s because current economic arrangements are such that, to earn enough income for ourselves and our families, we still have to work (or, according to the information in the chart above from the American Time Use Survey, engage in work-related activities) more than eight hours a day—which leaves, on an average work day (and after sleeping, eating and drinking, taking care of our households, and so on) just 2.5 hours of leisure.

The problem of time lost doing work is particularly acute in the United States, especially when compared to other rich countries (such as France, Germany, and the United Kingdom). Starting in 1970, Americans worked on average fewer hours per year relative to other countries—and, while the total number of hours worked has decreased since then in all four countries, it’s declined the least in the United States (essentially having leveled off since 1982).

 

And it’s not just a matter of “yuppie kvetching” as the Economist (and, earlier, Elizabeth Kolbert) argues—as if we were in a world of “time-poor haves” and “time-rich have-nots” (although the readers of the Economist might like to imagine themselves in those terms). As readers can see in the two charts above, the average annual hours worked by production and nonsupervisory employees almost perfectly tracks the annual hours worked by all employed persons in the United States (the difference in 2011 amounted to merely 24 hours per year).

The fact is, those near the top, who do in fact spend a great deal of their time at work, serve the tiny minority above them by making sure everyone else—the vast majority of the population—also spends a large portion of their time working and, in the process, creating much more value than they receive in their wages and salaries. Those hours—the many hours people spend working not for themselves but for the small group who own and control the enterprises where they work—that’s the real lost time we should be worried about.

And that’s what keeps the entire system—of a great deal of work and very little leisure—firmly in place, especially in the United States.

If only Keynes had been right back in 1930:

Of course there will still be many people with intense, unsatisfied purposiveness who will blindly pursue wealth—unless they can find some plausible substitute. But the rest of us will no longer be under any obligation to applaud and encourage them.

The only way to eliminate that obligation is for the people who work to have a say in how many hours they work and in what is done with the value they create while they work.

Otherwise, as long as things stay the way they are, the rest of us will continue our search for lost time.

Cartoon of the day

Special mention

 

Bad ideas of mainstream economics

The following post was contributed by Richard McIntyre, in response to Alan Blinder’s review of Jeff Madrick’s book, Seven Bad Ideas: How Mainstream Economists Have Damaged America and the World, in the New York Review of Books.*

Alan Blinder is certainly correct that politicians generally use economic research findings for support not illumination. After that, his critique of Jeff Madrick’s Seven Bad Ideas is not so accurate.

Three examples: (1) Blinder defends the “invisible hand” as one of the “great thoughts of the human mind” and attributes it to Adam Smith. It is neither. Smith uses the term precisely once in The Wealth of Nations and does not use it to mean that free competitive markets produce efficiency. Paul Samuelson invented the modern version of the “invisible hand” in his famous 1948 textbook.¹ That book was deliberately written to please free-market advocates given the red-baiting that had doomed a similar and failed textbook by Laurie Tarshis.² In most economics texts, the treatment of market failure comes long after the celebration of market virtues, and with much less conviction, and usually by the point in the semester where most students are just trying to survive the course.

(2) The Chicago School is fully incorporated into mainstream macroeconomic models. Blinder wants to portray the Chicago school as somehow marginal to the mainstream but nearly all the intermediate textbooks portray the macroeconomic debate as between Classical and “Keynesian,” and then New Classical and New Keynesian models. (The Keynesian models have little to do with what Keynes actually wrote but that is another story.) The Keynesian “defense” against the Chicago school attack beginning in the 1970s was basically to accommodate it. This is best seen in the professional transition of Larry Summers from antipathy to grudging respect to ungrudging admiration for Milton Friedman.³

(3) Efficient-market theory was something more than a prop for right-wing politicians. As Donald Mackenzie has demonstrated, these models actually changed the way finance works. Fama and other efficient-market theorists provided tools that led to the creation of derivatives markets and a powerful ideological defense of them.⁴

I could go on. There may be problems with Madrick’s book but they are not the ones Blinder identifies, nor are economists quite so powerless as Blinder makes them out to be. Liberals like Alan Blinder and Paul Krugman are willing to criticize parts of the orthodoxy but not orthodoxy itself, perhaps because they and their colleagues at elite schools benefit enormously from the influence they have as players within that orthodoxy.

Those of us in the provinces may be freer to notice that the emperor wears very little clothing.

 

¹Gavin Kennedy, “Paul Samuelson and the invention of the modern economics of the Invisible Hand,” Journal of the History of Economic Ideas, no. 3 (2010): 105-20.

²Yann Giraud, “The Political Economy of Textbook Writing: Paul Samuelson and the making of the first ten editions of Economics (1945-1976),” THEMA Working Papers, 2011-18; David Colander and Harry Landreth, “Political Influence on the Textbook Keynesian Revolution: God, Man, and Laurie (sic) Tarshis at Yale,” in O. F. Hamouda and B. B. Price, eds., Keynesianism and the Keynesian Revolution in America: A Memorial Volume in Honour of Lorie Tarshis (Cheltenham: Edward Elgar, 1998), pp. 59–72.

³John Cassidy, How Markets Fail: The Logic Of Economic Calamaties (New York: Picardo, 2009), pp. 83-84.

⁴Donald Mackenzie, An Engine Not A Camera: How Financial Models Shape Markets (Cambridge: MIT Press, 2008).

 

*McIntyre is Professor of Economics and Political Science at the University of Rhode Island. His book, Are Worker Rights Human Rights? was published in 2008 by the University of Michigan Press.

Cartoon of the day

Special mention

 

Cartoon of the day

Special mention