Posts Tagged ‘mainstream’

6a00d8341c834f53ef01b7c79ad96a970b-800wi

The Federal Reserve Bank of Atlanta has confirmed what many of us have suspected for a long time: job tenure is declining not just for millenials, but for workers of all wages.

What we see in this chart—using the 20- to 30-year-olds, for example—is that the median job tenure was four years among those born in 1953 (baby boomers) when they were between 20 and 30 years old. For 20- to 30-year-olds born in 1993 (millennials), however, median job tenure is only one year. Similar—and some even more dramatic—declines occur across cohorts within each age group.

Declining job tenure is not just all about millennials having short attention spans. In fact, there is a greater (five-year) decline in median job tenure between 41- and 50-year-old “Depression babies” (born in 1933) and 41- to 50-year-old GenXers (born in 1973).

The authors of the report dispute the attention-span explanation for declining job tenure. But then they go on to paint a rosy picture of what this means—for workers (“a world of possibilities that our parents and grandparents never dreamt of”!) and for the economy as a whole (“the flexibility of workers seeking their highest rents and the flexibility of firms to seek better matches for their needed skills mean greater productivity—not to mention growth—all around”).

What the authors fail to mention is that declining job tenure across the board means much higher corporate profits (since employers can hire and shed workers more easily) and a lot more work for workers (since they have to spend more time and energy making themselves “attractive” to employers and figuring out how they’re going to survive between jobs).

Declining job tenure—what mainstream economists refer to as “flexible” labor markets—is the natural outcome of the commodification of labor power. The only solution to the problem, then, is to treat people’s ability to work as something other than a commodity. Then, we would have real flexibility in our work and in the rest of our lives.

ECON23 ECON25

We know (e.g., as a result of the 2013 Pew Research Center survey) that most people in the world believe that current economic arrangements favor the well-off and that economic inequality is a very big problem.*

And they’re right: the economy system in most countries is fundamentally unfair (favoring those at the top over everyone else) and that, as a result, the gap (between those at the top and everyone else) is a problem that needs to be solved—if not within the current economy system, then in a different one.

But we also know, since at least the pioneering study by Dan Ariely and Michael I. Norton, that people’s beliefs about inequality are quite different from actual levels of inequality. That notion is confirmed by a new study, by Vladimir Gimpelson and Daniel Treisman, “Misperceiving Inequality.” What they show is that, on a wide variety of measures (of income and wealth inequality, poverty, earnings for different jobs, and so on), what people think they know is often wrong. Perhaps even more important, they show that the perceived level of inequality—and not the actual level—correlates strongly with demand for redistribution and reported conflict between rich and poor.

Why should this matter? Because representations of the economy that minimize the existence of inequality or the problems associated with inequality are bound to reinforce the systematic misperceptions found by researchers.

That’s exactly what much mainstream economics accomplishes. It deflects attention from the existence of inequality (e.g., by focusing on growth versus distribution) and from the economic and social problems created by inequality (by attributing inequality to forces like globalization and technological change beyond our control or invoking more education as the solution).

Mainstream economics therefore forms part of what Gimpelson and Treisman refers to as “ideology,” “which may predispose people to ‘see’ the level of inequality that their beliefs and values convince them must exist.” And the strength of mainstream economics in the United States—in colleges and universities as well as in the media, think tanks, and in government—is one of the main reasons Americans, more than citizens in other countries, tend not to believe in inequality.

*Specifically, the public in advanced (median of 74 percent), emerging (70 percent) and developing (70 percent) economies are mostly in agreement that the current economic system generally favors the wealthy and is not fair to most people in their country. And, in 31 of the 39 countries surveyed, half or more of the population believe that the gap between the rich and the poor is a very big problem in their societies.

maxresdefault

A reader [ht: ra] reminded me that the recent column celebrating the Trans-Pacific Partnership and free international trade by Harvard’s Gregory Mankiw has generated a great deal of controversy on the New York Times web site.

Here’s one example (by Pete C. from New York):

The consensus Ricardian view is that free trade is good for nations so long as the “winners” from trade compensate the “losers.”

In this case, it means if the 1% compensate everyone else for the lost jobs, wages, environmental protections, and all the damage “free trade” does to our nation and our communities.

What Ricardo didn’t account for was that the increased wealth and political power granted to the “winners” makes redistribution less likely, and this will probably lead to further rent-extraction and oligarchy by those who benefit from cheap labor and poor working conditions.

Economists are hired by the rich to shill for the views that will benefit the rich, not the nation as a whole. Their confidence is not misguided stupidity, it is a trick.

They are deliberately selective in their accounting of costs and benefits to support their wealthy masters.

The TPP is also supported unanimously by the same Republican party that is trying to enact a 270 billion dollars wealth transfer to the wealthiest 0.1% of the people by repealing the estate tax.

These are not people who are looking out for the economic wellbeing of the nation as a whole.

So when economists like Greg Mankiw say to support this “free trade” deal, run as fast as you possibly can in the other direction.

Much (but certainly not all) of the rest of the commentary follows similar lines, many of them quite sophisticated rebuttals of Mankiw’s free-trade dogma. Basically, the gains from free international trade might look like good in the fantasy world of neoclassical economics (and in the original theory of relative or comparative advantage developed by David Ricardo) but they mostly don’t exist in practice, in the way international trade and free-trade agreements are practiced in the real world.

Here’s one of my favorites (by John M. from Brooklyn):

So the American people are basically racist, lazy socialists and that’s why they oppose TPP, and the answer is to outsource to cheap labor markets i.e. “reduce labor inputs” and then the market will replace high paying manufacturing jobs with minimum wage jobs at McDonalds.

Sure, let the 1% hoard even more money by undercutting wages here at home and all will be well. Yeah, we’ve seen how that works.

And, of course, this one (by Siobhan from New York):

Ah, yes. Those “long run” benefits. Destroy good-paying manufacturing in the US, and increase the number of poor paying “service jobs.”

But also lower the cost of things like clothing with cheap imports. So presumably, people making poverty wages can still afford clothing, right? Never mind the Walmart employees taking up collections if [sic] canned goods for co-workers at Thanksgiving.

And how about Nafta? According to economists, that was a clear winner. According to the majority of the US, living with the results, it was a disaster.

And once again, “who are you going to believe, me or your own lying eyes?”

I’ve taught the theory Mankiw relies on scores of times over the years (although, in contrast to Mankiw, I actually explain the underlying assumptions). Students seem to be genuinely convinced by the elegance of the model (or, perhaps, by the silly examples used in the textbooks, where Jack and Jill can be seen to benefit because they specialize according to their relative advantages and then trade). They rarely pose questions or raise objections at the time. But then they get into the real world and find or develop other economic stories, other economic representations, according to which there are winners and losers and the losers never get compensated for their losses.

That’s not to say all the everyday representations of the economy run counter to the mainstream tales taught in introductory economics courses across the country and around the world. But, at least in a few cases, such as free trade and minimum wages, they’re likely to take Pete C.’s advice and “run as fast as you possibly can in the other direction.”

employment gap

Mainstream economists have, it seems, rediscovered what we’ve known since at least the middle of the nineteenth century: capitalism produces a relative surplus population of unemployed and unemployed workers. And that surplus of labor puts downward pressure on workers’ wages.

Back then it was called the “industrial reserve army.” I have referred to it since 2010 as the “reserve army of the underemployed.” David G. Blanchflower and Andrew T. Levin now point to the same phenomenon in terms of the “employment gap,” that is, the combination of conventional unemployment (individuals who did have a job, are now not working at all, and are actively searching for a job), underemployment (that is, people working part time who want a full-time job), and hidden unemployment (people who are not actively searching but who would rejoin the workforce if the job market were stronger).

What Blanchflower and Levin find is instructive.

First, the conventional unemployment rate has not served as an accurate reflection of the evolution of labor market slack.

it is evident that the U.S. economic recovery remains far from complete in spite of apparently reassuring recent signals from the conventional unemployment rate. Indeed, while the unemployment gap has become quite small, the incidence of underemployment remains elevated and the size of the labor force remains well below CBO’s assessment of its potential. In particular, the employment gap currently stands at 1.9 percent, suggesting that the “true” unemployment rate (including underemployment and hidden unemployment) should be viewed as around 71⁄2 percent. Gauged in human terms, the current magnitude of the employment shortfall is equivalent to about 3.3 million full-time jobs.

Second, in recent years, wage growth has been pushed down by a combination of the unemployment rate, the nonparticipation rate, and the underemployment rate. In particular,

we suspect that the wage curve is relatively flat at elevated levels of labor market slack, i.e., a decline in slack does not generate any significant wage pressures as long as the level of slack remains large. As noted above, our benchmark analysis indicates that the true unemployment rate is currently around 71⁄2 percent—a notable decline from its peak of more than 10 percent but still well above its longer-run normal level of around 5 percent. Thus, the shape of the wage curve can explain why nominal wage growth has remained stagnant at around 2 percent over the past few years even as the employment gap has diminished substantially. Moreover, our interpretation suggests that nominal wages will not begin to accelerate until labor market slack diminishes substantially further and and the true unemployment rate approaches its longer-run normal level of around 5 percent.

In other words, what Blanchflower and Levin have discovered is that there is a large relative surplus population of workers and that the existence of such a reserve army has a dampening effect on workers’ wages.

Now, all they need to do is discover a third component of what we’ve known since the Mohr wrote back in 1867: “The labouring population therefore produces, along with the accumulation of capital produced by it, the means by which it itself is made relatively superfluous, is turned into a relative surplus population; and it does this to an always increasing extent. This is a law of population peculiar to the capitalist mode of production”

89748_600

Last night in the annual McBride Lecture (a series sponsored by the University of Notre Dame Higgins Labor Studies Program that honors the fourth international president of the United Steel Workers, Lloyd McBride, who was president from 1977 to 1983), Tom Geoghegan argued that the tide may finally be turning as more and more people (including leading mainstream economists such as Larry Summers) express their support for labor unions.

Here’s what I was able to find from Summers:

What about the role of more traditional unionization and collective bargaining?

I think that one has to maintain a sense of balance. Unions are right in some employment contexts. Unions do not add value in other employment contexts.

What I think is important is the principle enshrined in U.S. law that workers should have the right to collectively bargain if that is what they desire. I am concerned that in recent times that right has eroded because employers have been permitted to retaliate against those who seek to organize workers with impunity.

At the same time, I would be the first to recognize that in a world where American businesses are competing very vigorously with foreign competitors, in a world where domestic competition has increased substantially, prudent union leaders will need to recognize that they need to cooperate with management to craft employment arrangements that better serve workers, but also serve the objectives of competitiveness and economic efficiency.

I think there’s substantial scope for thinking about new compacts between firms and workers in the mutual interest of both.

Just sayin’. . .

 

Apparently, there’s a new documentary film [ht: ja]—Boom Bust Boom, directed by Monty Python’s Terry Jones—whose aim is to to popularize the work of Hyman Minsky.

Minsky’s genius was to show that financially complex capitalism is inherently unstable. Under conditions of stability, firms, banks and households will, over time, move from a position where their income pays off their debt, to one where it can only meet the interest payments on it. Finally, as instability rises, and central banks respond by expanding the supply of money, people end up borrowing just to pay back interest. The price of shares, homes and commodities rockets. Bust becomes inevitable.

This logical and coherent prediction was laughed at until it came true. Mainstream economics had convinced itself that capitalism tends towards equilibrium; and that any shocks must be external.

This is the latest attempt, in a long sequence since the crisis of 2007-08, to rediscover and examine the implications of Minsky’s work (which I’ve discussed many times on this blog).

776a-web-CH25

source*

As I noted a few days ago (in discussing the notion of human capital), the concept of capital has undergone an extraordinary redefinition and expansion in recent years. Now, in the work of mainstream economists, it has come to refer to, in addition to physical capital, human, social, intellectual, and many other forms of capital.

What’s going on?

My sense is that, whereas capital traditionally referred to the property of capitalists—and thus their claim on some portion of new value created in the form of profits—it now means something very different: any stock that can be accumulated over time to yield an income (or at least, as in the case of housing, a flow of benefits). One interpretation, then, is we’re being moved by this reimagining of capital further and further away from any notion of class (such as implied by the differences between capital and labor and the accumulation of capital by and for the benefit of a tiny minority in society). But there is, I think, a somewhat different interpretation: we’re still obsessed by class (perhaps even more than before) and, precisely because of that, the mainstream project is to turn all of us into capitalists, with the shared goal of accumulating and managing our individual portfolios of various forms of capital.

Income share by labor and corps to 2011

It is perhaps not a coincidence that capital is being redefined and expanded precisely when the “capital share”—that is, the share of national income going to corporate profits—has reached record highs (not coincidentally, just as the wage share is at a record low) and some (such as Thomas Piketty and sympathetic readers) are expressing a worry that current trends in the unequal distribution of wealth may, if they continue, represent a return to the réntier incomes and inherited wealth characteristic of “patrimonial capitalism.”

So, capital is still a problem that haunts economics.

The problem of capital can be traced back to the first texts of modern economics. While I don’t have the space here to present a full history of economic thought, it is important to note that, for Adam Smith, the stock of physical capital played an important role in creating the wealth of nations. But, at the same time, Smith worried that capitalists might not carry out their “historical mission” of accumulating capital—if, for example, they chose to divert some of their profits to other uses, such as luxury consumption. David Ricardo, too, worried about the capitalists’ mission—if, with continual growth, the declining fertility of land under cultivation meant that rent on the land cut into profits and thus slowed the process of accumulation. Marx, of course, challenged both the classicals’ definition of capital—preferring to see it as a social relationship, rather than a thing—and their worry that the accumulation of capital (in the form of c and v, constant and variable capital) would slow as a result of exogenous events—because, for Marx, the problems were endogenous, as capital itself created obstacles to smooth and continuous accumulation. Even in early neoclassical growth theory (for example, in the Solow model), capital carried the hint of class, as it still had to be accumulated by a small group of investors—with the caveat, of course, that labor also stood to benefit as a result of more jobs and a higher marginal productivity.

But that previous class dimension of capital seems to have radically changed with the proliferation of new, expanded notions of capital.

This issue of capital came up as I was reading the commentaries on Piketty’s book that were delivered in a session at the recent American Economic Association meetings. All of the respondents—mainstream economists of various hues and stripes—took issue with Piketty’s definition and measurement of wealth. However, let me for the sake of this post, focus on one of them, by David Weil [pdf]. Weil’s view is that, in addition to productive capital (the K one finds, alongside labor, in the usual neoclassical production function), capital should also include two other forms of wealth: human capital and “transfer wealth.” In his hands, labor income is now transformed into another kind of return on capital, the result of which is that a portion of national income (his calculations indicate 38 percent) represents a payment for education above and beyond “brute” labor. Human capital has the additional advantage, for mainstream economists like Weil, that it is more equally distributed (“there is a limit to how much human capital even the richest parent can cram into the head of his or her child”) than physical or financial capital. And then there are the Social Security payments workers rely on as retirement income. Weil also wants to treat them as capital, as a “transfer wealth.” He does acknowledge potential objections (“Ownership of transfer wealth conveys no control rights, and it can’t be sold or borrowed against, although it is not clear that these characteristics would be very valuable to those who hold it. Because it is annuitized, transfer wealth does not pass on to heirs, and so it is certainly true it affects the dynamics of inequality differently than market wealth.”) but then, impressed with the “gross size of these transfer claims,” Weil proceeds to treat them as a form of individual wealth—instead of as a social claim by one group of former workers on the surplus being created by existing workers.

The proliferation of these notions moves capital further and further away from its previous associations, in one way or another, with class and the process of producing, capturing, and utilizing the surplus in the form of capitalist profits. That’s one of the effects of redefining capital and imagining that wages and Social Security represent different returns on capital.

At the same time, the new forms of capital continue to be haunted by the issue of class, precisely in the insistence that everyone—not just capitalists—owns some and that forms such as human capital and “transfer wealth” are more equitably distributed than traditional (physical and financial) capital. In other words, mainstream economists’ attempts to redefine and expand what we mean by capital still carry the whiff of a claim on net income that is something above and beyond what laborers receive by exchanging their ability to work for a wage.

The problem, of course, is that the more capital is detached from the traditional role of the capitalist—to serve as “a machine for the conversion of this surplus-value into additional capital”—the more it calls into question the idea that the class of capitalists serves any particular role at all in today’s society. This is a problem that, of course, has reinforced by the onset and enduring legacy of the most severe crisis since the First Great Depression.

In this sense, the proliferation of new forms of capital—in the midst of the growing inequality that both caused and is now the consequence of the Second Great Depression—merely serves to remind us of the antithesis between the character of wealth as socially produced and privately captured. That is the real problem with capital that simply can’t be solved within the existing economic institutions.

*This illustration was produced by the Capital Drawing Group.