Post(s) tagged with "paul krugman"

Can innovation and progress really hurt large numbers of workers, maybe even workers in general? I often encounter assertions that this can’t happen. But the truth is that it can, and serious economists have been aware of this possibility for almost two centuries. The early-19th-century economist David Ricardo is best known for the theory of comparative advantage, which makes the case for free trade; but the same 1817 book in which he presented that theory also included a chapter on how the new, capital-intensive technologies of the Industrial Revolution could actually make workers worse off, at least for a while — which modern scholarship suggests may indeed have happened for several decades.

What about robber barons? We don’t talk much about monopoly power these days; antitrust enforcement largely collapsed during the Reagan years and has never really recovered. Yet Barry Lynn and Phillip Longman of the New America Foundation argue, persuasively in my view, that increasing business concentration could be an important factor in stagnating demand for labor, as corporations use their growing monopoly power to raise prices without passing the gains on to their employees.

I don’t know how much of the devaluation of labor either technology or monopoly explains, in part because there has been so little discussion of what’s going on. I think it’s fair to say that the shift of income from labor to capital has not yet made it into our national discourse.

Yet that shift is happening — and it has major implications. For example, there is a big, lavishly financed push to reduce corporate tax rates; is this really what we want to be doing at a time when profits are surging at workers’ expense? Or what about the push to reduce or eliminate inheritance taxes; if we’re moving back to a world in which financial capital, not skill or education, determines income, do we really want to make it even easier to inherit wealth?

Pauk Krugman, Robots and Robber Barons

Krugman is making the economic argument for society demanding more from the corporations on behalf of people. He refers back to this post in his piece today, Sympathy for the Luddites, in which he takes this several steps farther, arguing that more education may not be the answer for the work force being pushed from highly skilled jobs.

Paul Krugman

A much darker picture of the effects of technology on labor is emerging. In this picture, highly educated workers are as likely as less educated workers to find themselves displaced and devalued, and pushing for more education may create as many problems as it solves.

I’ve noted before that the nature of rising inequality in America changed around 2000. Until then, it was all about worker versus worker; the distribution of income between labor and capital — between wages and profits, if you like — had been stable for decades. Since then, however, labor’s share of the pie has fallen sharply. As it turns out, this is not a uniquely American phenomenon. A new report from the International Labor Organization points out that the same thing has been happening in many other countries, which is what you’d expect to see if global technological trends were turning against workers.

And some of those turns may well be sudden. The McKinsey Global Institute recently released a report on a dozen major new technologies that it considers likely to be “disruptive,” upsetting existing market and social arrangements. Even a quick scan of the report’s list suggests that some of the victims of disruption will be workers who are currently considered highly skilled, and who invested a lot of time and money in acquiring those skills. For example, the report suggests that we’re going to be seeing a lot of “automation of knowledge work,” with software doing things that used to require college graduates. Advanced robotics could further diminish employment in manufacturing, but it could also replace some medical professionals.

So should workers simply be prepared to acquire new skills? The woolworkers of 18th-century Leeds addressed this issue back in 1786: “Who will maintain our families, whilst we undertake the arduous task” of learning a new trade? Also, they asked, what will happen if the new trade, in turn, gets devalued by further technological advance?

And the modern counterparts of those woolworkers might well ask further, what will happen to us if, like so many students, we go deep into debt to acquire the skills we’re told we need, only to learn that the economy no longer wants those skills?

Education, then, is no longer the answer to rising inequality, if it ever was (which I doubt).

So what is the answer? If the picture I’ve drawn is at all right, the only way we could have anything resembling a middle-class society — a society in which ordinary citizens have a reasonable assurance of maintaining a decent life as long as they work hard and play by the rules — would be by having a strong social safety net, one that guarantees not just health care but a minimum income, too. And with an ever-rising share of income going to capital rather than labor, that safety net would have to be paid for to an important extent via taxes on profits and/or investment income.

I can already hear conservatives shouting about the evils of “redistribution.” But what, exactly, would they propose instead?

They won’t propose something new: they will — through their actions — set the stage for neo-feudalism, in which the dispossessed become the wards of the nation state, and treated like the mentally-ill or refugees. Meanwhile, corporations will seek to become extranational, outside of national obligations to be taxed or otherwise support any non-globalist economic system. And, or course, they will publicly argue that they aren’t actively doing anything to carve the world into corporate spoils, but if they were such as system is inexorable, beneficial, and inescapable. And in private, they will advance social Darwinist arguments that explicitly state that the elite deserve the status they have earned, and that those dispossessed by this transition deserve their fate. 

The New York Times

Everyone loves a morality play. “For the wages of sin is death” is a much more satisfying message than “Shit happens.” We all want events to have meaning.

When applied to macroeconomics, this urge to find moral meaning creates in all of us a predisposition toward believing stories that attribute the pain of a slump to the excesses of the boom that precedes it—and, perhaps, also makes it natural to see the pain as necessary, part of an inevitable cleansing process. When Andrew Mellon told Herbert Hoover to let the Depression run its course, so as to “purge the rottenness” from the system, he was offering advice that, however bad it was as economics, resonated psychologically with many people (and still does).

By contrast, Keynesian economics rests fundamentally on the proposition that macroeconomics isn’t a morality play—that depressions are essentially a technical malfunction. As the Great Depression deepened, Keynes famously declared that “we have magneto trouble”—i.e., the economy’s troubles were like those of a car with a small but critical problem in its electrical system, and the job of the economist is to figure out how to repair that technical problem. Keynes’s masterwork, The General Theory of Employment, Interest and Money, is noteworthy—and revolutionary—for saying almost nothing about what happens in economic booms. Pre-Keynesian business cycle theorists loved to dwell on the lurid excesses that take place in good times, while having relatively little to say about exactly why these give rise to bad times or what you should do when they do. Keynes reversed this priority; almost all his focus was on how economies stay depressed, and what can be done to make them less depressed.

I’d argue that Keynes was overwhelmingly right in his approach, but there’s no question that it’s an approach many people find deeply unsatisfying as an emotional matter. And so we shouldn’t find it surprising that many popular interpretations of our current troubles return, whether the authors know it or not, to the instinctive, pre-Keynesian style of dwelling on the excesses of the boom rather than on the failures of the slump.

Paul Krugman, How the Case for Austerity Has Crumbled

Source: readability.com

Real Conservative Reform Would Be Based On Reality, Instead Of Folklore

There’s a great deal of talk about reform in the conservative world, as the GOP scrambles to fight the war on demographics. Paul Krugman sums up the core issue: the abiding unwillingness of the GOP and conservatives to accept reality.

Paul Krugman, The Closing Of The Conservative Mind

Start with the proposition that there is a legitimate left-right divide in U.S. politics, built around a real issue: how extensive should be make our social safety net, and (hence) how much do we need to raise in taxes? This is ultimately a values issue, with no right answer.

There are, however, a lot of largely empirical questions whose answers need not, in principle, be associated with one’s position on this left-right divide but, in practice, are. A partial list:

1.The existence of anthropogenic climate change
2.The effects of fiscal stimulus/austerity
3.The effects of monetary expansion, and the risks of inflation
4.The revenue effects of tax cuts
5.The workability of universal health care

I’ve deliberately chosen a list here where the evidence is, in each case, pretty much overwhelming. There is a real scientific consensus on 1; the evidence of the past few years has been very strong on 2 and 3; there are no serious studies supporting the view that we’re on the wrong side of the Laffer curve; one form or another of UHC [universal health care] operates all across the advanced world, with lower costs than the US system.

So? You could, as I said, take the “liberal” position on each of these issues while still being conservative in the sense that you want a smaller government. But what the “reformish” conservatives Ryan Cooper lists do, in almost all cases, is either (a) to follow the party line on these issues or (b) to hint at some flexibility – and thereby cultivate an image of being open-minded — as long as the issues don’t get close to an actual policy decision, but to always find a way to support the Republican position whenever it actually matters.

[…]

being a good liberal doesn’t require that you believe, or pretend to believe, lots of things that almost certainly aren’t true; being a good conservative does.

Today’s conservatives seem like misanthropes: they want to regulate women’s bodies, deny climate change, tell lies about universal health care in other advanced economies, and advocate austerity while we have unsupportably high unemployment and poverty. So, until that crowd ambles off the stage, and a new crop of reality-based conservatives show up to argue the size and scope of the safety net (and related issues, like the size of the military), there is no reform. There is only the cheap marketing trick of slapping a ‘new, improved’ label on the old box of laundry detergent.

And it’s not fooling anyone.

The New York Times

Paul Krugman, The 1 Percent Solution

A series of tweets from a piece by Krugman.

Yes, total debt in the U.S. economy, public and private combined, has risen dramatically relative to G.D.P. No, this doesn’t mean that we as a nation have been living far beyond our means, and must drastically tighten our belts. While we have run up a significant foreign debt (although not as big as many imagine), the rise in debt overwhelmingly represents Americans borrowing from other Americans, which doesn’t make the nation as a whole any poorer, and doesn’t require that we collectively spend less. In fact, the biggest problem created by all this debt is that it’s keeping the economy depressed by causing us collectively to spend too little, with debtors forced to cut back while creditors see no reason to spend more.

So what should we be doing? By all means, let’s restore the kind of effective financial regulation that, in the years before the Reagan revolution, helped deter excessive leverage. But that’s about preventing the next crisis. To deal with the crisis that’s already here, we need monetary and fiscal stimulus, to induce those who aren’t too deeply indebted to spend more while the debtors are cutting back.

But that prescription is, of course, anathema to Mellonites, who wrongly see it as more of the same policies that got us into this trap. And that, in turn, tells you why liquidationism is such a destructive doctrine: by turning our problems into a morality play of sin and retribution, it helps condemn us to a deeper and longer slump.

The bad news is that sin sells. Although the Mellonites have, as I said, been wrong about everything, the notion of macroeconomics as morality play has a visceral appeal that’s hard to fight. Disguise it with a bit of political cross-dressing, and even liberals can fall for it.

But they shouldn’t. Mellon was dead wrong in the 1930s, and his avatars are dead wrong today. Unemployment, not excessive money printing, is what ails us now — and policy should be doing more, not less.

Paul Krugman, The Urge to Purge

Krugman perfectly distills conservative stupidity about the debt into five paragraphs. He calls this mindset ‘Mellonism’ after Andrew Mellon told Hoover to ‘liquidate labor, liquidate stocks, liquidate the farmers. … It will purge rottenness out of the system.’

We don’t have a debt crisis, we have a jobs crisis. But Mellonist moralizing is holding back the progress we need, and even Obama seems to have fallen into that black hole. 

The New York Times

Kevin Kelly Counters Robert Gordon With Techno-Utopian Jiu Jitsu

Kevin Kelly is another deep mind countering economist Robert Gordon’s claim that information technology has had only a small impact on productivity, along with Krugman. HIs argument is that a/ we’ve only been at this 20 years, since the emergence of the web (he discounts Gordon’s start of the era of information technology back in the ’60s) and b/ Gordon’s obsession with productivity is dumb: we should be measuring the degree to which this wave of technology frees us to waste time. Kelly refers to this as the post-productive economy, a techno-utopian view with some sensible foundations.

Kevin Kelly, The Post-Productive Economy

It’s hard to shoehorn some of the most important things we do in life into the category of “being productive.” Generally any task that can be measured by the metrics of productivity — output per hour — is a task we want automation to do. In short, productivity is for robots.Long-term growth of that type that Robert Gordon studies is really weird if you think about it. As he notes, there wasn’t much of it in the world before 1750, before technological progress. Now several centuries later we have a thousand times as much wealth as before. Where does this extra good stuff come from? It is not moved from somewhere else, or borrowed. It is self-created. There’s a system which manufactures this wealth “out of nothing.” Much like life itself. There are certainly necessary conditions and ingredients, but it seems once you have those in place, the economy (the system) will self-generate this wealth.

A number of economists have wrestled with the origins of this self-generating wealth. Paul Romerand Brian Arthur both separately point to the recombining and re-mixing of existing ideas as the way economic growth occurs. This view focuses on knowledge as the prime motor in a self-renewing circle of increasing returns. Unlike say energy or matter, the more knowledge you spend, the more knowledge you earn, and the more breeds more in a never-ending virtuous spiral.

What is important is that this self-increasing cycle makes things that are new. New goods, new services, new dreams, new ambitions, even new needs. When things are new they are often not easy to measure, not easy to detect, nor easy to optimize. The 1st Industrial Revolution that introduced steam and railways also introduced new ideas about ownership, identity, privacy, and literacy. These ideas were not “productive” at first, but over time as they seeped into law, and culture, and became embedded into other existing technologies, they helped work to become more productive. For example ideas of ownership and capital became refined and unleashed new arrangements for funding large-scale projects in more efficient ways. In some cases these indirect ideas may have more long-term affect on growth than the immediate inventions of the time.

Likewise the grand shift our society is undergoing now, moving to a highly networked world in the third phase of industrialization, is producing many innovations that 1) are hard to perceive, 2) not really about optimizing labor, and 3) therefore hard to quantify in terms of productivity.

One has the sense that if we wait a while, the new things will trickled down and find places in the machinery of commerce where they can eventually boost the efficiency of work.

But it seems to me that there is second-order tilt in this shift to a networked world that says the real wealth in the long-term, or perhaps that should be the new wealth, will not be found merely in greater productivity, but in greater degrees of playing, creating, and exploring. We don’t have good metrics for new possibilities, for things that have never been seen before, because by definition, their boundaries, distinctions, and units are unknown. How does one measure “authenticity” or “hyperreality” or “stickiness”?

Productivity is the main accomplishment, and metric, of the two previous Industrial Revolutions. Productivity won’t go away; over the long term it will take fewer hours of human work to produce more of the goods and services those economies produce. Our system will do this primarily because most of this work will be done by bots.

The main accomplishment of this 3rd Industrialization, the networking of our brains, other brains and other things, is to add something onto the substrate of productivity. Call it consumptity, or generativity. By whatever name we settle on, this frontier expands the creative aspect of the whole system, increasing innovations, expanding possibilities, encouraging the inefficiencies of experiment and exploring, absorbing more of the qualities of play. We don’t have good measurements of these yet. Cynics will regard this as new age naiveté, or unadorned utopianism, or a blindness to the “realities” of real life of greedy corporations, or bad bosses, or the inevitable suffering of real work. It’s not.

The are two senses of growth: scale, that is, more, bigger, faster; and evolution. The linear progression of steam power, railways, electrification, and now computers and the internet is a type of the former; just more of the same, but only better. Therefore the productivity growth curve should continue up in a continuous linear fashion.

I suggest the growth of this 3rd regime is more like evolutionary growth, rather than developmental growth. The apparent stagnation we see in productivity, in real wages, in debt relief, is because we don’t reckon, and don’t perceive, the new directions of growth. It is not more of the same, but different.

This all reminds me of McLuhan’s claim —

Today in the electric age we feel as free to invent nonlineal logics as we do to make non-Euclidean geometries. Even the assembly line, as the method of analytic sequence for mechanizing every kind of making and production, is nowadays yielding to new forms.

— which I interpret to mean that as information technology advances over the next 100 years, it will push people increasingly into the role of artists, and out of the factories. An evolution of society, not just a speeding up.

Of course, the trick isn’t just convincing everyone that idleness should still come with a paycheck. The big hitch is managing to survive all the messes we’ve created in the name of global productivity and growth at all costs. There might be a techno-utopia in the out years, but in the meantime we have to learn to weather the postnormal, first.

One of Kelly’s paragraphs jumps out as perhaps the most challenging for those with the deepest identification with modern business ideology:

Civilization is not just about saving labor but also about “wasting” labor to make art, to make beautiful things, to “waste” time playing, like sports. Nobody ever suggested that Picasso should spend fewer hours painting per picture in order to boost his wealth or improve the economy. The value he added to the economy could not be optimized for productivity. It’s hard to shoehorn some of the most important things we do in life into the category of “being productive.” Generally any task that can be measured by the metrics of productivity — output per hour — is a task we want automation to do. In short, productivity is for robots. Humans excel at wasting time, experimenting, playing, creating, and exploring. None of these fare well under the scrutiny of productivity. That is why science and art are so hard to fund. But they are also the foundation of long-term growth. Yet our notions of jobs, of work, of the economy don’t include a lot of space for wasting time, experimenting, playing, creating, and exploring.

Boycott Campaign Donations! - NYTimes.com ⇢

Joe Nocera writes about Howard Schultz, the CEO of Starbucks, who is advancing the idea that we should withhold campaign contributions until our elected officials start working on creating jobs. I’m down with that:

Joe Nocera via NY Times

The contribution boycott, as Schultz envisions it, would be completely bipartisan; indeed, it would have to be for it to work. Schultz isn’t calling on Washington to come up with solutions that are aligned with his political leanings (which are Democratic). Rather, he wants solutions, agreed to by both parties, that will help get the country back on its feet.

He believes Congress needs to come back from the August recess now, instead of waiting until September. Then, he says, the president and Congress should hammer out a debt deal, which will restore confidence. And finally, and most importantly, they should start focusing “maniacally” on the nation’s most pressing concern: job creation. Once they’ve done that, the boycott would be lifted.

What I particularly like about Schultz’s idea is that it is not just another plea for compromise and civility, which does nothing to affect political behavior. It is hardheaded and practical, the kind of idea you would expect from a good businessman. Although it would require contributors from both the left and right to join arms, it seems to me that there are enough people in both parties who are fed up enough to give this a try. He’s already lined up one organization, Democracy 21, to support the idea; he’s searching for more.

Is Schultz’s idea a long shot? Yes. Is it worth trying? You bet it is.

I wonder if Schultz will be the populist I have predicted, who will rise up and create a new party:

Stowe Boyd, The Fall Of The Unions, The Rise Of Trade Populism

It will take the people to take our future back.

The form this might take? I foresee the emergence of a grassroots movement, based on what I call ‘trade populism’: an ideology that explicitly identifies a globalized business ecology, made up of wall street bankers, multinational corporations and their leaders, and booming foreign countries (China, India, Brazil, etc.) as the enemies of our freedoms, and channeling the anger of Americans of all political stripes. This movement will not be the Tea Party, although it may attract tea partiers.

And this new populism will also revolve a few other premises, including the idea that we are in a crisis, so special rules apply. For one, they will argue that we need to put aside issues on which we cannot agree for the duration of the emergency. So the leaders of this movement will explicitly defer taking a stand on abortion, foreign aid, or climate change.

Trade populists will argue for the creation of trade barriers, as a support for the American worker, and as a start at dismantling the global business economy of interlocking banks, global business, and state capitalism. 

Another bit of ‘trade populism’ will be that foreclosures must stop for the duration of the emergency, pensions must be paid, and elected officials and businesses that don’t meet their obligations to plain folk will face criminal penalties.

Nearly all union members will join this movement, perhaps even some of the police and firefighters. Progressive democrats, tired of being part of the centrist wing of neoliberal capitalism, will break with the national party. Libertarians will join. The Greens will join. Even moderate Republicans, weary of the clamor, might join. The unemployed young and the disheartened old will join. The poor will join. Maybe even some rich people will join.

This new populism will emerge piecemeal, a little here, a little there. But by 2012 it will be the swing force, and with the right charismatic and confident leaders (Elizabeth Warren, Sheila Bair, Will Allen?), it could shake the elections.

And now, maybe Howard Schultz? With Paul Krugman as Secretary of the Treasury, Robert Reich back in Labor, Will Allen as Interior, and Sheila Bair and Elizabeth Warren on the Council of Economic Advisors.

The Fall Of The Unions, The Rise Of Trade Populism

Krugman clearly explains what Scott Walker is up to in Wisconsin, and explains why it is in the interests of the average American to take sides with the unions against the oligarchs. But will we?

Paul Krugman, Wisconsin Power Play

Why bust the unions? As I said, it has nothing to do with helping Wisconsin deal with its current fiscal crisis. Nor is it likely to help the state’s budget prospects even in the long run: contrary to what you may have heard, public-sector workers in Wisconsin and elsewhere are paid somewhat less than private-sector workers with comparable qualifications, so there’s not much room for further pay squeezes.

So it’s not about the budget; it’s about the power.

In principle, every American citizen has an equal say in our political process. In practice, of course, some of us are more equal than others. Billionaires can field armies of lobbyists; they can finance think tanks that put the desired spin on policy issues; they can funnel cash to politicians with sympathetic views (as the Koch brothers did in the case of Mr. Walker). On paper, we’re a one-person-one-vote nation; in reality, we’re more than a bit of an oligarchy, in which a handful of wealthy people dominate.

Given this reality, it’s important to have institutions that can act as counterweights to the power of big money. And unions are among the most important of these institutions.

You don’t have to love unions, you don’t have to believe that their policy positions are always right, to recognize that they’re among the few influential players in our political system representing the interests of middle- and working-class Americans, as opposed to the wealthy. Indeed, if America has become more oligarchic and less democratic over the last 30 years — which it has — that’s to an important extent due to the decline of private-sector unions.

And now Mr. Walker and his backers are trying to get rid of public-sector unions, too.

There’s a bitter irony here. The fiscal crisis in Wisconsin, as in other states, was largely caused by the increasing power of America’s oligarchy. After all, it was superwealthy players, not the general public, who pushed for financial deregulation and thereby set the stage for the economic crisis of 2008-9, a crisis whose aftermath is the main reason for the current budget crunch. And now the political right is trying to exploit that very crisis, using it to remove one of the few remaining checks on oligarchic influence.

So will the attack on unions succeed? I don’t know. But anyone who cares about retaining government of the people by the people should hope that it doesn’t.

Krugman is dead on: It’s not about money, it’s about power.

The problem is that most Americans do not find common cause with unions and unionized workers. Many Americans have embraced GOP ideology: these workers are overpaid (untrue), they have benefits that other workers do not have (may be true), and they are paid for with tax dollars and taxes are bad.

I agree with Krugman: we should stand in solidarity with the unions because Walker and the other austerity-spouting Governors are trying to take away our rights to collective bargaining.

But we have no leverage. The unions are relatively weak, compared either to their prime post-WWII years, or compared to the unfettered strengths of the oligarchs. And as individuals, we are less than zero.

Obama is not likely to put aside his centrist, pro-business attitude in this context. His support will be haphazard at best.

No, the only force left to counter the oligarchs is we, the people. Theoretically we are represented by our government, but it is our elected officials that are taking away our rights.

My only hope is that we will see a grassroots surge of local unrest and civil disobedience as state and local governments press forward with the raping of critical social services: which is what busting the public unions will lead to. It will take the people to take our future back.

The form this might take? I foresee the emergence of a grassroots movement, based on what I call ‘trade populism’: an ideology that explicitly identifies a globalized business ecology, made up of wall street bankers, multinational corporations and their leaders, and booming foreign countries (China, India, Brazil, etc.) as the enemy of our freedoms, and channeling the anger of Americans of all political stripes. This movement will not be the Tea Party, although it may attract tea partiers.

And this new populism will also revolve a few other premises, including the idea that we are in a crisis, so special rules apply. For one, they will argue that we need to put aside issues on which we cannot agree for the duration of the emergency. So the leaders of this movement will explicitly defer taking a stand on abortion, foreign aid, or climate change.

Trade populists will argue for the creation of trade barriers, as a support for the American worker, and as a start at dismantling the global business economy of interlocking banks, global business, and state capitalism. 

Another bit of ‘trade populism’ will be that foreclosures must stop for the duration of the emergency, pensions must be paid, and elected officials and businesses that don’t meet their obligations to plain folk will face criminal penalties.

Nearly all union members will join this movement, perhaps even some of the police and firefighters. Progressive democrats, tired of being part of the centrist wing of neoliberal capitalism, will break with the national party. Libertarians will join. The Greens will join. Even moderate Republicans, weary of the clamor, might join. The unemployed young and the disheartened old will join. The poor will join. Maybe even some rich people will join.

This new populism will emerge piecemeal, a little here, a little there. But by 2012 it will be the swing force, and with the right charismatic and confident leaders (Elizabeth Warren, Sheila Bair, Will Allen?), it could shake the elections.

About

Web anthropologist, futurist, author. My focus is the future, and the tectonic forces pushing business, media, and society into an unclear and accelerating future. (More.)

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