Showing posts tagged economics

People decide to work more (or less) than 40 hours a week because of a variety of factors including family life, education, hobbies and leisure time in general. But the biggest reason may be as simple as one word: taxes.

Americans would willingly work longer hours, earn more and be more productive if their marginal tax rates were lowered.

Amity Shlaes, “Make Longer Hours Worthwhile” in the New York Times, demonstrating she knows nothing about the lives of actual workers. 


Let’s pretend that supply and demand graphs actually do show that minimum wage is bad for the worker. (which they actually don’t, since labor graphs are a thing, and there are microecon supply and demand models that show minimum wage does not increase unemployment). 

Even so, that doesn’t mean shit, because IT’S BASED ON A MODEL WITH FAULTY PREMISES. Economists KNOW the models are faulty, they’re trying to guess what’s going on in markets. The whole point of econ, is you use a bunch of models, each of which sacrifices accuracy in order to try to understand something about how markets and capitalism and shit works. You can’t just take a model, and say “this model shows that the minimum wage increases unemployment” and say that it’s a global fact, cause it’s not. That’s literally not how econ works. It’s the OPPOSITE of how econ works.


I like the argument that Mike Konczal makes here, that the order in which economics has been taught since the 14th edition of the standard introductory textbook, Paul Samuelson’s Economics, came out in 1992, is one of the reasons people think like this. Recognizing the triumph of capitalism over communism in the Cold War, they moved all the microeconomic stories of individual actors in markets that always clear and have perfect competition to the beginning, and add in various types of market failure, eventually moving on to macroeconomics and trying to build a picture of the whole economy from the pieces.

Teaching things in this order encourages thinking about the micro effects, the supply and demand curves and all that, as being more fundamental than the macro effects, and heaven forbid we start to ponder the basic fairness of the underlying system of capitalism in which this all occurs. Way back when, they used to call it the study of political economy because it was taught with a mind to exploring these questions. Putting macro first, or perhaps even putting an explanation of different theories of economic justice first, would lessen the effect of having the people think that the economy is simply a collection of individual textbook examples multiplied like several billion times.

It’s like trying to learn forest management by looking at isolated trees. Potted, isolated trees kept in the greenhouse and well-maintained. and then there’s a fucking forest fire that people used to know how to prevent and fight, but that lesson is covered briefly at the end of year two, and all our forest managers sound more like a goddam Rush song mouthing ridiculous Randian platitudes than anyone who knows about forest fires.

As for what I’d really like to see, I think it would be along the lines of what Peter C. over at Heteconomist lays out here. Follow Michał Kalecki (long-time followers of this blog probably saw that coming) in starting from basic accounting identities (which are true by definition) of the economy as a whole, and derive useful macroeconomic formulas from there, noting carefully what simplifying assumptions you’re making along the way. I think that’s a fundamentally superior approach to actually getting students to think usefully about economic policy questions.

Because the way it is right now, you get all sorts of people who complain along the lines of: “if you had taken Economics 101 you’d know why it’s a bad idea to raise the minimum wage.” Because all the reasons that the theory doesn’t necessarily describe the real world are all in Economics 102. So do them the other way.


How can I accept a doctrine which sets up as its bible, above and beyond criticism, an obsolete economic textbook which I know to be not only scientifically erroneous but without interest or application to the modern world? How can I adopt a creed which, preferring the mud to the fish, exalts the boorish proletariat above the bourgeois and intelligentsia who, with whatever faults, are the quality of life and surely carry the seeds of all human advancement? Even if we need a religion, how can we find it in the turbid rubbish of the Red bookshops.
John Maynard Keynes, on Marxism. Sure, the man was a true genius at economics, and could be pretty lefty in some ways, but this is like the distilled essence of shitty bourgeois liberalism. Not surprising, I guess, coming from a die-hard eugenicist.


I told you Paul Krugman was coming around to my way of thinking

Three weeks ago I noted Paul Krugman’s article “The 1 Percent’s Solution” and commented:

I’ll just mention out that back in Feb. 2009, I was pointing out that Michał Kalecki was saying this back in his 1943 essay “Political Aspects of Full Employment.” Here’s the seventy years ahead of Paul Krugman version of the argument above:

Among the opposers of this doctrine there were (and still are) prominent so-called ‘economic experts’ closely connected with banking and industry.  This suggests that there is a political background in the opposition to the full employment doctrine, even though the arguments advanced are economic.  That is not to say that people who advance them do not believe in their economics, poor though this is.  But obstinate ignorance is usually a manifestation of underlying political motives.

And that’s really one of the things I’m trying to do on this blog, point out to liberals trying to understand how the world works that explanations involving class struggle work better than ignoring class issues. I find Kalecki useful for this sort of thing, as he managed to come up with many of the basic insights that Keynes did (and did it shortly before Keynes, in fact), starting from a Marxist perspective. I think Krugman’s slowly coming around.

Yesterday, Paul Krugman posted “The Smith/Klein/Kalecki Theory of Austerity,” which doesn’t actually say “Yeah, Jeremy, you were right all along” but I think we can all agree that it’s what he means:

Two and a half years ago Mike Konczal reminded us of a classic 1943 (!) essay by Michal Kalecki, who suggested that business interests hate Keynesian economics because they fear that it might work — and in so doing mean that politicians would no longer have to abase themselves before businessmen in the name of preserving confidence. This is pretty close to the argument that we must have austerity, because stimulus might remove the incentive for structural reform that, you guessed it, gives businesses the confidence they need before deigning to produce recovery.

The great Doug Henwood of Left Business Observer is also pointing out that he was saying the same thing back in 2004. Or, as Alex Pareene notes at Salon:

Meanwhile, it’s been fun, over the last decade or two, to watch Paul Krugman be radicalized by his opponents. This is a longtime globalization advocate who was hired, by the Times, presumably to write a column based mainly on economics, along the lines of his old Slate columns where he’d explain Japan with ticket scalping analogies and so on. Instead they got this angry fulminating liberal truth-crusader.

And this wonderful new Krugman even occasionally sounds very slightly like Doug Henwood.

And that’s about right. It’s interesting watching how Krugman seems to be playing a completely different game than any of the other mainstream media pundits. And they hate him for it.

In any event, I just figured I ought to let my readers know that they’re getting quality political/economic commentary here, ahead of the best the mainstream media has to offer, and with more random pictures of hot guys tossed in as well.


According to Kalecki, there is nothing in the mechanics of advanced capitalism which make long-run growth inevitable. However, two semi-exogenous factors interact to produce patterns of long-run economic change. The first is innovation, which Kalecki defined to include not only technological progress per se, but also the introduction of new goods, the opening up of new markets, organisational changes, and so on. This obviously has a positive effect: the higher the intensity of innovation, the higher the rate of growth of the economy. The other, constraining factor is “rentier savings”, that is, savings outside firms, which depress investment and therefore inhibit growth. The relative strength of these two factors determines the long-run rate of growth. The contemporary relevance of this argument, in a world of rapid technological progress but also of financial liberalisation and growth of rentier incomes, is worth noting.

Jayati Ghosh, “Michal Kalecki and the Economics of Development

This whole article is a great overview of the relevance of my favorite economist, Michał Kalecki. 

The passage here is about Kalecki’s model of growth in a capitalist economy. This is, I gather, different from what’s often called the Kalckian growth model, which was worked out by Joan Robinson and others using some of Kalecki’s ideas after his death. Kalecki’s actual model of growth didn’t really exist, because, as the quote above refers to, he didn’t actually believe that growth was actually produced by capitalist mechanics, but by other factors. In his words: “my criticism of capitalism goes even further than that of Karl Marx. Marx took an expansion of capitalism for granted, whereas I think that you have to explain this by some exogenous factors.”

 I’ve been doing a bit of reading on different Keynesian and post-Keynesian models of capitalist growth, and they all seem to have various shortcomings. Also, if I had to guess, I’d say that we won’t get around to working out the mechanics of growth in a capitalist economy until we no longer have the resources to make such a thing possible. In the meantime, I’ll post some more about what I can figure out about such things.

The austerity agenda looks a lot like a simple expression of upper-class preferences, wrapped in a facade of academic rigor. What the top 1 percent wants becomes what economic science says we must do.

Paul Krugman, “The 1 Percent’s Solution” (New York Times, April 26, 2013)

I’ll just mention out that back in Feb. 2009, I was pointing out that Michał Kalecki was saying this back in his 1943 essay “Political Aspects of Full Employment.” Here’s the seventy years ahead of Paul Krugman version of the argument above:

Among the opposers of this doctrine there were (and still are) prominent so-called ‘economic experts’ closely connected with banking and industry.  This suggests that there is a political background in the opposition to the full employment doctrine, even though the arguments advanced are economic.  That is not to say that people who advance them do not believe in their economics, poor though this is.  But obstinate ignorance is usually a manifestation of underlying political motives.

And that’s really one of the things I’m trying to do on this blog, point out to liberals trying to understand how the world works that explanations involving class struggle work better than ignoring class issues. I find Kalecki useful for this sort of thing, as he managed to come up with many of the basic insights that Keynes did (and did it shortly before Keynes, in fact), starting from a Marxist perspective. I think Krugman’s slowly coming around.

Labour must have no illusions about the great fight which will be waged against these groups [of capitalist interests]. They will resist fiercely because what is at stake is not so much their profits as their personal and social power, which takes two forms: power in society as a whole, and power over workers in industry. As long as the first form of power remains, all the efforts of the workers in the factories and through the trade unions to diminish the second form of power can only have limited success. The fight for workers’ rights in industry and for more effective workers’ representation, through such things as workers’ councils and production committees, is, of course, of very great importance and, as we shall show later, it has a vital part to play in the total struggle against the capitalists. But it can never be a substitute for the necessary political fight to destroy the power wielded over society as a whole by the great capitalist interest-groups.

These great groups—the banks and insurance companies, the iron and steel trades, the big trusts and combines like Imperial Chemicals, Unilever, Courtalds, General Electric, the oil and rubber companies, and so on—are today great independent societies which constitute a state (or a series of states) within the state, subject to their own internal laws and agreements and able, by their own decisions, to control the lives of millions of human beings. Their economic power is supported by the political power which they exercise through innumerable personal contacts in other branches of industry and commerce, in the Tory Party, in the Civil Service, in the higher ranks of the armed forces, the judiciary and the professions—in short, all that forms part of the complex which we call ‘the ruling classes’. Their power is, in fact, a class power and, as long as this class power remains unbroken, the ability of the leading capitalist groups to run things in their way—and, at worst, to sabotage—is enormous. This power exercised in a variety of subtle ways which no formal laws—no mere legislative decisions of a Labour government, for example—can break. It can only be broken by destroying not merely their political influence, but what is its real basis, their economic power in the great productive forces over which they exercise practically unchallenged control.

Michał Kalecki, “The Essentials of Democratic Planning” in which my favorite economist offers his advice to the UK’s Labour Party in 1942. Labour would indeed go on to win in the following election, but never did take Kalecki’s advice to maintain full employment policies in the face of resistance from the capitalist class.

I think the basic idea is sound. Basic Keynesian policies can be used to guarantee full employment, which erodes the class power of the capitalists, and puts more power in the hands of the working class. Thus, a more radical politics becomes possible. Of course, the capitalist class knows that guaranteed full employment would eventually destroy their class power, and put mobilizing politically against it ahead of their own profits. The big question is how to withstand this pressure. Labour in the 1950s and 60s always backed off full employment policies. Kalecki described this as the “political business cycle.” The same dynamic seems evident today.

What could explain the booming stock markets, the latest data on private investment in the fourth quarter of 2012 and the January employment data? Sure the budget cuts [had] not taken place yet but investors and companies look into the future when they hire. Given that the future implies budget cuts, it must mean that they welcome them.

Alberto Alesina, the economist largely behind the idea that austerity brings growth (which advice we’re largely following, at least as the sequester goes into effect), claiming that he was right because the stock market’s doing well. Well, sure, all the other evidence has shown that austerity policies have been massive failures all over Europe, but there’s a little uptick in the stock market, so grab hold of that and try to claim victory. It’s not like austerity policies are being enacted because of the evidence in favor of them. They fit the class instinct of the powerful people who make these decisions, so any excuse will do.

(h/t: Jared Bernstein)

Way back in December, 2011, I said that I didn’t think investing in gold was a good idea. Looks like that was shortly after its peak. I wouldn’t advise anyone to listen to me for investment advice, but it would be better than listening to those “buy gold” ads.

The fist graph shows the Republican Party’s recommendation in 2011 for “expansionary austerity.” Their research (based largely on a 2009 paper by Alesina and Ardagna) called for an austerity program composed of 85% spending cuts, which would get the economy moving again. The second graph shows what we’ve done for budget reduction over the next ten years since then. About 85% spending cuts. Republicans lose, we live with their policies anyways.

(h/t: Mike Konczal, “It’s Alberto Alesina’s World and We’re All Just Unemployed in It”) 

It must be nice to be a capitalist

One of the basic features of my life is that pretty much my entire income manages to find a way to get spent without much trying on my part. Let’s just say that this has gotten old. It would be a welcome change for all of my expenses to find a way to get funding without much effort.

On that note, here’s a passage from A Theory of Full Employment by Yehojachim S. Brenner and Nancy Brenner-Golomb, summarizing the essay A Theory of Profits” by my favorite economist, Michał Kalecki. This is Kalecki’s variation on Keynes’s “widow’s cruse”:

It was Kalecki who saw this. In his equation national income is determined by the propensity to save out of the capitalists’ income and by the distribution of the national income between the wages and profits and the volume of investment. In what is an almost Marxist conception, he distinguished between capitalists (savers and consumers) and workers (consumers) and showed how profits and consumption are related to each other. Unfortunately his dictum: “workers spend what they earn and capitalists earn what they spend,” though appropriate, caused a good deal of misunderstanding and diverted attention from his important argument. Had he formulated the distinction in terms of “income from work and income from profit,” rather than in the sociological terms “workers” and “capitalists” the picture would have been much clearer. It would at least have silenced the critics who pointed to the fact that many workers earn both an income from work and from their savings.

Well, I like the original phrasing (which I think may have been first put in those words by Nicholas Kaldor 14 years after Kalecki’s paper explaining the concept). It might make economists a bit skeptical, but it puts thing nicely in class struggle terms. And I think that’s actually the important thing here. For me, at least.

Kalecki divided the system into an income side and an expenditure side. As no one can have an income without it being someone else’s expenditure, the totals of both must be equal. He designated profits as the sum of capitalists’ incomes and wages the sum of workers’ incomes. On the expenditures side he added up investment with capitalists’ and workers’ consumption, and assuming that workers spend all their earnings on consumption, made workers’ expenditure equal to wages. In this way capitalists’ expenditure on consumption and investment is equal to profits.

OK, to break this down:

  • Total Income = Total Expenditures
  • Total Income = Workers’ Wages + Capitalists’ Profits
  • Total Expenditures = Investment + Workers’ Consumption + Capitalists’ Consumption
  • since workers spend all their income: Workers’ Wages = Workers’ Consumption
  • subtracting out those two equal terms: Capitalists’ Profits = Capitalists’ Consumption + Investment

This leads to the conclusion that capitalists’ share in national income rises by the amount they invest, while the multiplier is increasing aggregate output. But even if they consume part of their profit rather than invest it, their income will not diminish. Capitalists’ income is maintained without regard to how they spend it, which means that the volume of investment at any given level of technology determines the division of labour between the production of consumer goods and investment, and that the level of technology and the volume of of production capacity determine the output of of the various types of goods.It follows that for growth with full employment there is a determinate volume of consumer goods to meet the flow of wages, and a determinate volume of capital goods produced in line with capitalists’ profit expectations.

And here we start to get out past my ability to figure this out. I think this part is describing the Kaleckian model diagrammed here, which is largely Marx’s reproduction scheme in a different form. When I get that part figured out, I’ll try to get a post written about it.


That red line is income growth for the bottom 90%. Notice how it rather dramatically flattens out in the 1970s and those lines for various subsets of the top 1% start reaching for the top of the chart. I’m sure that’s just the free market in action. Nothing that can be done about it.

Anyways, the chart’s from Thomas Piketty and Emmanuel Saez’s newest data on inequality. Yep, it’s still increasing. And no, my solution (to be honest, I wasn’t the first) of expropriating the capitalist class and putting the means of production in the hands of the proletariat doesn’t seem to be getting any closer to reality. I think the big thing our politicians are concerned with is convincing us to slash retirement benefits so that we can keep taxes on the rich low and not cut defense spending. Full communism is obviously the better idea.

Every once in a while, I run across a chart showing the decline in labor’s share of income in the US, and I have to post it. This one is from a speech that Federal Reserve Bank Vice Chair Janet Yellen gave the other day. She explains this chart as “the percent of production by nonfinancial corporations accruing to workers as compensation.” As you can see, the years since 2002 have been a pretty severe slide downhill for workers wages. And this doesn’t even get into the increasing share of GDP that’s been going to financial firms.

She opened the speech, which was cosponsored by the AFL-CIO, with the following remarks:

Thank you for the opportunity to speak to you today about the Federal Reserve’s efforts to strengthen the recovery and pursue a goal that it shares with the labor movement: maximum employment.

As an objective of public policy, maximum employment doesn’t appear in the U.S. Constitution, in any presidential decree, or even in the mission statement of the Labor Department. A law passed in 1946 made it a general goal for the U.S. government, but so far the Federal Reserve is the only agency assigned the job of pursuing maximum employment. The 1977 law spelling out that responsibility also assigned the goal of stable prices, and we call this combination of objectives the Federal Reserve’s dual mandate.

Sometimes, I’m actually a little amazed at how the Federal Reserve is better at articulating and advancing pro-employment policies than the people that actually get elected to office. I don’t mean to say that the Fed has been doing a great job of advancing the interests of the working class. Mostly, it seems that everyone else in power has been doing worse. I’m sure that there are some sort of deeper implications to this, but I can’t figure out what they would be.

Bank of America CEO Brian Moynihan said long-term commitments to measures such as tax reform and trade would provide a “certainty premium” that would help bring corporate cash off the sidelines. “If we can just allow people to keep their confidence up by getting some of these issues off the table,” he said, “you would see the economy grow and momentum continue to build, and unemployment continue to ease down, and housing starts [go] up and housing prices [go] up. All that will continue to build on itself.”

This is what passes for journalism over at Politico. Let’s ask the CEO of Bank of America what he thinks would help the economy. The next paragraph is advice from Jamie Dimon, CEO of Morgan Stanley. Of course these fuckers tell you that business confidence is the problem. As I like to point out, Michał Kalecki nailed this back in 1943: “This gives the capitalists a powerful indirect control over government policy: everything which may shake the state of confidence must be carefully avoided because it would cause an economic crisis.”

Seriously, why should we give a shit that Wall Street CEOs think that if the government coddled them just a bit more, they’d all have the confidence to “bring corporate cash off the sidelines.” You know what else is a great motivator? Fear. Fear of the masses actually getting their revenge on rich bastards like Moynihan and Dimon. Tumbrils at their office doors.


Apparently, my neighborhood now has its own currency. For some reason, it’s only good until Jan. 31st, 2013, which would really seem to limit its usefulness. Guess I’ll still have to hang on to my boring old dollar bills for now.