Wednesday, June 28, 2017

Seattle Minimum Wage

Words cannot describe the torment experienced by the data before they confessed what the University of Washington team got them to confess. I can only urge readers with an open mind to study Table 3 carefully. The average wage increase, from the second quarter of 2014 to the third quarter of 2016, for all employees of single site establishments was 18 percent. Eighteen percent! That is an annual increase of almost 8 percent. For two and a quarter years in a row. Not bad. And the number of hours worked of ALL employees of single site establishments? Up 18 percent in a little over two years. That too is an increase of almost 8 percent per annum

Now multiply that wage by those hours and the total payroll for all employees rose 39.5 percent over the course of nine quarters. An annual rate of increase of 17.5 percent. These are BIG numbers. They are freaking HUGE numbers. 

It must have taken a team of at least six academics to extract a 9.4 percent decline in hours from the 86,842 workers (out of a total of 336,517) earning under $19 dollars an hour at these single-site establishments. Look at the Table and weep.
Now, as I mentioned in a comment on Peter's post, bracket creep alone could do away with at least 7 percent of the missing hours of workers earning under $19 and hour. That is unless we assume that everyone making between about $18 and $19 got approximately zero wage increases while the rest of the crew were getting 10 percent raises. Look at the God damned table. This isn't rocket science.

Tuesday, June 27, 2017

The Seattle Study: Increasing the Minimum Wage as a Way to Boost High Income Jobs

As labor market mavens all know by now, the University of Washington team chosen by the city of Seattle to evaluate its minimum wage law has issued a new report.  This one is particularly juicy since it covers the increase from $11 to $13 an hour, which moved Seattle into new territory, beyond what has been studied elsewhere.  The report makes much of its use of Washington State data which include not only numbers but also hours worked, allowing (in this respect) a more precise analysis of the effect of changes in the statutory minimum on employment.

The headline result is that the elasticity of hours worked to changes wages actually paid is in the vicinity of -300%.  The key paragraph is this:
Our preferred estimates suggest that the Seattle Minimum Wage Ordinance caused hours worked by low-skilled workers (i.e., those earning under $19 per hour) to fall by 9.4% during the three quarters when the minimum wage was $13 per hour, resulting in a loss of 3.5 million hours worked per calendar quarter. Alternative estimates show the number of low-wage jobs declined by 6.8%, which represents a loss of more than 5,000 jobs. These estimates are robust to cutoffs other than $19.  A 3.1% increase in wages in jobs that paid less than $19 coupled with a 9.4% loss in hours yields a labor demand elasticity of roughly -3.0, and this large elasticity estimate is robust to other cutoffs.
This has got the labor econ blogosphere quite excited: finally, after years of published studies that largely downplayed the labor demand disincentive effects of minimum wage laws, a report has been issued that finds immense negative effects—vastly larger in fact than those that have appeared in the past.

The backdrop to this, of course, is the economic performance of the city of Seattle itself, which has been about as strong as any city in the country.  During the period of the latest minimum wage increase Seattle has experienced essentially full employment, as reflected in an unemployment rate of about 3%.  Thus, any negative impact in one part of the city’s economy had to have been offset by positive impacts elsewhere.

And this in fact is also a finding of the Seattle minimum wage study, although its authors don’t mention it.  They restrict their sample of affected workers to those in the low wage labor market, and they employ a range of cutoffs to see how truncating the sample in different ways affect their results, but their empirical methods intrinsically apply to workers at all wage levels.  This is because their strategy for identifying employment impacts is to use various control groups, actual or synthetic, and compare employment between Seattle and these controls before and after the change in the minimum wage.  The employment impact is whatever comes out of this comparison.

Well, guess what?  The treatment-versus-control methods that generate employment losses in the lower-wage segment of the labor market are nearly exactly offset by employment gains in the higher wage segment.  This stands to reason, because Seattle as a whole is doing great: it hasn’t suffered overall from the rise in minimum wages, so dips in some parts of its economy imply bumps in others.

The calculations that make this explicit are performed by Ben Zipperer and John Schmitt of the Economic Policy Institute.  They do this for the overall city economy and also for the restaurant sector.  With its narrower focus, this second approach is especially informative.  The key paragraph here is:
The spurious results are clear in the case of the restaurant industry, as we illustrate in Figure B, where the authors’ own methodology and estimates imply that the Seattle minimum wage increase caused an incredible 20.1 percent growth in restaurant jobs paying above $19.00 per hour. While this number is not directly reported in their paper, it can be precisely inferred from their other results. To make this inference, we first note that when Jardim et al. focus on the restaurant industry, they estimate that the minimum wage increase to $13.00 caused restaurant jobs paying less than $19.00 hour to fall by an average of 10.7 percent (see their Table 9, averaging the estimates provided for the employment fall in 2016). At the same time, they find that the minimum wage caused essentially zero change in the number of all restaurant jobs, regardless of their wage rate. Because jobs under $19.00 comprised 65.4 percent of the restaurant industry prior to the first minimum wage increase (see Jardim et al.’s Table 3 for the 2014Q2–2015Q1 period), and because these jobs shrank by 10.7 percent while overall employment held steady, it follows that Jardim et al.’s estimates imply that the Seattle minimum wage increased the number of restaurant jobs paying over $19.00 per hour by about 20.1 percent.
Remember that these employment estimates are based on comparisons of Seattle to its constructed controls; measured differences are assumed to be due solely to the minimum wage hike that took place in Seattle but not in the comparitors.

One interpretation is that the Seattle study’s methodology didn’t sufficiently control for factors that have caused upward movements in wages (moving workers out of lower and into higher wage categories) in Seattle compared to other communities.  That’s what the EPI folks think.  I prefer to take the results at face value: by increasing the minimum wage we can, by some currently unknown process, cause a big upward shift in wages, not just around the minimum, but all the way up to the stratospheric reaches of the labor market.  That negative elasticity for the lower-paid is fully offset by a positive elasticity for the middle and upper class.

Magic.

Monday, June 26, 2017

Asking The Man in the Street: Research v. Rhetoric

Richard Layard, How to Beat Unemployment, 1986:
"If you ask the man in the street (not Wall Street) what has caused our unemployment, nine times out of ten he will say that it is machines displacing people. In fact for this reason he is often deeply pessimistic about whether we could ever have full employment again."
Dear Professor Layard,

In your 1986 book, "How to Beat Unemployment," you wrote: "If you ask the man in the street (not Wall Street) what has caused our unemployment, nine times out of ten he will say that it is machines displacing people. In fact for this reason he is often deeply pessimistic about whether we could ever have full employment again."

I am curious. Did you ask "the man in the street"?

Cheers,


The Sandwichman

En Français...

Par Michel Husson 
Les économistes dominants pensent que leur «science» a réalisé des progrès fulgurants depuis sa naissance. L’un deux a ainsi pu affirmer que les connaissances économiques de Marx et Malthus «étaient par rapport à ce que nous savons aujourd’hui ce que l’automobile de Cugnot [1725-1804] était par rapport à nos formules 1» [1]. Et, de manière cohérente, ils cherchent à exclure l’histoire de la pensée économique des programmes universitaires. 
On peut très bien défendre la thèse inverse: la discipline économique est au contraire caractérisée par la récurrence de débats dont les termes ne changent pas vraiment, en dépit des habillages modernes. Ce n’est après tout pas étonnant, dans la mesure où les rapports sociaux capitalistes sont fondamentalement invariants. Le débat sur le partage du travail est une bonne illustration de cette proposition. 
Ce débat a récemment rebondi en France et l’argument classique des détracteurs de la réduction du temps de travail a de nouveau été mobilisé. Il consiste à dénoncer le raisonnement statique et «malthusien» selon lequel il y aurait une quantité prédéterminée de travail à partager. Il faudrait au contraire réfléchir aux politiques habiles qui permettraient, moyennant les réformes structurelles appropriées, de dynamiser l’activité et l’emploi. Dans son dernier livre, le «prix Nobel d’économie» (français) Jean Tirole (2014) est allé encore plus loin avec cet amalgame: «paradoxalement, l’hypothèse sous-jacente à la fixité de l’emploi et donc à la politique de réduction du temps de travail afin de permettre un partage de l’emploi est la même que celle qui sous-tend le discours des partis d’extrême droite quand ils soutiennent que les immigrants “prendraient» le travail des résidents nationaux au motif que cet emploi serait en quantité fixe.» [2]
... 

Sunday, June 25, 2017

Marshall's Magic Confidence-Wand

Remember when Say's Law immediately sank without trace once Keynes debunked it?

Here was Alfred Marshall and Mary Paley Marshall in 1881 explaining why there is no such thing as over-production (if there is any such thing as a magic confidence-wand):
§ 4. After every crisis, in every period of commercial depression, it is said that supply is in excess of demand. Of course there may easily be an excessive supply of some particular commodities; so much cloth and furniture and cutlery may have been made that they cannot be sold at a remunerative price. But something more than this is meant. For after a crisis the warehouses are overstocked with goods in almost every important trade; scarcely any trade can continue undiminished production so as to afford a good rate of profits to capital and a good rate of wages to labour. And it is thought that this state of things is one of general over-production. We shall however find that it really is nothing but a state of commercial disorganization; and that the remedy for it is a revival of confidence. 
To begin with, it is clear that, as Mill says, "What constitutes the means of payment for commodities is simply commodities. Each person's means of paying for the productions of other people consist of those which he himself possesses. All sellers are inevitably, and by the meaning of the word, buyers. Could we suddenly double the productive powers of the country, we should double the supply of commodities in every market; but we should, by the same stroke, double the purchasing power. Everybody would bring a double demand as well as supply; everybody would be able to buy twice as much, because every one would have twice as much to offer in exchange." 
But though men have the power to purchase they may not choose to use it. For when confidence has been shaken by failures, capital cannot be got to start new companies or extend old ones. Projects for new railways meet with no favour, ships lie idle, and there are no orders for new ships. There is scarcely any demand for the work of navvies, and not much for the work of the building and the engine-making trades. In short there is but little occupation in any of the trades which make Fixed capital. Those whose skill and capital is specialised in these trades are earning little, and therefore buying little of the produce of other trades. Other trades, finding a poor market for their goods, produce less; they earn less, and therefore they buy less; the diminution of the demand for their wares makes them demand less of other trades. Thus commercial disorganization spreads, the disorganization of one trade throws others out of gear, and they react on it and increase its disorganization. 
The chief cause of the evil is a want of confidence. The greater part of it could be removed almost in an instant if confidence could return, touch all industries with her magic wand, and make them continue their production and their demand for the wares of others. If all trades which make goods for direct consumption agreed to work on and to buy each other's goods as in ordinary times, they would supply one another with the means of earning a moderate rate of profits and of wages. 

"If There Is Any Such Thing": Why read Hoxie on theory?

Unionists are not theorists; unionism is an eminently practical thing. -- Robert F. Hoxie 
Theory and trade unionism are almost contradictory terms. -- Edward M. Arnos  
In accordance with this theory it is held that there is a certain fixed amount of work to be done... David F. Schloss
Paul Samuelson once wrote that it takes a theory to kill a theory. He didn't say it had to be a better theory. What would it take to kill a theory that never was?

The Sandwichman's summer project has been to consolidate my research and blog posts on the lump of labor from the last ten years into something like -- and yet unlike -- "the archaic stillness of the book." Sometimes, when cross checking old sources, new sources spring up out of the archives and one of the most astonishing was Robert Hoxie's commentary on what he called "fixed group demand theory."

The term appears elsewhere only in a few sources: a dictionary entry on the lump-of-labor theory in What's What in the Labor Movement: A Dictionary of Labor Affairs and Labor Terminology (1921) by Waldo Ralph Browne, in The Settlement of Wage Disputes (1921) by Herbert Feis, whose discussion mainly centered on Hoxie's analysis, and Warren Gartman made a brief, parenthetical reference to the theory in a 1950 report on Longshore Labor Relations on the Pacific Coast, 1934-50. By  far the most substantive treatment of fixed group demand theory was in Edward M. Arnos's 1915 article, "An Interpretation of the Working Rules of the Carpenters' Unions of Chicago." Arnos was a doctoral student at the University of Chicago at the time when Hoxie was conducting his research on organized labor's views on the Taylor method ("scientific management") and Hoxie engaged his students in the research project. Hoxie also wrote on the concept of fixed group demand previously without using the terminology. I reproduce both Arnos's and Hoxie's discussion below.

Hoxie's novel method was to ask people why they did something. Appendix II of his Trade Unionism in the United States contains an 18 page outline and summary of  the "students' report on trade union program." Appendix VIII of Hoxie's Scientific Management and Labor presents over 100 pages of questions used by Hoxie in that study. In the latter study, Hoxie prepared preliminary statements based on extensive reviews of the literature, summarizing the labor claims made by scientific management and the objections to scientific management by unions. He then circulated the summaries to proponents of scientific management and labor leaders, respectively, for their revision and approval. By his own account, Arnos's investigation followed similarly thorough methods.

The point of such rigorous investigation was not to vindicate or invalidate the theories in question but to examine their claims in the light of experience. The outcome was not a triumph for one theory and a defeat for another -- a sorting into economic laws and economic fallacies -- but an assessment of the extent to which each of the competing theories had merit and their respective limitations. Hoxie operated in the spirit of ethical debate as latter proposed by Anatol Rapoport.

There are two aspects of Hoxie's discussion of fixed group demand theory I would like to emphasize. The first is his explanation of unions' restrictive rules as pragmatic, opportunistic measures adopted locally and retained through trial and error rather than in accordance with some overarching "theory" of how the economy works.

The second is a subtle but devastating critique of the pretension of economic theory to apply simultaneously to both the universal long run and to local immediacy. In Trade Unionism in the United States, Hoxie rhetorically affirmed the validity of the classical economic analysis "when applied to society as a whole, if there is any such thing, and in the long run" while objecting that for workers, "there is no society as a whole, and no long run, but immediate need and rival social groups." A few years later, Maynard Keynes echoed the assessment that "this long run is a misleading guide to current affairs."

In a brief essay on "The Theory of Unionism: Principles of Uniformity," Hoxie thinly muzzled a searing critique of economic orthodoxy by presenting it as the employer's naïve conclusion: 
Apparently it rarely occurs to the employer that this analysis is not complete. Having assumed that definite laws determine the manner in which income is shared among the productive factors, he apparently concludes, somewhat naively, that just as the laborers in society will in the aggregate profit by increase in the social income, so also will the laborers in any individual establishment profit by increase in its income.
Hoxie's "employer" is simply parroting the old "Say's Law" truism that, as Alfred Marshall put it, "the demand for work comes from the National Dividend; that is, it comes from work: the less work there is of one kind, the less demand there is for work of other kinds; and if labour were scarce, fewer enterprises would be undertaken." Marshall's "national dividend" was an updated and sanitized label for what a decade earlier in The Economics of Industry, he still referred to as the "wages-and-profits fund," which was too close to the discredited wages-fund to escape scrutiny. The bottom line, though, remained that "there is no such thing as general overproduction." There is only ever "commercial disorganization; and that the remedy for it is a revival of confidence."
The chief cause of the evil is a want of confidence. The greater part of it could be removed almost in an instant if confidence could return, touch all industries with her magic wand, and make them continue their production and their demand for the wares of others. If all trades which make goods for direct consumption agreed to work on and to buy each other's goods as in ordinary times, they would supply one another with the means of earning a moderate rate of profits and of wages. 
Although Marshall didn't mention this, it follows from his analysis of the impossibility of overproduction that in a crisis entrepreneurs commit the lump of confidence fallacy (or the fallacy of the fixed Confidence-fund). If only they understood how the "magic wand" of confidence works. Nor did Marshall happen to mention that the employers' stock remedies for hard times of cutting wages and/or laying off workers simply reflects their obliviousness to the fact that "there is no such thing as general overproduction."

Why worry about what Alfred Marshall wrote or didn't write 136 years ago? Because it is the dogma echoed down through the ages, such as in this 1986 gem by Richard Layard, How to Beat Unemployment:
The one fatal heresy in economic analysis is to take output as given. That is the 'lump of output' fallacy. You must always have a theory of how output is determined and you must never say, 'Higher output per worker reduces employment, because it reduces the employment needed to produce a given output'. Likewise you must never say 'More people cause unemployment', unless you can explain why output will not grow.
Along with Richard Jackman, Layard recycled the archaic and bogus analysis the next year in a pamphlet, "Innovative Supply-Side Policies to Reduce Unemployment" and yet again in 1991, adding Stephen Nickell to the team in Unemployment: Macroeconomic Performance and the Labour Market. This "analysis" became the basis of Tony Blair's and Gerhard Schroeder's miserable "New Supply-Side Agenda for the Left." Jonathan Portes's proudest accomplishment was explaining the lump-of-labour fallacy to successive cabinet ministers. And so the magic wand of confidence waves on...

But enough about the magic confidence wand (if there is any such thing). Below is some true grit from Hoxie and Arnos.

Robert F. Hoxie "The Theory of Unionism: Principles of Uniformity," in Readings in Current Economic Problems, 1915
The third charge against the unionist which we have undertaken to examine states that while he is struggling for increase of wages he is at the same time attempting to reduce the efficiency of labor and the amount of the output. In other words, while he is calling upon the employer for more of the means of life he is doing much to block the efforts of the employer to increase those means. 
There is no doubt that this charge is to a great extent true. In reasoning upon this matter the employer, viewing competitive society as a whole, assumes that actual or prospective increase in the goods' output means the bidding-up of wages by employers anxious to invest profitably increasing social income. It follows that in competitive society laborers as a whole stand to gain with improvements in industrial effort and process. In the case of the individual competitive establishment it is clear that the maximum income is ordinarily to be sought in the highest possible efficiency, resulting in increased industrial output. At least this is true where there are numerous establishments of fairly equal capacity producing competitively from the same market. Under such circumstances the increased output of any one establishment due to "speeding up" will ordinarily have but a slight, if any, appreciable effect on price. Each individual entrepreneur, therefore, is justified in assuming a fixed price for his product and in reckoning on increase of income from increase of efficiency and industrial product. Apparently it rarely occurs to the employer that this analysis is not complete. Having assumed that definite laws determine the manner in which income is shared among the productive factors, he apparently concludes, somewhat naively, that just as the laborers in society will in the aggregate profit by increase in the social income, so also will the laborers in any individual establishment profit by increase in its income.  
To this mode of reasoning, and to the conclusions reached through it, the unionist takes very decided exceptions. To the statement that labor as a whole stands to gain through any increase in the social dividend he returns the obvious answer that   labor as a whole is a mere academic conception; that labor as a whole may gain while the individual laborer starves. His concern is with his own wage-rate and that of his immediate fellow-workers. He has learned the lesson of co-operation within his trade, but he is not yet class-conscious. In answer to the argument based on the individual competitive establishment he asserts that the conditions which determine the income of the establishment are not the same as those which govern the wage-rate. Consequently, increase in the income of the establishment is no guarantee of increase of the wage-rate of the worker in it. Conversely, increase in the wage rate may occur without increase in the income of the establishment. Indeed, in consequence of this non-identity of the conditions governing establishment income and wage-rate, increase in the gross income of the establishment is often accompanied by decrease in the wage-rate, and the wage-rate is often increased by means which positively decrease the gross income of the establishment.  
The laborer's statements in this instance are without doubt well founded. The clue to the whole situation is, of course, found in the fact that the wage-rate of any class of laborers is not determined by the conditions which exist in the particular establishment in which they work, but by the conditions which prevail in their trade or "non-competing group." With this commonplace economic argument in mind, the reasonableness of the unionist's opposition to speeding up, and of his persistent efforts to hamper production, at once appears.
"An Interpretation of the Working Rules of the Carpenters' Unions of Chicago," Edward M. Arnos, 17th Report of the Michigan Academy of Science, 1916
Theory and trade unionism are almost contradictory terms. The trial and error method of testing rules, the ever changing conditions of the trade, the large number of men concerned in the agreement, the different nationalities represented in the union personnel, and the triennial agreements have left the carpenters' rules marked as if they are in a process. The constant changes in the agreements evince the carpenters' struggle to get control of the trade, first by one method or rule and then by another. This trial and error method has removed at least the trace of theory as a controlling force in the construction of the joint agreement. Journeymen are seldom conscious of any underlying theory of the rules in explaining their demands, methods, policies, and aims. Although the development of the rules has been free from the control of theorists, development has been in harmony with certain theories of business and human relationship. The theory of standardization, the theory of undercutting, the fixed group demand or lump labor theory, and the standard of living theory, are vital to the carpenters' rules. Journeymen may not realize the presence of any theories, nevertheless the officers interpret the rules in the light of these theories. To illustrate, one business agent said the rule prohibiting journeymen from taking their tools on the job before they were employed was to prevent men from gathering around the places of employment prepared to work, because the employers used their presence to intimidate the journeymen on the job; i. e., according to his theory of life, men who were out of employment would place themselves where they could underbid their fellows who were employed. To illustrate the underlying force of their fixed group demand theory, one of the officials said that they were in favor of a raise of wages to 70 cents per hour because there was a certain amount of work to be done and the carpenters could get 70 cents per hour as well as 65 cents. Thus consciously or unconsciously, the carpenters supported all of their rules by some of their theories of life. Let us consider these theories and their significance after careful analysis. 
… 
The presence of an unemployed group and their theory of undercutting necessitates standards and uniform units of measurement. Thus the first of the hypothetical theories is accounted for. This assumption of the constant over-supply of labor also presupposes that there is a fixed group demand for labor, thus their theory of a fixed group demand or "lump of labor" theory. The third theory to be considered is that of the fixed group demand. This fixed group demand is usually approached through the desire to share work among their members, which they accomplish by limiting the supply of labor. Their rules on apprenticeship so limit the number of apprentices that it is said that only the sons of the most prominent journeymen are indentured. The number of apprentices range from one to two per cent of the number of journeymen. Rushing and excessive work have the same effect upon the supply of labor, through the limitation of the amount of work to be done in a certain time. The eight hour day and holidays limit the number of working hours and thus limit the labor supply. The fixed group demand theory is supported by their experience of unemployment. The leaders contend that the unemployed are as numerous under low wages as they are under high wages. The hypothesis is that there is a certain amount of carpentering to be done in Chicago. This is fixed by the number of persons who live there. To quote an official, "a man wouldn't live in a tent if wages were high nor in two houses if they were low." Of course this opinion would not bear strict interpretation nor do they claim that for it. The constant increase in the scale of wages and the accompanying decrease in unemployment in the trade are often cited as proof of their hypothesis. Their wage slogans, "high wages breed high wages," "no wage reductions," "cheap wages make cheap men," and "get more now," have their origin in this group of facts. 
Their fixed group demand theory explains the union's defense for limiting the output. The public press has frequently denounced trade unions for limiting the output. Employers have made most bitter attacks upon the union for those rules and practices which result in limiting the output. The opponents of trade unions on this point usually argue that prices to the consumer are thus raised, and charge the union with a breach of good faith with society. The business man, the entrepreneur, and the classical economist would usually undertake to solve the problem of unemployment by reducing wages with the hope that the demand for labor would be increased by reason of the decrease in wages. Not so with the trade unionist. He has a different theory of business. The former groups think that prices and demand vary inversely, the latter group thinks that "there is a certain amount of work to be done and a certain number of men to do it. Each should be given a chance to do some of it." In a few words, their theory is that there is a fixed demand for commodities regardless of price, within a reasonable limit. According to this latter theory, a man does not buy a straw hat because it is cheap, but because it is the custom of certain classes to wear a certain kind of hat on certain occasions. The increase in wages for the makers of high hats would probably not decrease the demand for that particular kind of hat. On the other hand the author of the foregoing reasoning admitted that he would buy an automobile if the price dropped to one hundred dollars and unwillingly admitted that his demand in the automobile market would increase the demand for mechanics. Neither of the above theories are valid if applied to the extreme, and are contradictory when so applied. The carpenters observe from experience that a change in wages is not followed by a corresponding change in demand for labor. They try to take advantage of this slowness of "demanders" to adjust themselves to a changed condition of supply. The union theory operates in these cases where the demand for an article does not fall when the price is raised, or in technical language, Where the demand is inelastic, and the opponents' theory operates in those cases Where the demand for an article falls off rapidly as the price is increased, or in technical language, where the demand is elastic. The demand for salt and carpenter work is almost fixed or "inelastic," and the demand for automobiles is quite elastic. Therefore the carpenters' and the employers' theories are both valid as you limit their applications and neither theory has universal applications.

Saturday, June 24, 2017

California’s Battle for Single Payer

On June 1, the California Senate passed a health care bill that has folks hopeful:
A proposal to adopt a single-payer healthcare system for California took an initial step forward Thursday when the state Senate approved a bare-bones bill that lacks a method for paying the $400-billion cost of the plan. The proposal was made by legislators led by Sen. Ricardo Lara (D-Bell Gardens) at the same time President Trump and Republican members of Congress are working to repeal and replace the federal Affordable Care Act…The bill, which now goes to the state Assembly for consideration, will have to be further developed, Lara conceded, adding he hopes to reach a consensus on a way to pay for it. Republican senators opposed the bill as a threat to the state’s finances.
Per usual, the Republicans are claiming private insurance is better and one cannot raise taxes to pay for this. While there has been a lot of Democratic support, some Democrats have suggested this proposal needs to be more fully developed. Robert Pollin suggests it is all doable with certain “cost savings” and tax increases. He co-authored Economic Analysis of the Healthy California Single-Payer Health Care Proposal (SB-562). I’ll admit I have not read this analysis but at least we have a start here. Alas the bill is being shelved in the House:
A high-profile effort to establish a single-payer healthcare system in California sputtered on Friday when Assembly Speaker Anthony Rendon (D-Paramount) decided to shelve the proposal. Rendon announced late Friday afternoon that the bill, SB 562 by state Sens. Ricardo Lara (D-Bell Gardens) and Toni Atkins (D-San Diego), would not advance to a policy hearing in his house, dampening the measure’s prospect for swift passage this year. “SB 562 was sent to the Assembly woefully incomplete,” Rendon said in a statement. “Even senators who voted for SB 562 noted there are potentially fatal flaws in the bill, including the fact it does not address many serious issues, such as financing, delivery of care, cost controls, or the realities of needed action by the Trump Administration and voters to make SB 562 a genuine piece of legislation.” Rendon took pains to note that his action does not kill the bill entirely — because it is the first year of a two-year session, it could be revived next year. But the move is nonetheless a major setback for legislation that has electrified the Democratic party’s progressive flank.
It is good that this proposal is not dead and maybe much more work needs to be done. But California needs to lead the nation and Lord knows Washington D.C. is AWOL.

Thursday, June 22, 2017

Hoxie on "Fixed Group Demand Theory" (the "lump of labor")

From Robert F. Hoxie, Trade Unionism in the United States, 1917:
There is much scorn of unionists by economists and employers because of this lump of labor theory with its corollaries. This scorn is based on the classical supply and demand theory and its variants. Supply is demand. Increased efficiency in production means an increase of social dividend and increased shares, which in turn increase production and saving. Therefore, the workers cut off their own noses when they limit output or limit numbers. The classical position is undoubtedly valid when applied to society as a whole, if there is any such thing, and in the long run. But the trouble is that, so far as the workers are concerned, there is no society as a whole, and no long run, but immediate need and rival social groups. 
The fixed group demand theory is as follows: The demand for the labor of the group is determined by the demand for the commodity output of the group. The community—wealth and distribution remaining the same—has a fairly fixed money demand for the commodities of a group. It will devote about a given proportion of its purchasing power to these commodities, that is, if the prices of the group commodity are higher, it will buy less units and vice versa, but expend about the same purchasing power. Therefore, the demand for the labor of the group, profits remaining the same, is practically fixed, and increasing the group commodity output means simply conferring a benefit on the members of other groups as consumers without gain to the group itself. Therefore, to increase the efficiency and the output of the group will not increase the group labor demand and group wages. Decreasing the efficiency and output of the group will not decrease the group labor demand and the group wage. 
Increasing the number of workers tends to decrease their bargaining strength relatively and to lower the total wage and the wage rate. Increasing the efficiency and the output of the workers is equivalent to increasing the group labor supply, and so tends to lower the group wage and the wage rate. Decreasing the number of workers tends to increase their bargaining strength relatively and so to increase the group wage and the wage rate. Decreasing the efficiency and output of the workers tends to increase their bargaining strength relatively and so to increase the group wage and the wage rate. The introduction of labor saving devices is equivalent to increasing the labor supply and so lowering the wage rate. Limitation of output through shorter hours, etc., i.e., decreasing the supply of labor, increases bargaining strength and tends to increase the wage. Strikes and trade union insurance funds are means of temporarily withdrawing labor supply and so of increasing bargaining strength and increasing wages. In practice the group demand theory is simply the application by the unions of the principle of monopoly, admittedly valid. But this theory only in part explains union efforts to limit both individual and group efficiency and output and to limit numbers. These policies in part rest on other theories and considerations. 
Robert F. Hoxie committed suicide on June 22, 1916. For an overview of his important but neglected contribution to economic thought see Charles R. McCann Jr. and Vibha Kapuria-Foreman, "Robert Franklin Hoxie: The Contributions of a Neglected Chicago EconomistResearch in the History of Economic Thought and Methodology, Volume 34B, 2016.


Wednesday, June 21, 2017

Saudi Succession Shuffle

A not unexpected event has just been announced: 31-year old Prince Muhammed bin Salman bin Abdulaziz al-Sa'ud has been elevated from Deputy Crown Prince of Saudi Arabia by his father, 81-year old King Salman bin Abdulaziz bin Abdul-Rahman al-Sa'ud, to replace his 57-year old cousin, Prince Muhammed bin Nayef bin Abdulaziz al-Sa'ud.  The former Crown Prince is Minister of the Interior, a position he inherited from his father, the late Prince Nayef, who was Crown Prince prior to current King Salman, but died before the most recent king, Abdullah bin Abdulaziz bin Abdul-Rahman al-Sa'ud died at age 90 in 2015, so Salman got to be king and now has moved his younger son up ahead of his somewhat older nephew.  Muhammed bin Salman (MbS) is also Defense Minister, the position his father had taken in 2011 on the death of Prince Sultan, who was then also Crown Prince, with Salman prior to that serving as Governor of Riyadh province for 40 years.  MbS has by all accounts been running things in Saudi Arabia recently, being behind the aggressive war in Yemen that has gone badly and also probably the main orchestrator of both Donald Trump's visit to Saudi Arabia and the move to diplomatically and economically isolate Qatar.  Juan Cole describes MbS as being "sloppy" and "unwise," but he may be in position now to rule Saudi Arabia for a long time to come if this appointment is not reversed somehow by other members of the Saudi royal family.

It is possible that the trigger for this elevation has been reports in the last few days of the US Secretary of State, Rex Tillerson, and Secretary of Defense,  Mad Dog Mattis, turning increasingly against the campaign against Qatar pushed by MbS, despite Donald Trump's repeated support for it via Twitter.  Not only did Tillerson sell Qatar a bunch of F-15s a few days ago, but yesterday Tillerson demanded that the Saudis and Emiratis (from UAE) present their specific demands of the Qatar regime.  It has been two weeks since they initiated this campaign against Qatar, with the clear support of Trump, but indeed they have neither issued specific demands that by satisfying them Qatar could bring about an end to this diplomatic and economic embargo, nor have they presented a shred of evidence of the Qataris financing terror groups, the supposed justification for all this, although pretty much everybody knows that it is a more general annoyance by the Saudis with their not just going along with whatever the Saudis want as well as in particular the Qataris being too friendly with Iran, although even the anti-Iran Tillerson and Mattis realize that the US is allied de facto on the ground in the war against ISIS, which the Saudis have done near zero to support, not to mention Qatar hosting the US major air base that is being used in the campaign against ISIS/Daesh.

Regarding the tangled relationships in the Saudi royal family, all these current players are descendants of the founder of modern Saudi Arabia, Abdulaziz, who died in 1953 after uniting Saudi Arabia and having 43 sons and over 100 wives, although never more than 4 at a time.  Certain wives were more important than others and produced more important sons, with basically only three in play here regarding possible future succession to the Saudi throne.  Currently in charge and looking to cement their hold are the 7 sons of Abdulaziz's favorite wife, his cousin, Hassa bint Ahmed al-Sudairi, the so-called Sudairi Seven, of whom only two remain alive, Abdul-Rahman who was once Deputy Minister of Defense but was removed from that position and the succession by arguing with other members of the family, and the current king, Salman.  Of the others, the most important was Fahd who was king for over 20 years prior to Abdullah, dying in 2005, Sultan who long served as Defense Minister, and Nayef, father of the just deposed Muhammed from being Crown Prince.  This current shuffle amounted to an intra-Sudairi Seven switch, with the Sudairis appearing to nail down a strictly hereditary line that is theirs.

The main potential rivals would be the sons of late King Abdullah, the most important of whom, Mulab, succeeded his father as Commander of the tribally based Saudi Arabian National Guard (SANG). He might have the potential for pulling off a military coup, although the official military under the control of the new Crown Prince is probably more powerful, if push were to come to shove.  However, it seems that he does not have all that much support from other top Saudi royals.

More competent would be one of the sons of the late King Faisal, viewed without question as being the most competent and revered of the 43 sons of Abudlaziz, whose mother came from the al-Sheikh family, descendants of Muhammed bin Abdel-Wahhab, the founder of the Wahhabi doctrine that the
Saudi royal family has followed since 1755. At age 16 in 1919, Faisal represented his father at the Versailles conference.  He would later serve him as Foreign Minister and continued to do so even as king until his assassination in 1975 at the hands of a nephew.  The most competent of the second generation was his son, Sa'ud, educated at Harvard, who served as Foreign Minister from 1975 until just before his death in 2015, then the longest serving foreign minister in the world, but he is not available being dead.  Another candidate might be his 72 year old brother, Princeton-educated Turki, who ran Saudi intelligence from 1977 to 2001, when he stepped down 9 days before 9/11, with it being convenient that he had been the one who selected Osama bin Laden to go to Pakistan and fight the Soviets in 1979.  Turki has since served as ambassador to both the US and UK and is now Chairman of the King Faisal Foundation, a very powerful body, but he has reportedly angered family members by being too vocal in criticizing certain policies publicly.  More serious and reportedly a candidate for the succession when Abdullah died in 2015, is another Faisal son, Khalid, now Governor of Mecca, also educated in Princeton.  He is widely respected, but at 77, well, the Faisals are just too old, and quite a lot of commentary about the new appointment of MbS is that he is a millennial, and this is the moment of the millennials taking charge there, even if it is a "sloppy" and "unwise" and highly aggressive one that is doing so.

Frankly, this does not look good.  Having a hot head running Saudi Arabia rather than a cool son of the late King Faisal could end up leading to a lot more bad things in an already much troubled Middle East.

Barkley Rosser

Addendum: One should be wary about Wikipedia information regarding members of the Saudi royal family. Some of it is inaccurate.  Thus Wikipedia claims that Hass bint  Ahmed al-Sudairi died in 1969, but she was not only still  alive more  than a decade later, but was for all practical  purposes running the kingdom from a hospital bed through her powerful sons.

Addendum, 6/22:  Apparently Muhammed bin Nayef has made a recorded TV statement supporting his replacement as Crown Prince by Muhammed bin Salman. He has also been deposed as Minister of the Interior, no word on what else he might be doing, although no reports of jail or exile.  Presumably they will treat him semi-decently if he continues to play along.  Also, MbS is being portrayed as a sort of authentic "real Saudi," whom youthful Saudis really like, and who has this dynamic vision of the future (women will get more jobs, even if they still do not work with men).  He was educated inside Saudi Arabia and apparently does not speak English very well, unlike all those snobby Faisals with their Harvard and Princeton educations.  Also, he wears sandals, presumably the distinctively Saudi kind, rather than loafers. So, a real man of the people, even if hi is a sloppy hothead.

Monday, June 19, 2017

Should Cultural Appropriation By Elvis Be Condemned?

Probably I should not post something like this on Juneteenth, but I have become increasingly frustrated by what seems to me a very misguided discourse on cultural appropriation.  While I think that there are cases that deserve condemnation, a great deal of what is being denounced I think should not be denounced.  Indeed, without cultural appropriation I contend that we would have little culture of any sort worthwhile at all.  Most culture is the result of cultural borrowings and fusions, not all of them well understood, at least some amount of cultural appropriation, if you will.  Most of the time such cultural appropriation should be praised, not condemned  (and movements on campuses to restrict such supposed appropriations and efforts to fire anybody associated with them should be condemned).

So besides a lot of really stupid stuff on campuses about this, what has me moved to post this is the case of Elvis Presley, with posts recently floating around the internet and Facebook denouncing the late rock and roll singer for his reported cultural appropriation of supposedly authentically African-American rhythm and blues in his songs that helped create what is now known as rock and roll.  I think he should be praised for what he did, which arguably was cultural appropriation, but there are a lot of other aspects of  this case that I have  seen few comment on. So, I am going to point them out here.

The first is that if only those with ancestry from a group can use what are the cultural artifacts of that group, well, guess what, Elvis Presley almost certainly had African ancestry, even if as the son of a culturally white family born in the heart of the racist Deep South in Tupelo, Mississippi, he never made any mention of this likely fact overtly to my knowledge.  It is not even clear that he used this term, but it is pretty much accepted that he had Melungeon ancestry through his mother, and he did apparently claim to have Sephardic Jewish as well as Cherokee Indian ancestry through her.  While it is unlikely that there is much Sephardic Jewish input to the racial and ethnic mix that goes into the Melungeon population, and a long list of possible groups have been claimed including Portuguese and Turkish, there is no doubt that this group is a tri-racial group, with the largest components being various sorts of  Europeans with African, and less Native American, but some.

The origin of the group would seem to be intermarriages between indentured whites and blacks in Virginia in the mid-1600s, with these people moving into the mountains of Virginia while intermarrying with other groups, including at least some Native American Indians, with the current epicenter of this population being in Lee County in southwestern Virginia and neighboring Hawkins County, Tennessee.  This group suffered substantial discrimination due to its mixed race background throughout the 19th century and well into the 20th century.  In parts of southwest Virginia, regular white children would be threatened by their parents that if they did not behave, "the Melungeons will get you!" The first recorded use of the term dates to 1813 in a Baptist church document in Lee County, in which a woman is denounced for supposedly protecting a "Milungin" woman, which this woman heatedly denies, it obviously being something she did not want to be accused of.  The unremittingly negative use of this term dated even until after Elvis died in 1977, with the first change coming with a country song in 1979 that presented Melungeons as semi-heroic figures and there now being a movement to praise them.  Among those besides Elvis being possibly of Melungeon ancestry are Abraham Lincoln, Ava Gardner, Tom Hanks, Francis Gary Powers, and Bill Monroe of bluegrass fame.  In any case, Elvis very much fits the stereotype of these supposed "straight-haired mulattoes," with his straight black hair and swarthy skin color.

So, quite aside from the fact that Elvis might well legitimately be able to appropriate culturally African-American culture due to his almost certain African ancestry, there is another deeper matter.  What he appropriated was already a cultural fusion of European and African, and what he added to that to help create rock and roll, a supposedly white country-folk input, was also a European-African fusion. So what he did  was put one European-African fusion together with another European-African fusion to create a fusion of these two fusions, American rock and roll.  Who can denounce that?

On R&B, well, the rhythms are arguably African and much of the blues elements in melodic and tonal structures as well.  However, the instruments and the underlying tonal forms are European.  One runs into a similar pattern with jazz, although there is no question especially in the case of jazz that it was African-Americans who created it, as is the case of the blues part of R&B.  However,  one finds blues elements as well in country-folk music, the supposedly white music.  While the largest input into the country-folk tradition comes from the British Isles, there are other African elements, not just the blues part,but also certain instruments, most notably the banjo, which is an instrument that came almost straight and unchanged from Africa.  Given this latter fact it is a bit odd that it is an instrument now essentially never played by any African-Americans.  It is as authentically African as you can get.

So there it is.  Rock and roll is a fusion of two fusions.  We should thank the late mixed race Elvis Presley for his role in bringing about this fusion of fusions to create the most authentically American music of them all.

And a happy Juneteenth to one and all.

Barkley Rosser


Saturday, June 17, 2017

Is Trump's Apprenticeship Program Like His Infrastructure Program?

It looks like it might be in a crucial way.  Both involve lots of rhetoric about expanding programs that many support, apprenticeships and infrastructure.  However, on looking at them closer to the extent we can see anything specific aside from the rhetoric, it looks like they involve actual cuts in funding support for existing programs related to both apprenticeships (and more broadly worker training and retraining) as well as for in-process infrastructure projects such as those funded by CIG, in favor of vague plans for  some sort of private support for these programs, apprenticeships or infrastructure.

As it is, it looks like the rhetoric and privatization proposals for apprenticeships are much vaguer than those for infrastructure.  For the latter we have had the specific proposal to privatize air traffic control, a proposal that has previously gone before Congress only to draw opposition from GOP senators, not all of those  yet on board, along with supposed tax breaks for privatizing other parts of the infrastructure. 

What is supposed to constitute the support for the private replacement for  the currently publicly supported apprenticeship programs is much less clear, although one suspects that it will be the usual GOP panacea, some tax breaks.  I  suspect that we shall have to wait and see, which is ironic given that supposedly Trump was pushing this recently at least partly to distract us all from his self-incrminating tweets, but those tweets have so distracted his own administration that they seem increasingly unable to formulate any sort of detailed or  concrete plan for any real policies, if they ever were able to do so.  And this latest rhetoric on apprenticeships is just another embarrassing example of this floundering incompetence.

Barkley Rosser

Thursday, June 15, 2017

When Somebody Called "Mad Dog" Is The Only Adult In The Room

In the last few days it has come to pass that twice US Secretary of Defense, James "Mad Dog" Mattis has shown himself to be the only adult in the room in the Trump administration.  His first such exhibition of adulthood came during the bizarre spectacle of Trump's first full televised cabinet meeting.  Trump openly demanded verbal obeisance from those assembled, promptly delivered by all but one in the room, with some of them embarrassingly effusive, such as Reince Priebus declaring it to be a "blessing" to serve Trump.  Ugh.  Even SecState Tillerson chimed in with a relatively perfunctory bit of praise for Trump.  Only Mad Dog Mattis refused to go along, making a statement praising US military personnel around the world without a single word about Trump.

And then we have the underreported event yesterday that I saw on Juan Cole's blog that Mattis signed a $12 billion dollar deal for F-15s with Qatar.  Now I am not in general a big fan of  these Middle East arms deals with anybody, but in this case this blatantly goes against Trump's absolutely stupid and probably corrupt (Saudis paid $270,000 in hotel bills at Trump's hotel in Washington since Trump took office) support for the Saudi move to blockade Qatar and pressure it into  going along with Saudi aggression in Yemen and more generally against Iran.  Both Tillerson and Mattis made verbal statements last week arguing for a more balanced approach there, only to have Trump double down on supporting this very stupid policy.  Tillerson is  not able to cut deals independently supporting Qatar, but Mad Dog Mattis has just done so.

Maybe Trump will fire him, but I kind of think that maybe even he is  not quite that stupid in the current circumstances.  So there we have it, having to thank somebody nicknamed "Mad Dog" twice in a few  days for being the much=needed adult in the room.

Barkley Rosser

Wednesday, June 14, 2017

Technically Social Services, Toll Roads, and Adam Smith

Nina Shapiro presents a must read entitled the “Hidden Cost of Privatization”. I will not even attempt to do its excellent discussion beyond noting some conservatives what to pretend that the only public good is national security but she makes the case that roads are also a public good. Guess who also made that case?
as Adam Smith emphasized in The Wealth of Nations, roads and other transport facilities should be undertaken by governments not to increase the revenues of the “sovereign,” or “defray” the expenses, but to “facilitate the commerce of the nation.”

Monday, June 12, 2017

Sean Spicer v. Tim Worstall on India’s Growth Rate

I just listened to some babbling by press secretary Sean Spicer which sent me trying to check the facts on India’s growth since 2000. More on that later but let me share with you a related rant from Tim Worstall:
India has reported GDP growth of 7% for the December quarter. That's just not a number I believe I'm afraid, not when we try to consider the effects of demonetisation.
Read this rest of this at your own peril. To be honest, I got a little bored with it all. Spicer just now said India has enjoyed 7% growth but then he claimed that India’s GDP now is 6 times what it was 16 years ago. But that would require a 12% growth rate as a 7% growth rate would have only tripled real GDP over this period, which is approximately what has happened. Of course India’s nominal GDP may be 6 times what it was since the beginning of the century given that its inflation rate has averaged near 5%. Look – I doubt Spicer gets any of this. It is more likely someone else in the White House gave him these misleading talking points. Why? I have no idea. But I was amazed that not one of the reporters picked up on this absurd spin. Yes – we need smarter reporters.

Sunday, June 11, 2017

Dani Rodrik on German Trade Surpluses and US Trade Deficits

John Judis interviews the very insightful Dani Rodrik:
So in the case of Germany, I do think Germany is the world’s greatest mercantilist power right now. It used to be China. China’s surplus has gone down in recent years, but Germany’s trade surplus is almost 9 percent of GDP. And they are essentially exporting deflation and unemployment to the rest of the world. I think the damage, though, is done to the rest of Europe and not the United States. In addition, it is not a trade problem. It is a macro-economic problem. The solution is to get German consumers to spend more and save less and the German state to spend more and to increase German wages. It is not the trade policies of the US or any other country that is going to be able to address this issue. It is similar to the way Trump has picked up grievances about how trade agreements have operated in the United States. These agreements have created loses, and grievances that have not been addressed, and I think there is a lot of truth to those kind of things, but I don’t think he has any realistic way of dealing with those things.
This was after Dani noted Trump’s complaints with respect to Germany’s trade surplus were “bonkers”. Now I wish I had said that. Dani next turns to the U.S. trade deficit in response to a question whether it is a problem:
Yes, but I don’t put it on the top of our concerns. There have been times when it is a bigger issue. The U.S. could use more aggregate demand and one of the places it could come from is smaller trade deficit. But you could get the same result more effectively through a more aggressive fiscal stance on the part of the federal government and the states, particularly through expenditure on infrastructure. I do think the low labor force participation is something we should try to bump up and I think there is a place for increasing demand. A lower trade deficit might contribute a little bit to raising it, but I don’t think it’s where the major action is.
I’m all for more infrastructure investment – in fact, a lot more. Of course there are couple of qualifiers here. One – if you got a lot more, we probably need to raise taxes to offset any excessive fiscal stimulus. But secondly – it seems this agenda has been put on hold unfortunately. But Dani generally is right – we need a bit more aggregate demand. Rather than use trade protection which will likely strengthen the U.S. dollar with the usual result that net export demand on net will not change, let’s try something novel. I’m talking about lowering U.S. interest rates. Yes – I know the Federal Reserve seems hell bent on doing the opposite but that is a mistake. The ECB has been pursuing an aggressively easy monetary policy which has devalued the Euro with respect to the dollar, which of course raises German net exports and lowers our net exports. If the Federal Reserve reverses course and lowers interest rates, we could get a much needed devaluation of the dollar.