Archive for June, 2008

Can we have some more?

June 30, 2008 Leave a comment

Jared Bernstein, the Democratic Party’s left-wing economist darling is on a tear again.

To paraphrase Former Vice President Mondale, Jared has revealed that Republicans will spend you into the poor house, as quickly as the Democrats – the difference being the Republicans won’t admit it, while the Democrats will wear their profligacy as a badge of honor:

… all this conservative talk about cutting spending is just that: idle chatter. When push comes to shove and political forces are in play — and when aren’t they? — McCain will support most government spending as much as the next guy or gal. Conservatives from Bruce Bartlett to Larry Kudlow to Grover Norquist can caterwaul from here to eternity about “holding the line on spending,” but the phrase is meaningless. It all comes down to cases, and there will always be cases, like these two bills targeted at offsetting the current failures in housing and labor markets, that are worth supporting. And enough politicians will support them such that they become law.

Having exposed the most recent Republican about face on the issues of unemployment benefits and the mortgage meltdown, Jared goes on to point out direct government spending as a share of GDP has held virtually unchanged at about 20 percent since 1959.

Thus, voters should expect to ante up at current levels despite the outcome of the November presidential elections:

… there are big differences between the D’s and the R’s on the role of government. But barring a percentage point of GDP either way, the differences amount less to the level of spending and more to competence and fiscal stewardship.

For Jared, this is good news for two reasons: first, it makes the current scale of government spending appear as the natural cost of governing a large, complex, and sophisticated economy which is, nevertheless, prone to, “market failures,” like economic downturns and crashing housing markets.

Second, It make it possible for him to declare, “If anything, the pressing needs of the environment, public infrastructure, and health care suggest that share is likely to go up before it comes down.”

So we are left with this Hobbesian choice:

No matter who runs the show, there will be spending, and it will cost roughly the same to have good government or lousy government.

We want to state, at this point, we a completely in favor of, “good government” – whatever that is. It is likely that, “good government,” is preferable to, “lousy government,” – and, we note, for emphasis, it has the word, “good,” right in its name!

Lousy government – who wants that:

… given [the Republican] addiction to big tax cuts and war, a conservative government would also be an evermore indebted government.

Wait a darn minute Jared. (We just loved his use of the word, “damn,” in his post – its just so edgy!!!)

Isn’t Barack in favor of big tax cuts and an unchanged pace of military spending?

Okay, he is against the war in Iraq – thus far – but he is offering no change in the level of military spending, promises to “rebuild” military forces, and will continue to wage a war in Afghanistan.

And, neither he, nor John McCain, will touch the sacred obligation of repaying the holders of the public debt.

So, how is he going to do all this, AND, address the, “the pressing needs of the environment, public infrastructure, and health care,” AND, stop accumulating more public debt?

Jared has the answer:

… we live in a complex world, where markets can provide only partial solutions to the challenges we face. Market failures abound, and government will unquestionably be called upon to repair these failures. For years, we’ve elected politicians who’ve railed against this reality, pretending that they can refund that fifth of the economy that we spend on government –“it’s your money!”– and still provide the services we want and need. To put it mildly, it hasn’t worked. We’re spending the same share as ever, yet we’ve squandered years when we could have been making progress against the challenges of globalization, of environmental degradation, of deteriorating infrastructure, of economic inequality, of costly inefficiencies in health care.

That answer, in short form is this:

For the past 50 years, your government “squandered” 20 percent of GDP and still failed to address fundamental economic damage caused by market failures.

Can we have some more?

Notes on a Work Free Society has been posted to Creative Capitalism project

June 29, 2008 1 comment

We have posted the piece, Notes on a Work Free Society, to Michael Kinsley’s new blog, Creative Capitalism.

The blog is part conversation, part collective publishing project, designed to address billionaire Bill Gates’ concept of Creative Capitalism.

As Kinsley sums up Gates’ idea:

Despite his move from capitalism to philanthropy, Gates believes that some of the world’s problems — especially the problems of the world’s poorest countries — are too big to be solved by philanthropy. Only capitalism can address them successfully. But — as he argued in a speech at Davos in January — capitalism is much better at serving the needs of the the prosperous than the needs of the poor. He goes on to argue that capitalism needs to be, and can be, reformed to solve this problem. He called this new system “creative capitalism.”

Asks Kinsley,

So why isn’t his approach — make the money, then give it away; “to every thing there is a season,” and so on — the right approach? That is one question raised by creative capitalism. There are others. Wouldn’t the small-d democratic approach be: make the money and then tax part of it away? When corporations start giving money away or devoting it to good works, aren’t they cheating their shareholders? (That was Milton Friedman’s position, you won’t be surprised to hear.)

To explore these questions, I’m producing a book. And “producing” is the right word. This is a literary experiment as well. The book will be derived from a private website and a public blog in which economists and others debate whether “creative capitalism” is meaningless, dangerous, useless, maybe useful, very useful, or brilliant. Anyone interested is welcome to join in at As the project progresses other contributions to the book will be published on this site and perhaps elsewhere — all in the spirit of web collaboration. The book will be out by the end of the year.

Notes on a work-free society

June 25, 2008 4 comments

Since, this is the summer before 2008 election season, perhaps, it might be a good time to just take a step back and consider our situation beyond the next four years, as it may influence how we decide to vote, and what we might demand of those for whom we vote.

Thinking more long term should be easy, since between now and the end of August will be silly season – consisting mostly of catfights among the candidates over who is whiter or blacker, older or more inexperienced, more patriotic, tougher on terrorism, has more flag pins in his lapels, and, more likely to betray every campaign promise sooner.

In another thread, we have been writing on the topic of government’s share of GDP, in light of Barack’s likely November victory over the bankrupt Republican Party, and its unbridled quest to bankrupt the rest of us.

That thread has led us back to the Woodrow Wilson Administration and the earliest moment when the idea took hold in Washington, that it could permanently command ever greater resources simply by actively expanding the economy, and, our collective time on the job.

Which caused us to consider the following: Is it possible to set the goal of creating a work free society in the next twenty years as the national economic priority? Not just reduce working time, but, eliminating work entirely – is this possible?

It is, we admit, an astonishingly arrogant policy objective.

In our collective mythology work has always existed, and, is likely to be a constant companion of humanity until the species is extinct.

But wait a minute – is that really true?

Work today consists of leaving our homes and entering the employment of one or another corporation for wage, salary or commission – each of these being relatively recent inventions. Work, as we now define it, mostly did not exist two hundred years ago, and, is likely an occurrence of only limited historical duration.

In fact, up until about 1940, the time our industrial era ancestors spent at work shrank more or less continuously, and, free time away from work gained a greater share of their daily lives.

So, it really is possible to speak of a future where we – or at least our children – could be free of any economic necessity to work.

If you give it some thought, you quickly realize a work free life has always been with us, in one form or another, for most of human civilization. Imagine a work free life as a product – a widget, for example – this widget has always been available, but it was just a really, really, expensive, and, as such, beyond the means of most members of society.

However, kings could afford it; the upper caste of most ancient societies could afford it. And, there are people of our own age (Warren Buffet, for instance) who could easily afford. Still, by and large, the price of a free time widget remains well beyond the means of most of us – a luxury item.

Conceptually, then, creating a work free society is a simply matter of getting the price of this widget to the point where it is inexpensive enough to be enjoyed by everyone in society – free would be even better.

There is a precedent for reducing the price of very expensive items like our free time widget to zero: see, for example, the History of the Book.

Up until quite recently book production was a very long tedious process, involving many months of intense labor. Just as important, making another copy of a book – the Christian Bible, for instance – consumed as much time as the production of the original.

As you would expect, a book was highly prized as a result, and, as much a symbol of wealth as it was a means of transmitting information.

Today, you can have your very own copy of the Bible by going to this site and creating a copy for yourself in about 5 seconds – depending on the speed of your internet connection.

Of course, the publishing industry is not all that happy with this, but who cares?

The same is true for just about any piece of music you might wish to enjoy – once digitized, a rare piece of literature, or, the latest Jay-Z CD is instantly available in whatever quantities we demand.

When production costs approach zero, price disappears – and, despite the RIAA‘s constant, and, annoying complaints to the contrary, even the most powerful lobbies in the world can’t recover their market when that happens.

The journey from tedious months-long reproduction of the Bible and other ancient texts to a portable document format (.pdf) download took thousands of years and an innumerable series of technological innovations.

And, during this long transition, not one person ever conceived that ultimately the reproductions of books, music, stage performances, etc., might become so cheap as to be costless, and, as a result, without any market price at all.

No one had that as a goal; no one saw any further than the next step in that process, until – BAM- it happened, like a bolt out of the blue. But, that collective effort has, over the centuries, turned those things which would have once been for the exclusive enjoyment of the very wealthiest in society into a common object of use with little more market value than rain water.

And, I think this can also be true for our free time widget: exclusively enjoyed today by the likes of Warren Buffet, enjoyed tomorrow by everyone.

It can be argued that the free time widget is actually composed of hundreds of very important products we likely will consume over our entire lifetime – each of which require a definite amount of time to produce, and, which can’t be simply digitized down to zero production cost.

For instance, my twin his-and-her Hummers cannot be reduced to a few million bits of digital information.

But, as we have witnessed since the founding of this country, the fact that an object cannot be reduced to digital information does not imply it cannot be virtually cost free to produce.

The best example for this is agriculture.

When our nation was founded, 99 percent of of its citizens made their life by farming. It literally took the bulk of all the nation’s work time to set food on the table.

Today, only about one half of one percent of the population remain in farming – an astonishing reduction in the work time devoted to feeding ourselves accomplished in about 200 years.

It is impossible to digitize a Hummer, but, it is still possible to so lower the work time effort of producing one it becomes costless.

Moreover, projects of this astonishing scale have been undertaken several times in the Twentieth Century.

During the Great War and again during the World War II, the United States managed to free more than half its production to wage a global catastrophe. Nations around the globe made similar efforts. This required such a feat of economic management as to have dwarfed any and all previous efforts combined in the long history of humanity toward such an end.

By freeing production to support the war effort, the United States, Britain, France, and Germany were also unwittingly reducing the cost of free time – all that stuff and all those men on the battlefield killing each other were supported by the rest of society, and contributed nothing to society’s living standard.

When you prove a nation has the capacity to devote half of its GDP to a global military catastrophe, you also prove half the cost of a free time widget can be eliminated through sustained concerted effort.

In 1950, as we will show, the Truman Administration undertook a similar effort to sustain an global encirclement of the Union of Soviet Socialists Republics which lasted for some 40 years, and, which machinery still is in place today.

In 1961, President John Kennedy proposed the nation undertake an effort to place a human footstep on the Moon – a massive feat of science and engineering which revolutionized virtually every field of human knowledge – up to, and including, breakfast drinks.

Imagine the impact the challenge of creating a work free society would have on our society today.

It is as simple – or complex – as taking a product exclusively enjoyed by only the very wealthiest in our society, and, bringing the cost of producing that product so low as to be free – and, we certainly have experience doing that.

That is the great challenge of the opening decades Twenty-First Century – and, it could be accomplished in as little as twenty years if only there were some exotically different kind of candidate for president in this year’s race.

Barack, can you smell what we’re cooking?

Just when you think it might be safe to support Barack…

June 24, 2008 Leave a comment

Jared Bernstein opens his mouth again, and, new questions are raised.

In this episode, the intrepid defender of all things government come up with another reason to gang-rape your wallet and hand the proceeds over to questionable causes.

Says Jared:

… we have been over-consuming and under-investing. And here’s part of the solution: a major, smart, strategic program to revitalize the nation’s infrastructure.

Oh, do tell. Exactly how have we been over-consuming and under-investing, Jared?

… markets under-invest in public goods and for a very simple reason: private firms can’t claim enough of a return on such investments, so they fail to invest enough in them.

What does this mean, Jared? If, markets “invested” in public goods, it stands to reason the goods would not be public, right?

So, when, for instance, private companies like for-profit hospitals exist, we do not classify them as “public goods,” for the simple reason there is nothing public about them.

But, do for-profit hospitals under-invest?

Do for-profit educational institutions under-invest?

Do operators of for- profit roads – as exist in California – under-invest?

So, what is Jared talking about, when he states, “we have been over-consuming and under-investing?”

Who is we, Jared?

“We,” of course, is Washington.

Washington has been “over-consuming,” and “under-investing.”

Washington has been neglecting the the roads and bridges of this nation, as it has poured trillions into 24-7 global military operations, uninterrupted, since World War II.

Washington has also neglected communications, education, healthcare, water systems, energy conservation and climate management – about every major system required for an advanced economy to function efficiently.

But, we have the coolest gadgets ever fielded by an army in the history of warfare. Generals can sit in the Pentagon, and watch real-time as a small troop of Taliban fighters are taken out in the remote mountains of Pakistan.

We have smart missiles that can blast an Iraqi resistance fighter into paradise, while cattle graze peacefully nearby.

We got SHOCK, we got AWE, we got kids who graduate from high school and couldn’t make change if the register at McDonald’s didn’t provide a hint.


But, damn, we can kill some Taliban.

And, the only proposal the most progressive economists in the Democratic Party can come up with is some minor infrastructure repair to produce a little ECONOMIC pump-priming.

This is their hair-raising, wild-eyed, left-wing, radical response to the Republican agenda?

This, is what frightens conservative mouthpieces?

That the Democratic Party would continue to sail aircraft carriers around the Persian Gulf AND repair a bridge or two?

Is THIS the change we are supposed to believe in?

Is serious left criticism of government’s share of GDP possible? (9)

June 20, 2008 1 comment

Continued from here.

This is the background for National Security Council Memorandum 68 (NSC-68):

The United States emerged from from World War II – in somewhat better economic shape than it went in.

(We will ignore, for the time being, that this failed attempt at collective race suicide resulted in the slaughter of 72 million persons – roughly 4 percent of the population of the belligerents.)

The Great Depression had receded into the background of American life with a vengeance. Gross Domestic Product is estimated to have nearly doubled during the war, entire industries, built from scratch, and, an almost innumerable list of scientific and technological breakthroughs had added productive capacity of the society.

By 1939, the industries of all major nations were operating full on in a desperate heat to increase their military capabilities against their rivals.

By 1942, every major nation, save France, produced more than it had in 1938.

By 1945, owing to the massive destruction imposed on the Axis powers – Germany, Italy, and Japan – the Allies had increased their GDP from twice to 5 times the former.

The global impact of this massive ramping up of industry was quite simply staggering by the standards of the time: nearly 5 million military trucks produced by all countries; nearly 1 million aircraft of all types; 51 million metric tons of merchant shipping; 193 aircraft carriers.

We include the table below, drawn on data provided by the Wiki to give you an idea of the scale of the war effort:

According to data from the Bureau of Labor Statistics, 30 million voters in the goods producing sector supported themselves, plus another 16.5 million working in the services sector, plus, 6 million more in government, AND, an additional 16 million serving on active military service, in two major combat theaters, stretching more than two-thirds of the way around the globe!

According to another study:

In 1939 the United States devoted less than 2 percent of its national output to war, and about 70 percent to satisfying immediate civilian desires. The rest went to civilian government expenditures, private capital formation, and exports. By 1944, the war outlays were 40 percent of national output. Industrial production doubled from 1939 to 1945 (but 1939 was still a depression year), with production increasing at the rate of 15 percent per year. Manufacturing employment increased from 10,151,000 in 1939 to 16,558,000 in 1944, and the percentage of the work force involved in manufacturing increased from 19 to 26 percent. The rest of the people were neither farm nor factory workers (more women were at home than were in the factories, on the farm as workers, or in the military). All segments of the labor force decreased their percentage of workers except industry, the military and civil service. Agricultural employment fell from 9,450,000 in 1940 to 8,950,000 in 1944, while people in nonagricultural industries went from 37,980,000 in 1940 to 45,010,000 in 1944. Most of the increase came from sopping up unemployment (which was 8,120,000 in 1940 and only 670,000 in 1944) and employing more women.

Despite this massive, sustained war effort, the authors of this study noted:

The War Production Board thought that the American people during the war were “subjected to inconvenience, rather than sacrifice.” By comparison to the situation facing civilians in all other nations at war, it would be hard to argue with that assertion. At the height of the war the government spent $94 billion, and of that $81.6 billion-87 percent-was war spending. The budget was 80 times greater than in 1939, 54 times 1940 and 14 times 1941. But the budget expansion was such that civilians truly did not suffer because of the war, and when one considers that unemployment had all but disappeared and what joblessness remained was usually only temporary, the home front prospered. In terms of calories, people were generally fed better than they had been before the war, and they consumed more meat, shoes, clothing and energy.

Seventy-two million slaughtered human beings, yet, war had become an “inconvenience” for the civilian population.

Cold truth, perhaps, but no colder than this excerpt from an article published during our present war:

Since the start of the Iraq war four years ago this week, Americans have bought more than 110 million cell phones and spent $35 billion on HDTV sets.

They have moved into 5 million new homes, bought about 60 million new cars and trucks and watched the Dow Jones industrial average climb from 8,200 to 12,000 and beyond.

Despite bloodshed in Baghdad from a conflict lasting longer than U.S. participation in World War II, life for most Americans has clicked along without personal loss or even higher federal taxes to cover the fighting.

“We’re in a country where it isn’t clear in our daily routine that we’re living with war,” said Carolyn Marvin, a communications professor and cultural historian at the University of Pennsylvania’s Annenberg School for Communication.

For us as a nation, war has ceased even to be an inconvenience.

War good for business?


Business has become good for war.

Thanks, in large part, to NSC-68

To be continued

Is serious left criticism of government’s share of GDP possible? (8)

June 19, 2008 Leave a comment

Continued from here.

What we have asserted so far, in the previous seven articles, is not, in our minds, demonstrable facts – scientifically proven knowledge – but is being done to offer a reasonable answer to the question we have posed: Is serious left criticism of government’s share of GDP possible?

We want to emphasize this for two reasons:

  1. We are not qualified to settle this issue to the extent required for a peer reviewed study in the field of economics. The material covered here bridges a wide field of separate inquiries, the expert voices for which are far more qualified than we to investigate and confirm, or, refute, in part or as a whole – however little attention it will ever get from them.
  2. What we have asserted so far is of such minor importance, in comparison to that which we will assert next, that the spectrum of political thought in this country – left to right, conservative and liberal, Democrat and Republican – will immediately ignore it, as it strikes to the very root of government itself.

That assertion can be summed up briefly:

In this present crisis, government is not the solution to our problem; government is the problem. Ronald W. Reagan

We are, in other words, suggesting the left embrace this statement, and, provide the kind of honest criticism of government which is necessary to make that criticism the driving force of American politics.

We angrily reject the argument that embracing this view is an argument to embrace the author of the Welfare Queen myth, any more than embracing Socrates views on ethics is tantamount to seeking the company of boys.

Apart from the fact the right, including Ronald Reagan, never truly believed in the truth of this statement – just as they have, by and large, never disowned their gay children, practiced abstinence before marriage, or, avoided taking advantage of the most liberal abortion laws when circumstances required – they have not made even the slightest practical dent in the growing black hole of government spending.

So far as we can tell, there has never been a single Republican, or, Democratic admistration – federal, state or local – since the Great Depression which has spent fewer dollars, and, employed fewer people, by the end of its term in office than it had at the beginning.

Not one.

And, as we will show, the reason for this is simple: Since 1950, permanently, and, even before, as has been seen in the Great War, and, the Great Depression, government has emerged as an independent player, pursuing its own agenda, and exploiting the growing productive power of society on its behalf, against society – and, so far as we can tell, this condition exists not only in this country, but in all nations, simultaneously.

But, there is also another reason: the right has never been able to come to grips with the implications of Ronald Reagan’s statement – massive and sustained unemployment, economic collapse, the likes of which has not not been seen since, and would dwarf, the economic catastrophe which accompanied the Great Depression.

The potential for this calamity in the event of a reduction of government’s share of GDP can only be prevented by the reduction of the work week.

However, it is our belief, this calamity is likely not only in the case that Ronald Reagan’s dictum is observed, but, even if it is not.

To explain why, we now fast forward to the story of National Security Council Memorandum 68.

To be continued

Is serious left criticism of government’s share of GDP possible? (7)

June 19, 2008 Leave a comment

Continued from here.

We would like to say there is at least one powerful argument in favor of Hunnicutt’s assertion that,

Roosevelt and the majority of Americans saw this free time as a tragedy that had to be eliminated by increasing economic activity-an activity stimulated by government spending if necessary.

Although true, it is just not related, in my opinion, to the unemployment crisis spawned by the Great Depression.

There is another cause, which predates the Great Depression, and, which Hunnicutt calls the only competing alternative to shorter work time on the part of American voters: the need for higher wages.

What we have to show, simply enough, is that this demand for higher wages became an over-riding concern of American voters by the time of the Great Depression, and, when combined with the catastrophic unemployment of the that event, made it possible for Roosevelt to offer his alternative approach as a conservative, palatable, alternative, bridging both concerns: avoiding unemployment and generating more income.

As the chart below shows, since 1914, and continuing until today, the price level has exploded upward in a persistent, secular, inflationary spiral.

A spiral which, based on figures supplied by the Bureau of Labor Statistics, has, over the past 94 years, made it necessary for voters to earn $2166 today for a basket of goods they could have purchased with $100 in 1914!

An argument could be made here, and we will make it, that even the catastrophic unemployment of the Great Depression affected only 25 percent of the population.

Inflation, on the other hand, though muted by the deflation of that event, continued to exert a powerful psychological pressure on the thinking of American voters – employed and unemployed alike – making Roosevelt’s expansionist policies appear to be a safer alternative to doing nothing, on one hand, and, reducing the work week, on the other.

In a monetary regime of rampant inflation, “free time,” is experienced as a tragedy not just in the obvious form of unemployment, but also in the associated forms of sub-employment, and, stagnant wages.

This free time can exist in the form of a voter unable to find work, unable to find enough work, forced by circumstances to accept lower wages for work, and, forced to accept year over year net negative increases in wages for work.

And, its resolution can appear in the form of extending the voter’s working time on a first job, adding a second job, adding more members of the household to the workforce, and, relying on extended family members to supplement income.

Thus we find, according to one study by Evan Roberts in 2003 – well after Hunnicutt’s paper, of course – this change in the labor force participation of married women:

One of the most important changes in the United States labor market in the twentieth century was the increased participation of married women. In 1900 just 5.6% of married women were in the labor market. By 1998 61.8% of all married women were working or looking for work. The change is all the more notable because the labor force participation rates of single women have grown not twelve hold, but just by half in the same century (from 43.5% to 68.1%). Increased participation by married women in the labor market has occurred because the relationship between characteristics of women and their families, and labor force participation at a point in time has changed.

Of course, the actual relationship between married women entering the labor force and inflation is far more complicated than this simple assertion – and, far beyond this blog’s ability to nail down.

However, the coincidence of these two trends – price level, and work force participation of married women – indicates there is much to be understood on the subject.

To be continued

Is serious left criticism of government’s share of GDP possible? (6)

June 18, 2008 Leave a comment

Continued from here.

Now, before we proceed, we have to address the rather disturbing disagreement between ourselves and Mr. Hunnicutt, who offered this unpalatable conclusion to his groundbreaking 1984 work, THE END OF SHORTER HOURS,:

Certainly, the end of the shorter hour movement has many dimensions and causes which must be explored. But the short narrative of events presented in this essay suggest two important dimensions and causes-one social, the other political. Among the reasons for the ending of the shorter hour movement was the fact that American attitudes toward free time changed. For over a century, American workers and their supporters valued shorter hours. They did so for a variety of reasons-some economic and some non-pecuniary. Only higher wages competed with this issue for workers’ attention. During the 1920s and early 1930s labor and other groups and individuals saw in “the progressive shortening of the hours of labor” a practical foundation for liberal idealism as well as a necessary remedy for economic ills. But during the Depression, free time took the form of massive unemployment. Instead of accepting labor’s 30 hour week remedy, Roosevelt and the majority of Americans saw this free time as a tragedy that had to be eliminated by increasing economic activity-an activity stimulated by government spending if necessary. The concept of free time as leisure-a natural part of economic advance and a foil to materialistic values was abandoned. The reform continuum in this one area was broken by Roosevelt’s New Deal and by the modern adherence to economic growth as the great liberal goal.

As far as we can tell, in this view, there was a kind of cultural shift in the way Americans viewed a shorter work week. The majority of Americans came to see “free time as a tragedy.”

And, as Franklin Delano Roosevelt agreed with them,

Since the Depression, public policy has been designed to maintain “adequate demand” and “full employment.” Government deficit spending, liberal treasury policy, increased government payrolls, and expanded public works projects have usually been employed whenever the private sector has shown indication of stagnation.

It is possible, we suppose.

However, we tend to support the view of a contemporary of those events, who had quite a different take on things – Bertrand Russell

Russell penned the following in 1932, ahead of the debates in Washington:

In view of the fact that the bulk of the public expenditure of most civilized Governments consists in payment for past wars or preparation for future wars, the man who lends his money to a Government is in the same position as the bad men in Shakespeare who hire murderers. The net result of the man’s economical habits is to increase the armed forces of the State to which he lends his savings.

Following up on the point, Russell notes the lessons learned, so to speak, from the carnage of The Great War:

Modern technique has made it possible to diminish enormously the amount of labor required to secure the necessaries of life for everyone. This was made obvious during the war. At that time all the men in the armed forces, and all the men and women engaged in the production of munitions, all the men and women engaged in spying, war propaganda, or Government offices connected with the war, were withdrawn from productive occupations. In spite of this, the general level of well-being among unskilled wage-earners on the side of the Allies was higher than before or since. The significance of this fact was concealed by finance: borrowing made it appear as if the future was nourishing the present. But that, of course, would have been impossible; a man cannot eat a loaf of bread that does not yet exist. The war showed conclusively that, by the scientific organization of production, it is possible to keep modern populations in fair comfort on a small part of the working capacity of the modern world.

The Great War, in short, had taught governments, they could maintain massive military resources at the ready, even as the material living standard of the population improved.

Now, it is possible only Russell understood this new reality spawned by the improvement in productivity brought about by industrialization.

It is possible, Franklin D. Roosevelt, the President, and new CEO of America Inc., in 1933, did not really understand how industry had changed the potential for war making and war preparations, despite having served as Assistant Secretary of the Navy – the most logistic intensive branch of the services.

It is possible he did not understand this, even though, as Assistant Secretary, he helped expand the Navy in those years, and, founded the United States Navy Reserves.

Perhaps, we can also ignore this:

Roosevelt developed a life-long affection for the Navy. Roosevelt negotiated with Congressional leaders and other government departments to get budgets approved. He became an enthusiastic advocate of the submarine and also of means to combat the German submarine menace to Allied shipping: he proposed building a mine barrier across the North Sea from Norway to Scotland. In 1918, he visited Britain and France to inspect American naval facilities; during this visit he met Winston Churchill for the first time. With the end of World War I in November 1918, he was in charge of demobilization, although he opposed plans to completely dismantle the Navy.

Perhaps, most importantly, we can forget, or ignore, this:

In the aftermath of World War I, the defeated German Empire signed the Treaty of Versailles.[7] This caused Germany to lose a significant portion of its territory, prohibited the annexation of other states, limited the size of German armed forces and imposed massive reparations. Russia’s Civil war led to the creation of the Soviet Union which soon was under the control of Joseph Stalin. In Italy, Benito Mussolini seized power as a fascist dictator promising to create a “New Roman Empire.”[8] The ruling Kuomintang (KMT) party in China launched a unification campaign against rebelling warlords in the mid-1920s, but was soon embroiled in a civil war against its former Chinese communist allies. In 1931, an increasingly militaristic Japanese Empire, which had long sought influence in China[9] as the first step of its right to rule Asia, used the Mukden Incident as justification to invade Manchuria; the two nations then fought several small conflicts until the Tanggu Truce in 1933.

National Socialist Adolf Hitler became the leader of Germany in 1933 and soon began a massive rearming campaign.[10] This worried France and the United Kingdom, who had lost much in the previous war, as well as Italy, which saw its territorial ambitions threatened by those of Germany.[11] To secure its alliance, the French allowed Italy a free hand in Ethiopia, which Italy desired to conquer. The situation was aggravated in early 1935 when the Saarland was legally reunited with Germany and Hitler repudiated the Treaty of Versailles, speeding up remilitarization and introducing conscription. Hoping to contain Germany, the United Kingdom, France and Italy formed the Stresa Front. The Soviet Union, concerned due to Germany’s goals of capturing vast areas of eastern Europe, concluded a treaty of mutual assistance with France.

Before taking effect though, the Franco-Soviet pact was required to go through the bureaucracy of the League of Nations, rendering it essentially toothless[12][13] and in June of 1935, the United Kingdom made an independent naval agreement with Germany easing prior restrictions. The United States, concerned with events in Europe and Asia, passed the Neutrality Act in August.[14] In October, Italy invaded Ethiopia, with Germany the only major European nation supporting her invasion. Italy then revoked objections to Germany’s goal of making Austria a satellite state.[15]

In direct violation of the Versailles and Locarno treaties, Hitler remilitarized the Rhineland in March of 1936. He received little response from other European powers.[16] When the Spanish Civil War broke out in July, Hitler and Mussolini supported fascist Generalísimo Francisco Franco’s nationalist forces in his civil war against the Soviet-supported Spanish Republic. Both sides used the conflict to test new weapons and methods of warfare[17] and the nationalists would prove victorious in early 1939.

With tensions mounting, efforts to strengthen or consolidate power were made. In October, Germany and Italy formed the Rome-Berlin Axis and a month later Germany and Japan, each believing communism and the Soviet Union in particular to be a threat, signed the Anti-Comintern Pact, which Italy would join in the following year. In China, the Kuomintang and communist forces agreed on a ceasefire to present a united front to oppose Japan.[18]

We can ignore all this, but, it probably would be a mistake.

Which, of course, brings us back to Russell’s point:

… the bulk of the public expenditure of most civilized Governments consists in payment for past wars or preparation for future wars …

To be continued

Is serious left criticism of government’s share of GDP possible? (5)

June 18, 2008 Leave a comment

Continued from here.


Synopsis: We are trying to address two assertions of the Democratic Party left, as framed by Jared Bernstein, that government spending effects these ends:

  1. Rebalancing our economic system, and
  2. Reconnecting economic growth and broadly shared prosperity.

We have offered, in refutation, our own views:

  1. Government is a form of the imbalance in our economic system – not the only form, mind you, but the most important form currently, and,
  2. Economic growth, so-called, is incompatible with a broadly shared prosperity.

As evidence we have introduced a brief review of the changes the economy has undergone from 1914 to 2002:

  1. Agriculture virtually disappeared as a significant job for Americans. Manufacturing, mining and construction doubled over the same period.
  2. The number of people producing of goods remained mostly unchanged, but shifted decidedly to away from farming and into industry.
  3. Services grew rapidly over the period to its present status as the main form of employment in the economy.
  4. Government, during the same period, grew just as rapidly from about 2 million people to 21 million in 2002.
  5. The overall workforce went from 36 million people to 131 million – all of it on the services side of the economy.

We offered the view that, in an modern economy, such as our own, the prices of goods reflect not only the direct cost of producing those goods, but, also the costs associated with the two non-goods producing sectors, the services sector and government – perhaps eighty five percent of the prices of goods.

FInally, we offered the view that unlike the services sector, which are compelled to find not only the material means to deliver their services, but also consumer demand for their services, government, through its coercive capacities, particularly in time of war and other national emergencies, can take control of economic activity, and subject it to its own ends.

As we have shown, the above power of government is, at the minimum, not unalloyed, with such historical consequences as war, and, such economic consequences as inflation and an overworked population.

Still, this was war: The Great War, the, unfortunately nicknamed, war to end all wars, which, in turn has been followed by quite a slew of wars, which had ends far less noble – including our own present wars in Iraq and Afghanistan to control the pivotal oil producing Middle East.

It is one thing to simply describe the consequences of The Great War, and quite another to assert the current difficulties associated with our present economic circumstances can be traced, in large part, to the government’s expanding share of GDP.

And, of course, that latter assertion is the point of this series.

We continue:

Between the war to end all wars, and all the wars which followed unended to this very day, an economic catastrophe of unequaled magnitude in all of human history occurred: The Great Depression.

We might call it, “the economic imbalance to end all economic imbalances.”

You may think we are being unnecessarily snide here, but, in truth, many people at the time thought this was the end of capitalism.

Not a minor fluctuation in the normal flows of economic activity, according to the Wiki, The Great Depression:

had devastating effects in both the industrialized countries and those which exported raw materials. International trade declined sharply, as did personal incomes, tax revenues, prices, and profits. Cities all around the world were hit hard, especially those dependent on heavy industry. Construction was virtually halted in many countries. Farming and rural areas suffered as crop prices fell by 40 to 60 percent.[2][3] Facing plummeting demand with few alternate sources of jobs, areas dependent on primary sector industries such as farming, mining and logging suffered the most.

In the United States the impact was ugly; generating a mass floating population of dispossessed, impoverished, voters compelled to live in improvised shelters – Hoovervilles – and beg for food:

A Hooverville was the popular name for a shanty town, examples of which were found in many United States communities during the Great Depression of the 1930s. The word “Hooverville” derives from the name of the President of the United States at the time. These settlements were often formed in unpleasant neighborhoods or desolate areas and consisted of dozens or hundreds of shacks and tents that were temporary residences of those left unemployed and homeless by the Depression. People slept in anything from open piano crates to the ground. Authorities did not officially recognize these Hoovervilles and occasionally removed the occupants for technically trespassing on private lands, but they were frequently tolerated out of necessity. Some of the men who were made to live in these conditions possessed building skills and were able to build their houses out of stone. Most people, however, resorted to building their residences out of box wood, cardboard, and any scraps of metal they could find. Some individuals even lived in water mains. Most of these unemployed residents of the Hoovervilles begged for food from those who had housing during this era. Several other terms came into use during this era, such as “Hoover blanket” (old newspaper used as blanketing) and “Hoover flag” (an empty pocket turned inside out). “Hoover leather” was cardboard used to line a shoe with the sole worn through. A “Hoover wagon” was a car with horses tied to it because the owner could not afford gasoline; in Canada, these were known as Bennett buggies.

Dirt cookie, anyone?

When voters go through such economic catastrophe’s as the Great Depression, you can bet Washington takes notice.

Herbert Hoover, of hooverville fame, then President of the United States, and, CEO of America Inc., according to Benjamin Kline Hunnicutt,

began to incorporate shorter hours as a basic part of his administration’s Depression policies-a position consistently pressed on him from the time of the stock market collapse by Secretary of Labor Doak and later by his Emergency Committee on Employment and his Organization on Unemployment Relief.

The reason for this proposal, far from unusual at the time, was simple:

[It} was occasioned by what was then seen to be the larger social and economic problem of “overproduction.” Many Americans, businessmen and labor leaders alike ‘ believed that chronic unemployment and massive disruptive surpluses constituted national threats and were the bitter fruits of improved productivity and economic abundance. A “mature economy” was seen to be a real and present danger.

The same industrial power governments had tapped to slaughter millions in The Great War, was also rapidly transforming the economic landscape in the United States.

Agriculture, as we have seen, was collapsing as a sector of the labor force, industries were everywhere growing up overnight.

In truth, society was for the first time experiencing an unprecedented condition in human history: too much could be produced given the relatively limited consumption patterns of the country, and the appearance of this massive cornucopia of productivity was a constant threat to economic activity itself.

However, Hoover’s voluntary proposal for a reduction of working time was not to be.

Neither, was the more insistent demand for a mandatory reduction of the work week by law, as advocated by labor unions, and passed by the Senate in 1933.

Instead, as Hunnicutt states (and, we extensively excerpt),

… Roosevelt abandoned the project of controlling production and lost patience with business voluntarism. He was convinced by new advisors such as Harry Hopkins to act directly to stimulate economic activity. Leaving his suspicions about market maturity and limited growth behind, Roosevelt began to use such things as public works, liberal moneary policy, larger government payrolls, and deficit budgets to promote production and consumption. As Robert Heilbroner described these events:

to the economists in the Roosevelt administration . . . the government not only could but should use its spending powers as an economic instrument for securing full employment … They envisioned a new form of guided capitalism-a market society in which the all-important levels of employment and output would … be promoted, protected against decline and stimulated toward growth by public action.”

Such programs as the WPA demonstrated that Roosevelt had begun to think of the Federal government as having an obligation to provide work for its citizens if the private sector could not. But government would be the employer of last resort. The first line of attack would be to stimulate business activity. Whatever slack was left in the economy would be taken up not by shortening the hours of work but by constructive government spending policies. Hence, Roosevelt, at the prodding of his advisors, consistently opposed the 30 hours legislation throughout the Depression, offering his own programs as a series of alternatives.

There was, in our opinion, a much less optimistic explanation for Roosevelt’s turn against the 30 hour work week – an explanation drawn on the experience of The Great War: Government was now an independent player.

To be continued

Is serious left criticism of government’s share of GDP possible? (4)

June 18, 2008 Leave a comment

Continued from here.

On the way back from the nail salon this morning, I stopped to fill the tank in my Lincoln Navigator – which, as you can imagine, was a bit pricey, but, fortunately, not as pricey as filling my twin his and her stretch hummers – when it occurred to me, “Hey, what is all this corn in my gas?”

Apparently, while I wasn’t looking, someone, somewhere, decided I not only need decent nail care, but also corn in my gasoline.

Nobody, so far as I know, did a market survey of American consumers, asking us if we are getting our daily requirement for corn-laced gasoline. Nobody, so far as I know, asked me, or, for that matter, you, whether we would like to get our daily minimum requirement for corn in the form of a gasoline additive. Nobody, so far as I know, asked us how much we were willing to pay for this additive to our clean, pure, pristine gasoline – with all its healthy, Global Warming, hydrocarbonic goodness.

MMMMmmmm! Corn Laced Gasoline, makes my mouth water – of course, when it seeps into the water table, it also makes my water make my mouth water, or something like … cancer – it’s all a bit complicated.

In any case, someone decided we all needed corn-laced gasoline, because, getting our corn the old fashion MMMmmmm! Dirt Cookies - Wash \'em down with corn ethanol!way, by eating it, or, by eating the animals who were eating it, just wasn’t getting the job done.

So they passed a law declaring, henceforth Americans can get their daily requirement for corn by drinking their gasoline.

About this time, Haitians started enjoying another delicacy – dirt cookies.



It is quite difficult to trace the connection from a law in Washington mandating the addition of corn ethanol to gasoline and the impact on the price of food in Haiti. In fact, it is difficult to trace the impact of any law or mandate made in Washington to prices generally.

But, like obscenity, we all know it when we see it.

Take World War I for instance – you have to go back to a time before world wars had numbers (according to Admiral Woolsey, we are up to IV. He doesn’t like dirt cookies, by the way, and, more’s the pity since, as a player in Washington, dirt cookies are one of his special products.)

Back then it was just called the Great War, and it has a complete write up here, if you have been living in a box, or, are a graduate of a typical American public school system.

Actually, it wasn’t all that great – by the standards of World War II, it was just so-so.

But, it was pretty revolutionary for its time: by the end of the war, economic growth exploded in the United States, Britain and Italy, and, the government’s share of the economy rose to 50 percent in Germany, France and Britain.

As the Wiki explains:

One of the most dramatic effects was the expansion of governmental powers and responsibilities in Britain, France, the United States, and the Dominions of the British Empire. In order to harness all the power of their societies, new government ministries and powers were created. New taxes were levied and laws enacted, all designed to bolster the war effort; many of which have lasted to this day.

Basically your government found that the goods producing sectors of the American economy could be enlisted in war to the extent unthinkable in all former conflicts – back to the Garden of Eden!

Huge numbers of working age men could be forcibly withdrawn from the labor force and marched face forward into the ferocious, lethal, lead filled winds of machinegun lines of fire; entire towns could be massacred, laid waste, pillaged, and set to the torch; and – this is truly bizarre, although you will not think so – ECONOMIC OUTPUT GREW!

GDP expanded!

Technological progress swept like a storm across the vast structures of industry, and, it became more productive!

Government could reach in and not simply impress millions of hale youth in forced death marches, but, also reconfigure entire industries to meet its wartime needs for everything from bullets to butter!

War was good for business.

But, business was even better for war.

But, before you get all giddy with excitement over how masterful your public servants in Washington were at promoting economic growth – albeit, at the expense of a good portion of the populations of all major nations – we should tell you there was a cost.

The Wiki notes:

Work stoppages and strikes became frequent in 1917–18 as the unions expressed grievances regarding prices, alcohol control, pay disputes, fatigue from overtime and working on Sundays and inadequate housing. Conscription put into uniform nearly every physically fit man, six of ten million eligible. Of these, about 750,000 lost their lives and 1,700,000 were wounded. Most deaths were to young unmarried men; however, 160,000 wives lost husbands and 300,000 children lost fathers.[92]

Inflation raged, alcoholism rose, the population was worked to the point of exhaustion, a generation of young men were destroyed, “Over 40 million casualties resulted, including approximately 20 million military and civilian deaths.[3]

And, the fatherless children in all major nations looked to their nation’s leaders and asked plaintively: “Are you my daddy?”

To be continued