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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?

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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 creativecapitalismblog.com. 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.

COULDN’T FIND IRAQ IF IT WERE CIRCLED ON A MAP AND LABELED WITH BIG BLOCK LETTERS.

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?

Hah!

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