Yves here. Truth be told, one big barrier to my listening to videos is that they are a much less efficient means of transmitting information than reading text. So when I listen to the entirety of a video, that’s a good indicator that it has real merit. Here, Robert Pollin of PERI and Dean Baker discuss the so-called recovery on Real News Network, giving a very good high level discussion of recent data releases (with Baker pointing out important inconsistencies) and emphasizing how radically different this supposed recovery is from any of its predecessors.
Both economists then turn to the elephant in the room: the lousy state of labor, and how real wages have stagnated. One telling factoid is that if you adjusted the minimum wage from its peak in real terms (1968) and gave workers their share of productivity gains (and they were shared until the mid 1970s, when the old capital/labor model started being restructured by weakening labor bargaining power), the minimum wage would now be $26 an hour. (Another appalling, related tidbit in a must-read analysis by David Stockman is that there has been no growth in private labor hours since 1998).
Baker and Pollin then turn to the culpability of economists, and both state that most economists clearly know what the remedy is, which is more government spending to kick the economy into higher gear. But they refuse to do that because they are ideologically on board with the elite-serving labor squeeze and austerity programs.
In reality, it’s even worse than that. I hate criticizing writers whose work I generally like, but as a contrast to this talk, I suggest you look at a new post by Ed Lambert at Angry Bear. In it, a left-leaning blog (and remember, Angry Bear has been vigorous in its defense of Social Security), we see an strong argument against having workers get a better deal. Why? It will lower corporate profits, which will lower asset prices and give the confidence fairy a sad. I am not making that up. This shows the degree to which liberal economists have been intellectually captured by the orthodoxy and/or have been inculcated to live in fear of the Market Gods. If you can’t get parties who are ideologically sympathetic to argue for real remedies rather than a “recovery” only for the top tier, how can you possibly exert any pressure on the minions of the 1%?
PS Real News Network is having a fundraiser, so send money if you are able!
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Economists are not immune to the intoxication of fame and money. Both are strong recruiting inducements to alter ones foundations.
It may also be self-selection. As a military historian who leans hard to the Left, I have often considered why my colleagues are, on average, much more conservative than historians in other fields. I think this is because they are sympathetic to the problems faced by military men and they understand and to a certain extend embrace their worldview. Economists are men and some women who are interested in money, business, and markets. It’s only natural that many of them sympathize this the issues important to those with money and those in business. As professionals, they should fight that inclination but it is easier not to and it becomes second nature over time to just go with the flow and speak the language and the values of those you study.
Right on. Imagine if we paid econ profs like preschool teachers or school cooks.
“intoxication of fame and money”
I personally find these two quotes from Albert Einstein, still a relevant response to that ‘ethos’…”Only a life lived for others is worth living” and “A foolish faith in authority is the worst enemy of truth”…
Elitism is the main product sold by colleges and universities. It is class, perceived or real, acting to save itself.
Roy,
Elitism may be the primary product of elite universities but I suspect the vast majority of students just want to graduate with a manageable amount of debt and find a job somewhere. This was true back in the day (60’s) when I graduated from a land grant college (NC State) which my Father could afford on a railroad workers salary. Of course that great friend of the working class ,Reagan, dropped historic Federal subsidy of land grand schools and the price went up. Most of my fellow students were from the working and lower middle class and ,if there was any elitism around, I never saw it.
Jim
It will lower corporate profits, which will lower asset prices and give the confidence fairy a sad. I am not making that up.
——-
In the short-term profits will contract but over the mid to long term, they will go back up as the money gets spent. And this should increase velocity.
Ironically, if nothing is done, profits will drop anyway because less and less people will have money to spend.
It just goes to show how even the best of us are all affected by heuristics. Economics is full of feedback loops and the brain has a lot of trouble grasping these.
We are at the point where the snake is swallowing its tail, as companies are use alchemy to keep their profits up. The number of companies is dwindling with an increasing amount of money going into the remaining ones which are not investing but burning the furniture to heat themselves.
Gov’t can always make up for consumer spending by just buying corporate goods and stashing them in a warehouse. Why would they do this though? The purpose for this is simply punitive to consumers, for no apparent reason.
It’s like the money masters made a monumental blunder, and to cover up this fact they have to pursue this brain-dead course of action, which will result in grave consequences for the general population.
“Gov’t can always make up for consumer spending by just buying corporate goods and stashing them in a warehouse. Why would they do this though? “
They would do it so as not to ” lower corporate profits, which will lower asset prices.”
This is effectively being done already when some Air Force plane, F-35???, is being driven directly off the assembly line and mothballed. Some of the larger “defense” companies derive nearly 100% of their income (thus all of their profits) from the US government and trade on the stock exchange.
Unnecessary purchases, profits and assets–a time-honored tradition.
Baker and Pollin would have the USG go further into debt by using the privately owned and operated Federal Reserve create our money … No mention of the near $500 billion the USG pays in interest already. Then there is the interest states and local governments spend on their bonds.
Baker and Pollin are prisoners of the Federal Reserve monopoly of currency and credit creation that enrich banksters and the super wealthy at the expense of everyone else. We need a Public Central Bank to create the funds we need at no cost to us.
The takeover of our economy and our government by Wall Street and the plutocrats lead by the oligarchy’s mainstream media suck all of the air out of the room when it comes to REAL answers to our economic and environmental problems.
Pollin and Baker are symptomatic of the lack of real answers in that they refuse to condemn the Federal Reserve and demand a Public Central Bank even as the Fed was/is spilling trillions of tax payer money into bankster coffers in the largest fraud perpetrated in the history of mankind …
Um, I’m not in favor of our current federal reserve system, however:
The Central Bank is a non-profit and remits all it’s profits to Tsy, was created by an act of Congress, and can be dissolved by an act of Congress – it’s an arm of government.
The total deficit (“debt”) is an accounting of how many dollars have been issued into the private sector since 1776, minus how many have been removed through taxes.
The federal reserve system doesn’t change this.
And we pay interest on bonds, which are savings accounts at the fed, the same way we pay for anything: By creating dollars out of thin air.
Are bonds a subsidy to those who can afford to invest in them? Yes.
Why does the Fed sell its treasuries to the banks rather than just print the money to spend? Why is the Fed purchasing dodgy assets from the banksters? Why has the FED not nationalized failed banks such as Citi? Why has the Fed allowed these banks to create hundreds of trillions in derivatives?
The answer is simple … the Fed is owned by the banks and the Fed has and continues to subsidize TBTF banks to the tune of trillions of dollars that belong to the people of the U.S. … A Public Central Bank could responsibly issue, over time, trillions in money that would not end up as debt …
‘Baker and Pollin would have the USG go further into debt by using the privately owned and operated Federal Reserve create our money …’
From the South Sea Bubble of 1720 to Wall Street’s great bull market of the 1920s, every easy-money fueled speculation has been followed by decades of economic stagnation.
Baker and Pollin would have the insolvent Usgov double down and go leveraged long, to make Bubble III even bigger. It’s fun while it lasts, but the hangover afterward is awesomely terrible.
First, the US government is not close to insolvent. That’s just misrepresentation of fact.
Second, if the government does not get the money into the hands of the lower 90% of earners and boost employment, who will? The demigods of the “private sector”? The Good Witch of the North? How do we get out of this jam? How do we deal with a crumbling infrastructure and the need for a whole new way of doing things because of peak oil and climate change? Austerity? How’s that working in Europe right now? And unlike Europe, which has a population that can and will emigrate if times get tough at home, where are our millions of unemployed due to austerity to go? Bolivia?
Yes, the Fed has screwed everything up. Yes, it serves the banks instead of the institution that created it (the Federal Government and the taxpayers). Super. So now what are you going to do to address this issue other than bitch about the Evil Fed.
The US government is not “not close” to insolvent. As a currency issuer, it can’t go insolvent in the first place.
But wheelbarrows, man. Wheelbarrows.
From the South Sea Bubble of 1720 to Wall Street’s great bull market of the 1920s, every easy-money fueled speculation has been followed by decades of economic stagnation.
Really? 1920s bull market- 4 years of Hoover – worse than stagnation, check. But First New Deal – strongest growth the USA has ever seen in peacetime. After the Roosevelt Recession hiccup, WWII, huge wartime growth, unemploying declining to next to nothing, followed by the economically best & stablest decades the USA & the world has seen. A common meaning of “easy money” – low interest rates as during those decades of non-stagnation – is nuts.
What causes decades of stagnation is bad economics serving a destructive elite that wants stagnation – as in Europe now. The simplest way to not stagnate is for the state to perform the very easy task of permanently guaranteeing full employment.
Lambert – would be happy to jump in at Corrent if I have time, didn’t see your email until much later.
I am absolutely amazed when our so-called economists speak of EVERYTHING except what has trashed and will keep our economy trashed … our corrupt political system. Had our politicians not gotten their share of the profits (payola!) they would not have changed the tax laws to send cash to the top and jobs to China. Duh…
They won’t talk about that, because then they’ll have to admit their own incompetence and corruption in creating and perpetuatng that corrupt political system. Frankly, I find Baker not much different from Krugman on this point. He always comes just shy of talking about the faliure of modern economics to deal with the reality of polticial power and the symbiosis between politics and economics, but he then pulls his punch.
I’m an economics dunce, but that’s my take on the situation with economists these days. I may not be qualified to comment on many issues raised here, but at the end of the day, seems to me that the elephant in the room is that the USGov is corrupt to the core. Perhaps most/all Govs are nowadays.
Seems like there’s a lot of dancing happening on heads of pins amongst the big name economists citing this theory and that. Really isn’t it just that the govt has been captured by the extremely wealthy, and the constitution, laws, regs, rules are simply ignored – or perhaps re-written in their favor?
I’ve watched all this happen since Reagan. While not an economist, I have paid attention, do have investments, etc. It’s all been pretty evident what’s going on. The “average citizen” may well be unaware due to not really researching issues at a deeper level (I never paid much attention to MSM), not being aware of how Wall St has worked, etc. But it’s all been pretty evident for a long time. Clinton signing away Glass-Steagall was a key event and a death knell of sorts.
The 1% is large & in charge, and it’s clear they’re willing & able to do anything to downtrod the 99s all in the name of making ever more money for themselves. Again, being no economics genius, I do wonder how long this can carry on. If the peeps don’t have money to spend, eventually the balloon will either burst or more slowly deflate.
I get it that the 1s have way more than enough to carry them through whatever crisis, disaster or crash happens next, but still… the wealthy are, in effect, acting against their own long-term interests on so many levels, that it’s hard to count them all. They don’t seem to care.
This, to me, seems to be the salient point. At the end of the day, the rests seems to me to be splitting hairs. I am a dunce, though, so I could be proven wrong.
I am an economist, you’re not a dunce, you are spot on. What baffles me is how easy it has been for a few gazillionaires to completely pull the wool over the eyes of the masses. Remember “What’s the Matter With Kansas?” – It’s morphed into What’s the Matter With Planet Earth. And I agree with Yves – there’s little reason of anything resembling optimism.
For those who believe in the market fairy, this is all just peachy. If people have no jobs, it’s because there is no market for their skills. If people have no money it’s because they provide no value to the market for which an exchange of money can take place.
This is where unfettered belief in efficient markets leads to: people starving because they offer no value to the market. If you believe in the market fairy, you think this is as it should be. Extraneous labor should be eliminated as waste. The problem with this idea is that the extraneous labor has a history of burning the place down after a certain period of market efficiency and “let them eat cake” elitist attitude.
The key word is efficient… efficient for whom?
If the goal is that 1 person/family owns the planet, we are definitely going in that direction. I am not to
too sure how pretty the planet will be when we get there, but that’s another issue. In my mind, an efficient market would account for externalities and all work that is currently not priced in.
Efficient for whom? The owners of capital, of course. They’re the only ones that matter.
“For those who believe in the market fairy, this is all just peachy.
No one REALLY believes in the “market fairy.” Which is why they work so diligently to rig markets.
From the manipulation of interest rates to political bribery to accounting and regulatory malfeasance, most of the “market” devotees realize that if the “market” were working, their scams, most likely, would not be.
Sorry to report: Tinker Belle lives. Just attended a meet-up group last night that a lot of young Bitcoin enthusiasts also attended. They are starry-eyed with “free market” “idealism.” Clap if you believe in Tinker Belle — if so exhorted, they would applaud all night. They are mining the “new gold,” many of them are also buying physical gold and silver, and they shun government in every form.
The market does not want or need more workers….It has the ability to hire them if it did. It can also educate them if it needs better educated workers. The fact is the market does not need them.
“The Market” has worked efficiently to eliminate”work/labor for many years. I suspect that many people who are “getting educated” in order to have some value to the “market” are simply not needed. The idea that the Market Fairy does an efficient job of allocation capital is viable only to a point and we are well past that. I suspect government spending on education, real food subsidies, healthcare, parks, infrastructure, environmental remediation makes the most sense to get the most people employed or at least supported. The 1% is going to have to pay for it to a greater extent. At the same time, safer, healthier, better educated people should reduce health care and law enforcement costs. I’m not holding my breath.
It certainly looks like there’s not enough jobs go around. That said, a lot of jobs could be kept on these fair shores if the owners didn’t want to skint the workers & pay as little as possible (slavery is the ideal in their world). Plus, then, there’s tons of work that could be accomplished and needs to be done, esp in terms of failing infrastructure. I thought I heard the other day that a major bridge in the Wilmington DE area is collapsing. How many more are there out there like that? Everywhere I travel, the roads look like sh*t.
Can we get the 1% to pay their fair share, however? They’ve certainly worked damn hard to avoid that at all costs. I thought I also heard something about raising gas taxes to fund US Dept of transportation projects bc they were out of money? Or something like that. We’ve spent trillions on various Wars, trillions on parasites in the banks & Wall St, but now the Rentiers want the 99s to cough up more.
How do we get the 1s to pay up? I’m not seeing it happening. If all the infrastructure collapses here, I think they’d just up and move somewhere else… possibly keeping a few armed enclosures on the coast, where they could sail their gargantuan yachts.
How do we get the 1%ers to pay up? Interesting question, especially now that the US intelligence community largely takes “property” as equal to “life” among their authorities, and the FBI seriously investigates anti-1% taggers in Atherton, a richie preserve north of Silicon Valley. Two thoughts come to my mind:
a) Power is contextual. Their power advantage comes mostly from their money. In what sorts of contexts does their money buy them little to no advantage?
b) Collecting may be secondary to preventing them from enjoying the fruits of their status. Get in their face, harass, mock, and generally ruin their ability to enjoy the public sphere.
Also, surgeon general’s warning: c) do nothing that impairs a First Amendment defense in court. Unfortunately, even saying mean things about certain classes (and you bet the elites are among them) counts as terrism these days if there is any official reason not to like you.
At about the 16 minute mark, Robert Pollin says,
“ the economy is doing very well for the people who run the economy”
“ as we know, almost 100% of all the economy’s income growth since the recession ended, since 2009 has gone to the top 1%. They are doing very good. Wall St. is doing great. Bonuses are wonderful, so you know at one level they don’t care. GDP doesn’t matter, the unemployment rate, these are abstract numbers. What matters to them is the income that goes to themselves, and so far that’s doing fine.”
Mr Pollin also identifies himself with the 1%, so I thank him for this honesty.
My answer to the question “Why economists don’t recommend real remedies?” is, that would piss their actual customers off, and then they would find themselves no longer part of the one percent.
Hi Yves…I believe you jumped the gun on Edward’s post. But he can speak for himself. Here is a post from Bonddad on the issue you raise on Labor share… http://bonddad.blogspot.com/2014/06/of-corporate-profits-progressives-and.html.
But then AB Steve Roth suggests in an e-mail to me:
Yves’ critique is on point.
As I understand Ed’s position:
Start with his constant refrain: we need to increase labor share of income. It’s the necessary condition for getting us out of this long-term pit that the Reagan Revolution has gotten us into. All hail. I’m so with him.
But in the short term, increasing labor share could cause a recession by banging corporate profits hence asset values.
But that recession is necessary to get us out of this pit that we’ve gotten ourselves into, giving some separation between real gdp and effective demand.
It’s essential or at least roughly the same argument as for increasing the Fed’s policy rate.
In either case it’s less than clear to me how a (sooner) recession would help in addressing the central long-term problem of labor share.
Also I seriously question whether a labor-share increase would be as damaging as a policy rate bump, because the labor share increase would feed back into higher (effective) demand, which the rate increase wouldn’t.
Hi Ives,
The link to the New Deal Democrat post explains what I meant.
Yet, on another level with the Dean and Bob interview, at one point they say that they do not understand why unemployment has come down so fast. One explanation is labor force participation, but another explanation is given through the equation that I gave on my post.
Profit rate = (1 – unit labor costs/inflation)*productivity * labor hours/Capital
Increasing labor hours when unit labor costs are controlled and productivity is constrained will increase profit rates. So there is currently an incentive to increase hiring.
Also, once labor share stopped falling, profit rates had to look for another variable in that equation in order to rise or at least not fall. They found increasing labor hours as one answer. Mildly falling inflation cuts into profit rates.
Yet, if labor starts to become more costly, growth in labor hours will slow down to preserve profit rates. So we see an effect to slow down hiring if labor costs rise. I am with you, we have to fight for better wages. So the labor costs have to rise. We will have to deal with the reaction by firms.
One complicated issue that I did not bring up in my post is this… If labor share starts to rise, the door will open to increase productivity by raising the effective demand limit. So labor hours would not have to be curtailed. You get a conflicting situation of rising productivity and rising labor costs. Eventually the rising labor costs overpower rising productivity and effective demand rises faster than output per labor hour. This situation has always been a precursor to a recession in the past.
Both of these guys are good guys. And Dean Baker is very funny sometimes (look at Timmy’s book but don’t buy it!). But I gotta say that the one single thing that would bring this whole confusion crashing back down to reality would be to peg the US Dollar to US Wages. One and the same. Like some MMTers have advocated. Beyond wages there are national resources, commodities, that can be used temporarily to bolster an economy. But in the end, when all resources have dwindled, only wages remain to become the basis of an economy. If you blow that away, you got nothin’.
So come to think of it, this is the difference to a booming, self-exploiting economy dedicated to elitist international trade, versus a contained, fair, domestic economy dedicated to the people within the economy. So obvious question: Is a stable economy based on trade or is it locally contained? And to what percentage?
They don’t seem to care.
“They were careless people, Tom and Daisy- they smashed up things and creatures and then retreated back into their money or their vast carelessness or whatever it was that kept them together, and let other people clean up the mess they had made.”
The money quote of 20th century American prose. Fitzgerald had met the enemy and identified them 85 years ago. And he knew where it was all going. No wonder he drank himself to death.
Hi Yves, sorry for misspelling your name above.
I have posted a more complete response.
http://angrybearblog.com/2014/06/should-we-fear-negative-consequences-in-fighting-for-better-wages-no-reply-to-yves-smith.html
Bottom line… we must keep fighting for better wages no matter what negative economic consequences get in our way. Eventually a healthy balance will be restored.
“we see an strong argument against having workers get a better deal. Why? It will lower corporate profits, which will lower asset prices and give the confidence fairy a sad. I am not making this up.”
Yeah, that’s why I think that the next big move that will impact masses of people–apart from whatever looting is going on “behind the scenes” with pension funds and whatever they do next to undermine public sector employees (I’m sure there’s something in the works)– is repealing the employer mandate in Obamacare.
We’ve already seen them priming the flush on this one, as with that article a few weeks ago on how much corporations would save if they flipped Americans a few symbolic bucks and told them to go buy their own plan already. I could be wrong, of course, but that’s my guess on how this goes down.
If it does, this is going to be very difficult for a lot of people to respond to. I think that everyone expects employers—whether those are private sector employers or the federal government—to bail out people’s growing personal insolvency by hiring people and raising wages. That’s the way it works, right?
Well, it hasn’t worked that way for 40 years, so I don’t think that’s what’s going to happen now. I think that large (increasingly multinational) corporate employers are going to shed their social welfare responsibilities and dump them (back) onto the State to deal with or not deal with.
ie., “Not my Problem.” “I got my mine and FU!” “Get off the couch and get a(nother) job!” etc—all the great American-isms.
This means that if Americans still want something to bail them out of their growing personal insolvency, it’s going to have to decide to fight for the social welfare state the would-be civilized world’s premier “work or starve” ideologues have been so studiously avoiding for the past century.
This will also be major entertainment for our morally dissipated and thoroughly jaded 1%. It’s like gladiatorial combat and apart from their own residual ideological pigheadedness, they’ve already rigged the medical-pharmaceutical-sickcare-insurance complex so that the outcome doesn’t really matter that much–to them. They make money off the physical wrecks the US economy makes of people, every which way.
The only real question is Jay Gould’s. Can they still get one half of the working class to kill off the other?
Something tells me Hillary Clinton would enjoy presiding over this one.
Lambert Strether : “” The US government is not “not close” to insolvent. As a currency issuer, it can’t go insolvent in the first place.””
It is obvious that ” solvency ” is not the holy grail of US fedgov finance since the gov can issue its own currency and hypotheticly determine any degree of solvency it desires . The gov could still become insolvent due to a lack of value in an excessively-issued currency ( where currency can be mere electronic bits ). Solvency is more a matter of satisfying a creditor than merely paying in a currency of dubious value .
RUKidding : “” … the wealthy are, in effect, acting against their own long-term interests on so many levels, that it’s hard to count them all. They don’t seem to care. “”
The wealthy have been playing the pump and dump game for thousands of years — at least since before JC ran the banksters ( moneychangers ) out of the temple ; and they are richer now more than ever . According to the ( aka Elders of Zion ) , they observed more than 100 years ago that the political and economic intelligence of the goyim was such that ” the wind blows freely between their ears “. Whether the Protocols are authentic or not , that observation of goyim intelligence seems to be valid .
Mike F : “” What baffles me is how easy it has been for a few gazillionaires to completely pull the wool over the eyes of the masses “”
The informational matrix is real . Those few gazillionaires are the majority owners of the six global media megacorps that controls 95% of all info ; the remaining 5% can be whacked out of public consciousness very easily , by the 95% , whenever they deem it necessary . Furthermore , the masses tend to have poor eyesight to begin with .
RUKidding : “” How do we get the 1s to pay up? “”
Not easily . We need sensible laws and rational orderings of realities ; we are currently short of both . Many of the 1s hold an ancient judaic religious belief that they are divinely chosen to have domminion over the world and they aim to do that . You cannot bring them to justice in an eastablishment court because they would own it ; and they are working feverishly on ways to restrict global internet communications and restrict the freeflow of internet info because the 1s know that is essential to successly defending their rulership .
JTFarady : “” This will also be major entertainment for our morally dissipated and thoroughly jaded 1%. It’s like gladiatorial combat and apart from their own residual ideological pigheadedness, they’ve already rigged the medical-pharmaceutical-sickcare-insurance complex so that the outcome doesn’t really matter that much–to them. They make money off the physical wrecks the US economy makes of people, every which way.””
Amen . Historical endgames always end in slaughters ; it is satan’s gambit .
I would like to point out an interesting side of the minimum wage story. Everything that I have read or heard indicates about 4% of the working population earns the minimum wage, so to raise it to 15 dollars is a minor blip on the economic radar and will certainly help these folks out. That’s true but it’s only half the story, the other half is this 50% of all workers earn 27,000 dollars a year or less. So based on those numbers over 50% of all workers would get an immediate raise. This would have a profound effect on the economy and it would not all be good!
The easiest way I can put it would be: “No reflation, without redistribution.”