by the Sandwichman
Brad DeLong worries and worries about the "jobless recovery"
The "jobless recovery" is an oxymoron. It also stands the lump-of-labor fallacy on its head. Instead of a "fixed amount of work to be done" there is a growing amount of work to be done by a fixed number of workers. Well, the remedy is obvious -- or would be obvious but for the precision-engineered blinkers worn by almost all economists these days: "So long as there is one man who seeks unemployment and cannot find it, the hours of work are too long." Who said that? Why the great Keynesian himself, John Maynard!
Wait! No! That was Samuel Gompers. What Keynes said was:
"The full employment policy by means of investment is only one particular application of an intellectual theorem. You can produce the result as well by consuming more or working less. Personally I regard the investment policy as first aid... Less work is the ultimate solution."
So, the first Obama stimulus was first aid. Let's assume the patient is stabilized. The economy is no longer "falling off a cliff". WHAT WOULD KEYNES DO?
Jobless or work less?
Friday, July 10, 2009
Jobless Recovery v. Working Less
Thursday, July 9, 2009
No Evidence that Business Week Economics Editor Knows What He is Talking About
by the Sandwichman
Peter Coy fantasizes that he is imparting eternal wisdom when he boilerplates:
"The idea that older workers displace younger ones assumes that there’s a fixed amount of work to be done. That’s known as the lump-of-labor fallacy—and it’s at play in the anti-immigration camp as well. By and large, economies don’t work that way. Workers earn incomes and spend the money and the recipients of the money hire more people and off we go. Growth."Indeed there is not a fixed amount of work to be done! In fact, between December 2007 and June 2009 six and a half MILLION jobs disappeared. Thus, there is not a fixed amount of work but a diminishing amount. By and large, economies don't work... the way economists pretend they do. Workers' incomes stagnate and debt soars and the recipients of the money repackage subprime mortgages as collateralized debt obligations and off we go. Collapse. ("But who could have known???")
As for that alleged lump-of-labor fallacy...
Wednesday, July 8, 2009
Contracting Out, Or Boeing Bites Itself on the Butt
Boeing is having a great deal of difficulty in constructing its new airplane. These problems remind me of the work of Ronald Coase.
In 1991, Coase won the misnamed Nobel Prize for economics, largely on the basis of two articles. In one of these, Coase explored the nature of the firm, "distinguishing mark" of which is the "the suppression of the price mechanism."
Coase, Ronald. 1937. "The Nature of the Firm." Economica, 4: 386-405, p. 389.
To some, at first glance, such words might suggest a radical Marxist ideology -- "suppressing the price system". In fact, Coase saw something that earlier economists had overlooked. Business transactions between firms are based on prices, but, within a business orders and procedures generally determine how things are done, not prices.
At the same time, a business can theoretically contract out virtually everything it does. A major corporation could consist of a telephone, an Internet connection, and a bank account. It could rent its office and make contracts with employees on a daily basis. It could pay other companies to produce and market its goods.
No major company has ever gone that far because of the difficulty of specifying everything it needed in contracts. Yet, in the new age of neoliberal worship of markets some corporations have actually made great strides toward creating a totally market-driven business. A few corporations have even taken to using prices within the firm in an effort to make each division accountable.
Subcontracting can have different kinds of motives. Some firms may subcontract because another firm is more efficient in performing a task. Of course, subcontracting with sweatshops in low-wage countries has become all too common. Others may do so in order to avoid responsibility, such as an otherwise "reputable" corporation that subcontracts out janitorial work to a company that pays minimum (or even subminimum) wages. In this way, the company can still present itself as an upstanding "citizen" -- never having a clue about the fate of its janitors. Other unionized firms may openly subcontract just to avoid paying union wages.
Now back to Boeing. For years, Boeing has increasingly subcontracted out work. In part, the objective was to provide jobs in countries that purchased its planes, but avoiding unionized labor was a major motive for much of the subcontracting.
Now, the subcontracting is coming back to bite Boeing. The specifications for airplane parts leave little tolerance for error, yet the quality of some of the work was substandard or late. So now Boeing is forced to purchase some of the subcontractors instead of their products.
Sanders, Peter. 2009. "Boeing Sets Deal to Buy a Dreamliner Plant: Company to Pay Vought Aircraft $580 Million, Forgive Cash Advances for Work on 787." Wall Street Journal (8 July).Boeing Co. agreed to acquire manufacturing operations from one of its key suppliers [Controlled by the Carlyle Group] on the delayed 787 Dreamliner aircraft at a cost of $1 billion. The purchase of a plant in North Charleston, S.C., from Vought Aircraft Industries would mark the second time Boeing has taken over a key part of the Dreamliner's supply chain.
Now back to Coase. His idea was that firms chose to avoid the price system, at least in part, because of the difficulty of framing requirements in terms of a formal contract. Perhaps, the management of Boeing might consider reading Coase.
One other part of Coase' analysis was the idea transactions costs -- the time and expense of working out deals or specifying the requirements of purchased products or services. Contracts are terribly difficult to write in a way that they spell out all contingencies in advance. Economists refer to this as the principal-agent problem.
One other problem with contracting out: sometimes such arrangements require more than a contract. Parties may shut down or build new factories depending upon which side of the contract they sign. Should economic conditions change, readjustment can be costly. Workers must relocate or remain unemployed [which explains why there is an association between home ownership and unemployment]. Companies may be left with the challenge of restarting production or with finding alternative uses for empty factories.
For example, when oil prices spiked, some companies found that increasing transportation costs wiped out the expected savings from contracting out production in far-off lands. For this reason, some the business press is suggesting that Mexican maquiladoras are now becoming more attractive than Chinese sweatshops.
Is Blogging Declining?
Recently Tyler Cowen at Marginal Revolution posted asking this question, and getting few answers. He posed it in terms of some people arguing that it has gotten boring and unexciting, but the real issue may be has it been superseded by Facebook and Twitter as the cutting edge source of news and discussion, just as blogging displaced the revered internet lists some years ago in this way, although some such as our own Michael Perelman's revered pen-l continue to truck along. A weird straw in the wind may be that reportedly media mavens are now not going to the Drudge Report (a good move in my view) and are looking at Facebook and Twitter instead, with the recent role of Twitter in reporting the events in Iran being a real straw in the wind. If so, this would seem to be part of a larger trend, the bottom end of which is the decline of the print newspapers, which some such as Brad Delong trumpet as a good thing.
I think blogging will continue as a source of important discussion, at least in economics, even if it loses some of its cutting edge quality as a source of new information. However, I would emphasize that a loss of the bottom end, the print newspapers, would be disastrous in all this. Why? I cite my own experience back on maxspeak in the case of reporting about the problems of Kurdish people in Harrisonburg, VA, who were being mistreated by the FBI and the courts. The maxspeak files unfortunately remain inaccessible, but I posted here an update on that about two years ago.
A crucial aspect of the original blog about this matter on maxspeak, which got picked up by lots of other blogs and went around the globe before even the mayor of Harrisonburg knew what was going on, was that there was a lot of blowback from other blogs (especially the widely read Volokh Conspiracy) to the effect of "How do we know you did not make this up, where is the link to a newspaper story?" In the end, we were able to find an obscure story buried deep in a an earlier edition of the local paper, the Harrisonburg Daily News-Record, which reported on the ongoing prosecution of the Kurds, but which was buried so deep and was so favorable to the prosecution side that no civil libertarians or pretty much anybody outside of the local Kurdish community and a few supporters among the local Mennonite population even noticed it. But in the end, that ability to link to some sort of hard copy source in a print newspaper was crucial for support, and this blog report did have really positive consequences. Maybe twittering will be able to get around this, but twittering and Facebook can be manipulated, and fraudulent reports can be manufactured. Ground verification will still be needed for breaking news.
Amazon’s Income – Who Gets to Tax It?
The following story got me curious as to how much Amazon earned in pretax income over the 2003 to 2005 period:
TOKYO (Reuters) – Japanese tax authorities have told an affiliated company of Amazon.com to pay some $119 million in taxes for unreported income in Japan over three years to the end of 2005, the Asahi newspaper reported on Sunday. But the company said the taxation was inappropriate and asked tax authorities in the United States and Japan to discuss whether the firm properly complied with the tax code in the bilateral tax treaty, the newspaper added. The affiliated company in Seattle, Amazon.com International Sales, has commissioned Amazon Japan and Amazon Japan Logistics to manage sales and logistic operations in Japan, while booking sales from its business in Japan back in the United States where it paid taxes, Asahi said. But the Tokyo Regional Taxation Bureau has judged that Amazon's operations in Japan should be considered as having a 'permanent establishment (PE)', meaning their income should be taxed in Japan under the U.S.-Japan tax treaty, it added. Officials from Amazon Japan were not immediately available for comments.
I learned two things from looking at their 10-K filings. Their most recent 10-K states:
In addition, in 2007, Japanese tax authorities assessed income tax, including penalties and interest, of approximately $119 million against one of our U.S. subsidiaries for the years 2003 through 2005. We believe that these claims are without merit and are disputing the assessment. Further proceedings on the assessment will be stayed during negotiations between U.S. and Japanese authorities over the double taxation issues the assessment raises
Someone at Reuters should consult the 10-K filings as Amazon is saying that the claims of the Japanese tax authorities have no merit. It also turns out that the cumulative pretax income over the 2003 to 2005 period for Amazon on a worldwide basis was $982 million. Does the Japanese tax authority really believe that over 20 percent of this income should be taxable in Japan?
Then again – national income tax authorities will likely be looking for all sorts of ways to increase taxable income from its residents include going after transfer pricing related issues with respect to multinational corporations. Stay tuned – as this could turn fun (or ugly depending on one’s perspective).
Tuesday, July 7, 2009
Brown and Withered Shoots
by the Sandwichman
Dean buries his lead... again:
"If we all worked five per cent fewer hours, then seven million more workers could have jobs at the same level of demand."The result of that burial is that only one of the 49 comments (so far) even mentioned the shorter work time angle of Dean's "pay for play" idea.
Dean first mooted his idea for a shorter work time tax credit back in January and since then it has generated hardly any controversy. "Ho hum... create seven million jobs you say? Who cares?"
Now that the prospect of a second (or, more accurately third) stimulus package is looming, what are the chances that a shorter work time proposal will get wider discussion? The Sandwichman is not holding his breath.
Interview with Michael Perelman
Seth Sandrosky published a very nice interview with me.
http://www.truthout.org/070709E
Intellectual Property vs. Global Warming
The damage done by intellectual property goes well beyond the prevention of the downloading of music. Yesterday's story about a Goldman Sachs employee downloading proprietary information was not exactly an example of a violation of intellectual property laws, but rather a theft of trade secrets -- perhaps a distinction without a difference.
Below, is a story about Toyota, supposedly benign force in the green economy by virtue of the Prius. Here is another side of the story in which Toyota is using intellectual property to make competition difficult.
One might be sympathetic to Toyota if you were selling socks or toothpaste, but global warming seems to be too important to be gamed by such shenanigans.
Murphy, John. 2009. "Toyota Builds Thicket of Patents Around Hybrid To Block Competitors." Wall Street Journal (1 July): p. B 1.
The Obama administration's tough new fuel-efficiency standards could pose problems for some car makers, but Toyota Motor Corp. is hoping to benefit. The Japanese company is betting the rules will give an advantage to its expanding lineup of hybrid vehicles, and it also aims to boost revenue by licensing to other car makers the patents that protect its fuel-saving technologies. Since it started developing the gas-electric Prius more than a decade ago, Toyota has kept its attorneys just as busy as its engineers, meticulously filing for patents on more than 2,000 systems and components for its best-selling hybrid. Its third-generation Prius, which hit showrooms in May, accounts for about half of those patents alone. Toyota's goal: to make it difficult for other auto makers to develop their own hybrids without seeking licensing from Toyota.
Solastalgia
Solastalgia: "The solace that one’s environment provides, the desolation caused by that environment’s degradation and the pain or distress that occurs inside a person as a result."
"...The bastard inhabitant rapes the
blue shimmering hills
The spirit is quelled -
To be thrown on the garbage
heaps of the world as a
tribute to man's greatness
The mound of mutilated trees
is yellow and dune-like to
those who don't care
Not a heap of slaughter and
despair.
The motors roar and another
tree dies
The soul screams...
The land writhes...
Yet no one hears ...
The land is forgotten and forlorn.
Woodchipping by David Bowman
From "The West Wind and other verses for the Tasmanian Bush"
Published by The Tasmanian Wilderness Society
Monday, July 6, 2009
Fiscal Stimulus and Fast Acting Excedrin
While the latest nonsense from Eric Cantor gives me a headache, it is typical of what our Republican “leaders” have been saying:
Americans now agree that the stimulus package signed into law earlier this year has not achieved its intended effects, House Minority Whip Eric Cantor (R-Va.) claimed Monday.Pushing back against a possible second stimulus bill, Cantor asserted that the Obama administration-backed first $787 billion stimulus has not worked, and insisted that characterization has now become consensus.
The fact is that Federal purchases have yet to show any significant increase while state and local purchases have declined. Suppose I just took two Excedrin for my headache and haven’t even swallowed the water designed to chase them down and I noticed my headache is getting worse. Should I immediately conclude that the Excedrin will not work and it’s time to take some voodoo medicine? Our course not – but Cantor just might:
House Minority Whip Eric Cantor (R-Va.) said that Republicans would work with President Obama on a second stimulus bill, as long as it's like the tax cut-heavy package the GOP proposed earlier.
I thought we tried that in 2008 – and it hasn’t provided much stimulus even to date.
Saturday, July 4, 2009
How Bureaucracy prepares for Social Collapse
1. Formulate comprehensive plan
2. Generate community enthusiasm
3. Get 'buy in' from industry/government/UN/Vatican etc
4. Use mass media to create public awareness
5. Form action committees and grant structures
6. Develop legislation and lobby parliaments
7. Secure corporate sponsorships
8. Execute pilot programs
9. Publish papers, present results at conferences
10.WATCH THE COLLAPSE!
Speaking of conferences, here's a talk from one entitled 'The New Emergency' in Dublin held a few weeks ago (June 11, 2009) Dimitry Orlov gave his presentation: 'Definancialisation, Deglobalisation, Relocalisation'. (html document).
"What I want to say" says Mr Orlove "can be summed up in simpler words: we all have to prepare for life without much money, where imported goods are scarce, and where people have to provide for their own needs, and those of their immediate neighbours."
"Many of the problems the world faces today are the eventual result of short-term measures taken last century."
-- Jay Forrester
Thursday, July 2, 2009
Half a Million Green Chutes?
By the Sandwichman
Oh, you thought it was spelled s-h-o-o-t-s?
"We were on the road of things getting less bad in the jobs market, and that has been temporarily waylaid," said economist Ken Mayland, president of ClearView Economics."Although employment was not as less bad in June as it was in May or April it was still much less bad than it was in January to March. On a year-to-year basis, even January to March was less bad than November, which was hideous.
Actually, things got worse.
Cutting through the statistical noise and economystical public relations spin, the June employment numbers were pretty much in line with the average monthly job loss since September 2008. About a half a million jobs have disappeared per month. The month-to-month fluctuations don't really mean much because the raw changes are overwhelmed by seasonal and birth/death model adjustments. Those adjustments are reasonable but far from ideal. And sometimes they inject noise in an effort to counter other noise.
Here's a raw number: employment fell by 295,000 in June, not seasonally adjusted and without the birth/death model adjustment. Even adding in the birth/death factor, employment fell by 110,000. The contrast with April and May is that in those months non-seasonally adjusted employment actually increased, albeit not as much as it usually would have at that time of the year.
Some History of Debt Colonialism
"Were I a Third World Leader in the dock, accused of getting my country hopelessly ensnared in debt, my defence would be that money was too cheap in the 1970s not to take advantage of the windfall...How was I, a debtor government, to foresee - much less control - the unprecedented upward swing of interest rates, due largely to demented military spending by the capitalist world super-power? I would further tell the jury: 'Every single Western expert who ever came to our country, especially those from the development banks, told us that to develop we had to industrialise. Was our country to remain for ever in peonage, exporting raw materials North so that others could transform them into finished goods and make all the money? Where were we supposed to get the capital for energy and for industrialisation if not by borrowing?" [1]
"...a large part of the cost of controlling inflation and introducing structural change in the North was borne by the South. Developing countries had to pay out more and more to service their debt whild receiving less and less for their exports. As these contrasting movements aggravated their financial difficulties, commercial banks decided to stop lending them new money, and the result was the international debt crisis of the 1980s." [2]
"Underdevelopment, far from constituting a state of backwardness prior to capitalism, is rather a consequence and a particular form of capitalist development known as dependent capitalism." [3]
[1] Susan George (1988) 'A Fate Worse than Debt', Pelican.
[2] The South Commission, The Challenge to the South, Oxford University Press
[3] Political Scientist Theotonio Dos Santos, 1969
THE LONG-TERM PROBLEM OF FULL EMPLOYMENT
by the Sandwichman
For those who still haven't "gotten the memo", I'm posting it again. I will continue to repost this memo each month around the time of the BLS report. Please see also Dean Baker's proposal of tax credits for paid time off. (How European!)
THE LONG-TERM PROBLEM OF FULL EMPLOYMENT
J.M. Keynes (May 1943):
1. It seems to be agreed today that the maintenance of a satisfactory level of employment depends on keeping total expenditure (consumption plus investment) at the optimum figure, namely that which generates a volume of incomes corresponding to what is earned by all sections of the community when employment is at the desired level.
2. At any given level and distribution of incomes the social habits and opportunities of the community, influenced (as it may be) by the form and weight of taxation and other deliberate policies and propaganda, lead them to spend a certain proportion of these incomes and to save the balance.
3. The problem of maintaining full employment is, therefore, the problem of ensuring that the scale of investment should be equal to the savings which may be expected to emerge under the above various influences when employment, and therefore incomes, are at the desired level. Let us call this the indicated level of savings.
4. After the war there are likely to ensure [sic] three phases-
(i) when the inducement to invest is likely to lead, if unchecked, to a volume of investment greater than the indicated level of savings in the absence of rationing and other controls;
(ii) when the urgently necessary investment is no longer greater than the indicated level of savings in conditions of freedom, but it still capable of being adjusted to the indicated level by deliberately encouraging or expediting less urgent, but nevertheless useful, investment;
(iii) when investment demand is so far saturated that it cannot be brought up to the indicated level of savings without embarking upon wasteful and unnecessary enterprises.
5. It is impossible to predict with any pretence to accuracy what the indicated level of savings after the war is likely to be in the absence of rationing. We have no experience of a community such as ours in the conditions assumed, with incomes and employment steadily at or near the optimum level over a period and with the distribution of incomes such as it is likely to be after the war. It is, however, safe to say that in the earliest years investment urgently necessary will be in excess of the indicated level of savings. To be a little more precise the former (at the present level of prices) is likely to exceed £m1000 in these years and the indicated level of savings to fall short of this.
6. In the first phase, therefore, equilibrium will have to be brought about by limiting on the one hand the volume of investment by suitable controls, and on the other hand the volume of consumption by rationing and the like. Otherwise a tendency to inflation will set in. It will probably be desirable to allow consumption priority over investment except to the extent that the latter is exceptionally urgent, and, therefore, to ease off rationing and other restrictions on consumption before easing off controls and licences for investment. It will be a ticklish business to maintain the two sets of controls at precisely the right tension and will require a sensitive touch and the method of trial and error operating through small changes.
7. Perhaps this first phase might last five years,-but it is anybody's guess. Sooner or later it should be possible to abandon both types of control entirely (apart from controls on foreign lending). We then enter the second phase, which is the main point of emphasis in the paper of the Economic Section. If two-thirds or three-quarters of total investment is carried out or can be influenced by public or semi-public bodies, a long-term programme of a stable character should be capable of reducing the potential range of fluctuation to much narrower limits than formerly, when a smaller volume of investment was under public control and when even this part tended to follow, rather than correct, fluctuations of investment in the strictly private sector of the economy. Moreover the proportion of investment represented by the balance of trade, which is not easily brought under short-term control, may be smaller than before. The main task should be to prevent large fluctuations by a stable long-term programme. If this is successful it should not be too difficult to offset small fluctuations by expediting or retarding some items in this long-term programme.
8. I do not believe that it is useful to try to predict the scale of this long-term programme. It will depend on the social habits and propensities of a community with a distribution of taxed income significantly different from any of which we have experience, on the nature of the tax system and on the practices and conventions of business. But perhaps one can say that it is unlikely to be less than 7 per cent or more than 20 per cent of the net national income, except under new influences, deliberate or accidental, which are not yet in sight.
9. It is still more difficult to predict the length of the second, than of the first, phase. But one might expect it to last another five or ten years and to pass insensibly into the third phase.
10. As the third phase comes into sight; the problem stressed by Sir H. Henderson begins to be pressing. It becomes necessary to encourage wise consumption and discourage saving,-and to absorb some part of the unwanted surplus by increased leisure, more holidays (which are a wonderfully good way of getting rid of money) and shorter hours.
11. Various means will be open to us with the onset of this golden age. The object will be slowly to change social practices and habits so as to reduce the indicated level of saving. Eventually depreciation funds should be almost sufficient to provide all the gross investment that is required.
12. Emphasis should be placed primarily on measures to maintain a steady level of employment and thus to prevent fluctuations. If a large fluctuation is allowed to occur, it will be difficult to find adequate offsetting measures of sufficiently quick action. This can only be done through flexible methods by means of trial and error on the basis of experience, which has still to be gained. If the authorities know quite clearly what they are trying to do and are given sufficient powers, reasonable success in the performance of the task should not be too difficult.
13. I doubt if much is to be hoped from proposals to offset unforeseen short-period fluctuations in investment by stimulating short-period changes in consumption. But I see very great attractions and practical advantage in Mr Meade's proposal for varying social security contributions according to the state of employment.
14. The second and third phases are still academic. Is it necessary at the present time for Ministers to go beyond the first phase in preparing administrative measures? The main problems of the first phase appear to be covered by various memoranda already in course of preparation. insofar as it is useful to look ahead, I agree with Sir H. Henderson that we should be aiming at a steady long-period trend towards a reduction in the scale of net investment and an increase in the scale of consumption (or, alternatively, of leisure) but the saturation of investment is far from being in sight to-day The immediate task is the establishment and the adjustment of a double system of control and of sensitive, flexible means for gradually relaxing these controls in the light of day-by-day experience
I would conclude by two quotations from Sir H. Henderson's paper, which seem to me to embody much wisdom.
"Opponents of Socialism are on strong ground when they argue that the State would be unlikely in practice to run complicated industries more efficiency than they are run at present. Socialists are on strong ground when they argue that reliance on supply and demand, and the forces of market competition, as the mainspring of our economic system, produces most unsatisfactory results. Might we not conceivably find a modus vivendi for the next decade or so in an arrangement under which the State would fill the vacant post of entrepreneur-in-chief, while not interfering with the ownership or management of particular businesses, or rather only doing so on the merits of the case and not at the behests of dogma?
"We are more likely to succeed in maintaining employment if we do not make this our sole, or even our first, aim. Perhaps employment, like happiness, will come most readily when it is not sought for its own sake. The real problem is to use our productive powers to secure the greatest human welfare. Let us start then with the human welfare, and consider what is most needed to increase it. The needs will change from tune to time, they may shift, for example, from capital goods to consumers' goods and to services. Let us think in terms of organising and directing our productive resources, so as to meet these changing needs, and we shall be less likely to waste them."
Posts
E-Mail
