30/11/2011 § Leave a Comment
Through a discussion group, I was sent to this New York Times op-ed that suggests we are running out of work. The current downturn and technological advance are combining to create a pool of surplus workers. This particular statement caught my eye:
In fact, if modern capitalism continues to eliminate as many jobs as it creates — or more jobs than it creates — future recoveries will not only add to the amount of surplus labor but will turn a growing proportion of workers into superfluous ones.
The vision is dystopian: the economy has less and less need of people, who will be sent to the scrap heap. There is a flip side. The utopian view is: we have less and less need to work, Hooray! Now we can engage our minds and hearts with philosophy and music and fulfulling human relations. This is the vision behind Walden, wherein Henry Thoreau explores how little work he has to do in order to get by (slacker!). It is also the vision behind the slightly more disturbing Walden Two: the society is organised by the big brain of B.F. Skinner to require only a few hours of work per day from each adult.
Both visions are wrong, though. The historical development of technology suggests that we find new things to do. If we go back to 1995, Jeremy Rifkin was warning of the ‘end of work’. New technologies were spelling the end of manufacturing and agricultural jobs. What happened next was the late 1990s, a boom period when unemployment fell and median wages rose. People were trying to figure out what to do with the new information and communication technology, and worked very hard at it.
The concern about the loss of work goes back much further. Karl Marx, for example, reviewed some of the history. In Capital, he cites an Indian Governor-General from the mid-19th century: ‘The bones of the cotton-weavers are bleaching the plains of India.’ He also goes back further to the 17th century ‘revolts of the workpeople against the ribbon-loom’ in present-day Germany.
I was always struck by Peter Earl’s explanation for why the utopian version hasn’t come to pass. Learning an instrument, for example, takes time. The time to master an instrument sufficiently to enjoy playing it hasn’t changed very much in the last 300 years. The Web, to be fair, gives one access to guitar tablature and tutor videos, and that makes it easier. But the way to Carnegie Hall is still ‘practice, practice, practice’.
Consuming things, however, has become much easier. It is much easier to sit in front of a plasma screen and play a video game than it was 300 years ago (well, you know what I mean). As the price of things has dropped relative to the price of doing, thinking, and practicing, we consume more things. That also means we need to produce more things. As the machines take over one type of production, we keep inventing new things to produce and new ways to produce them.
This centuries-long trend doesn’t take away from the real dislocation and strife of specific individuals whose jobs disappear. We can demand, as they did in Leyden, that ‘usus hujus instrumenti a magistratu prohibitus est’. History shows, however, that that approach only delays the inevitable. Better to understand what the new work is and how to support these individuals to participate in it.
29/11/2011 § Leave a Comment
How can we think about the eurozone problems? It is very hard to think of them as they are. It is hard to keep in mind the number of countries, with their different fiscal positions managed by separate governments, and also remember the European banks and global investors and the multiple bond offerings, plus the supranational organisations. I’m a bear of very little brain.
The eurozone is now subject to a run by global investors, and a quiet bank run among its citizens.
This massive erosion of trust has also destroyed the main plank of the rescue strategy. The European Financial Stability Facility derives its firepower from the guarantees of its shareholders. As the crisis has spread to France, Belgium, the Netherlands and Austria, the EFSF itself is affected by the contagious spread of the disease. Unless something very drastic happens, the eurozone could break up very soon.
This piece is filled with poetry:
- a run on the eurozone — A bank run is about self-fulfulling panics, balance sheets, and confidence in the ability to repay debts/depositors. It sounds very scary. But the eurozone is an economy; people produce things and buy things. The economy can grow and continue to pay on claims against it, regardless of asset problems.
- erosion of trust — This implies an force of nature. Rhetorically, it begs the question of whether it can be stopped or turned around. It makes collapse inevitable.
- the main plank — Political platforms are built from planks, but they are fancy words rather than actual promises. The rescue strategy now seems less like a plan and more like campaign rhetoric.
- firepower — Now, the EFSF is a tank or a battleship. It is fighting, but against whom and for what cause? Will it be full of sound and fury (shock and awe), but signifying nothing?
- contagious spread of the disease — The EFSF becomes human (or at least biological). The eurozone problem has again become natural, just one of those things that humans can ‘catch’. This also suggests that an external doctor needs to administer to the patient.
How can we put all these metaphors together? Is the EFSF is a machine of war, needing a bit of extra weaponry to destroy the enemy? Or is it a feeble invalid, needing to be administered to? What about the crisis — is it an unstoppable force of nature that will eventually collapse the euro? Is it instead a panic attack that could be calmed with the right intervention? Or even still, a dread disease for which there is no cure, and we must flee or be infected?
Of course, it is none of these things. It is a group of people negotiating and renegotiating contracts over debts and repayments. That image isn’t as poetic. However, it lays bare the fact that people created the problem, and people can fix it, too.
28/11/2011 § Leave a Comment
Some American economists have put together a group with a website called Econ4. They stand ’4 people, 4 the planet, 4 the future’. They say:
We need an economics that aims to secure long-run human well-being, not an economics preoccupied with maximizing short-run output and profits. We need an economics that recognizes that we need to safeguard the Earth for our children and generations to come. We need an economics for people, the planet, and the future.
There are several initiatives to reform economics, so it is instructive to think about this one. The goals are laudable: long-run well-being and safeguarding natural resources. These are also central questions in economics. How do we achieve well-being in the long run, and how do we organise the series of short runs to get there? How should we use natural resources, and how much?
Economics has good tools and models for analysing these questions. There is an abundant supply of economic theory for understanding welfare and natural resources. Econ4, in fact, provides a bunch of names from the economics canon: Keynes, Veblen, Robinson, Galbraith, Sen.
That suggests that the ‘problem’, if there is one, is on the demand side. Maybe there isn’t demand for the kind of economics that promotes long-term well-being and safeguarding of the planet. The ideas are there, ready to be deployed. If they aren’t being used then maybe there isn’t interest in them.
I have found this particular disconnect revealing over the last few years. There’s no end of economic theory trying to explain what’s happening in the global economy and what to do about it. And yet, here we stand, 9% official unemployment in the US, the euro straining to stay together, and NZ sputtering along in first gear. Do we really need more ideas, or just a willingness to use the ones we already have?
One could argue that there isn’t effective demand. That is, the demand for theory is controlled by money, not people. With that argument, the demands of the moneyed few outweigh the demands of the democratic many. If that’s the problem, then Econ4 has the wrong analysis. They don’t need supply-side initiatives, they need to sort out demand. I suspect that’s a much harder problem.
24/11/2011 § 2 Comments
I’ve been watching developments in euro-land, wondering how the crisis ends. I’ve become tangled in the notion of expectations and what they mean for the euro endgame.
Let’s take a two-country model with Greece and Germany. They are negotiating over how to divide up the losses on loans to Greece. Greece has to make good on some portion of the loans, and that money has to come from the government and ultimately the Greek economy. So, austerity for the Greeks, in the sense that future consumption must be reduced to pay for past borrowing. Germany wants to be repaid, at least in part. Germans have to decide, technocratically or politically, how much of the loans they will write off. They are essentially trying to figure out how much plucking the Greek goose can undergo before the hissing is too much.
Of course, Greece has the other option: exit from the euro. Yes, it will be painful and economically disruptive. Austerity will also be painful and politically disruptive.
Now it becomes a game of expectations. Greece will stay in the euro as long as the expected pain from German demands are less than the expected pain from exit. If current demands — the current amount of demanded austerity — are unsustainable, then Greece is expecting Germany to lower its demands. So now the situation is:
- Greece expects Germany to lower its demands — Greece remains in the euro
- Greece expects exit to be worse than austerity — Greece remains in the euro
- Greece expects the current austerity and any future potential German concessions to be worse than exit — Greece exits the euro.
World opinion seems to be that the current plan is unsustainable, that Greece can’t ‘trade through’ as they say for businesses. So, that must mean that Greece is betting that future concessions will make the difference.
My problem is that there is a first-mover advantage. If you expect that in time t the deal will be unsustainable, then you should make your move in period t-1. But if that is true, then you are even better off making the move in period t-2. The thing that keeps you from making your move early is the expectation (hope?) that the deal will change, that things will get better.
But it also isn’t a binary situation. There is a range of possible actions or concessions that can improve Greece’s situation. Germany is trying to maximise the expected value of its claims on the Greek economy, so it is trying to figure out the minimum concessions necessary to keep Greece in the euro.
This logic leads to the conclusion that both countries have an interest in maintaining the crisis. As long as Germany looks like it might offer concessions, then Greece expects that future austerity won’t be as bad as the current plan. As long as Greece’s finger hovers over the ‘exit euro’ button, it has a credible threat and can extract more concessions. Current uncertainty is the price both countries are willing to pay to increase the expected long-term payoff.
It looks like a Mexican stand-off. Those never end well.
24/11/2011 § Leave a Comment
Poor New Zealand gets compared to every other place. We should be more like Ireland, with its tax breaks and thriving economy and, oops, nevermind. We should be more like Australia, with the high wages and, oh, traffic and deadly native fauna. Sometimes, France is held up as the place to be. Healthy attitudes toward alcohol, 35-hour work weeks, high-tech without the high stress.
It turns out that they have some of the same issues we do. Well, not exactly the same. The Economist reports that French management is notably weak and holding the country back:
In fact studies suggest that the problem with French employees is less that they are work-shy, than that they are poorly managed. According to a report on national competitiveness by the World Economic Forum, the French rank and file has a much stronger work ethic than American, British or Dutch employees. They find great satisfaction in their work, but register profound discontent with the way their firms are run.
Having read Bonjour Paresse, I’m not ready to believe in this rank-and-file ‘work satisfaction’. (Note: Corinne Maier, the author, is billed as an economist. Could she be a keynote speaker for the economists’ conference?) However, the idea that management is weak suggests that there are efficiency gains to be made.
The same has been said for New Zealand. A report to MED earlier this year found that our management is holding the country back (nor is this the first report with such findings).
The findings suggest that while some of New Zealand’s firms are as good as any in the world, there is a substantial ‘tail’ of firms that are mediocre, especially in their approach to people management.
However, French and New Zealand firms are weak in their own ways. The Economist’s article reports that French firms tend to be rigid and hierarchical. They don’t promote cooperation between management and employees and don’t empower their workers. The kaizen craze has passed them by; the notion that firms can harness employees’ initiative and creativity is literally foreign. New Zealand firms, on the other hand, seem to suffer from too little organisation:
for manufacturing firms in New Zealand a certain optimal degree of hierarchy is necessary for the organization and management of operations….
So what do we do? Well, the report to MED doesn’t give us the specifics. We need ‘more’ and ‘better’ management, but I’m not sure what that looks like. Maybe we could start an exchange programme with French multinationals, and both countries can learn from each other. Instead of ‘vive la difference’, it may be a case of ‘vive la moyenne!’
23/11/2011 § 5 Comments
I was dismayed but not shocked at what happened at Berkeley. Not for nothing is it called Bezerkley. UC Davis, on the other hand? Davis is a cow town. Middle of nowhere. Land grant university. Famous for its bike lanes. I had at least one friend get ticketed for bicycling under the influence — it’s that kind of place.
This picture and ones like it are becoming iconic (although I’m not sure what they are iconic of).
Back in October, TVHE had some home truths for the Occupy movement in NZ, and some of those points apply to the US situation, too. This photo demonstrates how complex the economic and political situation really is, and how naive/narcissistic the Occupiers are.
The photo contains clear class markers that show the gulf between the policeman and the students.
- The beer gut and the moustache mark the policeman as working class. Fat is a class issue, and has been linked to poverty and low levels of knowledge/education. The moustache is a signifier of working-class masculinity — at least in the US.
- The students have upper middle class markers. Just to take the woman’s legs in jeans in the middle: she is wearing duck boots. These are preppy shoes, ‘preppy’ meaning ‘prep school kids’ or those who aspire to be them. That style is sold by the likes of L.L. Bean, not K-Mart or Target. She is also, of course, slim.
- And let’s not forget, these are UC students — the students who did well in high school and are being prepared for successful careers (California has a clear pecking order of tertiary institutions).
Why am I pointing out these details? They show the complexity of the situation. This isn’t simply a conflict between the 99% and the 1%. Society has many cleavages, and the Occupy movement is causing fractures along several of them. Income/wealth is one of them, but class, gender, age, ethnicity, geography, education, and attitude towards hierarchy are also in play.
The other cleavage, frankly, is expectations. These students expect/expected something more than they think they are getting. We can argue about the rightness of their expectations another time. These students believe that they should have a bright future with interesting, well-paid work and secure employment. Because those expectations are not being met, they are willing to fight the power and take a face-full of pepper spray. Those expectations are a privilege of the upper middle class. The biggest class marker of all is the demand to have their expectations met.
22/11/2011 § Leave a Comment
Clive Spash introduced a new acronym in the May 2011 Environmental Values, of which he is editor: merciless economics of scientists and society (MESS). According to the editorial, a environmental scientists are getting behind a narrow economic discourse to produce this MESS. The mess is ‘ecosystem degradation and biodiversity loss’, driven by ‘human population increase, war, corruption and greed, colonialism’.
Spash thinks that the shift from plural ecological values to ‘a monistic pseudo-economic one’ value is the wrong move for environmental scientists. It won’t just be bad for biodiversity, either: ‘Not just species are threatened but social and environmental responsibility itself.’
I started reading the editorial because (a) it had ‘economic discourse’ in the first sentence, and (b) I liked Spash’s work on non-compensatory preferences for economic goods, using contingent valuation. It let me down, though, in two ways.
Spash doesn’t really tell us what this economic discourse is. In fact, he seems to be guilty of that of which he accuses the environmental scientists. He has taken a jargon-y, intelligent-sounding word from another discipline and stuck it in his own economics analysis. He doesn’t describe the discourse, how it operates, what it includes or excludes, who is allowed to speak it, what its inversion might mean, what it glosses over, what its internal contradictions are — any of that. We are told that this discourse is ‘narrow’, ‘monistic’, and post-colonial, but not much more.
We can dig a bit deeper into the editorial and find that the discourse privileges orthodox economists, financiers, major corporations like Rio Tinto and Citigroup, banking concerns, and developers. On the other side, those who are spoken to include the Moabi tree, the politically weak, the poor. These categories are used rhetorically, rather than being categories inhabited by real people (or trees).
The use of ‘monistic’ also alludes to all sorts of work on phallogocentrism, but without really telling us what Spash is trying to say about it. It also alludes to Marcuse’s One Dimensional Man. That book was about productionism narrowing the field of human concerns and endeavours. Maybe that is what Spash is saying: we are placing the environment into the same productionist perspective, rather than considering it using plural values.
The second problem I had with the editiorial was the straw-man of economics that it presented. We aren’t really told what economic theory is causing the trouble. The word ‘neoliberal’ shows up in the last sentence, ‘orthodox’ in the second to last paragraph. ‘Economics’ seems to signify ‘that which I think is wrong about the actions of the rich’.
Those of us trying to work on ecosystem services and resource economics know that there is a lot more to the economics. We know there are limits — the amount of arable land, for example. We can create models using limits — that’s the point of a Lagrangian multiplier. We optimise a system subject to a constraint, and calculate the shadow price of the resource. If, for example, we decide that the atomsphere can sustainably handle no more than 350 ppm of CO2-equivalent, then we can model an economic system with the limit and figure out the shadow price.
Towards the end, Spash notes that the plural approach hasn’t worked: ‘environmental ethicists have seemingly tried every avenue of appeal to inspire their fellow human beings to forbear in the wanton destruction of Nature.’ That really should be a data point in whatever theory he constructs. His failure to grapple with that fact undermines the whole piece.
20/11/2011 § Leave a Comment
We watched the 2005 film The Hitchhiker’s Guide to the Galaxy over the weekend. IIRC, it had mixed reviews when it was released. It missed out a few classic lines from the book (and radio show and TV show — it’s a sad life, I know). Still, it was very entertaining and the cast was great.
The explanation for the suspension of business in Magrathea caught my attention. Magrathea’s chief industry is custom planet building. When the galactic economy hit a down-turn, they suspended operations. The explanation was that, custom planet building being somewhat of a luxury good, demand had fallen off.
What’s interesting is that Douglas Adams expected his readers to agree that a recession affects the kind of people who can afford custom-made planets. If the galactic downturn had looked more like the current global conditions, would Magrathea have had to suspend operations?
- The Center on Budget and Policy Priorities suggests that the last economic expansion was different from earlier ones. More of the income gains went to the top 1%, relative to gains to the bottom 90%, than in earlier expansions.
- A bit of poking around suggests that demand for luxury goods has, indeed, been buoyant. LVMH, Saks, Burberry have all been doing well in the last year.
This doesn’t tell us whether the top income earners are weathering this global downturn better than prior ones. It says they did better in the good times, and they are still spending. Still, it provides an indication. These days, Adams might write that Magrathea risked staying open.
17/11/2011 § 2 Comments
Tomorrow morning, I’m contributing to a workshop at the Ministry of Economic Development. This was a cross-departmental research project led by Philip Stevens. Here’s the blurb:
The Impact of Skills on New Zealand Firms project investigated the impact of skills on New Zealand firms’ organisation, structure, strategy and performance. This project created a quantitative survey module as part of the Business Operations Survey (entitled Business Strategy and Skills), a small qualitative survey and a follow-up telephone survey. The research used a mixture of econometric and qualitative analysis to examine the pattern of demand, the use and the development of skills in New Zealand firms.
What I found interesting with this project was talking with business owners and managers. They shared a lot about the competitive environment and how it was changing at the time. This graph, courtesy of Shamubeel Eaqub at NZIER, shows how difficult things were for manufacturing and transport in 2009 when we did the interviews.
That dip in 2009 caused a fair amount of scrambling for work and therefore re-shuffling of competitors. We were interested in how it affected employers’ hiring and training decisions. One group on which we didn’t focus was youth. However, the broader story fits with what Matt Nolan writes about youth (un)employment. There was a lot of hunkering down and avoiding risk.
It would be interesting to do the research again in a few years and look for differences.
17/11/2011 § Leave a Comment
I’ve been following the news of the various Occupy encampments, especially the ones where I’ve lived or I know people.
The shutdown/crackdown of the UC Berkeley occupation has been difficult to take. Oakland, DC, NYC, Portland, Sacramento — these have all been in public parks. The UCB occupation was on campus, which is a different sort of space. The Chancellor’s justification is posted around the web — Brad DeLong has one letter, Crooked Timber has a link and video.
There is a history — a tradition, even — of political protests at UCB. The university is very proud of its history, but seems to want to leave it safely in the past. They don’t want the messiness of actually existing student demonstrators.
Two thoughts on the events:
- As an alumnus of UC Davis, I feel a special responsibility. The UC asks me for money — should I support the University when it spends its funds hiring riot police to suppress students?
- The Citizens United Supreme Court decision said that money was speech, or more specifically, that the things that money could buy — air time, production value — were speech for First Amendment purposes. If the UCB students used money to buy the tents, and those tents were used to communicate their message, then aren’t the tents ‘speech’ as defined by Citizens United? What is the difference between paying for a television show or billboard and paying for a tent?
Events of the last few days suggest that there is more support for Citizens United than for united citizens.