Thursday, June 22, 2017

Hoxie on "Fixed Group Demand Theory" (the "lump of labor")

From Robert F. Hoxie, Trade Unionism in the United States, 1917:
There is much scorn of unionists by economists and employers because of this lump of labor theory with its corollaries. This scorn is based on the classical supply and demand theory and its variants. Supply is demand. Increased efficiency in production means an increase of social dividend and increased shares, which in turn increase production and saving. Therefore, the workers cut off their own noses when they limit output or limit numbers. The classical position is undoubtedly valid when applied to society as a whole, if there is any such thing, and in the long run. But the trouble is that, so far as the workers are concerned, there is no society as a whole, and no long run, but immediate need and rival social groups. 
The fixed group demand theory is as follows: The demand for the labor of the group is determined by the demand for the commodity output of the group. The community—wealth and distribution remaining the same—has a fairly fixed money demand for the commodities of a group. It will devote about a given proportion of its purchasing power to these commodities, that is, if the prices of the group commodity are higher, it will buy less units and vice versa, but expend about the same purchasing power. Therefore, the demand for the labor of the group, profits remaining the same, is practically fixed, and increasing the group commodity output means simply conferring a benefit on the members of other groups as consumers without gain to the group itself. Therefore, to increase the efficiency and the output of the group will not increase the group labor demand and group wages. Decreasing the efficiency and output of the group will not decrease the group labor demand and the group wage. 
Increasing the number of workers tends to decrease their bargaining strength relatively and to lower the total wage and the wage rate. Increasing the efficiency and the output of the workers is equivalent to increasing the group labor supply, and so tends to lower the group wage and the wage rate. Decreasing the number of workers tends to increase their bargaining strength relatively and so to increase the group wage and the wage rate. Decreasing the efficiency and output of the workers tends to increase their bargaining strength relatively and so to increase the group wage and the wage rate. The introduction of labor saving devices is equivalent to increasing the labor supply and so lowering the wage rate. Limitation of output through shorter hours, etc., i.e., decreasing the supply of labor, increases bargaining strength and tends to increase the wage. Strikes and trade union insurance funds are means of temporarily withdrawing labor supply and so of increasing bargaining strength and increasing wages. In practice the group demand theory is simply the application by the unions of the principle of monopoly, admittedly valid. But this theory only in part explains union efforts to limit both individual and group efficiency and output and to limit numbers. These policies in part rest on other theories and considerations. 
Robert F. Hoxie committed suicide on June 22, 1916. For an overview of his important but neglected contribution to economic thought see Charles R. McCann Jr. and Vibha Kapuria-Foreman, "Robert Franklin Hoxie: The Contributions of a Neglected Chicago EconomistResearch in the History of Economic Thought and Methodology, Volume 34B, 2016.

Wednesday, June 21, 2017

Saudi Succession Shuffle

A not unexpected event has just been announced: 31-year old Prince Muhammed bin Salman bin Abdulaziz al-Sa'ud has been elevated from Deputy Crown Prince of Saudi Arabia by his father, 81-year old King Salman bin Abdulaziz bin Abdul-Rahman al-Sa'ud, to replace his 57-year old cousin, Prince Muhammed bin Nayef bin Abdulaziz al-Sa'ud.  The former Crown Prince is Minister of the Interior, a position he inherited from his father, the late Prince Nayef, who was Crown Prince prior to current King Salman, but died before the most recent king, Abdullah bin Abdulaziz bin Abdul-Rahman al-Sa'ud died at age 90 in 2015, so Salman got to be king and now has moved his younger son up ahead of his somewhat older nephew.  Muhammed bin Salman (MbS) is also Defense Minister, the position his father had taken in 2011 on the death of Prince Sultan, who was then also Crown Prince, with Salman prior to that serving as Governor of Riyadh province for 40 years.  MbS has by all accounts been running things in Saudi Arabia recently, being behind the aggressive war in Yemen that has gone badly and also probably the main orchestrator of both Donald Trump's visit to Saudi Arabia and the move to diplomatically and economically isolate Qatar.  Juan Cole describes MbS as being "sloppy" and "unwise," but he may be in position now to rule Saudi Arabia for a long time to come if this appointment is not reversed somehow by other members of the Saudi royal family.

It is possible that the trigger for this elevation has been reports in the last few days of the US Secretary of State, Rex Tillerson, and Secretary of Defense,  Mad Dog Mattis, turning increasingly against the campaign against Qatar pushed by MbS, despite Donald Trump's repeated support for it via Twitter.  Not only did Tillerson sell Qatar a bunch of F-15s a few days ago, but yesterday Tillerson demanded that the Saudis and Emiratis (from UAE) present their specific demands of the Qatar regime.  It has been two weeks since they initiated this campaign against Qatar, with the clear support of Trump, but indeed they have neither issued specific demands that by satisfying them Qatar could bring about an end to this diplomatic and economic embargo, nor have they presented a shred of evidence of the Qataris financing terror groups, the supposed justification for all this, although pretty much everybody knows that it is a more general annoyance by the Saudis with their not just going along with whatever the Saudis want as well as in particular the Qataris being too friendly with Iran, although even the anti-Iran Tillerson and Mattis realize that the US is allied de facto on the ground in the war against ISIS, which the Saudis have done near zero to support, not to mention Qatar hosing the US major air base that is being used in the campaign against ISIS/Daesh.

Regarding the tangled relationships in the Saudi royal family, all these current players are descendants of the founder of modern Saudi Arabia, Abdulaziz, who died in 1953 after uniting Saudi Arabia and having 43 sons and over 100 wives, although never more than 4 at a time.  Certain wives were more important than others and produced more important sons, with basically only three in play here regarding possible future succession to the Saudi throne.  Currently in charge and looking to cement their hold are the 7 sons of Abdulaziz's favorite wife, his cousin, Hassa bint Ahmed al-Sudairi, the so-called Sudairi Seven, of whom only two remain alive, Abdul-Rahman who was once Deputy Minister of Defense but was removed from that position and the succession by arguing with other members of the family, and the current king, Salman.  Of the others, the most important was Fahd who was king for over 20 years prior to Abdullah, dying in 2005, Sultan who long served as Defense Minister, and Nayef, father of the just deposed Muhammed from being Crown Prince.  This current shuffle amounted to an intra-Sudairi Seven switch, with the Sudairis appearing to nail down a strictly hereditary line that is theirs.

The main potential rivals would be the sons of late King Abdullah, the most important of whom, Mulab, succeeded his father as Commander of the tribally based Saudi Arabian National Guard (SANG). He might have the potential for pulling off a military coup, although the official military under the control of the new Crown Prince is probably more powerful, if push were to come to shove.  However, it seems that he does not have all that much support from other top Saudi royals.

More competent would be one of the sons of the late King Faisal, viewed without question as being the most competent and revered of the 43 sons of Abudlaziz, whose mother came from the al-Sheikh family, descendants of Muhammed bin Abdel-Wahhab, the founder of the Wahhabi doctrine that the
Saudi royal family has followed since 1755. At age 16 in 1919, Faisal represented his father at the Versailles conference.  He would later serve him as Foreign Minister and continued to do so even as king until his assassination in 1975 at the hands of a nephew.  The most competent of the second generation was his son, Sa'ud, educated at Harvard, who served as Foreign Minister from 1975 until just before his death in 2015, then the longest serving foreign minister in the world, but he is not available being dead.  Another candidate might be his 72 year old brother, Princeton-educated Turki, who ran Saudi intelligence from 1977 to 2001, when he stepped down 9 days before 9/11, with it being convenient that he had been the one who selected Osama bin Laden to go to Pakistan and fight the Soviets in 1979.  Turki has since served as ambassador to both the US and UK and is now Chairman of the King Faisal Foundation, a very powerful body, but he has reportedly angered family members by being too vocal in criticizing certain policies publicly.  More serious and reportedly a candidate for the succession when Abdullah died in 2015, is another Faisal son, Khalid, now Governor of Mecca, also educated in Princeton.  He is widely respected, but at 77, well, the Faisals are just too old, and quite a lot of commentary about the new appointment of MbS is that he is a millennial, and this is the moment of the millennials taking charge there, even if it is a "sloppy" and "unwise" and highly aggressive one that is doing so.

Frankly, this does not look good.  Having a hot head running Saudi Arabia rather than a cool son of the late King Faisal could end up leading to a lot more bad things in an already much troubled Middle East.

Barkley Rosser

Addendum: One should be wary about Wikipedia information regarding members of the Saudi royal family. Some of it is inaccurate.  Thus Wikipedia claims that Hass bint  Ahmed al-Sudairi died in 1969, but she was not only still  alive more  than a decade later, but was for all practical  purposes running the kingdom from a hospital bed through her powerful sons.

Addendum, 6/22:  Apparently Muhammed bin Nayef has made a recorded TV statement supporting his replacement as Crown Prince by Muhammed bin Salman. He has also been deposed as Minister of the Interior, no word on what else he might be doing, although no reports of jail or exile.  Presumably they will treat him semi-decently if he continues to play along.  Also, MbS is being portrayed as a sort of authentic "real Saudi," whom youthful Saudis really like, and who has this dynamic vision of the future (women will get more jobs, even if they still do not work with men).  He was educated inside Saudi Arabia and apparently does not speak English very well, unlike all those snobby Faisals with their Harvard and Princeton educations.  Also, he wears sandals, presumably the distinctively Saudi kind, rather than loafers. So, a real man of the people, even if hi is a sloppy hothead.

Monday, June 19, 2017

Should Cultural Appropriation By Elvis Be Condemned?

Probably I should not post something like this on Juneteenth, but I have become increasingly frustrated by what seems to me a very misguided discourse on cultural appropriation.  While I think that there are cases that deserve condemnation, a great deal of what is being denounced I think should not be denounced.  Indeed, without cultural appropriation I contend that we would have little culture of any sort worthwhile at all.  Most culture is the result of cultural borrowings and fusions, not all of them well understood, at least some amount of cultural appropriation, if you will.  Most of the time such cultural appropriation should be praised, not condemned  (and movements on campuses to restrict such supposed appropriations and efforts to fire anybody associated with them should be condemned).

So besides a lot of really stupid stuff on campuses about this, what has me moved to post this is the case of Elvis Presley, with posts recently floating around the internet and Facebook denouncing the late rock and roll singer for his reported cultural appropriation of supposedly authentically African-American rhythm and blues in his songs that helped create what is now known as rock and roll.  I think he should be praised for what he did, which arguably was cultural appropriation, but there are a lot of other aspects of  this case that I have  seen few comment on. So, I am going to point them out here.

The first is that if only those with ancestry from a group can use what are the cultural artifacts of that group, well, guess what, Elvis Presley almost certainly had African ancestry, even if as the son of a culturally white family born in the heart of the racist Deep South in Tupelo, Mississippi, he never made any mention of this likely fact overtly to my knowledge.  It is not even clear that he used this term, but it is pretty much accepted that he had Melungeon ancestry through his mother, and he did apparently claim to have Sephardic Jewish as well as Cherokee Indian ancestry through her.  While it is unlikely that there is much Sephardic Jewish input to the racial and ethnic mix that goes into the Melungeon population, and a long list of possible groups have been claimed including Portuguese and Turkish, there is no doubt that this group is a tri-racial group, with the largest components being various sorts of  Europeans with African, and less Native American, but some.

The origin of the group would seem to be intermarriages between indentured whites and blacks in Virginia in the mid-1600s, with these people moving into the mountains of Virginia while intermarrying with other groups, including at least some Native American Indians, with the current epicenter of this population being in Lee County in southwestern Virginia and neighboring Hawkins County, Tennessee.  This group suffered substantial discrimination due to its mixed race background throughout the 19th century and well into the 20th century.  In parts of southwest Virginia, regular white children would be threatened by their parents that if they did not behave, "the Melungeons will get you!" The first recorded use of the term dates to 1813 in a Baptist church document in Lee County, in which a woman is denounced for supposedly protecting a "Milungin" woman, which this woman heatedly denies, it obviously being something she did not want to be accused of.  The unremittingly negative use of this term dated even until after Elvis died in 1977, with the first change coming with a country song in 1979 that presented Melungeons as semi-heroic figures and there now being a movement to praise them.  Among those besides Elvis being possibly of Melungeon ancestry are Abraham Lincoln, Ava Gardner, Tom Hanks, Francis Gary Powers, and Bill Monroe of bluegrass fame.  In any case, Elvis very much fits the stereotype of these supposed "straight-haired mulattoes," with his straight black hair and swarthy skin color.

So, quite aside from the fact that Elvis might well legitimately be able to appropriate culturally African-American culture due to his almost certain African ancestry, there is another deeper matter.  What he appropriated was already a cultural fusion of European and African, and what he added to that to help create rock and roll, a supposedly white country-folk input, was also a European-African fusion. So what he did  was put one European-African fusion together with another European-African fusion to create a fusion of these two fusions, American rock and roll.  Who can denounce that?

On R&B, well, the rhythms are arguably African and much of the blues elements in melodic and tonal structures as well.  However, the instruments and the underlying tonal forms are European.  One runs into a similar pattern with jazz, although there is no question especially in the case of jazz that it was African-Americans who created it, as is the case of the blues part of R&B.  However,  one finds blues elements as well in country-folk music, the supposedly white music.  While the largest input into the country-folk tradition comes from the British Isles, there are other African elements, not just the blues part,but also certain instruments, most notably the banjo, which is an instrument that came almost straight and unchanged from Africa.  Given this latter fact it is a bit odd that it is an instrument now essentially never played by any African-Americans.  It is as authentically African as you can get.

So there it is.  Rock and roll is a fusion of two fusions.  We should thank the late mixed race Elvis Presley for his role in bringing about this fusion of fusions to create the most authentically American music of them all.

And a happy Juneteenth to one and all.

Barkley Rosser

Saturday, June 17, 2017

Is Trump's Apprenticeship Program Like His Infrastructure Program?

It looks like it might be in a crucial way.  Both involve lots of rhetoric about expanding programs that many support, apprenticeships and infrastructure.  However, on looking at them closer to the extent we can see anything specific aside from the rhetoric, it looks like they involve actual cuts in funding support for existing programs related to both apprenticeships (and more broadly worker training and retraining) as well as for in-process infrastructure projects such as those funded by CIG, in favor of vague plans for  some sort of private support for these programs, apprenticeships or infrastructure.

As it is, it looks like the rhetoric and privatization proposals for apprenticeships are much vaguer than those for infrastructure.  For the latter we have had the specific proposal to privatize air traffic control, a proposal that has previously gone before Congress only to draw opposition from GOP senators, not all of those  yet on board, along with supposed tax breaks for privatizing other parts of the infrastructure. 

What is supposed to constitute the support for the private replacement for  the currently publicly supported apprenticeship programs is much less clear, although one suspects that it will be the usual GOP panacea, some tax breaks.  I  suspect that we shall have to wait and see, which is ironic given that supposedly Trump was pushing this recently at least partly to distract us all from his self-incrminating tweets, but those tweets have so distracted his own administration that they seem increasingly unable to formulate any sort of detailed or  concrete plan for any real policies, if they ever were able to do so.  And this latest rhetoric on apprenticeships is just another embarrassing example of this floundering incompetence.

Barkley Rosser

Thursday, June 15, 2017

When Somebody Called "Mad Dog" Is The Only Adult In The Room

In the last few days it has come to pass that twice US Secretary of Defense, James "Mad Dog" Mattis has shown himself to be the only adult in the room in the Trump administration.  His first such exhibition of adulthood came during the bizarre spectacle of Trump's first full televised cabinet meeting.  Trump openly demanded verbal obeisance from those assembled, promptly delivered by all but one in the room, with some of them embarrassingly effusive, such as Reince Priebus declaring it to be a "blessing" to serve Trump.  Ugh.  Even SecState Tillerson chimed in with a relatively perfunctory bit of praise for Trump.  Only Mad Dog Mattis refused to go along, making a statement praising US military personnel around the world without a single word about Trump.

And then we have the underreported event yesterday that I saw on Juan Cole's blog that Mattis signed a $12 billion dollar deal for F-15s with Qatar.  Now I am not in general a big fan of  these Middle East arms deals with anybody, but in this case this blatantly goes against Trump's absolutely stupid and probably corrupt (Saudis paid $270,000 in hotel bills at Trump's hotel in Washington since Trump took office) support for the Saudi move to blockade Qatar and pressure it into  going along with Saudi aggression in Yemen and more generally against Iran.  Both Tillerson and Mattis made verbal statements last week arguing for a more balanced approach there, only to have Trump double down on supporting this very stupid policy.  Tillerson is  not able to cut deals independently supporting Qatar, but Mad Dog Mattis has just done so.

Maybe Trump will fire him, but I kind of think that maybe even he is  not quite that stupid in the current circumstances.  So there we have it, having to thank somebody nicknamed "Mad Dog" twice in a few  days for being the much=needed adult in the room.

Barkley Rosser

Wednesday, June 14, 2017

Technically Social Services, Toll Roads, and Adam Smith

Nina Shapiro presents a must read entitled the “Hidden Cost of Privatization”. I will not even attempt to do its excellent discussion beyond noting some conservatives what to pretend that the only public good is national security but she makes the case that roads are also a public good. Guess who also made that case?
as Adam Smith emphasized in The Wealth of Nations, roads and other transport facilities should be undertaken by governments not to increase the revenues of the “sovereign,” or “defray” the expenses, but to “facilitate the commerce of the nation.”

Monday, June 12, 2017

Sean Spicer v. Tim Worstall on India’s Growth Rate

I just listened to some babbling by press secretary Sean Spicer which sent me trying to check the facts on India’s growth since 2000. More on that later but let me share with you a related rant from Tim Worstall:
India has reported GDP growth of 7% for the December quarter. That's just not a number I believe I'm afraid, not when we try to consider the effects of demonetisation.
Read this rest of this at your own peril. To be honest, I got a little bored with it all. Spicer just now said India has enjoyed 7% growth but then he claimed that India’s GDP now is 6 times what it was 16 years ago. But that would require a 12% growth rate as a 7% growth rate would have only tripled real GDP over this period, which is approximately what has happened. Of course India’s nominal GDP may be 6 times what it was since the beginning of the century given that its inflation rate has averaged near 5%. Look – I doubt Spicer gets any of this. It is more likely someone else in the White House gave him these misleading talking points. Why? I have no idea. But I was amazed that not one of the reporters picked up on this absurd spin. Yes – we need smarter reporters.

Sunday, June 11, 2017

Dani Rodrik on German Trade Surpluses and US Trade Deficits

John Judis interviews the very insightful Dani Rodrik:
So in the case of Germany, I do think Germany is the world’s greatest mercantilist power right now. It used to be China. China’s surplus has gone down in recent years, but Germany’s trade surplus is almost 9 percent of GDP. And they are essentially exporting deflation and unemployment to the rest of the world. I think the damage, though, is done to the rest of Europe and not the United States. In addition, it is not a trade problem. It is a macro-economic problem. The solution is to get German consumers to spend more and save less and the German state to spend more and to increase German wages. It is not the trade policies of the US or any other country that is going to be able to address this issue. It is similar to the way Trump has picked up grievances about how trade agreements have operated in the United States. These agreements have created loses, and grievances that have not been addressed, and I think there is a lot of truth to those kind of things, but I don’t think he has any realistic way of dealing with those things.
This was after Dani noted Trump’s complaints with respect to Germany’s trade surplus were “bonkers”. Now I wish I had said that. Dani next turns to the U.S. trade deficit in response to a question whether it is a problem:
Yes, but I don’t put it on the top of our concerns. There have been times when it is a bigger issue. The U.S. could use more aggregate demand and one of the places it could come from is smaller trade deficit. But you could get the same result more effectively through a more aggressive fiscal stance on the part of the federal government and the states, particularly through expenditure on infrastructure. I do think the low labor force participation is something we should try to bump up and I think there is a place for increasing demand. A lower trade deficit might contribute a little bit to raising it, but I don’t think it’s where the major action is.
I’m all for more infrastructure investment – in fact, a lot more. Of course there are couple of qualifiers here. One – if you got a lot more, we probably need to raise taxes to offset any excessive fiscal stimulus. But secondly – it seems this agenda has been put on hold unfortunately. But Dani generally is right – we need a bit more aggregate demand. Rather than use trade protection which will likely strengthen the U.S. dollar with the usual result that net export demand on net will not change, let’s try something novel. I’m talking about lowering U.S. interest rates. Yes – I know the Federal Reserve seems hell bent on doing the opposite but that is a mistake. The ECB has been pursuing an aggressively easy monetary policy which has devalued the Euro with respect to the dollar, which of course raises German net exports and lowers our net exports. If the Federal Reserve reverses course and lowers interest rates, we could get a much needed devaluation of the dollar.

Saturday, June 10, 2017

Econospeak In The Top 100 Economics Blogs

So, Prateet Agarwal of The Intelligent Economist has issued his list of the top 100 economics blogs for 2017. Econospeak is on the list, which does not rank them but rather puts them into different categories, with us being in the financial economics category, for better or worse.  There are some oddities in our description, including the erroneous claim that Max Sawicky is at the Economic Policy Institute, which he once was quite some time ago.  It is also claimed that one needs "a strong economics background" to read Econospeak, which I think is a bit overdone.  Lots of other blogs are described as being well written and easy to  read, but, well, I haven't seen us bogging things down with lots of equations and theorems too much.  I think Agarwal must have showed up when Egmont was plying us with his axioms, :-). Anyway, we are there, for better or worse.

Oh, I note that Angry Bear is on the list also, categorized as a General Economics blog.  There is a lot of overlap between us and them, with Dan Crawford frequently reposting stuff we put up onto their blog.

Barkley Rosser

Friday, June 9, 2017

"One Hundred Percent" Fake News

No, uh-uh, false, wrong.
Trump: I'm '100 percent' willing to testify under oath -- The Hill-2 hours ago
Trump: I'm willing to testify under oath about Comey claims -- CNN-3 hours ago
Trump willing to testify to counter Comey under oath -- Talk Media News-35 minutes ago
Trump Says He'd Testify Under Oath About Comey -- Featured-The Atlantic-2 hours ago
Donald Trump did not say he was one hundred percent willing to testify under oath. He replied to a question about testifying with a word salad of obfuscation that contained the phrases "one hundred percent" and "under oath" but did not connect the two in any coherent way. Read the eff'in' transcript:
Trump's "one-hundred percent" is free floating. His two uses of the phrase "under oath" indicate that a misinterpretation or pretended misinterpretation of the question as being whether he asked Comey to pledge his loyalty under oath. So his "one hundred percent" is simply a one hundred percent denial that he demanded that Comey pledge allegiance to him under oath. There is no commitment in the exchange to testify under oath.

Of course, even if Trump had committed one hundred percent to testifying under oath, there would be no way to compel him to honor his commitment and he almost certainly would not do so.

Trump will not testify under oath and he will not release his tax returns.

A Personal Observation On Trump's "Infrastructure Week"

Yes, folks, you may have already forgotten it, but this has officially been Trump's "Infrastructure Week," highlighted by his proposal to privatize air traffic control in the US, and his trip to Cincinnati where he in general terms talked about the supposed virtues of privatizing highways, bridges, and airports, While he claims he wants to provide up to $200 billion in federal funding to draw forth a supposed $800 billion in private funding, the last time I checked his proposed budget supposedly cuts infrastructure funding.  So much for that big infrastructure boost!

As it is I want to comment on the proposal to privatize highways.  I shall briefly note that privatizing air traffic control might not be a bad thing, assuming that it is done properly.  Canada did so some years ago, and most reports have it that this has worked out pretty well.  Maybe it would in the US as well, although my confidence in Trump not to mess it up is pretty low.

Anyway, back to highways.  There has been some effort to do this in some states recently, with decidedly mixed results. But my observation is that over the longer haul it seems that outside of gated communities or private property, this does not work very well.  The historical record in the US is that if one goes back a few centuries, one finds many roads that were originally built and run by private companies.  Nearly all of these eventually reverted to some sort of government control at one level or another.  In particular in Virginia where I live, there were quite a few build in the 1700s, but during the 1800s they pretty much all reverted to some sort of government control. The private sector just did not do all that good of a job running them.

So, where is the personal angle in this?  Last weekend I learned that the street behind my house here in Harrisonburg, VA, Bruce Street, a minor street that is one way and in my block only has houses backing up to it, was once one of these privately owned highways that was later taken over by the city.  I learned this while visiting with my daughter Sasha the oldest building in Harrisonburg, the Thomas Harrison House, which was originally the private residence built probably in 1770 of the person for whom the city is named.  It is a small limestone structure that has not been previously opened to the public like this, but the city has taken ownership of it from the Methodist Church across the street that had owned it for a long time (it had been used as a law office most recently).  The city is planning on turning it into a museum, and they have had archaeologists from James Madison University excavating its basement, which was used as a kitchen during the days the structure was a house (up until the 1840s).  Anyway, they decided to open the basement up for the public to see as well as the many objects they have found there, including lots of animal bones.  So, visiting daughter and I made the visit to check it out.  The main archaeologist, Carole Nash, is a good friend and gave a most informative talk.

And that is where I learned about the history of Bruce Street, which is now only about 7 blocks long, cut off at one end by an elementary school and at the other by a public park.  Anyway, the Thomas Harrrison House is located just off the intersection of Bruce Street and Main Street, which also happens to be US 11, a highway that runs from Montreal to New Orleans, the old overland route of the French empire in North America (it is not called "US 11" on the other side of the Canadian border).  Now it happens to be the case that old timers here in the Shenandoah Valley call US 11, the "Valley Pike," short for turnpike. And indeed it was one of those highways that was originally built by a private company that collected tolls on it, until it was taken over by the federal government in the 1800s.  The word "turnpike" comes from the barrier at the toll booths back in those horse and buggy days.  A stick would would be stuck in the ground that could be turned and it would have another stick that would cross the road blocking it.  When people paid their toll, the toll keeper would turn the turnpike allowing them to proceed further.  Indeed, at least in Virginia one finds streets and roads that are actually called "turnpikes," and nearly all of them have this history of being once privately owned and run, but since taken over by some level of government, with Little River Turnpike in Northern Virginia being one such (I think in its case it is owned by the Commonwealth of Virginia, but not sure).

But I had never heard anybody talk about the not very long or impressive Bruce Street as being a "Pike."  But in fact as Carole informed us, in 1770, ten years prior to Harrisonburg being officially founded as Rocktown, that intersection was the main one in the area, the intersection of two major highways in the Valley, the Valley Pike, now US 11, running from southwest to northeast (or vice versa, if you prefer) and the road that was then called the Warm Springs Turnpike, indeed another privately owned and run highway, later taken over by the city and turned into the minor Bruce Street perpendicular to the now Main Street.   Carole indeed confirmed that this was its history, and it was clear that Mr. Harrison very consciously located his house near this intersection, where it also happens to sit on top of a spring, which we saw in the basement, houses back then usually being built that way so that they could withstand a siege by Native Americans (this was only a few years after the French and Indian War, the last battles of which took place in the Shenandoah Valley in 1764, the year after the war supposedly ended).

So, both the Valley Pike and the Warm Springs Turnpike in Harrisonburg are examples of highways once built and run privately, but since taken over by government.  The long term record is not all that favorable for privately owned highways that go any distance.

Barkley Rosser

Addendum on June 13:  I have done some further digging on the details of the history here, and some of the above is not quite accurate, although the general story of privately built roads in Virginia getting turned over to various units of government holds, indeed is pretty darned impressive.

So, there were no organized systems of road provision or maintenance in 1770 in the Shenandoah Valley when it appears the Thomas Harrison House was built. Nevertheless it was at the intersection of the two main trails that were being used at that time.  The establishment of private companies to build "plank roads" (out of wood) on these trails would occur in the 1830s, 1830 for the Warm Valley Turnpike Company, and in 1836 for the Valley Turnpike Company.  I do not have the date of the ending of the latter (although I can find it out), but the Warm Springs Turnpike Company ceased to exist in 1901, after which that road became owned by different levels of government for different parts of the turnpike.

As it was, the part of Bruce Street that goes behind my house one and a half blocks east of the intersection in question was never part of the turnpike. It turns out that the intersection was its northern most endpoint.  It headed west along Bruce Street but then turned southwest to follow what is now Virginia 42 for awhile and then other roads to finally end up in, big surprise, Warm Springs VA in Bath County, which is a site of bath houses, although Hot Springs a bit south of it is more famous as the site of the Homestead Resort, visited famously by Thomas Jefferson.

My source for all this is a Wikipedia entry on "Turnpikes in Virginia and West Virginia" that shows that during the 1800s there were well over 100 of these private companies formed to build or run turnpikes.  For the majority of them, there is no information on what they did or when they were founded or what happened to them, but for many there is considerable information on when and how and what current roads are what the built or run. The bottom line holds.  All of those many roads are now in the public sector, so the bottom line conclusion still holds, despite my having certain historical details a bit off.

Another Addendum, 6/15:  This is strictly amusingly personal, but yesterday there was a bear "lumbering" or "traipsing" or just plain "ambling" one block over from Bruce Street on Newman where Carole Nash lives, until animal  control  officers got it under control.  Big joke is that some people on FB claimed that maybe it was actually Carole's large and very furry brown Tibetan mastiff, Artemis, but Carole assured people that Artemis was inside at the time.  And anyway, the bear was black, not brown, :-).

Yet More, 6/17: I saw the arehaeologist, Carole Nash, this morning at our farmers' market, and she assured me that the bear was for real, apparently a young male, and that it ran up their street.  Apparently after it went into the historic Woodbine Cemetary, it crossed US 33 (aka Market Street) heading north. It was finally apprehended and stunned on Wolfe Street to be taken out of town somewhere.  And that I  think will be the final word on that, :-).

Trump Right For Once In A Tweet

Yes, I think so.  It was his tweet on Monday when he took credit for the move by Saudi Arabia and some other Arab nations to cut diplomatic relations with Qatar.  He claimed that it was his visit to Riyadh, his strong support for going after Iran, and supposedly his demand that these nations stop financing terrorists.  I think he is right.  I do not think these nations would have made this move without this strong support from Trump, who supported the move in his tweet as well, although we cannot be sure about this.  But Qatar had not done anything recently to newly aggravate the Saudis and others.  Indeed, most reports have that it provides no state support for terrorists and has made some moves to crack down on private citizens doing so, although perhaps not as much as some other Gulf states, but more so than Kuwait, which has not had its diplomatic relations cut.  And while the Saudis have claimed that Qatar is too friendly with Iran, in fact the Qataris have 1000 troops in Yemen helping the Saudis fight the Houthis, who are supposedly supported by Iran.

Of course more recently Trump has been offering to have this dispute settled or negotiated by one or another of his top national security officials, most of whom were in Australia when he made his tweet.  If they had had advance warning of his tweet, they might have pointed out to him that Qatar hosts the main US air base and CENTCOM in the Gulf, from which US planes combatting ISIS take off.  Probably they did get around to pointing this out, which may be why he is now offering to help negotiate a solution.  But I suspect that the Qataris are not too keen on using his good services for this.

I also think that his visit and statements triggered the killing of protesters in Bahrain right after the visit and also the arrest of several thousand people in Egypt. Both of these nations are among those joining Saudi Arabia in cutting diplomatic relations with Qatar.  What I am not sure of is whether his visit had any connection with the ISIS attack on Tehran, probably not, but who knows?  Of course his statement of "sympathy" to Iran has been outrageous and received as such by the Iranians.  And while Trump and the Saudis and the Israelis claim that Iran is the leading state sponsor of terrorism in the world, the most recent estimate has about 94% of terror attacks being carried out by Sunni Muslims, not Shia ones such as the majority of the population of Iran is. And, indeed, this ISIS attack on Tehran has been reportedly carried out by Iranian Sunnis.

Oh, another place where Trump may have had some influence is on the outcome of the British election.  He is very unpopular there, and while maybe the Tories would have lost anyway, May's strong identification with Trump certainly did not help her, especially with him also making an outrageous and inaccurate tweet attacking London Mayor Khan, and then doubling down on it.  It is not out of the question that this last shenanigan may have been the straw that broke the back of the failed Tory effort to retain their majority in Parliament.

Thursday, June 8, 2017

Class Resentment and the Center-Left, or the Politics of "We Are the 80%"

I’ve just read the suitably downbeat piece by Thomas Edsall about the travails of the Democratic Party in today’s New York Times.  Edsall, citing a recent symposium of political strategists in The American Prospect and a report by Priorities USA, a DP polling outfit, describes the widespread abandonment of both the center and the left by a wide swath of the American working class.  As he says, it’s not just that working class (non-college) Trump voters have opted for “populism”; their political disposition radically excludes activist government programs, multiculturalism, and other principles that no one on the left could reasonably run against.

Evidence from public opinion polls depends on the questions pollsters take to the people.  Questions are framed in particular ways to test the suppositions in the pollsters’ minds, which means it’s difficult to find evidence for suppositions they aren’t considering.  That in turn means that those of us with different hypotheses can only speculate, at least until the stories we tell get enough traction that pollsters and focus group organizers decide to test them out.

A further caveat is that the population is extraordinarily diverse, and almost any hypothesis is going to be true for someone.  The question is not who is “right”, but how influential particular political trends are among various portions of the electorate, in combination with other trends.

So here is one approach, based on a quote Edsall culled from Nick Gourevitch, a contractor for Priorities USA:
So it may be that within economically distressed communities, the individuals who found Trump appealing (or who left Obama for Trump) were the ones where the cultural and racial piece was a strong part of the reason why they went in that direction. So I guess my take is that it’s probably not economics alone that did it. Nor is it racism/cultural alienation alone that did it. It’s probably that mixture.
How to think about this interaction?

When the left thinks about inequality and the legitimate grievances of the working class, its target is generally “Wall Street” or the “billionaire class”.  The pitchforks should be waved at the one percent of the one percent, the tycoons who wield inordinate influence over government and get policies that enhance their wealth and power at the expense of the rest of us.  But the “populist” vote in 2016 went for a billionaire (or someone who claims to be while hiding his tax records).  What gives?

I suspect most people upset with inequality tend to blame the class directly above them, the one they interact with most.  If so, consider a rough four-class model of the US.  On the bottom are the poor and the precariate, desperate to make ends meet month to month or even day to day.  Relatively few of them vote, and when they do they tend to go for Democrats because they know how much they depend on social programs.  They are driven less by ideological fervor than flat out necessity.  Above them is the main portion of the working class.  They are vulnerable to shocks like severe accidents or illnesses or regional economic downturns, but for the most part they don’t feel they have to vote for reasons of personal protection or benefit; they have the luxury of ideological voting.  They’ve gotten shafted for generations.  Going up the ladder, the next group we find is the upper-middle class, roughly the upper 20%.  They’ve had some periodic stress, but overall they’ve made out rather well.  Nearly all the economic growth we’ve experienced in this century has gone to them.  They tend to have economic views in line with their station and otherwise adopt a relatively cosmopolitan perspective, itself a reflection of their roles in the “new economy”.  And at the top is the capitalist class, those who own or control the bulk of society’s wealth.  While no cutoff is perfect in identifying them, they represent approximate the upper .01% of the income distribution.  They play the largest role in funding and positioning the two major political parties.

Now here’s the thing: what happens if classes blame the one above?  If you’re in the upper-middle class and you’re angry about how unequal this society has become, your target is the ultra-rich.  There’s no one else to blame unless you want to denounce yourself and your friends.  Hence “we are the 99%”.  But if you’re in the main portion of the working class, and you feel the country has become fundamentally unfair, you’re likely to take it out on the upper-middles.  These are your direct bosses, people in government offices that give you a hard time, teachers who send notes home with your kids, and media people who tell you how backward and misguided you are.  Those are the “liberals”, the ones who think more education and a cushier job gives them the right to ignore you.  Whenever the problems of lousy jobs or no jobs comes up, their one solution is to tell you to go back to school, get better grades this time, and be like them.  Resentment is not hard to come by.

My experience in the classroom is that few students from working class backgrounds even know there is a capitalist class or that it has influence.  They see the country being run by folks like me, and politics comes down to whether you think that’s good or bad.

So what about racism and nativism?  The dynamics are complicated, but I suspect an aggravating factor, and one that brings economics and bigotry together, is that the push for multiculturalism and cosmopolitanism is seen as coming from the upper middle class.  From a purely logical or empirical point of view, there’s not much basis for the notion that working class hardship is the result of affirmative action, immigration or even specific trade deals (with the possible exception of the accession of China to the WTO).  Most of it is about the evolution of capitalism, which has resulted from a range of political decisions and non-decisions under the guiding influence of the capitalists themselves.  But if economic protest takes the form of resenting the class one rung above, the fact that the upper middle class is strongly identified with liberal values and programs is how economics and culture come together for a large number of workers.*

Incidentally, the campaign of Hilary Clinton was disastrous from this perspective precisely because it combined an aggressive advocacy of cultural liberalism with an economic outlook oblivious to the problems faced by the majority of the population.  It was practically an advertisement for right wing populism.

Again, all of this is speculative.  I have no evidence to back up any of this, other than personal observation, and that may be wrong too—I might be misinterpreting what I hear.  But it would be interesting to do some opinion research to find out if there’s an element of truth.

*Note that I use the term “working class” and not “white working class”.  The Democrats have suffered an erosion of support across the working class, and it would be a mistake to assume that workers of color automatically favor government programs to aid people of color worse of than them or more liberal immigration policies—or at least that their advocacy is strong enough to convince them to cast a vote.

Tuesday, June 6, 2017

Reverse Yankee Bonds and Dornbusch Overshooting

Suppose you are the CFO of a U.S. company that needs to borrow $1 billion over the next 5 years for a planned expansion and you are receiving interest rate quotes near 4.75 percent. Why so high you ask since we are in the era of low interest rates. The banks explain that you have been given a BB credit rating by Standard & Poor’s so they have added 3% to the 1.75% interest rate on U.S. government bonds. This upsets you, however, as you have been hearing stories like this :
Apple announced in an SEC filing that it would issue €2.5 billion in euro bonds, the proceeds of which will be used to fund share buybacks and dividends to be paid in dollars. These bonds will come in two tranches: €1.25 billion of 8-year notes and €1.25 billion of 12-year notes, with coupon payments of 0.875% and 1.375% respectively.
They got to borrow at even longer terms and yet they received such low interest rates? Well part of this story relates to the fact that Apple has a better credit rating but much of it relates to the low interest rates on German government bonds from the expansionary ECB policies. While interest rates on 10-year U.S. government bonds have been near 2.25% lately, interest rates on 10-year German bonds closer to 0.25%. Our story is about “reverse Yankee bonds”, which represent U.S. companies borrowing Euro denominated corporate bonds:
Issuance of these “reverse Yankee” bonds – euro-denominated bonds issued by US companies – has surged because the cost of borrowing in the Eurozone has plunged to ludicrously low levels. Even for the riskiest non-investment-grade corporate debt – called junk bonds, for good reason – the average yield is currently 2.9%. This chart of the BofA Merrill Lynch Euro High Yield Index (data via FRED, St. Louis Fed) shows this Eurozone absurdity
The story also suggests that expected inflation in both the U.S. and Germany is near 2% so the Euro rates are negative in real terms:
they won’t even compensate investors for the loss of purchasing power based on the current rates of inflation: 2.2% in the US and 1.9% in the Eurozone.
Is this an absurdity or an opportunity? If you decide to borrow in Euros, you might negotiate an interest rate near 2.6% even with your BB credit rating as the interest rate on 5-year German bonds is approximately negative 0.5%. Great deal – right? Well Paul Krugman reminds us of the Dornbusch overshooting story:
Rudi asked what would happen if a central bank for some reason suddenly and permanently increased the money supply. In the long run, just about all economists agreed that this would lead to an equal proportional rise in the price level and depreciation of the currency. In the short run, however, prices are clearly sticky, and expansionary monetary policy reduces interest rates. So what happens to the currency? As Rudi pointed out, the fall in the interest rate would induce investors to move their money abroad unless they expected the currency to rise. And the only way that could happen was for the currency to depreciate past its long-run value – to overshoot – so that it could be expected to appreciate back to that value over time.
This describes what the ECB did, which lowered Euro based interest rates and led to a jump devaluation of the Euro. The interest rate differentials we have been describing may very well be the compensation for the expectation appreciation of the Euro with respect to the dollar. If so, the expected cost of borrowing in Euros is not lower than interest rates on bonds denominated in dollars.

Monday, June 5, 2017

Trump Blows Up The Gulf Cooperation Council (GCC)

Well, maybe it has blown itself up, but Trump's supposedly triumphant visit to Saudi Arabia looks to have exacerbated underlying tensions within the six-member Gulf Cooperation Council (GCC), whose members include Saudi Arabia (KSA), Kuwait,Qatar, Bahrain, the United Arab Emirates (UAE), and Oman. This was the part of Trump's overseas trip that most US media has accepted as being a nearly great performance without any goofups (the trip steadily going downhill after that), with him getting over $100 billion in arms sales to the Saudis, and, aside from theatrics like sword dancing and holding glowing globes, getting to lecture 50 Muslim Arab leaders about what to do about terrorism, while also supporting their Sunni animus against Iran, this last part being what has led to the most recent problems.  What has happened most recently, is reported by Francis Ghiles of OpenDemocracy as linked to by Juan Cole, with even more serious details reported by Washington Post reporter Kristen Coattes Ulrichesn (this link is to Marginal Revolution Monday assorted links, go to the one called "The cut-off that is Qatar," sorry original WaPo link not working for me).  This is also a followup to my earlier post here about Trump's Saudi visit.

According to Ghiles, the split has opened up dramatically thanks to Trump siding strongly with the most hawkishly anti-Iran members of the GCC.  Those nations happen to be Saudi Arabia and the UAE, both of which are actively involved in the disastrously bogged-down war in Yemen, where evidence is weak that Iran is even providing anything significant to the Houthis who currently control northern Yemen and the capital of Sana'a and are Zaydi Shia.  Many reports show a major humanitarian disaster unfolding in that nation, which appears to be in the process of splitting into at least three, if not four, failed pieces, with the UAE apparently supporting South Yemen secessionists who recently took control of the airport in Aden (not clear what Saudis think of that,; this last bit not in any of the linked posts).  The key players are Saudi Deputy Crown Prince, Mohammed bin Salman (MbS), and the Abu Dhabi Crown Sheikh Mohammed bin Zayed (Abu Dhabi one of the 7 emirates in the UAE), both of whom have gotten close to Jared Kushner.  Another nation more or less in their camp, if not quite as close to Kushner, is Bahrain, home to a US naval base, where the ruling minority Sunni monarchy killed a bunch of peacefully demonstrating Shia a few days after Trump left Riyadh, having promised not to "lecture" them about human rights (although he was prepared to lecture US allies in Europe about all sorts of things).

So the big news that Ulrichsen presents is a bizarre campaign in various social media and regular media, especially in KSA and UAE against Qatar, claiming that its Emir Tammim made a speech on May 23 to a graduating group of military cadets in which he supposedly said that Iran was a "stabilizing presence in the Gulf," that Hama was the legitimate ruler of Gaza, and complained about "tense" relations with the Trump administration..  Indeed, these claims were apparently made on Qatar TV on May 24, only to be retracted and taken down soon after.  The Qataris claim that this report was hacked into Qatar TV, and observers at Tammim's talk claim that he never said any of this.  But this report spread widely in the Arab world, being repeated in Egypt, Libya, and some other locations as well, and apparently both the Saudi and UAE media have continued to pound away with this story even as the Qataris are claiming it never happened and that they were hacked.  A serious irony is that to the extent this is all about Qatar being insufficiently anti-Iran, especially in Yemen, Qatar sent 1000 troops to Yemen in 2014 at the special request of Mohammed bin Zayed (MbZ), who apparently personally lobbied Tammim hard on this.

In any case, whether or not there is tension between the Trump administration and Tammim, he has not visited Washington, while MbS and MbZ have done so several times, and they clearly have the ears of Kushner and Trump, as well as Trump's hands on that glowing globe.  With his strongly anti-Iran talk in Riyadh, Trump has exacerbated the divisions within the GCC, where, apparently Qatar has been in open disagreement about the seriousness of the Iran threat with KSA, UAE, and Bahran for some time.

What about the other two GCC members not openly caught up in this?  Presumably they are somewhere in between these others, and apparently at least somewhat sympathetic to the Qatari view that Iran is not quite the big threat that KSA has been claiming, with the Saudis the big dogs in the GCC, which they have long viewed as their rump puppies who should do as they are told.  Indeed, there have been scattered reports that Kuwait in particular has been less keen on all the loud anti-Iran rhetoric, with them having some special credibility as they are the GCC nation second closest to Iran, so that if Iran is in fact contemplating some invasion as MbS has loudly claimed, Kuwait would be a likely target, if nothing else to be on the pathway for an army to get to KSA after briefly passing through Iraq where it borders the Persian Gulf (last time Iran invaded a neighbor was in the 1820s). 

Oh, which leaves the ever-so quiet sixth GCC member, Oman, which actually has a border with Iran and shares the strategically crucial Strait of Hormuz through which all the oil coming out by sea from the Persian Gulf passes through. They also neighbor Yemen as well as KSA and UAE.  They are not reported to have said anything, and almost certainly will not, and they have no troops in Yemen, where they are staying uninvolved.  But nobody wants to mess with them for at least two reasons.  One is the obvious matter of their sharing the crucial Strait of Hormuz with Iran. The other is that they do not share the Sunni sectarian biaz against Shia Iran.  They are the only nation in the world not to be led by a Muslim sect that is either Sunni or Shi'i, the Ibadi sect.  As a result, they prefer to stand back from this insane Sunni-Shia war, although, partly to keep the Saudis and UAE off their backs, they are formally in the GCC and regularly approve resolutions approved by its fellow members.  But Oman goes its own way, if ever so discretely.

Probably the most important sign of their willingness to act independently although also secretly, is that it was through their auspices that the initial contacts were made by the Obama administration when it began to approach Iran about engaging in the ultimately successful negotiations that led to the nuclear deal, a deal strongly opposed by both KSA and Israel on the surface, but amazingly enough not yet undone by Trump, despite his having denounced it during the campaign as "the worst deal ever made."  On that matter, Putin may have been a good influence, whose foreign minister, the ineffable Sergei Lavrov, played a crucial role in getting that deal done.  Paris agreement supported by all nations on the planet except Syria and Nicaragua?  Not a problem blowing it off.  But somebody has gotten to Trump to convince him to leave alone the Iran nuclear deal, even as he has ramped up anti-Iran rhetoric in a way that has apparently triggered or encouraged this blowup within the GCC, and let us hope that he continues to leave it alone. But Oman is having none of these wild anti-Iran shenanigans, and nobody is going to mess with them about it.

Barkley Rosser

Scott Pruitt Lies to Chuck Todd

DangItIowa and I both endured the Meet the Press interview with the EPA Director:
Scott Pruitt was on Meet the Press today and claimed that 70,000 “coal sector” jobs have been added in the US since 4th quarter of 2016, with 7,000 created in May 2017 alone. I don’t know Scott Pruitt’s definition of the “coal sector” but his claim was in response to Chuck Todd asking if President Trump had made an empty promise to coal miners about bringing back the coal industry. Here are the facts, from the Bureau of Labor Statistics, about the gain in US coal mining jobs since 4th quarter of 2016. There were 49,300 coal mining jobs at the end of September 2016 and there were 51,000 coal mining jobs at the end of May 2017 — that’s 1,700 jobs added. And only 400 of those jobs were created during May 2017.
This was not even his worse spinning in my view. Pruitt kept telling Chuck Todd how the U.S. was lowering carbon emissions whereas the Chinese will not be required to do so for years. Chuck Todd as usual was completely unprepared and never noted the fact that per capita CO2 emissions in 2016 were 16.4 metric tons for the U.S. but only 7.6 metric tons for China.

Sunday, June 4, 2017

"It Depends on How We They Value Time"

Peter Dorman calls attention to a NYT Upshot column by Neil Irwin about the cost of climate change. For Irwin, the question can be framed as a matter of discounting, "A dollar today is worth more than a dollar tomorrow and a lot more than a dollar in 100 years. But what discount rate you set determines how much more."

As Irwin admits, the discount rate is a "business concept." His conclusion, then, follows exclusively from a business concept of "how, as a society, we count the value of time." Why are we compelled, as a society, to count the value of time in accordance with the business concept of discounting? Because there is no other concept of time? No, there are other concepts of time. More specifically, there is a concept of time directly opposed to and critical of the business concept of time. Labor time.

What discounting is to the business concept of time, alienation is to the labor concept of time. Alienation refers not to "feelings" of alienation but to the sale of one's own time -- and consequently autonomy -- to another.

For every human being -- as for the wage worker -- there are 24 hours in a day,  168 hours in a week, 8760 or 8784 hours in a year. These are fixed amounts. You can't put it in a bank and get it back in 20 years with interest. You can't take it with you and you can't convey it to your heirs in a will. Today is here today and gone tomorrow.

The discount rate concept has nothing to do with the qualitative experience of time by humans and everything to do with the quantitative accumulation of money by property owners. Framing the cost of climate change as a contest between different discount rates is totalitarian. We live in a totalitarian society in which the non-business concept of time is invisible. Neil Irwin sounds like a thoughtful person. It simply didn't occur to him that there was any other relevant concept of time than the business concept.

That is why the climate is changing. And that is why not enough will be done about it. Because it all depends on how capital values time.

Saturday, June 3, 2017

Mankiw v. Mankiw on the 1981 Tax Cut

Greg Mankiw’s first macroeconomic textbook correctly noted that the mix of Volcker’s tight monetary policies and the 1981 tax cut led to a fall in national savings driving up real interest rates and crowding out investment and net export demand. Yes – there was some messy short-run Keynesian events but his early account captured the long-run effect of what was an anti-supply-side fiscal policy. But now Mankiw sings the Keynesian praises of the 1981 tax cut:
When Mr. Reagan moved into the Oval Office in January 1981, the economy had recently experienced a recession. The recovery was just six months old. Unemployment was still elevated at 7.5 percent. Worse yet, another downturn was on the horizon. Within six months, the economy would again be in recession. Unemployment rose to 10.8 percent at the end of 1982, its highest level since the Great Depression. In August 1981, Mr. Reagan signed into law a bill that phased in tax cuts over three years. These cuts helped usher in a robust recovery. By the end of 1988, as Mr. Reagan was leaving office, the unemployment rate had fallen to 5.3 percent.
Revisionist history or just plain intellectual garbage? Yes – Volcker engineered what was supposed to be a temporary recession in 1979 but was reversing his tight monetary policy even before Reagan took office. The reason we had the 1982 recession was that the FED overreacted to the ill-advised Reagan stimulus. The reason the economy later recovered was that the FED later reversed course. Volcker had kept asking the Reagan White House to end their toxic mix of tax cuts for the rich and offsetting monetary restraint. Greg Mankiw knows this all too well so why would he write this nonsense?
When George W. Bush became president in January 2001, he faced a situation that, in some ways, was similar to that of 1981. (Disclosure: I was one of his economic advisers from 2003 to 2005.) The economy was heading toward a recession, attributable largely to the bursting of the dot-com bubble. From March 2000 to April 2001, the tech-heavy Nasdaq composite average lost about two-thirds of its value. A recession officially began in March 2001. Unemployment rose from 3.9 percent at the end of 2000 to 6.3 percent by the middle of 2003. Without the tax cuts President Bush signed into law, unemployment would have probably gone higher.
That must be the reason but then his defense of the 2001 tax cut has a couple of problems. The FED recognized the same events and was actively lowering interest rates even before this tax cut. But OK – a little more consumption demand may have been in order. The real problem, however, is that the rest of Team Bush was selling this tax cut as a means for raising national savings but Mankiw insists it was designed to lower national savings. And we thought they had multiple and conflicting reasons for invading Iraq. But why write about this now?
Yet Mr. Trump faces a vastly different set of circumstances. The economy has not experienced a recent recession…The Federal Reserve is responding to these events by raising interest rates. It believes, correctly in my judgment, that incipient inflation is a greater risk than recession. Keynesian pump-priming is not what the economy needs now. The main macroeconomic problem the nation faces is slow productivity growth, which in turn leads to slow growth in average incomes. Increased budget deficits would only make this problem worse. They would cause the Fed to raise interest rates even faster than otherwise. Higher interest rates would discourage capital investments, further depressing productivity.
The old Greg Mankiw resurfaces! Of course some of us wonder if we are really at full employment and hence are critical of the recent increase in interest rates. Brad DeLong strikes the right tone:
today’s weak inflation outlook suggests that the Fed’s monetary policies, in combination with fiscal policies, are not providing sufficient stimulus for the US economy – as was the case in 2013. Unfortunately, the FOMC does not appear to be particularly concerned about this possibility. Among FOMC members, Neel Kashkari, the impressive president of the Federal Reserve Bank of Minneapolis, is the only one who has dissented, calling on the Fed to pursue more stimulative policies. The FOMC’s blind spot stems from the fact that it is relying more on its assessment of the labor market, which it considers to be at or above “full employment,” than on noisy month-to-month inflation data. But “full employment” is a rather tenuous and unreliable construct.
In lieu of more monetary stimulus, a little fiscal stimulus now might be a good thing. But if we go big on infrastructure investment then we would likely have all the fiscal stimulus we need for full employment and more. Mankiw’s title might suggest a tax cut would be nice but I would argue tax cuts for the rich would be the wrong form of fiscal stimulus.

The Cost of Climate Change: It’s Not About Psychology

You know there are problems with economics when things that are perfectly reasonable in the context of economic theory are clearly absurd once you step out of it.  Case in point: the claim in today’s New York Times piece by Neil Irwin that the economic cost of climate change vs the actions we’d need to mitigate it depends on “how, as a society, we count the value of time.”

In economics?  Yes.  The present value of climate and climate mitigation costs depends on the discount rate, the extent to which we devalue something a year from now because it’s a year away.  That’s how you do a cost-benefit analysis.  It really matters for climate policy because the costs tend to be upfront and the benefits decades or even centuries down the road.  Economists wrack their brains over how to select exactly the “right” discount rate to perform these calculations.

But think about it for a moment.  While there’s a “technical” aspect to time preference—investing today can result in measurable returns over time—the discount rate also depends on psychology: how present-oriented are we?  How much do we live in the here and now rather than looking down the road and preparing for tomorrow?  We all occupy different places on this classic grasshopper-ant continuum, and we usually shift our position over the course of our life cycle.  Yet how does this psychological characteristic, either individually or socially, affect the economic consequences of acting on climate change, or not?  It certainly affects the kinds of choices we’re likely to make, but the consequences?

The whole point of Aesop’s grasshopper-ant fable is that there’s a real world that both insects inhabit, with consequences that don’t depend on their psychology at a moment in time.  Grasshoppers are not better off because they follow the myopic dictates of their grasshopper brains.  This was obvious 2500 years ago, and it’s obvious today.  Economists’ obsession with identifying the “right” discount rate for cost-benefit calculations is a product of their own warped world (the logical and empirical craziness of welfare economics) and has nothing to do with rational decision-making about how to adapt to ecological constraints.

(Image source:

Friday, June 2, 2017

Trump’s Confusion Regarding Chinese Coal

Jonathan Chait listens to President Trump so we don’t have to:
China will be allowed to build hundreds of additional coal plants. So, we can’t build the plants, but they can, according to this agreement. India will be allowed to double its coal production by 2020. Think of it. India can double their coal production.
Trump seems worried that China will be stealing our coal jobs by exporting their coal to us. There are several problems with these claims. Brad Plumer notes:
Over the weekend, the Chinese government ordered 13 provinces to cancel 104 coal-fired projects in development, amounting to a whopping 120 gigawatts of capacity in all. To put that in perspective, the United States has about 305 gigawatts of coal capacity total. The projects that China just ordered halted are equal in size to one-third of the US coal fleet.
China produces a lot of coal because they consume a lot of coal. Their consumption of coal peaked in 2014 but has been falling since then:
Coal consumption fell by 4.7 percent year-on-year in 2016, and the share of coal in the country's energy mix slipped to 62.0 percent, down 2.0 percent year-on-year, the National Bureau of Statistics said in a report. Overall coal production also fell, dropping 9.0 percent to 3.41 billion tonnes in 2016. The data suggests that "coal consumption probably peaked around 2014," according to a statement from environmental group China Dialogue.
China actually imports coal but even those imports may be declining. The U.S. is a net exporter of coal as reported by Census. While we import about $3 billion per year of coal, coal exports soared to over $7 billion in 2012. These exports fell to just over $4 billion in 2016 but this decline was not due to China but rather the competition from natural gas. Since Trump is big on bilateral trade balances maybe he should note that we are a net exporter of coal to China. Of course if China decides to consume less coal over time, we will export less coal to them even as they cut back on their own production.

Thursday, June 1, 2017

Mick Mulvaney Attacks the Credibility of the CBO

Tierney Steed notes that the OMB Director is not happy with how the CBO scored TrumpCare:
It’s become the knee-jerk reaction for Republicans, in light of an ugly Congressional Budget Office analysis of their Obamacare repeal bill, to point the finger at the non-partisan research agency instead.Office of Management and Budget Director Mick Mulvaney took it a step further this week, by questioning the abilities of Holly Harvey, the head of its health analysis division, to be non-partisan. “At some point, you’ve got to ask yourself, has the day of the CBO come and gone?”
So who should score these things? I wonder if Menzie Chinn will nominate Stephen Moore?

Wednesday, May 31, 2017

Pronoun Madness

I have been assiduously following my institution’s recommendations regarding preferred student pronouns.  Students announce their pronouns on the first day of class.  We all commit to remembering not only their names and faces (always a burden for me) but also their pronouns.  In class discussion we have little signs on our desks with name and pronoun identifiers.

I find this extremely annoying, but not because I’m bothered by the freedom of my students to define their gender as they choose.  Far from it.  What irks me is that we have to go through so much bother because of the shortcomings in our language.  Rather than spend so much energy on pronouns, why not change the language?

Simply eliminated gendered pronouns from English—poof.  We could all get along just fine with a generic, formerly plural they-them.  Less to remember and stress about.  This reform would be even more welcome in languages like French, German and Spanish that are gendered through and through and throw up so many more barriers to well-meaning language learners like myself.

And for reciprocity, and to make it a package deal, the US could switch to a metric system at the same time.

Peter Dorman (he/him)

Monday, May 29, 2017

The Protests at Evergreen State College, Un-Foxed

Right wing media sources have been all ablaze in the past few days with stories about PC-inspired thuggery at Evergreen State College.  Unfortunately, there hasn’t been objective reporting on these events to set the record straight, and unless saner voices speak out there is a risk the Fox version will be the only one most people know.

I teach at Evergreen, and I have been present for most of the fireworks (and the slow burn that preceded it).  I’m no expert, but I also have no particular axe to grind.

Although racial issues have been a part of Evergreen’s history from the beginning, the last year has seen a significant increase in tensions.  A group of faculty and staff, initially calling themselves the Diversity and Equity (now the Equity and Inclusion) Council, formed to spearhead a drive for reforms.  They had difficulty agreeing on just what needed to be done, but they converged on a demand for annual mandatory diversity training for all faculty.  This proved to be divisive and did not get majority support at a faculty meeting, leading to a sense of frustration and polarization.  Social justice activists came away convinced that discussion and persuasion were fruitless, and only a top-down, administration-led approach would get results.  This in turn exacerbated tensions with faculty who were concerned about a more general drift away from faculty governance at the institution.

One consequence was an email battle, which quickly devolved into the Council and its supporters against a lone “anti” voice, Bret Weinstein, an evolutionary biologist.  Using a campus-wide list, Weinstein repeatedly argued that the Council was imposing an atmosphere of intimidation, a claim with an element of truth but which was delivered with what can charitably be described as insufficient awareness of his own assumptions and biases about race and racism.

The triggering event on the email front was a decision to alter the format of the college’s Day of Absence/Day of Presence observation in 2017.  DOA/DOP is a longstanding college tradition.  On DOA students, staff and faculty of color are invited to meet off campus to discuss the state of racial awareness and progress; on DOP everyone is invited to discuss these issues together.  For the current iteration it was decided to encourage those of color to meet on campus during DOP and invite others to a small, limited capacity off-campus event, a symbolic “flip”.  No one was required to do anything; it was all about invitation.  This seems to have pushed a button for Weinstein, who responded with an email (falsely) attacking the organizers for instructing whites to leave campus, a charge he embedded in a more sweeping claim of reverse racism.  The email wars heated up and then subsided; for several weeks it appeared the matter had been dropped.

But meanwhile a number of students of color and their supporters were organizing behind the scenes.  They were upset about several incidents involving the campus police, particularly one in which two black students were taken into custody following a heated verbal exchange over racial issues in the student cafeteria.  There was also buzz among students that a number of the faculty were displaying racial and gender bias in the classroom and anger about Weinstein’s email.  Last week they launched their protest by invading Weinstein’s class and shouting at him to either apologize or resign.  Someone (Weinstein says it was a student, the protesters say it was Weinstein) called the campus police, and further ugliness ensued.  (This has all been captured on video.)  Then the protesters moved on to the administrative offices of the college and engaged in an off-and-on sit-in.  No police were called in response to this.  Protesting students also disbanded a faculty meeting and herded the faculty to the site of their sit-ins, apparently worried about a police attack and hopeful that faculty presence would forestall it.

The immediate effect for Weinstein was banishment from the campus.  Students peppered the buildings with graffiti denouncing him as a racist, and campus police told him he should stay away for his own safety.  He held classes with his students off-campus.  There may also have been threats against some of his students, but protesters deny this charge, and the truth can’t be determined at this point.

The email war reignited, and one of the faculty most closely associated with the protests posted a message on Facebook that was at best ill-advised in its vituperation against Weinstein’s partner (also an Evergreen faculty member).  Meanwhile, Weinstein did himself no favors by agreeing to be interviewed for Fox News, during which he made exaggerated claims about the situation on campus.

George Bridges, the president of the college, has responded to the protests by supporting a number of initiatives (including the mandatory diversity trainings), but also demanding that personal attacks cease.

My purpose in relaying this information is to provide as objective a narrative as possible.  I have strong views of my own, but I’ve kept them out.  All I want to say at this point is that racial injustice is a pressing issue at Evergreen, I appreciate the attention students have brought to it, but I also think they have barely scratched the surface of the real problems, and a lot of the behavior on all sides has been unhelpful.

Wednesday, May 24, 2017

Fighting Zombies with Zombies

Larry Mishel and Josh Bivens enlist zombie government policy ponies in their battle against "the zombie robot argument":
Technological change and automation absolutely can, and have, displaced particular workers in particular economic sectors. But technology and automation also create dynamics (for example, falling relative prices of goods and services produced with fewer workers) that help create jobs in other sectors. And even when automation’s job-generating and job-displacing forces don’t balance out, government policy can largely ensure that automation does not lead to rising overall unemployment.
The catch here is that the displacement of workers by technology and the investment that re-absorbs workers displaced by technology are largely, but not entirely, independent factors. "Government policy" in the quoted paragraph is just another name for investment. Hans Neisser observed in his 1942 article on technological unemployment that "it is impossible to predict the outcome of the race between the two [investment and displacement] on purely theoretical grounds."
The conclusion is inevitable: there is no mechanism within the framework of rational economic analysis that, in any situation, would secure the full absorption of displaced workers and render "permanent" technological unemployment in any sense impossible.
The "robot apocalypse" is neither impossible nor inevitable. It is probably unlikely, but unlikely things do happen, especially when people become complacent about the impossibility of unlikely things happening.

Some Saudi-US History

Given Donald Trump's new commitment to support military adventurism by Saudi Arabia in Yemen and more generally against Iran, it might be worth reconsidering how this alliance developed.

The beginning for Saudi Arabia was in 1744 when a wandering radical cleric, Mohammed bin Abdel-Wahhab met up with a local chieftain, Mohammed bin Saud in the village of Diriyah, whose ruins are now located in the suburbs of the current Saudi Arabian capital, Riyadh.  Wahhab converted Saud to his cause of spreading the strictest of the four Sunni shari'as, the Hanbali code, throughout the world, and this remains to this day the ideology of the House of Saud, the ruling family of Saudi Arabia, with this ideology widely known as Wahhabism.  The territory ruled by the early Saudis expanded to cover a fair amount of the Nejd, the central portion of the Arabian peninsula, but when they threatened control of Mecca in 1818, ruled by Egyptians under the Ottomans who collected the moneys gained from pilgrims visiting there, the Egyptian leader, Muhammed Ali, invaded the Nejd and destroyed Diriyah.  The Saud family moved to the next village over, Riyadh, and reconstructed their small state, which expanded again in the mid-1800s, although near the end of the century they were defeated and exiled to Kuwait by the rival Rashid family from Hail to the north of Riyadh.

In 1902 the 27 year old family leader, Abdulaziz bin al-Rahman bin Faisal al Saud, reconquered Riyadh and would eventually establish the modern Kingdom of Saudi Arabia (KSA) through marital and martial conquests, with its modern boundaries established in 1932, and Abdulaziz (known in the West as "Ibn Saud") bearing the title of King and Protector of the Two Holy Places (Mecca and Medina), which he had conqurered in 1924.  He would have 43 sons, and today's king, 81-year old Salman, is one of the last of them, and Abdulaziz would die in 1953.  It should be noted that Saudi Arabia was independent of the Ottoman Empire, and was one of the few parts of the Muslim world that did not fall under the rule of a European power, along with Turkey, Persia/Iran, and Afghanistan.

In the early years, especially in the 1920s, he sought outside advice and support from the British, especially St-John Philby, the rival at Whitehall of T.E. Lawrence, and the first European to cross the Empty Quarter of the Arabian peninsula.  Philby was especially helpful during the revolt by the combined forces of the Rashidi and the Ikhwan (Muslim Brotherhood) whom Abdulaziz managed to defeat in 1929, with the rebels pushing an ultra-fundamentalist line against Abdulaziz (an replay of this revolt occurred 50 years later in 1979, with the Ikhwan seizing control of  the Grand Mosque in Mecca for a time).  Philby would convert to Islam and take several wives.  He was also the father of later Soviet spy, Kim Philby.

The first interest by anybody in the US came out of two agreements in 1928 and 1929, the Red Line Agreement that gave the territories of the former Ottoman Empire to a set of British and French companies, and then the As Is agreement of 1929 between Sir Henri Deterding of Royal Dutch Shell, Baron John Cadman of Anglo-Persian (now BP), and Walter Teagle of New Jersey Standard (now Exxon Mobil) at Deterding's Achnacarry Castle in Scotland.  These agreements amounted to an early effort to divide up the oil producing world in a cartel.  Out of this, Jersey Standard got Saudi Arabia, although at the time oil  had not been discovered there.  It would be in 1938 by geologists from Jersey Standard, and agreements for production with cash payments for Abdulaziz in gold bars were made.  In 1948, Abdulaziz would become the first leader of an oil-producing nation to succeed in getting a 50-50 profit sharing agreement, and as oil production surged there in the 1950s and after, the money would begin to flow into  Saudi Arabia providing the basis for its modernization, even as it retained its highly traditional and strict version of Wahhabist Islam and Hanbali shari'a law code.

While Saudi Arabia initially favored Nazi Germany at the beginning of World War II, much like Iran then, it gradually shifted to the Allied side, with FDR declaring the protection of Saudi oil reserves a US national interest in 1943, and the Saudis officially declaring war on Germany in early 1945.  It is widely viewed in  KSA that the alliance was sealed in 1945 when FDR was returning from Yalta shortly before his death and met briefly on a boat in the Suez Canal with King Abdulaziz, producing a famous photograph of the two of them smiling and shaking hands, shortly before FDR's death.  And indeed, despite some ups and downs, the alliance has held since, with oil at its center.

Given that, the nature of the relationship has changed substantially over time.  One major change, signaled initiallly by that 50-50 profit sharing agreement in 1948, was an increase in Saudi control over the oil aspect of it, with OPEC founded in 1960, which would impose a quadrupling of oil prices in 1973 in the wake of the Saudi oil export embargo against the US for the US supporting Israel in the Yom Kippur war of that year.  Prior to that embargo, KSA had managed to nationalize ARAMCO, the Arabian-American Oil Company, which produced the oil in Saudi Arabia, the original owners of ARAMCO being Jersey Standard, New York Standard (Mobil, now merged with Exxon), Texaco, and California Standard (now Chevron).  These companies, especially Exxon Mobil, continue to have an active relationship with ARAMCO, but the Saudis have been in control of their oil and their oil industry since the beginning of the 1970s.  This shifted the relationship to being one more of the US becoming the protetctor of KSA, providing it with arms as the petrodollars poured in, and this aspect of the relationship has reached a new height with this latest visit and arms deal, arranged by former Exxon Mobil CEO and now SecState, Tillerson.

It is worth noting also that for most of the postwar period probably the major  irritant in the Saudi-US relationship has been Israel, which even now KSA does not recognize, and Trump's flight from Riyadh to Tel Aviv was the first such direct flight on that route ever. Israel supporters for many years complained about "Arabists" in the US State Department who were  more oriented to worrying US oil interests in the Middle East and especially in Saudi Arabia.  But today there is now an alliance of convenience between KSA and Israel in their mutual dislike of Iran.

Which brings us to the current situation.  I personally think that the current Saudi leadership has gone off the rails in their anti-Iran attitudes.  The differences are both sectarian and ethnic, Sunni versus Shi'i Islam and Semitic Arabs versus Indo-European Iranians, with this manifesting itself in a regional power struggle.  But this is a relatively recent conflict, only getting going since the 1979 Islamic Revolution in Iran, and only getting really hot with the overthrow of Saddam Hussein by the US under George W. Bush.  It was the Saudis who convinced Bush's dad not to go to Baghdad to overthrow Saddam in the 1991 Gulf War, arguing that he kept a balance of power as a Sunni Arab leader against Iran.  And they argued with Bush, Jr. not to go in for the same reason, although they would support the US effort modestly once it happened, even though it aggravated Osama bin Laden and al Qaeda against the Saudi monarchy for supporting the US so openly (even  though the US had supported the decision by then Saudi intel chief, Turki bin Faisal, to send bin Laden to Pakistan to aid in the anti-Soviet campaign in Afghanistan).  But the replacement of a Sunni-led regime in Iraq by a Shi'i led one supported by Iran has upset the Saudis greatly.   They also do not like Iranian support of Assad in Syria, who appears to have won his war against largely Sunni rebels, many of them supported by KSA, and now the Saudis are bogged down in a war in Yemen against local Zaydi Shi'a, whom they claim (not with full credibility) are being supported by Iran.  So they, and the Israelis, want the US to join them in an anti-Iran crusade.

I think we are at a dangerous moment here.  The nuclear deal with Iran is the most importantdeal that Obama made, and even the Saudis and Israelis know it.  What they do not like about it is that it meant that the economic sanctions on Iran were relaxed.  But most of those sanctions were only put on to get Iran to  the nuclear negotiating table.  There is no way they can be reimposed without Iran returning to having a nuclear program.  The most influential person in KSA now appears to be the son of King Salman, 31-year old Mohammed bin Salman, Deputy Crown Prince and Defense Minister, who gets lots of good press in the US.  But for all the talk of reform, he has not moved to let women drive or to desegregate workplaces by gender.  He seems to be a warmongering hothead who has pushed this so far fruitless and destructive war in Yemen, which has led to incipient famine  in that nation as well as its likely falling apart into pieces.  He has even talked about "taking the war to Iran," which we can only hope that he will not be tempted to do with all those fancy arms that he is buying from the US.  Trump, or whoever is in charge of US foreign policy in the near term, will really have to both defend the nuclear deal with Iran and resist this warmongering push by our longtime erstwhile ally.  Let us hope that this is done.

Barkley Rosser

Monday, May 22, 2017

Output Optimum and the Roller Coaster of Immiseration

Following up on my post from two weeks ago, Immiseration Revisited, I built a spreadsheet replica of the marvelous Chapman diagram. In addition to lines on the page, the replica provides me with tables of numbers that I can add, subtract, multiply and divide in accordance with the conceptual logic of the diagram.

The chart below shows the results of some of these calculations. The red curve graphs cumulative gross "output" and green curve subtracts the value of foregone leisure and the pain cost of fatigue and wear and tear from output to calculate net "income" (green). The length of each vertical line measures the values of output and income, respectively for a work week of the length indicated by the scale on the x-axis.

"Big Dipper": the Roller Coaster of Immiseration

I have set the hypothetical "output optimum" work week at 48 hours in deference to the diagram's 1909 vintage. Assuming such an optimum and taking the conceptual diagram's proportions literally, the ideal length of a work week for a laborer would be 36 hours. That is the point at which the value of foregone leisure and the pain cost of additional work begin to outweigh the additional earnings from the longer week. A workweek of 40 hours marks the threshold beyond which the value of foregone leisure alone exceeds the additional wage earnings.

If the optimal output workweek was 40 hours, the corresponding ideal length of workweek for the worker would be 30 hours, again assuming the reasonableness of the diagram's proportions. There is, of course, only impressionistic evidence for the general shape of the curves and not for the accuracy of the proportions depicted. Nevertheless, the derived calculations indicate a steep acceleration of the discrepancy between output and worker welfare beginning well in advance of the output optimum.

Calculations based on the diagram suggest that by working 34 percent more hours per week, the employee can look forward to "enjoying" 29 percent LESS net benefit. If the actual cost to workers of working longer is even half or a third of those estimates, this still would represent a significant deviation not only from what Lionel Robbins dismissed as "the naïve assumption that the connection between hours and output is one of direct variation" but also from the equally indefensible premise of a consistently proportional relationship between work effort and reward.

(Most) Economists Balk

In a recent article, "Whose preferences are revealed in hours of work," John Pencavel noted the "radical change in economist's thinking about working hours" following the 1957 publication of H. Gregg Lewis's article, "Hours of Work and Hours of Leisure," Earlier textbooks attributed reductions in hours to pressure from trade unions, either directly through collective bargaining or by legislation promoted by organized labor. The earlier textbooks also addressed the effect that hours of work have on productivity, with reductions in hours usually leading to increases in hourly output and sometimes even to "no decline in total daily output."

In later textbooks, the orthodoxy followed Lewis's explanation that workers choose their own hours, based on their preferences for income or leisure. The connection between output and shorter hours vanished, as did the role of trade unions in achieving reductions of working time. But, Pencavel wondered, "If 'employers are completely indifferent with respect to the hours of work schedules of their employees,' [as Lewis had posited] why did employers oppose so resolutely workers' calls for shorter hours?"

In a footnote, Pencavel also mentioned that in Lewis's 1957 model, employers face no obstacle "to replacing shorter hours per worker with more workers." This is an interesting point because many economists' arguments against the employment potential of shorter working time rest on claims that workers and hours are not suitable substitutes. That conclusion is reached by smuggling back in the output/hours relationship concealed in a Cobb-Douglas production function with the Robbins/Hicks "simplifying assumption" that the current hours of work are optimal for output, so that any reduction of hours would result in a reduction of output. It is difficult to imagine how both of these things can be true at the same time.

Although the earlier textbooks and economists acknowledged the connection between hours of work and output, most were silent on the discrepancy -- or at least the magnitude of the discrepancy -- between an output optimum and worker welfare. Cecil Pigou, Philip Sargant Florence, Lionel Robbins, John Hicks and Edward Denison treated the output optimum as the economic ideal. Richard Lester and Lloyd Reynolds, authors of "institutionalist" labor economics textbooks, showed more sympathy to trade union arguments but did not emphasize the discrepancy between the output optimum and worker welfare.

Sydney Chapman clearly distinguished analytically between worker welfare and the output optimum but his presentation was obscured by digressions that dwelt on shift-work as a palliative and on the philosophical necessity of paying more attention to the non-tangible aspects of culture. Clyde Dankert clearly distinguished between the output optimum and worker welfare but had the rather eccentric view that although "maximization of worker satisfactions" rather than output should be the social objective, shorter hours would have to be postponed "in view of the current cold war situation." Only Maurice Dobb clearly and concisely stated what was at stake (although he left out the increasing value of leisure): unionists in the nineteenth century were severely castigated by economists for adhering, it was alleged, to a vicious 'Work Fund' fallacy, which held that there was a limited amount of work to go round and that workers could benefit themselves by restricting the amount of work they did. But the argument as it stands is incorrect. It is not aggregate earnings which are the measure of the benefit obtained by the worker, but his earnings in relation to the work he does — to his output of physical energy or his bodily wear and tear. Just as an employer is interested in his receipts compared with his outgoings, so the worker is presumably interested in what he gets compared with what he gives. A man who works longer hours or is put on piece-rates, and increases the intensity of his work as a result, may earn more money in the course of the week; but he is also suffering more fatigue, and probably requires to spend more on food and recreation and perhaps on doctor’s bills.
To compare "what s/he gets" with "what s/he gives" requires above all some way of estimating the value of what is given relative to what is being received. One may even suggest that constructing those estimates was the job economists should have been doing instead of castigating trade unionists and other advocates of shorter hours for adhering to a vicious "lump-of-labor" fallacy. Heck of a job, economists!