“I’m so bored. I hate my life.” - Britney Spears

Das Langweilige ist interessant geworden, weil das Interessante angefangen hat langweilig zu werden. – Thomas Mann

"Never for money/always for love" - The Talking Heads

Monday, January 26, 2009

Employment,efficiency and bullshit

LI has been pushed over the edge, a bit, by Matt Yglesias’ link to University of Chicago economist Kevin Murphey’s “best anti-stimulus argument I’ve seen.”

Of course, meritocratic liberals love to be entangled in a discourse full of lambda’s and “model” talk. It is like being a smart sophmore again. The professor’s favorite!

But of course it is all bullshit. Unfortunately, this bullshit is increasingly setting the agenda – that is, it is being answered in its own terms. I’ve seen this happen before – it happened with Clinton’s health plan. We are in a much worse place, but it is worth noting that any conversation with bullshit has to call bullshit correctly, otherwise we go into the Laocoon dimension where liberal pundits flail and weep.

Here’s the truth. Since WWII, the government has gone from employing about 13 percent of the workforce to close to 17 percent. At the moment, according to the Bureau of Labor, there are around 22 million Americans employed by local, state and federal governments.

This means, at first glance, that the private sector employs on average about 82-84 percent of the work force. In actuality, given a very rough average of unemployment of 5 percent, the private sector ends up employing closer to 80 percent of the work force.

At the moment, what has happened is that the private sector employs about 78 percent of the work force, as unemployment has gone up. Although government has held steady, no doubt in the next year, there will be layoffs from the government, too, This means that neither the private sector nor government will employ the percentage they do on average since WWII.

I put these figures out there so that one isn’t lulled into a discussion of whether the neo-classical models assume full employment or not. This is a nice, liberal discussion, but it overlooks the more fundamental lie of Murphy, et al., which is the assumption, which is swallowed like the sugar in liquid cough medicine, that the private sector somehow could efficiently employ 100 percent of the work force. It can’t. It has never been able to get past 85 percent in the post war period. There is a limit to the weight it can lift. We know what it is.

So the only argument about the stimulus is this: should the government absorb the extra unemployed or not? That is, should the government grow 3 or 4 percentage points?

The argument against this is not an efficiency argument. That is a stupid argument. The argument is, rather, that somehow, business can absorb the extra unemployed. Which means that the right is saying that, in the next year, the private sector can expand 4 or 5 percentage points to assume its usual standing in the economy.

Do you believe this? Does anybody? No tax break tax cut bullshit should take anybody’s eye off that ball. The question is: how can the private sphere possibly expand to absorb the 4 to 5 percent of the unemployed?

In reality, the right is saying, let the unemployed grow. And underneath that is the notion that if we can actually diminish the salary of the average worker, then businesses will be inclined to hire them. This, without the bullshit, is the righ’s position. The recession is an opportunity for business to gain permanent tax cuts and hire people at reduced rates.

Now, the only way this will actually bring business back up to its traditional 80 percent position is if the pie shrinks.

I foresee that laying out the numbers in a way that everybody can understand them will not happen. Rather, we will have more endless droning about endlessly bogus functions from conservative economists, who will be countered with ever more esoteric models from liberal ones. The point will be to cover up the real situation, so that we will be fogged in, and deprived of the ability to use our own two eyes to see what the situation is, and decide for ourselves what we want done.

Class dismissed. Oh, and watch this economics lecture for an important message.

4 comments:

Brian said...

Maybe this is inevitable, roger. we are now a much poorer nation, and we better get used to it. We produce nothing (besides bombs and arcane debt "instruments" and people will eventually stop loaning us money.

Unfortunately, the criminals and looters will remain on top, gobbling up more of the diminished, shrinking pie....but the pie will shrink. And, it probably should. I'm sorry, but can a factory worker or white collar drone like myself really "expect" to "own" a 2,000 square foot house 30 miles from work, which he reaches via a collection of large trucks getting 15 mpg?

Bad times ahead. But, even electing someone like a Kucinich Squared would not bring back the go go days.

roger said...

I don't really think we are a poorer nation, except in fictional wealth. We may well get much poorer, if we react with superstition and the self-cutters sense that if we bleed, we will appease our behemoth parents. But casting away that mindset, calmly reconstructing a necessarily ecological friendly manufacturing and service sector, drastically redoing our medical system to actually distribute the benefits of all the objectified knowledge that is contained in it - an amazing thing - will, I think, lead us to higher ground.
Be of good cheer, Brian! The zona won't kill us!

P.M.Lawrence said...

"...the assumption, which is swallowed like the sugar in liquid cough medicine, that the private sector somehow could efficiently employ 100 percent of the work force. It can't. It has never been able to get past 85 percent in the post war period. There is a limit to the weight it can lift. We know what it is.... No tax break tax cut bullshit should take anybody's eye off that ball. The question is: how can the private sphere possibly expand to absorb the 4 to 5 percent of the unemployed?... the notion that if we can actually diminish the salary of the average worker, then businesses will be inclined to hire them."

There is a false assumption in that reasoning, the idea that the post war economy demonstrated the whole range of behaviour. All it really demonstrated was what happens when you press the accelerator and the brake at the same time. There have been market imperfections getting in the way all along (including government crowding out, working through tax burdens and bidding for labour). The only actual limits - without the distortions - are Malthusian constraints, which we are nowhere near yet.

Without bullshit at all, for a tax break approach to one problem area see the work of Professor Kim Swales and his colleagues, and my own independent work on the same lines. That approach has to do with eliminating labour market imperfections with a Pigovian virtual wage subsidy - full reasoning may be found via those links. If the scheme is implemented by giving actual and potential employees anonymous transferrable vouchers to give employers, the Pigovian approach can start a transition to a Coasian one with no government involvement at all. Once you had that, you really would see whether "if we can actually diminish the salary of the average worker, then businesses will be inclined to hire them" - only, people would have independent resources as well and wouldn't suffer as they would only be working for a top up wage.

You might want a look at Kevin Carson's mutualist blog and his other work it links to, too.

p said...

Labour leader slams Davos

"There's still an overwhelming focus on the fact that this is just a financial crisis," the head of the International Trade Union Confederation, Sharan Burrow, told AFP. "There is almost no acknowledgement that it's actually a crisis of unemployment which is a social timebomb."