It is time to stop quivering in our boots in pointless fear of the future and just roll up our sleeves and build it.
- Ray Pierrehumbert

Thursday, June 16, 2011

Divide and Conquer or Multiply and be Fruitful

Continuing the discussion from

The Missing Automation Crisis

and

The Leisure Crisis, Feminism, and Overwork



The daily 100-second video collage at TPM today includes this frame,



and herein lies the issue that has many people worked up. Apparently I have inadvertently taken the wrong side of it in some way. I am not sure what correctness I have transgressed, but I feel like I should plunge ahead.

This graph shows profits have recovered to pre-recession levels, but "labor" (really, payroll) income has drastically lowered. Given what is currently happening to Wisconsin, and what is currently happening to climate conversation, and the general lack of honesty I have seen from certain quarters about who should take the blame for the debacle, I cannot easily dismiss a conspiracy to extract wealth from the workers into the hands of the oligarchy, as I ordinarily would have done. If a man as reasonable and as involved as Russ Feingold can say
It's divide and conquer by the big money interests in this country, that's always been their strategy. Frankly, I don't think all of us saw it coming. I certainly didn't see the ruthlessness and how far they would go with this.
it isn't possible anymore to shrug off the idea that the problems we are seeing amount to a sophisticated form of looting, of reverse Robin Hood, of exploitation of the middle class by the wealthy. Still, it may be worthwhile to step back and take a longer view.

TPM also provided this frame,



which seems consistent with this image from the Fed:



and in that source we can identify that what is being plotted is salaries as a fraction of net income plus salaries; i.e., the proportion of the captured value in a business that labor keeps. Even before the astonishing recent drop, things were flat for half a century, and have been trending mostly downward since the start of the Clinton administration.


Now, rather than looking at the odd "unemployment" number which seems somewhat ill-defined, we can look at the percentage of the population employed:


The fraction of the total retained by salaried work has stayed steady and lately retreated. But the number of people working as a fraction of the population has (until recent events) steadily increased, and there is plenty of evidence (See Juliet Schorr's book The Overworked American) that de facto hours worked or spent in support of work per job has gone up.

During the feminist breakthrough period 1970 - 1990, we see an increase in likelihood that an adult is employed by about a fifth. Because of the frictions in a household where two adults work, and because of other pressures, hours also arguably increased.

When we look at household income, we do see a barely comparable increase:



but it hardly compensates for the lost intangible benefits of a stay-at-home adult, contributing to raising the family and building the community.

Now consider that US GDP more than doubled during that same period.



Clearly this doubling is not showing up in median household income. It must have fone to the rich, as other metrics confirm.

Women entering the job market did not free men to spend more time with family and community. Women entering the job market enabled corporations to bid less for labor. The resulting labor glut meant much more work for hardly any more pay.

For families with two modest incomes, that means a constant time scramble. For those with only one income, it means poverty.

(In any case it leaves nobody in the middle class with any time or energy to participate in democracy. Television substitutes for conversation. And this ties in at the end when we try to decide what we can do about the present mess.)

So in fact, what Weiner and Reuther feared in some sense came to pass. People did start competing with slave-machines. Also, of course, with near-slave-workers overseas. And finally, with more of each other as women entered the workforce, providing a gift not, as they intended, to their families or themselves, but primarily to corporate interests.

For the most part, this did not occur in other advanced countries. It's interesting to speculate why. I think it's because America has been in a phase of professionalized politics for a long time. The professional politicians didn't understand the scale of the changes, and the general public didn't understand the need for legislation to protect it. Americans are peculiarly disengaged from politics.

But the point is that labor lost its bargaining power during arguably the greatest period of growth in any nation ever in history. That seems simple enough.

But things remain baffling. After fifty years of compounded robust growth from a rather wealthy start, the country is suddenly pleading poverty, defunding its grade schools and libraries and parks. How is such an absurdity taking place?

Hint: The Red Queen has the answer.

20 comments:

Shining Raven said...

"Apparently I have inadvertently taken the wrong side of it in some way. I am not sure what correctness I have transgressed, but I feel like I should plunge ahead."

How coy of you. I don't believe that you don't get the point.

You are right: labor has lost its bargaining power. (And not only in the US, In Europe we have the same problem, although of course it's all on a different scale).

The question is why that is.

You claim it is because of a mysterious labor glut, and there is a structural reason for it, so that we cannot address this by the normal means of economic policy. Evidence of this seems to be the high unemployment.

There is a well-tested economic theory that basically says that the Fed in the US sets the unemployment rate by setting the interest rates. The unemployment rate is basically what the Fed says it should be (NAIRU Non-Accelerating Inflation Rate of Unemployment and all that...). Currently we are in an exceptional situation because we are running up against the zero-interest rate lower bound. The conventional theory says that in this case the state should step up spending, which is not happening to a sufficient degree. Hence, unemployment remains high. You are probably familiar with this reasoning.

So what is wrong with that picture? If your theory is correct, you need to provide some evidence that speaks against the conventional and tested theory.

Regarding the collective bargaining power: You seem to assume that the labor market is pretty efficient, if you believe that depressed wages are mainly due to more people entering the work force.
However, if labor is not organized, then the bargaining power between employers and employees is distributed pretty asymmetrically, and this pretty much swamps the supply-effect. You seem to agree that labor relations in the US are pretty bad and that wages are better in countries with stronger unions, so why look for an additional cause for the low share of labor in the profits?

Of course a recession depresses wages even further, but that is not the reason that the share of labor in profits has gone down over the years.

The main point is that this is a political question more than anything else. There is no economic necessity that wages have to decline and labor gets less and less of a share in the profits.

I don't believe that you are in the camp of capital. libertarians, what have you.

But your argument is structured in the same way as theirs: There is some underlying reason that wages are declining and unemployment is high, and we cannot address this by economic policy, so we have to throw up our hands in despair and live with the situation.

(Or implement their favorite policy options, which would address the underlying reason.)

So the whole argument is a political one, about the organization of our society. You are trying to take it out of the political sphere and make it an argument about necessities. If you want to get anywhere with this, you really have to show why our options for action are so limited and exclude conventional economic policy that has worked in the past.

Rich Puchalsky said...

"Apparently I have inadvertently taken the wrong side of it in some way. I am not sure what correctness I have transgressed, but I feel like I should plunge ahead."

Faux naivete? I thought that people really were very clear. What you were doing was the same maneuver that Marxists used to do to left-liberals all the time; maybe your dislike of politics means you haven't experienced it as much?

Let's imagine a conversation between a Marxist and a left-liberal about unemployment.

Liberal: Mass unemployment is really high! The Democratic Party is failing the people, because a large enough Keynesian stimulus could reverse this.

Marxist: I agree that the politicians have failed. But it was inevitable that they would fail. It is implicit in the world-historical situation that they can not succeed.

Liberal: Huh? Do you have any evidence for that?

Marxist: I thought that everyone agreed that the recent economic crisis was because of the contradictions of capitalism. Here's a graph -- and a quote!

Liberal: Well, no, people don't all agree about that. In fact most experts don't.

Marxist: But the contradictions are there and will halt the system eventually. Why not make the change now?

Liberal: Because I don't see any mass group of people ready to make that change (even assuming for the sake of argument that it's a good one.) There is a large people who agree that Keynesian stimulus would work. Keynesian stimulus has worked before.

Marxist: That was a temporary stopgap. Now the long-term truth of capitalism has caught up with it. There is no answer except to bring society to (whatever version of socialism/communism/etc this person supports). You have to accept that reformism doesn't work.

Liberal: How is your message of acceptance of the current system any different from the message of acceptance that the bosses put out?

Marxist: I don't accept the system! I advocate (whatever kind of gradual or sudden revolutionary change).

Liberal: Which I don't see occurring. So until then, telling people that it's inevitable that the system will fail and that they shouldn't blame anyone in specific is just as useful to the elite as the inevitable-market myths that they tell.

Marxist: I'm not on the side of the bosses! Apparently I have inadvertently taken the wrong side of it in some way. I am not sure what correctness I have transgressed, but I feel like I should plunge ahead.

Layzej said...

According to your graphs the employment rate has gone up from 55% to 63% or about 1.14 times. Over the same period average household income has gone up from 35K to 45K or about 1.28 times. It seems like we are doing alright.

One graph is zero based an the other is not. It's a little misleading to show the two side by side and suggest that the increase in the zero based graph is barely comparable when in fact it shows a greater increase.

Rich Puchalsky said...

I should clarify, looking back on this, that I'm not that left-liberal any more. I've basically given up on electoral politics, and I'm an anarchist these days. Someone could accuse me in turn of inevitable-failurism. The difference is that I'm not calling on any kind of inevitability. If people want to work within the system for a greater Keynesian stimulus, I think that's a good thing, and if implemented would probably work for this crisis. If people want to work outside the system to gradually replace it, I also think that that's a good thing, and will be necessary in the medium term.

But I'm not saying that a physical or economic process automagically justifies my preferred politics, which is the temptation that I think you're falling for. It's especially harmful when, as with environmental destruction or for that matter with the capitalist runaway that you document in this post, the effects are going to show up inevitably if no one does anything about them but haven't reached forceable-crisis stage yet.

Michael Tobis said...

Via email

===

Enjoy your blog - but your blog deleted my comments - so i thought i would send quick email.

Re: american political economy your recent blog post

I think a very interesting and well thought through book that explictly addresses why the US has such big rises in inequality compared to other rich countries is:

Winner take All Politics: How Washington Made the Rich Richer–and Turned Its Back on the Middle Class by political scientist’s Jacob Hacker and Paul Pierson.

An academic paper in Politics and Society (DOI: 10.1177/0032329210365042) by Jacob Hacker and Paul Pierson presents the ideas behind the book and a number of commentaries was published this year in a special issue. It is available online at:http://pas.sagepub.com/content/38/2/152.full.pdf.

Their short answer is union membership explains a lot of difference. Is also one of the big differences between Canada and US.

I've written a bit about their book on my blog - resilience science - more pointers to other stuff.

http://rs.resalliance.org/2010/09/22/inequality-in-the-usa-driven-by-politics/
http://rs.resalliance.org/2011/02/23/oligarchy-in-the-usa/

Keep up the good work.

Cheers
Garry


Prof. Garry Peterson
Stockholm Resilience Centre
Stockholm University
SE-106 91 Stockholm, Sweden

Greg said...

I don't really understand the criticism (of this post). It is possible (and in my opinion the truth) that two things are both true that both contribute to the increase in inequality over the last couple of generations. (1) Automation and the entry of women into the workforce put downward pressure on the cost of labor. (2) Deliberate choices by the wealthy/powerful caused policy changes that destroyed unions and shifted the tax burden from capital gains to ordinary income.

One can argue that (1) had at least some inevitability to it, but (2) was a choice, and the larger effect.

I am curious about one thing MT said though "... I think it's because America has been in a phase of professionalized politics for a long time. The professional politicians didn't understand the scale of the changes, and the general public didn't understand the need for legislation to protect it." Are you saying that non-professional politicians were more likely to understand the scale of the changes? I don't really see any evidence for that. I think that non-professional politicians are simply more likely to align themselves with the general public than with the Oligarchy.

Michael Tobis said...

The bit about "professionalized politics" was an unfortunate throwaway. Another violation of the one-thought-per-article principle without which I get into trouble.

What I mean is that the people interested in politics are a small and distinct subset of the general population, most of whom are tuned out and in fact deliberately confused. This has a lot to do with why the special interests dominate the general interest in the US...

While the two parties and the press are complicit in the gross trivialization of public discourse, the main dynamic in ruining the democracy of the US is overwork and financial pressure. Most people simply have very little time to reflect on what is going on. So if politicians or the press do present a more complex, nuanced view, nobody pays attention.

And in my experience, Americans are either extremely angry or resigned. The incompetence of the congress is not undeserved. It's genuinely representative of the voters.

It's a vicious circle.

It's why the interests of the retired carry much more weight than the interests of the young. It's why climate change is a non-issue.

And it's yet another reason that full employment is a terrible, awful, backwards goal.

There is not a universal way to link what people do and how resources are distributed. Changed circumstances call for changed organizational principles.

Michael Tobis said...

Shining Raven, "There is a well-tested economic theory that..."

I don't think any theory is well-tested for the circumstances we now face, which have no prior analogy in the modern era, though Easter Island may serve as a useful analogy.

Rich Puchalsky said...

"I don't think any theory is well-tested for the circumstances we now face, which have no prior analogy in the modern era, though Easter Island may serve as a useful analogy."

No prior analogy in the modern era except -- as I wrote before -- from the 1980s onwards, when people made all the same arguments.

If unemployment levels go back up in five years, what then? Will you post admitting that you were wrong when you claimed that we were in fundamentally different circumstances? Or will you say that you were right all along, contrary to the evidence that everyone can see with their own eyes?

If you do admit that you were wrong, will you then say that you were wrong but that it's still going to happen some time in the future? Why should anyone believe you? Will you every two years say that circumstances have now changed and every two years be wrong until some day you're finally right?

This is a very simple matter, one that you deal with all the time when it comes to criticizing environmental groups for over-bold AGW predictions. I don't say that you have to agree with the point, of course. But your claimed inability to understand it is absurd. How do you expect people to understand the basics of climate science when you can't even understand what Shining Raven and I have clearly written?

Shining Raven said...

Look: I am on the same page with you, insofar as that I am sure at some point oil is going to run out, or rather going to become outrageously expensive. And even before that happens, we have to cut back on CO2 emissions. Insofar I am with you with your Easter Island analogy.

However, I think it is ridiculous to claim that right now oil prices are at the heart of our economic problems. Really, do you believe a huge government spending program (never mind that that is not going to happen) is going to fail because of high oil prices?
This is not the first time this point has been raised.

How about checking by some back-of -the-envelope calculation how much fuel prices add to the price of products? And whether it seems plausible that this would prevent a recovery?

The increasing oil price is already reflected in the inflation rate, which is now used to justify increasing the Fed funds rate. So the effect of the oil price increase is effectively overall rising inflation, and the increase in the interest rate by the Fed is probably going to be its worst effect on the economic recovery.

The point stands: You need to show, not assert, that circumstances are different. Your saying that the "well-tested theory" no longer works does not make it so.

susan said...

Based on the comments so far, and my incomplete reading (will continue posthaste), all this is a bit over my head.

However, "looting" is not. That's exactly what is going on. Now the tax system has been adjusted to favor the wealthy as their income skyrockets, they see those huge honeypots, Social Security and Medicare/Medicaid, and want to use those as well to get rid of more taxes and keep their support system (bailouts for those who pay huge bonuses to their top executives (not far removed from themselves in most cases), lack of oversight, lowering or stabilizing the minimum wage, etc. (How many minimum wage workers could be hired for one top exec's salary, but those are breaking companies' backs? Give me a break!) The working poor who put in a days work for under $10 per hour give more to the system than these overpaid opportunists. The entertainment industry (including sports) seems to get a free pass on obscene salaries for inadequate returns as well.
--
Slightly OT change of subject, but I was startled today to realize that we may be within hours or days of a world economic collapse thanks to the same greedy shortsightedness on the part of the wealthy holding on to and increasing their wealth in the face of systemic collapse - Greece anyone?

Rich Puchalsky said...

Susan and Greg:there is a big difference between the following two statements:

1. "If we don't stop what we're doing, we're heading for a situation like Easter Island's."

That's what Jared Diamond said in his book Collapse. Both MT and everyone who has commented so far agrees with this.

2. "The circumstances that we face now are like Easter Island's."

That's what MT is claiming, and it appears to me to be false. Making false claims is a bad thing. In particular, once you're proven to be wrong on statement 2, people are less likely to believe you on statement 1.

It also leads to misreading the situation. But I'll stop there and see whether people understand that.

Michael Tobis said...

Hmm, I don't mean to be evasive.

I feel that I have latched onto an exposition that will make my ideas clearer (to me and perhaps to others) than they have been before. I think I have to pursue that; consider all of this the first draft of a publication.

I will state what I think in comments, but I had best defend my thoughts in what I think in the order that makes sense, (which is an approximately chronological structure).

What I think is that it is, in fact at least conceivable that full employment will eventually be restored, without refuting my point. My point is only secondarily that full employment is impossible. My point is that full employment is the wrong goal: far from being automatic as KoTR suggests, I think it is the result of increasingly desperate and bizarre measures, such as the idea that an ordinary family can make use of a 4000 square foot (400 square meter) house, and that something is wrong if house sizes do not keep expanding without bound.

Even evolution makes this sort of mistake. It's not surprising that humans do.

But it's still a mistake. Stay tuned and I'll try to explain.

I very much appreciate the critiques, though, and especially appreciate references.

Michael Tobis said...

I believe I have established

1) There was good reason to expect employment to decline
2) The initial response was to attempt to define a system tolerant to unemployment
3) That response was not implemented as the unemployment did not emerge
4) What did happen was a weakened bargaining position for "labor" (in the larger sense of salaried employment) which encouraged expansion of the economy
5) The expanded economy did not provide much utility for working people. (*)

Are most of us agreed so far?

(*) - ironically, the cloud services which are currently providing expanded utility, i.e., Google, Amazon, EBay, Wikipedia, Skype, blogs, craigslist, actually tend on the whole to shrink the dollar economy - chew on THAT Dr. Economist)

My next question is this: if the (pre-EBay) economy doubled, but the utility to the median family didn't substantially change, what was the expanded half of the economy actually doing?

The usual answer of increasing the holdings of the rich doesn't make much sense. Yes, there were more luxury hotels, golf courses, and mansions, but services to the wealthy, while growing, still aren't a huge slice of the economy. Their "holdings" are mostly interest in industrial enterprises. Let's not get too circular. What new services were those holdings providing?

I will argue that the growth-full employment ideology shared by most politicians and unthinkingly adopted by the media and the public causes an increasing fraction of the growth to amount, essentially, to bullshit. If so, a return to a growth economy is not a solution, but just more problem.

Rich Puchalsky said...

"What I think is that it is, in fact at least conceivable that full employment will eventually be restored, without refuting my point. My point is only secondarily that full employment is impossible. My point is that full employment is the wrong goal"

Better. That walkback at least means that you won't be as embarrassed should this crisis not turn out to be the last gasp of the current system.

But it's still messed up with agency problems. Full employment is the wrong goal *for whom*?

Or, to put this another way -- are you willing to give up on your own, personal employment in order to further giving up on the social goal of full employment? With the understanding that no increased social safety net will be provided for you? If you're not willing to, then who exactly are you saying should be willing to?

If you're saying (as of course you are) that an increased social security net should in fact be provided, what do people do until it is? Give up on full employment? What about (as you're also saying, whether you realize it or not) that there is a reason why they're being denied this social safety net -- specifically to force them into relying on employment?

I know that you have this whole vanity thing about there not being sides, and your not encouraging the taking of sides. But they are there whether you believe in them or not. Who are you speaking to, really? Are the people who you are speaking to really able to respond to the idea that we have to give up on the only thing that keeps them alive within a hostile system?

Michael Tobis said...

I am trying to develop an argument that "full employment is the wrong goal". At the moment, I am speaking to anyone who wants to consider what I am saying.

For whom? I think it is the wrong goal for almost everybody!

More specifically, because the combination of full employment and progress amounts to growth, growth which no longer really adds value.

If growth is bad, then we need to choose between technical progress and full employment, precisely because Wiener was correct in his concerns; full employment in the presence of technical progress makes the population into near-slaves because they have to compete with machines.

This did not play out in the way Wiener expected.

As Feingold points out, there are groups of people whose ruthlessness we underestimated.

You suggest that "that there is a reason why they're being denied this social safety net -- specifically to force them into relying on employment?"

Yes. I agree. That is the Red Queen point. "Around here it takes all the running you can do to stay in the same place", the RQ said. Alice did not think that made any sense, but it turned out to be true.

So what are we disagreeing about at the moment?

Shining Raven said...

"So what are we disagreeing about at the moment?"

Well, *I* was mainly disagreeing with the point that the current high rate of unemployment has structural reasons, as opposed to be caused by a shortfall in aggregrate demand, aka a recession.

But also, I do not think you have established your points, 1) - 5). I agree partially, but not wholly, in particular not with your implied causality between the points.

You seem to believe that an expanded available workforce (women entering the workforce in larger numbers) lead to a downward pressure on wages. I don't believe that is supported by the evidence, but I am too lazy to search out the numbers.

I think the causality is the other way around: There was an organized effort in the US to weaken unions, which was explicitly political, and we see the fruits of this.

It does not make sense to look at the available work force in isolation, this does not tell you anything. Of course it is a question of the relative growth of the economy and the work force that tells you how unemployment is going to develop.

With your last comments, I don't know where to start. I think you are conflating many different issues. To some extent, I agree that all of this is related, but not necessarily in the way you make out.

The first thing you ought to do really is to define what you mean by "unemployment". Usually this is a mismatch between the amount of work that people are offering to do and the amount of work offered in the economy.

If you have a vision of a society where everybody works less by his or her own desire, that is probably not very well described by not having "full employment". Such a society would still have full employment, if the desire of people to work and the available work are matched.

You probably have something like this in mind, but then the concepts you use to describe this are not suited to the purpose.

You asked for references. A good read is Krugman's "The Age of Diminished Expectations". It's a bit dated by now, but has lots of the basic economic concepts and how to apply them to an analysis of the US economy.

Rich Puchalsky said...

"For whom? I think it is the wrong goal for almost everybody!"

And who is almost everybody? Or rather, who are the people who are not in "almost everybody"?

The current society is set up to favor the elites. Clearly they would lose out in a society in which people didn't have to work. The wealth that they syphon off of everyone's work goes to them. And it doesn't make any sense to question whether this wealth corresponds to real wealth in some physical sense. It corresponds to social power.

The kind of sociopath who has what it takes to be one of the elite doesn't care whether society as a whole is doing well or not. All that matters to them is power. Disasters are just an opportunity for them to get a larger share of the diminishing pie.

So in fact you're speaking to "almost everyone" except the people who hold power in society. I don't think that you're going to get anywhere until you realize that.

Rich Puchalsky said...

Now the other problem. You have a critical ambiguity in what you're calling "full employment."

One sense of "full employment" means a society in which everyone is expected to work or starve. (Or work or be miserable and poor, before one of the right-wingers chips in.) This is what you tend to talk about when you talk about society needing to give up on the goal of work for everyone and continuous growth. Call this sense [1].

Another sense [2] is the more conventional sense of the phrase. It means that the society is implicitly assumed to be set up more or less like ours, and that the unemployment level is near the "natural rate of unemployment." This is also the sense in which almost everyone on the left uses the phrase when they talk about full employment as a goal.

A whole lot of this is about you mixing up sense [1] and [2]. In a society in which people are competing with machines and other people as you've described, full employment [2] does not keep people on the treadmill. It takes them off of it. In full employment [2], employers are forced to compete with each other by raise wages to get workers, and workers start to get a higher share of the created wealth.

Most people here probably agree that it's a good medium-term goal to get rid of full employment [1]. But until we do, we can't give up on full employment [2].

King of the Road said...

Tony Montana: "In this country, you gotta make the money first. Then when you get the money, you get the power. Then when you get the power, then you get the women."

I'm not 100% sure that that improves on silence in this context, but if mt hates it he can take it down. This is my trivialized way of saying "yeah yeah I get it, my boot is on the neck of my employees and the my only internal conflict is over exactly how hard I can step down and not quite kill them."