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June 01, 2021


Dave Timoney

The one element you don't directly mention is property, specifically domestic housing, but surely this has the greatest potential to undermine Biden's initiative by diverting increased wages into non-productive assets?


«These are questions raised by President Biden’s ambition for an economy where “employers have to compete for workers.”»

I would not bother much about his "jam tomorrow" talk.

«a world of ongoing pandemic risk “is one in which the balance of power at work can shift dramatically back in favour of labour.”»

The worldwide price of semi-skilled labour $1/hour, and even during pandemics offshoring and immigration can work well to reduce "inflationary pressures".

«In the 50s and 60s western economies had fullish employment (for men at least). And profit rates and equity returns were good: [...] There are good reasons for this. Because workers tend to spend more of their income than billionaires, transferring cash to them can boost demand.»

This the usual "Economist" idea that the supply side does not constrain the demand side, so "fine tuning" of demand can grow the economy endlessly, the "cornucopian" view. But in reality what really matters is value added, the view of the political economy as a factors full of machines, not as a set of markets, and value added is a function of "technology" and raw materials.

In the 50s and 60s there was plenty of new value added growth to spread around thanks to the ongoing switch from more expensive and less productive coal to cheaper and more productive, and improvements in oil powered machines. There is no equivalent switch expected to a fuel cheaper and productive than oil, quite the opposite.

«But can we really return to the 1950s? One reason for thinking so is that anti-labour policies and low taxes in most developed economies have led to slower growth in both output and productivity.»

But they have made incumbent asset owners, especially those who bought on leverage, a lot of money. From their point of view the USA and the UK have been booming successfully since 1980.

«This fact, say Özlem Onaran Giorgos Galanis, suggests that wage-led growth is possible (pdf).»

Sure it is possible, for the pretty small rates of growth inherent in slow and gradual technology improvement, nothing like the 50s or 60s unfortunately.


«property, specifically domestic housing»

Hey, that's my usual obsession. But I have no exclusive of course :-).

«but surely this has the greatest potential to undermine Biden's initiative»

Which initiative? So far it is all pious Obama-style talk.

«by diverting increased wages into non-productive assets?»

Good point, but aren't growth and distribution two different topics? It could well happen that a high-employment, high-pressure economy results in rentiers capturing much of the benefits, see London. That would still be a high-pressure, high-employment economy.


«For the last few decades the ruling ideology has been that low wages and low taxes are business-friendly. Capitalists might well therefore regard a world of rising wages and higher taxes as a scary prospect, and so they’ll depress animal spirits and capital spending.»

More than now? IIRC our blogger has been arguing that capital spending has been depressed for decades, beause of low wages and low taxes. But that only applies to the "cash cow" or "dog" (from BCG "matrix") economies of the "first world", because animal spirits and capital spending in places like Korea-south, China-Taiwan, China-mainland, Vietnam have been *booming*, thanks to low wages. :-)

«with economies more open now than in the 50s and 60s, higher wages will leak more overseas in the form of increased imports rather than domestic demand.)»

It is surely not the case in China-Taiwan or Australia or Korea-south...

»And whilst full employment might have been good for General Motors (it increases demand for cars) it is not so good for Goldman Sachs. Finance capital requires low interest rates both to support asset prices and to render profitable strategies of “picking up pennies in front of a steamroller.” Low rates, however, require a sluggish economy.»

That is a famous myth, based on the usual "sell-side" Economist view that "the rates" are all the same for everybody. Actually there are very different rates and credit availability for "friends of friends" and "random losers", ranging from close to 0% against the "security" of toxic paper for "best friends of friends" to 15-20% for random small businesses to 30-40% for credit card borrowers.

Low rates for "best friends of friends" only depend on the eager willigness of central banks to give generously. As to a "sluggish economy" that is also a policy goal, but not because of rates, but because low wages and low job security are in the interests of business and property rentiers.

«And it also ignores the fact that higher rates reduce inflation precisely by increasing unemployment. We could square this circle by tolerating higher inflation»

Only if the legendary "supply side" has no constraints on the increase of the *rate* of value added.

«Biden’s hopes for full employment are therefore a bold experiment.»

Again, hopes are not an "experiment", they are just "jam tomorrow" campaigning. It got Obama re-elected after all.


«“recognise the ultimate desirability of making accumulation independent of profitability”.»

That is pretty much the japanese etc. approach: it is good when businesses generate profits for the investors, but their main purpose is to generate prosperity and jobs for the masses. Part of the success of some businesses outside the anglo-american culture is their willingness to accept low rates of profit, at least for long initial periods, and actually often they end up more profitable.

There is someone who has opined that high hurdle rates (target ROIs) have been depressing investment unduly in anglo-american areas:

«With the arrival of the bonus culture in the 1990s, the changes in management compensation had the effect of raising hurdle rates, and thus caused investment to fall. Before 2000, companies would demand a lower expected return threshold on new investments than they do now.»

That they are high is understandable, investment in the real economy has to compete with much more profitable leveraged capital gains in finance and property. For example 20% (underestimate actually) returns from BTL for immigrants:


«Mainstream economists have long forgotten this – if indeed they ever knew it – and have discussed employment and inflation on the implicit assumption that capitalistic ownership is immutable.»

Rather on the sure knowledge of "sell-side" Economists, Journalists, Analysts, Politicos, that their "sponsors" are the "investor class".


The investor class already knows that inflation is insurable; they invented inflation swaps. Economists are too lazy to realize yet that the Fed can manage inflation expectations directly by buying and selling inflation swaps as part of open market operations.

Why can't central banks offer individual deposit accounts that pay the inflation rate as interest, to encourage savings if inflation spikes unwantedly?

Economists are blinded by nominal inflation, but private finance has already figured out how to use Treasury Inflation Protected Securities and inflation swaps to keep investor incomes rising much faster than real economy prices. We just have to ignore economists, and direct public policy to use Cost Of Living Adjustments, TIPS, and inflation swaps to render inflation harmless.

> what function do capital-owners actually fulfil?

Busy-body greedy humans get distracted by virtual financial assets, letting the rest of us live real lives in peace.

Ralph Musgrave

100% full employment is possible given what might be called “extreme Job Guarantee”. I.e. govt could tell the unemployed to do some sort of (probably menial) job, say wandering around picking up litter. Those refusing that work would not be counted as unemployed because they’d turned down work. Hey presto: unemployment vanishes!

Obviously that could be said to be a fatuous observation, but it is actually of theoretical interest in that it rather contradicts the conventional claim by economists there some sort of minimum amount of unemployment is inevitable.

Also of interest is the fact that on two occasions in the 1960s, the official unemployment figure in Switzerland fell to zero. Though it can be argued that Switzerland cheated in that it employed large numbers of Italian “gastarbeiters” who were sent home when they became unemployed.


@Blissex "on the sure knowledge of "sell-side" Economists, Journalists, Analysts, Politicos, that their "sponsors" are the "investor class".

How long is late stage supply-side economics sustainable? With the concentration of wealth, the rise of Asia and decline of the West?

@rsm "Busy-body greedy humans get distracted by virtual financial assets, letting the rest of us live real lives in peace." If only!

@Ralph Aka 'Workfare' in the USA.


"Fordism in the United States

In the United States, Fordism is the economic philosophy that widespread prosperity and high corporate profits can be achieved by high wages that allow the workers to purchase the output they produce, such as automobiles."


"They argue that Fordism peaked in the post-World War II decades of American dominance and mass consumerism but collapsed due to political and cultural crises in the 1970s."
(not to mention two oil shocks!).


BBC article on future of Capitalism.

"In one 2020 survey by the marketing and public relations firm Edelman, 57% of people worldwide said that "capitalism as it exists today does more harm than good in the world".

Indeed, if you judge by measures such as inequality and environmental damage, "the performance of Western capitalism in recent decades has been deeply problematic", the economists Michael Jacobs and Mariana Mazzucato wrote recently in the book Rethinking Capitalism."

No-one is safe!


"When a Chinese billionaire bought one of Britain’s most prestigious golf clubs in 2015, dentists and estate agents were confronted with the unsentimental force of globalised capital"

Gregory Bott

Dude, the 65-79 period was a era booming consumption of overspending in the US. It was what largely scared producers into shortages fears, which raised inflation. It also represented the late stage of capitalism where "traditional" bourgeois morality would no longer cut it. This cosmopolitan degenerative condition begins. The bourgeois then evolves into "sexual revolution" "divorce" and "feminism" . This you have the cult of the individual to further capital expansion. In socialism, this would never happen.


...”animal spirits”? Really!?


"They argue that Fordism peaked in the post-World War II decades of American dominance and mass consumerism but collapsed due to political and cultural crises in the 1970s."
(not to mention two oil shocks!).

I think the costs (which came in many forms) and political consequences of the Vietnam War are central. A lot of the inflation which really started in the late 60s seems to have showed up in serious commodity price led inflation - before the oil shocks. Also important was the collapse of Bretton Woods arrangements and the growing power of Wall Street. Britain played a major role with the development of the Eurodollar market both a contributing cause and consequence of the weakening of existing Bretton Woods capital controls and US financial regulations.


Great piece, reminded me a lot of what Angus Maddison warned about regarding the consequences of the end of Bretton Woods and financial deregulation in the 1980s which I read as a student. Of course this conversation was marginalised by the growing neo-classical mainstream worldwide. I have also seen occasionally in newspaper articles by City, or ex-City economists that warned that the main beneficiaries of low interest rates and quantitative easing have been large asset holders.


1960s commodity-led inflation is the story you have to tell if you accept the scarcity assumption of mainstream economics.

A far better story: inflation is expectations, and wholly insurable through Cost Of Living Adjustments, Treasury Inflation Protected Securities, and inflation swaps. Volcker hated COLAs because they would have proved his scarcity assumptions wrong ...

Low interest rates enable less austerity pressures. If rates were high right now, scarcity thinkers even on the left would feel like they had to embrace austerity, because how can you pay for transfers? Thus low rates help little guys by lightening the austerity pressures from leftist economists.


Time to dust off Parkinson's Law but not just for 'work'. Look more widely 'something expands into the time and space available'. The question is what is that something and what is that space.

Some claim the IT revolution has been a disappointment productivity wise. But I doubt that. We can design something here and have it made or done elsewhere. The productivity of other people has improved.

For those people Parkinson's Law does not yet cut in. They had very little and now they have a lot to expand into. But where does that leave us - a nation that has finished with expanding one thing and is scratching around for something else.

The period 1950 to 1980 boomed on a pent up demand and pent up discoveries. But for the last 45 years physics has come up with little that is genuinely new. We just got better at old stuff. Bio sciences and pharma have done brilliantly - but serve ill people and ill people are generally not rich. We are also running up against energy barriers and environmental barriers, there is no clear path to ongoing improvement.

So what is the UK expanding into now? Could it be that we have expanded our middle classes, plenty of room for artists and bloggers and advisers and mis-leaders. Trivia seems the growth area. Which is just fine, no iron law says we must all produce tractors etc. Instead shiny phones and pictures of folk making the beast and fancy loans for shiny toys.

I don't suppose the middle class of 60 years ago were all worthy intellectuals steering the nation onwards and upwards. But there weren't so many of them, now it is hard to tell the multitudinous grifters from the honest workers (except pay). So, the middle class expands into an economic vacuum. Joyous so long as it lasts.

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