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Wednesday, October 30, 2019

Josh Bivens (EPI): Wage growth targets are good economics—if you get the details right: EPI Macroeconomics Newsletter [feedly]

This is an interesting and powerful argument, and a possible policy angle for a progressive government seeking to sustainably raise incomes, especially wages.Very interesting,too,originating from Oliver Blanchard, former chief economist for the IMF -- showing that inequality is not and issue ONLY of concern to wage workers: it is having systematic negative effects.

The policy hinges in part on measuring "longer run" productivity trends. It makes sense that labor forces seek to proportion pay according to units of work (unit labor costs). It aligns with the principle of equal pay for equal or comparable work, which underpins most meritocracy social theories. Capitalism's philosophers -- especially in its youth -- claimed that the system was indeed, compared with feudalism, a path to justice on earth. nor just the Catholic, Hindu, Buddhist, etc., hereafters. The argument that lags in productivity may be directly influenced by the existing LOW wages is  also a very interesting and potentially very powerful one -- there should be a major effort to prove that thesis.

Unfortunately, productivity is becoming increasingly hard to measure in service, intangible and public sectors of the US economy.  "Units" of such labor are more difficult to define, requiring proxy arguments (e.g. 'cost' instead of 'price'). I suspect, but cannot prove, that this reflects a rather profound detachment of these modes of work from a capitalist mode of production. Meaning -- if price does not accurately reflect value, there will be serious market failures to allocate efficiently.

Bivens is a great labor economist in the partisan meaning of "labor".

Wage growth targets are good economics
—if you get the details right: EPI Macroeconomics Newsletter
https://www.epi.org/blog/wage-growth-targets-are-good-economics-if-you-get-the-details-right-epi-macroeconomics-newsletter/

Josh Bivens, Research Director, EPI

Earlier this month, Olivier Blanchard—the former chief economist at the International Monetary Fund and an influential figure in macroeconomics—suggested that the Federal Reserve should consider targeting inflation in nominal wages rather than (or in addition to) inflation in prices. I was predictably intrigued by this: I proposed a nominal wage inflation target for the Fed a few years back.

This edition of the newsletter quickly sketches out the logic of a nominal wage inflation target to guide Fed decision-making on interest rates, and it highlights one particularly important detail: the assumed rate of productivity growth used to specify the target. If the rate of productivity growth is endogenous to the degree of labor market slack (as some evidence indicates), then using real-time estimates of productivity growth as an input into the wage target could threaten to lock in the damage to wage growth done by too-slack labor markets.

The key takeaways are:

  • A nominal wage growth target has many virtues over the Fed's current approach of targeting price inflation.
    • Price inflation is affected by many factors besides the pace of wage growth, yet only wage growth is the proper target for the Fed's aggregate demand management. A wage growth target hence carries more signal and less noise than the price inflation target.
    • One key determinant of price inflation—the size of markups of firms' prices over labor costs—actually varies countercyclically over wide phases of the business cycle. This introduces unuseful noise into the target the Fed is aiming for.
  • A relatively long-lagged measure of trend productivity growth is the best input to use for specifying a nominal wage target.
    • High-frequency (real-time) measures of productivity growth are notoriously volatile, making them a bad input for any policy target.
    • As the economy exits a steep recession, real-time measures of productivity growth can be dragged down by the wage-suppressing effects of lingering labor market slack. Using these real-time measures in the construction of a nominal wage target can lead to a too-conservative target and prompt the Fed to raise interest rates prematurely.
    • There is some preliminary evidence that the steady tightening of U.S. labor markets over the past decade seems to finally be pushing up productivity growth rates. This provides more evidence that accepting low productivity growth rates posted when there was substantial labor market slack as unchangeable could be a large policy error.

What is a nominal wage target and why does it makes sense?
It is relatively well known that the Fed has a target for price inflation—2%—and that this target guides its decisions on setting interest rates. Given this price inflation target, as long as one is willing to make an assumption about the underlying trend in productivity growth, it is possible to specify a nominal wage inflation target that is consistent with an overall price inflation target.

The short version of this nominal wage target is that it should equal the sum of the Fed's price inflation target plus the estimated trend rate of productivity growth. Productivity is simply the amount of output (i.e., income) produced in an average hour of work in the economy. As long as nominal wages are growing at or beneath the rate of productivity growth, then labor costs are putting no upward pressure on prices. Say that both nominal wages and productivity rose 2% in a year. Hourly wages climb 2%, but the amount produced in each hour of work—the definition of productivity—also rises by 2%, so costs per unit of output(i.e., prices) would not rise.

Of course, the Fed isn't committed to zero upward pressure on prices. Fed officials say they're comfortable with 2% price inflation. (I'd argue that they should be comfortable with inflation well above that, but we'll take their target for now.) This price inflation target means that nominal wage growth can be 2% higher than trend productivity growth before wages threaten to push price inflation over the Fed's target. If trend productivity growth is estimated to be 1.5%, this would mean that nominal wage growth of 3.5% would be needed before labor costs stopped dragging on the Fed's ability to push price inflation up to its 2% target.

However, while it's possible to specify a nominal wage growth target that is consistent with the Fed's 2% price inflation target, is it useful to do this? It is. Put simply, the only determinant of price inflation that the Fed should reliably try to control is wage growth. Wages (or labor costs generally) are by far the largest single component of costs, so the Fed having influence only over wages with its interest-rate setting is not a problem per se. But nonwage determinants of price inflation either cannot or should not be targeted by the Fed as it raises rates as the economy heats up or lowers rates as the economy cools down.

Take the most obvious case where nonwage determinants should not factor into the Fed's decision-making on inflation: the distinction between core and noncore prices. The Fed tends to ignore price inflation changes stemming from the volatile prices of food and energy. It is right to do this: Food or energy prices can spike upward even in a depressed economy simply because the weather changes. It would be a disaster if the Fed responded to food and energy price spikes when the economy is depressed by raising rates. This is not an academic concern: In 2011 the European Central Bank (ECB) raised rates twice, hard on the heels of the Great Recession, because of a small transitory increase in inflation. This was a grievous policy mistake.

Take a less obvious case of when nonwage determinants of prices can send the wrong signal to the Fed: the rise and fall of profit margins. Given the large and prolonged rise in unemployment stemming from the Great Recession, one might have expected a collapse in price inflation, or maybe even deflation, in the years after 2009. Yet price inflation (after stripping out food and energy) held up reasonably well. In fact, looking only at the price data might have convinced some that aggregate demand (spending by households, businesses, and governments) was not really all that depressed relative to the economy's potential. But even as price inflation held up reasonably well, unit labor costs saw zero growth for a number of years. The only thing that kept price inflation from stagnating was an enormous increase in profit margins. In this case, trends in the labor market (flat unit labor costs stemming from anemic wage growth) were providing a much better signal of continued slack in aggregate demand than trends in price inflation (which was subdued, but not terribly so). In the years following the Great Recession, the Fed did the right thing in putting much more weight on wage growth than price inflation and kept monetary policy strongly expansionary. It was right to do so. Why not just operationalize this more formally by specifying a wage target?

Why the right productivity assumption is crucial for specifying the right wage growth target
In his remarks calling for a wage growth target, Blanchard argued that the target had essentially already been hit and that "we are more or less at full employment." More specifically, he indicated that 1% should be taken as the proper assumption regarding productivity growth: "So, when you see wage inflation at 3% and you see productivity [growth] of 1% then you're home."

But a 1% productivity growth assumption is too pessimistic. It's true that a three-year rolling average of productivity growth since 2008 saw it sit below 1% between 2011 and 2018. However, it has been shown decisively that when forecasting future productivity growth, one should use a long lag of past trends—even longer than seven years. In this longer run, 1.5% is a conservative estimate of trend productivity growth.

The need to examine long-run trends when making productivity forecasts is especially true given that the weak productivity growth of the current decade is almost certainly a casualty of the slack demand caused by the Great Recession. Surely it's not a coincidence that productivity growth collapsed right as the economy entered the worst recession in many generations. Further, there is compelling evidencethat a tightening labor market can spur labor-saving investments and organizational change. The logic is simple: When workers are plentiful and cheap because the economy is depressed, containing future labor costs is not a huge priority for businesses—and they certainly may be loath to borrow or take on other risk to make uncertain investments to keep labor costs in check. But when labor markets tighten and wage growth solidifies, investments to contain future labor costs make a lot more sense.

I noted nearly two years ago that tightening labor markets appeared to be nudging up productivity growth. This nudge seems to have become a shove in recent quarters. Figure A shows the three-year average of productivity growth (measured as total economy productivity—the broadest measure). Given how volatile short-run measures of productivity are, three years is essentially the shortest timespan over which one can look at these trends to get any signal at all through the noise. As we noted earlier, for forecasting future trends, one would want to look over a much longer past period. The spike in productivity shown on the graph during the worst of the Great Recession is a statistical fluke indicating only that employment actually fell faster than gross domestic product (GDP) in these years. The key thing to focus on is the sharp recent upturn within the last two years: Productivity growth is indeed closing in rapidly on the longer-run trend of 1.5%.

Figure A

Given that the Fed should be looking to overshoot any long-run wage target for a long spell to undo damage done by years of undershooting, the choice of productivity assumption matters a lot here. Figure Bcompares cumulative growth in (real) wages and productivity with productivity at a 1.5% growth trend. If wage levels just need to regain the level implied by growth in actual productivity in recent years (i.e., rise fast enough to close the gap between the bottom two lines), then this should not take too much more time. If, however, we want to target a clawback of productivity lost due to demand weakness in the post–Great Recession period (i.e., close the gap between the top and bottom lines by accelerating actual productivity growth), then labor markets will need to be hot for quite a long time.

Figure B

Year-over-year nominal wage growth has flattened out well below 3.5% in 2019. Adopting a 1.5% productivity growth assumption for nominal wage targeting implies that this is below full employment levels—and that a long period of being above full employment is still needed to undo the wage-flattening effects of the many years of below-target growth. Olivier Blanchard's reintroduction of nominal wage inflation as a target of monetary policy is most welcome, but we should be careful about what assumptions are being embedded in this target when we pin a number to it.


 -- via my feedly newsfeed

Monday, October 28, 2019

En Guerre: Populism and a Plant Closing in France [feedly]

En Guerre: Populism and a Plant Closing in France
https://workingclassstudies.wordpress.com/2019/10/28/en-guerre-populism-and-a-plant-closing-in-france/

I've been interested in the economic history of capitalism since the 1970s, and there are a few titles that stand out in my memory. There were the Marxist and neo-Marxist economic historians (Marx's Capital, E.P. Thompson, Eric Hobsbawm, Rodney Hilton, Robert Brenner, Charles Sabel); the debate over the nature of the industrial revolution (Deane and Cole, NFR Crafts, RM Hartwell, EL Jones); and volumes of the Cambridge Economic History of Europe. The history of British capitalism poses important questions for social theory: is there such a thing as "capitalism", or are there many capitalisms? What are the features of the capitalist social order that are most fundamental to its functioning and dynamics of development? Is Marx's intellectual construction of the "capitalist mode of production" a useful one? And does capitalism have a logic or tendency of development, as Marx believed, or is its history fundamentally contingent and path-dependent? Putting the point in concrete terms, was there a probable path of development from the "so-called primitive accumulation" to the establishment of factory production and urbanization to the extension of capitalist property relations throughout much of the world?

Part of the interest of detailed research in economic history in different places -- England, Sweden, Japan, the United States, China -- is the light that economic historians have been able to shed on the particulars of modern economic organization and development, and the range of institutions and "life histories" they have identified for these different historically embodied social-economic systems. For this reason I have found it especially interesting to read and learn about the ways in which the early modern Chinese economy developed, and different theories of why China and Europe diverged in this period. Kenneth Pomeranz, Philip Huang, William Skinner, Mark Elvin, Bozhong Li, James Lee, and Joseph Needham all shed light on different aspects of this set of questions, and once again the Cambridge Economic History of China was a deep and valuable resource.

A  new title that recently caught my eye is Pierre Dockès' Le Capitalisme Et Ses Rythmes, quatre siècles en perspective: Tome I Sous Le Regard Des Géants. Intriguing features of the book include the long sweep of the book (400 years, over 950 pages, with volume II to come), and the question of whether there is something new to say about this topic. After reading large parts of the book, I think the answer to the last question is "yes".

Dockès is interested in both the history of capitalism as an economic system and the history of economic science and political economy during the past four centuries. And he is particularly interested in discovering what we can learn about our current economic challenges from both these stories.

He specifically distances himself from "mainstream" economic theory and couches his own analysis in a less orthodox and more eclectic set of ideas. He defines mainstream economics in terms of five ideas: first, its strong commitment to mathematization and formalization of economic ideas; second, its disciplinary tendency towards hyper-specialization; third, its tendency to take the standpoint of the capitalist and the free market in its analyses; fourth, the propensity to extend these neoliberal biases to the process of selection and hiring of academics; and fifth, its underlying "scientism" and positivism leads its practitioners to devalue the history of the discipline or the historical conditions through which modern institutions came to be (9-12).
 
Dockès holds that the history of the economic facts and the ideas researchers have had about these facts go hand in hand; economic history and the history of economics need to be studied together. Moreover, Dockès believes that mainstream economics has lost sight of insights from the innovators in the history of economics which still have value -- Ricardo, Smith, Keynes, Walras, Sismondi, Hobbes. The solitary focus of the discipline of mainstream economics in the past forty years on formal, mathematical representations of a market economy precludes these economists from "seeing" the economic world through the conceptual lenses of gifted predecessors. They are trapped in a paradigm or an "epistemological framework" from which they cannot escape. (These ideas are explored in the introduction to the volume.)

The substantive foundation of the book is Dockès' idea that capitalism has long-term rhythms punctuated by crises, and that these fluctuations themselves are amenable to historical-causal and institutional analysis.
En un mot, croissance et crise sont inséparables et inhérents au processus de développement capitaliste laissé à lui-même.
[In a word, growth and crisis are inseparable and inherent in the process of capitalist development left to itself.] (13)
The fluctuations of capitalism over the longterm are linked in a single system of causation — growth, depression, financial crisis, and growth again are linked. Therefore, Dockès believes, it should be possible to discover the systemic causes of the development of various capitalist economies by uncovering the dynamics of crisis. Further, he underlines the serious social and political consequences that have ensued from economic crises in the past, including the rise of the Nazi regime out of the global economic crisis of the 1930s.
Etudier ces rythmes impose une analyse des logiques de fonctionnement du capitalism.
[Studying these rhythms imposes an analysis of the logic of functioning of capitalism.] (12).
Dockès is explicit in saying that economic history does not "repeat" itself, and the crises of capitalism are not replicas of each other over the decades or centuries. Historicity of the time and place is fundamental, and he underlines the path dependency of economic development in some of its aspects as well. But he argues that there are important similarities across various kinds of economic crises, and it is worthwhile discovering these similarities. He takes debt crises as an example: there are great differences among several centuries of experience of debt crisis. But there is something in common as well:
Permanence aussi dans les relations de pouvoir et dans let intérêts des uns (les créanciers partisans de la déflation, des taux élevés) et des autres (les débiteurs inflationnistes), dan les jeux de l'état entre ces deux groupes de pression. On peut tirer deux conséquences des homologies entre le passé et le présent.
[Permanence also in the relations of power and in the interests of some (creditors who favor deflation, high rates) and others (inflationary debtors), in the games of the state between these two pressure groups. We can draw two resulting homologies between the past and the present.] (20)
And failing to consider carefully and critically the economies and crises of the past is a mistake that may lead contemporary economic experts and advisors into ever-deeper economic crises in the future.
L'oubli est dommageable, celui des catastrophes, celui des enseignements qu'elles ont rendu possible, celui des corpus théoriques du passé. Ouvrir la perspective par l'économie historique peut aider à une meilleure compréhension du présent, voire à préparer l'avenir. (21)
[Forgetting is harmful, especially forgetting past catastrophes, forgetting the lessons they have made possible, forgetting the theoretical corpus of the past. Embracing the perspective of the concrete economic history can help lead to a better understanding of the present, or even prepare for the future.] (21)
The scope and content of the book are evident in the list of the book's chapters:
  1. Crises et rythmes économiques
  2. Périodisation, mutations et rythmes longs
  3. Le capitalism d'Ancien Régime, ses crises
  4. Le "Haut Capitalism", ses crises et leur théorisation (1800-1870)
  5. Karl Marx et les crises
  6. Capitalisme "Monopoliste" et grande industrie (1870-1914)
  7. Interlude
  8. Á l'âge de l'acier, les rythmes de l'investissement et de l'innovation
  9. Impulsion monétaire et effets réels
  10. La monnaie hégémonique
  11. "Le chien dans la mangeoire"
  12. La grande crise des années trente
  13. Keynes et la "Théorie Générale"La "Haute Théorie", la dynamique, le cycle (1926-1946)
  14. En guise de conclusion d'étape
As the chapter titles make evident, Dockès delivers on his promise of treating both the episodes, trends, and facts of economic history as well as the history of the theories through which economists have sought to understand those facts and their dynamics.


 -- via my feedly newsfeed

The tempos of capitalism [feedly]

....fascinating survey of legacy and modern reading on "the history of capitalism". Dan Little is a wonderful sociologist and philosophy intellectual with nearly encyclopedic interests.


The tempos of capitalism
Dan Little
http://understandingsociety.blogspot.com/2019/10/the-tempos-of-capitalism.html
I've been interested in the economic history of capitalism since the 1970s, and there are a few titles that stand out in my memory. There were the Marxist and neo-Marxist economic historians (Marx's Capital, E.P. Thompson, Eric Hobsbawm, Rodney Hilton, Robert Brenner, Charles Sabel); the debate over the nature of the industrial revolution (Deane and Cole, NFR Crafts, RM Hartwell, EL Jones); and volumes of the Cambridge Economic History of Europe. The history of British capitalism poses important questions for social theory: is there such a thing as "capitalism", or are there many capitalisms? What are the features of the capitalist social order that are most fundamental to its functioning and dynamics of development? Is Marx's intellectual construction of the "capitalist mode of production" a useful one? And does capitalism have a logic or tendency of development, as Marx believed, or is its history fundamentally contingent and path-dependent? Putting the point in concrete terms, was there a probable path of development from the "so-called primitive accumulation" to the establishment of factory production and urbanization to the extension of capitalist property relations throughout much of the world?

Part of the interest of detailed research in economic history in different places -- England, Sweden, Japan, the United States, China -- is the light that economic historians have been able to shed on the particulars of modern economic organization and development, and the range of institutions and "life histories" they have identified for these different historically embodied social-economic systems. For this reason I have found it especially interesting to read and learn about the ways in which the early modern Chinese economy developed, and different theories of why China and Europe diverged in this period. Kenneth Pomeranz, Philip Huang, William Skinner, Mark Elvin, Bozhong Li, James Lee, and Joseph Needham all shed light on different aspects of this set of questions, and once again the Cambridge Economic History of China was a deep and valuable resource.

A  new title that recently caught my eye is Pierre Dockès' Le Capitalisme Et Ses Rythmes, quatre siècles en perspective: Tome I Sous Le Regard Des Géants. Intriguing features of the book include the long sweep of the book (400 years, over 950 pages, with volume II to come), and the question of whether there is something new to say about this topic. After reading large parts of the book, I think the answer to the last question is "yes".

Dockès is interested in both the history of capitalism as an economic system and the history of economic science and political economy during the past four centuries. And he is particularly interested in discovering what we can learn about our current economic challenges from both these stories.

He specifically distances himself from "mainstream" economic theory and couches his own analysis in a less orthodox and more eclectic set of ideas. He defines mainstream economics in terms of five ideas: first, its strong commitment to mathematization and formalization of economic ideas; second, its disciplinary tendency towards hyper-specialization; third, its tendency to take the standpoint of the capitalist and the free market in its analyses; fourth, the propensity to extend these neoliberal biases to the process of selection and hiring of academics; and fifth, its underlying "scientism" and positivism leads its practitioners to devalue the history of the discipline or the historical conditions through which modern institutions came to be (9-12).
 
Dockès holds that the history of the economic facts and the ideas researchers have had about these facts go hand in hand; economic history and the history of economics need to be studied together. Moreover, Dockès believes that mainstream economics has lost sight of insights from the innovators in the history of economics which still have value -- Ricardo, Smith, Keynes, Walras, Sismondi, Hobbes. The solitary focus of the discipline of mainstream economics in the past forty years on formal, mathematical representations of a market economy precludes these economists from "seeing" the economic world through the conceptual lenses of gifted predecessors. They are trapped in a paradigm or an "epistemological framework" from which they cannot escape. (These ideas are explored in the introduction to the volume.)

The substantive foundation of the book is Dockès' idea that capitalism has long-term rhythms punctuated by crises, and that these fluctuations themselves are amenable to historical-causal and institutional analysis.
En un mot, croissance et crise sont inséparables et inhérents au processus de développement capitaliste laissé à lui-même.
[In a word, growth and crisis are inseparable and inherent in the process of capitalist development left to itself.] (13)
The fluctuations of capitalism over the longterm are linked in a single system of causation — growth, depression, financial crisis, and growth again are linked. Therefore, Dockès believes, it should be possible to discover the systemic causes of the development of various capitalist economies by uncovering the dynamics of crisis. Further, he underlines the serious social and political consequences that have ensued from economic crises in the past, including the rise of the Nazi regime out of the global economic crisis of the 1930s.
Etudier ces rythmes impose une analyse des logiques de fonctionnement du capitalism.
[Studying these rhythms imposes an analysis of the logic of functioning of capitalism.] (12).
Dockès is explicit in saying that economic history does not "repeat" itself, and the crises of capitalism are not replicas of each other over the decades or centuries. Historicity of the time and place is fundamental, and he underlines the path dependency of economic development in some of its aspects as well. But he argues that there are important similarities across various kinds of economic crises, and it is worthwhile discovering these similarities. He takes debt crises as an example: there are great differences among several centuries of experience of debt crisis. But there is something in common as well:
Permanence aussi dans les relations de pouvoir et dans let intérêts des uns (les créanciers partisans de la déflation, des taux élevés) et des autres (les débiteurs inflationnistes), dan les jeux de l'état entre ces deux groupes de pression. On peut tirer deux conséquences des homologies entre le passé et le présent.
[Permanence also in the relations of power and in the interests of some (creditors who favor deflation, high rates) and others (inflationary debtors), in the games of the state between these two pressure groups. We can draw two resulting homologies between the past and the present.] (20)
And failing to consider carefully and critically the economies and crises of the past is a mistake that may lead contemporary economic experts and advisors into ever-deeper economic crises in the future.
L'oubli est dommageable, celui des catastrophes, celui des enseignements qu'elles ont rendu possible, celui des corpus théoriques du passé. Ouvrir la perspective par l'économie historique peut aider à une meilleure compréhension du présent, voire à préparer l'avenir. (21)
[Forgetting is harmful, especially forgetting past catastrophes, forgetting the lessons they have made possible, forgetting the theoretical corpus of the past. Embracing the perspective of the concrete economic history can help lead to a better understanding of the present, or even prepare for the future.] (21)
The scope and content of the book are evident in the list of the book's chapters:
  1. Crises et rythmes économiques
  2. Périodisation, mutations et rythmes longs
  3. Le capitalism d'Ancien Régime, ses crises
  4. Le "Haut Capitalism", ses crises et leur théorisation (1800-1870)
  5. Karl Marx et les crises
  6. Capitalisme "Monopoliste" et grande industrie (1870-1914)
  7. Interlude
  8. Á l'âge de l'acier, les rythmes de l'investissement et de l'innovation
  9. Impulsion monétaire et effets réels
  10. La monnaie hégémonique
  11. "Le chien dans la mangeoire"
  12. La grande crise des années trente
  13. Keynes et la "Théorie Générale"La "Haute Théorie", la dynamique, le cycle (1926-1946)
  14. En guise de conclusion d'étape
As the chapter titles make evident, Dockès delivers on his promise of treating both the episodes, trends, and facts of economic history as well as the history of the theories through which economists have sought to understand those facts and their dynamics.


 -- via my feedly newsfeed

En Guerre: Populism and a Plant Closing in France [feedly]

I found myself arguing with every other paragraph of this post and cheering at the ones in between! Proving -- its a provocative read on the contradictions of globalization and structural change. It shows how both political and bargaining aspects of labor organization need some serious upgrades and social elevation to cope with these changes.

En Guerre: Populism and a Plant Closing in France
https://workingclassstudies.wordpress.com/2019/10/28/en-guerre-populism-and-a-plant-closing-in-france/

Stéphane Brizé's En Guerre (At War), released in France in 2018 and in the United States this July, tells the story a car factory closing in Agen, a small company town in the southwest of France.  In this grim and painfully realistic dramatization, viewers witness many of the predictable and formulaic features of corporate industrial relocation, combined with the impending specter of joblessness that looms over the community in question. North American audiences will see many parallels between this film and accounts like Julia Reichert's documentaries The Last Truck: Closing of a GM Plant (2009) and American Factory (2019), Amy Goldstein's award-winning non-fiction book Janesville (2017), and the voluminous recent coverage of GM closures in Detroit-Hamtramck and Lordstown.  The uncertain future of the Nissan Sunderland plant in the Northeast of England provides a similar reminder of the present and ongoing turbulence created by transitions in the auto industry.  In this context, En Guerre represents a useful instructional tool, yet from a cinematic standpoint it leaves little room for novelty or surprise.

In the tale in question, German-owned Perrin Industries calls on workers to accept a scheme that would reduce their incomes by paying them for thirty-five hours but requiring them to work forty hours and forego bonuses for the next five years. Despite state subsidies to remain in Agen, Perrin decides two years later that the facility is no longer competitive. While local management offers platitudes like "we're all in this together," the company initiates plans to close the plant, displacing its 1,100 workers.  Union leader Laurent Amédéo, a robust and salty family-man played by Vincent Lindon, leads workers in a lock-out, demanding a meeting with the Perrin CEO.  Lindon, like many of the characters, bristles with intensity, conveying the gravity of what is at stake.

The film focuses on the ensuing escalation of this conflict and the thwarted efforts of Amédéo and his comrades.  When Amédéo visits company headquarters in Paris, young company officers tell him that the chairman will not see him and that he should return to Agen, but to "have a great day."  Government officials are sympathetic but assert that they cannot tell a company not to close with any legal authority.  "We support you and your movement," the workers, now obtaining a growing measure of media coverage, are told.  At a meeting between the German CEO and the union, the executive exclaims that he loves France – "I own a house here!" ­– before coldly asserting that the workforce is not performing and that if there are no other jobs in Agen then perhaps they should consider moving elsewhere.  When he is assaulted and bloodied by protesting workers, who flip his car as he leaves the premises, the movement to rescue the plant begins to unravel.

En Guerre explores the tough choices union officials and workers must make in the face of impending closures and the fractures in solidarity that threaten to emerge. Brizé probes these questions with vim and sympathy.  But the film too often relies on familiar tropes of neo-liberal capitalism – like executives who explain that "refusing to see market realities is like demanding a whole new world" – that have been parodied in popular media since at least the collapse of Enron and even more since the 2008 financial crisis.  No politician anywhere on the spectrum professes to be a fan of plant closures, even if some actively support the economic model that encourages them.  Merely to critique the callousness of shareholder-driven corporate manufacturers that shift around production is, in 2019, somewhat shallow and banal.  Most of the audience knows this already.

Had Brizé's fictional car factory not merely been closing but rather relocating to Morocco, then the virtues of the dogged French proletariat might have really been put to the test.  Had workers received the outspoken support of Marine Le Pen's Front National, again not an unrealistic scenario, then the director would have been forced to confront the political challenges that working-class communities face across Europe in the wake of industrial decline and right-wing insurgency, from Campania in Southern Italy, to Saxony and Brandenburg in Eastern Germany, to the protestant sections of Belfast.  But Brizé does not grasp that nettle, living instead in the moment and process of plant closure, rather than navigating the broader and more complex ways that working-class communities are actors in the political fallout once the initial anti-closure consensus has disintegrated. Some blame corporate executives or national politicians when communities decline, but others point the finger at Central European migrants or Syrian refugees.

Released in France in July 2018, En Guerre debuted just over a year after the election of Emmanuel Macron as the president of the republic, and just months before the commencement of the grassroots gilets jaunes ­– yellow vest –  protests in November.  Initially a revolt against rising fuel prices, the ongoing gilets jaunes movement, which has been fading in recent months, attracted supporters of both left-wing and right-wing parties around a loosely defined collection of mutual grievances: against the wealthy, punitive tax policies, austerity measures, and, yes, so-called "political elites," including some or all elected officials depending upon whom you ask.  But the totemic subject of their ire was the president himself. Brizé's sentiments overlap with those of the gilets jaunes.  "The idea of the world that Macron defends is a brutality without name," he observed in May 2018.

But the vain young president and his bracingly masculine handshakesare quite easy to dislike, and he is widely disapproved of in France, even by many who voted for him in the final round to avert a Le Pen presidency.  Such a diversity of the French population may hold mutual antagonisms, but reach widely different conclusions in identifying the most cogent remedies.  En Guerre provides a fast-paced and energetic depiction of the implications of the free movement of capital within the European Union without engaging with the destructive nationalism that has been unleashed by the numerous demagogues intent on benefitting from such circumstances.

Brizé's critique of twenty-first century corporate mobility may have been fresh in 2005, but it fails to break new ground in explaining how working-class communities process industrial decline in 2019.  It is wishful thinking to contend that a conversation on job loss can be narrowly defined as a debate on the movement of capital without touching on immigration, too. The internal contests between ideas of nationalism, multiculturalism, xenophobia, and identity, conversations buoyed by a surfeit of false information on social media and the fusion of physical and virtual discourse are as real as and as bound to define the future landscape of a community as those between a German executive and a French union.  The logic of neoliberal capitalism might close down a factory, but a series of angry rallies against fictitious Asian rapists and pedophiles or a brutal attack on a pride parade will ensure that it never re-opens. The European working classes face a multitude of painful political and cultural challenges, and as admirable as Brizé's solidarity and commitment to the blue-collar worker may be, this is not a time for the romanticism that En Guerre ultimately delivers.

Patrick Dixon, Georgetown University

Patrick Dixon is a research analyst at the Kalmanovitz Initiative for Labor and the Working Poor and the managing editor of Labor: Studies in Working-Class History.


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Equitable Growth: Getting Recession Ready.

The difference between recession and depression is in the planning.....

Recession Ready
Equitable Growth

https://equitablegrowth.org/recession-ready-2/ 


 



Economic recessions are inevitable and they are painful, with harsh short-term effects on families and businesses and potentially deep long-term impacts on the economy and society. But we can ameliorate some of the next recession's worst effects and minimize its long-term costs if we adopt smart policies now that will be triggered when its first warning signs appear.

Equitable Growth has joined forces with The Hamilton Project to advance a set of specific, evidence-based policy ideas for shortening and easing the impacts of the next recession. In a new book, Recession Ready: Fiscal Policies to Stabilize the American Economy, experts from academia and the policy community propose six big ideas, including two entirely new initiatives and four significant improvements to existing programs, all to be triggered when the economy shows clear, proven signs of heading into a recession. These proposals (see more on each below) aim to strengthen and add to our automatic stabilizers: policies that inject money into the economy in a downturn and withdraw stimulus when the economy is strong. Congress should consider these policy proposals now because when the next recession appears on the horizon, it may be too late.

In addition to the book, Equitable Growth has prepared a summary of the report, and Equitable Growth's Executive Director Heather Boushey spoke about the proposals with co-editor Jay Shambaugh on The Brookings Cafeteria podcast. For more on each proposal, please see links to the individual chapters and two-page summaries below:

  • A proposal by Claudia Sahm of the Federal Reserve would boost consumer spending during recessions by creating a system of direct stimulus payments to individuals that would be automatically distributed when the unemployment rate increases rapidly. Full chapter and two-page summary.
  • A proposal by Matthew Fiedler (Brookings Institution), Jason Furman (Harvard University), and Wilson Powell III (Harvard University) aims to avoid state budget cuts during recessions by increasing the federal matching rate for Medicaid and the Children's Health Insurance Program during economic downturns. Full chapter and two-page summary.
  • A proposal by Andrew Haughwout of the Federal Reserve Bank of New York aims to set up an automatic infrastructure investment program that would fund transportation projects at the state and local level during economic downturns. Full chapter and two-page summary.
  • A proposal by Gabriel Chodorow-Reich of Harvard University and John Coglianese of the Federal Reserve Board aims to strengthen the automatic stabilization functions of the Unemployment Insurance system by increasing UI participation and payments during downturns, as well as strengthening Extended Benefits. Full chapter and two-page summary.
  • A proposal by Indivar Dutta-Gupta of the Georgetown Center on Poverty and Inequality aims to set up a countercyclical stabilization program that would fund both job subsidies and basic assistance through the Temporary Assistance for Needy Families program. Full chapter and two-page summary.
  • A proposal by Hilary Hoynes of the University of California, Berkeley and Diane Whitmore Schanzenbach of Northwestern University aims to strengthen the Supplemental Nutrition Assistance Program as an automatic stabilizer by limiting or eliminating SNAP work requirements and automatically increasing SNAP benefits during economic downturns. Full chapter and two-page summary.
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Sunday, October 27, 2019

Announcing the US-China Trade Policy Working Group [feedly]

I see Dani Rodrik is using his recently elevated reputation to try and move mountains. I will Post more material docs on this effort. Look forward to commentary.

Announcing the US-China Trade Policy Working Group
https://rodrik.typepad.com/dani_rodriks_weblog/2019/10/announcing-the-us-china-trade-policy-working-group.html

Concerned about where the US-China trade relationship is going, we recently formed a "US-China Trade Policy Working Group." Yang Yao, Jeff Lehman and I are co-conveners. Other members are Meredith Crowley, Robert Howse, Jiandong Ju, Feng Lu, Justin Yifu Lin, Eric Maskin, and Rob Staiger. We released our statement today.

The statement is signed by 27 additional economists and legal scholars, including Philippe Aghion, Kaushik Basu, Robert Engle, Gang Fan, Robert Frank, Gene Grossman, Gordon Hanson, Ann Harrison, Kala Krishna, Ned Phelps, Alvaro Santos, Greg Shaffer, Anne-Marie Slaughter, Mike Spence, Joe Stiglitz, Michael Trebilcock, David Trubek. That is 5 Nobelists in all, in case you are counting!

The basic idea is that we need a different narrative about how the two nations can resolve their differences. Neither convergence nor decoupling will work. We propose a middle path between these extremes that prohibits explicitly beggar-thy-neighbor policies but is otherwise permissive of policies that may create cross-border spillovers.

Under our guidelines, engaging in monopoly conduct, predatory pricing, or rent-shifting on world markets would be expressly prohibited while policies that protect domestic economic arrangements (e.g., industrial policies or social safeguards) would be allowed (unless they fall in the previous category).

We argue that nations are entitled to engage in trade policies that protect their economic models. But they are not allowed engage in policies designed to make other countries change their systems (trade wars) or that benefit them only through the adverse effects they have on others (BTNs).  

While we provide a new conceptual vocabulary for the two countries to address their differences, we do not prejudge the outcomes on any specific dispute. That is for the countries to figure out, using the approach we propose. See full statement here. A Bloomberg news piece about our effort is here.


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Saturday, October 26, 2019

Matthew Yglesias : Impeachment Protests and Mass Resistance Are Needed to Beat Trump https://www.vox.com/policy-and-pol... [feedly]

Interview with Emmanuel Farhi: Global Safe Assets and Macro as Aggregated Micro [feedly]

I view this as an important piece. Imperialism led to a shortage, not a surplus, of safety, which weakens hegemony. There are some important implications to that argument.

Interview with Emmanuel Farhi: Global Safe Assets and Macro as Aggregated Micro
http://conversableeconomist.blogspot.com/2019/10/interview-with-emmanuel-farhi-global.html


Add note

David A. Price interviews Emmanuel Farhi in Econ Focus (Regional Federal Reserve Bank of Richmond, Second/Third Quarter 2019, pp. 18-23). Here are some tidbits:

On global safe assets
If you look at the world today, it's very much still dollar-centric ... The U.S. is really sort of the world banker. As such, it enjoys an exorbitant privilege and it also bears exorbitant duties. Directly or indirectly, it's the pre-eminent supplier of safe and liquid assets to the rest of the world. It's the issuer of the dominant currency of trade invoicing. And it's also the strongest force in global monetary policy as well as the main lender of last resort.
If you think about it, these attributes reinforce each other. The dollar's dominance in trade invoicing makes it more attractive to borrow in dollars, which in turn makes it more desirable to price in dollars. And the U.S. role as a lender of last resort makes it safer to borrow in dollars. That, in turn, increases the responsibility of the U.S. in times of crisis. All these factors consolidate the special position of the U.S.
But I don't think that it's a very sustainable situation. More and more, this hegemonic or central position is becoming too much for the U.S. to bear.
The global safe asset shortage is a manifestation of this limitation. In my view, there's a growing and seemingly insatiable global demand for safe assets. And there is a limited ability to supply them. In fact, the U.S. is the main supplier of safe assets to the rest of the world. As the size of the U.S. economy keeps shrinking as a share of the world economy, so does its ability to keep up with the growing global demand for safe assets. The result is a growing global safe asset shortage. It is responsible for the very low levels of interest rates that we see throughout the globe. And it is a structural destabilizing force for the world economy. ... 
In my view, the global safe asset shortage echoes the dollar shortage of the late 1960s and early 1970s. At that time, the U.S. was the pre-eminent supplier of reserve assets. The global demand for reserve assets was growing because the rest of the world was growing. And that created a tension, which was diagnosed by Robert Triffin in the early '60s: Either the U.S. would not satisfy this growing global demand for reserve assets, and this lack of liquidity would create global recessionary forces, or the U.S. would accommodate this growing global demand for reserve assets, but then it would have to stretch its capacity and expose itself to the possibility of a confidence crisis and of a run on the dollar. In fact, that is precisely what happened. Eventually, exactly like Triffin had predicted, there was a run on the dollar. It brought down the Bretton Woods system: The dollar was floated and that was the end of the dollar exchange standard.
Today, there is a new Triffin dilemma: Either the U.S. does not accommodate the growing global demand for safe assets, and this worsens the global safe asset shortage and its destabilizing consequences, or the U.S. accommodates the growing global demand for safe assets, but then it has to stretch itself fiscally and financially and thereby expose itself to the possibility of a confidence crisis. ...
Basically, I think that the role of the hegemon is becoming too heavy for the U.S. to bear. And it's only a matter of time before powers like China and the eurozone start challenging the global status of the dollar as the world's pre-eminent reserve and invoicing currency. It hasn't happened yet. But you have to take the long view here and think about the next decades, not the next five years. I think that it will happen. 
For a readable overview of Farhi's views on global safe assets, a useful start is "The Safe Assets Shortage Conundrum," which he wrote with Ricardo J. Caballero and Pierre-Olivier Gourinchas, in the Summer 2017 issue of the Journal of Economic Perspectives (31:3, pp. 29-46. )

On some implications for public finance if many economic agents aren't fully rational and don't pay full attention to taxes 
There is a basic tenet of public taxation called the dollar-for-dollar principle of Pigouvian taxation. It says that if the consumption of a particular good generates a dollar of negative externality, you should impose a dollar of tax to correct for this exter­nality. For example, if consuming one ton of carbon generates a certain number of dollars of externalities, you should tax it by that many dollars.
But that relies on the assumption that firms and households correctly perceive this tax. If they don't — maybe they aren't paying attention — then you have to relax this principle. For example, if I pay 50 percent attention to the tax, the tax needs to be twice as big. That's a basic tenet of public finance that is modified when you take into account that agents are not rational.
In public finance, there is also a traditional presumption that well-calibrated Pigouvian taxes are better than direct quantity restriction or regulations because they allow people to express the intensity of their preferences. Recognizing that agents are behavioral can lead you to overturn this prescription. It makes it hard to calibrate Pigouvian taxes, and it also makes them less efficient. Cruder and simpler remedies, such as regulations on gas mileage, are more robust and become more attractive.
Aggregate production functions, the disaggregation problem, and the Cambridge-Cambridge controversy
There's an interesting episode in the history of economic thought. It's called the Cambridge-Cambridge controversy. It pitted Cambridge, Massachusetts — Solow, Samuelson, people like that — against Cambridge, U.K. — Robinson, Sraffa, Pasinetti. The big debate was the use of an aggregate production function.
Bob Solow had just written his important article on the Solow growth model. That's the basic paradigm in economic growth. To represent the possibility frontiers of an economy, he used an aggregate production function. What the Cambridge, U.K., side attacked about this was the idea of one capital stock, one number. They argued that capital was very heterogeneous. You have buildings, you have machines. You're aggregating them up with prices into one capital stock. That's dodgy.
It degenerated into a highly theoretical debate about whether or not it's legitimate to use an aggregate production function and to use the notion of an aggregate capital stock. And the Cambridge, U.K., side won. They showed that it was very problematic to use aggregate production functions. Samuelson conceded that in a beautiful paper constructing a disaggregated model that you could not represent with an aggregate production function and one capital stock.
But it was too exotic and too complicated. It went nowhere. The profession moved on. Today, aggregate production functions are pervasive. They are used everywhere and without much questioning. One of the things David [Baqaee] and I are trying to do is to pick up where the Cambridge-Cambridge controversy left. You really need to start with a completely disaggregated economy and aggregate it up. ... 
We have a name for our vision. We call it "macro as explicitly aggregated micro." The idea is you need to start from the very heterogeneous microeconomic environment to do justice to the heterogeneity that you see in the world and aggregate it up to understand macroeconomic phenomena. You can't start from macroeconomic aggregates. You really want to understand the behavior of economic aggregates from the ground up.
For example, you can't just come up with your measure of aggregate TFP [total factor productivity] and study that. You need to derive it from first principles. You need to understand exactly what aggregate TFP is. I talked about aggregate TFP and markups, but the agenda is much broader than that. It bears on the elasticity of substitution between factors: between capital and labor, or between skilled labor, unskilled labor, and capital. It bears on the macroeconomic bias of increasing automation. It bears on the degree of macroeconomic returns to scale underlying endogenous growth. It bears on the gains from trade and the impact of tariffs. In short, it is relevant to the most fundamental concepts in macroeconomics.

For a retrospective recounting of what happened in the Cambridge-Cambridge controversies, a useful starting point is Avi J. Cohen and G. C. Harcourt. 2003. "Retrospectives: Whatever Happened to the Cambridge Capital Theory Controversies?" Journal of Economic Perspectives, 17 (1): 199-214.

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Thursday, October 24, 2019

Brad DeLong: The best thing I have yet seen on how industrial organization, concentration, and monopsony drive the conclusion that i... [feedly]

Very interesting new research on minimum wage changes and their impact on employment. That impact varies in effect in different labor markets, with the most positive overall effects in very dense markets. The study helps explain why previous studies keep coming up with noisy results. 

Helpful definition: MONOPSONY: a market situation in which there is only one buyer. Most examples of monopsony have to do with the purchase of workers' time in the labor market, where a firm is the sole purchaser of a certain kind of labor. ... The classic example of a monopsony is a company coal town, where the coal company acts the sole employer and therefore the sole purchaser of labor in the town.

___________________________
Brad DeLong: The best thing I have yet seen on how industrial organization, concentration, and monopsony drive the conclusion that i... [feedly]
The best thing I have yet seen on how industrial organization, concentration, and monopsony drive the conclusion that i...
https://www.bradford-delong.com/2019/10/jos%C3%A9-azar-emiliano-huet-vaughn-ioana-marinescu-bledi-taska-and-till-von-wachter-_minimum-wage-employment-effects-a.html

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Dani Rodrik: Should We Worry About Income Gaps Within or Between Countries? [feedly]

Should We Worry About Income Gaps Within or Between Countries?
https://www.globalpolicyjournal.com/blog/24/10/2019/should-we-worry-about-income-gaps-within-or-between-countries

Cambridge - The rise of populist nationalism throughout the West has been fueled partly by a clash between the objectives of equity in rich countries and higher living standards in poor countries. Yet advanced-economy policies that emphasize domestic equity need not be harmful to the global poor, even in international trade.

At the beginning of classes every autumn, I tease my students with the following question: Is it better to be poor in a rich country or rich in a poor country? The question typically invites considerable and inconclusive debate. But we can devise a more structured and limited version of the question, for which there is a definitive answer.

Let's narrow the focus to incomes and assume that people care only about their own consumption levels (disregarding inequality and other social conditions). "Rich" and "poor" are those in the top and bottom 5% of the income distribution, respectively. In a typical rich country, the poorest 5% of the population receive around 1% of national income. Data are a lot sparser for poor countries, but it would not be too much off the mark to assume that the richest 5% there receive 25% of national income.

Similarly, let's assume that rich and poor countries are those in the top and bottom 5% of all countries, ranked by per capita income. In a typical poor country (such as Liberia or Niger), that is around $1,000, compared to $65,000 in a typical rich country (say, Switzerland or Norway). (These incomes are adjusted for cost-of-living, or purchasing-power, differentials so that they can be directly compared.)

Now, we can calculate that a rich person in a poor country has an income of $5,000 ($1,000 x 0.25 x 20) while a poor person in a rich country earns $13,000 ($65,000 x 0.01 x 20). Measured by material living standards, a poor person in a rich country is more than twice as well off as a rich person in a poor country.

This result surprises my students; most of them expect the reverse to be true. When they think of wealthy individuals in poor countries, they imagine tycoons living in mansions with a retinue of servants and a fleet of expensive cars. But while such individuals certainly exist, a representative of the top 5% in very poor countries is likely to be a mid-level government bureaucrat.

The larger point of this comparison is to underscore the importance of income differences across countries, relative to inequalities within countries. At the dawn of modern economic growth, before the Industrial Revolution, global inequality derived almost exclusively from inequality within countries. Income gaps between Europe and poorer parts of the world were small. But as the West developed in the nineteenth century, the world economy underwent a "great divergence" between the industrial core and the primary-goods-producing periphery. During much of the postwar period, income gaps between rich and poor countries accounted for the greater part of global inequality.

From the late 1980s on, two trends began to alter this picture. First, led by China, many parts of the lagging regions began to experience substantially faster economic growth than the world's rich countries. For the first time in history, the typical developing-country resident was getting richer at a faster pace than his or her counterparts in Europe and North America.

Second, inequalities began to increase in many advanced economies, especially those with less-regulated labor markets and weak social protections. The rise in inequality in the United States has been so sharp that it is no longer clear that the standard of living of the American "poor" is higher than that of the "rich" in the poorest countries (with rich and poor defined as above).

These two trends went in offsetting directions in terms of overall global inequality – one decreased it while the other increased it. But they have both raised the share of within-country inequality in the total, reversing an uninterrupted trend observed since the nineteenth century.

Given patchy data, we cannot be certain about the respective shares of within- and between-country inequality in today's world economy. But in an unpublished paper based on data from the World Inequality Database, Lucas Chancel of the Paris School of Economics estimates that as much as three-quarters of current global inequality may be due to within-country inequality. Historical estimates by two other French economists, François Bourguignon and Christian Morrison, suggest that within-country inequality has not loomed so large since the late nineteenth century.

These estimates, if correct, suggest that the world economy has crossed an important threshold, requiring us to revisit policy priorities. For a long time, economists like me have been telling the world that the most effective way to reduce global income disparities would be to accelerate economic growth in low-income countries. Cosmopolitans in rich countries – typically the wealthy and skilled professionals – could claim to hold the high moral ground when they downplayed the concerns of those complaining about domestic inequality.

But the rise of populist nationalism throughout the West has been fueled partly by the tension between the objectives of equity in rich countries and higher living standards in poor countries. Advanced economies' increased trade with low-income countries has contributed to domestic wage inequality. And probably the single best way to raise incomes in the rest of the world would be to allow a massive influx of workers from poor countries into rich countries' labor markets. That would not be good news for less educated, lower-paid rich-country workers.

Yet advanced-economy policies that emphasize domestic equity need not be harmful to the global poor, even in international trade. Economic policies that lift incomes at the bottom of the labor market and diminish economic insecurity are good both for domestic equity and for the maintenance of a healthy world economy that provides poor economies a chance to develop.

 

 

Dani Rodrik is Global Policy's General Editor and Professor of International Political Economy at Harvard's John F. Kennedy School of Government. he is also the author of Straight Talk on Trade: Ideas for a Sane World Economy.

This post first appeared on Project Syndicate and was reposted with permission.

Image: W H via Flickr (CC BY-ND 2.0)


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