Separate is still unequal: How patterns of occupational segregation impact pay for black women [feedly]

Separate is still unequal: How patterns of occupational segregation impact pay for black women
https://www.epi.org/blog/separate-is-still-unequal-how-patterns-of-occupational-segregation-impact-pay-for-black-women/

August 7th is Black Women's Equal Pay Day, the day that marks how long into 2018 an African American woman would have to work in order to be paid the same wages her white male counterpart was paid last year. On average, in 2017, black women workers were paid only 66 cents on the dollar relative to non-Hispanic white men, even after controlling for education, years of experience, and geographic location. A previous blog post dispels many of the myths behind why this pay gap exists, including the idea that the gap would be closed by black women getting more education or choosing higher paying jobs. In fact, black women earn less than white men at every level of education and even when they work in the same occupation. But even if changing jobs were an effective way to close the pay gap black women face—and it isn't—more than half would need to change jobs in order to achieve occupational equity.

Figure A plots the "Duncan Segregation Index" (DSI) for black women and white men, overall and by education, based on individual occupation data from the American Community Survey (ACS). This is a common measure of occupational segregation, which, in this case identifies what percentage of working black women (or white men) would need to change jobs in order for black women and white men to be fully integrated across occupations. Values of the DSI can range from 0 percent (complete integration) to 100 percent (complete segregation).

As shown in Figure A, there has been little progress on reducing occupational segregation between black women and white men since 2000. From 2000 to 2016 (latest data year available), the DSI only changed from 59 percent to 56 percent. This means that on average, 56 percent of black women (or white men) would need to change occupations in order to achieve occupational equity, or full integration of these two groups in the workforce.

Given that differences in education and skills influence the sorting of workers into specific jobs, we also present estimates of the DSI by education level in Figure A. These estimates reveal that there is less occupational segregation between black women and white men at higher levels of education. In 2016, the DSI for black women and white men with a high school diploma or less was 62 percent, while for those with 1–2 years of college the index decreases marginally to 60 percent. Although the DSI is 19 percentage points lower for those with advanced degrees than for those with a high school education or less, no matter how much education a black woman invests in, there is still an extremely high probability that she will not be employed in the same job as a similarly educated white man. Half of working black women (or white men) with a bachelor's degree and 43 percent of those with an advanced degree would need to change jobs in order to fully integrate black women and white men in the workforce at those levels of education.

Figure A

Moving toward a more integrated workforce would not just create social benefits of greater racial and gender diversity in the workplace, but also narrow wage gaps and create greater economic mobility for black women. When occupational segregation occurs, it typically imposes an economic penalty on black women because, on average, they are segregated into lower-paying jobs while white men are segregated into higher-paying jobs.

Based on estimates of median annual wages reported in the ACS, pay disparities are fairly consistent across different levels of education. In 2016, black women with a high school degree or less earned 57.5 percent of what their white male counterparts with the same level of education made. Similarly black women with advanced degrees earned 59.6 percent of what white men with advanced degrees made. We note that since these pay ratios are based on annual wages reported in the ACS, they differ from the hourly wage ratios available from the State of Working America Data Library and other EPI publications (which are based CPS-ORG data). Nonetheless, the pattern is the same. The gap remains large even as the two demographic groups become more educated, and as suggested by our estimates of the Duncan Segregation Index, more integrated in the workplace.

Figure B

 -- via my feedly newsfeed

Jared Bernstein: Trump 2020 game plan: Fake Laffer, Go Keynes. [feedly]

The dangerous  tale in the lastest econ numbers....as always, dangers -- and opportunities

Trump 2020 game plan: Fake Laffer, Go Keynes.
http://jaredbernsteinblog.com/trump-2020-game-plan-fake-laffer-go-keynes/

I'm genuinely sorry to intrude on your Sunday like this, but this new forecast (no link) from the highly-skilled Goldman Sachs economic research team (GS) has me completely on shpilkes. I'll make it brief, but not painless.

Back when the tax cut passed, this figure, also from GS, previewed an important fiscal fact about to unfold: outside of wartime, the Republican tax cuts and other deficit spending would add more fiscal juice to an economy already closing in on full employment than we'd ever tried before outside of wartime (note that the right-side scale is inverted; the point is low unemployment is usually associated much smaller deficits than we have now).

Here's what I wrote at the time:

How unusual is [the divergence at the end of the above figure]? Well, looking at data back to the late 1940s, the average deficit-to-GDP ratio when unemployment was below 5 percent was close to zero. Since 1980, that same calculation yields an average deficit-to-GDP ratio of 0.5 percent. As I mentioned, the jobless rate this year may average less than 4 percent while the deficit-to-GDP ratio could be about the same, and closer to 5 percent next year. So, pretty unusual.

This is all known, and no reason to intrude on your Sunday. That recent, big 4% pop in GDP was widely and correctly labeled a function of this stimulus and thereby unsustainable.

But here's what's new. The GS team has an updated forecast based on key, upward revisions, most notably, the doubling of the U.S. savings rate as a share of spendable income. Their reasoning as to why this is going to notably boost growth and lower unemployment to close to 3% by the end of 2020 is this: the savings rate is well above where it usually is given the variables that typically drive it (income, slack, net worth). That means it should fall, implying more consumer spending, the latter of which accounts for 70% of GDP.

Based on this revision, the figure below shows their updated prediction for GDP growth and unemployment. First, note that GDP comes off its unsustainable peak, underscoring the unsustainability point: if GS is right, we're looking at Keynesian stimulus, not Laffer suppy-side. But check out the jobless rate, which hits a low of almost 3% by the end of 2020.

Now, far be it from me to wax political rather than economical, but a potted plant could get re-elected president at 3% unemployment. Of course, a potted plant might be preferable (lots of potential angles there: steady leadership, solid green credentials, growth oriented, doesn't lie/tweet), and there are many caveats I'll get to next, but jeez…

Now, 2020's a long way off and while GS is better at this forecasting stuff than most, nobody's very good at it. And, of course, conditions in the macro-economy are but one factor in play. If Trump was getting credit for the economy thus far, his approval rating would be a lot higher (though stagnant real wages are of course in play, as I've stressed). Also, conditional on price/wage acceleration, the Fed might get spooked by the above scenario and move from brake-tapping to brake-slamming.

A couple of final thoughts. First, at one level, the above is a crushing example of the self-imposed budget austerity, back when the expansion was first taking off (see circled area in figure below).

Relatedly, let me try to be clear about my beef with all of this. I've argued that when an economy closes in on full employment, we want our fiscal accounts to begin to consolidate, as has historically been the case as shown in the first figure (here's why). But at the same time, if this fiscal experiment takes the unemployment rate down to 3% without triggering overheating and Fed-rate risk, workers may well finally have the full-employment-induced bargaining clout they've long lacked, and that will be a very good thing.

So…let's here it for PPP (Potted-Plant for President!!).

 -- via my feedly newsfeed

Krugman: Notes on a Butter Republic (denmark)

Notes on a Butter Republic

By Paul Krugman

Still on vacation, and I'm currently in Denmark – in fact, just cycled from Copenhagen to Helsingor, aka Elsinore. Sad to say, I'm such a fearsome nerd that instead of thinking about Shakespeare, my thoughts have turned to … economics. For Denmark's story is, I'd argue, of considerable interest to the rest of us.

To be clear, I am in no sense an expert on the Danish economy, now or in the past. I only know what I read and can pull out of readily available databases. So this is really about using Denmark as a mirror to hold up to the rest of the world. But it's an interesting mirror (and much nicer to think about than the outrages at home.) There are, in particular, two lessons I think Denmark can teach us: a hopeful story about globalization, and another hopeful one about the possibilities of creating a decent society.

Blessed are the cheesemakers

OK, as a helpful bystander points out in Life of Brian, it's a metaphor, not to be taken literally: the blessing extends to all manufacturers of dairy products. The blessing certainly worked in the case of Denmark.

During the creation of the first global economy, the one made possible by railroads, steamships, and telegraphs, the world seemed to bifurcate into industrial nations and the agricultural raw/material producers who catered to them. And the agricultural nations, even if they grew rich at first – e.g., Argentina – seemingly ended up getting much the worse of the deal, turning into banana republics crippled economically and politically by their role.



But Denmark became, not a banana republic, but a butter republic. Steamships and steam-powered cream separators allowed Denmark to become a huge exporter of butter (and pork) to the UK, leading in turn to impressive prosperity on the eve of World War I.

One interesting point about this export surge is that in a way it was value-added production, like the exports of modern developing economies that rely on imported inputs – except that in Denmark's case it was imports of animal feed from North America that helped provide a crucial edge.

The good news was that this agricultural orientation didn't turn out to be a dead end. Instead, it laid the foundation for excellent performance over the long run. And in Denmark's case globalization seems to have been equalizing, both politically and economically: instead of fostering dominance by foreign corporations or domestic landowners, it led to dominance by rural cooperatives.

Why was the Danish story so happy? The Danes may have been lucky in the product in which they turned out to have a comparative advantage. Also, like the Asian countries that led the first wave of modern developing-country growth, they came into globalization with a well-educated population by world standards. They may also have been lucky in the enlightened behavior of their elites.

Anyway, I'm not pushing a universal lesson that globalization is great for everyone; just the opposite. The point is that the results depend on the details: a country can produce agricultural products, be "dependent" by most definitions, yet use that as the basis for permanent elevation into the first world.

And in today's world, Denmark manages to be very open to world trade, while having very low levels of inequality both before and after redistribution. Globalization need not be in conflict with social justice. Speaking of which …

The non-horrors of "socialism"

A number of people on the U.S. right, and some self-proclaimed centrists, seem totally taken aback by the rise of politicians who call themselves socialist. But this rise was predictable and predicted.

Here's what happened: for decades the right has tried to shout down any attempt to sand down some of the rough edges of capitalism, whether through health guarantees, income supports, or anything else, by yelling "socialism." Sooner or later people were bound to say that if any attempt to make our system less harsh is socialism, well, they're socialists.

The truth is that there are hardly any people in the U.S. who want the government to seize the means of production, or even the economy's commanding heights. What they want is social democracy – the kinds of basic guarantees of health care, protection against poverty, etc., that almost every other advanced country provides.

Denmark, where tax receipts are 46 percent of GDP compared with 26 percent in the U.S., is arguably the most social-democratic country in the world. According to conservative doctrine, the combination of high taxes and aid to "takers" must really destroy incentives both to create jobs and to take them in any case. So Denmark must suffer from mass unemployment, right?

Ahem:

Image

--

John Case
Harpers Ferry, WV

The Enlighten Radio Player Stream, 

Sign UP HERE to get the Weekly Program Notes.

Check out Socialist Economics, the Enlighten Radio website

How China beat the Global Financial Crisis [feedly]

How China beat the Global Financial Crisis
http://mainlymacro.blogspot.com/2018/08/how-china-beat-global-financial-crisis.html

If you were hoping for something on yesterday's interest rate rise, I can only direct you to the leaderin the FT today which says: "There is no compelling reason to increase the cost of borrowing in the UK, but there is definitely good cause to wait." On why nine intelligent people could all make the same mistake, you have to question their mandate, and move to something that focuses on having the right environment for growth, as I do here.

I recently finished reading the latest bookby Adam Tooze (of which much more in a subsequent post), and it reminded me of a story that was not told enough in the early days of austerity. Everyone knows about how quickly the Chinese economy has grown over the last few decades, and how strong exports have been an important part of that. In dollar terms the value of Chinese exports more than quadrupledbetween 2000 and 2007. By 2007 Chinese exports represented 35% of GDP.

An important characteristic of the Global Financial Crisis (GFC) was how quickly world trade collapsed. If we compare the beginnings of Great Recession after the GFC with the start of the Great Depression, while world industrial production moved in a similar fashion, world trade collapsed by much more in the Great Recession than the Great Depression. Here is a chart from Barry Eichengreen and Kevin O'Rourke's 'A Tale of Two Depressions Redux' VoxEU article.

Trade collapsed in the winter of 2008 around the globe, without exception. This was very bad news for China. Whereas exports had been around 35% of GDP in 2007, they fell to around 25% of GDP in 2009. That is a big hole to fill, and if it wasn't filled, there was a chance that Chinese growth would collapse completely with damaging knock on (multiplier) effects to the rest of the economy. Above all else, China feared the political consequences of the unrest widespread unemployment would bring.

As Tooze recounts, China's reaction was swift and bold. In November 2008 it announced a stimulus package of public spending worth 12.5% of GDP. (The Obama stimulus package, by comparison, was around 5% of GDP.) "Over the days that followed [the announcement], across China, provincial party meetings were hurriedly convened …" Within a year 50% of the stimulus projects were underway. Some of this stimulus paid for what Tooze describes as "perhaps the most spectacular infrastructure project of the last generation anywhere in the world", the Chinese high speed rail network. Monetary policy was also relaxed.

In 2008 as a whole, before the stimulus and hardly touched by the collapse in world trade, Chinese GDP grew by 9.6%. In 2009, when GDP in the advanced countries fell by 3.4%, Chinese growth was 9.1%. The stimulus package had filled the whole left by collapsing Chinese exports. (Source)

Basic macroeconomic theory says that a negative shock to GDP, caused for example by falling exports, can be completely offset by a monetary and fiscal stimulus. China is a good example of that idea in action. What about all the naysayers who predicted financial disaster if this was done? Well there was a mini-crisis in China half a dozen years later, but it is hard to connect it back to stimulus spending and it had little impact on Chinese growth. What about the huge burden on future generations that such stimulus spending would create? Thanks to that programme, China now has a high speed rail network and is a global leader in railway construction.

Now of course people will say that China is not like an advanced democracy, and it was not part of the global banking network that caused the GFC. But the US and UK stimulus programmes could and should have been larger. Those close to the action tell me that the UK was running out of things to spend more money on in 2008/9, but I cannot help think this amounts to a failure of imagination: it is not as if UK infrastructure is great, there are no flood defence projects left to do etc. Above all else China's example tells you what a huge mistake 2010 austerity was.

 -- via my feedly newsfeed

Bernstein: July’s Jobs Report: Solid jobs but little wage acceleration [feedly]

July's Jobs Report: Solid jobs but little wage acceleration
http://jaredbernsteinblog.com/julys-jobs-report-solid-jobs-but-little-wage-acceleration/

Summary: Today's jobs report shows the U.S. labor market remains in a strong groove, with payrolls up 157,000 last month as the unemployment rate ticked down to 3.9 percent. The broader underemployment rate ("U-6")–a more comprehensive measure of labor market slack–fell to 7.5%, its lowest rate since 2001, thanks to more part-timers finding the full-time jobs they seek.

Wage growth, however, remains a sore spot and despite further tightening, did not accelerate.

Expectations were for a higher payroll number–190,000–but these monthly data are noisy. To better pull out the underlying signal, we apply JB's monthly smoother that takes average job gains over 3, 6, and 12-month periods (these averages include a combined revision of 59,000 jobs added to the May and June payroll gains). As shown, trend growth rate for job growth is north of 200,000, a strong trend at this stage of expansion.

I dig deeper into the wage story below, but the figures below show year-over-year percent changes in hourly earnings for all private-sector workers and for middle-wage workers (blue-collar factory workers and non-managers in services), along with a 6-months average to smooth out the noise. Over the past year, average hourly earnings before inflation were up 2.7% last month for both groups, the same growth rate as in June. For all private-sector workers, yearly wage growth has stayed remarkably steady, growing between 2.6-2.8 percent since last December.

The moving average reveals a slight, welcome acceleration for middle-wage workers, but given recent pressures in topline consumer inflation (including energy prices), their real hourly wage growth is flat. Below, I offer a Q&A on these critical wage issues.

Broken "Breakevens?" Many labor market watchers have long maintained that the "breakeven rate" for job growth–the monthly payroll gain associated with a stable unemployment rate–is 100,000 or less. But as the smoother shows, over the past year, monthly job gains have averaged 200,000, twice the alleged breakeven rate. Meanwhile, the jobless rate hasn't fallen particularly sharply–it's wiggled around between the high-3's and the low-4's–implying more labor supply than the low breakeven number implies.

The labor force participation rate held steady at 62.9% last month–its same level as last July. But the closely watched employment rate for prime-age workers (25-54 year-olds) continues to slowly climb, up from 79.3% in June to 79.5% in July. The peak employment rate for this growth was 80.3% in January 2007, while its trough in 2011 was 74.8%. Thus, prime-age workers have recovered 4.7 out of 5.5 lost percentage points, or 85.5%, of their decline since the downturn.

All told, this is simply a technical way to suggest that we have probably not hit full capacity in the job market; there are still sideliners to be pulled in. Low, stable coreinflation (last seen at 1.9 percent; inflation including energy prices has grown faster) and only slowly accelerating wage growth corroborate this suspicion that there's more room-to-run in the job market than is commonly believed.

Wage Dive: There's been a lot of wage commentary lately, which I'd like to take a quick stab at sorting out here, with more to come in a longer paper out soon.

For now, a quick Q&A:

Q: Is there a wage problem in the current labor market?

A: There is, as real wages for middle-wage workers, as in today's data, are flat (growing at about the same rate as inflation), meaning the only way working families can grow their incomes is working more hours.

Q: Is that a function of slow nominal wage growth or faster inflation?

A: It's really about faster inflation, most recently, as the figures below reveal. They plot the yearly growth rate of the mid-level wage against inflation (I've forecasted the July inflation value as it's not out yet). The difference between the wage and the inflation lines represent real growth. As you see in this figure for an important sector for mid-wage workers–health care and education– inflation grew from very low levels and has caught up with pay rates in the sector.

At the same time, mid-level wage growth before inflation, as described above, has been slower in this recovery than in previous ones, especially at such low unemployment.

Q: What factors explain the faster prices and slower nominal wage growth?

A: Higher energy costs have been boosting prices (as noted, core inflation, which takes out energy and food, has been much tamer) of late, and these could trail off in coming months as oil supplies are up. The tariffs, especially if they escalate, could push prices up a bit, but topline inflation could slow in coming months, leading to faster real gains, especially if falling unemployment pushes up nominal wage growth.

Q: What other constraints are in play?

A: Economists point out that productivity growth puts a cap on real wage growth and there's no question that a) the two variables are linked, and b) slow productivity is a constraint on current wage growth. But slow productivity growth certainly does not explain flat, mid-level real wages in such a tight job market. For example, business profits remain strong, firms are spending billions on share buybacks to boost their stock prices. If workers had stronger bargaining power, they could push for more profits to flow into paychecks.

And, of course, over the longer term, productivity has risen much faster than median compensation (see figure), again, a function of long-term, structural factors reducing worker bargaining power, including outsourcing of jobs, diminished union power, long periods of slack markets, eroding labor standards, and, especially in the Trump era, a politics that is incessantly hostile to workers and friendly to capital.

Source: EPI

Q: Will lower unemployment give workers more clout?

A: It likely will. Thus, a potential, positive near-term scenario is lower unemployment pushing up nominal pay. Should that occur as energy prices come down, we'll see real gains in coming months. But there are enough links in that chain that it's no slam dunk, even in the near term. As just noted, the fact that worker power has been in long-term decline while concentrated employer power is ascendant remains a critical determinant of the living standards of working families.

 -- via my feedly newsfeed

Rulers of the World: Read Karl Marx! [feedly]

Rulers of the World: Read Karl Marx!
http://economistsview.typepad.com/economistsview/2018/08/rulers-of-the-world-read-karl-marx.html



Second time, farce

Rulers of the world: read Karl Marx!

On his bicentenary Marx's diagnosis of capitalism's flaws is surprisingly relevant

A GOOD subtitle for a biography of Karl Marx would be "a study in failure". Marx claimed that the point of philosophy was not just to understand the world but to improve it. Yet his philosophy changed it largely for the worst: the 40% of humanity who lived under Marxist regimes for much of the 20th century endured famines, gulags and party dictatorships. Marx thought his new dialectical science would allow him to predict the future as well as understand the present. Yet he failed to anticipate two of the biggest developments of the 20th century—the rise of fascism and the welfare state—and wrongly believed communism would take root in the most advanced economies. Today's only successful self-styled Marxist regime is an enthusiastic practitioner of capitalism (or "socialism with Chinese characteristics").

Yet for all his oversights, Marx remains a monumental figure. At the 200th anniversary of his birth, which falls on May 5th, interest in him is as lively as ever. Jean-Claude Juncker, the president of the European Commission, is visiting Trier, Marx's birthplace, where a statue of Marx donated by the Chinese government will be unveiled. The British Library, where he did the research for "Das Kapital", is putting on a series of exhibitions and talks. And publishers are producing a cascade of books on his life and thought, from "Das Kapital"-sized doorstops (Sven-Eric Liedman's "A World to Win: The Life and Works of Karl Marx"), to Communist Manifesto-slim pamphlets (a second edition of Peter Singer's "Marx: A Very Short Introduction").



None of these bicentennial books is outstanding. The best short introduction is still Isaiah Berlin's "Karl Marx", which was published in 1939. But the sheer volume of commentary is evidence of something important. Why does the world remain fixated on the ideas of a man who helped to produce so much suffering?

The point of madness

The obvious reason is the sheer power of those ideas. Marx may not have been the scientist that he thought he was. But he was a brilliant thinker: he developed a theory of society driven forward by economic forces—not just by the means of production but by the relationship between owners and workers—and destined to pass through certain developmental stages. He was also a brilliant writer. Who can forget his observation that history repeats itself, "the first time as tragedy, the second as farce"? His ideas were as much religious as scientific—you might even call them religion repackaged for a secular age. He was a latter-day prophet describing the march of God on Earth. The fall from grace is embodied in capitalism; man is redeemed as the proletariat rises up against its exploiters and creates a communist utopia.

A second reason is the power of his personality. Marx was in many ways an awful human being. He spent his life sponging off Friedrich Engels. He was such an inveterate racist, including about his own group, the Jews, that even in the 1910s, when tolerance for such prejudices was higher, the editors of his letters felt obliged to censor them. He got his maid pregnant and dispatched the child to foster parents. Mikhail Bakunin described him as "ambitious and vain, quarrelsome, intolerant and absolute…vengeful to the point of madness".

But combine egomania with genius and you have a formidable force. He believed absolutely that he was right; that he had discovered a key to history that had eluded earlier philosophers. He insisted on promoting his beliefs whatever obstacles fate (or the authorities) put in his way. His notion of happiness was "to fight"; his concept of misery was "to submit", a trait he shared with Friedrich Nietzsche.

The third reason is a paradox: the very failure of his ideas to change the world for the better is ensuring them a new lease of life. After Marx's death in 1883 his followers—particularly Engels—worked hard to turn his theories into a closed system. The pursuit of purity involved vicious factional fights as "real" Marxists drove out renegades, revisionists and heretics. It eventually led to the monstrosity of Marxism-Leninism, with its pretensions to infallibility ("scientific socialism"), its delight in obfuscation ("dialectical materialism") and its cult of personality (those giant statues of Marx and Lenin).

The collapse of this petrified orthodoxy has revealed that Marx was a much more interesting man than his interpreters have implied. His grand certainties were a response to grand doubts. His sweeping theories were the result of endless reversals. Toward the end of his life he questioned many of his central convictions. He worried that he might have been wrong about the tendency of the rate of profit to fall. He puzzled over the fact that, far from immiserating the poor, Victorian England was providing them with growing prosperity.

The chief reason for the continuing interest in Marx, however, is that his ideas are more relevant than they have been for decades. The post-war consensus that shifted power from capital to labour and produced a "great compression" in living standards is fading. Globalisation and the rise of a virtual economy are producing a version of capitalism that once more seems to be out of control. The backwards flow of power from labour to capital is finally beginning to produce a popular—and often populist—reaction. No wonder the most successful economics book of recent years, Thomas Piketty's "Capital in the Twenty-First Century", echoes the title of Marx's most important work and his preoccupation with inequality.

The prophet of Davos

Marx argued that capitalism is in essence a system of rent-seeking: rather than creating wealth from nothing, as they like to imagine, capitalists are in the business of expropriating the wealth of others. Marx was wrong about capitalism in the raw: great entrepreneurs do amass fortunes by dreaming up new products or new ways of organising production. But he had a point about capitalism in its bureaucratic form. A depressing number of today's bosses are corporate bureaucrats rather than wealth-creators, who use convenient formulae to make sure their salaries go ever upwards. They work hand in glove with a growing crowd of other rent-seekers, such as management consultants (who dream up new excuses for rent-seeking), professional board members (who get where they are by not rocking the boat) and retired politicians (who spend their twilight years sponging off firms they once regulated).

Capitalism, Marx maintained, is by its nature a global system: "It must nestle everywhere, settle everywhere, establish connections everywhere." That is as true today as it was in the Victorian era. The two most striking developments of the past 30 years are the progressive dismantling of barriers to the free movement of the factors of production—goods, capital and to some extent people—and the rise of the emerging world. Global firms plant their flags wherever it is most convenient. Borderless CEOs shuttle from one country to another in pursuit of efficiencies. The World Economic Forum's annual jamboree in Davos, Switzerland, might well be retitled "Marx was right".

He thought capitalism had a tendency towards monopoly, as successful capitalists drive their weaker rivals out of business in a prelude to extracting monopoly rents. Again this seems to be a reasonable description of the commercial world that is being shaped by globalisation and the internet. The world's biggest companies are not only getting bigger in absolute terms but are also turning huge numbers of smaller companies into mere appendages. New-economy behemoths are exercising a market dominance not seen since America's robber barons. Facebook and Google suck up two-thirds of America's online ad revenues. Amazon controls more than 40% of the country's booming online-shopping market. In some countries Google processes over 90% of web searches. Not only is the medium the message but the platform is also the market.

In Marx's view capitalism yielded an army of casual labourers who existed from one job to the other. During the long post-war boom this seemed like a nonsense. Far from having nothing to lose but their chains, the workers of the world—at least the rich world—had secure jobs, houses in the suburbs and a cornucopia of possessions. Marxists such as Herbert Marcuse were forced to denounce capitalism on the grounds that it produced too much wealth for the workers rather than too little.

Yet once again Marx's argument is gaining urgency. The gig economy is assembling a reserve force of atomised labourers who wait to be summoned, via electronic foremen, to deliver people's food, clean their houses or act as their chauffeurs. In Britain house prices are so high that people under 45 have little hope of buying them. Most American workers say they have just a few hundred dollars in the bank. Marx's proletariat is being reborn as the precariat.

Still, the rehabilitation ought not to go too far. Marx's errors far outnumbered his insights. His insistence that capitalism drives workers' living standards to subsistence level is absurd. The genius of capitalism is that it relentlessly reduces the price of regular consumer items: today's workers have easy access to goods once considered the luxuries of monarchs. The World Bank calculates that the number of people in "extreme poverty" has declined from 1.85bn in 1990 to 767m in 2013, a figure that puts the regrettable stagnation of living standards for Western workers in perspective. Marx's vision of a post-capitalist future is both banal and dangerous: banal because it presents a picture of people essentially loafing about (hunting in the morning, fishing in the afternoon, raising cattle in the evening and criticising after dinner); dangerous because it provides a licence for the self-anointed vanguard to impose its vision on the masses.

Marx's greatest failure, however, was that he underestimated the power of reform—the ability of people to solve the evident problems of capitalism through rational discussion and compromise. He believed history was a chariot thundering to a predetermined end and that the best that the charioteers can do is hang on. Liberal reformers, including his near contemporary William Gladstone, have repeatedly proved him wrong. They have not only saved capitalism from itself by introducing far-reaching reforms but have done so through the power of persuasion. The "superstructure" has triumphed over the "base", "parliamentary cretinism" over the "dictatorship of the proletariat".

Nothing but their chains

The great theme of history in the advanced world since Marx's death has been reform rather than revolution. Enlightened politicians extended the franchise so working-class people had a stake in the political system. They renewed the regulatory system so that great economic concentrations were broken up or regulated. They reformed economic management so economic cycles could be smoothed and panics contained. The only countries where Marx's ideas took hold were backward autocracies such as Russia and China.

Today's great question is whether those achievements can be repeated. The backlash against capitalism is mounting—if more often in the form of populist anger than of proletarian solidarity. So far liberal reformers are proving sadly inferior to their predecessors in terms of both their grasp of the crisis and their ability to generate solutions. They should use the 200th anniversary of Marx's birth to reacquaint themselves with the great man—not only to understand the serious faults that he brilliantly identified in the system, but to remind themselves of the disaster that awaits if they fail to confront them.

 -- via my feedly newsfeed

Links (8/3/18) [feedly]

Links (8/3/18)
http://economistsview.typepad.com/economistsview/2018/08/links-8318.html

• Stop Calling Trump a Populist - Paul Krugman
• Productivity Measurement Initiative - Brookings
• Why Every Good Economist Should Be Feminist - ProMarket
• Work Requirements Hurt Poor Families—and Won't Work - Jason Furman
• The Hidden Danger for Trump in the Economy's Growth Spurt - John Cassidy
• How China beat the Global Financial Crisis - mainly macro

 -- via my feedly newsfeed