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Michel Phillips

Nobel economics winner Joseph Stiglitz says that just as unemployment in the Great Depression resulted from increased farm productivity creating millions of "surplus" farm workers, today increased manufacturing productivity has created millions of "surplus" manufacturing workers. He says we need to face squarely the fact that a lot fewer people are needed to make the goods our economy needs, and that this change is permanent. http://www.vanityfair.com/politics/2012/01/stiglitz-depression-201201

The question this raises, though not directly addressed by Stiglitz, is whether we should anymore expect everyone to work full-time. What is the purpose of human existence? How much material wealth and possessions are enough? If we recalibrated our expectations to be that working 30 hours a week were considered full-time and "normal," what would the resulting governmental policies look like? The first effect to be desired should be that a lot of 30-hour-a-week jobs should become available to people who now have no jobs.


Fred: We will all have jobs soon. The government is spending more on everything.
Mike: Who is going to do the hiring? I'm investing less in everything.

The wrong diagnosis leads to disastrous policy, particularly when based on non-scientific but convenient feelings or political dogma.

If spending leads us to prosperity, then how can an economy ever grow? We can't spend what we don't produce. Huge government borrowing and spending is not growing our economy, and the massive $800 billion stimulus policy has had little effect. Robert Higgs explains what is really happening.

Consumption Spending Is 70% of GDP, So What?
09/05/10 The Independent by Robert Higgs
=== ===
[edited] We hear constantly “unless consumers begin to open their wallets and spend more, recovery from the current recession will be impossible.” Something must be wrong with this way of thinking about prosperity and recession.

Consider the national economic accounts Table l.l.6 by the Commerce Department’s Bureau of Economic Analysis.

Q4 2007 was the most recent quarterly peak in real personal consumption expenditure. Annualized spending of $9,244 billion was 69.2% of annualized GDP of $13,364 billion, in 2005 dollars.

Real GDP did not fall significantly until Q3 2008. At its lowest in Q2 2009, it had fallen 4% to $12,810 billion. But, real personal consumption spending was down only 1.4%, up to a slightly larger 71% portion of GDP. As usual during a boom and bust, consumption spending varied proportionately less than GDP.

The most variable part of aggregate expenditure is private investment. Real gross private domestic investment peaked in Q1 2006 at 17.5% of GDP ($2,265 B). It hit bottom in Q2 2009 at 11.3% of GDP ($1,453 B). That is a 36% decline in total investment.

We can deduct investment expenditures which merely replaced worn-out private capital stock [Table 1.7.6]. We find that real net private investment was only one-third of what it was at its peak in early 2006.

Net private investment, the part above replacement expenditures, is what contributes to economic growth. The ups and downs of the business cycle are obviously driven not by consumption spending, but by investment spending.
=== ===

When government taxes away profits, or threatens to, then people invest less in expanding production and jobs. It is not "trickle down" economics to let people risk their money and keep the profits. The effect is not the spending of the rich, but the factories they build which give everyone an expanded opportunity to produce more and spend their increased income.

Government spending has only a small effect on investment. Such spending mostly increases overtime and is temporary.


The link above is:

Consumption Spending Is 70% of GDP, So What?
09/05/10 The Independent by Robert Higgs
( http://www.independent.org/blog/index.php?p=7693 )

Jon Orloff

Dear Judge Posner,

I commend to you the book "Race Against the Machine," which makes a very plausible argument that decreasing employment is due to technology advancing over the past three decades at an exponential rate. This is completely unprecedented and we have not yet come to terms with it.


I don't know whether Judge Posner has any evidence that Republicans are harming the economy for political gain, but serious charges normally require strong evidence.

Rather than needing to speculate, verifiable causes for the sluggish recovery would be sufficient. Business knows that the stimulus didn't work. There were few shovel ready jobs and the money instead went to favored constituencies. But the increased debt must still be repaid and businesses know that they and their owners will have to pay it. This is on top of the President's failure to address Social Security and Medicare, whose unfunded liabilities increased last year at three times the amount of our ostensible deficit.

The President's harsh rhetoric concering business is especially disturbing since however high one estimates the future tax on income or however low the value of the dollar in the future will be, in the absence of a coherent program, business people will know that they will be targets. So, they will require a higher rate of return than this slow economy can ever offer.

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Net private financial commitment, the part above alternative expenses, is what plays a role in economic growth. The highs and lows of the business pattern are obviously motivated not by intake investing, but by financial commitment investing.

Thomas Rekdal

Not being an economist, I have, of course, no idea why unemployment remains stuck at 8.2%. Instead, let me pose a question about a series of counter-factuals. Suppose the major welfare-states of Europe were not about to enter the death agonies of a debt crisis. Suppose our own Social Security system were actuarially sound. Suppose Medicare and Medicaid were not on the brink of bankruptcy. Suppose the major pension plans of our states and municipalities had no more than a 20% unfunded liability. Suppose our income tax code, whatever the tax rates, had no inherent bias in favor of consumption over saving. If all of these suppositions were the case, would anyone really be worried by the fact that unemployment is currently 8.2%? Puzzled, perhaps, but worried?

Michel Phillips

These comments about "stimulus didn't work" and "we can't borrow forever" are such tired hackery. They really do a disservice to Posner's attempt to grapple with what's really going on.

Thomas Rekdal

Michael Phillips and Jon Orloff
I wonder if you are aware that each of you is touting the latest expression of a very "ancient" social scientific trope, namely the idea that technology is about to fundamentally change our behavior and our opportunities?

The disuptopian version of the trope shows up in many places. I remember being frightened as a young man by an essay written for the Rand Corporation in 1962 called, "Cybernetics: The Silent Revolution," which predicted that most of our jobs were about to be automated away, leaving us to be governed by a technocratic elite. Fortunately, that has not yet transpired.

The utopian version of the same slant on technology, which goes back at least to R. H. Tawney, if not Marx, if not even earlier, predicts that technology will make possible ever greater levels of material prosperity, with ever smaller commitments of labor. All we need do is redesign the social system to take advantage of these leisure opportunities. Aye, there's the rub. Despite a few feeble and ineffective efforts by the French in the direction of this ambition, not much progress on that front either.

Terry Bennett

The 1800's folk song "John Henry" celebrates a talented individual who tried, in fact died trying, to compete with a new machine. Part of the reason we have not all been lain idle by the advance of technology by now is that along with its new solutions to old problems it brings new possibilities, for which there becomes demand. Look at what kids consume today compared to what they consumed decades ago. Look at what everyone consumes: cars are better, houses are better, health care is better. There will be booms - and busts - long after our time. We are not special in the cyclical manifestation of human nature.

A 30-hour week holds some attraction, but I for one think large numbers of Americans don't work enough, over their lifetimes. Does the relatively small amount withheld by the SSA really fund 30 or 40 years of retirement? I suspect at the level of the individual account, it's a closet welfare system.

Unskilled labor has been a collapsed market for hundreds of years. There is so much supply that it isn't worth its own sustenance, and so it has been found efficacious by various actors along the way to interfere with contract and prop up that market, forcing a living wage and such. As a moral question, in what degree should we take from the excess producers among us and give to those who produce less? We've been going back and forth on that since Dickens' time.

My sincere answer is that we should let none starve, but we must take care not to make charity attractive. It must remain disadvantagageous to be a public charge, not because I am sadistic or ungenerous but because I believe at the core of my being that we are each put here to address our born conditions, wherein lie our lessons. There is a point beyond which our misplaced compassion thwarts the Will of God.

If demand is flat, so be it. People including me and mine will do with less for now. At some future point, people will courageously or foolishly stare into the future and begin taking risks again in hopes of larger rewards, and the economy will once again grow.


The post is really informative and helpful.I like this post,


I hate to speak in tautologies, but employment is tepid because the Economy is tepid. And why is the Economy tepid? Because the Social and Political structures that foster and build Economies are in chaos.

Nuff said?

Edmund Dantes

We've been experimenting with something new in the past four years, a temporary tax code. In general, most major tax provisions have been permanent (the "tax extenders" and the AMT exemption being conspicuous exceptions). But since 2008, we have been confronted with massive future tax increases, legislated to occur as favorable rules and rates expire. In 2010, in December, we decided to put off the expiration for two years, to 2012. Now Obama has proposed delay for just one more year.

Meanwhile, the extension of the favorable rules has been the subject of class warfare, with some arguing that some taxpayers should keep their low rates, while others don't.

In this environment, sound long-term financial and business planning is virtually impossible. I submit that tax uncertainty, coupled with health care cost uncertainty, is responsible for the weak private sector growth record of the last four years.


Amazing that Posner accuses the Republican Party of pursuing an "obstructionist, scorched-earth policy" since BHO's ascension to the White House. That can ring true only if the accuser chooses to view the radical, scorched-earth policies of the BHO White House and its Capitol Hill allies as some kind of norm. If that is Posner's view, it explains his comment (albeit on terms unflattering to Posner). If not, his comment is pure chutzpah.


Thanks for sharing this Mr. Posner. This is an eye-opener.

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Mario Rizzo

Weakness in demand is a poor explanation for persistent problems. The more basic question is why doesn't the economy adapt to changes in consumption-savings-demand-for-money patterns?

Michel Phillips

Thomas Rekdal: please read the Stiglitz article I linked above. I do not argue that technology is "about to" change our challenges and opportunities. I merely pass along Nobel winner Stiglitz's message (which I find persuasive) that technology has ALREADY changed our challenges and opportunities, dramatically, twice--first in agriculture, leading to the Great Depression; then in manufacturing, leading to our current situation of record-setting business profits without significant job creation.

The importance of Stiglitz's perspective is that it shows us this is not some temporary anomaly that the unfettered market will correct in approximately the usual recession-recovery time frame. This is a permanent shift that will take decades to correct if left alone. The question for us is whether we want to allow mass unemployment to linger for decades.


Michel, I much prefer Richard Brautigan's take on the subject. While as "Poet in Residence" at CalPoly, he wrote the following Poem which is loosely paraphrased below:

I like to think
(it has too be! - Like right now please!)
of a cybernetic meadow, forest and ecology
where we are free of our labors
and joined back to nature,
returned to our mammal
brothers and sisters,
and all watched over
by machines of loving grace.

This was written back in the sixties when the cybernetic dream was only a fantasy, hidden behind the gleam in tech students eyes. But what do Poets know?

And so... ;)

Thomas Rekdal

Michel Phillips
OK, your comment is fair enough. I do confess to not having read the particular article by Stiglitz to which you refer, although I have seen a number of interviews with him, and read enough comments on it to have some sense of his argument. I do agree, however, that that is not sufficient to reject it out of hand. Let me just say that I am interested in how current opinions fit into the history of social theory, and that Stiglitz seems, on first impression, to fall into the "utopian" camp of those weighing the consequences of technology. Of course, that does not mean he must be wrong.

In any case, I did not mean to demean your comment. And I would certainly agree that the long term consequences of unemployment are appalling. Indeed, I think the current depression may already have done irreparable harm to those under thirty.


One may infer from Stiglitz that technological advances are detrimental to employment, but Phillips above errs in presuming this inevitably leads to bad results for workers at large.

To illustrate with a somewhat well known story, Milton Friedman visited a Third World country in the 1960s and observed the building of a canal. When Friedman saw that the workers were building the canal with shovels, instead of modern tractors and earth movers, he asked a local government bureaucrat why there were so few machines. The bureaucrat explained: "You don't understand. This is a jobs program." Friedman replied: "Oh, I thought you were trying to build a canal. If it's jobs you want, then you should give these workers spoons, not shovels."

To bring the illustration forward 50 years, the Obama Administration in 2008 promised hope and change, but in practice has delivered only spoons.


affl, Is it all only "Obama" or is this just more of your Half Truths and Lies trying to masquerade as economic fact? It clearly belies a lack of understanding of the dynamics of employment and economics.

As an example, when QEI was told by one of her Chancellors that the best approach to economic development was to throw open the ports to all imports. Her response, "If WE were to do that, what would my artisans and craftsmen do"? And so, a new Golden Age was begun.

Spoons, Shovels or Powered Industrial Vehicles? The answer lies in solving the riddle "of the greatest good for the greatest number" and not allowing ourselves to become controlled and "watched over by machines of Loving Grace"...


"The greatest good for the greatest number"? Such crass utilitarianism destroys the human spirit. And what omniscient person or class shall decide what "the greatest good the for greatest number" is? History instructs that people who spout such platitudes enforce them at gunpoint.


affl, And so the "Solution" is Anarchy? Where "Life becomes nasty, brutish and short"? Talk about survival at "Gunpoint"...


NEH -- you do not seem to comprehend that the choice is not strictly binary. Without descending into anarchy, people can deny the rule of authoritarians who presume to know what "the greatest good for the greatest number" means. Liberty thrives between the extreme cases you posit. Your argument rejects liberty. It is indefensible.

Terry Bennett

On the Thomas-Michel divide -

Time was, it pretty much took the whole day for a human to eke out an existence, find enough food, raise kids, avoid predators, make an occasional cave painting, etc. Collectively, we have continually gotten better at the task presented us, namely survival, developing faster, less resource-intensive, more reliable ways to meet our needs. If the six-odd billion of us were all content to hang around all day like a bunch of three-toed sloths, living at a subsistence level, maybe each of us would only need to work an hour or two per day usings today's methods to collectively output our total needs. My number is a complete guess, but the trend is clear enough - productivity and efficiency have gone up.

If Stiglitz is arguing that this time is somehow different, that we've displaced unskilled workers and it's going to be more or less permanent (I didn't read it), I suspect history and hindsight will eventually reveal the flaw in his thinking to be the superimposition of the current problem (mass unemployment) against the currently known arsenal of possible solutions. In other words, the view that we're at a dead end discounts the human spirit, and the very long trail of human advancements that have solved this problem when it has previously occurred. There are people younger than we are, who have more energy than we can now remember having, and their future creativity and production are positives that have not been taken into account.

People get pessimistic as they get older, because they get tired. Go talk to a remaining WWII vet, and he'll tell you the country is doomed, because he cannot fathom solving the world's problems himself - he's too tired. Fortunately for the human race, he is NOT the one who has that job. The people who will do it have a capacity you and I no longer have, and they will reach out toward their own future, and this current problem will be swallowed up in the problems of the next generation, until another plateau in the employment-production dynamic is reached and the people of that future time once again mistakenly lament that it's the end.

I predict that we will see low unemployment again, in a relatively few years. Once time bears me out and this occurs, if the committee care to reconsider their award...

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