Balancing central planning and "dispersed planning" (sort of what the USA and Europe do today)

Hayek’s criticism of central planning that “vital information about an economy is inherently local” and that central planners are too distant to be able to access that information in any nearly useful way can be flip-flopped on “dispersed planners” which is what we may fairly call the Hayeks and Milton Friedmans of the world.

Unfettered local economic actors (those countless hidden hands) are too far distant from the sight of the urgent central needs of society to leave the accomplishment of such goals to their shortsighted hands. Trusting the unfettered free market automatically to bring about the best overall (central?) social outcomes amounts magical thinking [*].

Neither local actors nor central planners know enough about each other’s milieu to act efficiently on each other’s behalf, so, we must choose a practical balance to get the best of both worlds – in a word “compromise” between giving all power to one or the other. [This is a very general first thought on the subject – perhaps much more general than I suspect – it may take a couple of weeks to a couple of years to flesh it all out – still sounds to me like a classic answer to “dispersed planners” enthusiasts.]

From recent reading [Skousen] on how Keynes pointed out what classical economists missed (fiscal expansion is better than contraction in a recession) and how Friedman figured out what Keynes missed (monetary expansion works even better) I have come to see, what seems to the amateur, as the too tentative nature of big economic theorizing. Leading to the notion that where to come down should always and only be decided by what experience discovers works in the everyday world – theory corrected by experiment just like any other science – the need for correction doesn’t seem to worry generations of economists enough for my money. Another way to say the same thing might be to see these elaborate models which economists work up as mere education with which they should attempt to identify what is going on when they visit the real world.

The motto of policy makers should be the same as doctors' (another group that has to come up with answers in real time; not in a hundred years when the perfect answer finally arrives): First, do no harm. IOW, if you haven’t enough (experimental?) practical success with some procedure, limit yourself to recommendations at most. For example, the IMF has no business forcing the Philippines into becoming a net importer of rice. There is no reason to believe that the IMF – unlike the rest of humanity and history – is just chock full of folks who are able enough to run countries; can just hire them off the street and drop them off anywhere needed – that’s the level of presumption that forcing their ideology down others’ throats amounts to.

[* ...and is a pretty reliable tip off that such goals do not press anxiously upon the temples of said unfettered free marketeers. More precisely such social needs anxieties are not originating from within their midbrains, A.K.A., limbic systems, A.K.A., the literally pea sized seat of human emotions -- for their forebrains to deal with.

[Just as carbon monoxide makes you too dumb to realize how dumb carbon monoxide is making you – why you do not go back into a fire to rescue your HDTV – our midbrains can make the smartest of us high-IQ wise too dumb to realize how dumb our (lacking?) motivations are.]

If Israel became an actual U.S. territory (like Puerto Rico or Guam)…

If Israel became an United States territory (like Puerto Rico or Guam)…

…two results would be sure to follow – the second the most needed by far by the USA:

1) Besides securing Israel's future;

2) The American public would at last understand that when Israel invades its next door neighbors to throw their families out of their homes and off their ancestral lands that TO ARABS IT AS GOOD AS IF MAINLAND AMERICANS WERE INVADING AND TOSSING THEM OFF THEIR LANDS (if today’s Israel looks like a duck and walks and talks like and hangs around with ducks...).

There are three levels of supposed excuse for forcibly throwing another people out of their personal homes and settling on their lands – the first and third of which were unheard of before the establishment of modern Israel:

1) Super critical-level: victims of an ethnic holocaust which killed half their people with no land of their own to hide in;

2) critical-level: painfully short of farm land, minerals and fossil fuels (A.K.A., absorbing “lebensraum” or living space);

3) no reason to maintain twice the tank strength as the active US Army on 2% of the population base to hold on to ill gotten gains-level: appropriating living space – LITERAL MEANING – merely extra room for some of your people to put nice up-to-date apartment blocks and real estate developments upon.

No reason at all for the United States to trade anymore skyscrapers for settlements. Israeli-"American" squatters out of (what little is left of) the Palestinian homeland, now!

Where is the textbook model for Rent-A-Center dumb labor?

IS THERE AN ECONOMIC MODEL IN A TEXTBOOK SOMEWHERE FOR AN ENTIRE NATION'S LABOR FORCE BEING AS DUMB AND GETTING AS FULLY TAKEN ADVANTAGE OF AS RENT-A-CENTER CUSTOMERS?:

Wealthy Americans reap the benefits of globalization for the same reason wealthy Americans reap an outsize proportion of the benefits of the economy as a whole: American labor's complete complacency about its need to bargain powerfully in the free marketplace.

I don't know if there is any equation or model in the text books to fit -- for a close parallel -- uninformed customers being taken to the cleaners in a Rent-A-Center store. Rent-A-Center suckers are a tiny bit of our economy -- taken-to-the-cleaners (as in completely deunionized) labor is the going standard.

Again, I don't believe there is a text book model that spells out the cause and effect of what is truly America's "great wage depression". Imagine if we predicted to Americans of 1968 that by 2008 25% of our workforce would be earning less than LBJs $10/hr minimum wage.

If American workers were getting their share across the board, then globalization of manufactured goods might merely be the equivalent of automation to them.

Posted by: Denis Drew | Link to comment | May 25, 2008 at 08:01 AM

A double-barreled unionizng idea?

Newt “Grinch-rich” recently argued against card check legislation on the basis that 90-95% of American want employees to be able to choose whether or not unionize by majority vote (forgetting to mention that card check legislation is actually a last-gasp way get around the road blocks set to block free elections in America’s uniquely vicious anti-labor climate). This sparked a double-duty idea on how to both pave the way for massive and truly free unionization and to incentivize union leadership to maintain top performance in service of their membership long after unionization has settled in.

The first thing I thought to say to “Grinch-rich” was that if 90-95% of Americans want employees to be able to decide on unionization by majority vote wouldn’t that make it logical for him to support a mandatory vote on unionization at every work place every few years – just as we have fixed interval votes for public office (you don’t have to run a gauntlet to vote for the next mayor every few years).

Since I knew that voting for or against union certification is the last Newty would really want I thought he might challenge me (in this imaginary confrontation) by asking would I support the same every so many year vote at workplaces that are already unionized – which at first I thought I would oppose because I feared it could weaken labor’s overall bargaining muscle in the free market.

On second thought, one of the most damaging objections (the most damaging objection?) that some people make to unionization is their previous bad experience with some union leadership that had become entrenched and (as humans in any capacity have the tendency to do) had become bureaucratic and aloof from the concerns of their members.

The surest way to bring such labor leadership up to snuff might be for them to face re-certification elections, say, every four years. There may not be any other way for labor membership to incentivize poor leadership – unlike politics in union elections there is rarely any automatic source of opposition (I would dare say it is rare enough to make the papers when it happens). On the other hand there is no practical fear that any reasonably hard working leadership would face de-certification.

Cyclical certification elections could fit hand-in-glove with a version of the “labor saving device” I that I push: sector-wide labor agreements (collective-collective bargaining) – the end of the race to the bottom all over the better paid world outside the USA – wherein everybody working at the same occupation for different in the same geographic locale works under a single-contract.

Under the French-Canadian version (which I call “sector-wide lite”) non-union firms must work under the terms of labor contracts worked out by non-union firms. Under “sector-wide lite” decertifying employees would not have to worry about being left out in the cold because they would still be covered by the contracts of the strongest bargainers: keeping the pressure high on any leadership who might otherwise become calcified and complacent.

Productivity growth should raise all boats

"...which is a fancy way of saying [increased] productivity is coming from upscale workers."

I always thought that productivity growth came from higher tech diffused throughout the labor force -- often eliminating the need high skilled workers: the xerox machine replaced millions of high speed typists with a button, the much more reliable jet engine reduced needed maintenance and the needed mechanics 95%. The cell phone makes everyone more productive.

The highest tech workers of all, physicians and scientists, don't even get their real world productivity counted in economics: doctors are considered more productive if the treat more patients in the same time frame -- not if the get better results from MRIs, etc.

As far as income distribution is concerned, isn't equating higher tech productivity with higher pay in some danger of invoking the labor theory of value? As overall productivity (and overall pay) grows we may be willing to pay more for someone to flip hamburgers for our more affluent selves even if flippers have not added to their productivity since fast food began.

Denis Drew | 05.20.08 - 7:43 am | #

The lost concepts of the minimum wage

One concept that seems perpetually lost in minimum wage hike v. job loss discussions is inflation: as consumers nominal income grows more dollars become available to chase the same old number of hamburgers -- ergo, there should be no hesitation as far as job loss is concerned to hike flipper wages in step with inflation. IOW, the demand curve has moved already and the price curve is merely catching up. Rudimentary, but seems endlessly ignored when you hear policies debated.

Another factor that makes more dollars available to chase hamburgers is economy wide increases in productivity. As we get richer we may become more willing to pay same-old productivity minimum wage workers to flip burgers for our lazier selves.

Another all important and seemingly always ignored factor is that even if a raise in the minimum wage from $5.15/hr (really a foreign born worker, mostly Mexican, minimum wage -- Americans used to show up for that minimum wage the first time around: in 1939) to $10/hr cuts minimum wage employment in half: labor would still take home the same amount of pay -- albeit for half the hours.

Lastly, when the minimum wage (and other low end wages) have dropped so low that they amount to a minuscule fraction of the cost of GDP output (raising the minimum from $5.15/hr to $12.50/hr would add all of 3.5% to the cost of output -- about what we grow every couple or years -- giving 40% of American workers a raise!), then the dollar or half dollar a dose increase that is usually prescribed is liable to be below the sensibility level of such a fantastically productive economy.

When, Illinois recently raised its minimum to $7.50/hr, I and others noticed a definite up tick in business in our local Macs -- all in the third-world segment (Mexicans finally able to afford some of what they make?). At $12.50/hr ($2.50 more than the 1968 minimum) McDonalds profits might really take off -- never know until we try.

Posted by: Denis Drew | Link to comment | May 20, 2008 at 08:23 AM

The True Trust Fund Rationale?

The problem with cutting FICA (for politicians, not real folks) is that the deeper the cut the sooner we have to raise taxes back up again -- as FICA goes from surplus to shortfall trying to keep up with the baby boomer bulge. Whenever FICA goes in the red we will not raise the FICA rate.

Whenever the FICA rate (set and forgotten decades ago) no longer covers SS retirement, it will be time for us to raise income taxes to begin cashing the trillions worth of publicly owned bonds (checks to ourselves) in the phony Trust Fund.

In the early 80s (I think) somebody got the bright idea to stick the FICA rate at the same 12.4% point for the next sixty years -- while at first lowering and later raising the income tax burden to first take advantage of the FICA surplus and to later cover the FICA shortfall. Rube Goldberg would have been amazed!

After which 60 year span, FICA will need jump from 12.4% to 18.6% all at once to cover benefits -- when the so-called Trust Fund runs out (at a time when average income should have doubled) -- at which point the income tax burden should return to normal (no longer eased by the surplus or burdened with the shortfall).

The phony Trust Fund seems to me to have one logical rationale only: to permit politicians in the early 1980s to set -- AND FORGET -- the FICA rate for the next 60 years!

Adding 0.1% per year to FICA as incomes grew 1.5% per year would have kept retirement benefits at the same level for 60 years until the baby boom cohort filled out. After 2047, retirement benefits may double in real terms every two generations as the ratio of retired levels off and the incomes of the non-retired continue to double every 40 years.

Denis Drew | 05.19.08 - 9:09 pm | Angry Bear

Tasers covered by Second Amendment? – what to consider

SINCE I WROTE THIS I FOUND OUT THAT THE SECOND AMENDMENT AT THIS POINT DOES NOT APPLY TO THE STATES -- DEPENDING ON WHERE YOU LIVE: CHICAGO OR SAN FRANCISCO. HOPEFULLY THE DISPARITY IS WORKING ITS WAY TOWARDS THE SUPREME COURT.

At the simplest level, today’s courts should find Tasers and stun guns covered by the Second Amendment for the same reason past courts have found TV and radio communications to be covered by the First Amendment and tapping telephones to be restricted by the Fourth Amendment: new technologies can fit old constitutional intentions.

On a more esoteric level, the “militia” mention in the Second Amendment signals that the right to bear arms is a need based right, not a natural right like free speech or privacy. The “militia” mention may have been the most “statesmanlike” example of that need to put in the first ever constitution. (PS. nobody needs a .50 caliber weapon to protect them.)

Given a constitutional right to bear electronic arms, legislatures would have considerably less leeway to regulate and restrict possession in public or in private because the threat to public safety in the opposite balance is so near zero.

Given the right, it is constitutionally questionable whether concealed carry could be banned at all. It could be argued that mandating open carry could put an “undue burden” on the right to carry electronic protection because many or most people might be too embarrassed – again, given that the trade off to public safety is minimal. Banning concealed firearms can be better justified because of the extreme danger to life that such weapons pose.

The right to bear electronic arms at home or in public can be argued to be more constitutionally protected in modern life than the right to bear firearms for hunting which in the twenty-first century may be more often a sport than a vital need.

What's with the SS Trust Fund?

Bruce,
You are right -- speaking about 2046 -- that upping FICA would not be the easy path I made it out to be, but I was right that it would not be the giant shock that is the usual perception of the move because the usual perception doesn't take into account that it will be a switch in income streams not simply a sudden startup of 33% higher FICA (33% up, 25% down).

God willing, EITC will be a distant memory by 2046 -- thanks to reasserted American labor power in the free market -- average income hopefully doubling by then (which should ease the pain of the switch too).

Average income has doubled since 1967 but the average wage (or whatever SS retirement uses to adjust wages for that year's benefit calculation) is up only one-third. Fix that -- by ending inequality -- and that could extend TF draw down, possibly forever, in which possible case the next question is how do we get rid of the giant size TF (only need a few years of reserve). To me everything begins and ends with getting American labor's mojo back again.

We should draw down the TF most of the way just to take back the regressively taxed FICA dollars that have been spent on what should have progressively funded, regular budget items.

Denis Drew, 05.07.08 - 9:28 am, Angry Bear

Lower incomes doubled apartment rents for the lower income

I wonder if -- as people are forced to double up to afford one apartment -- the cost of housing is considered to have go down (only half for each)?

(being sarcastic)

Right now nobody builds new housing for lower-third to lower-half income Americans. Now that 25% of American workers are earning less than the minimum wage under LBJ, we cannot reasonably expect anybody to build for people with no money to buy and not even enough to rent. Cities are even demolishing public housing projects that have become gang dominated hell since American wages have slipped to Depression levels (FDR's minimum wage: $4.65/hr, w/no taxes) and would be workers turn to drug selling or worse.

Meantime more and more yuppies keep getting born and they keep buying up what lower middle class apartment buildings are left (yuppies in my own family!) -- the Lord made the earth and he's not making any more.

I wonder to what extent the no-end-in-sight disappearance of lower income apartments and the consequent doubling of rents (as incomes decline -- seemingly inversely related!) shows up on national inflation radar.
Denis Drew, posted 05.06.08 - 4:47 pm, Angry Bear

Greenspan's victory over the minimum wage (for AMERICAN BORN workers)

By 2007 Alan Greenspan got his wish: the minimum wage had disappeared via unindexed inflation -- for American born workers that is -- by that time it had been $5.15/hr for a decade. By 2007 virtually no American born workers would show up for said minimum wage (not in my personal observations of fast food workers in Chicago and SF anyway -- 300-400% turnover when airport security paid minimum wage).

$5.15 had become the Mexican and (in SF) Chinese born minimum wage.

Merely re-raising the minimum wage to the level at which some American workers begin to show up ($7.50/hr in my current home state of Illionis) will accomplish little more for low wage Americans than to make available more high turnover jobs they would be working somewhere anyway -- most of which jobs openings will therefore go on being filled mostly by (illegal?) foreign born workers.

To give low income American born workers a useful break in their currently unfettered labor market we really need to jump the minimum wage past FDR's $4.65/hr (w/no tax), past Eisenhower's $8.00/hr, past Nixon's $8.75/hr (done in one jump), all the way to LBJ's, 1968, $10/hr (today's 25 percentile American wage -- must mention at double LBJ's average income; mustn't be Malthusian).

A jump from $5.15/hr to $12.50/hr could plausibly pump over 400 billion dollars into the pockets of underpaid Americans: 30 million X $7,000/yr average (half) raise yields half that figure -- but I assume it would take reunionizing America to make said raise in which case I would guess pushing up other wages would double said effect (might in any case): median income ($17/hr) represents about half of average income ($33/hr = $14 trillion divided by 140 million workers, divided by 2/3 personal income component of GDP, divided by 2000 hours) which sounds to my admittedly non-scientific self like lots of headroom.

$400 billion would add all of 3.3% to the cost of output in a $14 trillion dollar economy -- and presumably as much or less to inflation: which should tell us how little money is involved. What is extreme is how desperately little money lowest end, deunionized American labor has been desperately taking home. (Today sector-wide collective bargaining is the only way to restore full bargaining power.)

Raising the minimum to $500/wk would bestow no rich bonanza on lower income Americans -- it would merely raise wages one increment beyond the very responsible minimum needs line (A.K.A., poverty line) drawn in the 2002 book Raise the Floor .

Bubble, bubble, because unions are in trouble?

IMO, the USA built up so much private debt primarily as a result of so called "inequality" (I call it a "a great wage depression). American workers sense that average income is steadily expanding over the decades -- they know they SHOULD be living better -- and debt is how they attempt to live it.

I now see from Kevin Phillips article that the financial industry both feeds on this labor weakness and in turn squeezes even higher pay (squeeze a toothpaste tube on the bottom; it all comes out the top) out of the feed because of labor weakness. Shades of WalMart keeping wages so low people have to shop at WalMart.

Ditto, for Bush's tax cuts for the rich to fight the recession instead of for the middle class who would spend more and actually boost demand more -- forcing the Fed to cut interest rates more then it would have had to -- flooding the market with so much cheap money that it had to find a place to (irresponsibly) be lent -- leading to the next bubble bursting recession.

It is all a matter of USA labor losing its POLITICAL as well as economic muscle.

It all a matter of a lack of unions.

Posted by: Denis Drew May 6, 2008 11:53:36 AM

My gas tax plan -- beats Hillary's

I've got an idea -- I usually do :-] : since the price of gas wont be affected by LOWERING the federal tax, maybe the price of gas wont affected by RAISING the gas tax either. If we add a dollar to the tax maybe the gas companies will be forced to lower their price a dollar to get rid of all the supply on hand. So, with allowance for a fair return for the refineries, whenever they are running full out maybe we could up the tax on gas a dollar or so in order to take back much of the excess price for taxpayers.

Don't forget to vote for me. :-]

Posted by: Denis Drew | May 05, 2008 at 09:44 AM