Brad DeLong's Semi-Daily Journal (2004)

See also Krugman's address at the London School of Economics:

http://www.lse.ac.uk/collections/LSEPublicLecturesAndEvents/events/2004/20040527t1238z001.htm

Some interesting commentary on the relationship between politics and growing inequality by Krugman.

Even without class war, deprecating employee compensation in the tax code should lead to some downward shift in the wage share of GDP. The magnitude of the drop does surprise me, though. Were there any models that showed such an effect before it happened, of any magnitude?

Wouldn't something like this be a goal for the Bush administration? And high unemployment a means to the end? Even the relatively-nicer Bush The First was positively anti-labor -- "not really a creative element in our society" was something like his judgement.

See also OMB Watch's note, "Economy and Jobs Watch: Corporate Profits at Record Highs, While Labor Compensation at 38-year Lows," which has a nifty graph of labor compensation and corporate profits, as percentages of GDP, over the past decade and a half.

http://www.ombwatch.org/article/articleview/2166/1/215/

Zizka writes:
"Wouldn't something like this be a goal for the Bush administration?"

Maybe, but just because the share of employee
compensation in GDP fell doesn't mean it's
necessarily so. Remember that
"employee" category includes some quite rich
folks. But it is a valid question - "how much
of that 66.5 to 62.7 % drop can be explained
by Bush's policies - say, the tax cuts"?
My guess would be "not much", since there's a
plethora of other factors that could be at work.
But I'd be very interested to see the estimate and quite willing to change my opinion.

The "technological explanation" would be that
the substitutability between labor and capital
has changed. But this is supposed to be more or
less a constant.

Boy, if I didn't know any better (and I don't), I would say that one or more of the statistics on which these figures rely are fixed. I vote for GDP and corporate profits.

If the GDP figures have been inflated, then there's been less of a recovery and correspondingly low upward pressure on wages.

Lately, there have been two main incentives for corporations to declare higher profits. First, the reduction in the dividend tax is an obvious incentive.

Second, the recent collapse of stock prices and concurrent corporate financial scandals have strongly encouraged investors to focus on fundamentals. Formerly, an emphasis on revenue and marketshare (implicitly higher future profits) has been enough to buoy share prices. No longer.

Someone knowledgable please point out the obvious problems with these conjectures.

kosh; thanks for the krugman lecture.

I liked his conjecture that the upper classes have always "owned" our political discourse, but in the past had a sense of social duty/obligation that prevented them from selling out the country wholesale.

It could be that the tipping point came when they formed their political alliance with the relgious right; after the transition, the country club set had no need to compromise with the left in any way in order to sustain political power. Thus began the relentless rightward drift of American politics.

I believe that Mississippi (?) recently had a budget crisis where the Republican governor tried to appeal to the religious leanings of his citizenry as a strategy for passing tax increases. It was, at its heart, an attempt to put the religious right in touch with Christianity's more liberal teachings in order to support progressive social policies.

Though the attempt ultimately failed, I believe this is to be the only template for cleaving plutocrats from pulpits.

Gray, at first glance, the compensation data at OMB watch looks like it is tracking the employment participation data. Compensation rises rapidly when participation is above 67 and drops when below 67.

http://www.economagic.com/em-cgi/data.exe/blsin/inu0018us0

From my previous notes (on my own pages):

"... Lets put together two of the news items that John Irons is carrying at this time in ArgMax news headlines feed,...: (1)Corporate profits at record highs and labor compensation in long time lows (like 40 year lows); and (2) US is running a high tech trade gap. My guess is that it is not the high tech, innovating companies who are raking in the record high profits; it is rather then the old-style-management, backward-technology, less capital intensive, less knowledge intensive companies, like energy sector companies and security services companies who are making the record high profits. So am I wrong in saying "..the Clinton Administration brought about some sort of a socialist victory of the market economy. The Bush administration is amounting to a counter-revolution of the capitalist class..."?..."

'So am I wrong in saying "..the Clinton Administration brought about some sort of a socialist victory of the market economy. The Bush administration is amounting to a counter-revolution of the capitalist class..."?..."'

Yes.

From Marc Kaufman and Bill Brubaker's May 26 WaPo Business story:

"Higher Prices Erode Value of Medicare Cards," William Pierce, spokesman for Health and Human Services Secretary Tommy G. Thompson, said, "The prices of everything have gone up beyond the rate of inflation."

Hmm - the prices of EVERYTHING have gone up BEYOND the RATE OF INFLATION???

Professor, can you explain this to me?

"high labor market slack as a way of keeping a lid on real wages, and as a tool of class war":
Post-Keynesians employ a structural framework that, while it does not lend itself to such simplifications, enabled them to correctly forecast the current state of the economy back in 1999. From this perspective, labour market slack is not a tool of, but an enabling condition for class-war-type policies.

The income share numbers are fascinating. But the fact is that they have always exhibited variation over time (not necessarily business cycle related). The profit share number rose steadily throughout the 1990s (hey, this was the Clinton Administration), until 1998 if I recall, and I remember a paper about it being delivered at an AEA convention (Olivier Blanchard) around 1997 or so. The rise in the profit share was happening in Europe, too. The authors found the best statistical explanation attributed most of the causality to variations in the capital labor ratio (not policy variables).

Anyway, whether we should worry about income shares or not, it does seem fair to worry about inequality. And it seems even more fair to discuss upward mobility; it's useful but not enough to discuss the outcome of inequality. I'd love to see a reference to a paper that treated upward mobility in some rigorous fashion. We ought to know if there is any evidence that upward mobility is threatened; this strikes me as more fundamentally an American issue.

A Zarkov:

Would I be right if I said; "... Clinton administration amounted to a counter-revolution of the capitalist class while Bush senior and Bush junior administrations achieved huge steps towards a socialist victory of the market economy..."?

Kosh:

"...See also Krugman's address at the London School of Economics:..."

I thought Krugman's NYT piece titled "Dooh Nibor Economics" was good too...

http://www.nytimes.com/2004/06/01/opinion/01KRUG.html

Bush has been a veritable gem for capital. When Bush came into office in 2001, corporate America was in crisis. After peaking in 1997:III at $817bn (all figures are in constant 2000 dollars), corporate profits sank over the next four years to $555bn in 2001:III -- a real 32% decline. Dubya set about quickly reversing course. In a single quarter real corporate profits jumped 16%; in three quarters, 32%. By 2003:I real corporate profits had skyrocketed to $740bn, all in the midst of a nationwide recession and sluggish recovery. And that was just the beginning.

Now for the rest of the story.

According to the revised 2004:I GDP figures, real corporate profits stood at $969.4bn. In just one year, they rose an amazing 31%. Real after-tax profits rose even more, from $537bn in 2003:I to $741bn in 2004:I -- a stunning 38% ascent in a single year. Since Bush first took office, real corporate profits have jumped 62% while real after-tax corporate profits have ascended an amazing 94%.

"...labour market slack is not a tool of, but an enabling condition for class-war-type policies..."

There is only one way to eliminate that enabling condition;which is to achieve super-duper-mega high productivity; and that state of affairs is eventually inevitable.

Once that happens, there will be no such thing as wage employment. A new form of employment will have to emerge.

Slavery was a form of employment.

Today we have wage employment.

Tomorrow it will be something else.

What is it that determines the form of employment? The single most important factor is productivity level.

Capitalism ended feudal order on higher productivity and even higher productivity will bring about the end of capitalism.

Incidentally, the neo-conservatives know this extremely, extremely well -- this is clear to me from every thing they do and say.

It would be good if "lefties" learned that too:

Lıberte egalite fraternite does not come without productivite.

Without being able to prove my point, I still strongly suspect (along with Bulent and Glut, I think) that this is a political event, and looking for answers strictly in objective market forces is blind. If you were going to ask for one single core belief that the Bush people have, reducing the labor share and increasing the capital share is probably it -- they don't necessarily really care about reducing the government share, as it seems. (Of course, this is part of a long term project; Tom Friedman, back when he still called himself a Democrat, praised Reagan for his anti-union activities just because it increased the capital share).

Perhaps there are private anti-labor activities going on now which would not be happening if business hadn't been given the green light by the Bush people, rather in the same way that the Enron fraud was not the result of government action, but of telegraphed government inaction.

If you take most of the companies that are losing money out of the mix, don't you increase net corporate profits? Enron, (big money loser), many of the fiber optic companies, lots of Dot.Busts out of the picture, dinosaur steel losers out of the picture.

25 LARGEST CORPORATE LOSSES INCLUDING EXTRAORDINARY ITEMS

RANK COMPANY NAME LOSS IN $BLNS YEAR
1 AOL Time Warner Inc. 98.69 2002
2 JDS Uniphase Corp 56.12 2001
3 General Motors Corp 23.50 1992
4 Lucent Technologies Inc 16.20 2001
5 NTL Inc 14.24 2001
6 Verisign Inc 13.36 2001
7 AT&T CORP 13.08 2002
8 Tyco International LTD 9.41 2002
9 Intl Business Machines 8.10 1993
10 I2 Technologies Inc 7.75 2001
11 At Home Corp 7.44 2000
12 Ford Motor Co 7.39 1992
13 Raytech Corp/de 7.06 2000
14 CIT Group Inc 6.69 2002
15 Webmd Corp 6.68 2001
16 Liberty Media Corp 6.20 2001
17 Corning Inc 5.49 2001
18 CMGI Inc 5.49 2001
19 Level 3 Commun Inc 4.97 2001
20 PSINET Inc 4.96 2000
21 Aol Time Warner Inc 4.92 2001
22 Agere Systems Inc 4.62 2001
23 UnitedGlobalCom Inc 4.49 2001
24 TEXACO Inc 4.41 1987
25 Redback Networks Inc 4.12 2001
25 Qwest Communication Intl 4.02 2001

The corporate profits trough was in 2000-2002 and that coincides with these huge losses. Some of these are not even companies anymore. These are just the big boy losers. A lot of small businesses lost a lot of money.

Unproductive money losers drop out of the statistics. This boosts net corporate profits and increases productivity. This decreases employment and total compensation. I don't think it is totally fair to blame Mr. Bush for these economic conditions. However, it is more than fair to blame Mr. Bush for failure to support the states and infrastructure projects that could have made use of the newly available labor. A true jobs program would have increased worker compensation.

Another factor adding to profits is corporate income taxes.
From CBO:

FY Billion$
2000 207
2001 151
2002 148
2003 132

Another factor is low interest rates. Corporations pay almost nothing to borrow money.

http://pep.typepad.com/public_enquiry_project/2004/06/prof_delong_on__1.html

Bakho:

"...However, it is more than fair to blame Mr. Bush for failure to support the states and infrastructure projects that could have made use of the newly available labor. A true jobs program would have increased worker compensation. ..."

But they want to "starve the beast"!?

Where would the money for all those programs come from? And where did they spend the money? They managed transition from half a trillion surplus to half a trillion deficit spending money on what?

Therein lies the neo-conservative **strategy***, I think.

I stop here because I don't want to get into matters of Middle East, Iraq, etc.

Zizka says: "If you were going to ask for one single core belief that the Bush people have, reducing the labor share and increasing the capital share is probably it..."

Looking at the OMB Watch's graph between 1992 and 1997, would you have said the same about the Clinton people?

Bulent-- you are right that it is old line traditional industries, including energy and not tech that is earnings the great profits.

Look at S&P earnings by sector at spglobal.com.

In a way this is econ 101. In 1990s when we were over investing in tech we were under investing in old line industries. Now we have over capacity in tech with low cap utilization and shortages in old line industies with high cap use. look at cap use numbers by stage of processing ( raw mat cap use over 85% while communication equip at 50%).
The way markets works is to shift earnings to areas that need new capacity. Of course this has little to do with share of income between capital & labor. If we have energy shortages profits in energy will be high and this will lead to greater investment in energy.

I should have given the corporate income tax data as percent.

FY % of GDP
2000 2.1
2001 1.5
2002 1.4
2003 1.2

0.9% of the increase in corporate profits is due to paying less federal income tax.

As for Clinton policy, corporate income tax as %GDP increased from 1.6% in 1992 to 2.2% in 96-98. So Clinton was using rising corporate profits to control the deficit. Mr. Bush is using deficit spending (a tax on future income) to boost current corporate profits through tax reductions.

David Yaseen -- I believe we have just passed a secular peak in stock market PE. This means value stocks will outperform growth stocks and
investors will focus more on short run prospects rather than long term growth rates. So current EPS more important to investors. Part of reason for shift is that tax cut for dividends but not for capital gains creates a bias in mkt for value stocks. Should lead to a fall in mkt PE and overall mkt.

We are seeing this in stock mkt. over last year and a half there was no significant difference in value stocks vs growth stock performance. But this is very unusual. In the first year of a new bull market growth stocks normally massively outperform value stocks because of rising PE. But this time PE barely changed in first year of new bull market and market move almost completely driven by earnings, not PE.

I didn't see OBM Wach graph 1992 1997 but I do remember that powers that be during Clinton administration did not like to see real wages going up, cause that would be inflationary and that in turn was bad for the stock market.

That, however, does not change the fact that there are qualitative differences between Clington and Bush policies.

Clinton policies supported development of market economy through a natural course dependent on productivity growth.

Bush policies aim to stop the clock, if they can't turn it back.

You see, development of market economy with productivity growth is going to bring about changes in the structure of the economy and therefore changes in the structure of political economy. The capitalist order will end, as feudal order ended once productivity reached a threshold.

Clinton policies did not aim to stop that evolution, in fact supported that evoulution by supporting productivity growth.

Bush policies precisely aim to stop that evolution as long as they can -- and that's why they made the transition from half a billion surplus to half a billion deficit, trying every which way...

---P.S.: (And while, they, Clinton Administration, wanted to see a lid on wage increases for the same jobs, they did not want to see wage decreases either and they did support creation of larger numbers of better paying jobs.)

My belief is that the US government has been anti-labor since 1980, but the Democrats less so. Democratic politicians have seemed too willing to take a passive role in this kind of anti-labor development, ascribing it to the laws of economics, etc.

In the present case, the conviction that it is just a result of the laws of economics persists, even though nobody has the slightest idea which law of economics it is, and even though the results are consistent with the political goals of the party which controls all three branches of government. These threads (including the productivity-increase threads) have all been somewhat baffled as to the causes of the phenomena in question, while apparently remaining confident that ti wasn't something that Bush did, actively or passively.

I'm really often at a loss here at SDJ becaus of my lack of economic knowledge, but I sometimes feel that my ignorance is matched by political blind spots among economists. Some of which are apparently deliberate or principled, since many economists seem to believe that politics is a bad thing that can only do harm.

Spencer:

"..The way markets works is to shift earnings to areas that need new capacity..."

I see markets like nature, I know they are there, there were there in Soviet economy as well -- the black market.

I focus on policies that shape the market. I mean the river is there, flowing, with an eco system, you can leave it alone or build a dam or whatever.

I see a strong link between Bush policies and old-line traditional industries raking in profits instead of new industries now.

"...My belief is that the US government has been anti-labor since 1980..."

Until 1980s there were two trends with labor that could not be sustained and once this was understood, certain labor policies came afore that looked anti-labor, but they were not really:

1- There were automatic wage increases assuming a pretty high rate of inflation. This was not sustainable, and so it was ended.

2- AFL-CIO prevented automation, causing Detroit plants to shut down one after another in front of Japanese competition. This was not sustainable either and it was ended.

Democrats really did not have a choice on these matters.

Of course, the blue collar worker is now as good as endangered species, which makes capitalism as good as endagered species, and Bush policies aim to delay that as long as possible.

given future increases in productivity, what form of political economy do you see replacing capitilism?

or perhaps "capitalism"...

Yeah, Bulent, you've brought up the 'productivity will mean the end of capitalism' argument at least 3 times now in this thread. Too late to walk away without a small explanation and some sort of personal prediction. An interesting idea, but please DO explain...

Likewise. Bulent, you seem to be a very interesting fellow but sometimes I have a hard time trying to figure out what you're trying to say. Please elaborate.

On a macro level, the share of national income paid out as labor or capital compensation is best thought of as depending on the technology being used (capital-labor ratios, all that kind of stuff), not politics. If you want to ascribe these changes to politics, you'd have to show how the capital-labor ratio changes with marginal tax rates.

Here's an exercise:

So long as you have one source of capital (debt) not being taxed at the firm level, the demands for capital and labor should be pinned down pretty well. Think of the firm's problem without adjustment costs as Max (1-T)(pF(K,N)-wN-rD)/E (i.e. accounting profit per share; firm doesn't care about debtholders. D=debt; E=equity; K=capital stock as measured by market value; N=variable inputs like labor) subject to D+E=K, and you'll notice immediately that T doesn't matter from the firm's perspective. Of course it matters a great deal for the shareholders and their willingness to supply capital in equilibrium.

(If you have a firm maxing economic profits, you'll get the same results.)

Finally, I have a quibble with the amateur political economy being practiced here. I'd need proof that the Bushes and Clinton have tried to drive down the labor share of GDP or that this has anything to do with inflation. It doesn't. The Fed indirectly controls inflation for the most part. I don't know how this meme got started but I'd like to see it die. Maybe people are confusing this with some nonmonetary theories of inflation from the 1960s, but we're talking about real variables, not nominal ones.

Let me start with easier issues:

1- I don't understand what "amateur political economy being practiced" means. Yes, there are specialists of political economy, I am not one, and neither is President Bush or Vice President Cheney. What does "practicing amateur political economy" mean?

2- I don't think any body in this thread ever said any thing about Bush or Clinton trying to reduce labor share of GDP; or any thing about larger share of labor share in GDP producing inflationary effects. A number of people, however, said a few things about wages -- I certainly did.

I said things along the lines that the Clinton administration appeared to have an interest in keeping wage increases under control. Evidence? If you give out hundreds of thousands of special visas to facilitate employment of software engineers of non-US nationality, you ARE indeed trying to keep wages under control.

And I don't know any thing about "nonmonetary theories of inflation from the 1960s".

I'll have other notes to respond to other points. Thank you.

"...On a macro level, the share of national income paid out as labor or capital compensation is best thought of as depending on the technology being used (capital-labor ratios, all that kind of stuff), not politics...."

Beautiful, thank you. I took my very few economics courses decades ago and I can't even seem to define demand elasticity these days -- or, was it price elasticity of demand!? :-) All that is to say that I am not very good at stating things from the point of an economist and you just did it for me with your statement I copied above.

Technology does determine labor / capital shares, yes, and what does determine technology? There, enter politics and policies. You can develop and implement policies that support expanded use of technology, or you can do the opposite.

Example: Clinton administration implemented a budget plan to double the annual budget of NHI National Health Institute in five years and thanks to that policy, NHI budget is now equal to that of NASA.

Example: Clinton Administration made a rule of not accepting immigrants unless they have completed high school education.

Example: Clinton administration supported the Kyoto Protocol which in turn supported whole new industries of environmental protection and environment friendly technologies.

I'll continue.

"...If you want to ascribe these changes (in shares of labor and capital in GDP) to politics, you'd have to show how the capital-labor ratio changes with marginal tax rates. ... Of course it (T, tax rate ) matters a great deal for the shareholders and their willingness to supply capital in equilibrium...."

Thank you again.

I have a question here: Lower taxes (combined with a host of other policies that are now being implemented by Bush administration) encourage investment in what kind of operations? High-tech, capital-intensive, high value-added (read high productivity) operations or vice-versa?

Oh, by the way, I'll continue -- I go off line at times to avoid dial-up charges.

Zizka:

"In the present case, the conviction that it is just a result of the laws of economics persists, even though nobody has the slightest idea which law of economics it is"

As folks pointed out before - changing capital
/labor ratios due to changes in technology
(or in other words, changes in the elasticity
of substitution between capital and labor) -
seem like the obvious culprit.

", and even though the results are consistent with the political goals of the party which controls all three branches of government."

Again, remember that "labor share" includes
folks with salaries of 100K+, CEO's, doctors,
lawyer's etc. I'm not that sure that the party
which controls the government is interested in
reducing the income of these folks.

Bulent:
"I don't think any body in this thread ever said any thing about Bush or Clinton trying to reduce labor share of GDP"

Yes, some folks did. Not you.

"Technology does determine labor / capital shares, yes, and what does determine technology? There, enter politics and policies. "

To some extent. Not as much as you think. In fact
some of your examples are just as likely to retard
technological growth than to promote it.
Furthermore, what matters is not that "technology
grows" but rather "how it grows" - how does it
change the RELATIVE productivities of labor and
capital.

The following text is sort of a manifesto I used to published on my web pages, which I dropped later on upon becoming a bit part discouraged and part pissed off:

"I envision and advocate a certain future structure of political economy, which I see emerging in advanced industrial societies.

Relative to Western European societies as they are now, transition to this future structure that I have in mind involves incremental change most significantly in terms of establishing collective ownership of capital and direct democracy.

Existing institutions of Western European societies that I consider essential for this future structure are market economy, free enterprise, and universal coverage of social safety net and higher education.

Outside of possible weaknesses in institutions of defense and security, I think this structure of political economy is both feasible and desirable for Europe, and then in time around the world.

With this view of the future human civilization, I try to follow what I call productivity support sectors -- this including but not limited to science and technology and SME sectors -- along with insurance and funds management, education and employment, health and related services, and agro-food sectors.

I also keep in view the EU-FP priority thematic areas , in terms of information society technologies and governance as well as selected areas of science and technology; as I seem to sense an overlap between the sectors that I am interested in and these EU-FP priority areas.

I try to understand developments in these sectors and EU-FP priorities by capitalizing on my capacity to conceptualize systems and processes and also through an attempt to grasp the French notion of "la veille" and Anglo-American processes of Competitive Intelligence / Business Intelligence.

As I obtain new information in these directions, I try to develop ideas of strategy.

I try to share through these web pages what I thus learn and I also try to develop and deliver / implement education/training programs in these subjects.""

End of text -- I'll continue.

Radek:

I may have proposed bad examples but the fundamental point I'm trying to make is that one can pursue policies to support productivity increase or pursue policies that do not support productivity increase. And I am saying that Clinton policies supported productivity increase while Bush policies are not supporting productivity increase. (Never mind the statistics; they tell a different story.)

I finish up in my next post.

When I say productivity, I mean labor productivity.

At this time, one percent of US population can feed the entire nation and more for exports.

Thanks to such high productivity, there is abundance of food in United States.

Manufacturing productivity is headed in the same direction, and that includes food manufacturing.

A time will come when only two percent of the population will be producing all the food stuff and manufactured goods, including food ready to consume, for the entire nation and then some for exports.

At that point, no body will have to work to stay alive. Wage employment will become too expensive. New forms of employment will emerge.

And that will be the end of capitalism as we know it -- labor? What labor?

If you still want to call that capitalism, fine with me. But it won't be today's capitalism.

I am finished elaborating my points -- for now.

Bulent--"Capitalism ended feudal order on higher productivity and even higher productivity will bring about the end of capitalism."

anyone want to expand on these premises? seems like a pretty important part of bulent's discussion. What WERE the reasons feudalism became unsustainable? surely there was more to it than productivity increases...

the way bulent talks sounds like how some people talk about peak oil...but the concepts behind peak oil are much easier to understand...productivity from the way you guys argue about it seems like something very very squishy--in definition and in measure...

I think Radek has a point about the CEOs and lawyers being hit by labor/GDP share. Back of the envelope calculation: assume that the economy was at $10 trillion in both 2000 and now, and that employment was same in both time periods (I know neither is true). The 3.8% reduction in labor/GDP share translates into $380 billion less going to labor. That would mean 38 million people taking a $10K pay cut. Or it could mean 3.8 million people taking a $100K pay cut. Or a combination of both. My intuition would give at least as much to the latter as to the former.

In his intermediate macroeconomics textbook, Professor deLong presents a model of economic growth, due to Robert Solow, which is built on the assumption of a constant labor share of GDP. Indeed, labor's share of GDP in the US has been pretty stable at 70% for most of the last 100 years.
Is Professor deLong now switching sides in the Cantabrigian debate of the 1960s? I think we should be told.

http://www.hubbertpeak.com/de/lecture.html

"...the way bulent talks sounds like how some people talk about peak oil..."

No, no, no. The peak oil event is a turning point. Productivity increase is more like perpetual quantitative increase bringing about qualitative change as cumulative increase reaches critical milestones.

Productivity increase is increase of income and wealth. This, combined with political will and power, brings about change in structure of political economy, change of economic/political regimes.

Increased productivity during the Industrial Revolution both made possible and required urbanization / industrialization, processes that did the feudal order in and brought about capitalism.

Urbanization / industrialization process in US and Europe is now complete. But the world cannot stop. The show must go on. So other processes must begin. And that means the end of capitalism as we know it.

sorry, i meant to compare the sound of the rhetoric not the basis of the argument there bulent.

thank you for clearing up the factors at work. i think i have a better inkling of what you are saying.

do you have any links to resources on this topic i could pore over when im not poring over peak oil? i've been looking for a new nightmare to take up some of the space my oil dreams have been occupying.

I'm afraid not. Lefties don't like the word "productivity". And so they're either becoming yuppies or keep dabbling in sixties style "we want money and no work" kind of scream!

So, I am not aware of people thinking along the lines that I do.

And (sorry to disappoint you here) there is no way I can view productivity increase as nightmare.

Ah! Wait! Capitalists might decide "rather than losing my privileges, I'll blow the civilization back to stone age and we'll start all over again and then I'll get to keep my privileges any way..."

There, there is indeed nightmare in that possibility.

In other words, the nightmare would be in failure to see the changes (economic, social, political, even cultural and moral value changes) as required by increased productivity; and then engineer transition to respond to those requirements.

In case of such failure, there may be considerable pain and suffering, even in absence of Armagedon or something.

Greenspan may be aware of these things, however. I understand he recently said something like "much of what we refer to as human nature is not by creation but by teaching and upbringing...".

But if Greenspan is thinking of such things and if I am thinking of such things, there must be others as well. It is just that I am not aware of them. If you run into them, please let me know.

:-)

Well, in fact Brad DeLong and John Irons, especially Brad deLong, may be giving thought to the matter of how the structure of economy would change as productivity goes up and up -- but they are professional, **full** economists and so they have to remain orthodox, which, you know, is not helluva fun, I mean "orthodox". I myself seem to have iconoclast inclinations. :-) (Okay, the orthodox church doesn't like icons too much either, if I'm not mistaken, but well you probably understand what I mean...)

I'll keep thinking about this and I may discover others -- Stiglitz, no, he seems to be focused too much on the topic of his Nobel winning research. Mintzberg, maybe, Henry Mintzberg...

Trouble(*) is you got to have a broad background of knowledge to tackle these things -- economic, social, scientific, technical, military.. and a strong sense of history... and you got to be a "family father" type and have a taste for good things in life too, arts, in particular, and good food (w/o indulgence, eh?)... and there are not too many people like that around... or it is that I am not aware of them in my little corner here...

Bulent: "A time will come when only two percent of the population will be producing all the food stuff and manufactured goods, including food ready to consume, for the entire nation and then some for exports.

At that point, no body will have to work to stay alive. Wage employment will become too expensive. New forms of employment will emerge.

And that will be the end of capitalism as we know it -- labor? What labor?"

Assuming that this comes to pass for manufacturing as it did for agriculture, and futher assuming that this also includes the now 75% of employment that is in services, I fail to see how the "nobody will have to work" will come to pass. If I can't earn a living from my labor, then I must earn it from my capital or other things that I own. Last set of statistics that I saw show, IIRC, that wealth is becoming concentrated in the hands of a few even faster than income is.

When I said "work", I meant "wage employment" more than any thing else.

"...If I can't earn a living from my labor, then I must earn it from my capital or other things that I own...."

Exactly.:-)

"...Last set of statistics that I saw show, IIRC, that wealth is becoming concentrated in the hands of a few even faster than income is..."

That may have to change, although it is not absolutely necessary. Even with an uneven distribution of income and wealth, high levels of productivity will still allow a social safety system which would eliminate the need to work for wages in order to stay alive and pursue self-realization at least at intellectual level, if not start and run a business.

That entitlement to social safety net benefits will be something that every body will "own"; one's minimum share of the nation's capital stock. The budget surplus presented an excellent opportunity to demonstrate that transition could be made to such a system. Neo-conservatives knew it, therefore they evaporated that surplus and made sure that it would be a long, long time before such opportunity could arise again.

Even today there are millions of people who don't need to work for wages in order to stay alive and pursue some sort of self-realization. Their numbers will increase, along with their income, and eventually every body will become capitalist in some way, which would be the end of capitalism as we know it today.

It is going to be like ancient Greece except that the slaves would be machines only.

Neoconservatives can delay it, but they can't stop it, short of triggering Armageddon and Apocalyps and whatever... (spell?)

Before this thread totally dies, I have a few nitpicky points with Bulent:

1. Lowering taxes on capital, based on everything we know about people's preferences for intertemporal substitution, is very likely to raise the capital stock and hence labor productivity. That is not really in much doubt. So in this respect Bush's policies are better for productivity than Clinton's, IF (and this is a big if) taxes on capital stay more or less permanently lower.

2. What the heck is "self-realization?" Is it like in those movies where people get amnesia and temporarily forget who they are? The Bourne Identity rocks, especially whatsherface.

3. The policymakers in this administration are not neoconservative; most are either conservative or even a little populist (like Evans).

4. Based on our experience over the past century, people are pretty good at coming up with new things to work for now that people don't have to worry about starving. There's no trend toward lower working hours in the data; this seems pretty constant. And dispensing with the price system in order to allocate capital among different uses sounds like a pretty awful idea. Even in the places where it's been tried without serious bloodshed, it hasn't worked too well, and...

5. Posters above have recapped the labor-share-of-GDP thing pretty well.

Chris - Nits...

1- It ain't just the tax on capital and you know it.

2- Self-realization... OK, an example (you understand a bit of what you read in French?) here at URL ( "des Echos", I think a French affiliate or business partner of Financial Times) below are listed the ten stages of creating an enterprise: Stage 1 is the business idea. Stage 2 is your Personal Project ... that's a project of self-realization, for example...

URL:

http://www.lesechos.fr/services/apce/index.htm

3- Evans who?

4- a:

"...people are pretty good at coming up with new things to work for now that people don't have to worry about starving...."

You are beginning to get my point.

4- b:

"...dispensing with the price system in order to allocate capital among different uses..."

Here you misread my comments. For example, I am rather proposing more shareholder activism than dispensing with the price system.

And I am also proposing more transparency and honest business in general -- observe Halliburton (spell), Enron, etc...

In fact I do not propose any thing in the way of dispensing with democracy or market economy, but building on them. Democracy and market economy are foundations of whatever I propose.

5- Labor? What labor? :-)

yeehh - BRUSSELS, Belgium -- European Union leaders have overcome their differences to agree to the bloc's first constitution and are pushing ahead with their search for a compromise candidate to be the next European Commission president.

Thank you for sharing that with us!

I am truly astonished!

Very nice and interesting posts. Thanks again!

Per angusta in augusta - Through difficulties to great things

Ratio et consilium propriae ducis artes - Reason and deliberation are the proper skills of a general

Qui scribit bis legit - He who writes reads twice

heh, A fast-spreading mutant strain of syphilis has proved resistant to the antibiotic pills that are offered to some patients. The increase in the mutant strain was largely among gay or bisexual men with multiple partners.

Crescit amor nummi, quantum ipsa pecunia crevit - The love of wealth grows as the wealth itself grew. (Juvenalis)

Rumores volant. / Rumor volat - Rumors fly. / Rumor flies

Victoria, non praeda - Victory, not loot

In absentia - In one's absence

Aurora Musis amica - Dawn is friend of the muses. (Early bird catches the worm.)

The Statue of Liberty, recently reopened after a two-year closure, stashing a package offers a glimpse into the future. To rent, close and reopen lockers, visitors touch an electronic reader that scans fingerprints.
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