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Samizdata quote of the day – peddling long disproven nonsense Just to make the problem clearer. Economies do add up. If this happens here then that over there must also happen. If we don’t see that second then we’re mistaken in our assumption that the first has. If productivity has risen and wages haven’t then the labour share must have fallen. The labour share – up to when PK wrote in 1996 – had not fallen. Therefore that confident blue line from 1970 to 1996 is wrong.
We don’t even have to worry about why it’s wrong. It just is – so bollocks to the rest of it.
Chakrabortty’s getting on a bit to be an enfant terrible of course, his unwillingness to spend time and energy understanding the economics he’s attempting to write about is easier to explain for he’s at The Guardian. In fact, he writes the economic editorials for The Guardian and an actual knowledge of economics in that job – let alone time and effort spent gaining it – would be a positive hindrance.
No, really.
– Tim Worstall putting the boot in 😀
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So let me get this straight: the blue line in the graph that the Guardian writer uses is plain inaccurate and based on something he pulled from his arse?
I am not sure that Tim Worstall’s delightfully brutal response is going to work on the sort of people who read this article and think, blow me, this shows how terrible Western capitalism is and how it screws the workers. What I’d like to see Tim or someone do is put up a graph that does, actually, capture what the trend of real wages has been.
There are two approaches to economics – the logical (logical reasoning) approach of such economists as Ludwig Von Mises, and the empirical approach of such economists as Milton Friedman.
Done correctly both approaches reach the same place – that state intervention, like the intervention of private criminals (such as the gangs who can take everything you have in some Latin American countries), does harm – not good.
Guardian writers, and the international establishment generally, pretend to use the empirical approach – but they do not really do so – as they rig their “studies”.
Yes Johnathan Peace – they LIE.
The most “respected” government and academic bodies lie – and lie without shame. And why not – after all American “Pragmatist” philosophers “proved” more than a century ago that either objective truth either did not exist or humans could not reach it – so all that matters is POWER, the Progressive agenda.
And this does not just cover economics – they lie about the natural sciences as well. They lie whenever they “have to” – i.e. whenever lying helps their agenda of power and control.
Plato’s Guardians were to do the same – and he considered their lying to be noble.
Did not expect Paul Krugman to appear, nor to be speaking sense.
But then, he DOES actually know his econ, when he doesn’t need to bend it to politics – and 30 years ago was back when he was an economist, not a pundit who was previously an economist.
Sigivald – Paul Krugman lies, he is not making innocent mistakes – he lies.
They all do.
These “empirical economists” will tell you, with a straight face, that (for example) under President Herbert Hoover free market policies were followed – and failed.
In reality there was a massive increase in tax rates and, for the first in American peacetime history, a government campaign to PREVENT wages falling to adjust to a Credit Money bust.
They will tell you that laissez faire policies were followed in Ireland in the 1840s – not mentioning the crushing Poor Law taxation.
They lie about “the data”, the historical fact, in every case – they LIE.
Ludwig Von Mises argued that the empirical method is not a good way of doing economics – but these establishment types are not even using an empirical method.
Basic rule of using an empirical method – do not lie about the “data” (the historical facts) – but that is what they do.
The claim “they lie” can be made only if measured against some objective standard that all agree is “true”.
But there is no such thing in economics. It’s all doctrines and ideology, and, as Mencius said: – on every issue you’ll find economists on both sides of it.
As for the issue at hand: the question is if you believe statistics about “labor share”. For example – if you count all government and public employees (such as, say, teachers) — then yes – “labor share” can grow (by striking and getting pay rises), and GDP too (their salaries are counted), without a “positive” or productive economy. I mean: economic statistics are as fluid as economic theory.
It is complicated. You cannot claim, like Tim – “if A then necessarily B”.
So, to repeat my question, what should the graph that this Guardian writer used look like if the data used is not distorted?
It is always good to confound bad visual representations of what is going on with better ones.
Tyler Cowen had these observations back in May this year:
@Johnathan Pearce (London) quoting Tyler Cowen:
There is some bad news afoot for workers. Labor’s share of the US gross domestic product has been falling for a long time, by seven percentage points since World War II. The labor share for 2022 — depending on exactly which measure is used, it comes in at slightly more than 60% — is the lowest measured since 1929.
One thing this doesn’t seem to account for — something that seems fairly obvious to me — is that perhaps labor’s share of the GDP has been falling because labor has been contributing a smaller fraction to GDP? To give a simple example: in 1929 all bookkeeping for all companies was done by hand in huge paper ledgers. Now 90% of that work is done by computer. Or on a Ford assembly line thousands of men bolted and welded together cars which is now done by robots. Which is to say small amounts of labor are amplified by large amounts of capital. So that capital investment leverages the work of workers, but if the lever, bought with capital, does most of the work, it hardly seems reasonable for the lever operator to demand the all value that that capital produced.
Of course what isn’t said is that even if the laborer’s percentage amount decreased, his actual amount dramatically increased. Everyone from the CEO down to the janitor to the guy screwing bolts on the assembly line (in fact down to the guy sleeping rough in the streets) is vastly better off than the same guy fifty years ago. So which is more important: being richer than your neighbor or being rich enough to enjoy a happy fulfilled life?
If a society brought in tons of cheap cheap labor – labor that was willing to do the construction and mowing and programming and roofing and driving and retail and nursing and whatnot for about half the previous going rate – wouldn’t the labor share look just like that graph?
There is an estimation out there of the real chart. Can’t find it this morning. But Cato, someone like that, has done it. Productivity and total wages have tracked each other. It is though true that “average production worker wages” haven’t tracked so well given the increase in wage inequality
The capital share thing from Tyler. Well, yes. Sorta. The labour share has been falling in the US but from the 1990s to now. So Krugman was right – and why I quoted the specific years. But, and here we get into knotty problems. There are actually four components of the national income. Capital, labour shares. Then “mixed income”. Independent trades, that sort of thing. Is $5k of tools capital or not? So, we don’t try to allocate, we call it that mixed income. Finally “subsidies to production and taxes upon consumption” as the fourth. The UK reports the four separately and it’s possible to then see something interesting. The labour share has fallen, yes but the capital share hasn’t (other than recovery from the impossibly low levels of the 1970s). Mixed income has risen and so has that fourth – all that green spending is in there, so’s the doubling of the VAT rate since the ’80s and so on. In the US sales taxes have got higher and more places have them over the period.
The labour share has fallen. But it’s to tradies and government, not capital. Which is interesting.
The US doesn’t do it quite like that. Census (think, could be BES) allocates the last two over the first two. So changes in that portion of the economy which is mixed or tax plus subsidy gets allocated to capital and labour. Which is OK – except when it’s that very difference which we want to explore and we’ve now obscured by using the same old weights to allocate over labour and capital.
There’s also one more wrinkle. I actually have difficulty believing this but I did run it to earth once and this really was what – I am sure but am always open to correction – they were doing. One of the differences between GDP and GNP is how to treat the foreign profits of domestic firms.
For GDP include domestic profits of foreign and domestic firms, exclude foreign profits of domestic firms. For GNP exclude domestic profits of foreign firms and include foreign profits of domestic firms. D means what happens in our economy, N means what flows to the people of our country after all.
But, from what I could see – and still don’t quite believe – the US GDP numbers include the foreign profits of US firms. Which is terrible economics but that’s what – again as far as I could see – they do. And that’s a problem. The overseas profits of Apple, Google. MSFT and so on do add up to a percentage point or two of the whole US economy. Skews the ratios considerably.
Of course, there’s an easier way of putting all of this – economic statistics aren’t very good. Therefore we can’t use them for detailed proofs or management. But then Hayek got there before us on that point, no?
Jacob – please spare us the Pragmatist philosophy that there is such thing as objective truth, or if there is we humans can not reach it.
When a man says, for example, that free market roll-back-the-state were followed under President Hoover and they know that taxes and regulations went UP (not down – UP) dramatically – they are not making an honest mistaken, they-are-lying. They lie about economic history (“the data”) not “just” economic theory.
As for economics – you do not understand the subject Jacob, that would be fine (there are many subjects that I myself do not understand), but you insist on saying that there is no such body of knowledge, that it is just a matter of opinion.
It is not a matter of opinion. Whether one uses the logical method of Ludwig Von Mises and others, or the empirical method of Thomas Sowell and others, economics is not a matter of opinion.
Would you be happy if I wrote about a subject you had long studied, whilst knowing nothing about it myself, and said “it is all ideology – there is no objective truth standard”.
“But what if they honestly do not not know the facts and are making false statements – but in good faith”.
That is what I used to believe – so I would comment on stuff that Krugman, Stiglitz and others made – pointing out, and pointing out politely (yes politely) that they had made errors of fact.
They carried oh regardless – they made the same false statements again in other writings. So I stopped being polite – because they were not making honest mistakes, they were not writing in good faith – they were, and are, lying scumbags.
As for economic inequality – some is natural and some is artificial created by such things as fiat money.
Fiat money also tends to concentrate economic control (in the United States shares tend to be “managed” by Black Rock, State Street and Vanguard – and they have shares in each other, so, to some extent, act as a “blob”).
That fiat money (credit money) does this is not some new discovery – Richard Cantillon pointed it out some three hundred years ago. Which is why it is called the Cantillon Effect.
An economy dominated by fiat money, by government and its partners the Credit Bubble banks and Corporate entities such as Black Rock. State Street, and Vanguard, must not be confused with a free market capitalist economy.
Do the establishment economists who claim to be so upset about inequality, campaign against fiat money and Credit Bubble banking? No they do not.
Their claims to care about inequality and the concentration of economic power, ring hollow.
There is a massive gulf between the official account of how the American economy is doing – and what people experience in their own lives.
Ordinary Americans experience themselves getting poorer and poorer – they find it harder and harder to make ends meet. But the official account is that the economy is doing wonderfully, it is “the envy of the world” according to the Economist magazine and only the evil “Trump” could threaten he paradise that Americans live in – at least it is a paradise according to the official account of the economy (the Economist magazine, and the rest of the media, and the government officials and corporate managers).
The experience of people tells them that they are getting poorer – but the official statistics say the economy is doing great and they have never been better off.
Some people react to the endless stream of official lies (everything from rigged inflation numbers, to underestimate inflation – and thus understate declining living standards, to rigged historic temperature figures) by blaming “capitalism” – but this is a mistaken reaction.
It is a mistaken reaction, as this Credit Money Bubble of debt has bugger all to with capitalism.