Data from the Bureau of Labor Statistics makes it clear that–unlike the three decades preceding it–the 30 years following the election of Ronald Reagan have seen the growth rate of worker compensation fall far short of the increase in worker productivity.
This trend is illustrated in the following graph, posted by Kash Mansori at the Angry Bear blog, based on data from the U.S. Bureau of Labor Statistics.
Mansori notes “how much the two series have diverged since the early 1980s,” pointing out that “output per hour of work in 2010 was 87% higher than in 1980, while real hourly compensation was only 38% higher.”
Digging a bit deeper into the data, Mansori notes that “the vast majority of the gap between productivity and hourly compensation comes from the 1980s and 2000s, while during the 1990s workers shared in productivity gains nearly as fully as they did in the 1960s.” He closes his post by asking “what was it about the 1980s and 2000s that made it so difficult for workers to reap the fruits of their more productive labor?”
As the latest phase of the Euro-crisis intensifies, it seems increasingly clear that Europe is at a difficult and historic crossroads in its long, slow transition from horrific warfare (and economic depression) during the first half of the 20th century, to a peaceful, mutually beneficial and economically strong “European community.” Continue reading →
As I read about the “debt problem” and hear it discussed endlessly on TV news shows, I find myself deeply disappointed to note how many journalists, politicians and even economists fail to make the distinction between private debt (i.e., debt owed by individuals and businesses) and “debt” incurred by the U.S. and other governments that issue their own floating-rate, non-convertible (i.e., “sovereign”) currencies.
The same is true of the widespread failure to distinguish between the U.S. and the 17 European countries that have adopted the Euro as a shared currency. Unlike the U.S., each of these 17 countries has abandoned its role as sovereign issuer of currency and the flexibility it provides with regard to fiscal policy. So in this important respect, these European national governments now resemble individuals and businesses more than the U.S. government. Or perhaps more accurately, they most closely resemble individual U.S. states that lack a common treasury, fiscal union and financial backstop corresponding to the U.S. federal government.
Since I believe there’s enormous untapped (and much needed) value that can be generated by the U.S. government leveraging its role as sovereign currency issuer for the benefit of its citizens (both current and future), I’m going to revisit a blog post by Dan Kervick at the New Economic Perspectives site. In an earlier post I discussed Kervick’s proposal to better integrate fiscal and monetary policy and move the latter more directly under more democratic control (vs. control by a Federal Reserve Bank that’s more accountable to large banks than to American citizens). In this post I’ll review sections of his post that clarify the nature of federal “deficits” and their relationship to the private sector.
First a key point made by Kervick (and other MMT proponents):
The national government does not need to collect its own money, whether via taxes or borrowing, in order to spend, since the government can create or destroy money.
In a recent post I discussed both Modern Monetary Theory and the New Economy Movement.
As that and a subsequent post indicated, MMT reflects a distinctly macroeconomic perspective, focused as it is on macro-level account balances; aggregate demand and price levels; a realistic view of federal deficits incurred by governments that issue their own floating, non-convertible currency; and the powerfully-constructive role of federal spending, including in support of a job guarantee for all those involuntarily unemployed.
In contrast, the New Economy Movement adopts a mainly microeconomic perspective, focusing on localism, sustainability, organizational systems that embody democratic principles (e.g., cooperatives)…or, in more general terms as described on the New Economics Institute web site, “new ways of organizing and understanding the economy which puts people and planet first.”
In a recent post on his “billy blog,” Australian economist and leading MMT thinker Bill Mitchell made the argument that the flourishing of a New Economy, as advocated by Gar Alperovitz and others, can be best achieved when macroeconomic policies reflect the kind of job- and demand-supporting perspective embodied in MMT. It cannot flourish, argued Mitchell, in an environment constrained by macroeconomic policies favoring fiscal austerity, as is very painfully the case today in Europe and also, to a large degree, in the U.S. Continue reading →
My last post considered a proposal by Dan Kervick, a blogger at New Economic Perspectives, to more closely integrate fiscal and monetary policy, and to transition the latter from the control of a Central Bank that’s mainly responsive to the needs of large private banks and the finance sector, to the control of Congress, which is subject to control by “the people” through the process of democracy.
I ended that post by pointing out that, while I agree with Dan, I’m also pretty disgusted by the current state of our democracy and the corruption of our political system. In closing, I mentioned Professor Larry Lessig and his new book, “Republic, Lost: How Money Corrupts Congress–and a Plan to Stop It,” which focuses specifically on this issue.
While I plan to dig deeper into this issue in future posts, I wanted to provide readers unfamiliar with Lessig and his work some additional links to explore. For those with only a few minutes, you might start by watching this short video.
For those with more time, I highly recommend some of Lessig’s longer presentations on this subject at blip.tv or YouTube. I’ve admired Professor Lessig’s thinking, integrity and courage since the days when he was focused mainly on intellectual property and Internet policies, and have always found his talks to be powerful in substance, unique in style and, while often sobering, also hopeful and inspiring.
You can also find summaries and links to Lessig’s assorted posts on Huffington Post here. The list includes at least two posts discussing his proposal for a Constitutional Convention (here and here). And here are links to CallaConvention.org and RootStrikers.org, two organizations that Lessig is deeply involved with.
In closing, I’ll remind readers that the name of this blog includes the word “systems.” As I see it, successful systemic reform needs to be envisioned and executed from a systems-level perspective. In most cases, making one or even a few “symptom fixes” generally won’t get the job done, since the negative momentum and influence of other systemic elements will work against and perhaps totally negate the impact of such isolated fixes.
That being said, I think Lessig makes a strong argument that addressing the corruption of our political system is an act of “rootstriking” in that this corruption feeds a multitude of problems and makes it extremely difficult if not impossible to effectively address them. In the following presentation at the Free to Connect conference held in Washington DC about a week ago, he makes his “rootstriking” argument in relation to a policy arena that’s particular dear to my (and his) heart–telecom, media and Internet policy.
Though I’d highly recommend the entire 26 minute presentation–which discusses copyright, spectrum policy and municipal broadband networks, among other things–if your time is short, you can jump to the 20 minute mark, where Lessig drives home the essence of his “rootstriking” argument.
To provide a little more background on Modern Monetary Theory (MMT) and its significance, I though it would be helpful to discuss some additional MMT-related material.
In this post I want to focus on a recent blog post by Dan Kervick at the New Economic Perspectives site (which I mentioned in an earlier post). The title of Kervick’s post is Toward Monetary Enlightenment: An Integral Approach to Macroeconomic Policy. I think it does a good job explaining how conventional wisdom regarding the difference between fiscal and monetary policy is “misconceived and outmoded” and suggesting how a more “integrated” approach would be more reflective of reality, and also more beneficial (all bolding is mine). Continue reading →
As I mentioned in my last post, which focused on Modern Monetary Theory (MMT), I’m working toward a post that will explain how a combination of MMT and New Growth Theory (NGT) can have major significance related to Internet policy and economic growth.
In this post I’ll focus on how New Growth Theory fits into this picture. Be forewarned, the post is very long, with no entertaining videos to break up the text. But I hope you’ll find the material worthwhile. Most of it was originally written not by me, but by people whose thinking I greatly admire and believe is important…so, needless to say, I’d highly recommend it. Continue reading →
As mentioned in a prior post, Modern Monetary Theory (MMT) “provides an alternative to the dominant neoclassical framework for understanding the federal deficit and modern monetary systems.” As that post noted, this enables the federal government to, among other things, directly (and dramatically) address unemployment via a “job guarantee” (sometimes referred to “employer of last resort”) program.
This post will elaborate a bit on this brief reference, in preparation for a subsequent post that will link MMT to New Growth Theory—another relatively new economic theory—and apply them in concert to U.S. Internet and communication policy.
As described at the MMT Wiki site (hat tip to commenter Hugo Heden):
There is nothing inherently wrong with government deficits. They do not necessarily “crowd out” private activity, they do not “burden” future generations, they can not lead to “financial ruin” of the government. Persistent government deficits are in fact the expected norm in a growing economy. They add to the net financial assets (currency and bonds) of the non-government sector and this accommodates for its desired net saving.
The government must not “over-fund” the desire to net save, i.e deficit spend so that effective demand exceeds the potential for the economy to expand to meet it. This happens at some point when the economy approaches full capacity utilization and full employment, if the government continues deficit spending. Should that happen, demand side inflationary pressure will arise – a general continuous economy wide price level increase.
But if the budget deficit is calibrated correctly – which means that it matches the saving intentions of the foreign and private domestic sectors taken together – then it can be 10 per cent of GDP or 1 per cent of GDP forever without adding inflationary pressure. It is only when the budget deficit accelerates and pushes total spending in the economy beyond the real capacity limits that they become problematic. So continuous budget deficits forever are fine if that is what is needed to offset non-government savings intentions.
For the cartoon-lovers among you, this 12 minute animated video does a pretty decent job of laying out the basic argument that a sovereign issuer of currency like the U.S. does not face the same kind of “budget constraint” faced by households and businesses (and, in today’s world, the European countries that use the Euro and have abandoned their own sovereign currency). The video was created by Joe Hykan, an economics student and Lewis & Clark College.
For those interested in developing a deeper understanding of MMT, there’s plenty of information at the MMT Wiki and the New Economic Perspectives web site, both of which also have links to other MMT-oriented sites.
In this blog I won’t be attempting to dig deep into MMT theory in ways comparable to what you can find on these and other sites. Instead, I’m going to focus mainly on the policy implications of MMT’s claim that federal budget spending only becomes problematic “when the budget deficit accelerates and pushes total spending in the economy beyond the real capacity limits.”
If true (and I’m convinced that is), this claim has very important policy implications, and poses a direct challenge to the deficit hawks that control (or at least heavily influence) federal policy. All the more so today, when both the cyclical and structural components of U.S. unemployment are problematic, and where we face serious long-term challenges related to providing our citizens with high-quality education, healthcare and employment opportunities, and to addressing climate change and necessary changes in how we generate, distribute and use energy.
As I see it, the ubiquitous availability of high-capacity, symmetrical, non-discriminatory Internet connectivity is a key component of the infrastructure necessary to successfully meet these challenges (and also to improve the functioning of our painfully dysfunctional political system). Unfortunately, the evolution of Internet access and related public policies has fallen far short of what I and many others consider ideal.
As I’ll discuss in a future post, MMT appears to have significant implications for addressing these shortfalls in Internet availability and policy, which, in turn, can help address these broader societal challenges. To me that’s a big deal.
Since economics is supposed to be the study of the exchange of value and (hopefully) the increase in prosperity and well-being among human beings, it will be a central thread of future discussion on this site. The general perspective I’ll be taking is that:
the currently dominant approach to macroeconomics, often called “neoclassical,” is not a very effective approach to understanding the economy and influencing it positively via public policy;
the modern finance sector has too much economic and political power and a largely pathological culture, which makes it a chronically destructive yet very powerful influence on our economy, political process and society as a whole;
the organizational structure, governing systems, incentives, regulation and legal treatment of corporations is biased in favor of maximizing shareholder returns and executive compensation, at the expense of the welfare of other stakeholders, including non-executive employees, local communities and the environment.
That’s the bad news.
The good news is that there are a growing number of economic perspectives that individually and (especially) collectively offer a much more solid foundation for economic analysis, policymaking and “economic growth that works for everyone.” A key part of what I hope to do on this site is to not only discuss these various perspectives, but also to highlight potential synergies among them, and to consider policies and private and/or public initiatives with potential to leverage these synergies to maximize their potential benefits.
There’s a lot of ground to cover in this area. To get started, this post will introduce a few of the organizations, websites, and economic perspectives that are helping to build a foundation for reforming our economic system and the analytical approaches used to understand and influence it.
To get things started, here’s an 8 minute video entitled “Financial Instability,” which was produced by the Institute for New Economic Thinking (INET). One of the key critiques contained in the video is that the field of economics needs to incorporate insights from other disciplines, including psychology, sociology, anthropology, political science and history. Another is that the finance sector has become too powerful and pathological as a political and economic force, and is poorly understood by political leaders and mainstream economists (which makes it all the more difficult to effectively restrain its excessive power).
According to its website, INET “was created to broaden and accelerate the development of new economic thinking that can lead to solutions for the great challenges of the 21st century.” As part of this effort, it recently held a conference in Berlin entitled “Paradigm Lost: Rethinking Economics and Politics.” Information on the conference, including papers and video presentations can be found here.
As its name suggests, a website called “New Economic Perspectives” (NEP) also focuses on reform of the economy and economics as a field of study. More so than INET, it focuses on pretty specific areas of research, analysis and advocacy, including:
1. An emerging school of economics called Modern Monetary Theory (MMT), which provides an alternative to the dominant neoclassical framework for understanding the federal deficit and modern monetary systems. Based on this framework, MMT advocates economic policies that include a federal “job guarantee” for anyone involuntarily unemployed. Given the deep and prolonged unemployment we’ve faced since the financial crisis in 2008, its claim that a federal job guarantee can be provided without causing deficit-related problems makes MMT at the very least a thought-provoking school of economics. Since it’s already provoked some thinking on my part, I’ll be revisiting it in future posts. For those eager to learn more, I’d recommend starting to read through the multi-part MMT Primer on the NEP website. The Primer includes a number of posts specific to the job guarantee (#42-49), the first few of which can be found here, here and here.
2. The need for much stronger regulation of the financial sector, including criminal prosecution. Probably the strongest NEP advocate of such policies is University of Missouri Professor Bill Black, who worked as a financial regulator during the S&L crisis, is an expert on white collar crime, and has written a book entitled “The Best Way to Rob a Bank is to Own One.” Black is not only extremely well informed about the extent of fraud, corruption and “regulatory capture” in the finance sector, but he is also bluntly eloquent in speaking about it, and the ready availability of remedies, if political leaders and regulators choose to employ them. In that spirit, he testified before a congressional committee in the wake of the 2008 financial crisis, which you can watch in the 8 minute video below. And, if you’d like to see him unleash his eloquent and well-informed outrage even more than he did in his congressional testimony you can check out a 16 minute video of Professor Black speaking at an OccupyLA teach-in in late 2011.
The third and last organization I’ll introduce in this post is the New Economics Institute. According to its website, NEI’s purpose is to “develop, research, and lead, in a US context, the implementation of systemic solutions to a series of systemic problems that now face humanity. These include:
The sustainability, climate and dwindling resources crisis.
The equality crisis, here and around the world, in income, assets, access, and democracy.
The financial risk crisis, with a system that is neither efficient nor resilient.
The well-being crisis, in which rising income is not translating into rising happiness.
Since its origins more than 30 years ago as the E. F. Schumacher Society, NEI has focused on “new ways of organizing and understanding the economy which puts people and planet first.” Continue reading →
Nick Carr has a thought-provoking post entitled The hierarchy of innovation on his Rough Type blog. For those not familiar with him, Carr is the author of “The Shallows: What the Internet Is Doing to Our Brains.” According to a New York Times review of the book, it makes the case that computers and the Internet are destroying our powers of concentration, reducing our attention spans, fragmenting our knowledge and consigning us to the “information shallows.” “We don’t see the forest when we search the Web,” says Carr. “We don’t even see the trees. We see twigs and leaves.”
I’ll get back to these points later in this post but, before I do, I want to focus on Carr’s recent blog post on innovation. In it he takes issue with Justin Fox, who he describes as the “latest pundit to ring the ‘innovation ain’t what it used to be’ bell.” In a recent Wired column, Fox echoed the claims of Tyler Cowen, Neal Stephenson and others, which he summarized as follows:
Compared with the staggering changes in everyday life in the first half of the 20th century wrought by electricity, cars, and electronic communication, the digital age has brought relatively minor alterations to how we live.
Carr sees it differently:
There has been no decline in innovation; there has just been a shift in its focus. We’re as creative as ever, but we’ve funneled our creativity into areas that produce smaller-scale, less far-reaching, less visible breakthroughs.
To explain why this might be the case, Carr looks to Maslow’s hierarchy of needs, which is summarized in the following diagram:
Maslow’s Hierarchy of Needs
If necessity is, in fact, the mother of invention, then Carr’s logic makes pretty good sense:
My idea – and it’s a rough one – is that there’s a hierarchy of innovation that runs in parallel with Abraham Maslow’s famous hierarchy of needs. Maslow argued that human needs progress through five stages, with each new stage requiring the fulfillment of lower-level, or more basic, needs. So first we need to meet our most primitive Physiological needs, and that frees us to focus on our needs for Safety, and once our needs for Safety are met, we can attend to our needs for Belongingness, and then on to our needs for personal Esteem, and finally to our needs for Self-Actualization…
If progress is shaped by human needs, then general shifts in needs would also bring shifts in the nature of technological innovation. The tools we invent would move through the hierarchy of needs, from tools that help safeguard our bodies on up to tools that allow us to modify our internal states, from tools of survival to tools of the self…
One of the consequences is that, as we move to the top level of the innovation hierarchy, the inventions have less visible, less transformative effects. We’re no longer changing the shape of the physical world or even of society, as it manifests itself in the physical world. We’re altering internal states, transforming the invisible self. Not surprisingly, when you step back and take a broad view, it looks like stagnation – it looks like nothing is changing very much. That’s particularly true when you compare what’s happening today with what happened a hundred years ago, when our focus on Technologies of Prosperity was peaking and our focus on Technologies of Leisure was also rapidly increasing, bringing a highly visible transformation of our physical circumstances…
We’re already physically comfortable, so getting a little more physically comfortable doesn’t seem particularly pressing. We’ve become inward looking, and what we crave are more powerful tools for modifying our internal state or projecting that state outward.
Carr’s post includes a graphic in which he lays out his hierarchy of innovation in a way that roughly parallels Maslow’s hierarchy of needs.
I agree with Carr up to this point, but can’t fully agree with his conclusion that “the arc of innovation, to put a dark spin on it, is toward decadence.”
Facing a fork in the road
This brings me back to what I consider Carr’s relatively dark view of the Internet as “the shallows”. What I’d suggest is that the age of ubiquitous digital connection and its particular forms of innovation do not necessarily arc toward decadence, but rather that decadence is one optional (albeit tempting) fork in the road of self-actualization-focused innovation. For lack of a better term, I’d call the other one “spiritual awakening,” or the path toward inner peace and our “higher self.” Continue reading →
Evolving Human Systems 