Jobless recoveries and productivity surges (22 June 2011)

Does the business community care about achieving full employment? Why would it? With a slack labor market, companies can drive workers harder, treat them poorly and cut their benefits as ruthlessly as if they were Greek citizens and the employees have no recourse. That's the essence of the recent Mother Jones article by Monika Bauerlein and Clara Jeffery on the "great speedup" -- how companies are using improving productivity (a.k.a. working people much harder) to trim their payrolls and improve profits.

In all the chatter about our "jobless recovery," how often does someone explain the simple feat by which this is actually accomplished? US productivity increased twice as fast in 2009 as it had in 2008, and twice as fast again in 2010: workforce down, output up, and voilá! No wonder corporate profits are up 22 percent since 2007, according to a new report by the Economic Policy Institute. To repeat: Up. Twenty-two. Percent.

Why aren't we outraged? The authors suggest the American ideology of hard work and bootstrapping makes us particularly susceptible to drawing our self-esteem from overwork (maybe we all need to be reading Lafargue), though the weak labor-protection laws also play a part in helping corporations get away with limiting vacation time, sick pay, parental leave and so on. They point out that "productivity" is more or less a euphemism for extracting more labor from workers in shorter time periods, glossing over the reality of bosses sweating employees by evoking some magical technological fix. Sometimes we are lulled into thinking "productivity improvements" means people work just as hard as they ever were but more stuff is made, thanks to magic machines. Machines often permit workers to do more faster, but some innovations -- communication technology, for instance -- serve to conceal the extension of the working day and the intensiveness of workplace discipline. And in all cases, technological accelerants have a corresponding effect on workers, who must keep up with the machines and may experience increased stress as the managerial pressure mounts. The authors argue that we should organize and fight for more respite from this pressure in the form of increased vacation, work-sharing programs, and the like. Implicit is a sanction of the idea of a productivity freeze, anathema to the traditional economic view that quality of life improves with productivity. Does that calculus shift when productivity yields persistent unemployment and corporate looting of labor's share of the gains from productivity? Perhaps capitalists believe fundamentally that labor doesn't deserve a share -- that seems to be the de facto position of the Republican party.

At his blog, Jared Bernstein has more on the slack labor market, with charts intended to demonstrate that "the diminished ability to bargain for their fair share of productivity growth is a major factor in the productivity/income split. You may think I’m talking unions here, but I’m not. I’m talking high unemployment." Lane Kenworthy, in his recent has a post about jobless recoveries, argues that data from recent recessions reveals that the "pattern of the 2000-07 business cycle may indicate a fundamental shift in employer practices, with greater reluctance to hire and eagerness to fire," citing this 2010 paper (pdf) by Robert Gordon about the apparent demise of Okun's Law, which associates growth with falling unemployment. Gordon claims that the data show that "the concept of a procyclical 'productivity shock' and 'technology shock' is no longer relevant, except in reference to particular major changes in the relative price of oil or other commodities" and surveys some of the other explanations for "structural labor‐market change." This one was particularly comforting:

Firms can reduce employment and hours with impunity if they no longer value the human capital embodied in their experienced workers and have confidence that via the internet they can find replacement employees with equivalent skills, and an ability to learn rapidly the necessary specific human capital to function well on the job.

In yesterday's post I was trying to make the case that internships are an exact reflection of this growing confidence. When jobs become a matter of harnessing the general intellect of the multitude, the individual nodes of the rhizome are interchangeable. Specific skills have become less important than general malleability, so there is no need to keep the same people around or show loyalty to employees to build organizational capital. More and more of us become, to use the term Gordon adopts, "disposable workers." The internet is exacerbating this process not only by making it easier to recruit fresh meat, but also by allowing capital to subsume more and more of everyday life, rendering more of production social (that is, a by-product of subjectivity formation and sociality in general). This polarizes the labor market further into superstars with irreplaceable skills in producing affects (the celebrities whose lives make the other commodities they associate with valuable, and the entertainers who more dependably stimulate us) and the rest of us proles who make up the wisdom of crowds.

But the overarching point of all these articles is that economic growth is not benefiting society as a whole but a smaller class of capitalists and rentiers -- and this appears to be by design, if you buy the story outlined here by Robert Reich (short video). The top 1% of the income distribution controls government, forcing it to pursue policies of austerity rather than those designed to improve employment, because the top 1%, shortsightedly or not, doesn't care about unemployed people, and in fact, can exploit them more ruthlessly the more desperate they are. And politicians don't care about them because constituents are easily demagogued into agreeing with the paymaster's political program. There is no apparent possible consensus, because the 1%ers behave as though improving society for all saps their wealth in zero-sum fashion. Meanwhile, the quality of life for the middle class erodes, government services are cut indiscriminately, and we slouch toward becoming a banana republic.

The "idea crunch" (3 Feb 2009)

This passage by Steve Waldman gets at the fundamental issue in recessions (and in the arguments about the stimulus package), something that the byzantine complexity of structured finance tends to conceal. This recession is not the product of some specific financial misstep or one bad class of investment so much as it is the inevitable consequence of having too much money looking for too few investment opportunities.

Ultimately, a financial system has to find productive projects for the private parties to invest in. The government can invest directly, can delegate investment to the best and the brightest, can saturate the public's demand for money until private parties try to find other means of storing wealth. But it's what real human beings do with real resources that ultimately matters. Our financial system didn't fail because it was overlevered. It failed because it was uncreative: It could not conjure up worthwhile things to do with the capital it was asked to invest, and instead of owning up to that, it pretended that poor projects were good. Financial markets are ultimately information systems. The only way out of this is to discover worthwhile things to do, or more importantly, to develop better means of generating a diverse menu of worthwhile things to do going forward. Right now, the government is being asked to do what the semi-private financial system could not: generate a positive real return on trillions of dollars of undifferentiated future claims.

He is following up on an idea that investment banker/blogger Cassandra outlined in this post: After listing a bunch of dubious investment ideas that had been launched in the bubble period, Cassandra writes, "maybe credit crunch is wrong description. Maybe it's actually a useful productive idea crunch. Maybe, we are -- for the moment -- overbuilt, over-satiated, over-consumed, and just full-up. And that is before we ask anyone for credit."

This is similar to the Marxist idea of overaccumulation. Basically, workers are squeezed out of the production process by capital investment in technology. With fewer workers, you can't extract value (no profits), since all value ultimately comes from human labor making something socially useful. "Productive projects," in Waldman's terminology, are a matter of putting workers to work on projects the world is capable of using. And, to oversimplify radically, Wall Street used financial chicanery to evade the problem of actually being productive, which allowed more capital to flow to capitalists rather than the workers who would have to be paid at some point.

Another way to look at this: Capitalism has no incentive to develop socially useful ends. The category of the socially useful, though not given by human nature and immutable, is not automatically elastic either; it needs to be fostered. (The growth of this category is the flowering of the species to its full potential.) Marx contends that capitalism, basically, fails to foster the socially useful -- that is, the pursuit of surplus value prevents resources from being devoted to developing and reproducing human capabilities so that more things can be considered socially useful. (This may be part of the answer to why don't Chinese workers consume more -- at the site of the most intense capitalist exploitation of labor, the capacity to consume is stunted both by inadequate wages and inadequate cultural capital.) The point of the stimulus package, when you abstract away from the numbers and the "shovel-ready" projects and so on, is to invest in developing the category of the socially useful directly, rather in the indirect and haphazard way private investment deals with it. But will the state will necessarily be any better at finding "productive projects" than private investors? Won't most of the money end up in pork projects and boondoggles like this? Megan McArdle argues stimulus spending should be able to pass some test of economic efficacy.

It is not enough to argue that the projects are worthy, as, say, covering the healthcare over people aged 55. To go in the stimulus package, it should provide stimulus--that is, either spur real economic growth directly, or at least convince people that it will, improving their animal spirits. Programs that do not meet these criteria should not be part of the stimulus package. There are better ways to assist the unemployed than to build a bridge we don't need. If a project won't "pay" for itself, then it should be justified on its own terms, not packaged into a stimulus so that politicians don't have to explain their choices to the American people.

But what is this test? Often we rely on sheer profitability to determine worthiness, but these investments are to a degree, by definition, non-capitalistic -- these are programs private investment wouldn't touch, and if you view that as a sign that they are inherently wasteful, all stimulus packages will be anathema to you. It seems like an investment in ideology.

David Leonhardt's long NYT Magazine article "The Big Fix" looks at this question as well. He argues that our consuming habits in recent decades constituted an "investment-deficit disorder" that left the forces of innovation crippled. Thus the government must step in with infrastructure investments.

Governments have a unique role to play in making investments for two main reasons. Some activities, like mass transportation and pollution reduction, have societal benefits but not necessarily financial ones, and the private sector simply won’t undertake them. And while many other kinds of investments do bring big financial returns, only a fraction of those returns go to the original investor. This makes the private sector reluctant to jump in. As a result, economists say that the private sector tends to spend less on research and investment than is economically ideal.
Historically, the government has stepped into the void. It helped create new industries with its investments. Economic growth has many causes, including demographics and some forces that economists admit they don’t understand. But government investment seems to have one of the best track records of lifting growth. In the 1950s and ’60s, the G.I. Bill created a generation of college graduates, while the Interstate System of highways made the entire economy more productive. Later, the Defense Department developed the Internet, which spawned AOL, Google and the rest. The late ’90s Internet boom was the only sustained period in the last 35 years when the economy grew at 4 percent a year. It was also the only time in the past 35 years when the incomes of the poor and the middle class rose at a healthy pace. Growth doesn’t ensure rising living standards for everyone, but it sure helps.

Growth is another way of saying "expansion of the production of social utility" -- people have more meaningful projects to work on and more fulfillment as a result. GDP, however, doesn't necessarily measure that kind of growth; it can't been massaged through financial manipulation, the creation of what David Harvey calls "fictitious capital." As Leonhardt points out, recent "growth" has been illusory: "Richard Freeman, a Harvard economist, argues that our bubble economy had something in common with the old Soviet economy. The Soviet Union’s growth was artificially raised by massive industrial output that ended up having little use. Ours was artificially raised by mortgage-backed securities, collateralized debt obligations and even the occasional Ponzi scheme." The fiscal stimulus could be directed at real growth to compensate for the capital destruction going on with the unmasking of the fictitious capital Wall Street had been creating.

The policy prescription that follows from this seems clear to me. The government should spend on those worthy but noncapitalistic projects that expand human potential and create public goods, and they should not spend on projects whose only purpose is to prop up asset values for those fat cats who hold vast amounts of fictitious capital. In other words, build transit systems and pay teachers better; don't bail out banks. Of course, chances are we will do the opposite.