The Real Movement

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Category: Economic Data

EPI on the so-called “slow-motion wage crisis”

Decline of manufacturing employment in absolute numbers and as a percentage of the labor force, 1939-2017. Source: EPI, U.S. Census

The Economic Policy Institute has produced a report, America’s slow-motion wage crisis, purporting to explain the decline in the living standards of American workers since 1979. The problem with this report is that it completely ignores the role unions played in abandoning the fight for fewer hours of labor:

For the last four decades, the United States has been experiencing a slow-motion wage crisis. From the end of World War II through the late 1970s, the U.S. economy generated rapid wage growth that was widely shared. Since 1979, however, average wage growth has decelerated sharply, with the biggest declines in wage growth at the bottom and the middle. The same pattern of slow and unequal growth continues in the ongoing recovery from the Great Recession.

In addition to grossly understating the decline in real wages since 1971 by employing the misleading Bureau of Labor Statistics consumer price index measure, there are real problems with the conclusions to this study.

The first problem is that with regards to the decline of manufacturing, it is entirely predictable based on Keynes theory of technological unemployment. That theory simply states technological unemployment is inevitable because the rate at which we are improving the productivity of labor is outstripping the rate at which we can find new uses for labor. Keynes clearly stated that this problem could only be solved by a progressive reduction of hours of labor.

The second problem is that the term, “full employment,” is meaningless. We have one objective benchmark by which to measure whether available labor power is fully employed or not: can the employment of additional labor power produce additional profit. But here we run into Keynes problem of technological unemployment, which suggests there is no use for the additional surplus product. If there is no use for the additional surplus product, it has no value, according to Marx. This situation can be disguised for a time by the wholesale destruction of the productive forces in a world war, as happened from 1936-1945, but it must reassert itself eventually.

The third problem is that if unionization is mostly concentrated in manufacturing and related sectors and those sectors are being eviscerated by technological unemployment, the natural tendency would be for unionization to decline unless effort was made in the opposite direction by labor unions and workers. For whatever reason (and there are many), we don’t see this.

Not surprising, union membership has been devastated during the period from 1983 to 2018:

Declining union membership, 1983-2018. Source: Bureau of Labor Statistics

It is this last trend that should make us pause at this point: historically, unionization is tied to manufacturing and related sectors, but these sectors are precisely the ones that were being eviscerated by technological unemployment and shedding massive numbers of union jobs during the 1970s. To save those union jobs, labor unions should have been pressing for a sharp reduction in hours of labor to address the effects of technological unemployment. Instead, the unions abandoned the fight for less work, with the devastating results we see today.

The year 1979 is in fact a pivotal year not only for the study, but in American labor history: that was the year the AFL-CIO and the Democrats celebrated the signing of the Humphrey–Hawkins Full Employment and Balanced Growth Act. Although highlighting full employment in its title, the act actually de-emphasized employment; giving priority to maintaining low inflation. Which is to say, after effectively abandoning the fight for a shorter work week in the 1960s, in 1979, full employment was abandoned entirely with the tacit approval of the labor unions.

Thinking about negative interest rates

I have used this chart before. It shows that, presently, many of the most important economies of the world market have interest rates that have plunged below the zero lower bound.

This event is so unprecedented in economic history that no one knows what to make of it. Prior to a decade ago or so, no one even thought it possible that lenders would advance credit at a loss. But here we are.

Germany bond yield curve, September 6, 2019 (Source: Trading Economics)

If Marxist theorists need any further confirmation that fiat currency doesn’t behave like money, they need look no further than Germany bonds, where the yield curve out to 30 years is now negative. Just try explaining, on the basis of Marx’s labor theory of value, creditors who lend their capital to the German state with the firm expectation they will incur a loss.

The only explanation that makes sense to me is that they are trying to avoid bigger losses of capital elsewhere. They accept a loss on the capital they lend to the Germany state to avoid losing more, or even all, of their capital elsewhere. In a commodity money regime, this situation could not happen. Alongside interest rates falling to zero, gold would be withdrawn from circulation into hoards. The two movements are driven by the same phenomenon — the falling rate of profit, which produces an ever growing mass of superfluous capital.

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If anyone but Trump were president right now, this country would be losing its mind…

What you are looking at in the chart below is likely the most frightening chart available to economists today: 10 year benchmark long-term government bond yields for Germany, France, Switzerland and Japan. The chart shows that yields for each of these countries has reached or broken through the dreaded zero-lower-bound.

I think, the implications of this chart are that most advanced economies of the world market are now firmly trapped in a deflationary death spiral.

10 year benchmark long-term government bond yields for Germany, France, Switzerland and Japan (Source: St. Louis Federal Reserve)

If Donald Trump were not president, economists would be losing their minds about right now. The reason they would be losing their minds is simple: the above chart shows that monetary policy is dead and U.S. allies have no real tools at their disposal to fight the onrushing catastrophe. Without a massive fiscal stimulus on order of World War II, the United States will quickly follow its allies into the abyss.

But a massive fiscal stimulus package at this time would guarantee the reelection of Donald Trump and no one wants that. So they have their fingers crossed.

Wage Labor and Inflation III

If we consider the two most important commodities in the capitalist mode of production, labor power and gold, side by side, we can see that the prices of the two have clearly followed very different trajectories since 1970:

The difference is so stark in fact, that the dollar-denominated price of labor power appears hardly to have changed at all, when in fact it has risen five-fold, from $1.45 to $7.25, over the period covered by the chart. The increase in the minimum wage, although 500%, is nowhere near the astonishing increase in the price of gold, which has, during the same period, increased by more than 3500%.

It might be said that gold is unique in this regards, but this would be wrong. Let’s look at another group of market transactions that seem to defy the modest inflationary performance of minimum wage since 1970 — the stock market.

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Wage Labor and Inflation II

Above is one of those misleading minimum wage charts you might come across in radical activist agitation. As is usually the case, it tells us very little about the minimum wage or why, despite its steady increase since the late 1930s, a minimum wage worker continues to be mired in poverty. The answer, as I will show, is that it is designed to keep the worker in poverty. The minimum wage is set at such a level as to maintain the worker in such condition that she must sell her labor power no matter the increase in the productive power of her labor.

How this is accomplished is the subject of this post.

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The Federal Reserve and monetary policy

It is almost certain the Federal Reserve Bank will raise its policy interest rate next week. The question is why? According to most mainstream simpletons there is no appreciable inflation, real wages are only beginning to rise, growth is robust and unemployment has dropped to levels unseen since the sixties. It is what the simpletons call a “Goldilocks economy” — not running too hot or too cold, a sustainable moderate economic expansion.

Oddly, the Fed seems intent on killing it.

Why increase interest rates, especially when this increase will likely not be felt for — perhaps — eighteen months or so? Is the Fed dead-set on committing suicide? Perhaps eighteen months is the clue: the impact of an interest rate increase in December, 2018 would only just be felt in June, 2020; smack dab in the middle of the presidential election season. It is just possible that the devious bastards at Federal Reserve are trying to trigger a recession just in time for Trump’s re-election.

Trump would be the first president to run for reelection in the middle of a recession since Jimmy Carter — and we all know what happened to that poor fool.

Of course, I have no way of knowing if this reasoning is accurate, but it makes complete sense to me.

Can we afford to work less than we do now?

Not surprising, one of the most persuasive arguments against abolishing wage labor is that it leads to poverty for the workers. As the comment below from a writer on Reddit states, loss of a job can have a profoundly negative impact on an individual’s financial situation:

If this is anti-work, then how do you get by?

I’m out of a job myself (not by choice), but I still need to make money because I need to make bill payments. My parents have been helping me, but I don’t want to be a burden on them. … I just want to know how y’all get by without work to have money for wants and needs.”

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Is Obama serious?

I’m old enough to remember when even Obama’s own Democ-Rat economic policy adviser, Larry Summers, said Obama’s economic policy was failing to generate sufficient growth:

Oh, and btw, Obama likely just signaled that the Democ-Rats will go along with a cabinet vote to remove Trump from office under the 25th amendment. The anonymous writer is not a he or a she; it’s a they.

Thirteenth note on Moseley’s “Money and Totality”

Moseley writes:

“(1) Marx’s theory is structured according to two main levels of abstraction: the production of surplus-value and the distribution of surplus-value, and the production of surplus-value is theorised prior to the distribution of surplus-value, which means that the total surplus-value in the economy as a whole is determined, logically, prior to its division into individual parts; (2) the subject of the theory throughout is a ‘single system’ – the actual capitalist economy – which is first analysed at the macro level of the total economy and is then subsequently analysed at the micro level of individual industries; (3) the logical framework of Marx’s theory of the production and distribution of surplus-value is the circuit of money capital, which is expressed symbolically as:

M – C … P… C’ – M’,

where M’ = M + ΔM and the main goal of the theory is to explain the origin and magnitude of the total ΔM in the economy as a whole; (4) the initial money capital M at the beginning of the circuit of money capital is taken as given, as initial data, both in the macro theory of the total surplus-value and in the micro theory of the individual parts of surplus-value; (5) the given initial M is eventually explained in two stages, first partially at the macro level and then more completely at the micro level; and (6) the variables in the theory are determined according to the logic of sequential determination (not simultaneous determination), in the above senses.

In this book, it will be argued that, if Marx’s logical method is interpreted in this way, then there is no ‘transformation problem’ in Marx’s theory, and that Marx’s theory of prices of production is logically coherent and complete.”

Anyone who has ever tried to explain inflation based on the premises of Marx’s labor theory of value knows immediately that the neat relation (alleged by all schools) between the value of a commodity and its price in Marx’s theory is, at the very least, highly problematic. The history of prices for the last century suggests, if anything, that the prices of commodities are inversely correlated to their values.

Thus, as the productivity of labor has increased since 1950:

United States Nonfarm Labour Productivity 1950-2018: Productivity in the United States averaged 60.17 Index Points from 1950 until 2018, reaching an all time high of 105.08 Index Points in the second quarter of 2018 and a record low of 26.03 Index Points in the first quarter of 1950.

The prices of the commodities produced by this increasingly productive labor increase with it:

United States Consumer Price Index (CPI) 1950-2018: Consumer Price Index CPI in the United States averaged 110.91 Index Points from 1950 until 2018, reaching an all time high of 251.29 Index Points in July of 2018 and a record low of 23.51 Index Points in January of 1950.

 

If, as Moseley suggests, Marx’s labor theory of value simply proposes that labor values of capitalistically produced commodities are expressed in their prices of production and no more, it is obvious Marx was wrong. If anything, prices of production appear to be positively correlated with labor productivity — as the socially necessary labor time required for production of a commodity falls, its price rises.

Empirical evidence seems to suggest that the alleged neat relation between labor values and money prices begins to break down almost immediately with the capitalist mode of production.

The Left will have to deal with Trump economic success

According to the BBC:

“The Commerce Department’s second estimate for the April-June period put growth at an annualised 4.2%, slightly up from the previous figure of 4.1%.

“It was the best quarterly figure for nearly four years and put the economy on track to hit Donald Trump’s goal of 3% annual growth.”

Trump is making the Left his bitch. He owns the so-called “bread and butter” issues.