Category: Equitablog

Should-Read: Chris Isidore: Carrier to Ultimately Cut: “Union boss on Trump feud: I called him out…

…It sounded like great news when Carrier said last week that it would invest millions in the Indiana plant it decided to keep in the U.S… a $16 million investment in the facility. But… most of that money will be invested in automation…. “We’re going to…automate to drive the cost down so that we can continue to be competitive,” he said on an interview on CNBC earlier this week. “Is it as cheap as moving to Mexico with lower cost labor? No. But we will make that plant competitive just because we’ll make the capital investments there. But what that ultimately means is there will be fewer jobs.”

The decision to keep Carrier’s furnace manufacturing operations in the U.S. instead of moving them to Mexico will save about 800 jobs out of the 1,400 at the plant, at least in the near term. The company declined to say how many of the plants 800 remaining jobs could be lost to automation, or when…

Should-Read: Where a high Tobin’s Q–ratio of stock market value to replacement cost–is driven by market power, we would not expect high Q to carry high investment with it. But how much has market power increased? And how much shadow market power is driven by common ownership by financiers of all the firms in any particular industry? Or do financiers simply prefer low-investment firms because they are high-payout firms, and thus firms’ cash flows are of relatively short duration?

Nick Bunker: What Could Boost U.S. Business Investment?: “German Gutierrez and Thomas Philippon… why business investment… has been so lackluster since the turn of the 21st century…

…The Q [ratio of stock market value to replacement cost] for overall business investment in the United States is, on average, signaling that business investment should be much higher…. They don’t find any evidence that firms lack… financing…. The biggest explanatory factors… is the increasing concentration of companies within industries and increased “common ownership” of companies by large investment firms. These “commonly owned” companies… use these their funds to finance share buybacks and other shareholder payouts… http://www.nber.org/papers/w22897.pdf

Should-Read: Brad DeLong (2009): Who Are the Foes of Expansionary Fiscal Policy? And Why?: “I am finding it difficult to make progress because it is not clear to me who the audience… who we should be trying to convince of what…

…So let me… spend tonight telling you… what I think others think… [for] I am having trouble in wrapping my mind around the thinking of the intellectual adversaries of my little band, my Light Brigade of believers that fiscal policy right now is not expansionary enough. I am having a hard time figuring out not who our intellectual adversaries are–we know who they are–but how and why they think. What is the case they want to make against the aggressive use of expansionary fiscal policy right now, given the very sad state that the OECD economies are in?…

Should-Read: Noah Smith: A Job Is More Than a Paycheck: “I’ve believed that what mattered most for economic well-being was money…

…I’ve supported lots of policies aimed at boosting the amount of money in the average person’s pocket. I’ve called for Japan to liberalize its markets, and for the U.S. to encourage workers to move to places with better opportunities. And I’ve often assumed that a dollar of government redistribution is just as good as a dollar of wages. I’m starting to think I… ignore[d] a big, important source of economic well-being:  jobs…. Most people probably care not just about the amount of money they get, but how they get it. If they see themselves as having earned their daily bread, they feel better about themselves than if they got a handout. A job also probably has an important symbolic value–it sends a message that society cares about you and has a place for you….

What kind of concrete plans would address Americans’ hunger for jobs? An easy step is to promote demand-based policies that keep employment high, like fiscal stimulus. A more drastic measure would be a federal job guarantee…. It’s probably better to have unemployed people doing something marginally useful…. Perhaps the deepest change would be to tweak U.S. corporate culture, restoring the value of long-term employment…. Tax incentives for long-term labor contracts, or for labor hoarding during recessions, could put the government’s thumb on the scale in favor of employment over pure dollars. Whatever policies are appropriate, it’s clear that economics pundits and policy wonks need to shift our thinking a bit…

Should-Read: Paul Samuelson (1962): On Karl Marx: “Marx, like any man of keen intellect, liked a good problem; but he did not labor over a labor theory of value in order to give us moderns scope to use matrix theory on the “transformation” problem…

…He wanted to have a theory of exploitation, and a basis for his prediction that capitalism would in some sense impoverish the workers and pave the way for revolution into a new stage of society. As the optimism of the American economist Henry Carey shows, a labor theory of value when combined with technological change is, on all but the most extreme assumptions, going to lead to a great increase in real wages and standards of living. So the element of exploitation had to be worked hard…. Marx might have emphasized the monopoly elements of distribution…. Marx might have kept wages dismal by virtue of biological conditions of labor supply…. [But he] tried to demonstrate the same dramatic minimum character of real wages by means of his concept of the “reserve army of the unemployed”

Here is the real Achilles’ heel of the Marxian theory of distribution and its implied prophecies of immiserization of the working classes. Under perfect competition, technical change will raise real wages unless the changes are so labor-saving as to raise the rate of maintainable profit immensely; Joan Robinson and others have pointed out how contradictory is Marx’s notion that both profit rates and real wages can fall once Marx jettisons Ricardo’s emphasis on the scarcity of land and the law of diminishing returns…

Should-Reads: Brad DeLong: This Time, It Is Not Different: The Persistent Concerns of Financial Macroeconomics: “When the Financial Times’s Martin Wolf asked former U.S. Treasury Secretary Lawrence Summers…

…what in economics had proved useful in understanding the financial crisis and the recession, Summers answered: “There is a lot about the recent financial crisis in Bagehot…”. “Bagehot” here is Walter Bagehot’s 1873 book, Lombard Street. How is it that a book written 150 years ago is still state-of-the- art in economists’ analysis of episodes like the one that we hope is just about to end? There are three reasons. The first is that modern academic economics has long possessed drives toward analyzing empirical issues that can be successfully treated statistically and theoretical issues that can be successfully modeled on the foundation of individual rationality. But those drives are disabilities in analyzing episodes like major financial crises that come too rarely for statistical tools to have much bite, and for which a major ex post question asked of wealth holders and their portfolios is: “just what were they thinking?”. The second is that even though the causes of financial collapses like the one we saw in 2007-9 are diverse, the transmission mechanism in the form of the flight to liquidity and/or safety in asset holdings and the consequences for the real economy in the freezing-up of the spending flow and its implications have always been very similar since at least the first proper industrial business cycle in 1825. Thus a nineteenth-century author like Walter Bagehot is in no wise at a disadvantage in analyzing the downward financial spiral. The third is that the proposed cures for current financial crises still bear a remarkable family resemblance to those proposed by Walter Bagehot. And so he is remarkably close to the best we can do, even today.