Peter Frase

NPR has a [nice little feature](http://www.npr.org/blogs/babyproject/2011/08/08/139121410/parental-leave-the-swedes-are-the-most-generous) on parental leave policy in Sweden. This relates to my own research on working time, and I think parental leave is a particularly interesting case when it comes to the politics and sociology of time. That's because I've come around to thinking--partly under [the influence](http://realutopias.org/the-real-utopias-project/gender-equality) of my adviser, [Janet Gornick](http://web.gc.cuny.edu/liscenter/pages/gornick.html)--that the issue of reducing working hours is connected to feminism and gender equality at a fundamental level.

That's because paid work time isn't the only working time we need to think about--there's also the unpaid cooking, cleaning, shopping, care of children and elders, and so on, that's done for free. This work is still disproportionately done [by women](http://economix.blogs.nytimes.com/2011/03/10/women-lead-in-unpaid-work/?partner=rssnyt). Given that fact, it's highly likely that any reform that makes it easier to reduce paid working time will inadvertently tend to reinforce the gender division of labor, in which men do paid work and women do unpaid work in the home that is not as highly valued. This moves us away from the ["dual caregiver, dual earner"](http://www.ces.fas.harvard.edu/publications/docs/pdfs/GornickMeyers.pdf) model that I think would be preferable from the standpoint of gender equality.

As things stand now, women will generally be more likely to reduce their hours than men when the opportunity presents itself. Women may then face discrimination in the labor market because employers start to assume that men will work longer hours. This is a concern even in [a country like the Netherlands](http://www.nytimes.com/2010/12/30/world/europe/30iht-dutch30.html), which has a lot of protections for part-timers and a huge number of part-time jobs, and hence is a beguiling model for shorter-hours advocates like me.

Even if men and women do reduce hours equally, there's no guarantee that the man will contribute to the unpaid labor of the household even if he's around. In the long run, the only solution to this dilemma is to figure out how to make men do their share of the housework--which means that to some extent this is a matter of cultural change that the state doesn't have much control over. Still, getting the guy to spend time in the home is a good start, and so there is still a role for well-designed policy that facilitates reductions in paid working time for everyone.

This brings us back to the Swedish parental leave model: Swedish couples are guaranteed a total of 480 days of paid parental leave, but 75 percent of this is taken by women. The Swedes are aware of this imbalance, which is why 60 of the 480 days are set aside specifically for men, and cannot be used by the woman in a couple. This is a good start, and it seems to be having some genuine impact on the gender division of labor, although it would probably be even better if we could move closer to a 50/50 split.

But since traditional gender roles are a pretty tough nut to crack, more aggressive policy is probably warranted. For instance, [this article](http://www.law.upenn.edu/journals/jbl/articles/volume9/issue2/Ayanna9U.Pa.J.Lab.%26Emp.L.293(2007).pdf) suggests a policy that doesn't just replace a man's wage when he's on paternity leave, but actually pays *more* than he was making at his job. I'd be in favor of that kind of approach if that's what it takes to make us guys take equal responsibility for unpaid work.

And if Don Peck [is right](http://www.theatlantic.com/magazine/archive/2011/09/can-the-middle-class-be-saved/8600/) that men are likely to face increasing difficulty in the labor market as the transition away from an industrial economy proceeds, then us guys may have no choice but to rethink our relationship to wages and labor.

Michael Lewis's [new article](http://www.vanityfair.com/business/features/2011/09/europe-201109) about Germany is getting some play (although Kevin Drum [hates it](http://motherjones.com/kevin-drum/2011/08/michael-lewiss-lazy-take-germany)), so I figured this was a good time to dust off and extend some notes I wrote after I read Lewis's *The Big Short*. After some general reflections about the financial crisis, I deal specifically with the Germans at the end.

*The Big Short* tells the story of the financial crisis by following a few individuals who saw it coming early and placed bets against the edifice of home mortgage-based structured finance. This personalization has clear storytelling benefits, but it tends to occlude the structural basis of the entire system; nonetheless, it's possible to back out a more interesting institutional story from the book.

Throughout the book there is an implicit tension between two ways of seeing the crisis. This tension turns on the distinction between idiots and crooks--or to put it another way, between rationality and madness. One popular interpretation of the crisis, and of Lewis's book, is that the explosion of sub-prime lending and securitization was the result of mass stupidity, and that huge numbers of people simply failed to understand or account for the incredible financial risks they were taking. This is basically [the approach Ezra Klein takes](http://voices.washingtonpost.com/ezra-klein/2010/04/michael_lewis_and_the_idiots.html) when he quotes Larry Summers' famous remark that "there are idiots" and concludes that the crisis was a consequence of human weakness and error in the context of a system with few regulatory restraints. He reiterated this claim later, in a post [criticizing](http://www.washingtonpost.com/blogs/ezra-klein/post/what-inside-job-got-wrong/2011/05/19/AGgGoJgH_blog.html) the documentary *Inside Job*.

Yet idiocy does not stand up as a the central causal factor behind the crisis. For one thing, it seems odd that there would be such a concentration of idiocy in the most lucrative field of the American economy, one which has been leeching the brightest minds out of the rest of the society for decades. Moreover, it is necessary to explain not only the preponderance of idiots, but the tendency for their idiocy to work systematically *in the same direction.* At one point in Lewis's book, Greg Lippmann, the Deutsche Bank trader who made millions short-selling subprime mortgage debt, refers to the market as a "tug of war", with him and the other short sellers pulling against all those who were promoting and buying mortgage-based financial instruments. Yet up until fairly late in the game, almost everyone was pulling in one direction, to the extent that Lippmann and others actually had to call new financial instruments into existence in order to short the market after 2005. This is not what we would expect from people who were just being stupid. In academic finance, the technical term for idiots is "noise traders", and they are thought to provide erratic and irrational actions that may destabilize markets but do not systematically move them in one particular direction.

As it turns out, the story Michael Lewis actually tells is about something much worse than idiots. The two most significant lines in the book are this one:

> If you wanted to predict how people would behave, [Warren Buffet's partner Charlie] Munger said, you only had to look at their incentives.

And this one:

> What's strange and complicated about it, however, is that pretty much all the important people on both sides of the gamble [on subprime mortgages] left the table rich.

This last point bears reiterating, as it's what makes the story Lewis tells so infuriating. Though the financial crisis produced a great deal of institutional calamity--the disappearance of Bear Stearns, Lehman, and many smaller banks and investment houses--the individual people responsible for the worst decisions of the last decade managed to greatly enrich themselves even as they nearly annihilated the global economy. No doubt, some of them could have made even more money had they been more astute about the system they were building. And it's undeniable that some of them, particularly toward the end, were getting high on their own supply, taking the the bogus triple-A ratings on toxic subprime garbage at face value even though they had an inside understanding of the con game they represented.  But ultimately, these people--who in a just world would be penniless and serving extended prison terms--walked away with millions of dollars. There are plenty of apt descriptions for people like that, but "idiots" isn't the one I would choose.

Much of the dramatic action in *The Big Short* turns on some variant of the old gambler's adage that if you don't know who the fool at the table is, it's you. His protagonists spend page after page desperately trying to find the fool in the financial markets, lest it be them. And yet reading between the lines, we can see why they had such trouble: the fool was not at the table. The fool was all of the *rest* of us: it was the taxpayer, and the U.S. government, which ultimately took responsibility for picking up the pieces and stabilizing the financial system after its cataclysmic meltdown. We've come to accept that the high ratings given to subprime mortgage bonds were a fiction or a fraud, but in a sense they were accurate: their risk had been implicitly moved elsewhere, to the government. The key participants in the events of Lewis's book were never in any great danger of not getting rich, and hence it could be argued that they correctly perceived their risk and that they successfully followed their incentives.

Nevertheless, there are some particular cases of idiocy that are interesting in their own right. One particularly important one concerns a recurring customer who became very important to the subprime market: German institutional investors, or as they are called at one point, simply "Dusseldorf". Lewis never really tries to explain their outsized appetite for murky subprime instruments. But if you know something about how German capitalism works, and how it differs from its Anglo-American counterpart, then passages like this make perfect sense:

> By early 2005 Howie Hubler had found a sufficient number of fools in the market to acquire 2 billion dollars' worth of these bespoke credit default swaps. From the point of view of the fools, the credit default swaps Howie Hubler was looking to buy must have looked like free money: Morgan Stanley would pay them 2.5 percent a year over the risk-free rate to own, in effect, investment-grade (triple-B-rate) asset-backed bonds. The idea appealed especially to German institutional investors, who either failed to read the fine print or took the ratings at face value.

In the language of the ["varieties of capitalism"](http://kisi.deu.edu.tr/muge.tunaer/VoC.pdf) school of comparative political economy, Germany is what is known as a "coordinated market economy" or CME, whereas the U.S. is a "liberal market economy" or LME. The structure of the market in a CME is fundamentally different in that it relies heavily on coordination between firms, based on tight long-term inter-linkages and above all, trust. This contrasts with the more ruthlessly competitive ethic of the LME, in which formal contracts take the place of reciprocal trust relations. As Peter Hall says in the linked essay:

> In coordinated market economies, firms depend more heavily on non-market relationships to coordinate their endeavors with other actors and to construct their core competencies. These non-market modes of coordination generally entail more extensive relational or incomplete contracting, network monitoring based on the exchange of private information inside networks, and more reliance on collaborative, as opposed to competitive, relationships to build the competencies of the firm. In contrast to liberal market economies (LMEs), where the equilibrium outcomes of firm behavior are usually given by demand and supply conditions in competitive markets, the equilibria on which firms coordinate in coordinated market economies (CMEs) are more often the result of strategic interaction among firms and other actors.

Both "failing to read the fine print" and "taking the ratings at face value" are therefore more defensible positions in a CME, event at the level of a purely pecuniary economic logic: deceiving one's counterparty would be counterproductive, since the cost of the long-run damages to one's trustworthiness and relations to other firms would outweigh any short-term financial benefit. Needless to say, that's not how things work in the United States; perhaps the best advice to the Germans in future negotiations is that when you're dealing with Americans, you should always read the contract carefully!

What's more, German banks were latecomers to the high-flying finance game. Says [Richard Deeg](www.temple.edu/polsci/deeg/documents/DeegGermanPolart.pdf):

> The reform and transformation of the German financial and corporate governance systems goes back to the mid-1980s when the large German banks launched a concerted effort to promote Germany's 'underdeveloped' securities markets. This effort accorded with the beginnings of a major reorientation in the banks' business strategies from a traditional focus on commercial banking to a focus on securities market-oriented investment banking. During the 1990s many large non-financial firms also became reform supporters because they, no longer relying on bank loans for external funds, instead preferred to see the introduction of modern capital market products in Germany that could increase their financial flexibility. Because German investors could not be expected to increase their demand for securities as rapidly as the banks needed, the strategy came to rest importantly upon wooing foreign institutional investors. The reform coalition thus found itself increasingly compelled to adopt many of the Anglo-Saxon market regulations and norms demanded by these investors.

So German bankers and investors were a) relative novices at modern securities wizardry; b) steeped in a capitalist culture quite different from the dog-eat-dog rapacity of the American version. Lewis hints at these explanations in places in his recent essay on Germany. Here's something about the Germans as latecomers:

> Everyone thought that German bankers were more conservative, and more isolated from the outside world, than, say, the French. And it wasn’t true. "There had never been any innovation in German banking," says Enderlein. "You gave money to some company, and the company paid you back. They went [virtually overnight] from this to being American. And they weren’t any good at it."

And there's this bit about a banker projecting his CME norms onto Americans:

> In the bargain, he tells me why the current financial crisis has left so unsettled the German banker's view of the financial universe. In the early 1970s, after he started at Commerzbank, the bank opened the first New York branch of any German bank, and he went to work in it. He mists up a bit when he tells stories about the Americans he did business with back then: __in one story an American investment banker who had inadvertently shut him out of a deal hunts him down and hands him an envelope with 75 grand in it, because he hadn't meant for the German bank to get stiffed.__ "You have to understand," he says emphatically, "this is where I get my view of Americans." In the past few years, he adds, that view has changed.

> "How much did you lose?" I ask.

> "I don't want to tell you," he says.

> He laughs and then continues. "For 40 years we didn't lose a penny on anything with a triple-A rating," he says. "We stopped building the portfolio in subprime in 2006. I had the idea that there was something wrong with your market." He pauses. __"I was in the belief that the best supervised of all banking systems was in New York.__ To me the Fed and the S.E.C. were second to none. I did not believe that there would be e-mail traffic between investment bankers saying that they were selling … " He pauses and decides he shouldn't say "shit." "Dirt," he says instead. "This is by far my biggest professional disappointment. I was in a much too positive way U.S.-biased. __I had a set of beliefs about U.S. values."__

What Lewis doesn't seem to get is that this trusting attitude isn't just some ineffable quality of Germanness. It's built into the structure of German political economy. And I think that's a better explanation of what happened in Germany than Lewis' appeal to national stereotypes.

It wasn't so long ago that American politicians lived in fear of the bond market. During the Clinton administration, James Carville [famously said](http://en.wikiquote.org/wiki/James_Carville) that "I used to think if there was reincarnation, I wanted to come back as the president or the pope or a .400 baseball hitter. But now I want to come back as the bond market. You can intimidate everybody." That phenomenon gave rise to the concept of the "bond market vigilantes", which Krugman [loves to employ](http://krugman.blogs.nytimes.com/2010/06/27/invisible-friends/).

But today, the bond market vigilantes are not much in evidence. Or rather, they are in evidence, but they suddenly seem unable to have much of an impact on U.S. fiscal policy. Bill Gross, of the ludicrously enormous bond fund PIMCO, is running around screaming about [the need for more borrowing](http://www.washingtonpost.com/opinions/americas-debt-is-not-its-biggest-problem/2011/08/10/gIQAgYvE7I_story.html) and [more stimulus](http://thehill.com/blogs/on-the-money/budget/167567-bond-giant-calls-for-new-us-stimulus). But he has no effect, because it turns out that while bond investors have powerful ways of constraining U.S. government borrowing, they have only indirect and weak means of expanding it.

The United States has a large debt that is routinely [rolled over](http://motherjones.com/kevin-drum/2011/07/inflating-away-debt), and it generally runs a budget deficit (Clinton interregnum aside). If bond investors start demanding higher interest rates on government debts, this immediately raises the cost of borrowing for the U.S. government. This, in turn, has knock-on effects throughout the economy, as interest rates rise for everyone and economic activity is thereby constrained. For these reasons, the U.S. government has powerful incentives to avoid doing things that cause the interest rate on treasuries to rise.

Today, however, we find ourselves in the opposite situation: what the bond market seems to want most of all is for the U.S. to borrow more money and stimulate the economy. That's the best explanation for the incredibly low yield on Treasury bonds, which is [negative in real terms](http://delong.typepad.com/sdj/2011/08/treasury-real-interest-rates-now-negative-out-to-ten-years.html) over some time periods. And yet the U.S. is not borrowing more; instead both parties are demanding [insane policies](http://www.nytimes.com/2011/08/08/us/politics/08panel.html) that will cause a second recession, ostensibly based on fallacious notions about the magical effects of budget cutting and a [nonsensical conception](http://krugman.blogs.nytimes.com/2011/07/02/barack-herbert-hoover-obama/) of the relationship between government and household finances.

The problem here is that the power of the bond market is asymmetrical. When the interest rate on Treasuries go up, this immediately makes all of the government's activities more expensive, and hence forces changes in fiscal planning. But when the interest rate falls to near zero, this only presents an *opportunity* for expanded borrowing, an opportunity that can easily be thrown away if the political system is too insane and dysfunctional to take advantage of it.

Hence the bond vigilantes sit on the sidelines, impotent and hopeless. Just like the rest of us.

There's a joke [going](http://delong.typepad.com/sdj/2011/07/d-squared-argues-for-industrial-policy-of-a-sort.html) [around](http://thinkprogress.org/yglesias/2011/08/11/293629/pay-for-jobs-programs-by-borrowing-money-at-low-rates/), due originally to [Daniel Davies](http://d-squareddigest.blogspot.com/2011/07/worlds-second-lowest-productivity.html)*, to the effect that unemployment is an extremely low productivity "industry", and that "There have been no major efficiency gains in unemployment in the last hundred years." All of the linked bloggers use this to make a case for an "industrial policy" of sorts, oriented toward moving people out of unemployment into some higher-productivity activity.

That's all well and good, but it made me think: maybe we should also be figuring out ways to increase the productivity of unemployment! That's a point that's sort of implicit in some of my [recent](http://www.peterfrase.com/2011/07/stop-digging-the-case-against-jobs/) [posts](http://www.peterfrase.com/2011/07/against-jobs-for-full-employment/), where I argue against the standard paradigm in which wage labor seems to be the [cause of, and solution to, all of life's problems](http://www.youtube.com/watch?v=hUVwR0rw5fk). If you believe, as I do, that it's a good idea to reduce the amount of time people spend in paid employment, it would also be nice to increase the productivity of whatever they do in the time thus freed up.

And I would argue that we *have*, in fact, seen improvements in the productivity of unemployment--or at least, of *non*-employment. People without jobs can work in a community garden, or contribute to Wikipedia, or post funny videos on YouTube. Those may be small things, but they do improve our collective well-being--and two of them would have been impossible ten years ago.

Improving the productivity of non-employment is what I think Juliet Schor is on about in her recent book, [*Plenitude*](http://www.julietschor.org/2010/05/welcome-to-plenitude/):

> It’s based on an idea that’s novel to the sustainability discourse, but is has been around in standard economics since the 1960s: __when the returns from one activity fall, shift one’s energy and time into others.__ This is the theory of time allocation pioneered by Chicago economist Gary Becker. It’s also just plain common sense.

> In the year 2010 __this approach counsels shifting out of [Business As Usual] jobs, to local, small-scale activity that helps reduce dependence on the market system__ and lowers ecological footprint. Why is this attractive? One reason is that the BAU market has less to offer. It is failing to provide adequate jobs on a staggering scale. __An estimated 26 million Americans are either unemployed, under-employed or have gotten discouraged and stopped looking for work. That problem won’t go away even if the recovery continues.__ Incomes have fallen and government services are being cut. Wall Street and the wealthy have protected their outsized share of society’s production, but for the vast majority the prognosis is austerity.

There's some localist, "small is beautiful" stuff going on here that I don't particularly care for, but this is still a valiant attempt at crafting a new paradigm. And Schor does at least understand the importance of [replicators](http://www.julietschor.org/2010/08/new-work-centers-and-htsp/).

\* *By the way, Daniel Davies is the best blogger in the world. That's just a fact, you should read him if for some reason you don't already. [Who are the greatest bloggers of all time?](http://www.youtube.com/watch?v=Z9lg6HqJeY0). Think about it. D-squared, d-squared, d-squared, d-squared and d-squared. Because he spits hot fire.*

Years ago, I had a brief infatuation the theory of [peak oil](http://peakoil.com/what-is-peak-oil/). This is the idea that we are now reaching, or will soon reach, a point at which the total amount of oil being produced in the world begins to decline due to a lack of new discoveries. Since the global economy is still highly dependent on oil to fuel economic growth, this is obviously a big problem.

People often talk about "running out" of oil, but that is not really the right way to think about it--the effects of diminishing reserves of easily accessible oil will be more complex than that. Hegel and Marx liked to talk about the dialectical relationship between "essence" and "form of appearance": the former is the more fundamental but not directly perceptible substance of things, while the latter is the concrete form in which those essences are reflected. Marx saw his work as an attempt to work from capitalism's form of appearance--wages, profits and rent, markets, business cycles, and so on--to its underlying essential forms, which turned out to be value and the process of capital accumulation.

With regard to oil, the essence of the situation is more or less as the peak oilers have it: less new oil reserves are being discovered, and what is discovered is much more difficult to extract. However, the form of appearance of this crisis will not necessarily be skyrocketing oil prices, as everyone seems to assume. Paradoxically, the aftermath of peak oil may turn out to be a period of *low* oil prices, accompanied by a prolonged global economic slump.

How is this possible? Well, think about the sequence of events that would unfold as the supply of oil declines. It's true that all things being equal, an additional barrel of oil should become more expensive. With most commodities, we would expect this to lead to people consuming less oil, leading to the price falling again. This is more or less the optimistic view of the situation: as oil becomes expensive, there will be an incentive to switch to other more sustainable energy sources, and everything will be OK in the long run.

However, oil is not a normal commodity--it is [highly inelastic](http://motherjones.com/kevin-drum/2011/04/raw-data-everyone-loves-oil), meaning that large changes in price have only a small effect on the demand for oil. This is because we are so dependent on oil, and there are still no good large-scale substitutes for it. It is, at the very least, uncertain whether we will actually be able to make a smooth transition to solar, wind, and other green sources of energy.

But if demand for oil is inelastic, then a rise in price will mean that everyone in the economy will have to spend more money on oil and oil-derived products, and less on anything else. This additional revenue will mostly be captured by oil companies and the governments of the big oil-producing countries, which will seek to reinvest their profits in the economy. But there will be a major shortfall in demand, precisely because the rest of the economy is being starved of demand because of high oil and gas prices.

This shortfall in aggregate demand, in turn, [leads to an economic slowdown](http://motherjones.com/kevin-drum/2010/12/worlds-oil-problem). If the economy slows down enough, and there are enough idled resources, then demand for oil will also fall--leading to a fall in energy prices. Indeed, there is evidence that this is [exactly what has happened](http://earlywarn.blogspot.com/2011/05/energy-prices-and-us-recessions.html) in our recent recessions. And now, with stock markets tanking and another recession looming, oil prices are [down again](http://money.cnn.com/2011/08/10/news/international/oil_economy/). Thus it turns out that the form of appearance of peak oil is low oil prices combined with a weak economy.

This dynamic is also relevant to ["Great Stagnation"](http://www.peterfrase.com/2011/07/cheap-labor-and-the-great-stagnation/)-style theories that explain weak economic growth as a function of slowing innovation. Tyler Cowen has an [interesting post](http://marginalrevolution.com/marginalrevolution/2011/08/is-there-a-productivity-crisis-in-canada.html) today in which he shows multifactor productivity in Canada, broken down by sector. It turns out that productivity is way up in the goods and manufacturing sector, but way down in mining, oil, and gas extraction. As Cowen notes, this "reflects Canada’s move from 'suck it up with a straw' oil to complex, high cost extraction tar sands projects and the like."

I don't think this dynamic is inevitable--we could, if we wanted to, invest a lot more money in de-carbonizing the economy and finding new energy sources. But that requires understanding the problem correctly, and unfortunately most people aren't very good at thinking dialectically. So if we are in for a prolonged period of slow economic growth, people will become susceptible to all kinds of [false explanations](http://krugman.blogs.nytimes.com/2011/06/09/the-white-house-believes-in-the-confidence-fairy/), and will be reluctant to consider the possibility that a resource constraint lies beneath the phenomenon of economic weakness.

###Postscript

This argument isn't really original to me. I picked it up from Mark Jones, who was an early Internet Marxist, a founding editor of the journal *Capital and Class*, and an all around strange and beguiling intellectual figure. He died a number of years ago, and it's sadly quite difficult to track down his various online writings these days. But here's [a post](http://www.feralscholar.org/blog/index.php/2005/05/14/oh-what-the-heck-heres-mark-jones/) that lays out a somewhat more hyperbolic version of the same theory I've just described:

> This is first of all and above all, an accumulation crisis, not a resource crisis. The oil will never run out, and most of even known, easily-accessible conventional oil reserves will probably stay underground forever and never be pumped. As for non-conventional resources like tar-sands--let alone hydrogen--they will remain mere fantasy. In the wake of a severe slow-down, neither capital--nor, crucially, effective demand--will exist capable of bringing the alternatives onstream. World capitalism can slip into a post-crash equilibrium state which can endure for decades or longer, amid unprecedented social stress and immiseration. To say this is not (obviously) to seek it or to welcome it; but only by resolutely analysing historical processes, and not by hiding from them, can we hope to positively influence outcomes.

Image via [Jodi Dean](http://jdeanicite.typepad.com/i_cite/2011/08/london-riots.html):

###Point: Jello Biafra, Dead Kennedys

"Riot-playing into their hands \ Tomorrow you're homeless \ Tonight it's a blast."

[Lyrics.](http://www.lyricstime.com/dead-kennedys-riot-lyrics.html)

###Counterpoint: Boots Riley, The Coup

"That's not chaos, that's progress."

[Lyrics](http://www.lyricsmania.com/the_coup_lyrics_coup_the.html).

Last week, Seth Ackerman wrote a *Jacobin* [blog post](http://jacobinmag.com/blog/?p=891) in which he gave us a snarky attack on the record of "left neo-liberalism" in the United Kingdom. Basically, he showed that while New Labour managed to reduce poverty somewhat with cash transfer programs, the progress was meager and could not be sustained. Since the programs were financed out of a series of asset bubbles, the UK has seen poverty go back up again with the recent crisis.

I don't have much quarrel with this account, but I'm not sure it can bear the weight of the argument that Seth wants to put on it. He suggests that the UK experience is a refutation of the general strategy of progressive neoliberalism, which Freddie DeBoer felicitously dubbed ["globalize-grow-give"](http://lhote.blogspot.com/2011/01/globalize-grow-give-progressivism-and.html):

> First, you embrace the standard globalization model of reduced or eliminated tariff walls, large free trade agreements such as NAFTA or CAFTA, deregulation, and general trade liberalization. This encourages international trade and the exporting of jobs from highly-regulated, fairly well compensated, high worker standard of living places like the United States to the cheap labor, low regulation, low worker standard of living places like China or Indonesia. This spurs international economic growth in both the exporting and importing countries. Here at home, higher growth results in higher tax revenues which can then be redistributed from those at the top of the income distribution (who have benefited from the globalized trade regime) to those at the bottom of the income distribution (who have been hurt by the globalized trade regime that undercuts their wages and exports their jobs).

I think that if you want to really criticize this view, you need to look beyond the UK, which is neither a very generous nor a particularly well-designed welfare state. As it happens, my day job involves analyzing cross-national income data, so I'm going to perpetrate some social science on y'all.

The way I read the "globalize-grow-give" critique, you can extract an empirical claim about how the income distribution should look in a G-G-G economy. The distribution of income *before* taxes and transfers will become increasingly unequal due to deregulation and globalization, but the distribution *after* taxes and transfers are accounted for will not become vastly more unequal because government is compensating for the inequality in the private market.

To test this, I did some simple calculations, following other researchers who have done [similar](http://www.lisproject.org/publications/liswps/392.pdf) [things](http://www.lisproject.org/publications/liswps/458.pdf). Using data from the [Luxembourg Income Study](http://www.lisdatacenter.org/), I calculated the [Gini coefficient](http://en.wikipedia.org/wiki/Gini_coefficient), a standard measure of inequality, for several different countries. I calculated two different Ginis:

- The Gini of *market income*. Market income is defined here as income from wages, pensions, self-employment and property. This is income *before* any taxes or transfers are accounted for.
- The Gini of *disposable income*. This is the income that people actually have to spend, after taxes are deducted and any transfers are added in. (For more details about the variables, see the postscript).

Unfortunately, the difficulty of harmonizing cross-national data means that the numbers I have access to are a bit out of date--specifically, they end before the current crisis period. I still think we can learn something useful from them, however. The way G-G-G neoliberalism is supposed to work, the Gini of market income should go up but the Gini of disposable income should not--or at least should rise more slowly. We can think of the difference between market income inequality and disposable income inequality as a rough measure of the amount of redistribution done by the state.

So here's what things look like in the UK:

This figure basically supports Seth's argument. Market income inequality has gone way up in the last few decades, but disposable income inequality has gone up by a lot as well. The state is doing a bit more redistribution than it used to, but not enough to make up for the rise in private-market inequality. If you look at the United States, the situation is even worse, as the state has done essentially nothing to counter rising inequality in market income:

The question, though, is whether it has to be like this. Let's put the UK alongside another rich European economy, Germany:

Here we see something very interesting. Before you take taxes and transfers into account, the rise in inequality in Germany looks very similar to what happened in the UK--indeed, the two countries converge to almost the same value by 2005. But disposable income inequality has stayed flat in Germany, because the German state has used taxes and transfers to counteract rising inequality.

Every good social democrat loves the Nordic model, so let's finish off with a look at Sweden:

Here the story is a bit different--both market income and disposable income inequality have remained pretty flat, although both have risen a bit. The important thing to note here is that even in the most socialist of welfare states, market income inequality is very high, nearly as high as it is in the UK or US. The fact that Sweden is one of the least unequal countries on earth has to do almost entirely with taxes and transfers.

So what can we conclude from all this? Let me be clear that I don't think this is a knock-down argument in favor of "globalize-grow-give" as a political model. But I think the best argument against the G-G-G model is not that it's economically impossible or dependent on asset bubbles. Rather, I'd point us back to the political arguments enumerated by [me](http://www.peterfrase.com/2011/07/policy-politics-and-strategy/), [Henry Farrell](http://crookedtimber.org/2011/07/25/neo-liberalism-the-submerged-state-and-the-politics-of-nudge/), and [Cosma Shalizi](http://cscs.umich.edu/~crshalizi/weblog/778.html) among others. What makes Sweden and Germany different is not that their economies are different from those in the US and UK (although they are), but that they have different political environments, featuring things like a hegemonic Social Democratic party in Sweden and a strong labor movement in Germany.

So if left-neoliberalism is to be a workable political agenda rather than the motto of useful idiots for the "globalize-grow-keep" agenda of the right-wing neoliberals, it has to either make its peace with the sources of working-class power that currently exist, or else come up with workable models of what might replace them.

*[Postscript for income inequality nerds only: the income variables are equivalized for household size using the square root of the number of persons in the household as the equivalence scale. The variables are then topcoded at ten times the equivalized mean and bottom-coded at 1 percent of the equivalized mean.*

*Note that the transfers included in disposable income are only cash transfers and "near-cash" benefits (like food stamps), not in-kind services like health care. So you could argue that this data actually understates the extent of redistribution.*

*If you'd like to look at the data, including a bunch of countries I didn't include in the post, it's [here](http://www.peterfrase.com/wordpress/wp-content/uploads/2011/08/mi_dpi_gini1.csv). For help interpreting the country codes, go [here](http://www.lisdatacenter.org/our-data/lis-database/documentation/list-of-datasets/)]*

A recent [post](http://www.angrybearblog.com/2011/07/investment-consumption-and-progressive.html) from Bruce Webb at Angry Bear gave me a new angle on the fecklessness of our ruling elites, who currently seem incapable of even running capitalism for their own benefit. The basic insight here is that capitalism requires the capitalist class to impose an austere kind of discipline not just on the working class, but on *itself*. And while the breakdown of worker discipline causes well-known problems for capitalism, the decay of capitalist discipline poses difficulties as well.

Doug Henwood has long [observed](http://www.leftbusinessobserver.com/RottingHead.html) (and long threatened to write a book about) the [decay and decomposition](http://www.brooklynrail.org/2009/07/express/ka-pow-bang-crash-down-goes-another-bubble) of the American ruling class. Rather than a disciplined force that seeks to promote the long-run accumulation of capital, our elite increasingly appears short-sighted and avaricious--more interested in looting the system through bailouts and high-end tax cuts than in ensuring the its long term health. Henwood:

> Well, you know it was once the WASP elite, but there ain't none of that now. I think __one of the problems of the United States is that there is a great deal of incoherence at the upper level__, that unlike the WASP ruling class, __there is no social formation that can think in the truly long-term, that can think beyond the short-term concerns__ about the accumulation of money, the most amount of money in the quickest possible time.

Webb's [post](http://www.angrybearblog.com/2011/07/investment-consumption-and-progressive.html) is about something slightly different, but related: is the capitalist class primarily oriented towards accumulation, or towards "consumption and display"?

> __Classical, neo-classical, and neo-liberal economics__ all share a common mistaken psychological premise, one that is simple but deep, and in itself explains why they don't understand the aims of Progressive Taxation.

> Label it how you like, the academic discipline that emerged from England in the 18th and 19th century implicitly, hell I'll make it stronger, __explicitly assumed that the goal of capitalism is accumulation, i.e. getting more an more numbers on the right side of the ledger sheet.__ Which assumption seems blindingly obvious, which is why it is simple and goes so deep. In this model taxation on gains from capital serve to displace investment on the equally simple assumption that if you tax something people do less of it. Again perhaps blazingly obvious.

> But __it doesn't hold up well against the historical record either narrowly considered in relation to 18th and 19th century England or more broadly across cultures and across history. Instead in most of those cultures and most definitely in Georgian and then Victorian England the evidence is strong that capitalists saw investment as the means to different ends, those of consumption and display that in turn would lead to societal status.__ You only have to look at the great Country Houses that were built during this period, with no expenses spared inside or out whether that be on landscape architects or silversmiths.

With respect to my favorite classical (or post-classical) economist, this is only partially in keeping with what Marx thought. True, he believed that capitalists had to accumulate; but he also [thought](http://www.marxists.org/archive/marx/works/1867-c1/ch24.htm#S3) that the capitalist "developed in his breast, a Faustian conflict between the passion for accumulation, and the desire for enjoyment." And he might agree with Webb about what was going on in the 19th Century, but he would see it as a sign of capitalism's ill health. As he [put it in *Capital*](http://www.marxists.org/archive/marx/works/1867-c1/ch24.htm#S3):

> Even __in the early part of the 18th century, a Manchester manufacturer, who placed a pint of foreign wine before his guests, exposed himself to the remarks and headshakings of all his neighbours.__ Before the rise of machinery, a manufacturer's evening expenditure at the public house where they all met, never exceeded sixpence for a glass of punch, and a penny for a screw of tobacco. It was not till 1758, and this marks an epoch, that a person actually engaged in business was seen with an equipage of his own.

> > "The fourth period," __the last 30 years of the 18th century, "is that in which expense and luxury have made great progress__, and was supported by a trade extended by means of riders and factors through every part of Europe."

> What would the good Dr. Aikin say if he could rise from his grave and see the Manchester of today?

> __Accumulate, accumulate! That is Moses and the prophets!__ "Industry furnishes the material which saving accumulates." [23] Therefore, __save, save, i.e., reconvert the greatest possible portion of surplus-value, or surplus-product into capital! Accumulation for accumulation's sake, production for production's sake__: by this formula classical economy expressed the historical mission of the bourgeoisie, and did not for a single instant deceive itself over the birth-throes of wealth. [24] But what avails lamentation in the face of historical necessity? __If to classical economy, the proletarian is but a machine for the production of surplus-value; on the other hand, the capitalist is in its eyes only a machine for the conversion of this surplus-value into additional capital.__

The point Marx is making here is that capitalism doesn't just trap workers within the prison of alienated and exploitative labor, it also subjects capitalists to the endless treadmill of accumulation for the sake of accumulation. (On this point, see also my [earlier](http://www.peterfrase.com/2011/03/capitalism-without-capitalists/) [remarks](http://www.peterfrase.com/2011/07/reanimated-marxism/) on the distinction between *capital* and *capitalists*). This point doesn't often get made, I think, because it's contrary to most Marxists' moral orientation--nobody feels all that bad for the capitalist, and it's still [good to be the king](http://www.youtube.com/watch?v=lZKiYgcgBAY). Nevertheless, to be a good capitalist takes discipline--so what happens when the dominant image of the capitalist is no longer Ebenezer Scrooge, but [Steve Schwarzman's birthday party](http://www.newyorker.com/reporting/2008/02/11/080211fa_fact_stewart)? Says Webb:

> So what does this have to do with progressive taxation? Well once you accept the assumption that the fundamental goal of investment among the upper classes is consumption and display and further that in most cases that consumption doesn't have the multiplicative effects on the wider economy that re-investment would then the goal of progressive taxation becomes obvious, and by the way a lot less socialist than the old shibboleth of redistribution. __The goal of progressive taxation in the classical political liberal position dominate in this country from 1913-1980 was to penalize consumption and favor re-investment. After all at least under current law gains on capital are by and large not exposed to federal taxation until they are realized, if instead they are plowed back into productivity improvements they are at the corporate or individual level largely tax exempt. It is only when you take the equity out in the form of interest, dividends or simply cashing out equity that tax is encured.__

> The logical conclusion of this model is that if we accept the principle that to tax something is to induce people to do it less, if nothing else by increasing its marginal cost, then Supply Side becomes the Voodoo the Elder Bush always said it was. __Lowering top marginal rates and taxing capital gains at half the rates of capital income would under my model have the effect of encouraging consumption and discouraging reinvestment. Whereas high rates would have the opposite effect.__ Which has the advantage of being testable, if we had to constrast the 50s and the 80s in terms of the consumption patterns of the near the top level of capitalists and managers we see a lot less conspicuous consumption among the former than we do in the post Reagan-era. In the 50s and 60s only Greek shipping magnates could afford the kind of consumption patterns that became common in before, during, and after the Enron era and certainly continuing today. From my perspective __all Supply Side did was to lower the cost of consumption in pre-tax dollars, purchases that were inconceivable in the days of 90 and then 70% top rates have become routine in the days of 15%.__

So if the capitalist class was truly able to act as a collective personification of capital, then they would be for progressive taxation! But to bring this back to Henwood's argument, we see instead that the ruling class is too fractious and selfish to impose this kind of discipline on themselves. Instead, they're just trying to make off with as much loot as they can, and live as lavishly as possible. The result is a [plutonomy](http://jdeanicite.typepad.com/i_cite/2009/10/plutonomy.html) in which "There are rich consumers, few in number, but disproportionate in the gigantic slice of income and consumption they take.".

The only counterpoint to this that I can see is that at the very top, the accumulation of money itself is, in Webb's terms, the "display" that "leads to social status". Making money becomes like points in a game, as everyone tries to get the biggest [pool of money](http://www.thisamericanlife.org/radio-archives/episode/355/the-giant-pool-of-money). Why else, after all, would a billionaire hedge fund owner keep trying to grow ever richer, even after accumulating more riches than they or their family could ever consume? Unfortunately, these hoards of money seem mostly to be put to use chasing asset bubbles, high-frequency trading, and other sorts of zero-sum competition rather than investing in productive activity.

Reihan Salam is by far the most interesting and creative thinker associated with the National Review. (To clarify: that's a pretty low bar, but I actually think he's interesting and creative in general.) So when I saw that he had [responded](http://www.nationalreview.com/agenda/273043/cheap-labor-and-future-meaningful-work-reihan-salam#.TjLGDklI9GU.facebook) by my post on [cheap labor and technological stagnation](http://www.peterfrase.com/2011/07/cheap-labor-and-the-great-stagnation/), I hoped to find some arguments that would challenge my assumptions. Instead, I found this:

> I’d argue that __fulfilling and valuable work is work that provides individuals with "obstacles that arise naturally and authentically in their path,"__ to draw on Richard Robb.

> It is fairly easy to construct a coherent story for Frase’s notion that supermarket checkout work isn’t sufficiently stimulating to merit survival. Unlike skilled trade work, it doesn’t involve the kind of problem-solving that allows us to stretch our capacities. Rather, it is about offering a service in a friendly and efficient way, which can be taxing but, over time, not necessarily very edifying. I definitely get that idea, and I certainly wouldn’t suggest that we should devote resources to saving supermarket checkout work per se.

> But supermarket checkout work needs to be soon through a different lens. __If I’m a young adult who had a child at a young age, my fulfillment could plausibly derive from the sense that I am contributing to the well-being of my child by engaging in wage work.__ The wage work in question might not be terribly stimulating, but to grin and bear it is to overcome an obstacle that arises naturally and authentically in my path to achieving some level of economic self-sufficiency. Granted, I might benefit from a host of work supports, including wage subsidies, etc., but __I (rightly) see myself as making a contribution. It is not the work itself that is fulfilling. It is the fact that I am doing authentic work — not make-work designed to teach me a lesson about the value of, say, convincing taxpayers that I deserve my daily bread, but work that someone will voluntarily pay me a wage to do__ — in support of a vision of myself as a provider that is fulfilling.

I actually have to hand it to him for coming right out and making the "wage labor is good for you" argument, which is a much tougher sell than the usual "we need wage labor or nobody will do any work" argument, and hence is typically delivered in an elided and concealed fashion. But the notion of "authentic" work that's being deployed here is one I have a hard time wrapping my head around, although I recognize it as a central element of right-wing metaphysics.

It's easy to glorify the dignity of wage labor when you have a stimulating job at the *National Review*, but this line of argument rapidly loses its plausibility when you get to the low-wage jobs I was talking about. A lousy supermarket job that you only have because your time is valued at less than the time of an automatic checkout machine is somehow more authentic because someone "voluntarily" paid for it. Presumably it's more authentic than being a firefighter, since they have to "convince the taxpayers" that they deserve to be paid. And Salam must not think his own job is all that authentic, since the *National Review* is [sustained by rich donors](http://www.nysun.com/on-the-town/encounter-with-conservative-publishing/24259/) and could never survive if it had to get by on subscription revenue. I could go on about this, but I already did in my [review of "Undercover Boss"](http://www.peterfrase.com/2010/03/undercover-boss-and-the-misfortune-of-labor/) and my [first essay](http://jacobinmag.com/archive/issue1/frase.html) for *Jacobin*.

As for the specific nature of supermarket work, [this comment](http://www.nationalreview.com/agenda/273043/cheap-labor-and-future-meaningful-work-reihan-salam#comment-236808) on the original NR post says it more powerfully than I could. It starts out: "Having worked as a supermarket checker, I can tell you that no one I worked with got anything out of the job other than a paycheck, and the rates of depression and substance abuse among my colleagues were staggering."

And as a friend put it to me earlier today: "As if the unemployed are unfamiliar with natural and authentic obstacles". But look, if you *do* need some "obstacles that arise naturally and authentically in your path", try training for a marathon or something. Or I can recommend some excellent video games.

The authenticity stuff aside, we also have the patronizing suggestion that a young parent needs to feel that they are "contributing to the well-being of [their] child by engaging in wage work." As though they aren't already contributing to that well-being by *taking care of a child*, which requires a lot more skill and engagement than bagging groceries. Even without the childcare angle, though, maybe people would be less likely to feel they needed to take a crappy job in order to contribute to society, if people like Reihan Salam weren't running around telling them exactly that.

To be fair, Salam does acknowledge that rather than stigmatizing the unemployed and people who do non-waged labor, we could try to break down the fetishization of waged work that gives it such "nonmaterial and psychological importance". And I don't dispute his point that this is a hard thing to do. But he doesn't even seem interested in it. Instead, at the end of the post, he lays out his hopes for what's to come: "In my scenario, the number of 'working poor' will likely increase", and "servants and nannies will be the jobs of the future":

> This raises the question of what will happen to those trapped in the low end of the labor market. Recently, the cultural critic Annalee Newitz offered a provocative hypothesis: "We may return to arrangements that look a lot like what people had over a century ago," Newitz writes. As more skilled women enter the workforce, and as the labor market position of millions of less-skilled workers deteriorate, we’ll see more servants and nannies in middle-class homes.

This "back to the 19th Century" vision is a scenario that has occurred to me as well, but I certainly never thought of it as a desirable end point. But hey, if the right thinks that's the best thing they have to offer, they are welcome to make that their platform.

My question for Reihan Salam, though, is this. If *National Review* laid you off tomorrow, would you rather collect unemployment or go bag groceries because it would allow you to feel you were doing "authentic work" and had "overcome an obstacle that arises naturally and authentically in your path"? Maybe the answer would really be the latter, but I suspect for most people it wouldn't be.

The National Employment Law Project has a [new report out](http://www.nelp.org/goodjobsdeficit) Called "The Good Jobs Deficit", in which they note that the terrible job market is even worse than people realize. Not only are few jobs being created, but those that are being created are predominantly low-wage jobs, worse than the ones they are replacing. Thus the wages of American workers are stagnant or even falling in some cases.

This isn't really surprising, as we've known about the problem of [low-wage job growth](http://www.urbanresearch.org/projects/low-wage-work-metropolitan-america) for a while. But the report made me think about something else: Tyler Cowen's recent book, [*The Great Stagnation*](http://www.amazon.com/Great-Stagnation-Low-Hanging-Eventually-ebook/dp/B004H0M8QS). In that book, Cowen took note of the stagnation of incomes for the broad majority, but he interpreted it as a symptom of a deeper problem:

> Median income is the single best measure of how much we are producing new ideas that benefit most of the American population. Yet the picture is depressing . . . You can see the rate of growth of per capita median income slows down around 1973, which I take as the end of the era of low-hanging fruit. As an approximation, if median income had continued to grow at its earlier postwar rate, the median family income today would be over $90,000.

Cowen goes on to say that "The American left has pointed out and indeed stressed measures of stagnant median income, but it usually blames politics, insufficient redistribution, or poor educational opportunities rather than considering the idea of a technological plateau." So for Cowen, the causal story is that technological stagnation leads to stagnating income. He treats the innovation slowdown as basically exogenous, the result of a lack of "low hanging fruit", easily discovered and exploited technologies that can increase our standard of living. So at the end of the book, Cowen's recommendation is essentially that we should try to make science a higher-prestige occupation, and then just wait around and accept stagnation until somebody finds some more low-hanging fruit.

But I think Cowen gives insufficient attention to the reverse causal story: one cause of technological stagnation is that labor is too cheap. As Daron Acemoglu [explains](http://ideas.repec.org/p/nbr/nberwo/14809.html) in this paper, you can use the tools of mainstream economics to construct a model in which the development of labor-saving technology is more rapid when there is scarcity of labor. Economic historians [have suggested](http://en.wikipedia.org/wiki/Habakkuk_thesis) that one of the reasons that technological progress in the 19th century was faster in the United States than in Britain was that labor was scarce in the U.S.

The reasoning here is pretty straightforward. A rational manager will only adopt labor-saving technology if it is cheaper than the labor it replaces. And when labor is scarce, wages rise as employers compete against each other for workers, making it more attractive to save on labor by using machines instead. For instance, suppose a [self checkout](http://en.wikipedia.org/wiki/Self_checkout) machine for a grocery store ends up costing $10 per hour over its lifetime, when you account for purchase and maintenance costs. If your cashiers make $8 per hour, there's no reason to use the machines. But if they make $12, you have an incentive to replace cashiers with machines, and manufacturers have more incentive to come up with this kind of labor saving technology.

This isn't great for the cashiers who lose their jobs, obviously. But in the larger scheme of things, working at a supermarket checkout isn't the kind of fulfilling and valuable work we really want to preserve, and this kind of technological change is necessary if we want to improve our overall standard of living and move in the direction of a [post-scarcity society](http://www.peterfrase.com/2010/12/anti-star-trek-a-theory-of-posterity/). That's one of the reasons I argued that preserving and creating jobs [shouldn't be the left's main preoccupation](http://www.peterfrase.com/2011/07/stop-digging-the-case-against-jobs/). Instead, we need to ease the pain of unemployment for those who are displaced.

But in addition, we need to raise wages. So how do we make labor more expensive? One way is to raise the minimum wage and increase rates of unionization, which are both good ideas. And rising wages [in China](http://www.businessweek.com/magazine/content/06_13/b3977049.htm) will hopefully start to improve the situation on a global scale. But in the United States, the most important thing is to get back to full employment--i.e., create labor scarcity throughout the labor market. Just keep in mind that we don't necessarily need to do it by [creating a ton of jobs](http://www.peterfrase.com/2011/07/against-jobs-for-full-employment/).