15
Mar
2014
Two New Mises Canada Posts
This one on a “useless minimum wage chart,” and this one on why I’m upset with myself for being profitable last year.
This one on a “useless minimum wage chart,” and this one on why I’m upset with myself for being profitable last year.
Excluding Inferior Workers: Eugenic Influences On Economic Reform In The Progressive Era
by Tim Leonard
http://www.princeton.edu/~tleonard/papers/Excluding.ppt
Slide 44
VIII. The Eugenic Benefits of Minimum-Wage Laws
Minimum-wage legislation, passed by several states beginning with Massachusetts in 1912, was the sine qua non of progressive labor reform, and progressive economists championed minimum wages.
But eugenically minded progressives advocated minimum wages precisely because binding minimums would cause job losses.
They argued that minimum-wage-induced job loss was a social benefit because it performed the eugenic service of ridding the labor force of the “unemployable.”
Sidney and Beatrice Webb, as ever, put it plainly: “With regard to certain sections of the population [the unemployable], this unemployment is not a mark of social disease, but actually of social health.” “[O]f all ways of dealing with these unfortunate parasites,” Sidney Webb opined, “the most ruinous to the community is to allow them unrestrainedly to compete as wage earners . . . .”
Slide 45
VIII. The Eugenic Benefits of Minimum-Wage Laws (2)
Henry Rogers Seager leading progressive economist, argued that deserving workers needed protection from the “wearing competition of the casual worker and the drifter” and from the other “defectives” who drag down the wages of more deserving workers.
Seager made clear what should happen to those who, even after remedial training, could not earn the legal minimum: “If we are to maintain a race that is to be made of up of capable, efficient and independent individuals and family groups we must courageously cut off lines of heredity that have been proved to be undesirable by isolation or sterilization . . . .”
A.B. Wolfe, an American progressive economist and future AEA president, also argued for the eugenic virtues of removing from employment those who are “a burden on society.” “If the inefficient entrepreneurs would be eliminated [by minimum wages,] so would the ineffective workers,” said Wolfe. “I am not disposed to waste much sympathy upon either class. The elimination of the inefficient is in line with our traditional emphasis on free competition, and also with the spirit and trend of modern social economics.”
Slide 46
VIII. The Eugenic Benefits of Minimum-Wage Laws (3)
For economic progressives, a minimum wage, which is a wage floor, had the useful property of segregating the unfit, who would lose their jobs, from the deserving workers, who would not.
Royal Meeker, a Princeton economist who served as Woodrow Wilson’s Commissioner of Labor, opposed subsidies of poor workers’ wages because wage subsidies increase employment. “It is much better to enact a minimum-wage law, even if it deprives these unfortunates of work,” argued Meeker.
Labor Commissioner Meeker argued, “Better that the state should support the inefficient wholly and prevent the multiplication of the breed than subsidize incompetence and unthrift, enabling them to bring forth after their kind.”
As with immigration restriction, the minimum-wage barrier was seen to meet the two-fold threat of inferior workers: it protected deserving workers’ wages by reducing the competition of inferior groups, and it identified (by disemploying) inferior groups, enabling eugenic treatment.
Slide 47
VIII. The Eugenic Benefits of Minimum-Wage Laws (4)
The Webbs: a minimum would mark “out [weaklings and degenerates] . . . so that they could be isolated and properly treated.”
Sidney Ball, another Fabian, likewise promoted minimum wages for enabling “a process of conscious social selection by which the industrial residuum is naturally sifted and made manageable for some kind of restorative, disciplinary, or, it may be, surgical treatment.”
Felix Frankfurter, then the AALL’s legal counsel, found that the culling effects of minimum-wage laws helped buttress his legal defense of minimum wages. Instancing the police-power virtues of minimum wages for identifying (by disemployment) the class of the unemployable, Frankfurter argued that “[t]he state . . . may use means, like the present statute, of sorting the normal self-supporting workers from the unemployables and then deal with the latter appropriately as a special class . . . .”
Ah yes, the rotten innards of the progressive ideology.
Thou shalt not address them, ye infidel.
I would expect that this selects against young people with lack of skills and lack of experience to a far more significant extent that it selects against any genetic flaw. The stupidity of any society deliberately preventing their children from learning a vocation is difficult to fathom.
I have a personal suspicion that the real reason for the minimum wage is to maintain a political base. If the intention all along was to reduce the supply of labour, then there’s logical reason to believe that for the people who did NOT lose their job, wages went up (less supply => higher prices). As ever, the effect of government intervention is to reduce productivity.
Eugenics is ‘natural’, whatever that means. Therefore it is wonderful.
Let’s get this straight and keep it simple – minimum wage laws are a crime. Therefore, any justification for them must be downright nonsensical. We shouldn’t be surprised to see more such nonsense being spewed out.
“The Federal Reserve and other central banks engineer systematic price inflation, such that only a fool would actually “save money” in the literal sense. “
As opposed to a deflationary world where people’s holding of money under, say, a bed gives them a guaranteed return, so that people are incentivised to not lend money out for productive capital investment?
Should have thought a bit harder there, Murphy.
Capital investment is supposed to conform to individual consumer preferences; If consumers want to save their money for something later, then only those entrepreneurs who can satisfy such demand need enter production.
To enter production without the goal of satisfying consumer preferences is a waste of their money. To give such producers artificial credit so they can produce, anyway, is to deprive consumers of their purchasing power, over time.
The effect of your inflationary policy – regardless of your intent – is to foster crony capitalism.
Since I did not say that producers must “enter production without the goal of satisfying consumer preferences”, your rambling is pointless waffle.
Also, if workers are hoarding money from their income from production, it is clear that Say’s law would fall, and you have failures of AD.
No, you didn’t say it, but you implied it when you found fault with consumers holding their money under their matress. If consumers don’t want to spend right now, then producers shouldn’t be producing right now.
Say’s law wouldn’t fall, since producers, realizing they are producing when they shouldn’t, simply stop malinvesting their resources, then choosing to do something which conforms with consumer preferences.
And “the aggregate” (or Collective) doesn’t demand – only individuals demand. It is the preferences of these specific individual consumers which producers must satisfy in order to make a profit, and only those would-be producers who value what consumers are willing to pay more than what it would cost them, personally, to produce, should even make the attempt.
“producers, realizing they are producing when they shouldn’t, simply stop malinvesting their resources, then choosing to do something which conforms with consumer preferences.”
And causing real per capita output to fall and causing the capital stock to contract and unemployment, when this was not necessarily the intention of the individuals concerned at all.
Thanks for showing us the paradox of thrift and proving my point.
The aggregate of capita doesn’t output – only individuals output, so there’s no need to be concerned about the aggregate number.
The unemployment would occur in those areas where consumers do not want producers to produce.
Stimulating production for that which consumers don’t want is a waste of the producers’ resources; Stimulating such production by creating artificial purchasing power for the first users of new money destroys the purchasing power of later users; And, again, this is crony capitalism.
If producers aren’t producing for the specific individuals who want their product AND are able to pay, then they ought to stop producing.
You’re SUPPOSED to lose your job if you’re not satisfying the consumer.
“And causing real per capita output to fall and causing the capital stock to contract and unemployment, when this was not necessarily the intention of the individuals concerned at all.”
It doesn’t have to be any single individual’s conscious intention for it to be optimal. We live in a world with more than one individual, and the optimal aggregate output is that which is a function of each individual’s voluntary actions.
It is wrong to believe that if an individual does not reduce their spending for a time, and instead spend that money and keep certain businesses afloat, which will result in an additional marginal increase in output, it does not follow from these facts that the spending MUST be done, if not that individual, then some other individual.
You are arrogating your preference for higher aggregate output at all times, to somehow be what everyone else should prefer, even if they prefer to reduce their consumption and increase their cash balances and be willing to forgo current consumption. That they somehow should want to spend more and more each day and consume more and more each day with never any reduction in their consumption, no matter what the preferences and decisions of people actually are.
It is not justified to initiate force against people to say some aggregate statistic rises to arbitrary rate, with no focus at all on the content of said production, if individuals prefer to reduce their present consumption and increase their cash balances relative to their wealth.
The paradox of thrift is a myth, because it conflates cash hoarding with saving and investment.
Surely the low interest rates of a deflationary scenario would encourage capital projects. If someone is holding money under the bed at 0% then why not get 1% return on something worthwhile?
0% would imply no moment in the price level at all or effectively no change in purchasing power.
You need to read the definition of deflation, Tel: a **reduction of the general level of prices in an economy.**
In a deflationary scenario, it is possible to save at 0% and still earn interest – not in money terms, but in terms of purchasing power:
Interest Rates in a Gold Coin Standard
http://archive.lewrockwell.com/north/north1075.html
So, in a free market economy, the money (gold coins) paid by borrowers to lenders may not be more than the money borrowed – zero percent – but the real income of the lenders rises. Interest is still being paid to lenders, but it is concealed. The interest rate is the same as the decline in gold-denominated prices.
A nominal 1% is always better than a nominal 0% under the bed, regardless of what prices are doing. Thus it is always possible for people to offer incentive for others to lend.
The purpose of borrowing is to produce for future demand. If the return in the future won’t allow the lender to make a profit, there’s no reason to borrow.
Also, the government prevents individuals from providing banking services, so the supply of lenders can be artificially restricted.
If you can earn a 1% return on investment as opposed to 0% sitting on cash, there is an incentive to invest. That was Tel’s point. You ignored it.
If merely earning any positive real return at all were sufficient to satisfying every investor’s desire for return, then we should see every investor investing their entire gross earnings in risk free bonds.
But we don’t see that. Why? Because investors want more than just a positive return. They want a maximum (risk adjusted) return.
Thus, if we lived in a world with gradual price deflation due to real goods production outpacing money production, it does not follow that because everyone could earn a positive real return simply by sitting on cash, that everyone will in fact do that.
If for some miraculous reason everyone did increase their cash balances hoping to earn a real return, that very activity will increase the average rates of profit throughout the economy, as the revenues generated by spending out of cash balances to dividends will stand in a greater amount relative to investment, which would increase profitability, which would make the incentive to invest almost too good to pass up. It might be the difference between sitting on cash and earning 2% real return, and investing in an index fund and earning 30% or 40% return.
EVEN IF people held higher cash balances because of gradual price deflation due to increased production, it would not force continually increasing cash balances relative to invested wealth. You might see a one time increase in that ratio, but no continuous increase. Similarly, with 2% gradual price inflation, we might see a one time increase in the ratio, but not a continuously increasing ratio. People hold a cash amount that is consistent with a particular indefinite price level change per year.
Let’s make sure we have this right. There is a deflationary world. What is causing this deflation? Probably increased productivity. And where did that increased productivity come from? Investments. So far so good.
But one day, someone thinks, my purchasing power has risen by 2% risk free. So why lend it to anyone? Because if I lend it I will get an extra 4%? Nah. So he hides it under his bed [which no one has ever done, and it’s as absurd as the bogey man to think anyone will in a modern economy with banks and stuff]. Result? Prices go down, because the money supply is less. So the investors get to buy stuff cheaper, the same as if he had given them the money.
What’s wrong with this picture?
Keynesian Answer: We have to force people to take risks they do not want to take. After all, everyone in the world is smart and knows how to invest their money. Nobody will ever lose any in foolish investments. So these lazy bums who want to save their money have to be forced, for their own good, of course, to risk losing it all. Hey, in the long run they will all die, right?
There have been some sizeable historic coin caches discovered, left over from the thousands of years that people did use metal based currency. So at least some people did stash their money, but for whatever reason the world economy did not grind to a stop because of that.
“Prices go down, because the money supply is less. So the investors get to buy stuff cheaper, the same as if he had given them the money.”
And nominal debt contracts? Are they all magically adjusted too?
And as for your comment about banks: A Rothbardian economy would literally destroy banking as we know it: leaving inflexible time deposits the only option for lending, an option many people despice as they prefer flexible mutuum/callable loans and FR banking.
In short, your world incentivises hoarding of money.
You make that sound like it’s a bad thing.
As for nominal debt contracts. If everyone is smart enough to know magically that they need only do nothing and their money will increase by 2%, they will also be smart enough to make debt contracts not nominal, but adjusted for deflation.
Destroying banking as we know it is not the same as destroying banking.
Except the future is uncertain: there is no necessary reason why deflation must be stable at 2% a year forever.
The world you postulate is more likely to have fluctuating deflation rates, hard to predict, and hard to write into any contract.
There is no reason why price inflation must be 2% a year forever.
LK:
“And nominal debt contracts? Are they all magically adjusted too?”
Renegotiated, defaulted on, are options on how to deal with unpayable debt contracts.
Not sure where you’re getting the notion that people in debt have a right to benefit from the effects of the government or anyone else initiating violence against innocent people.
Debtors do not have a blank check on the lives of everyone else.
It is also not justified to initiate force against people to compel them to live amongst a particular group of people constituting ownership of banks and other lending institutions, who managed their firms badly or for any other reason according to voluntary exchange and abstentions from exchange. Bankers are not royalty. If banks are badly managed, or if they do not receive the income they expected, then there is no justification for stealing from others or threatening others with violence to ensure money is monopolized and printed for their benefit.
>And as for your comment about banks: A Rothbardian economy would literally destroy banking as we know it: leaving inflexible time deposits the only option for lending, an option many people despice as they prefer flexible mutuum/callable loans and FR banking.
It would annihilate and vaporize them into the netherworld of dimension X, where the screams and wails of pain from the capitalists who incurred losses temporarily and the workers who lost their jobs temporarily, would haunt the dreams of Lord Keynes forever and ever, amen.
>In short, your world incentivises hoarding of money.
There is nothing wrong with holding a ratio of cash to invested wealth of 25% with free banking, instead of 10% with central banking.
The only lasting difference would be that the prices of assets would be lower than they otherwise would be, due to the quantity of spending on assets being lower.
There is nothing ethically wrong with me choosing to not spend money on your substandard services for example, such that you earn fewer revenues than you expected, such that you have to incur a temporary loss. Same thing is true for two, three, or a million other providers of services.
You simply don’t have any justification in threatening people with violence to ensure that providers of services get the revenues they expected as a group.
You continue to shed crocodile tears for the poor and unemployed, and yet you spend all your time on the blogosphere instead of donating to charity to help the poor. People are dying and yet you don’t help them. Why? Because your concern really isn’t helping the poor, but rather, to ensure the government remains in control, rather than individuals without any overseer.
Everything else is deception and evasions.
LK:
““And nominal debt contracts? Are they all magically adjusted too?””
Also, if prices are falling because of increased production, then debts will not be harder to pay back anyway. Lower prices and higher production does not imply lower revenues and incomes, and it is revenues and incomes that are used to pay back nominal debts.
What matters for interest rates is not prices, but the difference between spending on all goods and spending on factors of production. If this rate is on average 20% say, then it doesn’t matter what prices are doing on account of productivity. Prices could be falling 20% each year, and yet it would still pay to lend and borrow because of people’s differences in time preferences.
If prices are falling, then nominal wages must fall to avoid a profit squeeze.
And when nominal wages fall, nominal debt contracts will need to be adjusted too
That seems to have slipped your feeble mind.
“If prices are falling, then nominal wages must fall to avoid a profit squeeze.”
False. If prices are falling on the basis of productivity, then there is no profit squeeze.
Think selling 10% more goods for 10% lower prices. Revenues would not be any lower, so there would be no downward pressure on profits.
“And when nominal wages fall, nominal debt contracts will need to be adjusted too”
There is no reason why nominal wages should fall on the basis of production either.
“That seems to have slipped your feeble mind.”
Apparently the mechanics of production generated price deflation has totally escaped yours.
Nominal debt contracts?
Wait a moment, the original complaint was totally unrelated:
People were responding in terms on incentives, mainly because the question was about incentives. If you want to bring up a new topic, be a good chap, scroll to the bottom and start a different subthread.
No need to be rude about it.
Tell that to the 1880’s, which had consistent deflation and capital investment at extraordinarily high levels.
No, the 1880s were not a period of “capital investment at extraordinarily high levels”.
Decadal US per capita GDP rates:
(1) Average Growth Rate 1921–1930: 1.27%
(2) Average Growth Rate 1911–1920: 1.28%
(3) Average Growth Rate 1931–1940: 1.54%
(4) Average Growth Rate 1871–1880: 1.64%
(5) Average Growth Rate 1881–1890: 1.65%
(6) Average Growth Rate 1951–1960: 1.75%
(7) Average Growth Rate 1991–2000: 1.94%
(8) Average Growth Rate 1891–1900: 2.04%
(9) Average Growth Rate 1901–1910: 2.13%
(10) Average Growth Rate 1971–1980: 2.16%
(11) Average Growth Rate 1981–1990: 2.26%
(12) Average Growth Rate 1961–1970: 2.88%
(13) Average Growth Rate 1941–1950: 3.87%.
http://socialdemocracy21stcentury.blogspot.com/2012/09/us-real-per-capita-gdp-from-18702001.html
———————–
It comes out at no, 5, hardly spectacular.
And the 1873-1896 period was one of business anxiety and profit deflation, because nominal wages weren’t falling enough:
http://socialdemocracy21stcentury.blogspot.com/2013/06/s-b-saul-on-profit-deflation-of.html
http://socialdemocracy21stcentury.blogspot.com/2013/06/alfred-marshalls-judgement-on.html
http://socialdemocracy21stcentury.blogspot.com/2013/06/the-profit-deflation-of-1890s.html
Sorry, but the US could not have started as mainly agrarian at the onset of the 19th century, and then overtaken the UK as the most productive economy on the planet, with only 2% growth per year.
Something is definitely off with those numbers. Perhaps you could verify the methodology and quality of the data sources. My guess is that they were using flawed assumptions about prices and concluding that low prices meant low productivity.
I’ve been wondering about this for a long time. GDP as a concept was coined only in 1934. I am not sure if anyone bothered to collect the data required to correctly estimate GDP prior to that. Ignoring, for the moment, the point that GDP is a nonsense indicator that ignores the bulk of gross savings, I wonder how these GDP figures were estimated and why they may be considered comparable at all to figures computed after 1934.
Once we are done with that, we can come to the larger point about what nonsense GDP is as a measure of economic output. This is why I have been uncomfortable engaging anyone in an argument where he/she uses GDP data as a part of the argument.
That’s the only “argument” LK has. Oh, and fixprice.
My guess is that they were using flawed assumptions about prices and concluding that low prices meant low productivity.
Tom Woods offers this article, interestingly coming from a Leftist perspective:
Freakoutonomics
http://www.nytimes.com/2006/06/02/opinion/02morris.html
Pan the camera back to Pittsburgh, July 1877. The Pennsylvania Railroad yard, stretching along the city’s riverfront, is a raging inferno, set afire by angry mobs of railroad workers.
…
Over the next few weeks riots rage throughout the country.
…
Historians long attributed the turmoil to a “great depression of the 1870’s.” But recent detailed reconstructions of 19th-century data by economic historians show that there was no 1870’s depression: aside from a short recession in 1873, in fact, the decade saw possibly the fastest sustained growth in American history.
Employment grew strongly, faster than the rate of immigration; consumption of food and other goods rose across the board. On a per capita basis, almost all output measures were up spectacularly. By the end of the decade, people were better housed, better clothed and lived on bigger farms. Department stores were popping up even in medium-sized cities. America was transforming into the world’s first mass consumer society.
But why did people feel so miserable? Partly they were confused by prices, which were dropping sharply. Farmers thought falling grain prices meant they were getting poorer, without noticing that the price of everything else was falling too. Farmers’ terms of trade — the price differences between what they sold and what they bought — actually racked up solid gains in the 1870’s.
Morris is wrong about virtually everything he says: the 1870s had severe economic problems, industrial stagnation and rising unemployment::
http://socialdemocracy21stcentury.blogspot.com/2012/09/rothbard-on-us-economy-in-1870s.html
LK,
Give us something with data that was collected THEN, not estimated post-1934 for 1871-1894. As of now, I know that the GDP data you have used was not collected and is an estimate made well after 1934. What about the IIP data and the GNP data? Were they collected during the recession or estimated much later? At the very least, were the data they are based on collected then for the purpose of estimating these indexes or are you using data collected about something else for some other purposes?
As of now, I am just seeking a clarification. Once you give it, we can move forward meaningfully.
There is plenty of later 19th century contemporary data on output, such as manufacturing, raw materials, farm output, exports, imports, values of shipments in internal US trade, construction, and transportation.
From the late 1880s, US states DID collect more detailed data on manufacturing output too
Davis’s industrial index — which is the best proxy of GDP — is based on 43 contemporary annual components of manufacturing and mining industries in the US, which represented about 90% of manufacturing output in the 1800s (Davis, J. H. 2006. “An Improved Annual Chronology of U.S. Business Cycles since the 1790s,” Journal of Economic History 66.1: 103–121. p. 105).
Balke and Gordon’s (1989)
data also relies on contemporary data.
See Hanes, Christopher. 2013. “Business Cycles,” in Robert Whaples and Randall E. Parker (eds.), Routledge Handbook of Modern Economic History. Routledge, Abingdon, Oxon and New York. 116–135.
LK,
So, the data was not collected for the purpose of calculating any of these quantities or indexes you are citing. They were all retro-fitted. What makes you sure they are in any way appropriate for the use they have been put to?
Do answer these. In any case, however, the fundamental cloud over the very meaningfulness of these measures and indexes is still very much open to question. I would like to come to that once the reliability of the data you are citing has been settled.
lol.. the question you ask: is contemporary real output data at all appropriate for calculations of real output data?
The question is one of sheer idiocy and answers itself.
You might have asked more reasonable questions like: “is the data extensive enough?” (Answer: it is extensive enough to get a reasonable estimate.)
But, no, you ask a harebrained one.
LK,
Why do you get so arrogant so quickly? In just our previous encounter, I did demonstrate (rather painstakingly and then repeatedly) that you were talking nonsense. That you come back with this much arrogance after that bad a pasting is very revealing.
That apart, the appropriateness is a relevant question because even by your own admission, data was collected only by the late 1880’s. So, you are left with less than a fourth of the data whose backing you claim being based on actual data collected in those very years while the rest of it is based on estimates and projections back in time.
So, do cut out the arrogance. Just bear in mind that I am yet to get into a discussion of the relevance of your favourite and most-flogged dead horse – GDP.
That apart, the appropriateness is a relevant question because even by your own admission, data was collected only by the late 1880′s.
You’re still stuck on your absurd question: is real output data “appropriate” for a calculation of real output? Clearly and logically: yes, it is.
Official data was collected from the 1880s, but plenty of data existed **before this time** as anyone who has read J. H. Davis, 2006. “An Improved Annual Chronology of U.S. Business Cycles since the 1790s” and Davis, “An Annual Index of U. S. Industrial Production, 1790–1915” (Quarterly Journal of Economics 119.4 [2004]: 1177–1215) can see.
Davis notes that post-1865 data is extensive and should be a good proxy for GDP given the rise of the manufacturing sector and its relationship to other sectors.
If you weren’t such a fool, your question would be: is the data extensive enough? The answer has already been given to you: yes, it is extensive enough for a reasonable estimate post-1865.
Enough, LK. You have admitted that you do not have data but are relying on proxies. That’s as much as anyone can get from you and as close as getting you to confess.
And now, coming to the core point – Is the objective to measure economic output or to measure GDP? That’s where the question of appropriateness hurts. It’s not about how extensive. It is about what the data pertains to. I am taking this to a new thread (taking Tel’s advice to you seriously).
You have admitted that you do not have data but are relying on proxies
The Davis proxy is based on extensive underlying data, so you sheer brazen lying in the words “you do not have data” is impressive, Bala.
Such shameless lying suggests intellectual bankruptcy, bala.
LK,
That is not lying. That is making the implicit aspect of your statement explicit. Proxies are not data. Get that? It does not matter what data they are based on. That they are proxies is the point.
Let me put it another way. You do not have the data required to get at GDP. So you use what you have to estimate GDP even though it is not what you have been collecting since 1934 to calculate GDP.
Now tell me. Who’s lying?
“You do not have the data required to get at GDP.”
On the contrary, we have extensive enough surviving contemporary data post-1865 on which to base a reasonable estimate of GDP.
More shoddy lying, bala.
LK,
You are using a proxy to estimate GDP, aren’t you? If so, the data is not data collected for GDP calculation. No one even had a concept of GDP back then.
Holy cow you two. LK, you never address the points your adversaries want you to address, in this case it’s the conflation of GDP with standards of loving. And Bala, stop playing into his hand here, his arrogant argumentation is just a smoke screen to keep everyone here distracted, so he can continue avoiding pertinent arguments.
Thanks Beard. I understand your point but my agenda is to drag LK into a discussion that will bring out what nonsense GDP is and thus silence him on one more front (I doubt he will ever take up sticky wages with all that data that supports Austrian production theory after the pasting he received on the other thread).
I am just sick of all the garbage he dishes out citing GDP at every turn and every corner.
If we see price deflation and a constant NGDP then we can conclude there must be growth (presuming you accept GDP as a good metric, and it’s better than nothing, but not great).
You might as well say the whole 18th and 19th Centuries, where gold and silver were monetary standards, price deflation hapened often (never monetary deflation because new gold and new silver were being discovered) productivity steadily improved, and most of the big science and technology gains we enjoy today (other than transistors and atomics) came from that period.
No, Tel, outside of 1873-1896 — an historically aberrant period — booms were inflationary and busts deflationary in the 19th century.
Amateur mistake for sure on the accounting profits thing Bob.
Hmmm, looks like your other Canadian chums are busy bashing all heck out of Keynes, how dreadful! Couldn’t have happened to a nicer guy either.
http://www.zerohedge.com/news/2014-03-16/failure-keynesianism
Now, LK.
Coming to the core point – Is the objective to measure economic output or to measure GDP? That’s where the question of appropriateness hurts. It’s not about how extensive. It is about what the data pertains to. Given what nonsense GDP is as a measure of economic output, it just doesn’t matter how good a proxy something is for GDP. It is still nonsense on stilts.
Real GDP measures output, yes, in terms of the aggregate monetary value of consumer goods bought, real capital investments made, and exports – imports.
GDP aggregates homogenous money units expressed as numbers that measure the sale of a good and then many goods.
If you cannot meaningfully aggregate the money value of heterogeneous goods, then that has clear consequences:
(1) the aggregate value of factor payments from production in Say’s law and the aggregate money value of the purchasing of produced goods as aggregate demand falls apart: it follows that Say’s law is meaningless and “nonsense on stilts.”.
(2) any private business aggregating the monetary value of its quarterly or annual sales of heterogeneous goods or factor inputs to calculate costs and profits must be meaningless too: therefore all calculations of sales and profits fall apart and must be “nonsense on stilts.”
———————————
So, congratulations, Bala: you’ve destroyed Say’s law and all private accounting and profit calculation, including the basis for Misesian economic calculation.
LK,
I suggest that you take a deep breath, count to 10 and then re-read what I wrote. I did not say this
I said
So, my point is that GDP is nonsense in the name of measuring economic output. That’s not the same as what you said.
Now… Before I move further, it wold be great if you could clarify whether GDP calculation includes ALL capitalist spending or only capitalist spending on durable capital goods. Once you do that, we can proceed.
(1) “my point is that GDP is nonsense in the name of measuring economic output. “
It doesn’t directly aggregate heterogeneous goods: it measures the aggregate money value of goods.
if you deny that latter, the direct consequences are:
(i) Say’s law is meaningless and “nonsense on stilts.”.
(ii) no private business can meaningfully calculate costs and profits based on aggregate of money values of economic output and input.
So run in terror from this point that destroys you, Bala.
(2) GDP measures the aggregate money value of consumption (as final consumer goods and services) + investment + government spending + exports – imports.
Once again, LK. I did not say this
Since you asked me a question, I’ll be decent and answer it straight. But the expectation is that you answer my question straight as well. Here is your question and my answer.
My answer – Yes.
Now. Here is my question which I am asking you for a second time. Does the “I” for investment spending in GDP calculation include ALL capitalist spending or only capitalist spending on durable capital goods? A straight answer. Here are your options.
Option 1 – All capitalist spending
Option 2 – Capitalist spending on durable capital goods
Define “all capitalist spending”.
As for gross investment, it aggregates money value of replacement purchases, net additions to capital assets and investments in inventories, in both non-residential and residential investment (e.g., landlords).
A straight answer please. No going around in circles. “All capitalist spending means exactly what it says – All capitalist spending. Maybe I could have been a little more careful and said “All capitalist spending on production”, i.e., the total payments made by ALL capitalists to procure the services of ALL factors of production, i.e., land, labour and capital goods.
Once again, no beating around the bush. The answer choices are
1. Yes (Meaning it includes payments made by ALL capitalists to procure the services of ALL factors of production, i.e., land, labour and capital goods)
2. No (Meaning it does not include payments made by ALL capitalists to procure the services of ALL factors of production, i.e., land, labour and capital goods)
Answer:
(1) GDP is a measure of money value of final output plus durable capital in investment, and as everyone with half a brain knows, of course it does not
measure the money value of all factor inputs purchased.
Given that many factor inputs in a production period may not be processed to produce final output, measuring all the money value of non-wage factors does not necessarily produce any better measure of an economy’s output.
(2) Nevertheless, you can of course calculate the money value of output including (1) final goods and services and (2) non-wage factor inputs or all factor inputs, both durable and non-durable.
E.g., from the 1940s economists have used input-output tables to measure the money value of factor payments versus final output, such as (1) the US benchmark I-O tables
and (2) the US government aggregate called “gross output.”
In fact, given that many factor inputs are durable, Davis’s production index already includes a great deal of intermediate goods, so this provides a reasonable measure of intermediate goods.
In general, both general farm/commodity indices and industrial production indices already give you a good proxy for real output with nonwage factor payments included.
And now before you spin more lies and throw up more straw man arguments, just answer one question:
(1) can a private business measure the aggregate money value of its heterogeneous output goods sold in a one year period?
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Yes or no?
No evasions, no distractions, just a straight answer.
You should know the Austrian position on money being a measuring stick.
1)
This assumes money is a measuring stick.
2)
This does too.
Your theorizing and the consequences of your assumption being false making your argument nonsense isn’t relevant to theory that doesn’t make assumption in the first place and has a different argument.
Value is subjective, you can’t quantify value to measure.
LK,
Knowing you, I take that as an indirect way, laced with the usual LK (undeserved) intellectual arrogance, of saying “No”.
I take this as your weak justification for the intellectual laziness that prevents you from looking for a meaningful measure of economic output in any period.
I take this as completely irrelevant because whatever else may be calculated has nothing to do with what GDP is and how meaningful a measure of economic output it is.
Once again, I take this as completely irrelevant because whatever else may be calculated has nothing to do with what GDP is and how meaningful a measure of economic output it is.
Here is one more weak excuse for the same intellectual laziness identified earlier.
A third irrelevant point that says nothing about how meaningful GDP is.
Given what you have said so far, here is why GDP is complete nonsense. The real measure of economic output is the total spending on factors by all capitalists in all stages of all lines of production. This is the saving that capitalists need to have done for a production system to churn out a given output of consumers’ goods period after period. Of course, there are difficulties in measuring it. For instance, these payments are necessarily rents for factor services and one will have to separate payments for whole factors from the misleading figure of total spending on durable capital goods. However, that does not take away from the meaningfulness of gross savings.
GDP nonsense because it does not take care to account for gross savings. If it had at least been an honest (even if failed) attempt at measuring gross savings or gross savings + consumers’ goods spending, one could have taken it seriously. As it stands, it just measures what you are able to count while saying nothing about the real economy whose output it claims to measure. In fact, the fact that proponents of GDP take care to avoid “double counting” damns it completely.
Gross savings taken together with total spending on consumers’ goods tells us a lot about an economy, especially across time. GDP figures are at best misleading and at worst an attempt to deflect attention.
Of course, you are free to bandy around that nonsensical measure and pretend to be highly intellectual, but that does not make your arguments meaningful.
(1) “The real measure of economic output is the total spending on factors by all capitalists in all stages of all lines of production.
Even if you accept that argument, that can and is already calculated by governments in the input side of input-output tables to measure the money value of factor payments versus final output, such as, as noted above, the US benchmark I-O tables
And as noted above it is not necessarily a better measure of real output, since the final real output of consumer goods is what people want and what gives them utility.
Given that a considerable volume of factor inputs purchased in a given period are not necessarily used in production (but might be stored and kept for later periods) or might be used to make things that people may not buy, ” total spending on factors” provides no necessarily superior real output measure at all, and you have clearly not demonstrated that GDP is nonsense.
(2) “Once again, I take this as completely irrelevant because whatever else may be calculated has nothing to do with what GDP “
No, Bala, the I component in GDP will be included in any measure of “total spending on factors”, so your stupid statement that input measures or “gross output” measures have “nothing to do with what GDP” is quite clearly wrong.
It is not a part of GDP. Period.
Something does not become true because the great genius LK noted it. It is more meaningful because it takes into account both the output that is produced AND the driver of that level of consumption period after period, the gross savings. GDP does not do that. By pretending to look at production, it includes only a randomly and arbitrarily selected portion of gross savings while ignoring, quite deliberately, a huge chunk of it. Right there, it is meaningless.
In which case they are to be counted in the period in which they are applied in production. That, incidentally, is one of the real difficulties in effectively and meaningfully estimating economic output.
That is later. For the current period, it is part of capitalist saving.
If you realise that total spending on factors (specifically the services of factors for production in the period under study) is the total amount that all capitalists put together have saved and which makes the observed output of consumers’ goods possible period after period, it is extremely meaningful. A fall in that figure combined with a rise in consumption tells us that the production structure is shortening, that future output is going to fall, that losses are to be expected and that standard of living is going to fall. A rise in that figure tells us the exact opposite. Thus, it is extremely meaningful unlike GDP which informs us in no way about what is happening in the economy. Gross savings, especially any change therein, is forward looking while GDP is backward looking.
The very fact that it is a random mishmash of some economic data and not something that systematically measures the consumers’ goods output and the total savings that makes that output possible means that it is meaningless. That it ignores rent and wages paid at every level and payments to non-durable produced factors of production in every line and stage means that it is missing out a lot. Since it systematically and deliberately misses out that which is important and meaningful, it is nonsense.
I has nothing specifically to do with production of this period. It is a meaningless number because it does not reflect the actual (economic) payments made for the services of factors for the production of the current period. If a machine lasts 10 years, only the current year’s notional rent must be included in the factor payments against that machine. Counting the full price paid for purchasing that machine in the current period is a random overestimation of the contribution of that machine to this period’s output. At the same time, believing that this random overestimation will compensate for the deliberate omission of payments for land, labour and non-durable factor services is no different from hoping that a troop of monkeys with typewriters will eventually churn out the works of Shakespeare.
This badly designed measure is also capable of being highly misleading. A fall in consumption spending is not necessarily a bad thing just as a rise in consumption spending is not necessarily a good thing. Reliance on GDP can (and in fact does) lead its followers into error because they can (and in fact unfailingly do) misdiagnose the health of the economy. Seeing falling GDP can lead its followers into calling for measures to prop it up while what they should be doing is keeping their grubby hands to themselves and their nonsensical ideas deep inside the recesses of their non-functioning brains. Seeing rising GDP can lead its followers to continue more of the same policies that they believed caused it to rise ignoring the inevitable collapse that is soon to be caused by their policies.
If these genius types had kept their eyes on gross savings, they would have at least had some way of knowing how misguided their ideas are. Falling consumers’ goods spending in the current period with a rise in gross savings will be seen as a result of people’s thrift in the present in order to create a better, more prosperous future for themselves. Rising consumers’ goods spending in the current period with a rise in spending on production will tell them that the economy is in the midst of an inflationary boom caused by injection of funny money created out of thin air into the production system and that this phony prosperity must end in a horrible depression.
It was not for nothing that Simon Kuznets was hired by the US Congress to come up with a “measure” of output like GDP. Actually, what they wanted was some wool to pull over everyone’s eyes and Kuznets gladly gave them that.