That’s the latest post from my Blogstack, responding to recent inflation figures. Text over the fold.
A 5 per cent annual rate of inflation is not, in itself, a major problem. It has become evident that very low rates of inflation can be just as damaging as high inflation, by not allowing the Reserve Bank room to cut interest rates far enough when the economy is depressed. The 2-3 per cent target adopted in the 1990s made sense as a way to break the inflationary expectations built up over previous decades, but is now clearly too low. If inflation targeting is to be retained as a policy, the target should be raised to 4 per cent.
What is really needed though is a target rate of growth for wages, which have been stagnant for years and have lagged far behind prices in the recent upsurge. Wages should be increasing by 6 per cent a year, at least for the next couple of years. Achieving this will require not only caution in raising interest rates but the repeal of decades of industrial relations legislation explicitly designed to hold wage growth down.
If wages rose at 6 per cent a year, and workers shared fairly in productivity gains, inflation would be around 4 per cent. Assuming a neutral real interest rate of -2 per cent, that would be consistent with a 2 per cent target cash rate. Hence, the 6-4-2 solution
40 thoughts on “The 6-4-2 solution”
2-4-6 will be seen as “over broad and resisted”(^1Hoel), yet is ‘arguably’ valid. Expect newscorpse & hard right will misinform to secure “the repeal of decades of industrial relations legislation” (JQ).
It is not the 246 solution, but the mass media and politisation which needs a solution;
“our lack of understanding about the collective behavioral effects of new technology is a danger to democracy and scientific progress”.(^2Vox)
Twitter & ‘free speech’ is a recipe for divide & conquer of sensible solutions against consensus, as ^1Hoel says; “other than scale of the harm, immediacy, and politicization—in all cases, we’re “going against scientific [economic, policy, bau] consensus.” And this worries me, since the notion of scientific misinformation could, in retrospect, end up being one of those classically over-broad standards”.(^1)
“The 6-4-2 solution” is a – one – solution in need of being elevated to a “crisis discipline” (Bergstrom below).
But it has to get past the demarcation, consensus, critics. Misinformation will crush the attempt to “Achieving [“The 6-4-2 solution”] … will require not only caution in raising interest rates but the repeal of decades of industrial relations legislation explicitly designed to hold wage growth down.”(JQ) … yet “our lack of understanding about the collective behavioral effects of new technology is a danger to democracy and scientific progress.”(^2Vox)
So with economics & “The 6-4-2 solution” policy, all need to be elevated to “crisis discipline” (Bergstrom).
Eric Hoel today in;
“Why we shouldn’t ask corporations to solve the demarcation problem”
“Even if one assumes (correctly or not) that during the pandemic there was good reason to put a far-reaching system in place with which to censor criticism of scientific consensus, my fear is that this system will remain in place after the pandemic is over and end up applying to a wider domain of science than anyone anticipated. E.g., consider that just a few weeks ago in Science there was a glowing review of the work of Carl Bergstrom, who is calling for the study of scientific misinformation to become a “crisis discipline:”
“Bullshit” is Bergstrom’s umbrella term for the falsehoods that propagate online—both misinformation, which is spread inadvertently, and disinformation, designed to spread falsehoods deliberately. . . In a perspective published in PNAS last year, Bergstrom and 16 other scientists from various fields argued that the study of how the information ecosystem influences human collective behavior needed to become a “crisis discipline,” much like climate science, that could also suggest ways to tackle the [misinformation] issue.
“It is clear from the PNAS paper that the notion of scientific misinformation by Berstrom et al. is not limited to issues around the COVID-19 pandemic, but include claims about artificial intelligence, climate change, economics, psychology, and so on.”
^2Vox – re Bergstom et al:
“The [Bergstrom er al] paper argues that our lack of understanding about the collective behavioral effects of new technology is a danger to democracy and scientific progress. For example, the paper says that tech companies have “fumbled their way through the ongoing coronavirus pandemic, unable to stem the ‘infodemic’ of misinformation” that has hindered widespread acceptance of masks and vaccines.”
“Why some biologists and ecologists think social media is a risk to humanity ”
“Stewardship of global collective behavior
Bergstrom +13 et al
June 21, 2021
“… Yet we lack the ability to predict how the technologies we adopt today will impact global patterns of beliefs and behavior tomorrow. Reliable prediction of social systems is among the more elusive challenges in science”…
From the Related links below this 246 op, thanks JQ, & Ernestine for your concise and fundamental op’s & comments – from “Some propositions for chartalists (wonkish) May 9, 2011”;
“I thought I would draw up a set of propositions bearing on the claims I made about hard Keynesianism and invite comment from MMT advocates and others as to whether they disagree.”.
… you Ernestine make the most concise and fundamental comment in the same op, which stood out from the pack;
“Ernestine Gross says:
May 13, 2011 at 11:26 pm
“Boundedness is the crucial concept to represent the finite life of planet earth – it is ignored by those who preach ‘growth’ of ‘economic activity’. I know nothing about a ‘conservation of money rule’.”
And spending comes first. And why does anyone drop the zero bound from graphs! And chemical game theory.
Cash rates of -2% look odd given that inflation is now the highest for 20 years and unemployment is at record lows since 2008. The economy is booming away and it is difficult not to think we are in a potentially dangerous situation. A real wage increase of 4% over 2 years will probably happen anyway given the tightness in labour markets partly due to the immigration slowdown – its surprising that wages haven’t started to rise yet throughout the economy but they will. In itself that wage increase won’t be damaging but inflationary expectations already seem to be embedded in wage demands – the teachers in NSW are whining about their loss of purchasing power. We definitely don’t want another bout of cost-push inflation.
As seen in limited news & the fin by lesson 1 adherents;
“the teachers in NSW are whining about their loss of purchasing power. We definitely don’t want another bout of cost-push inflation.”
The reason you don’t hear others whining is…
– they don’t have a platform and
– are probably ctying not whining, and
– have been forced into an NDA making it illegal to whine.
Expect newscorpse, and Harry & hard right to misinform to secure continuation not “the repeal of decades of industrial relations legislation” (JQ).
There is a wage growth slowdown in the US and in Europe, KT2, so the question is whether the Australian experience is a unique response to our industrial relations legislation. I think the productivity slowdown and high rates of immigration are part of the story in Australia. To say that I set out to “misinform” as part of the Newscorp thrust and that of the hard right is insulting and untrue. Most economists would argue that wages are determined mainly by the interaction of supply and demand in labour markets – a key supply factor here is the growth in the potential workforce due to immigration, a key factor determining the demand for labour is what workers can add to production which reflects their productivity.
“Most economists would argue that wages are determined mainly by the interaction of supply and demand in labour markets/” – Harry Clarke.
One could debate “most” there. I can think of lots of economists I read and they don’t say that. They certainly don’t say “mainly”. They point to institutional factors too. For example, we have union controls and wage controls but not industry organization lobbying and donation controls and certainly not goods and services price controls. Many economists point to the rising share of production going to profit relative to the lower share going to wages, despite productivity increases. Why are there wage controls but not excess profit controls? It’s a viciously rigged and unconscionably tilted playing field and it’s tilted massively in favor of the owners of property and capital.
To believe that real markets are fully self-generating, fully self-regulating and possess “fundamental laws” unaffected by legal laws, regulations and institutional factors is to be somewhere from naive to disingenuous. Yet, this is the picture you present.
Harry, you have never answered my question about houses. Why was my father, as a de-mobbed WW2 PNG veteran, able to buy a house circa 1951 on a junior public servant’s wage (junior draughtsman at that time) with a non-working wife and one baby, at that time? Yet, in 2022 my tertiary educated working daughter (3/4 time librarian) and partner (full-time ecological scientist working in site remediation), no kids, one dog, have been working and saving hard for five years and still cannot afford a deposit for a house in our inflated housing market?
I will give you the answer since you refuse to answer it. And the reason you won’t answer it is that it debunks your market fundamentalist theories. The market is not a true market. Just as there are no true Scotsmen there are no true markets. All markets are institutionally constructed in a social milieu. They reflect a balance (not a market balance) or imbalance of political and social forces. Value decisions are made (not money value but moral value decisions) about how to construct the market and how to use state power to favor or disfavor certain outcomes.
In the 1950s, the availability of land and houses in Australia was strongly influenced by state policy, particularly the state Housing Commissions, and by the loans and interest policies of the nationally owned Commonwealth Bank, as directed by the Federal Government. Statism, in a word. And it worked marvelously! All those returned soldiers got houses. Thriving working class suburbs were built and many of these suburbs bloomed into middle class suburbs over time. Laborers, clerks, semi-professional and professional people lived in the same street. Basically, most couples owned a house, expressly one house.
What do we see now, among young twenties-something people today? Most of them cannot afford one house. Yet, at the same time, we see the fewer persons (landllords) who own (say) ten houses each and they get all sorts of assistance to own those ten houses. I refer to negative gearing and all the other tax breaks on wealth. For every person who owns ten houses, there are 9 persons who own no house. This is not market economics (of which there is no true example anyway). This is evidence of perverse incentives which create perverse outcomes.
Feel free to answer if you wish. I will take no answer or no cogent answer as proof that you have no answers. Market fundamentalism creates inequality, poverty and urban decay, among other outcomes. No wonder our society and economy are collapsing. We can’t stop climate change. We can’t even stop a pandemic. Instead, the market fundamentalist answer is to continue wrecking the climate and to spread a dangerous mutating pathogen everywhere and kill people, just so long as the capitalist / rentier class can continue collecting their money for doing nothing but “owning”.
Ikonoclast, Basically a firm when making its hiring decisions will look at what a worker can produce and what they cost to employ. What they can produce is determined by their productivity. What they cost is largely – not completely given to the firm. It’s not “most” economists who believe this (I stated it wrongly) but, in fact, “virtually all”. It’s Economics 101. The explanation is imperfect since firms often have monopsony power and trade unions have some monopoly power. So you might say that wages are partly determined by bargaining. But the fact that an unskilled worker is paid much less than a skilled engineer is mainly due to market forces not to Rupert Murdoch or the LNP. The pattern of wages in the economy is determined by labour markets not by some conspiratorial fictional view of the world.
The idea that Australian workers are an oppressed majority ruled by a capitalist class is nonsense. It’s the kind of silly fiction that belonged (if ever) to the 19th century. Australian workers are well-paid, have good job security as casualisation rates fall, and have a reasonable social safety net if things go astray. Looking at the Australian labour markets and seeing utter bleakness is a vision problem that afflicts only those with an axe to grind and zero perspective. Australia is, indeed, a very lucky country but one that contains some miserable, disgruntled ingrates.
You can take my failure to respond to what I see as economic illiteracy anyway you like, Ikonoclast. I couldn’t care less. But I am an economist who believes in the value of basic economics and I am not prepared to waste my time refuting nonsense that displays cavalier regard for logic and almost zero economics understanding.
Houses are overpriced in Australia because the capital gains on housing are left either untaxed or taxed at concessionary rates. Gains on every other asset in the economy are taxed. Hence there is a high demand for investing in housing and limited supply because each year more than half the supply passes to new migrants setting in Australia – supply is tight. Moreover, developers and investors sense that the immigration Ponzi scheme will continue so they continue to invest in overpriced housing. Yes, government supplied housing will ease this pressure but at huge cost because land acquisition prices are so high. The best way to deal with housing is to reform the capital gains tax distortion, cut the immigration intake and redistribute income to those facing difficulties using the tax-transfer mechanism. BTW the housing and property market situation naturally switches the distribution of income from labour to property.
Australia did very well in controlling the pandemic up to the point where vaccination became available. Wait and watch for the forthcoming Chinese disaster as Covid rips through a largely unvaccinated population with a Chinese leadership who adhere to your fanatical ideas of eliminating a disease that is everywhere. Likewise, compare Australia’s climate policies to those of coal-burning China and then, if you are game, seriously sprout the nonsense that climate change is due to “market fundamentalism”.
Harry C said “There is a wage growth slowdown in the US and in Europe” … “the productivity slowdown and high rates of immigration are part of the story in Australia.”
So Lesson 1. Your point? Comparisons – monetary, social, political? Only reference US & Europe? No agreement with JQ’s point “What is really needed though is a target rate of growth for wages, which have been stagnant for years and have lagged far behind prices in the recent upsurge”?
Your response Harry is “the teachers in NSW are whining about their loss of purchasing power. We definitely don’t want another bout of cost-push inflation.”. Providing a ‘real point of fact and opinion allowing for others to misrepresent JQ’s point. Fair game though.
As to your call “To say that I set out to “misinform” as part of the Newscorp thrust and that of the hard right is insulting and untrue.”
Ok, my apologies as, relative to “most economists [Lesson 1] your “We definitely don’t want another bout of cost-push inflation” … is insulting and untrue. Love the “We”, completely misinforming via your opinion “Us” as to JQ’s whole “Hence, the 6-4-2 solution”, which is why the Eric Hoel article and Bergstrom paper, and why your opinion with little context to JQ’s piece, feed:…
“Think about it like this. All of our debate starts with content moderation. That’s downstream. Move further upstream to algorithmic amplification. That’s the operating system; that’s where the micro-targeting is. What is an algorithm? Opinion in code.”
What IS productivity Harry, as you said “I think the productivity slowdown …”. The Productivity Commission says:
“… output of goods and services are produced per unit of input (labour, capital, raw materials, etc.). It is calculated as the ratio of the quantity of output produced to some measure of the quantity of inputs used. [Some measure? ??]
“…changes in other inputs (such as capital), ●competitive pressures ● and the ●stage of the business cycle.●
● = what JQ & Ikonoclast said. And completely ignore Lesson 2.
Can’t we adjust as per JQ’s 2-4-6, and do some catch up in wages. My solution would be to remove the vile cap on gdp to total tax take. What is your suggestion other than “We definitely don’t want another bout of cost-push inflation.”?
As shown below Australia has a productivty rate of 105 to Denmarks 110 [ tradingeconomics below].
Which it would seem, as above Australian figures from Australian Bureau of Statistics, and is calculated by using “capital + business cycle + competitive pressures + some measure of the quantity of inputs used” – from abive PC Productivity definition. As a professor of economics Harry, don’t you see this as a fail as all the terms in the calculation are relatively arbitrary and probably some are autocorrelated – yes?
“Wage growth forecasts in Denmark, Norway, and Sweden from 2020 to 2023
Denmark Sweden Norway
2023 – 4% 2.1% 3.7%
2022 – 3.7% 2% 3.7%
2021 – 3% 2.7% 3.5%
2020 – 2.3% 2.1% 3.1%
Showing entries 1 to 4 (4 entries in total)
https://www.statista.com/statistics/1233084/wage-growth-forecasts-in-the-nordics/ Wage growth forecasts in Denmark, Norway, and Sweden from 2020 to 2023
Characteristic Denmark Sweden Norway
2023 4% 2.1% 3.7%
20223.7% 2% 3.7%
2021 3% 2.7% 3.5%
2020 2.3% 2.1% 3.1%
Showing entries 1 to 4 (4 entries in total)
“Australia Average Weekly Wages
“Labour Costs 105.40points Dec 2021
“Denmark Standardized Monthly Earnings
“Productivity – 110.53points
To JQ’s point re “the repeal of decades of industrial relations legislation explicitly designed to hold wage growth down.”
“Hence, the 6-4-2 solution”(JQ)
+ $88 per day + reform Medicare + remove arbitrary gdp to tax rate cap +… plenty of other r < g ideas.
"Out-of-pocket costs hurt those with chronic conditions
22 April 2022.
"A series of research papers using data from the Sax Institute’s 45 and Up Study shows how out-of-pocket costs can quickly mount up for Australians with chronic conditions.
"With 31% of women over 50 affected by osteoarthritis, the study authors estimated that total out-of-pocket costs for this condition were $873 million per year."
" Similarly, research into older women’s out-of-pocket costs fordiabetes and asthma have found them to reach $493 and $345, respectively, on average each year."
" Hypertension, which affects almost one-third of Australians aged over 55, leads to an average out-of-pocket cost of $462 per person per year, or $941 million for all affected Australians, according to a previousstudy using the 45 and Up cohort.
"And for the half-a-million Australians living with the effects of a stroke, average out-of-pocket costs are $386 per year, according tonew research using 45 and Up participants aged 55 to 96.
"Having multiple chronic conditions can be a heavy financial burden. More than one million Australians pay more than $1000 each year on out-of-hospital services and medications, according to a recent Grattan Institute analysis. The same analysis found that the average out-of-pocket costs for a Medicare-subsidised service has increased by 50 per cent over the past decade.
Any women reaing this?
Happy to be called a miserable, disgruntled ingrate or at least implicitly associated with such. It made me laugh out loud, so thanks, I don’t get many hearty laughs these days. I’m argumentative and adversarial so I should be able to take it as well as dish it out. And I can. But let’s talk sspecfics. It’s always better to seek points of agreement first no matter what our political economy priors (a prioris) may be.
I agree that:
(a) “Houses are overpriced in Australia because the capital gains on housing are left either untaxed or taxed at concessionary rates.” Does this exhaust the issue though? Does it include what I said, namely negative gearing? Probably it does. But I think the issue goes even deeper. Should all social goals be subsumed to the market? I will try to get back to that.
(b) “developers and investors sense that the immigration Ponzi scheme will continue so they continue to invest in overpriced housing.” Again, I agree.
Needing more analysis are statements like:
(c) “Yes, government supplied housing will ease this pressure but at huge cost because land acquisition prices are so high.”
Does not the high cost of land happen to some extent because of the “Lauderdale Paradox”?
“Public wealth may be accurately defined, to consist of all that man desires, as useful or delightful to him.” But private riches require something additional (an added limitation), consisting “of all that man desires as useful or delightful to him; which exists in a degree of scarcity.”- James Maitland, the eighth Earl of Lauderdale (1759-1839), the author of “An Inquiry into the Nature and Origin of Public Wealth and into the Means and Causes of its Increase (1804)”.
The point of course is that great ownership of land by a few (in the capitalist property ownership system) creates artificial scarcity. So while the reforms you suggest (and I agree with) would help, I don’t consider they would go far enough. Leaving that aside, why did we regress from better home ownership rates in earlier eras and why are the reforms you suggest so difficult now? For the former and latter I would suggest regulatory capture by the monied class. They buy the outcomes and policies they want. Allowing too great a concentration of wealth leads to ever greater wealth concentration and inequality, The tax-transfer mechanism or tax-welfare system is clearly not enough. It gets short-circuited by regulatory capture. Mal-distribution needs to be corrected at source not corrected secondarily by the tax-transfer mechanism. In other words, the rules which permit primary over-accumulation of wealth and private property need to be changed.
Koala red plenty
JQ’s proposal is far too sensible to squeeze through the Overton window. So let me outflank it with a far more radical one: the koala working week.
On a recent trip to Australia, we visited a koala sanctuary where my wife had herself photographed herself with one. She was the last of the day for that particular animal. After half an hour of photo duty, koalas get ratty – though they are so phlegmatic the effect is not readily noticeable to amateurs. The koala working week is 30 minutes a day for 5 days, or 2½ hours in total.
Why can’t we humans enjoy this? Our longer list of wants is part of it. Koalas desire sheltered branches to sleep, protection from predators, the society of other koalas, and a supply of fresh eucalyptus shoots to eat. That’s it. The sanctuary provides these in abundance, so they live in a state of incarcerated red plenty. There is no possible incentive their keepers can offer them, short of unethical deprivation, to work harder at the photo chore, so 2½ hours it is. We have to work much longer to meet even a basic list of needs. But not necessarily for ever.
Humans are much more inquisitive, creative, sociable and energetic than koalas. Many people outside the labour market will cheerfully volunteer 10 hours a week, some more, to do useful things they enjoy. If the supply of free labour intersects the production function, we are in a state not of red plenty but black, Kropotkin’s anarchist utopia. This will be hard to achieve, but it’s not physically impossible, and deserves more investigation.
“Cash rates of -2% look odd given that inflation is now the highest for 20 years and unemployment is at record lows since 2008.”
1. Indeed, when viewed through the lens of Fisher’s expression of the relationship between the nominal and the real interest rate and this is incorporated into a macro-economic model that includes the ‘unemployment rate’, then a cash rate of -2% looks odd.
But when cash is conceptualised as a security, denominated in a currency unit such as A$, with a redemption value that is equal to the currency value printed on the security (eg A$1 bill is redeemed for a A$1 bill and A$x is redeemed for A$x, for 0 < x < oo) and this type of security is traded with monetary objects (anything that is exchanged for A$), then the traded value of this security may be less than the nominal value, the A$x value. A rate of return of -2% no longer looks odd.
2. The unemployment (rate) may be at record lows since 2008, even if the measurement of this statistic had remained constant since 1960 (which it has not). IMHO, the unemployment rate is a sufficient statistic for macro-economic considerations, if the distribution of wages (incomes) is consistent with the cost of living. Otherwise it is a misleading statistic. My reading of the many reports of cost of living pressures (rent or mortgage payments, food, transport, health, education) is such that since the GFC of 2008 incomes from wages have declined relative to the cost of living. There is what one may call a period of worsening disequilibrium. This is not sustainable in a society that does not wish to converge to a pseudo feudalistic system (most people are at a survival constraint even if working 7 days a week for about 10 hours and a small number of people are comparatively as rich as the feudal lords).
"Inflation targeting". I am not convinced this is a useful notion under current conditions. There is a war in the Ukraine, which affects some food stuff prices. There are sanctions against the aggressor, the Federation of Russia, which affects oil and gas prices as well as fertilizer prices and some other commodity prices. These in turn affect the cost of manufactured commodities and the cost of transport of 'stuff'. All this follows more than 2 years of the corona virus pandemic. And there is the problem of climate change.
My reading of JQ’s short post is he gives a numerical example of changes in relative prices (wage rates, price indices, cash rate) to reduce the obvious disequilibrium. Specifically, wages have to grow faster than the monetary costs of stuff that people buy with these wages. I assume his reference to industrial relations laws and regulations is directed toward the income distribution among wage earners.
Ikonoclast, as in most discussions in the applied area of economics, your historical example of the deterioration in the standard of living over time has limitations and these could be discussed with many words. I take it you know this. However, your point about the changes in relative prices (income derived from wages versus prices of housing) is valid, as is your point about the concurrent concentration of wealth and institutional changes.
Economics 101 is not sufficient to treat the important issues you are dealing with. So criticising you on the basis that your argument does not fit into Econ 101 is invalid.
Ernestine, Thank you for the awe-inspiring characterisation of what a negative real interest rate means:
“But when cash is conceptualised as a security, denominated in a currency unit such as A$, with a redemption value that is equal to the currency value printed on the security (eg A$1 bill is redeemed for a A$1 bill and A$x is redeemed for A$x, for 0 < x < oo) and this type of security is traded with monetary objects (anything that is exchanged for A$), then the traded value of this security may be less than the nominal value, the A$x value."
I think you mean you pay $1 now but get less than $1 back in real terms. Plain English is good. although I did enjoy the o < x oo bit. Illuminating because it includes the intriguing case of infinite positive returns!
But my comment related not to the oddness of negative rates but to the conjunction of negative rates with a booming economy. Quote:
"Cash rates of -2% look odd given that inflation is now the highest for 20 years and unemployment is at record lows since 2008. The economy is booming away and it is difficult not to think we are in a potentially dangerous situation."
The notion that workers are employed up to the point where the real wage equals the marginal product of labour is taught in Economics 101. Even with game theoretic arguments about monopoly/ monopsony power there are few (if any) economists who would argue that wages are linked to labour productivity and to supply conditions in labour markets. And if you disagree with that our communication is at an end.
would not argue
You are a Zen master: “..these could be discussed with many words.”
It comes down to two very different things for me: good faith and good models.
1. Good Faith.
Are advocates for a prescription or course of action speaking in good faith for the common good (with a reasonable allowance for enlightened self-interest) or are they speaking for their narrow personal or class self-interest against the common good? This is a very important question.
2. Good Models.
You refer to two models. These are the “Fisher’s expression” model and the “cash conceptualized as a security” model. One model makes -2% cash rate “look odd” under current conditions (high inflation, low unemployment). The other model makes it look more normal, natural, explicable, understandable or efficacious (I assume).
Bear with me as I try to say a few things about models in general. To avoid too many words I will have to state positions as aphoristic assertions without elaborate supporting reasons. I can provide supporting reasons if people want them. I hold that:
(A) Models are the ONLY way humans perceive and understand (and misperceive and misunderstand) the world. This is true both perceptually (via senses) and conceptually (via ideas).
(B) Models are sub-sets of all existence and as subsets perforce are less than the whole and thus always incomplete. The incompleteness of models is beyond remedy. They will never capture everything.
(C) Descriptive Models (in our brains or in other media like books, computer drives etc.) derive any validity and applicability only from homomorphic correspondence to the real.
(D) Economics perforce deals with prescriptive and descriptive models. It also has to deal with human biological, social and personal drives. This makes economics confoundedly difficult, not to put too fine a point on it.
(E) Economics (in my view and my view may be purblind) has not fully come to terms with its dual nature as a prescriptive and a descriptive discipline.
Economics, like all sciences and social sciences, seeks axiomatization. Euclidean geometry provides us with the model for this process.
Euclidean geometry is a clear example of a formal axiomatic system with empirical genesis and empirical application. We can see the “empirical inspiration” for developing Euclidean geometry. The empirical inspiration is the (near) plane flat surface found in nature (a wide plain) and in products of human artiface (a floor tile).
Euclidean geometry was developed into an axiomatic system by a modelling simplification from reality. It is only by this simplification that it can possess inviolable axioms. It is by these inviolable axioms that it can possess a set of practical applications.
Euclidean geometry demonstrates an application to one idealized topology and even to real topologies approximating the idealization but NOT (and this is very important) a universal application to all topologies.
This principle applies to all axiomatized systems intended to permit the development of deductions and theorems. They achieve pragmatic, empirical applicability when the theorems possess sufficient homomorphic correspondence to the real to permit successful predictions about the real and successful manipulations of the real.
However, we need to delineate here between fundamental laws and human rules. Fundamental laws of nature (termed scientific laws when discovered in operation by science and then expressed in equations) are unaltered by the discovery of the law and its elucidation in words or formulae. Fundamental laws are unalterable by humans. Human rules are quite different of course. Humans make, take or break rules as I say.
Economics needs to take an ontological inventory (again in my opinion) and delineate (as best as it can) between human rules and fundamental laws. Too often, prescriptive axioms are taken as (near as dammit) inviolable fundamental laws. Hence, the current conception and construction of private property (traceable to Locke and then probably in a number of ways to ancient Roman law) is taken as an inviolable axiom of (conventional) economics.
This is firstly pragmatic (and even ontologically defensible) as extant human laws and institutions are real (operationally, processually, performatively real) at any point in time. Yet, at another level it limits the operation of economics to one (still quite mutable) rule set and does not really countenance the full investigation of other rule sets.
As you point out, combined private property and financial rules that lead to (for example) endless expansion of debt and endless requirement for repayment of debt (a formal endless growth system) and also theoretically endless accumulation of wealth in some hands, do not accord with material reality; not limits to material growth nor limits to human inequality, which latter limits can be variously termed subsistence or the reproductive cost of labor.
As I like to point out, human rules can be materially operable or materially inoperable. They can also be operable for a time but tend to an asymptote limit where they break down and become inoperable. Doyens of economics 101 and market fundamentalism want the rules of the fundamental market to be and remain axiomatized, automatized and then applied indefinitely without regard for the emerging or evolving states of real systems. This amounts to not letting the real system tell one that one’s model needs adjustment or even radical reassessment and reformulation.
I better not write any more. I’m the TLDR man!
You could try reading my post above although it is addressed to Ernestine Gross. Maybe it will make no sense to you, Maybe some concepts there might seem valid to you. Or maybe not.
The core assumptions of a couple of your key statements need investigation and debate. I refer to:
(1) Even with game theoretic arguments about monopoly/ monopsony power there are few (if any) economists who would not argue that wages are linked to labour productivity and to supply conditions in labour markets.
(2) And if you disagree with that our communication is at an end.
This is interesting and needs to be unpacked. However, you would need to want to debate it which would mean wanting to debate some of the core assumptions of conventional economics. That of course is up to you. There are political economists and maybe even economists who do question that wages are linked (extensively) to productivity across the entire market. But as I say you have to want to debate it.
All I am saying, Ikonoclast, is that when a firm takes a worker on they think about what production they get from that worker. Its country-simple. What they get from the worker depends on that worker’s productivity which then, partially at least, determines their demand for labour. If you don’t believe that then you don’t believe economics and, as an economist, I have nothing to say to you. If you claim that wages are unlinked to productivity across the economy I don’t think you are thinking straight. The other side of the equation is the supply of labour which depends on whether locals want to accept jobs offered as well as levels of immigration. What’s so hard to believe about that?
Harry, I don’ agree with your comment.
You did quote correctly: “But when cash is conceptualised as a security, denominated in a currency unit such as A$, with a redemption value that is equal to the currency value printed on the security (eg A$1 bill is redeemed for a A$1 bill and A$x is redeemed for A$x, for 0 < x < oo) and this type of security is traded with monetary objects (anything that is exchanged for A$), then the traded value of this security may be less than the nominal value, the A$x value." [EG]
You replied: "I think you mean you pay $1 now but get less than $1 back in real terms. Plain English is good. although I did enjoy the o < x oo bit. Illuminating because it includes the intriguing case of infinite positive returns!" [HC]
I did write what I meant. Your enjoyment ("infinite positive returns") has nothing to do with what I wrote. It may follow from you having left out the strictly less symbol before the infinity symbol.
Furthermore, I am not writing about "in real terms" . If you want to talk about the value of a financial security (eg cash) in "real terms" at a specific point in time then you need to have at least one 'commodity' (eg bread) that is traded in monetary values – a monetary object – as distinct from exchanging bread with oranges. And if you want to talk about 'inflation', then you need to have a time series of the exchange value of the financial security and the chosen monetary object. Since there is more than one financial security and there is more than one commodity, the notion of 'inflation' becomes very quickly more complex than the Fisher equation.
"The notion that workers are employed up to the point where the real wage equals the marginal product of labour is taught in Economics 101. [HC]
I agree regarding what is taught in Economics 101.
The conversation is at the end because you do not seem to wish to go beyond Econ 101.
1. From the point of view of a single firm producing a single product from labor, the concept of worker productivity makes sense. A worker on a farm picks x pieces of fruit per hour. Another worker picks 2x pieces per hour. The second worker is twice as productive to the firm and to society in the matter of fruit picked. That part is country simple. A worker in a factory makes x widgets per hour. Another worker makes 2x widgets per hour. The second worker is twice as productive to the firm and to society in the matter of widgets made. That part is factory simple.
2. Now, imagine we want to compare the productivity of the fruit picker to the productivity of the widget maker. Let us assume the fruit is apples. Now, we are required to compare apples to widgets. In the normal course of thinking we understand this as “comparing apples to oranges.” Apples to widgets makes it even more obvious that the two items are incomparable or incommensurable (using the latter term in the strict mathematical/scientific sense referring to dimensional homogeneity. 
3. How do we compare incommensurables? It is obvious we cannot do so objectively or scientifically. The case becomes more difficult if we make the items even “more incommensurable” if that is possible. Taking this example;
“Imagine we want to compare the productivity of a corn farmer to the productivity of a composer. The corn farmer produces corn. The composer produces music. How do we compare these two outputs?
I think it’s obvious that we cannot do so objectively. Any comparison will require a subjective decision about how to convert corn and music into the same dimension. The lesson is simple. We cannot objectively compare the productivity of two workers unless they produce the same thing.” 
4. Of course, we have a pragmatic set of heuristic mechanisms for the purpose of making subjective, utility and necessity decisions. In total that is our set of full institutions, including but not limited to the numeraire as legal tender and the many individual markets that are part of “the market”. In turn, we must pay particular attention to that dimension the current economy works in and with. It is, as mentioned above, the numeraire, money, the dollar in our case. it is the dimension for (economically) comparing and valuing all technically and objectively incommensurable items.
(5) The decision to use markets at all and how to use them is a set of value decisions in itself. I mean they are moral philosophy or ethical value decisions. It is only after making these decisions that we can value (many but not all) incommensurable things in the money dimension. We do not now permit legal markets for slaves for example or for highly dangerous products. Money, we must note, is a social-fictive construct or we might say more justly it is an abstract-normative construct. What’s more it does practical things, meets practical ends, along with markets. Money and markets do permit us to run a complex society and meet many needs (notably in a certain, less then ideal way while accepting the clear impossibility of attaining any absolute ideal, for humans).
(6) But let us remember, while a first axiomatic element of one form of prescriptive political economy (conventional economics) is country simple as one firm, one product productivity, that this country simple axiom does not pertain up the complexity chain. To assume this it to subscribe to the fallacy of composition. “The fallacy of composition is an informal fallacy that arises when one infers that something is true of the whole from the fact that it is true of some part of the whole.” Appeals to productivity, as a full economic and/or moral justification for wage settings across many firms and many production goods (if one is making such appeals) are appeals that fail to take into account an increasing complexity of dimension and topology in the system under consideration.
(7) These are also appeals which, in practice, if adhered to too fundamentally, as if the axioms of conventional economics are always applicable to all real situations, can lead exponents to ignore real outcomes, real signals from the real system. I refer in particular to real human and ecological outcomes.
“The most basic rule of dimensional analysis is that of dimensional homogeneity.
Only commensurable quantities (physical quantities having the same dimension) may be compared, equated, added, or subtracted.
However, the dimensions form an abelian group under multiplication, so:
One may take ratios of incommensurable quantities (quantities with different dimensions), and multiply or divide them.
For example, it makes no sense to ask whether 1 hour is more, the same, or less than 1 kilometre, as these have different dimensions, nor to add 1 hour to 1 kilometre. However, it makes perfect sense to ask whether 1 mile is more, the same, or less than 1 kilometre being the same dimension of physical quantity even though the units are different. On the other hand, if an object travels 100 km in 2 hours, one may divide these and conclude that the object’s average speed was 50 km/h (per hour). – Wikipedia.
Note 2: Blair Fix – “No, Productivity Does Not Explain Income”
Ikonoclast, Of course you can compare productivity of different workers by evaluating their contribution to production in monetary terms. If Joe produces two cases of apples per week valued at $50 per case the value of his marginal productivity is 2*$50=$100. If Fred produces 3 widgets per week valued at $60 the value of his marginal productivity is 3*$60 = $180.
Ernestine, I think you are lost in gobbledegook so, yeah, lets not pursue something as obvious as the meaning of a negative interest rate. My point was simply that -2% real interest costs don’t seem very sensible if the economy is undergoing a boom period and that was a comment on John’s post not on your attempt to characterise what a negative interest rate means.
Harry, sorry to read you got lost in what you call my gobbledegook. I have one request. Where can I observe the ‘real interest rate’ and where can I observe ‘the economy undergoing a boom period’ without having to rely on numerical calculations based on some Econ 101 (micro and macro) theory?
Harry, Harry, Harry…
Ernestine Gross says:
May 1, 2022 at 11:46 am in reply to Harry Clarke:
“I agree regarding what is taught in Economics 101. … “The conversation is at the end because you do not seem to wish to go beyond Econ 101.”
Harry, I appreciate you commenting as it shows the power of Econ 101, so please can you try now to “go beyond Econ 101” as Ernestine remarked.
To assist you going beyond Harry, try a hypothetical chat to the teacher and Ambo, and see – ^3. Beyond Econ 101 prompts below – not solved by Econ 101, and get back to us.
Thanks as always.
Opportunity Costings ala Harry Clarke:
● Ernestine “a small number of people are comparatively as rich as the feudal lords).”
● James W: “Koala red plenty” (rofl!)
Yet, Harry Clarke says:
April 30, 2022 at 10:47 am
…”look at what a worker can produce and what they cost to employ. What they can produce is determined by their productivity” … ” It’s Economics 101″ … “due to market forces not to Rupert Murdoch or the LNP. The pattern of wages in the economy is determined by labour markets not by some conspiratorial fictional view of the world” … “and seeing utter bleakness is a vision problem that afflicts only those with an axe to grind and zero perspective” … ” I am an economist who believes in the value of basic economics and I am not prepared to waste my time refuting nonsense that displays cavalier regard for logic and almost zero economics understanding” … ” supply passes to new migrants setting in Australia” … ” immigration Ponzi scheme will continue so they continue to invest in overpriced housing” … Harry Oops [natural test 2020-2022 – “the first loss since 1946 and second lowest on record” From:..
“Statistics on Australia’s international immigration and emigration, …
> 2020-21 financial year
> Overseas migration 2020-21 – net loss of 88,800 people – the first loss since 1946 and second lowest on record
> Immigration fell 71% to 145,800 from 506,900 arrivals a year ago…
… Harry continues… ” if you are game, seriously sprout the nonsense that climate change is due to “market fundamentalism”.
Potential for Fake News
Harry, you mix Economics 101, with sensible policy ideas, and how could we NOT agree with the statement, as Ernestine points out – “I agree regarding what is taught in Economics 101” which is then used as “truth” and supoirt to promote unscrupulous news.
Fake News 101 states, mix in a fact or accepted wisdom so as to make article seem correct – Econ 101 is then tautologically ‘correct’, but then used as … blah blah blah – to push a point not conducive to cohesion.
Is social cohesion taught in Econ 101?
Ein2L by JQ.
But maybe Harry, as we are in JQ’s blog you might address to JQ why he is misguided and you are correct instead of the likes of Ikonoclast or I, by as you say we are “waste[ing] my time refuting nonsense that displays cavalier regard for logic and almost zero economics understanding.”. It is a two way mirror Harry, it is just that by you being “an economist who believes in the value of basic economics”, you are unable to see through the mirror, or walk around the other side, as Ernestine points out, leading to “worsening disequilibrium. This is not sustainable in a society”. Harry, please try to get to “101. beyond”.
Try replying to Ernestine who says;
“is such that since the GFC of 2008 incomes from wages have declined relative to the cost of living. There is what one may call a period of worsening disequilibrium. This is not sustainable in a society that does not wish to converge to a pseudo feudalistic system (most people are at a survival constraint even if working 7 days a week for about 10 hours and a small number of people are comparatively as rich as the feudal lords).”
Harry, you are wasting Ikon’s & my time sprouting “It’s Economics 101”.
We want solutions ala 2-4-6 please, not a recitation and supoised rebuttal if 2-4-6 using just Econ 101.
Harry, you seem to forget the Prof of Economics blog you are commenting on wrote “Economics in Two Lessons- Why markets work so well, And Why They Can Fail So Badly”.
Refute JQ. Not me.
Conspiracy or Governance as Usual?
Harry, considering: “July 2021, Aspen Medical’s pre-tax profit had rocketed to $277 million” … “the company’s pre-tax profits soar to more than $420 million during the pandemic”… “Former Liberal health minister Michael Wooldridge is a lobbyist for the company” … “Aspen Medical has been named in a top-level money laundering investigation in Sri Lanka”
… please tell us Harry if Aspen’s profit is:
A) “Economics 101” – code for Why markets work so well, except, as Ernestine states… “Economics 101 is not sufficient to treat the important issues you are dealing with. So criticising you [Ikon by HC] on the basis that your argument does not fit into Econ 101 is invalid.”
B) “some conspiratorial fictional view of the world” (^2. “Aspen Medical has been embroiled in a top-level money laundering investigation after its involvement in a multi-million-dollar hospital project in Hambantota, on Sri Lanka’s southern coast.
… “Aspen declined to answer questions … as to whether it ever did supply any equipment or medical design… The company’s statement said its subcontract with EN-Projects, a Dutch company running the project,… However, Aspen Medical’s first transaction in Sri Lanka — the payment of 1.4 million euros ($2.1 million) to a mysterious British-Virgin Islands-domiciled company called Sabre Vision Holdings — is what caught the attention of Colombo police… It was part of 4.3 million euros and $US537,000 ($759,000) remitted, in total, to the offshore company by Aspen Medical, EN-Projects and German company Juga Bau GmbH, which police “suspected … is a derivative or a result of an illegal activity”. … The company was secretly owned by a middleman, Nimal Perera, notorious for his links to the Rajapaksa family which has dominated Sri Lankan politics for decades… In 2016, he confessed to collecting money for the prime minister’s son, Namal Rajapaksa, which led to Mr Rajapaksa’s arrest.”(^2.))
C. Or just Good Australian Governance by LNP… (I gag at this point)
D) or due to Jame’s suggestion… “koala working week is 30 minutes a day for 5 days, or 2½ hours in total. Why can’t we humans enjoy this?” (thanks! James Wimberley at 10:20 pm)
Harry, feel free to add more points to the list as a going beyind Econ 101 opportunity. I appreciate your support for capital gains tax reform. Is reform of capitals gains tax Econ 101, or Lesson 1 or Lesson 2?
Teachers & Ambos.
And Harry, I sent these two referenced articles to a teacher [HC’s label:-“whining”…”cost push”] of disabled kids, and a highly qualified Ambo this morning. The teacher is going on strike Wednesday and the Ambo is presently working from a temporary shed due to the local Ambulance Station not being upgraded since the late 1980’s, in a building not fit for purpose, built in 1965. Econ 101?
Would you like to have a chat with them about Economics 101, and your principal “I am an economist who believes in the value of basic economics”?
Information & references.
A juxtaposition of ^1 & ^2…
$17.5m a year to seniors a year (^2) and $277m profit given without tender to one company (^2.)… in… “July 2021, Aspen Medical’s pre-tax profit had rocketed to $277 million”. It is Economics 101.
“The Coalition is promising to spend $70 million over four years giving an extra 50,000 older Australians access to the Commonwealth Seniors Health Card.
“After combined losses of $7 million over 2018 and 2019, these deals have seen the company’s pre-tax profits soar to more than $420 million during the pandemic.
“While Aspen Medical had no prior experience in such large-scale procurement, its PPE deals with the Department of Health were worth $500 million more than any other government supplier, including those with a background in the industry.
“Former Health Department Secretary Stephen Duckett said he had never seen a letter like it.
“So it is extraordinarily unusual and, in fact, dangerous for a minister — or in fact for a public servant — to actually have any contact, any engagement, and certainly to write a letter of this kind.”
-Aspen Medical was given a glowing recommendation from Health Minister Greg Hunt
-Former Liberal health minister Michael Wooldridge is a lobbyist for the company
-Aspen Medical has been named in a top-level money laundering investigation in Sri Lanka
“Canberra-based Aspen Medical would go on to win taxpayer-funded contracts — without a public tender — worth more than $1.1 billion.”…
^3. – Beyond Econ 101 prompts.
“Climate change will force new animal encounters — and boost viral outbreaks
“Modelling study is first to project how global warming will increase virus swapping between species.
“We seem to have closed our eyes to the suffering and the deaths that are still occurring due to Omicron, so I think it’s bordering on irresponsible,” Professor Toole said.
And just to brighten your day, Mankiw & his friend, The Standup Comedian.
“The Key Role of Conservatives in Taxing Carbon
By N. Gregory Mankiw
Sept. 4, 2015
“This brings me back to my friend,Yoram Bauman, who sent me that headline. He is an environmental economist and stand-up comedian (yes, an unusual combo). He is also one of the leaders of the effort in Washington State to pass a carbon tax. He has been working tirelessly to build support.”
“Principles of economics, translated
Yoram Bauman – 2007
“”Mankiw’s 10 principles of economics, translated for the uninitiated”, by Yoram Bauman, http://www.standupeconomist.com . Presented at the AAAS humor session, February 16, 2007. For the record, the talk contains two unattributed quotes (“9 out of 5” is adapted from a line attributed to Paul Samuelson—although apparently he said it about Wall Street indices, not macroeconomists—and “wrong about things” is paraphrased from P.J. O’Rourke’s Eat the Rich) and, of course, the Einstein “simple” quote is an intentional misquote. The talk is based on a published article in Annals of Improbable Research (see http://www.improb.com/airchives/paper… ), …In the paper you can see the “constructive example” of how trade can make everyone worse off (or you can just wait 50 years to see what happens with climate change).
Why has no one here recommended The Standup Economist on MMT! See video. Best roast.
Thanks JQ & all.
Econ 101 Lesson 1 shorting teacher returns and educational investment in Australia. And my child’s privacy.
My child’s school information and payment gateway company Sentral Pty Ltd ACN 085 316 310 as used by 3,000 schools in Australia, has be purchased by Global Payments (GPN) registered in Georgia USA.
Does anyine want to justify how this purchase and probable hedge fund buyout will support my child’s education or teacher’s remuneration. Harry?
“Several hedge funds and other institutional investors have recently modified their holdings of the company. Nordea Investment Management AB lifted its position in Global Payments by 1,412.9% in the third quarter. Nordea Investment Management AB now owns 4,321,589 shares of the business services provider’s stock worth $692,794,000 after purchasing an additional 4,035,932 shares during the period. Boston Partners acquired a new stake in Global Payments in the third quarter worth approximately $440,786,000. Victory Capital Management Inc. lifted its position in Global Payments by 2,266.8% in the fourth quarter. Victory Capital Management Inc. now owns 2,895,022 shares of the business services provider’s stock worth $391,349,000 after purchasing an additional 2,772,706 shares during the period. Norges Bank acquired a new stake in Global Payments in the fourth quarter worth approximately $352,599,000. Finally, Franklin Resources Inc. lifted its position in Global Payments by 197.7% in the third quarter. Franklin Resources Inc. now owns 2,457,841 shares of the business services provider’s stock worth $387,306,000 after purchasing an additional 1,632,202 shares during the period. Institutional investors and hedge funds own 84.90% of the company’s stock.”
” This represents a $1.00 annualized dividend and a dividend yield of 0.69%. Global Payments’s dividend payout ratio is presently 30.49%.”
I “wish to go beyond Econ 101”. (EG above)
So does Kenan Malik:
“In the name of job flexibility, ‘Uberisation’ is spreading its tentacles across society
“From health workers to beauticians, cleaners to academics, the erosion of our rights at work is setting us back a hundred years”
“Man, beast and zombie : what science can and cannot tell us about human nature
…”He shows, too, how the scientific debate about human nature is as influenced by politics as by science.”
[ politics not science CSIRO example today by Prof David Karoly:
“Man, Beast and Zombie is both a defence of scientific reason and a challenge to some of today’s most cherished scientific theories. It deftly interweaves philosophy, science and history to answer the most fundamental question of all: what is a human being?”
“Kenan Malik (born 26 January 1960) is anIndian-born British writer, lecturer and broadcaster, trained in neurobiology and thehistory of science. As an academic author, his focus is on the philosophy of biology, and contemporary theories of multiculturalism, pluralism and race. These topics are core concerns in The Meaning of Race (1996), Man, Beast and Zombie (2000) and Strange Fruit: Why Both Sides Are Wrong in the Race Debate(2008).”
As mentioned in #1 above, a new study showing the difficulty of communication, coordination, dissemination and acceptance of JQ’s 2-4-6 solution….
“…In the case of local political news, quantitative work studying industry-wide employment reductions has corroborated these claims, finding a significant relationship between staffing cuts and a decline in the political coverage provided by newspapers (Peterson, 2021).”
“Buying the news: A quantitative study of the effects of corporate acquisition on local news
March 24, 2022
“Triggered by drops in advertising revenue and readership, the number of staffers in local newsrooms has steadily dwindled in recent years
…In the case of local political news, quantitative work studying industry-wide employment reductions has corroborated these claims, finding a significant relationship between staffing cuts and a decline in the political coverage provided by newspapers (Peterson, 2021).
“… in part been accelerated by a particular strand of predatory corporate acquisition. Described as “vulture capitalism,” this financial behavior, typically perpetrated by hedge fund-owned media conglomerates, involves purchasing publications in financially precarious states, drastically cutting staff, and subsequently raising subscription rates (Abernathy, 2018,2020).
“Such corporate takeovers have been identified as detrimental to publications in at least two respects.
1) The first is the reduction in resources that acquisition brings about (Abernathy, 2018,2020; The Denver Post Editorial Board, 2018).
2) The second is the creation of regional hubs of geographically proximate publications in order to consolidate newsroom functions (Abernathy, 2018;Martin and McCrain, 2019).
“Given the role local news publications have in driving citizen political engagement (Hayes and Lawless, 2018;Schulhofer-Wohl and Garrido, 2013;Shaker, 2014), in disseminating information during crisis events (Emery et al., 2021), and in sustaining and developing local identity (Buchanan, 2009b; Funk, 2013), understanding the impacts of acquisition on local news output is crucial in identifying and drawing attention to unhealthy media environments. For local television stations, acquisition has been found to induce increases in the coverage of national politics at the expense of local politics (Martin and McCrain, 2019). In the case of newspapers, however, the effects of corporate acquisition on the local media output of individual publications have, despite significant media attention (e.g. Farhi and Izadi, 2021; Izadi and Ellison, 2021; Noe-Payne, 2020; Sullivan, 2018; Wick, 2017), yet to be quantitatively analyzed.
“In this work, we investigate the relationship between predatory corporate acquisition and the representation of local news coverage. Using named entity recognition and tools from information theory, we explore how the acquisition of publications and the consolidated environment engendered by such acquisitions affect the local information environment of affected communities.”
“Bergstrom and 16 other scientists from various fields argued that the study of how the information ecosystem influences human collective behavior needed to become a “crisis discipline,” much like climate science, that could also suggest ways to tackle the [misinformation] issue… from:
“Stewardship of global collective behavior
Bergstrom +13 et al
June 21, 2021
“… Yet we lack the ability to predict how the technologies we adopt today will impact global patterns of beliefs and behavior tomorrow. Reliable prediction of social systems is among the more elusive challenges in science”…
Cost push spiral at 7.9% unit labour cost?
Josh Bivens last week says, current Unit Labour Costs 7.8%, a whopping decrease from historical ULC of “1979–2019 average of 61.8%”
Josh Bivens of the The Economic Policy Institute says: “A temporary excess profits tax could provide some countervailing weight to the pricing power firms currently have vis-à-vis their customers.”
2022 “FIGURE A
“Normal and recent contributions to growth in unit prices in the nonfinancial corporate sector
“Unit labor costs
JQ said in 2019…. “As unions declined and governments increasingly followed the dictates of financial markets, that power dissipated. Monopolies and monopsonies became ever more influential.”
JQ first, from “Too big to ignore”:
“The key insight into what this means for employees was an analysis of minimum wages by David Card and Alan Krueger …examined changes in minimum wage rates … and found — contrary to conventional wisdom — that a higher minimum wage had no discernible effect on employment in the fast food industry. … lots of reanalysis, the majority of which tended to confirm the original findings. More than twenty years later, Card and Krueger’s conclusions are broadly accepted, notably by Australia’s Reserve Bank.
“Card and Krueger brought into the debate the imbalance of bargaining power between employers and potential workers, and the resulting importance of monopsony power. The central implication of their analysis is that higher minimum wages will shift the benefits of the wage bargain from employers to workers rather than raise the cost of new hirings to a level that cancels out any broader private and public benefit.”
“Analyses of the upsurge in inequality since the 1970s have pointed to monopoly and monopsony power as a major factor. As Brett Christophers observed in his book of the same name, competition has ceased to be the “great leveller.” Or, to quote Nobel laureate Joseph Stiglitz, “as inequality has widened and concerns about it have grown, [the] competitive school, viewing individual returns in terms of marginal product, has become increasingly unable to explain how the economy works.”
“The importance of monopoly and oligopoly in generating inequality has also been highlighted by bodies such as the Economic Policy Institute and the Open Markets Institute, as well as by David Autor and other leading economists.
“As is usual in economics, most discussion focuses on the United States. What about Australia?”…
“Too big to ignore
“Monopolies and oligopolies have come to dominate Western economies, and the case for breaking them up is strong.”
7 MARCH 2019
“A temporary excess profits tax could provide some countervailing weight to the pricing power firms currently have vis-à-vis their customers. Supporting such a tax does not mean that a sudden rise in corporate power is the root cause of current inflation, but it does mean that corporate pricing decisions in a pandemic-distorted environment are a propagator of inflation.
“Currently, however, the labor share of income and real wages are falling sharply in the recovery even as unemployment falls. It seems strange to see a pattern in the data that is thecomplete opposite of how overheating-driven inflation has historically worked and not ask if it might be something different this time causing inflation (i.e., the pandemic).
“Many of those most dismissive of claimsthat increased corporate power has driven recent inflation adopt the view that generalized macroeconomic overheating is the culprit. But in dismissing the increased corporate power explanation for recent inflation, they also seem to be discarding any useful information that recent sky-high profit margins might provide about the validity of their alternative view.
(Would someone please find similar for Australia.)
“Unit labor costs
“Normal and recent contributions to growth in unit prices in the nonfinancial corporate sector
2020 Q2–2021 Q4
Nonlabor input costs
2020 Q2–2021 Q4
Unit labor costs
“Source: Author’s analysis of data from Table 1.15 from the National Income and Product Accounts (NIPA) of the Bureau of Economic Analysis (BEA).”
Via Economic Policy Institute.”
“The rise in profit margins that account for a disproportionate share of price growth in the current recovery have led to speculation that increased corporate power has been a key driver of recent inflation. Corporate power is clearly playing a role, but an increase in corporate power likely has not happened recently enough to make it a root cause of the inflation of 2021–2022. In fact, the rapid rise in profit margins and the decline in labor shares of income during the first six quarters of the current recovery is not that different from the rise in the first few years following the Great Recession and financial crisis of 2008. Figure B below shows that starting from the trough of the recession (zero on the horizontal axis), the fall in the labor share of income was actually more pronounced during the early recovery from the Great Recession than it has been so far in the recovery from the COVID-19 recession.”
“Corporate profits have contributed disproportionately to inflation. How should policymakers respond?”
April 21, 2022
by Josh Bivens
KT2, you have provided a list of relevant references, including the important statements by Prof Stiglitz regarding the marginal productivity theory of labour income failing to throw light on the observables, and JQ’s post (he also wrote a relevant book on this topic). Corporate power and deregulation of the labour and the financial markets feature in these studies.
People are part of the economy. Without people there would be no ‘economics departments’. Not many people read academic economic literature (and not many economic academics read all economic literature – life is finite). Most people get their information from the media in one way or another and, and this is most important, they make their own observations and they have a memory. Using a broad brush, there is a considerable coherence between what people say is not working and what non-doctrinaire economists are observing in more formal studies.
Great links, KT2. Well written Ernestine, in content and style. Marvelous clarity and economy of expression. “Everything should be made as simple as possible, but not simpler.” – attributed to Albert Einstein.
Joseph Stiglitz has written and spoken extensively on the inefficiency of inequality. Every person can observe that if they are… well, observant. Try dumping enough fertilizer for 10 seedlings on just 1 seedling in 10. That one will likely die of fertilizer poisoning.  The other nine will ail and produce little in bloom or seed.
(That was my “Chance the gardener” impression! Great movie to watch:
“Being There” – 1979 American satire directed by Hal Ashby. Based on the 1970 novel of the same name by Jerzy Kosiński. Stars Peter Sellers and Shirley MacLaine.)
Note 1 – “The dose makes the poison” – Paracelsus – Swiss – c. 1493 – 24 September 1541 – birth name, Philippus Aureolus Theophrastus Bombastus von Hohenheim!
Ernestine Gross says:
May 2, 2022 at 7:03 pm
“People are part of the economy. Without people there would be no ‘economics departments’.
EG: “Not many people read academic economic literature (and not many economic academics read all economic literature – life is finite). Most people get their information from the media in one way or another and, and this is most important, they make their own observations and they have a memory.”
Slight correction Ernestine, most people’s information from the media is now gatewayed, financialised, curated and served via Google, Facebook and perhaps Twitter. With a veto power to wit FB turning off ‘news’ when Australia announced we wanted payment for news. Substack also has veto power.
Yet Google wants to argue, today!, in the High Court, what will be a triumph of solipism over sensibility.
We will need a remedy for its “Submissions by Google to the High Court rejected the assertion the link to the story amounted to publishing.
“”A hyperlink is not, in and of itself, the communication of that to which it links,” lawyers for Google said in their submissions.”
Google says a logically correct statement, “”A hyperlink is not, in and of itself, the communication” (even Homer Simpson would agree), yet that phrase is without any ante or post context or admission.
Which is what allows a flow of misinformation & money, built on a the phrase “a hyperlink is not, in and of itself, the communication of that to which it links”.
Google and it’s legal team realise solipism is also “if that to which it links” IS a direct, logical and verifiable, by a “normal person”, but seek to have that link completely “unseen” at Law.
Brazen “solus ‘alone’, and ipse ‘self'” – corporate solipism evasion of it’s self, at its worst.
Google is arguing “the external world and other minds cannot be known and might not exist outside the mind”. Solipism – Wikipedia
“Solipsism from Latin solus ‘alone’, and ipse ‘self’, is the philosophical idea that only one’s mind is sure to exist. As an epistemological position, solipsism holds that knowledge of anything outside one’s own mind is unsure; the external world and other minds cannot be known and might not exist outside the mind.”
And solopism links to above with verifiable and logically correct Economics 101 statements, leaving out the fact of, as Ernestine reminds us “”People are part of the economy. Without people there would be no ‘economics departments’, providing us with ex & post context.
By using a factual statement, even if tautological or absolute solopism, interwoven with dogma, fake news or adgenda, leads to misinformation, and provides Google et al and the uninformed, lazy, time poor or marginalized, and nefarious with the cintent and license to both print money and shatter common knowledge.
Which is not a good thing for humanity.
Someone said “the teachers in NSW are whining”
– Burnout continues to be a driving force behind a nationwide teacher exodus that has left the industry with around a half a million fewer teachers.
[cost push but no wage rise? Weird post pandemic counter Econ 101 effect – please explain for me]
– But COVID-19 has only exacerbated a nationwide shortage that is decades in the making.
[supply side dogma disaster against Card and Krueger’s findings SSDDACKF- again yesterday my kid with no teachers for 3 periods!]
– The current staffing crisis is compounded by a massive decline in
* undergraduate degrees in teacher education programs,
* expanded opportunities for women and
[culture & gender war + SSDDACKF]
* lack of teaching degrees in STEM fields.
“Here’s what’s driving the nationwide teacher shortage
“The staffing crisis has permeated all levels of the profession, creating vacancies in nearly all capacities.”
Examples of biased labour costs reporting from every major news corp! (linked & profited by “not us” google”).
“While labor market trends have had an inflationary impact, the disproportionate focus on them, without mention of the underlying conditions that lead to labor shortages in the first place, erases the culpability of corporations.” …
“This portrays the economy as a zero sum game between workers and consumers, who appear to be intractably at odds if corporate profits are left out of the equation.”
“A FAIR study … found that segments on inflation put far more emphasis on the contributions of labor shortages and social spending—through driving up the cost of labor—than to the role of corporate profit-taking.
“This portrays the economy as a zero sum game between workers and consumers, who appear to be intractably at odds if corporate profits are left out of the equation.
“During the same period, the shows proved capable of hearing workers’ demands for higher wages when their coverage framed the issue as a “Great Resignation,” or during the shows’ scant coverage of “Striketober,” when a wave of labor militancy swept through much of the country.
“This points to an inconsistency in coverage of the same labor market trends: When the shows were covering inflation, the “tight” labor market was mostly treated with the cool and icy calculation of market logic. But on the comparatively rare occasions when the shows covered the grievances of workers and their demands for dignified work—which are widely popular demands, given that most consumers are in fact workers too—the reports showed a more human side to what would otherwise be numbers on a scorecard, and mentioned the record profits of corporations.
“Causal arguments. ..”
This graph shows mentions of supply bar #1, then demand bar#2, making a mockery of “Josh Bivens last week says, current Unit Labour Costs 7.8%, a whopping decrease from historical ULC of “1979–2019 average of 61.8%”
Reporting mentions need to be reversed for any hope of JQ’s 2-4-6 solution to get a fair hearing.
Is media bias mentioned in Econ 101? I assume similar for Australia – any Australian media data anyone?
If writing for the US, JQ’s 2-4-6 would be 8-10-12.
…”The Consumer Price Index rose by 7.9 percent through February, the fastest pace of annual inflation in 40 years. Rising food and rent costs contributed to the big increase, the Bureau of Labor Statistics said, as did a nascent surge in gas prices that will become more pronounced in the March inflation report.”
Bring back al jabr.
Somewhere along the line algorithms lost “completion” & “rejoining” yet use algebra to manipulate the terms in either side of the news equation.
“The term algebra itself comes from the title of his book (the word al-jabr meaning “completion” or “rejoining”). His name gave rise to the terms algorism and algorithm,”
A supportive for tenured – JQ
“To solve emergent problems and innovate, our society must nurture and protect a community of people with deep, hard-won knowledge of their very particular subject areas on the chance that a few might produce something curative, transformative, or new.”
… and think of the Non-tenure-track (NTT).
“Injustice and Deceit
“The unsatisfactory working conditions of nonunionized NTT professors have been widely reported for more than a decade:
“Short-term (one-year or one-semester) contracts that are renewed unpredictably, if at all.Low wages, ranging from $1,800 per course part-time and $24K full-time at public institutions to $7,500 per course part-time and $60K full-time at private institutions, regardless of length of service. The 2010 per-course median was $2,700.No health insurance for part-time positions.No retirement account contributions.Last-minute hiring and firing without due process as enrollments shift.No limits on hours worked for those who must cobble together a living wage by teaching at several different institutions.Heavy courseloads of up to six courses per semester to get to that living wage. Expectations to work for free before and after one’s contract: designing syllabi, writing recommendation letters, grading incompletes, etc.No private offices (necessary, among other reasons, to prevent FERPA violations). No faculty development or travel funding.No take-home tech and no reimbursement for the personal computers, glasses, or internet services that one needs for work.No staff support for nonteaching professional activities.No scheduling preferences or parking privileges for those who have to travel between campuses in the middle of the day.And no meaningful representation in university governance.
“Like other short-term positions in the gig economy, where workers are paid by the task, laboring in the “gig academy” is precarious. People can quickly adjust to unpredictable changes in the weather. But changes every five months in one’s salary, housing, and medical access are harder to absorb.
[Support for JQ et al ]
“To solve emergent problems and innovate, our society must nurture and protect a community of people with deep, hard-won knowledge of their very particular subject areas on the chance that a few might produce something curative, transformative, or new. Knowledge can take a long time to emerge, . ..”
“The Cruelty of the Adjunct System
Hat tip to;
The trouble is of course that Economics 101 gets quoted like a catechism.
“I believe in the market, the price and the holy dollar.”
This is a catchy, simplistic slogan which assures people there is nothing further to investigate. In fact, it elides many other phenomena of economic import. It elides morals, mores, institutions, legal laws and rules. All of these have effects on the construction of markets (plural). Hence, they have impacts on the construction (generation) of prices. In turn, they then have impacts on the allocation of resources and the consumption of products and services. The dollar (the numéraire) also is not neutral. The theory of the neutrality of money does not hold. How many dollars are created, how they are created and where they get allocated upon creation also have effects on prices and thus transmission effects to the rest of the economy.
The term “Economics 101” is used rhetorically in advocacy and apologetics for market fundamentalist economics to mean “the indisputable fundamentals of economics”. It actually means “oversimplified models which do not explain real economies in complex reality.”
The position is close, in a real sense, to a central issue in geometry. Euclidean geometry deals with ideally flat surfaces or approximates for near-flat surfaces. Riemannian Geometry works for spherical or elliptic surfaces or approximates for orbits in classical, idealized Newtonian space. A navigation satellite (GPS), for example, works with Riemannian Geometry.
“Hyperbolic geometry is used in predicting orbital path of satellite or comet etc. within intense gravitational field like planet Mercury’s orbit around Sun, distance of astronomical objects (e.g. stars or galaxies or black holes) from Earth; basically all astronomical events which occurs in varying gravitational fields like famous light bending moment around the Sun in full solar eclipse proving Einstein’s Special relativity, it all happens in Hyperbolic geometry as Space-time is considered Hyperbolic in nature.” – Mukund Kumar, Quora.
As complexity is added and as “fields” are added more complex models are needed to describe and predict behaviors of “objects” and “processes” in the analyzed system.
“In physics, a field is a physical quantity, represented by a number or another tensor, that has a value for each point in space and time. For example, on a weather map, the surface temperature is described by assigning a number to each point on the map; the temperature can be considered at a certain point in time or over some interval of time, to study the dynamics of temperature change.” – Wikipedia.
Real economies happen in fields in the above sense. The fields may be real or formal. A real field would be a real regional geography for instance or a real regional climate. Time, or rather spacetime, also is a real field. A field may also be formal, instantiated as real. The formal is instantiated as clearly real by the real operations of real people (and now by electronic automation via computers for calculations and servos for actions) who and which undertake real actions and real constructions based on formal criteria, calculations and algorithms. By this process rules, regulations, institutions and even formal quantities (monies for example) are concretized, made real as objects or processes: the abstract or notional is made real.
It is this interaction of formal and real which economics ultimately needs to deal with. I imagine, without having studied it, that economics above 101 starts to attempt to deal with this complexity.
Hat tips to John Quiggin and Ernestine Gross (and many others including Shimshon Bichler and Jonathan Nitzan) ) for helping me to begin seeing matters in this manner. I also understand I may take this in directions they variously might disagree with. The student, even the informal student, is never under the masters’ control unless he/she is wholly without self-directing critical faculties. I have been a most obstreperous and ideological (in my own way) “student”. But I hope and believe my views have changed as my apprehension of facts has changed.
I follow a self-developed Priority Monist and Complex Systems Philosophy (still wholly phsycialist in empirical terms), which may be wholly derivative or may contain some original elements. As an autodidact in these matters, I am not in a position to judge that. However, the strict Monist a priori suggests that the formal and the real need to be subsumed into a single analytical system. I suspect to some extent that advanced “conventional” economics does this and I am simply not educated enough to know about it or understand it.
However, I hold that all ontological assumptions should be examined and made explicit. I am not sure that advanced “conventional” economics does this. I gain the sense it does not in full but again I may be wrong. Only with a full statement and map of all assumptions can the entire structure of ontological assumptions be examined for logical contradictions. I wonder if modern advanced conventional economics is “anti-foundationalist” in this sense: meaning that it denies the need for ontological foundations.
I hold there is a form of ontology we may term “empirical ontology”. It encompasses both express formal ontologies and ontologies suggested by our empirical investigations and indeed developed out as taxonomies of the fundamental objects and processes of the hard sciences and social sciences. Empirical ontology attempts to employ hypotheses intended for future theoretically possible testing but not outright speculations which must by definition remain empirically un-testable.
A prioris are unavoidable. The most dishonest philosophy, science and social science is that which denies its a prioris and will not up an express (and tested) empirical ontology as a taxonomy. A priori(s) permit inductions and even deductions. Then, what turns ontology into empirical ontology is the testing of deductions (from the a priori) against empirical reality. if the deductions fail, the a priori (founding assumption) is false.
“Anti-foundationalists have been criticised for attacking all general claims except their own; for offering a localizing rhetoric contradicted in practice by their own globalizing style.
Edward Said condemned radical anti-foundationalism for excessive cultural relativism and overdependence on the linguistic turn at the expense of human realities.
Wittgenstein attacked anti-foundationalism in his book On Certainty, exclaiming “If you tried to doubt everything you would not get as far as doubting anything. The game of doubting itself presupposes certainty.”” – Wikipedia.
Re the 2-4-6 solution, I assert that labour & wages will lead down a “path where an individual, … hits a “stop”—an absorbing barrier, “anything that prevents people with skin in the game from emerging from it, and to which the system will invariably tend.”(^1)
… and that a cost push problem will NOT be a likely problem for the long term macro or micro economy nor markets…. and its “rank-dependent expected utility” is over weighed by market and neoliberal political economy, and is NOT likely to lead to “extreme outcomes,”.(^2)
( Barstardisation of JQ’s “Rank-dependent expected utility”. Ernestine, Ikon & Harry please grade my assertion). Wikimedia “Rank-dependent expected utility” link below).
In other words, raise the damn wages now, where ever we are in what ever weird cycle this is.
Ergodicity > Occurrence > In finance…
…” Nassim Nicholas Taleb has pointed out that a very important part of empirical reality in finance and investment is non-ergodic. An even statistical distribution of probabilities, where the system returns to every possible state an infinite number of times, is simply not the case we observe in situations where “absorbing states” are reached, a state where ruin is seen. The death of an individual, or total loss of everything, or the devolution or dismemberment of a nation state and the legal regime that accompanied it, are all absorbing states. Thus, in finance, path dependence matters. A path where an individual, firm or country hits a “stop”—an absorbing barrier, “anything that prevents people with skin in the game from emerging from it, and to which the system will invariably tend. Let us call these situations ruin, as the entity cannot emerge from the condition. The central problem is that if there is a possibility of ruin, cost benefit analyses are no longer possible.”—will be non-ergodic. All traditional models based on standard probabilistic statistics break down in these extreme situations.”
JQ says: ^2.
“The crucial idea of rank-dependent expected utility was to overweigh only unlikely extreme outcomes, rather than all unlikely events. Formalising this insight required transformations to be applied to the cumulative probability distribution function, rather than to individual probabilities (Quiggin, 1982, 1993).”
I am in no position to “grade” your assertion technically or academically, obviously enough. 🙂
As a concerned, educated citizen, though non-expert in received conventional or academic economics, I agree that an interminable decline in real wages will lead to the ruin of workers. It is empirically clear. It has also been clear for a long time. Marx (and surely others) referred to the “reproductive cost of labor”: what it costs to reproduce the labor force over time, always presuming an economy continues to need a (human) labor force.
The idea of the reproductive cost of labor was behind the original minimum wage in Australia under early (for Australia) labor law. The minimum wage, for a male in those days, was meant to be sufficient to support a “non-working” wife (she worked unpaid in the home outside the formal economy) and two children, paying for rent or mortgage, food and necessities,transport, children’s education where not paid by the state as social wages and to pay for a modicum of discretionary spending and recreation. The reproductive cost of labor pays to reproduce the next generation of adequately educated and skilled workers.
One might also say there is a reproductive cost of moral, educated and enlightened citizenship. If we don’t pay that cost we get a citizen body which is morally and intellectually inadequate to the requirements of democratic citizenship in a complex technological society relying on science and knowledge. One can argue we have not paid that cost either. Hence misled populist ignorance, elite moral turpitude, scientific ignorance and market fundamentalist dogma reign supreme these days, over the issue of pandemic control for example.\
I don’t think J.Q. reads replies much here any more. He is far too busy with other projects I would guess. J.Q. does some of his work (and much of his technical work) at conceptual levels and mathematical levels which I cannot understand, being uneducated in them. Levels that it is now very doubtful that I could ever be educated to at this late stage (nudging 68). And to what end? I would enter dotage before I grasped it, if I grasped it. You have to start learning that stuff at 19 and have a PhD in it by 30 to 35 at the latest, IMHO. 🙂
JQ’s RDEU work sounds interesting. I wish I could understand it. Then I could form an opinion as to its “empirical-ontological” and plain empirical soundness. My goodness, I’d be a nuisance then wouldn’t I with my ideolgoical and ontological priors? 😉 Unless it changed my priors.
JQ said “but the repeal of decades of industrial relations legislation explicitly designed to hold wage growth down”
…Which has led to…
Profit taking before cost push.
Imho, JIT + automation (robots) will entrench – (or is it now ‘established’) and increase returns to capital, before labour. At the expense of humans being in time for their own life “at a liveable and healthy pace” ala, a home /family / interests / pleasure / physical & mental health.
The “ratio of inventories to sales for U.S. nonfarm business fell by 35 percent from 1980 to 2020″ …”this helped U.S. domestic nonfinancial corporate profits increase by 40 percent from 2010 to $1.8 trillion in 2020 despite relatively slow economic growth.”
“the velocity of just-in-time delivery is created by work intensification and speed-up on the job. By itself, “Big Data” can’t move a thing.”
“The “resilience” that managers have spent decades eliminating by speed-up is actually to be found in employing sufficient labor to do the job at a liveable and healthy pace”.(^1.)
^1. Wage rises don’t, yet;
“The Supply Chain Disruption Arrives ‘Just in Time’
“The point was to reduce costs and labor by reducing inventories and stockpiles. And indeed, the Along with other savings on labor, this helped U.S. domestic nonfinancial corporate profits increase by 40 percent from 2010 to $1.8 trillion in 2020 despite relatively slow economic growth.”
“The recent wage increases—which resulted from these labor shortages and high “quit” levels—are too little, too late.
“…executive of the Association of Supply Chain Management summarized the problem in November: “Transportation is riddled with disruptions,” including “the shortage of truckers and concerns about recruiting people into warehousing and transportation jobs.”
“When the pandemic hit in early 2020, delivery times by manufacturing and construction suppliers in the U.S. soared by 30 percent. That is, a delivery that previously took two days would now take over two and a half days. They fell somewhat by the end of the year, but then shot up again by more than two-thirds by mid-2021.
“What made this unprecedented supply chain disruption hit so hard and fast was the speed at which a single glitch in the production or movement of goods due to a shortage of labor or space can disrupt the supply chains crisscrossing the world.
“Whether you’re delivering parts to a factory or purchases to a home, these days it will be done on a “just-in-time” basis”
“A BRIEF HISTORY OF JUST-IN-TIME MANUFACTURE
“The 1983 publication of Robert Hall’s Zero Inventories represented one of the more significant efforts to introduce just-in-time principles to North American business.
“But there are some observations in Hall’s writing that might, in retrospect, have given one pause. Many smaller companies, Hall noted, expressed concern that stockless production … “to shift the burden of carrying their inventory” without compensation.
” and labor costs increasingly shifted to outside firms. In developing a leaner, more continuous approach to production—by more finely controlling the timing of flow and moving to what Hall had called “type 1” suppliers—US firms were effectively able to distribute their work across space, with all of the troubling implications that outsourcing entailed.”
” And it is this geographic distribution–not just-in-time manufacturing–that is the biggest cause of pandemic-induced supply chain disruptions. It is, in other words, an inevitable consequence of global supply chains.
“For many firms, the adoption of lean production techniques in the 1980s and 90s corresponded with increasing computerization of their production process – and the adoption of Material Resource Planning systems in particular. But when software that had primarily been intended to plan was increasingly used to predict, the ideas that had informed Toyota’s work—a responsiveness to the material facts of Kanban cards embedded in the actual machinery of production—became increasingly abstract.8 They were no longer just just-in-time. They were the imagination of ‘what might-just-be’.”
JQ said “If this cost were shared equally between employer and employee,”. 2-4-6 appendage to reality.
Apoligies for all the gish gallops via other academics, interesting and important as they are.
As I am am a neophyte…
[a person who is new to a subject or activity.
“four-day cooking classes are offered to neophytes and experts”
from Oxford Languages]
… I have to go on a very long “four-day cooking class” route, read recipies, taste dishes, to find the refined meal again, proffered in the first place. If this was Master Chef, and I was a contestant, you’d have to wait a month before I cooked anything.
JQ’s recipes & dishes, as per usual, are all that was needed….
“A plausible guess is that reducing hours by 10% will be associated with a 5% reduction in output.
“If this cost were shared equally between employer and employee, workers would have to forgo wage increases of 2.5%. This would correspond to somewhere between two and five years of real wage growth based on recent history in Australia.
“The cost to employers would reduce their profits. But over the past 20 to 30 years the share of national income going to the owners of capital as profits (instead to labour as wages and salaries) has increased considerably. This cost would be just a fraction of those gains.”
I think there is a simple and yet valid way to look at it. Simplistic conventional economics (Economics 101 perhaps) would claim that cost-push inflation is the problem to be concerned about as in raising wages. By cost-push inflation they mean wages and thus they mean wage-push inflation But there are several causes of inflation (at least). Another very important cause in the modern system is profit-push inflation. This is the kind of inflation which simplistic conventional economics and neoliberal economics pretends does not exist.
If wages have been flat in Australia (and they have) what has unleashed the current inflation? Well, profits have gone up. Simplest assumption: it is profit push inflation.. There is more to the story of course. This article analyses it in the US context.