We are finally seeing some substantive argument about policy, with Scott Morrison supporting a cut in real wages, and Anthonly Albanese opposing it. I’ve drafted a response (over the fold)
Also here on my Blogstack
The ‘cost of living’ crisis has been central to the 2022 election campaign. The Consumer Price Index rose by 5.1 per cent over the year to March, and at an annual rate of 8.8 per cent over the last three months. Unsurprisingly, low-paid workers are seeking an increase in the minimum wage sufficient to offset this. Disappointingly, but also not surprisingly, employers and the Morrison government have opposed this claim, suggesting that this will make inflation even worse.
This response reflects the fact that talking in terms of the ‘cost of living’ is a dangerous and misleading way of discussing prices and wages. As Anthony Albanese has suggested, the crucial point isn’t the fact that prices have risen, but the fact that wages have not. In the end, no one cares about the fact that a grocery order that cost $50 in 1980 costs around $250 today. What matters is whether you can afford to pay for it.
For several decades after 1980, wage indexation and enterprise bargaining ensured that the real value of wages grew slowly but steadily. However, real wages have been stagnating for some years, and have fallen sharply since the resurgence of inflation. An increase of 5 per cent would merely reverse the recent cut.
Opponents of a wage increase have argued that it might lead to a wage-spiral spiral. But this way of thinking about inflation, dating back to the days when powerful unions could extract large increases in wages, and their employers could increase their prices to cover costs, is out of date.
Inflation is often described as ‘too much money chasing too few goods’. While this is an oversimplification in many cases, this is an accurate description of what is going on around the world right now.
The pandemic disrupted production and supply chains around the world. Its effects are continuing, most notably in China and have now been magnified by Russia’s invasion of Ukraine and the sanctions imposed in response.
Meanwhile, the massive increases in public expenditure to fight the pandemic were financed by ‘quantitative easing’, that is, money creation, on a massive scale. The conventional approach to expansionary monetary policy, cutting interest rates, had reached its limits when the Reserve Bank cash rate was cut to 0.1 per cent.
Now that quantitative easing is no longer needed, the problem is how to manage the huge increase in money balances that is driving demand. This is not a new problem; it arises every time a lot of spending is needed to handle an emergency, and we know what works and what does not. In the aftermath of World War I, governments in the UK and Australia sought to unwind the inflation created by wartime spending and return to the gold standard. The result was a long period of economic weakness, culminating in the Great Depression. By contrast, after World War II, wages and prices were allowed to rise, as wartime rationing ended and reconstruction gradually removed constraints on production.
As long as the real value of wages is maintained, a once-off increase in the price level is a small price to pay for avoiding economic disaster during the pandemic. The reconstruction of supply chains, along with the underlying increases in productivity generated by technological progress, will allow a gradual return to lower rates of inflation. We can also hope for some additional gains arising from the experience of the pandemic with remote work, telecommunications and home delivery of goods and services.
Once the current upsurge in prices is past, we need to reconsider whether the inflation targeting regime introduced around the world in the 1990s, based on frequent small adjustments to the central bank interest rates, is still appropriate. Inflation targeting, failed to prevent the Global Financial Crisis, and was abandoned during the pandemic. Even though interest rates are rising in the short run, there’s still very little capacity to cut them in the event of a new emergency. It might well be better to target growth in the money value of GDP, and to accept inflation somewhat higher than the 2-3 per cent range that has been aimed for, though not always reached, under inflation targeting.
But this is a question for another day. The inflation we have observed in the last year was not caused by low-wage workers, most of whom did not see much benefit from the big expenditure during the pandemic. They should not be asked to bear the costs of a misconceived program of deflation.
John Quiggin 
An increase in the minimum wage will have spillover effects on wages in general. That this increase is being advocated by Mr Albanese is precisely the mechanism, by which a wage-price spiral is initiated. Wages need to rise to preserve the real wage which will increase costs causing prices to rise in a further round of adjustments. Its difficult to see the case for initiating this. Either the induced price increase will drive a further round of wages adjustments (and hence drive a wage-price spiral) or, if as you suggest, this won’t happen because union power is too weak, when workers will lose some of the initial benefits of the wage hike. Either way the move is pretty pointless. Centralised determination of wages by wage tribunals or populist politicians is not a good idea.
Isn’t it better to recognise that, as taught in basic economics, that wages are a price that generally should be set in markets rather than by governments. Demand increases have already driven considerable increases in the wages of skilled tradesmen as anyone who has to maintain a house knows. There are advertisements for unskilled workers everywhere e.g. as waiters or even dishwashers – in Sydney restaurants the latter are demanding $50 per hour to work on weekends. See:
(https://www.afr.com/policy/economy/restaurant-dishwashers-ask-for-50-an-hour-20211112-p598dk#:~:text=Dishwashers%20are%20demanding%20up%20to,eateries%2C%20says%20one%20Sydney%20restaurateur.).
The advantage of allowing these processes to work naturally through markets is that workers go to the areas in the economy where they are most needed and a wage-price spiral is avoided without the inevitable crushing interest rate rises of the past and “recessions that the economy needed to have”.
If you believe that wages in certain occupations will remain at “socially low” levels even given market pressures then offer wage subsidies in those specific areas. Setting incomes is better than treating the overall level of wages in the economy as a target of policy that can be driven by the FWC.
Not sure why Anonymous. Its by Harry Clarke, logged in as usual.
Profit push inflation.
https://www.wamc.org/commentary-opinion/2022-03-18/a-profit-push-explanation-for-the-current-inflation
Don’t forget, the inflation in Australia started despite flat basic wages. So rising basic wages did NOT initiate it. There are other suspects including one-off overseas supply shocks and large budget deficits. But far the biggest suspect and culprit is increased, excess profits. Why not any talk about excess profits, excess rentier incomes and low taxes on high profits ?
The basic wage workers need to be permitted a basic wage catch-up unless we are happy with treating the working poor like dirt. After the catch-up keep the CPI lid on wages AND excess, gouging profits. Why shouldn’t profits be subject to control too? Seems to me the shareholders and landlords always want to squeeze workers but never want any control on their own income, which is usually obscenely high. Capitalists should take the haircut for once.
Higher energy costs fuel inflation.
https://theconversation.com/soaring-energy-costs-fuel-fastest-inflation-in-40-years-3-essential-reads-181140
Oil is in everything. If the past is any guide to the future, there is plenty of room for oil prices to increase.
https://www.artberman.com/2022/03/07/oil-shock/#
The poorest are proportionally paying the highest price.
Meanwhile, the 6-month only TEMPORARY fuel excise cut savings of $0.221 per litre, instigated in the 2022 Federal Budget, is already being eroded.
https://www.theguardian.com/business/2022/may/09/fuel-excise-cut-savings-eroded-by-rising-petrol-prices-amid-increasing-cost-of-living-pressures
Petroleum fuel supplies and prices are primarily beyond Australia’s control. Whomever wins government after May 21 won’t bring down inflation.
Energy costs can cause inflation and they are currently doing so. I mentioned overseas supply shocks. Those shocks include oil (petrol, diesel, petrochemicals) because of the Russian war on Ukraine. Those shocks include shocks from other imports too due to the supply chain issues from Covid-19. Then there possibly has been inflation from large deficit spending with inadequate taxation. Finally, there has also been profit-push inflation. This is where capitalists use the overall situation to push up prices beyond their own costs to increase their profits. They do this under the general cover of an inflation already started but push further and essentially price-gouge in a crisis. They also swallow up consumer subsidies or lowered excises as further profits. They are capitalists. It’s what they do.
I don’t think we need to deny that there have been inflationary pressures from multiple sources. The one thing that has not been a source of inflation has been basic or minimum wages. We know this because they have stayed flat for a long time in Australia.
If there is oil (fuel) inflation, Australians should adjust by:
(a) reducing optional or discretionary journeys;
(b) reducing exports and imports and thus becoming (a little) more autarkic;
(c) becoming more fuel efficient;
(d) shifting away from oil based fuels; and
(e) shifting to renewable energy.
A wise government and people could restrain inflation and shift to sustainable energy. But we will only be able to do this if we take the capital power out of the hands of rich capitalists and put that power back into the hands the people and a government governing for the common weal (the common good), the common wealth and not for elite wealth.
Ikonoclast: – “I mentioned overseas supply shocks. Those shocks include oil (petrol, diesel, petrochemicals) because of the Russian war on Ukraine.”
Global diesel fuel production began its decline BEFORE the Russian invasion of Ukraine, and BEFORE the onset of the COVID-19 pandemic. The COVID-19 pandemic masked the detrimental effects of declining global diesel fuel production. The Russian invasion highlighted those effects.
From The diesel peak: 2021 edition. (Translated from Spanish to English), dated 19 Nov 2021 bold text my emphasis:
https://crashoil.blogspot.com/2021/11/el-pico-del-diesel-edicion-de-2021.html
Iko: – “(a) reducing optional or discretionary journeys;
(b) reducing exports and imports and thus becoming (a little) more autarkic;
I’d suggest this cost reduction mitigation strategy will have limited benefits for the consumer. It will be detrimental for businesses dependent on those activities being curtailed.
Iko: – “(c) becoming more fuel efficient;
I’d suggest this strategy is now too little and too late. The decline of petroleum fuel supplies will likely outrun any fuel efficiency gains.
Iko: – “(d) shifting away from oil based fuels; and
(e) shifting to renewable energy.”
These need to happen ASAP. Unfortunately, it seems to me that both the Coalition and Labor don’t see the need for urgency. I think many politicians and business leaders are ‘energy blind’.
IMO, major societal disruption is now inevitable, due to:
1) escalating consequences of climate change;
2) worsening energy security (especially liquid fuels), consequently worsening food security and affordability;
3) worsening health of the population due to ‘long-COVID’.
Assume your crash positions and brace for impact!
Have we implemented… “insights open the way for developments in the basic theory of production under uncertainty, the theory of hedging behavior, the analysis of agency problems and the theory of production insurance.”? Chambers & Quiggin in 2001
Elon Musk disagrees with your statement JQ “They should not be asked to bear the costs of a misconceived program of deflation.”
Elon Musk, the geopolitical culture warrior, is refraining the productivity debate. Harry, Elon takes you advise to the extreme.
Musk: “They [Chinese workers] won’t just be burning the midnight oil, they will be burning the 3am oil, they won’t even leave the factory type of thing, whereas in America people are trying to avoid going to work at all.”
https://finance.yahoo.com/finance/news/elon-musk-tesla-boss-praises-182248534.html
Want a living wage? Sleep in my factories.
Sooo… 18th century Elon. Must be hard to see humanity properly due to his;
1) god complex “”Musk defended his wealth by saying he is “accumulating resources to help make life multiplanetary [and] extend the light of consciousness to the stars” &
2) sitting on “an estimated net worth of around US$265 billion as of May 2022, Musk is the wealthiest person in the world”.
wikipedia.org/wiki/Elon_Musk
Labour wants “An increase of 5 per cent would merely reverse the recent cut.”(JQ), not to go back to working all night for “The reconstruction of supply chains, along with the underlying increases in productivity generated by technological progress”(JQ), only to worsen “Australia’s experience of a falling labour share (and rising capital share) over recent decades appears to be very similar to that of other advanced economies (Graph 3). About 30 advanced economies (accounting for around two-thirds of world GDP) have experienced a decline in the labour share since 1990 (Dao et al 2017).”
https://www.rba.gov.au/publications/bulletin/2019/mar/the-labour-and-capital-shares-of-income-in-australia.html
And increase Musk et al’s wealth, power, choke points and the inbalance in power option – withdrawal of employment just to effect policy “Musk said that financial political contributions are a requirement to have a voice in the United States government” (Wikipedia) in favour of said owner & control, producing “an economy increasingly propelled by intangible assets like software and other intellectual property,” where…”the historic link between the growth of net worth and the growth of GDP no longer holds. While economic growth has been tepid over the past two decades in advanced economies, balance sheets and net worth that have long tracked it have tripled in size”…
https://www.mckinsey.com/industries/financial-services/our-insights/the-rise-and-rise-of-the-global-balance-sheet-how-productively-are-we-using-our-wealth
As poverty has only decreased in Lindon by about 5% from 32% to 27% in 150 years, does any here want to tell me how all you brains and words will effect real change in a suitable time frame toward positive outcomes of the never ending problems;
Inequality
Abortion rights
Climate change
Polarization &
Retreat of democracy.
5% wage increases won’t fix much, but aged care workers & Elon’s factory workers, will be able to afford an ice cream for the kids. And be ‘happy’. Baseline shift by humans is such a neanderthal trait, used to effectively drag on real improvement for all.
As Chambers & Quiggin said in 2001:
…”Moreover, proper exploitation of the properties of alternative primal and dual representations of preferences allows analysts to generalize and extend the results of the existing literature on preferences under uncertainty, thus making expected-utility theory largely superfluous for many decisions. These insights open the way for developments in the basic theory of production under uncertainty, the theory of hedging behavior, the analysis of agency problems and the theory of production insurance.”
Uncertainty, Production, Choice, and Agency
The State-Contingent Approach
Robert G. Chambers,
John Quiggin
March 2001
https://www.cambridge.org/au/academic/subjects/economics/economics-general-interest/uncertainty-production-choice-and-agency-state-contingent-approach
Ann Rand, Lesson 1 economists and capital, use and abuse labour quality via quantity… “nurses … sense of reward and fulfilment beyond imaginable”.
https://www.abc.net.au/news/2022-05-12/international-nurses-day-2022-covid-19-pandemic/101033264
And how come prices change at any moment, yet wages are step wise dependent on business cycle, rates & targets?
Who said in the article “Australia must avoid entrenching a US-style ‘working poor’”…
“A 5 per cent lift in the minimum wage in 2022 is about a one-off reset to the wage level to counter real wage destruction. It is not a new norm.”…. “a boost to wages for those at the bottom of the scale quickly finds itself back into the economy.” & “Raising the minimum wage may seem counter-intuitive if inflation control is the ultimate objective. But supporting household incomes while raising interest rates gives us our best chance of getting monetary policy settings right for the long-term.”
Warren Hogan did.
“Warren Hogan is the managing director of EQ Economics and chief economic adviser to Judo Bank. Warren was previously chief economist of ANZ Banking Group and a principal adviser to The Federal Treasury”.
*
“Australia must avoid entrenching a US-style ‘working poor’
Warren Hogan
Economist
May 12, 2022
“Australia deregulated and opened its economy at the end of the 20th century, but unlike the United States, we have avoided the formation of an underclass of working poor. People who work but struggle to pay the rent and feed their families.
“But Australia is now heading in that direction with big cuts to the living standards of low-income earners driven by surging costs of living.
“Low-income earners face big cuts to living standards driven by surging costs of living.
“A central tenet of the modern Australian economy is that those on low incomes have participated in the rising prosperity that economic reforms have delivered.
“This is consistent with that very Australian sense of egalitarianism, but more importantly, it is a foundation stone of a strong and stable domestic economy.
“Low and middle income households provide a baseload of demand that generates labour-intensive domestic economic activity. From food and grocery to entertainment and tourism, a boost to wages for those at the bottom of the scale quickly finds itself back into the economy.
“A 5 per cent lift in the minimum wage in 2022 is about a one-off reset to the wage level to counter real wage destruction. It is not a new norm.”
…
https://www.brisbanetimes.com.au/national/australia-must-avoid-entrenching-a-us-style-working-poor-20220511-p5akbe.html
The ‘money chasing goods’ explanation is contradicted by the ‘no rise in real wages’ fact. Obviously all this ‘money’ did not actually reach the average worker. It may have gone into house prices given that 90% of household debt is either mortgages or investment to buy housing or shares. A prominent British economist recently remarked that any explanation that relies on quantity theories of money is obviously false (I can’t find the link – he went to to add that he did not have an alternate explanation). Supply chain disruptions are part of the problem, but I find a better explanation for inflation/deflation is the relative balance of power between wage-earners and capital. It is changes in this balance (currently weighted heavily in their favour) that capital resists.
I prefer a decentralised wage system where markets are left to determine wages and where the tax transfer system is used to address inequality. But if you want a centralized system with wages determined by tribunals on the basis of near meaningless blurb statements such as “fairness”. “wage justice ” etc (how many unions have ever claimed their workers are overpaid?) then, at least, make this independent of politicians. In the past the government has made submissions to the FWC without nominating a specific figure so that wage decisions are not seen as determined by politicians. Albanese has changed all that with populist rhetoric to increase the minimum wage by 5.1% a figure that will flow through to one quarter of the workforce. Really bad policy.
A wage system which sets a floor of a livable wage is demonstrably better. Here are the strongest reasons to support it:
(a) Any educated, trained person of basically able (relative to the job) physical condition and/or basically able intelligence relative to the job) should be usefully employable in normal times and able to produce value warranting a livable wage. If this is not the case, the problems are systemic. That is to say there is something wrong with the political economy system and/or its markets are failing.
(b) Transfer payments to employed but still partly-welfared recipients subsidize inefficient and greedy businesses. All businesses that pay living wages at least and also pay taxes will subsidize those businesses which do not / will not pay a living wage.
(c) R.E.S.P.E.C.T. – Workers feel respected by their employer and society if they are payed a livable wage and do not need top-up welfare payments. Respected people, in the main, repay that respect with reciprocal respect and a fair day’s work for a fair day’s pay.
(d) Avoidance of churn. If more transfers are needed then we need more churn as “tax and return” and thus we need a bigger tax and welfare administration for this. This is inefficient.
The above points show that not paying a living wage to capable, trained people is economically irrational, involves moral hazard, is disrespectful and is socially/economically inefficient. It has NOTHING going for it.
Harry, imo, you need to update your priors. You still haven’t addressed nor rebutted JQ either. I’m just the message boy.
It must be Albo’s fault Harry. I loved the irony of you using ‘populistic rhetoric’ about perceived conventions and populist rhetoric…
HC: “Albanese has changed all that with > populist rhetoric < … Really bad policy."
● How "really bad" Harry? As AI Group submission also points out the FWC doesn't get involved in tax & transfers, which imo is a ffeature not a bug – another setup to allow politics to interfere and devolve a system into components. The worst models and of political game playing! Please comment Harry.
Harry please reubut…
● Alan Manning says ""Hence the problem may be with the economics all too often taught as dogma."
wikipedia
org/wiki/Alan_Manning
● Cherry picking Alan Manning, AI Group pulls on quote “there is some level of the minimum wage at which employment will decline significantly” from Manning 2021.
Which is like saying at some leve of g-force deceleration will crush you. AI Group quotes Manning to introduce doubt, as Manning would crush all AI Groups arguments.
● Alan Oster, NAB’s chief economist, said there was no wage-price spiral under way, and “So it’s almost like they’re saying, ‘I’ll give you more shifts. I won’t pay you an hourly rate that’s any bigger’.”
● Jim Stanford, an economist and director of the Centre for Future Work, said worries that a wage-price escalation would kick off if wage increases reached 5% a year were overblown.
“This over-the-top alarmism shows how much the goalposts have shifted after nine straight years of historically weak wages growth,” Stanford said. “In most countries it would be seen as desirable that wages would finally show some vitality.”
● Here is Ai Group (aka capital)…
…"our proposal would result in the equivalent of a 4.3% increase in pre-tax remuneration for low paid employees." [by including low-middle-income-tax-offset (LMITO) and extra 0.5 percentage point in superannuation ]
To which … "Stanford … said the super increase wouldn’t help workers repay bills. Similarly, firms relying on a tax offset to bolster staff wages were unlikely to compensate workers once the offset runs out next financial year.
“Do we actually think it is the government’s responsibility to subsidise the failure of business to pay a living wage by handing out tax year after year?” he said.
“They want workers to experience a continuing real wage cut because they think that’s the way to solve this inflation issue even though this inflation has nothing to do with wages,” Stanford said. “No one has argued that this inflation has been caused by domestic wages.”
● ""… Edward Glaeser … about researcher incentives and empirical methods:
""Economists are quick to assume opportunistic behavior in almost every walk of life other than our own. Our empirical methods are based on assumptions of human behavior that would not pass muster in any of our models." CT
● Kathy G at Crooked Timber says "Another thing that must be pointed out: given the anti-regulation ideological bias of the economics profession as a whole"…
● Kaleberg says @ 108 CT link:
"When labor is cheap, capitalism stops growing. A high minimum wage is just as important to capitalism as a police force and system of law."
*** end Harry to rebut quotes linked below ***
*
Cherry picking Alan Manning, AI Group pulls on quote “there is some level of the minimum wage at which employment will decline significantly”.
Which is like saying at some leve of g-force deceleration will crush you.
Ai GROUP SUBMISSION
Fair Work Commission
Annual Wage Review 2021 – 2022
10 May 2022
Pg 10…
"The ACTU submission relies on research conducted by Manning (2021) to conclude that higher minimum wages will lead to productivity benefits. However, the analysis is based on the US economy, and as Manning (2021) later mentions on page 22, “there is some level of the minimum wage at which employment will decline significantly”.
…
aigroup
com.au/globalassets/news/submissions/2022/annual_wage_review_2021-2022_reply_submission_10may_2022.pdf
*
Manning A (2021), ‘The elusive Employment Effect of the minimum wage’, Journal of Economic Perspectives, Vol. 35, No. 1, pp. 3-26.
Manning, Alan (2021)
"The elusive employment effect of the minimum wage."
Journal of Economic Perspectives, 35 (1). 3 – 26. ISSN 0895-3309
Abstract
"It is hard to find a negative effect on employment effect of rises in the minimum wage: the elusive employment effect. It is much easier to find an impact on wages. This paper argues the elusive employment effect is unlikely to be solved by better data, methodology or specification. The reason for the elusive employment effect is that there are reason why the link between higher minimum wages and higher labor costs are weaker than one might think and because imperfect competition is pervasive in the labor market."
eprints.lse
ac.uk/107415/
*
Harry, Alan Manning says;
"In spite of this accumulating weight of empirical evidence, it is still very common to find economists falling back on the argument that a minimum wage must cost jobs because demand curves for labor inevitably slope downward.
"Faced with a conflict between the evidence and 20th century economic models, they reject the evidence rather than the theory – not an ideal template for scientific endeavor. But there are, in fact, uncomplicated theoretical reasons why the minimum wage set at the levels seen in the United States has little or no effect on employment.
"Hence the problem may be with the economics all too often taught as dogma."
From:
"Why Increasing The Minimum Wage Does Not Necessarily Reduce Employment
ALAN MANNING
27th January 2014
https://socialeurope.eu/minimum-wage-us
*
Profit are not going down, just not increasing!
"Only five per cent of respondents [to ACCI] said they expected profits to increase in the year to come, down from a net 18 per cent in the December quarter."
https://www.manmonthly
com.au/news/australian-manufacturers-face-worst-cost-pressures-50-years/
*
"Jim Stanford, an economist and director of the Centre for Future Work, said worries that a wage-price escalation would kick off if wage increases reached 5% a year were overblown.
“This over-the-top alarmism shows how much the goalposts have shifted after nine straight years of historically weak wages growth,” Stanford said. “In most countries it would be seen as desirable that wages would finally show some vitality.”
OECD data also showed the minimum wage – set by the commission at $20.33 an hour for the current fiscal year – has been falling as a proportion of median Australian wages since 1999.
…
"Do we actually think it is the government’s responsibility to subsidise the failure of business to pay a living wage by handing out tax year after year?” he said.
“They want workers to experience a continuing real wage cut because they think that’s the way to solve this inflation issue even though this inflation has nothing to do with wages,” Stanford said. “No one has argued that this inflation has been caused by domestic wages.”
Alan Oster, NAB’s chief economist, said there was no wage-price spiral under way, and “So it’s almost like they’re saying, ‘I’ll give you more shifts. I won’t pay you an hourly rate that’s any bigger’.”
https://www.theguardian.com/australia-news/2022/may/11/over-the-top-alarmism-economists-dismiss-concerns-wage-rises-cause-inflation
*
"Economic fundamentalism and the minimum wage
MAY 11, 2008
By Kathy G.
…
"And that’s because the textbook perfect competition model predicts that an increase in the minimum wage will always and everywhere lead to a decrease in employment, no ifs, ands, or buts about it.
"Another thing that must be pointed out: given the anti-regulation ideological bias of the economics profession as a whole, it’s not hard to imagine that studies that do find that the minimum wage has a disemployment effect are considerably more likely to be published. I’m not accusing anyone of scholarly fraud here. But the fact is, there are lots of different datasets you can use, lots of models to go with, lots of variables to include or leave out, and lots of ways to slice and dice the data. It’s not unheard of for researchers to opportunistically try different models and methodologies until they hit upon one that gives them the results they want.
"Here is what economist Edward Glaeser had to say in a recent paper about researcher incentives and empirical methods:
""Economists are quick to assume opportunistic behavior in almost every walk of life other than our own. Our empirical methods are based on assumptions of human behavior that would not pass muster in any of our models. The solution to this problem is not to expect a mass renunciation of data mining, selective data cleaning or opportunistic methodology selection, but rather to follow Leamer’s lead in designing and using techniques that anticipate the behavior of optimizing researchers.""
"Indeed, Krueger and Card have written a paper that provides strong evidence that “specification searching and publication bias” have led to an overrepresentation of studies that find that the minimum wage has a statistically significant disemployment effect. The ideological character of much of the economics profession in the United States suggests that there are rewards for producing scholarship that confirms the idea that the minimum wage causes unemployment, and punishment for scholarship that finds otherwise."
…
https://crookedtimber
org/2008/05/11/economic-fundamentalism-and-the-minimum-wage/
Note: I have replaced "." In URL's with a paragraph mark to ensure moderation pass. Copy link text & edit with a ".".
Thanks. This is extremely time consuming for me. I'd appreciate experts link relevant studies, papers and articles.
Excellent quotes and discussion in CT including Card.
JQ today: “Their position [on opposing inflation indexation] doesn’t make sense at all really.”
*
“However, student loan repayment costs were this week raised by a formula based on the consumer price index (CPI), while many payments such as pensions are tied to a mix of CPI and cost-of-living changes, economists said.
“It’ll be interesting to see which of those the government would want to cut,” said John Quiggin, an economics professor at the University of Queensland. “Their position [on opposing inflation indexation] doesn’t make sense at all really.”
https://www.theguardian.com/australia-news/2022/may/13/morrisons-objection-to-lifting-wages-in-line-with-inflation-puts-spotlight-on-pensions-linked-to-cpi
FREE MATRESSES FOR ALL!, cried Elon. The workers cheered! All hail god complex Elon. [Or starve].
Elon missive: “Oh, and productivity is down so I’ll let you train the robots before I sack the lot of you. FREE MATRESSES!”
Musk, Bezos etc, Lesson 1 economists and conservative COALition want a return to the burning the midnight [extended to 3am] labour worker oil sweat. And sleep in the floor or else.
“In April, Tesla restricted its Shanghai workers from leaving the factory under a so-called “closed-loop” system originally developed by Chinese authorities to contain Beijing Olympics participants. While locked inside, the workers were reportedly made to work 12-hour shifts, six days in a row, and to sleep on factory floors.”
“Elon Musk praises Chinese workers for ‘burning the 3am oil’ – here’s what that really looks like
“Tesla’s massive Shanghai ‘Giga-factory’ pushes its workers to the limit to meet production targets amid an ongoing pandemic lockdown”
https://www.theguardian.com/technology/2022/may/12/elon-musk-praises-chinese-workers-for-extreme-work-culture
Sooo… 18th century Elon. Must be hard to see humanity properly due to his;
1) god complex “”Musk defended his wealth by saying he is “accumulating resources to help make life multiplanetary [and] extend the light of consciousness to the stars” &
2) sitting on “an estimated net worth of around US$265 billion as of May 2022, Musk is the wealthiest person in the world”.
wikipedia.org/wiki/Elon_Musk
Baseline shift. What effect on wages >2024?
We are just humans after all.
“Markets Expect The Fed To Do Something It Has Never Done Before
…
“Meanwhile, traders expect the Fed funds rate to peak at a little under 3% next year and start declining in 2024. In other words, markets expect the Fed to end the cycle with a negative 1% real rate. In modern history, this has never happened before. The Fed has only stopped tightening when real rates moved to positive territory, as Bipan Rai at CIBC points out.
“There are two explanations.
> One, this is mis-pricing. The expectation of the terminal rate is too low, or inflation expectations are too high.
> Alternatively, investors may believe that the 2% inflation target is a thing of the past. Inflation has permanently shifted higher, under the average targeting regime, as we enter the next down cycle, and the Fed will lift its inflation “target” from 2% to 3% or more…
https://www.zerohedge.com/markets/markets-expect-fed-do-something-it-has-never-done
“Workless, or working less?
JOHN QUIGGIN
30 JAN 2017
“Books | Are we coming to the end of the relatively brief period in which salaried work dominated the economy?
“Why the Future Is Workless
By Tim Dunlop
…
“The trend towards earlier retirement, which persisted into the 1990s, has been reversed, to the extent that workers in their forties today can expect that they will be seventy or older before they become eligible for the pension.
“Critics of the case for increased leisure claim that long working hours reflect the insatiability of human demands for goods and services. But the history described above tells a different story. Even more than paying higher wages, employers resent and resist paying the same wage for fewer hours of work. As long as unions were powerful, employers had no choice but to do so. But ever since they regained the upper hand in the 1980s, employers have pushed relentlessly for longer hours and harder work.
…
“Any job, anywhere, can disappear because of changes in trade patterns, or budget cuts, or simply because cutting it will boost next quarter’s profits.
…
“In these circumstances, the claim implicit in Dunlop’s title has a lot of intuitive appeal. The interesting question is: what can and should be done about this?
…
https://insidestory.org.au/workless-or-working-less/
Harry, I’m surprised that you are still advocating for a free market in wages while business continues to benefit from govt subsidies.
You might well argue that not all business benefits from subsidies but you would have to allow that wages don’t necessarily share that exemption.
There’s a lack of symmetry to your proposal, wage earners need protection from the market failures of business.
First the easy bit: Elon Mask has “put on ice” his announced take-over of Twitter. Consequence: The share price of Twitter fell by 20%. [Source: smh, 13/5/22] Is Mask going to revise his offer price down by, say, 15%, if he goes ahead at all? So much for a ‘competitive market’.
Now the more difficult one: What constitutes “basic economics”. I suggest the answer would be time dependent. What is “basic economics” in 1890 is historical knowledge by 1990 – in a discipline that allows for progress in knowledge; otherwise it is dogma. By 1996 I felt 50 years is a long enough period of time to upgrade “basic economics” in an MBA economics unit. MBAs were originally designed for professional people, particularly engineers and scientists who are already in managerial positions or aim to reach senior managerial positions. People who have influence, including the workplace. The upgrade involved introducing the conceptual framework of material from primary source literature that had accumulated since the early 1950s, which, IMO, suited the changed institutional environment, namely deregulation of labour markets, financial markets, globalisation and environmental degradation with ‘competition’ being relied upon. Senior managers, I felt needed to know something about economic systems to make the best contribution to society they can make, rather than rely on old beliefs and the constraints put on their activities by governmental rules and regulations. It is of no use, IMHO, to complain about business people if they act as taught – 1890s material. Moreover MBA students with high prior education would appreciate getting exposure to a methodology in economics where theoretical results are dependent on conditions, I assumed. These conditions can be compared to observables (a relief for the scientifically minded). So, the “basic knowledge” I chose consisted of Arrow-Debreu (complete commodity markets), Radner (commodity markets and financial securities), Quinzii and Magill (incomplete markets) with my own theoretical model of partially segmented markets with multinational firms (globalisation). All these models assume ‘competitive markets’ (price taking) and ‘no government’ – in compliance with the mantra of the day. It worked. It became very clear that ‘competition’ and ‘no government interference in markets’ doesn’t lead to the same ‘equilibrium’ under the same conditions. And, the most striking implication is that all prices are wrong (regarding the properties of an equilibrium) in the case of incomplete markets when compared to the Arrow-Debreu model, which was only about 40 years old by the time the incomplete market results were out. People are not too stupid to be able to follow the logic and the results of research programs in economics, even though they may not know the proofs involved. I don’t believe one can or should teach these potentially very influential people what they should do. But I believe one ought to teach enough of contemporary knowledge for them to understand what the problems in contemporary economic life are and leave it to their initiative to find solutions to some sub-problems in their immediate working environment which they can affect.
Now to the even more difficult bit: Labour markets and democracy. All of the above models have one thing in common, namely all of them assume each person has enough ‘wealth’ (could be labour skills they can sell) such that they can buy at least a tiny bit of whatever is on offer – to allocate their income according to their preferences). Without this ‘minimum wealth condition’ all the talk about ‘freedom of choice’ is as meaningless as the declaration of a ‘democracy’ without voting rights and alternative choices. IMHO, people who wish to associate ‘democracy’ with ‘markets’ cannot simultaneously argue that the income distribution doesn’t matter. Similarly, those who wish to associate ‘democracy’ with ‘free labour markets’ and propose that transfer payments should be used to bring the income earned from the selling of labour services to a level high enough to keep people above the ‘survival constraint’ (less than the minimum wealth condition) should admit that market prices are wrong. And this is the point about the wage case argument of the post.
Ernestine Gross,
There is much to unpack in your post above. I found it very interesting.
1. Re Elon Musk. The minimum wealth condition to buy a company the size of Twitter is different from the minimum wealth condition to buy basic food and accommodation each week. There is also a great power differential as (possession of) capital confers power. This is the central insight of the “Capital as power” theorists (and others perhaps). Namely that money capital (I would add “in large amounts”) does not measure value, it instantiates power. Power they define as the ability to reorder physical and social structures against resistance.
If Musk purchases Twitter he will have the power, for example, to restore Donald Trump to it. He has indicated he will do this and also free up “free speech” in general. This means, I think, free up science-denial, free up human rights denial and perhaps even free up democracy denial. That is my value-judgement and prediction of course.
You refer to democracy. One thing we do in representative democracies is limit political power. The power of the vote is limited to one vote per adult person and the power of office has time limits and other conditions and limits. However, on personal wealth and thus on personal wealth-power, we place no theoretical limits. While a company theoretically may not be permitted to monopolize, there is no limit I know of to stop one person (or one family) from owning many near monopolies, at least in different lines of business. This sits oddly with democracy if one accepts that possession of great amounts of money confers power. I have long held that there is a central contradiction between capitalism and democracy, or if you prefer, between unfettered markets, grossly unequal wealth distributions and democracy.
2. The next section is interesting too. I take it to be professional autobiography describing your, or your team’s, development of economic units for an MBA course. It describes your reasons for designing the kind of course you did design. I am impressed by the thought that went into it. You weren’t going to insult professionals with Ideology 101 be that market fundamentalist ideology or some other kind.
You say “It became very clear that ‘competition’ and ‘no government interference in markets’ doesn’t lead to the same ‘equilibrium’ under the same conditions.” I am not sure what is meant here. Do you mean the same model run many times under the same running conditions but different initial parameter settings arrived at many different equilibria and/or no equilibria depending on initial settings? If so this would be consistent with chaos theory in that in a complex deterministic system, tiny changes in initial conditions can lead to vast differences in outcomes.
Ernestine, I assume in this comment you are referring to my comment:
“Similarly, those who wish to associate ‘democracy’ with ‘free labour markets’ and propose that transfer payments should be used to bring the income earned from the selling of labour services to a level high enough to keep people above the ‘survival constraint’ (less than the minimum wealth condition) should admit that market prices are wrong. And this is the point about the wage case argument of the post.”
The claim that economics should be concerned with endowments and to address these rather than attempt to manipulate prices is the Second Fundamental Theorem of Welfare Economics not mine. While it has its deficiencies I think that things like wage levels do convey a lot of information. Rising wages reflect areas of the economy where there is excess demand for labour and so on. High wages, other things being equal suggest jobs where labour is highly valued and where labour-saving investments make particular sense. They provide much more useful economic information than Anthony Albanese or Incomplete Markets theorists.
Certainly market wages suggest a lot more than a bit of pretentious Arrow-Debreu-Incomplete Markets mumbo jumbo suggesting that prices are “wrong”. How are they wrong and why do wage signals not provide much needed information in labour markets? What you should train for if you want a well-paid job, whether you should retrain etc and where firms need to switch to more capital intensive technologies. And will the Federal Government deliver more accurate wage signals for the whole economy than politics-free tribunals or, even better still, relatively free labour market? I don’t believe it.
I can’t understand how a group of cold looking suits can claim to be “economic mangers”, since they don’t understand the basic of economics as a relationsjhip between production and the consumption needed to drive it.
No money, no spend!!
These things were known two centuries ago.
Cracking good and terrific comments to flesh it out.
No money, no buy. No buy, no sell.
Harry, I too believe “it has its deficiencies”.
HC, you say “the Second Fundamental Theorem of Welfare Economics not mine. While it has its deficiencies I think that things like wage levels do convey a lot of information.”
So Harry, re your statement “How are they wrong [wages] and why do wage signals not provide much needed information in labour markets?”
You do not answer your first part;
“How are they wrong”?.
I’d appreciate to know.
Harry Q1: are ANY conditions, constraints, effects, physical or social, information or externalities
NOT included in “wages”?
Harry, the second phrase;
“why do wage signals not provide much needed information in labour markets?” is obvious, wage signals do provide information. Much needed begs the questions of how much and what.
Harry Q2. what constitutes complete information in labour markets, and how much information is needed, and is this able to be improved? If so, how?
I’d like to know please. If you may back up your statements with a link or two for us, that would be appreciated.
As you probably perceive me in your statement below, I assume you will be able to detail answers without verbiage, psycho-babble and non-rigorous reasoning, which some of your ‘answers’ above are inclined, along with denigrating without enlightenment.
Harry, I believe you can do better. Please answer my questions.
“Too often, too, they are dominated by verbiage, psycho-babble and non-rigorous reasoning.
http://kalimna.blogspot.com/2009/03/in-praise-of-economics.html
Ikonoclast,
The Elon Musk share market play is an observation about reality. Your comment is exactly an example of the type of questions that arise when “basic economic theory”, which belongs to the class of models of competitive private ownership economies, is compared with observations. Yes, Elon Musk claims the right of majority ownership of financial securities bestows the right to change social norms – not only influence market prices. So what is the difference between a totalitarian dictator, who declares a twitter ban, and a majority shareholder (or private equity owner) who dictates anything that can be put in words goes as long its not a spam post?
In your #2, you write “However, on personal wealth and thus on personal wealth-power, we place no theoretical limits.” I’d like to comment. In the theoretical models I have listed there is a limit on personal wealth. That is the relative personal wealth is limited. But we observe in our societies there is no actual limit on relative personal wealth. I would agree with your last sentence that there is a contradiction between (beliefs in) unfettered markets (being desirable), grossly unequal wealth distributions and democracy.
Re your last paragraph: In the theoretical models I have listed the insight is that the conditions under which a solution to each of the models (equilibria) can be established (proof in the logic of mathematics) differ and the properties of the solution differ too. Without referring to additional literature, I may be able to illustrate what I mean by the properties of the solution differ. In contrast to the other models, where the solution has the property of being Pareto efficient (after adding a lot more conditions relative to the Arrow-Debreu model), the incomplete market model has the property of being generically Pareto inefficient (except perhaps on a Wednesday afternoon between now and the very very distant future, the outcome is sub-optimal regarding resource allocation). Environmental problems from soil degradation to anthropogenic average global warming are problems that fall into this category. Considering that different mathematics had to be used to get a solution at all and the P inefficiency property of the solution shows – at least to me – how fundamental environmental problems are. A lot of beliefs about how things work need to be discarded or at least questioned.
There are simulation studies of agency models (conceptually related to the models I have listed), which produce chaotic episodes. But this body of work wasn’t 50 years old in 1996 but rather at the forefront (!)
Here is some wage and productivity data:
a) leading to suicides and
b) masking Harry Clarke’s, statement “why do wage signals not provide much needed information in labour markets?”
Not monopoly nor monsopony?
What is the term for “46 different providers”… called please?
“However, the CPSU said in its submission the “money was allocated to the proportion of the department budget used for veterans’ services and could only be used to employ staff using labour hire contractors”.”
The union said 42% of the department’s staff, including more than 50% of claims-processing staff, are contractors or supplied by labour hire companies.
“The department spent $82m on the labour hire services with at least 46 different providers, according to the CPSU’s submission.”
https://www.theguardian.com/australia-news/2021/mar/22/injured-australian-military-veterans-waiting-months-for-support-as-claims-backlog-rises-to-25000
Note 1. Privatization, casualisation and profit by stealth and dogma.
Missing information. “Why is that? … “run by contractors.”
Laura Tingle asks;
“…how much discussion has there been about what the pandemic has revealed about the gaps in the way any of our human services are delivered? None.
“Why is that? Well, it’s complicated. But let’s argue it is because our politicians actually don’t know what is going on because almost all of these services — except the state-run hospitals — are run by contractors.
Laura Tingle;
“Yet no one really seems to know what is going on in any of these sectors on a day to day basis, or how to fix them.
“There are the obvious blame games about politicians’ decisions during the pandemic. But how much discussion has there been about what the pandemic has revealed about the gaps in the way any of our human services are delivered? None.
“Why is that? Well, it’s complicated. But let’s argue it is because our politicians actually don’t know what is going on because almost all of these services — except the state-run hospitals — are run by contractors.
Why is that? Well, it’s complicated. But let’s argue it is because our politicians actually don’t know what is going on because almost all of these services — except the state-run hospitals — are run by contractors.
https://www.abc.net.au/news/2022-05-07/australia-hospitals-aged-care-disability-systems-election-focus/101045490
Via Nic Gruen https://mobile.twitter.com/NGruen1/status/1522815967067312129
Ernestine Gross,
Thank you again for discussing these ideas. I believe I understand pretty much everything you are driving at. Of course, I take on trust your statements on the technical aspects of this kind of mathematical economic modelling. I also take on trust the unquoted mathematical equations. I couldn’t understand the equations even if they were quoted. Naturally, when you say “the outcome is sub-optimal regarding resource allocation” and then link this to the real-world observed “environmental problems from soil degradation to anthropogenic average global warming” this rings true by the very fact of having those named observable empirical proofs. We can all see the empirical proofs in the ecological literature.
Your references to models per se particularly interest me. In my autodidact treatise “Complex Relational System Monism – Towards a Unified Ontology for Real and Formal Systems” (clearly a very Quixotic enterprise!) I make a strong claim about models and human perception and knowledge. Essentially I claim that all human knowledge claims, be they true or false, are models. And that human perceptions and misperceptions, human understandings and misunderstandings, all exist as models and only as models: I mean as brain models or mind models which are then externalized, instantiated and elaborated in real media for communication and testing. How I fully support this contention is too long for a blog post.
Suffice it to say that this modelling claim flows from a consideration of the correspondence theory of truth interpreted as a requirement that a valid model demonstrate adequate homomorphic structural and/or dynamic correspondence(s) with the object, process or system modeled. “Adequate” then requires further definition. It might mean adequate for predictions or adequate for basic formal descriptions of what happens in the real system.
Homomorphic structural and/or dynamic correspondence is precisely what geometry and mathematics do successfully in my opinion. Some philosophers have asked “Why does mathematics work?” The answer in my opinion is that its models and equations can possess homomorphic structural and/or dynamic correspondence with the real. I am sure Bertrand Russell would have written something like that somewhere. I do not for a second think this is an original thought. I even think debating with you over time on this blog has led me to these thoughts, along with other reading and other idiosyncratic analyses of my own.
There is a great difference, I have come to realize, in talking or discussing with an ideologue as opposed to a talking or discussing with a conscious, mindful modeller (of reality) who understands both the powers and the limitations of modelling (mathematical, word based or some other form, academic or artistic). I say this as a former ideologue, albeit with one with some maths (Senior High School) and science (Uni semester 1 physics, chemistry, biology, cellular biology) background and a long term amateur interest in philosophy (ontology specifically), strangely enough piqued by interests in Political Economy and then computer game theory. You have certainly helped me become less dogmatic and ideological. As I say, thanks. It has certainly helped me think better, I believe.
One of my particular hobby horse issues these days is with what I call prescriptive versus descriptive economics. A portion of (bowdlerized or 1890s?) economics seems to me to have the prescriptive and descriptive all mixed up in one theory. However, I think I can now see that analytic economics does something different. It has to do I think with conscious axiomatic modelling which is trying to get the axioms to homomorphically match enough of the real system to be useful in describing and managing real systems. In the latter case to suggest prescriptions for action after analysis not just after ideology. Hope I’ve got that right.
The issue K2 is whether market signals work better than the wage targeting plans of Anthony Albanese or John Quiggin and my view is that they normally do. The general level of wages and the general structure of relative wages in a country have never been considered to be a policy variable by economists. The shift in the functional distribution of income away from labour has occurred in many countries and is incompletely understood. Maybe it is partly due to globalization and increased trade in labour intensive goods from China – a development that has provided overall gains from trade and higher real incomes. No globalisation is not the villain – it has delivered massive benefits.
It isn’t an issue of whether wage signals are perfect market information about labour scarcities – there are undoubtedly market imperfections such as monopoly and monopsony power that distort this – but whether market signals should be replaced with politician-based signals based on an exploitable “outrage” sentiment. Certainly you cannot justify this intervention by waving your hands in the air and saying that “markets are incomplete” and that market prices are wrong as Ernestine has so then let us have a political judgement to usurp the market one. You need to trace out how these incomplete market effects work out and why politician-driven wage judgements outperform market-driven judgements.
The Second Theorem of Welfare Economics is derived for perfect competition but its value is enormous. It says in essence that we should leave prices alone but alter the endowments of economic actors to achieve distributive justice. Leaving prices alone gives economic agents the chance to negotiate mutually agreeable deals. Altering endowments by altering taxes on incomes or by making transfers can approximately – not completely – allow efficiency to be achieved while achieving distributive justice. yes and the prattle that the separation here is not perfect because of the distorting effects of taxesc and transfers is well-known but irrelevant.
The view that large numbers of oppressed Australian workers live in poverty is a romantic myth. The poverty line of the Melbourne institute is a relative poverty measure that, for a couple with one partner working and two children, is north of $50,000 annually. My two plumber mates take more holidays than I do, are members of my golf club and each drive a much better car than either me or my other friends.
I guess it gives the left a sense of mission in life to believe that their moaning helps a substantial oppressed minority but by in large this view is off with the pixies. Economics still matters and not merely confected outrage. It is a pure self-justificatory illusion to see a booming economy with less than 4% unemployment, very high living standards, jobs for even the unskilled everywhere and a generous social safety net as a source of downtrodden misery for a vast pool of people.
Ikonoclast, I didn’t get as far as you. I’ve tried – not hard enough perhaps – to get a mental grip on the word “Ontology”. Yes, I know by now it features in Philosophy but this isn’t enough to be able to think with this word.
Ernestine Gross,
Actually, “ontology” is a lot easier than mathematics if one limits it to Formal Ontology and Empirical Ontology. That means excluding religious and speculative and ontologies in total, which of course immediately excludes huge and contentious areas in metaphysics.
Formal Ontologies describe Formal Systems humans have made. For example, a list or taxonomy of all the operators and operands permitted in a given branch of mathematics plus specifications for executing the operators is a formal ontology for that branch of mathematics. Dictionaries and Grammars lay out the formal ontology of a language and its manners of reference to the real (real object, process and systems. The rules of chess including the design and set up the board and chessmen (pieces and pawns) comprise the formal and axiomatic ontology of chess. Sequences of best or recommend moves from an opening or given positions are theorems uncovered by analysis and praxis (play).
A Real Ontology is a taxonomy of the fundamental “objects” of analysis and combination of a real system discipline: prototypically this would have to be a Hard Science discipline (Physics, Chemistry, Biology). I can give good examples of a false ontology and a true or valid ontology for Medicine. The early humors theory of disease was based on a false ontology. The theoretical fundamental “objects” of analysis, the humors, could be not be found or demonstrated to exist empirically in the forms, behaviors and causative aspects claimed. However, the pathogen theory of disease and later also the hereditary/mutation theory of disease were shown, by discovery of the empirically detectable objects and processes to be a real ontology with explanatory and predictive power.
That’s enough for now. Definitely much easier than advanced mathematics but still useful for disciplining and structuring our thought.
Harry, in this RBA Bulliten, these economists and their political masters might beg to differ with your assertion;
“The general level of wages and the general structure of relative wages in a country have never been considered to be a policy variable by economists.”
As for the rest, I’ll let others reply”based on an exploitable “outrage” sentiment.”.
I will reply at some time – in a sandpit.
*
“Australian Economy
Wages Growth by Pay-setting Method
20 June 2019
…
“and government policies have been in place in many jurisdictions to keep public wages growth steady at 2.5 per cent in recent years (Graph 8). There have, however, been some clear differences in recent outcomes across the public sector. Average wages growth for Commonwealth government jobs was around 1 per cent between 2014 and 2017, as protracted negotiations over new EBAs led to widespread wage freezes. Western Australian public sector wages growth is now the lowest across state governments following a period of above-average growth during the mining boom, while Victorian public sector wages growth has been relatively strong in recent years due to many workers receiving wage increases of around 3 per cent.”…
…
…
“Overall, these outlooks for the various pay-setting methods support the forecast for wages growth as published in the Bank’s recent Statement on Monetary Policy, which suggests a gradual pick-up in wages growth over the next couple of years.”
…
https://www.rba.gov.au/publications/bulletin/2019/jun/wages-growth-by-pay-setting-method.html
Harry, I cannot not make sense of your post at 7:32 above. You refer to the “Second Fundamental Welfare Theorem”. Nowhere in my post did I refer to it nor did I use it implicitly.
In your post addressed to K2 you now talk about the Second Welfare Theorem and you explain this theorem in a way that does not correspond to the Second Fundamental Welfare Theorem.
The Second Fundamental Welfare Theorem addresses the following theoretical problem. Suppose we start the analysis with a Pareto efficient allocation and then ask under which conditions can this allocation be decentralised? Answer: It is possible to decentralise this allocation by means of a distribution of endowments (or change in endowments if the original endowments are given) and a price system under some conditions on the elements of ‘an economy’. Wages are part of a price system (normalised relative prices). This does not correspond to what you wrote.
I have no idea what your Second Welfare Theorem is about. I looked at the web and found the following text: https://www.economicsdiscussion.net/welfare-economics/theorems-welfare-economics/the-second-theorem-of-welfare-economics-microeconomics/29098. It seems to me to be an example of what Ikonoclast has in mind when he writes: “A portion of (bowdlerized or 1890s?) economics seems to me to have the prescriptive and descriptive all mixed up in one theory.”
Rest assured I don’t wish to convince you for or against Albanese’s policy proposal but I maintain there is no unique or agreed “basic economics”. In my original post I said “basic economics” is time dependent. I then gave an example of “basic economics” being dependent on the teaching context. Now we can also make it dependent on the policy context.
As soon as transfer payments enter the discussion, a non-market agent is required (another institutional environment). Therefore if an economist says that transfer payments are required to supplement the wage income then this economist says (at least to me) that the market prices are wrong. (No hand waving required on my part and no reference to incomplete markets is required either; I am not the source of the ‘mumbo jumbo’)
I assume you agree when we talk about normalised relative prices then if one price is ‘wrong’ then all other prices are wrong.
In an applied context, I’d suggest market prices can be ‘a little wrong’ for a short period of time or they can be seriously wrong and for a prolonged period of time. My common sense suggests in the former case (eg shutting down coal mines to make way for windfarms) transfers to supplement or replace the income of previous coal miners would be suitable. But when wages, relative to the prices of consumables, have declined for many groups of workers while profits and the wages of a small group of ‘workers’ have increased for a prolonged period of time then transfer pricing would not be what I’d suggest, not least because those who benefitted throughout this period are unlikely to volunteer to pay higher taxes.
Its not politicians who decide what is a ‘fair wage’ in a democratic society but it is the society. Politicians can make proposals before an election.
1. immortal time bias .
2. “astray by making the community serve it.” – Gantt
3. “your percentage will surely exceed mine — most likely by a lot.” -Buffett
4. “A view is what you get when looking out the window”- Ernestine
*
1.
“Survivorship bias, survival bias or immortal time bias is the logical error of concentrating on the people or things that made it past some selection process and overlooking those that did not, typically because of their lack of visibility. This can lead to incorrect conclusions.”
https://en.wikipedia.org/wiki/Survivorship_bias
2.
Henry Gantt, Organizing for Work, 1919
[Yes, creator of the Gantt Chart]
“The attempt which extreme radicals all over the world are making to get control of both the political and business systems on the theory that they would make the industrial and business system serve the community, is a real danger so long as our present system does not accomplish that end; and this danger is real irrespective of the fact that they have as yet nowhere proved their case.
“Is it possible to make our present system accomplish this end! If so, there is no excuse for such a change as they advocate, for the great industrial and business system on which our modem civilization depends is essentially sound at bottom, having grown up because of the service it rendered. Not until it realized the enormous power it had acquired through making itself indispensable to the community did it go astray by making the community serve it. It then ceased to render servicedemocratically, but demanded autocratically that its will be done. It made tools and weapons of cities, states, and empires. Then came the great catastrophe.
“In order to resume our advance toward the development of an unconquerable democratic civilization, we must purge our economic system of all autocratic practices of whatever kind, and return to the democratic principle of rendering service, which was the basis of its wonderful growth.
“Unless within a short time we can accomplish this result, there is apparently nothing to prevent our following Europe into the economic confusion and welter which seem to threaten the very existence of its civilization.”
https://en.wikipedia.org/wiki/Portal:Business/Selected_quote/65
3.
” OUR leaders have asked for “shared sacrifice.” But when they did the asking, they spared me. I checked with my mega-rich friends to learn what pain they were expecting. They, too, were left untouched.
“While the poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks. Some of us are investment managers who earn billions from our daily labors but are allowed to classify our income as “carried interest,” thereby getting a bargain 15 percent tax rate. Others own stock index futures for 10 minutes and have 60 percent of their gain taxed at 15 percent, as if they’d been long-term investors.
“These and other blessings are showered upon us by legislators in Washington who feel compelled to protect us, much as if we were spotted owls or some other endangered species. It’s nice to have friends in high places.
“Last year my federal tax bill — the income tax I paid, as well as payroll taxes paid by me and on my behalf — was $6,938,744. That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income — and that’s actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent.
“If you make money with money, as some of my super-rich friends do, your percentage may be a bit lower than mine. But if you earn money from a job, your percentage will surely exceed mine — most likely by a lot.”
—Warren Buffett, Stop Coddling the Super-Rich, 2011
4.
“A view is what you get when looking out the window; 2 people looking out 2 windows, which point in different directions, get different views. But this doesn’t change the landscape.
– Ernestine Gross
2013 at 7:50 pm
https://johnquiggin.com/2013/08/26/a-note-on-the-ineffectiveness-of-monetary-stimulus/comment-page-2/#comment-145686
Ernestine, I don’t think you have an understanding of what the Second Theorem states and what it implies. In a policy setting it suggests you can get to an efficient preferred allocation by changing endowments and then allowing prices to adjust. You don’t alter prices to get to an efficient allocation by, for example, subsidizing things. Its a separability theorem – change endowments and then allow market adjustments to determine prices. Its the basic theorem that underlies the appeals of social democratic politics – change the distribution of income and then allow markets to work. Its basic stuff – taught in the undergraduate text by Varian using an Edgeworth Box. Despite your frequent discursive appeals to abstract economic theory I don’t think you are clear on the basics. Hence you engage in mumbo jumbo and lots of jargon and the suggestion that you are appealing to high theory. You are not.
Of course a non-market agent is involved – they effect the transfers. This was the Arrow-Debreu analysis of the case for altering distributions but simultaneously realising economic efficiency. To take a simple example – you don’t give a poor family subsidised milk. You give them extra income that they can use to buy the milk or whatever else they want. They cannot fail to be better off with the second policy because it subsumes the first possibility but gives them an expanded range of choices.
Prices are not “wrong” as a result of introducing the government.In a competitive equilibrium they clear markets and are Pareto efficient. The initial Pareto efficiency however is not consistent with what the government believes is a fair distribution of income. Hence resources are redistributed and agents trade to determine new prices and a new Pareto efficient equilibrium that is consistent with the government’s equity objectives. This is basic stuff.
K2, The RBA does not determine nominal (or real wages). The RBA determine interest rates or the money supply. This helps determines prices and the level of economic activity but not wages – at least not directly. Tribunals might determine nominal wages and in the short-run perhaps, real wages. But wages are the important cost of production and so firms will change their pricing and output decisions in response to the cost changes. When prices rise the real wage changes. Firms are not subject to money illusion – they will employ workers up to the point where a workers productivity equals the real wage which is, and should be, determined in markets. . Incomes defined here as wages -taxes + transfers can be manipulated by governments and that’s the point of my comments. Leave wages alone – they are an important signalling device and focus on incomes if you are concerned with the oppressed wage slaves.
Harry, negative compliments are getting you nowhere.
I wrote: “The Second Fundamental Welfare Theorem addresses the following theoretical problem. Suppose we start the analysis with a Pareto efficient allocation and then ask under which conditions can this allocation be decentralised? Answer: It is possible to decentralise this allocation by means of a distribution of endowments (or change in endowments if the original endowments are given) and a price system under some conditions on the elements of ‘an economy’. Wages are part of a price system (normalised relative prices). This does not correspond to what you wrote.”
I refer to 6.4 of chapter 6 in Debreu, Theory of Value, Cowles Foundation, 1959, titled “An Optimum is an Equilibrium Relative to a Price System”. I don’t know how to write symbols on this blog and therefore cannot quote this section. You will have to look it up.
The book makes it very clear that the word “Optimum” is equivalent to the term Pareto Optimum, also sometimes called Pareto Efficient. A Walras Equilibrium is a ‘decentralised’ economy. Please note that the notation of an optimal (most preferred) consumption plan includes positive and negative real numbers. To quote Debreu, “The inputs of the ith consumer are represented by positive numbers, his output by negative numbers.” (p. 51). The “inputs” are commodities which the consumer buys (eg food stuff, renting a house, a car, …) and the “outputs” what he sells, eg labour services of various types.
The word endowment is found in the First Fundamental Welfare Theorem (A Walras Equilibrium of a competitive private ownership economy is an Optimum). It does not feature in the Second F.W.T. It doesn’t appear because the optimal consumption plan is an element of the consumption possibility set, which, as explained in the chapter Consumption, also contains the labour services that can be supplied by an individual. So, when a theorem gives conditions under which an optimum is an equilibrium relative to a price system, the optimum consumption corresponds also to a point in the consumption possibility set, ie. a point that would be described as an endowment in the First F. W.T.
Now lets do a little plausibility check on your theory. Take the sentence: “In a policy setting it suggests you can get to an efficient preferred allocation by changing endowments and then allowing prices to adjust. You don’t alter prices to get to an efficient allocation by, for example, subsidizing things. Its a separability theorem – change endowments and then allow market adjustments to determine prices.”
Your theory doesn’t hold.
I don’t know about you, but I know that my consumption possibility set has a limit of 24 hours per day (consistent with Debreu’s model). I am non-satiated (meaning I want to live not only today but also tomorrow …) and I know I need to ‘consume’ some of these 24 hours sleeping. Then I need some time to eat, and a few other essential things to live as long as possible. Lets settle on a maximum of 10 hours of work (supply of labour services) per day, 6 days per week. So, how are you going to increase my endowment beyond 10 hours of work per day, 6 days per week? You can’t without killing me quickly as the number approaches 24 hours per day. You can increase my “income” (a word you used in between) by increasing my hourly pay, which we are in the habit of calling wages.
Q.E.D.
And what happened to your “transfer payment argument”?
All of us are coming at the higher wages case from different angles with different theories. Most of us have converged on a general agreement that wages should be raised as per Prof. J.Q.’s proposal. Of those taking an active part or any part at all in the direct wages debate (about 8 people?), I can only count 1 not in favor of lifting wages as per J.Q.’s suggestion. If we were a committee, or a governing party, or a polity, democratically voting on policy, at that ratio our decision would be clear. The minimum wage would be lifted as proposed. That would be democracy.
Enestine, I am not prepared to play tit-for-tat with someone citing theorems he clearly does not understand. I sincerely recommend you read Stiglitz and Rosengard’s text on public economics for an interpretation of the use of the basic theorems of welfare economics in a public policy context: See pages 67 for an exposition and a critique: Basically you don’t need central planners to set prices – you can reallocate resources and then rely on markets. I use4d to teach this to my second year students with an Edgeworth Box.
You are just wrong about the Second theorem. Switching endowments by making transfers is basic to the theorem. Yes a given endowment yields a Pareto efficient outcome and switching the endowment produces another equilibrium preferred by the policy maker which is, because markets operate in allocating it, also Pareto efficient. Or let me quote from Varian’s undergraduate text which repeats what I wrote above (P586). The Second theorem states that:
“we can redistribute endowments to determine how much wealth agents have, and then use prices to indicate relative scarcity… Policy discussions often become confused on this point. Often one hears of intervening in pricing decisions on grounds of distributional equity. However, such interventions are typically misguided.” etc etc etc. That’s the separability I am writing about. I cannot make it any clearer than Varian does.
Harry, why can’t you just say that you had in mind a theorem from a textbook on welfare economics which states the following: Consider 2 economies for which a Walras equilibrium exists. These 2 economies differ only in the distribution of initial endowments. By the first fundamental welfare theorem, the Walras equilibria of both economies are Pareto efficient. This suggest that a redistribution of endowment (going from economy 1 to economy 2) – before ‘the market’ opens – results in another Walras equilibrium which is Pareto efficient. [Sometimes this is referred to as Pareto efficiency is insensitive to the distribution of endowments (sometimes ‘income’)].
The theoretical result of the insensitivity of the concept of Pareto efficiency to endowments (income) is NOT the same as the Second Fundamental Welfare theorem. You had initially written about the Second Fundamental Welfare Theorem. This is not my mumbo jumbo but merely a little error on your part. This can happen. However, instead of trying to clarify matters you belittle and insult, based on your assumption that others (not only me on this blog site) don’t understand what you teach in 2nd year undergraduate economics subjects.
In case it is still unclear, your advice that a central planner is not required for the Second Fundamental Theory is superfluous. See my post.
It is NOW Harry. You don’t even realise JQ is not locked in here with you, you are locked in here with JQ. You still haven’t rebutted JQ. Just fed us Lesson 1 and entitled Leswon1, myopic opinions and a few slurs.
Time for updated “economics” priors, a recognition that 2nd year Econ 101 ain’t gonna cut it – from disequilibrium, failures, and occasional chaos & black swans – in the 21st century. The market nor polity hasn’t fixed homelessness, global warming, nor timely corrections.
The convex or conavity or wiggles on a curve in an Edgeworth Box (sooo 19thC] or price vs costs graph, are humans stuck waiting for “clearance” of a “market”, or prevailing dogma to die off. Or an election maybe, swayed by news corpse and Clive Palmer spending our common wealth from nickel on faux facts.
And as for Pareto, hey ho, he’s got to go;
JQ: “A highly egalitarian allocation can be Pareto optimal. So can any allocation where one person has all the wealth and everyone else is reduced to a bare subsistence.”
HC “also Pareto efficient”
JQ ” Recognising the inappropriateness of describing radically unfair allocations as “optimal”, some economists have used the description “Pareto efficient” instead, but this is not much better. It corresponds neither to the ordinary meaning of “efficient” nor to the meaning with which the term is commonly used in economics, which is also misleading, but in a different way.”
https://johnquiggin.com/2015/05/19/the-most-misleading-definition-in-economics-draft-excerpt-from-economics-in-two-lessons/
Harry, this says it all of your privileged enclave:
HC: “for a couple with one partner working and two children,
[with no free childcare, lacking in health services if in rural, forced commute if near city, unable to enjoy capital gains, stiving for holidays, waiting for retirement to go to 70 and stressing about Musk work to 3am rules encroaching. And interest rates not effected by wages yet wages pay interest rates – oh and dies your Ecin 101 include divorce and trauma? Oh yes says Econ 101 – statistically!]
HC… “is north of $50,000 annually.”
[No poverty then, eh.]
HC: “My two plumber mates take more holidays than I do,…
[so at $50k 2kids 1 job @ (no mortgage then) and car breaks, it is off to the payday lender (sooo 17thC) – OR NO JOB. Market fail? Welfare? DIivorce?]
HC: ,,,”are members of my golf club and each drive a much better car than either me or my other friends.”
… [So?! … which makes them free riders like I was for 25+yrs. I was charging $80/hr Harry, in 1990 Harry. I had a box of floppy disks and a small screwdriver. It is called ASYMMETRY OF INFORMATION! The market didn’t clear it until Microsoft MONETISED IT! Is this taught in 2nd year Econ and in your model of symbolic quanitires with problematic datasets rounding off the worse off?]
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Good question KT2. Problematic Datasets & Outliers.
Economic models discussed were generated when 1-4bn population. We now have 8+bn.
Q: what rounding error is applied to datasets in Econ 101. What outliers are dropped before rounding applied?
YOU DON’T KNOW AND HAVE NEVER ASKED, have you Harry. So all you have is your priors and convention and the market will clear it and data from a rear view mirror analysed by 19thC “theories”. And you are correct when you say Harry “I don’t believe it.”, because I don’t believe your prescriptions above will FIX a thing. Just engender r>g stasis.”For Edgeworth will prove unable to understand the central, and unsolvable, problem of tâtonnement from Walras’s own standpoint”… “Walras will prove unable to grasp the essence of Edgeworth’s critique: that bargaining is more “fundamental” than price-taking behavior,” – link below.
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And acknowledgement, as Ernestine has done, – “I know that my consumption possibility set has a limit of 24 hours per day [EG pls correct me] – that wages areatick and prices are not so sticky. And rog & Ikon same “There’s a lack of symmetry to your proposal, wage earners need protection from the market failures of business.”
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“I don’t believe it.” Faith based Harry.
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“Edgeworth vs. Walras on equilibrium and disequilibrium”
“… For Edgeworth will prove unable to understand the central, and unsolvable, problem of tâtonnement from Walras’s own standpoint: how to preserve a “realistic” and comprehensive picture of an observable disequilibrium process in “real” time, without disrupting the assumption of data invariance during the equilibration process. At the same time Walras will prove unable to grasp the essence of Edgeworth’s critique: that bargaining is more “fundamental” than price-taking behavior, so that the core is a broader solution concept than competitive equilibrium and recontracting a more general equilibration process than tâtonnement.”
January 2009
Franco Donzelli
University of Milan
https://www.researchgate.net/publication/46466382_Edgeworth_vs_Walras_on_equilibrium_and_disequilibrium
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We need a plan ala no fossil fuels 30 years hence for society. And newscorpse to be out reached to get it. And the other 3bn non white people to be included.
We also need as Ikon says “power back into the hands the people and a government governing for the common weal (the common good), the common wealth and not for elite wealth.”. Sortition asap.
And economics to be rendered as what it is – great tool. And markets to be removed from speculation and accumulation.
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And trust.
Many would not trust you Harry. I would have, when I was charging $80/hr in 1990. What was you wage then?
I have distrust of your “solutions” above now Harry.
Do you know how to build trust Harry? They don’t teach trust in Econ 101. Do they.
“Currently, 36% of Democrats and Democratic-leaning independents say they can trust government, compared with 9% of Republicans and Republican-leaners.” https://www.pewresearch.org/politics/2021/05/17/public-trust-in-government-1958-2021/
““With Peter Dutton the second most distrusted politician in Australia and Josh Frydenberg almost out of the top ten, this may well become crucial if the Coalition loses the May election and there’s a leadership battle between Frydenberg & Dutton,” said Ms. Levine.
““Australian political contests are no longer purely won on trust, they are lost on distrust.”
“The March survey reveals the political reverse when it comes to the most trusted political leaders in the country. The ALP dominates the Net Trust Scorerankings with Penny Wong in the #1 position.”
https://www.roymorgan.com/findings/8933-political-trust-distrust-australian-leaders-march-2022-202203220543
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Any other ideas anyone?
Thanks.
KT2, It’s a free association rave that I cannot respond to in finite time and which i do not wish to respond to. You suggested that the RBA treat wages as a policy variable I argued they do not. They forecast wage trends on the basis of what they believe tribunals will dfo – that they will rise – but they don’t set wages. They do set official interest rates or the money supply. I argued that tribunals set money wages in the short run and perhaps real wages but certainly not real wages in the long-run because firms are not subject to money illusion. I actually tried to respond to your points – you asked me to do so – and got a pile of disorganized vitriol in response.
One step forward and two step back
Nobody gets too far like that
One step forward and two steps back
This kind of dance can never last.
I agree and it won’t.
Ikonoclast, thank you for your post, 14/5/22 around 5:32 re ontology. I took a copy and I’ll come back to it at the next sandpit.
Good cop out Harry. Simpler. Vitiol is in the mirror. You just can’t see yours.
Harry Q1: Problematic Datasets & Outliers.
What rounding error have you applied to datasets in Econ 101. What outliers are dropped before rounding applied?
Harry Q2: why has the “Edgeworth vs. Walras on equilibrium and disequilibrium” not been settled, or has it in your opinion?
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“Wages and the cost of living
By Michael Keating
May 14, 2022
…
“In this context an increase in the minimum wage, along with the relaxation of public sector wage caps and policies to reduce the gender pay gap may well lead to higher wages and better economic outcomes overall.”
https://johnmenadue.com/wages-and-the-cost-of-living/
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Ross Gittins in SMH,
“But there’s little empirical evidence that higher wages lead to job losses.
“It’s true that giving a quarter of our workers little or no compensation for the jump in prices caused by pandemic supply disruptions and the Ukraine war would be the quickest and easiest way to get inflation back down to the Reserve Bank’s 2 to 3 per cent target range.
“But it would also be hugely unfair to load that burden onto our lowest paid workers, while business profit.”
Ross Gittins in SMH,
May 14, 2022,
“Real wages cut would reduce inflation, but hit the economy
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PhD anyone?
“Second, and perhaps of greater importance, to examine whether or not these changes have had any significant impact on labour market outcomes.”. JQ.
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“Discussion of ‘Industrial Relations Reform and Labour Market Outcomes: A Comparison of Australia, New Zealand and the United Kingdom’
John Quiggin
Abstract
“The 1980s and 1990s have seen important changes in many countries’ labour market institutions, particularly those that impinge on the determination of wages and working conditions. Nowhere has such change been more dramatic than in the three countries at the centre of discussion in this paper – Australia, New Zealand and the United Kingdom. Decentralisation of collective bargaining structures in the UK, for example, accelerated in the 1980s under the Thatcher administration. Moreover, the shift away from industry-level bargaining was accompanied by legislation designed to significantly weaken the power of trade unions. In New Zealand the decentralisation process has been even more radical. While the reform process can be traced back to the 1970s, the most significant changes occurred in one hit following the passing of the Employment Contracts Act in 1991. Under this legislation, the system of industry and occupation awards was dismantled, compulsory union membership and union preference outlawed, and scope for non-collective bargaining introduced. The process of industrial relations reform in Australia, on the other hand, has been very different. Indeed, the reform process began not with decentralisation of industrial relations structures, but with a return to a highly centralised form of wage determination, with variations in wages and conditions dependent on national wage case decisions, which in turn were directly linked to prices. Despite this, from the late 1980s on, most Australian governments pursued a reform agenda which was similar in thrust to that being pursued in both New Zealand and the UK. Unlike New Zealand and the UK, however, the reform process, at least within the federal arena, was undertaken within the ambit of the Accord process, and hence had the seal of approval of the trade union movement. The objectives of this paper are twofold. First, to describe in more detail the process of industrial relations change that has taken place in each of these three countries during the past two decades. Second, and perhaps of greater importance, to examine whether or not these changes have had any significant impact on labour market outcomes.”
https://www.researchgate.net/publication/24120508_Discussion_of_'Industrial_Relations_Reform_and_Labour_Market_Outcomes_A_Comparison_of_Australia_New_Zealand_and_the_United_Kingdom‘
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“Generalized Smooth Utility and RDEU
Authors: John Quiggin
…
…”The idea is that people will act as expected utility maximizers in a neighborhood of any distribution F, but that they will maximize the expectation of a different utility function around another distribution F*. In particular, changes in initial wealth levels will lead, not only to decreasing absolute risk aversion effects of the kinds explored by Arrow and Pratt, but to shifts in the utility function itself.”
January 1993
DOI:10.1007/978-94-011-2182-8_12
In book:
Generalized Expected Utility Theory (pp.163-170)
https://www.researchgate.net/publication/301967334_Generalized_Smooth_Utility_and_RDEU
Chapter from:
“Generalized Expected Utility Theory
The Rank-Dependent Model
John Quiggin
3438 Accesses
318 Citations
https://link.springer.com/book/10.1007/978-94-011-2182-8
Gregory J. McKenzie says;
“Now the LNP wants to run down compulsory superannuation and feed in extra spending into an already overheated economy. Both consumer price inflation and asset inflation could be adversely impacted by any significant drawdown of superannuation balances.
If there is another Wage-Price Spiral developing in Australian markets then the last thing needed is an injection of surplus funds.”
https://johnquiggin.com/2022/05/16/monday-message-board-554/#comment-252949
KT2, It’s a question of when you want to save.and the form that the savings should take. As a general issue younger people are and should be debtors and older people creditors who live off interest income. Compulsory savings in the form of superannuation when you are young upsets this story. This is a time when young households need to take out mortgages. An asset that you can live in is a better choice than investing in equities if both classes of asset appreciate at the same rate. Of course allowing superannuation to reduce a mortgage will boost buyer demand and increase house prices but, in the absence of other distortions this is the preferred market outcome.
Other distortions of what?
The deregulation of financial markets (change in the institutional environment) with the consequence that the RBA lost considerable control over borrowing and lending rates of banks and a few other policy tools? Tax expenditure such as negative gearing and capital gains concessions (institutional environment)? Persistent divergence of asset prices growth and wages growth with the growth rate of real estate prices being a multiple of the growth rate of wages for prolonged periods of time? University students having to take loans to pay fees while the ‘labour market’ demands more and more highly qualified employees? The risk of acquiring a unit in an extraordinarily shoddy high rise apartment building? People becoming convinced the size of new houses have to be inversely proportional to the size of families and building sites becoming smaller? Enough distortions or merely a broad brush account of market outcomes?
“As a general issue younger people are and should be debtors and older people creditors who live off interest income.” This model is the “boomer model” (or, if you like, the Menzies model or ‘it worked for me’ model). Note in this model old people are assumed to live of interest (shares are owned by people outside the society?). What happens to the capital amounts when they die? No inheritance tax to assist in reducing compounding wealth inequality?
Considering the time profile of relative nominal prices during the past 30 to 40 years, at what age should someone borne in 1970 switch from being a borrower to a lender and, most importantly, would he/she have enough financial capital to live of his savings? At what age would this magical switch from borrower (debtor) to lender (creditor) happen for people who were borne after say 1975?
And as for “preferred market outcomes”: There is the Overlapping Generations Model, with or without production, where each generation ‘young’ starts with an endowment and not with a debt.
Go Ernestine. “Other distortions of” – productivity for example.
But can you or anyone please attempt to interpret ABS vs FWC quality vs quantity productivity?
I suspect a quantity vs quantity measure of productivity, and or as Sue Richardson uses -“real unit labour costs”, only serves the ;
– quantitative historical wieght towards capital, and
@ provides a basis for ‘justification’ of labour cost for capital and
– ignores many people’s actual working, family & life conditions.
Via Sue Richardson today; “This has resulted in a 6% decline in the Bureau’s measure of real unit labour costs, and in the share of national income that goes to labour rather than to capital.”
From;
“Are real wages falling? Here’s the evidence”
…
“Over the past decade, the Bureau of Statistics’ measure of labour productivity has climbed 12%, while real wages (as captured in the wage price index) have grown only modestly.
“This has resulted in a 6% decline in the Bureau’s measure of real unit labour costs, and in the share of national income that goes to labour rather than to capital.
[Graph: “Real unit labour costs
2021 = 94.47
(Index. December 2011 = 100)
● Note: I tried to get data and found a rabbit hole – See FWC vs ABS below ]
https://theconversation.com/are-real-wages-falling-heres-the-evidence-182171
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FWC vs ABS competing quality vs quantity of hours worked vs productivity.
Interpretation please!
FWC – [text is crap!]
“Information note— Measures of labour productivity: Quality adjusted hours worked
6 May 2022
“Labour productivity measures the ratio of output to labour inputs and is calculated as gross domestic product per hour worked. An alternative measure published by the Australian Bureau of Statistics (ABS) adjusts the measure of hours worked to account for the quality of those hours, not just the quantity.
“Labour productivity based on quality adjusted labour inputs (QALI) reflects a heterogenous labour force where labour input depends not only on hours worked but also on the characteristics of workers (in the market sector). QALI assign different weights to the number of hours worked of different types of workers according to their productive capacity. The weights are determined by wage rates based on gender, education and age group.
Click to access statisticalreportv5.pdf
ABS Estimates of Industry Multifactor Productivity methodology
https://www.abs.gov.au/methodologies/estimates-industry-multifactor-productivity-methodology/2020-21
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Harry, we love you yet I’ll say it straight up – Harry, you live in a buble, your priors need updating and you 50k 1 job 2 kids household is hurting badly. Ask Anglicare, not your mates at the golf club.
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Q2. What is the inflationary effect of stage 3 tax cuts? Supplemental: … vs wage rise pegged to cpi?
Q3. What is the upward redistribution of effect on r>g of Ernestine’s
“where each generation ‘young’ starts with an endowment and not with a debt.”?
Harry, is 13.1% in poverty a large number of Australian people?
UNSW ACOSS say “• The poverty rate rose from 11.5% of all people in 2003 to 14.4% in 2007, fell to 12.6% in 2009, then rose to 13.1% in 2017.(5)”
Is “774,000 children under the age of 15 (17.7% of all children or over one in six) are living below the poverty line.” A large number?
Harry, you talk of $50,000 1 income 2 kids (@May 14, 2022 at 4:35 pm)
“The view that large numbers of oppressed Australian workers live in poverty is a romantic myth. The poverty line of the Melbourne institute is a relative poverty measure that, for a couple with one partner working and two children, is north of $50,000 annually”
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ABS “Jobs in Australia…
“Employee income
“In 2018-19, after adjusting for the duration of the job, the median annual employee income per job was:
$45,435 for all persons
$55,343 for males
$36,743 for females
[Tax approx $7k on $50k]
https://www.abs.gov.au/statistics/labour/jobs/jobs-australia/latest-release
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Same arguments since… forever. Minor falls in poverty.
“ACOSS AND UNSW SYDNEY
POVERTY IN AUSTRALIA 2020
“Snapshot of poverty in Australia In 2017-18:
• The poverty line (50% of median income, before deducting housing costs) for a single adult is $457 per week (pw). For a couple with two children, it is $960pw.3
• 3.24 million people (13.6% of the population or over one in eight) are estimated to be living below the poverty line, after taking account of their housing costs.
• 774,000 children under the age of 15 (17.7% of all children or over one in six) are living below the poverty line.
• The average ‘poverty gap’ (the difference between the incomes of people in poverty in various types of families and the poverty line) is $282pw.
• Social security payments for single people without children are generally below the poverty line. The single rate of Youth Allowance (plus Rent Assistance and Energy Supplement) is $168pw below the poverty line, Newstart (plus these supplements) is $117pw below, while the single pension (plus Pension and Energy Supplements) is closer to the poverty line, but still $10pw below.4
• Poverty in Australia is just above the OECD average level, placing us among a group of wealthy nations with above–average poverty.
Trends (from 1999-00 to 2017-18):
• The clearest trend to emerge from the data was a rise in poverty during the boom years (between 2003-08), after which it plateaued.
• The poverty rate rose from 11.5% of all people in 2003 to 14.4% in 2007, fell to 12.6% in 2009, then rose to 13.1% in 2017.5
• Child poverty was consistently higher than overall poverty but followed a similar pattern. It rose from 14.3% in 2003 to 18.1% in 2007. After declining to 16.4% in 2013-14, it rose to 16.9% in 2017.
Drivers
• Since the poverty measure used here is benchmarked to median (middle) household incomes and takes account of housing costs, changes in household incomes (hours of paid work, wage rates, social security and tax changes) and housing costs impact poverty levels.
• The role of household incomes has been mixed.
• Rapid growth in median household incomes from 2003 to the Global Financial Crisis (GFC) in 2008 (averaging 4% a year after taking inflation into account), along with greater earnings inequality, lifted poverty rates as those with the lowest incomes fell behind.
• Since 2008, median household disposable incomes (and the poverty line) have grown more slowly (by an average of just 0.5% a year to 2017) while unemployment declined from an average of 6.2% in 2008 to 4.8% in 2017.6 pension increase in 2009, reduced poverty after the GFC.
These factors, together with a $32pw
• Their impact was offset by increases in housing costs for people with low incomes after 2007, which increased poverty. Overall housing costs rose by an average of 4% a year from 2007 to 2017.
• From 2005 to 2017, average housing costs for the lowest 20% of working-age households (under 65 years) grew more than twice as fast as those of the middle 20% (by 42% compared with 15%).
• Further, the freezing of Newstart Allowance (after inflation) for 25 years, together with the transfer of many sole parents to Newstart from 2007 (80,000 in 2013 alone), increased poverty and the depth of poverty among those affected.
Poverty-in-Australia-2020_Part-1_Overview.pdf
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“The Great Swindle, (1948)
( @ 10minute mark)
“Harassed by shortages, Tom Grey votes for the removal of price control after reading propaganda issued by the National Association of Manufacturers (NAM). When prices rise, he views a Union film, “The Big Squeeze,” which places the blame for high prices on monopoly control of our economy, and points out the advantages of membership in the Union.
“Membership recruiting film for UERMWA, CIO (also known as the UE), presenting the viewpoint that there is a need for rollback in prices, higher wages and participation of the worker in politics.”
The Great Swindle (1948)
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“Poverty over time
London’s Poverty Profile
“Proportion of people in poverty over time after housing costs (1996/97 – 2019/20)
“More than a quarter (27%) of Londoners live in households that are in poverty (after housing costs – AHC), meaning that 2.4 million Londoners live in poverty in 2019/20. The poverty rate (AHC) in London is 6 percentage points higher than in the rest of England
“The proportion of households in poverty after housing costs (AHC) was relatively stable between 1996/97 and 2018/19:
“In London poverty rates varied between 27% and 30%; and in the rest of England poverty rates varied between 20% and 24%.
“Poverty rates (AHC) in London have been higher than in the rest of England for at least the last two decades.
“In contrast, poverty rates before housing costs (BHC) over the last 20 years have been more similar between London and the rest of England. Current rates of BHC poverty are slightly higher in the rest of England (17%) than in London (16%).
“Again, this shows the large impact of the cost of housing as a driver of poverty in the capital.
Trust for London
https://www.trustforlondon.org.uk/data/poverty-over-time/
says “the idea that real wages could be held indefinitely at 1987 levels is a nonsense.”
From
…”Still, labour productivity growth has averaged about 1.5% annually, suggesting to some observers that an efficiency dividend at this rate is sustainable. The problem with this argument is that labour productivity growth is the source of increases in real wages and living standards. While wage growth has fallen somewhat short of productivity growth, the idea that real wages could be held indefinitely at 1987 levels is a nonsense.”
…
https://www.theguardian.com/commentisfree/2022/may/18/savings-from-australias-public-service-efficiency-dividend-dont-add-up-we-should-scrap-it