Monday, December 10, 2012

The Capitalists are Coming! The Capitalists are Coming!

There is a new specter on the horizon, a blood-sucking monster that will destroy the lives of people even as it makes goods that improves their lives! Yes, the capitalists are coming, but Paul Krugman is ever vigilant against these evil ones!

According to Krugman, the evil robber barons have made a comeback, benefiting from monopolies, and it is up to the government to save us -- and make the economy more "efficient" at the same time. He asks how it is that the economy can be depressed even while corporate profits are at high levels. Is the old Marxist "capital versus labor" argument back in play?

Krugman, apparently not wanting to go quite as far as his forebears like John Kenneth Galbraith, says that maybe a different explanation is needed, writing:
Why is this happening? As best as I can tell, there are two plausible explanations, both of which could be true to some extent. One is that technology has taken a turn that places labor at a disadvantage; the other is that we’re looking at the effects of a sharp increase in monopoly power. Think of these two stories as emphasizing robots on one side, robber barons on the other.
First, the attack language is the type of thing that one has come to expect from Krugman whenever he speaks of private enterprise. He cannot explain how it might be that people who cannot coerce anyone into making an exchange are engaging in acts of theft, but if the government forces someone to do something at the point of a gun, that is "community" or "caring for the poor."

Second, his overall explanation of why we have higher rates of unemployment among college-educated workers harkens back to the days of FDR when the government was claiming that "automation" or "capital" was the cause of the employment problems. He continues:
About the robots: there’s no question that in some high-profile industries, technology is displacing workers of all, or almost all, kinds. For example, one of the reasons some high-technology manufacturing has lately been moving back to the United States is that these days the most valuable piece of a computer, the motherboard, is basically made by robots, so cheap Asian labor is no longer a reason to produce them abroad.

In a recent book, “Race Against the Machine,” M.I.T.’s Erik Brynjolfsson and Andrew McAfee argue that similar stories are playing out in many fields, including services like translation and legal research. What’s striking about their examples is that many of the jobs being displaced are high-skill and high-wage; the downside of technology isn’t limited to menial workers.

Still, can innovation and progress really hurt large numbers of workers, maybe even workers in general? I often encounter assertions that this can’t happen. But the truth is that it can, and serious economists have been aware of this possibility for almost two centuries. The early-19th-century economist David Ricardo is best known for the theory of comparative advantage, which makes the case for free trade; but the same 1817 book in which he presented that theory also included a chapter on how the new, capital-intensive technologies of the Industrial Revolution could actually make workers worse off, at least for a while — which modern scholarship suggests may indeed have happened for several decades.
This reminds me of the Paul Craig Roberts's claim that if capital is mobile across international borders, the Law of Opportunity Cost no longer applies (which is a way of saying that mobile capital eliminates the Law of Scarcity). Actually, the actual "law" is the Law of Comparative Advantage, but in truth, comparative advantage is just a restatement and application of opportunity cost.

However, what Krugman does not say is that government regulation -- and especially the spate of regulation that has come about through the Obama administration -- also results in stratification of the workplace. The reason is that regulations tend to try to classify and formalize everything and force requirements of specific areas of formal education for any number of jobs that really should not require that much education.

Furthermore, government regulations tend to make hiring much more bureaucratic and formalized, which makes it more costly to hire workers. Yes, the government says it is trying to keep employers from engaging in certain kinds of discrimination, but the end result is that the regulatory state forces up real costs of production and hiring, and that those costs ultimately are borne by workers.

When one adds the real costs that governments at all levels impose upon people wanting to start up even small businesses, it should not be surprising that the very kinds of laws of which people like Krugman approve are making the entrepreneurial transitions very costly. (Oh, I forgot. When governments effectively mandate higher business costs, that also is a good thing, since higher costs supposedly mean more spending, and everyone knows that more spending brings back recovery.)

There is another problem, and that is that government regulations that pertain to labor also make the addition of capital more attractive than it otherwise might be in a free market. Yes, I know it might be shocking to admit that government regulations just might change the terms of opportunity cost.

But Krugman is not satisfied there. No, the evil capitalists not only are using robots and permanently displacing workers, but they also are engaging in creating monopolies:
What about robber barons? We don’t talk much about monopoly power these days; antitrust enforcement largely collapsed during the Reagan years and has never really recovered. Yet Barry Lynn and Phillip Longman of the New America Foundation argue, persuasively in my view, that increasing business concentration could be an important factor in stagnating demand for labor, as corporations use their growing monopoly power to raise prices without passing the gains on to their employees.
Earth to Krugman: every academic economist should know that wages and salaries are not "passed on" by employers; they are payments to owners of the factor of production known as labor. Second, while economists like Krugman (and, of course, the usual places like the leftist Daily Kos) make the assumption that profits exist at the expense of workers, the truth is that in a free market, profits are what an entrepreneur will earn if he or she makes the correct assumption regarding present prices for factors of production versus perceived future prices for final goods. Without the possibility of profits, those jobs and, more important, the quality of the goods people can purchase, would not exist.

Investor and writer Kel Kelly notes that at the present time, the inflationary policies of the Federal Reserve System have more to do with the present state of corporate profits than any entrepreneurial success of many of these firms. When one adds that the Obama administration actively has promoted what essentially is crony capitalism, or corporatism, we should not be surprised if politically-favored firms tend to do better.

On a larger point, it would seem that high corporate profits would invite more entrepreneurial activity and more competition, but that clearly is not happening. In a free market, there would be nothing out of the ordinary that would would block entrepreneurs and entrepreneurial firms from pursing those opportunities and, in the process, compete for those profits. However, given the overt hostility of the Obama administration to entrepreneurs in general (or at least entrepreneurs that seek to compete in real markets rather than the government's crony markets) and the fact that every year or so, there is a huge political tug-of-war regarding business and individual tax rates, we should not be surprised that there is not more long-term business investment.

Of course, Krugman holds that the best way to deal with this problem is through government coercion and specifically through anti-trust litigation and higher taxes. Now, someone will have to explain to me how we can revitalize the business sector by unleashing regulators, federal prosecutors, and the IRS on business owners and investors, but I guess that since those people drive up costs, we will assume that they will "spend" their largess and make the economy stronger.

28 comments:

Anonymous said...

Lord Keynes made a response to Krugman's article as well.

http://socialdemocracy21stcentury.blogspot.com/2012/12/rise-of-robots.html

William L. Anderson said...

It was about what I thought he would say. I noticed his quotes J.B. Say, but why do that approvingly if LK already disapproves of Say's larger economic views?

Like all good Keynesians, LK engages in the fallacy of Appeal to Authority.

Dinero said...

"technology has taken a turn that places labor at a disadvantage;"

I think there is a word for that, - Yes - loom smashing Luddites

LK said...

"Like all good Keynesians, LK engages in the fallacy of Appeal to Authority. "

No, I don't, Andersen.

I do not ask you to believe that structural unemployment caused by technology is real factor merely because Say says so: I referred to him as an aside in brackets merely to mention, as am interest tidbit of relevant data, that even a laissez faire economist like Say did recognise such a thing.



LK said...

(1) "This reminds me of the Paul Craig Roberts's claim that if capital is mobile across international borders, the Law of Opportunity Cost no longer applies (which is a way of saying that mobile capital eliminates the Law of Scarcity)."

In fact, what Roberts said is that mobile capital between nations means one of the fundamental assumptions of Ricardo's law of comparative advantage (or what Mises calls the “Ricardian law of association”) is invalid, which renders his "law" suspect.

And not only Roberts, but even Mises recognises this:

"Ricardo, however, starts from the assumption that there is mobility of capital and labor only within each country, and not between the various countries …. Now, Ricardo’s assumptions by and large held good for his age. Later, in the course of the nineteenth century, conditions changed. The immobility of capital and labor gave way; international transfer of capital and labor became more and more common. Then came a reaction. Today capital and labor are again restricted in their mobility. Reality again corresponds to the Ricardian assumptions" (Mises, L. 1996. Human Action: A Treatise on Economics [4th rev. edn], Fox and Wilkes, San Francisco. p. 164).

http://socialdemocracy21stcentury.blogspot.com/2011/01/mises-on-ricardian-law-of-association.html

(2) " No, the evil capitalists not only are using robots and permanently displacing workers"

Except Krugman never blames capitalists for using robots or calls them "evil" - that is just your laughable straw man.

What Krugman is saying is that increasing automation will have negative externalities. He is not advocating Ludditism. You have not refuted his argument that mass automation might have negative consequences, you have just evaded it.

(3) " In a free market, there would be nothing out of the ordinary that would ... etc.

And, curiously, when challenged to tell us what you mean by "free market", you've never done so.

Do you mean by "free market" Rothbardian anarcho-capitalism with no government whatsoever?

Or do you advocate Mises' brand of small state classical liberalism?

LK said...

Corrections:

I do not ask you to believe that structural unemployment caused by technology is a real factor merely because Say says so: I referred to him as an aside in brackets merely to mention, as an interesting tidbit of relevant data, that even a laissez faire economist like Say did recognise such a thing.

There's no fallacy of appeal to authority involved in that.

Dinero said...

He is being a luddite if he promotes creating a job as an end in itself which his articles have been doing.

Anonymous said...

I came here in hope of finding substantive economic arguments; all I found was a straw man and a blogger jabbing his dull bayonet into the air.

[I don't expect you to approve this post (if that's your process). Just hope you might reconsider using your blog for something more scholarly. It would be great to see rebuttals to Krugman's editorials and blog posts.]

Scott D said...

Anonymous,

It's pretty obvious that you are the same person dropping in every week or two with the same useless comment.

The structure is:

1. I came here hopeful
2. I was disappointed
3. You fail at arguments
4. Boy, Krugman's logic sure must be unassailable because I have the darndest time finding anything that refutes him (even though I'm really trying hard!)

What you are doing is not particularly effective or compelling. You're creating a narrative and a very obviously false one in the hopes of provoking an emotional, rather than a rational, response from readers. Argumentation is hard.

William L. Anderson said...

Yep, the same guy writes each post and goes on about how he had so dearly hoped to find intelligent discussion, but got this crap, instead. Hey, if you don't want to be offended or disappointed, read something else.

But don't come here pretending to be in an "honest" search of something you wouldn't accept anyway: criticism of Paul Krugman.

Anonymous said...

Scott D,

First, try typing "krugman" into google. The first entry is "krugman" and the second entry is "krugman in wonderland." Maybe you should be happy about that rather than assuming anyone with a criticism is obviously the same person. You have access to the IP addresses of anyone posting here -- use them (should I be making the assumption that Scott D is actually W. Anderson?).

Second, please provide references to:

1) past comments that you believe are the same person *
2) arguments from this blogger that are "particularly effective or compelling" **

* [The logic being, boy, there could not be more than one person that sees a straw man argument. Lord Keynes also mention the straw man. Are you saying I'm Lord Keynes?]

** If you can't recognize fallacious arguments, start here:
http://en.wikipedia.org/wiki/Fallacy

Or do you always come to conclusions purely from your gut feelings rather than from evidence resulting from the scientific method?

William L. Anderson said...

No, Scott D is not me. When I post, I always post under my name.

Pulverized Concepts said...

Still, can innovation and progress really hurt large numbers of workers, maybe even workers in general? I often encounter assertions that this can’t happen. But the truth is that it can, and serious economists have been aware of this possibility for almost two centuries.

Sure can. No more square-rigger sailors, darn few cowboys, the battalions of lumberjacks have become squads, no milkmaids, railroad firemen are a thing of the past, it's a wonder unemployment isn't 100%.

Mike said...

And may we please have a moment of silence for the extinction of the Ice Block Deliveryman.

JG said...

"....the fact that every year or so, there is a huge political tug-of-war regarding business and individual tax rates, we should not be surprised that there is not more long-term business investment."

Let's play a game of multiple choice. Apple is selling tons of iPads, inventory is flying off the shelf. What does Apple do?

A) Increase business investment to meet demand for its product.

B) Not invest in greater capacity because Obama might raise the marginal tax rate by 4% next year.

C) Do nothing because of "uncertainty" in regulatory environment because of regulations like Obamacare.

If you answered anything other than "A" then you'll make a fine Austrian economist one day.

Tel said...

We know the problem can't be capital, because as Krugman and Keynes have both explained, so long as interest rates are rock bottom, the capitalists cannot unfairly take advantage of their position.

So it isn't scarcity of capital that is the problem (of course I don't believe this, and probably neither does Krugman but let's hear him admit in public that the low interest rates are actually the problem).

By the way, I don't personally believe that you can achieve as much of a monopoly position in the tech world as you could say 20 years ago. It has become very competitive and with India, China and the states that escaped from the USSR all able to deliver high technology, monopolists really aren't as big a problem as they used to be.

I support a competitive market, but I don't think the US government regulators EVER really helped that competitive market. Microsoft was given one particular instruction to comply with which was that they should not create contracts that force computer suppliers to pay for a Microsoft operating system on every machine they deliver (i.e. tie the software to the hardware). They never complied with that instruction, they still don't comply, but it seems everyone is doing it now so no point losing sleep.

Mike: And may we please have a moment of silence for the extinction of the Ice Block Deliveryman

Yeah, I agree things change. However, the reality of it is that people don't change fast enough to handle the dislocations in their life. I'm sympathetic and I'm not opposed to charity. Governments often claim to address this problem, and typically handle it badly. If you stand against change you hold back the water until it won't be held back any more and then the dislocation is greater. If you offer hand outs to compensate, then they get rorted and pockets get stuffed and the genuinely needy still miss out. If you do nothing you are accused of not caring.

Bala said...

JG,

Only a whatever-Keynesian could come up with the kind of idiotic multiple choice question as the you have posed. Only a economically illiterate person with a pathetic understanding of business will state or imply that current sales alone would determine a businessman's plans to expand production capacity. There is, in your insane Keynesian world, no need for businessmen to try to estimate the future and make investment plans according to those estimates.

What is it going to take to get whatever-Keynesian imbeciles to understand the simple point that production takes time????

As I said on the other thread, you are just continuing to make a big fool of yourself. Please keep doing it. I am really ROFLMFAO (R for Rolling).

Anonymous said...

@ JG,

"B) Not invest in greater capacity because Obama might raise the marginal tax rate by 4% next year."

If you want to get snarky and rude then please take pains to avoid showing your innumeracy. A change from 35% to 39.6% tax rate is an increase of 13%, not 4%. Try working on your basic math skills, as well as some polite manners.

Anonymous said...

Anonymous,

I did a fresh google search of Krugman and sadly while Krugman-in-Wonderland is the second entry, it is the second entry on page two....

The only anonymous person trolling this blog said...

I suggested to "try typing 'krugman' into google. The first entry is 'krugman' and the second entry is 'krugman in wonderland.'"

I was referring to the autocomplete function of the Google textbox. When the user types in the textbox a dropdown list appears. The user can then select from the dropdown list rather than typing out the remaining text. I was not referring to the final search results.

Bala said...

Hey The only anonymous person trolling this blog,

I tried typing 'krugman' into google and k-i-w didn't appear on the autocomplete function. Worse, it was 5th on page 2.

Happy trolling all the same.

Scott D said...

@Anonymous,

"You have access to the IP addresses of anyone posting here..."

No, I don't. That's not how the internet works. As a visitor to a Blogspot blog, I do not have access to the logs that it would require to connect you to an IP address. FYI.

"Second, please provide references to:

1) past comments that you believe are the same person *"

Really, the more you protest, the more suspect you become. As flippant and dismissive as the tone of your comment was, I have a hard time understanding why you are back to debate this point with me.

No, I am not going to trudge through months of blog posts to find all of your dishonest comments. Responding to you, while mildly entertaining, is already taking more time than I would really like to devote. I just want you to realize that you aren't fooling anyone who has been paying attention.

"2) arguments from this blogger that are "particularly effective or compelling" **"

Irrelevant. I took you to task for posting with the express intent of deceiving readers, not to defend Professor Anderson, his views, or his blogging style.

But YET AGAIN, you tip your hand. You expect me to believe that you just happened to wander in yesterday, just happened to express the exact same sentiments that I've seen at least a half-a-dozen times, while quite clearly showing me here that you are a long-time reader of the blog in this statement. I think I've even seen you express the same idea months ago in a comment that Anderson's blog comes just after Krugman's in Google.

"Or do you always come to conclusions purely from your gut feelings rather than from evidence resulting from the scientific method?"

Oh, you condescending jackass. Get off your moral and intellectual high horse, you pretentious neophyte. If you knew ANYTHING at all about the scientific method, you would realize that it is a methodology used in research, to push back uncertainty by creating test cases that control for as many factors as possible. It is not a tool that is useful in social interaction because of the lack of controls, lack of repeatability and subjective nature of such interactions.

I think, in your lack of intellectual sophistication, that what you actually meant to accuse me of was making irrational accusations in my supposed emotionally-charged defense of Prof. Anderson. See, I'm all out-of-control, mentally unstable and borderline paranoiac in my willingness to believe any crazy idea that will feed my confirmation bias, right? Right?

No.

The first two or three times I see that same post, my mind, which I have trained to seek rational explanations to observed phenomena, accepts that this is possibly a false correlation. I initially reject the intuitive leap that I'm seeing the same person being deliberately deceitful and manipulative.

However, from that point, my skepticism is engaged. As more confirming evidence comes in, it seems less and less likely that the same comment expressed in the same structure and style is being repeated by supposedly different people. My mind makes the best guess, given the evidence. No, I can't test my hypothesis directly, but I can be confident that, among the available alternatives, this one is the most likely.

So, to conclude, stop being dishonest. It's unethical and makes you look like a jackass. Or, feel free to protest again and continue to provide me with additional evidence that you are a longtime reader who is already very well acquainted with this blog. I'll be happy to pick you to pieces again.

Scott D said...

"I was referring to the autocomplete function of the Google textbox. When the user types in the textbox a dropdown list appears."

Yeah, that autocomplete function. The one that operates on past searches that have been saved to the registry in Windows. Weird, considering that you don't frequent this blog, eh? You just "came here in hope of finding substantive economic arguments".

The only anonymous person trolling this blog said...

Scott D,

FYI (as you say):

Google autocomplete:

You are wrong. It has nothing to do with the user's past searches. Read the following to learn:

http://support.google.com/websearch/bin/answer.py?hl=en&answer=106230

Try going to google.com to do your search. You might be confusing "Google Autocomplete" with your Google Toolbar search history.


IP Addresses:

You missed my point about the IP address. Please read again what I said in parenthesis: "(should I be making the assumption that Scott D is actually W. Anderson?)" If you are not W. Anderson, I know you do not have access to the IP addresses. I also do NOT believe you are W. Anderson, I was making a point.

Tel said...

I followed the above link about the Google Autocomplete and found:

If you're signed in to your Google Account and have Web History enabled, you might also see search queries from relevant searches that you've done in the past.

... also ...

If you aren't signed in to a Google Account, your search experience may be customized based on past search information linked to a cookie on your browser.

I'm calling a pretty convincing win for Scott D here folks. We need to shop around for better trolls.

The only anonymous person trolling this blog said...

Google Autocomplete:

It is interesting that you failed to read or comprehend the sentence before the one you quoted:

As you type, Google's algorithm predicts and displays search queries based on other users' search activities and the contents of web pages indexed by Google.

What does "other users" mean to you?

It's also interesting that you have not observed this while using google.

And if you are just playing with me (i.e. you actually do know how Google Autocomplete works), you will not be able to provoke an emotional rant from me similar to that posted by Scott D.

Also very interesting is the tribalism. Or maybe Tel == Scott D. == William Anderson. I don't think so -- I would place my bet on tribalism.

Tel said...

What does, "past search information" mean to you?

So google gets information from more than one source... well goooooly.

Scott nailed you good and now you sit and squirm. Can you do some backflips or something?

Tel said...

What I'd really like to know, who was the genius who wrote this:

You are wrong. It has nothing to do with the user's past searches.

Hmmm, what does "nothing to do with" mean to you? How silly do you want to look here?