Useful Marxist Economics: Michael Roberts

Socialist Action does us an excellent turn by reprinting an article by Micheal Roberts. The piece is taken from his blog, which I have now added to my regular Beat (see sidebar).

Mr. Roberts is an excellent writer who explains things very clearly. It appears that good Marxist economists (certainly including Mr. Roberts) are economists first and Marxists only second. Accordingly, his writing is not diminished by meaningless, obfuscating Marxist terminology, such as surplus value, neoliberalism, or working class--words that don't appear at all.

There is no point in my summarizing Mr. Roberts' article--you can read it for yourself, and I recommend you do. Nor will I argue with him--what he says is mostly correct as far as I can see. But I do think he misses an important part of the story, and that's what I contribute here. Think of this more as an addendum than a criticism.

It is commonly noted that US productivity has declined since the 1970s. In The Great Stagnation, author Tyler Cowen suggests we've already picked technology's low-hanging fruit--electricity, the internal combustion engine, etc.--and future technological progress will be much harder to come by. Robert Gordon wrote an excellent, scholarly book explaining the same phenomenon (my review here). Peter Thiel is the most pessimistic about future growth, suggesting that AI and driverless cars, for example, are mostly just hype. (See here, and links therein.) He thinks we live in a nearly zero-growth world.

The chart below illustrates the problem, namely clearly diminished productivity growth after 1978. If this chart and the pundits above are correct, then we are in for a long stretch of slow to zero growth.

(Source)

Slow productivity growth means that the standard of living also rises very slowly. There is abundant evidence that is true: median real wages have barely budged since the 1970s.

But people are reluctant to give up hope for higher living standards, and the result is they tend to borrow more. The expectation is that times will get better soon and then they can repay the loans. But times have not gotten better and the world is deeper in debt. Growth is now further constrained by the necessary debt service, and the result is a downward spiral.

Given this background, let's use Mr. Robert's paper as a guide to see what the future holds.

He writes:

Many of the academic papers presented to the central bankers at Jackson Hole were laced with pessimism. One argued that bankers needed to coordinate monetary policy around a global ‘natural rate of interest’ for all. The problem was that “there is considerable uncertainty about where the neutral rate really lies” in each country, let alone globally. As one speaker put it: “I am cautious about using this impossible-to-measure concept to estimate the degree of policy divergence around the world (or even just the G4)”. So much for the basis of most central bank monetary policy for the last ten years.

If there is little new technology then there is little cause for new capital investment. One can't buy new computers if the new computers haven't been invented yet. The result is that the so-called "savings glut," is really an "investment drought." There are few good places to invest money. Thus it is easy to determine the natural rate of interest: it is precisely zero. At which value monetary policy has no effect at all. Corporations--never one to pass up a good deal--borrow heavily at near-zero percent interest, using the proceeds to buy back shares (a shift from equity financing to cheaper debt financing).

If monetary policy doesn't work, what about fiscal policy? Per Mr. Roberts, that's Larry Summers' suggestion. The goal, by excess government spending, is to increase aggregate demand until the economy returns to health. Governments spend all this excess cash on useless roads and bridges (Japan, China), on the military (USA; not useless, but not a productive investment), or on ever more generous entitlements (Europe, esp. southern Europe).

But more money in the back pocket doesn't necessarily increase demand. It could increase inflation, which central banks have guarded against by paying interest on reserves, thus eventually sucking back up the extra cash. While it might increase employment, in the USA (at least) that is already maxed out. And given demographic stagnation (if not decline), then there are fewer people out there to spend the money, even if you do get it into their pockets.

The result is that fiscal stimulus doesn't stimulate. We just end up with more corporate debt and more people working at low wages. Given low productivity growth, it can't be otherwise.

I mentioned above that folks are still in denial about low productivity and near zero growth. To maintain their standard of living they borrow more, unrealistically expecting to pay it back later. We've already mentioned the ways government can borrow money: by printing it or by selling treasury bonds. Otherwise known as monetary or fiscal stimulus, respectively.

In addition, folks can borrow their own money. This has certainly happened as the 2008 mortgage crisis proved. Today we have high levels of student loan, auto loan, and credit card debt.

Student loans are especially pernicious, and not just because they aren't dischargeable in bankruptcy. It's because in a near zero-growth world there are diminishing returns to education. Kids who expect to graduate into a dynamic, high-opportunity economy will be sorely disappointed when they end up as burger-flippers and dog-walkers. But absent new technology, there won't be many high-tech jobs for them to fill.

In my view, student loans are a dead-weight loss to the economy and the whole program should simply be abolished. Beyond which they destroy many people's lives.

Marxists think this is all a crisis. Mr. Roberts doesn't say that explicitly, but he seems to imply it. It could be a crisis. If, for example, central banks stop paying interest on reserves, then hyperinflation is just around the corner. In the United States that would be a civilization-ending event. I'm not predicting it, but for those who want to lie awake at night worrying about stuff, it surely is a much more likely life-ending outcome than catastrophic global warming.

Near zero growth is really bad news. It means that the next generation will not be richer than the current generation. It is stagnation, which is the opposite of a crisis. Indeed, nothing here even predicts a recession--merely steady as she goes. (It doesn't preclude one, either.)

Mr. Roberts does give us one piece of good news. He points out that in recent years profits, as a percent of gdp, have been declining.

(Source: https://thenextrecession.files.wordpress.com/2019/08/pear-2.jpg)

If the returns to capital as a fraction of gdp are declining, that means the returns to labor are increasing! Even I can't see why that is a bad thing. It contradicts the claim of Thomas Piketty, who argues that capital will always get an ever larger share.

Take your good news while you can. The world is going to be increasingly short of it.

Further Reading:

• What Determines Political Opinion?
• Book Review: Tomorrow 3.0
• Tradable vs. Non-Tradable Goods

Unionizing Hotels?

Ernie Gotta and Erwin Fried post a useful article in Socialist Action (SA) entitled Shifting the balance of power in hotels. It concerns the unionization of Sheraton and Hilton hotels in Stamford, CT.

I'm sympathetic. Hotel maids work very hard for low wages. The ladies (and a few gentlemen) who get up at 4am to serve breakfast (free to guests) are heroes in my book. I depend on them whenever I travel, and I make sure I leave them all a tip. They deserve it.

So if a union is being formed to demand higher wages, I'd tend to favor it. After all, I'm as much against poverty as Misters Gotta and Fried, and if it's at all practicable to raise the salaries of hotel maids, surely that's a no-brainer.

But raising salaries is not what this union local in Stamford has in mind. Instead their goal is simply to reduce productivity. To wit:

• Employees should be allowed to talk on their cell phones during work hours and get paid for it.
• Cooks, who are paid more because they bring essential skills, should spend valuable time doing work that servers can do more efficiently and cheaper.
• Managers should be forbidden from helping out--they can't clean a room or assist with service. 

None of this actually helps the maids. Yes, she can now talk on her cell phone instead of working, but how this substantially improves her life is beyond me. And worse: why should I leave a tip to a maid who takes twice as long to clean my room because she's yakking on the phone?

Consider:

At the Sheraton, workers are now fighting for their first contract, but before voting to join Local 217 workers were often made to staff positions other than their own, regularly taking on two or more different jobs in the same shift. This allowed the bosses to hire fewer people and cut hours for positions like the café. By keeping a skeleton staff that is worked to the bone, they save a lot of money on labor costs, but at the same time the hotel cannot maintain a high level of customer service. Management proves again and again that they prioritize profits over guest satisfaction.

This is perverse. Surely an employee who can flexibly do several jobs as needed is more likely to be working full time than one who can only make beds (but not vacuum floors). It's hard to see why a guest should have to wait for the unionized vacuum operator to come along before the room is cleaned.

All it does is featherbed the workforce. The hotel will have to hire more maids to do the work of the phone talkers--and each of those additional employees will pay additional union dues. It's the union bigshots who come out ahead on this.

On the other hand, if instead of featherbedding all the maids just got a raise, the union's additional take would at most be a trivial percentage. This is a classic example where the interests of the union diverge from that of the employees.

Misters Gotta & Fried, being Marxists, claim that capital deserves no return--all proceeds should go to the employees. The net profit margin (as percent of operating costs) for Hilton Worldwide in June, 2019, is 8.71%. In another article, Mr. Gotta writes "Right now, hotels in Stamford, Conn., the second largest market in New England, are bringing in big profits for the owners. They can afford to pay their workers a living wage, but they’re too greedy to concede a few bucks."

So let's play that out. Suppose Hilton sacrificed their entire 8.71% margin. The employees all get a raise by that amount. Presumably suppliers receive a similar bump--they'd have to give their own employees an 8.71% raise. Of course not just workers, but managers also get a raise. Most front-line managers are not paid much more than the hourly workers.

So what happens then? Hilton's profit margin has just gone to zero.

• The stock price also falls to zero. Anybody with a 401K or pension plan invested in Hilton is just plum outta luck.
• The board of directors all resign. Why bother managing a company that can't earn a dime? It's a lot of work to manage a company!
• Most of the C-suite execs also quit. Their pay is mostly in stock options--now worthless. The reservations system crashes.
• Suppliers no longer trust the company to pay their debts. After all, with a stock price of zero Hilton has no collateral anymore. So all transactions are cash only.
• Travel agents no longer book rooms at Hilton. There's no guarantee that the customer will actually get the room she paid for. Even today something occasionally goes wrong and the room fee needs to be refunded. Hilton can no longer be trusted to make those refunds.
• Homeless people move into the lobby.
• The city confiscates the hotel property for back taxes.

If you want to see what a profit-free hotel looks like, just check out housing in Cuba, or the NYC public housing projects. Nobody wants to live like that, much less pay $250/night for the privilege. All that for a once-off, 8.71% raise? Fortunately most hotel workers are smart enough to know that money doesn't grow on trees, something that Misters Gotta and Fried apparently haven't learned yet.

My Trotskyist comrades see themselves as uncompromising radicals, and they urge nothing less on their fellow workers.

A worker’s strength also does not exist in the formal relationship between the union and the boss. ...Strength comes from shop floor militancy. What workers have on their side is the ability to apply pressure on management through delegations, workplace actions, shop-floor campaigns like button ups, or a strike.

In other words, employees should, as a first resort, sabotage the workplace.

This strategy will fail. Most large hotel chains often do not own the real estate. They simply lease it for a period of years, or occasionally operate the hotel on a commission basis. The benefit is that companies like Hilton can just walk away from the property at little cost. The employees know this, and sabotage will be rewarded with everybody losing their jobs.

A hotel--like any business, no matter who owns it--has to be profitable to stay in business. Sabotage certainly doesn't help. What's the point of having a union if you're not going to avail yourself of the grievance procedure?

It's worth noting that once the union is in place, it wants all employees to behave so that it can extract its dues from them as efficiently as possible. Union leaders are smart enough to know that money can't be squeezed out of a bankrupt hotel.

I think the union drive is just a big scam designed to transfer money from hotel maids to union bureaucrats. It's a scandal.

Further Reading:

• Jeff Mackler Interviewed by Paul Duddridge
• Heather Bradford on Abortion
• Louis "Lyndon LaRouche" Proyect

Book Review: The Fall of Rome

The book, The Fall of Rome: And the End of Civilization is by Bryan Ward-Perkins, today an Oxford don, but born and raised in Rome, the son of an archaeologist.

It's a wonderful little book--less than 200 pages of actual text--that delivers just what the title promises, written with concision and clarity. Perhaps it's not an easy read, but it certainly isn't a boring one. I picked the Kindle edition, which was a mistake. The book contains lots of maps and figures that don't reproduce all that well. I'd recommend a dead-tree version.

History, it turns out, often depends on the present as much as on the past. Immediately following the Second World War, French scholars portrayed the invading Germanic tribes as barbarians, who "had achieved the remarkable feat of living for centuries on Rome's frontiers 'without becoming civilized.'" The fall of the Roman empire was uncannily similar to the fall of the French Republic in 1940.

A few years later, as Germany was being tamed to bring about the EU, historians in North America and northern Europe played down the event. Rome didn't "fall" as much as it gradually "transitioned" into a medieval culture. The tribes cease being "invaders" and gradually just become migrants. Late Antiquity (as the era from 400 - 800 AD is called) was not a dark age, but rather a passage to another way of life.

Further, there is a reluctance to use the word civilization, implying that Romans were somehow morally superior to the barbarians. While Mr. Ward-Perkins rejects any moral superiority, he asserts that a civilized society is both richer and far more sophisticated than the more primitive sort.

Mr. Ward-Perkins mostly condemns this modern point of view as being not true. He documents the catastrophic decline in living standards across the empire, with many peoples reduced to an iron-age existence. It was many centuries (until the dawn of the Renaissance, or even longer) before wealth in the West exceeded that of Roman times.

He draws heavily on archaeological evidence, notably pottery. Roman pottery is found practically everywhere, even in homes of very modest circumstance. It was certainly not restricted to the wealthy. It came as tableware, cooking pots, and was used in transport. For example, olive oil, a staple Roman commodity, was shipped in amphorae.

Amphorae used in shipping (Wikipedia)

While pottery vessels can break, the shards are nearly indestructible. "It is a reasonable supposition that, somewhere in the soil, almost all the pottery vessels ever made survive in fragments, waiting to be excavated and studied."

There is a huge wealth of information: the chemical composition tells where it was made; the design says when; the shape suggests what it was used for; and the location says something about who used it. Further, it often comes with inscriptions which inform about who made and traded it, and also the extent of literacy.

Pottery was an industrial art and produced in high quality on a massive scale. Amphorae carried grain from North Africa (the empire's granary) and olive oil from Spain to the farthest reaches of the empire: Hadrian's Wall in Britain, and the banks of the Rhine and Danube. There it provided for the soldiers who defended the empire, who in turn spent their income in local communities on the frontier. The result was Pax Romana.

This is something akin to today's globalization. Just as we can buy cheap, high quality clothing made in Bangladesh, Romans acquired fine goods and foods from hundreds if not thousands of miles away.

The Vandals sacked the city of Rome in 410, and went on to conquer the Iberian Peninsula and most of Roman Africa. The rest of the Roman empire was divided among various Gothic and Frankish tribes. Anglo-Saxons and Celts ruled previously Roman England.

Despite the occasional sacking, pillaging and looting, the tribes did not want to destroy Rome, but instead they wanted to share in its wealth. They were quite conscientious about this, retaining Roman nobility as administrators. They gradually even converted to the Roman religion.

The problem was not their intent. The problem was by divvying up the empire into so many competing principalities, it made trade impossible. This was especially painful at the frontier, which no longer had access to quality pottery from abroad. Instead they had to make do with hand-formed (not wheel-thrown) pots, made from crumbly, substandard material. Plus they had to grow their own food, since that trade, too, had disappeared. No more olive oil for you!

The result, by 450 AD, was a reversion to an iron-age economy.

Mr. Ward-Perkins traces the same history not only in pottery, but in building materials and even in the size of farm animals! He suggests that human populations dramatically declined during the 5th Century (though he can't prove that).

Trade allows for specialization: specialized potters, builders, writers, soldiers, farmers, etc. Without trade, each household has to do all those things on their own--that's the very definition of an iron-age world. Our modern society is so rich precisely because we have hugely sophisticated global trading networks and therefore highly specialized job titles. But lots of people are--to one degree or another--against trade. President Trump apparently sees it as a zero-sum game, which it isn't. 

Our most celebrated congresswoman, Alexandria Ocasio-Cortez suggests we should abolish airplanes (to protect the climate). This would immediately put tens of millions of people out of work. But worse, it would destroy tourism. Think of all the countries that depend on tourism for a large part of their income. Without tourists they lose access to the world market and can't buy anything but what they produce themselves. Which likely will not include things like electricity, computers or pharmaceuticals.

Ms. Ocasio-Cortez's supposed solution to climate change will condemn hundreds of millions of people to a miserable existence--assuming they survive at all.

Many people look into the abyss, and somehow they see utopia down there. If you want to find out how people of good intentions and good will can destroy the world, then please read Mr. Ward-Perkins' book.

Further Reading:

• "Primacy of the Working Class"
• The Philippines
• Book Review: Life After Google