Tag Archives: economics

Surplus Humans and the Death of Work

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It’s a simple equation: too many humans, not enough work. Low paying, physical jobs continue to disappear, replaced by mechanization. More cognitive work characterized by the need to think is increasingly likely to be automated and robotized. This has complex and dire consequences, and not just global economic ramifications, but moral ones. What are we to make of ourselves and of a culture that has intimately linked work with meaning when the work is outsourced or eliminated entirely?

A striking example comes from the richest country in the world — the United States. Recently and anomalously life-expectancy has shown a decrease among white people in economically depressed areas of the nation. Many economists suggest that the quest for ever-increasing productivity — usually delivered through automation — is chipping away at the very essence of what it means to be human: value purpose through work.

James Livingston professor of history at Rutgers University summarizes the existential dilemma, excerpted below, in his latest book No More Work: Why Full Employment is a Bad Idea.

From aeon:

Work means everything to us Americans. For centuries – since, say, 1650 – we’ve believed that it builds character (punctuality, initiative, honesty, self-discipline, and so forth). We’ve also believed that the market in labour, where we go to find work, has been relatively efficient in allocating opportunities and incomes. And we’ve believed that, even if it sucks, a job gives meaning, purpose and structure to our everyday lives – at any rate, we’re pretty sure that it gets us out of bed, pays the bills, makes us feel responsible, and keeps us away from daytime TV.

These beliefs are no longer plausible. In fact, they’ve become ridiculous, because there’s not enough work to go around, and what there is of it won’t pay the bills – unless of course you’ve landed a job as a drug dealer or a Wall Street banker, becoming a gangster either way.

These days, everybody from Left to Right – from the economist Dean Baker to the social scientist Arthur C Brooks, from Bernie Sanders to Donald Trump – addresses this breakdown of the labour market by advocating ‘full employment’, as if having a job is self-evidently a good thing, no matter how dangerous, demanding or demeaning it is. But ‘full employment’ is not the way to restore our faith in hard work, or in playing by the rules, or in whatever else sounds good. The official unemployment rate in the United States is already below 6 per cent, which is pretty close to what economists used to call ‘full employment’, but income inequality hasn’t changed a bit. Shitty jobs for everyone won’t solve any social problems we now face.

Don’t take my word for it, look at the numbers. Already a fourth of the adults actually employed in the US are paid wages lower than would lift them above the official poverty line – and so a fifth of American children live in poverty. Almost half of employed adults in this country are eligible for food stamps (most of those who are eligible don’t apply). The market in labour has broken down, along with most others.

Those jobs that disappeared in the Great Recession just aren’t coming back, regardless of what the unemployment rate tells you – the net gain in jobs since 2000 still stands at zero – and if they do return from the dead, they’ll be zombies, those contingent, part-time or minimum-wage jobs where the bosses shuffle your shift from week to week: welcome to Wal-Mart, where food stamps are a benefit.

Read the entire essay here.

Image: Detroit Industry North Wall, Diego Rivera. Courtesy: Detroit Institute of Arts. Wikipedia.

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Beware. Economic Growth May Kill You

There is a long-held belief that economic growth and prosperity makes for a happier, healthier populace. Most economists and social scientists, and indeed lay-people, have subscribed to this idea for many decades.

But, this may be completely wrong.

A handful of contrarian economists began noticing a strange paradox in their research studies from 2000. Evidence suggests that rising incomes and personal well-being are linked in the opposite way. It seems that when the US economy is improving, people suffer more medical problems and die faster.

How could this be? Well, put simply, there are three main factors: increased pollution from increased industrial activity; greater occupational hazards from increased work; and, higher exposure to risky behaviors from greater income.

From the Washington Post:

Yet in recent years, accumulating evidence suggests that rising incomes and personal well-being are linked in the opposite way. It seems that economic growth actually kills people.

Christopher Ruhm, an economics professor at the University of Virginia, was one of the first to notice this paradox. In a 2000 paper, he showed that when the American economy is on an upswing, people suffer more medical problems and die faster; when the economy falters, people tend to live longer.

“It’s very puzzling,” says Adriana Lleras-Muney, an economics professor at the University of California, Los Angeles. “We know that people in rich countries live longer than people in poor countries. There’s a strong relationship between GDP and life expectancy, suggesting that more money is better. And yet, when the economy is doing well, when it’s growing faster than average, we find that more people are dying.”

In other words, there are great benefits to being wealthy. But the process of becoming wealthy — well, that seems to be dangerous.

Lleras-Muney and her colleagues, David Cutler of Harvard and Wei Huang of the National Bureau of Economic Research, believe they can explain why. They have conducted one of the most comprehensive investigations yet of this phenomenon, analyzing over 200 years of data from 32 countries. In a draft of their research, released last week, they lay out something of a grand unified theory of life, death and economic growth.

To start, the economists confirm that when a country’s economic output — its GDP — is higher than expected, mortality rates are also higher than expected.

The data show that when economies are growing particularly fast, emissions and pollution are also on the rise. After controlling for changes in air quality, the economists find that economic growth doesn’t seem to impact death rates as much. “As much as two-thirds of the adverse effect of booms may be the result of increased pollution,” they write.

A booming economy spurs death in other ways too. People start to spend more time at their jobs, exposing them to occupational hazards, as well as the stress of overwork. People drive more, leading to an increase in traffic-related fatalities. People also drink more, causing health problems and accidents. In particular, the economists’ data suggest that alcohol-related mortality is the second-most important explanation, after pollution, for the connection between economic growth and death rates.

This is consistent with other studies finding that people are more likely to die right after they receive their tax rebates. More income makes it easier for people to pay for health care and other basic necessities, but it also makes it easier for people to engage in risky activities and hurt themselves.

Read the entire story here.

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A Gift From Greece

Flag_of_Greece.svgGreece has been in an increasingly troubled economic situation of late, but the nation’s current crisis has been decades in the making. Over several generations successive governments overspent on an enormous scale on populist social programs, such a healthcare, pensions and other benefits. And, these same governments — regardless of party affiliation — did little to account for this spending either by cutting services or raising revenues (and may would also add, curtailing tax evasion).

On this 4th of July, Greece is now effectively bankrupt — banks are closed, a quarter of the adult population is unemployed, European creditors have called in their loans, and lenders are sitting on the sidelines until the country charts a more sustainable path. So, while the country suffers I am reminded on this anniversary of America’s founding that Greece’s most important export — democracy — still flourishes, despite some obvious flaws. This ancient civilization brought the world many gifts; we should be thankful and hopeful that the embattled Greeks can once again rebuild their great nation and export their treasures.

From the Guardian:

Just how special were the ancient Greeks? Was there really a Greek “miracle”? The question has become painfully politicised. Critics of colonialism and racism tend to play down the specialness of the ancient Greeks. Those who maintain that there was something identifiably different and even superior about the Greeks, on the other hand, are often die-hard conservatives who have a vested interest in proving the superiority of “western” ideals. I fit into neither camp. I am certainly opposed to colonialism and racism, and have investigated reactionary abuses of the classical tradition in colonial India and by apologists of slavery all the way through to the American Civil War. But my constant engagement with the ancient Greeks and their culture has made me more, rather than less, convinced that they asked a series of crucial questions that are difficult to identify in combination within any of the other cultures of the ancient Mediterranean or Near Eastern antiquity. This is why, as I will go on to argue, I believe in classics for the people – that ideas from the ancient Greeks should be taught to everybody, not just the privileged few.

The foundations of Greek culture were laid long before the arrival of Christianity, between 800 and 300BC. Greek-speakers lived in hundreds of different villages, towns and cities, from Spain to Libya and the Nile Delta, from the freezing river Don in the northeastern corner of the Black Sea to Trebizond. They were culturally elastic, and often freely intermarried with other peoples; they had no sense of ethnic inequality that was biologically determined, since the concepts of distinct world “races” had not been invented. They tolerated and even welcomed imported foreign gods. And what united them was never geopolitics. With the arguable exception of the short-lived Macedonian empire in the later 4th century BC, there never was a recognisable, independent, state run by Greek-speakers, centred in and including what we now know as Greece, until after the Greek war of independence in the early 19th century.

What bound the Greeks together was an enquiring cast of mind underpinned by a wonderful shared set of stories and poems and a restlessness that made them more likely to sail away and found a new city-state than tolerate starvation or oppression in a mainland metropolis. The diasporic, seafaring Greeks, while they invented new communities from scratch and were stimulated by interacting with other ethnic groups, made a rapid series of intellectual discoveries that raised the Mediterranean world to a new level of civilisation. This process of self-education was much admired by the Greeks and Romans of the centuries that followed. When the texts and artworks of classical Greece were rediscovered in the European Renaissance, they changed the world for a second time.

Yet over the last two decades the notion that the Greeks were exceptional has been questioned. It has been emphasised that they were just one of many ethnic and linguistic groups centred in the eastern end of the ancient Mediterranean world. Long before the Greeks appeared in the historical record, several complicated civilisations had existed – the Mesopotamians and Egyptians, the Hattians and Hittites. Other peoples provided the Greeks with crucial technological advances; they learned the phonetic alphabet from the Phoenicians, and how to mint coins from the Lydians. They may have learned how to compose elaborate cult hymns from the mysterious Luwians of Syria and central Anatolia. During the period in which the Greeks invented rational philosophy and science, after 600BC, their horizons were dramatically opened up by the expansion of the Persian empire.

In the late 19th and 20th centuries, our understanding of the other cultures of the Ancient Near East advanced rapidly. We know far more about the minds of the Greeks’ predecessors and neighbours than we did before the landmark discovery of the Epic of Gilgamesh on clay tablets in the Tigris valley in 1853. There has been a stream of newly published texts in the languages of the successive peoples who dominated the fertile plains of Mesopotamia (Sumerians, Akkadians, Babylonians, Assyrians). The words of Hittites on the tablets found at Hattuša in central Turkey and the phrases inscribed on clay tablets at Ugarit in northern Syria have been deciphered. New texts as well as fresh interpretations of writings by the ancient Egyptians continue to appear, requiring, for example, a reassessment of the importance of the Nubians to North African history. Many of these thrilling advances have revealed how much the Greeks shared with, and absorbed from, their predecessors and neighbours. Painstaking comparative studies have been published which reveal the Greek “miracle” to have been one constituent of a continuous process of intercultural exchange.

It has become a new orthodoxy that the Greeks were very similar to their Ancient Near Eastern neighbours, in Mesopotamia, Egypt, the Levant, Persia and Asia Minor. Some scholars have gone so far as to ask whether the Greeks came up with anything new at all, or whether they merely acted as a conduit through which the combined wisdom of all the civilisations of the eastern Mediterranean was disseminated across the territories conquered by Alexander the Great, before arriving at Rome and posterity. Others have seen sinister racist motives at work and accused classicists of creating in their own image the Oldest Dead White European Males; some have claimed, with some justification, that northern Europeans have systematically distorted and concealed the evidence showing how much the ancient Greeks owed to Semitic and African peoples rather than to Indo-European, “Aryan” traditions.

Taken singly, most Greek achievements can be paralleled in the culture of at least one of their neighbours. The Babylonians knew about Pythagoras’s theorem centuries before Pythagoras was born. The tribes of the Caucasus had brought mining and metallurgy to unprecedented levels. The Hittites had made advances in chariot technology, but they were also highly literate. They recorded the polished and emotive orations delivered on formal occasions in their royal court, and their carefully argued legal speeches. One Hittite king foreshadows Greek historiography when he chronicles in detail his frustration at the incompetence of some of his military officers during the siege of a Hurrian city. The Phoenicians were just as great seafarers as any Greeks. The Egyptians developed medicine based on empirical experience rather than religious dogma and told Odyssey-like stories about sailors who went missing and returned after adventures overseas. Pithy fables similar to those of Aesop were composed in an archaic Aramaic dialect of Syria and housed in Jewish temples. Architectural design concepts and technical know-how came from the Persians to the Greek world via the many Ionian Greek workmen who helped build Persepolis, Susa and Pasargadae, named Yauna in Persian texts. Nevertheless, none of these peoples produced anything equivalent to Athenian democracy, comic theatre, philosophical logic or Aristotle’s Nicomachean Ethics.

Read the entire article here.

Image: Flag of Greece. Courtesy of Wikipedia. Public Domain.

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Financial Apocalypse and Economic Collapse via Excel

It’s long been known that Microsoft Powerpoint fuels corporate mediocrity and causes brain atrophy if used by creative individuals. Now we discover that another flashship product from the Seattle software maker, this time Excel, is to blame for some significant stresses on the global financial system.

From ars technica:

An economics paper claiming that high levels of national debt led to low or negative economic growth could turn out to be deeply flawed as a result of, among other things, an incorrect formula in an Excel spreadsheet. Microsoft’s PowerPoint has been considered evil thanks to the proliferation of poorly presented data and dull slides that are created with it. Might Excel also deserve such hyperbolic censure?

The paper, Growth in a Time of Debt, was written by economists Carmen Reinhart and Kenneth Rogoff and published in 2010. Since publication, it has been cited abundantly by the world’s press politicians, including one-time vice president nominee Paul Ryan (R-WI). The link it draws between high levels of debt and negative average economic growth has been used by right-leaning politicians to justify austerity budgets: slashing government expenditure and reducing budget deficits in a bid to curtail the growth of debt.

This link was always controversial, with many economists proposing that the correlation between high debt and low growth was just as likely to have a causal link in the other direction to that proposed by Reinhart and Rogoff: it’s not that high debt causes low growth, but rather that low growth leads to high debt.

However, the underlying numbers and the existence of the correlation was broadly accepted, due in part to Reinhart and Rogoff’s paper not including the source data they used to draw their inferences.

A new paper, however, suggests that the data itself is in error. Thomas Herndon, Michael Ash, and Robert Pollin of the University of Massachusetts, Amherst, tried to reproduce the Reinhart and Rogoff result with their own data, but they couldn’t. So they asked for the original spreadsheets that Reinhart and Rogoff used to better understand what they were doing. Their results, published as “Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogoff,” suggest that the pro-austerity paper was flawed. A comprehensive assessment of the new paper can be found at the Rortybomb economics blog.

It turns out that the Reinhart and Rogoff spreadsheet contained a simple coding error. The spreadsheet was supposed to calculate average values across twenty countries in rows 30 to 49, but in fact it only calculated values in 15 countries in rows 30 to 44. Instead of the correct formula AVERAGE(L30:L49), the incorrect AVERAGE(L30:L44) was used.

There was also a pair of important, but arguably more subjective, errors in the way the data was processed. Reinhart and Rogoff excluded data for some countries in the years immediately after World War II. There might be a reason for this; there might not. The original paper doesn’t justify the exclusion.

The original paper also used an unusual scheme for weighting data. The UK’s 19-year stretch of high debt and moderate growth (during the period between 1946 and 1964, the debt-to-GDP ratio was above 90 percent, and growth averaged 2.4 percent) is conflated into a single data point and treated as equivalent to New Zealand’s single year of debt above 90 percent, during which it experienced growth of -7.6. Some kind of weighting system might be justified, with Herndon, Ash, and Pollin speculating that there is a serial correlation between years.

Recalculating the data to remove these three issues turns out to provide much weaker evidence for austerity. Although growth is higher in countries with a debt ratio of less than 30 percent (averaging 4.2 percent), there’s no point at which it falls off a cliff and inevitably turns negative. For countries with a debt of between 30 and 60 percent, average growth was 3.1 percent, between 60 and 90 it was 3.2 percent, and above 90 percent it was 2.2 percent. Lower than the low debt growth, but far from the -0.1 percent growth the original paper claimed.

As such, the argument that high levels of debt should be avoided and the justification for austerity budgets substantially evaporates. Whether politicians actually used this paper to shape their beliefs or merely used its findings to give cover for their own pre-existing beliefs is hard to judge.

Excel, of course, isn’t the only thing to blame here. But it played a role. Excel is used extensively in fields such as economics and finance, because it’s an extremely useful tool that can be deceptively simple to use, making it apparently perfect for ad hoc calculations. However, spreadsheet formulae are notoriously fiddly to work with and debug, and Excel has long-standing deficiencies when it comes to certain kinds of statistical analysis.

It’s unlikely that this is the only occasion on which improper use of Excel has produced a bad result with far-reaching consequences. Bruno Iksil, better known as the “London Whale,” racked up billions of dollars of losses for bank JPMorgan. The post mortem of his trades revealed extensive use of Excel, including manual copying and pasting between workbooks and a number of formula errors that resulted in underestimation of risk.

Read the entire article following the jump.

Image: Default Screen of Microsoft Excel 2013, component of Microsoft Office 2013. Courtesy of Microsoft / Wikipedia.

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Time for Some Pigovian Taxes

Leaving the merits of capitalism or socialism aside for a moment, let’s consider the case for taxing bad behavior versus good. Adam Davidson, economics columnist and founder of NPR’s Planet Money, reviews the case now being made by a growing number of economists on both the left and the right. They all come to a similar conclusion: Forget about taxing good or constrictive behavior such as entrepreneurialism. Rather, it’s time to tax people for doing destructive and damaging things.

Arthur Pigou, the early-20th century economist, for whom Pigovian taxes are so named, argued that people should face the consequences of externalities. An externality covers an action that we take and that affects others, but to which the market cannot, yet, assign a price. Here’s an example. Say on your morning commute to work your bad habit of driving while using a mobile phone causes an accident followed by an hour-long traffic jam — the lost productivity from all those stuck behind you on the highway is an externality. So, the thinking goes, what if we were to tax such errant behavior? Not only would governments secure an alternate, or — sigh — yet another form of revenue, but we could also collectively discourage bad behavior through monetary means. Taxes on tobacco are a good example — more so due to the addictive nature of nicotine.

Perhaps it’s time for a tax on burgers and fries, a tax on sneezing and coughing in public, and, why not, a tax on those who sing out of tune.

From the New York Times:

Driving home during the holidays, I found myself trapped in the permanent traffic jam on I-95 near Bridgeport, Conn. In the back seat, my son was screaming. All around, drivers had the menaced, lifeless expressions that people get when they see cars lined up to the horizon. It was enough to make me wish for congestion pricing — a tax paid by drivers to enter crowded areas at peak times. After all, it costs drivers about $16 to enter central London during working hours. A few years ago, it nearly caught on in New York. And on that drive home, I would have happily paid whatever it cost to persuade some other drivers that it wasn’t worth it for them to be on the road.

Instead, we all suffered. Each car added an uncharged burden to every other person. In fact, everyone on the road was doing all sorts of harm to society without paying the cost. I drove about 150 miles that day and emitted, according to E.P.A. data, about 140 pounds of carbon dioxide. My very presence also increased (albeit infinitesimally) the likelihood of a traffic accident, further dependence on foreign oil and the proliferation of urban sprawl. According to an influential study by the I.M.F. economist Ian Parry, my hours on the road cost society around $10. Add up all the cars in all the traffic jams across the country, and it’s clear that drivers are costing hundreds of billions of dollars a year that we don’t pay for.

This is how economists think, anyway. And that’s why a majority of them support some form of Pigovian tax, named after Arthur Pigou, the early-20th-century British economist. Pigou developed the idea of externalities: the things we do that affect others and that the market is unable to price. A negative externality is like the national equivalent of what happens when you go to dinner with three friends and, knowing that you’ll pay only a fourth of the bill, decide to order an expensive entree. Pigou argued that there are so many damaging things that we do — play music too loudly, drive aggressively — and that we’d probably do less if we had to pay for them.

The $10 I cost the economy was based on Parry’s algorithm, which calculates that drivers should pay a tax of at least $1.25 a gallon. Forty percent of that price, he says, is the cost that each vehicle adds to congestion. Another 40 cents or so offsets the price of accidents if we divided the full cost — more than $400 billion annually — by each gallon of gas consumed. (Only about 32 cents would be needed to offset the impact on the environment.) According to Parry’s logic, if we paid a tax of $1.25 per gallon instead of the current average of 50 cents, the price of gas would increase by about 25 percent to around $4 a gallon, which is still well below what much of Europe pays. But it would still encourage us to drive less, pollute less, crash less, lower the country’s dependence on foreign oil and make cities more livable. Not surprisingly, several studies have found that people — especially in Europe, where the gas tax is around $3 a gallon — drive a lot less when they have to pay a lot more for gas.

The idea of raising taxes to help society might sound like the ravings of a left-wing radical, or an idea that would destroy American industry. Yet the nation’s leading proponent of a Pigovian gas tax is N. Gregory Mankiw, chairman of President George W. Bush’s Council of Economic Advisers and a consultant to Mitt Romney’s 2012 campaign. Mankiw keeps track of others who support Pigovian taxes, and his unofficial Pigou Club is surely the only group that counts Ralph Nader and Al Gore along with leading conservatives like Charles Krauthammer, Alan Greenspan and Gary Becker as members.

Republican economists, like Mankiw, normally oppose tax increases, but many support Pigovian taxes because, in some sense, we are already paying them. We pay the tax in the form of the overcrowded roads, higher insurance premiums, smog and global warming. Adding an extra fee at the pump simply makes the cost explicit. Pigou’s approach, Mankiw argues, also converts a burden into a benefit. Imposing taxes on income and capital gains, he notes, punishes the work and investment that improve society; taxing negative externalities allows the government to make money while discouraging activity that hurts the overall economy.

Read the entire article after the jump.

Image: Arthur Cecil Pigou, 1943. Courtesy of Ramsey and Muspratt Collection.

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