What is the link, if any, between wages and technological progress in a capitalist economy? An article in this week’s The Economist magazine sheds some light on the issue. In particular, it considers the apparently lesser-studied effect that wages might have on productivity growth.
The reverse relationship, that productivity growth allows growth in wages, is studied more often. This has certain implications for economic policy. Boosting the supply-side determinants of innovation, such as education, and research and development, become important.
But what of the demand-side? The article mentioned above describes how some economic historians are engaged in a debate over the “high-wage hypothesis” put forward by Robert Allen, which he suggests helped drive industrialisation in Britain. Continue reading →
Following Tuesday’s video, here is more from this interview with Michael Hudson on Trump’s economic policies, from tax cuts and trade wars to infrastructure, privatisation, industrial policy, Wall Street versus Main Street and Artificial Intelligence and its effects on unemployment.
“There are…, I should admit, forces which one might fairly well call “automatic” which operate under any normal monetary system in the direction of restoring a long-period equilibrium between saving and investment. The point upon which I cast doubt – though the contrary is generally believed – is whether these “automatic forces” will…tend to bring about not only an equilibrium between saving and investment but also an optimum level of production.”
John Maynard Keynes
This brief quote from the great man sums up the argument put forth in his magnum opus, The General Theory, that a capitalist economy does not have an automatic tendency to achieve full employment. It may possess other “automatic forces”, but these will not do the trick. Continue reading →
“…[I]t is tempting to leave economics to the experts, particularly as this is part of the dominant political culture of the twentieth century, but in this case we cannot afford to. We are being sold short because the very knowledge and skills we need to address the great challenges humanity faces in the twenty-first century have been systematically left out of the education of those who go on to run our economy…as a society this binds us in a mental straightjacket that prevents us imagining the economy in any other way. This is turn precludes any real discussions about what our collective values are, how we wish to organise the economy and how we should address the challenges we face. We must reform economics so that the next generation of economic experts have the skills needed to reinvigorate economics and to build a society in which economics is a dialogue people actively take part in.
The aim…is to create spaces in which we can individually and collectively begin to rethink economics. In time we hope these spaces will become concrete institutions which enable mass participation in economic decision making. Ultimately we believe that economics must become a public dialogue and never again be left only to the experts.”
Joe Earle, Cahal Moran and Zach Ward-Perkins (2017), The Econocracy: The perils of leaving economics to the experts, p.169-170
The UK’s productivity problem continues. Output per worker has barely grown since the beginning of the financial crisis in 2008. Why is this a problem? Because if we want rising living standards, we must have rising productivity over time.
In theory, rising productivity in our economy gives us choices between increased income and increased leisure time. We can choose on a spectrum between more income for the same hours worked and the same income for fewer hours worked, in other words, more leisure time. Depending on how we in society value work and leisure, increased productivity should make possible increases in human welfare.
Today, output per hour worked in the US is at a similar level to that in France and Germany. However, total hours worked per head in the US have tended to outstrip those in the latter two countries, meaning that output per head remains higher there.
Americans are on average richer (although greater inequality means that many of them are not), but they achieve these greater riches by working longer, while their French and German counterparts have more leisure time, including a shorter working day and longer holidays. This is down to collective economic and social choices, although these are also necessarily political in nature, and far away from simple choices freely made by individuals, as some might choose to believe. Continue reading →
The Guardian’s economics editor Larry Elliott writes here about the potential of Trump’s trade war to herald a return to the 1930s, a decade of rising protectionism and shrinking world trade.
He makes the important point that the EU and China run trade surpluses, and are therefore likely to suffer more than the US from tit-for-tat protectionist policies. However this does not mean that, to quote Mr Trump, trade wars are ‘good and easy to win’.
I have often written about the case for selective and temporary protection for infant industries in developing countries. For several decades after World War Two, the threat of the spread of communism gave the US, as global capitalist hegemon, a strong incentive to promote successful capitalist development across the world. Developing countries were therefore given policy space to promote their domestic industries, even as trade became more free in the rich world. Continue reading →
I recently bought a new sun hat (stay with me). A label inside reads ‘made in China’. Replacing my previous hat was well overdue, as it was more than 20 years old. Out of curiosity and before getting rid of it, I checked inside and saw a label, which also read ‘made in China’. I must be something of a geek, as this got me thinking about the manufacture of clothing and development processes.
It is notable that China is manufacturing and exporting clothing such as this, just as it was twenty years ago. The hats are not dissimilar. Of course, the Chinese economy is the largest manufacturing nation in the world and exports a huge amount of goods of all kinds. But according to this experience, companies there are still involved in the manufacture of quite basic clothing. Continue reading →