Jeffrey Tucker Archives

Writing from another planet

May 14, 2008 9:14 AM by Jeffrey Tucker

Sometimes articles are so exasperating there is no sense in even attempting a response, but usually these don't appear in the Wall Street Journal. Selection from Thomas Frank:

What has overtaken America's working people is not a natural disaster like "globalization," and not even some kind of societal atavism in which countries regress mysteriously to their 19th-century selves. This is a man-made catastrophe, a result that proceeded directly from the deliberate beatdown of organized labor and the wrecking of the liberal state.

It is, in other words, a political disaster, with tax cuts, trade agreements, deregulatory measures, and enforcement decisions all finely crafted to benefit one part of society and leave the rest behind. Few of the voters who gave Ronald Reagan his landslide victories, it is fair to say, intended for this to be the outcome. They wanted their country to stand tall again, certainly; they wanted the scary regulators off their backs, maybe; but I can recall no conservative who trumpeted those long-ago elections - or any of the succeeding contests, for that matter - as a referendum on plutocracy.

So let us have one now. Instead of pleasant talk about "change" and feats of beer drinking at the corner tavern, let us hear our candidates address this greatest issue of them all: What kind of country are we to be? A land of equality? Or a bankers' utopia - where the law of the land has achieved mystical oneness with the higher law of classical economics, and devil take the bottom 80%.

So far as I can tell, the calamity discussed here owes entirely to the one statistic he thinks proves his case: the real hourly wages in the US for most workers has risen only 1% since 1979, where as the richest 20% of the country made more than the rest of the country combined. But perhaps we should consider how much less wages would have risen had the rich not permitted to become so, or maybe this is due not to the merciful loss of union's grip on the economy but rather to such forces as inflation. And as for the supposed dismantling of the interventionist state and the "tax cuts" and de-regulation, well, I guess people are just happy to make up the reality that they want to see.

It's true that the government policy is configured to help the rich and powerful of course but it is hard to see how putting government even more in charge of our economic lives is going to fix that. .

Link post | Digg it | Other posts by Jeffrey Tucker | Comments (6)

Machine to explain the economy (1949)

May 9, 2008 12:47 PM by Jeffrey Tucker

Thanks to Don Lloyd for this link to an interesting story about a British machine that modeled the workings of the British economy:

A sensation when it was unveiled at the London School of Economics in 1949, the Phillips machine used hydraulics to model the workings of the British economy but now looks, at first glance, like the brainchild of a nutty professor. Where the Bank's team of in-house economists are equipped with state-of- the-art digital computers, the profession's first stab at modelling was very much a do-it-yourself affair with a whiff of the Heath Robinson about it.

The prototype was an odd assortment of tanks, pipes, sluices and valves, with water pumped around the machine by a motor cannibalised from the windscreen wiper of a Lancaster bomber. Bits of filed-down Perspex and fishing line were used to channel the coloured dyes that mimicked the flow of income round the economy into consumer spending, taxes, investment and exports. Phillips and Walter Newlyn, who helped piece the machine together at the end of the 1940s, experimented with treacle and methylated spirits before deciding that coloured water was the best way of displaying the way money circulates around the economy.

But whoops:

By today's standards, the Phillips machine was limited. It made no provision for inflation and, with capital controls in force, had no need to take account of the curse of the modern UK economy - the wild swings in the credit cycle. Professor Brian Henry, a visiting fellow at the National Institute for Economic and Social Research, said: "It was a child of its time. It looked at how the economy could be stabilised when people were worried about the stabilisation of aggregate demand. That is the way things were in the 1950s.

"Things are different now. There is a different financial system and a completely different global economy. But Phillips was a brilliant guy. He came up with interesting ways of providing practical advice on policy."

Even so, Henry says the machine is far more than a museum piece. Today the Bank of England's models are supposed to show how shocks affect the economy and the time it takes for a change in policy to have an effect, precisely the sort of problems that the Phillips machine helped identify. Even with the most up-to-date computers, the Bank is still finding it hard to come up with the right answers.

Indeed, one early demonstration of the machine displayed the difficulties that can arise when monetary and fiscal policy are not synchronised. Phillips asked one of his students to be chancellor of the exchequer and control taxes and spending; the other to be governor of the Bank and control interest rates. Predictably, the policies were uncoordinated and the upshot was that water overflowed on to the floor.

Link post | Digg it | Other posts by Jeffrey Tucker | Comments (7)