If you push enough oats into a horse some will spill out and feed the sparrows.
— Horse and Sparrow Economic Theory
The rich man may feast on caviar and champagne, while the poor women starves at his gate. And she may not even take the crumbs from his table, if that would deprive him of his pleasure in feeding them to his birds.
— Gauthier 1986, 218, Morals by Agreement, Oxford University Press
The power to choose the measure of success
The successful campaign to eliminate distributional issues from the core of the economic discipline has its mirror image in the popularity of GDP as the measure of economic success of a nation. While the pioneer of national accounting (i.e., GDP), Simon Kusnetz, explicitly said that GDP should not be used as a measure of welfare, and few economists would explicitly advocate such use, it is also true that economists as a group have done precious little to counter the popular opinion that growth, in the sense of maximization of GDP, should be the main goal of economic policy.
GDP is the money value of final goods and services that an economy produces in a quarter or a year (i.e., not including those goods and services used as inputs in production of other goods and services). This definition makes it … a reasonable yardstick of how much money moved around in a quarter or a year, and therefore captures to some extent how much economic activity in money terms there was in that period. It is a poor measure of actual activity in absolute terms due to using money rather than physically measuring human activity or indicators of human activity (e.g., how many tons of material were moving around in a year, or how many bits of information were exchanged in a year). Some activity that commands a large premium in money terms for institutional reasons, like investment banking, even if it is only one powerful person doing a moderate amount of work, will count the same as activities of hundreds of factory workers and much more than the activity of millions of housewives. Societal changes like providing more institutional childcare or reigning in the market power of investment banks can make a huge difference in terms of measured GDP, without significantly changing the actual activities performed. Because of this reliance on using money valuations, GDP has severe issues with accurately measuring technological progress. (Häring et. al. 2012, 28-29)
This method of measuring economic activity has two things going for it. It makes the mathematics a lot easier than measuring in a sensible way. And it conforms with the implicit assumptions if mainstream economics that an extra dollar is worth the same to a poor person than it is to a rich person, just as it makes no differentiation between types of activity, for instance whether they are good (i.e., charitable work) or bad (i.e. criminal activity). If a hedge fund manager makes five billion dollars in a good year, as John Paulson reportedly did in 2010 (Burton and Kishan 2011), this is must as good in GDP terms as 13.7 million people living on a dollar a day doubling their incomes. (Häring et. al. 2012, 29)
Policies that treat human beings as social creatures and try to reach the best results in the most important dimensions of human goals cannot flag their success with equally prominent and simple statistical measures like a single number where higher is “better.” The rich and wealthy benefit most from this way of measuring the economic success of a nation, since it de-emphasizes the gains of the mass low-income people relative to those of a minority if rich people. As far as nations are concerned, it benefits nations that champion the policies favored by this approach, with the US being foremost among these. (Häring, Norbert and Douglas Nial. Economists and the Powerful [Convenient Theories, Distorted Facts, Ample Rewards]. New York: Anthem Press; 2012; pp. 28-29.)
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LET’S STOP PRETENDING UNEMPLOYMENT IS VOLUNTARY
Unless you have a PhD in economics, you probably think it uncontroversial to argue that we should be concerned about the unemployment rate. Those of you who lost a job, or who have struggled to find a job on leaving school, college, or a university, are well aware that unemployment is a painful and dehumanizing experience. You may be surprised to learn that, for the past thirty-five years, the models used by academic economists and central bankers to understand how the economy works have not included unemployment as a separate category. In almost every macroeconomic seminar I attended, from 1980 through 2007, it was accepted that all unemployment is voluntary. (Farmer 2017, 47)
In 1960, almost all macroeconomists talked about involuntary unemployment and they assumed, following Keynes, the quantity of labor demanded is not equal to the quantity of labor supplied. That view of economics was turned on its head, almost single-handedly, by Robert Lucas. Lucas persuaded macroeconomists that it makes no sense to talk about disequilibrium in any market and he initiated a revolution in macroeconomics that reformulated the discipline using pre-Keynesian classical assumptions. (Farmer 2017, 47)
The idea that all unemployment is voluntary is called the equilibrium approach to labor markets. Lucas wrote his first article on this idea in 1969 in a coauthored paper with Leonard Rapping. His ideas received a big boost during the 1980s when Finn Kydland, Edward C. Prescott, Charles Long, and Charles Plosser persuaded macroeconomists to use a mathematical approach, called the Ramsey growth model, as a new paradigm for business cycle theory. The theory of real business cycles, or RBCs, was born. According to this theory, we should think about consumption, investment, and employment “as if” they were the optimal choices of a single representative agent with superhuman perception of the probabilities of future events. (Farmer 2017, 47-48)
Of the total employment growth in the US between 2005 and 2015, insecure employment in the categories of independent contractors, on-call workers and workers provided by contracting companies or temp agencies accounted for fully 94 percent.3a Outsourcing of employment plays a big role in what David Weil describes as the “fissuring” of the workplace — depressing wages, magnifying income and wealth inequality, and generating a pervasive sense on the part of those at the wrong end of the fissuring that the world is cheating them, making them angry in return.4 On top of this, many Trump voters are angry that the government is giving handouts to “shirkers”, and sticking them with the tax bill. (Fullbrook et. at. 2017, 65-66. Is Trump wrong on trade? A partial defense based on production and employment. In Trumponomics: Causes and Consequences.)
(….) [P]romotion of the low bar temporary contract or part-time “gig” jobs which comprised over 90% of Obama’s boasted job creation.20 (Fullbrook et. al. 2017, 210. Donald Trump, American political economy and the “terrible simplificateurs.” In Trumponomics: Causes and Consequences.)
The US might be less rich than official statistics make us believe…. After all, measuring GDP is an art as much as a science. What is usually portrayed as a straight forward act of objective measurement involves value judgments and much guesswork.
— Häring et. al. 2012, 33-34, in Economists and the Powerful
(….) These conventional metrics [i.e., GDP, misleading and deceptive unemployment metrics, etc.], however, ignored the fact that the QUALITY of the jobs was poor….. And the unemployment data ignores the quality of the types of jobs being created. Recent research by Professors Lawrence Katz of Harvard and Alan Krueger of Princeton based on non-labor force survey data (private sampling) suggests that “all of the net employment growth in the U.S. economy from 2005 to 2015 appears to have occurred in alternative work arrangements.”3 That is standard jobs with predictable income, pension benefits and health care coverage, have disappeared and are being replaced by more precarious contract work and other types of alternative working arrangements. Quantifying this trend, the authors conclude the following:
“The increase in the share of workers in alternative work arrangements from 10.1 percent in 2005 to 15.8 percent in 2015 implies that the number of workers employed in alternative arrangement increased by 9.4 million (66.5 percent), from 14.2 million in February 2005 to 23.6 million in November 2015.”
Thus, these figures imply that employment in traditional jobs (standard employment arrangements) slightly declined by 0.4 million (0.3 percent) from 126.2 million in February 2005 to 125.8 million in November 2015. Unfortunately, we cannot determine the extent to which the replacement of traditional jobs with alternative work arrangements occurred before, during or after the Great Recession. (Fullbrook et. at. 2017, 326-327. Explaining the rise of Donald Trump. In Trumponomics: Causes and Consequences.)
(….) The final change I want to draw attention to is the increasing precarity of the U.S. working-class. They’re increasingly employed in part-time jobs … and in “alternative” work arrangements. As Lawrence Katz and Alan Krueger (2016) ahve shown, just in the past decade, the percentage of American workers engaged in alternative work arrangements — defined as temporary help agency workers, on-call workers, contract workers, and independent contractors or freelancers — rose from 10.1 percent (in February 2005) to 15.8 percent (in late 2015). And it turns out, the so-called gig economy is characterized by the same unequalizing, capital-labor dynamics as the rest of the U.S. economy.
What is clear from this brief survey of the changes in the condition of the U.S. working-class in recent decades is that, while American workers have created enormous additional income and wealth, most of the increase has been captured by their employers and a tiny group at the top as workers have been forced to compete with one another for new kinds of jobs, with fewer protections, at lower wages, and with less security than they once expected. And the period of recovery from the Second Great Depression has done nothing to change that fundamental dynamic. (Fullbrook et. at. 2017, 350-351. Class an Trumponomics. In Trumponomics: Causes and Consequences.)
[T]he jobs shifted away to be done by separate employers pay low wages; provide limited or often no health care, pension, or other benefits; and offer tenuous job security. Moreover, workers in each case received pay or faced workplace conditions that violated one or more workplace laws…. In the late 1980s and early 1990s, many companies, facing increasingly restive capital markets, shed activities deemed peripheral to their core business models: out went janitors, security guards, payroll administrators, and information technology specialists…. Even lawyers who handle our business transactions and consultants who work for well-known accounting companies may now have an arm’s-length relationship with those whom we think they are employed. By shedding direct employment, lead business enterprises select from among multiple providers [i.e., ‘preferred vendors’ as MSFT calls them] of those activities and services formally done inside the organization, thereby substantially reducing costs [they play vendors off of one another based on cost and create what is know in the recruiting/staffing industry ‘the death of the middle man’ race to the bottom] and dispatching the many responsibilities connected to being the employer of record [saving as much as ~30% in employee benefits no longer paid]. Information and communication technologies have enabled this hidden transformation of work…. By shedding employment to other parties, lead companies change a wage-setting problem into a contracting [and price] decision. The result is stagnation of real wages [and loss of employee benefits] for many of the jobs formerly done inside.
— Weil 2014, 3-4
David Weil’s book The Fissured Workplace sheds light on the extent and nature of this “shedding” of employees by corporations. The evidence shows that increasingly employers are forcing workers into temporary, contract positions, or part-time “gig” jobs in a variety of fields. Female workers suffer most heavily in this new fissured economy, as work in traditionally feminine fields like education and medicine have been declining and shifting to the use of contract workers. The disappearance of conventional full-time work, 9 a.m. to 5 p.m. work, has hit every demographic. Krueger, a former chairman of the White House Council of Economic Advisers, was surprised by the finding. “Workers seeking full-time, steady work have lost,” said Krueger.
But it would be a mistake to believe that the highly skilled and highly educated technology/knowledge workers are immune from this kind of fissuring, for it is continuing apace within the major global technology corporations — know as “lead companies” — like Microsoft, Google, Facebook, Wells Fargo (and banks in general), etc., continuing to lay off entire divisions and groups only to rehire them back as “contingent” workers employed by one of the lead firm’s designated “third party vendors,” or “preferred vendors,” or “partners.” The worker/employer power balance of entire industries can be shifted to favorably give corporations huge advantages by the use of opaque global supply chains that use technological smoke screens and employer delegated deception to hide the real nature of these relationships meant to disadvantage the workers economically.
It is now possible to do to white-collar high-skilled high-education workers what has already been done to blue-collar low-skilled low-educated workers, except now it is no longer necessary to “export” those jobs overseas when such technology workers can be shed by lead corporations and forced to work locally for a “third party vendors” (aka staffing companies) at a sometimes 50% to 60% reduced family income and sometimes with little or no employee benefits (e.g., healthcare, sick days, vacation days, etc.). Yahya under the section “Statement of the Problem” writes:
The emergence of knowledge-based economies (KBEs) in developing countries has the potential to leapfrog these economies to compete in the globalized services sector (Rooney et al., 2003). While reducing labour costs is a main reason for outsourcing, it is not the only driver: other determinants include the need to improve quality of service and providing new services for customers (Kaplan, 2002). The rise of the KBEs also illustrates that the distinction between white collar and blue collar workers is an archaic concept because both categories are subjected to the same conditionalities of business cost reduction and profit maximization. The advance of technological developments increased their commonalities, which made white collar service employment just as vulnerable as blue collar work. The convergence of the Information and Communications Technology (ICT) sector has fuelled economic growth but has increased the displacement of service jobs from developed to developing economies (Rooney et al., 2003). The rise of the global IT industry and the outsourcing of various services to lower-cost developing countries are performed through the spatially unbundling of tasks and relocating them to the most productive locations (Wilson, 1998).
Yahya is mistaken in his claim this form of the “fissuring workplace” improves quality of service, for it actually reduces the quality of service as evidence has shown. When family wage earners are forced to become “contingent” workers in the “gig” economy they are effectively turned into precarious workers who have far less social security in terms of job stability, wages, and benefits. Typically they are forced to work longer hours for less pay and fewer employee benefits, or sometimes non at all. The twin objectives of “fissuring” — reducing costs and simultaneously improving quality of service — turn out to be a chimera in reality leading to overstressed and underpaid precarious “contingent” workers suffering from increased socio-economic anxiety and workload exhaustion.
This has an overall destabilizing social impact on family wage earners — especially single women with children — and society in general. These “external” costs to families and society are rarely considered within economics typically being treated as “externalities” that are exogenous to econometric analysis. With the decline of the power of unions workers — in all classes and domains, from blue-collar to white-collar — are being subjected to increasing wage suppression tactics much of which is hidden behind intentional lack of transparency and technological smoke screens that give major corporations asymmetrical information advantage over workers in deciding wages and compensation values in the so-called “free market” which is in reality a highly rigged market.