Krugman's False Options

I am SO behind on this blog.  the University version has taken over. As a down payment: Hunter Richards has a nice, digestible set of charts on the decline of what is sometimes called brain work in America...
on the decline of what is sometimes called brain work in America - and on the state of the labor market in general. They are worth going through one at a time.

They helped me think about what didn't like Krugman's Tale of Two Moralities column today. He describes the opposition to the Right's darwinism as this:

One side of American politics considers the modern welfare state — a private-enterprise economy, but one in which society’s winners are taxed to pay for a social safety net — morally superior to the capitalism red in tooth and claw we had before the New Deal. It’s only right, this side believes, for the affluent to help the less fortunate.

Mais non!  A major project for progressives is fix Krugman's incorrect alternative to the Right: it's not that the left wants safety nets, it's that the current accounting for value creation is completely distorted, leading to misappropriation of income in the first place.  Krugman's formulation guarantees that liberals / leftists will lose, since it grants the genesis claims of the Right and wants to weaken them.  It also guarantees the great divide he laments, not because the two sides have incommensurable premises, but because they have the same premise. No conservative has a reason to think of the left as having an alternative philosophy of labor and value that would actually change the position of regular people in society.  The alternative just seems like the "bleeding heart:" version of conservatives.

The year 2010 brought better alternatives for thinking about how to stabilize and grow the actual US workforce and I will get to these.

Missing Bodies

This morning's Financial Times has a headline story called "US banks borrow $50bn via new Fed facility." Doesn't sound too exciting - it starts out by saying the Feds are now better at getting liquidity into the banking system than they were last summer when the wheels went crunch.

But the FT folks have been good at relentlessly unearthing the deeper story:

The move has sparked unease among some analysts about the stress developing in opaque corners of the US banking system and the banks’ growing reliance on indirect forms of government support.

“The TAF ... allows the banks to borrow money against all sort of dodgy collateral,” says Christopher Wood, analyst at CLSA. “The banks are increasingly giving the Fed the garbage collateral nobody else wants to take ... [this] suggests a perilous condition for America’s banking system.”

Where are all of the bodies and timebombs buried? Nobody knows.

That brings us to this chart, from John Authers's column today, "The Short View."

Authers's subject was a Barclay's report that argued that we've been in a period of anomalously low inflation (see the gold line below the red line) that is now over, thanks to cost pressures coming from the booming "developing world."

But there's a more interesting point here. For most of the last century, equity investments gave the investor no gain on retail price inflation.

This brings me to a simpleminded but fundamental point. Overall economies cannot invest their way to prosperity. They have to work their way there, by inventing stuff and then making and selling it. Capital is a prerequisite but not the main vehicle of development. The latter comes from labor. Societies need to be judged by the growth in earned income - what they can and actually do pay their working populations.

On this measure, we're not doing so well.