The People


I’m often struck by how those who most regularly claim to speak on behalf of ‘the People’ are, most frequently, those who hold the people in the most contempt.

Here’s an example of what I mean. Today the Guardian has published an ICM poll showing the gap between Labour and the Conservatives down to just 5%. The Conservatives are up a little, Labour are down a little. Ho hum.

But note the reaction. The comments sections on Guardian pages are usually full of people fuming about the latest evil assault of Cameron, Gideon, and the ConDems on ‘the people’. Yet this empathy with the people vanishes as soon as it appears they might disagree as the following comments show

“If true, this is evidence of the fickleness and irresponsibility of the public even for its own well-being – incredibly depressing”

“I saw a guy on our local ‘Sunday Politics’ segment yesterday who was working as a city street cleaner. When asked, he said he was vehemently anti-EU. What bet he reads the Sun or something such like?”

“What have these fannies done within the last 3 months for the electorate to suddenly swing in favour of them? Or is it just another case of dumb floating voters proving yet again that they’re unworthy of a vote?”

“And the British public shows how easily led it is.”

“I despair. Are voters really that stupid?”

“…yes, in a word!”

“Nothing like a bit of flag waving to distract the proles from their woes.”

“If people were willing to think rationally, it would be impossible to reach any other conclusion, but they’re not: they blame immigrants and people poorer than themselves. I know it beggars belief, but they really, really do. You just want to shake the British public.”

This strain of thought on the left goes back at least to Marx. He cooked up the idea that any member of the working class who perceived their interests differently from how he perceived them was suffering from ‘false consciousness’, a miserable notion that has allowed generations of Marxists and leftists more generally to rationalise the divergence between what is and what their theory tells them should be by blaming the people for not behaving as they should.

I remember a poem by Bertolt Brecht;

After the uprising of the 17th of June
The Secretary of the Writers Union
Had leaflets distributed in the Stalinallee
Stating that the people
Had forfeited the confidence of the government
And could win it back only
By redoubled efforts. Would it not be easier
In that case for the government
To dissolve the people
And elect another?

In defence of economics

The truth is dismal

Economics has always had a dodgy reputation. 160 years ago Thomas Carlyle famously branded it “the dismal science” when he surveyed the gloomy predictions offered by the classical economists. More recently it has been said that economists are heartless calculators who ‘know the price of everything and the value of nothing’. And with economic turmoil raging economics and economists are in the cross hairs again.

In a new book called Economists and the Powerful, Norbert Häring and Niall Douglas argue that modern ‘neo-liberal’ economics has gained its perceived primacy not from any great validity as a theory but because, as a doctrine which justifies the increasing wealth of the rich, its propagation has been well funded by those same rich folks. To borrow from EH Carr, study the economist before you begin to study the facts.

Like so much else surrounding economics this is really just an old debate in new clothes. The classical school of Smith, Malthus, Ricardo, and Mill built on the foundation of the labour theory of value and economics of contending classes, diminishing returns, and stagnation. Karl Marx simply took all this and worked it through to its logical conclusion. Paul Samuelson was correct in saying that “From the viewpoint of pure economic theory, Karl Marx can be regarded as a minor post-Ricardian.”

But the classical economists were wrong on this and so was the theory Marx derived from them. Separately and almost simultaneously in 1871 William Stanley Jevons and Carl Menger developed the marginal theory of value, a subjective theory which devastated Marxist economics almost in its crib. The Marginal revolution and the neo-classical economics it spawned opened up the vista of a growing economic prosperity which would enrich all, a prediction which has largely been borne out. Marxist economists, from 1871 to the present day, have responded by branding neo-classical economics a pseudo-science designed by lackeys of the rich to justify their increasing wealth.

What lies behind the current outbreak of economics bashing is the continuing brutal fallout of the credit crunch. For years governments across the west have been making extravagant spending commitments without devoting much thought to how they would pay for them. They could get away with it as long as the tax revenues from unsustainable bubbles flowed in. But now they have dried up and we are finally being forced to face up to the fact that our governments will be showering us with far fewer goodies than we had come to expect.

This is a painful prospect but it is what it is. America’s government debt doubling in four years and Britain’s increasing by 60 percent in five years are problems, massive problems. We are not worried about them because mercenary economists in the pay of the Rand Corporation are telling us to be worried about them; we are worried about them because we ought to be. And we are nowhere near as worried as we should be.

What books like Häring and Douglas’s – and a notably dimwitted entry, Don’t Buy It, by a strategic communications consultant called Anat Shenker-Osorio who thinks that debts and deficits will vanish if we stop talking about them – are trying to argue is that there is no such thing as economic reality, that our situation can be simply what we choose it to be. The juvenile dumbness of this wishful non-thinking is hard to overstate.

This article first appeared on The Commentator

The life and death of Eric Hobsbawm

Eric Hobsbawm, 1917 – 2012

In his dotage in the 1990s a respected academic historian, author of bestselling books, and lifelong Nazi was interviewed for the Times Literary Supplement about his youthful commitment to Hitler. The interviewer asked “What that comes down to is saying that had the radiant tomorrow actually been created, the loss of fifteen, twenty million people might have been justified?”

The historian replied instantly; “Yes”

Of course, that never happened but something almost identical did.

In his dotage in 1994 a respected academic historian, author of bestselling books, and lifelong Marxist was interviewed for the Times Literary Supplement about his youthful commitment to Stalin. The interviewer asked “What that comes down to is saying that had the radiant tomorrow actually been created, the loss of fifteen, twenty million people might have been justified?”

Eric Hobsbawm, who died yesterday aged 95, replied instantly; “Yes”

It is one of the great mysteries of intellectual life in the last few decades that anyone who confesses to a youthful flirtation with Nazism or fascism is shunned by polite society until a sufficiently long and intense period of penance had passed, while a youthful fondness for communism is presented as one of those harmless things we all go through, like collecting football stickers.

During the 20th century the miserable ideology of communism slaughtered millions and immiserated millions more. Between the Ukrainian famine and purges of the 1930s, the gulags, Mao’s Great Leap Forward and Cultural Revolution, and the Killing Fields of Cambodia, to the insanity of Mengistu in Ethiopia, communism was responsible for as many as 94 million deaths in the last century.

To paraphrase Montesquieu, there has never been a kingdom given to so much bloodshed as that of Marx.

And yet we don’t regard it with the same abhorrence as Nazism. Instead, the death of Eric Hobsbawm is mourned.

Ed Miliband said that this apologist for totalitarianism “cared deeply about the political direction of the country.” More, one hopes, than he cared for the millions whose deaths he excused.

For the BBC Nick Higham wrote that “Eric Hobsbawm was remarkable among historians in being proud to call himself a Marxist long after Marxism had been discredited in the West.” Hobsbawm was remarkable for no such thing. He was remarkable for his slavish devotion to the Soviet Union long after its full horror had been exposed. As Michael Moynihan wrote:

“When the bloody history of 20th-century communism intrudes upon Mr. Hobsbawm’s disquisitions, it’s quickly dismissed. Of the countries occupied by the Soviet Union after World War II—’the Second World War,’ he says with characteristic slipperiness, ‘led communist parties to power’ in Eastern and Central Europe—he explains that a ‘possible critique of the new [postwar] socialist regimes does not concern us here.’

Why did communist regimes share the characteristics of state terror, oppression and murder? ‘To answer this question is not part of the present chapter.’ Regarding the execrable pact between Nazi Germany and Stalinist Russia, which shocked many former communist sympathizers into lives of anticommunism, Mr. Hobsbawm dismisses the ‘zig-zags and turns of Comintern and Soviet policy,’ specifically the “about-turn of 1939–41,”‘which “need not detain us here'”.

In 2002 Hobsbawm wrote “To this day I notice myself treating the memory and tradition of the USSR with an indulgence and tenderness.” Imagine a historian writing that about Nazi Germany and getting a 21 gun salute from the BBC.

Hobsbawm became a Marxist while living in Germany in the early 1930s. Like many during that time he saw a straight choice between communism and Nazism. He wasn’t alone in lacking the imagination to see the alternative of liberal democracy and many embraced totalitarianism of one colour or other.

But few embraced it with Hobsbawm’s vigour. In August 1939 erstwhile foes Hitler and Stalin signed the Nazi-Soviet Pact making Nazis and communists allies until Hitler’s invasion of the Soviet Union in June 1941. Many communists severed ties with Moscow in disgust but, as Nick Cohen points out, Hobsbawm remained a loyal propagandist for Stalin which in practice meant Hitler too.

Hobsbawm traveled to the Soviet Union in 1954 but noted that “It was an interesting but also a dispiriting trip for foreign communist intellectuals for we met hardly anyone there like ourselves.” To quote Nick Cohen again,

“If he had gone to Siberia, alongside the corpses of “anti-Soviet” Ukrainians, Lithuanians, Estonians, Latvians, Chechens, Tartars and Poles, of tsarists, kulaks, Mensheviks and social revolutionaries and of merely unlucky citizens who had been denounced by malicious neighbours, or rounded up by the secret police to meet an arrest quota, Hobsbawm would have found the bodies of communist intellectuals – just like him”

In 1956 the Communist Party of Great Britain again fractured over Soviet policy, this time the brutal conquest of Hungary which left possibly 2,500 Hungarians dead. Hobsbawm supported the invasion.

Time and again Eric Hobsbawm was faced with the full scale of the horror visited by the regime he supported and time and again he remained loyal. As he wrote in 2002

“The Party . . . had the first, or more precisely the only real claim on our lives. Its demands had absolute priority. We accepted its discipline and hierarchy. We accepted the absolute obligation to follow ‘the lines’ it proposed to us, even when we disagreed with it . . . We did what it ordered us to do . . . Whatever it had ordered, we would have obeyed . . . If the Party ordered you to abandon your lover or spouse, you did so”

Hobsbawm pleaded for “historical understanding”; he isn’t hard to understand. He was a man who failed to see that the choice of one murderous regime over another was no choice at all, who lacked the humility to admit it, and who was possessed of an incredible ability to blind himself to realities, no matter how bloody, which didn’t fit his view of the world.

Hobsbawm was the Marxist version of David Irving. Why is his death any more worthy of mourning?

This article originally appeared at The Commentator

Class war, Adam Smith, and the Marginal Productivity Theory of Distribution

Father and son

There is a pleasure almost cruel in seeing someone deploy irrefutable logic to destroy an opponent’s arguments. I felt it this week reading George Reisman’s Open letter to Warren Buffett where the well booted doctrines of Karl Marx got another kicking. By now Marx and his followers ought to be used to this sort of punishment at the hands of Austrians. Eugen von Böhm Bawerk produced his devastating destruction of Marx’s economics, Karl Marx and the Close of His System, back in 1896.

But Paul Samuelson was right when he said that “Karl Marx can be regarded as a minor post-Ricardian”. Marx simply took the aggregative, labour value theory based economics of David Ricardo and took them to their dismal and erroneous conclusions. And when Reisman writes “The doctrine of class warfare is a derivative of the exploitation theory, whose best-known proponent is Karl Marx” we ought to point out that it is found also in Ricardo’s predecessor Adam Smith.

Class War in The Wealth of Nations

Book One, Chapter VIII, of The Wealth of Nations is titled ‘Of the wages of labour’.  Smith charts the development from a situation of subsistence production where “the whole produce of labour belongs to the labourer” via the emergence of private property (which gives rise to rent) and stock (which gives rise to profit) to one where a payment for a good must be divided between the labourer (wages), the landlord (rent), and the stockholder (profit).

Smith goes on to say that “It seldom happens that the person who tills the ground has wherewithal to maintain himself till he reaps the harvest. His maintenance is generally advanced to him from the stock of a master, the farmer who employs him and who would have no interest to employ him, unless he was to share in the produce of his labour, or unless his stock was to be replaced to him with a profit” Smith says that “The produce of almost all other labour is liable to the like deduction of profit”.

Here we have the genesis of the Marxist theory of the workers alienation from the means of production, exploitation, and ‘class war’. Workers do not receive the full product of their labour as they did in the “early and rude state of society which precedes…the accumulation of stock and the appropriation of land”. Instead, this product goes to the stockholder as profit and the labourer receives wages.

With wages, Smith states, “The workmen desire to get as much, the masters to give as little as possible”. We have Marx’s “contending classes”. Smith goes on

It is not, however, difficult to foresee which of the two parties must, upon all ordinary occasions, have the advantage in the dispute, and force the other into a compliance with their terms. The masters, being fewer in number, can combine much more easily…In all such disputes the masters can hold out much longer. A landlord, a farmer, a master manufacturer, or merchant, though they did not employ a single workman, could generally live a year or two upon the stocks which they have already acquired. Many workmen could not subsist a week, few could subsist a month, and scarce any a year without employment. In the long-run the workman may be as necessary to his master as his master is to him, but the necessity is not so immediate.

Smith argued that wages would rise when an economy was growing but otherwise he posited a clear general tendency for wages to feel only downward pressures. From this flowed the idea of the ‘subsistence wage’ with which Malthus earned economics the tag of “the dismal science” and Lasalle’s Iron Law of Wages. Wages will stagnate, Smith argues, and profits will rise. Warren Buffett would not disagree.

But looking at the passage from Smith we can see much wrong with it, or at least, much that has no application today.

First, Smith says that stockholders are “fewer in number” than labourers and thus have a kind of oligopoly power. The error here, perhaps less when Smith was writing, is to regard labour as homogeneous. It isn’t. Skills, like capital, can be specific to a certain role and, thus non-transferable. Just as a “tractor is not a hammer”, Joleon Lescott is not Mariah Carey. You wouldn’t consider putting Mariah Carey on Darren Bent at corners and you probably wouldn’t want to hear Joleon Lescott sing Without You.

It follows that workers with different skills are not substitutes for one another; they are not, in other words, in competition. No brain surgeon ever accepted a lower wage from the fear that the hospital might hire a juggler instead.

Of course, where labour is unskilled it is homogeneous and we would expect to see the increased competition for jobs and resultant low wages which we do. At this skill level, also, capital can be substituted for labour providing a further downward pressure. The answer here is not to raise the banner of class warfare but to accumulate skills.

Second, Smith says that stockholders “can combine much more easily”. However, in practical experience, such cartels are always plagued with problems as we see with OPEC. If a cartel sets a minimum price there is always the temptation for one member to sell below that price and capture the market. Although here we are considering the case where a cartel is setting a maximum price for its labour inputs, the analysis is unchanged as we shall see.

Wages and the Marginal Productivity Theory of Distribution

Thirdly, Smith contends that “In all such disputes the masters can hold out much longer”. This might well be true but the question has to be asked; why would they? If, by hiring a worker at £30,000 per year a stockholder would increase his profit by £40,000 per year, why would that stockholder hold out, throwing away £10,000, in an attempt to drive the worker down to £20,000?

It could be said that the stockholder will lose out on £10,000 this year but will gain £20,000 in every subsequent year. But Smith said that stockholders were “fewer in number”, not that there was only one, so there are those cartel problems. Thus, if, in the initial period, stockholder A is willing to forgo £10,000 and hold out for a wage of £20,000 stockholder B will step in and offer the worker £30,000. He will make £10,000 profit while stockholder A makes nothing. There is a saying about stepping over a dollar to pick up a penny, in this case stockholder B picks up both.

Indeed, if the worker adds £40,000 to profits it makes sense for the stockholder to employ them at any wage up to that (tax wedges notwithstanding). We have arrived, as economists did after 1870, at the Marginal Productivity Theory of Distribution. This simply states that a factor (labour or capital) will be paid to the value of its marginal product.

So, if hiring a first barman generates £100 a week extra profit for a pub landlord that barman will be paid up to £100. If, however, hiring a second barman adds only £80 a week the marginal product of bar staff has fallen to £80 a week and so will the wage even of the first. If hiring a third barman adds just £50 a week and no one will take the job at that wage no one else will be hired and £80 a week will be the wage.

Of course, if there are two barmen earning £80 a week one could go on a cocktail course. His mojito’s might prove a draw, his marginal product will rise and so will his wage. By doing the course, ‘upskilling’, the first barman is differentiating his labour from that of barman two. Their labour is heterogeneous.

Smith himself saw a situation where in a growing economy, one in which the profits of stockholders were increasing, demand for labour would also increase. In this case “The scarcity of hands occasions a competition among masters, who bid against one another, in order to get workmen, and thus voluntarily break through the natural combination of masters not to raise wages”.

However, as we’ve seen, because of heterogeneity on both the labour (due to non-transferable skills) and stockholder (due to cartel issues) sides of the wage bargain it is this which is the general case and not the previously enunciated tendency for wages to fall and profits to rise. Because some ‘hands’ are skilled at some things and other ‘hands’ at other things there is at any given time a “scarcity of hands” in any profession requiring a modicum of skill. And because we have a number of potential “masters” we have at any given time “competition among” them.

Both profits and wages can rise together and the zero sum thinking of Marx and Buffett can be discounted. But Adam Smith’s role in this thinking should not be forgotten either.

This article first appeared at The Cobden Centre

What’s a guy to blog about?

Ed Miliband channels the The Temptations’ Melvin Franklin

Its been a few days now since my last post. That’s not because nothing has happened, quite a lot has and is, its just that I feel like Ive written about it all before. That’s not because of any great predictive powers on my part. Its just that the political and economic policymakers I write about most seem stuck in the same ruts.

Take the euro. A little over a week ago the European Union agreed to a second bailout of Greece on the questionable logic that if a cure has failed the best thing to do is try it again. Markets rallied and the crisis seemed to have passed.

Except it hadn’t. As Ive written again and again and again and again the euro is a project with fundamental economic flaws, a fact which no amount of wishful political thinking or borrowed cash will change. To prove the point the last few days have seen rising yields on Spanish and Italian bonds and fresh crisis, the very outcome we were told the most recent bailout would avert.

Opposite the Scylla of the eurozone crisis we had the Charybdis of the near default of the United States. President Obama has been blamed by the right for the ballooning spending but, as Ive said before, the Bush administration kicked off the current orgy of debt. This, as I have also written previously, shows up how empty all the rhetoric about ‘change’ was. The only ‘change’ is that Obama borrows more than Bush did.

What do we see domestically? The economy continues to be sluggish but given the extent of deleveraging going on this is only to be expected. Indeed, I have previously expected it to lead back into double dip towards the end of this year. There isn’t much George Osborne could do to avoid this and despite what Ed Balls says he would only make it worse. On the bright(er) side, the economy wont pick up properly until this happens.

So we come to the one area where perhaps there is room for me to, not only say something new, but do it in between mouthfuls of humble pie; the renaissance of Ed Miliband as leader of the Labour party. I’ve mocked Miliband though I’m hardly the only one, and he does make it so easy when he turns up at marches comparing himself to Martin Luther King or giving the funniest interview of all time. Indeed, Ed’s comedy antics saw him getting an ‘excellent’ rating from just 22% of Labour members while 53% thought he had been “Poor or Very Poor”.

Then came ‘Hackgate’ and all was changed, changed utterly. Labour supporters hailed “The emergence of Ed Miliband Mark II” or crowed that “his courage in putting his neck on the line to take on News International has vindicated the trust that I and a majority of Labour’s Electoral College put in him last September

But a week, a famously long time in politics, is an eternity in the Labour party. Today saw reports that Miliband wants to weaken the power the trade unions have over Labour party policy. A sensible enough idea (though those are no more fashionable in the Labour party now than they ever were) but one that sees those won over so recently warning darkly that “Ed is playing a dangerous game” All is changed, changed utterly. Again.

But, again, there isn’t much for me to write about here as I’ve already said that “Ed Miliband was an incompetent party leader before ‘Hackgate’ and ‘Hackgate’ hasn’t changed that. After its done Ed Miliband will still be an incompetent party leader”

This isn’t to say I told you so or to claim the power of second sight but simply to reflect on how our leaders insist on repeating their obvious mistakes. Whenever they do something daft you find they did exactly the same thing fairly recently and that it was just as daft then whether it be bailing out busted Mediterranean countries, running another trillion dollar deficit, or changing your mind about Ed Miliband.

Marx said that history repeats itself “the first time as tragedy, the second time as farce” He was doubly wrong. You don’t have to wait for something dumb to become shrouded in the fog of history for someone to repeat it and it can be worse than farce; it can be a dull Sunday afternoon repeat of Poirot. Personally I think The Temptations had it more right than Marx

Air pollution, revolution, gun control,
Sound of soul
Shootin’ rockets to the moon
Kids growin’ up too soon
Politicians say more taxes will
Solve everything
And the band played on
So round ‘n’ round ‘n’ round we go
Where the world’s headed, nobody knows
Just a Ball of Confusion
Oh yea, that’s what the wold is today