Relentlessly Progressive Political Economy

Well CanWest global has finished the year as a penny stock but then that is what you get for trying to sell a newspaper that people will only take for free and only read it if it is the only thing West-Jet will offer you.  Yes sadly I find the National post just a little more entertaining, but never more enlightening, then the pass the toilet paper over your head parlour game adjudicated by the ever so cheery flight attendants.  You know the ones: they look and sound as though they just stepped out of a Human Resource Management drink the cool-aid seminar.  If any group of workers ever needed a union it is surely those poor bastards.

Luckily, this year, I will avoid both CanWest and West-Jet.  I have other plans.  So thanks to all the real haters out there and just remember around the Christmas table: no justice, no family peace.  Good luck.

Harper on  CTV:

“We are not interested in making it lucrative to pay people not to work, it’s not what this government is about, that’s not what the taxpayers expect us to spend money on…not making Employment insurance more generous.”

Man it is like this guy never gets  the memo.  He will be eating that by mid February.

HT: Far and Wide

I have been going around on this one for some time.  The new-Keynesians’ (NKs) widely regard themselves as being a realistic improvement on their new-classical cousins.  One area in particular is said to be major part of their coup-de-grace.  Namely, the explanation of unemployment by recourse to the efficiency wage conjecture.  In short, firms pay an above marginal product wage to elicit the requisite effort of workers. This above marginal wage, in the aggregate, is the cause of unemployment.

Lets do a mind experiment.

Said worker is hired for $12.50 per hour.  The employer gets X work effort (we) which is less than their marginal product.

Said worker gets a raise of $2.00 per hour.  The employer gets X + we*+we** which equals the worker’s marginal product.

The only way the efficiency wage hypothesis can add anything to the neoclassical story is if workers, when hired, deliver a work effort below their marginal product.  Problem is, this would already explain unemployment.

Similarly, if the extra $2.00 per hour actually induces a work effort on the part of labour such that it equals their marginal product then unemployment can’t be explained by recourse to the efficiency wage premium because the wage equals the marginal product.

If, when workers are hired at the initial wage, the worker delivers a work effort at their marginal product then there is no need for efficiency wages:  efficiency wages are then irrational and the NKs have violated the terms of the peace.  That is, they have teased a sub-optimal outcome by recourse to irrational behavior on the part of employers.

So where is the savvy?

—————–

Update: Nick Rowe was generous enough to walk me through it.

My problem was that I was stuck on this paragraph out of the Stiglitz Shaprio (1984) article “Equilibrium Unemployment as a Worker Disciplining Device:”

To induce its workers not to shirk, the firm attempts to pay more than the going wage; then, if a worker is caught shirking and is fired, he will pay a penalty.  If it pays one firm to raise its wage, however, it will pay all firms to raise their wages.  When they all raise their wages, the incentive not to shirk again disappears.  But as all firms raise their wages, their demand for labour decreases, and unemployment results.  With unemployment, even if all firms pay the same wages, a worker has an incentive not to shirk.  For, if he is fired an individual will not immediately obtain another job.  The equilibrium unemployment rate must be sufficiently large that it pays workers to work rather than to take the risk of being caught shirking (p.433).

This is the paragraph I had in mind when I wrote the original message.  Nick did me the favour of transposing it onto the supply-side… and then… the light:

Here is how I would write it:

Suppose we start at zero unemployment, supply=demand for labour. One firm realises that if it raises its wage above other firms’ wages, its workers will not shirk. Other firms realise this too, so each tries to raise its wage above other firms’ wages. They cannot succeed at this of course, but the result is that wages rise. As wages rise, quantity of labour demanded falls, and quantity of labour supplied rises, so there is an excess supply of labour, or involuntary unemployment. Wages stop rising when unemployment gets high enough to deter shirking, without an individual firm needing to raise its wage above other firms’ wages.

This is I think a much clearer presentation.  I have several residual doubts about the logical consistency of the explanation.  It seems to me that the EW conjecture relies on workers comparative evaluation of their own wage relative to the prevailing sectoral wage.  I get the Mdisutil side of the story (see comments section) that is, I get the supply side description but I still don’t get or don’t buy the demand side part of the argument.  Actually what I find fuzzy is the dynamics  responsible for firms demanding more labour than mp wages would warrant.  Alas, this will have to wait for another day.

As to the question of whether or not this NK conjecture is Keynesian?  I will just sketch my initial thoughts.  Part of the problem is that Keynes retained the neoclassical labour supply curve and the marginal disutility conjecture.  As Spencer* (2006, p. 467) points out, Keynes’ deployment of effective demand does not account for the origins of unemployment, but, rather, explains its persistence and does not necessarily point in the direction of a certain policy intervention because Keynes retained the crucial neoclassical equality between the real wage and the marginal disutility of labour.

It may be that the NKs are Keynesian but only because they retain the labour supply curve and fail to account for the origins of unemployment (as Nick might say (?): as we understand it when we ask the average unemployed person why they are unemployed).   But in this sense, the strict new-classical conjecture has the same problem: there is a theory of the volume of employment but not much else.  I think Spencer is right: if you retain the NC supply curve then not much can be added to the basic NC conjecture on unemployment: wages are too high relative to what their marginal product would warrant.  The NKs achieve the same result but through the argument that EW>MP wage and hence calls forth too much labour supply resulting in involuntary unemployment.   But at the end of the day wages are too high to clear labour markets.  It strikes me that the essence of Keynes GT was an attempt to escape this logic.

*Spencer, David A. “Work for All Those Who Want It? Why the Neoclassical Labour Supply Curve Is an Inappropriate Foundation for the Theory of Employment and Unemployment.” Cambridge Journal of Economics 30 (2006): 459-72.

The BOC thinks Canada is in a recession and this comes just two months after the US was in recession so I have to say I won.   Now the critics  will say sure you were right but you never said why you were going to be right,  so you were wrong ( the critics are still in denial about unemployment).  To that I will only reference what I said at the time.  What did I miss?

De-linking has been revealed as a fantasy for china too.  This is the mother of all fears.

Given the day’s events it is time the coalition presented in concrete terms the price for peace.  It is is imperative the coalition not be seen to be unwilling to cooperate with the Cons. I would humbly suggest three terms that would allow such cooperation going forward:

1). Resignation of Stephen Harper as PM and head of the conservative party of Canada

2). Environmental tax of 5$ a barrel on all oil produced in Canada with an above average intensity of energy  requirement for production.   Average to be established on the typical energy intensity of light sweet crude production.

3). Full adoption of the Coalition’s stimulus package.

Difficult position for the GG to be in, particularly with a PM who has demonstrated that he is ready to drive the country into a constitutional crisis if not an interscene regional war.  Now the air war commences over the next two months with a ground war being fought by special warrants of public money.

It is a truly bizarre for the first time in Canadian history we have a situation where executive does not enjoy the support of the parliament.

Given that the GG’s power flows through the house I just do not understand (on a purely logical level) how the GG could accede to the request for porogument.  It had to be clear that Harper was using proroguement to avoid a confidence vote which meant that the GG should have said to Harper “as long as your support in the house is in question I am not obliged nor can I accept your request for poroguement.”

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After thought

The only way I can make logical sense of it is that the GG decided that the last vote was a confidence vote and since there had not been a subsequent vote the GG had no choice but to follow the formal fiction that the PM standing before her enjoyed the support of the house even if it was substantively false.  That at least keeps the principle, but not the spirit, of responsible government in tact.  If that were her logic than I would have to agree with the choice.  Technically, in law, Harper did have the support of the house (as long as he did not have to face it).  And it is the in law status that the GG would probably have held as sacrosanct.

It is too bad we will never get know what logic was driving the GG’s decision

As I indicated in an earlier post, I gave up ceramics 10 years ago for more earthly concerns and by a twist of fate I found myself taking night classes at the local craft school.  At the time my basic intention was to find someplace outside of french classes to practices and expand my french.  And as anybody who has spent serious time trying to learn a new language knows: a familiar subject / context helps.  So I though what better way to expand my french than take a pottery class?  I knew a thing or to about pottery so I was sure that I would not have that weird out of body sensation of where the hell am I.

There I found myself “confined” to cone 6 oxidation with a stable of school glazes that were, well to be polite, less than edifying.  So I started experimenting with simple 50-50 ash / stock glazes.  The results ranged from oh shit thats not the future to wow that is simply beautiful.  Below is what I think is one such example.  The vase was wheel thrown, altered and brushed with oxides.  To which is a sprayed 50-50 unwashed but 120 mesh strained ash and faux celedon glaze.

When Dion started-off by noting what all the economists were clamoring for I could not help but think it was basically that trained-at-the-bit mentality that got advanced capitalist countries into the present crisis.  Maybe it is time to, not to stop listening to economists per se, but to listen a little more deftly to their advice and not as Moses did un to the burning bush.

And next time I will loan th Liberals my 2.6 meg pixel phone camera…with a tripod!

I do not expect much from the Cons: they are battling for their political life hoping that only an injunction will stop the doctors from pulling the plug on life support. I do, however, expect something from Norman Spector. If he wants to argue about what he views as the democratic short-comings of the parliamentary system that would be one thing–a reasonable thing I should add. But he wants to argue that it is beyond him how the GG could possibly decide to let the coalition form the government.

How Gov. Gen. Jean could possibly decide now that a coalition led by an interim leader and so lacking in democratic legitimacy could provide stable government to Canadians is beyond me.

On October 14, Canadians selected a minority Conservative government. While more people voted for the three opposition parties than for Harper, no one voted for the coalition that it is being proposed; indeed, all three parties explicitly denied during the campaign they would ever consider it.

Norman is either being disingenuous or is simply ignorant of the democratic mechanics of the parliamentary system. In either case, it is shameful that a senior analyst pundit writing for a respectable News agency can be allowed to at best promulgate ignorance and at worst be guilty of inciting the mob to overthrow the constitutional order.  Neither is very edifying for Spector or the CBC.

To repeat, the most basic fact, that 97% of constitutional scholars and Canadian political scientists would agree on:  The central difference between a presidential and parliamentary system is that in a parliamentary system we elect parliaments who then elect the executive.  The democratic will of the people is expressed whenever the parliament the people elected makes the choice for who will lead the executive.  There may be many faults with this system but it is the one we have IN CANADA and it is not anti-democratic to let the duly elected house decide who forms the executive.
What would be anti-democratic would be if the GG succumbed to public pressure and acted against the wishes of the majority of the house.  Royal power too is subject to the consent of the house.  That is the principle of responsible government.

Norman would do well to do some reading and less inciting of the mob.

Today’s post is sparked by the conservative suggestion that Canadian Political scientists are likely to balk at the idea of a coalition government because it was not won in a general election.  The Heritage Minister ventured thus:

“I think a lot of political science students are going into their university classes today asking their professors: To become prime minister of this country don’t you have to win an election?” Heritage Minister James Moore said in an interview Tuesday with CBC News.

In parliamentary systems the principle of responsible government (since it was introduced) trumps all other constitutional concerns as it relates to the formal functioning of government.  Indeed in every Canadian political science text-book written from either a right, center or left-wing slant the story of the Canadian Constitution of 1867 is always told as the evolution of the principle of responsible and representative government.

And it works as follows: The Cabinet exercises executive powers which symbolically are vested in the crown (we have a constitutional monarchy so it has to be formally as such) but the cabinet itself is drawn from the two houses (the house of commons and the senate) and they, the Cabinet and the PM, enjoy the exercise of executive power only so long as they enjoy the support of the elected assembly (the house of commons).

Hence, strictly speaking, on election day Canadians elect a parliament and then the parliament elects the executive.

Notice that it is this particularity (the flow of legitimacy via the support of the HOC) that makes a minority government possible at all.  That is, the very same principles which enable and give legitimacy to the formation of a minority government are the very same principles which enable and give legitimacy to the formation of a coalition government.

None of this is bizarre. Had the conservatives won a majority of seats on the HOC then they would enjoy the undisputed exercise of the power of the executive (subject to constitutional limits).  But they did not and therefore a Conservative minority gov is no more or less legitimate than any other: In all cases–majority, minority, minority coalition–the ultimate authority and legitimacy rests on support in the house. That is how the principles of responsible and representative government are concretely realized.

What is good for the goose is good for the gander.

That will be the basic story political science students get when they ask the Heritage minister’s question in their political science courses.

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After-thought

I perhaps should have added that all the talk about precedent misses the point to some degree.  The precedents must be derived from first principles.  To the extent that previous precedents cannot be said to rest on the application of first principles–in this case responsible and representative government–they are of little use.  It may be that in the present situation is unique but the first principles are not, and these must be applied when making judicial and quasi judicial decisions.

That is, our GG is going to have to think like a SC judge.

See after thought to this post: