How to read economic language for bias: “wage inflation” in Newfoundland and Labrador

Sometimes we read things and we get that gut feeling that we are being subtly manipulated.  Economics is of course full of this subtle manipulation.  Words like “choice”, and “efficiency” and even phrases like “free trade,” “efficient markets” and my favourite “the natural rate of X” have a very specific meaning in neoclassical economics which do not not have much connection to what the layperson might think they mean.  What is curious about the above terms is that they all lead the layperson in the right ideological direction even if they (the layperson) have no idea what the terms really mean in economic practice.

To my mind one of the most egregious ‘tells’ is the phrase “wage inflation.”  Here even the pedigree of the phrase is suspect.  In economics the word inflation is generally reserved to refer to an increase in the price level.  If just one good rises in price what we have is a relative shift in prices.  Sometimes when, for example, we disaggregate inflation data we talk about the relative contribution of specific  items like food, and energy to the overall measure of inflation.  But to talk of wage inflation is just bizarre.  Economists do not talk about profit inflation; so why would we talk about wage inflation?  The only reason I can come up with is that when an economist does talk about wage inflation they are either too ignorant to bother listening to, or too biased to bother taking seriously.  There is the third possibility that they think inflation is anywhere and everywhere a function of wage increases which normally goes by the name of a wage cost push theory of inflation.  So the third is really an expression of the soft bigotry that comes from being too biased.

Lest anyone think I am making up false examples or hitting at straw men just click on this document.  Here an economist talks specifically about “wage inflation” in Newfoundland and Labrador.  Now I am sure he is a fine economist but why would Mr. Locke talk about wage inflation?  If he were simply unbiased but confused about what the word inflation meant why would he choose to not also talk about profit inflation?  Indeed, in 2008 profits as a percent of wages were running at 125%.  The decadal average was over 70% whereas the national average was around 25%.  If anything it sounds more like a case of profit push inflation but then again Newfoundland and Labrador do not have an inflation problem: prices rose on average 2.45.  So why talk about inflation at all?  Even more embarrassingly Mr. Locke’s own graph plots wages in Newfoundland and Labrador as a percent of the Canadian average.  His stellar proof (p.10) that wages are the cause of an almost non-existent general rise in the price level in Newfoundland and Labrador is that wages in the province have risen to less than 95% of the national average.

The only answer I can come up with is that in such a context the use of the word “inflation” after the word “wages” is designed to tell the reader that increasing wages are BAD.  Why is it bad?  Because inflation is BAD.  And not as in Michael Jackson’s Bad, but you know BAD.

In any case when you read the phrase “wage inflation” stop reading and do something more intellectually rewarding like cleaning your toilet.  And as you watch the water rise in your bowl ask your partner to come in and watch the “inflation” in the water level.  At least with specific reference to the general level of water in your toilet bowl you will be on safer linguistic and scientific ground than talking about wage inflation.

The irony of greed: The end game for Neoliberalism?

The global economy is in the toilet and the Boomers’ representatives are chanting: “flush, flush, flush.”  Me? I am eating cigarettes and wine while admiring the remarkable consistency in the myopia of all of it.

In the name of fiscal prudence the whole of the advanced capitalist zone is in engaged in austerity budgeting and calls for more of the same.  Even Martin Wolf, in his otherwise insightful column in the FT online today, felt the need to tap his hat and nod in the direction of the genteelism of supply.  Exhibit A, the conclusion to his incisive intervention:

Reconsidering fiscal policy is not all that is needed. Monetary policy still has an important role. So, too, do supply-side reforms, particularly changes in taxation that promote investment. So, not least, does global rebalancing. Yet now, in a world of excess saving, the last thing we need is for creditworthy governments to slash their borrowings.

As is widely acknowledged, monetary policy has little outside of conciliatory role to play at this time.  In so far as the CBs should not make the mistake of tightening policy as the ECB and the BoC did.  But apart from the role of spoiler there really is not much left for the CBs to do.  The problem is squarely fiscal.  As Wolf himself went to pains to argue.  Why then the conclusion given that further tax reductions are not only going to make the fiscal positions of governments worse they will also likely have the same effect as lowering interest rates at this time:  Nadda, ziltch, rien, nothing?  The problem is that Wolf has to tip his hat to conventional wisdom.  If not; he has no hope of bending the ears of policy makers.  Oh well, that is his plight not mine.

Here, given none are listening we may speak frankly.  The world economy is in the toilet because free trade, tax cuts, deregulation and above all the liberalization of finance over the last thirty years let loose a Tsunami of forces both economic and political.  The liberalization of finance and production allowed for the national gutting and then global whipsawing of labour.  As the profiteers profited and retired workers slept while the assets they had built were being systematically stripped and the fortunes being amassed were then turned to the seedy business (although a time honoured practice if one cares to actually read Smith) of buying off the government–and it must be stressed the intelligentsia too–broadly understood.

We now have the perfect storm.  A generation of public and private sector functionaries has been trained to believe that the market can do no wrong and the government no good.  As a corollary is of course the proposition that monetary and regressive tax policy is everything.

The irony, of course, is that any credible account of the present crisis would have to admit that we are here because free trade, tax cuts, deregulation, the flexibilization of labour markets  and above all the liberalization of finance brought us here.  How odd it is then that we should be treated to more of  the same as the cure for what ails us.

The Sensitivity Problem and the Social Sciences: Warn your students

This is a problem I am sure almost anyone who works with data runs into from time to time.  It is also something we need to teach our students.  Which I am sure we all do.  This post is simply elegant example of the problem.

We all know that definitions matter because sometimes the phenomenon we want to look at is very dependent on how it is defined.  Sometimes a small change in the underlying definition is not just sufficient to change the level but also the trend in the time series.  Take the US and the incidence of part time (PT) employment.   If you use the BLS definition of PT employment as anything below 35 hours then since the 1970s there has been an increasing trend in the incidence of part time employment.  If you use the OECD  definition you will arrive at exactly the opposite conclusion.

*Please note the labels on the graph are inverted: fix to come.

What is interesting is that for the other national cases that I am presently looking at the definition only changes the level not the trend.  That is to say, in the case of Canada the long term trend is towards the increasing incidence of part time employment even if on different definitions the prevalence is greater or lesser.  So in the case of the US you can literally come to an opposing conclusion just by a subtle shift in the underlying definition of the phenomenon being investigated.   Econometricians regularly face this problem and it will not do to simply choose one of the two definitions.  Say you want to “test” the proposition that unemployment rates are correlated with the incidence of  PT employment.  Based on the US case you have good reason to believe that the results are definition dependent and you know the definition is arbitrary as the underlying phenomenon is a relative concept.  I would be interested to know what econometricians council when they face this sensitivity problem.

The Problem with Africans and Arabs

April update. This blog post was turned into a full article. Published here: http://www.pambazuka.org/en/category/features/71735

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The way the term Arab is being thrown around these days is enough to give a person reason to pause while celebrating the victories of the people of Tunisia, Egypt and Libya. After all, in the present revolutionary context in North Africa there has been a deliberate effort to erase the fact that Libya, Tunisia and Egypt are all continental African countries. Moreover, to call one’s self Black or African or Arab is to use identity markers that are not indigenous to Africans or even the vast majority of people we now call Arab. The question then is who uses these identities and when? No doubt, mobilizing these identities can be useful for making certain kinds of political claims that advance the needs of African and Arab peoples (pan-Africanism, the Arab league etc). But still, we need to always ask for whom is this mobilization happening.

Cutting off the historical ties between so called Arabs and so called Africans (by which we mean black people, as if those kinds of people are easily identifiable) is a trick of Orientalist historiography (in the way Edward Said uses the term). And investigating the problem of Orientalist methodology is not just about raising the bogeyman of identity politics, rather what ends up happening is that Orientalist methods are often blindly adopted to conceal the multiple historical, political, and economic ties that connect so called black people to browner looking people. For example, Yemenie ancient and contemporary history has deep connections with Somalis, Eritreans and Ethiopians across the Red Sea (20 km),  but the way the story gets told you would think Yemen was closer to Libya, and that the West Side of the Red Sea could be skipped in any story about Arabs. I would venture to say this is ridiculous. And I really don’t think we should accept Orientalist methods when thinking about what is an Arab or an African.

In fact niether Arab identity or black identity is self-evident. Instead, the parameters of identity are negotiated and connected to multiple political and economic processes. We need to be vigilant about how identity is produced as a sediment of various political, economic and social processes and not simply assert it as something given. That can only sound defensive and silly. The fact of the matter is that Egypt as a modern nation-state is deeply connected to the developmental ambitions and contradictions set in play by Mohammed Ali and his off spring, who were the first non-western leaders who really tried to catch up with the industrialised West. But because his project was intimately tied to Sudan, chattel slavery, and cotton production, one cannot separate the developmental trajectories of Egypt from its larger continental African connection and questions of race. After all, from the late 19th century until the mid-1950’s Sudan and Egypt were run as one country. It was Nasser’s revolution that really brought an end to Anglo-Egyptian rule in Sudan. In fact Nasser’s regime was an attempt to resolve the contradiction of the developmental trajectories set in place by Mohammed Ali, Ali’s off spring and their Anglo-Egyptian condominium; the promise of nationalism, of course being that you could democratize development on behalf of the nation’s people. But as such, Egyptian independence was always tied to a very ambivalent relationship to Sudan and vice-versa. On the other hand, Sadat and Mubarak are failed attempts at speaking to these very same developmental patterns that have historical roots. So, we need to be cognizant of how those developmental trajectories map onto notions of race, and regionalism, because it tells us much about how social and political contradictions are resolved. Egypt’s African developmental trajectories also need to be seriously thought through if this present revolution is not going to simply sink back into neo-liberal hell. After all the revolution in present day Egypt signals the failure of post-colonial arrangements, but it also signals the failure of a 3rd world project that Nasser articulated in tandem with the Nkrumah(s), and the Tito(s), etc. Partly this project failed because it was elitist, but more importantly that elitism failed to interrogate national developmental trajectories and to build a truly inclusive popular nationalism (as our friend Franz Fanon might say).

In the case of Libya, then, we should be aware that Ghadaffi was a major player in African politics. So much so that he nearly convinced the African Union to move the seat of the organization to Libya. But again his involvement in politics was not just symbolic, Ghadaffi’s money and weapons are involved in nearly every major conflict on the continent from Sierre-Leone (whose rebels were known to consult the Green book) to the conflicts in Chad and Sudan. The political-economy of Libya is also such that it relies on the importation of large amounts of migrant labourers from the African continent as well as South Asia. Historically, of course, Tripoli was also an important destination in the trans-saharan trade routes (whose starting point lie in the forest regions of “darkest” Africa) bringing important trading goods to Libya that were then exported to the Mediterranean world and beyond. These historical ties are what Ghadaffi himself has mobilized in justification for why the AU should be based in Libya. In contrast to this we have been led to believe that there is a yawning gap between “black” mercenaries and the rest of civilized Libya. But, the claim about the use of black African mercenaries should be viewed with caution. After all, the constitution of Libya outside of an African context is an orientalist fallacy (and fantasy) that obscures the real histories of these places and can only play to a violently racist hand.

A few nights ago someone suggested to me that what tied Arabs together was a shared language and culture.  But spoken Arabic is not always intelligible to other Arabic speakers. In Oman, Yemen, Egypt, Sudan, Tunisia other linguistic practices exist which help form the locally spoken Arabic, but also remind us of other kinds of historical and cultural connections that make up these places (too diverse and complicated to get into now). I also remember being schooled by an Egyptian in Cairo, about why Egyptians are not Arabs. So again, I would venture to say things are complicated and this is not just a matter of identity politics. Instead, it seems that the afro-centrics speak a kernel of truth when they state that present historical methods tend to elide the myriad Afro-Arab connections. However, because the Afro-centrics refuse to periodize their claims, and because they make sweeping statements they end up projecting American history on to the rest of the world. Can we really accept the claim that so-called Arabs are inherently racist towards Black people? Yet, just because such a claim seems implausible it should not make it easy for us to dismiss the point that we need to pay attention to the way race has been operationalized in the framing of the present North African revolutions.

Indeed, because I don’t want to go afro-centric, I think it is better if we do some better dialectical thinking. So, while I would suggest that we need to not rewrite the history of the world as a footnote to America’s cultural wars, at the same time, we need to see that the rest of the world has increasingly come to see itself in highly racialised terms. This too needs to be explained (and only political-economy can explain it). But for now we also need to take seriously the kernel of protest and truth that the afro-centric folks speak about and build on it. Race does lie at the heart of many of these so called Arab revolutions in very complicated ways. Let’s not sweep this under the carpet in the name of self-righteous indignation or else we will add one more substantive reason for why these revolutions might come to nought.

Elleni Centime Zeleke
Adjunct Lecturer
African Studies
York University

Why most economists including Krugman must be against unions

The assumption of my title is that the profession of economics is limited to New Keynesians and New Classicals.  I think it is a fair assumption given the majority of economists working in universities, in economics departments, are one of the two neoclassical varieties.

I find two things interesting about Nick Rowe”s recent post Why New Keynesian macroeconomists are against labour unions

On the one hand,  that his observation should be at all controversial is odd.  From the  outside of the profession, it is obvious that neoclassical economics is hostile to unions.  It is baked into the fundamental model which they were both weaned and teach year in year out.

On the other hand, Rowe’s observation should be controversial because it confirms that economics is dominated by an ontological vision that is consistently against unions (and almost any non-market based forms of cooperation).  I can’t think of any other discipline in the social sciences that manages to maintain such a homogeneous world view.  Put differently, all other disciplines are staffed by a plurality of ontological visions.  And most departments would defend this plurality on the basis of a recognition of the existential fact of human existence and the social sciences.  Pluralism is not loved for the sake of pluralism but rather on the deep understanding that all ontological visions are limited and partial and thus part of a healthy academic / intellectual life requires interaction with radically different paradigms.  In short, it accepts that scientific progress in the social sciences needs more than internal critiques.  That is, progress requires exogenous critiques.

Perhaps when economists Like Krugman, Delong and Stiglitz refuse to be anti-union it is because they do not really buy the ontological model as correct but nonetheless use it because a) it was the price of the dance for admission into the profession; and b), find it helpful on a narrow, well specified, range of questions.

This would suggest a very different relationship to the core model by New Keynesians than their New Classical counterparts.  It may not be pluralism proper but at least it is something.

Maybe economics departments need to hook-up potential candidates to lie detector tests to establish whether or not the candidate really, really, really believes the model.