Saturday, April 2, 2016

Neil Wilson — The steely view on steel


Interesting analysis of the UK, not only steel.

3spoken
The steely view on steel
Neil Wilson

10 comments:

Matt Franko said...

The non-western nations have finally ripped off the Bessemer Process after a couple of hundred years and now they are all proud of themselves and selling it like banshees to the point of practically giving it away...

Dan Lynch said...

I don't know enough about the UK steel industry to form a strong opinion on the subject. I'm not opposed to nationalization or protection of vital industries, but don't know enough about the UK plants to say whether they are "vital."

Nationalization, subsidies, and protection do not preclude modernization and automation. China's industries are nationalized and/or subsidized and protected, yet China has been building automated, state of the art plants. The difference is that China still has elements of a planned command economy while the West believes in letting the market make decisions.

"Moreover saving jobs in steel in Wales means that the worldwide over-production of steel continues."

Agree. There is no point in producing steel that no one will buy.

"Port Talbot is a warning on many levels that we have no mechanism in place to handle obsolescence, failure or de-growth either on a regional or national level."

Agree. But China does have a such a mechanism in place, and it's not a job guarantee. It's a planned economy. Even though China has allowed privatization, it still does strategic economic planning and still has a large defacto "command economy" sector, for example their recently announced green energy program.

It's not at all clear how laid off steel workers, many of whom have specialized technical skills and training, would fit into a minimum wage JG? This is an issue I have raised over and over again and have never received a satisfactory answer.

"A guarantee that gives people the opportunity to retrain."

Retraining for what? First you have to create the job openings.

In my mind the logical role of a JG would be to serve as a safety net for the "less desirable" workers that the private sector is reluctant to hire -- the young, the unskilled, the disabled, etc.. A JG would be a poor substitute for fiscal activism or for government planning of the economy.

"If we are to persist with a market system, then we have to have a market containment vessel that expects failure to happen and controls for it."

I'm glad Neil pointed a finger at the market economy, which is really a political economy because it's a political system as well as an economic system. Neil makes many good points, though I'm not sure where he's going with it? :-)

Ian Welsh made a similar point today: " Capitalism isn’t “just” an economic system. The great mistake of the social sciences was changing from “political economics” to “economics”. Capitalism is a political choice, but it’s also how we make most of our group choices."

Neil Wilson said...

"It's not at all clear how laid off steel workers, many of whom have specialized technical skills and training, would fit into a minimum wage JG? This is an issue I have raised over and over again and have never received a satisfactory answer."

You have Dan. But you don't like the answer.

I have specialised technical skills and training in Microsoft Windows NT 4. I have certificates to prove it.

But I won't get any bids with those skills because they are obsolete. About 15 years obsolete.

In a market economy the only reason you get more than the living wage is because you have multiple bids. That's how the system works, and how it continues to work under a Job Guarantee or any other system where there remains a market economy in wages.

Therefore if Windows NT 4 was all I had, and the firm I was working for finally succumbed to obsolescence, then I would drop to getting a living wage - if I hadn't already.

And that is what will happen to anybody in a firm that fails through obsolescence. Their wages drop to their bid level - as they should do once demand is taken out of a market.

There is wage rigidity with a firm for as long as it continues to function. And you can run with obsolete skills and machinery for a very long time. I've worked in firms using 50 year old kit and techniques so old it was getting difficult to source the supply material (I had to get the fish glue from Canada in the end). Using old capital and techniques nobody else left had gave them a competitive advantage in speed of response. But if that gets eroded (as it probably has with 3d printing techniques) then the firm fails and the obsolete skills get exposed to the market.

Above the living wage there is a market in higher bids. If that market works well then the gap between the bottom bid and the top bid will fall into a narrow range that society finds acceptable. If it doesn't work well then you end up with Junior Doctors barely getting the median wage, while bankers live high on the hog.

And remember the goal is to continually chip the living wage up to take account of productivity gains. So the more the private sector innovates to eliminate jobs, the more that is shared around amongst those working elsewhere by the pressure of the Job Guarantee and public investment.

" A JG would be a poor substitute for fiscal activism or for government planning of the economy."

Nobody is suggesting that the JG substitutes for government spending in other areas. It's just that those areas are 'required' rather than 'nice to have'. If they are 'required' they have to be done at a particular time, and that means the resources have to be taxed out of the system for use. The JG deals with 'nice to have' stuff that can be left on the shelf if nobody is available to do them.

So you have the private sector bookended by two rounds of fiscal activism. The first gets the 'required' public services, the private sector then works with what is left, and the JG picks up those that the private sector doesn't want to use.

Dan Lynch said...

"In a market economy the only reason you get more than the living wage is because you have multiple bids. That's how the system works, and how it continues to work under a Job Guarantee."

Having a market economy is a political choice.

A JG would be a choice to socialize the market for unskilled labor. For some reason MMT believes in socializing unskilled labor but not in socializing skilled labor?

As Mosler points out, the government has the purchasing power to set prices, and often does so whether or not it admits to it. The U.S. government is the defacto market maker for STEM jobs. If STEM workers are unable to find STEM jobs, it's because of government policies.

My feeling is that since the government -- beginning with JFK and continuing to this day -- has encouraged its citizens to get a STEM education, constantly bombarding us with propaganda that there is a shortage of STEM workers and that it's our patriotic duty to go into STEM fields so the U.S. can compete with other nations, then the government has a moral obligation to provide STEM jobs for every single STEM worker.

Otherwise the government should come clean and admit that the fake STEM shortage was invented to benefit corporations.

Engineering is not obsolete, Neil. Is there a shortage of engineering projects that need to be done? Green energy? Infrastructure? Transportation? Basic R&D? Flint, Michigan's water treatment? China is investing in those types of projects while the U.S. (and from what I hear, the UK) are becoming banana republics.

Your Windows NT skills may be obsolete, but anyone who has mastered two or three operating systems and languages can quickly pick up other operating systems and languages. Yet instead of hiring a middle aged tech worker and giving him a chance to learn on the job, employers hold out for Mr. Perfect, particularly a young or an immigrant Mr. Perfect. Why? Because they get boxes and boxes of STEM resumes to choose from thanks to government policies that maintain a slack STEM job market, and young people and immigrants work cheaper and longer than middle aged Americans.

Resources do not have to be "taxed out of the system" to support public projects unless the economy is already running at full capacity, WHICH HAS NEVER HAPPENED IN THE U.S. at least since WWII, if even then.

Public projects don't necessarily have to be done at a particular time. Ongoing operations and maintenance require ongoing funding, but improvement projects and research projects can be funded as needed to maintain full employment. The 1946 proposal for a permanent WPA called for maintaining a "wish list" of public projects, with funding released at a rate calculated (using the principles of sectoral balances and functional finance) to take up the slack in the economy -- and paying the prevailing wage for each occupation rather than the JG's minimum wage. I've never heard a valid MMT economic argument against such a proposal other than it wasn't invented by MMT.

We can agree that the neoliberal free market system is a failure from the worker's point of view. The question is how to move forward, both politically and economically.

Footsoldier said...

There is often a curious inconsistency among those who advocated for free markets.

They hate government involvement in the economy yet propose complex regulative structures (for example, tariffs) which would increase government control on resource allocation and, not to mention it, force citizens against their will to purchase goods and services they reject in an open comparison on price and whatever other characteristics.

Calgacus said...

Dan: These ideas of what MMT says & does not say, proposes and opposes are not entirely right. The "wish list" wasn't just a 1946 proposal. It's in Keynes's General Theory. Similar ideas in Graham's Storage & Supply. If you looked at any basic economic textbook of the Keynesian era - there's a mention of how it was policy in the USA & everywhere else.

MMT doesn't argue against this, or against a higher prevailing wage policy. Because the problems you worry about are completely imaginary. Never seen anywhere in the history of the world. And would be pretty damn trivial if they did occur. Where & when is this country where the "unskilled" are paid well & live well & are never unemployed - but where doctors & lawyers & engineers & scientists are begging on street corners?

The experience everywhere & common sense - is that if you decide everybody gets a decent job doing good stuff, then the more highly skilled - those who can do better stuff - will get even better than decent jobs, paying more. This is automatic. Why on earth worry about them?

One common mistake is contained in the idea that a JG is "socializing" a labor market. No. It's already socialized, by definition. A sane economy with a JG is not some kind of external intervention into a pre-existing market economy. No. The "market" is the side effect of the pre-existing socialization. That the labor market is socialized in a bizarre way that deprives millions of economic freedom, just so that billionaires can hire maids & butlers for cheap, just so that a few plutocrats can decide who has a decent life or not, is nuts. Yes - "Having a market economy is a political choice." but this idea should be taken even more seriously than you do.

Tom Hickey said...

Markets, especially the so-called labor market, are not efficient, because they are not designed to be efficient. That is a myth. They are selective based on rationing by price, and they sideline resources that don't get a bid, or they use resources inefficiently when underbid, as in underemployment. Both unemployment and underemployment constitute waste of available real resources that could be more effectively and efficiently deployed. There is a difference between price and value, value being the potential of a resource to produce. When there is no bid or the resource is underpriced, then value is either unused or underutilized. That's economic waste and it creates drag.

Governments that are sovereign in their currency can always afford to create buffer stocks and subsidies to smooth out inefficiencies of markets over time. There is no reason not to extend some sort of JG to all willing and able to work at their skill level and to retrain and re-employ those whose skills become obsolescent, jus as it is socially reasonable, some would argue socially necessary, to subsidize those unable to work.

Firms resist this since they profit from market inefficiencies, and labor markets inefficiency in particular. In fact, they favor policy that increases labor market inefficiency by creating a buffer stock of unemployed and underemployed rather than allowing buffer stocks that reduce inefficiencies where markets don't allocate available real resources effectively, especially from the social vantage, or efficiently from the economic standpoint.

In contributing to create a good society, a smoothly running market-based economy needs not only government regulation but also participation, e.g, in providing public utilities and public goods, such as national security, legal system, monetary system, administrative system, educational system, health care, pensions, safety net, etc., including subsidies and buffer stocks to ensure effectiveness, efficiency, resilience, etc, based on the general welfare and public purpose.

Leaving much of this to the private sector because of supposed market efficiencies is daft. The result is enormous waste of real resources and underperformance. Important stuff just doesn't get done.

Neil Wilson said...

"A JG would be a choice to socialize the market for unskilled labor. For some reason MMT believes in socializing unskilled labor but not in socializing skilled labor?"

Dan, please. Again nobody is saying that.

The JG is just the buffer stock. It replaces unemployment with employment. It replaces £70 per week + nothing with £375 per week + output in a ideally distributed manner that prevents the complete collapse of demand in regional areas. It provides a permanent alternative bid for every labour resource in the market at a fixed price. It is the ultimate equal wage employer.

What that does is turn the market into a proper market. You can always say 'no deal' to any private *or public* sector offering and go work for the JG.

Once you have the JG in place, then by definition you have full employment. And that means that any further public sector manipulation is actually done on a simple tax and spend basis

So at that point if you want to pay somebody more than the living wage in the public sector, then you have to tax somebody else to pay that differential. It's a simple transfer. In other words you have to justify the higher wage, and therefore the inherent inequality, to the electorate before you undertake a programme. Do that, and you can go as far down the road to complete state socialisation of jobs as you like.

"Engineering is not obsolete, Neil."

Again nobody is saying it is. My examples showed that *particular* skills become obsolete over time, and you have to completely retrain into new skills to ensure that you retain a bid in a market economy. If you don't then you drop to the JG living 'equality' wage because there is no bid for your current skill set. Obviously I don't use Windows NT skills any more. I rely more on experience and gravitas and my reputation for getting stuff done there days. Chasing tech skills is a young person's game.

Neil Wilson said...

"Public projects don't necessarily have to be done at a particular time."

Most do. That's why they are undertaken. Nice to have public project do exist though and can be put on the shelf at a fixed price ready for bids (Bill Mitchell mentioned this just the other day, but as usual I can't find where he said it) but you still have to justify to the electorate why anybody who undertakes those projects should get paid more than the JG equality wage. Because if there isn't enough work in the system then by definition you can pick up those spare resources at the JG wage and still get them to produce the same amount of output. Which is better value for the public sector and society overall.

I think what you are struggling with is the idea that 'skilled' people should always be paid more than 'unskilled' people, yet you don't have a mechanism by which the differential can be justified or determined. 'The market' is one such mechanism, and is the one currently in use.

The usual L'oreal socialist justification of 'because I'm worth it' just isn't good enough, since that fails to deal with obsolescence as well.

There isn't a 'market wage' during a recession. The recession is a mechanism by which market wages are shifted downwards, outdated skills eliminated and those losses allocated to individuals.

'Public list' infrastructure works can exist, but that requires a higher tax rate on the general population to pay the differential. If you can justify that to your population then you can do it.

And every MMT economist I've read puts such a system forward. They all do and I do. But it still needs to be in conjunction with a Job Guarantee, because public list stuff doesn't catch everybody. It can't - since it fails to solve the matching problem. Public list is still matching people to jobs. You still need the JG which invents jobs for people as they are - something that matches jobs to the people.

Not everybody can work on 'public infrastructure' because they don't have the skills or inclination for that type of work. You need to cover all the different types of work there can be.

Calgacus said...

Neil:Once you have the JG in place, then by definition you have full employment. And that means that any further public sector manipulation is actually done on a simple tax and spend basis.
So at that point if you want to pay somebody more than the living wage in the public sector, then you have to tax somebody else to pay that differential


That's not exactly true. It might work that way. It might not work that way. Once you have full employment, this kind of "sound finance" becomes much more reasonable, a reasonable first approximation, but still only an approximation. If the pay differential is justified by the recipient actually being a hero of socialist labor who produces more, then there is no inflationary pressure and no pressure to "tax somebody else".

Similarly, for Bob's public list infrastructure, the primary criterion is - "are they (the projects & the workers) actually worth it?", not "can we raise taxes to forestall inflation?" If there is a depression, if there is high private debt (both of which will lead to higher saving desires, from deleveraging etc) if the world is recovering from decades of economic strangulation, all of which are true enough now, there is a lot of room for wish list, higher wage stuff of the sort Bob advocates, before things are on a simple tax & spend basis.