I cannot be absolutely sure, but I do not think we are disagreeing much. You did ask an interesting question: "Right, and so why, then, do people continue to pay so much attention to him, or Smith even?"

Assuming economic theory is not justified by political ideology, which it unfortunately is in too many cases, it boils down to the direction of causality you assume drive the market mechanisms and what if any conserved quantities you think might be involved. If I got to choose economic theory on political ideology alone it would be far different than what it actually is. Hence we have supply side and demand side economist. Take the old debate of whether an airplane flies as the result of the air pressure under the wing or the vacuum created above the wing. In fact either description can be more or less valid, but a general description requires you to define it as the difference between the two.

I think people are simply conceptually stuck on the notion of directionality. Bumper stickers like "Mean Corporations Suck" is obviously true by definition, but fails to say anything about any particular corporation. Yet the implicit message is that all that is wrong about an employees situation is the result of the company. When in fact if the employees are allowed to consume too much of the companies resources all employees suffer and the company goes bankrupt. The company might be defined the predator in the situation but without the predator there is not enough resources for the prey to prosper. The Bowley ratio, which applies to agrarian or industrial societies, insures that labor will get their share regardless. Though rules are still needed to limit the ways an employee can be treated.

"The Man in the White Suit" points out the fallacy quiet well. In fact "White Suits" are absolutely required for economic growth. Yet when labor points to "Mean Corporations" as the problem of free enterprise they are implicitly demanding the company pay more in the same way the movie asked people to pay more by suppressing the "White Suit". Little known fact: Cars are often more aerodynamic, with minor modifications, driven backwards because peoples perceptions of aerodynamics is backwards from the reality, like airplane wings installed upside down. Hence our aesthetic sense of beauty is the result of backwards causality. Car designers know this but would rather sell a car than fight the perception. People still pay so much attention to Marx, etc., for the same reason cars are still designed and driven aerodynamically backwards. People take their imagined sense of the direction of causality too seriously.

Labour's share in the GDP of major economies has been steadily declining for a number of years:

http://www.investorschronicle.co.uk/Columnists/ChrisDillow/article/20110126/d650af96-292d-11e0-8051-00144f2af8e8/The-wage-squeeze.jsp[url]

http://davidharvey.org/2010/08/the-enig ... this-time/[/url]

The displacement of labour by machines is an inevitable part of capital accumulation, on a global scale this leads to major imbalances and crises.

Barry Cade wrote:

PairOfFeet wrote:Could someone please explain why the labor theory of value was replaced? I'm kind of new to studying economics, but somehow in a way it makes sense. What about it fails to accurately describe capitalism?

Thanks

The 'problem' with the labour theory of value is that it does accurately describe capitalism.

Once more socialists put ideology above facts. Why am I not surprised?

The labor theory of value is that the value of a good or service is decided by the anount of labor necessary to produce it. In mainstream economics, that theory was replaced by marginal utility in the 19th century. Socialists have yet to reach the 21st century from there.

my_wan wrote:The ratio of labor returns to total returns, the Bowley ratio, has always been a bit of an economic mystery. It would be easy to presume, looking at individual sectors of industry, that return to capital would increase while returns to labor decreases. This is what happens in any particular sector. Yet for the economy as a whole this ratio remains essentially constant. So as capitalization returns increase so does return to labor in direct proportion overall, but not in any individual sector.

This seems kind of intuitive to me, and was alluded to in the last sentence of the long spill above. As the capital returns in the manufacturing sector grew, squeezing out the labor returns, these same returns are then spent in services sectors, computer sectors, etc., etc., that form the growth areas of the economy. The size and number of very large corporations has been steadily decreasing for many years now, while the self employed and small businesses have become the engines of the economy. This is a direct result of very low transaction cost (telecommunications). I well remember people dreaming of getting rich enough to own a cell phone. So the Bowley ratio for any given industry defines the growth areas of the economy, but growth means the labor returns in that industry are at a high and will get will tend decrease over time. Makes things a bit unstable from a career perspective.

Yet the fact remains, for the economy as a whole the ratio of labor returns to capital returns remains essentially constant.

I have recently done some interesting economic modelling that suggest that the above is essentially correct. It turns out the Bowley ratio is not a mystery, it is defined by the level of consumption, and possibly also by debt levels. As manufacturing and agriculture has increased in capital intensity, services have risen to provide more labour employment. It also appears that the Bowley ratio gives a direct feed through to the value of the power of the power law tail for income and wealth distributions. It appears that the increasing levels of debt from the 70s to the present has caused the change in the Bowley ratio, which has then caused a change in the power law which has increased inequality. Finally, the modelling suggests that replacing the labour theory of value with a 'negentropy theory of value' allows lots of economic mysteries to be modelled quite easily.

For a brief explanation of the Bowley ratio see my short paper of the same name:
http://ideas.repec.org/p/arx/papers/1105.2123.html
http://arxiv.org/abs/1105.2123

For a much longer explanation of all the above, see the paper 'Why Money Trickles Up' which can be downloaded from:

http://www.econodynamics.org/

Barry Cade wrote:Labour's share in the GDP of major economies has been steadily declining for a number of years:

http://www.investorschronicle.co.uk/Columnists/ChrisDillow/article/20110126/d650af96-292d-11e0-8051-00144f2af8e8/The-wage-squeeze.jsp

http://davidharvey.org/2010/08/the-enigma-of-capital-and-the-crisis-this-time/

The displacement of labour by machines is an inevitable part of capital accumulation, on a global scale this leads to major imbalances and crises.

That first graph says nothing about the ratio I spoke of. Nor does this consider the credit issue I spoke of. Nor can you consider the UK as a distinct economy, as alluded to in the trade imbalance he spoke of. It also appears that these wages are normalized over all individuals, both employed and not. Because even though it does not say so when he attributed government spending "raised the share of wages in GDP in 2009", while rejecting the "crowding out effect" and also attributing wage depression to unemployment, he basically implied such a normalization across the unemployed. Else he is just babbling? In fact "babbling" just might be the case when you look at this statement:

In recent years - before the crisis as well as after - firms invested less than they made in profits. I - P was negative. This tended to depress wages, by creating unemployment.

So is he blaming firms for not spending themselves into debt? Does he think this profit is in somebodies basement rather than in the bank or financial instrument to continue circulating in the economy?
To be honest, the investorschronicle.co.uk link is so full of unspoken wishy washy claims of cause and effect without actually specifying the assumptions in the graph itself as to be patently worthless. The fact that he defined a few accounting identities up front says nothing about what the graph actually represents much less justifies certain causality claims. Not only does it appear 'likely' that the graph is over all people employed or not but also adjusted for cost of living, as if the capital cost of investment did not share those same hits. The guy goes on as if labors debt load was not increasing but decreasing before the crash, and reversing after the crash. This is obviously as bogus as a $3 dollar bill, just check this out:
http://www.grant-thornton.co.uk/press_r ... uk_gd.aspx
Personal debt up 7.3% from 07 to 08 and 5.1% the following year. Hence the UK's personal debt has exceeded the GDP for two year.

I can make no sense of this data without unwarranted assumptions about what is actually in the data, and cannot stand behind the above assumptions without more information. At the same time I can point to explicit factual falsehoods stated as causal facts in the article. Waste of my time.

The second link:
So this guy says: "everyone had somehow missed “systemic risk.” Well duhh, never would have thunk it.. This guy is also apparently a Marxist. Is this just an intellectual device? Well, he said:

In Marxian theory (as opposed to myopic neoclassical or financial theory), “systemic risk” translates into the fundamental contradictions of capital accumulation.

So no he is not doing any sort of honest comparative analysis. he wrote "The Enigma of Capital, and the crises of capitalism", and the review at:
http://www.independent.co.uk/arts-enter ... 58010.html
States:

Harvey is less interested in the detail of how the 2007-8 crisis unfolded than in understanding it as a manifestation of how capitalism works.

This guy has already decided capitalism is flawed and set out to prove it on data which he does not even have any intention of explaining. And is is Marxism that the intends to use as his model of evidence.

Uugh.. I could forgive the Marxist bent if he would at least be intellectually honest with the data and opposing viewpoints.

Hugin wrote:

Barry Cade wrote:

PairOfFeet wrote:Could someone please explain why the labor theory of value was replaced? I'm kind of new to studying economics, but somehow in a way it makes sense. What about it fails to accurately describe capitalism?

Thanks

The 'problem' with the labour theory of value is that it does accurately describe capitalism.

Once more socialists put ideology above facts. Why am I not surprised?

The labor theory of value is that the value of a good or service is decided by the anount of labor necessary to produce it. In mainstream economics, that theory was replaced by marginal utility in the 19th century. Socialists have yet to reach the 21st century from there.

Class is a fact. The crisis-ridden nature of capitalism is a fact. The antagonism between capital and labour is a fact. It ain't me denying reality.

Barry Cade wrote:

Hugin wrote:

Barry Cade wrote:

The 'problem' with the labour theory of value is that it does accurately describe capitalism.

Once more socialists put ideology above facts. Why am I not surprised?

The labor theory of value is that the value of a good or service is decided by the anount of labor necessary to produce it. In mainstream economics, that theory was replaced by marginal utility in the 19th century. Socialists have yet to reach the 21st century from there.

Class is a fact. The crisis-ridden nature of capitalism is a fact. The antagonism between capital and labour is a fact. It ain't me denying reality.

The labor theory of value is not a fact, and is nowadays subscribed to only by those who favor it for ideological reasons.

Barry Cade wrote:

Hugin wrote:

Barry Cade wrote:

The 'problem' with the labour theory of value is that it does accurately describe capitalism.

Once more socialists put ideology above facts. Why am I not surprised?

The labor theory of value is that the value of a good or service is decided by the anount of labor necessary to produce it. In mainstream economics, that theory was replaced by marginal utility in the 19th century. Socialists have yet to reach the 21st century from there.

Class is a fact. The crisis-ridden nature of capitalism is a fact. The antagonism between capital and labour is a fact. It ain't me denying reality.

So I see, perhaps you are a follower of David Harvey perhaps? Class mobility is also a fact. Just because antagonism between capital and labor is a fact does not make that a bad thing, as I described many times how it benefits the total wealth. So we will look at the "crisis-ridden nature of capitalism". Every attempt at Marxism has resulted in a greater constant poverty than the so called "crisis" times in capitalism. So does making things worse than a crisis all the time remove the crisis where people remain better off than in the not-crisis? On one hand is is not very intellectually honest if you ask me even if it was a purely capitalistic issue. But even worse is the implicit assumption that you can avoid such crisis in a Marxist utopia. This is without even addressing the political realities, which are used as an excuse for saying this or that government is not really Marxist.

So while critiquing capitalism why not address how to deal with the Bowley ratio. Just because you give the labor the money to buy groceries does not mean there are going to be groceries on the shelf to buy. Just ask Russia about that one. Oh yeah, that was not Marxism, only waiting to be a Marxist government of the west when the labor from the rich west rebelled and Russia inherited the production capital

Your links did not even have any definable meaning, much less support any 'implied' criticism that you failed to even try to articulate. So unless you want to address actual solutions rather than pretend a little less rich is a crisis but constantly poor is not your wasting keystrokes.

my_wan wrote:I cannot be absolutely sure, but I do not think we are disagreeing much.

I agree, and any disagreements seem at best artificial.

You did ask an interesting question: "Right, and so why, then, do people continue to pay so much attention to him, or Smith even?"

Assuming economic theory is not justified by political ideology, which it unfortunately is in too many cases, it boils down to the direction of causality you assume drive the market mechanisms and what if any conserved quantities you think might be involved. If I got to choose economic theory on political ideology alone it would be far different than what it actually is. Hence we have supply side and demand side economist. Take the old debate of whether an airplane flies as the result of the air pressure under the wing or the vacuum created above the wing. In fact either description can be more or less valid, but a general description requires you to define it as the difference between the two.

Interesting analogy, because I've been peripherally involved in lots of arguments about this. Having done some airfoil calculations myself (including a particularly interesting one with a curvilinear grid around the airfoil connected to a nonstructured grid outside, such that the curvilinear grid turned and the nonstructured grid deformed), professionally, I find the arguments pretty stupid.

"The Man in the White Suit" points out the fallacy quiet well. In fact "White Suits" are absolutely required for economic growth. Yet when labor points to "Mean Corporations" as the problem of free enterprise they are implicitly demanding the company pay more in the same way the movie asked people to pay more by suppressing the "White Suit". Little known fact: Cars are often more aerodynamic, with minor modifications, driven backwards because peoples perceptions of aerodynamics is backwards from the reality, like airplane wings installed upside down. Hence our aesthetic sense of beauty is the result of backwards causality. Car designers know this but would rather sell a car than fight the perception. People still pay so much attention to Marx, etc., for the same reason cars are still designed and driven aerodynamically backwards. People take their imagined sense of the direction of causality too seriously.

There was a guy back in the 1930s who rigged a car to go backward and found it much more aerodynamic than forward, even given the boxy designs of the time.

I'm glad you saw the movie. What was interesting to me were some meta-reactions. In the late 1970s, my future ex-father-in-law-to-be, a fairly ardent and naive socialist, was horrified by the closing scene of the movie, where the Guinness character experiences an Aha! moment on how to make his fiber stable. In reality, we have that fiber, though it's black. It's called Kevlar. It hasn't destroyed the fashion industry. Those British millworkers truly do not have their jobs, but that's due to mills in China and India, not to Kevlar.

My parents were more realistic, asserting that it was fashion and not longevity that drove the demand for new clothes. That makes more sense. I still have T-shirts from that time that are perfectly serviceable, but I don't wear them that much, because there is not much use for tie-dye these days.

epepke wrote:Interesting analogy, because I've been peripherally involved in lots of arguments about this. Having done some airfoil calculations myself (including a particularly interesting one with a curvilinear grid around the airfoil connected to a nonstructured grid outside, such that the curvilinear grid turned and the nonstructured grid deformed), professionally, I find the arguments pretty stupid.

With respect to that analogy I was involved in a particularly interesting debate phenomena, the DWFTTW debate. I started the OP on it at JREF after the physics forum booted spork from there. This finally got the backing it needed to demonstrate full scale, but had even very well educated people on the subject disagreeing.
[youtube]http://www.youtube.com/watch?v=DPvGTjmn9y0[/youtube]

I would submit that people have essentially the same conceptual limits when it comes to the economy.

my_wan wrote:With respect to that analogy I was involved in a particularly interesting debate phenomena, the DWFTTW debate. I started the OP on it at JREF after the physics forum booted spork from there. This finally got the backing it needed to demonstrate full scale, but had even very well educated people on the subject disagreeing.

Wow! I vaguely remember that debate. As I remember, I thought it was pretty goofy.

I would submit that people have essentially the same conceptual limits when it comes to the economy.

You may be right, and it may be similar to what I was trying to state rhetorically. That is, that the reason people cling to these ideas isn't in order to be accurate, or right, or predictive, or realistic, or anything like that. It's for some other reason, which can be described a lot of ways, most of which amount to having a nice story.

ETA: WRT economics, this may not be as bad a thing as it seems. Since Newton became the Warden of the Royal Mint at least, the idea has been around that economics rests on mere opinion. Money and things have value, ultimately, because people think they have value. The recent depression is not based on anything real, as there is about the same amount of sunshine and rainfall and resources. It's heavily based upon opinion.

epepke wrote:ETA: WRT economics, this may not be as bad a thing as it seems. Since Newton became the Warden of the Royal Mint at least, the idea has been around that economics rests on mere opinion. Money and things have value, ultimately, because people think they have value. The recent depression is not based on anything real, as there is about the same amount of sunshine and rainfall and resources. It's heavily based upon opinion.

Therein lies the biggest issue. It is certainly likely that some aspects of an economic system do rest on opinion. Yet whatever limiting factors an economic system has, independent of anybodies economic opinions, is of *extreme* importance. The rest is just chocolate or vanilla where you can make whatever moral argument for chocolate or vanilla you want. Over the short term you can the productive capacity at a given point in time as a limiting factor, which many people do. Especially Marxist and such. Others think an indiscriminate increase in money flow will somehow raise the standard of living. I once had a boss that swore that inflation had one and only one cause, greed. The variations on individuals perceptions of causal factors is bewilderingly large an generally incongruent.

Take the DWFTTW debate for instance, where limiting factor was perceived to be wind speed. Well, this remains absolutely correct, sort of. It is more like lift above the wing or push below the wing airplane argument, which I defined the correct claim as neither alone but a difference. I have even argued with some professors at a top US institution who made the silly claim that aerodynamics violates Galilean relativity.

So if the wind speed is a limiting factor for DWFTTW what defines wind speed? It is not the absolute speed of the air, but the 'difference' between ground speed and air speed. The speed of air without this relative difference is physically nonsensical. Yet this DWFTTW craft takes advantage of this difference no matter how fast it is going, because the wheels are also tied to the prop. The funny thing is if you had a stationary wind generator powering a moving vehicle of the same weight anybody can see that it can easily produce enough power to exceed wind speed. Yet wind speed still remains a limiting factor in how fast it can go. So being right in your claims does not mean you are right about the consequences of your claim, as the justification does not provide a causal directionality (like a wind direction across the ground).

Now back to economics:
The way I model economics in my head is like a generalized predator prey relation. By the way, you can also model a pendulum swing as a predator prey relation if you define the physical agents on much more esoteric grounds (potential and kinetic energy). In economics quantities have paired sets working against each other, money/production, consumption/capital, etc. Labor is generally considered consumers so you also have (labor returns)/(capital returns).

Now, just like in ecology, predators cannot consume all the prey because they start starving as soon as the prey population gets too low. Once the predators start starving then the preys population will come start recovering. Also, they prey cannot do better without the predators because their population will simply grow too large for their food supply, leading to the same population crash and may even keep their food supply from recovering to the point that more prey can survive with predators than without.

So when people claim that limiting/expanding capital, or limiting/expanding labor, is the solution to a perceived economic issue, in effect they are failing to recognize that labor and capital not only limit each other, but also depend on each other to remove the limits for each one individually. Just like the DWFTTW vehicle removed the wind speed limit by tying both the prop and wheels together so that together the (ground speed)/(wind speed) together provided a constant power source at all speeds. So when someone talks about placing limits on capital returns they are by definition placing limits on labor returns. Hence the Bowley ratio exist for essentially the same reason rabbit and fox populations average out to some ratio. Though they can and will meander around this average.

This certainly does not mean that policies geared toward improving standards for labor is necessarily bad or have any undue cost, and may even have more value in the standard of living or efficiency than what is traded for it. But indiscriminate take and give is certainly almost always not in the receivers best interest overall. Standard market incentives must remain in place in most situations. Likewise, indiscriminate denials of any policies geared at improving labors standards are equally bankrupt. Positioning our political arena on these two extremes is simply not very realistic, but they play out their popularities in the same way rabbits and foxes play out their respective advantages in different population mixes.

my_wan wrote:

Barry Cade wrote:

Hugin wrote:

Once more socialists put ideology above facts. Why am I not surprised?

The labor theory of value is that the value of a good or service is decided by the anount of labor necessary to produce it. In mainstream economics, that theory was replaced by marginal utility in the 19th century. Socialists have yet to reach the 21st century from there.

Class is a fact. The crisis-ridden nature of capitalism is a fact. The antagonism between capital and labour is a fact. It ain't me denying reality.

So I see, perhaps you are a follower of David Harvey perhaps? Class mobility is also a fact. Just because antagonism between capital and labor is a fact does not make that a bad thing, as I described many times how it benefits the total wealth. So we will look at the "crisis-ridden nature of capitalism". Every attempt at Marxism has resulted in a greater constant poverty than the so called "crisis" times in capitalism. So does making things worse than a crisis all the time remove the crisis where people remain better off than in the not-crisis? On one hand is is not very intellectually honest if you ask me even if it was a purely capitalistic issue. But even worse is the implicit assumption that you can avoid such crisis in a Marxist utopia. This is without even addressing the political realities, which are used as an excuse for saying this or that government is not really Marxist.

So while critiquing capitalism why not address how to deal with the Bowley ratio. Just because you give the labor the money to buy groceries does not mean there are going to be groceries on the shelf to buy. Just ask Russia about that one. Oh yeah, that was not Marxism, only waiting to be a Marxist government of the west when the labor from the rich west rebelled and Russia inherited the production capital

Your links did not even have any definable meaning, much less support any 'implied' criticism that you failed to even try to articulate. So unless you want to address actual solutions rather than pretend a little less rich is a crisis but constantly poor is not your wasting keystrokes.

The falling share of labour in the national income of many nations over recent years has been extensively discussed and documented. One paper published by the Centre for Economic Performance begins:

Capitalists are grabbing a rising share of national income at the expense of workers.
This comes not from a socialist tract, but the Economist magazine. Indeed, Figure 1 shows that labor's share in value added the flip side of the pro…fit share) has been falling across the business sector of OECD countries for about two decades. This is surprising as the stability of labor's share has been labelled a 'stylized fact of growth'.
Privatization, Entry Regulation and the Decline of Labor’s Share of GDP: A Cross-Country Analysis of the Network Industries

Andrew Glyn notes in a paper entitled: 'Explaining Labor’s Declining Share of National Income':

Until recently, there has been a general acceptance among economists of Nicholas Kaldor’s ‘stylized fact’ that distributive shares were broadly constanti. Even the rise in labor’s share in the 1960s and 1970s in many OECD countries – notorious as the ‘profits squeeze’ – was often written off as just a temporary blip resulting from oil and other ‘shocks’.
Suddenly, however, labor’s share has re-entered current policy discussion with a vengeance. Ben Bernanke, Chairman of the US Federal Reserve, last summer expressed the hope that ‘corporations would use some of those profit margins to meet demands from workers for higher wages’ (New York Times, 20 July 2006). More recently, Germany’s finance minister called on European companies to ‘give workers a fairer share of their soaring profits’ or risk igniting a ‘crisis in legitimacy’ in the continent’s economic model (Financial Times, 28 February 2007). When the economic leadership in the OECD countries calls for redistribution from capital to labor, something must be afoot.

There has been a clear shift of national income away from workers and towards capital for a long time now. In China, this has excited debate in the press, where it is revealed:

According to the All-China Federation of Trade Unions, workers' pay accounted for 56.5 percent of GDP in 1983. But by 2005, it had fallen nearly 20 percentage points to 36.7 percent. In marked contrast, the proportion of return on capital in GDP rose 20 percentage points from 1978 to 2005. The drastic decline in the income of workers, who comprise the overwhelming majority of the population, and the dramatic increase in the share of entrepreneurs in national income have, in more ways than one, widened the gap between the rich and the poor.
http://www.chinadaily.com.cn/business/2010-11/08/content_11517507.htm

Now, I am not arguing that such falls are inevitable (workers don't always take these things lying down), only that there will always be a tendency for capitalists to reduce the amount of money they spend on wages, while increasing the amount accruing to themselves. I don't think this is particularly controversial, although it seems to upset you for some reason. Have you never had to ask for a pay rise?

You previously criticised Harvey for attacking capitalism from a Marxist perspective, as if it is possible to engage in such a critique from some lofty, disinterested perch. But 'The Enigma of Capital' is the most recent of Harvey's books dealing with the nature of capital, so it is scarcely surprising that he places the current crisis in a broader context. This is what theorists do, after all, or do you think economists have no political or ideological affiliations?

And as for social mobility, as you indicate this doesn't affect in the slightest the nature of the relationship between capital and labour. Whether or not this core antagonism underpins a system that is incidentally beneficial to all concerned is a matter for debate, but there are clear signs that the relentless pursuit of capital accumulation is driving the human race towards some very unpleasant consequences.

If you are going to provide a rebuttal by proxy at least provide the proxy so I can see it in full. Yet the proxies you provided do not answer a *single* point I have made. Rather they merely provide headlines *as if* they were somehow at odds what what I have claimed. They are not, and I will explain again why.

Barry Cade wrote:The falling share of labour in the national income of many nations over recent years has been extensively discussed and documented. One paper published by the Centre for Economic Performance begins:

Capitalists are grabbing a rising share of national income at the expense of workers.
This comes not from a socialist tract, but the Economist magazine. Indeed, Figure 1 shows that labor's share in value added the flip side of the pro…fit share) has been falling across the business sector of OECD countries for about two decades. This is surprising as the stability of labor's share has been labelled a 'stylized fact of growth'.
Privatization, Entry Regulation and the Decline of Labor’s Share of GDP: A Cross-Country Analysis of the Network Industries

So let me get this straight. After all the explanations I went through, and specifically spelled out the role of personal debt on the Bowley ratio, the random dance around a means, etc., you then pull some sloppy piece of google that sort of illustrates said effect on such a ratio and you think it somehow an actual response to what I said? You did not even bother to link your source or go to the source in the source you are actually trying to make use of to refute me by justifying in part what i said.

I bet you do not even know who Azmat is, what the spike in wage returns represented in the 70s, etc. In fact by pulling your comparisons off the 70s spike, when things were pretty bad, you are guaranteed to show a labor loss, in spite of the fact that real wages are over 4 times what they were then!

Oh, for the link you did not provide: ftp://www.cemfi.es/pdf/papers/pew/Ghazala07.pdf
Did you see what it said under the title: "Preliminary - Please do not quote"
But you apparently thought a headline was all you needed to make your case

Barry Cade wrote:Andrew Glyn notes in a paper entitled: 'Explaining Labor’s Declining Share of National Income':

Until recently, there has been a general acceptance among economists of Nicholas Kaldor’s ‘stylized fact’ that distributive shares were broadly constanti. Even the rise in labor’s share in the 1960s and 1970s in many OECD countries – notorious as the ‘profits squeeze’ – was often written off as just a temporary blip resulting from oil and other ‘shocks’.
Suddenly, however, labor’s share has re-entered current policy discussion with a vengeance. Ben Bernanke, Chairman of the US Federal Reserve, last summer expressed the hope that ‘corporations would use some of those profit margins to meet demands from workers for higher wages’ (New York Times, 20 July 2006). More recently, Germany’s finance minister called on European companies to ‘give workers a fairer share of their soaring profits’ or risk igniting a ‘crisis in legitimacy’ in the continent’s economic model (Financial Times, 28 February 2007). When the economic leadership in the OECD countries calls for redistribution from capital to labor, something must be afoot.

For the link you did not provide: http://www.g24.org/pbno4.pdf

I would bet you do not know what that steep drop in labor is in the early 90s? Yep those same Clinton years all us labor people love because of the economic and income growth and prosperity. Nor would I bet you have a clue what the height of labor share represents in the 70s on that graph? Yep, the same Carter years labor hates for its low wage stagnant growth, and worse still stagflation. It did not give Regan much to compete against for his popularity. Yet this 70s spike you apparently know nothing about is the standard by which you are judging the labor losses!!!

So, even without directly rebutting your chosen headline from google, which I already did before you even made this post, your notion of what constitutes prosperity for labor is a slum compared to what you are labeling as labor getting screwed. Your entire causal chain is trashed on this point alone.

Barry Cade wrote:There has been a clear shift of national income away from workers and towards capital for a long time now. In China, this has excited debate in the press, where it is revealed:

According to the All-China Federation of Trade Unions, workers' pay accounted for 56.5 percent of GDP in 1983. But by 2005, it had fallen nearly 20 percentage points to 36.7 percent. In marked contrast, the proportion of return on capital in GDP rose 20 percentage points from 1978 to 2005. The drastic decline in the income of workers, who comprise the overwhelming majority of the population, and the dramatic increase in the share of entrepreneurs in national income have, in more ways than one, widened the gap between the rich and the poor.
http://www.chinadaily.com.cn/business/2010-11/08/content_11517507.htm

(hey you referenced one)

Well good, that means Chinese will actually get to enjoy some of their own productivity, instead of selling it all to us dirt cheap. Just because the wage share of GDP falls does NOT mean wages fall. It just means GDP is rising faster than labor wages. Yet you are not even counting how many laborers are not even laborers anymore because they run their own businesses now. yet that counts as a loss of wages on these graphs. the gap between the rich and poor may be bigger, but that does not mean the poor are not also richer. Only China will almost certainly screw it up when they start getting something close to a mature domestic market and decouple their yen

Barry Cade wrote:Now, I am not arguing that such falls are inevitable (workers don't always take these things lying down), only that there will always be a tendency for capitalists to reduce the amount of money they spend on wages, while increasing the amount accruing to themselves. I don't think this is particularly controversial, although it seems to upset you for some reason. Have you never had to ask for a pay rise?

Funny thing is that the same parts of the graph you say "(workers don't always take these things lying down)" are the parts of the graph where labor was happiest, because unemployment was low and wage were up. Up over 4 times what they were since the 70s when the labor share started dropping. Yet workers were most discontent on the parts of the graph you are saying they would "not take laying down". So how come the graph is backwards from what you expect from labor? Perhaps you should reread my previous post and actually respond to it rather that pull some more alphabet from google?

Barry Cade wrote:You previously criticised Harvey for attacking capitalism from a Marxist perspective, as if it is possible to engage in such a critique from some lofty, disinterested perch. But 'The Enigma of Capital' is the most recent of Harvey's books dealing with the nature of capital, so it is scarcely surprising that he places the current crisis in a broader context. This is what theorists do, after all, or do you think economists have no political or ideological affiliations?

I did NOT criticize Harvey for criticizing capitalism. I have loads of criticisms for capitalism as practiced myself. I criticized Harvey for not even bothering to try to be intellectually honest about what it is, and merely data mining to support of his predetermined claims.

Barry Cade wrote:And as for social mobility, this doesn't affect in the slightest the nature of the relationship between capital and labour.

And what relationship is that? Does all the people I know that have gone back and forth from being capital to labor and back again mean anything to you? Does the fact that you only only types the word "relationship" without saying anything about that "relationship" mean that you did not say anything? As a matter of fact you did not...

I intended to reiterate much of what I have already said in previous post, but the absurdity of assuming there was even a rebuttal in your response, without forcing me into assuming some implicit claim you did not make, made it more than a little pointless. Your quoted material, and given your implicit assumptions, even gets when labor is happy and dissatisfied historically exactly backwards. Ponder that one awhile...

Dear my-wan, if even you could track down the articles I cited (what with me covering my tracks so carefully by supplying the titles and all), then surely anyone else equipped with your forensic search skills could manage the same. Now, if you could get your arse out of your hands and wipe the spittle off your keyboard, I think we would all feel a lot happier. Clearly the entire world is wrong and you are right, labour really does enjoy a constant share of national income (even though it doesn’t).

Barry Cade wrote:Dear my-wan, if even you could track down the articles I cited (what with me covering my tracks so carefully by supplying the titles and all), then surely anyone else equipped with your forensic search skills could manage the same. Now, if you could get your arse out of your hands and wipe the spittle off your keyboard, I think we would all feel a lot happier. Clearly the entire world is wrong and you are right, labour really does enjoy a constant share of national income (even though it doesn’t).

So again rather that answer you merely post a denial. So look at the graph on: http://www.g24.org/pbno4.pdf

Now note the peak around ~1975 and ask why that was such a bad time for labor?
Note the decline roughly fro ~1980 - 88 (Reagan years) and ask why Reagan was so popular?
Note the upturn ~1988 - 92 Bush Sr years and wonder why he was a one term president?
Note the sharp decline following that when the Clinton economy was so loved by everybody?

Now why is this popularity of presidents so backwards from your theory and workers incomes quadrupled over this general time span?

Since you will not pay any attention to the mechanics described this is the only way I know to doubtfully get the point across. Yet you are dead wrong about workers discontent on *every* leg of the graph.

_____\\
Now I will make some general predictions. The 70s spike in this graph was unique for more reasons than I will go through here, but this period inordinately squeezed out profits in a time stagflation was a major problem Paul Volcker got the main credit among economists but the triggers were more endemic. Maybe I will add a post to describe those triggers, which also made much of the spike an artificial construct. Though judging gains and losses relative to a spike in economically troubled times is facetious at best.

Now that we are seeing more economically troubled times I expect to see some worker gains in the Bowley ratio. But these gains will not be a significant measure in the bottom line for workers. Why? Because these gains will go toward purchasing consumer goods off the shelf rather than capital goods that go toward replacing those consumer goods. So it is a self limiting gain. Though it does make the labor to capital ratio look much better for labor is does not make the affability of those goods significantly better. The same number of consumer goods still has to be distributed among the same number of people regardless of how much capital you pull out of capital gains on the hopes of making it more affordable. Money does not equal wealth, the consumer goods that are available with that money is the wealth.

Now just because you cannot make people wealthier by printing more money, or consuming the capital used to produce wealth, does not mean a laissez faire economy makes any sense. Nor does laissez faire contracts make any sense, as the most anti-competitive forces in a free enterprise are those (free enterprise) capitalist that are at the top of the market. They do everything from pad politicians pockets to imposing "contractual" limits on their customers, business partners, and empoyees to prevent their competitors from being able to compete. Just try and buy a Pepsi at McDonald's for a trivial example. These anticompetitive contracts, and worker treatment rules should be the center of regulation. Yet historically unions, which did require the Wagner Act, had to do that while government regulated everything else about what they did.

Prior to the Wagner Act the laissez faire contract system was justified in courts on common law principles stemming from feudalism, not free enterprise. In early history these same contractual debt principles was used to justify slavery where debt was outlawed. Yet we built the success of modern economies on the legalization of debt which removed the traditional slave bonds. The bonds that was justified in early American courts on a contractual basis was better than the historical slave, but only mildly so. Many contractually could not even quit. It did at least, over the long run, allow for some minimal kind of feedback to the workers over the long run. Of course we also went overseas and traded for and even trapped slaves from there, but that is a separate issue. But the point being there is NO place for feudalistic bondages in free enterprise. Free does not mean freedom to limit freedom, whether that be contractually or otherwise. Freedoms must, therefore, have limits in order to maximize freedom.

These I think are the core political issues government is failing on with respect to the rules under which business operates. Meanwhile the level of capital goods that should be cannibalized for consumption carries an unjustified weight in political rhetoric, while the personal consumption debt load is a major causal factor behind growth in the spread of income inequality. Though incomes cannot ever be perfectly equal without making everybody equally poor. I am not concerned about perfect equality, I am concerned about those policies that can help the poorest among us maintain a decent standard of living, including recreation, freedom, and the opportunity to do far better, irrespective of what the income spread looks like. If I really thought it was possible to equalize the income spread without driving everybody into to poor house I would almost certainly go for it.

my-wan, the fact is that labour's share in national income across a number of significant economies has been falling for a long time. This is an utterly uncontroversial statement, and there are countless articles and papers confirming it. If you want to deny this, fine, but all you are doing is refusing to face reality.

And frankly, your speculation regarding the attitudes of workers in the Carter years is neither here nor there, since this has absolutely nothing to do with the issue. Whatever you might choose to believe regarding workers' subjective feelings about the situation in the 1970s, this has cannot efface the downward trend in labour's share in national income.

The fact that the situation in China illustrates a dramatic shift in national income towards capital and away from labour would make any reasonable person question the validity of some supposedly fixed relationship between returns to capital and labour, but I guess algebra trumps reality in your view. But rather than admit that the Chinese case alone holes the so-called Bowley Law below the water line, you change tack by arguing: "Just because the wage share of GDP falls does NOT mean wages fall. It just means GDP is rising faster than labor wages." So what! The argument is not over wage rates per se, but rather the relative shares of capital and labour in national income — and the figures suggest that capital is taking a much greater share than it used to. And the idea that one can alter this by taking into account the number of Chinese workers who now "run their own businesses" is odd, to say the least. What do you mean by 'running a business'? A self-employed contractor, forced out of a permanent contract and onto the casual labour market could be classed as a small businessman. So could an outworker, assembling products under contract to a major manufacturing conglomerate. And precisely how big a phenomenon do you think this surge in entrepreneurialism is? And why wouldn't it be offset by the recruitment of enormous numbers of workers from among China's small farmers? Get real.

Or maybe the Bowley Ratio has been skewed by Chinese workers remitting so much of their income to capital in the form of interest payments? But then again, the extremely modest levels of personal debt among Chinese workers makes this seem a bit fanciful, doesn't it.

Anyhow, I'm too busy to continue flogging this particular dead horse, so sayonara.

my_wan wrote:Therein lies the biggest issue. It is certainly likely that some aspects of an economic system do rest on opinion.

"Mere opinion" were Newton's words, and I thought they were too good not to mention. We incredibly smart moderns would probably use words like "psychology."

Yet whatever limiting factors an economic system has, independent of anybodies economic opinions, is of *extreme* importance. The rest is just chocolate or vanilla where you can make whatever moral argument for chocolate or vanilla you want.

I'm not convinced.

It seems to me that we are in an economic downturn right now (which I would call a depression), but not much has changes. Rain still falls. The Sun still shines. There's still oil in the ground. Human muscles haven't atrophied much. There are still people who can work. So what's the difference, if not psychology and opinion?

epepke wrote:

my_wan wrote:Therein lies the biggest issue. It is certainly likely that some aspects of an economic system do rest on opinion.

"Mere opinion" were Newton's words, and I thought they were too good not to mention. We incredibly smart moderns would probably use words like "psychology."

Yet whatever limiting factors an economic system has, independent of anybodies economic opinions, is of *extreme* importance. The rest is just chocolate or vanilla where you can make whatever moral argument for chocolate or vanilla you want.

I'm not convinced.

It seems to me that we are in an economic downturn right now (which I would call a depression), but not much has changes. Rain still falls. The Sun still shines. There's still oil in the ground. Human muscles haven't atrophied much. There are still people who can work. So what's the difference, if not psychology and opinion?

This is like saying since rain still falls and the sun still shines moving from a house to a cardboard box is no difference, except for psychology and opinion. The fact is there are now less resources produced to go around for consumption, and this is not opinion. Even though how bad that difference is really is just opinion.

Now given the economic metrics that are not opinion, and independent from how bad the opinions differ on the relevance of these *objective* economic metrics, can it be said that the cause of these *objective* metrics are also opinion? In that respect you have failed to make any case whatsoever, even though it might be possible to make such a case. I have provided an argument for why it is not *entirely* the case. You cannot drive consumption higher than productivity without demand side inflation, period. You cannot have consumption fall too far below productivity or it creates a recession, period. These are economic constraints that cannot be undone by opinion. What causes these conditions to occur may very well be the result of opinions, but by the very fact of creating such conditions a significant portion of contributing opinions must effectively be wrong by definition.

So even these very general constraints that go beyond opinion trashes the "pure" opinion thesis, else the notion of wrong could not be objectively defined even if the opinions drove us back into the stone age. I would submit that there are more objective constraints than we recognize. And the failure to recognize these constraints plays a role in things going south and people throwing up their hands and saying *all* psychology and opinion. It is way of denying that there are constraints they did not understand, therefore their failure to understand or get it right are not their fault. Well it is not their fault, we cannot understand everything, or anything a priori for that matter. We must learn and keep trying, with success at least reducing the number of failures, rather than throwing up our hands and claiming psychology, God, or whatever did it, therefore nothing to solve.

Barry Cade wrote:my-wan, the fact is that labour's share in national income across a number of significant economies has been falling for a long time. This is an utterly uncontroversial statement, and there are countless articles and papers confirming it. If you want to deny this, fine, but all you are doing is refusing to face reality.

Yes, you are right that these numbers are uncontroversial. What is controversial is what they mean for labor. Suppose I stick 100% of my labor returns into capital instruments and only sold the capital instruments I need to cover my living and recreational expenses. Now, even if I make zero money on my capital investments, on paper I am showing zero labor returns and 100% capital returns. So what do you suppose that does to your uncontroversial statement. It certainly does not make your statement controversial. Only you have refused to provide any description of what you think it means, except by implication which you have also failed to justify.

Barry Cade wrote:And frankly, your speculation regarding the attitudes of workers in the Carter years is neither here nor there, since this has absolutely nothing to do with the issue. Whatever you might choose to believe regarding workers' subjective feelings about the situation in the 1970s, this has cannot efface the downward trend in labour's share in national income.

Again, you are ignoring the parts you want to ignore. A quadrupling of income is not a "subjective feeling". The capital is not by itself income for either capital owners nor laborers. It defines the productive capacity that both labor and capital owners can consume. Hence distributing the money value of all that capital to laborers or capital owners for consumption destroys all that production. Hence there is no capital production for anybody to consume, laborers or otherwise.

Barry Cade wrote:The fact that the situation in China illustrates a dramatic shift in national income towards capital and away from labour would make any reasonable person question the validity of some supposedly fixed relationship between returns to capital and labour, but I guess algebra trumps reality in your view.

Again, capital is NOT income for anybody, whether you own that capital or not. The production of that capital is income, for both laborers and capital owners alike. For you to mix capital and income as if it was the same thing is WRONG. You are assuming any "reasonable" person MUST make the same absurd mistake in thinking capital and income is the same thing.

Till you can at least address the difference between capital and income, and provide an argument of any kind how you distinguish between capital and income, I have nothing else to say. And no, "reasonable person" is not an explanation of anything.