A Challenge to Modern Liberals Regarding their Fealty to the Principles they Espouse

[WillFarnaby]

@septimus

I’ll review WillFarnaby’s answers to my three questions. But first let me comment briefly on first-order economics.

Average real wages largely track productivity. Period. Productivity and real wages are high today due to technical advances. Many important advances (e.g. antibiotics, electronics) were made after FDR abandoned the gold standard.

I am aware that real wages should track productivity. The problem is that since around the mid 70’s real wages have stagnated while productivity has continued to increase. I am aware that important advances have been made after FDR abandoned the gold standard domestically and Nixon internationally. There were many important advances during the era of the gold standard, but that is neither here nor there.

To believe that real wages would be significantly higher today, if we used gold for money, is to believe that technical advances (medicine, electronics, etc.) would have occurred even faster on a gold standard. Is that your claim, Will?

During an inflationary boom, resources are diverted to industries where where they are not put to work satisfying consumer demands. So for example if the Fed fuels a bubble in housing, resources are diverted into constructing houses that nobody wants or are too expensive. The resources diverted to these “malinvestments” are essentially wasted as evidenced by the subsequent bust, when they must be redirected into more productive channels. So yes, I feel that with a tighter monetary policy, resources will be distributed in a way that more efficiently satisfies consumer demand. Do I believe technical advances would have occurred even faster? There is no way to answer this question.

The share of GDP which goes to owners of land and capital instead of labor has increased in recent decades. Healthy profits tend to lead to prosperity and productivity growth (although there is a point of diminishing return). Surely a libertarian does not blame any slowness in wage growth on capitalists’ profits.

No I blame the federal reserve for fueling speculative boom after speculative boom under Greenspan and Bernanke. The casino-ization of the stock market has led to nothing but growth in the financial sector. Here, vast resources from these capitalist profits you mention, including some very bright individuals, are devoted to cashing in on the next bubble (housing derivatives). To see how this would have an effect on real wages I’ll quote economist Bob Murphy:

In 1968, a nation of identical workers collectively puts in 1 billion labor-hours, to produce 1 billion units of finished consumer goods, at a price of $1 per unit. (There are different types of goods, but they all have the same unit price.) Everyone gets paid $1/hour. This is the only production, so nominal GDP is $1 billion. The government also happens to set a minimum wage law of $1/hour, but this has no effect because that’s what the competitive wage was anyway. (Assume that not only the average product, but also the marginal product, is $1/hour.)

In 1971, there is a major policy change that unleashes the printing press. The government’s cronies start getting humongous payments of new $100 bills, which they do partially spend on consumer goods, but which mostly go into financial assets, real estate, and precious metals. After decades of this new pattern, we find…

In 2013, the same workers collectively put in 1 billion labor-hours, to produce 1 billion units of finished consumer goods, at a price of $2 per unit. Everyone gets paid $2/hour. This contributes $2 billion in nominal GDP. However, the fat cats provide “financial services” of $8 billion in nominal GDP, for a total nominal GDP of $10 billion. Since CPI has doubled, in 1968 dollars real GDP is $5 billion, a five-fold increase.

[QUOTE]
Here’s a pdf from the Bank of England which may have useful graphs. It shows average prices and wages over a 300-year period. Looking at its Chart 3 I see
[LIST][li] The longest, and highest, stretch of real wage growth was from the end of W.W. I to the present, a period of slight inflation.[/li][li] There is also a period of strong growth from the defeat of Napolean until W.W. I, a period of very slight deflation. This 19th century growth rate is somewhat lower than the 20th century growth rate.[/li][/QUOTE]

You have looked at one country. Atkeson and Kehoelooked at 17, each for a period of 100 years. Just to warn you of potential childishness, I’ve linked to mises.org. But here I quote from the study:

The data suggest that deflation is not closely related to depressions. A broad historical look finds more periods of deflation with reasonable growth than with depression, and many more periods of depression with inflation than with deflation. Overall, the data show virtually no link between deflation and depression.

Now back to the author:

The study also finds that the relation between deflation and depression differs markedly before and after World War II. The regression using the prewar data yields a slope coefficient of 0.11 with a standard error of 0.04 indicating a weak link between deflation and depression. In contrast, the regression run with postwar data suggests no link between deflation and depression with the slope coefficient of –0.03 and a standard error of 0.04. Indeed the negative slope coefficient suggests the possibility of a link between inflation and depression. Given this empirical result, you might hope that the large and growing contingent of mainstream economists who are clamoring for the Fed to implement “inflation targeting” of 2 to 3 percent per year—i.e., to deliberately dilute the purchasing power of the dollar by a fixed percentage every year—would now switch to prescribing deflation targeting of a few percent per year just to be on the safe side.

[QUOTE]
[li] The main difference visible on the graph is how erratic the real wage was on the gold standard. The “busts” you worry about were very much a pre-modern problem.[/li][/QUOTE]

There were problems with the gold standard, no doubt. There were also problems with banking regulations during this period resulting in numerous panics. Suspension of specie payments, allowed by government, were commonplace. This was nothing more than an implicit bailout, creating incentive for banks to act recklessly.

Do you have data to demonstrate the opposite, Will? If you must link to mises.org, please be very selective: Most of its pages are childish beyond words.

Aside from the Atkeson and Kehoe study discussed in my link to mises.org, you could read the short chapter in Murray Rothbard’s History of Money and Banking… entitled "A Burst In Productivity" You will find that despite price declines, the 1880’s was marked by tremendous growth. He quotes Friedman and Schwartz quoting R.W. Goldsmith:

“The highest decadal rate [of growth of real reproducible, tangible wealth per head from 1805 to 1950] for periods of about ten years was apparently reached in the eighties with approximately 3.8 percent.”

We were already quite aware of your views on F.R.B. malice. The question was about the malicious bullshit in Forbes’ headline and whether you’d acknowledge it. You did (“No”), but I think a firmer acknowledgement is in order. All of us – rationalists as well as right-wingers and hyper-libertarians – need to denounce lies, even when they serve our partisan interest.

Oh get over yourself, bud. I didn’t even jump into the thread until after that conversation was over. If I had time to denounce every lie, I’d be unemployed.

Vaccinations may seem secondary to economics, but they test whether you understand “Tragedies of the Commons” and related issues. You flunked the test.

I could give two shits if I flunk a test by some cat on the internet, lol. I understand the tragedy of the commons quite clearly.

The fact that mandatory vaccinations would be good for society, and has been good so far, is irrelevent. Mandatory abortions for homeless women could produce a positive result. The only difference between a policy of mandatory vaccinations and mandatory abortions is that one has been mandated through the democratic process, while one has not. If you apply your “test” to a policy of mandatory abortions, a majority of people would flunk it. Does this mean that the political theory of these people is now illegitimate? I think not.