Category Archives: Occupy

New Left Economics: Wage credits

As David Autor has been documenting for the past decade, technology has been shifting the comparative value of labor in the United States to low wage jobs that are difficult to automate.  Routine tasks which required middle income labor are disappearing not just in the United States, but across all OECD nations.  His most recent piece for the New York Times paints a dire picture:  “How Technology Wrecks the Middle Class”.

As can be expected, the consequences of this displacement of labor to low salary jobs will be lower purchasing power for US consumers.  The BLS forecasts are startling.  Projections for the top 20 occupational areas that will experience the largest growth in the next decade have a median salary of $31,111 a.  The current median salary that BLS lists for US workers is $45,790 (source).  Clearly, the trajectory for US wages is steeply downward.

For the consumer economy, this presents long term contractionary pressure.  There is no indication that technology will not continue to eliminate high skill high cost labor jobs.   A cycle of contracting consumer economy fueling further layoffs which in turn further constricts consumer spending will continue until an equilibrium is reached.  If assaults on the minimum wage are successfully repelled, then eventually the consumer economy will end its death spiral to the level of consumption sustainable by a families of individuals being paid minimum wage.

Clearly this is not in the interest of citizens, but nor is it in the interest of businesses.  The systemic problem is that while business has accurate measurement of the cost of labor, it has no way of directly measuring the benefit to their business of paying their workers well.  Theoretically, they accept the proposition that businesses must continue to pay their workers well, otherwise there will be fewer consumers able to buy their product.  However no company will perform this service to the economic system out of the goodness of their hearts.  The current system behaves irrationally- expecting all other companies to maintain high wages, while they are free to cut their labor costs ruthlessly.  Of course all other businesses behave the same way.  Really, we cannot expect business managers to do otherwise.  Without an empirically measurable, monetary benefit they can point to in the company’s bottom line, businesses cannot be expected to maintain payrolls in order to support US consumer purchasing power.  Instead, what individual managers do in aggregate is methodically defund the US middle class.  They will continue to do this while this suicidal behavior is an unfelt externality.  The problem is that the full cost of eliminating jobs is not directly measurable by the business though the theoretical relationship to declining spending levels is acknowledged.

The Wage Credits solution.

Wage credits are, like Carbon credits-  a mechanism that allows corporations to measure the hidden cost that presents a fundamental threat to the long term health of their business.   Wage credits are issued by banks as workers cash payroll checks.  An equal number of credits are issued to the business for each dollar paid to workers.  The bank is required to accumulate and account for the Wage Credits just as they would cash.  Wage credits are the only form of currency accepted payment of a category of tax- a “Purchasing Power Defense” (PPD) tax.  Labor intensive businesses will have a surplus of Wage credits to pay their tax which is proportionate to the revenue they take in.  Companies with low labor requirements but extract large amounts of wealth from consumers will not have sufficient credits to pay their tax.  Their response is to buy surplus credits from labor intensive businesses, or to hire more workers.

This mechanism is intended to introduce a negative cost to business managers making downsizing, outsourcing, or automation initiatives that have unintended negative impact on the US economy.   It is not prescriptive- in many cases the business may no longer be viable- but the business manager is presented with a more comprehensive cost benefit calculation that leads them to seek the optimal choice for their business and the long term health of the US economy.  The mechanism has other uses which may optionally be used in some OECD countries, but its central reason for being is to arrest the cannibalization of the middle class by making the cost of its destruction immediately felt by a business that is participating in the destruction.

Those familiar with Carbon Credits can appreciate that such regimes have a weakness.  Products from countries free of the regime have a competitive advantage over domestic products.  Yet there are schemes for dealing with this.  For example, say wage credits accompanied components in a product’s value chain.  That is, say the Wage Credit must be paid as a tax only when the consumer pays for the finished product.  So say wage credits were required to be transferred as part of the transactions for components in the value chain of a consumer product.  Maybe the part from China is cheaper even though it has no accompanying wage credits.  When the finished good gets to the Walmart buyer, the Walmart executive will not always choose the Chinese product because it has no wage credits with it- Wage credits that Walmart must accumulate to pay the federal Purchasing Power Tax.

Wage credits represent a scheme that unions and businesses must come together to support.  Without some such mechanism to avert the self destructive market forces driving the defunding of the middle class, our economy will devolve to something more resembling a subsistence level third world economy.  Stiglitz has pointed out that market failure is the norm rather than the exception and that there is no “invisible hand”.  However this is not necessarily an argument for brute force industrial policy from central planners.  We must move forward and employ the best thinking from microeconomics research- game theory and behavioral economics.

Clearly society will be forced to draw the line somewhere in defending purchasing power.  The question is whether it is at the minimum wage, or at a dynamically determined middle class minimum wage.    Wage credits allows the market to decide where the tradeoffs are made, and so will be superior in selecting optimal balances for particular labor activities of greatest value for particular industries.

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Notes:

The median wage for new jobs forecast for 2010-2020 is $31,111.  BLS Occupational Outlook 2010-2020:  Most new Jobs. (link)  Multiplying the number of jobs by the median wage for each occupation, the total income for these new jobs is $230 billion.  Divided by the number of new jobs, (7.4 million), we arrive at a mean of $31,111.

 

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Swarms don’t use Bullet Points. They Make Waves

Probability density of an electron passing through two slits

Probability density of positions on public issues passing through the Left/ Right category slits

Listening to Nate Silver of Fivethirtyeight talk about probabilities in the GOP poll results reminded me of physicists talking about probability waves. They get so frustrated trying to pin down the location of minute particles like electrons. Sometimes I feel pretty minute, so I can empathize with undecided voters and electrons. The position of these insignificant specks appear maddeningly unpredictable to those trying to measure them, giving the appearance of being in many places, but in no particular place simultaneously. (For a brief review of the physics, take a look at this light hearted youtube.*) If the speck is measured, it appears to be in one certain place, but when the results are plotted, you get a seemingly random cloud of positions, reminiscent of the chaotic graphs indicating the myriad positions conservative voters have taken on GOP candidates in the run up to the 2012 primaries. Maybe the specks are as irrational as many political pundits seem to think  undecided voters are. On the other hand, maybe we specks are exhibiting our multidimensional characteristics. Maybe we are liberal on the X axis of social issues, but conservative on the Y axis of economic policy, and then maybe on the Z axis of victimless “crimes” we are totally libertarian.  Maybe we require as many dimensions as there are issues.  Maybe our “position” is really a multidimensional cloud of points.

I suppose we specks are as messed up as physicists in string theory say reality is- that actually there are a multitude of dimensions beyond three that where we can stake out our positions. They call them degrees of freedom.  I suppose that is not such a bad thing. Freedom has a nice ring to it.

Conservative pundits have been lamenting the fact that right wing thinking has become disaggregated by the internet and social media. That’s a fancy term pundits use when they think we don’t have the knee jerk responses they expect us to have-   that we don’t have whatever reflexive reaction we are supposed to display given whatever conservative or progressive slot we’ve been placed in by central casting.

If a pollster had the several hours required for us to explain, they might understand why any particular one of us specks is vehemently for the death penalty, for legalizing marijuana, for massive defense spending, and for gun control. But we are specks and they really they aren’t interested.  Not that any of those are my positions, or I can relate well to those who do, or that you the reader of this really have the time or energy to understand the nuances of mine.  It’s kind of alienating when you feel like you are misunderstood disengaged speck.  But we have a lot of company with each other, and it turns out, with subatomic particles.  We can feel a great deal of solidarity with them.

If opinions of the electorate were like bullets, then the left/right categories would create predictable results.

A very unruly bunch.  Classical physicists got their minds blown  about specks when they tried what is called the double slit experiment. It’s the same thing that happens when a pollster asks whether you are conservative or liberal. We are supposed to only pass through one  or the other slot even though our positions really are more like a cloud,  some of which go through the red slot and some through the blue. It turns out we break the rules and so do specks. Now, if you shot bullets through one of two slits in a steel plate several yards out, you would see a pattern at your target that would correspond to the two slits. Totally divided. Kind of like Boehner’s House of Representatives. Bullets unlike us specks are respected as significant, probably because they are so mechanically predictable- and can be counted on to do the same numbskull things regardless of the mitigating context or nuances. That’s probably why we use bullets in wars.

Public opinion is more like waves, instead allowing a much wider freedom of results despite the barrier. Moral: don't use bullets. Make waves.

At the minute level of specks with much less significance, actually this is not at all what happens.  When you shoot  electrons through such slits, instead of  a crisp division of left and right on the target, the largest grouping of them land up exactly where the beam would have shot them if the barrier with the two slits weren’t there.  Further, there are not two bands, but a multitude of them. To get this sort of result with bullets, the path would have to be a diagonal to reach the slit, then  after passing through would have to change direction to another diagonal to get back to the center. Very illogical bullets. The reason why this diversity can defeat the categorical barrier is because like subatomic particles we specks are better understood as a fluid collection of positions, not a single identity. When we flow through artificial categories like Conservative or Liberal, our waves penetrate but maintain a great deal of fidelity to the original wave, although the positions are bunched into bands of brightness. It’s the kind of peaks and troughs you see at the edge of the bathtub when you make waves. So we specks are more like waves than bullets. This nature is intuitively appreciated in our language. The opinions of voters are said to be fluid- with a “rising tide” or waves of opinion breaking this way and that on the issues.

Some physicists thought this was a very irrational way of looking at the universe and continued the quest for certainty. They decided to pin the specks down by asking the question- which slot does the electron go through? This is what blew their mind. Because when the measurement is taken, the probability wave collapses. That is, those multiple positions that the electron can be in “decohere” into a single position, and the speck now known certain in identity as one passing through the blue slot or red slot. After this meaurement, thereafter they will behave like bullets in the experiment and create just two bands corresponding to the two slots. This is much like the ideological representation in government we have seen recently. The certainty of the position of the representation is seen to be power- yet ironically this results in a loss of fidelity of the direction of the thought of the voters. The degrees of freedom expressed in the multiplicity of positions the voter takes on different positions has collapsed. That is the numbskull nature of bullets who can be counted on to vote like Tea Party representatives, and never mix in the center precisely because they have been forced to give up their multidimensionality.

Where do the undecided voters actually stand?  The seeming fact that a voter, like electrons could both pass through the conservative and liberal slits creates results that baffle our intuition because of our assumption of linear (bullet like) thinking. In physics, one of the most popularly known of these baffling paradoxes is the Schrödinger’s cat thought experiement. A cat is placed in a box with a Geiger counter and a radiation source. In a given time period, a particle could both be detected at the Geiger counter, or not be detected in equal probability, just as a particle might be detected at one slot or the other if you did that measurement.   The cat experiment adds a cruel detail: if the particle is detected, a poisonous gas is released and the cat is killed. Until the probability wave for the particle has been caused to collapse by an attempted observation, the particle is simultaneously present and not present. Because neither state has occurred until the observation, it is reasoned that the cat will neither be alive nor dead simultaneously until the observation.  So is the cat both dead and not dead until you look in the box?**

A political analog of that situation was the basis of some physics geek humor in my tweet to Christopher Hayes prior to his January 1st 2012 Sunday show “Up!”.

@chrislhayes If Schrödinger’s Tea Party Cat wandered into the Iowa forest, and no one observed it, was it ever in the forest? #uppers

My point was, there is no Tea Party voter passing through a selction barrier if there is no forced detection at a Tea Party slit.  If there is a 3rd slot and a measurement- that is, an interaction in the environment that forces it to drop into a singular position, then the attitudinal elements of that cloud of opinions will not drop out of superposition into a self identified Tea Party voter.

There has been a mercurial and obsessive fascination with identity on the right, and this physics metaphor illustrates the political importance of establishing identity.  This doesn’t mean identity politics in the typical sense of focusing on the character of the leader, but getting the voter to self identify with a particular “movement”.

Alternatives?

For representative process, metaphorically, the intermediate barrier can be thought of as selecting a representative of a particular ideological stripe.

  • A) Representatives should be waves, not ideological bullets.  Not all representation is ideological, and instead of selecting a representative with fixed certain positions on all issues, then representatives can be as cloud like as the electorate.  If the nature of these clouds can be described not as fixed ideological laws but as the unwritten spirit of the law, or “logos” of a political point of view, then the voter needs to have the sense that the representative shares the same spirit with them.  This is the transfer point to the focus on the character of the leader, of finding consensus candidates or alternatively inspirational candidates who get the electorate to relax their demands for ideological purity.  The difficulty is that a candidate that mechanically mouths whatever the consensus position appears to be is precisely the Romney problem for the GOP.   The key is whether the candidate represents the spirit rather than the letter of the common ground the electorate feels with them.  This is fundamentally a non rational cloud like connection.
  • B) Assure representatives are responsive to the more multidimensional character of the electorate by introducing direct democracy votes on the matters before congress.  This might take the form of representatives who more or less take referenda votes from their constituents on every law being considered.  Some proposals are less simplistic, making the constituent “votes” advisory.  Full discussion of direct democracy representatives is out of the scope of this essay.  The point of the approach is that whether the representative is ideological (as (A) seeks to prevent) or not, the representatives are forced from the uncompromising pattern of two strictly divided groups created with the bullets, and meet in the more representative consensus pattern when wave behavior is allowed.
For activists, the metaphor of the probabilistic cloud describes the activity of the swarm, the murmuration of starlings that dynamically respond to environmental situations, then resume their cloud like nature.  Issue movements self destruct after the demand is answered.  A movement without a specific political agenda may have demands for the individual (such as non violence in the case of the Zucotti swarm).  This was the power of a community logos that organizers like Alinsky habitually found in churches.  It was a wellspring that did not run dry up after the goal is achieved.  This goes to the mystery of how the organizers create successful organizations- some that have a lifespan beyond a few years, with a real community of volunteers that have a deeper committment beyond that of the specific issue; where volunteers don’t inevitably burn out or become alienated from the community.  The model of the movements emanating from churches, as with the abolitionists and the civil rights movements in the US, or the liberation theology of Catholic groups in Latin America needs to find a form more compatible with a society of diverse spiritual beliefs.  Does the occupy movement have any depth or coherence?  How does this become a generational movement, not just a spectacle of optimism like the global student protests of 1968 that fade with time?

Notes:

*Regarding the youtube presentation, the pedagogical purpose of introducing “woo-woo” anthropomorphisms that tend to capture and hold the attention of a broad audience shouldn’t be taken seriously. For example, few if any physicists believe that particles have any sort of consciousness that enables them to “know” they are being watched. Also, many physicsts prefer to describe what is going on with the observation in non human centric ways. That is, it is not the observation but the the interaction with the environment caused by the observation that forces the probability wave (“superposition“) to collapse into the seemingly classical reality that we appear to move within. The concept is known as einselection.

** There are less whimsical, more intuitively acceptable interpretations of the the thought experiment. These may be found deeper into the wikipedia article on the subject.

Dsiclaimer:  I am not a physicist.  My thing is computational linguistics, a field involved with methods  of probablistic analysis of clouds of linguistic units.