Bob Gould is back

Bob Gould’s Ozleft site has been quiet for so long I was wondering if it was ever coming back. But now Bob’s posted another of his patented election analyses. Check it out. It’s a little different from mine in that Bob stresses the value of work within the ALP. I can see why leftists in the ALP would not want abandon the field to the party’s right, and Bob’s right that it’s worth defending the position of the unions within one of the parties of government.

The left in the Greens and the left in the ALP are on the same side. But that sure doesn’t mean we refrain from attacking the ALP in government. Socialists in the party ought to welcome a serious challenge from the left as strengthening their own position within Labor. The party won’t change without external pressure. For all the constitutional power of union delegates within the party, they don’t have much to show for their efforts to get a decent industrial relations policy.

Where I most agree with Bob – and it’s a line he’s been running for ages – is the importance of engaging with real political forces rather than isolated little sects.

Published in: on 30 November, 2007 at 7:38 am  Comments (3)  

Six per cent

So many commentators treat electoral politics as somehow reflecting the mood of ‘the nation’ as if it had a collective psyche. A few years ago ‘Australia’ was relaxed and comfortable, aspirational, sick of out-of-touch inner-city elites. Now ‘Australia’ is ready for change. The Coalition lost ‘the Australian people’ by going too far with Work Choices and ignoring the mood of the nation on climate change.

What actually happened was that a net six per cent of voters switched from the Coalition to Labor since 2004. The great Australian mood swing involved just over one in twenty.

The parties’ electoral strategists don’t see politics like the above commentators. They see things much more concretely. It’s that six per cent margin that counted.

So when Rudd claims a mandate against the left of his own party, against the unions, against the public service, he’s being dishonest. Rudd surfed the centripetal force of modern electioneering to get where he is. It was chasing that six per cent that put him there.

The fun bit of Saturday was when the Coalition got hammered. The sweetest moments were Howard (probably) losing Bennelong and Mal Brough’s much-deserved wipeout. There is something in the view that the ‘mood of the country’ has shifted – but it’s a consequence of the change in government, not a cause. It’s a morale boost for everyone left of the Liberals, and it changes the media playing field, precisely because it’s the journos who believe all that crap about the ‘mood of the country’.

But the less fun bit was watching Rudd’s ALP fill the vacuum. I say ‘Rudd’s ALP’ advisedly, because it’s not really the Labor Party of many of its members. ALP eminence and long time past president Barry Jones explained himself last year that the members and volunteers tend to be well to the left of the parliamentary party, but their energy is sucked away to the benefit of a party of the Centre Right.

The worst thing about the election – from the point of view of the Labor faithful themselves, surely, once the euphoria fades – is that it validates the strategy of the nomenklatura: what the US Democrats call ‘triangulation’, what Jones calls ‘small target’, and what Kim Beazley described as ‘under the radar’. It’s the recognition – entirely realistic – that it’s the six per cent, who once voted for the Coalition but could be turned, that count. The basic idea is that “oppositions don’t win elections, governments lose them”, so the best thing for the opposition to do is, in Jones’s words:

insist that they are above or between Left and Right in the political spectrum, emphasise immediate self-interest, avoid any public commitment to ethical or ideological causes, and never show courage in tackling unpopular issues. Pragmatism is everything. [“Where are we coming from? Where are we going?” in Coming to the Party, 2006: p. 17]

It’s a strategy that rules out any departure from the status quo, no matter who is in power. (At least, no departure for political reasons: there has been plenty of change in Australian society, but little of it has depended on one party or other being in government.)  But it’s an eminently rational strategy given the environment, and it’s hardly surprising that natural selection hones parties into machines for pursuing it.

Where does that leave the left? There’s a large number of us, really, inside and out of the ALP, and certainly more than six per cent of the electorate. On many issues we are well in the majority. It’s easy to diagnose the environment that generates the strategy that locks in the status quo. But that brings us no closer to strategies of our own.

My ultra-leftist devil, who is always talking about structure, thinks working with the Greens is a fool’s game. He sees the ALP volunteers as mugs, wasting their energy to support the state. And a Green is just another kind of ALP volunteer, since the preferences flow with the same effect. As a commenter at Leftwrites put it, you can see the Greens as a pressure valve for Labor, enabling it to move to the right because those who defect maintain the Pure Soul illusion of opposition without threatening the ALP’s two-party-preferred vote.

But my social democratic angel, who is always talking about agency, is more optimistic. The Greens are not the only way to change the political environment. But they could be part of it, if they redouble efforts to join with the traditional Labor base in the unions and public service.

In the coming months the ALP is not going to sustain the left’s euphoria. Rudd means what he says about taking on the unions and the left. He stated outright before the election that fighting inflation was going to be the government’s first priority. Yesterday he promised an elevation in the importance of Treasury advice. He has been throwing around the term ‘razor gang’, and not as a bugbear.

The Greens directly attacked Labor on industrial relations and public services during the election, and some tried to make it the centre of the Green message. I think there’s potential for the Greens to start seriously threatening the ALP base in the urban centres if it’s prepared to follow this up. Go for the most politically conscious section of the union movement. Ask loudly why Labor won’t overturn the most egregiously offensive elements of Work Choices (the ABCC building industry police force) or the most industrially important (the ban on pattern bargaining). And why is it talking ‘razor gang’?

The Greens seem worth getting involved with if they’re serious about this, because they’re the only force presently putting any fear into the ALP leadership. The fall in the ALP primary vote genuinely does worry them. They needed Greens preferences to win in more than 20 electorates this time around. As Lindsay Tanner – soon to be Finance Minister – put it in Jones’s book:

The end result has been a downward shift in the Labor primary vote, from the high forties to the high thirties. As Labor has become more entangled in the contradictions between its major support bases, more of its tertiary-educated supporters have shifted their allegiance to the Greens.

While this loss of support to the Greens only threatens a handful of Labor seats, including mine, and it is reasonable to assume that any Green MPs would probably vote for a Labor government, the threat is very serious. The Australian electoral system rewards parties that poll more than one-third of the primary vote, and punishes those that fall below it. We cannot afford for our primary vote to fall much further, and we cannot afford any more hollowing out of our activist and membership base. [“Let’s Start the Attacks”, in Jones, 2006: pp. 209-10]

If the Greens want to really hit the ALP leadership, they should go for its union base. The Green Party is hardly now seen as a working class party, but if it keeps making the effort, there is a chance it could be.

Published in: on 27 November, 2007 at 10:51 am  Comments (3)  

Stasis

Look, I’ll be handing out how-to-votes tomorrow and as the results come in I’ll be drinking beers and laughing if things go as the polls say they might. If Howard loses his seat it will make my year.

But today the ultra-leftist devil hovering over my shoulder is cackling away and the social democratic angel above my right is maintaining an embarrassed silence. First, there’s the editorial in the Australian reassuring its faithful that “A contest between worthy opponents ensures that whoever wins, Australia will be in good hands.”

Then there’s Rudd as Cartman: “Recognahz mah mandate!”

In an interview with the Herald, Mr Rudd promised to make fighting inflation central to a Labor government’s economic policy, describing rising prices as a cancer for ordinary families and the economy as a whole.

He said Labor would require all federal public sector wage deals with unions to match pay rises to productivity, and he would expect state governments to adopt the same approach.

As the latest opinion polls put Labor in a strong election-winning position, Mr Rudd took a combative tone on questions about how he would deal with pressure from Labor’s Left or the unions to change direction if the party won government. He indicated he would not hesitate to discipline dissenters.

“If I am elected I will govern in the national interest and not in any sectional interest,” he said.

“If that means we are going to have significant disagreements with individual trade unions in the future I couldn’t care less. That’s what will happen.

“In the last six months or so we have had periodic disagreements which resulted in the expulsion of a number of people from the party. If that were needed in the future I would do the same.”

The angel can’t even bring himself to quote Peter Hartcher in the Herald this morning, whose argument that “it would be a mistake to think tomorrow’s poll presents a choice between Tweedledee and Tweedledum” is so signally unconvincing that some wag of a subeditor dared headline it with the 1980s Pepsi slogan – ‘Taste the difference’. Hartcher doesn’t even seem to believe himself, despite the ritual incantation:

Certainly, there is a great deal of convergence. This is a natural condition in a successful, stable developed country. And Australia, proportionally, is one of the most middle-class countries, so it’s no surprise that both major political parties should compete for the middle ground.

Kevin Rudd’s greatest compliment to John Howard is that he is seeking to continue perhaps 90 per cent of Howard Government policies….

So what are the real differences? It is untrue that the parties are barely distinguishable.

Rudd is offering Australians a low-risk alternative government that essentially offers the status quo minus the least palatable bits – Work Choices, the war in Iraq and the person of Howard himself.

But Rudd Labor is offering some policy extras. These are an “education revolution”, the promise of an action plan for dealing with global warming, a plan for a federal takeover of public hospitals, proposals for new tax rebates for education, and a national broadband plan.

The Coalition has responded to each of these – “me too” – with a policy variation of its own. None is a carbon copy, yet they seek to fill the same policy space….

They do converge on a great deal – in the words of the online satirist Hugh Atkin, Rudd proceeds according to the “clever principle of similar difference”.

But in the areas of difference, in the space between the parties’ offerings, there is enough to define two distinct Australias of the future.

Anyway, tomorrow’s my first federal election in Australia. I hear they put on a good show. I had never heard the term ‘psephology’ until I got here, and no-one does electioneering like Australians: half the effort happens on election day itself as party volunteers campaign along the polling queues. They have raised it to a science, the bookies calculate the odds, and this adorable geek called Anthony Green gets on the ABC to talk about the marginals, uniform swings, indicative preference counts, and so on. I’ve been invited to no fewer than ten election night parties. Should be quite a spectacle.

Published in: on 23 November, 2007 at 11:13 am  Comments (3)  

On value

A definition of economics which, however disturbing to economists, would contain a great deal of truth would be ‘The study of collections of essentially diverse objects as though these collections were always quantifiable by one constant unit’. Economics is inherently and essentially imprecise. The only question is how heroic we are prepared to be, or what choice we make between simplification of the type of the Crusoe economy, where most major problems of reality are assumed away and arguments about the remainder can be logically impeccable, and simplifications of the Keynesian and Harrodian type where the need for rough-and-ready quantification is accepted. Any principle for quantifying collections of essentially (i.e. relevantly) diverse things must amount to valuation.

– G. L. S. Shackle [1967]: The Years of High Theory: Invention and tradition in economic thought, 1926-39, p. 255

Published in: on 16 November, 2007 at 11:04 am  Leave a Comment  

16: Sundry Observations on the Nature of Capital

Or, the labour theory of value and the tendency of the rate of profit to fall. 

As individuals, we save expecting to be able to spend our savings on commodities in the future. But the commodities sold in any time period are generally produced within that period. Savings represent income from the production of commodities that are not spent on those commodities. Spending out of previous savings represents spending on commodities that does not come from income generated in producing them. Is there some mechanism channelling savings into expanding future production such that future production is capable of meeting the demand when savings are spent?

It’s tempting to simply assume that savings flows into just the right investment to prepare for future demand: as we have seen, savings and investment are equal by definition. Some of the classicals saw the interest rate as adjusting savings an investment in just the right proportion to match the future consumption made possible by saving/investing now with the sacrifice in consumption now.

But saving sends no signal about what the saver wants to purchase down the track, or when they will make the purchase. And investment is based upon expectations of future consumption, but those expectations are “so largely based on current experience of present consumption”, and present consumption is reduced by an act of saving. [p. 210] Saving makes prospects for investment look bleaker than they otherwise would. So saving may reduce current investment-demand as well as consumption-demand.

The absurd, though almost universal, idea that an act of individual saving is just as good for effective demand as an act of individual consumption, has been fostered by the fallacy, much more specious than the conclusion derived from it, that an increased desire to hold wealth, being much the same thing as an increased desire to hold investments, must, by increasing the demand for investments, provide a stimulus to their production; so that current investment is promoted by individual saving to the same extent as present consumption is diminished. [p. 211]

An individual act of saving transfers claims over wealth to the saver; it does not necessarily create new real wealth (i.e., investment in capital goods). It might bid up the price of financial assets (which would lower the interest rate and possibly induce investment). Or it might increase the demand for money (which would raise the interest rate and discourage investment).

Is capital productive?

Keynes’ answer is no. Capital has a yield over its existence in excess of its cost, but this should not be confused with physical productivity. If capital becomes less scarce, its yield falls, even though it may be just as physically productive as it was before. Again, we have a more-than-casual nod to a labour theory of value:

I sympathise, therefore, with the pre-classical doctrine that everything is produced by labour, aided by what used to be called art and is now called technique, by natural resources which are free or cost a rent according to their scarcity or abundance, and by the results of past labour, embodied in assets, which also command a price according to their scarcity or abundance. It is preferable to regard labour, including, of course, the personal services of the entrepreneur and his assistants, as the sole factor of production, operating in a given environment of technique, natural resources, capital equipment and effective demand. This partly explains why we have been able to take the unit of labour as the sole physical unit which we require in our economic system, apart from units of money and of time. [pp. 213-14]

Keynes follows with a swipe at Böhm-Bawerk (author of Karl Marx and the Close of His System) and his argument that capital could be represented as a ’roundabout process’. He shows that for various reasons the representation of capital as time is incoherent.

Of course it is not Keynes’ argument (or Marx’s or any of the classicals’) that capital does not make production processes more efficient. He simply argues that this does not explain the return to capital, which is determined essentially by its scarcity. And capital is not alone here:

Moreover there are all sorts of reasons why various kinds of services and facilities are scarce and therefore expensive relatively to the quantity of labour involved. For example, smelly processes command a higher reward, because people will not undertake them otherwise. So do risky processes. But we do not devise a productivity theory of smelly or risky processes as such. [p. 215]

The fact that the marginal efficiency of capital depends on its scarcity suggests a problem: what happens to a capitalist society where capital is no longer scarce, so that its marginal efficiency falls to zero? People will still be inclined to save, but any addition to the capital stock will be worth less than nothing.

Starting from full employment, the excess of saving over investment will lower income until the aggregate rate of saving is zero, in line with investment.

Thus for a society such as we have supposed, the position of equilibrium, under conditions of laissez-faire, will be one in which employment is low enough and the standard of life sufficiently miserable to bring savings to zero. More probably there will be a cyclical movement round this equilibrium position. For if there is still room for uncertainty about the future, the marginal efficiency of capital will occasionally rise above zero leading to a “boom”, and in the succeeding “slump” the stock of capital may fall for a time below the level which will yield a marginal efficiency of zero in the long run.

Of course, the marginal efficiency of capital need not fall all the way to zero to choke off investment – it only needs to fall below the minimum interest rate. Keynes argues that the rate of interest (on long-term bonds) cannot fall below some minimum set by uncertainty and the cost of bringing lenders and borrowers together – around 2 or 2.5 per cent in present conditions. Therefore, there is every possibility that in wealthy countries “the awkward possibilities of an increasing stock of wealth, in conditions where the rate of interest can fall no further under laissez-faire, may soon be realised in actual experience.”

In fact, Keynes conjectures that these conditions already apply in the United States and Great Britain. Poorer countries (i.e. with a relatively lower capital stock) may thus enjoy a higher standard of life than richer, if the latter suffer declines in employment due to a lack of an incentive to invest; “though when the poorer community has caught up the rich — as, presumably, it eventually will — then both alike will suffer the fate of Midas.”

So Keynes follows an argument that only labour can be considered productive with a law of the tendency of the rate of profit (sorry, “marginal efficiency of capital”) to fall. Very interesting!

The way out, according to Keynes, is for savings to be matched by expenditure on durable assets that are not expected to make a return (i.e., they are not capital goods).

In so far as millionaires find their satisfaction in building mighty mansions to contain their bodies when alive and pyramids to shelter them after death, or, repenting of their sins, erect cathedrals and endow monasteries or foreign missions, the day when abundance of capital will interfere with abundance of output may be postponed.

It would be better if “a sensible community” realised the causes of the situation and dealt with it rationally, via state expenditure on non-capital assets. Such a community would be fast on the road to Keynes’ version of utopia:

 On such assumptions I should guess that a properly run community equipped with modern technical resources, of which the population is not increasing rapidly, ought to be able to bring down the marginal efficiency of capital in equilibrium approximately to zero within a single generation; so that we should attain the conditions of a quasi-stationary community where change and progress would result only from changes in technique, taste, population and institutions, with the products of capital selling at a price proportioned to the labour, etc., embodied in them on just the same principles as govern the prices of consumption-goods into which capital-charges enter in an insignificant degree.

If I am right in supposing it to be comparatively easy to make capital-goods so abundant that the marginal efficiency of capital is zero, this may be the most sensible way of gradually getting rid of many of the objectionable features of capitalism. For a little reflection will show what enormous social changes would result from a gradual disappearance of a rate of return on accumulated wealth. A man would still be free to accumulate his earned income with a view to spending it at a later date. But his accumulation would not grow. He would simply be in the position of Pope’s father, who, when he retired from business, carried a chest of guineas with him to his villa at Twickenham and met his household expenses from it as required.

Published in: on 6 November, 2007 at 8:51 am  Comments (4)