Idiotic economics in the Globe and Mail. Again.

I can understand that the Globe feels obliged to provide points of view from varying points on the political spectrum. Sadly, it carries out this mandate by publishing dumb commentary from varying points on the political spectrum. On the right, it offers Neil Reynolds (typical car wreck here). And on the left, it offers stuff like today's offering from Rick Salutin:

The falling stock of workers: ... All the greats, from Adam Smith to Marx, called labour the source of wealth and value.

As Brad DeLong entertainly demonstrates (it's the graphics that make it work), the Labour Theory of Value is useless as a framework for moral philosophy or for understanding what we observe. But apparently it still passes as a basis of informed commentary in our nation's Newspaper of Record.

Comments

[jg]

I can understand that the globe wishes to publish people with different perspectives on economic and political affairs, but I fail to see one single reason to publish a guy like Neil Reynolds. Reynolds never even tries to make a cogent argument; instead he simply repeats made-up claims by guys like art Laffer and Stephen Moore and tries to con his readers into thinking that these are serious people. Reynold is our Canadian version of a Republican hack. Sad sad Globe and Mail.

[Declan]

Comparing anyone to Neil Reynolds is a bit of a low blow, in my opinion. To be honest, I read Salutin's column and didn't see a whole lot to take issue with (more than the average, for a newspaper column, that is). I think as an economist you are quick to assume that writing the, to my mind, obvious, statement that labour is the source of wealth and value means that someone is endorsing 'the labour theory of value' as accurate. I guess most people, myself included, would just read it to mean that without labour, you don't have much of anything. I'll wait until Salutin recommends we emulate the economic policies of Iceland, Latvia or some other country currently suffering from riots due to the collapse of their economy before I lump him in with Reynolds.

[Nick Rowe]

My father, being a farmer, had physiocratic leanings. He would argue that farmland, and the people who worked it, were the source of all value and wealth. Without farms, he would argue, you wouldn't have anything else. Factory workers don't create value, they just transform it from one form to another: you put food in one end and cars come out the other. The rate of surplus value, or exploitation, was measured by the ratio of population to farmers. Each person working the land supported a whole edifice of 50 unproductive workers.

[learning james]

Nick, I think your father has a very valid point and farmers will see their stock improve with a return to our roots. Have you tried to buy local fresh produce lately ? Have you been disappointed by what you see at your grocer ?

[yello]

funny though, you only seem to find time to attack the left-leaning articles, ie 'mercantilism at the G&M'

This article isn't even that bad at all. Actually, it's probably above average for a major newspaper, and is WAAAAY better than many things I have read in the NYT or WSJ that were written by actual economists who should know better.

you take his quote out of context to make his mistake seem worse than it is. It's pretty clear that he is talking about the greats of CLASSICAL economics, and is lamenting the fact that labour is no longer as central to our economic theories - which it is not - even if he is completely wrong in attributing belief in LTV to Adam Smith or classical economists in general. Even if he mangled his economic history, his essential point that labour is not as as central to economic theory as it once was is right. His second main point that it ought to be, and you don't address this at all. Instead you opt for cheapshots at a non-economist.

Why don't you actually publish an argument as to why the substance of his article is wrong, instead of attempting a third-rate DeLongian hack job on a non-economist, based on one sentence where he makes a blunder in his economic history.

When a nice old lady casually remarks that she thinks they should make everything in Canada, would you call her a protectionist idiot? That's the kind of person your coming off as here. The guys heart is in the right place, and his economics aren't even that bad.

[Stephen Gordon]

You're mistaken on several points:

1) I'm not gentle with people who use valuable media space to reduce people's understanding of important issues, regardless of their political leanings. You might want to re-read the third sentence of the post.

2) Adam Smith and Marx did in fact subscribe to the LTV; that's not the error Salutin made. His error was not realising that the LTV hasn't been taken seriously by non-cranks for over a century.

3) When a nice old lady casually remarks that she thinks they should make everything in Canada, would you call her a protectionist idiot? If she's voicing those remarks on the opinion pages of the Globe and Mail, I would indeed.

4) Having one's heart in the right place is not an excuse for saying dumb things.

[yello]

Well, on 2) I stand corrected. I didn't realize the scope of the LTV 'tradition', and always just associated it solely with Marx's formulation, which is the only version of the LTV that the Delong article deals with. Anyways, that's my own mangling of economic history, not Salutin's.

"His error was not realising that the LTV hasn't been taken seriously by non-cranks for over a century."

As for that second part, it is pretty clear that Salutin realizes that LTV is no longer regarded as correct in terms of modern economics, hence the "what a comedown from the heyday of classical economics". Notice the past tense used in the rest of that paragraph.

He thinks that there is some sort of truth about the importance of labour in a healthy economy captured by the LTV economists that has been lost in modern economics, as evidenced by the recent failure of modern economic policy. As Declan remarked above - it doesn't at all read like a wholesale endorsement of the LTV, but rather as support for a general view that the importance of labour is understated in modern economics and politics. Is that really such an outrageous idea to express in an Opinion column that it warrants being labelled as "idiotic"? No. I could easily see the same thing being written by Robert Reich, and I could probably dredge up some very similar statements from his archives. Somehow though, I imagine that you wouldn't be so quick to give him the most unfair reading possible, in order to call him an idiot.

as for the other points:

1) I agree with Declan's post above, and you spend the majority of your post attacking the better of the two. so yeah, not really buying the whole "fair & balanced" schtick.

3) a good clue that you might just be a mean-spirited person.

4) see 3)

[Brian Ferguson]

Stephen: Take a look at what Gavin Kennedy has to say about Smith and the Labour Theory of Value at
http://adamsmithslostlegacy.com/2008/12/adam-smith-did-have-labour-theory-of.html

Brian

[duncan cameron]

I read the de Long post Stephen, thanks for the reference. But, all he has proved is that capitalism is superior to feudalism, which Marx pointed out as well. The Marxist theory of exploitation does not start by assuming everyone owns a farm. It starts by assuming that some people have only their labour power to sell, and having lost their livelyhoods, have to sell it. They only have to be paid, not for what they produce, but for what they need to survive.
Because of social action, and macroeconomic understanding (that has been contested since Hayek and Friedman), we introduced a social minimum, a floor under wages if you wish, so people would have an alternative to starvation wages.
In the Salutin article the point is not really made that cuts to UI, and reductions to welfare, forced people to work for next to nothing. Now the recession risks becoming a depression because of shrinking purchasing power. Note that in France, 69 per cent of the population support strikes to improve purchasing power.
In Canadian economics departments, if you tested on the following: Do lower wages lead to economic prosperity? I suppose the majority would say yes. They would be wrong of course, but then the majority do not buy Keynes let alone Kaleckian views of the world.

[Stephen Gordon]

You suppose wrongly. Just how many economists have you ever spoken to in your life? I mean real-life professors of economics, not the ones of your imaginings.

[duncan cameron]

Just to reassure you Stephen, I spent my professional life with economists, first at the Dept. of Finance, then as a Ph.D. student, then at UOttawa where we had a weekly economists lunch around Irene Spry. I was president of an economics think tank for 12 years, and for a couple of years wrote a twice monthly column for the Financial Post. I have taught in an economics dept. and I'm a member of the CEA. I study economics every day of my life, and write about it regularly. I have even met some of the great names in economics in Canada, Britain, France, Italy, and the U.S.
Most neo-classical economists would tell you that given full employment, wage increases are inflationary. If there is unemployment, its because wages are too high. For instance, check out Mankiw citing Summers: unionization causes unemployment.
Given those two cases cover all situations, we either have full employment or not, how do you justify higher wages?

Now, instead of doing an ad hom. attack, why not address the issue of DeLong's account of Marxist exploitation theory?

[Stephen Gordon]

I think DeLong's point speaks for itself: the standard Marxist story can't distinguish between capital income earned by Paris Hilton and capital income earned by the Ontario teachers' pension fund, so it's essentially useless as a theory of exploitation. If Paris Hilton is a Class Enemy, so is a retired teacher. If you want to distinguish between Paris Hilton and a retired teacher, then you have to use another criterion to do so, which means assigning the theory to the Dustbin of Irrelevant Ideas.

[duncan cameron]

Paris Hilton? That would be unproductive labour, whatever the paradigm. Retired teachers, or pension funds, deferred wages, becoming investment dollars, we are talking here the sphere of circulation, not the point of production source of capital income.
I would point to discussion of real world monetary policy or fiscal policy, as here for example:
http://www.atimes.com/atimes/Global_Economy/KA06Dj04.html
which I find more fruitful than your standard IS/LM diagram or real business cycle math. I like this quote:
"Unfortunately, the rescue approach by the George W Bush administration led by Treasury Secretary Henry Paulson and the Bernanke Fed has been focused on saving distressed financial institutions by providing taxpayers' money to restructuring bad debts and de-leveraging overblown balance sheets. This approach inevitably pushes already stagnant wage income further down, with more layoffs and ruthless renegotiation of already draconian labor contracts, to cut operating cost. All this does is to reinforce the downward market spiral by transferring financial pain to innocent workers while not helping the economy with a needed revival of consumer demand."
It picks up on the theme Salutin developed. The people who work with their hands are getting a raw deal.

[Mandos]

Precisely. And as the people who work with their hands get a raw deal, there is either social breakdown, or social unrest. The USA attempted to avoid this by giving large numbers of people loans with which to spend. Eventually, this strategy bottomed out.

So either the US worker will learn to be like the French worker and strike to improve their deal, or they'll become as poor as Indian workers, too soon for the Chinese to adjust.