Paul Davidson and the good old days for workers

Letter from Paul published in The Economist edition of November 2nd.

* SIR – “Labour pains” (November 2nd) pointed out that the share of wages in national income has fallen after being nearly constant for decades after the second world war. During the post-war decades the middle class prospered because of the full-employment policies started by Franklin Roosevelt and continued by both Democratic and Republican presidents and Conservative and Labour governments in Britain.

In this period the growth of union power, enshrined in legislation and policies, pursued the sharing of monopoly rents and profits of corporations with their workers. By the 1970s, however, the seeds were sown for the beginning of the end of middle-class prosperity. The anti-union policies of Ronald Reagan and Margaret Thatcher made it socially and politically popular to see unions as the villains in the economy. This was quickly supplemented by firms outsourcing to foreign countries where an hour’s worth of labour was paid a much lower real wage.

But now, a new threat is growing that will further hollow out the middle class and make even more significant differences in the distribution between the top 1-2% and the rest of society. This threat is automation. You correctly indicate that policymakers should think about broadening capital ownership as a way of boosting income to workers and restoring a prosperous middle class.

For a creative approach to restoring middle-class prosperity, I recommend the work of Professor Robert Ashford in the forthcoming issue of the Journal of Post Keynesian Economics called “Beyond Austerity and Stimulus: Democratising Capital Acquisition With the Earnings of Capital As a Means of Sustainable Growth”. Professor Ashford proposes a capital-ownership broadening policy that big companies adopt to produce enhanced earnings for their employees, customers, and other poor and middle class people; enhanced corporate profit and growth; reduced need for welfare dependence; and enhanced sovereign creditworthiness.

Paul Davidson
Editor
Journal of Post Keynesian Economics
Boynton, Florida

You can see this letter and others here.

Palley on the ELR in the UK

Thomas I. Palley

The following story, which appeared in The Guardian on Sunday 29 July, was forwarded to me by Malcolm Sawyer:

“Million jobless may face six months’ unpaid work or have unemployment benefits stopped”

In a sense, the UK, under Conservative Prime Minister Cameron, is looking to adopt a quasi-employer of last resort (ELR) scheme in which the ELR wage is set equal to existing unemployment benefits (Note: the Conservative scheme involves compulsory labor for benefits).

Read the rest here.

Long-term versus short-term debt

In a previous post I have referred to the Fiscal-Military State, and Brewer's classic book on it. It is worth remembering, for those afraid about debt these days, that public debt in the UK during the Napoleonic Wars peaked at more than 250% of GDP.

One of the important ways in which the British were able to out-finance the other major European powers, fundamentally France, during the 18th century was the ability to borrow long at at low rates. The graph below shows the proportion of unfunded to funded debt (from Brewer's book). The UK rapidly moved from almost 100% of unfunded debt to less than 10%.

Funded debt, was debt for which specific taxes were set aside to service it, and it tended to be long-term, while unfunded debt was usually short-term debt. Debt service consumed a great amount of the budget, but that was simply the result of the incredibly large amount of debt, since interest rates remained relatively low. I guess the lesson is that long term debt in your own currency is okay.