Labor’s “share” in a Garett Jones World

Timothy Taylor looks at an article on the secular decline in labor’s share of income, and he concludes

These explanations all have some plausibility, but it isn’t clear to me that, taken together, they adequately explain the fall of more than four percentage points in labor share in the decade or so from the early 2000s (roughly 61%) to the years right after the Great Recession (just above 56%). The labor share does show some sign of rebounding in the last couple of year, and it will be interesting to see whether that turns out to be true bounce-back or a damp squib.

“Labor’s share” is one of those macro-Marxist concepts that I distrust. It ignores the heterogeneity of labor. Some workers have few skills. Others have highly marketable skills. It ignores heterogeneity of capital. But perhaps even more important, it ignores the fact that most of us are Garett Jones workers, who do not produce output but instead produce organizational capital.

As an example of a firm with a high labor “share,” consider a 1990s dotcom, which has lots of dreams but little revenue. For many of the dotcom darlings, labor’s share was way over 100 percent, and hence they went bust. Those that survived are now living off the organizational capital that they developed back in the day, which could make for a low labor share today.

In some (many?) firms, the labor share is arbitrary. For example, my guess is that as of now the “labor share” at Google is low, because the organizational capital that it built up during its first decade of existence is very valuable relative to the necessary labor input to keep it running. But Google has a lot of leeway. The more it invests today in organizational capital (research into driverless cars and such), the higher will be its (current) labor’s share. The more it just sticks to its existing business and trims workers in the research areas, the lower will be its labor’s share.

A Provocative Op-Ed

In the WaPo.

Last spring, when I heard Donald Trump say that Caitlyn Jenner could use whatever bathroom she wanted at Trump Tower, I breathed a sigh of relief. There weren’t many things Trump and I agreed on, but this was one. Surely, I hoped, if he became president, he would extend the same courtesy to my 7-year-old daughter, Henry.

…The first time we knew that Henry was different, she was 2. When she found her cousin’s Barbie doll, she lit up like a Christmas tree. “The hair, Mama,” she cooed. “Look at her looong hair!” Henry continued to show us, in every way she could, that she wanted to live as a girl. This was new territory. What do you say when your 3-year-old boy asks to be Rapunzel for Halloween? In our house, you say yes.

If you go to a family beach, you will see girls aged 8-10 practicing cartwheels, handstands, backbends, and the like. Well, I loved to do that when I was 9. If trans-gender had been such a hip thing among my parents back then, that would have been my label. I don’t think it turned out to be the correct one.

The op-ed says,

Bathrooms are a big deal for Henry, a point of clear anxiety and worry.

Bathrooms were a huge worry for me at age 7, also. I was traumatized by having to sit on a toilet in a school bathroom in a stall that had no front door. But I’m over it. My guess is that many non-trans children at that age have trouble handling nudity and proximity to others when performing bodily functions.

The author describes the support she receives from local authorities. President Trump did not take away any of that support. He just decided that the Federal government does not belong in the bathroom.

Using your 7-year-old child as a political mascot does not win my admiration.

Provocative Sentences

From Tucker Carlson, profiled by McKay Coppins.

“Look, it’s really simple,” Carlson says. “The SAT 50 years ago pulled a lot of smart people out of every little town in America and funneled them into a small number of elite institutions, where they married each other, had kids, and moved to an even smaller number of elite neighborhoods. We created the most effective meritocracy ever.”

“But the problem with the meritocracy,” he continues, is that it “leeches all the empathy out of your society … The second you think that all your good fortune is a product of your virtue, you become highly judgmental, lacking empathy, totally without self-awareness, arrogant, stupid—I mean all the stuff that our ruling class is.”

Of course, assortive mating is only one of the four forces. But he is talking about it as a political force, not as an economic force.

My concern is that we are losing the ability to discuss ideas with people who disagree. Instead, we keep getting better and better at closing the minds of people on our side.

Positivism, Progressivism, and Economics

Steven Hayward writes,

for Progressive politics, the positivist distinction between facts and values, which corresponds to the distinction between administrative questions and political questions. . .preserves for the rulers alone freedom of choice and action. The “scientific” elites of the administrative state

I am taking this quote quite out of context. Please read the entire essay.

Back when I took Introduction to Philosophy, the professor taught positivism as an approach to epistemology, which deals with the question of how we know what is true. The positivist answer is that there is logical knowledge and empirical truths. Logical truths are embedded in the definitions of terms. Empirical knowledge comes from observation. Statements that are neither logical nor empirical are dogma.

The term dogma is meant to apply to statements such as “Jesus is the son of God,” or “Sodomy is wrong.”

Nowadays, it seems that what positivism means to Hayward (and others, including McCloskey) is the doctrine that we can and should separate fact from opinion, knowledge from preference, the news page from the editorial page. It links to progressivism in that the progressive imagines an ideal political system as one in which the voting public expresses preferences and then the experts with the knowledge design and execute policies to satisfy those preferences. It links to orthodox American economics, because those economists have always thought of themselves as having the knowledge needed in order to play the expert role.

Note that the progressive model cannot handle a situation in which the public expresses a preference not to be governed by experts. Such a preference does not compute.

There are some heterodox economists on the left and the right who deny that the facts/values distinction can be maintained. I think they have a point.

Let’s take as an example the effect of the minimum wage on employment. In principle, the question of how the minimum wage affects employment falls on the “facts” side of the facts/values divide. In practice, I think it is fair to say that the easiest way to predict where an economist will come out on the question of how the minimum wage affects employment is to find out where the economist stands on some other issue that divides left and right. So an economist who supports a higher military budget is likely to predict a larger adverse effect of an increase in the minimum wage on employment than economist who supports a smaller military budget. That is because the military spending issue and minimum wage policy “affiliate” with one another, even though they have essentially nothing to do with each other.

Still, I do not have a problem with the facts/values distinction in principle. I do not mind if economists try to keep facts and values separate, however much this tends to fail in practice. What I object to the most is the claim that economists have expertise that enables them to operate the administrative state as it exists today.

The State of the Housing Market

Scott Sumner writes,

It looks like the supply side is being hit by a triple whammy of adverse supply shocks

These are problems with funding, land and labor supply.

I think that the problem boils down to land in a few cities, like San Francisco, Los Angeles, New York, and Boston. And we know that the land scarcity is artificial, due to regulation. Public policy is to subsidize demand and restrict supply. My guess is that as the problem of housing scarcity becomes more apparent (there was a rather uninformative article about it in the WaPo last week), the politicians will work on subsidizing demand.

Health Care Spending in the Gray Area

Timothy Taylor finds a report from the OECD. Taylor writes,

The report divides the evidence into three main categories: wasteful clinical care (care that either provides very low value or can even be counterproductive to health); operational waste (like paying excessively high prices or overusing expensive inputs like brand-name drugs); and governance-related waste (like ineffective or unnecessary administrative expenses)

Ten years ago, in Crisis of Abundance, I concluded that the main issue was the first: medical procedures with high costs and low benefits. Taylor lists these examples from the OECD report:

Imaging for low back pain.
Imaging for headaches.
Antibiotics for upper respiratory tract infection.
Dual energy X-ray absorptiometry (used to measure bone mineral density).
Preoperative testing in low-risk patients (electrocardiography, stress electrocardiography, chest radiography).
Antipsychotics in older patients.
Artificial nutrition in patients with advanced dementia or advanced cancer.
Proton pump inhibitors in gastro-oesophageal reflux disease.
Urinary catheter placement.
Cardiac imaging in low-risk patients.
Induction of labour.
Cancer screening (cervical smear test, CA-125 antigen for ovarian cancer, prostate-specific antigen screening, mammography).
Caesarean section.

Note that cancer screening is on the list. Cancer screening is something of a sacred cow in the U.S. In fact, as I point out in my book, even something as widely advocated as colonoscopy to screen for colon cancer is likely to have a very high cost per life saved.

Taylor concludes:

In many cases, decisions about what medical care to receive and how to deliver that care fall into a gray area. It’s often not 100% clear whether a certain procedure was needed, or not needed; not 100% clear that an error was made, or whether a reasonable judgment call was made; or whether a certain administrative act is wasteful, or whether it is reasonable oversight that reduces the risk of poor care and holds down costs. But the report makes a persuasive case that a substantial share of health care spending, not just in the US but in all advanced economies, is not doing much to improve health.

This recalls what I wrote in Crisis of Abundance in chapter 3.

It is not true that health care is a black-and-white proposition in which services are either utterly necessary or else utterly unwarranted. . .Services that fall in the gray area are services that offer some benefits but which are not absolutely necessary.

To reduce the use of high-cost, low-benefit procedures, the parties paying for health care have to engage in rationing. If the patient is paying, then the patient will self-ration. If the government is paying, then the government will ration.

Sugar and the Kling Public Choice Theory

Glenn Reynolds writes,

Government policies promoting sugar, in no small part, got us into this mess. Without the government’s recommendations to avoid dietary fat that led to increased sugar consumption, many Americans would probably be thinner, or at least less obese. And then there are the subsidies.

The Kling theory of public choice is that government acts to subsidize demand and restrict supply. In this case, it subsidizes demand with food stamps and restricts supply with measures against imports.