When Multiculturalism means Undermining Democracy Itself

That is the state of affairs in Britain today, as it made clear by a UK government report headed by Sir Eric Pickles, as reported here, here, and here, reporting on the widespread voting fraud and corruption within certain immigrant ethnic communities in Britain.

The original report is here.

Of the worst abuses is the systematic misuse of postal voting:

“70. Postal voting on demand attracted the greatest degree of comment from respondents. It was considered by some to be the UK’s main electoral vulnerability and to provide the ‘best’ opportunity for electoral fraud.

71. Abuses of postal voting on demand were noted too often be carried out in communities where an individual’s right to vote in secret and exercise free choice may not be fully valued. Evidence was presented of pressure being put on vulnerable members of some ethnic minority communities, particularly women and young people, to vote according to the will of the elders, especially in communities of Pakistani and Bangladeshi background. There were concerns that influence and intimidation within households may not be reported, and that state institutions had turned a blind eye to such behaviour because of ‘politically correct’ over-sensitivities about ethnicity and religion.

72. Richard Mawrey QC noted that postal votes were the most significant problem and that, whilst the introduction of ‘postal vote identifiers’ (signature and date of birth) in 2007 had been a step in the right direction, the possibilities of undue influence, theft of postal votes and tampering with them after completion were all still risks. In summary, he saw the system as effectively just being policed by political parties watching each other with not enough rigour in the systems themselves.”
“Securing the Ballot: Report of Sir Eric Pickles’ Review into Electoral Fraud,” August 2016, p. 22.

The situation is so severe that the very “integrity”of voting and democracy itself in Britain is being put into question.

From the conclusion:

“My fear now is that such a trust-based system is becoming no longer tenable. To retain the integrity of our democracy, we need to introduce more rigour into the processes we use, to see more clarity and proactivity from institutions such as the police in upholding the system. We need to act now to avoid further major instances of fraud taking place.

Further steps are necessary to stamp out electoral corruption – across voter registration fraud and error, postal voting fraud, impersonation, bribery, treating, undue influence and intimidation.

There are sometimes challenging issues over divisive community politics and ethnic-religious polarisation, but this is no excuse for failing to enforce British law and protect the integrity of our democratic process. The law must be applied equally and fairly to everyone. Integration and good community relations are undermined by the failure to uphold the rule of law and ensure fair play.

Our nation has a proud heritage as the ‘mother of Parliaments’, yet the worrying and covert spread of electoral fraud and state of denial by some bodies threatens that good reputation. It is time to take action to take on the electoral crooks and defend Britain’s free and fair elections.”
“Securing the Ballot: Report of Sir Eric Pickles’ Review into Electoral Fraud,” August 2016, p. 55.

So we have yet another incredible failure of multiculturalism in Europe.

The Class War is Back

In a manner of speaking. See this splendid piece here by Paul Embery:

Paul Embery, “The Demonisation of the Working-Class Shames Our Nation,” HuffPost Politics, 1 July, 2016.

Except the new class war is being waged against the working class by an arrogant, metropolitan, snobbish, middle-class leftist elite that rules the left at the moment, with hordes of young university-educated leftists in tow.

The elite is, to a great extent, influenced by economic neoliberalism (think: New Labour).

The mass of supporters and especially the young are steeped in Postmodernism and all its rotten ideas (cultural relativism, truth relativism, moral relativism, identity politics, etc.). Their core beliefs stand in stark contrast to an older generation of leftists like Noam Chomsky, who in his heyday had utter contempt for their ideology. The worst elements of them are what can be called the regressive left.

A core element of this leftism is its quasi-religious faith in open borders and mass immigration, which is becoming politically toxic all over the Western world, for its deleterious economic and social consequences. Nor can you ignore the cultural problems caused by mass immigration either (though, admittedly, it does tend to bring out the far right and so-called “Alt Right” bigots and needs a diplomatic and light touch in discussion).

Even self-identified, university-educated Marxists are mostly part of the regressive left these days, because – let’s face it – Marxism seems to have been taken over by cultural leftism and to have succumbed to the cult of open borders as well.

Ask yourself: when was the last time a middle-class, university-educated Marxist made the principled, socialist case against mass immigration?

Of course, there are people who have an irrational view of immigration per se or an irrationally bigoted attitude to foreigners. But the correct response here is to quietly and even politely but strongly disagree with such people, and carefully and respectfully point out why they are wrong, rather than simply scream abuse at the top of one’s lungs.

The issue of such people shouldn’t be allowed to dominate the discussion and the best tactic of the left is to boldly seize the issue of mass immigration, take it away from the right, and urge sensible policies that will satisfy voters while crippling support for the right on this issue.

Jeremy Corbyn’s Fantasy World

In the video below, Andrew Marr asks Corbyn whether open borders has become extremely unpopular with Labour’s working class voters, which is a plain truth (here, here, here, and here).

His answer?



Corbyn’s response: no, it’s all a conspiracy by the right-wing newspapers and (apparently) there are no significant downsides to mass immigration of any kind (such as, for example, overpopulation, soaring housing and rent costs, holding down of real wages, competition for scarce employment, and destruction of a nation’s cultural and social cohesion).

Corbyn is also delusional if he thinks effective Keynesian fiscal policy will be possible in Britain with an open border policy, for the more prosperous a country becomes, the more it will simply become a magnet for mass immigration from Europe, which in the process will defeat the whole purpose of fiscal policies to create full employment.

Corbyn’s defence of free movement of people and capital within the EU is a defence of the worst aspects of neoliberalism, being, as it is, a central plank of laissez faire ideological poison and the destruction of the state’s right to regulate and control capital.

That Corbyn is being passed off as a “socialist” marks the final transition of UK politics into farce. First, it was New Labour that betrayed Britain with its neoliberalism and war criminality (the full extent of the betrayal can be read in Tom Bower’s Broken Vows. Tony Blair: The Tragedy of Power. Faber & Faber, London, 2016).

Now the Corbyn-led Labour party is in favour of devastating policies that will strip Britain of its political independence.

Even worse, Corbyn admits that there is no upper limit to mass immigration into Britain while it’s in the EU, and, once again (apparently), there must be nothing but open borders *forever* in Britain.

Corbyn represents the TINA of the left.

This man’s mad fantasies will ruin the Labour party. In fact, the mainstream left in Europe is doomed if it continues to be run by people like Corbyn.

Nominal Wage Rigidity in the US and the UK 1865/1880–1913

A review of the empirical evidence in Hanes (1992 and 1993), Wood (1909), and Feinstein (1990) shows both the UK and US in the late 19th and early 20th centuries had already developed a significant degree of downwards nominal wage rigidity.

The data for the UK can be seen in the graph below, which shows both an index of average UK weekly money earnings and of changes in money earnings within sectors (from Feinstein 1990: 612, Table 6). UK recessions are shaded in blue.

The data in Wood (1909), which can be seen here, indicates that UK money wages did fall significantly in the 1875 to 1879 period. But in the mid-1880s recession nominal wages fell only mildly, and in the 1890s recession hardly moved at all. In the recessions of 1900–1901 and 1908–1909 money wages were again essentially level and inflexible downwards.

Now for the US data.

Davis (2006: 106) provides a useful US recession list on the basis of real manufacturing output:

US Recessions in the 19th Century
Years (Peak–Trough) | Recession Length (years)
1864–1865 | less than 2
1873–1875 | less than 3
1883–1885 | 1
1892–1894 |
1895–1896 |
1903–1904 |
1907–1908 |
(Davis 2006: 106).

The graph below shows fixed weight average US manufacturing wages (dollars per hour) from Hanes (1992: 276–277, Table 3 and Hanes 1993: 753, Table A1). The recessions in Davis are shaded in blue.

US money wages did fall considerably in the economic troubles of the 1870s, but, despite that, there were still protracted economic problems and rising unemployment in the US for years on end in this decade (see the evidence here and here). Nominal wages only fell mildly in the recessions of 1883–1885 and 1892–1894. In the 1895–1896 recession, money wages rose, and in the recession of 1903–1904 they were level and inflexible downwards.

Downwards nominal wage rigidity was a reality both in the UK and America, the two most advanced capitalist economies, well before 1914. In fact, it seems to have become highly significant even by the late 19th century. In America, the degree of money wage falls in the recession of 1920–1921, coming as it did after the unusual wartime wage and price inflation of 1914–1918, was actually anomalous even at that time.

Addendum
While not related directly to this post, I have been looking at UK gross domestic fixed capital formation from 1850 to 1913, in the context of the 1873 to 1896 deflation, so I can see the long-run trend.

This graph shows UK gross domestic fixed capital formation in millions of pounds at current prices from 1850 to 1913.

The fall in investment around 1874 to 1896 sticks out like a sore thumb. What happened here and why? That is a question I will ask in a subsequent post.

Further Reading
“Were Nominal Wages Flexible in 1890s and Early 1900s America?,” January 31, 2014.

“Weir on Historical Estimates of US Unemployment,” February 9, 2014.

“Rothbard on the US Economy in the 1870s: A Critique,” September 24, 2012.

“US Unemployment Graph, 1869–1899,” February 27, 2013.

BIBLIOGRAPHY
Davis, Joseph H. 2006. “An Improved Annual Chronology of U.S. Business Cycles since the 1790s,” Journal of Economic History 66.1: 103–121.

Feinstein, Charles H. 1990. “New Estimates of Average Earnings in the United Kingdom, 1880–1913,” The Economic History Review n.s. 43.4: 595–632.

Hanes, Christopher. 1992. “Comparable Indices of Wholesale Prices and Manufacturing Wage Rates in the United States, 1865–1914,” in Roger L. Ransom, Richard Sutch, and Susan B. Carter (eds.), Research in Economic History 14: 269–292.

Hanes, Christopher. 1993. “The Development of Nominal Wage Rigidity in the Late 19th Century,” The American Economic Review 83.4: 732–756.

Wood, George H. 1909. “Real Wages and the Standard of Comfort since 1850,” Journal of the Royal Statistical Society 72: 91–103.

Mark-up Pricing in the UK

Though I have briefly examined this subject before, much more can be said, given the range of evidence.

In what follows, I review:

(1) Hall, Walsh, and Yates (2000),

(2) Greenslade and Parker (2012), and

(3) finally Downward (1999, Chapter 8).

Hall, Walsh, and Yates (2000) report the results of a survey of 654 UK companies in 1995 carried out by the Bank of England, and mostly of large companies in manufacturing (68% of the survey), as well as some in services (13%), retailing (13%), and construction (6%) (Hall, Walsh, and Yates 2000: 426–428).

The survey found that 79% of firms used time-dependent pricing, and reviewed prices at specific frequencies (Hall, Walsh, and Yates 2000: 432). Furthermore, 28% of companies reviewed their prices only once a year and about 19% only quarterly (Hall, Walsh, and Yates 2000: 430).

About 37% of companies had changed their prices once in the year period before the survey, and about 27% twice (Hall, Walsh, and Yates 2000: 431).

The survey also asked firms if they recognised a specific “pricing theory as being important” for explaining their pricing behaviour. The most important results were as follows:

Theory | Percentage recognition
Constant marginal costs | 53.8%
Cost-based pricing | 47.1%
Implicit contracts | 45.4%
Explicit contracts | 43.7%
Procyclical elasticity | 35.3%
Pricing thresholds | 34.4%
Non-price elements | 24.2%
Stock adjustment | 22.9%
Coordination failure | 22%
Price means quality | 18.5%
Physical menu costs | 7.3%. (Hall, Walsh, and Yates 2000: 436).

It should be noted that the most important of these “theories” are compatible, not mutually exclusive.

Next the firms were asked to rank how important these theories were on a scale of 1 (high) to 7 (low). The rankings from most important to least important can be seen below :

Theory | Placing
Explicit contracts | 1
Cost-based pricing | 2
Coordination failure | 3
Pricing thresholds | 4
Implicit contracts | 5
Constant marginal costs | 6
Stock adjustment | 7
Non-price elements | 8
Procyclical elasticity | 9
Price means quality | 10
Physical menu costs | 11 (Hall, Walsh, and Yates 2000: 436).

It can be seen that cost-based pricing/mark-up pricing was the second most important reason given, though it is perfectly compatible with “explicit contracts” and “coordination failure” (the failure to raise prices because firms fear competitors will not do so, or lower prices for fear of setting off a price war).

Firms are required often to make fixed nominal contracts which generally fix prices for the customer, and this is an important reason as well as cost-based pricing for price rigidity (Hall, Walsh, and Yates 2000: 438).

Also notable in the findings is that UK companies in the survey report constant marginal costs (Hall, Walsh, and Yates 2000: 437).

A minor cause of price rigidity is the idea that “price means quality”: if a firm lowers prices customers may interpret it as a signal that goods have declined in quality. But this seems to be important only in markets for luxury goods (Hall, Walsh, and Yates 2000: 440).

Like so many studies, the New Keynesian idea of “menu costs” received the lowest ranking: it appears to be dubious or, at best, of marginal importance in explaining price rigidity (Hall, Walsh, and Yates 2000: 440).

Most interesting are the results on what is the most common cause of rises or falls in price.

First, what most often causes prices rises? The main results were as follows:

Factor | Percentage of firms
Increase in material costs | 64%
Rival price rise | 16%
Rise in demand | 15% (Hall, Walsh, and Yates 2000: 441).

Only 15% of firms report that demand is a major cause of price rises, and the overwhelming majority attribute price rises to increase in costs of production: a finding that strongly confirms that mark-up pricing is most probably the most prevalent form of pricing in the sampled firms.

Secondly, what most often causes prices falls?

Factor | Percentage of firms
Rival price fall | 36%
Decrease in material costs | 28%
Fall in demand | 22% (Hall, Walsh, and Yates 2000: 441).

Factors (1) and (2) are also consistent with mark-up pricing, since mark-up firms frequent must follow a price leader in setting prices.

What emerges from this is also that rises in production costs are far more likely to cause price increases than cost decreases are to cause price decreases: that is, there is a bias towards upwards – rather than downwards – movements in prices in modern market economies (Hall, Walsh, and Yates 2000: 443).

Firms were also asked: what happens when there is strong demand and this cannot be met from inventories or stocks?

The result was as follows:

Increase overtime | 62%
Hire more workers | 12%
Increase price | 12%
More capacity | 8% (Hall, Walsh, and Yates 2000: 442).

Since increasing overtime or hiring more workers implies that machines or factories will be used to a greater extent than before, then these factors seem to effectively mean an increase in capacity utilisation, which is clearly the main response to booms in demand.

Only a small 12% of firms would increase prices.

This completes the findings of Hall, Walsh, and Yates (2000).

Next, I turn to Greenslade and Parker (2012).

Greenslade and Parker (2012) report the results of a new survey of 693 UK firms (conducted in December 2007 and February 2008) chosen to be representative of the private sector economy of the UK as a whole, including manufacturing, electricity and gas supply, construction, services, and retail trade, but excluding public sector firms or those under regulatory price control (Greenslade and Parker 2012: F13–F14).

An interesting finding is that price rigidity is greater in manufacturing and services than in the trade sector, which has also been found in Eurozone studies (Greenslade and Parker 2012: F4–F5).

When asked how prices for their main product were determined, 68% of firms said that competitors’ prices were “very important” or “important” in determining price (Greenslade and Parker 2012: F9).

The second most important explanation was mark-up pricing, with variable mark-ups (58%) and constant mark-ups (44%) both being important (Greenslade and Parker 2012: F10).

As we have seen, since mark-up pricing industries often rely on a price leader or leaders, the first finding about “competitors’ prices” does not contradict the second finding on cost-based pricing, but is consistent with it.

The main explanations for price stickiness were coordination failure, the need to avoid antagonising customers, and explicit and implicit contracts (Greenslade and Parker 2012: F12).

Finally, Downward (1999, Chapter 8) presents a survey of 283 UK manufacturing enterprises (Downward 1999: 150–151). When asked whether the firm set its prices for its products by means of a mark-up on average costs, 63.7% of firms said either “very often” (29.9%) or “often” (33.8%). A further 17.3% said “sometimes.” Only 7% said “rarely,” and only 8.1% said “not at all” (Downward 1999: 160).

BIBLIOGRAPHY
Downward, Paul. 1999. Pricing Theory in Post-Keynesian Economics: A Realist Approach. Edward Elgar Publishing, Cheltenham, UK and Northampton, MA.

Greenslade, Jennifer V. and Miles Parker. 2012. “New Insights into Price-Setting Behaviour in the UK: Introduction and Survey Results,” Economic Journal 122.558: F1–F15.

Hall, S., Walsh, M. and A. Yates. 2000. “Are UK Companies’ Prices Sticky?,” Oxford Economic Papers 52.3: 425–446.

Lee, F. 1995. “From Post-Keynesian to Historical Price Theory, Part 2,” Review of Political Economy 7.1: 72–124.

S. B. Saul on the Profit Deflation of the 1873–1896 Period

S. B. Saul’s book The Myth of the Great Depression, 1873–1896 (London 1985) is frequently cited by defenders of price deflation. Though it is indeed an important book, the deflation advocates ought to read it more carefully, for I contend that it does not really support their case.

Saul comments on the UK economy during the long period of price deflation from 1873 to 1896:

“one major source of finance for industry was industrial profits and variations in their level were of high importance in determining the trends in industrial investment. Evidence for the years after 1870 suggests that such investment varied more than proportionately with changes in profits. When profits fell, for instance, industrial investment declined to a greater extent. Probably at those times entrepreneurs used such profits as they made to buy foreign securities or to maintain dividends. Now, as we have already seen, a major feature of the British economy after 1876 was the low level of such profits.” (Saul 1985: 41).

Even more interesting is Saul’s conclusion about the
UK:

“Lower prices squeezed profits to the benefit of wages and probably this led to lower industrial investment.” (Saul 1985: 53).

So here price deflation’s effects may have been good for real wages of labour at certain times, but bad for business, which in the end only decreased aggregate investment and employment.

So much for the great claims made for this period of late 19th century deflation! Business seems to have hated it and the deflation depressed their expectations and investment levels.

BIBLIOGRAPHY

Saul, S. B. 1985. The Myth of the Great Depression, 1873–1896 (2nd edn.). Macmillan, London.

The Profit Deflation of the 1890s

The phenomenon of “profit deflation” in the 1890s is described in this fascinating analysis by H. Clark Johnson:

“The international deflation of 1891–96 directly compressed profits. The extent of actual price decline was less than for the two income deflations considered above. From 1890 through 1896, Sauerbeck’s British wholesale price index declined by 18 percent and The Economist’s index dropped by 14 percent. British money wages, however, actually rose by several percentage points, so the rise in real wages was striking. The rate of investment dropped sharply; new capital issues averaged £102 million during 1880–89 and £154 million during 1889-90 but fell to an average level of £70 million during 1891–96. (These data depict a trend; investment need not be financed through new issues.) The rate of saving was high and increased from perhaps £150 million annually in 1880 to £200 million annually in 1896. Aggregate savings deposits grew greatly during the 1890s, both at the Post Office and at private banks. As investment declined despite the increase in savings, the second term of the price equation turned negative, while the first term increased slightly but steadily — reflecting the rigidity of input costs.

The pattern in the United States was similar. During 1893–96, the wholesale price index declined by 2.4 percent annually, compared to a decline of 1.1 percent annually during 1879–92. Unlike wages during the deflation of the 1870s, hourly wages were steady in nominal terms and hence rose in real terms. (Evidence on British and American wage levels during the 1890s undermines frequent assertions that wages were flexible during the period of the prewar gold standard.) Whereas the (nominal) volume of New York City bank clearings was steady during the deflation of the 1870s, it decreased abruptly during 1892–94. Tobin’s q declined moderately from 1892 through 1896, which was significant in part because it followed a full decade of stagnation in real stock prices. The annualized stock index level of 1881 was not exceeded until 1899.

The 1890s saw intense agitation for inflationary policies, and a central plank of William Jennings Bryan’s Democratic party platform of 1896 was that the gold standard should be abandoned in favor of bimetallism. When the Republicans won the election, the gold standard was again perceived as being secure. This conclusion was soon reinforced by rising world gold output and the beginning of a mild international inflation, which weakened the political attraction of bimetallism.” (Johnson 1997: 20).

There are two issues here, although the second is more important for my purposes:

(1) the idea that the 19th century was a period of relatively flexible wages, and

(2) the effects of the price deflation from 1873 to 1896, and in particular on profits and the level of investment.

First, it appears wages were not as flexible in the 1890s, during this later era of the gold standard, as some economists think.

Secondly, it appears that profit deflation, from the price deflation, with relative wage rigidity, induced a fall in investment. That was part of the economic crisis in the 1890s.

Now some neoclassical Marshallian economists at Cambridge University had their own pre-Keynesian theory about the causes of the late 19th century economic problems in the 1880s.

John Neville Keynes, John Maynard Keynes’s father, gave his own evidence to the UK “Royal Commission on the Depression of Trade and Industry” (whose final report was published in 1886).

He saw price deflation as having the following undesirable effects, as described by Skidelsky:

“These linkages were brought out by Neville Keynes in his evidence to the Royal Commission on the Depression of Trade and Industry (1886). The depression in trade was ‘partly but not wholly due’ to the rise in the value of gold relative to other commodities. This discouraged enterprise for five reasons:

(a) because a fall in price between the start and the completion of a transaction involved the trader in loss;

(b) because the trader tended to exaggerate his own loss by not taking sufficient account of the general fall in prices,

(c) because the profits of enterprise were temporarily diminished on account of increased depreciation of fixed capital;

(d) because the ratio of profits to wages fell as a result of the fall in money wages lagging behind the fall in prices, and

(e) because the fall in prices increased the burden of debt, transferring wealth from borrowers to lenders.

Such evidence was not intended to challenge the now orthodox quantity theory, merely to point to the difficulties of adjusting from one price level to another. Its implication was that monetary policy should be used to raise prices, and thereafter stabilise the price level. Out of such considerations developed the movement for bimetallism, which was an attempt to increase the amount of legal tender money by obliging the central bank to mint both gold and silver on demand at a fixed ratio.” (Skidelsky 1983: 231).

So John Neville Keynes anticipated modern concerns about debt deflation and also identified profit deflation as one of the causes of decreased private investment during this period of deflation.


BIBLIOGRAPHY
Johnson, H. Clark. 1997. Gold, France, and the Great Depression, 1919–1932. Yale University Press, New Haven and London.

Skidelsky, R. J. A. 1983. John Maynard Keynes: Hopes Betrayed 1883–1920 (vol. 1). Macmillan, London.

Alfred Marshall’s Judgement on the “Depression” of 1873–1896

To expand on a point in the last post, between 1873 and 1896 nations on the gold standard had a protracted period of deflation.

I will repeat here some comments I have made before.

In the 19th century, people tended to use the term “depression” loosely to refer to contractions in real output often accompanied by deflation. In the Oxford English Dictionary, we get a general definition:

“5. a. A lowering in quality, vigour, or amount; the state of being lowered or reduced in force, activity, intensity, etc. In mod. use esp. of trade; spec. the Depression, the financial and industrial ‘slump’ of 1929 and subsequent years.”(Oxford English Dictionary [2nd edn. 1989], s.v. “depression,” 5.a.).

The earliest use of the word in this sense cited in the Oxford English Dictionary is from an 1827 publication, where we read that the

“commencement of the present year was marked by a continuance of that depression in manufactures and commerce, which had prevailed at the close of the preceding [year]” (The Annual Register: Or a View of the History, Politics, and Literature, of the Year 1826, 1827, p. 1).

In the 19th century, when people referred to output contractions (normally with price deflation), they spoke of a “slump in trade,” “depression of commerce” or “depression of trade and industry”, and so on. Sometimes writers spoke of a “depression” in certain particular sectors as well. That is, “depression” was used in the modern sense of a “recession” accompanied by price deflation.

The later 1870s, 1880s and 1890s (down to 1896) were widely spoken of at the time as decades marked by “depression,” partly because of the persistent price deflation, decline in profits, and business pessimism in these years.

But we now know that actually there were several business cycles in these years, and real output was higher in 1896 than in 1873. The whole period was clearly not a “depression” or “recession” in the modern sense.

Nevertheless, there were still economic problems in these years, as follows:

(1) a serious financial crisis and recession around 1873 in many countries and serious economic stagnation in some countries like the US for almost the rest of the decade.

(2) financial crises and a serious recession in the early 1890s and economic problems in the later 1890s in some nations such as the US.

(3) a dissatisfaction with deflation from various classes of people, above all business people and debtors. In the US, this period coincided with the free silver movement and bimetallist political movement that opposed the gold standard.

In the UK and other European countries, there was also a pessimistic outlook in the business press and feelings that something was not right. Farmers were also complaining of depression.

The UK “Royal Commission on the Value of Gold and Silver” was instituted in 1887 after a report on the “depression of trade.” The commission was to investigate the question of changes in the value of gold and silver and the effects on trade and production.

Alfred Marshall was called to give evidence and this exchange with Henry Chaplin is interesting:

“[Henry Chaplin, MP:] Do you share the general opinion that during the last few years we have been passing through a period of severe depression? …

[Marshall]: 9823. Yes, of severe depression of profits.

[Henry Chaplin, MP:] 9824. And that has been during a period of abnormally low prices? …

[Marshall]: A severe depression of profits and of prices. I have read nearly all the evidence that was given before the Depression of Trade and Industry Commission, and I really could not see that there was any very serious attempt to prove anything else than a depression of prices, a depression of interest, and a depression of profits; there is that undoubtedly. I cannot see any reason for believing that there is any considerable depression in any other respect.” (Court 1965: 20).

So according to Marshall there was a “severe depression of profits.”

With price deflation, there was a squeeze on profits, as deflated prices meant lower profits in nominal terms and perhaps even in real terms when wages did not fall enough as well. Labour apparently often had rising real wages in this period, as wages did not fall as rapidly as prices. When business tried to cut wages, that provoked labour disputes (Livingston 1986: 34).

There is, strangely, also evidence of declining productivity growth in the 1880s and early 1890s (Livingston 1986: 34), and in the US price deflation, with rising real wages and insufficient labour productivity growth (Livingston 1986: 38).

The falling profits caused pessimistic businesses expectations and that, most probably, meant a reduced aggregate level of investment, since the level of investment is very much dependent on expectations, as well as aggregate demand.

Can we find any evidence for this in the economic data? I would say, yes.

Let us take the UK as an example. First, the real GDP data from 1873:

Year | GDP* | Growth Rate
Millions of international Geary-Khamis dollars
1873 | 108266 | 2.33%
1874 | 110063 | 1.66%
1875 | 112758 | 2.45%
1876 | 113881 | 0.99%
1877 | 115004 | 0.99%
1878 | 115454 | 0.39%
1879 | 115004 | -0.39%
1880 | 120395 | 4.69%
1881 | 124663 | 3.54%
1882 | 128257 | 2.88%
1883 | 129155 | 0.70%
1884 | 129380 | 0.17%
1885 | 128706 | -0.52
1886 | 130728 | 1.57%
1887 | 135894 | 3.95%
1888 | 141959 | 4.46%
1889 | 149596 | 5.38%
1890 | 150269 | 0.45%
1891 | 150269 | 0%
1892 | 146676 | -2.39%
1893 | 146676 | 0%
1894 | 156559 | 6.74%
1895 | 161500 | 3.15%
1896 | 168239 | 4.17%
1897 | 170485 | 1.33%
1898 | 178796 | 4.87%
1899 | 186208 | 4.14%
(Maddison 2003: 47).

This doesn’t look so bad at first. The worst recession was from 1891 to 1893, and mild recessions in 1879 and 1885.

But when we turn to UK unemployment from 1873 to 1896, we see something interesting:

Year | Unemployment Rate
1873 | 2.8%
1874 | 3.3%
1875 | 4.0%
1876 | 4.8%
1877 | 6.6%
1878 | 7.9%
1879 | 9.1%
1880 | 6.6%
1881 | 5.7%
1882 | 5.0%
1883 | 4.9%
1884 | 6.3%
1885 | 8.0%
1886 | 7.9%
1887 | 7.1%
1888 | 5.8%
1889 | 4.3%
1890 | 4.0%
1891 | 4.9%
1892 | 6.1%
1893 | 7.3%
1894 | 7.0%
1895 | 7.3%
1896 | 6.1%
1897 | 5.9%
1898 | 4.9%
1899 | 4.3%
1900 | 4.3%
(Boyer and Hatton 2002: 667).

Some particularly bad periods of unemployment were 1876–1880, 1884–1888 and 1892–1896. The 1876–1880 unemployment figures are very strange, because the real GDP estimates for this period show real output growth in all years but 1879.

What is fascinating is that the period of high unemployment from 1884–1887 comes at just the right time when the Royal Commission on the Value of Gold and Silver was set up. The fears of a depression in these years were not unjustified, given the high unemployment. Alfred Marshall was wrong to think there was no evidence of depression, apart from “a depression of prices, a depression of interest, and a depression of profits” (but, then, of course there were no proper national unemployment estimates in those days).

But why the high unemployment? That there was insufficient private investment seems a reasonable answer. But why insufficient private investment?

If profits were depressed and this caused business expectations to become pessimistic, then the underlying cause was deflation. Moreover, it is likely that debt deflationary dynamics were at work.

The 1890s look like a good candidate for another serious economic crisis (as was the case in the US), and, as noted above, there was a serious recession in the UK from 1891 to 1893.


BIBLIOGRAPHY
Boyer, George R. and Timothy J. Hatton. 2002. “New Estimates of British Unemployment, 1870–1913,” The Journal of Economic History 62.3: 643–667.

Court, W. H. B. 1965. British Economic History, 1870–1914: Commentary and Documents. Cambridge University Press, Cambridge.

Johnson, H. Clark. 1997. Gold, France, and the Great Depression, 1919–1932. Yale University Press, New Haven and London.

Livingston, James. 1986. Origins of the Federal Reserve System: Money, Class, and Corporate Capitalism, 1890–1913. Cornell University Press, Ithaca, N.Y. and London.

Maddison, Angus. 2003. The World Economy: Historical Statistics. OECD Publishing, Paris.

UK Real Per Capita GDP, 1919–2001: Where was the Thatcherite Miracle?

Given all the shocks and neoliberal reforms imposed on the UK economy by Thatcher, did real UK per capita GDP growth show some miraculous surge or historically unprecedented growth in the Thatcher years?

In short, no, it did not. The average real UK per capita GDP growth rate fell from its golden age (1948–1973) average.

One can see the data below and skip the averages at the end to the broad picture:

Year | Real Per Capita GDP* | Growth Rate
* in 1990 international Geary-Khamis dollars
1919 | 4870 |
1920 | 4548 | -6.61%
1921 | 4439 | -2.39%
1922 | 4637 | 4.46%
1923 | 4760 | 2.65%
1924 | 4921 | 3.38%
1925 | 5144 | 4.53%
1926 | 4936 | -4.04%
1927 | 5315 | 7.67%
1928 | 5357 | 0.79%
1929 | 5503 | 2.72%
1930 | 5441 | -1.12%
1931 | 5138 | -5.56%
1932 | 5148 | 0.19%
1933 | 5277 | 2.50%
1934 | 5608 | 6.27%
1935 | 5799 | 3.40%
1936 | 6035 | 4.06%
1937 | 6218 | 3.03%
1938 | 6266 | 0.77%
1939 | 6262 | -0.06%
1940 | 6856 | 9.48%
1941 | 7482 | 9.13%
1942 | 7639 | 2.09%
1943 | 7744 | 1.37%
1944 | 7405 | -4.37%
1945 | 7056 | -4.71%
1946 | 6745 | -4.40%
1947 | 6604 | -2.09%
1948 | 6746 | 2.15%
1949 | 6956 | 3.11%
1950 | 6939 | -0.24%
1951 | 7123 | 2.65%
1952 | 7091 | -0.44%
1953 | 7346 | 3.59%
1954 | 7619 | 3.71%
1955 | 7868 | 3.26%
1956 | 7929 | 0.77%
1957 | 8017 | 1.10%
1958 | 7966 | -0.63%
1959 | 8240 | 3.43%
1960 | 8645 | 4.91%
1961 | 8857 | 2.45%
1962 | 8865 | 0.09%
1963 | 9149 | 3.20%
1964 | 9568 | 4.57%
1965 | 9752 | 1.92%
1966 | 9885 | 1.36%
1967 | 10049 | 1.65%
1968 | 10410 | 3.59%
1969 | 10552 | 1.36%
1970 | 10767 | 2.03%
1971 | 10941 | 1.61%
1972 | 11294 | 3.22%
1973 | 12025 | 6.47%
1974 | 11859 | -1.38%
1975 | 11847 | -0.10%
1976 | 12115 | 2.26%
1977 | 12384 | 2.22%
1978 | 12828 | 3.58%
1979 | 13167 | 2.64%
1980 | 12931 | -1.79%
1981 | 12747 | -1.42%
1982 | 12955 | 1.63%
1983 | 13404 | 3.46%
1984 | 13720 | 2.35%
1985 | 14165 | 3.24%
1986 | 14742 | 4.07%
1987 | 15393 | 4.41%
1988 | 16110 | 4.65%
1989 | 16414 | 1.88%
1990 | 16430 | 0.09%
1991 | 16136 | -1.78%
1992 | 16088 | -0.29%
1993 | 16416 | 2.03%
1994 | 17082 | 4.05%
1995 | 17495 | 2.41%
1996 | 17891 | 2.26%
1997 | 18459 | 3.17%
1998 | 18925 | 2.52%
1999 | 19291 | 1.93%
2000 | 19817 | 2.72%
2001 | 20127 | 1.56%
(Maddison 2003: 63, 65).

Averages
Average real per capita GDP growth rate, 1948–1973: 2.34%
Average real per capita GDP growth rate, 1948–1978: 2.17%
Average real per capita GDP growth rate, 1979–1990: 2.05%
Average real per capita GDP growth rate, 1979–2001: 1.99%

The average real per capita GDP growth rate during the Keynesian golden age of full employment fell from 2.34% to 2.05% under the Thatcher years. There was no miracle here.

In fact, Thatcher’s disastrous monetarist shocks induced the worst post-WWII recession seen to that point in Britain.

Even if one includes the pre-Thatcher stagflationary years of the 1970s and take the average for 1948–1978, this was 2.17%, and still higher than the average under Thatcher.

Indeed, the fall in real per capita GDP (and real GDP) in Thatcher’s years was just part of the general trend seen in the neoliberal era in country after country as average rates of growth fell compared with the post-WWII era. When full employment demand management was abandoned, growth rates slumped, precisely as you would expect, given that real output is driven by aggregate demand.

Finally, one can see the data above in graph form below. But you cannot see the important trends I have described above, and this is one of the reasons why graphs are not always a good way to present real GDP data.





BIBLIOGRAPHY
Maddison, Angus. 2003. The World Economy: Historical Statistics. OECD Publishing, Paris.

The UK hit by Double Dip Recession: The Wages of Austerity

Well, surprise, surprise. Data for UK GDP in the first quarter of 2012 was recently released. In Q1 2012 the UK economy contracted by 0.2%, which, after the contraction of 0.3% in Q4 2011, means the UK is now officially in a double dip recession.

A graph of UK GDP data can be seen here:

http://www.tradingeconomics.com/united-kingdom/gdp-growth

George Osborne, the UK chancellor (the British equivalent of the US secretary of the Treasury), is reportedly sticking to his plan of austerity, as you can see in the video below from the BBC announcing the somber news of recession. One can only marvel at those in this report who seem little more than apologists for the austerity, who contend that the overall UK economy is fine, if only it wasn’t for the pesky volatility in the construction industry.



All in all, this demonstrates the uselessness of the hapless Conservative-Liberal Democrat coalition government now ruling Britain.

Without getting too Biblical, one is tempted to say that the wages of the sin of austerity is economic death – a death seen in a disastrous double dip recession which hit Ireland recently as well.

One interesting observation is that the UK is following the path of Japan during the lost decade, a point which was not lost on the perceptive shadow chancellor from Britain’s opposition Labour party (despite his having one of the most unfortunate surnames for a politician I’ve ever seen!).

As I have noted before, Japan was hit by a collapsing asset bubble and debt deflationary crisis in the 1990s. After a stimulus in the early 1990s, in 1996–1997 the Japanese Prime Minister Ryutaro Hashimoto turned to austerity, including personal income and national sales tax increases. This plunged Japan back into recession and sealed its fate in suffering a lost decade that persisted until the early 2000s.

But precious little has been learned from this experience, so it seems.

Some more analysis of the UK and the Eurozone here from Bill Mitchell:

Bill Mitchell, “The UK Government in a Race with the Eurozone to Ruin their Economies,” Billy Blog, April 26, 2012.