Andrew Kliman Responds to Recent Criticism

by Diet Soap Podcast on October 31, 2013

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The guest this week is the economist Andrew Kliman, and this week is rather unique because it is dedicated to answering some criticisms of his book The Failure of Capitalist production. Most leftists today hold that the economic crisis of 2007 and the consequent doldrums are the result of neoliberalism, that is the result of a conscious attack on the working classes by the ruling elite. The story goes this way: The capitalists saw that production, that is the productive part of the economy, empowered workers and opted to stop investing in real productive activity, or at least to slow this investment, as a political project to undermine the working class. Wage suppression was merely another aspect of what was an assault on workers. Kliman doesn’t hold with this story. Instead he argues that Capitalist production has a tendency to undermine it’s own reason for being, or that the rate of profit has a tendency to decline due to wholly unintended consequences. He has analyzed the economic data on hand and confirmed his theoretical position empirically. This has made many people on the left unhappy.

What you’ll hear in this episode is a rather detailed refutation of objections to Kliman’s analysis. Please do bear with us as we go through the accusations of bias, inaccuracy, and Jesuitical thinking.

As a special bonus there are a few sound collages and clips along the way, as well as an excerpt of the audio version of my first book “Last Week’s Apocalypse.” This short story collection is now available on audible and I’m quite pleased by the way it’s turned out.

If you’d like to contact me go to douglaslain.com, or follow me on Facebook or twitter. I’m always interested in what people are thinking. Next week you’ll hear another episode of Pop the Left, and there is more to come after that.

Some links worth checking out:

Andrew Kliman’s Writings
Kliman on the Failure of Capitalist Production
The Failure of Capitalist Production

(Reposted from Diet Soap Podcast)

{ 10 comments… read them below or add one }

Xor November 1, 2013 at 12:00 am

What was Kliman’s timeline for measuring the rate of profit? If he started with the 1950s (as I suspect he did) then all he proved was that there was a post-war decline in profits/economic growth which only increased after measures like wage suppression.

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Xor November 1, 2013 at 12:08 am

Real “compensation” is very unequal when compared to wages, and is not at all a universal measure for workers.

The reason why people use the real median wage is because every worker gets one, but not all (possibly a majority) don’t get extra compensation.

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Doug Lain November 1, 2013 at 2:11 am

I’m going to attempt to channel Kliman, here goes: The point of measuring compensation isn’t to measure how well off all workers are, but to figure out the cause of the economic crisis. The point is to determine an average compensation, to see how much businesses are spending on workers in general, and see if that has declined.

There are a number of ideas that are being tested: 1) is it true that profits grew as a share of GDP as opposed to worker’s compensation which apparently declined 2) Is it the case that there was a significant decline in working class spending power overall that could have led to an overaccumulation problem? 3) (this isn’t about wages specifically) Is it true that investment spending declined despite high profits rates?

The fact that workers compensation is unequal, that there is huge differences within the working class, is irrelevant when it comes to answering these questions. In fact, the fact that the compensation is unequal is one reason why overall compensation hasn’t declined.

None of this means that workers shouldn’t fight for higher wages or that inequality in compensation isn’t a problem, it is, but it isn’t a problem for Capitalism it’s a problem for us.

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Xor December 30, 2013 at 9:31 pm

Right and it’s more fair to ask Kliman himself but those are two different things: (specifically) worker’s pay and the economy in general, which you can’t get in a single measure.

Worker’s compensation is like GDP or GDP per capita or overall consumption etc., you can get a general picture but it would be erroneous to use these as a measure of worker’s well being. Likewise real wages are specifically for workers and not the broader economy.

I think Krugman once used the example of consumption in pre-Revolutionary France. The “overall” picture was decent but because of massive inequality the conditions of most workers was abysmal.

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Xor November 1, 2013 at 12:24 am

Real “compensation” is very unequal when compared to wages, and is not at all a universal measure for workers.

The reason why people use the real median wage is because every
worker gets one, but not all (possibly a majority) of workers don’t get extra
compensation. And even if there are cases of reduced wages for higher total compensation, all things being equal, people with higher compensation also have higher wages.

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Andrew Kliman October 31, 2013 at 9:20 pm

I found that there was no sustained rebound in US corporations’ rate of profit (rate of return on investment) after the early 1980s.

I also found that the compensation share of net output did not decline, so there was no “wage suppression” in the US in any sense that’s meaningful to movements in the rate of profit.

There is some evidence that nonwage components of compensation are distributed more unequally than wages and salaries, but it’s at all not clear that higher-paid employees a getting a bigger share of nonwage compensation than their share of wages and salaries, especially when it comes to compensation as defined in the national accounts, where bonuses are included in wages and salaries, not in nonwage compensation. In any case, this point is not relevant to anything discussed in the interview. … There’s considerable evidence that there’s rising inequality among workers. That does not mean that workers’ pay has stagnated; nor does it mean that profits have increased at the expense of employees’ compensation; nor does it mean that the rate of profit must have rebounded.

It’s also not the case that everyone gets the median wage–almost no one does. And when we’re dealing with the distribution of business-sector output between workers and profit, ALL compensation of employees must be counted. Median wages–and mean wages–are not at issue. … The intended point is evidently that everyone gets a wage, but not everyone gets benefits. However, that’s not correct when we’re talking about benefits (nonwage compensation) in the national accounts, since–as I discuss in the interview–employers’ Social Security and Medicare tax contributions on employees’ behalf are nonwage compensation there.

Believe me–I know what I’m talking about here. People like Henwood, Seymour, the Monthly Reviewites, et tutti quanti, give us a very misleading (if not outright false) account of what’s going on.

James K. Galbraith, director of the University of Texas Inequality Project, recently said some good stuff about median wages in particular:

“I think there is a tendency on the left … to focus on some statistical aspects of what’s happened to wages—median wages in particular—and to focus less on the role played by Medicaid, Medicare, Social Security, the housing programs, public education, and support for higher education, all of which gave us a population that had the attributes of a middle class society.

“The story that is often told about what’s happened to factory jobs, and what’s happened to wage rates, is not a good way of getting at the threat to that existence. The typical story is that median wages peaked in 1972 and have been stagnant and falling since then. As a result, it must be the case that people who are working now are much worse off than they were ten, fifteen, twenty years ago. That’s not an accurate story—at least not up until the crisis in 2008—because over that period the
labor force became younger, more female, more minority, and more immigrant. All
of these groups start at relatively low wages, and they all then tend to have upward trajectories. So there’s no reason to believe that life was getting worse for members of the workforce in general. On the contrary, for most members of the workforce it was still getting better. …

“The real threat to the middle class is not there, it’s in the erosion of the programs I just mentioned. …

“So I think there is a threat to the middle class, but if I were talking about it in political terms, I wouldn’t be giving an abstract statistical picture of wages. This doesn’t connect to people’s experiences. If I were designing the boilerplate rhetoric of a popular movement, I would take a blue pencil to these statistical formulations. I don’t like the stagnant median wage argument—I think it obscures what actually happened. And I don’t particularly care for the “one percent” argument. I understand it has a certain power, but one can be much more precise about what it is you want to attack, and what it is you want to preserve and to build.”

http://www.thestraddler.com/201310/piece2.php

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Aaron Aarons November 7, 2013 at 2:24 pm

Andrew Kliman writes:

It’s also not the case that everyone gets the median wage–almost no one does.

But nobody here claimed that “everyone gets the median wage”! Rather, what was asserted was:

The reason why people use the real median wage is because every worker gets one, but not all […] get extra compensation.

This clearly means that every worker gets a wage, not that every worker gets a median wage! The latter statement could only be true in a population in which every worker received exactly the same wage.

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Xor December 30, 2013 at 10:26 pm

First it’s clear that there is compensation inequality just by definition, if we count extra benefits as “compensation” there are large swaths (possibly the vast majority) of workers who get no extra benefits at all making it an contrast between zero for many versus any amount for others. This thus makes it general measure rather than one specific to workers.

This is relevant because you are then using a general measure, like GDP, to measure a specific group (workers). This is basically a fallacy of division since it doesn’t take into account how inequality distorts the picture for the condition of workers.

To use Krugman’s example of using non-necessity spending for the entire economy as a measure for the middle-class:

“it’s data for all households — in effect, mixing the top quintile (and the top 1 percent) with the middle class….

I mean, if we had data for Ancien Regime France, I’d bet we’d find a relatively large share of total income going to things that weren’t necessities — wigs, formal gowns, servants, chateaux. Clearly, the French middle class was thriving in the 1780s!”

The main point here is it’s impossible to use the same measurement for both the general economy and one specific to workers and it seems like you’re using workers’ compensation to do that. No matter how you look at it, it’s either fallacy of division or fallacy of composition.

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Andrew Kliman December 31, 2013 at 12:48 am

“there are large swaths (possibly the vast majority) of workers who get no extra benefits at all” No. Almost everyone receives Social Security and Medicare benefits paid by employers.

“This is relevant because you are then using a general measure, like GDP, to measure a specific group (workers). This is basically a fallacy of division since it doesn’t take into account how inequality distorts the picture for the condition of workers.” No. I measure the compensation employees receive as a percentage of the net output produced by the companies that employ them.

“To use Krugman’s example of using non-necessity spending for the entire economy as a measure for the middle-class: …” Not relevant to the thing I do that you’re talking about. I’m not trying to measure the share of net output received by the typical or median worker, but the share received by employees as a whole.

The non-necessities stuff has nothing to do with what I measure.

As I noted two months ago, there’s considerable evidence that there’s rising inequality among workers. That does not mean that workers’ pay has stagnated; nor does it mean that profits have increased at the expense of employees’ compensation; nor does it mean that the rate of profit must have rebounded.

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Xor December 31, 2013 at 7:02 am

“No. Almost everyone receives Social Security and Medicare benefits paid by employers.”

Compensation are things like private healthcare and pensions, things like WCMSA (which correct if I’m wrong but I think your using as an example among others) can barely be thought of that. When we use the former, then many people do not get any benefits (especially for pensions).

That’s why wages are the only true measure of workers because unlike compensation, people who work without any wage are virtually non-existent.

And I should point out I’m not just saying inequality equals a bad measurement, I’m saying exclusion makes it a bad measurement.

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