Aditya Chakrabortty Is Peddling Long Disproven Nonsense

No, really, the PKrug tells us so

So Aditya Chakrabortty wants to tell us all that the American worker is terribly bad done by. The capitalists are raking in all the money and that worker is left in the dust scrambling for pennies. The proof is this:

Now it’s possible to give a little credit if we so wish. They are claiming to at least have drawn the graphic themselves. Tho’ they’re terribly light on where they’re getting their numbers from. The thing is this is exactly the same as a well known graphic from the EPI over in the US. A product of Larry Mishel - now thankfully retired - and Jared Bernstein who, for our sins, has been an economic adviser to Joe Biden this last 16 years and more.

There have been a number of deconstructions of this but let’s run with the one from Paul Krugman:

One of America's new intellectual stars is a young writer named Michael Lind, whose contrarian essays on politics have given him a reputation as a brilliant enfant terrible. In 1994 Lind published an article in Harper's about international trade, which contained the following remarkable passage:

"Many advocates of free trade claim that higher productivity growth in the United States will offset pressure on wages caused by the global sweatshop economy, but the appealing theory falls victim to an unpleasant fact. Productivity has been going up, without resulting wage gains for American workers. Between 1977 and 1992, the average productivity of American workers increased by more than 30 percent, while the average real wage fell by 13 percent. The logic is inescapable. No matter how much productivity increases, wages will fall if there is an abundance of workers competing for a scarcity of jobs -- an abundance of the sort created by the globalization of the labor pool for US-based corporations." (Lind 1994: )

What is so remarkable about this passage? It is certainly a very abrupt, confident rejection of the case for free trade; it is also noticeable that the passage could almost have come out of a campaign speech by Patrick Buchanan. But the really striking thing, if you are an economist with any familiarity with this area, is that when Lind writes about how the beautiful theory of free trade is refuted by an unpleasant fact, the fact he cites is completely untrue.

More specifically: the 30 percent productivity increase he cites was achieved only in the manufacturing sector; in the business sector as a whole the increase was only 13 percent. The 13 percent decline in real wages was true only for production workers, and ignores the increase in their benefits: total compensation of the average worker actually rose 2 percent. And even that remaining gap turns out to be a statistical quirk: it is entirely due to a difference in the price indexes used to deflate business output and consumption (probably reflecting overstatement of both productivity growth and consumer price inflation). When the same price index is used, the increases in productivity and compensation have been almost exactly equal. But then how could it be otherwise? Any difference in the rates of growth of productivity and compensation would necessarily show up as a fall in labor's share of national income -- and as everyone who is even slightly familiar with the numbers knows, the share of compensation in U.S. national income has been quite stable in recent decades, and actually rose slightly over the period Lind describes.

The question here is not why Lind got these numbers wrong. It takes considerable experience to know where to look and what to worry about in economic statistics, and one should not expect someone who does not work in the field to be able to get it right without some guidance. The question is, instead, why Mr. Lind felt that it was a good idea to make sweeping pronouncements about this subject, when he clearly was unwilling to invest time and energy in actually understanding it. The short answer in this case is surely that Mr. Lind, who is always looking for ways to enhance his enfant terrible status, saw this as a perfect opportunity. Free trade is a sacred cow of economists, who are well-known to be boring, stuffy types; what could be a better way to reinforce one's credentials as a radical, innovative thinker than to skewer their most beloved doctrine? (It seems not to have occurred to him that there might be a reason other than ideological rigidity that the striking fact he thought he knew has not been noticed by economists).

That was written near three decades ago. Mr. Chakrabortty - assuming he’s actually done the sums himself - seems to have taken that critique as a guide not a warning.

Just to make the problem clearer. Economies do add up. If this happens here then that over there must also happen. If we don’t see that second then we’re mistaken in our assumption that the first has. If productivity has risen and wages haven’t then the labour share must have fallen. The labour share - up to when PK wrote in 1996 - had not fallen. Therefore that confident blue line from 1970 to 1996 is wrong.

We don’t even have to worry about why it’s wrong. It just is - so bollocks to the rest of it.

Chakrabortty’s getting on a bit to be an enfant terrible of course, his unwillingness to spend time and energy understanding the economics he’s attempting to write about is easier to explain for he’s at The Guardian. In fact, he writes the economic editorials for The Guardian and an actual knowledge of economics in that job - let alone time and effort spent gaining it - would be a positive hindrance.

No, really.