I enjoyed a certain perspective on Adam Smith. First the Smith quote:
“Whenever the legislature attemps to regulate the differences between masters and their workforce, its counsellors are always the masters. When the regulation, therefor, is in favour of the workmen, it is always just and equitable; but it is sometimes otherwise when in favour of the masters.” (Sen:323).
The perspective is that Smith’s aversity against government meddling derives to some, and perhaps a large, extent from such imbalance of power. Conservative political views of Smith emphasis the first, no government meddling, but forget the precondition. In a democracy, Smith would well have come to a more positive approach to government influence - no doubt still critical, but less averse to meddling in principle.
A point of critique. Sen compares the population control in China, based on restrictive laws, with that in Kerala, India, based on emancipation of women and on influencing convictions under basic freedom of decision. He finds both equally effective. The Kerala approach then clearly is preferable - while, Sen critically notes, the Chinese one may also result into problems when there is a political crisis and people no longer believe the authorities. He uses this to show that freedom is both a target and a means. My problem with this comparison is that Sen, while surprisingly subtle in many points, may not be subtle enough. There are many differences between Kerala and China, and not just the difference between these policies. As once found for Italian districts: their kind of democratic attitude and level of economic development were found correlating with their kind of government in the 15th century city states. Nature’s way are quite complex and surprising. Yes, this is precisely the ‘cultures’ argument, the major bone of contention.
My point therefor is that Sen’s argument is convincing at a logical level - which means that we thus must reorganise Development towards the Freedom paradigm - but that for each separate issue it is up to the specialists to determine their findings. I don’t have to decide about birth control methods, but I can agree that freedom is an important variable that needs to be taken into account, as means and objective, and it is useful that there is an agency that helps the Chinese government to see how they can improve their policies. With lots of diplomacy, good dinners and the big stick of public opinion.
Sen’s analysis nicely fits my own analysis: that basic economic necessities have been neglected by our governments, and that economics itself has played a bad part in this. I have concentrated on Western unemployment and poverty, referring to lack of freedom from the perspective of Montesquieu, and referring to Roosevelt’s Four Freedoms. Sen considers development or the whole economic problem relating to The Good Life. Strangely he does not refer to Roosevelt. But our arguments supplement and strengthen each other. Also, one of the implications of my analysis is that when all governments start having Economic Supreme Courts, then these will exchange information, and this will create a network of international co-ordination, which is another part of the solution to the ‘world government’ problem.
Sen rightly comments that Europe only gives money to the unemployed, but takes away their freedom and right to a normal life with professional and social recognition. A point of critique is that he does not seem to understand the cause for European unemployment. My hope is that he gets to read my book and will agree with my analysis.
Sen also does not see yet the proper solution to the Arrow paradox. I have discussed his statements in an appendix to the ‘Arrow chapter’ above. We should note that Sen in some respect suffers from a tragedy. On the one hand he wants to explain that social decision making is important (for example to guarantee freedom), on the other hand his erroneous presentation of the Arrow Theorem has blocked good research into social choice and has induced many to become very critical of social decision making.
In a next edition, this should be adapted: “The butcher sells bread to the consumer (…)” (p256). We find the correct ‘meat’ a few pages later, so it is not because Sen is vegetarian.
Sen’s discussion of Hayek I discuss again in the Hayek appendix below.
It should be observed that, when Sen’s argument is stripped from all its footnotes and its rooting into economic theory and history for the sake of the economic community, then many of the key insights are of such a character that they not only must be, but also can be, communicated to that larger public. For example, the relation of the emancipation of women to lower child mortality does require a statistics apparatus and an analytically proper explanation before it can be be established as a scientific finding, but once it has been established, then it is something that the general public needs to know, and can easily understand. Communicating these findings is, again, a task for the specialists.
The Dutch government could help create more public attention for Sen’s analysis, for example by starting to provide development aid to the poor in the US American cities who in some dimensions are worse of then the people in Kerala. It will be interesting to see how the US Congress reacts to that, and how the media will report on that.
James Galbraith’s “Created Unequal” (1998) is advised reading. Galbraith provides a quite accurate and chilling history of how prosperity gave way to stagflation as a result of misguided policy - and he shows how economists provided the misdirections and the apologies. Galbraith is clear of thought and masterly in language, ‘another Paul Krugman’. And actually, Galbraith presents us with an original contribution to political economy, while Krugman is more of a chroniquer.
A useful qualifier to this: Galbraith also has many thoughts and ideas, and this makes the book on occasion a tough read. He admits: “This book began as an inquiry into the origins of the inequality crisis. It has become in part a tract on the reform of monetary policy.” (p232). The reader has to be as flexible as the author, otherwise this book will be lost to you. [126]
A good critique of the book has been written by Thomas Palley (1999). [127] Palley’s review is some six pages, and since it is a very good review I concentrate here on the relation of Galbraith’s analysis to my own.
I am quite amazed by the similarity and closeness of Galbraith’s analysis and my own. And where we differ, the analyses rather complement each other. But not fully. Though our two analyses run parallel for many pages, he comes out with a somewhat different conclusion.
Galbraith is focussed on the pre-tax earnings distribution and pays less attention to the after-tax net distribution. In this respect he is quite American, where meddling with the income distribution via taxes is somehow quite unpopular.
Galbraith does not use my analysis. Hence he does not use topics like differential indexation, the tax void, tax induced crowding out on the labour market, etcetera. Often the educated reader can see such thoughts glimmering between the lines, but they are not explicit. Galbraith tends to neglect the impact of taxes on the minimum wage, and to downplay the latter’s importance for labour’s competitive position. He actually advocates a rise of the US minimum wage, in terms that suggest that he is thinking of the gross minimum !
Galbraith’s basic argument is that ‘a decent level of equality’ is both a goal in itself and an instrument to control the economy. Looking at causes for the rise in inequality in the US, he finds unemployment the main cause, and economic policy to be the main cause for that again. Hence his next focus on US monetary policy. Galbraith presents a regression analysis to back up this line of reasoning. The relation has a good causal explanation, and the R2 is high, so this is a recommendable result. In my research I am however less motivated by the inequality issue. I consider unemployment itself the main problem. It so happens that the two analyses then merge on the latter. But it also calls to question whether inequality is a useful lever for the debate. The topic of inequality may distract people - and actually repel those who are not interested in that subject per se.
With Krugman, Galbraith rejects the claims for ‘technology’ and ‘globalisation’ as the causes for stagflation. He rightly criticises the role of economists in economic policy advice, where they have suggested such causes. Galbraith’s argument against such ‘skill bias’ is remarkedly similar to mine:
“In periods of high employment, the weak gain ground on the strong; in periods of unemployment, the strong gain ground on the weak. (…) All are best reconciled to a theory of differential power, rather than to a theory of differential skill.” (p266)
Strangely, the notion is missing from the book that taxes could and should be used directly to create a better bargaining position for the lowly productive.
He also criticises the ‘liberal supply siders’ - i.e. those intellectuals who defined the agenda of ‘progressive’ politics in 1980-2000. Ira Magaziner pops up again. Galbraith recalls that Krugman already criticised these demagogues, but adds the criticism: If education is to be regarded as a tool for competitiveness, then we lose the idea of eduction for eduction’s own sake. And mutatis mutandis for public goods. It is about time that this critique is given.
While Krugman argues “we don’t know” - though recently seems to incline to the ‘technology’ argument - Galbraith provides a clear answer: Policy abandoned the commitment to full employment under a stable price level. Of the 1950-1970 prosperity he says, as I have been argueing for some years too:
“There is no compelling argument that this achievement was anomalous or irreproducible. I believe, on the contrary, that it resulted from a sustained period of sensible policy, later abandoned.” (p267)
The major error that economists made was - in Galbraith’s eyes - the adoption of the NAIRU framework. This requires a longer discussion, some paragraphs below.
Galbraith’s argument has to do with the ‘political’ aspect of political economy. Around 1980 Carter and Volcker considered inflation far too high, and the decision was made to let the Fed go ‘all out’ for inflation control. [128] Galbraith shows that this was a break with the past. In the past more tools were used and many government branches co-operated with the Fed. The 1980 decision changed the economic policy making structure and culture, and it became socially acceptable to have high unemployment as a way to tackle inflation.
I think that Galbraith’s argument is correct in this. And he is quite correct in argueing (e.g. page 233) that this structure should be changed again to the workings of old, if we want full employment under a stable price level again.
I am afraid, though, that this part of Galbraith’s argument will hardly convince the fellow economists. Economists already know about the 1980 switch, and Mankiw (1998) dilligently explains the ‘sacrifice ratio’. The experience does not cause economists to think that ‘full employment and stable inflation’ really can be combined. Economists regard the 1950-1970 period as rather a freak accident, dependent upon some ‘after WW II culture’ (or other ‘amateur sociology’).
Galbraith relies on the ‘equality as goal and tool’ paradigm. Restating on p240-246 what he sees as the old recipe and the lessons from fighting inflation:
“Thus, we need to develop an equalization strategy that is simultaneously a comprehensive anti-inflation program: low interest rates, high employment, a higher minimum wage supported by a stronger union movement, a maximum-minimum pay ratio, and a national prospective inflation adjustment. Neither taxes nor transfers play the critical role here, as the idea is to bring about an equalization of economic incomes before taxes and transfers, not afterwards.”
The problem that I have with this statement is that economists will tend not to be convinced by it. The 1980 problems that led to the abandonment of the ‘old ways’ were very real - and the ‘old ways’ really did not seem to work at the time.
Also, referring to the 1950-1970 period and suggesting that things solved themselves, as Galbraith is in danger of suggesting (‘major inflations are caused by wars’ p233), does not sound convincing either. There was some real policy making then - that somehow lost its power around 1980.
Where Galbraith suggests a more modest role for the Central Bank, I also think that economies cannot afford losing the Central Bank as a ‘fighter of last resort’ - who has to raise the rate of interest if all other methods fail. So some of Galbraiths specifics would have to go, though the general line of reasoning is laudable.
Galbraith’s analysis of the regime switch is correct, but he does not provide the true cause. My point therefor remains: If politicians and their economists don’t understand my DRGTPE analysis, and the mechanisms of differential indexation and the tax void and the consequences thereof, then these policy makers might well be right to prefer fighting inflation even at the cost of unemployment. [129]
In my view, for sure, the fellow economists who would dismiss Galbraith’s argument would be too fast too. Galbraith’s argument actually is balanced and to the point. Yes, a return to the ‘old ways’ of sharing the reponsibility on fighting inflation and unemployment is useful. But Galbraith is too optimistic about the fire power of his guns. His scheme requires more for it to work. Indeed, I think that it are the tools that are provided by my own analysis that would warrant that such a system can work - as it worked in 1950-1970.
Galbraith usefully criticises monetary policy for its impact on the distribution of income. The mechanism is peculiar strong in the US where the rich pay relatively few taxes. If the Fed raises interests rates - and thus, in the current economic system, unemployment too - then it also ‘taxes’ the middle class with both an ‘interest tax’ paid to the rich and a ‘social security insurance tax’ paid to the poor. In 1998, Alan Greenspan, Fed chairman, argued about the distribution of income: “Yes, I am very concerned, but the Fed can’t do anything about it.” Galbraith shows this to be wrong, and argues that the pre-1980 Fed was involved in doing something about it, and that a restructured Fed can be involved again.
Galbraith’s analysis is fitting for a book on inequality - but I think that a middle class person would not need the inequality argument to be opposed to such taxes. Alan Greenspan now is an American Hero - and I think that he deserves much of that credit - but Galbraith provides a narrative that would cause many Americans to reconsider their views.
Galbraith correctly calls to memory that the Fed is not really an impartial government institution, but a body from within the banking system. There are some private interests here, which would be sufficient reason for reform anyhow. In an appendix I give the ‘parallel argument’ of the Economic Supreme Court with respect to the Central Bank. Galbraith’s text set me thinking on this.
Galbraith proposes that the US Fed becomes more accountable to the US Congress - as it is ‘a creature of Congress’. I tend to opt for independence like now exists for the European Central Bank. There must be some co-ordination in economic policy making, and co-ordination becomes somewhat difficult if too many institutions and interests are involved.
As a European, it strikes me that Galbraith concentrates so much on pre-tax equality, while I would be satisfied with after-tax equality. I don’t believe the stories that many of the fellow economists tell about ‘technology’ and ‘globalisation’, but my approach tends to be to let them argue and research, and concentrate on the after-tax equality. This however is not Galbraith. He attacks the conventional wisdom on the pay structure.
He correctly reminds us that pay is not so much an outcome of marginal productivity in a free market, but as much a result of social rules - education, laws, unions, living standards, and such. Where laws and customs affect the economy, then we know from Coase’s Theorem that perhaps the final utilisation of resources is not affected, but at least the distribution of welfare is so. Galbraith here is in line with Keynes’s attention for relative wages, and my reference to the ‘pecking order’.
However, when Galbraith argues that ‘more equality also helps to control inflation’, then his argumentation is less convincing. For example:
“We will discover that efficiency improves when a larger number of people feel they have a fair shot at being middle class, and when ‘middle class values’ come again to define our broader culture.” (p268).
He here refers to Nothern Europe and Japan. I tend to think that there is value in this argumentation, but I doubt that US free market economists will agree. They will point out that, alas, Europe has an official rate of unemployment of 10%, while the unofficial rate is higher. So, Galbraith here likely is right, but loses the argument because his munition isn’t strong enough yet.
At one place he shows him aware that Germany has such a high unemployment rate, but then he suggests that this is caused by an error in policy making (p235). So in one place ‘more equality’ is advanced as the solution, and at another place it is not enough. I am a sympathetic reader, and can see through the argumentation. But the argument now is vulnerable to readers with less sympathy. Also, Galbraith’s critique on European policy differs from mine.
The reason why I find value in Galbraith’s argumentation should be clear. Proper tax measures can keep the lowly productive in the labour market, and thus increase competition: making it more difficult for the higher productive to demand pay rises. Thus, there is a valid argument that should convince the US free market economists - and Galbraith’s and my arguments nicely complement each other. But I don’t use the inequality argument: I use market positions.
In fact, Galbraith does use - in one place - the same argument on market positions ! Namely:
“(…) a change in the relative market power of skilled and less skilled workers can occur for reasons not connected in any direct way to political decisions. (…) firms (…) allocate the squeeze in their cash flow occasioned by the rise in price of an important input, in such a way that a disproportionate share of the burden falls on less skilled, less powerful, more readily expendable workers. (…) When changes such as these are run through an analysis that has been constructed from the beginning to be blind to the presence of monopoly power, these kinds of changes would, and do, [sic] show up in the data as “skill-biased technological change.” Skill bias is thus a phrase that can account, with perfect plausibility but equally perfect meaninglessness, for many different phenomena (…)” (p46)
So the wonder is why Galbraith does not stick to this - sufficient - argument, and later drops it and continues on ‘middle class values’.
Note too that elsewhere he explains - quite correctly - that ‘skill’ is an abused term, since someone can be very skilled (e.g. in making typewriters or other obsolete objects) and still be displaced. What counts is the ‘economic empty box’ of ‘productiveness’ - for which an education is only an indicator.
Similarly, it was a pleasant surprise to me that Galbraith (p48) also found the ‘sheltered - exposed sector’ argument. He does not refer to the impact of taxes (of course) but uses an example of a change in the terms of trade.
Galbraith is of the opinion that you can only see these mechanisms if you drop the assumptions of a fully competitive labour market, and allow for monopolistic power. I am not entirely sure of this. Heterogeneous labour might be congruent to monopolistic competition - but, anyhow, I’d rather take heterogeneity as the starting point, and then proceed with the model, and stay away from the - perhaps ideological - debate on market type. This actually might provide a test for our two theories: it the tax approach would not work, then monopolistic competition might be a force too strong - and the next candidate for the ‘main cause’.
I was very much surprised about Galbraith’s rejection of the NAIRU concept. On second thought, I think that he has some argument. But it is convoluted, and needs to be straightened out.
Note first of all that I have been using the NAIRU myself consistently, and have been arguing since at least 1989 that it shifts. The use of the concept is quite natural for an econometric model that is used for prediction and policy analysis. I also have been quite critical about tax policy, and have been arguing that the NAIRU may be as low as 2% if policies are correct.
Galbraith does not have that background. Instead, he has a field day in making fun of our fellow economists who - indeed - make fool of themselves. Galbraith nicely remarks: “The NAIRU, like the wage rate, is downward sticky.” (p180) Perhaps in reality, but certainly in the estimates that the colleagues have been providing in these last years. Economists lag behind the observations. Robert J. Gordon, who I greatly respect, appears to provide a NAIRU estimate with a confidence interval that seems to make it rather useless for policy. Galbraith rightly comments that the NAIRU in this manner becomes a ritual blessing for the powerful and the status quo - and is far away from real science. Galbraith gets upset, and quite justified so, since so many innocent people are victims of this intellectual incapacity.
Nevertheless, Galbraith himself mentions an unemployment target of “4 percent or lower” (p171). This causes the question with me whether this is not a NAIRU again, and why it cannot be 2%. In his suggestions for anti-inflation measures, Galbraith also advocates wage restraint, and I cannot but think that the threat of unemployment has a role here.
Galbraith recalls the Friedman quote where the ‘natural rate’ of unemployment is ‘ground out’ from the ‘Walrasian system’. Galbraith makes fun of this, essentially arguing that ‘Walras’ was before ‘Keynes’:
“From a proper Keynesian perspective, the correct response to Friedman’s second formulation of the natural rate hypothesis would have simply been, “Sorry, but at the aggregative level the ‘labour market’ is a misconception; it does not exit.”” (p177)
Part of this is going too fast. First of all, we should ditch the word ‘natural’. Secondly, if we drop ‘Walras’ from the Friedman quote and substitute ‘the proper model’, then we have a proper argumentation. (And we should remember that Walras was a very subtle economist, with more attention for dynamics than perhaps commonly thought.) Thirdly, I don’t see why we cannot model the labour market as a ‘market’ with aggregate impact and spillover - even though I value the ILO dictum “Labour is not a commodity”. The ‘market’ model is useful economics, and the models can be used for policy advice.
So I think that Galbraith might well adopt the NAIRU and use it to his advantage. It is a useful modeling tool. If you put the hammer in the toolbox, instead of on the shaky shelf above your head, it won’t hit you on the head so often. Note also that Graafland (1990a) and Gelauff (1992) following Hersoug (1984) have provided more theoretical foundations to the concept, so that the complaint ‘an empirical regularity in search of a theory’ no longer seems valid.
Whereas I use a whole earnings distribution, Galbraith uses a Theil measure (and calls this a measure for inequality) - and, again quite parallel, we both link these to fiscal and monetary policy.
It may well be that an inequality measure is more efficient to use than a whole distribution. Such measures have been around for a long time, but it seems to me that Galbraith’s book is the first time that it is both developed in the present detail and linked up with policy.
Interestingly, Galbraith uses his measure to find that US unemployment should be below 5.5 % in order to keep equality constant or improving. Referring to the ‘natural rate’, he calls this the ‘ethical rate’. I wish he hadn’t done that, and had dumped the word ‘natural’ too. But as such his analysis nicely sharpens our insights in the dilemma’s of policy making.
Galbraith provides some technical evidence on the developments in the various industries. This research is interesting in itself too, but while the book progresses, it appears, a bit to the dismay of the reader, that the industrial analysis is primarily given to show that it is less relevant.
Galbraith has found a ‘productivity measure’ (‘P-measure’) - defined as value added per production worker hour - that enables him to find three clusters in the US economy: a ‘knowledge’ K-cluster, a ‘consumption’ C-cluster and a ‘service’ S-cluster. The graphs show that these clusters can be found in the data indeed. The P-measure might be less convincing, and might appear ad hoc. However, when it turns out that these clusters can (‘basically’) be represented too by the share of the wage bill of non-production workers - more and higher paid R&D and marketing workers - then the clustering starts making more sense, and good sense actually.
The link between this part of the book and the rest is rather weak. The idea seems to be that this research underlines the monopolistic tendencies in the US economy. For such a conclusion, however, more work needs to be done. Another line of thought is that this novel understanding of the US industrial development would help us to better understand the role of technology - and its impact on wages and inequality. That may be true too - but I was already convinced of the less relevant role of technology anyhow.
In my view this part of the analysis will surely help to better model the economy, but it is less relevant for the analysis of inequality proper.
I have been critical of aspects, but in general Galbraith has written a great and very useful book. It is seductively well written, and the subtle points, that are clearly recognised by the author, might easily be overlooked by the readers. My suggestion for a next edition is to split the book in the two books that it actually consists of. This would also give more room to drive the subtleties home.
I may emphasise again that I see a quite parallel line of thinking with my own analysis. I hope that others will see this too, and that they will see that there indeed is something to the arguments.
Cox and Alm (1999) wrote a book that one shouldn’t buy. Though the book contains almost 50 pages of footnotes, it is not a scientific but an ideological and highly contorted book. Many of the arguments are at the level of ‘An apple a day keeps the docter away’ - superficially convincing but nonsense at a quick closer look. As such it gives a good idea of what science is up against - and it is not a pretty sight.
In their preface the authors refer to a list of books that spell America’s doom, and they rightly comment that “spreading the bad news has become a cottage industry” (p ix). My problem with their list of books is that it hardly contains any serious economic study. They don’t refer to Krugman (1994a, b), while stagflation is a real economic issue. Of course, if you are a victim of such ‘doom books’ then you might benefit from Cox & Alm’s exposition, but then you shouldn’t forget about the serious literature, and the authors should warn about that.
One of the reasons why the book is unbalanced is that it seems to serve two goals. On one hand the argument seems to be that America is doing well ‘on average’ (and even for the majority of the people) and on the other hand the argument seems to be that the poor are not as poor as claimed. This creates the contortion that, when it is shown that the average American home now contains many electronic gadgets, there apparently is also the suggestion that this would be true for the poor - while this certainly cannot be the case. Conversely, where it is argued that many of the legally poor actually are retired people with $300,000 valued homes, then this indeed is useful to note (and points to a possible error in America’s laws) but it doesn’t clarify anything about the working poor.
The authors intend to shake up America from a sense of doom, and the book contains a lot of hyperbole of the kind that ‘things really are OK’. The authors of course are right that there has been hyperbole about American failure. Their suggestion that this sense of doom originates from the midlife crisis of the baby boom generation, may well be true too. Cox and Alm likely are right as well that emotions with such deep psychological roots require tough counter-measures. But their argument remains unbalanced. If the penis is the problem, please stay away from economics ! Not surprisingly, they often misrepresent the real issues in the economics debate.
A positive point about the book is that it provides a number of facts on the American situation that may not be available in this conjuction elsewhere. Such facts for example concern some basic results of the University of Michigan Panel Survey on Income Dynamics, the plots of the diverging of data series on average hourly wages and total wage compensation (that includes fringe benefits such as health care), and an overview of the findings of various authors on the overestimate of the Consumer Price Index.
It is an entirely different subject how Cox and Alm use these data. About the image of doom they first suggest that ‘the argument rests’ (p4, they don’t say who gives this argument) on the hourly wage index. Then Cox and Alm come to the rescue, and show that total compensation has actually be on the rise. Gentlemen, please, this is no way to behave in a civilised discussion: (a) say who gave this argument, (b) serious economists always consider total compensation, so - especially when you write a book that mentions trivialities such as that computers get cheaper every year - also explain why your hour wage index would not include fringe benefits. (In other words, the note on p215 on ‘wage data’ does not explain much.) (c) a discussion on poverty is not about averages, (d) and it is entirely misleading to suggest that per capita income is a good indicator, for either average or the poor, since this includes the profits and interest of the capital owners.
Similarly, the Income Dynamics data show that people from the lowest 5th quintile can migrate to the higher quintiles . OK, many students first are poor and later earn a good living. The point of the poverty debate however is that many of the poor are not students. Mutatis mutandis for others who manage to escape. And even for students one might question why they should live in poor conditions. Cox and Alm again misrepresent the issue.
Cox and Alm spend pages on illustrating the various technological improvements since the 1950’s or even the 1970’s. The argument e.g. that the PC has come about since the 1970’s, and has gone down in price enormously, is of course of little value to the poor person who cannot afford it anyway. The argument that ‘we benefit from cheaper products’ is rather contorted. Cox and Alm have a point that incorporating technological improvements is a difficult issue in statistics. Still, it is not a new point, and giving a list of gadgets is not a sufficient method to settle the price index problem either.
The authors refer to p182 to Maslow’s theory of psychological stages. The suggestion is a bit that the poor should be happy that they at least have their physiological necessities, and that self-actualisation is a luxury limited for the rich. One would hope that Maslow’s theory will be applied more critically. Even a poor person or even ‘primitive’ societies can have degrees of self-actualisation. These aspects are so much part of the definition of being ‘human’ that they do not represent a sequential order, but are relevant simultaneously, with different degrees and formats depending upon economic and social means and conventions.
Another way to look at this book is to see that it highlights many predicaments in the debate on poverty, so that it shows that the issue of poverty is not as simple as many may think - including, apparently, the authors themselves.
Cox and Alm summarised their argument in the article “Why Some Americans Want More Poverty” in the Wall Street Journal, European edition, November 10 1999. To show how convoluted some arguments are, I can usefully quote that article, and then comment on it.
“America could soon get a lot poorer.
The U.S. Census Bureau is experimenting with a new formula that would raise the poverty threshold for a family of four to $19,500 from $16,660. Through a simple change of definition, one that has nothing to do with economic realities, 12 million Americans might become “poor” overnight.
It’s true that existing measures of poverty are riddled with flaws. But the problem isn’t that they underestimate poverty; it’s that they overestimate it. When we’re trying to determine well being, the proper yardstick is consumption, not income. They aren’t the same thing — especially among the poor. The poverty rate tells us how many Americans earn low incomes, not what they’re able to buy.
Households in the bottom fifth of the income distributon consume well beyond their earnings. In 1997 an average low income household made $7,086 year before taxes. Consumption — what the poor spent, not what they earned — totaled $14,670.
How can poor families consume more than they earn? Many supplement their income through welfare, Food Stamps, unemployment benefits, Medicare, Medicaid, school lunches, rent subsidies and other programs, all of which the statistics leave uncounted. And the poverty statistics ignore wealth, which can be more important than current income. Workers temporarily laid off don’t get paychecks but they often have savings to fall back on. Although many retirees earn low incomes, their houses, cars and furnishings are paid for, and they’ve got nest eggs. In 1993, 302,000 families with incomes of less than $20,000 lived in homes worth more than $300,000.
When you’re really poor, everything you see is something you can’t have. But over the years, the poor have gained access to more goods. Government statistics show that poor households own many of the consumer goods usually associated with middle class life in the United States.
The percentage of poor households with washing machines rose to 72% in 1996 from 58% in 1984. Ownership of dryers went to 50% from 36%. Two-thirds of poor families had microwave ovens in 1996, up from one in eight a decade ago. Ninety-seven percent of poor households have color televisions, and three-fourths have videocassette recorders. Almost three-quarters of poor families own at least one car.
By the standard of day-to-day living — the standard that really matters — the poor have gotten much richer. Indeed, poor households in the 1990s are in many ways better off than average families in the early 1970s. Two-thirds of poor households had air-conditioners in 1997, compared with less than a third of all households in 1971. And it wasn’t a welfare program that made it possible; it was the free market which has introduced innovative new products and brought the prices down.
Spending patterns help explain how the poor can afford more of the trappings of middle-class life yet still not escape the poverty statistics. Among American households below the poverty line, outlays for food, clothing and shelter were 37% of consumption in 1995, compared with 52% two decades earlier, 57% in 1950 and 75% in 1920. Thus poor households have considerably more discretionary income than they once did.
One reason is that the U.S. government has already been raising the poverty threshold too quickly. For more than three decades the government has been adjusting the poverty line every year for inflation. The Boskin Commission concluded in 1996 that the consumer price index overstates the actual rise in the cost of living by a percentage point a year. What’s more, the overall CPI has risen 40% faster than the cost of groceries since 1965.
The crux of the debate over the proposed new statistics is tbe purpose of measuring poverty. As originally conceived, the poverty statistics were meant to be diagnostic. They emerged in the mid-1960s as a benchmark for President Johnson‘s “war on poverty.” What Americans wanted to know then—what they should still want to know today—is whether they’re reducing tbe number of families struggling to obtain the basic necessities of life.
The answer is yes. A recent Heritage Foundation study examines the incidence of the bedrock problems of poverty—malnutrition, crowded housing and lack of access to medical care. It concludes that 8.7 million Americans, or just 3.7% of the population, make up the nation’s “hardship population”—the truly poor.
In 1993, University of Texas economist Daniel Slesnick recalculated the poverty rate based on spending rather than income. To remove the vagaries of inflation, he established the poverty threshold at three times the cost of a nutritionally adequate diet for all members of a household. Mr. Slesnick’s results show that the proportion of poor in the U.S., measured by consumption, has fallen steadily, from 31% in 1949 to 13% in 1965 to 2% at the end of the 1980s.
It’s not hard to discern the political agenda of those who want to conjure up another 12 million poor people. Having more poor families enlarges the constituency for programs that dole out money to the poor. But if it’s simply a matter of deciding which families are eligible for government programs, then the issue really comes down to how much American’s are willing to sacrifice to the insatiable god of equality.”
My (closing) comments:
(1) Poverty is always relative, and its definition is always a search for what the better-off regard as acceptable rather than a search for objective truth. Opponents of a reduced welfare state, like Cox and Alm, should rather accept that relative standard, rather than confuse the debate with some absolute arguments. For example, a Dutch poverty debate in the early 1900’s was about whether a table would be part of household necessities or not. Defining poverty as three times the grocery bill would surely answer that question. But it is more likely that society’s standard would start including air-conditioners too (by some regarded as the most important invention this century).
(2) One of my main arguments is that society even tends to update poverty with the general level of welfare. That the US has been using only the CPI would counter that argument. But that the CPI has been overstated, that all kinds of provisions like Medicare have been added for purchasing power, and that one is experimenting with a serious update, is supportive again. Similarly, Cox and Alm p201 even state “What were once luxuries are now viewed as necessities”. It would be better to make welfare indexation the official line, and stick to it.
(3) The political argument given by Cox and Alm is doubtful. The few votes of the new beneficiaries may well lose out against a huge majority that could be against the proposals, including the current beneficiaries. Why start the whole discussion about democracy again ?
(4) Poverty definitions, though relative, nevertheless should be as sound as possible. If wealth is not properly accounted for, as Cox and Alm point out, then the debate gets noisy, and popular support for the poor indeed suffers. (Even though the 302,000 families with expensive homes are only a fraction of the 13 million real poor.) Similary, implementation of anti-poverty policies will often be very murky. (‘Did you really try to get a job - and shouldn’t we not take you from the programme ?’) There is no alternative but to accept this murkiness, and try to instill operations managers with the spirit that they should try for a good performance anyhow.
(5) To clarify the argument, to get rid of some of the murkiness, I myself take a stylized approach. Then we don’t bother with the question whether air-conditioners are part of household necessities. We assume some historic subsistence and exemption level, and then work through the arguments of indexation etc. This thus eliminates much of the need of statistical measurement.
At one point, Cox and Alm oppose socialism and capitalism: “Socialism, a failed and receding system, sought to impose artificial equality. Capitalism, a successful and expanding system, doesn’t fight a fundamental fact of human nature - we vary greatly in capabilities, motivation, interests, and preferences.” (p87). The argument is at kindergarten level again. The American success story derives as much from FDR’s initiatives as from ‘capitalism’. Western European welfare states have come about by active participation of Christian and Social Democrats. The latter often called themselves ‘socialist’, but certainly didn’t close their eyes to human differences. Indeed, there is quite a difference with Cox and Alm.
It has been well-recognised that OECD economies have a problem with jobs with a low level of productivity and thus a low level of market-earned income. The OECD has done great research here. A standard reference here is to the OECD (1994) “Jobs Study”, that also was followed up with studies such as OECD (1995), Marsden (1995), Tyrväinen (1995), OECD (1998), the OECD Economic Studies 31 (2000/II) issue, with contributions of Pearson and Scarpetta (2000), Hotz and Scholz (2000), Dilnot and McCrae (2000), Fitoussi (2000), and Phelps (2000). But, while all this is recognised, the OECD shows no attention for this present analysis, even though it has been available on the internet since 1995.
Two main comments can be made with respect to the OECD (2000) Outlook, chapter 2, “Making the most of the minimum: statutory minimum wages, employment and poverty”:
(1) “High marginal effective tax rates associated with the phase-out range of the benefit give rise to disincentives to increase earned income beyond a certain limit.” (p55). This is the poverty trap - that however does not exist. When there are ample employment opportunities, people on benefit can be fined if they reject reasonable job offers. (Above minimum income, there also is the dynamic marginal rate.)
(2) “Both theory and empirical evidence are inconclusive about the precise employment effects of minimum wages over some range relative to average wages. However, at high levels, there is general agreement that a statutory minimum wage will reduce employment.” (p57) This tries to distinguish but does not distinguish sufficiently between (a) a minimum wage in general, and (b) its position at a high and low value. Much of economic analysis on the minimum wage concerns aspect (a), but that is less relevant. What is relevant is that the tax void allows a reduction of the minimum wage from a high position to a lower position, creating lots of employment.
Three main comments can be made with respect to the OECD (2001) Outlook, chapter 2, “When money is tight: poverty dynamics in OECD countries”:
(1) The issue of ‘poverty dynamics’ can also be seen as much of a non-issue. First one causes a disease and then one studies how some patients show different patterns of colours than others. A wrong economic policy causes unemployment and poverty, and then some people have more such spells than others. The crucial point is to get rid of unemployment in the first place, not study its dynamics.
(2) “Despite substantial economic growth in the OECD area during recent decades, a significant portion of the population consists of individuals whose household income does not support living conditions considered adequate in their country of residence. Individuals living under such conditions are typically labelled as being in poverty, even if their physical subsistence needs can be met.” (p37) This does not distinguish properly between earned income and its tax component that causes unemployment.
(3) The document uses the concept of a “poverty trap” while this does not exist.
Pearson and Scarpetta (2000:22) rightly conclude: “Furthermore, there is growing evidence that there is no single measure which, of itself, will have a major impact on employment. Hence, [minimum wage policies] have to be seen as an element of a comprehensive policy strategy, e.g. the ten broad policy guidelines of the OECD Jobs Strategy. But any policy that has empirical evidence supporting claims that, in certain circumstances, it could promote both efficiency and equity by fostering employment and decent levels of family income deserves to be considered in countries facing such problems.” It should be clear that the current analysis, e.g. on the tax void, does not constitute a ‘single measure’. The analysis can only be understood within the whole discussion.
Modern systems of taxation tend to favour the Tax Credit instrument, notably the “Earned Income Tax Credit” (EITC), as opposed to direct payroll tax reduction and wage cost subsidies, see e.g. Hotz & Scholz (2000) and Dilnot & McCrae (2000).
However, tax exemption should be set at subsistence income (the net minimum wage). Tax credits then could be used for productivity levels below that subsistence levels. Tax credits that are applied above subsistence are not required and have the psychological drawback that the recipient is no longer considered self-reliant but reliant on the state.
The discussion in the literature suffers from obscurity on this issue, as can be shown below. In the following discussion, we will limit our attention to earners, so that we do not have to speak about the ‘earned exemption’ versus EITC, and just discuss ‘exemption’ and ‘tax credit’.
(1) Hotz & Scholz (2000:37) conclude: “The problems facing workers with low levels of human capital in the US are severe. Our reading of the economic and policy literatures is that the EITC is the most sensible, primary policy to support low-wage labour markets in the US. Our conclusion is tempered by the institutional facts about US labour markets noted in the introduction. Economies with different institutional features may find EITC-like policies to be less effective or administratively infeasible. Though reliance on the EITC is sensible, we view targeted employment subsidies as a complementary policy. We see less wisdom in minimum wage increases, payroll tax reductions for low-income families, and wage rate subsidies as proposed by Phelps, at least in the US.”
However, it will be better to choose tax exemption at the subsistence level. If that implies a ‘payroll tax reduction’ or ‘wage rate subsidy’ then this is not a drawback.
(2) Hotz & Scholz (2000:26) give this useful bit of information on the US situation: “the EITC, gives nothing to those without earnings. (…) the EITC provides a subsidy to earnings up to a specific income threshold. For example, consider taxpayers with two or more children in 1998. The EITC gives a 40 per cent earnings subsidy up to $9 930. Taxpayers with earnings between $9 390 and $12 260 receive the maximum credit of $3 756. The credit is reduced by 21.06 per cent of earnings between $12 260 and $30 095.”
They note: “The US has a fairly low minimum wage of $5.15 per hour. While in perfectly competitive markets employer-based and supply-side subsidies (like the EITC) will have equivalent effects, with a binding minimum wage, employer-based subsidies may be more effective policy. A binding minimum wage limits the ability of employment and wages to adjust to an increase in labour supply prompted by the supply-side subsidy.” (Hotz & Scholz (2000:27)).
However, it is important to reduce the gross minimum wage simultaneously with introduction of the tax credit (or exemption), to the point where subsistence equals the net minimum wage. The minimum wage should only be binding at subsistence, and subsidies (possibly in the form of EITC) are needed for those working below the minimum wage.
(3) Hotz & Scholz (2000:34): “At its core, targeted hiring subsidies have a different objective than the EITC. The EITC is designed to augment the incomes of low-income families. The WOTC and Welfare-to-Work tax credits are designed to stimulate employment of targeted groups.”
(a) This obscures the clarity that one should solve unemployment by getting rid of the tax void, and then look at details. (b) Subsidies to the employee or the employer are to a large extent interchangeable though they may be different dynamically. (c) The difference between persons and families should be dealt with in the tax code.
(4) Hotz & Scholz (2000:34): “The EITC has always been closely linked to the payroll tax. A commonly given rationale for the credit prior to recent expansions was that the EITC offsets the regressive (on an annual basis) burden of payroll taxes.”
However, a similar confusion existed with the Dutch Government “Tax Plan for the 21st Century”, see chapter 29 above.
(5) Hotz & Scholz (2000:34-35): “Proposals that exempt the first $x of earned income from payroll taxes would be administratively difficult for workers who have more than one job or who change jobs during the year. Underpaid taxes could be reconciled at the end of the year on individual income tax forms (as is done with overpaid payroll taxes for affluent taxpayers), but some taxpayers would fail to file, creating a new compliance headache. Revenue neutral proposals that would exempt a portion of earnings, and then tax additional earnings at higher rates would exacerbate the redistribution involved with social security. In particular, money’s worth calculations show that social security is a bad deal compared with alternative, safe investments for affluent singles and couples. (Calculations of this sort tend to ignore the value one should place on the insurance aspect of social security against disability, unusually long life, and the randomness of endowments.) As social security is perceived by affluent families to be financially unattractive, pressure could mount for drastically altering social security. Given the importance of the programme in alleviating poverty among the elderly, we think that would be an unfortunate turn of events.
However, these are other issues than the proposal to get rid of the tax void, and should not obscure that matter. Note that taxation always requires administration and collection, so that it does not help to call these a ‘headache’.
(6) Hotz & Scholz (2000:35): “In some contexts, one might envision payroll tax reductions being paired with reductions in mandated benefits, which could help the flexibility of low-wage labour markets. In the US, however, it seems unlikely that payroll tax reductions would be matched with reductions in social security, the programme the taxes finance. Consequently, there appears to be no compelling reason why payroll tax reductions would be a preferred policy option to further expanding the EITC.”
However, this is unwarranted. At issue are net income and benefit that are at subsistence already. Benefits are net anyway (since the government assigns a gross value but immediately cashes the assigned tax). It is strange to suggest that payroll tax reduction can only be justified by reduction of benefits.
(7) Hotz & Scholz (2000:36): “(Advantage of wage cost subsidy …) relative to the EITC. First, in the presence of a binding minimum wage, employer subsidies may be more effective, both in stimulating employment and increasing employees’ after-subsidy wage rates. This is because the wage floor imposed by the minimum wage may keep the employer’s pre-EITC wage payments from falling to their market clearing level. With the employer subsidy, the post-subsidy wage is the relevant wage applicable to minimum wage laws. Hence, employer subsidies might be useful to mute harmful labour market effects of the minimum wage.”
However, that same effect is attained by a simultaneous increase of exemption and reduction of the gross minimum wage. That move reduces red tape and the pumping around of subsidies and taxes.
(8)Hotz & Scholz (2000:36): “The second attractive feature (…) is that with employer subsidies, there is a tighter link between work and the after-tax, after-transfer return to work than there is with the EITC. With the EITC, almost all workers who receive the EITC get it as a lump sum after filing their tax return. As mentioned earlier, there is anecdotal evidence that workers have a vague understanding that their “refund” is somehow work related, but it is extremely unlikely that a significant number of EITC recipients have a clear understanding of the credit’s structure. There would be a much tighter link between policy and paycheck with employer subsidies.”
However, that same clarity is attained by a simultaneous increase of exemption and reduction of the gross minimum wage.
Jan Tinbergen helped create the Dutch Central Planning Bureau (CPB) after 1945, and Dutch society has benefitted enormously up to this very day in 2004. The Dutch situation has also been an example to the world. But there is a down side when the CPB adopts a wrong theory and when policy becomes misguided. Economic theory is created by people, the behaviour of people can also be described by Public Choice theory, and good theory need not get properly adopted. Dutch society suffers huge problems, which problems do not exist just by themselves, but they can also be judged from the angle of the failure of co-ordination. It can be established as a fact that the directorate of the CPB has been censoring economic science for almost 15 years now, so that society is in a suboptimal state. The mechanisms in Dutch society apparently are too weak to solve this issue. The stress in Dutch society even causes the breakdown of the mechanisms that might work otherwise. With 9-11 there is the new terrorism that increases the stress. That stress in Dutch society is highlighted by political landslides and political murder so unexpected of this country. The censored theory originally provided a solution to Stagflation, but it can also help to resolve the social and economic problems following 9-11. The censored theory would be relevant for other nations as well. For theoretical and practical reasons the censorship must be resolved at CPB itself. Given the weak mechanisms in Dutch society to protect the integrity of science in the preparation of policy, it becomes rational to advise an international boycott of Holland. Economic sticks and carrots are strong incentives to motivate people to stop and think. An international boycott of Holland would likely induce the Dutch to restore the integrity at CPB as intended by Tinbergen.
This May 1 2004, the European Union enlarges with the new member states of Central Europe. This is a joyous occasion to celebrate and it is also an occasion to look back at the past and ahead to the future to see what lessons can be learned.
One of the important issues to consider is unemployment. Unemployment is a horrible economic disease since it threatens the very existence of the unemployed person and his or her family, and it increases the stress in society as a whole. France and Germany still have unemployment levels of almost 10% of the working force, the new member states wish they were so lucky. It is not obvious that the Enlargement will generate the creative energy to resolve the problem, and some people fear that there will only be additional problems. Hence at the occasion of the Enlargement it is proper to try to determine what can be done.
In 1989-1990, I wrote Colignatus (1990a), “After 20 years of mass unemployment: Why we might wish for a parliamentary inquiry” as an internal note of the Dutch Central Planning Bureau (CPB). The abstract and summary are reproduced in the appendix to this chapter below while the full text can be found at my website. We are now 15 years further and this explains the first part of the title of this paper: “After 35 years of mass unemployment”.
What remains to discuss is how we move from a wish for a parliamentary enquiry to an advice to boycott Holland. The point is that the 1990 paper contains the solution for unemployment but met with censorship by the CPB directorate, and Dutch society has not been able to resolve that censorship yet. I have grown convinced that an outside influence will be of use and that in fact only a boycott of Holland can help out. Hence, my advice to the rest of the world is to boycott Holland till the Dutch resolve the censorship of science by the directorate of the Dutch Central Planning Bureau. The remainder of this paper is devoted to development of that argument.
It is useful to explain the following about the Dutch Central Planning Bureau. The CPB has a similar role in Holland as the Council of Economic Advisers to the President in the USA in the co-ordination of economic policy making. The CPB is a world renowned institute. When it was founded shortly after World War II, the first director was Jan Tinbergen who later received the Nobel Prize for his pioneering work in econometrics. Other economists at CPB of historical fame are for example Theil, Koyck, Verdoorn, De Wolff (who is less known but for example coined the terms “macro-economics” and “micro-economics”). The CPB director who originally censored my analysis and who fired me with an abuse of science is Gerrit Zalm, now better known in European politics as the Dutch Minister of Finance. The current CPB director is Henk Don, who has a high personal and professional respect nationally and internationally, which I agree with except for the censorship. It must be noted that Henk was vice-director at the time when the original censorship took place, was not directly involved and does not know some details, but nevertheless firmly supports the censorship and abuse of science.
The key points of the censorship are as follows. The paper was blocked from internal discussion by the CPB directorate and eventually I was fired in 1991. The court observed an abuse of power but nevertheless allowed the dismissal. There is weak legal protection for Dutch public employees, while the court also did not properly distinguish between my position as an economic scientist and the other position of non-scientific public employees. Apart from the treatment of my person, the publication process itself was this: I intended the paper for publication as a CPB Research Memorandum, the series ‘under the responsibility of the author’. The possibility of an internal discussion with interested colleagues seemed to me a necessary step before I could finalise the paper. The analysis is sound, but the colleagues can have questions and comments that contibute to enhanced clarity. This possibility however was blocked by the directorate. A committee on good scientific conduct, consisting of professor Köbben (Leiden) and professor Segers (Tilburg), observed that the directorate would have done better in permitting that internal discussion. My position is that I wait till that discussion is permitted indeed, so that I can finalise the analysis and let it be published as intended.
Some more details are in the appendices to this whole book: the autobiographical note and my presentation for the National Press in Washington 1993 with attached job resume of that time. Updates can be found on the web.
Many economists react that I could also publish the (1990a) paper (or a revision) in an international journal. This however is both beside the point, while it also meets with practical problems.
· First, the point is that the CPB directorate censors science. When the problem is at CPB then it must be solved at CPB. Let me note that when I discussed the censorship with Jan Tinbergen, he said that the issue needed resolution “but by a younger generation than me”. It actually is rather curious that one would want the journals to solve the issue while maintaining the censorship at CPB, and then, when the issue is resolved, ask CPB to apply it for the Central Economic Plan.
· Secondly, there are various practical problems. The (1990a) paper is already on the web since 1995, and I do not see it used to solve unemployment. So availability is not sufficient, there must also be proper context and channelling. The paper has been written for a CPB Research Memorandum, it assumes a CPB context and it targets an enquiry by Dutch parliament. Before the web existed, I submitted the paper to two journals, one Dutch, one international, but it came back with useless comments. This is only a small sample, and the paper might be redrafted, yet it confirmed my idea that journals are not the way to go. One should also understand that I have little time to write. My job situation is difficult: short term jobs, always a new subject and not at the easiest level. [130] Of course, much of my time is spent on protesting against the censorship.
I have tried various other ways to resolve the issue of censorship of science by the CPB directorate. For example, I published reviews and collections Colignatus (1992b), (1994b) and finally (2000), “Definition & Reality in the General Theory of Political Economy” (DRGTPE), the first edition of this book. The latter is listed in the Journal of Economic Literature JEL 2000-1325, vol. 38, no. 4, December 2000. Also, Hulst et al. (1998) and Colignatus & Hulst (2003) are Dutch books that explain the issues in lay terms for a general public. But I see no effect. [131]
I have also hoped that other economists would find the same results that I have, so that the issues could be resolved in that manner. But no.
A key example is
The Economic Journal, Volume 114, no 494, March 2004. There is the presidential address by professor Stephen Nickell of the Bank of England and the London School of Economics, and
there is a special session on the UK minimum wage, with five papers by renowned authors. All these authors have my
highest respect and their work is crucial for understanding the economic
situation. But solution to unemployment isn’t there yet, while it is available for discussion.
I fully agree with professor Nickell and I thank him for his observation:
“Relative poverty in the UK has risen massively since
1979 mainly because of increasing worklessnes, rising earnings dispersion and
benefits indexed to prices, not wages. So poverty is now at a very high level.”
Professor Nickell suggests “reducing the long tail in the skill distribution”,
but in my analysis we should also consider the tax void and the dynamic
marginal tax rates, so that more low-skilled people can start working (also
because of ‘learning by doing’).
Since all these other ways have had little effect, I can usefully advise to boycott Holland to speed up matters.
The line of reasoning thus is that if you want to resolve mass unemployment then you need the theory that is blocked from internal discussion by the directorate of the Dutch CPB. Since other ways fail, a boycott of Holland can be a good way to resolve the issue.
This is an advice and not an appeal. I am not an activist, but a scientist. It is only sound advice for the citizen who wants mass unemployment resolved. This advice derives from the integrity of economic science. This advice is also stock and barrel of economics itself and can be included in every economic textbook.
If you don’t know where to start boycottting: it is not just tulips and Gouda cheese and the Van Gogh museum, but also think of Shell, Ahold, Baan, Unilever, KLM (Air France), ING, ABN AMRO, Numico, Philips, AKZO-Nobel, DSM, etcetera. Instead of Amsterdam, visit Antwerp. Many international companies also have a local branch in Holland or even have an official seat in the Netherlands for tax reasons, and I would advise their inclusion. Be creative: locate the Dutch element, and boycott it. (They are everywhere, so look carefully.) (And I suppose it already had been wise for David Beckham not to get involved with Rebecca Loos.)
Of course, the Dutch need to eat, and I as well. I already have cut back on my Heineken at lunch, but that is tough since the cafetaria doesn’t sell alternatives yet. Hence the advice of the boycott is for the rest of the world, and my advice to the Dutch is to start thinking about that parliamentary enquiry. Also, don’t boycott publishers or the internet, since these are vital for the flow of information.
The following discusses a number of angles of which the relevance will become clear in the discussion.
Some people wonder whether I have gone nuts in advising to boycott Holland, the country where I live myself. Well, the logic above is clear, and it is only an advice, so I presume that the concern about my nutsiness actually is about the realism of my advice. I don’t know much about that. Events often start with ideas and it can be useful to air an idea to see whether it develops.
International contacts are a problem. Paul Krugman (2003), “The great unraveling”, rightly criticizes ‘anti-globalism’, see Krugman’s chapter “Global Schmobal” and the injustice done to James Tobin and his Tobin tax.
But there are now some who speak about ‘other-globalism’. I contacted some people in Amsterdam in that movement about my suggestion of the boycott. Last year, I and journalist Hans Hulst published a booklet, Colignatus & Hulst (2003). (The title translates as “The voter unchained”.) These other-globalists hadn’t heard of the book yet (so much for globalisation), but were willing to read it. Their response was:
“I judge the most interesting aspect of your book the way how you approach the problem of unemployment and your conflict on that with the CPB. And indeed, the way how the CPB has dealt with your critique and your alternative is unacceptable.”
(PM. One should distinguish between ‘the CPB’ and ‘the directorate of the CPB’. The issues have not been discussed with my colleagues since the directorate blocked that discussion.)