Peter Wilby really, really, doesn\’t get economics at all

This is, depending on how you look at it, either entirely glorious or deeply depressing.

Peter Wilby has been both the editor of a national newspaper (yeah, OK, Indy on Sunday but still) and the New Statesman. And in his latest piece he displays that he knows absolutely nothing at all about economics.

His essential argument boils down to Teh Foreigners taking all our jobs and those they don\’t being lost to automation means that living standards in the UK will inevitably fall.

And it\’s all the fault of those darn neoliberals.

As Luis Enrique continually points out, it can be embarassing to be on the left when somone so senior on said lefty side proves themselves to be so ignorant.

There are a number of responses to this (starting with \”Open a fucking textbook, cretin!\”) and moving on to the less emotional points as folows:

Average wages in an economy are determined by the average productivity in that economy.

Individual wages are not set by what that individual does: but by the wages paid by the next possible alternative use of that individual\’s labour. This is, for example, why a hairdresser in London makes more than a hairdresser in whatever the capital of Upper Volta is called this week. Because the other jobs available in London pay more than the other jobs in WTCOUVICTW.

There is no shortage of things to do: the wants and desires of humans are unlimited, while the resources (including labour) that we can put towards meeting them are limited.

Johnny Foreigner doing things cheaper than we can could indeed reduce, temporarily, the wages of the specific person that used to do what JF is now doing. However, JF\’s production is, quite clearly, lower in cost than the previous incumbent\’s, which means that everyone\’s real income has just risen. Real income is not, after all, how much you earn, but how much you can buy with it and if prices are falling generally then your income, even if static in nominal terms, is rising.

Machines doing things cheaper than we can could indeed reduce, temporarily, the wages of the specific person that used to do what the machine is now doing. However, machine production is, quite clearly, lower in cost than the previous incumbent\’s, which means that everyone\’s real income has just risen. Real income is not, after all, how much you earn, but how much you can buy with it and if prices are falling generally then your income, even if static in nominal terms, is rising.

Finally, as Marx pointed out, wages rise to meet average productivity, not wages falling as cheaper labour becomes more productive. This happens because capitalists compete for access to the profits that can be extracted from that labour. As the labour becomes more productive more profits can be extracted and the competition means that wages are bid up.

So, what happens when the machines or the brown and yellow peeps come to steal all our jobs?

All of the things that we consume, now being made by these cheaper providers of labour, become cheaper, thus our real incomes rise. Their wages, now that they are becoming more productive, rise. Our wages on average, determined by our average level of productivity, move in step with our productivity, not the changes in the productivity of others. And our labour can go off and do those other things which will satisfy yet more human desires and wants: another way that we get richer of course, for satisfying two or three needs and desires instead of only one means that we are of course richer as long as we define wealth in any rational sense at all.

Oh, and, yes, there\’s another little effect. Our brown and yellow bretheren, those who were recently and perhaps still are stuck in that child killing misery of Third World peasantry, get rich too.

So, we get richer, they get rich, misery declines and yet more kittens gambol happily with the lambs.

Peter Wilby blames this all on neoliberalism and he\’s right to do so. Which of course is why I\’m proud to be identified as a neoliberal.

Come on, what the fuck else do you want from a socio-economic system than everyone managing to get gloriously, stupendously, rich*?

*Please note that in current $, average world GDP in 1700 or so was around $600, $800  a year. Today it\’s around $8,000. The IPCC assumes, in its calculations of climate change, that if we\’re all good little neoliberals for this coming century that it will be $80,000 in 2100. Seriously folks, what the fuck else do you want from an economic system?

16 thoughts on “Peter Wilby really, really, doesn\’t get economics at all”

  1. Funny, isn’t it – the Left go mad when foreigners “take our jobs” by doing these tasks in their oen country, but they have no problem whatsoever witb said foreigners coming here and “taking our jobs”.

    If the Left really are concerned about employment for the Natives how can you violently oppose the former but violently support the latter?

  2. “Seriously folks, what the fuck else do you want from an economic system?”

    Equality. Better for all to make $800 than most make $8000 but some make $8bn.

  3. “Please note that in current $, average world GDP in 1700 or so was around $600, $800 a year. Today it’s around $8,000.”
    Is that inflation adjusted? My house cost £20 in the 1800’s – now it costs a lot more.

    Tim adds: Yes, inflation adjusted, that’s what the “current” means.

    It’s not quite exactly right, because I’ve mixed and matched 1990 $, 1992 etc, but it’s close enough, given that we’re talking orders of magnitude here, not the 2% or so difference each year brings.

  4. Tim, your reaction is bit kneejerk here – he starts with a good point that as the rest of the world becomes educated and developed it puts downward pressure on our position at the top of the world economic tree.

    We need to box very clever indeed to ensure that our boat does not ship water on the global rising tide of prosperity.

    He correctly identifies a very big issue, that’s all. As I once commented here about Polly Tollybottom – just because it is from her/him does not mean it is bad and wrong, that’s a rule of thumb, not a law of nature.

  5. But Johnny, it does not put downward pressure on our absolute economic position. You are arguing for make us all poorer in order to make sure we are less poor than others. I and many others would rather we are all richer even if that means that some are richer than we are. Why should I care if a Chinaman is richer than me so long as he didn’t make me poorer in the process? What kind of person is bothered by this?

  6. @ChrisM, rising global prosperity can indeed raise everybody’s standard of living, but there’s no guarantee.
    If we lose a call centre job to India, then we need to move that worker into something that the Indians cannot yet do AND THAT THE REST OF THE WORLD WILL PAY DEAR FOR if the displaced worker is to enjoy the global prosperity – we’ve done well at that for at least two hundred years – but there is no guarantee.

    Those with global ranking skills will enjoy ever greater prosperity, but the less skilled may well face real declines in living standard as a consequence of rising global prosperity and an ever more connected world.

    Here in the West we earn our way from a truly astonishing range of activities and the prosperity of others creates opportunities, but there are no guarantees that the less skilled can participate …. indeed in the long run it is more or less axiomatic that pay rates will equalise across the world, and that might well be bad for our low paid.

  7. @Johnny we will still be richer regardless of whether the displaced UK worker finds a job or not. Unemployed people here are often richer than employed people in India. The poor have not faced declines in living standards in the West for over two centuries.

  8. @ChrisM:Because the left can only ever see the tall poppy and want to cut it down. It matters not if the broad mass of the population are wealthier than ever before, the fact that a few are super-wealthy is unacceptable. It is better for the many to have reduced means, so that the few cannot be seen to be getting more than their ‘fair share’.

    I’ve just turned 40, and I can remember in my childhood, growing up in a not by any means deprived part of the country, what being ‘rich’ meant. It meant having a new car, having foreign holidays, eating out at restaurants, new clothes for the kids(not hand-me-downs), and fancy electronic goods in the house. Most of the people I knew drove old battered cars (if they had a car at all), went on holiday to the seaside, worn second-hand clothes from relatives and jumble sales, and had few consumer goods. Not because we were poor, but because for the broad mass of people, that is what you could afford.

    Nowadays that standard of living would be considered to be on the bread line. Economic growth, using the capitalistic globalisation model has resulted in a much higher standard of living for all. The fact that a select few have made billions ‘should’ be irrelevant. Sadly the left cannot get past its desire to bring everyone to one level, even if that level is worse than what we have now.

  9. @ChrisM – “will still be richer regardless” – yes, but our low paid might not.

    “Unemployed people here are often richer than employed people in India.” – yes, its an indication of how precarious is our position, for that is surely a temporary aberration in the grand scheme of things. We are so far ahead of them that even those who produce nothing consume more than Indians who produce something – that’s a very big space for the hard working Indians to move into.

    “The poor have not faced declines in living standards in the West for over two centuries” yes again (thrice now) … and some things will always fall in price (car, tv etc), but our poor may be a finding that their money buys ever less of the toil of third worlders .

  10. @Jim, “left can only ever see the tall poppy” …. Jim you are over analysing – they hate you, that’s all. Everything they say and do is a channel for their hatred of you and should not be considered as the product of objective reasoning. They don’t care about tall poppies or fair shares – they only hate.

  11. What does this mean?

    “Individual wages are not set by what that individual does: but by the wages paid by the next possible alternative use of that individual’s labour. “

  12. @Johnny, “for that is surely a temporary aberration in the grand scheme of things. ”

    It is a consequence of following a certain economic policy. It will be temporary if we stop the kind of policies we have adopted for the last few hundred years, and not if we don’t.

    A book I read recently observed that Florence was once the richest city on Earth, and now it is not. Yet it is far richer now, than it was when it was the richest city on Earth. The rest of the world getting richer, did not make Florence poorer. The people of Florence today are richer than they have ever been. Indians getting richer will not make us poorer. Indeed the more countries that get richer, the richer we will be if only so we don’t keep throwing counter productive aid at them.

    “but our poor may be a finding that their money buys ever less of the toil of third worlders .”

    We don’t pay for people’s toil though, we pay for what they produce with that toil. We want people everywhere to be able top produce more with the same amount of toil. If it once took 4 hours of a Chinaman to produce a toaster and now takes him 5 minutes, we can now get a toaster for 5 minutes of his toil instead of 4 hours. We still have a toaster, which is what we were after.

  13. Ouagadougou. Has its name changed? I know Upper Volta was transmogrified (once?) to Burkina Faso.

  14. @Matthew – this is a reference to the marginal theory of value.
    It’s probably easier if we start with the diamond-water paradox. Water is essential for life, diamonds are not, but diamonds are far more expensive than water despite water being far more valuable. What’s going on here is the next marginal use of water – in many parts of the world we have so much water that the next possible use of that last cup from your tap is “rushing down in a river to the sea”, so water is cheap.
    Meanwhile diamonds were rare, so the next possible use of a diamond was “showing off how much money someone else has”. So people with diamonds to sell could charge a lot more for them per cup than those with water to sell, even though in a state of scarcity people would rather have water than diamonds.
    (Note, this is a 19th century problem, so we get to ignore the environmental benefits of water rushing down to the sea, and the discovery of the South African diamond mines and De Beers’ cartel).

    So apply this to labour. Doctors are paid a lot more than garbage men, excuse me, sanitation engineers, despite the plausible argument that having a lot of rotting garbage around the place would be far worse for overall health than having no doctors. This is because of the next possible use of the labour of those with the minimum skills to be either, doctors are better equipped, on the whole, to say “sod this for a game of soldiers” and head overseas to other doctoring jobs, or change to another high-powered career path, or train as a lawyer or a banker in the first place, rather than as a doctor.

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