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John Quiggin

Sitting next to Nelly*

by John Quiggin on September 19, 2020

One of the big questions about the shift to working remotely has been “what about new staff?”. To spell this out, the idea is that, while experienced workers can do everything they need to online, new employees will need personal contact to pick up tacit knowledge and firm culture. It’s inherent in the argument that these terms are difficult to define with any precision – if not, they could be formalised and taught.

This is part of a debate that’s been going on for a couple of centuries, between proposals for formal education in work-related skills and learning on the job, sometimes through apprenticeships and sometimes through “sitting next to Nelly”, that is, picking up the relevant skills by working with people who have already acquired them.

Before 1800, and with the partial exception of ministers of religion, on the job training was the only kind on offer. Since then, starting with lawyers and doctors, formal education has steadily expanded at the expense of on the job training, across a wide range of occupations and in many different countries with radically different labor markets. That includes some economies and industries where lifetime employment by a single firm has been the norm and others where work is largely done on a contract or ‘gig’ basis.

This process has always been contentious. Terms like “credentialism”, “overqualification” and “academic” (used pejoratively) have set the tone of much of the discussion. Nevertheless, there has been little evidence that the trend has been or will be reversed, and no one has managed to find, and sustain, a successful altern ative.

The work of hiring, ‘onboarding’, promoting and firing employees has not been exempt from the process. “Human resource management” emerged as a distinct profession in the second half of the 20th century, taking over much of this work from individual managers. HR departments have in turn begun to outsource some of these tasks to specialised firms such as headhunters and ‘separation management advisers’, though onboarding still appears to be done in-house for the most part.

The shift to remote working will provide another test of this process, at least when firms start hiring new staff on a large scale. Some of the concerns expressed about lack of in-person contact will probably prove to be well-founded (though not insuperable). Others, I think, will not. After a few in-person (and ideally one-to-one or small group) meetings to be introduced to new colleagues, most new hires will be able to learn the ropes through email and Zoom.

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Firm-specific skills and working from home

by John Quiggin on September 17, 2020

One of the central features of the debate about working from home is that it leads to the loss of random, but productive, encounters with colleagues. I’ve responded with the observation that some of my best research ideas have come from largely unplanned encounters on the Internet.

It’s just struck me that there is a conflict here between the interests of workers and those of firms and managers.

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Choose your own 538 adventure

by John Quiggin on September 6, 2020

Like lots of others, I’m anxiously watching forecasts of the US election outcome. But it’s hard to figure out what’s going on, with Biden way ahead in the polls, behind in the betting markets and rated a 70 per cent chance by the model at 538.com. Inspired by this post from Andrew Gelman, who is working on the Economist model (Biden currently a bit over 80 per cent), and an informative tweet from Nate Silver, I’ve managed to improve my own understanding a bit. At least I think so.

Silver’s tweet confirms that the Electoral College system gives Trump a significant advantage relative to an election by popular vote. He syas
Chance of a Biden Electoral college win if he wins the popular vote by X points:

0-1 points: just 6%!
1-2 points: 22%
2-3 points: 46%
3-4 points: 74%
4-5 points: 89%
5-6 points: 98%
6-7 points: 99%

With that information, it’s easy enough to fit a normal distribution to the margin, and get an estimate probability of winning. By fiddling with the numbers, it’s easy to replicate the 538 probability estimate and also to get a probability distribution looking fairly similar to those displayed on te site. My best estimate is N(5,4), that is, the mean value for the margin is 5 points and the standard deviation is 4. The mean value is consistent with the description of the state level estimates on the 538 site, which (very roughly speaking) take the existing polls (which currently have Biden ahead by 7.4 nationally) and then give Trump 1 point for an incumbency advantage (reducing the margin by 2 points).

Looking at the Economist model (which doesn’t necessarily agree with 538 on the exact distribution of the Electoral College advantage) it fits pretty well with N(6,3)
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The Economic Consequences of the Pandemic

by John Quiggin on September 4, 2020

That’s the title of the book I’m working on for Yale University Press, and also the theme of two articles I published yesterday.

One, in The Conversation, looked at the potential benefits of remote work and the likely struggle over who will get those benefits. Key paras

For the most part, disputes over sharing the benefits of remote office work will be hashed out between employers, workers and unions, in the ordinary workings of the labour market.

But what about the other half of the workforce, who don’t have the option of working from home? In particular, what about the mostly low-paid service workers who depend on people coming into offices?

If the productivity gains made possible through remote work are to be shared by the entire community, substantial government action will be needed to make sure it happens.

The other article, in Inside Story, looks at the end of the goods economy and its replacement by an information and services economy, a transformation that’s been highlighted by the pandemic. An important implication is that investment demand by private firms is likely to stay low, even as greater public investment is desperately needed.

Tech firms like Microsoft, which now determine stock market values, don’t need much capital. The book value of Microsoft’s capital stock is less then 10 per cent of its market value. The rest is made up of intangibles, a polite word for monopoly-power network effects, intellectual property, and good old-fashioned predatory conduct.

Without any need for private sector investment, interest rates will remain low unless public investment picks up the slack. With the physical goods economy fading into the past, though, we don’t need more of the transport infrastructure projects governments automatically turn to at times like these. Rather, we need to invest in human services like health (mental and physical), education and childcare, and in information platforms that break the monopoly power of the tech giants.

These are the investments that will allow Australia to flourish in an economy dominated by information and services rather than industrial production.

Unmarked categories

by John Quiggin on September 1, 2020

Following on from the discussion between Chris and Kenan Malik, I thought I would take another look at this post from last year, where I used the term “default identity”. Since then, I’ve seen that this idea is more usually phrased as the “unmarked category” a term originating in linguistics[2]. An example, where both the linguistic and social senses are present is that of the distinction between “hyphenated Americans” and the unmarked category of Americans in general. This post by Paul Campos at LGM makes the point that much of the support for Trump comes from white men who were once the unmarked category and are now marked as a distinct category.

Being in the unmarked category represents more than “not being discriminated against”. For example, we might consider a situation where one religious group is subject to discrimination, but others are not. That does not, in itself, make the other groups privileged. Now think about the case when one group, say Christians, is taken as the unmarked category whenever religion is discussed – for example, by using the word “church” to cover religious meeting places in general. That group is privileged even if there is no active discrimination against others, or if some groups are given (implicitly, given by the dominant group) apparently equal status, as in formations like Judaeo-Christian[2]. Even where members of the marked categories receive equal treatment, it is always provisional. Conversely, a situation where discrimination is unthinkable (say, discrimination based on shoe size) is one where there is no unmarked category.

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Where do you get your ideas?

by John Quiggin on August 28, 2020

The most memorable answer to this question came from science fiction writer Harlan Ellison, who said “Poughkeepsie” (on checking Wikipedia, I learn that he died a couple of years ago).

But in the context of discussions about remote work, I’m interested in the claim that random physical meetings (the archetypal example being corridor or water-cooler encounters with colleagues) are an important source of ideas, and therefore a reason for not working remotely.

This seems to be the kind of topic for which the data will consist mostly of anecdotes and introspection. A marginal improvement is too look over my own list of publications to see if I can identify any where the source arose from some particular interaction.

Looking at my 100 most-cited papers in Google Scholar, most collaborations are the result of planning rather than chance. In pre-Internet days, most of my collaborations started from seminars and conferences I spoke at or attended because the topic was of interest, or else from direct approaches by a colleague, usually in the same department. From the early 1990s onwards, direct approaches mostly came by email, and work has often been done the same way. In several cases, I have written joint papers before ever meeting my co-author(s), though in other cases in-person collaboration with one or two co-authors works better.

More interesting to me, are the cases where the idea has come from blogging. Some notable examples

  • My Zombie Economics book. Starting with blog discussions, the idea for a book came from blog commenter Max Sawicky, and was picked up by Seth Ditchik at Princeton UP, who also commissioned Economics in Two Lessons and my current book-in-progress Economic Consequences of the Pandemic
  • Cross-disciplinary collaborations with Henry Farrell and LA Paul both arising from my involvement with Crooked Timber
  • This paper, which started with a comment on a blog post to the effect that “future generations” are in fact already alive (At least I think that’s how it happened. I could never locate the comment to acknowledge the source.)

It seems to me that that these are much more like the kind of serendipitous links that are supposed to be generated by water coolers.

Of course, academic research is a special kind of work, and I’m much more involved with the Internet than most of my colleagues (or, at least, a few years ahead of the general adoption trend). So, I’d be interested in anecdotes from others and links to actual research, if there is any.

Every day, coal is killing us

by John Quiggin on August 25, 2020

That’s the headline for a piece I just wrote for Independent Australia, looking at a new report from Greenpeace about the harm done by air pollution from coal-fired power, in addition to the climate-destroying effects of CO2 emissions. The report estimates 800 deaths per year, and is, from what I can see, consistent with other studies.

Final para

As a possible recovery from the COVID-19 pandemic comes into sight, it’s time to place human health above the desire to maintain the economic status quo. Australia can and should get off coal by 2030, without harming workers employed in the industry. In doing so, we will be saving both lives and money.

What’s with the stock market?

by John Quiggin on August 12, 2020

In a couple of recent posts, I’ve been looking at returns to capital. First, there’s the fact that real returns on long-term (up to 30 year bonds) are now below zero in most countries. I argued that such a situation is inconsistent with the existence of capitalism in the traditional (say, pre-1970s) sense of the term. Then there’s the fact that the biggest contributor to corporate asset values is “intangibles” which is a polite word for monopoly.

An obvious question that arises is: if this is the case, why is the stock market doing so well, holding most of an already high valuation even as the pandemic raises the prospect of a long and deep recession? In one sense, there’s no puzzle at all here. Stocks generally yield higher returns than bonds (this is the “equity premium puzzle” on which I’ve written a lot), but if bonds are paying zero, then investors will be willing to buy stocks with a small (expected) positive return. That implies, for any given expectation of future returns, a higher share price. On this argument, the fact that sharemarket investors have done well in the last ten years or so doesn’t mean that they will do well in the future. Rather, at current stock prices, they will be taking more risk for less return than in the past.

All of this raises more questions about what is going on with corporations. Although corporate profits are increasing at the expense of wages, that masks growing inequality between firms. According to this study from 2017 (abstract over the fold). “Earnings of public firms have become more concentrated – the top 200 firms in profits earn as much as all [other] public firms combined.” Firms are also paying out more in dividends and share buybacks and investing less, implying once again that (at least as regards public markets) the scope for capital investments yielding positive returns has become more limited. I suspect (but haven’t yet got good evidence on this) that a growing share of corporate profits are being captured in privately-held firms (for example, those owned by private equity firms), where there is more scope for various kinds of arbitrage and rent-extraction.

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Intangibles = Monopoly

by John Quiggin on August 11, 2020

In a recent post, I pointed out that long-term (30 year) real interest rates on safe (AAA) bonds had fallen to zero, and suggested that this meant the end of capitalism, at least in the sense that the term was understood in classical economics. On the other hand, stock markets have been doing very well. So what is going on? This is a complicated story and I’m still working it out,
An important starting point is the fact that the most profitable companies, particularly tech companies, don’t have all that much in the way of capital assets compared to their market value. What they have is monopoly power, which has been increasing steadily over time. That benefits those who already own and control these firms, but it does not provide new investment opportunities.


I’ll start by looking at price-to-book ratios. Alphabet, which owns Google has a market value five times the book value of its assets https://www.macrotrends.net/stocks/charts/GOOG/alphabet/price-book The ratio is 15 for Microsoft and 21 for Apple. By contrast, for General Motors, the classic 20th century corporation, it’s just under 1.


For the corporate sector as a whole, the comparable measure is Tobin’s q ratio, which has been trending upwards since the late 1970s and is now near the all-time high reached during the dotcom bubble.

The value of companies like Apple, Google and Microsoft is made up primarily of “intangibles”. That term can cover all sorts of things, and is often taken to refer to some special aspect of the firm in question, such as accumulated R&D, tacit knowledge or ‘goodwill’ associated with brands.
R&D is at most a small part of the story. The leading tech companies spend $10 – 20 billion a year each on R&D https://spendmenot.com/top-rd-spenders/, a tiny fraction of market valuations of $1 trillion or more. And feelings towards most of these companies are the opposite of goodwill – more like resentful dependence in most cases.


A simpler explanation is that the main intangible asset held by these companies is monopoly power, arising from network effects, intellectual property, control over natural resources and good old-fashioned predatory conduct.


In this context, the crucial point about intangibles isn’t that they aren’t physical, it’s that they can’t be reproduced by anyone else. No one can sell a Windows or Apple operating system, even if they were willing to invest the effort required to reverse-engineer it. While there are competitors for the Google’s search engine (I recommend DuckDuckGo), there are huge barriers to entry, notably including the fact that the product is ‘free’ or rather supported by advertising for which all consumers pay whether they use Google or not.


There’s a complicated relationship here between the rise of monopoly and the development of the information economy in which the top tech firms operate. Information is the ultimate ‘non-rival’ good. Once generated by one person it can be shared with anyone else without diminishing in value. As the cost of communication has fallen, it’s become possible for everyone in the world to gain access to new information at essentially zero cost.
What this means is that there is very little relationship between the value of information and the ability of corporations to capture value from it. The protocols and languages that make the Internet possible are a public good, created by collaborative effort and made freely available. The information on the Internet is generated by households, business and governments using these protocols. Without these public goods, Google would be worthless. But because advertising can be attached to search results, ownership of a search engine is immensely profitable.


In turn, this means that traditional ideas about capital and investment are largely irrelevant in the information economy. More on this soon, I hope.

Open thread

by John Quiggin on August 10, 2020

With everything going on, we at CT haven’t managed any posts for a few days, so I’m opening a thread for comments on any topic. I’ll try to get comments out of moderation reasonably promptly, but bear in mind that I’m in Australia, near the opposite time of day to most readers.

Why a Job Guarantee will require higher taxation

by John Quiggin on August 1, 2020

Ever since I wrote Work for All with Australian MP John Langmore back in 1994, I’ve been pushing the idea that a path to full employment requires an expansion of publicly provided services. For about the same length of time, Bill Mitchell (also an Australian economostO has been putting forward similar (but not identical) proposals. At some point in this process, Bill became one of the advocates of what’s called Modern Monetary Theory, which makes the point that taxes don’t (directly) “fund” public expenditure. Rather, they ensure that the total demand for goods and services (for consumption and investment) don’t exceed the productive capacity of the economy, thereby generating inflation.

This reframing raises the question: does a Job Guarantee require higher taxation? The answer, using MMT reasoning, is “Almost certainly, yes”.

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The end of interest

by John Quiggin on July 26, 2020

Although my book-in-progress is called The Economic Consequences of the Pandemic, a lot of it will deal with changes that were already underway, and have only been accelerated by the pandemic. This was also true of Keynes’ Economic Consequences of the Peace. The economic order destroyed by the Great War was already breaking down, as was discussed for example, in Dangerfield’s Strange Death of Liberal England.

Amid all the strange, alarming and exciting things that have happened lately, the fact that real long-term (30-year) interest rates have fallen below zero has been largely overlooked. Yet this is the end of capitalism, at least as it has traditionally been understood. Interest is the pure form of return to capital, excluding any return to monopoly power, corporate control, managerial skills or compensation for risk.

If there is no real return to capital, then then there is no capitalism. In case it isn’t obvious, I’ll make the point in subsequent posts that there is no reason to expect the system that replaces capitalism (I’ll call it plutocracy for the moment) to be an improvement.

But first let’s look at the real 30-year bond rate. The US Treasury is currently offering an inflation-protected 30 year bond at a rate of -0.3 per cent. That is, if you buy the bond at say, age 35, you can get your money back, less a 10 per cent reduction in real value, when you are 65. This rate has fallen from 2 per cent, when the bond was introduced in 2010, and started declining sharply in late 2018, before the pandemic, and while the Federal funds rate was rising.

In thinking about the future of the economic system, interest rates on 30-year bonds are much more significant than the ‘cash’ rates set by central banks, such as the Federal Funds rate, which have been at or near zero ever since the GFC, or the short-term market rates they influence. These rates aren’t critical in evaluating long-term investments.

The central idea of capitalism is, as the name implies, that of capital. Capital is accumulated through saving, then invested in machines, buildings and other capital assets to be used by workers in producing goods and services. Part of the value of those goods and services is paid out as wages, and the rest is returned to capital, as interest on loans and bonds or as profits for shareholders. Some of the return to capital is saved and reinvested, allowing growth to continue indefinitely. Workers, on this account, can become capitalists too, by saving and investing some of their wages. At a minimum, they should be able to save enough, while working, to finance a decent standard of living in retirement.

But what happens if there is no return to capital? The collapse of interest rates on government means that’s already true for anyone who wants a secure investment. And the situation isn’t any different for the two remaining AAA-rated corporate borrowers, Microsoft and Johnson and Johnson. Microsoft is currently offering a rate of 2.5 per cent on 30-year bonds, and has exchanged lots of outstanding debt for new bonds at that rate (paying a 40 per cent premium for higher-interest bonds). That’s a real return of 0.5 per cent if you assume that the Fed sticks to its current 2 per cent target and hits it on average. (There’s a lot more room for inflation to surprise on the upside, in my view). If you allow a 15 per cent risk that Microsoft will go bankrupt some time before 2050, the expected real return falls to zero.

To complete the picture of returns to capital, we need to look at stock markets and corporate profits. That’ll be the subject of another post.

The Republican phase transition

by John Quiggin on July 20, 2020

I’ve been reading the latest (excellent as usual) book from Jacob Hacker and Paul Pierson, Let Them Eat Tweets: How the Right Rules in an Age of Extreme Inequality . The opening paras read

This is not a book about Donald Trump. Instead it is about an immense shift that preceded Trump’s rise, has profoundly shaped his political party and its priorities, and poses a threat to our democracy that is certain to outlast his presidency. That shift is the rise of plutocracy – government of, by, and for the rich

This passage reflects the conflict between two propositions that I (and lots of others, I think) have been grappling with
(1) The rise of Donald Trump represents a radical transformation of the Republican party and American conservatism
(2) Everything Trump has done is a continuation of long-established Republican policy and practices.

Here at CT, Corey has argued for a long time that (2) is correct, and that conservatives or, more properly, reactionaries have always been about preserving hierarchy and power. I find Corey’s argument convincing, but not enough to persuade me that (1) is wrong. Hacker and Pierson also broadly endorse (2). But much of their book is a comparison of the trajectory of the Republican Party with that of the German nationalists in the dying days of the Weimar Republic. The fact that such a comparison, until recently regarded as an automatic disqualification from serious argument (Godwin’s law) now seems entirely plausible, suggests that something really has changed.

In trying to find a way to understand this, I was struck by the idea that the concept of a phase transition (such as from liquid to gas, or dissolved solid to crystal) in physics and chemistry might be a useful metaphor. I didn’t get past high-school in science, so I may well use the metaphor inaccurately – I’m sure commenters will feel free to set me straight.

To develop the metaphor, think of the Eisenhower-era Republican party as a complicated mixture of many dissolved ingredients, in which the dominant element was the business establishment, and the Trump era party, as described by Hacker and Pierson as a crystallised mass of plutocratic economics, racism and all-round craziness. The development over the 60 years between the two has consisted of keeping the mixture simmering, while adding more and more appeals to racial animus and magical thinking (supply-side economics, climate denial, the Iraq war and so on). In this process various elements of the original mix have boiled off or precipitated out and discarded as dregs. Stretching the metaphor a bit, I’m thinking of boiling off as the process by which various groups (Blacks and Northeastern liberal Republicans in C20, liberaltarians more recently) have left the Republican coalition in response to its racism and know-nothingism. The dregs that have precipitated out are ideas that were supposed to be important to Republicans (free trade, scientific truth, classical liberalism, moral character and so on) that turned out not to matter at all.

Trump’s arrival is the catalyst seed crystal that produces the phase change. The final product of the reaction emerges in its crystallised form, and the remaining elements of the mixture are discarded.

As with most really neat sayings, the original (with billions, instead of trillions) is misattributed, in this case to the late Senator Everett Dirksen, a conservative Republican who nonetheless helped to write the 1964 Civil Rights Act. The saying can be traced back to an unsigned New York Times article in 1938, which said ““Well, now, about this new budget. It’s a billion here and a billion there, and by and by it begins to mount up into money”. This in turn improved on earlier versions going back at least to 1917
US GDP today (Over $20 trillion) is around 250 times as high, in dollar terms, as it was in 1938, so replacing billions with trillions isn’t much of a stretch.

With that in mind, what should we think about the $2.4 trillion pandemic relief package, and the likelihood of huge demands for public expenditure stretching well into the future? And how much of this analysis is applicable to the world as a whole, where large scale government responses have been the norm rather than the exception.
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The General Theory and the Special Theories

by John Quiggin on July 9, 2020

The title of my book-in-progress, The Economic Consequences of the Pandemic is obviously meant as an allusion to Keynes’ The Economic Consequences of the Peace, and one of the central messages will be the need to resist austerity policies of the kind Keynes criticised in his major work, The General Theory of Employment Interest and Money. That title, in turn was an allusion to Einstein*, and the Special and General theories of Relativity.
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