talkin john henry blues

by russell

Not the baseball / megabucks John Henry, whose boat is always tied up at Long Wharf in Boston.  The steel-driving-man John Henry.  Beat the steam drill, once, and then he died.  Henry's story is the ultimate American myth of the laborer vs the machine.

Or, if you like, the laborer vs the inexorably more productive capital asset.

I was doing some reading about employee-owned corporations, and stumbled across Louis Kelso, the guy who "invented" the ESOP, a popular legal device for structuring employee-owned corporations.  Kelso was also a kind of political economy auto-didact, a prolific writer, and a guy who felt very strongly that he had stumbled across A Very Big Idea:

This missing fact, which Kelso had uncovered over years of intensive reading, research and thought, drastically modifies the classical paradigm that has dominated formal economics since Adam Smith. It concerns the effect of technological change on the distributive dynamics of a private property, free market economy. Technological change, Kelso concluded, makes tools, machines, structures and processes ever more productive while leaving human productiveness largely unchanged. The result is that primary distribution through the free market economy, whose distributive principle is “to each according to his production,” delivers progressively more market-sourced income to capital owners and progressively less to workers who make their contribution through labor.

Differential productiveness over time concentrates market-sourced income in the hands of those who will not recycle it back through the market as payment for consumer goods and services. They already have most of what they want and need so they invest their excess in new productive power. This is the source of the distributional bottleneck that makes the private property, market economy ever more dysfunctional. The symptoms of dysfunction are capital concentration and inadequate consumer demand, the effects of which translate into poverty and economic insecurity for the majority of people who depend entirely on wage income and cannot survive more than a week or two without a paycheck.

Or, in Cliff Notes form:

1. Technology makes capital more productive than labor
2. The fruits of that productivity flow back to the owner of the capital asset, in amounts proportionately greater than those that flow to labor
3. Over time, this results in a concentration of more and more wealth in fewer and fewer hands
4. Concentration of wealth starves demand, because there's only so much one person can buy

Net/net: FUBAR.  Economic death spiral.

Government responds by futzing around the edges as best it can via redistributive schemes, labor responds by forming unions and extorting higher wages than the market would otherwise bear, but nobody's really all that happy.

Kelso's innovation, if in fact it is one, was in seeing capital assets as direct producers of value, rather than simply helpful things that make labor more productive.  In other words, capital is a direct input to production - in many cases, capital assets do the work.

This point was driven home to me later that day, when I watched someone "compose" a church bulletin using a computer and word processing software.  The content was typed in by a human, every other aspect of the production of the bulletin was automated.

My first reaction in thinking about all of this was, what an interesting analysis.  My second reaction was, we are freaking screwed.

Because capital, in whatever form you care to ponder, is largely held by a very small minority of people in this country.

This is a structural problem, and it's only going to get worse.  The wealthy are going to get increasingly wealthy.  People who live by a wage income are going to live increasingly precarious and insecure lives.

Kelso's solution was to democratize the ownership of capital, which is what led him to devise the ESOP and lobby to have it included as one of the options under ERISA.  And, there are something like 10,000 companies in this country now that have some form of employee ownership.  And, that excludes companies that offer stock options or bonuses, which are a different kettle of fish.

So, that's good.  But I'm not sure it's enough.  So far, it has not been.

Liberal folks who think that we can sort things out by expanding the scope of the welfare state a la Europe need to consider if that's sustainable in an economy where 1% of the people hold over 40% of the wealth.  For those keeping score at home, that's a GINI coefficient greater than 0.9.

Conservative folks who see a strong, traditional connection between political freedom and property rights need to consider what concrete, real-world, hands-on meaning the word "liberty" has in that same economy.

Comments

[cleek]

nice post.

russell is not ruining ObWi.

[Nell]

Great post, greater title.

[Gary Farber]

As I linked here, russell, a grenade from Chris Hedges, to consider and argue about.

russell is not ruining ObWi.

[Gary Farber]

Whoops, screwed the second link, which should have gone to this. Sorry!

[Tony P.]

In other words, capital is a direct input to production - in many cases, capital assets do the work.

So far, capital still needs people to serve as consumers. This regrettable situation can only be resolved by the invention of shopping robots.

When that glad day comes -- when capital can consume all its own output and keep ALL the proceeds for itself -- we shall at last be able to dispense with this unseemly class warfare.

--TP

[Joshua]

Oh, Hell. "General" Ludd was right.

[Hogan]

It happens to machines, too.

[RogueDem]

But at least the steam shovel got a decent retirement.

[hairshirthedonist]

Gary's second/third link is well worth the read, at least for those of you who enjoy the urge to jump out the nearest window as much as I do. God, we're screwed. Vancouver...

[Countme?]

I live in a ninth floor apartment, so I bookmarked Gary's second link to read when I'm visiting my son in Vancouver, who lives on the ground floor.

[Jacob Davies]

I'm not convinced that in the longer run the technological determinism you're talking about has predominated. New technologies appear, are initially restricted to the rich, become more widely distributed as production becomes cheaper and more automated, and eventually become universal. The number of people involved in new industries grows and shrinks through that process as production expands and then becomes more automated, but there's no shortage of useful things for people to do.

I see the problem in the US in particular as being the failure of oversight through the capture of government and regulatory bodies with bribes (AKA "campaign contributions"), revolving-door arrangements, control of the media, and elite clubbiness. That failure of oversight lets monopolies thrive, allows business to do great harms to the people without allowing them redress, prevents them from arranging for public alternatives when the private sector fails (e.g. healthcare), and suppresses public investment that would pay off handsomely but wouldn't make existing rich people richer.

As such it doesn't have much to do with technology. In fact, it tends to suppress new technologies because of the danger that they will interfere with existing monopolies. It's kind of amazing that the Internet managed to escape suppression given the way it has dissolved existing business models all over the place.

Though I agree with the remedy being talked about - employee-owned businesses are a great way to bring the profits of capital directly to workers, and are a much more effective mechanism than the preferred (supposed) alternative, which is widespread stock ownership. I think stock ownership is actively harmful because it encourages a mistaken identification of interest with big business among ordinary workers.

[Gary Farber]

Stock ownership might be a vastly better idea if companies weren't forced to incentivize quarterly profit over long-term growth and policy.

[Carleton Wu]

The wealthy are going to get increasingly wealthy. People who live by a wage income are going to live increasingly precarious and insecure lives.

I think that's a special function of America- really, as more and more capital accumulates and tehcnology improves things, we ought to see:
1)more money spent on non-essentials (and, if you will, new things being added to the "essentials" category), creating broader demand
2)a rising tide for the lower middle class, as the same basket of goods mostly gets cheaper while their wage at worst stagnates
3)and, of course, there is rising inequality as well, which makes people feel poorer

Because there's nothing in economic development that should make poor people *actually* poorer, just relatively poorer. Or more insecure. [nb there is something in globalization that can lead to an absolute reduction in wages, though in the long run this should be balanced by an even greater drop in the cost of goods].

But in the US, I get the sense that there's an active movement afoot among the haves to not just have more, but to make sure that the have-nots are getting screwed as hard as possible to exacerbate the difference. In Europe, the haves are satisfied merely having much more- but then, in Europe we see the tendency of the poor to flip things over when they get denied things that they consider essential.

As a worldwide, long-term phenomenon I don't see this: there have been periods of rising inequality and periods of falling inequality since, say, the Industrial Revolution. If this theory were true, then Id expect to see inequality rising more or less constantly.

[Carleton Wu]

The steel-driving-man John Henry. Beat the steam drill, once, and then he died.

Off-topic, but I was listening to Elvis Presley Blues by Gillian Welch when I heard that Andy Olmsted had died, and since then Ive associated him with the mention of John Henry in that song. Whether or not this mission was a good one, my participation in it was an affirmation of something I consider quite necessary to society. So if nothing else, I gave my life for a pretty important principle...
Something in that is like
Thinking how happy John Henry was that he fell down and died
When he shook it and it rang like silver
He shook it and it shined like gold
He shook it and he beat that steam drill, baby
Well bless my soul, well bless my soul
He shook it and he beat that steam drill, baby
Well bless my soul, what's wrong with me?

[hairshirthedonist]

As a worldwide, long-term phenomenon I don't see this: there have been periods of rising inequality and periods of falling inequality since, say, the Industrial Revolution. If this theory were true, then Id expect to see inequality rising more or less constantly.

But aren't we considering the direction of one force, one that acts with varying magnitude among many other forces acting in many directions and varying magnitudes? I mean, balls bounce and planes fly, without the law of gravity being violated.

[Rob in CT]

Inheritance tax. A real one.

[Carleton Wu]

But aren't we considering the direction of one force, one that acts with varying magnitude among many other forces acting in many directions and varying magnitudes? I mean, balls bounce and planes fly, without the law of gravity being violated.

Good point; russell's we are freaking screwed suggests that this trend will or has been driving the relationship, but as a more general proposition it's interesting. Tough to tease out from the other forces acting on the situation though. And if this is balanced by other forces, then we never get to the "falling consumer demand" part of the equation, so everything is actually Ok.
And I do find the underlying proposition to be questionable still: in most cases capital doesn't do work, it merely adds productivity to labor's effort. Even the widget-making robot needs constant maintenance (as well as fabrication). If the theory were true we should see a shrinking middle class, right? I don't think we see that yet. We see a middle class under pressure from 1)an actual, short-term crisis and 2)a trend towards economic inequality that's lasted a few decades- both of which exist inside of a long-term trend toward economic equality (long-term = centuries) under the influence of rising technology and capital investment.

[hairshirthedonist]

And if this is balanced by other forces, then we never get to the "falling consumer demand" part of the equation, so everything is actually Ok.

Maybe it gets us back to this:

But in the US, I get the sense that there's an active movement afoot among the haves to not just have more, but to make sure that the have-nots are getting screwed as hard as possible to exacerbate the difference. In Europe, the haves are satisfied merely having much more- but then, in Europe we see the tendency of the poor to flip things over when they get denied things that they consider essential.

Maybe we just aren't continuing to do the things that have tended keep the force in check.

I don't know if I buy the idea that the haves are trying to screw the have-nots per se. I think they want to get theirs, as much as they can, without regard to the have-nots. If they thought they could get richer by enriching the have-nots, I think they'd do that. I happen to think that that is the best thing for the haves in the long run were they to consider their children's children's children (however many iterations you think apply), but I don't think that the haves see it that way (being grossly general about all of this, of course).

[Hogan]

I don't know if I buy the idea that the haves are trying to screw the have-nots per se.

From an old Ted Rall cartoon (quoted from memory):

"I read today that the bottom twenty percent of people in this country have only four percent of the wealth."

"Wow."

"Somebody should do something."

"Yeah. I want that four percent."

[russell]

I'm not convinced that in the longer run the technological determinism you're talking about has predominated. New technologies appear, are initially restricted to the rich, become more widely distributed as production becomes cheaper and more automated, and eventually become universal. The number of people involved in new industries grows and shrinks through that process as production expands and then becomes more automated, but there's no shortage of useful things for people to do.

It's not a matter of technological advances in consumer goods, but in producer goods -- things that are used to create other goods or services.

There are lots of useful things for people to do, the question is the relative value of goods and services rendered by human labor vs by capital goods - machinery, software, etc.

As a worldwide, long-term phenomenon I don't see this: there have been periods of rising inequality and periods of falling inequality since, say, the Industrial Revolution. If this theory were true, then Id expect to see inequality rising more or less constantly.

Here is a graph of the percentage of pretax income earned by the top 1% in the US since 1917.

There *is* a fluctuation, but it's fairly closely correlated with, among other things, the prevalence of public policies intended specifically to mitigate the tendency of wealth to accumulate to capital ownership.

This is just the US, I don't know what the rest of the world is like.

The increase in inequality in wealth and income is uniquely strong in the US as compared to other wealthy nations.

We see a middle class under pressure from 1)an actual, short-term crisis and 2)a trend towards economic inequality that's lasted a few decades- both of which exist inside of a long-term trend toward economic equality (long-term = centuries) under the influence of rising technology and capital investment.

I see an overall increase in quality of life as measured in convenience and availability of consumer goods, across almost all economic strata, in developed nations, in the last 100 years.

I'm not sure I see a worldwide, or even first-world, or even US-specific, centuries-long trend toward greater equality of either income or wealth.

Can you explain this a bit more?

[Tony P.]

Because there's nothing in economic development that should make poor people *actually* poorer, just relatively poorer.

RELATIVE poverty matters. It matters a lot. Maybe it only matters psychologically, but for human beings psychology is the whole ball game.
As Moe Sizlak once said to Homer Simpson: "The rich ain't no happier than you and me, Homer. From the day they're born until the day they die, they only feel happier."

In terms of what we might call creature comforts, the median American today lives quite lavishly compared to even the wealthiest Americans of a century ago. If ABSOLUTE wealth were all he cared about, the median American today would be ecstatic over his own prosperity. Yet that does not seem to be the median feeling in the nation at the moment.

We all (the rich, as well as the poor) measure our well-being in relative terms. Not relative to people at other times or in other places, but relative to our contemporaries and our neighbors. Always have, always will.

There was a time when nobody, no matter how rich, could afford a cellphone or a hip replacement. Then economic development made those things available. In principle, such things could have become available ONLY to multimillionaires. In absolute terms, the rest of us would not have been made worse off by that. Only in relative terms would we feel worse off for having to limp to a landline. Call it irrational jealousy if you like, but there's no denying that it matters.

--TP

[bc]

Since we're talking about church bulletin's I thought we should all listen to this as I hear a lot of russell's plaintive post in the Boss' wail (doing justice to John Henry). Starts about 0:50.

[bc]

I mean bulletins. No possessive intended. No secret messages implied.

[Nate]

The simple answer is to spread around the benefits of the work of the machines among everyone, not just the owners of capital.

I look forward to the robo-socialist party.

[Marty]

"We all (the rich, as well as the poor) measure our well-being in relative terms. Not relative to people at other times or in other places, but relative to our contemporaries and our neighbors. Always have, always will."

I don't agree with this entirely. I believe people, in general, measure their well being most often in relative terms to what they have known growing up. Although I do know many people who have "kept up with the Jones" they are actually a minority and mostly the upper middle class striving for "position" rather than wealth.

Yes, we dream and aspire to better, but my family is an incredibly blessed and happy family (our view) although my family is working class to middle class. We are all better off than our parents were, our kids have more than we had.

Perhaps even the measure is changed by where you begin in life, I guess.

[Carleton Wu]

I don't know if I buy the idea that the haves are trying to screw the have-nots per se. I think they want to get theirs, as much as they can, without regard to the have-nots. If they thought they could get richer by enriching the have-nots, I think they'd do that.

On an individual basis, sure. As a group- well, I see a lot of animosity directed towards the poor for being poor. A lot of animosity towards whatever services they are able to get to help themselves when they do have problems. For example, I've seen quite a bit of animosity directed towards mortgage-holders who walk away from their houses- but a business (representing its stockholders) would be considered financially incompetent (and possibly legally liable) if they honored a contract with another business despite an escape clause, from some moral rationale.
Why berate the poor and lower-middle class folks for doing something that any savvy businessman would do in heartbeat?
Another example: the WSJ famously referred to people with incomes low enough to avoid most or all federal income taxes as lucky duckies (although these individuals still pay a big chunk of their income in payroll, sales, property, etc taxes).

Here is a graph of the percentage of pretax income earned by the top 1% in the US since 1917.
There *is* a fluctuation, but it's fairly closely correlated with, among other things, the prevalence of public policies intended specifically to mitigate the tendency of wealth to accumulate to capital ownership.

Thanks for the graph. I could argue that in, a significant number of cases, the US has enacted policies that specifically benefit the higher earners of society (as opposed to merely not countering wealth effects), eg the mortgage deduction, allowing cramdowns on business assets and second homes but not primary mortgages, various business subsidies, protective tariffs, and other handouts to businesses.
But while I see what you're saying here, Im not sure that this can be blamed specifically on technology and increases in productivity (or replacement of labor with technology/capital). I think that the wealthy would seek to maximize their wealth by any means necessary regardless of technological changes- if technological development stopped today, they would still try to institute regressive taxes, roll back spending on education, public health, and infrastructure, etc.
That is, I think the question of who gets what from the pie baked by labor and capital is a political question rather than a technological one. In Europe, they've got one answer. Rand Paul has another answer. Noam Chomsky presumably has yet another.

I see an overall increase in quality of life as measured in convenience and availability of consumer goods, across almost all economic strata, in developed nations, in the last 100 years.
I'm not sure I see a worldwide, or even first-world, or even US-specific, centuries-long trend toward greater equality of either income or wealth.
Can you explain this a bit more?

Ok, I admit, I said that without any particular data in hand. Im thinking that there's a rough rise in income equality from, say, the late Middle Ages up through the Industrial Revolution and into the current day. The middle class has gone from a fringe of society, providing luxury goods, into a lion's share of the society.
And, to expand a bit further- a lot of that was caused by increases in technology. Where 95+% of the people were working in agriculture with little technological help in 1500, by 1800 there are a large number of technology-assisted, high-productive (and high wage) jobs in construction, medicine, manufacturing, shipping etc.

[russell]

Where 95+% of the people were working in agriculture with little technological help in 1500, by 1800 there are a large number of technology-assisted, high-productive (and high wage) jobs in construction, medicine, manufacturing, shipping etc.

The difference I see here is that ca 1500, barring weather disaster or war (not an insignificant caveat) people were generally able to provide for themselves in fairly direct ways. There wasn't a very large mercantile (for lack of a better word) middle class, most people did some kind of direct agricultural or craft labor. But they generally lived in a social context that provided them with some access to the means for making their way. Common land, or some more or less reciprocal relationship to a land owner, some rights to take game or fish, rights to gather firewood, etc.

The wage economy that became so prevalent with the industrial revolution and other capitalistic innovations did not necessarily, and in fact quite often definitely did *not*, provide a better, more secure, or safer livelihood, and replaced what was in many cases a fairly independent livelihood with a dependence on wage labor.

For the first 100 years or so of industrial production in this country, industrial wage labor was quite often brutal.

I think the question of who gets what from the pie baked by labor and capital is a political question rather than a technological one.

I agree with this completely.

The significance of technology here is purely that it (is claimed to) enhance the productivity of capital more than that of labor. That claim is certainly open to question, but IMO it is at least intuitively accurate.

In *our particular political context*, there is a strong tradition that the wealth that is created from a factor of production should flow to whoever owns, or has property in, that factor. We have a *very strong* tradition of private property rights.

Other places, less so, or at least private property rights are balanced more by rights and privileges.

So I agree, a lot of this is driven by our political tradition.

[Gary Farber]

"Only in relative terms would we feel worse off for having to limp to a landline."

It turns out you'd feel worse if you'd broken your cell phone during the week you were packing to move and only then learned that the lightning strike last year had burned out the land lines in the wall that included your room.

Probably. I'm just speculating here.

[Christian Audigier]

wait for students trying that ploy for their homework assignments... now that'll take some work to get off the ground!

[Carleton Wu]

The wage economy that became so prevalent with the industrial revolution and other capitalistic innovations did not necessarily, and in fact quite often definitely did *not*, provide a better, more secure, or safer livelihood..

Well, life down on the farm was not so good when the crops failed- sustinience farmers are often only a bad season or two away from starvation or losing their farms. Back in the middle ages when they didnt even own the farm, starvation was *the* option. Yeah, wage life under the early Industrial Revolution was pretty brutal too, but Im not sure that it was so much worse than serfdom.
But that wasn't really my point there in any case- it was that, from 1500 to 1800, the middle class goes from being a fringe of society to a mainstay of it. I don't have numbers, and I can understand someone wanting numbers to back the claim up- but my sense of society is that, even if the lower classes weren't seeing much improvement, there were people working in trades etc and making a decent living. People who could then educate their children to be lawyers or inventors etc. So technological (and social) development created a more equitable society, even if the owners of capital were (as usual) taking the largest share for themselves (ie using their political clout to slice the pie how they wanted it sliced).
And again, from 1800 to the present, that middle class goes from being a small but significant part of society to being the bulk of society. I don't know what percentage of people in the US would describe themselves as middle class, but I imagine it's pretty high.

The significance of technology here is purely that it (is claimed to) enhance the productivity of capital more than that of labor. That claim is certainly open to question, but IMO it is at least intuitively accurate.

That's where I think we're diverging; give a house framer a nail gun, and he's much more productive. Is that enhancing the productivity of capital or of labor? I think that, absent a few specialized cases, there is almost always a marriage of capital and labor to produce value. Even the robot needs maintenance. Even the busker needs his guitar.
So what technology does is make that marriage more productive, rather than making one or the other part of it more productive. Maybe in specialized cases (eg using microloans to finance small businesss to improve the functioning of capital, or education that improves the effectiveness of an employee) we can say that one or the other has been improved.

What people see sometimes is that productivity, rather than increasing output, merely decreases the number of laborers producting a relatively fixed output. This can happen either because the demand for the good is somewhat inflexible, or because of some other factor limits production (eg amount of arable land or irrigation water available). And that looks like capital using technology to drive labor costs down, and leads people to suspicion of something like Vonnegut's Player Piano (where good production is completely automated and few people have productive jobs). But I don't think that's the story of society over the long haul- as agriculture became more efficient, workers shifted to other jobs. Jobs that frequently didn't exist decades or centuries earlier.
Of course, those things happen over the long run; in the short run, it's easy for a new technology to throw people out of work, and individuals with long experience in that field may never recover economically (very similar to lowering trade barriers). But historically those people or their children have found ways to contribute something to the economy.

[russell]

Is that enhancing the productivity of capital or of labor?

I think the answer to that depends on who owns the nail gun.

The argument here is that the additional wealth created by the nail gun will flow to its owner.

The overall issue here is not people getting thrown out of work by technical innovation. As you note, things evolve, people adapt to the changes and learn to function in the new environment, and in general technology affords us a better quality of life.

The issue is *who owns the technical innovation*, because the value it adds will, in our political and social environment, flow to its owner.

Neither Kelso nor I are arguing for latter-day Luddism. He is (and probably I am) arguing for *broader ownership* of capital means of production.

Because I believe he is correct in noting that the trend over time is that more of the value is created by capital goods, and less by human labor.

[russell]

from 1500 to 1800, the middle class goes from being a fringe of society to a mainstay of it.

Also, I generally agree with this, with the caveat that even in 1800 what most folks in this country did was farming. But you could be both middle class and an independent farmer.

The question is how increasing concentrations of wealth and income will affect what it means to be "middle class".

[Carleton Wu]

The argument here is that the additional wealth created by the nail gun will flow to its owner.

This is actually a good example for the counterargument I think, because a nail gun is pretty cheap compared to the cost of framing a house. Let's just say that, for these purposes, nail guns make framers twice as fast.
So, this construction company wants to hire some framers. It offers 40$/hr for guys who have a gun and compressor, and 20$/hour for the guys for whom they must provide a compressor. $1600/wk versus $800/wk.
A gun and compressor costs a few hundred dollars. Let's say $400 bucks. So anyone without a gun but with a credit card, friend or relative with $400, or even something they can pawn for a few days, will go buy a gun. No one will show up the first day without a gun. Or, if they do, that's the first thing they'll buy with their week's salary.
But this arrangement can be something of a pain in the ass. Everyone has their own compressor rather than one big one. When it or their gun breaks, they need to run off to get it fixed. Everyone is (hypothetically, anyway) using a different model that requires different nails. Guys have to haul their gun and compressor to and from work. The company may be liable if one person's malfunctioning equipment hurts someone else, or suffer delays if faulty equipment eg starts a fire.

It's much easier for everyone if the company provides the nail guns (and a spare) and a big compressor or two. And since the cost is negligible compared to the cost of labor, it shouldn't really matter where they come from. Now, there are times in the trades where having the equipment belong to the worker makes sense, but usually because of maintenance or specialization rather than capital investment.
[Although it's fair to point out that there are exceptions eg truck drivers who own their own very expensive rigs get paid much more- but there I think this is dictated by the capital and maintenance cost of the rig itself as opposed to being a measure of how much productivity it adds to the relationship- which here is kind of nonsensical, since truckers are not productive at all without trucks to drive].

Point being, a nail gun is a tiny capital investment that vastly increases worker productivity, and the subsequent gains aren't going to the owner of the gun because owning a gun is relatively trivial for either party. Now, the day nail guns were invented framers didn't start making double the pay- but that's not because GCs took all of the profits and pocketed them. It wouldn't make sense to start paying them double even though they work twice as fast, since everyone would want that job and there'd be no plumbers etc; that is job income is based on competing for workers in the short term, and only by worker productivity in the long term or large scale. The pie got a little bit bigger, and then the choice of how to split that pie, that still stays at the sociopolitical level. This contractor can now make houses, let's say 2% cheaper than before. Some of that will end up in his pocket. Some of that may end up as increased wages for workers. Some of it gets passed on to the homebuyer. During a recession with pressure on employees to keep their jobs and pressure on the contractor to keep sales up, maybe most of that gets to the consumer. In good times when the economy is hot, maybe most it stays with the crew and the GC.

Neither Kelso nor I are arguing for latter-day Luddism. He is (and probably I am) arguing for *broader ownership* of capital means of production.

I think that that would be totally great, btw. Most of us know someone who has run their own business at some point, and being invested in your own workplace not only improves quality of work, it's also very satisfying.

[russell]

Now, the day nail guns were invented framers didn't start making double the pay

That is correct.

The pie got a little bit bigger, and then the choice of how to split that pie, that still stays at the sociopolitical level. This contractor can now make houses, let's say 2% cheaper than before. Some of that will end up in his pocket. Some of that may end up as increased wages for workers. Some of it gets passed on to the homebuyer.

In real life, I would say that some might go to the homebuyer in either lower price or more house for the same price, and some will go to the GC.

In general, I would say little or none of the larger pie generated by the invention of the nail gun will go to the framer.

If there were special skills required to operate a nail gun, such that framers who could use a nail gun were relatively scarce, different story.

But just nail gun vs framing hammer, no increase in wage for the framer.

What's actually more likely IRL is that, for the same wage, GCs will begin to expect or demand that framers own their own nail gun, as a condition of employment.

All of this is in fact a sociopolitically driven decision. In our social and political tradition, whoever owns a factor of production gets the wealth created by that factor of production. The rights of private property hold a very high place here.

You are correct to say that the line between labor contribution and capital contribution is rarely cut and dry, and it's not a dollar-for-dollar thing, but as a trend or strong tendency, I think the point holds.

[chmood]

Russell -

Thank you for the introduction to Kelso & his ideas: he/you/it has provided the missing link for my ongoing discussions about what's broken / how it's broken / how to fix it in our intentionally inequitable economic system. Can't actually thank you enough.

Odd that the comments seem to be all about the extent to which capital may perform productive work: capitalism as we've had it all along has ALWAYS preferentially prioritized capital above labor at every opportunity. Not really surprising, considering that the initial audience for Adam Smith were the landed nobility, who were searching for smart new ways to spin gold out of their own socio-political position; what IS surprising, though (to me), is the extent to which that essential preference for the wealthy and powerful goes unquestioned.

Even here, in what is at least philosophically a hive of liberal ideals. Very odd.

[Slartibartfast]

In general, I would say little or none of the larger pie generated by the invention of the nail gun will go to the framer.

It depends on what "pie" you're talking about. If you're talking about revenues from nailgun sales: probably little to none. If you're talking about e.g. performance bonus for having completed more units in less time, I'd want to see the data. I wouldn't be at all surprised to find that nailguns depressed piece-rate bonuses to the point where a given worker would get the same bonus in a given week once nailguns were introduced as he/she did before.

Once everyone gets nailguns, I'd expect price competition to remove a lot of the excess profit.

Overall, though, you're probably right. It doesn't really take much skill to use a nailgun, so the premium attached to labor will probably not go up just because the guy happens to use a nailgun part of the time.

Not being an economist, and only having dim recollection of macroeconomics classes from roughly three decades ago, I'd say that an employee's worth is largely dictated by whether people are willing and ready to do the same job, with the same odds of success and with the same productivity, for less money. Productivity aids make an employee more productive, all right, but they also make that employee's competition as much more productive.

Whether you think that is just or not is another matter altogether.

[Carleton Wu]

In general, I would say little or none of the larger pie generated by the invention of the nail gun will go to the framer.

Well, in this case since it doesn't require any specialized skill, any part of the pie that goes to the laborer will be spread across the entire labor pool, so it'd be hard to see or quantify among other economic noise. In a general sense, we have seen wages rise in the US as productivity rises- a construction worker today makes a great deal more in real dollars then in 1910 or 1950.
If that is not because of productivity rises in the economy being transmitted to the worker- and directly, not indirectly via redistributive effects- then you need to come up with some other explanation for that rise.

What's actually more likely IRL is that, for the same wage, GCs will begin to expect or demand that framers own their own nail gun, as a condition of employment.
All of this is in fact a sociopolitically driven decision. In our social and political tradition, whoever owns a factor of production gets the wealth created by that factor of production.

Here though I think this contradicts your thesis: if the framer owns the nail gun, he is the owner of that "factor of production". Yet I think that ownership here of the nail gun is immaterial in deciding how the pie is divided. It's not that ownership of the nail gun determines who gets the additional money from the productivity gain. That is still based on the productive relationship between the employer and employee.

[hairshirthedonist]

I think the focus on the specific case of the nail gun is getting in the way. A nail gun is a tool that has increased productivity, but it's not the sort of capital good that I think is relevant here. I'm thinking the kinds of things that are more relevant are cranes, large conveyor systems, big-ass servers, industrial-sized hydraulic presses, MVA-sized electric motors - big sh1t that Joe Six Pack can't run to Lowe's and buy.

[russell]

In a general sense, we have seen wages rise in the US as productivity rises

My understanding is that this has not been true for at least 35 years. Cites are available if you need to see them.

It's not that ownership of the nail gun determines who gets the additional money from the productivity gain.

If so, it's because a nail gun isn't a particularly expensive piece of gear.

Framers don't get more pay for owning a framing hammer, or a speed square, or a Skillsaw. It's just assumed that they own those things, otherwise they should probably not bother showing up on site.

If for "nail gun" you substitute "cement mixer", or "Bob Cat", or "crane", different story.

[Marty]

I would point out that the nail gun also expanded the number of people actually capable of framing houses substantially. I am much more capable of helping my friends frame an addition with the use of a nail gun than I was with a hammer.

While we tend to think of technology leveling the playing field for jobs, it also expands the number of people capable of competing for those jobs.

[hairshirthedonist]

While we tend to think of technology leveling the playing field for jobs, it also expands the number of people capable of competing for those jobs.

Sometimes and sometimes not, if you're talking about jobs the predate the technology. Sometimes technology requires greater expertise rather than less. I'd say being an auto mechanic requires far more technical knowledge than it did in the past, such that, all other things being equal, fewer people can compete for a position as an auto mechanic.

And sometimes technology creates jobs that simply didn't exist before the technology came about. I suppose you could say that more people can compete for those newly created jobs, since no one could compete for those jobs when they didn't exist, but that's not quite the same thing as reducing the skill required to drive nails.

[Marty]

hsh,
yes both things happen. But many of the technological advances that have impacted the middle class have expanded the competition for those jobs. It is true that you need more technical skills to use computer diagnostics on a car, but you need less understanding of how a car works to come to the right diagnosis. IOW, you don't need nearly the experience to be good at fixing cars as you did years ago, the tools make up for that knowledge.

[Countme?]

Marty:

"I am much more capable of helping my friends frame an addition with a nail gun than I was with a hammer."

So am I. Did you get health benefits with that?

Now if we could convert all paying work into non-paying volunteer work, we could reach maximum productivity -- doing more -- for nothing.

The nail gun discussion is interesting.

How about the automated telephone tree (online applications are of the same species) for productivity? You know, where you (a real person who could use a job) spend unproductive time, say, applying for or seeking answers to questions about unemployment compensation (any example would do: applying for jobs with private companies online is fun too) via an endless list of Press 0 options, but there is no real employed person who can supply an answer, because real employed people might demand wages to do so.

How about if you hire me to answer the effing phone, thereby obviating the need to pay me unemployment benefits and maybe lowering the unemployment rate, or in the case of a private company, how about if you hire me, which would obviate the need for your company to spend all of that campaign contribution money recruiting candidates for office who believe paying unemployment benefits will somehow disincentivize me to seek employment with your company, which has no intention of hiring me to answer the phones or anything else, because THAT wouldn't be productive.

I love economics discussions. When I hear economists talk the "on the one hand, but on the other hand" talk, I wanna nail gun both of their hands to a board and ask them to make up their effing minds.

[AreaMan]

Reminds me of the analysis and website that goes under the title of 'The Singularity' -- a point in the future when the combination of advances in technology accelerates change, and accelerates the rate of change, so much, the world becomes even radically more different. Possibly unmanageable.

My own view on the labor/machine question is that people and organizations are very complex. Ditch digging isn't done by teams of men with shovels, but by machine, in most situations in industrial societies. The people who would have become manual workers are now bloggers, computer experts, and aroma-therapists.

The concentration of wealth doesn't have to constipate the economy; if the workers can't buy enough to consume, profits fall. They can't and it has. But this can be temporary.

[Hogan]

I would point out that the nail gun also expanded the number of people actually capable of framing houses substantially.

At which point we should step back and look at the difference between jobs and work. Jobs are socially prescribed ways of organizing and performing certain kinds of work, but they don't exhaust that category.

Nail guns mean fewer framing jobs because each paid framer is more productive. They also mean fewer framing jobs because framing can now be done by people for whom it isn't a job. DIY is work, just like every other type of domestic work; but it's not usually a job. Automation often reduces the overall number of jobs; but it also changes the nature of many still existing jobs, so that they consist of a different kind of work.

One of the necessary functions of an economy (and one at which ours isn't doing very well right now) is deploying jobs so that socially necessary work is being done.

(And on the micro level, Bobcat Goldthwait: "I lost my job last week. Well, I didn't really lose it. I know where it is. But every time I go there, there's this other guy doing it.")

[hairshirthedonist]

IOW, you don't need nearly the experience to be good at fixing cars as you did years ago, the tools make up for that knowledge.

I see what you mean, but it's a question of whether or not that expands or reduces the number of qualified auto mechanics. It's definitely a shift in the required skill set.

One effect of advanced automotive technology is that far fewer people can work on their own cars than could a few decades ago, so fewer people bother to try. So there's a loss of traditional skill/knowledge on both the professional and DIY sides, but increased specialization on the professional side. It's very different from the nail-gun scenario.

[Jacob Davies]

Hogan: One of the necessary functions of an economy... is deploying jobs so that socially necessary work is being done.

No kidding.

12.4% unemployment in California, and I walk to work past the brand-new office towers of banks and hedge funds downtown that are clearly flush with cash, but the roads in anywhere but the richest neighborhoods in Oakland are full of potholes, and schools are being shut down and teachers laid off in my town for lack of funds, and the cops don't even come out for burglary calls in Oakland anymore.

But hey, those bankers have their Porsches, so everything's cool.

[Marty]

"Reminds me of the analysis and website that goes under the title of 'The Singularity' -- a point in the future when the combination of advances in technology accelerates change, and accelerates the rate of change, so much, the world becomes even radically more different. Possibly unmanageable."

or this view of the Singularity

[russell]

Apropos of AreaMan's comment and Marty's comic, the point here is not that technology makes human labor utterly obsolete.

The point is that technology, by disproportionately increasing the productivity of capital as compared to labor, abets an increasing concentration of wealth.

Assuming, of course, that capital ownership is not broadly distributed to begin with.

GINI coefficient for wealth (not income) distribution in the US as of 2007 was over 0.9. Where a GINI coefficient of 1.0 means that one person, or at least one household, owns every damned thing in the economy.

Make of it what you will.

[Carleton Wu]

"In a general sense, we have seen wages rise in the US as productivity rises"

My understanding is that this has not been true for at least 35 years. Cites are available if you need to see them.

That may be true for that period, but if this is a general law of how capital interacts with labor, then I would expect it to be true at least most of the time in most places. That's why Im interested in eg the real wage of a construction worker from 1900, 1950, and 2000- there's been real changes to that wage, and my gut tells me that this is mostly due to technology growing the pie and then society deciding to divide that pie so that the worker gets more of it.
You keep mentioning this specific period of this one country as if it proves the general case. I think the problem, here and now, is how the pie is being divided. But the general history of the west is that of rising wages. Or other places that have seen rising productivity.

If so, it's because a nail gun isn't a particularly expensive piece of gear.
Framers don't get more pay for owning a framing hammer, or a speed square, or a Skillsaw. It's just assumed that they own those things, otherwise they should probably not bother showing up on site.
If for "nail gun" you substitute "cement mixer", or "Bob Cat", or "crane", different story.

I like the nail gun bc it's a personal item (items used by a group seem that they would make the analysis of the relationship harder since individuals are unlikely to provide those) and bc the expense is small. So if the question is "does the owner of the improvement get all of the benefit to productivity", then I have to say that the answer is clearly "no". No, because a nail gun is an investment, and that investment doesn't necessarily reward it's owner.
I think examining big capital goods just confuses things, because those are expensive- so it's harder to tease out what should be the "correct" ratio of return to capital v labor (of course, my argument is that there is no "correct" ratio at all, it's entirely subjective). The nail gun ought to be a good test of the theory as a general proposition- or the theory would need to be refined so that the nail gun is no longer a good test. We can't just say "the nail gun doesn't fit the theory, so let's look at something bigger instead".

[Hogan]

this is mostly due to technology growing the pie and then society deciding to divide that pie so that the worker gets more of it.

"Society divides the pie" is a pretty abstract description. More concretely, owners of capital and sellers of labor negotiate over how to divide the pie, with the result generally reflecting their respective bargaining strength.

[Carleton Wu]

"Society divides the pie" is a pretty abstract description. More concretely, owners of capital and sellers of labor negotiate over how to divide the pie, with the result generally reflecting their respective bargaining strength.

Well, there's also the government: taxing corporate profits, dividend income, and capital gains, and then spending the money to benefit the society as a whole. That changes the allocation of the pie, eg government loans make college cheaper than it would be otherwise for workers' families.

[russell]

if this is a general law of how capital interacts with labor, then I would expect it to be true at least most of the time in most places.

IINM concentration of wealth and impoverishment of folks who only have their labor to sell is a fairly common pattern in industrial societies, with the significance of "industrial" here being that industrial economies are characterized by increased production by capital goods. It's one of the central issues this country has faced for the last 150 years. In the UK, longer.

To some degree I think we're talking past each other, because I completely agree that how the pie is divided is driven by political considerations. And, that is so because of the clear inequities that result when dividing the pie happens on a purely economic basis.

The basis of the argument here is the observation that, over time and continuing right up to now, production of goods and services has increasingly been performed by capital goods, and less by labor.

I don't think that is arguable.

In our political tradition, the value created by a factor of production is considered to rightfully belong to whoever has property in that factor.

So, the natural tendency is that wealth will flow in increasing proportion to the owners of capital goods, rather than labor. Over time, this reinforces itself, and wealth becomes increasingly concentrated in the hands of owners of capital.

Again, I think this is fairly self-evident from the actual history. Not the last 30 years of history, the last 200 or 250 years.

Since this has, historically, had really negative social consequences, we have as a society agreed to mitigate this through laws and other institutions. Labor unions, progressive taxation, laws against monopolies, etc.

But absent these things, the tendency of purely economic factors will be toward the increased concentration of wealth.

When I say "we are screwed", it's not because we lack political and social institutions to address real-world inequity.

It's because the political climate we actually live in, here and now, is increasingly hostile to those institutions.

And I do mean hostile.

If R's take the House and Senate next month, we are f***ed. Hosed. Kaput.

We will not balance the budget, we will not create hundreds of thousands of new jobs, we will not revive the economy, we will not reduce the influence of great big bundles of private wealth on the political process.

We will do the opposite of all of those things, because the institutions that we have created to mitigate the natural tendency of wealth to be concentrated in the hands of capital owners will be dismantled.

FUBAR.

I find Kelso interesting because he argues for a solution that does not require redistribution, or labor unions, or mitigating social legislation.

His idea is to just spread the ownership of capital goods more widely. Run a relatively laissez-faire economy, let the value created by capital flow to its owners.

Just make more people capital owners.

Unfortunately, we are not set up well for that solution, either.

Regarding nail guns specifically, the way a nail gun makes money for the framer is that it makes you that much more likely to get hired as a framer.

Framers make more money than simple laborers, to be a framer you have to bring some capital of your own, in the form of skills and gear.

Same with finish carpenters and other specialized workers.

The value of the increased productivity generatd by the gun doesn't come to you, it pretty much stays with the GC. Framers the world around did not all get raises when nail guns were invented.

But now that they're here, it's likely something you're just expected to have to get the gig at all.

[Marty]

"Just make more people capital owners.

Unfortunately, we are not set up well for that solution, either."

Actually we are well positioned for this.

We have a huge chunk of almost everyones life savings invested in Treasuries. Making that money work in the equity and corporate bond markets would make almost everyone part of a very powerful capital fund, thus distributing ownership and reaping the rewards of a relatively laissez-faire economy.

Yet any notion that it would be a good thing to do with SS is met with end of the world histrionics.

[russell]

FWIW, I think the intent of SS is something more like social insurance, and something less like wealth-building.

It's not really quite insurance either, but net/net the general idea is one of a stable, reliable, and guaranteed income stream.

I'm not sure you can change it into a wealth-building entity without sacrificing the stable, reliable, and guaranteed part.

Kelso's argument would be that if capital ownership was universal or nearly universal, we wouldn't need the "insurance" plan in the first place.

His approach also generally involves folks owning enterprises they actually work in and for, rather than just stock in other companies. This aligns the incentives of labor and capital, which IMO would be a *great* thing.

Doesn't rule out equity ownership in other companies, which for risk management purposes is a good idea. But his focus, FWIW, is employee ownership of the firms they work for.

My personal feeling about the SS thing is that, things being the way they are at the moment, any scheme for "privatizing" SS by investing the trust fund in private equities would, somehow, and inevitably, end up with SS stakeholders getting screwed.

So, I'm suspicious of it. Call my cynical.

[Marty]

"My personal feeling about the SS thing is that, things being the way they are at the moment, any scheme for "privatizing" SS by investing the trust fund in private equities would, somehow, and inevitably, end up with SS stakeholders getting screwed."

I think it could be transitioned to an actual income trust that would build wealth and create a secure income stream. We would have to think about it differently, yes, but the wealthy use their capital to do both.

A 2.6 trillion dollar income trust could be managed well enough to pay out regularly and possibly provide some upside surprises in good years.

[Jacob Davies]

Marty: Making that money work in the equity and corporate bond markets would make almost everyone part of a very powerful capital fund

Lots of problems with that that have nothing to do with histrionics.

The first is that someone already owns all of the stocks and bonds. SS would have to buy them. The process of buying a couple trillion dollars worth of stocks & bonds would drive prices up enormously (which is why the existing owners of them are so much in favor of privatizing SS) and that process would mean both that SS wouldn't get a very good deal and that the expected returns on those investments would be much smaller. Simply putting more money into the markets would not increase investment, since investment is bounded by a shortage of profitable investments, not a shortage of money to invest. (This is why all the money has been going to Treasury bonds lately.)

So the net effect would be that rich people get a lot richer and Social Security gets a bad deal on a lot of stocks & bonds.

Then you have all the problems inherent in having the government own a large percentage of the companies in a country. Independent ownership is supposed to insulate companies from being used as political vehicles, which is not very economically efficient.

(There are cases where I think nationalized ownership makes sense - a national investment bank, and temporary ownership during bankruptcy or bailouts. But as a rule, the federal government should not own businesses. State pension funds can and do own stocks and bonds, but they are far smaller than Social Security.)

Efforts to directly increase capital ownership are a waste of time, in my opinion. Directly attacking income inequality and predatory business practices would do far more to increase capital ownership among the population. Not letting banks make predatory loans to low-income borrowers and then repo their houses using fraudulent docs would have been a pretty good idea on that front. Oh well.

[Jacob Davies]

Also, Social Security is invested in productive investments. Those would be Treasury bonds, which the federal government uses to fund its investments in the national interest. Defense, education, healthcare and infrastructure are all productive investments; the latter three more directly and more effectively than the first, but in any case, those are things with long-term payoffs that correspond to the interest paid on government borrowing.

That is what Social Security invests in. Not investing in it would make government borrowing more expensive and mean higher taxes now and less national investment. The Social Security surplus does not just vanish into thin air.

[hairshirthedonist]

So if the question is "does the owner of the improvement get all of the benefit to productivity", then I have to say that the answer is clearly "no". No, because a nail gun is an investment, and that investment doesn't necessarily reward it's owner.

One reason I think the nail gun is a bad example is because I think it's not the kind of capital good, if it's a capital good at all, that we're talking about. I purposely referred to a nail gun as a tool in a previous comment because that's really what it is. It's basically a high-tech hammer. Would we have this same discussion about a hammer, trying to figure out who received what share of the economic benefit of increased productivity resulting from the invention of the hammer? (maybe)

I think the real issue is that the owner of the enterprise that realizes the gain in productivity is more important than who acutally owns (very generically, on purpose) *The Thing That Increases Productivity.* In the case of the big *stuff* on an industrial scale, it will almost always be the owner of the enterprise who owns *The Thing That Increases Productivity.* Smaller tools that a worker can carry around, maybe or maybe not.

At any rate, I hope this doesn't sound like I'm just trying to move the goal posts. It just seems to me that the question is really about share of the gains in productivity the owner of the enterprise gets versus that of the worker, regardless of who owns *The Thing That Increases Productivity.* It happens to be in the case of the big, industrial *stuff* that the owner of the enterprise is also the owner of the *stuff,* and that's why it gets discussed in terms of owner versus worker, even if there are some cases of worker-owners of smaller *stuff.*

[Marty]

"So the net effect would be that rich people get a lot richer and Social Security gets a bad deal on a lot of stocks & bonds.

Then you have all the problems inherent in having the government own a large percentage of the companies in a country. Independent ownership is supposed to insulate companies from being used as political vehicles, which is not very economically efficient."

First, this is a short sighted view of how you would actually make these investments. New funds start all the time, buy at market rates and drive the prices up some, but really, we have printed 4 trillion. It went somewhere. The rich didn't get richer in a day in the markets, you would have to understand the long term effects of having 2.6 trillion dollars more chasing a profit over time to make that assessment.

Second, I don't want the government to own anything, but if we want to discuss broad based capital ownership the mechanism is in the public markets. I would love to have someone besides the government managing that money just like they do for the wealthiest capitalists. I am willing to let GS make a ton by making the rest of us wealthier.

Mostly you can't have it both ways,

Directly attacking income inequality and predatory business practices would do far more to increase capital ownership among the population.

is just not true.

[Hogan]

Well, there's also the government: taxing corporate profits, dividend income, and capital gains, and then spending the money to benefit the society as a whole.

I'd say that's one of the sites where the negotiating happens.

[Jacob Davies]

Marty: this is a short sighted view of how you would actually make these investments. New funds start all the time, buy at market rates and drive the prices up some, but really, we have printed 4 trillion. It went somewhere. The rich didn't get richer in a day in the markets, you would have to understand the long term effects of having 2.6 trillion dollars more chasing a profit over time to make that assessment

New funds start all the time but they don't usually have $2.6 trillion to spend.

Total market cap of US stocks is about $15tn, but that doesn't mean that the introduction of $2.6tn in new money would only increase market cap by 1/6th (which would be a pretty big jump). Only a small portion of outstanding stocks are available for purchase, and the knowledge that the SS trust fund was about to pile headlong into the market would further reduce the willingness of many investors to sell immediately. In other words, it would create the mother of all stock bubbles.

Which is why wealthy people like the idea. Bubbles are awesome if you're one of the people who already owns the stuff that the bubble is in. You can make tons of money with almost no risk as long as you don't leverage up too much.

I am willing to let GS make a ton by making the rest of us wealthier.

Well I would be too, but I'm not so keen on the idea of letting GS make a ton by making the rest of us poorer. And I think the case for the FIRE sector making us richer is far from convincingly made given the last few years.

[Marty]

Two things. First

That is what Social Security invests in. Not investing in it would make government borrowing more expensive and mean higher taxes now and less national investment.

I am probably not as happy that the government can use my money to borrow cheap as you are, I would like a decent return on my investment. Something higher than zero would be good.

Second

Keep in mind that as the 2.6 trillion was invested over time we would make money on the first trillion as the second was invested. That being said, it is still a long term investment strategy, if it drives the market up some then thats how it works.

Not without problems, but not crazy either.

[Jacob Davies]

Marty: I am probably not as happy that the government can use my money to borrow cheap as you are, I would like a decent return on my investment. Something higher than zero would be good.

Actually I agree with ultra-low rates being undesirable, although I do think that moderately low government borrowing rates (<5%) are a good deal for citizens. There's a lot of things the government can invest in that will produce more than a 5% return. Now, zero rates are in play right now for two reasons, and you can decide for yourself which is the more important:

1) To encourage investment and lending by banks by forcing them to look for opportunities that pay more than Treasuries,

and 2) To help recapitalize banks by forcing savers to subsidize them. For much, much more on that (mostly about the effects of the same policy in China), read some stuff on the subject at mpettis.com.

[Tony P.]

Marty and/or Jacob,

I'm confused as to what you guys are mildly agreeing about. Right now, the US government can borrow dirt cheap, short term, and pretty damn cheap, longer term. Who is it borrowing from? I've heard Republicans claim that this year SS is paying out more than it's taking in, which (unless those Republicans were lying) means that Treasury is NOT borrowing from the SS Trust Fund this year. It means Treasury is borrowing dirt cheap to retire maturing SS bonds. How does this square with Marty's complaint that government is "using" his money to "borrow cheap"?

--TP

[Tom M]

It means Treasury is borrowing dirt cheap to retire maturing SS bonds.
No, the SS fund is net ahead this year because the general fund pays interest on the over $2T of bonds in the SS trust. The fund pays out more this year than it collects in FICA taxes. See OMB data.

See here for public debt details.

[Gary Farber]

"I am probably not as happy that the government can use my money to borrow cheap as you are, I would like a decent return on my investment. Something higher than zero would be good."

You're investing in the good of everyone around you, and everyone who benefits from America. You benefit from that, though not by a direct return check from the government.

You would not, I'm sure, prefer Somalia.

[Gary Farber]

(Yes, there's some waste, of course; big corporations have waste, too.)