—–Original Message—–
From: JH
Sent: Mon 8/15/2016 2:55 PM
To: wblock@loyno.edu
Subject: “T”‘s questions about Dr. North’s chart

Walter: I don’t think you fairly responded to T’s question about North’s chart. The chart, found here as Chart 2
http://www.epi.org/publication/charting-wage-stagnation/ — from the labor union-funded Economic Policy Institute is interesting. North uses it to suggest that in the absence of sound money that (perhaps) the “money illusion” or some other factor would cause this 40 year (a real long time for markets not to clear in some sort of equilibrium) increasing gap between wages and increased productivity — as opposed to what happened between 1948-1973 (which was itself a post-war period of “pent-up” demand). Since it’s an EPI chart, my guess it that it also has a good dose of fudging as to just what is on the two axes: “productivity and typical worker’s compensation”. But I am no expert.

Dear JH:

I got some about a dozen letters along the lines of yours, objecting that my defense of Gary North was amiss. Here is my reply to you and all the others. I assume, arguendo, that the EPI chart is accurate, although, for sure, one must always expect “fudging” from sources such as these. I should have been more clear in my initial defense of my friend and colleague Gary North. Again, I repeat, he is an impeccable source in matters of political economy and history. Let me try to be more clear now. I am shocked, shocked I tell you, that the gap between wages and productivity has lasted for ONLY 40 years (I expect this is inaccurate). As far as I am concerned, there will always be, we should continually expect, a PERMANENT gap between these two variables. The gap will ONLY be fully closed in the ERE. But, we are NEVER, at least not in the real world, in equilibrium. There is only a TENDENCY for the gap to be closed. If in reality there is no gap whatsoever, that is just a temporary phenomenon, and I’d have to see this to believe it.

Lookit, there is a TENDENCY for profits to be equal in all industries (assuming away the effects of risk). There is also a TENDENCY for profits to be zero (again, with this assumption). Were, ever, profits exactly equal in all industries? Well, maybe, for a split second, who knows? Were, ever, profits exactly equal to zero in all industries? Well, maybe, for a split second, who knows? Do either of these two failures undermine the apodictic certainty of these two contentions? Of course not. Similarly, the failure of wages to exactly parallel productivity does not undermine the praxeological theory that there is a TENDENCY for them to become equal.

Let me try again. I weigh about 180 pounds. When I jumped on one of those scales with an arm indicator, my weight would first register as 400 pounds, then as 5 pounds, as the pointer violently escalated between these two numbers. Then, if I stood still, the oscillations would be reduced: 300 pounds, then 50 pounds, 250 and 100, eventually settling down at 180. But that is only IF I STOOD STILL. Suppose I ran in place, jogged, on this scale. Would it ever indicate 180, well, yes, once in a while, almost entirely by accident, but not exactly (the average weight indicated would still be at about that weight.) But, while I was jogging on the scale, for virtually ALL of the time, the scale would indicate some other weight. Still, though, there would be a TENDENCY for it to hit 180. The actual economy is like a person jogging on the scale, not standing still on it. Only in neoclassical economics are we always in equilibrium, e.g., standing still on the scale.

The Best of Walter E. Block