I’ve argued before that one of problems with mainstream economics is that it has become unmoored from economic natural history–it’s easy for clever people to construct models of imaginary worlds that are unlike the world in which we live. Economist Bill Mitchell summed it up this way:

Typical stuff – starting with “lets assume we live on the planet X which is not Earth” – “lets assume we collect coconuts and swap them with each other” – “lets assume there is no money in this economy for simplifying the argument” – “lets assume the government doesn’t exist but a minimum wage policy is introduced nonetheless” – then after a page or more of second-rate mathematics – we get the conclusion – “Card and Krueger are wrong – minimum wages stop workers collecting coconuts”. Many times I have heard that sort of rubbish at conferences, workshops, etc.

That’s why this post by Yves Smith about the demise of the former Mead Corporation paper mill in Escanaba, Michigan is so important. Yves (boldface mine):

One frequent and frustrating line that often crops up in the comments section of this blog is that American labor has no hope, it should just accept Chinese wages, since price is all that matters. That line of thinking is wrongheaded on multiple levels. It assumes direct factory labor is the most important cost driver, when for most manufactured goods, it is 11% to 15% of total product cost (and increased coordination costs of much more expensive managers are a significant offset to any savings achieved by using cheaper factory workers in faraway locations). It also assumes cost is the only way to compete, when that is naive on an input as well as a product level. How do these “labor cost is destiny” advocates explain the continued success of export powerhouse Germany? Finally, the offshoring/outsourcing vogue ignores the riskiness and lower flexibility of extended supply chains.

This argument is sorely misguided because it serves to exculpate diseased, greedy, and incompetent American managers and executives. In the overwhelming majority of places where I lived in my childhood, a manufacturing plant was the biggest employer in the community. And when I went to business school, manufacturing was still seen as important. Indeed, the rise of Germany and Japan was then seen as due to sclerotic American management not being able to keep up with their innovations in product design and factory management.

But why blame yourself when you can blame your workers? Anyway, it’s an exquisite piece of natural history that’s worth reading for this reason:

Cerberus is negotiating a restructuring of the NewPage debt and may file for bankruptcy. The financiers will all get their cut and will move on to the next deal. Yet the workers at these mills and the communities they anchor, like Chillicothe, Ohio and Luke, Maryland (two other places I lived when I was growing up) will suffer the consequences of this rent extraction.

It’s really a summary of what has happened to the U.S. over the last thirty years. And it was not inevitable.

We are governed by sociopaths.