Wednesday, July 22, 2015

Sandwichman's Lump-of-Labor Odyssey

The first mention of the lump-of-labor fallacy I ever encountered was in a 1997 column by Jock Finlayson, vice president for policy and analysis of the B.C. Business Council. It was a Business in Vancouver debate with Ken Georgetti, president of the B.C. Federation of Labour, on the merits of restricting overtime to combat unemployment.

At the time, I had been active in advocacy for shorter working time for a little over two years. An abiding interest in the idea had been stoked in 1995 when I wrote a research proposal to do a narrative policy analysis of the employment prospects of work time reduction. Funding for the project never materialized in the wake of a comprehensive provincial government spending freeze announced three weeks after the proposal submission deadline. Meanwhile, however, I had established a web site, the Timework Web, to compile research and commentary on shorter working time.

A little past the midway point in his column, Finlayson wrote, "Work-sharing rests on the belief that the economy can generate only a fixed amount of work. History provides little support for this gloomy view, which economists have labelled the lump-of-labour fallacy." The passage caught my attention because of its distinctive "ungrammaticality," to use Michael Riffaterre's clumsy term.

Riffaterre used that term in a generic sense to refer to "any wording unacceptable in context" rather than exclusively to overt violations of the rules of grammar.
These clumsy wordings, in Riffaterre's analysis, point to the text's intertextuality, "The text refers not to objects outside of itself, but to an intertext. The words of the text signify not by referring to things, but by presupposing other texts."

For narrative policy analysis, such peculiarities of wording are not mistakes to be indulged but "jackpots" for decoding a text. The challenge then becomes one of retrieving the corpus of texts – the "intertext" – to which the peculiar passage refers. The archival work to do so would have been inconceivable before the Internet and wide availability of full-text searching of databases of journal articles, pamphlets  and treatises.

Finlayson probably learned about the lump-of-labour fallacy from Paul Samuelson's ubiquitous introductory economics textbook. But Samuelson didn't know when or where the fallacy claim originated, explaining that the fallacy "was widespread during the Great Depression 1929-1935 and is still encountered in today's France." (correspondence with the author).

Using JSTOR, I was eventually able to trace the "lump of labour" phrase to an 1891 article on piece work by David Frederick Schloss. By then, January 1999, I was already aware that the fallacy claim -- and rebuttals of it -- had long preceded that specific label. It took me 15 more years of occasional forays back into the archives (and keeping my eyes peeled) before I finally got to what I believe is the rock bottom of the story.

The argument that there is – or, more correctly, if there is – a fixed amount of work appeared in John Graunt's 1662 Natural and Political Observations made upon the Bills of Mortality: "that if there be but a certain proportion of work to be done, and that the same be already done by the non-beggars, then to employ the beggars about it, will but transfer the want from one hand to another."

Commentators have speculated that Graunt's close friend and associate, William Petty, may have been the author of the political and literary embellishments to the actuarial observations in Graunt's book, so the discussion of beggars may well be Petty's. The section goes on to address a key proposition of mercantilist trade policy – the assumption that there is "but a certain proportion of trade in the world":
This little hint is the model of the greatest work in the world, which is the making of England as considerable for trade as Holland; for there is but a certain proportion of trade in the world, and Holland is prepossessed of the greatest part of it, and is thought to have more skill and experience to manage it. Wherefore to bring England into Holland's condition, as to this particular, is the same, as to send all the beggars about London into the West Country to spin, where they shall only spoil the clothiers wool, and beggar the present spinners at best; but, at worst, put the whole trade of the country to a stand, until the Hollander being more ready for it, have snapt that with the rest.
So the fixed amount of work is not some naïve, intuitive belief known or shown to be held by advocates of work sharing but an explicit hypothesis stated by one of the forerunners of what would become political economy and economics. The canonical refutation of this hypothesis, with regard to work, appeared in a 1780 pamplet by Lancashire magistrate Dorning Rasbotham, Thoughts on the Use of Machines in the Cotton Manufacture, written in response to anti-factory rioting near Bolton, Lancashire, the previous year:
There is, say they, a certain quantity of labour to be performed. This used to be performed by hands, without machines, or with very little help from them. But if now machines perform a larger share than before, suppose one fourth part, so many hands as are necessary to work that fourth part, will be thrown out of work, or suffer in their wages. The principle itself is false. There is not a precise limited quantity of labour, beyond which there is no demand. Trade is not hemmed in by great walls, beyond which it cannot go. By bringing our goods cheaper and better to market, we open new markets, we get new customers, we encrease the quantity of labour necessary to supply these, and thus we are encouraged to push on, in hope of still new advantages. A cheap market will always be full of customers. Men will cross land and sea to go thither.
It is likely that the refutation of the mercantilist proposition of "a certain proportion of trade" had become a rhetorical commonplace during the course of the 18th century so that it became unnecessary to identify who said there was "a certain proportion of trade in the world" or "a certain quantity of labour to be performed."

In the early 19th century, particularly in the wake of the Luddite disturbances of 1811 and after, the notion became commonplace, without any evidence, that it was the rioting workers who harbored the proverbial belief in a fixed amount of work. The prosecutor in the trial of George Melior (or Mellor), William Thorpe and Thomas Smith for the murder of William Horsfall couldn't resist adding a criminal aspect to what he described as the delusion, ascribed to the defendants without evidence, that machinery reduces the demand for labour:
Mr. Horsfall is represented to me to have been a man, who had upwards of four hundred persons at work under him, extremely beloved by his men, and they greatly attached to him. He had very large manufactories, of course, from the employment of so many men; and he employed the machinery which was the object of the abuse of these misguided people. I have not the means of making such observations as I have frequently and lately heard made, upon the delusion which has prevailed upon that subject, amongst the lower orders. It has been supposed that the increase of the machinery by which manufactures are rendered more easy, abridges the quantity of labour wanted in the country. It is a fallacious argument: it is an argument, that no man, who understands the subject at all, will seriously maintain. I mention this, not so much for the sake of you, or of these unfortunate prisoners, as for the sake of the vast number of persons who are assembled in this place.
By the end of the 19th century the viciousness of the alleged belief in a fixed amount of work – and consequently a diminishing demand for labor – had become a leitmotif of the relentless assertion that the fallacy underpinned demands for shorter hours of work. Denunciations of the fallacy are typically supplemented with this or that explanation of why reducing working time is unnecessary or not economically feasible or will happen spontaneously through worker's choices of leisure, etc. In the aggregate, these add-ons are unpersuasive, often shallow and frequently contradict one another.

In my view, the persistence of the incongruous lump-of-labor fallacy claim is symptomatic of the rift between the scientific pretensions of economics and its ideological foundations. Paul Swaim, an economist with the OECD, once suggested to me that the fallacy is a type of error that economists themselves are constantly in danger of committing, in that they "cannot escape assuming that many potentially relevant variables are fixed."

This assumption is, of course, the standard ceteris paribus clause that Terrance Hutchison criticized extensively in The Significance and Basic Postulates of Economic Theory. Hutchison complained that it is usually not made clear by economists whether a particular ceteris paribus proposition is meant as "an empirical generalisation which can conceivably be false without any contradiction" or as "an analytical-tautological proposition." "Perhaps," Hutchison speculated,"such propositions are sometimes meant in one way, sometimes in another." Hutchison concluded, "That ceteris paribus propositions are frequently hopelessly ambiguous and that the ceteris paribus assumption should be used less often and more cautiously."

In a more recent review of the history of ceteris paribus, Joseph Persky observed that, ""In too many cases one is unsure of exactly what restraints are being imposed and by what authority the exercise is legitimated." Persky credited Alfred Marshall's role in popularizing ceteris paribus, which he apparently picked up from John Cairnes:
Although he doesn't cite Cairnes in his methodological discussions of the phrase, Marshall does use the following quotation from Cairnes in a discussion of the wages-fund theory: 'the rate of wages, other things being equal, varies inversely with the supply of labour.' 
The phrase Cairnes used there was actually 'other things being the same,' which appears eleven times in Cairnes's Some Leading Principles of Political Economy: Newly Expounded ('other things being equal' appeared twice and caeteris paribus six times). Notice that Marshall cited Cairnes "in a discussion of the wages-fund theory." More specifically, Marshall was criticizing Cairnes's attempt to "resuscitate" the wages-fund theory, in which Cairnes avoided the old pitfalls "only by explaining away so much which is characteristic of the doctrine." Marshall seems not to have noticed that it was precisely the hopeless ambiguity of the ceteris paribus device that enabled Cairnes to explain away so much!

Cairnes's attempt to revive the wages-fund doctrine was a response to William Thornton's apparently decisive repudiation of it in On Labour Its Wrongful Claims and Rightful Dues; Its Actual Present and Possible Future. The wages-fund doctrine had lent pseudo-scientific legitimation to fierce partisan polemics against trade unionism. In his chapter on trades unionism, Cairnes attacked a statement by Thornton to the effect that "the quantity of industrial work to be done is… 'at any give time a fixed quantity.'" Cairnes objected to this assumption vehemently, "...I must make bold to say that, within the range of economic reasoning, no more profound fallacy finds a place than is contained in this inference; nor, I must add, is there one more pregnant with practical consequences of a pernicious kind."

A review of Thornton's book in The Edinburgh Review for July 1869 took a more good-natured and humorous view of Thornton's self-contradictory gaffe:
That the rate of wages is governed, as Adam Smith and his followers have conceived, by the proportion between the capital disposable for the payment of labour and the number of the recipients of that capital, is a notion that Mr. Thornton scouts with contempt, and he consigns the chimerical 'wages-fund' to the lowest limbo of unrealities. Yet, while attacking the name, we find him occasionally, under the pressure of facts, using language which virtually admits the thing, as when he says, 'that at any given time the whole quantity of work to be done is a fixed quantity, and the uttermost which employers can afford to pay for having it done is a fixed amount'; and in other places his language recognises the inevitable fact that employment must be limited by the amount of capital which at the time being sets it in motion, that amount being the thing to which Smith, McCulloch, Fawcett, and other writers have assigned the offensive name.
If Thornton erred by "virtually admitting" the same notion that he elsewhere "scouts with contempt," Cairnes compounded error by not noticing that the "profound, pernicious fallacy" he bitterly denounced on page 251 of his book was none other than a restatement of the wages-fund doctrine he had stoutly defended back on page 174!

How is it possible that both Thornton and Cairnes could commit copy-cat errors while taking diametrically opposite positions on the question of the wages-fund? The answer lies in the inscrutable vagueness and ambiguity of the ceteris paribus clause. In the kaleidoscopic hall of mirrors where "other things remain the same," what "other things" are included in or excluded from the ceteris paribus pound is tacit as is exactly how they are "the same."

Compounding the uncanny coincidence fun, Persky credited William Petty with introducing the term ceteris paribus into economic discourse. As mentioned above, it is possible that Petty also introduced "a certain proportion of work to be done" into the economic discourse. This is not to say that a "certain proportion" and a "fixed amount" refer to the same thing, arithmetically. No doubt part of the shape-shifting rhetorical appeal of ceteris paribus arises from its equivocation on whether it is quantities or proportions or both that are remaining the same.

Would it even be possible for economists to use ceteris paribus assumptions "less often and more cautiously," as Hutchison prescribed, yet still perform the ideological/scientific somersault? On the evidence of the persistent projection of the lump-of-labor fallacy, I would have to conclude that the "hopeless ambiguity" of the ceteris paribus assumption provides an indispensable shield for the consensus economist's aura of objectivity at the same time that it remains treacherously porous for the heretic.

Tuesday, July 21, 2015

Sherk 'n Burke?

at the Heritage Foundation:
Automation and Technology Increase Living Standards
by James Sherk and Lindsey Burke

Many Americans blah, blah, blah... 
Lump of Labor Fallacy 
Fears of mass technological unemployment are predicated on a “lump of labor” model of the economy—the belief the economy needs a roughly fixed amount of work performed.In this economic model, machines automating work formerly done by people reduce the total amount of work remaining for humans, reducing total employment. Keynes forecast an impending crisis of unwanted leisure. He suggested future societies would establish three-hour workdays to give everyone enough work to avoid boredom.
Almost all economists reject this model today. Economists have found that an almost unlimited amount of potential work exists in the economy because people’s material desires continue to expand. Virtually all Americans today enjoy material living standards vastly better than the wealthy of 1900. Nonetheless, most Americans today would purchase additional goods and services if they received a raise or bonus.

Sandwichman's lump-of-labor odyssey

Friday, July 17, 2015

Are Workers People? (Views Differ)

"...our understanding of wage determination has been transformed by an intellectual revolution... workers are people" -- Paul Krugman
Memo to Karl Marx, suggested revision -- highlighted in yellow -- to the climax of your 1865 address to the First International (courtesy of  Paul Krugman):
"Instead of the conservative motto: 'A fair day's wage for a fair day's work!' they ought to inscribe on their banner the intellectual revolutionary watchword: 'Abolition of the wages system Workers are people!'"
Where to begin?

Even prior to Card and Krueger's pathbreaking research on the minimum wage there were widespread intimations that workers might indeed be people. Reputedly, the Fair Labor Standards Act of 1938 -- which established a federal minimum wage in the U.S. -- was enacted into law more than a half century before the intellectual revolution that transformed our understanding of wage determination. How did that happen? It's like they must have had a time machine or something.

But are workers actually people? A balanced analysis would present both sides of the question objectively.

"That's you problem right there, ma'am. Your denominator is all
wore out and that's puttin' too much strain on your numerator."

Thursday, July 16, 2015

More or Less? Fourth Grade Arithmetic for Economists

A highly-rated comment on Barro's column at Upshot
At Upshot, Josh Barro asks "Should Americans Work More?" At Policyshop, Matt Bruenig answers Absolutely Not.

Pinch me. Are we actually having this conversation? Should morbidly obese Americans eat more doughnuts? I am fond of quoting Thomas Pynchon's epic line from Gravity's Rainbow, "If they can get you asking the wrong questions, they don't have to worry about answers."

Barro's column pursues the "balanced, objective" framing device of looking at "both sides" of a wrong question. Bruenig points out the flaw in Barro's central theme of regulatory and tax "distortions" that discourage even longer hours of work. Barro's framing ignores much greater and more fundamental distortions that impose longer hours. "If we are going to have a work debate," Bruenig concludes, "it should proceed by asking ourselves how much time we want to spend toiling our scarce lives away, not muttering incoherently about what distorts what."

Bruenig presents two charts that compare hours worked in the U.S. to other countries. The first chart plots the ratio of annual hours to labor productivity. The second chart compares each country's hours/productivity ratio to an aggregate norm. The U.S. is a long-hours outlier in both.

In plain language, what these charts reveal is the inordinate emphasis in the U.S. on GDP. In fourth-grade arithmetic terms, the index called "productivity" is a fraction. It has both a numerator and a denominator. The numerator is GDP. The denominator is hours of work. The result of this operation of division is called the quotient. Productivity is a quotient. A quotient is increased by either increasing the numerator or decreasing the denominator (or both).

There is an extensive literature on the systematic errors made by children learning rational number concepts. Those errors result from attempts to apply rules that have been previously learned about whole numbers  to new situations where those rules are not relevant. Mistaking a quotient (productivity) for a numerator (output) would be an example of this kind of systematic error. Would it be asking too much for economists to set aside their indulgence in arcane mathiness and attend instead to the pervasive ignorance of fourth-grade rational number concepts that underlies the single-minded obsession with "economic growth"?

Tuesday, July 14, 2015

Slush-Fund Schäuble

“He [Schäuble] admitted that he had met the arms dealer and lobbyist at the centre of the scandal, Karlheinz Schreiber, and accepted an undeclared DM100,000 (£36,300) cash donation from him.”
This inconspicuous line appeared in a BBC story Wolfgang Schaeuble: Germany's man with a Grexit plan. I hadn’t heard about this background detail before. Why not?

In November 2013, Karlheinz Schreiber was sentenced by a German court to six and a half years for tax evasion. He was also involved in "inappropriate" transactions with former Canadian prime minister, Brian Mulroney. "Mulroney admitted taking $225,000 in cash from Schreiber, but said he broke no laws or ethical guidelines."

That's a lot of cash. "Broke no laws or ethical guidelines" doesn't pass the laugh test.

The nature of Schäuble's shady dealings with Schreiber have apparently never been fully disclosed, apart from his admission that he accepted the cash, which resulted in his resignation as leader of the CDU and Angela Merkel's elevation to that post.

German party leader took cash from arms dealer, Guardian, January 11, 2000
In a new twist to the illicit funding scandal that has embroiled Germany's Christian Democrats, their leader, Wolfgang Schäuble, last night admitted he too had accepted cash from the arms dealer Karlheinz Schreiber for party funds. 
The former chancellor Helmut Kohl is already under criminal investigation after admitting last year that he funnelled cash to the Christian Democrats (CDU) through a web of secret bank accounts. He has refused to name the donors, in contravention of German law.
According to a report to be published today in the newspaper Stuttgarter Zeitung, Mr Schäuble, who has always enjoyed a reputation for integrity, has been put "under massive pressure" by Mr Kohl to own up to his role in the irregular financing. 
In an interview with the television channel ARD, Mr Schäuble said he took DM100,000 (£32,114) from the arms dealer which he had passed on to the party. He said that, unlike the money which Mr Kohl funnelled to the CDU, the cash he took did figure in the party's accounts but was reported under "miscellaneous income".
That would suggest that the handling of the donation contravened a law which calls for contributors who give more than DM20,000 to any political party to be identified. 
Mr Schäuble, who became party chairman after Mr Kohl's crushing defeat in the 1998 election, was already under pressure to explain another mysterious - and apparently illicit - movement of funds.
Revised accounts released by the CDU at the end of last year showed that in January 1997, more than DM1m was sent by the parliamentary party to party headquarters in apparent defiance of a ban on such transfers. Mr Schäuble was leader of the parliamentary party at the time.
Germany's Schreiber Affair: The Scandal that Helped Merkel Become Chancellor, Speigel Online International, August 07, 2009:
Unexpected Questions In Parliament Led To Lies  
Meanwhile Kohl’s likely successor in the CDU, Wolfgang Schäuble, was becoming ever more enmeshed in the Schreiber scandal. At the time, Schäuble was one of the most popular politicians in the country and in 1997 Kohl had handpicked Schäuble to succeed him at the head of the CDU — but because the CDU lost the election in 1998, Schäuble became the party’s chairman.
When questioned in parliament in 1999 about whether he had accepted a donation during a meeting with Schreiber, Schäuble disputed the question. But in a radio interview in January, he admitted he had met Schreiber at least once more. That created suspicion that a second donation had been made. Whatever the case, indignation within the ranks of the CDU and its Bavarian sister party, the Christian Social Union (CSU) toward Schäuble grew so much that he was forced to resign. 
So how exactly did Merkel profit from the Schreiber incident? The former party secretary became aware that, in the face of an unexpected question in parliament, Schäuble had lied about taking cash from Schreiber. Merkel realized at the time that this secret would eventually come out and would inevitably lead to Schäuble’s downfall. She also knew that, if she wasn’t careful, she could go down with him. After all, it was only logical that the general secretary of a party would have the confidence of the head of that party. 
And so she wrote about it — in what was widely described as a “Dear John” letter addressed to Kohl and published in the Frankfurter Allgemeine Zeitung newspaper on Dec. 22, 1999. In the letter she was very critical of Kohl, saying that the new generation of politicians in the CDU needed to distance themselves from him, in the same way that teenagers must distance themselves from their parents if they are to become adults. Even though Merkel had only told Schäuble about plans to publish the open letter the night before, Kohl was convinced that the missive had been published with Schäuble’s foreknowledge and approval. 
Suddenly Kohl seemed to discover his old political boisterousness, attacking Schäuble ever more vigorously. Perhaps he wanted to secure a virtuous place in the national history as the “father of German unity” — he had presided over the re-unification of East and West Germany — rather than the infamous politician with the dirty donations. A war of words, via various interviews, ensued, the likes of which had not been seen before. The fight between the two former friends and allies escalated to the point that Kohl abdicated his seat as honorary chairman of the CDU and Schäuble resigned his position with the words: “The CDU finds itself in the most serious crisis in its history.”
The scandal that rocked the government of Helmut KohlDeutsche Welle, January 18, 2010
Unanswered questions 
Despite the two-and-a-half year probe into the CDU's murky financial dealings, the chairman of the special parliamentary investigation committee said during the time that key questions in the affair still remained unanswered. 
"A lot of untruths have been told in this committee, to put it mildly. I can also be more brutal and say: 'a lot of lies have been told,'" said Volker Neumann, a member of the center-left Social Democratic Party. 
"For years, the CDU hasn't just breached party funding laws but it was also guilty of political corruption on several accounts under then Chancellor Kohl," Wolfgang Stroebele of the Green Party said. 
The CDU denied allegations of corruption but the affair engulfed other leading lights of the party too. In early January, 2000, CDU chief Wolfgang Schaeuble, Kohl's handpicked successor, admitted he had received a payment of 100,000 deutschmarks from Schreiber.
Money being exchanged 
But Schaeuble, Germany's current finance minister, insisted he had forwarded the money to the CDU's then treasurer, Brigitte Baumeister, and had nothing to do with the illegal booking of the money. Baumeister rejected the accusation, saying she had handed over the money to Schaeuble in an envelope.
The allegations were never proved in court but the affair cost Schaueble his job. He was replaced by Angela Merkel. 
A political scandal 
In many cases, the courts were unable to prove that CDU heavyweights were indeed involved in the affair. Proceedings against Helmut Kohl in a court in Bonn were stopped. 
And authorities in Augsburg suffered a setback when Joerg Hillinger, the public prosecutor in an investigation of the CDU party in the state of Saxony was killed in a car accident in April 1999. 
His death came shortly after investigations uncovered dubious dealings in the state party. Till today, it remains unclear whether his death was an accident or murder. 
The CDU slush fund scandal has all the makings of a political affair. Till today, the names of the donors remain unknown and it remains unclear how many millions the party actually received in secret donations. 
Investigators had hoped the arrest of former Deputy Defense Minister Holger Pfahls in July 2004 - after five years on the run - would shed more light on the affair. But that didn't happen.

Monday, July 13, 2015

Rates of Growth and the Four-Day Week

Henry Hazlitt, Newsweek, August 25, 1958
Is it true, as we are now so frequently told, that Communist Russia’s economic "rate of growth" is faster than ours, or that we cannot survive unless we increase our own "rate of growth"? There are at least five main reasons why rate-of-growth comparisons are untrustworthy.
Let’s stop making a fetish of national income statistics and percentage rates of growth.
Daniel Seligman, Fortune, July 1954
A calculation made by Fortune for the years since 1929 suggests that in the past quarter-century U. S. workers have been taking about 60 per cent of the productivity pie in the form of income, about 40 per cent as leisure. Assuming that the four-day week for non-agricultural employees will be attained when the total work week is in the vicinity of 32 hours, that productivity continues to increase at an average of 2 or 3 per cent a year, and that something on the order of the recent 60-40 ratio for income and leisure continues in effect, the 32-hour week should be spread throughout the whole non-farm economy in about 25 years.
Meanwhile, in the income-leisure choice for the years ahead, there will be one strong pressure for leisure: The workers who have been energetically pushing their way into the middle-income class have, naturally, become increasingly preoccupied with federal tax demands. "If we get more dough," said one AFL man recently, "the government can take back part of it. But they haven’t yet figured out a way to tax your day off."
In retrospect, the inability of the government to tax workers' days off may have been one strong pressure against leisure.

Parsing "Generic Productivity"

"Little snippets taken out of context can make anyone sound dumb." -- Kevin Drum, Mother Jones.
Kevin Drum thinks "It's Time to Cool It" on Jeb Bush's assertion that "people need to work longer hours." After all, Bush "quickly clarified" that he was talking about something totally different than what he said. Perhaps Mr. Drum would like to quickly clarify a dumb-sounding little snippet of his own with some ex post facto context? In a previous column on Bush's call for working longer hours, Drum pardoned Bush for a "confusing" reference to productivity:
It's true that Bush's use of "productivity" in the third sentence is a bit confusing because he's suddenly using it in its generic sense, not its formal economic sense, but that's no more than the slight clumsiness that's inevitable in live settings.
This is clearly wrong. There is no such thing as a "generic sense" of productivity. Furthermore, the formal economic sense of the word fits the context of Bush's statement better than would the alternative definition of productivity as the capacity to produce. Bush said, "people need to work longer hours and, through their productivity, gain more income for their families."

Bush was talking about growth -- economic growth defined as an increase in the GDP -- and hours of work. Productivity refers to a ratio between output, in the form of GDP, and inputs in the form of hours of work. If Bush had a different meaning of productivity in mind, it could as easily have been the misconception that productivity is simply a synonym for output.

What Drum is asking us to do is credit Bush for the keen insight of his retroactive clarification and at the same time give him a break on the grounds his original statement was clumsier than it appeared. Somehow Bush comes out ahead on two counts for being both smarter and dumber than he sounds.

The worst thing about Drum's apologetics is that Governor Bush is not the real problem here. The real problem is a feeble public discourse about economics in which terms like "growth," "productivity" and "hard work" are tossed around as vague euphemisms that have no definitive meaning. Bush was merely reciting a stock jumble of empty platitudes. It was the incongruity of a particularly odd arrangement of those platitudes, whether intended or not, that struck a nerve. Drum urges us to set aside the reflex of incredulity and get on with the droning monotone of platitudes -- the real business of political punditry.

This is a teachable moment. I don't see any point to "cooling it." Here's why:

First, there is the matter of the disconnect between productivity gains and income that Alan Pike mentioned at Think Progress. If greater productivity hasn't been translating into higher income for decades, why should we assume it will magically do so in the future? Regardless of whether Jeb Bush meant what he didn't say or said what he didn't mean, we should be having an intense public conversation about the disconnect between productivity gains and median incomes.

Second, and more germane to the sense in which Bush may have been misusing the term productivity, both output and productivity are weak links in the logical chain between longer hours and more income. Longer hours don't necessarily translate into increased output and increased output doesn't necessarily translate into improved productivity.

Under current conditions in the U.S. it is very likely that those links have been broken. According to a Gallop poll from last August, full-time workers in the U.S. worked an average of 47 hours a week. The Bureau of Labor Statistics gives an average of 42.5 hours a week for full-time workers. This number, however, averages in the hours of workers who usually work full time but who worked less than 35 hours in the reference week due to non-economic reasons, such as illness or family obligations. So the average hours of people who usually work full time and who actually did the week they were surveyed would be more than 42.5. For the sake of argument, let's say that full-time workers average 44 hours of work a week.

If we assume that a 40-hour workweek is optimal for total output then those extra four hours a week are not only going to significantly depress productivity but also would lower total output by a small amount. The latter conclusion follows tautologically from the assumption. What is perhaps less intuitively obvious is that even if we assume that a 44-hour workweek is optimal for total output, hourly productivity would be significantly lower under a 44-hour workweek than it would be under a 40-hour workweek. I estimate around 9% higher productivity for the 40-hour week.

One of the pioneers of national income accounting, Edward Denison, estimated in the early 1960s that as much as 10 percent of economic growth between 1909 and 1957 could be attributed to "the effect of shorter hours on the quality of a man-hour's work." During that half-century, average annual hours of work per worker declined by about 30% while total economic output nearly tripled.

This is not to say that economic output would have necessarily been less if annual hours of work had not declined as much as they did -- only that more of the output would have been attributable to long hours of work rather than increased quality of work. Workers would have received less income for more hours of work. Therein lies the cost-benefit riddle that the euphemistic false equivalence of growth, wages, productivity and hard work doesn't solve. Productivity is  not simply about how much output there is but how much output relative to effort. Way back in 1929. Lionel Robbins wrote, prematurely:
The days are gone when it was necessary to combat the naïve assumption that the connection between hours and output is one of direct variation, that it is necessarily true that a lengthening of the working day increases output and a curtailment diminishes it.
Unfortunately, those days are not gone. Instead the "naïve assumption" has triumphed over economic analysis of the hours of work and the public conversation has retreated to the glibly vicious "magazine of untruth" refuted nearly 150 years ago.

Friday, July 10, 2015

People Need to Work Longer Shorter Hours

Dean Baker at the Guardian: The Hard Work Election:
Historically, the benefits from higher productivity are higher pay and more leisure – if we go back a century, for instance, work weeks of 60 or even 70 hours a week were common. But while the American work week has been largely fixed at 40 hours a week for the last 70 years, other countries have pursued policies to shorten the work week and/or work year through paid sick days, paid family leave, and paid vacation. 
Several European countries have actively pushed policies of work sharing as an alternative to unemployment: the government compensates workers, in part, for a reduction in hours rather than paying unemployment insurance to someone who has lost their job. Germany has led the way in pushing work sharing policies, which is an important factor in its 4.7% unemployment rate. And, as a result of work sharing and other policies, the average worker in Germany puts in almost 25% fewer hours each year than workers in the United States, according to the OECD. Most other wealthy countries are similar to Germany: in the Netherlands, the average work year is 21% shorter than in the US and, in Denmark, it is 20% shorter.
Alan Pike at Think Progress: What’s Missing From The Media Scrum Over Bush’s Call To ‘Work Longer Hours’:
But that back-and-forth over the “work longer hours” line misses the bigger, subtler error in Bush’s diagnosis of the economy’s present underachiever status. 
Bush claimed that if workers were able to get scheduled for more hours, they would “through their productivity gain more income for their families.” Obviously more hours would equal a larger paycheck. But Bush’s suggestion that being more productive will produce individual prosperity for American workers in the 21st century is flat wrong. 
The relationship between American workers’ industriousness and their economic security has eroded so severely in recent decades that the two concepts aren’t even on speaking terms these days.
Sandwichman at EconoSpeak: People Need to Work Longer Shorter Hours

It's great to see Dean Baker and Alan Pike raising important issues about the relationships between working time, productivity and wages. It would be fantastic if the conversation broadens and deepens to embrace the historical theory and analysis of working time. Back in December, I posted the abstract of a [still] forthcoming Economic Journal article by John Pencavel, "The Productivity of Working Hours." Here it is again:
ABSTRACT: Observations on munition workers, most of them women, are organised to examine the relationship between their output and their working hours. The relationship is non-linear: below an hour’s threshold, output is proportional to hours; above a threshold, output rises at a decreasing rate as hours increase. Implications of this finding for the estimation of labour supply functions are considered. The findings also link up with the current research on the effects of long working hours on accidents and injuries.
In the conclusion to his article, Pencavel cited the "neglect in contemporary models of labor markets" of the question of the variability of "the link between working hours and work effort or fatigue..." Addressing this theme, I sent the following email to Professor Pencavel, which I think well sums up my puzzlement and consternation at the paradigmatic incongruity of that neglect:
Dear Professor Pencavel, 
I was delighted to hear about and read your working paper and forthcoming article on the productivity of working hours. May I suggest a few further historical connections you may find of interest? 
In 1913, the British Association for the Advancement of Science established a committee to investigate "the question of fatigue from the economic standpoint." This committee presented its first interim report at the annual meeting of the Association in Manchester in September, 1915, the same month that the Health of Munitions Workers Committee was established. Philip Sargant Florence was investigator for the British Association committee. Florence later wrote Economics of Fatigue and Unrest (1924). Also on the committee was Sydney Chapman, whose 1909 presidential address to the economics section of the British Association, "Hours of Labour" was subsequently published in the Economic Journal and was deemed authoritative by Marshall, Pigou, Robbins and  Hicks. 
In The Theory of Wages, Hicks devoted six pages to a summary of Chapman's theory of hours, which he described as the “classical statement of the theory of 'hours' in a free market.” Hicks was paraphrasing Chapman's analysis when he explained "why competition among firms might not induce a cut in hours and why, in the absence of statutory regulation or the activities of trade unions, employers have been 'slow' to initiate a reduction in hours." Pigou also presented an extensive summary of Chapman's theory in his Economics of Welfare, although his attribution of the theory to Chapman was somewhat less than explicit. 
Chris Nyland emphasized the importance of Chapman's theory and  its curious omission from contemporary neoclassical discourse in his chapter on the history of worktime thought in Reduced Worktime and the Management of Production (1989). Peter Groenewegen has a chapter on Chapman in The Minor Marshallians and Alfred Marshall: An Evaluation (2012). 
Chapman also collaborated with Thomas Brassey on a three-volume "continuation" of Brassey's Work and Wages. The evidence in Brassey's original Work and Wages, published in 1872, played a strategic role in the demise of classical political economy and its eventual displacement by marginalist analysis. Brassey's father was a railroad builder who employed tens of thousands of laborers throughout Europe and the British Empire. The younger Brassey relied on his father's extensive labor accounting records to show that higher wages didn't translate into higher labor costs and that long hours didn't necessarily result in more output. The prominent American economist, Francis Amasa Walker, extolled the influence of Brassey's evidence:
[B]y far the most important body of evidence on the varying efficiency of labor is contained in the treatise of Mr. Thomas Brassey, M.P., entitled Work and Wages, published in 1872. Mr. Brassey's father was perhaps the greatest "captain of industry" the world has ever seen… The chief value of Mr. Brassey, Jr.'s work is derived from his possession of the full and authentic labor-accounts of his father's transactions.... 
Subsequently, in what came to be "regarded to be the first modern economic textbook," Alfred Marshall credited Walker for "forcing constantly more and more attention to the fact that highly paid labour is generally efficient and therefore not dear labour…" Marshall judged that fact to be "more full of hope for the future of the human race than any other… [although it] will be found to exercise a very complicating influence on the theory of Distribution."  In addition to his argument that wages rates didn't predict labor costs, Brassey also affirmed that it was "equally true that the hours of work are no criterion of the amount of work performed." 
Chapman was a highly regarded Marshall protege. Thus  Work and Wages, in Continuation... completed an arc from Brassey to Walker to Marshall to Chapman and, finally, back to Brassey. In volume 3 of Chapman's "Continuation" (1914), he reprised his own theoretical analysis of the hours of labor that had been published five years earlier and which was consistent with the evidence and conclusion that Brassey had offered in his 1872 book. 
In the conclusion to your article, you mention the apparent "neglect in contemporary models of labor markets" of the variability of "the link between working hours and work effort or fatigue..." This neglect becomes more perplexing in light of the role that Brassey's contribution played in the emergence of neoclassical analysis and of the former prominent regard for Chapman's theory of the hours of labor, at least among leading British economists. I've written about Chapman's theory and its undeserved eclipse in several articles and have appended links to two of them below. 
A third piece listed below, my chapter in Toward a Good Society in the Twenty-First Century, "Time on the Ledger: Social Accounting for the Good Society," projects from Chapman's theory and from historical trends in working time what might today be an "optimal" average working year in the U.S. My projection is, necessarily, highly speculative but is intended to provoke more systematic attention to the issue addressed by Denison in the quote with which you concluded your article.
Tom Walker
Missing: the strange disappearance of S. J. Chapman’s theory ofthe hours of labour 

The Hours of Labour and the Problem of Social Cost 

Time on the Ledger: Social Accounting for the Good Society

Links: Pencavel, Hours of Work and Productivity

The Economist, December 9, 2014: Proof that you should get a life
But a new paper, by John Pencavel of Stanford University, also shows that reducing working hours can be good for productivity.  
TIME, June 19, 2015: How to Unplug From Work
Productivity falls sharply after a 50-hour workweek, found Stanford economics professor John Pencavel. So connecting less is good for you and your company—though your boss may need convincing. 
Research shows working longer hours doesn’t increase productivity. Economists have argued for some time working longer hours would negatively affect productivity. John Hicks, a British economist who looked at this issue in the 1930s, concluded that productivity declined as working hours increased. And John Pencavel of Stanford University showed in his research that reduced working hours can be good for productivity. The study found that productivity declined markedly after more than 50 hours a week and that the absence of a rest day (such as Sunday) damaged productivity.
New Zealand Herald, July 11. 2015: No winners in culture of overwork
Employee output falls sharply after a 50-hour working week and falls off the cliff after 55 hours, with those putting in 70 hours producing nothing more in those extra 15 hours, according to a recent study by John Pencavel of Stanford University. He says long hours are also connected to absenteeism and high employee turnover, and there are ancillary costs to employers such as providing light, heat, ventilation, and supervisory labour during those extra hours.
Human Resources Executive Online, February 5, 2015: Long Hours Lead to Lower Productivity
Research by Stanford University economics professor John Pencavel indicates there’s a point of no return, if you will, when long hours and overwork become unproductive and unhealthy, and even have negative effects on your bottom line. So, counter to common thinking, your hardest workers may not be your best workers, not by a long shot.
The study—The Productivity of Working Hours, based on a review of much earlier research undertaken by investigators of the British Health of Munition Workers Committee during the First World War—finds employee output falls sharply after 50 hours of work in a week. After 55 hours, that output is fast becoming nonexistent, to the point that an employee working 70 hours in a week produces absolutely nothing between 55 and 70 hours, according to the research. 
“Long weekly hours and long daily hours do not necessarily yield high output,” Pencavel writes in his report, “and this implies that, for some employees engaged in certain types of work, their profit-maximizing employer [should] not be indifferent to the length of their working hours over a day or week.” 
This point has already been made in reports of fixed employment costs, where costs linked to the number of workers employed inclines a firm to extend workers’ hours, he notes. 
“[But] this paper,” Pencavel writes, “has suggested a different reason for an optimizing employer to care about the length of working hours: employees at work for a long time may experience fatigue or stress that not only reduces [their] productivity, but also increases the probability of errors, accidents and sickness that impose costs on the employer. 
“Unlike the case of fixed employment costs,” he writes, “these concerns over work stress incline the firm not to extend the work hours of employees, but to curtail them. … This is certainly not a new argument, but it seems to have been neglected in contemporary models of labor markets. It implies that restrictions on working hours—those imposed by statute or those induced by setting penalty rates of pay for hours worked beyond a threshold, or those embodied in collective-bargaining agreements—may be viewed, not as damaging restraints on management, but as an enlightened form of improving workplace efficiency and welfare.”

Thursday, July 9, 2015

Waarom een kortere werkweek een goede zaak is

Olivier Pintelon at

Mr. Nasty Doubles Down With "getting in line and being dependent on government"

The steno-pool commentariat doesn't seem to have noticed yet that poor ex-Governor Bush, trying to crawl out of one embarrassment, couldn't resist taking a jab at those notorious scroungers, people who work 30 hours a week instead of 40 (or 47) and thus are consigned to "getting in line and being dependent of government."

Govnah Bush doesn't have to get in line. Why, his clients get in line to pay him 7.3 million dollars (in 2013) to listen to his evident wisdom.

If you're explaining, you're losing...

Washington Post: 
HUDSON, N.H. -- Jeb Bush raised eyebrows on Wednesday by suggesting that "people need to work longer hours" in order to grow the economy. 
But he later clarified the comment, moving quickly to quell a fresh assault by Democrats eager to characterize the Republican presidential front-runner as out of touch.
Not so fast, Bush told reporters as he clarified his comments after a town hall meeting at a Veterans of Foreign Wars hall here. 
"If we’re going to grow the economy people need to stop being part-time workers, they need to be having access to greater opportunities to work," he told reporters.
"You can take it out of context all you want, but high-sustained growth means that people work 40 hours rather than 30 hours and that by our success, they have money, disposable income for their families to decide how they want to spend it rather than getting in line and being dependent on government," Bush said. [Sotto voce: note the reflex kick at people working "only" 30 hours a week as scroungers "getting in line and being dependent of government."]
Bush wasn't actually explaining his earlier statement. He was reinterpreting the statement, "people need to work longer hours," to mean something entirely different than "people need to work longer hours." "Working longer hours" and "having access to greater opportunities to work" are not equivalents.

Jeb Bush "at work"
One way to increase opportunities for involuntary part-time workers to work more hours is for those who are working 47 hours a week or over 50 hours a week to be working shorter hours. Heaven forbid! According to an August 2014 Gallup Poll, full time workers in the U.S. reported working an average of 47 hours a week, with 39% of full-time workers claiming to work over 50 hours a week -- almost as many as the 42% who say they work an FLSA standard 40-hour week.

I would take those figures with a tablespoon of salt. People lie about how hard they work. They think saying they work incredibly long hours makes them appear better than everybody else. Actually, it makes them look unproductive. Nevertheless, the Gallup results have held steady for the last 14 years at close to those numbers. If people are padding their hours for the pollsters, they are at least consistent about it.

If those superfluous seven hours per week were "lumps of labor" they could readily be redistributed to involuntary part-time workers and the unemployed eliminating both unemployment and underemployment! But of course, there is not "a fixed amount of work to be done" and the mere fact of redistributing work opportunities would increase productivity and output thus exacerbating the problem of insufficient demand unless that redistribution of hours was accompanied by a substantial redistribution of income in the form of higher wages.

Well, now you see why Jeb Bush was calling for longer hours rather than shorter hours. Longer hours means less pressure for wage increases. Wouldn't want that. Heck of a job, Jebbie!

Feudal Reveries

Reading Robyn Creswell and Bernard Haykel's essay on jihadi poetry in the June 8-15 New Yorker, I was intrigued by how their description of the "culture of jihad" (cult might  have been a more apt word than culture) could easily be applied to the "culture of confederacy":
The culture of jihad is a culture of romance. It promises adventure and asserts that the codes of medieval heroism and chivalry are still relevant. Having renounced their nationalities, the militants must invent an identity of their own. They are eager to convince themselves that this identity is not really new but extremely old. The knights of jihad style themselves as the only true Muslims, and, while they may be tilting at windmills, the romance seems to be working. ISIS recruits do not imagine they are emigrating to a dusty borderland between two disintegrating states but to a caliphate with more than a millennium of history.
One might paraphrase, "The cult of confederacy is a cult of romance. It promises adventure and asserts that the codes of ante-bellum heroism and chivalry are still relevant..." Notable in these anachronistic fantasies is that the recruits imagine themselves to be medieval knights, Southern gentlemen. In other words, the transit back in time also represents a profound elevation in social class.

"Gosh, if only I had been born a thousand years ago, surely I would have been king!" Obviously the recruits to these anachronistic reenactments have a deficient understanding of probability and statistics. They wouldn't have been knights or gentlemen, they would have been peons. They wouldn't have been writing (or reading) poetry and brandishing swords. They would have been illiterate, wielding a hoe.

People should be careful what they wish for. Especially when it's nostalgia.

Wednesday, July 8, 2015


Guardian: Exxon knew of climate change in 1981, email says – but it funded deniers for 27 more years

Story from Union of Concerned Scientists report.

Jeb Bush: "People need to work longer hours."

Dubya's dumber brother.

"My aspiration for the country and I believe we can achieve it, is 4 percent growth as far as the eye can see. Which means we have to be a lot more productive, workforce participation has to rise from its all-time modern lows. It means that people need to work longer hours and, through their productivity, gain more income for their families. That's the only way we're going to get out of this rut that we're in."
How many more hours? Let's put this in perspective.

The Jeb Bush household's declared income in 2013 was $7.3 million.

The median U.S. household income in 2013 was $52,250.

The median hourly wage for May 2013 was estimated by the BLS at $16.87 and hour.

If the median income household earned a median hourly wage, they would need to work a total of 2942 hours a year, assuming 155 hours a year (5%) vacation and holiday pay.

The Bush household had 140 times as much income in 2013 as the median U.S. household.

To earn as much income as the Bush household, the median household would have to work an additional 8,600 hours -- night and day for a whole year -- each week.

Tuesday, July 7, 2015


Isn't anyone listening?
The CSI300 index slumped more than 7% at the open and was down 4.8% at 3,739.18 points by 2.08am GMT. 
The Shanghai Composite Index dropped 8% and was down 4.7% at 3,551.13 points by mid-morning. 
China stock futures pointed to further losses. 
Losses on the mainland also weighed heavily on Hong Kong shares, with the Hang Seng Index down 3.3% and shares of Chinese companies listed in the city falling 4.2%. 
As the markets opened, only 11% of companies on the two key mainland markets were still trading. 
Christopher Balding, a professor of economics at Peking University said that while it was not possible to know exactly why so many companies had suspended trading, a large number were doing so because they had used their own stock as collateral for loans and they want to “lock in the value for the collateral”. 
“Today is all about China, with Greece in the background now that it’s been given a new deadline,” said Ayako Sera, a senior market economist at Sumitomo Mitsui Trust Bank in Tokyo. 
“Shanghai’s early losses were like a cliff-dive, which had a huge impact on investor sentiment.”
What fundamentals?

Imperial Panorama: A Tour of German Inflation

Walter Benjamin (1925-6):

“1. In the stock of phraseology that lays bare the amalgam of stupidity and cowardice constituting the mode of life of the German bourgeois, the locution referring to the impending catastrophe — that “things can’t go on like this” — is particularly noteworthy. The helpless fixation on notions of security and property deriving from past decades keeps the average citizen from perceiving the quite remarkable stabilities of an entirely new kind that underlie the present situation….”

“14. The earliest customs of peoples seem to send us a warning that in accepting what we receive so abundantly from nature we should guard against a gesture of avarice. For we are able to make Mother Earth no gift of our own. It is therefore fitting to show respect in taking, by returning a part of all we receive before laying hands on our share. This respect is expressed in the ancient custom of the libation. Indeed, it is perhaps this immemorial practice that has survived, transformed, in the prohibition on gathering forgotten ears of corn or fallen grapes, these reverting to the soil or to the ancestral dispensers of blessings. An Athenian custom forbade the picking up of crumbs at the table, since they belonged to the heroes. If society has so degenerated through necessity and greed that it can now receive the gifts of nature only rapaciously, that it snatches the fruit unripe from the trees in order to sell it most profitably, and is compelled to empty each dish in its determination to have enough, the earth will be impoverished and the land yield bad harvests”

Austerity vs. Stimulus: Ignoring the Inherent Contradictions of "Growth"

Jennifer Hinton at the Guardian:
The issue of austerity versus stimulus is often framed as the entire debate – if you don’t support one, you must support the other, because there are no alternatives. This is the same binary debate that has been going on for more than 100 years between the state versus the market. Yet, these dichotomies distract people from thinking about what’s really important – the goal of these policies, which is to grow the economy. 
No analysis I’ve read thus far has questioned the damaging role that the endless quest for economic growth plays. Neither austerity nor government stimulus will ever be able to address the debt crises and recessions of the twenty-first century because what we’re dealing with here is an inherent contradiction of capitalism.

Wednesday, July 1, 2015


The Cover-up is Alway Worse Than the Crime

The crime:
Nobel laureate [Stiglitz] tells TIME that the institutions and countries that have enforced cost-cutting on Greece "have criminal responsibility"
The cover-up:
"Greece is in a difficult situation, but purely because of the behaviour of the Greek government ... Seeking the blame outside Greece might be helpful in Greece, but it has nothing to do with reality," said Schäuble. "The Greek government is not doing its people any favours at all if it keeps making completely false statements. Nobody else is to blame for their situation. It’s all very sad. We’re in a much harder situation than before. It was always difficult. But it has just kept getting more and more difficult since January." 
Follow the money and it is clear that Schäuble is lying. He knows he's lying and he knows we know he's lying. The bluster is meant to paralyze criticism with its audacity.