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"?