Tuesday, January 26, 2016

Who Needs Hatchet Jobs?

The Sandwichman was flattered to have been the subject of a two-and-a-half-page rebuttal by self-styled "anarcho-capitalist" economist Pierre Lemieux in his 2014 book Who Needs Jobs: Spreading Poverty or Increasing Welfare. Lemieux devotes an entire chapter to "The Lump of Labor Fallacy."

Lemieux gets two things right in his rebuttal. He affirms that the lump of labor fallacy is the inverse of "Say's Law" that "supply creates its own demand." Some people would argue that the so-called Law is not a law and that it is not Say's. Anyway, the logic is if you don't believe "supply creates its own demand" then you are assuming that the amount of work to be done is fixed. It's a bizarre claim and I'm glad someone confesses eagerly admits to making it.

Other than portraying me as "a proponent of compulsory reduced working time", his initial summary of my argument in the first two paragraphs is fair enough except for a peculiar claim about S.J. Chapman ending his career as a "controller of matches" during World War II. Chapman retired before the start of World War II and suffered from a stroke in the early 1940s. There actually is a brief entry on Chapman in a 1991 book, The Professionalization of Economics, that ends with "Controller of Matches, 1939-44" but gives no explanation of what this title could possibly refer to.

Other than that the chapter is a superficial hatchet job, if I do say so myself. I am hoping that someone would be interested in doing a rebuttal to Lemieux's rebuttal. I have a dropbox full of pdfs for anyone who wants to pursue that. Here is a picture of Lemieux with Conrad Black in 2005:

Here is the excerpt from Lemieux's book in which he tries to refute the Sandwichman's critique of the lump-of-labor fallacy claim.
One recent proponent of compulsory reduced working time is activist Tom Walker. Although he claims that the lump-of-labor theory is not necessary for defending his proposal, he is obviously sympathetic to it and invokes economists who supposedly did not consider it a fallacy. Walker’s basic argument is that better-rested workers would become more efficient (have a higher productivity), push product prices down, and thus increase consumer demand for them.  
This argument rests on the double assumption that labor productivity can be increased by reducing working time, and that the employers don’t realize it and have to be forced to follow their own interest. Why would greedy capitalists fail to see something so obviously profitable that an armchair writer can discover it? Because, Walker argues, competition prevents employers from acting on their discovery even if they do find out that shorter hours are productivity enhancing. In this line of argument, Walker follows a 1909 article by economist Sydney Chapman, a British civil servant who, during World War II, ended his career as controller of matches for His Majesty’s government. The Chapman-Walker argument goes as follows. Suppose some firms realize the productivity potential of shorter hours and reduce the working time of their employees without cutting pay. Competing firm would “poach” the well-rested employees by offering them higher pay for more work. Thus, competition would lead all firms to end up overworking their employees again.  
This explanation is very weak. How could a poaching firm offer a pay raise to a worker who, by hypothesis, would become less productive when he worked more? And if the poaching firm did not offer a pay raise to the poached worker, why would he leave a firm where he works fewer hours to move to one which would overwork him for the same price? Such inconsistent behavior assumes that individuals are unable to choose the optimal number of work hours necessary to maximize their utility. Individuals can certainly make mistakes, but generally assuming that individuals cannot choose what is best for them, given their preferences and constraints, is at best paternalistic, at worst elitist. If an individual cannot make an optimal choice for himself between leisure and work, how could bureaucrats and politicians be able to do it for him? How would intellectual dilettantes know what’s best for other individuals—and how can they be so sure of their hunches that they are willing to coercively impose them? Chapman did recognize that intervention is justified “if it be assumed that the State can discover what is best for the country.” 
Walker cites John Hicks’s The Theory of Wages in support of his argument, apparently misreading the famous economist. Hicks had raised questions that became Chapman’s and Walker’s arguments, but he had broadly dismissed them. If they make an error about their employees’ productivity, employers will sooner or later realize it. Employees can also make temporary mistakes, but competition is a better way than government intervention to correct the situation. Talking about the individual who “endeavours to protect himself, through Trade Unionism and the democratic State,” Hicks concludes: 
"But our examination of the effects of regulation has shown that this protection can rarely be adequate. Carried through the end, it can only result in a great destruction of economic wealth."
Walker falls into Keynes’s trap of general overproduction, and further adds the idea that “demand for any given commodity will inevitably reach a saturation point.” It is not impossible that demand for a certain good will reach saturation. Consumption time being limited to 24 hours a day, and storage space carrying a cost, there is only a certain number of Ferraris that an individual would want. When each American owns three Ferraris, he may not want another one. He would rather consume something else during the time he is not driving or admiring his cars. But it is unlikely that consumption in general will ever reach a saturation point. There is always something else that some individual would like: a farm, a yacht, a plane, a private library, a larger ranch, a longer yacht, a larger plane, a larger private library, another vacation trip, and so forth. And if a given individual does reach general saturation, he may decide to give his money to others. The market response seems to make intervention in working time unnecessary and undesirable. 
After all, Walker does have to rely on the lump-of-labor fallacy. He laments that the arguments for reducing working time to combat unemployment “have not been engaged by any of the authors who assert that reduced working time policies are populist nostrums bereft of sound economic reasoning.” The reason why few serious economists have engaged lump-of-labor arguments is, I suggest, that they are indeed bereft of sound economic reasoning.
Just to give you a whiff of Professor Lemieux intellectual standard, let me give a little more context for that concluding "lament" of mine. I was discussing the contributions of John R. Commons, Luigi Pasinetti and John Maynard Keynes -- I could have added Chapman, Maurice Dobbs, A. C. Pigou, John Maurice Clark and several labor economists that were well regarded in their day. So here is the full quote from my article that Lemieux truncated:
What Commons, Keynes and Pasinetti have in common, besides their views that the reduction of working time is one way to combat unemployment, is that their analyses have not been engaged by any of the authors who assert that reduced working time policies are populist nostrums bereft of sound economic reasoning.
In the page and half leading up to that lament I had summarized the relevant contributions of Commons, Keynes and Pasinetti. rather than engage those arguments, Lemieux chose to glibly misrepresent my passage by lifting it out of context. I've told this story before but it is appropriate here. Speaking to the motion to censure Senator Joseph McCarthy, Senator Sam Ervin gave this folksy illustration of McCarthy's slippery ways with words:
I now know that the lifting of statements out of context is a typical McCarthy technique. The writer of Ecclesiastes assures us that "there is no new thing under the sun." The McCarthy technique of lifting statements out, of context was practiced by a preacher in North Carolina about 75 years ago. At that lime the women had a habit of wearing their hair in top-knots This preacher deplored the habit. As a consequence, he preached a rip-snorting sermon one Sunday on the text, "Top Knot Come Down." At the conclusion of his sermon an irate woman, wearing a very prominent top-knot, told the preacher that no such text could be found In the Bible. The preacher thereupon opened the Scriptures to the 17th verse of the 24th chapter of Matthew and pointed to the words:
"Let him which is on the housetop not come down to take anything out of this house."
Any practitioner of the McCarthy (Lemieux) technique of lifting things out of context can readily find the text, "top not come down" in this verse.