Inequality, Growth and Leisure

In response to musings by Paul Krugman on inequality and growth, Dean Baker asks whether taking more of the benefits in leisure time might skew the appearance of the data. That is to say if the value of leisure wasn't excluded from GDP, those countries that took more leisure -- and, incidentally, are relatively more equal -- would have higher growth rates.

Ironically, Dean doesn't have the time just now to check that one out. Sandwichman has time but not Dean's virtuosity with data.

As Krugman argues, "there just isn't a striking, simple relationship between inequality and growth; all the results depend on doing fairly elaborate data massaging..." There isn't a striking result to be had from the data for a good reason. There isn't a single relationship in the underlying reality. The results are also constrained by what questions are being asked.

The presumptive question seems to be whether inequality is good or bad for growth. Is that the only question worth asking? Is it the best question? Dean framed his question about leisure as a supplement. He remarks, mock apologetically, "there is nothing wrong with taking the benefits of higher productivity in the form of leisure rather than income."

Wanna bet?

There must indeed be "something wrong" with taking the benefits of higher productivity as leisure. Otherwise, why would economists echo, decade after decade, the lump-of-labor refrain against the "fallacy" of reducing working time? If there really was nothing wrong with taking the benefits of productivity as leisure, then, hey presto, that boilerplate injunction would be superfluous -- inappropriate, even.

Are economists ignoring the obvious?

Sixty years ago, Simon Kuznets -- who won the Sveriges Bank ("Nobel") Prize for his pioneering work in national income accounting -- was puzzled by his finding that for a limited sample of industrially-advanced countries, inequality didn't increase with growth. He was puzzled, in part, because ceteris paribus, "the cumulative effect of such inequality in savings would be the concentration of an increasing proportion of income-yielding assets in the hands of the upper groups." This was the famous inverted "U"-shaped Kuznets curve. Subsequent research by Thomas Piketty has shown the curve to be an anomalous statistical artifact of the periodization and country selection.

There are a multitude of factors that could explain the Kuznets curve anomaly and it is doubtful that knot could ever be untangled. But let me suggest a factor candidate. The period in which the Kuznets curve prevailed was the period in which the eight-hour day became standardized in the industrially-advanced countries. Instead of looking exclusively at the relationship between growth and inequality, might there not be greater insight gained from investigating the triad of growth, inequality and leisure?

Those FT monkeys

Because... Marat/Sade.

Those FT monkeys covered in banknote
Have champagne and brandy on tap
They're up to their eyeballs in franc notes
We're up to our noses in crap
Those gorilla-mouthed fakers
Are longing to see us all rot
The gentry may lose a few acres
But we lose the little we've got
Revolution, it's more like a ruin
They're all stuffed with glorious food
They think about nothing but screwing
And we are the ones who get screwed

Hey Presto, A Lump of Boilerplate!

Gosh, I guess there are only so many words to go round!

Those FT monkeys, covered in banknotes, "The short working week that holds France back," Financial Times, May 28, 2015:

Introduced in the late 1990s by the Jospin government with that cool disregard for the “lump of labour” fallacy that only those educated at top French universities can contrive, this sought to cut unemployment by reducing the number of hours each individual worked. Do that and, hey presto, the idea was that there would be more jobs to go round. 

Ruth Lea, "Personal view: It's time to break the Government's web of tax fallacies," The Telegraph, Feb. 20, 2006,

My second fallacy is the "lump of public services fallacy". This is based on the idea that there is an immutable relationship between public spending and public services output. Spend the money, which the Chancellor will insist on calling "investment", and, hey presto, there will be a "lump" of "high quality" services.

The Economist: Economics: An A-Z Guide, 2003:

One of the best-known fallacies in ECONOMICS is the notion that there is a fixed amount of work to be done - a lump of LABOUR — which can be shared out in different ways to create fewer or more jobs. For instance, suppose that everybody worked 10% fewer hours. FIRMS would need to hire more workers. Hey presto, UNEMPLOYMENT would shrink.

What explains this remarkable coincidence of terminology?

The key is to exploit journalists’ incredible laziness. If you lay out the information just right, you can shape the story that emerges in the media almost like you were writing those stories yourself. In fact, that’s literally what you’re doing, since many reporters just copied and pasted our text.

Meanwhile, over at Jacobin there is a nice little non-boilerplate, non-plagiarized, non-bullshit essay by Michel Husson and Stephanie Treillet, Liberation Through Vacation: "Reducing working hours is more than a path to full employment. It could help millions live more fulfilling lives.":

Reducing forced labor time opens up various prospects for human and social emancipation. The possibility of emancipating ourselves from forced labor cannot be dissociated from the possibility of reducing exploitation in forced labor. This is the meaning of Simone Weil’s sentence: “No one would accept to be a slave for two hours; to be accepted, daily slavery must last long enough to break something in a human.”

Unpuzzling the Politics of Growth and Redistribution: What hath growth wrought?

"If there is a future for cosmopolitanism in Europe, it needs a credible politics of growth and redistribution." -- Peter Dorman, "Europe, Where Two Rights Make a Wrong"

Sandwichman wonders how such a politics would differ from the "ostensible socialist" wing of the neoliberal coalition. First, it would help to have a credible definition of what it is that is supposed to be growing. "Growth" sounds good... as long as you don't have to pin it down. But what supposedly grows -- national income and product accounts -- is an incomplete, monetized aggregate of disparate things, some of which are double counted, and "more" of which could mean just about anything or nothing. 

It is wishful thinking to assume that more of "whatever" will inevitably be better than a well-specified less.

Barkley Rosser took Sandwichman to task for suggesting that the mix of empirical information, speculation and wishful thinking about the relationship between economic growth and income inequality has probably worsened since Simon Kuznets 1954 estimate of "5 per cent empirical information and 95 per cent speculation, some of it possibly tainted by wishful thinking":

But the hard fact is that there is lots more data out there on many aspects of economics, including the precise issues that Kuznets was studying when he made his complaint about "speculation."

Barkley is right about there being more data and empirical work out there, although it is unnerving that the example he cited as a sign of the empirical work -- Thomas Piketty's work -- doesn't support the complacent conventional wisdom regarding the unquestionable beneficence of economic growth. I would like to add another source that supports Barkley's claim about empirical work but contradicts the dominant complacency about growth: François Bourguignon and Christian Morrisson's widely-cited "Inequality among World Citizens: 1820-1992":

To summarize, this analysis shows that world income inequality worsened dramatically over the past two centuries. ... Changes in inequality within countries were important in some periods, most notably the drop in inequality within European countries and their offshoots in America and in the Pacific during the first half of the 20th century. In the long run, however, the increase in inequality across countries was the leading factor in the evolution of the world distribution of income. ... World inequality seems to have fallen since 1950 as a result of the pronounced drop in international disparities in life expectancy. But now that disparities in life expectancy are back to the levels before the big divergence of the 19th century, this source of convergence has lost its influence.

Bourguignon and Morrisson's empirical analysis -- along with Piketty's -- controverts that initial, tentative summary of long-term trends that puzzled Simon Kuznets:

...a long-term constancy, let alone reduction, of inequality in the secular income structure is a puzzle. For there are at least two groups of forces in the long-term operation of developed countries that make for increasing inequality in the distribution of income before taxes and excluding contributions by governments. ... What is particularly important is that the inequality in distribution of savings is greater than that in the distribution of property incomes, and hence of assets. ... Other conditions being equal, the cumulative effect of such inequality in savings would be the concentration of an increasing proportion of income-yielding assets in the hands of the upper groups -- a basis for larger income shares of these groups and their descendants.

The puzzle is solved because there isn't "a long-term constancy, let alone reduction, of inequality in the secular income structure" after all. This is not to say that the relationship between economic growth and inequality is an uncomplicated one, wholly determined by the disproportion of savings between people in different income groups. But it does fundamentally undermine the conclusions of cross-country regressions, "on the basis of which," as Bourguignon put it, "it would be tempting to conclude that 'growth (of any nature) is good for the poor'."

But what about a politics of economic growth (of any nature?) and redistribution? It might work -- just as a politics of general copulation could reduce the birth rate if combined with effective measures of contraception. Long live the revolution, indeed!

On the other hand, why make redistribution conditional on achieving growth targets in the first place? In bargaining parlance, that is what's known as a fall-back position. You don't present your fall-back position in your opening proposal. That's called "giving away the farm."

A few days ago, Sandwichman promised to expound on why the perpetual fallacy mantra even matters. Here is why. Those FT monkeys (covered in banknotes) would simply prefer to rhetorically prohibit the only opening gambit that could force real concessions from the folks who have champagne and brandy on tap. That effective initial offer would be a demand that doesn't stupidly assume, but actively pursues a "fixed amount of work" with a more equitable distribution. The only "credible politics of growth and distribution" would put distribution first and leave it to the owners of a disproportionate share of income-yielding assets to offer a growth and redistribution compromise in their counter-proposal.

But, alas, those FT monkeys' strategy seems to be working. They think about nothing but screwing growing their income-yielding assets and we are the ones who get screwed yielded.

The Del Mar Inn, Vancouver, B.C.: "UNLIMITED GROWTH INCREASES THE DIVIDE"

Artist Statement (from "The Interventions of Kathryn Walter" by Bill Jeffries, Contemporary Art Gallery, Vancouver, 1990):

"The strategy behind 'Unlimited Growth...' is direct. It is directed at those who operate our free-market economy in their own interests, while excluding those interests that would be 'responsive to the needs of the community'. The subtext to 'Unlimited Growth...' relates to several aspects of public art including the need to address the use of site-specific work as a way of intervening in local issues, and in this instance, acting as a marker of resistance by the economically marginalized, as represented by a parallel gallery and a hotel providing affordable housing. Walter raises questions related to the systems underlying the transactions and power-plays that constitute normal business in the world of real estate development. In Walter's art the museum without walls is also a museum OF walls, walls new and old, as well as those walls that perpetuate economic class distinctions. Her text on the façade of the Del-Mar Hotel will stand as a witness to the various power-plays, including the threat to move B.C. Hydro's head office to the suburb of Burnaby, that led to the development surrounding 553-555 Hamilton Street." 

FT monkeys' false fallacy eruption

The Sandwichman has been out of town since last Wednesday and the Financial Times (those FT monkeys) has seized the opportunity to publish not one but two articles foisting the farcical lump of labour fallacy fable on an unsuspecting public. This is evidence of a complete lack of journalistic ethics. A simple fact check would reveal that the fallacy claim is bogus.

Some time later this week I expounded on why this even matters.

Trade, Bribes and Yardsticks

In the conclusion to their 1941 article "Protection and Real Wages," Wolfgang Stolper and Paul Samuelson wrote:

...it has been shown that the harm which free trade inflicts upon- one factor of production is necessarily less than the gain to the other. Hence, it is always possible to bribe the suffering factor by subsidy or other redistributive devices so as to leave all factors better off as a result of trade.

This is an instance of the infamous Kaldor-Hicks compensation criterion, which David Ellerman has shown to be a "same yardstick" fallacy. Ironically, Ellerman took the same yardstick analogy from another paper by Samuelson and elsewhere Samuelson is dismissive of the Kaldor-Hicks criterion.

Ian Little described the K-H criterion as unacceptable nonsense. But, hey, let's fast-track the TPP and maybe one of those winners will toss us a bribe!

 

The Fundamentals are Sound!

Uh oh.

My bottom line on the economy is: The fundamentals are sound. The underlying momentum in job growth remains solid. I expect wage growth to continue to rise and consumer confidence to continue to pick up steam. Monetary policy will remain highly accommodative—regardless of what may or may not happen with rates this year—which will spur spending. -- John C. Williams

As Sandwichman always says, when they're telling you "the fundamentals are sound," they are unloading.