Friday, January 28, 2011

Keynes was a Crank

Sandwichman explains in a comment at Worthwhile Canadian Initiative.

The Citadel

"The strength of the self-adjusting school depends on its having behind it almost the, whole body of organized economic thinking and doctrine of the last hundred years. This is a formidable power. It is the product of acute minds and has persuaded and convinced the great majority of the intelligent and disinterested persons who have studied it. It has vast prestige and a more far-reaching influence than is obvious. For it lies behind the education and the habitual modes of thought, not only of economists but of bankers and business men and civil servants and politicians of all parties."

Thursday, January 27, 2011

Bartering Green Cheese

Keynes could not have been more explicit.
Unemployment develops, that is to say, because people want the moon;--men cannot be employed when the object of desire (i.e. money) is something which cannot be produced and the demand for which cannot be readily choked off. There is no remedy but to persuade the public that green cheese is practically the same thing and to have a green cheese factory (i.e. a central bank) under public control.
Well, perhaps Keynes should have been a tad more explicit...

Isolated Groups of Cranks

"The heretics of today are the descendants of a long line of heretics who, overwhelmed but never extinguished, have survived as isolated groups of cranks... Now I range myself with the heretics."

Say the Secret Word and Win $100!


Wednesday, January 26, 2011

Clearly Bad Social Policy?

In his Foundations of Economic Analysis (1947), Paul Samuelson wrote the following critique of the idea of a guaranteed minimum income:
Thus, we might decide that everyone should have at least a minimum income, that Society will make up the deficiency between what the less fortunate can earn and this minimum. Once this is realized by those who fall below the minimum, there is no longer an incentive for them to work at the margin, at least in pecuniary material terms. This is clearly bad social policy, not because I have a vulgar prejudice in favor of work and against leisure. On the contrary, the increases in real income in the years ahead probably will be spent in considerable degree on leisure. It is wrong because it forces the rest of society to give up leisure [emphasis added].

Tuesday, January 25, 2011

The Barter They Come

Nick Rowe at Worthwhile Canadian Initiative thinks the war on demand is weird and presents some very basic theory to show what he means:

Monday, January 24, 2011

Dead Time

At four o'clock in the afternoon, PST, the traffic on this blog goes flat. I'm trying to figure out why because four o'clock here is some other time elsewhere, so it's not as if everyone is just getting off work or shopping for, cooking and eating dinner.

Friday, January 21, 2011

Pushing on a String

"The [Jobs and Competitiveness] Council will focus on finding new ways to promote growth by investing in American business to encourage hiring..."

Way to go, Barry! Way to put jobs THIRD in a "jobs council"! Pay no attention to that man behind the curtain.

Thursday, January 20, 2011

Partial vs General equilibrium labor supply models

In the standard labor supply model, the individual's choice between income and leisure is mediated by the wage level. But in the analysis of labor demand, the presence of quasi-fixed, per-worker costs constrain the substitution of hours for workers. To an ignorant non-economist, the presence of these quasi-fixed costs raises questions about what economists mean when they refer to 'the wage' with regard to their labor supply model.

I'm sure my confusion could be easily cleared up with a few letters of the Greek alphabet, an indifference curve or two and a smattering of strategically-placed assumptions. But I want to try to do it the hard way, with examples drawn from real data that have a semblance of familiarity to the unlearned, such as myself.

Monday, January 17, 2011

Partial vs General equilibrium lumps of labour

At Worthwhile Canadian Initiative, Nick Rowe asks the question "Does an increase in productivity cause labour demand to increase or decrease?" and presents a simplified sketch of how that question might be answered in a general equilibrium analysis. Nick's sketch has some correspondences with as well as theoretical differences from Luigi Pasinetti's analysis of the same question.

Here is how Pasinetti addresses that question in Chapter V of Structural Change and Economic Growth:

Sunday, January 16, 2011

Lump Spotting at the Washington Post

UPDATE: Dean Baker skewers Lozada's Utopian Thinking on Jobs and Unemployment at the Washington Post.

Carlos Lozada at the Washington Post invokes the lump-of-labor fallacy fallacy without naming it. "Should the retirement age be lower, not higher?"
Early last year, Rep. Dennis Kucinich (D-Ohio) also called for a lower retirement age as a job-creating initiative and got nowhere with it, save perhaps a few interviews with baffled financial journalists. The proposals echo a familiar, and questionable, notion on the left: that we should find ways to better parcel out existing jobs. It's the same logic that leads some countries to consider cutting the number of hours or days someone can work each week, so that more people can share the work pool. In reality, the true challenge is to figure out how to create new jobs.

Galbraith writes ominously that the effort to increase the retirement age is "the most dangerous conventional wisdom in the world today." But sometimes the conventional wisdom is not only conventional, but wise as well.
Actually the "familiar and questionable notion" is Lozada's bullshit. See Facts or Fallacies Part III: Combinations, Murder and the Primordial Lump

The Speech Ike Didn't Give

In an op-ed at the Washington Post, Susan Eisenhower laments  "50 years later, we're still ignoring Ike's warning". She mentions a "bookend" speech Eisenhower made at the beginning of his presidency in 1953, but I prefer an earlier one he didn't make during the campaign because it was pre-empted by Nixon's Checkers speech. Here is The Speech Ike Didn't Give:

Pierre Larrouturou in Le Monde

"No, it is not true that we work less in France than elsewhere."

Anna Coote on 21 Hours

Productivity, labour demand, and employment

Nick Rowe at Worthwhile Canadian Initiative commits a fallacy faux pas on the way to making the otherwise reasonable observation regarding the historically positive relationship between productivity and employment growth: "But it didn't have to happen that way. And it might not always happen that way in future."

Friday, January 14, 2011

Apocalypse Non

One of the nice things about having your own blog is you can write comments in response to blogs where you have been BANNED FOR LIFE for mentioning (with sarcasm) the blogger's elite private school upbringing. At the Relentlessly Progressive Economics blog, Upper Canada College alumnus Marc Lee ponders The End of the World as We Know It and comes to the fey conclusion that he's O.K. with human extinction as long as we make the best of the few decades or centuries we have left.

The banned-for-life Sandwichman submitted his "Cure for Apocalypticism", which was duly routed to the ether. It's a wonder how relentless these progressive economists can be when it comes to remarks about their boys' school etiquette! But I saved the cure before submitting it, so here it is:

Monday, January 10, 2011

Unemployment, Cornucopia and the Identity Crisis of "Green Growth"

"Every labor-saving device creates in general as many, oftentimes more, jobs than it destroys.” Robert Millikan, "Leaders Deny Science Cuts Jobs," New York Times, February 23, 1934.

"...in spite of dire predictions, continued growth has created many more jobs than it has destroyed, holding North American unemployment to levels that can be dealt with fairly easily by public policy." Richard Lipsey, "The End of the World As We Know It?" Literary Review of Canada, October 2009.

Sunday, January 9, 2011

Vitriol

Pima County Sheriff Clarence Dupnik:

"People tend to pooh-pooh this business that we hear about all the vitriol we hear inflaming the American public by people who make a living doing that," he said. "That may be free speech – but there are consequences."

Once upon a time, in the early 19th century, "throwing vitriol" referred to, well, actual vitriol -- sulphuric acid -- thrown, threatened to be or allegedly thrown at strikebreakers (or 'knobsticks').

Friday, January 7, 2011

Juliet Schor's 80% Solution

From her blog, Plenitude
If the US started down the 80% solution road it would make a huge dent in unemployment. Employers could hire 5 people for every 4 jobs that are available. It’s a shorter worktime policy that doesn’t require cutting the hours and pay of people who have jobs. Instead, new people come on at 80% pay and work only 4 days. It’s especially feasible for younger workers who are getting salaries for the first time and for many of whom shorter hours are appealing.

Dani Rodrik Debunks the "Mercantilist Fallacy" Fallacy

In The Globalization Paradox, Dani Rodrik's discussion of the flaw in the case for free trade is magnificent! It's in in Chapter Three, especially pages 51 to 53. Rodrik explains that there is more to the objections to free trade than the mercantilist fallacy that free traders are so fond of debunking.

Thursday, January 6, 2011

Regulations: Habit or "Theory"?

From The Industrial Revolution in the Eighteenth Century by Paul Mantoux
One of the objects which the workers who combined most consistently pursued, and which they thought was one of the best means to better their condition, was the maintainance and extension of old regulations. All the more, therefore, when they were forbidden to combine for the purpose of protecting their common interests did they appeal to the protection, real or illusory, which these regulations afforded them against economic oppression.

Wednesday, January 5, 2011

Hansard -- The Glasgow Cotton Spinners

House of Commons debate, 13 February, 1838

"With these observations, and thanking the House for the indulgence it had extended to him on this occasion, he should conclude by moving the amendment of which he had given notice, namely, 'That a Select Committee be appointed to inquire into the origin, nature, and extent of trades' unions or combinations of workmen or employers of workmen in the United Kingdom, and the tendency of such unions or combinations to affect the free distribution of wages, labour, and employment, and also their tendency to induce the commission of outrages against persons and property, and the perpetration of murder; and also to report such suggestions for improvement in the existing laws against illegal combinations or societies as they may deem requisite.'"

Shorter Daniel O'Connell Speech

From Hansard, 13 February 1838

The efforts made by combinators to raise their wages when confined to themselves were legitimate, and as long as they kept within the bounds of the law they ought not to be disturbed; but it appeared that they had forgotten the maxims on which they ought to act. They were not entitled to wages out of capital; they were only entitled to them out of profits, and if their employers made no profits the wages must decrease. Wages, which were the price of labour, must depend upon the demand; and when the supply was greater than the demand, the price of labour of course must be lowered. This was the condition of Ireland; there was a great supply of labour, and a small demand for it. Labour was in such quantities that labourers were ready to accept the small wages of sixpence a day. Labour there was so cheap because there was no demand for it. The question, then, in Ireland was, how was the demand to be created? There was but one way of creating the demand. It was only to be created by tempting capitalists to the country, in order that having cheap labour they might have profits from it. The misfortune of Ireland was, that workmen, impatient of their present state of suffering, did not wait for a gradual and progressive improvement, but they endeavoured by monopoly to obtain that which ought to arise from the competition of employers. The workmen of the city of Dublin (for his attention was directed to Ireland) sought a remedy in monopoly. They had endeavoured to narrow the supply, in order that the demand might be kept up and the amount of the wages preserved. The demand did not equal the quantity of labour in the market. The combination had for its object to close the market of labour; it sought to keep persons from entering into a competition in the market of labour, and to raise the wages by diminishing the supply. The monopoly was almost complete in Dublin. There was nothing to equal the regulations and the arrangements for keeping up that monopoly. The right hon. Gentleman had well said, that there was no tyranny equal to that which was exercised by such persons over their fellow-labourers who endeavoured to carry their own labour into the market. He had wished to show those persons the folly of their course, as well as its illegality and wickedness. He had wished to show them the evils and the defects of their monopoly.
From Irish Trade Unions and Politics, Rachel O'Higgins, The Historical Journal 1961:

By 1837 it had become apparent that the 'idol of organised labour' was hostile to trade unionism. Although a radical by inclination, O'Connell distrusted profoundly political and economic organizations among the lower classes of any magnitude since they appeared to him to threaten the 'groundworks of the social state-the protection of property and the institutions of the country'. In 1837 he attacked the strike of the Glasgow cotton spinners and later the same year outraged many of his warmest supporters among the Dublin trades by attacking the system of combination. At a meeting of the Trades Political Union in November 1837 he condemned all forms of combination and declared that 'the vengeance of an outraged God, and the severe but just punishment of the law, will not fail to overtake their abominable crimes '. He warned the Irish tradesmen against 'the childish folly of regulating the labour of adults... which would end by converting their manufacturers into beggars '. The following February, in the House of Commons, O'Connell denounced Irish trade unionism. 'By a clever analysis of the rules of the Irish societies', wrote Sidney and Beatrice Webb, 'O'Connell condemned in a speech of great power all attempts on the part of the trade combinations to regulate the conditions of labour '.

Monday, January 3, 2011

Bicentennial!

From Spartacus Schoolnet: The Luddites
In the early months of 1811 the first threatening letters from General Ned Ludd and the Army of Redressers, were sent to employers in Nottingham. Workers, upset by wage reductions and the use of unapprenticed workmen, began to break into factories at night to destroy the new machines that the employers were using. In a three-week period over two hundred stocking frames were destroyed. In March, 1811, several attacks were taking place every night and the Nottingham authorities had to enroll four hundred special constables to protect the factories. To help catch the culprits, the Prince Regent offered £50 to anyone "giving information on any person or persons wickedly breaking the frames".

See also: Thomas Pyncon, Is it O.K. to be a Luddite?

"Mr. Wordy" on Corn, Combinations and Chrematistique

From Coningsby by Benjamin Disraeli.
Mr. Rigby listened at first to the inquiries of Coningsby, urged, as they ever were, with a modesty and deference which do not always characterize juvenile investigations, as if Coningsby were speaking to him of the unknown tongues. But Mr. Rigby was not a man who ever confessed himself at fault. He caught up something of the subject as our young friend proceeded, and was perfectly prepared long before he had finished to take the whole conversation into his own hands.

Facts or Fallacies Part III: Combinations, Murder and the Primordial Lump

In Part I, I compared the statistical fact that non-farm employment was lower in September 2010 than it had been in December 1999 with the assertions that those who believed any such thing could occur were guilty of a lump-of-labor fallacy. In Part II, I rehearsed debating points regarding Paul Krugman's columns citing the alleged fallacy.

My intention in Part III is not to refute the fallacy claim. I believe I did that sufficiently in "Why Economists Dislike a Lump of Labor" and "The Lump-of-Labor Case Against Work-Sharing." To date, no one has brought forward a substantive rebuttal to those articles. Instead, I will explore further the evolution of the fallacy claim.