Friday, March 25, 2011

The Times of London, Tuesday, Sep 21, 1871; pg.12; col C: The Engineers' Strike

To the Editor of the Times,


Mr. Aytoun's letter in your column of to-day is entirely based on the exploded fallacy that the amount of work to be done is a fixed quantity, unaffected by the wages paid or the number of labourers employed in producing it.

The Times of London, Tuesday, Sep 19, 1871; pg. 6; col B: The Engineers' Strike

To the Editor of the Times


The movement for diminishing the time at present devoted to labour by the workmen is a most important one, and well worthy of the attention of economists as bearing upon the industrial interests of the Empire. Let us suppose that the labourers in every trade and department were to work nine hours instead of ten. This would be tantamount in its effects on the production of commodities and on the labour markets to an emigration of one-tenth of the whole workmen of the country, while the consumers and the demand for commodities would remain the same. There is no doubt that the effect of this would be, in the first instance, to raise the rate of wages -- that is to say, to maintain for nine hours the same rate which had been previously paid for ten hours. The employer, however, would not lose by this, for, from the diminution of the supply and continuance of the demand, he would be enabled to sell the articles fabricated at a higher price.


Thursday, March 24, 2011

Borrow. Spend. Buy. Waste. Want.

"The planet itself seemed less impressive, in its old-fashioned, deliberate, annual or daily revolution, than this huge wheel, revolving within arm’s-length at some vertiginous speed, and barely murmuring..."

Wednesday, March 23, 2011

Kurzarbeit und Frankendata

Michael Burda and Jennifer Hunt are impressive mathematical modelers... with an axe to grind. Last week they presented a paper, What Explains the German Labor Market Miracle in the Great Recession? at the Brookings Panel on Economic Activity that no doubt will be cited frequently in the forthcoming campaign to dispel any post hoc ergo propter hoc suspicions that the German Kurzarbeit program was largely responsible for Germany's superior employment performance during the Great Recession. Their paper should contain a warning label: "Do not read if you are susceptible to feelings of intellectual insecurity." This is what their simple model of dynamic labor demand ("optimal behavior choice of extensive, intensive and temp outsourcing by the firm") looks like:

Monday, March 21, 2011

Ignoratio Elenchi II

It turns out that Maurice Dobb was not the first to invoke ignoratio elenchi in connection with the fixed work-fund fallacy. In his Unemployment (1913), Arthur Cecil Pigou reviewed at length "certain popular explanations" of unemployment that start from the theory that "there is not enough work to go round." Unlike Dobb, Pigou seems to accept the premise that the fallacy is common and explicates the fixed work-fund idea as a fallacy of composition.

Ignoratio Elenchi

Why do economists still feel compelled to try to redeem a bogus fallacy claim that Maurice Dobb correctly defined as ignoratio elenchi 83 years ago? The lump-of-labor parrot is NOT pining for the fjords. The only reason it has been sitting on its perch is that its feet were nailed there by textbook authors and hack journalists. This fallacy is an EX-FALLACY. In a comment at Worthwhile Canadian Initiative, Nick Rowe says, (in defense of the fallacy claim):

Thursday, March 17, 2011

Is rampant consumerism ruining our lives? Tim Jackson live Q&A at the Guardian

On Friday, March 18 between 1 and 2 p.m GMT Prosperity without Growth author Tim Jackson will be at the Guardian Environment Blog answering questions about happiness and economic growth.


As was reported by Brad DeLong, Paul Krugman and Mark Thoma, David H. Romer, the co-host of the IMF "Conference on Macro and Growth Policies in the Wake of the Crisis" had "one major source of unhappiness" with the conference:
Today, not only is unemployment higher than most 2008 forecasts of its peak levels, but the expected pace of recovery is weaker.

Despite this deterioration, the dire sense of urgency in late 2008 has not increased. Indeed, it has largely disappeared. I find this complacency in the fact of vast, preventable suffering and waste hard to understand.

The Sandwichman is shocked! Shocked to find that complacency is going on in here!

Friday, March 11, 2011

Ricardian Equivalence, Freudian Screen Memory and Keynes on the Long Term Problem of Full Employment

The econoblogosphere has erupted -- here, here, here and here -- in a flurry of contention over an abstract concept "absurd idea, with not a shred of evidence or logic to support it" that has nothing to do with employment but that purports to have something to do with full-employment policy. Mr. Keynes had the foresight to observe that in the long-run we are all dead. He forgot to mention that in the meanwhile economists will have redefined "the long run" as equivalent to "at all times", death as equivalent to life, hypertrophy as equivalent to euthanasia and amnesia as equivalent to deliberation.

Thursday, March 10, 2011

The Luddite Question: Rhythm, Rebounds and Elasticity

Paul Krugman, Brad DeLong, Chris Bertram at Crooked Timber and Frances Woolley at Worthwhile Canadian Initiative have all chimed in recently on aspects of what could be termed the Luddite question without, however, noting that Friday marks the two hundredth anniversary of the start of the Luddite riots. On March 11, 1811, workers protesting unemployment and low wages smashed textile machinery in a village near Nottingham, England.

There has been a presumption in much of the subsequent debate that the workers broke stocking frames because they blamed the machines for the low wages and unemployment. Although that presumption has been challenged repeatedly, the commonplace framing of the Luddite question remains: do machines eliminate jobs and destroy livelihoods? Or do they "create more jobs than they destroy" and promote a higher standard of living? The correct answer is, of course, "both." But getting to that answer requires recognition of an element that is excluded from the technological optimist and the technological pessimist arguments. That element is rhythm.

I will designate William Cobbett and Norbert Wiener as spokesmen for the optimist and pessimist positions, respectively, because both stated their case in letters -- Cobbett in "A Letter to the Luddites" in 1816 and Wiener in a letter to United Auto Workers president Walter Reuther in 1949.

That the use of machinery, generally speaking, can do the journeyman manufacturer no harm, you will be satisfied of in one moment, if you do but reflect, that it is the quantity of the demand for goods that must always regulate the price, and that the price of the goods must regulate the wages for making the goods.

I think, then, that it is quite clear, that the existence of machinery, to its present extent, cannot possibly do the journeyman manufacturer any harm; but, on the contrary, that he must be injured by the destruction of machinery. And, it appears to me equally clear, that if machines could be invented so as to make lace, stockings, &c. for half or a quarter the present price, such an improvement could not possibly be injurious to you. Because, as the same sum of money would still, if the country continued in the same state, be laid out in lace, stockings, &c., there would be a greater quantity of those goods sold and used, and the sum total of your wages would be exactly the same as it is now.

The detailed development of the machine for particular industrial purpose is a very skilled task, but not a mechanical task. It is done by what is called 'taping' the machine in the proper way, much as present computing machines are taped. This apparatus is extremely flexible, and susceptible to mass production, and will undoubtedly lead to the factory without employees; as for example, the automatic automobile assembly line. In the hands of the present industrial set-up, the unemployment produced by such plants can only be disastrous. I would give a guess that a critical situation is bound to arise under any condition in some ten to twenty years; but that if war should make the replacement of labor mobilized into the services an immediate necessity, we should probably have a concentrated effort put into this work which might well lead to large scale industrial unemployment within two years.
Well, ten and then twenty years went by without Wiener's gloomy scenario coming to fruition. Factory work declined but other occupations -- including "guard labor" -- increased to take its place. Doesn't the predictive failure of the pessimistic scenario vindicate the optimistic one? Not entirely. There is a catch to the optimistic scenario -- the Jevons Paradox or rebound effect.

The standard melding of the optimistic and pessimistic scenarios contrasts a short-term, local loss of employment through labor-saving devices with the long-term, global expansion of employment and prosperity as a result of price reduction and product innovation. That short-term, long-term dialectic also forms the basis of Jevons's argument about the long-term effect of efficiency improvements on resource consumption. Jevons was explicit on the point:
As a rule, new modes of economy will lead to an increase of consumption, according to a principle recognised in many parallel instances. The economy of labour effected by the introduction of new machinery, for the moment, throws labourers out of employment. But such is the increased demand for the cheapened products, that eventually the sphere of employment is greatly widened....

Now the same principles apply, with even greater force and distinctness, to the use of such a general agent as coal. It is the very economy of its use which leads to its extensive consumption. It has been so in the past, and it will be so in the future. Nor is it difficult to see how this paradox arises.
If the same principles do indeed apply to employment and energy consumption, then good news on one front is bad news on the other. If the principles apply with even greater force and distinctiveness, as Jevons believed, then the optimistic scenario becomes even more untenable. The latter is an empirical question but recent experience appears to confirm the point Jevons urged. For example, from 1983 to 2008 world primary energy consumption grew at a compounded annual rate of about 2.15 percent, slightly faster than the 1.81 percent growth rate of the world's economically active population. Although this could conceivably change, it would be presumptuous to simply assume that it will change without at least plausibly explaining how.

But is that all there is?

The skeleton of a fourth scenario, incorporating and surpassing the supposedly once-and-for-all, linear contrast between short- and long-term effects, emerges in Chapter 25 of Capital where Marx referred to a recurring reciprocal relationship between moments of the industrial cycle:
As the heavenly bodies, once thrown into a certain definite motion, always repeat this, so is it with social production as soon as it is once thrown into this movement of alternate expansion and contraction. Effects, in their turn become causes, and the varying accidents of the whole process, which always reproduces its own conditions, take on the form of periodicity.
In this account of business cycles, the alternating expansion and contraction has become endogenous, regardless of whatever "accidents" may have engendered them. Moreover, given such periodicity, unemployment -- the production of a relative surplus population, the industrial reserve army -- is not some regrettable side-effect but becomes a necessary condition of modern industry and of the continuing accumulation of capital. Thus the long-run rebound of employment, far from curing unemployment, simply establishes the condition for yet another round of displacement.

Is unemployment essential for capital accumulation, as Marx supposed? Keynes made much the same case in the General Theory when he foresaw "the euthanasia of the rentier and, consequently, the cumulative oppressive power of the capitalist to exploit the scarcity-value of capital" as an outcome of government stabilization programs. In "The Political Aspects of Full Employment" Michal Kalecki also saw a conflict between full employment and capital accumulation. Whether or not the accumulation thesis holds up, the insight would appear indisputable that we are indeed dealing with a sustained rhythm rather than with isolated events that have discrete, contrasting short and long term effects.

Tuesday, March 8, 2011

Two Hundred Years

The Luddite disturbances started in circumstances at least superficially similar to our own. British working families at the start of the 19th century were enduring economic upheaval and widespread unemployment. A seemingly endless war against Napoleon’s France had brought “the hard pinch of poverty,” wrote Yorkshire historian Frank Peel, to homes “where it had hitherto been a stranger.” Food was scarce and rapidly becoming more costly. Then, on March 11, 1811, in Nottingham, a textile manufacturing center, British troops broke up a crowd of protesters demanding more work and better wages.

That night, angry workers smashed textile machinery in a nearby village. Similar attacks occurred nightly at first, then sporadically, and then in waves, eventually spreading across a 70-mile swath of northern England from Loughborough in the south to Wakefield in the north. Fearing a national movement, the government soon positioned thousands of soldiers to defend factories. Parliament passed a measure to make machine-breaking a capital offense.

But the Luddites were neither as organized nor as dangerous as authorities believed. They set some factories on fire, but mainly they confined themselves to breaking machines. In truth, they inflicted less violence than they encountered. In one of the bloodiest incidents, in April 1812, some 2,000 protesters mobbed a mill near Manchester. The owner ordered his men to fire into the crowd, killing at least 3 and wounding 18. Soldiers killed at least 5 more the next day.

Earlier that month, a crowd of about 150 protesters had exchanged gunfire with the defenders of a mill in Yorkshire, and two Luddites died. Soon, Luddites there retaliated by killing a mill owner, who in the thick of the protests had supposedly boasted that he would ride up to his britches in Luddite blood. Three Luddites were hanged for the murder; other courts, often under political pressure, sent many more to the gallows or to exile in Australia before the last such disturbance, in 1816.

Thursday, March 3, 2011

Free Play: This is the absolute general law of capitalist accumulation

Capitalist production can by no means content itself with the quantity of disposable labour-power which the natural increase of population yields. It requires for its free play an industrial reserve army independent of these natural limits.

Up to this point it has been assumed that the increase or diminution of the variable capital corresponds rigidly with the increase or diminution of the number of labourers employed.