Saturday, August 23, 2014

Autor's Alibi and the Lump of Jackson Hole

According to M. I. T. economics professor David Autor, in a paper presented yesterday at Jackson Hole:
"Economists have historically rejected the concerns of the Luddites as an example of the 'lump of labor' fallacy, the supposition that an increase in labor productivity inevitably reduces employment because there is only a finite amount of work to do."
Autor's paper, "Polanyi’s Paradox and the Shape of Employment Growth," was also featured in articles in the Wall Street Journal and the New York Times.

Professor Autor made a slight amendment to the textbook explanation of the lump of labor. Instead of a "fixed amount of work to be done," he referred to the fallacy of supposing "there is only a finite amount of work to do." Hypothetically, there may be an "infinite" amount of work to do in the universe in an eternity. But there is most certainly a finite amount of human labor that can be performed during any given period of time and only a fraction of that can be paid employment.

Aside from the grandiose delusion of an infinite amount of work to do, the bland boilerplate Autor recited is certified nonsense-on-stilts. The textbook version of the lump of labor is a sardonic restatement of the old wages-fund doctrine of classical political economic. Alfred Marshall used the phrase "fixed Work-fund" to emphasize the equivalence. The fallacy of a fixed amount of work is customarily refuted by the adage "technology creates more jobs than it destroys," a 20th century version of the "supply creates its own demand" interpretation of Say's Law. Finally, Say's Law is predicated on the truth of the wages-fund doctrine. Summing up, then, A = not A: Liar's Paradox.

But something is going on here besides mere paradox or glib foolishness. Autor is not alone in his rote recitals of the archaic fallacy myth. The fraternity of economists will, I'm sure, nod inattentively to Autor's lumpish refrain without raising an objection to either its logical contradiction or its irrelevance.

The fallacy claim is not part of an analysis. It is an alibi. Capital -- or "the competitive market system" -- is in the dock.

Where to begin? Or, rather, elsewhere to begin. In criminal law, an alibi is a defense based on the claim that the defendant was in some other place when the crime was committed and therefore physically could not have done it. Alibi is Latin for elsewhere. In common usage, alibi has come to signify any kind of excuse, often with the connotation of being a lame one.

The distinctive feature of an alibi story is that it revolves around an absence. What actually occurs at the other place is insignificant. What matters is the crime. The only significance of the alibi story is that it renders the action of committing the crime impossible for the accused.

Economics makes extensive use of alibi narratives. Private property entails the right to exclude others from access to and to alienate, or dispose of, the things owned. Alienate shares the Latin root alius with alibi. Unemployment highlights the displacement of workers from the usual condition of being employed. The enclosures of the commons in pre-industrial Britain excluded commoners from their former, collectively-cultivated fields, making those fields into an elsewhere for them. In "The Political Economy of the Sign," Jean Baudrillard identified "the strategic logic of the commodity" to be the treatment of use value as "a satellite of and an alibi for" exchange value.

The crown jewel of economic alibi, though, is equilibrium, the supposed tendency (or disposition) of demand and supply to move toward balance, guided by changes in price. Autor invoked this presumed inclination toward equilibrium as "theory" when he observed in his conclusion that "the long-run effects of these developments should in theory be positive..." In his conclusion, Autor confused static and dynamic analysis. Equilibrium, John Maurice Clark explained (87 years ago):
" an abstraction based on observation of the relative stability of economic values, and of oscillations whose behavior suggests a normal level toward which the economic forces of gravity exert their pull. The key to dynamics is a different problem: that of processes which do not visibly tend to any complete and definable static equilibrium." -- J. M. Clark, "The Relation Between Statics and Dynamics"
So Autor's "in theory" may best be understood as a colloquialism, rather than an allusion to actual economic theory, in the same way that alibi may refer loosely to any lame excuse rather than to the technical legal defense of being somewhere else. In his essay on static and dynamic economic analyses, Clark also raised the issue of the paradoxical character of reason,
"when it takes the form of 'rationalizing' or evolving ostensible motives for actions, where the real motive is one which civilized standards deem less respectable, or one which might even have to be suppressed unless it could be successfully disguised."
In his critique of "The Theory of Compensation as regards the Workpeople Displaced by Machinery," Marx satirized the disingenuous rationalizing of the "bourgeois economist" who "implicitly declares his  [Luddite] opponent to be stupid enough to contend against, not the capitalistic employment of machinery, but machinery itself." Marx's satire shanghaied the Dickens villain from Oliver Twist, Bill Sikes, and scripted for him an imaginary plea to the jury:
"Gentlemen of the jury, no doubt the throat of this commercial traveler has been cut. But that is not my fault; it is the fault of the knife! Must we, for such a temporary inconvenience, abolish the use of the knife? Only consider! Where would agriculture and trade be without the knife? Is it not as beneficial in surgery as it is in anatomy? And in addition a willing help at the festive table? If you abolish the knife -- you hurl us back into the depths of barbarism."
"Alibi Ike" is a short story by Ring Lardner, first published in the Saturday Evening Post in 1915. Ike is a baseball player. "His right name was Frank X. Farrell, and I guess the X stood for "Excuse me." Because he never pulled a play, good or bad, on or off the field, without apologizin' for it." Ike's habit of making up excuses for everything leads him inexorably into incriminating self-contradiction and ultimately into romantic troubles when he can't resist the urge to disown his true feelings during a conversation with his teammates.

The lesson that two alibis are not better than one is also illustrated by an anecdote in the American Bar Association Journal from March 1951:
"As court and council gathered in the robing room after an acquittal... the judge said to the successful lawyer, 'That was the most convincing alibi that I have ever had proved before me.' 
"'Thank you, sir', replied the lawyer, 'it is particularly gratifying to hear you say that. I value your judgment most highly and I am pleased to find that in this case it coincides with mine. I chose that alibi as the best of three that the defendant had.'"
What makes an alibi believable has, apparently, only recently come to be a focus of systematic research. The proliferation of discrepant alibi stories is one indicator that something may not be quite right. Other factors include, coherence, consistency, the presence or absence of physical evidence or witness testimony and the ease or difficulty of fabricating such evidence. In a future post, I hope to discuss some of the recent literature on alibi evaluation and consider its relevance to economic discourse.

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