After the criticism Joe Stiglitz recently received for allegedly using the "lump of labor fallacy" I see that one who criticised this criticism was a reader named Sanwichman who commented about it both at Nick Rowe's critical piece about Stiglitz and here at Diary of a Republican Hater in our analysis of it.
It was with considerable interest when I discovered that Sandwichman has done considerable work on the lump of labor fallacy and that it's his opinion-on this he is far from alone-that the lump of labor fallacy is itself a fallacy.
http://www.lump-of-labor.org/
https://www.economist.com/user/3183626/comments
What I do also notice, however, is that while there is considerable push back among some about the lump of labor fallacy many of them seem to have another commitment on a shorter work week.
For example this website here calls for a 21 hour work week
http://www.neweconomics.org/publications/21-hours
It claims that a shorter work week "will enable us all us all to flourish in the 21st century." What I don't get is whether criticism of the lump of labor fallacy as a fallacy necessarily implies a commitment to a shorter work week. I would assume not.
I wasn't even thinking about the issue of a shorter work week but simply the criticism of Nick Rowe, et al, regarding Stiglitz's claim that part of the current unemployment problem-maybe a very big part-is due to structural changes in the economy as the computer and Internet boom have sent jobs out of the manufacturing sector to the service sector.
For me the question of a shorter work week is not without interest though it seems to me hardly the highest priority now. The most important problem in the US now is not those who are overworked but those who lack work at all.
As someone who knows first hand about unemployment in today's American, I've got to wonder if this is the best way to cut unemployment. Even if this were to created 1 million new jobs, in each job there would be a winner and a loser. The fellow who gets 20 hours a week who was previously unemployed this is progress.
But for the person who had a full time job it's a demotion. Even if employment went up, income would go down and many who currently had adequate income would now see their income reduced.
Maybe there's more to it but that on the face of it doesn't sound like the right solution. In the longer term the idea of shortening the work week somewhat so that we are more in line with Germany and France sounds like a decent project. If the work week was closer to 35 or 32 hours that would be social progress, though how to make it work economically would remain-I presume it would be solvable as they made it work in Europe.
But that is not the major concern right now. If you are currently overworked consider yourself lucky. Get no sympathy from me.
The question of Stilgitz is legitimate. There is no question that we have seen this move from the manufacturing sector, the trouble is that there are not enough decent paying jobs in the service sector at least not yet.
Sandwichman analyzes the lump of labor fallacy and sees it as the continuation of the old Luddite Fallacy.
"The problem with monetary or fiscal cures for a structural problem is that the cure is temporary but the problem is ongoing. In the long run, we're all dead but before that our children have grown up in a different world than the one we grew up in. I suspect that Ryan Avent commits a version of the Dorning Rasbotham theodicy here. He makes a number of highly questionable but unstated assumptions that, if true, render Stiglitz's argument "unfortunate." If not true, they're simply a digression. I agree that Stiglitz's analysis and prescription are flawed. But not in the way that Avent thinks."
Mike,
ReplyDeleteI think I alluded to Sandwichman's work on the shorter work week in our private e mail. Here's a link to his work on the subject. Note Chapter 7 titled "Decreasing the Hours Increases the Pay." http://www.scribd.com/doc/41965697/Technology-Jobs-and-Disposable-Time-The-Prosperity-Paradox
With regard to the Stiglitz criticism, DeLong has weighed in at his place. And in the comments section at Nick's, someone alluded to the full scale version of Stiglitz's view, and noted that a critical point of information may have been left out of the VF article. Here's commenter K at 10:34: Nick, Scott: I'd guess Stiglitz doesn't feel any great need to justify that the Fed wasn't doing a particularly solid job of stabilizing demand in 1929. It pretty well goes without say. In which case all you need to do is tell a good story about why the natural rate declined. Which he does.
As far as the current situation goes, he clearly states that he thinks the fed failed during the bubble and there is no question that he now considers us to be in a liquidity trap. So, no, he doesn't believe in the Fed maintaining constant equilibrium and validity of Say's law, and he says so quite explicitly. But if you really want to know what he believes you should read the Stiglitz J of European Economics Association paper that was already linked to by a commenter in the other thread rather than judging him by a Vanity Fair article that obviously will neglect a lot of technical details. It's a really great paper.
Thanks for that Nanute! I'd like to see that paper by Stiglitz. Which thread was it on on Rick Rowe's.
ReplyDeleteWhich threat was Stiglitz's paper linked on Nick Rowe's I mean
ReplyDeleteOk I found it through a google search. I just started and it's very good. Commentor K is dead on, if you want to judge Stiglitz read this paper and don't base it all on the Vanirty Fair piece where he necessiarly isn't comprehensive.
ReplyDeletehttp://onlinelibrary.wiley.com/doi/10.1111/j.1542-4774.2011.01030.x/pdf
This is how the piece starts out to give a taste of its flavor:
"The standard macroeconomic models have failed, by all the most important tests of scientific theory.
They did not predict that the financial crisis would happen; and when it did, they understated
its effects. Monetary authorities allowed bubbles to grow and focused on keeping inflation low,
partly because the standard models suggested that low inflation was necessary and almost sufficient
for efficiency and growth. After the crisis broke, policymakers relying on the models floundered.
Notwithstanding the diversity of macroeconomics, the sum of these failures points to the need for
a fundamental re-examination of the models—and a reassertion of the lessons of modern general
equilibrium theory that were seemingly forgotten in the years leading up to the crisis."
Hi Mike,
ReplyDeleteThanks for mentioning my research. On the question of work time reduction being a demotion in pay for the unemployed, the history and theory suggest otherwise. Both unemployment and excessively long hours of work drive down wages BELOW what total income they would bring if the hours were "optimal." Exactly what is optimal at a give stage of technology is an empirical question that can't be solved theoretically. But there is abundant evidence to suggest that current standard hours of work in the U.S. exceed the optimum hours. To the extent that is true, working longer hours makes people poorer, not richer.
A condition of excessive hours of work evolved in the 19th century and when hours were reduced total incomes, not just hourly wages, increased. In Jobs, Liberty and the Bottom Line, I show why I think it is likely that such a condition exists today. A shorter version of the argument is in "Time on the Ledger: Social Accounting for the 'Good Society.'"
http://ecologicalheadstand.blogspot.com/p/time-on-ledger-social-accounting-for.html
Thanks for checking in. The idea that cutting hours increases pay is certainly counter-intuitive-if someone makes $10 at 40 hours a week, and you cut his hours to 20 he wuold go from $400 to $200-again that's the sort of intuitive assumption you would make at first glance.
ReplyDeleteOf course when you understand economics what is intuitive isn't necessarily right and I would certainly be happy to learn how we could actually see income go up and hours go down. I will check it out.
At the very mimimum though you got to admit i's a logical paradox-again doesnt make it untrue, some logical paradoxes are nonetheless true. The idea is fascinating. Will read it.
ReplyDeleteMaybe we can call it The Sandwichman's Paradoz?
The Sandwichman's Paradox would be flattering but the real credit goes to Alfred Marshall's star pupil, Sydney J. Chapman, who developed the neoclassical theory of the hours of labour. The idea had been presented less "respectably" in the 1860s by American labor pioneer, Ira Steward but Dorothy W. Douglas (Paul Douglas's [of Cobb-Douglas production function fame] ex-wife and collaborator) argued, during the Depression, that the developments of those time had shown the theory to be apt.
ReplyDeleteI see in your piece about social accounting you approvingly quote economists who argue "in the long run" higher productivity should translate into greater demand for labor.
ReplyDeleteWhat do you think of Stiglitz's theory then that the increased productivity has led to higher unemployment? In the short run I think he's right.
As a matter of fact I have no doubt that the increased productivity of the 90s has led us to higher unemployment and even among the employed the quality of jobs is way down-a lot of people in the 2001 recession exchanged white collar jobs for service jobs.
I was just reading this Wiki piece which says that "Beginning in 1950, under the Truman Administration, and continuing with all administrations since, the United States became the first known industrialized nation to explicitly (albeit secretly) and permanently forswear a reduction of working time."
ReplyDeleteThis was done under the belief that this would lead to greater output and a permanent advantage over the Soviet Union in the Cold War.
http://en.wikipedia.org/wiki/Working_time
Mike,
ReplyDeleteDon't believe everything you read on wikipedia! The 1950 argument refers to NSC 68 in which Paul Nitze, under the advice of CEA chair Leon Keyserling proposed a formula for stimulating the economy through massive rearmament, which would allegedly pay for itself through increased tax revenues. But the "forswearing a reduction of working time" was not explicitly part of that policy. It was a prejudice of Keyserling's (and a lot of other economists) but it's going too far to say it was an explicit policy objective.
The relationship between increased productivity and employment is a complex one. There is a limit to how much job creation can result from cheaper prices. So the long-term employment growth depends also on the development of new commodities and the creation of new needs for those commodities, which is not automatic. If it was, there would be no need for wars and government stimulus programs because there would be no depressions.
While there is no limit, in principle, to the new needs that can be created, I believe that there is a definite limit on the new needs for consumer goods of a particular type that can be added. Looking at the kinds of new needs created by electronic technology, I just don't see the same quantity of new job creation as came with earlier technologies. I could be wrong but my point is that it is always an empirical question and not a unquestionable economic principle.
By the way, I fudged a bit in my social accounting paper. I'm using a conventional argument about higher productivity translating into more jobs in the long run, even though I question its truth as a "universal principle."
ReplyDeleteMy fudge consists of the following rationale: to whatever extent the conventional argument is true, it MUST also be true for productivity gains from shorter working time. None of this "it's o.k. when we do it but not when you do it" crap. BUT to the extent that the productivity creates jobs argument is NOT universally true, then work time reduction is necessary for the purpose of achieving an equitable distribution of work opportunities. This is not a question of "taking away something from the employed" but of not warranting taking away everything from the unemployed.
To me Stiglitz is certainly right that productivity at least in the short run can raise unemployment.
ReplyDeleteAs far as equity in distibution that's not a bad objective but does it mean turning many of the currently employed into the underemployed? That won't be good for demand either.
What interests me is to the extent that cutting hours could actually raise income-per person. That interests me along with the idea that the optimum hours even from a productivty standpoint is lower.
That producivity increased because of lesser hours. This would mean that capitalists fail to understand their own interests at least the factory owners Marx described back in 1840s England, etc.