Tuesday, February 9, 2016

BREAKING: Marco Rubio announces running mate

Taglines for Rubio

His latest bot episode has sent me to the drawing board:

“Vote for Rubio!  Do you really want to go through the rest of the primaries without him?”

“Rubio: he’s one weird dude.”

“Rubio for President: Nothing Can Possibly Go Wrong Go Wrong Go Wrong Go Wrong...”

Or you can play a game with it:

Who’s Marco’s favorite painter?  Botticelli.

Who’s Marco’s favorite chess player?  Botvinnik.

What’s Marco’s favorite country?  Botswana.

And so on.  Let the comments begin.

Sunday, February 7, 2016

Why The Secular Stagnationists May Be Wrong: Rapidly Falling Solar And Wind Prices

The voices of pessimistic secular stagnationists have been growing louder and louder.  Robert Gordon's recent book has been the poster boy recently, emphasizing technological stagnation, productivity slowdowns, and a lack of likely new products of any real value to humans.  He and Tyler Cowen focus on the relationship between IT and the rest of the economy, seeing a slowdown in productivity improvements in the economy coming from this important sector.  Lawrence Summers emphasizes demand side stagnation, but sees his view as complementary to the supply-side technological pessimism coming from Gordon and others.

A particular reason from the supply-side that these forecasts of increasing stagnation may prove to be oveblown comes from a sector that none of these doomsayers ever mention, but which remains fundamental to the world economy: energy.  In particular, both solar and wind energy have been experiencing dramatic declines in costs, which many are projecting will continue in the foreseeable future. For one among several sources on solar energy see Ramen Naam, from August, 2015.  Obviously one must take such projections with caution, but this post projects solar costs to be about two thirds of current ones in a decade and about half of current ones in two decades.  This is dramatic.  On wind a report from the US Department of Energy, also in August 2015, makes no projections, but reports costs in the low-cost interior of the US falling from $70/MWh in 2009 to $23/MWh in 2014.  Anything like this continuing would be important.  Their prices are now competitive with conventional sources.

Those who see these numbers, or ones like them, but dismiss them, emphasize what a small percentage of current energy comes from these sources (so far mostly useful for electricity production), although in certain locations such as Denmark have more substantial portions relying on them.  But, this is the point.  If  indeed we see dramatic further reductions in costs that put theses sources far lower in cost than current ones, we may well see massive investments in shifting to them that could substantially transform the energy sector of the world economy and the world economy itself more broadly, including allowing for major productivity increases and an acceleration of growth in the real economy, irrespective of whatever is going on in  the IT sector or whether wonderful new products that make the indoor toilet look boring and unimportant will be discovered.  Producing the same old stuff at much lower real costs can provide a powerful growth stimulus, not to mention that such sources would help substantially in dealing with the climate change problem.

A more sci fi issue is the possibility of getting commercially viable nuclear fusion breakthrough.  I am less optimistic on this front, where there have been many false announcements.  However, for better or worse, there seems to be a lot of noise on this front about possible breakthroughs, coming from such sources as the International Atomic Energy Agency (IAEA).  Thus, the possibility of some major breakthrough in this area could happen, and this could also be a major game changer as well.

Barkley Rosser

Friday, February 5, 2016

Tyler Cowen exposed!

Despite finding a high proportion of what Tyler  and Alex Tabarrok have to say about economics on their blog, Marginal Revolution,  maddening, I am a more or less regular reader, chiefly because Tyler's erudition in matters cultural and literary is astounding. Any book I think looks interesting, and that I add to  an impossibly long 'things to get to when I have more time," Tyler has already read.  But I am now taking him straight off the cultural sage pedestal I had heretofore placed him on: in an interesting interview with Kareem Abdul-Jabar, he asks the latter which are the most under-rated of Miles Davis' recordings. Kareem mentions Seven Steps to Heaven, and Porgy and Bess - good choices. (I like Miles Ahead - another Gil Evans collaboration, like P&B- and the amazing Birth of the Cool. )

But Tyler puts in his two cents, giving the nod to.......Fillmore East!, which he recommends as a "souped-up Bitches Brew." This is a recommendation? Say it isn't so, Tyler: you can't, can't, can't  be a lover of that horrible, terrible abomination that is "Jazz Fusion." No!

Tuesday, February 2, 2016

Dueling Economic Models and How to Score Them

An article in today’s New York Times compares two wildly different assessments of the proposed Trans-Pacific Partnership trade and investment deal, one by the Peterson Institute, a Washington think tank financed by business interests, and the other by the Global Development and Environment Institute (GDAE) of Tufts University.  The Peterson people tell us their model predicts income gains from TPP; GDAE’s model predicts losses.  The article is strictly he said, she said.

How should economists present their modeling work to the public?  And how should journalists report it?  The current dispute falls well short of best practice.  Here’s how I think it should go:

Modelers should list all the key assumptions embodied in their models.  In order to generate predictions, any model has to hold certain parameters constant; the technical term is “closing the model”.  (It’s because nothing is held constant in real life that prediction is so dicey.)  The results depend on which parameters are fixed in advance and how they’re fixed.  Reasonable people can disagree about how to do this, but there’s no way to discuss it unless the assumptions are presented openly.

Here’s an example.  Peterson uses the GTAP model (Global Trade Analysis Project) of Purdue, which I briefly discuss in my micro text in the chapter on general equilibrium theory.  This model assumes full employment and holds trade balances fixed, so that a trade deal shock is not permitted to change any country’s current account or unemployment rate.  It is erroneous, then, for the Times report to state that the Peterson economists “concluded” that “there would be no net change in overall employment in the United States.”  That’s not a conclusion—that’s an assumption.  There’s a big difference.  (Dean Baker critiques this assumption over on his soapbox.)

The GTAP model also assumes the optimality of market equilibration, so that any impediment to trade is necessarily welfare-reducing; the only question is how much, which is precisely what the model is designed to estimate.  Meanwhile GDAE does not make this assumption but is concerned instead with how a trade deal such as TPP will alter trade balances, which are not assumed to be fixed.

The way it should work is that each team, in presenting its results, would list all their key assumptions.  Journalists would translate these lists into terms that could be understood by their readers.  Then all of us could have an intelligent discussion about which set of assumptions is more appropriate to the questions we care about.

Second, economic models like GTAP and GDAE’s Global Policy Model are typically employed over and over.  They have track records.  Journalists should be able to review their prior predictions and tell readers how well they fared.  For instance, GTAP has been around for decades.  How well did it do in predicting the outcomes of past trade agreements or exchange rate adjustments?  Did it tell us anything useful in advance about China’s accession to the WTO?  And how has GDAE’s model performed?

The he said, she said approach is now recognized as unacceptable in reporting on climate change and other topics where the weight of evidence is crucial.  Economics shouldn’t be an exception.

Ownership,Trade and Equilibrium: Locke, Graunt and Gracian

"It is impossible that the primary law of nature is such that its violation is unavoidable. Yet, if the private interest of each person is the basis of that law, the law will inevitably be broken..." -- John Locke, Essays on the Law of Nature
Baltasar Gracian's Oráculo manual y arte de prudencia (1647), John Graunt's Natural and Political Observations made upon the Bills of Mortality (1662) and John Locke's Essays on the Law of Nature (1664) all appeared within the span of 17 years in the middle of the 17th century. Gracian bequeathed to economic discourse the philosophical concept of laissez faire, Graunt laid the foundations for quantitative social science, Locke unambiguously defined the natural law constraint that he later alluded to in the famous fifth chapter of his Second Treatise on Government, "Of Property."

"Is every man's own interest the basis of the law of nature?" Locke asked in the title of his eighth essay on the law of nature. "No," was his emphatic answer.

Why not? Because...
...when any man snatches for himself as much as he can, he takes away from another man’s heap the amount he adds to his own, and it is impossible for anyone to grow rich except at the expense of someone else.
Is that a zero-sum game, Locke is referring to? Yep, because...
...surely no gain falls to you which does not involve somebody else's loss.
Because taking more than one's share, is to rob others of their share, Locke reiterated in "Of Property."

Locke was not alone among his contemporaries in positing a zero-sum contest. Graunt -- with possibly an assist from William Petty -- argued that putting beggars to work would only take work away from non-beggars:
…if there be but a certain proportion of work to be done; and that the same be already done by the not-Beggars; then to employ the Beggars about it, will but transfer the want from one hand to another…
There is only a certain proportion of work to be done because, Graunt maintains, "there is but a certain proportion of trade in the world..."

This idea that there is only a certain proportion of work to be done or certain proportion of trade in the world would come in for rebuke from Dorning Rasbotham some 118 years later:
There is, say they, a certain quantity of labour to be performed. ... The principle itself is false. There is not a precise limited quantity of labour, beyond which there is no demand. Trade is not hemmed in by great walls, beyond which it cannot go.
Those who have listened to Sandwichman's rant over the years will recognize the above as the locus classicus of the "fixed amount of work" fallacy claim that David Frederick Schloss would eventually dub "Theory of the Lump of Labour." What I want to call attention to, though, is that the proponents of this fallacious theory were not ignorant poor people, shifty trade union agitators or vitriolic Luddites. They were the forefathers of political economic thought: John Locke, John Graunt and William Petty.

The identity of these zero sum proponents is significant, not because it lends prestige to the idea that there is a fixed amount of work but because of the idea's inextricable entanglement with the other contributions of these worthy gentlemen. Locke's vindication of private ownership of property is founded on and legitimated by his natural law philosophy. Rejecting that philosophy renders the subsequent rationale incoherent. The case against the adoption of Gracian's laissez faire and equilibrium by subsequent authors is more indirect but implicates the same premise of a closed system that when rejected, invalidates the conclusion.

The "obverse" of the lump of labor -- Say's law of markets -- relies fundamentally on equilibrium of supply and demand and on the sanctity of private property. Both principles must be discarded if the zero-sum, fixed amount of work, closed system is to be rejected.

Awareness of a fundamental anomaly in orthodox political economy keeps recurring -- Mill's recantation of the wages-fund doctrine, Keynes's repudiation of the "supply creates its own demand" dogma (after which it was supposed to have "sunk without trace"). John R. Commons succinctly identified the anomaly with the incongruous attributes of wealth, as defined by economists:
Going back over the economists from John Locke to the orthodox school of the present day, I found they always had a conflicting meaning of wealth, namely a material thing and the ownership of that thing. But ownership, at least in its modern meaning of intangible property, means power to restrict production on account of abundance while the material things arise from power to increase the abundance of things by production, even overproduction.
Ownership is thus opposed to abundance that escapes its grasp. Perhaps Locke was on to something after all when he observed that "it is impossible for anyone to grow rich except at the expense of someone else." But it is not a physical amount that the grasping individual steals "from another man's heap." It is instead a capability and productive potential that the wealthy monopolize and hoard. One of the ways the owners impose on everyone else is by propagating myths about the sanctity of private property, the self-adjusting character of the price system and the fallacy and futility of any attempt by anyone other than owners to regulate or restrict production on behalf of the wider community of non-owners.

Monday, February 1, 2016

Eugenics and Other Specious Biological Constructs

My previous post was triggered by Tyler Cowen’s evident attachment to the negative freedom criterion beloved by libertarians; that’s why he recommended Mill, who was hardly free of the national and racial stereotypes typical of his age and social station.  But I should say a word about his actual argument.

It appears to be true that there was an affinity between early 20th century Progressives and eugenics, but there was hardly a one-to-one mapping between these groups.  Some Progressives, apparently including Dewey, were skeptical, and many eugenics enthusiasts, like Irving Fisher, were resolutely anti-Progressive.  Something else was going on.

I think it helps to step back from this one issue for a moment and consider the larger terrain.  Over the past few centuries there have been repeated waves of intellectual and political fervor stemming from crude biological visions of human life.  It comes in a blinding flash: we are animals!  We are subject to the same laws that govern all other species!  Politics and culture are just biology in disguise!

And so simplistic assumptions about population growth and environmental carrying capacity have been with us since Malthus (and even earlier as Cohen showed).  Social Darwinism identified economic competition with phenotypic selection.  The eugenics crowd thought we could improve the human race the same way corn and cattle are selectively bred.  First generation sociobiologists carried similar baggage.  The core inspiration is neither left nor right, but biologically determinist at the level of crude analogy.

If you’ve ever tried to reason with a population growth fundamentalist you’ll recognize what I’m talking about.  Forget about demographic transitions or distinctions between the cost and feasibility of sustaining populations of various sizes.  It all comes down to petri dishes and exponential growth.  There’s something about the simplistic biological vision that captivates the mind and crowds out subtler forms of reasoning.

Just to be clear, I’m not arguing that biology doesn’t matter.  Of course people are organisms.  Of course population matters, and human traits have continued to evolve through the past two million years of our existence.  No doubt our emotional proclivities at some level have a genetic component.  But all of these things are complex and multiply caused.  The starting point is evidence and an open mind, not to mention real biology in all its intricacies, and not simplistic stereotypes.

So eugenics was one expression of a continuing thread in modern, “scientific” culture.  You could spin it to fit with progressivism or conservatism, but its real source lies elsewhere.

Piling on With Dean Baker On It Is Monday and Robert Samuelson Wants to Cut Social Security and Medicare

Yes, it is Monday, and once again Robert J. Samuelson of the Washington Post is whining about "We can't keep ignoring our dangerous deficits," which he sees as half of future increases being due to rising spending on Social Security and Medicare."  The inimitable Dean Baker at Beat the Press has done an excellent job of beating his silly arguments to a lumpy and barely visible pulp.  However, I shall add a few more points that he did not mention, just to pile on to how ridiculous RJS  and the broader campaign of WaPo on this subject is and has been.

So, what is Samuelson's excuse for putting out yet another one of these hysterical and misleading columns?  Ah, it is a new report out last week from the Congressional Budget Office, (CBO), which I think both Dean and I have plenty of respect for.  This new report does indeed project somewhat  higher future deficits (and debt) than their last report.  As of 2015, the cumulative new debt is projected to be $8.5 trillion rather than $7 trillion. This would move the debt as a percentage of GDP to 84% from 75% in 2015.  He then declares that "Many economists think the rising debt is unsustainable," although somehow he fails to mention a single one by name, and offhand I fail to find this all that scary.

What is the source of this somewhat elevated projection of debt levels?  It looks like most of the known debatable assumptions about increases in costs of Social Security and Medicare and interest rates on the debt have not been changed from the last report.  What does seem to  have been changed is the projected GDP growth rate, lowered from 3% annually to about 2%, or something like that.  Needless to say, lower future GDP growth rates do imply higher future debt levels, assuming everything else in the taxing and spending remains unchanged.

Well, I do not know what is going to happen to future growth, and it may be 2% or even lower.  But maybe it will not be.  There has been a major barrage of publicity about "secular stagnation" recently, whether of the supply side-technological pessimism variety of Robert Gordon and Tyler Cowen or of the demand side of Larry Summers.  Gordon's views have especially received a lot of attention recently with the  publication of his latest book on this, which seems to have  been reviewed by just about everybody and his  brother.

OK, so I was on an EPS panel with Gordon about four years ago at the ASSA meetings where he was already laying out all the arguments in this book.  Much of this amounts to noting that we are not going to have as dramatic changes as getting indoor plumbing in the future.  OK.  And, yeath, the computer productivity increases do seem to have been lower since 2005 than during the decade prior, ouch.  And, yeah, he and Cowen, who also focuses on computers as our only main possible improvement in productivity and growth, may well prove right.

But they could easily both be wrong.  The obvious sector that could do it would be energy.  We are seeeing dramatic declines in the cost of alternative energy sources such as solar and wind, not to mention that we might yet get some kind of revolutionary breakthrough on the fusion front.  In any case, none  of these people seem to taking into account what the implications would be if we saw say a cut in half over the next decade of basic energy costs.  Even without some major inventions of final new goods that match indoor plumbing or being able to text each other, such a cut in costs would massively increase the projections for productivity and growth gains over the next decade.

Let me be clear that I am not dinging the CBO on this.  They are a famously cautious outfit, and I do not blame them for taking account of the recent pessimistic noises coming from so many sources.  They should be taken seriously.  At the same time we should be aware that there is a real upside chance here, and even if the more pessimistic outcome comes to pass, an 84% of debt/GDP ratio simply is not all that much worse than a 75% one, and as Dean notes, we are paying less than half in interest on the national debt per GDP than we were back in 1990.  So, yet again, Samuelson and WaPo are simply being hysterical as they try to scare people into cutting Social Security and Medicare.

Addendum, 3:10 PM:  Oh just to add to Samuelson's egregiousness is when he ties this to the presidential race.  He declares that none of the candidates are addressing this, but he focuses on the two leading Dems for not wanting to cut these entitlements or even wanting to add to them, oh evil candidates they.  Only one Republican gets briefly mentioned, Trump, whose proposed tax cuts really are humongous and would indeed lead to far greater deficits than either of the Dem candidates' proposals.  The rest of the GOP candidates are not mentioned, even though all of them are proposing massive tax cuts that will inevitably lead to hugely increased deficits if enacted, even with the spending cuts some of them are proposing.  But none of this is worth mentioning by our RJS.

Barkley Rosser

Saturday, January 30, 2016

Freedom: Three Varieties and a Caveat

What follows is a very brief summary of an appendix in my micro textbook that addresses the libertarian case for free markets.  It was triggered by the comment of Tyler Cowen that the left needs more Mill.

There are three kinds of freedom, each valid.  The first is negative freedom, “freedom from”, which means simply freedom from external coercion.  This is what underlies the libertarian attachment to free markets.  The second is positive freedom, “freedom to”, which seeks to provide people the means to realize their (feasible) objectives.  Traditionally the left has seized on this notion to justify redistributive institutions and policies.  The third is “inner freedom”, freedom from habit, custom, and unreflected assumptions, which was the core message of German idealism, English and French Romanticism and American Transcendentalism (and, at its best, rock and roll).

In a perfect world we would bask in all three of them.  Unfortunately, each makes demands on the others, and there is no universal criterion for striking a balance.  The first step toward a reasonable politics of freedom, however, is to simply recognize that no one conception is sufficient by itself.

Finally, it’s important to recognize that freedom, according to any interpretation, is always limited by obligation.  In particular, we have obligations toward children, the very old or disabled and others who depend on us for the necessities of life.  One way collective action can widen the domain of freedom is by helping us to meet these responsibilities more efficiently.  Consider, for instance, how public education and pension systems (like Social Security) widen the scope for parents and children of their elderly parents to be freer in other aspects of their lives.

Friday, January 29, 2016

A Theory Explaining Why Severe Weather is Occurring

Piecing the current theory together:

Global warming is slowing the gulf stream system, also known as the Atlantic Meridional Overturning Circulation (AMOC). The AMOC is a gigantic ocean system that’s driven by differences in temperature and the salinity of sea water. Ocean temperatures off the U.S. east coast are warming faster than global average temperatures and there’s a “cold blob” in the subpolar Atlantic understood to be sourced from Greenland ice-melt water. These latter two features are regarded (by some scientists) as a characteristic response to a warmer world. The slowdown of the AMOC is in turn, a result of the ocean freshening at high latitudes due to these large infusions of meltwater from Greenland resulting in a cooling in the North Atlantic region, as less ocean heat reaches the region — aka, the “blob.”. The far North Atlantic waters are being diluted by the Greenland melt waters and are no longer salty enough. Therefore the waters don’t sink as much, and this slows (or may even eventually shut down the AMOC circulation. The AMOC global conveyor has been weakening, by the way, since the late 1930s. The slowing of the Gulf Steam System/AMOC should drive faster sea level rise on the East Coast where sea level rise for a 600-mile-long “hotspot” along the East Coast (north of Cape Hatteras) has already been measured at “3-4 times higher than global average”. A 2015 discussion paper by some of the world’s leading climatologists argues that “Shutdown or substantial slowdown of the AMOC, besides possibly contributing to extreme end-Eemian (brief? sea level) events, will cause a more general increase of severe weather.”

(i) The surprising way that climate change could worsen East Coast blizzards
By Chris Mooney January 25, 2016

(ii) Recent studies from the National Oceanic and Atmospheric Administration found that ocean temperatures off the U.S. East Coast are expected to warm three times faster than the global average. The warming coincides with increased C02 emissions.

(iii) Stefan Rahmstorf of the Potsdam Institute for Climate Impact Research, an expert on the Atlantic circulation phenomenon known by the technical name meridional overturning circulation, or AMOC.

(iv) The Greenland melt. Eric Steig. 23 January 2013.

(v) Is Climate Change Supercharging Storms Like Jonas And Sandy More Than We Thought? by Joe Romm Jan 25, 2016 4:41 pm

(vi) Blizzard Jonas and the slowdown of the Gulf Stream System.
Stefan. 24 January 2016


Wednesday, January 27, 2016

Why GDP fails as a measure... period

At CBS Moneywatch, Mark Thoma reviews the standard "textbook" flaws in GDP that cause it to fail as a measure of wellbeing:

  • It counts "bads" as well as "goods." 
  • It makes no adjustment for leisure time. 
  • It only counts goods that pass through official, organized markets, 
  • It doesn't adjust for the distribution of goods. 
  • It isn't adjusted for pollution costs.
Thoma then points to the discussion in Davos of another flaw in GDP -- it doesn't fully account for the benefits of technology. Isn't that just part of only counting goods that pass through official markets? GDP also doesn't adjust for the unpaid work outsourced to consumers. Some of the "benefits" of technology are a matter of perspective as well as taste. 

Although useful as a framing introduction, Thoma's discussion misses three crucial points. First, GDP was never meant to be a measure of wellbeing but a measure of the revenue-generating capability of the economy. In this capacity, a more salient flaw is the arbitrary treatment of government expenditures as output for final consumption when much government spending would be better treated as intermediate goods to avoid double counting.

Another flaw results from the instability of the unit in which GDP is measured and reported. Change in GDP from period to period doesn't simply represent a proportional increase or decrease of the same goods and services at the same prices but a changing mix of goods and services at different prices. Adjusting for "real GDP" with an average index for inflation may provide a short term, rough estimate of the vitality of economic activity but cumulative changes in the GDPs composition renders long-term assessments of "growth" essentially meaningless.

The third point is actually a combination of that last flaw and Thoma's first point that GDP counts "bads" as well as goods. But first a clarification of Thoma's explanation. -- GDP doesn't count the earthquake; it counts the repairs and rebuilding. Thus the problem is that the accounting is asymmetrical -- adding the repairs without subtracting the damage that required the repair. Over time, the proportion of total economic activity devoted to remedial goods and services increases, resulting in what Stefano Bartolini refers to as "negative externality growth." The cumulative effect is thus not just additive but multiplicative in that the increasing proportion of remedial goods and services distorts the index by which the prices for welfare-enhancing goods and services are adjusted.

A rubber band yardstick would be unreliable. This one is silly putty.

What it all adds up to is the arbitrariness of the idea of an objective aggregate measure of economic activity. Tinkering with some minor technical detail is not going to result in a "more accurate" measure -- simply a different measure whose accuracy or otherwise will be a matter of subjective judgment. 

The questions we need to ask are: What do we really want to know and why? What purposes were we pursuing when we sought to measure economic activity? Is measuring GDP helping to achieve those purposes? Are those purposes still our priorities? If not, what should be? What different institutions might we invent to achieve our purposes as we NOW understand them?

Tuesday, January 26, 2016

Is Global Warming Behind The Record Snowfall Of Winter Storm Jonas?


Two days ago on RealClimate a post entitled "Blizzard Jonas and the Slowdown of the Gulf Stream System" suggests that there might be a link.  The argument is that rising ocean surface temperatures in the North Atlantic, especially somewhat south of Greenland, are tied to a slowing of the Gulf Stream.  These higher temperatures off the US East Coast then may be a clause of larger snowfalls in storms in the eaastern US, with a possible direct influence on this coming from warmer fresh water coming off Greenland  with glacier melt.  If this continues there could also be substantial impacts on northwestern Europe, although these may include cooling in some places.  This is tentative, but certainly something that should taken seriously and further studied.

Let me compare this with a possibly related phenomenon, which provides a warning that we must  proceed cautiously with this.  I am referring to the widespread reports about a decade ago claiming that global warming was increasing the frequency of hurricane in North America.  Quite a few public figures made a great big fuss over this, including Al Gore.  However, it turns out that the effect is a very complicated mixed bag, and if  anything it is the other way around, warming temperatures may lead to a lower frrequency  of Atlantic hurricanes?  How can this be?  One possibility is higher temperatures bring more sandstorms in western Africa that blow over the Atlantic, with this greater sand in the air inhibiting the formation of tropical depressions that lead to hurricanes.

While that may be the case, there is stronger evidence, although this remains a matter of  serious debate among climatologists, about the intensity of hurricanes that do occur, and such storms as Katrina and Sandy (which hit the New Jersey shoreline with flooding as Winter Storm Jonas has) being poster children for  this.  The argument on this is really straightforward: intensity of hurricanes does seem to be tied to higher late summer sea surface temperatures in the Atlantic and the Gulf of Mexico.  So, the case for more intense hurricanes to occur even as there may be fewer hurricanes overall is serious, if not  universally accepted by climatologists, and the mechanism would have similarities to the phenomenon now being posed as possibly increasing snowfall amounts in the eastern US due to  warmer ocean surface temperatures in the Atlantic.

Barkley Rosser

Who Needs Hatchet Jobs?

The Sandwichman was flattered to have been the subject of a two-and-a-half-page rebuttal by self-styled "anarcho-capitalist" economist Pierre Lemieux in his 2014 book Who Needs Jobs: Spreading Poverty or Increasing Welfare. Lemieux devotes an entire chapter to "The Lump of Labor Fallacy."

Lemieux gets two things right in his rebuttal. He affirms that the lump of labor fallacy is the inverse of "Say's Law" that "supply creates its own demand." Some people would argue that the so-called Law is not a law and that it is not Say's. Anyway, the logic is if you don't believe "supply creates its own demand" then you are assuming that the amount of work to be done is fixed. It's a bizarre claim and I'm glad someone confesses eagerly admits to making it.

Other than portraying me as "a proponent of compulsory reduced working time", his initial summary of my argument in the first two paragraphs is fair enough except for a peculiar claim about S.J. Chapman ending his career as a "controller of matches" during World War II. Chapman retired before the start of World War II and suffered from a stroke in the early 1940s. There actually is a brief entry on Chapman in a 1991 book, The Professionalization of Economics, that ends with "Controller of Matches, 1939-44" but gives no explanation of what this title could possibly refer to.

Other than that the chapter is a superficial hatchet job, if I do say so myself. I am hoping that someone would be interested in doing a rebuttal to Lemieux's rebuttal. I have a dropbox full of pdfs for anyone who wants to pursue that. Here is a picture of Lemieux with Conrad Black in 2005:

Here is the excerpt from Lemieux's book in which he tries to refute the Sandwichman's critique of the lump-of-labor fallacy claim.
One recent proponent of compulsory reduced working time is activist Tom Walker. Although he claims that the lump-of-labor theory is not necessary for defending his proposal, he is obviously sympathetic to it and invokes economists who supposedly did not consider it a fallacy. Walker’s basic argument is that better-rested workers would become more efficient (have a higher productivity), push product prices down, and thus increase consumer demand for them.  
This argument rests on the double assumption that labor productivity can be increased by reducing working time, and that the employers don’t realize it and have to be forced to follow their own interest. Why would greedy capitalists fail to see something so obviously profitable that an armchair writer can discover it? Because, Walker argues, competition prevents employers from acting on their discovery even if they do find out that shorter hours are productivity enhancing. In this line of argument, Walker follows a 1909 article by economist Sydney Chapman, a British civil servant who, during World War II, ended his career as controller of matches for His Majesty’s government. The Chapman-Walker argument goes as follows. Suppose some firms realize the productivity potential of shorter hours and reduce the working time of their employees without cutting pay. Competing firm would “poach” the well-rested employees by offering them higher pay for more work. Thus, competition would lead all firms to end up overworking their employees again.  
This explanation is very weak. How could a poaching firm offer a pay raise to a worker who, by hypothesis, would become less productive when he worked more? And if the poaching firm did not offer a pay raise to the poached worker, why would he leave a firm where he works fewer hours to move to one which would overwork him for the same price? Such inconsistent behavior assumes that individuals are unable to choose the optimal number of work hours necessary to maximize their utility. Individuals can certainly make mistakes, but generally assuming that individuals cannot choose what is best for them, given their preferences and constraints, is at best paternalistic, at worst elitist. If an individual cannot make an optimal choice for himself between leisure and work, how could bureaucrats and politicians be able to do it for him? How would intellectual dilettantes know what’s best for other individuals—and how can they be so sure of their hunches that they are willing to coercively impose them? Chapman did recognize that intervention is justified “if it be assumed that the State can discover what is best for the country.” 
Walker cites John Hicks’s The Theory of Wages in support of his argument, apparently misreading the famous economist. Hicks had raised questions that became Chapman’s and Walker’s arguments, but he had broadly dismissed them. If they make an error about their employees’ productivity, employers will sooner or later realize it. Employees can also make temporary mistakes, but competition is a better way than government intervention to correct the situation. Talking about the individual who “endeavours to protect himself, through Trade Unionism and the democratic State,” Hicks concludes: 
"But our examination of the effects of regulation has shown that this protection can rarely be adequate. Carried through the end, it can only result in a great destruction of economic wealth."
Walker falls into Keynes’s trap of general overproduction, and further adds the idea that “demand for any given commodity will inevitably reach a saturation point.” It is not impossible that demand for a certain good will reach saturation. Consumption time being limited to 24 hours a day, and storage space carrying a cost, there is only a certain number of Ferraris that an individual would want. When each American owns three Ferraris, he may not want another one. He would rather consume something else during the time he is not driving or admiring his cars. But it is unlikely that consumption in general will ever reach a saturation point. There is always something else that some individual would like: a farm, a yacht, a plane, a private library, a larger ranch, a longer yacht, a larger plane, a larger private library, another vacation trip, and so forth. And if a given individual does reach general saturation, he may decide to give his money to others. The market response seems to make intervention in working time unnecessary and undesirable. 
After all, Walker does have to rely on the lump-of-labor fallacy. He laments that the arguments for reducing working time to combat unemployment “have not been engaged by any of the authors who assert that reduced working time policies are populist nostrums bereft of sound economic reasoning.” The reason why few serious economists have engaged lump-of-labor arguments is, I suggest, that they are indeed bereft of sound economic reasoning.
Just to give you a whiff of Professor Lemieux intellectual standard, let me give a little more context for that concluding "lament" of mine. I was discussing the contributions of John R. Commons, Luigi Pasinetti and John Maynard Keynes -- I could have added Chapman, Maurice Dobbs, A. C. Pigou, John Maurice Clark and several labor economists that were well regarded in their day. So here is the full quote from my article that Lemieux truncated:
What Commons, Keynes and Pasinetti have in common, besides their views that the reduction of working time is one way to combat unemployment, is that their analyses have not been engaged by any of the authors who assert that reduced working time policies are populist nostrums bereft of sound economic reasoning.
In the page and half leading up to that lament I had summarized the relevant contributions of Commons, Keynes and Pasinetti. rather than engage those arguments, Lemieux chose to glibly misrepresent my passage by lifting it out of context. I've told this story before but it is appropriate here. Speaking to the motion to censure Senator Joseph McCarthy, Senator Sam Ervin gave this folksy illustration of McCarthy's slippery ways with words:
I now know that the lifting of statements out of context is a typical McCarthy technique. The writer of Ecclesiastes assures us that "there is no new thing under the sun." The McCarthy technique of lifting statements out, of context was practiced by a preacher in North Carolina about 75 years ago. At that lime the women had a habit of wearing their hair in top-knots This preacher deplored the habit. As a consequence, he preached a rip-snorting sermon one Sunday on the text, "Top Knot Come Down." At the conclusion of his sermon an irate woman, wearing a very prominent top-knot, told the preacher that no such text could be found In the Bible. The preacher thereupon opened the Scriptures to the 17th verse of the 24th chapter of Matthew and pointed to the words:
"Let him which is on the housetop not come down to take anything out of this house."
Any practitioner of the McCarthy (Lemieux) technique of lifting things out of context can readily find the text, "top not come down" in this verse.

Saturday, January 23, 2016

Xenophobia: the One on the Right is on the Left?

An ad for Ted Cruz shows actors in suits running through fields and wading across a river, presumably representing the Rio Grande. The voiceover features the candidate from a November 2015 Republican presidential candidates' debate:
"I can tell you, for millions of Americans at home watching this, it is a very personal economic issue. And, I will say the politics of it will be very, very different if a bunch of lawyers or bankers were crossing the Rio Grande. Or if a bunch of people with journalism degrees were coming over and driving down the wages in the press.
"Then, we would see stories about the economic calamity that is befalling our nation. And, I will say -- for those of us who believe people ought to come to this country legally, and we should enforce the law -- we're tired of being told it's anti-immigrant. It's offensive."
Cruz is undoubtedly correct that if the jobs of lawyers, bankers and journalists were disappearing, we would hear much more about it. As to how many jobs of "ordinary Americans" are being stolen by immigrants -- probably not a lot in the larger scheme of things, compared to austerity policies, trade deficits and the fallout from reckless financial speculation.

But how many jobs is beside the point. People have expectations about their future prosperity. They save money to buy homes, to start a business or to retire. They put in overtime hours to try to "get ahead." If after ten, fifteen or twenty years in the work force they are "another day older and deeper in debt," they are prone to feel that something about the system is holding them back.

Maybe they are wrong. Maybe it is their own damn fault. Maybe they're right about the system holding them back but wrong in detail. In some cases, maybe they are right about the near term effects of immigration on their job security.

Economists have soothing words for these anxious people: "don't worry," they assure the common folk, "in the long run everything will be fine. The number of jobs will adjust automatically to accommodate the increase in the work force." This is, of course precisely the attitude Keynes lampooned with his remark about everyone being dead in the long run. Alan Manning, for example, explains in his lecture on the economics of migration:
"The important point is that in the... in the long run, increases in labor force -- and I'll try to explain why in a minute -- cause changes... bring about changes in employment more or less one to one."
Supply of labor, that is to "Say," creates its own demand for labor. Say's Law or the purported version of Say's Law, which reputedly sank without trace after Keynes criticized it. It comes as no surprise that people deny it when I point out that the lump-of-labor fallacy claim is the negative projection of Say's Law. But "increases in labor force... bring about changes in employment" is clearly a paraphrase of "supply creates its own demand."

Again, I'm not saying this is either what Say wrote or any kind of a law. "Say's Law" is simply the name attached to that particular idea.

So, the progressive "wonks" -- Oxford educated London School of Economics professors are combatting virulent right-wing xenophobia with... stale truisms that were discredited 80 years ago and sank without trace? ARE YOU KIDDING ME? I mean, am I kidding you? No. It's as if the quack physicians in Moliere's L'Amour Médecin had come back to life to prescribe leeches and emetics as panaceas.

See also my earlier post on Doctor Krugman and Mister Trump.

Flippity, flop -- it's done...

A customer walks into Nick's Bar and Grill and sees a sign advertising the special steak dinner $10. He orders the special and a beer. Ten minutes later, the server brings him a grilled Spam burger on a bun.  
"I ordered a steak." the customer complains. 
"I'm sorry sir," the server replies, "we're all out of steak but, don't worry, there is not a fixed amount of meat."

"I don't want Spam. I want steak." the customer protests. 
The server goes back to the kitchen and calls out the cook to explain, "Yesterday, we served 100 meat meals to 100 customers. Today, we had 150 customers and we served 150 meat meals to them. The amount of meat we serve is not fixed!" 
"But I don't like Spam. I ordered steak." the customer insists. 
The cook goes upstairs to the office and brings the manager down to explain, "We have monitored the serving sizes and the portions of Spam we served today to customers receiving Spam are exactly the same weight as the portions served yesterday. The portions of steak are even a little big bigger. There is not a fixed amount of meat to go round." 
The angry customer stands up and leaves.
Repeat this story several hundred times and you get the picture of the relentless farce of the lump-of-labor fallacy refrain. Why can't the customer understand that there is not a fixed amount of meat to be served? Why can't the worker understand that there is not a fixed amount of work to be done? Because, quite simply, that explanation has nothing to do with what the customer of working assumed.

The customer assumed that he would get a steak. The worker assumed that she would get a higher paying job with better prospects for promotion. Whether those expectations were realistic or not, the fact that the customer was served a piece of meat or the worker got a part-time, on-call position at Walmart doesn't mean that their wants were gratified.

This is not some complicated mathematical model that goes on for several pages. The is a simple matter of a stubborn refusal by economists to listen. Your lump-of-labor fallacy is bullshit, economists. The empirical evidence you present to "refute the mistaken assumption" is beside the point. YOU, the economists, are making the fallacious assumption, not the workers who are unhappy that there is not an unlimited supply of GOOD, WELL-PAYING jobs to go round.

The stock economists' prescription for that unhappiness is "more education" or, as the oracles of Davos would recommend:
  • rapid adjustment!
  • new reality!
  • concerted effort!
  • innovating!
  • front and centre!
  • new mindset (to optimize resilience)!
Who will stop the lump-of-spam fallacy spam? Flippity, flop -- it's done!