Friday, August 29, 2014

Coase at Cruising Altitude: A Closer Look at the Pay-Me-to-Not-Recline Argument

The recent dustup over the rights of recliners versus the people behind them who get jammed on  crowded airplanes tells us a lot about Coase’s analysis of externalities and the perils of having a simplistic Free Market Roolz understanding of economics.

First, to get a flavor of the two sides, read Josh Barro, followed by Damon Darlin, in the New York Times.  The question is whether passenger A in the row in front has the right to recline into the kneespace of passenger B in the row behind.  Barro invokes Coase: the solution is to have a market.  Clearly, the would-be recliner has the property rights in this matter, since the seat is built to allow reclining and flight attendants will enforce this right in the event of a dispute.  So turn it into a market, says Barro.  If you don’t want me to recline, pay me.  If you offer me enough money, I’ll take it and you can keep your few precious inches.  Darlin doesn’t question this invocation of Coase, but he says that the technology gives an unfair advantage to the recliner.  The playing (sitting?) field is leveled, according to him, if passenger B uses a Knee Defender.

First off, it should be clear that Darlin’s argument is muddled.  He would use the Knee Defender but then remove it if the passenger in front objects.  In other words, he is not really changing the allocation of property rights, just adding an extra step.  First Barro would have to say, “stow your Knee Defender, buster.”  Then he can add, “And if you want to stop me from reclining, show me the money.”  So we are back to square one.

So how well does Coase work here, actually?  At first blush, it looks reasonable.  The recliner values the opportunity to recline at a certain level, measurable in cash.  The reclinee values freedom from being reclined on at some other level, also measurable in cash.  If the first value exceeds the second no deal will be made, and reclining will take place.  If the second exceeds the first, a payment will be made and no reclining will be the result.  Thus the relative advantages and disadvantages will be weighed, even though they happen to different people, and the seat will tilt only if there is a positive net advantage.  Score one for Coase.

Ah, you say, this overlooks the transfer of money itself: the outcome is not only whether the reclining option will be used but also whether rear passengers have to shell out to front ones.  Isn’t there a social justice problem?  Barro’s answer is that the people who are willing to pay the most to avoid being reclined on are likely to be taller, and taller people make more on average than shorties; thus Coasian payments help redress a pre-existing injustice.  Perhaps this was a clumsy attempt at humor, but as economic analysis it’s pretty flimsy.  Average height-related income differentials are very small, especially relative to overall income inequalities.  (We are talking about minute differences in the mean relative to standard deviations.)  Income differences between randomly selected pairs of in-front and behind passengers are unlikely to be attributable to how much seat space they need.  (I’m over six feet, but my middling academic salary puts me below almost every business traveler onboard, no matter how short.)  A better argument would be that each reclinee is also a potential recliner, either on the current flight or a future one.  If a system of payments is adopted, transfers should roughly net out.

The real problem with Coase in this context, however, has to do with the incentive to threaten to recline.  Suppose I am indifferent between reclining and not; in other words, the value to me of being able to put my seat back is exactly zero.  Does this mean I’ll simply keep my seat upright and avoid all hassles?  Not if I’m Homo Economicus, I won’t!  No, as soon as I hear that reassuring electronic beep that says takeoff restrictions are ended, I’ll push my seat back as far as it can go and wait for you to make an offer.  My incentive is to hold out for as much as you are willing to shell out and then take it.

This is a well-known result in economics, of course.  In the classic case of pollution, assigning property rights to the polluter results, in dynamic equilibrium, in more entry of potential polluters and greater payments to them by pollutees relative to the static outcome.  (Not every introductory textbook mentions this, but the best ones do.)

Barro provides a useful example of someone whose understanding of Coase extends as far as the wonders of Markets in Everything and then simply stops.  We see the same phenomenon in just about every aspect of microeconomics, from the virtue of sweatshops (workers voluntarily take those jobs, no?) to the evils of rent control (deadweight loss! black markets!).  More complex considerations that take into account dynamics, interaction effects and the like never intrude.  What you end up with is an ideological truncation of economics, and, as the Great Airplane Debate illustrates, it is largely ideology that frames public discourse.

Thursday, August 28, 2014

SCIOD 11: Continuation of Brassey by Chapman

Sydney Chapman was another of Alfred Marshall's star pupils. He was awarded the Adam Smith Prize in 1900. Pigou won it three years later. In 1909 it went to John Maynard Keynes. Chapman wrote a three-volume "continuation of Lord Brassey's 'Work and wages' and 'Foreign work and English wages'" also titled Work and Wages. Brassey wrote introductions to each of the volumes. In the "analytical groundwork" for Volume 2, "Wages and Employment," Chapman presented a conventional version of the marginal productivity theory of wages, which he summarized, broadly, as "the forces of competition and substitution tend to cause each class of labour to obtain as earnings the value of its marginal productivity." In his introduction, Brassey condensed the theory even further to "Wages depend on the value of the work produced." Neither Chapman nor Brassey made any direct reference to the older wages-fund doctrine, although Chapman acknowledged that the marginal productivity theory "is not yet popularly accepted to the full."

In his economic history of the Lancashire cotton industry, Chapman referred to the "doctrine of the labour fund, as the 'lump of labour' fallacy might be called." Here, presumably, Chapman was using the term "labour fund" as a synonym for Marshall's "work fund," that is to say the demand for labor is assumed to be perfectly inelastic – the quantity demanded remains constant regardless of the wage rate.

Elsewhere, notably for example, in the 1887 English translation of Marx's Capital, the labour fund is a synonym for the wage fund, which implies a unit elasticity of demand for labor – the percentage decrease in demand for labor equals the percentage increase in the wage, so that aggregate of wages remains constant. The two terms were even used interchangeably in the same text as in the following passage from Frank Fairplay's (pseudonym) A Brief Plea for the Old Faith and the Old Times of "Merrie England", when Men had Leisure for Life and Time to Die:
What then constitutes the labour-fund? Certainly not money, which is merely the medium of exchange—a sign of value. There is not enough coined money and bank paper in all England to pay the wages of England for four months. The fund with which labour is paid, consists only of those articles which labourers consume. In Ireland the wage-fund is potatoes and old clothes. In England, as yet at least, it is composed of a sufficiently scanty portion of meat, bread, potatoes, and somewhat more decent apparel. It is obvious then, that the richer the labour-fund is in these articles, the more there will be to distribute.
It is clear from the context, however, that Chapman's meaning was work fund and not wages fund. The point that he is making is that the "fundamental ideas" behind proposals made by the Society for the Promotion of National Regeneration for reducing the hours of work were sound even though their rhetoric was tarnished with fallacious arguments. This is, of course, in agreement with Pigou's explanation that "conclusions are often right when the reasons adduced by their supporters are ridiculously wrong."

In volume 3 of his "continuation" of Work and Wage, published in 1914, Chapman reprised his analysis of the hours of labor that had been published in the Economic Journal five years earlier and that he had hinted at in declaring to be sound the fundamental ideas of the Society for the Promotion of National Regeneration. This theoretical analysis was also consistent with the evidence that Brassey had offered in his 1872 book. "It is equally true," wrote Brassey, after showing that wage rates were no indication of labor costs, "that the hours of work are no criterion of the amount of work performed."

In Chapter 6 of Work and Wages Brassey presented evidence of numerous cases where output increased following a reduction in the hours of work. Chapman's continuation and journal article supplied the theoretical explanation for that result. Twenty years after publication of Chapman's "Hours of Labour" article, Lionel Robbins observed:
The days are gone when it was necessary to combat the naïve assumption that the connection between hours and output is one of direct variation, that it is necessarily true that a lengthening of the working day increases output and a curtailment diminishes it. 
Would that were the case.

If Brassey's Work and Wages provided the evidentiary impetus for Chapman's theoretical analysis of the hours of labor, W. S. Jevons's Theory of Political Economy moulded one of its marginalist theoretical pillars. Chapter 5 of that book presents his theory of labor, including the analysis of the disutility of work, beyond a definite point. "A few hours' work per day may be considered agreeable rather than otherwise;" Jevons wrote, "but so soon as the overflowing energy of the body is drained off, it becomes irksome to remain at work. As exhaustion approaches, continued effort becomes more and more intolerable." This he illustrated with a diagram that illustrated the diminishing utility to the worker of wages earned and the increasing irksomeness of remaining at work as the duration of work lengthened. Chapman's diagram in his "Hours of Labour" article includes a work curve that is clearly analogous to the diagram Jevons presented in his theory of labor.

Economists: Lawyers? Shysters? Touts?

"Basically, a lot of economists use the tools of science to accomplish literary-- or lawyerly -- goals." -- Noah Smith, Economics Isn't Science or Literature
If that's the case, what's "the law"? What are the standards of evidence? I've been thinking a lot recently about the extensive reliance on "hearsay" in economics -- that is to say the flippant attitude of economists toward sources -- and about the preponderance of alibi stories (again with scant regard for proving the alibi). Unlike the legal profession, there is no formal professional code of ethics for economists. So, where do we draw the line between "lawyer" and "shyster"?
"...'shyster' lawyers -- a set of turkey-buzzards whose touch is pollution and whose breath is pestilence" -- "The Tombs," New York in Slices (1849)
"In England, although we have not the term 'shyster,' we have the animal thereby designated, and he is said to be particularly rife at the Old Bailey. A shyster is a tout, and touting may be practised either by a barrister, or by his clerk, or by his post or future clients… But in New York the shyster ventures upon proceedings from which the English tout would shrink. He makes his way into the prisons, and informs the prisoners committed for trial that he has great influence, and in some cases 'he goes so far as to say that he controls, aye, even owns the court and district attorney.'" -- The Saturday Review of Politics, Literature, Science and Art (1871)
"The complaint one makes against that anti-social jargon, which so easily passes for economic science, is that it is in ludicrous opposition to the common observation of facts. Political economy professes to be a science based on observation. But the bitter pedantry which often usurps that name usually assumes its facts, after it has rounded off dogmas to suit its clients. In practice this magazine of untruth escapes detection for two reasons. One is that the facts relating to labour are invariably seen through the spectacles of capital.... The second reason which obscures the truth about industry is, that the facts about capital are almost never honestly disclosed." -- Frederic Harrison, Fortnightly Review (1872)
Update: (Lest we forget):
"In addition to business and government, Mr. Ferguson aims his critique at academia, suggesting that the discipline of economics and more than a few prominent economists were corrupted by consulting fees, seats on boards of directors and membership in the masters of the universe club. 
"When he challenges some of these professors, in particular those who held positions of responsibility in the White House or in the Federal Reserve, they are reduced to stammering obfuscation — Markets are complicated! Who could have predicted? I don’t see any conflict of interest — and occasionally provoked to testiness."  -- A. O. Scott, New York Times review of "Inside Job" (2010).

Wednesday, August 27, 2014

Graunt Work

"To understand the idea of inherent quantitative regularity which informs Graunt's text, and how he was able to devise a method which demonstrates this regularity in vital phenomena, it has been necessary to consider his synthesis of four period concepts: the method of observation prescribed by Bacon's natural history; the method of keeping accompts, with its several proportional checks and informal attitude to population totals; a mercantile system of natural and intrinsic balances, embracing people and trade; and a general model of society as a set of correspondences uniting man, God and nature." -- Philip Kreager, "New Light on Graunt," Population Studies 42, 1988, pp. 129-140.
What Graunt accomplished with his essay is astonishing. Kreager did a magnificent job of reconstructing the foundations of Graunt's method, rather than anachronistically identifying "aspects of Graunt's essay which anticipate later demographic measures and statistical inferences." But there is another story yet to be told -- of the unconscious survivals in subsequent political economy and economics of Graunt's innovative synthesis of natural history, bookkeeping and theology.

The clue here is that there is indeed at least one conspicuous survival, that it is unconscious and that it is significant resides in the incessant reiteration and unanimous misattribution of the highlighted phrase:
"…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…" -- John Graunt, Natural and political observations mentioned in a following index, and made upon the bills of mortality (1662).
So it turns out that the supposition of a fixed amount of work to be done* originates in the "ur-text" of political economy rather than in the half-baked ruminations of fearful Luddites and clueless trade unionists. What are the implications?

William Petty's pioneering estimate of national income relied crucially on his friend Graunt's calculations of population. These were essentially the "number, weight or measure" upon which Petty based his analysis. Alfred Chalk, in "Natural law and the rise of economic individualism in England," (1951) implied a causal link between Newton's Principia and Petty's Political Arithmetick:
"It was not mere chance that Petty chose to call one of his important works Political Arithmetick
"From the point of view of the development of economic theory, the emergence of a scientific philosophy of determinism was possibly the most significant fact of the seventeenth century. The great creative minds in mathematics, biology, physics, etc., gradually came to view the world as an intricate machine in which each part played a role that was rigidly predetermined by inexorable laws. Newton's Principia, published in 1687, provided the basis for a mechanistic outlook which would encompass the universe. In such a climate of opinion, social scientists began to search for a body of laws which would reveal a harmonious social order similar to that which physical scientists had discovered in their researches."
Except Newton's Principia was published in 1687. Graunt's Natural and political observations, on which Petty relied for his empirical information had been published 25 years earlier. The anachronism of seeking out "anticipations" of later thought in earlier texts obscures and misrepresents actual contributions, motives and methods. This leads, it would appear, to endemic confusion about the status and significance of economic "laws," related to the ambiguity of natural law doctrine and laws of nature. (It may be noted that John Locke delivered his Oxford lectures, subsequently published as Essays on the Law of Nature, in 1664. Locke owned a copy of Graunt's Observations. According to Ashcraft, "The influence of Graunt is particularly reflected in Locke's recording in his journals the weekly or monthly mortality rates for various cities while he was living on the continent.")

Citing Heckscher, Chalk claimed that "In mercantilist literature the law of nature was simply divested of almost all its religious, and even ethical, overtones." Kreager, however, presented a very different and more compelling argument:
The 'mix' in Graunt’s mixed mathematics owed, as has been said, to his application of an apparently humdrum practical art, bookkeeping. But beneath his 'shop-Arithmetic' lay a more fundamental and familiar set of associations: number, reckoning and death as the idiom of the Last Judgement. Graunt's simple similitude was that each death represents a subtraction from the living, an entry in God's or nature's 'accompts'. And just as death displaces a person or soul to some specific immortal 'population', so each christening incorporates a new person or soul into a mortal one. Graunt's chosen point of entry into this old theme was Bacon's Natural History of Life and Death. Bacon had argued that men should observe nature in order to discern possible reflections of God's laws; whilst such knowledge was bound to be a pale record of these laws, it nonetheless offered possible guidance on improving individual and collective life. Such a phrasing inevitably suggested that longevity was a kind of measure of man's success in this attempt.... Graunt, expressly taking up Bacon's inquiry, likewise adopted Classical images of the symmetry of divine, natural and political order.
It is a far cry from, say, the law of gravity to a "harmonious social order." But not quite so far if one assumes, a priori, the "symmetry of divine, natural and political order." Furthermore, the technology of double-entry bookkeeping superimposed a merchant's perspective on the social order, one implemented, according to Aho, largely to provide evidence for an alibi against suspicions of usury and unscrupulous business practices.

* I am aware of one instance of similar phrasing that occurs between Graunt's "certain proportion of work to be done" in 1662 and Dorning Rasbotham's "certain quantity of labour to be performed" in 1780: the definition of the verb, "task" in Dyche and Pardon's New General English Dictionary (1735) is "to appoint a person a certain quantity of work to be done in a certain time." Update: the distinction between Graunt's "certain proportion" and Rasbotham's "certain quantity" is an important one on which I will have more to say later.

Burger King’s Facebook Whopper of a Lie

Burger King wants us to believe they are not doing this corporate inversion. Did legal and marketing conspire to put out this misleading FB post?
We hear you. We’re not moving, we’re just growing and finding ways to serve you better. As part of the announcement made today, both Burger King Corp. and Tim Hortons will continue to operate as independent brands. We’ll just be under common ownership. Our headquarters will remain in Miami where we were founded more than 60 years ago and business will continue as usual at our restaurants around the world. The decision to create a new global QSR leader with Tim Hortons is not tax-driven – it’s about global growth for both brands. BKC will continue to pay all of our federal, state and local U.S. taxes. We’re proud of the heritage of Burger King and will maintain our long-standing commitment to our employees, franchisees and the local communities we serve. The WHOPPER isn’t going anywhere.
Burger King Corporation (BKC) is the U.S. subsidiary of Burger King Worldwide. BKW is their stock ticker for a reason. Of course, the U.S. subsidiary is staying in Miami but when the parent corporation relocates to Canada, the U.S. tax obligations of Burger King will be cut in half as they will no longer be subject to the repatriation tax. How stupid does Burger King think we are? And yes – it is “Perfectly Legal”.

Tuesday, August 26, 2014

SCIOD 10: The Fund-a-mental Thing's Supply as Time Goes 'Bye'

The eclipse of the wages-fund doctrine in political economy was the occasion for a peculiar twist in the rhetoric of anti-union polemicists. In 1867, on the eve of Thornton's critique of the doctrine and Mill's recantation, an anonymous article in the Quarterly Review condemned unions for their failure to understand the dynamic nature of the wages-fund:
The question for those who wish to raise the wages of labour is, not how to divide the existing wages-fund in a manner more favourable to the working man, but how to increase competition for his labour among employers.
According to the article, the price of labor depends on the demand for labor which depends on the rate of profit. "The real cause, therefore, of a high rate of wages is a high rate of profit."

Four years later, yet another Quarterly Review article discussed the refutations of the wages-fund and criticized unions for basing their strategies "on the same assumption of a permanent wage-fund" as the orthodox political economists. According to the author, John Wilson, trade unionists believed they could "cause the lion's share of that fund to come into their own hands, to the exclusion, as far as possible, of outsiders—that is to say, of the whole body of workpeople outside the Unions."

Later that same year, the engineers' strike in Newcastle, England for the nine hour day was occasion for several letters to the Times of London and a correspondent's report in the New York Times attributing the demand for the shorter day to a belief by the union "that the amount of work to be done is a fixed quantity, and that in the interest of the operatives, it is necessary to spread it thin in order to make it go far." This is a remarkably close paraphrase of the "false principle," denounced by Dorning Rasbotham, that "there is, say they, a certain quantity of labour to be performed."

Alfred Marshall – whose sympathy toward the working classes was tempered by a growing ambivalence, marked by occasional hostility, toward trade unions – annexed the "fixed amount of work" idea to a modified, purportedly union version of the discredited wages fund that he dubbed the "fixed Work-fund fallacy":
It is known that the immediate effect of a reduction of the hours of labour would be to cause those employers who had contracts on hand, and some others to take on extra men. And it is argued that therefore a reduction of the hours of labour would diminish the number of the unemployed, and raise wages.  
But there is not, as this argument assumes, a fixed Work-Fund, a certain amount of work which has to be done, whatever the price of labour. On the contrary the demand for work comes from the National Dividend; that is, it comes from work: the less work there is of one kind, the less demand there is for work of other kinds [Say's Law!]; and if labour were scarce, fewer enterprises would be undertaken.
Marshall's argument oscillates between self-evident truism and non-sequitur. Part of the problem is that Marshall had buried in the preceding paragraph the important qualification that the reduction in hours be independent of any effect on efficiency. The other part of the problem with the fallacy argument is that unions virtually always in the 19th century cited overwork and the efficiency gains that would results from shorter hours.

A few decades later, Marshall's star pupil and successor in his chair at Cambridge, Arthur Cecil Pigou rather delicately teased out some of the exceptions and qualifications to the alleged fallacy of the fixed work-fund. First, he conceded "an element of undoubted truth" to the idea that under many circumstances protectionism can be fruitful for workers in a particular industry and that those benefits may be long lasting. However, he contrasts that localized gain with the idea that there would be an overall benefit to all industries from, for example, limitation of imports. Having made that concession to the fallacy claim, Pigou then addressed a more fundamental issue about the relationship between ideas – however fallacious – and economic facts -- it is:
...unwarrantable to conclude that, because the reasons which popular thought offers in defence of any thesis are invalid, therefore, that thesis is untrue…. conclusions are often right when the reasons adduced by their supporters are ridiculously wrong.
Pigou then proposed the one and only condition under which this alleged popular thought could be vindicated: "that these devices succeed in rendering the labour and capital of the rest of the community more effective in production." Again, it needs to be reiterated that the "popular thought" that there is "only a fixed amount of work to be done" has always been – from Rasbotham to McCulloch to Wilson to Marshall – an idea attributed to some vague collectivity by the writer and never an argument uttered by an identifiable person or group. Those who do the attribution are no doubt quite certain that they have correctly characterized the unspoken "idea behind" one policy proposal or another. But they view as incomprehensible any suggestion that they need to back up such claims with evidence.

In 1926, Maurice Dobb added another wrinkle to the question of the Work-fund and its supposed fallacy – workers were not necessarily as concerned with maximizing aggregate earnings per capita, as the economists assumed, but in increasing "wages in proportion to the worker's expenditure of energy and his 'wear and tear,' and… wages as a proportion of the total social income":
What was implied in the economists' retort to the advocates of the so-called Work-Fund leads to the apparent paradox that the more the workers allow themselves to be exploited, the more their aggregate earnings will increase (at least in the long run), even if the result is for the earnings of the propertied class to increase still faster. And on this base is erected a doctrine of social harmony between the classes.
Even as economic theorists such as Dobb and Pigou were carefully dissecting and refuting the implicit assumptions of the Work-fund fallacy claim, economic textbook authors were diligently parroting the discredited claim. In economics, what is taught trumps what is thought. 

Raymond Bye's Principles of Economics, first published in 1924 became one of the most widely adopted college introductory economics textbooks in the United States during the interwar period. In it, Bye presented an atypically clear exposition of the "'lump-of-labor' or 'make work" fallacy," which he defines as "very similar to the general overproduction fallacy..." "The reader," Bye assures, "will see the error in this sort of thinking if he understands the true nature of exchange." So what is the "true nature" of exchange?
Every laborer creates a product which is offered in exchange for the products of other laborers. The demand for labor thereby grows as fast as its supply; the one cannot be greater or less than the other, for they are the same thing. Every addition to the labor force of a community gives other laborers work to do providing for the needs of the newcomers, while the latter can find occupation catering to the ungratified desires of those who were already employed.
The demand for labor grows as fast as its supply! They are the same thing! Bye's explanation surpasses "supply creates its own demand." Supply IS it's own demand.

Monday, August 25, 2014

Burger King Inversion - Dealbook Misses the Mark

In addition to that disappointing op-ed from Greg Mankiw, The New York Times missed the facts on the Burger King merger with Tim Horton:
Though the two companies are expected to argue that a merger would bring a host of strategic benefits, it would nevertheless count as a so-called corporate inversion. Many American companies have looked toward taking over foreign companies, and then moving their headquarters abroad, to lower their overall tax bill … The American corporate tax rate is about 35 percent, while Canada’s is about 15 percent. But people briefed on the deal negotiations said that the main driver in the talks was not taxes. Burger King already pays a tax rate of roughly 27 percent, and would shave off only a couple of percentage points by moving to Canada, according to the people briefed on the matter. And Burger King does not have a significant amount of cash held abroad, these people said. Companies often pursue inversions to gain access to their overseas cash without being hit by a big American tax bill.
Canada’s corporate tax rate is 26.5% not 15%. But if one takes a look at Burger King’s 10-K, you’ll see that foreign taxes relative to foreign sourced income is around 15%. You’ll also see that about 80% of its income is sourced abroad even though half of its stores are in the U.S. This screams out transfer pricing abuse, which of course Greg Mankiw ignored in his op-ed. Burger King has reported an effective tax rate near 27% precisely because they have been paying the repatriation tax, which is likely why they don’t have a lot of cash abroad. But without the repatriation tax, their effective tax rate would have been less than 20%. So when the NY Times says this “would shave off only a couple of percentage points”, they are incredibly wrong.

Saturday, August 23, 2014

Mankiw v. Kleinbard on Corporate Inversions

Greg Mankiw discusses the corporate inversion issue:
If tax inversions are a problem, as arguably they are, the blame lies not with business leaders who are doing their best to do their jobs, but rather with the lawmakers who have failed to do the same. The writers of the tax code have given us a system that is deeply flawed in many ways, especially as it applies to businesses. The most obvious problem is that the corporate tax rate in the United States is about twice the average rate in Europe ... A main feature of the modern multinational corporation is that it is, truly, multinational. It has employees, customers and shareholders around the world. Its place of legal domicile is almost irrelevant. A good tax system would focus more on the economic fundamentals and less on the legal determination of a company’s headquarters. Most nations recognize this principle by adopting a territorial corporate tax.
I find this an incredibly naïve discussion. I’ll be the first to admit that the U.S. tax code insistence on a repatriation tax is a bit weird as U.S. based multinationals are incredibly adept at not paying it. So we have an effective territorial system anyway as Eric Kleinbard notes:
Corporate executives have argued that inversions are explained by an "anti-competitive" U.S. tax environment, as evidenced by the federal corporate tax statutory rate, which is high by international standards, and by its "worldwide" tax base. This paper explains why this competitiveness narrative is largely fact-free, in part by using one recent articulation of that narrative (by Emerson Electric Co.’s former vice-chairman) as a case study. The recent surge in interest in inversion transactions is explained primarily by U.S. based multinational firms’ increasingly desperate efforts to find a use for their stockpiles of offshore cash (now totaling around $1 trillion), and by a desire to "strip" income from the U.S. domestic tax base through intragroup interest payments to a new parent company located in a lower-taxed foreign jurisdiction.
When Mankiw talks about a good tax system focusing on economic fundamentals, he is assuming there is no transfer pricing abuse. Kleinbard and many others have noted how incredibly abusive the transfer pricing practices of highly profitable multinationals has become. In fact, this concern is why the OECD is so concerned about Base Erosion and Profit Shifting. Is Greg Mankiw another Rip van Winkle being asleep for the last 20 years and missing this key portion of the discussion? Then again, he later notes his real agenda here:
So here’s a proposal: Let’s repeal the corporate income tax entirely, and scale back the personal income tax as well. We can replace them with a broad-based tax on consumption.
I see – ignore transfer pricing abuse entirely as you are writing another op-ed for Team Republican where the real agenda is to shift the tax burden away from capital income entirely.

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):
"...is 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.

Christian Right Hypocritically Ruins Reputation Of Oldest English Governorship In North America

That would be the governorship of the Commonwealth of Virginia, a position continuously dating from about four centuries, which has had such individuals as Thomas Jefferson and Patrick Henry holding it, but now facing for the first time having one of its own on trial for a felony corruption charge, Robert McDonnell.  McDonnell is trying to get out of this charge by blaming his troubled wife, even though he and his sons accepted numerous extravagant golfing outings on the bill of a donor without reporting any of this to the appropriate authorities.  It is bad enough that this reprehensible cad could have saved his wife and family from the massive humiliation they are currently undergoing if  he had accepted a relatively minor plea bargain offered him (yeah, it involved him confessing a felony, but with minor consequences).

 However, the really bad part of this that has not been reported on as this degrading and embarrassing spectacle has proceeded is the hypocrisy involved here.  It is fine for someone like WaPo's Petula Dvorak to point out how much support his wife, Maureen, provided him in many ways in his many campaigns, before he dumped her under the bus.  But the part that nobody talks about, and basically has not since he was elected governor, is his past  as a Christian Right fanatic, not really a past given that he carried out a major reduction of womens' rights by sharply reducing abortion providing facilities in the state, even if his more fanatical AG, the now-defeated Cuccinelli, was pushing this more than him.  McDonnell is a pure creature and creation of the hypocritical Christian Right in Virginia.

His Masters degree came from a place that does not deserve to be called a "university," Pat Robertson's Regents University. Robertson is the son of former  VA Sen. Willis Robertson (D-VA), which gives him more VA roots than the late Jerry Falwell who founded the equally disreputable and academically embarrassing Liberty "University," which has shown what a joke it is by hiring McDonnell to lecture there since he ended his governorship.  Anyway, his Masters thesis at Regents was all about how women should obey their husbands or any other nearby male authority. I can imagine that his wife, Maureen, is laughing over this, although she is most certainly nothing to write home about as a decent human being, much less a wife of anybody.

So, there we have it, ultimate Christian Right hypocrisy.  This man oversaw massive shutdowns of abortion clinics in VA and many other egregious reductions of womens' rights as first AG and then as governor.  He played blowdry moderate image, but when in office he took a hard line and followed up on what his thesis said: put women in their place.  His violation and betrayal of his wife in the court of law, when he could have taken a low key plea bargain, is not only a disgusting display of a lack of husbandly and manly behavior, but a massive manifestation of Christian Right hypocrisy.

Barkley Rosser

Thursday, August 21, 2014

SCIOD 9: This Magazine of Untruth

"Political economy," observed Frederic Harrison in his 1872 review of Thomas Brassey's Work and Wages, "professes to be a science based on observation."
But the bitter pedantry which often usurps that name usually assumes its facts, after it has rounded off dogmas to suit its clients. In practice this magazine of untruth escapes detection for two reasons. One is that the facts relating to labour are invariably seen through the spectacles of capital. ... The second reason which obscures the truth about industry is, that the facts about capital are almost never honestly disclosed.... 
The decade of the 1870s was an auspicious time for political economy. On the eve of the decade, John Stuart Mill recanted the orthodox dogma known as the wages-fund doctrine, which has a curious relationship to Say's Law. Dudley Dillard referred to Say's law of markets as "a corollary of the wages-fund doctrine in the context of the fourth proposition on capital." Mill's fourth proposition maintains that "demand for commodities is not demand for labour."

Perhaps Mill's dictum could be more clearly expressed as a positive, qualified statement rather than a negative proposition: it is the supply of capital (not the demand for commodities) that constitutes the demand for labor. Or, supply (of capital) creates its own demand (for labor). A cheap labor market is always full of employers. From this perspective there is no such thing as involuntary unemployment, only overpriced labor. That is what Harrison meant by "the bitter pedantry" that "usually assumes its facts, after it has rounded off dogmas to suit its clients ." British trade unionist George Howell wrote of the wages-fund doctrine in 1878:
Perhaps no single doctrine has been more persistently or mischievously urged by political economists against the claims of the working classes than the dogmatic assumption that there is a certain wage fund which constitutes a definite portion of the existing wealth of the country for the payment of wages, and that this amount will be wholly used for that purpose, and that not one penny more can be so used.
In Work and Wages, Thomas Brassey didn't reject the wages-fund doctrine. He did something far more lethal to the glib propaganda value of the dogma. He complicated it. Brassey was not a political economist. He was an industrialist, heir to an international railroad construction enterprise, started by his father, that was one of the largest employers in Britain at the time. He also inherited his father's vast accumulation of evidence on labor costs and their variation in response to different geographic, social, political and economic circumstances. From his analysis of this data, Brassey concluded that output per unit of wage cost was approximately equal, regardless of variations in the wage rate. Wages rates thus should be understood to incorporate differences in productivity of labor as well as fluctuations in supply and demand.

Conventional political economists were hardly unaware that there was a relationship between wages and the productivity of labor. It just wasn't central to their elaboration of the supposed wages-fund until Brassey's evidence proved too much to ignore. "With evidence like this before us," exclaimed Harrison in his review:
…we may well hesitate to accept the professorial dicta of so-called economists. They give us almost daily lectures based on the assumption that high wages inevitably imply dear goods and low profits…. And it is an axiom with some of these philosophers that every rise in wages is a fresh tax on British industry. Of course a rise in wages does not imply of necessity cheaper production; but it is, in a healthy state of trade, perfectly compatible with it. In point of fact economy in production has a progress far more steady, constant, and silent, than any advance in wages.
In his comprehensive critique of the wages-fund doctrine, American economist, General Francis Amasa Walker, cited the authoritative status of Brassey's evidence:
[B]y far the most important body of evidence on the varying efficiency of labor is contained in the treatise of Mr. Thomas Brassey, M.P., entitled Work and Wages, published in 1872. Mr. Brassey's father was perhaps the greatest "captain of industry" the world has ever seen… The chief value of Mr. Brassey, Jr.'s work is derived from his possession of the full and authentic labor-accounts of his father's transactions.... 
In turn, in what is "regarded to be the first modern economic textbook," Alfred Marshall credited Walker for "forcing constantly more and more attention to the fact that highly paid labour is generally efficient and therefore not dear labour…" Marshall judged that fact to be "more full of hope for the future of the human race than any other… [although it] will be found to exercise a very complicating influence on the theory of Distribution."

Under the weight of this complicating influence, the wages-fund doctrine retreated into the twilight of editorial boilerplate, old-school textbook orthodoxy and perpetual antiquarian controversy. Marginal utility theory stepped in -- gradually, very gradually -- to fill the void.

"In economics," Paul Samuelson once claimed, "it takes a theory to kill a theory; facts can only dent the theorist's hide." Perhaps. But perhaps the coup de grace can't be administered until the facts have given the old doctrine a thorough hiding.

On Glenn Hubbard’s Federal Taxes Being 18% of GDP

Dean Baker has some fun with Glenn Hubbard is Unhappy About the Budget Deficit. Dean notes:
Hubbard was the chief economic advisor to President George W. Bush when he pushed through his tax cuts in 2001. The tax cuts, along with the recession and the wars in Afghanistan and Iraq, pushed the budget from a surplus of 2.5 percent of GDP in 2000, to deficits of more than 3.5 percent of GDP in 2003 and 2004. While running large deficits was the right move for the economy in response to the recession created by the collapse of the stock bubble (although there were far better uses for the money than tax cuts to rich people and fighting unnecessary wars), there is more than a bit of inconsistency in Hubbard's apparent willingness to use deficits to boost the economy out of a recession in the last decade while at the same time disparaging President Obama's efforts to use deficits to lift the economy out of a far deeper hole.
This is a lot more to Dean’s rebuttal, but I want to lift one sentence from what Glenn wrote:
The still larger problem lies with Republicans who refuse to face facts. “Starve the beast” has been the mantra of conservatives since Ronald Reagan was president, a belief that, if taxes were low enough for long enough, rational Democrats would have no choice but to agree to bring federal spending down as well. Even though total federal revenue held level at around 18 percent of gross domestic product in recent decades, spending soared.
Glenn wants us to believe that spending is the problem – not a lack of tax revenues. But this last sentence does not square with the facts as our graph of the Federal tax revenue to GDP ratio from 1977 to 2013 shows. Yes, this ratio rose above 18 percent under President Carter. But then we got the Reagan tax cuts. OK, Clinton’s tax increase pushed this ratio near 20 percent by the time George W. Bush took office. And as Dean notes – Team Republican (Glenn being a member) decided to cut taxes again. Over the 2001 to 2013 period, this ratio has averaged only 16.3 percent. In defense of Republican politicians – how can they face the facts if their own economic advisors don’t present them?

Wednesday, August 20, 2014

Aspen Strategy Group Overstates Russia's Problems

In today's Washington Post, the usually sharp David Ignatius reports on closed discussions at the Aspen Strategy Group by "senior current and former officials, plus some think tank leaders and journalists" ("Crafting a policy for Russia").  Supposedly a bit more hawkish than the administration, this group is presented as a bipartisan group of wise people who really know what they are talking about as they craft policies for the US to deal with Russia.  Much of what Ignatius reports is sensible ("Don't give in to Putin, but don't give up on Russia" and that the US should "play what one former Cabinet official called 'the long game'" in the face of "Russia's humiliation after the crackup of the U.S.S.R.").

Nevertheless, a disturbing aspect of Ignatius's report on this meeting of supposedly Very Smart (and Serious) People is how out of touch with basic facts they apparently are, mouthing old cliches that are no longer true.  So this group heard (not reported who was handing this stuff out) that Russia faces a "demographic disaster: a shrinking population, a chronic health crisis that puts Russia between Tanzania and Angloa in male life expectancy, and a dearth of entrepreneurship..."

Sorry, but the demographic disaster  was an accurate story some years ago, but has come sharply to an end.  Population growth has been positive since 2009, with an extra three million added with the annexation of Crimea.  Male life expectancy hit a low in 1994 of just below 58 years, but it rose after that for a few years only to fall again nearly to 58 by 2005, finally turning around and steadily increasing since then to be about 64 years.  That level, and overall life expectancy of just over 70, are just about back to where they both were at their previous peak in 1986, the last year of positive economic growth prior to the collapse of the Soviet Union.  Male life expectancy in Tanzania is just about 60.

Certainly many things are not all that great in Russia.   Positive economic growth, now pretty much zero, has mostly been due to higher oil prices, with military exports really the only other major growth sector.  Corruption and many other things hold back the economy, quite aside from the impact of the economic sanctions that have been imposed by foreigners on Russia for Putin's unnecessary adventurism abroad.  But it must be recognized that Putin has succeeded in reviving favorable self-image in Russia, the land "humiliated" by the end of the USSR.

I do not know if this change in image is what lies behind the improving health and demographic situation (birth rate has also been rising), but it certainly serves no purpose for supposedly wise US VSPs to continue to believe out of date horror stories about what is going on there.  According to Ignatius these people were only debating about whether Russia's supposedly inevitable decline will be gradual or sudden. That they seem to be completely unconscious that at least the demographic part of this story is simply total garbage is not encouraging.  I would hope that those who are actually advising Obama rather than just bloviating in Aspen know the facts rather than the right wing think tank fantasies left over from the past.

Barkley Rosser

Tuesday, August 19, 2014

SCIOD 8: The Secret Basis of Glut

Even though it appeared "when the factory system was comparatively but little developed," Marx observed that Ure's work, "perfectly expresses the spirit of the factory, not only by its undisguised cynicism, but also by the naïveté with which it blurts out the stupid contradictions of the capitalist brain." The most glaring contradiction Marx pointed to involved the relationship between unionism and the pace of technological change. In the early pages of the book, Ure noted the "instructive warning to workmen to beware of strikes," posed by the invention of the dressing machine, which proved:
…how surely science, at the call of capital, will defeat every unjustifiable union which labourers may form… Were it not for unions, the vicissitudes of employment, and the substitution of automatic for hand work, would seldom be so abrupt as to distress the operative.
Yet in the third section, Ure asserted that:
[h]ad it not been for the violent collisions and interruptions resulting from erroneous views among the operatives, the factory system would have been developed still more rapidly and beneficially for all concerned than it has been…" 
Perhaps, though, the contradiction is not quite as stark as it appears. Maybe Ure is assuming that capitalists would introduce different, more benign machines if they could confidently rely on docile workers? In that case, though, the contradictions are only displaced from the nature of machines to equally naïve and cynical assumptions about the inherent benevolence of the masters and malevolence of the "hands" (as Ure frequently referred to workers).

The section in Capital immediately following Marx's critique of Ure examines "The theory of compensation as regards the workpeople displaced by machinery." One might expect to find there a critique of Say's Law – or rather of the maxim that eventually came to be known as Say's Law. Instead, Marx referred to the insistence of "James Mill, MacCulloch, Torrens, Senior, John Stuart Mill, and a whole series besides…"

The only mention of Jean-Baptiste Say appears in a footnote referring to "a disciple of Ricardo, in answer to the insipidities of J. B. Say…" It repays the effort to ferret out the anonymous pamphlet cited by Marx, "An Inquiry into those Principles Respecting the Nature of Demand," &c. The anonymous pamphleteer presented a comprehensive critique of Say's maxim in pages 14 to 33 and returned to that topic on page 72, comparing specialized labour to fixed capital, in the passage Marx cited:
The habits of the labourers, where division of labour has been carried very far, are applicable only to the particular line they have been used to; they are a sort of machines. Then, there is a long period of idleness, that is, of labour lost; of wealth cut off at its root. It is quite useless to repeat, like a parrot, that things have a tendency to find their level. We must look around us, and see that they cannot for a long time find a level: that when they we cannot but see, that they are unable to find their level for a long time; and that when they do, it will be a far lower level than they set out from.
In Theories of Surplus Value, Marx described the pamphlet as "one of the best of the polemical works of the decade," notwithstanding disparaging remarks about "the infinite narrow-mindedness of these fellows" when examining capital. There he addressed "Say’s earth-shaking discovery that “commodities can only be bought with commodities…" and again quoted the above passage regarding the effects of division of labour. A few paragraphs later, he remarked, "What the author writes about Say is very true." "The theory of compensation as regards the workpeople displaced by machinery" can be read as a veiled response specifically to Say's maxim. Marx's critique owes a great deal to the anonymous pamphleteer, whom he both praised and disparaged.

It is curious that Marx didn't take the opportunity to directly confront Say, particularly as his discussion of the pamphlet in Theories of Surplus Value bears directly on the issue of crises of overproduction. After quoting the author's observation that "glut is synonymous with high profits," Marx affirmed that this was, "indeed the secret basis of glut." A few paragraphs later, his summary response to the pamphlet's argument is a succinct expression of Marx's crisis theory:
Over-production, the credit system, etc., are means by which capitalist production seeks to break through its own barriers and to produce over and above its own limits. Capitalist production, on the one hand, has this driving force; on the other hand, it only tolerates production commensurate with the profitable employment of existing capital.
Bernice Shoul mentioned neither the anonymous pamphlet nor the section in Capital on the theory of compensation in her 1957 article, "Karl Marx and Say's Law."


Monday, August 18, 2014

Immigration analysis on job market "refuted" with red herring

Dear Bob Birrell and Carla Wilshire,

In her attempt to refute Bob Birrell's analysis, Carla Wilshire makes the following claim:
Birrell chooses to ignore the dynamic effects of the labour market. The assumption that there are only so many jobs to go around has been roundly rejected. Labour economists have long known the number of jobs is not fixed. According to Nobel Laureate Paul Krugman, this lump of labour fallacy “encourages fatalism” and “feeds protectionism”. The trouble with promoting such notions is that policy-makers stop thinking about ways to create jobs.
There are so many errors in that brief paragraph, it is hard to know where to begin. But let's start with Paul Krugman. Krugman has indeed criticized the lump-of-labor assumption but he has also criticized, as "equally fallacious," the counter assumption (often referred to as Say's Law), that demand for labour increases with its supply. In fact, Paul Krugman has spent far more time recently refuting Say's Law than he has the lump of labor.

http://krugman.blogs.nytimes.com/2013/02/10/still-says-law-after-all-these-years/
http://krugman.blogs.nytimes.com/2014/02/21/hearsay-economics-2/

The problem with the supposed refutation of the supposed lump-of-labour fallacy goes deeper than that, though. Ultimately the refutation is based on the same hidden assumption as the alleged "fallacy" -- what was known in classical political economy as the wages-fund doctrine. In short, the fallacy and its supposed refutation are simply two sides of a paradox that arises from the static nature of analysis, similar to Zeno's paradox of the arrow.

Wilshire uses the word "dynamic" incorrectly. Wilshire is making the mistake of assuming that the colloquial connotation of "dynamic" is the same as the technical one. This is not acceptable in the context of claims about economic theory (see John Maurice Clark's discussion of "The Relation between Statics and Dynamics" or Alfred Marshall's discussion in "Distribution and Exchange").

What she presumably means by "dynamic effects" are the 'long term' effects of economic growth. But "what labour economists have long known" about the number of jobs in a growing economy is itself based on another static analysis, not on a dynamic analysis. The assumptions of the latter static analysis may be more realistic to the extent that they are based on empirical observation but that doesn't make the analysis dynamic. Often, though, the refutation is not based on empirical observation, in which case it is pure, empty assertion. There is nothing "inevitable" about economic growth.

Ms. Wilshire may have an alibi for her misuse of dynamic in that economists often make the same error of referring to static analyses as "dynamic" just because they incorporate a few rudimentary moving parts ( for example, DSGE: "dynamic" stochastic general equilibrium models). This is like referring to an animated GIF file as a "full-length moving picture."

Of course, Bob Birrell will be quite aware that he didn't assume a "fixed amount of work" (which is not the same thing as "only so many jobs to go around"). If at time "t" there are 10 jobs and 11 workers and at time "t+1" there are 12 jobs and 14 workers, then the amount of work is clearly not fixed but the number of unemployed has doubled and the unemployment rate has increased from 9% to 14%. The allegation of a belief in a "fixed amount" of work here is clearly inapplicable.

Accusing one's opponent of committing a lump-of-labour fallacy is such a hackneyed, inadequate argument, that it immediately raises suspicions that the person making the claim has no substantive argument to make.

Yours sincerely,

Tom Walker, author of
"Why economists dislike a lump of labor" and
"The "lump-of-labor" case against work-sharing: populist fallacy or marginalist throwback?"