Sunday, March 15, 2009

Grasping Reality with Both Hands Bound to the Standard Model

by the Sandwichman

Brad DeLong meanders out to the edge of the abyss of knowing but at the last minute pulls back in horror, clutching his standard model teddy bear to his breast...
The 1929-1950 period saw the last sharp decline in the American workweek--a decline that does not mean that the economy was depressed and performing poorly in 1959 or 1949 (or 1939) relative to 1929, but instead that Americans had decided to take a substantial part of their increased technological wealth and use it to buy increased leisure.
Can you say A-N-A-C-H-R-O-N-I-S-M? The 1929-1950 period did indeed see the last sharp decline in the American workweek. But in what sense did Americans choose to buy increased leisure? They were, first of all, compelled by hardship to reduce their hours of work. They only chose shorter hours through work-sharing as an alternative to even greater unemployment. Secondly, Americans chose to legislatively impose shorter hours through the Fair Labor Standards Act. And if it wasn't for the strident objection of business they would have chosen the even shorter 30-hour workweek of the Black Connery bill. But the income/leisure choice standard model that Brad invokes doesn't approve of the imposition of shorter hours by legislation.

A second anomaly in Brad's historical interpretation that Americans decided to take increased wealth as leisure is that this choice mysteriously stopped occurring after the 1950s even though wealth continued to increase vigorously. Funny (peculiar) Americans somehow choose to take more of their "increased wealth" as leisure precisely at the time their wealth is decreasing precipitously and then choose not to take it as leisure when their wealth is actually increasing.

Wait a minute! Did I say Americans chose to take their increased wealth as leisure when their wealth was actually decreasing? But the standard model says... Can somebody help me out here? If wealth is decreasing, in what sense is it "increasing"? Brad?

"...Americans had decided to take a substantial part of their increased technological wealth and use it to buy increased leisure..."

I'm sure the math explains it double-plus good, though.

I do agree with Brad, however, that the sharp decline in the workweek, 1929-1950 was a good thing, at least in retrospect. Sometimes bad circumstances can impose necessities that turn out to be blessings. In this case, I would like to see an economist take on the proposition that the sharp decline in the workweek during the 1929-1950 period established a strong foundation upon which the post-war economy was built. I would love to see Brad DeLong or Paul Krugman take it on.

That hypothesis, by the way, is consistent with Keynes's view of the long-term problem of full employment and with Chapman's theory of the hours of labour.

If a sharp decline in the workweek can be (part of) the foundation of one exceptional period of prosperity, who is to say that another sharp decline in the workweek couldn't be part of the solution to the current crisis? For example, see Dean Baker's proposal for work time reduction as stimulus.

Please discuss.


Shag from Brookline said...

What would it look like if 1929-1950 were segmented 1929-1939 and 1940-1950? I was born in 1930 and was somewhat aware that many of the people in my neighborhood were poor and some on welfare programs. Fortunately my immigrant father had a job that with my immigrant mother's homemaking skills made do pretty well. Then in the late 1930s my grandmother came to live with us, permitting my mother the opportunity to get a job using her sewing skills to produce military clothing for the war. Both of my parents had overtime available to them and took it over leisure time to build up savings just in case WW II did not end the Great Depression. With rent and price controls in place, the overtime money was most welcome, not only for savings but also to improve our household situation. And of course after 1945, with more and more civilian production, we were able to purchsse goods not available because of war production. I assume other families may have had the same experience with overtime opportunities. Besides, gas was rationed, so where could we go, assuming we had a car, which we didn't.

Sandwichman said...

No, Shag, fiddling with the reference dates doesn't in any way rehabilitate the predictive value of the standard model. The model has NO empirical credibility whatsoever. None, zip, zilch, zero. It is strictly a just-so story that explains away a phenomenon rather than explain it. It is a storks-bring-babies fairy tale.

Why do economists want to believe in the stork? And where do babies come from, anyway?