The Role of Experts in Public Debate

Jonathan Portes asks, "What’s the role of experts in the public debate?" He assumes it is his prerogative, as an expert, to define that role:

I think we have three really important functions. 

First, to explain our basic concepts and most important insights in plain English. Famously, Paul Samuelson, the founder of modern macroeconomics, was asked whether economics told us anything that was true but not obvious.  It took him a couple of years, but eventually he gave an excellent and topical example – simply the theory of comparative advantage. 

Similarly, I often say that the most useful thing I did in my 6 years as Chief Economist  at DWP was to explain the lump of labour fallacy – that there isn’t a fixed number of jobs in the economy, and increased immigration or more women working adds to both labour demand and labour supply – to six successive Secretaries of State. So that’s the first. 

Second is to call bullshit.

O.K. I call bullshit. What Portes explained "to six successive Secretaries of State" was a figment of the imagination of a late 18th century Lancashire magistrate, a self-styled "friend to the poor" who couldn't understand why poor people got so upset about having their wages cut or losing their jobs -- to the extent they would go around throwing rocks through windows, breaking machines and burning down factories -- when it was obvious to him that it was all for the best and in the long run we would all be better off... or else dead.

I call bullshit because what Portes explained to six successive Secretaries of State was simply the return of the repressed -- the obverse of "Say's Law" (which was neither Say's nor a Law) that "supply creates its own demand," which John Maynard Keynes demolished in The General Theory of Employment, Interest and Money and that John Kenneth Galbraith subsequently declared "sank without trace" in the wake of Keynes's demolition of it.

I call bullshit because when Paul Samuelson resurrected the defunct fallacy claim that Portes explained to six successive Secretaries of State, he did so on the condition that governments pursued the sorts of "Keynesian" job-creating policies that the discredited principle of "supply creates its own demand" insisted were both unnecessary and counter-productive.

But the lump of labor argument implies that there is only so much useful remunerative work to be done in any economic system, and that is indeed a fallacy. If proper and sound monetary, fiscal, and pricing policies are being vigorously promulgated, we need not resign ourselves to mass unemployment. And although technological unemployment is not to be shrugged off lightly, its optimal solution lies in offsetting policies that create adequate job opportunities and new skills.

[Incidentally, as Robert Schiller has noted, the promised prevention of mass unemployment by vigorous policy intervention did not imply the preservation of wage levels. Schiller cited the following passage from the Samuelson textbook,  "...a decrease in the demand for a particular kind of labor because of technological shifts in an industry can he adapted to -- lower relative wages and migration of labor and capital will eventually provide new jobs for the displaced workers."]

I call bullshit because what Portes explained to six successive Secretaries of State was not even Paul Samuelson's policy-animated zombie lump-of-labour fallacy but a supply-side, anti-inflationary retrofit cobbled together by Richard Layard and associates and touted by Tony Blair and Gerhard Schroeder as the Third Way "new supply-side agenda for the left." Central to that agenda were tax cuts to promote economic growth and "active labour market policies" to foster non-inflationary expansion of employment by making conditions more "flexible" and lower-waged:

Part-time work and low-paid work are better than no work because they ease the transition from unemployment to jobs. ... 

Encourage employers to offer ‘entry’ jobs to the labour market by lowering the burden of tax and social security contributions on low-paid jobs. ... 

Adjustment will be the easier, the more labour and product markets are working properly. Barriers to employment in relatively low productivity sectors need to be lowered if employees displaced by the productivity gains that are an inherent feature of structural change are to find jobs elsewhere. The labour market needs a low-wage sector in order to make low-skill jobs available.

I call bullshit because in defending the outcomes of supply-side labour policies, Portes soft-pedaled the stated low-wage objectives of the Third Way agenda. In a London Review of Books review, Portes admitted that "it may drive down wages for the low-skilled, but the effect is small compared to that of other factors (technological change, the national minimum wage and so on)." In the Third Way supply-side agenda, however, a low-wage sector was promoted as a desirable feature -- making more low-skill jobs available -- not a trivial bug to be brushed aside. In other words, in "driving down wages for the low skilled" the policy was achieving exactly what it was intended to but Portes was "too discreet" to admit that was the stated objectives of the policy.