Sunday, April 5, 2009

"On Luxury, Idleness and Industry"

by the Sandwichman

Having proposed the counter-narrative to Economic Man, I will now undertake to test it rigorously and exhaustively by examining it's presence in numerous and various texts. I begin with Benjamin Franklin because he is indelibly associated with the work ethic and Economic Man's incarnation as "self-made".

In addition to his star performance on the U.S. one-hundred dollar bill, for Max Weber, Franklin personified the "spirit of capitalism". One might say the myth of Franklin (if not the man himself) personified Economic Man. The Weber connection is crucial because it was Weber who argued, in "Marginal Utility Theory and 'the Fundamental Law of Psychophysics'," for the methodological canonization of Economic Man, an argument subsequently pursued by Lionel Robbins in his Essay on the Nature and Significance of Economic Science.

In a letter to Benjamin Vaughn, dated July 1784, Franklin wrote:
It has been computed by some political arithmetician, that, if every man and woman would work for four hours each day on something useful, that labour would produce sufficient to procure all the necessaries and comforts of life: want and misery would be banished out of the world, and the rest of the twenty-four hours might be leisure and pleasure.

What occasions then so much want and misery? It is the employment of men and women in works that produce neither the necessaries nor conveniences of life, who, with those who do nothing, consume necessaries raised by the laborious...

Look round the world, and see the millions employed in doing nothing, or in something that amounts to nothing, when the necessaries and conveniences of life are in question. What is the bulk of commerce, for which we fight and destroy each other but the toil of millions for superfluities, to the great hazard and loss of many lives by the constant dangers of the sea?...

A question may be asked; Could all these people now employed in raising, making, or carrying superfluities, be subsisted by raising necessaries? I think they might....

It is, however, some comfort to reflect that, upon the whole, the quantity of industry and prudence among mankind exceeds the quantity of idleness and folly....

One reflection more, and I will end this long rambling letter... Our eyes, though exceeding useful, ask, when reasonable, only the cheap assistance of spectacles, which could not much impair our finances. But the eyes of other people are the eyes that ruin us. If all but myself were blind, I should want neither fine clothes, fine houses, nor fine furniture.
This is easy! In the counter-narrative post, I wrote, "Persona parsimoniae has two different kinds of preferences -- organic needs and aspirations for social distinction. The means for satisfying those desires are limited absolutely, not just transiently, by physical laws and/or social institutions. And utility is mostly a function of habit [and emulation] rather than calculation."

In the passage cited above, Franklin distinguished between two kinds of wants or preferences -- for the "necessaries and conveniences of life" and for "superfluities" the desire for which arises from "the eyes of other people", that is to say from the desire for social distinction and emulation. With regard to physical and social limits, Franklin is optimistic. He speculates that people could be converted from producing superfluities to producing necessaries and conveniences and he is reassured that there is more industry and prudence among mankind than there is idleness and folly. Note that for Franklin "leisure and pleasure" contrast with "idleness and folly", which constitute the "toil of millions for superfluities".

Economic Man -- complete set of preferences, rationality, utility maximization and all -- might feel some ambivalence toward Franklin's scenario. One the one hand, the "toil of millions for superfluities" offers untold opportunities for profit. On the other hand, such idle toil occasions "so much want and misery," surely not the ideal picture of utility maximization for the population as a whole. Would that there were yet some other other hand -- invisible, perchance? -- to reconcile the desire for gain with the general well being!


Unknown said...

Most of the policy proposals that I've read so far (not that there are many concrete ones for the US), focus on employer tax credits (Baker) or absolute reductions in hours worked (France, via overtime starting at 35hrs). While I am very much for working hour reduction, I suspect that both of these policies, taken alone, will be less effective in terms of reducing employment than one would perhaps expect.

Temporary tax credits, as suggested by Baker, will be less effective than suggested, I predict, because of their temporary nature. A company will look at their declining balance sheet, decrease the hours and collect the tax credit, hire no one new, then promptly cancel the program and stop collecting the tax credit as soon as their finances make it possible to do so. Two years will not be enough to change these norms, and regardless of employee outrage, employers have motive, method, and practice to eventually force employees back into accepting a 40 hour + transit week.

In France's case, their moving of the overtime threshold to 35 hours, while somewhat effective from what I have read, have failed to have move as many people as theory would predict onto the the employment rolls. I would suggest (unlike critics on the right who insist that the high cost of firing in France lowers the policy's effectiveness) that this difference is explained by a mixture of hiring costs, fixed per-employee overheads, and social factors. It is unlikely that the social factors can be overcome by public policy but it may be possible to alleviate the other two via a mixture of well-designed incentives and public assistance.

I don't have the time or the data access to back up these assertions, I admit, but it would be interesting to see what you think of them. Additionally, it'd be nice to see a round-up of serious WTR policy proposals for the US and Canada and weighing their pros and cons. All those that I have seen so far seem a little narrow. I would imagine that any serious proposal would have to include minimally:

- lowering the overtime threshold
- raising the minimum wage to offset this to some extent
- (in the USA) reducing employer fixed costs by moving health care off of their books and onto the state.
- (currently) stimulus measures, poss. credits for time reduction or hiring subsidies for people who're still employed after six months.
- other fixed cost and hiring cost reductions and supports.

Unknown said...

An additional point that I forgot in the policy skeleton would be mandating a larger number of paid vacation days in the US.

Shag from Brookline said...

I just read Richard Posner's review of "Animal Spirits: How Human Psychology Drives the Economy, and Why it Matters for Global Capitalism" by George A. Akerlof and Robert J. Schiller at The New Republic website with a date of April 15, 2009. The review makes interesting reading as Posner challenges the authors' irrationality claims. Perhaps Sandwichman and other posters here may provide their comments on the book and Posner's review. Posner seems to lean towards Keynsianism for recovery from our current crises. He also seems to accept "rational" man but not irrational. Is Posner misreading Keynes' "animal spirits" or are the authors? After watching Bill Moyers' show last Friday, it seems that many of us have been lured by the Pied Pipers on Wall Street as enabled by the media. Was this rational?

Sandwichman said...

Thanks, Shag, for bringing that to my attention. I'll have to read the book to comment definitively. Having read only the Posner review and a couple of others, though, it would appear that Akerlof and Schiller haven't met the 'at least as' parsimonious test that I've set for my counter-narrative. Other than that there's some obvious parallels between what they are attempting in their book and what I'm doing. It will give me a good benchmark to live up to!

This 'rational man' business is a cipher, so the 'opposite' or alternative is NOT "irrational". The alleged rationality is merely a black box that fits into a mechanistic model of the economy. What the economic subjects have to do to ensure that the economy functions like a machine is "behave rationally". Therefore, whatever they do is tautologically "rational". 'Rational', for the economist, means the same thing that 'glory' means for Humpty Dumpty: "a nice knock-down argument."

Shag from Brookline said...

"'Rational', for the economist, means the same thing that 'glory' means for Humpty Dumpty: 'a nice knock-down argument.'"

But can Obama's economic team do what "All the King's horses, And all the King's men" could not do for Humpty Dumpty and put our economy back together again?