Friday, August 14, 2009

To V or Not to V? Is That the Question?

by the Sandwichman

The Sandwichman is not 'optimistic' about a 'V' shaped recession. Ultimately the economy is not a numbers game. The numbers are epiphenomena. That is to say secondary symptoms, mere concomitants. Divining numbers from numbers is a fool's pass time.

The policy responses to the recession so far have not addressed the fundamental imbalance in the economy, which is the concentration of income shares and market power at the top of the pyramid.

Debt can be useful for pump-priming to the extent that it makes available in the present purchasing power that is expected to materialize in the future. But to the extent that a more prosperous future fails to materialize, accumulated debt becomes a drag on present consumption. The humus of broken promises leaves a barren soil for sowing new ones.

The homeostatic key to re-balancing incomes, consumption and labor supply is, in a word, leisure. Leisure is distinct from idleness in that it is valued free time. Unemployment is not leisure because no unemployed person would pay to stay unemployed longer.

The distinctive property of leisure as leisure that distinguishes it from ('other') commodities is that you cannot hoard it or accumulate it beyond the 24-hour per day per person allotment. This also explains why capital is jealous of leisure.

The depreciation of leisure that underpins the current economic crisis has been of long duration. We are looking at about a half a century of log jam. Even if there is one last band-aid in the first aid kit, it won't measure up to the bleeding.

'V' my ass.

25 comments: said...

Awww, S-Man. I think your derriere is more like a W... :-).

urban legend said...

A healthcare bill with at least near-universal insurance that cannot be lost because a job is lost is a critical first step in addressing income inequality. So is attacking unfair labor practices permitted under current interpretations, increasing the minimum wage and increasing progressivity of the income tax.

Given the level of brainwashing that has captured huge segments of the population, attacking income inequality is very tricky politically, especially in a time of high unemployment. Until Democrats learn how to enlist the overwhelming majority of Americans in supporting deliberate measures to reduce inequality -- as necessary for our economy to grow in the future, for example -- every step of the way has to be cast in different terms.

Sandwichman said...


More like a "double U" to be exact.

Sandwichman said...

urban legend,

Cart. Horse.

I was going to post some thoughts on fascism and unemployment. I would argue that the madness we are seeing in the town hall events is a manifestation of the fear that vulnerable employed people have of losing their jobs. Walter Benjamin attributed the collapse of the left in the Weimar Republic to its failure to decisively address unemployment.

The Obama administration is basically trying to finesse the unemployment crisis, hoping that a recovery of economic growth will lead to an eventual return to full employment and that people will patiently wait for this redemption two or three years down the road.

Ain't going to happen, Jackson. The unemployment crisis is not going to evaporate with the 'green shoots' of recovery, no matter how V-shaped they may be. The unemployment crisis has chronic roots and will drag the nascent recovery back down with it. People seem to forget that the LAST recovery was a bubble. Without a radical re-adjustment of the working time regime, the next one is going to be a sputter-and-stall.

Barkley Rosser said...


Your shorter work hours are no solution to bubbles, not one bit.

Also, the V bounce is happening. France and Germany actually grew in the second quarter.

Sandwichman said...


Your argument, please? In 12 steps mine is as follows:

1. Bubbles result from a structural imbalance of income shares.

2. Too much money is siphoned to the top of the heap where folks already have more than enough to live on.

3. Not needing or wanting to spend the income on consumption, they must invest it.

4. They expect and demand a return on their investment.

5. Since production already outruns consumption (see point 2) profitable investments in the productive economy are constrained.

6. However, the growing imbalance in income shares opens up another opportunity: a naturally-occurring Ponzi scheme.

7. Investors can buy into the continuing expansion of the income imbalance -- the bubble.

8. Reducing the hours of work tightens the labor supply/demand balance in favor of the wage-earners.

9. Wage-earners' bargaining power is enhanced by eliminating the redundant supply of labor.

10. A larger income share goes to wage-earners and thus goes directly to consumption ("propensity to consume").

11. The surplus income at the top that fueled the bubble is thus much reduced.

12. Furthermore, the EXPANSION of the income imbalance in checked, thus preemptively lancing the boil of spontaneous Ponzis.

What part of "not one bit" am I missing here, Barkley?

P.S. I never said there would or wouldn't be a V shaped recovery. I said I wasn't optimistic about one. If there is a V recovery without addressing the income imbalance the next recession will be I shaped. That is straight down with no recovery. Or to put it gently, civilization collapse.

Anonymous said...

Wage work is slavery.

One cannot improve the conditions of a slave by improving his health care, his diet, nor his productivity.

Sojourner Truth was not leading slaves to an unemployment check, a health care bill, or any other such nonsense, she was leading them to freedom.

The question of a recovery is the question of whether the enslavement of billions will be extended or must be curtailed.

There will, in fact, be no recovery from this crash - working time will have to be curtailed.

Barkley Rosser said...

Shortening work hours does not necessarily increase labor share.

End of your argument.

Barkley Rosser said...

Shortening work hours does not necessarily increase labor share.

End of your argument.

Tim Worstall said...

Hmm....might I add a touch of empiricism here?

You seem to be linking income inequality with deprecation of leisure.

However, France is markedly less income unequal than the US: yet average leisure in the US is higher than that in France.

Somehow there's a need to work that into your figuring.

Sandwichman said...

Oh my God, Timmy. I don't even have to look to know what "study" your "empiricism" refers to. If I say down is up, it's up, eh?

Sandwichman said...


Saying it twice doesn't make it more true.

Actually, technically you're right. But only the first sentence. Shortening work hours does not necessarily increase labor share. Nor does driving a car necessarily get you from point A to point B faster than walking. Nor does dieting and exercise necessarily cause you to lose weight. Giving people more income does not necessarily make them better off. You can lead a horse to water, but it won't necessarily drink. Etc. etc. etc. So what?

What we're talking about is a well-calibrated reduction of working time, under appropriate conditions. What are the right amount and the right conditions are matters of judgment.

Pointing out that there can be miscalculated or poorly-implemented reductions of working time is not the "end of your argument."

Honestly, Barkley, I've surprised at your stiff-necked dogmatism on this. Yes, I'm fully aware that economists are trained to jump at sound of the "lump". It's like a Masonic handshake, I suppose. But, as a certain very famous labor economist who will remain nameless said to me, "it all depends on the elasticisties."

Sandwichman said...

And, by the way, Tim, I would be very excited to point out that the South Koreans have an unemployment rate of only 3.7% -- except for the fact that their employment rate is also comparatively very low.

Comparing statistics from one country to another is perilous at the best of times. But these leisure surveys require an immense amount of interpretation. Making jam? "Oh, that's home production." Emptying an elderly relative's bedpan? "Leisure!" Give us a break from semantic weaseldom, please.

bobo said...

I am with you, Sandwichman. I am not a economist but i think Tim Worstall's piece is unconvincing. First, his definition "work is whatever you could pay somone else to do for you" is dubious. You first have to work before you can pay anyone else does the work for you.

Second, He omitted the fact (in his own statistical sources) that the average hour/day personal care in France and American are 11:49, 9:39 respectively.

Moreover the quality of leisure also questionable. American spend 2.77/ 5.18 on watching TV but merely .30 on exercise in average. Don't ask why American obesity rates are the highest in the world.

In my opinion, the efficiency of work's specialisation hypothesis should not be applied to household works. One can find pleasant leisure in cooking too.


If the structural imbalance is not ameliorated, there would be no real recovery. Therefore radical measures are needed.

Barkley Rosser said...


There is a basic problem. There simply is no direct relation between work hours and income distribution. One can cut work hours in half, but the distribution of wage rates could become more unequal as could the system of taxes and social spending. Simply no necessary relation whatsoever, none, zip, nada. Your argument about work hours may be relevant to overall employment rates, but beyond that there is much more going on in all this. Sorry, but reducing work hours is not the panacea you constantly claim it to be, even if it is itself a good thing.

I am in Korea right now. They work harder than anybody else, but the wage scales are less unequal than either France or the US's. The low employment rate and low unemployment rate is because they are about as discriminatory towards women in general (and certainly in the labor force) as just about any country, even if the current CEO of Hyundai is a woman who just visited Kim Jong Il in North Korea.

Japan also has high work effort with relatively equal wage scales, although both work effort and wage equality have been declining in recent years.

Sorry, but you simply assume relations that do not exist.

Anonymous said...

"There simply is no direct relation between work hours and income distribution."

Actually, there is a direct correlation: the longer the hours of work, the more unequal income becomes.

It is embedded in our economic stats in the United States: as hours of work per week for families have increased over the post-war period (particularly with greater labor force participation of married women) income inequality has pushed steadily upward.

This has always been true for wage labor.

And, it has always been a fundamental assumption of Marxian theorists - who have had a hypothesis which explains the correlation for more than 140 years now.

I would challenge you to produce a single study which has ever disproved it.

The fact that economists refuse to examine the evidence is not proof it does not exist.

Get to it, Rosser...

Sandwichman said...


Thanks for elaborating on your thinking. Please knock off the 'panacea' slander, though, pal. If I was arguing for giving water to a patient with a fever that doesn't make water a panacea. The patient might die anyway. But to deny the patient water because some magazine editor in the 19th century claimed thirst was a fallacy would be murder. Besides, if your argument was as ironclad as you imagine it to be, you wouldn't need the ad hominems.

But to return to the analysis at hand. There is a static and a dynamic dimension to the argument. Please bear with me through the static part of the argument because it exposes a peculiarity in marginalist analysis that just might explain the strong allegiance mainstream economist have to a fallacy claim from out of right field.

In static terms, the marginal product value theory of labor only deals with the demand side. It is as if on the labor supply side, all the workers are lined up and eager to go to work at the going rate so all the employer has to do is hire them in order of their level of skill, starting at the top and working their way down.

George Gunton's version of the Ira Steward theory can be read as a conscious effort on his part to develop the supply side of that equation. Gunton was very familiar with J.B. Clark's theory, as he was developing it, and with its antecedents -- familiar enough to cause ol' J.B. to delay publication after reading Gunton's comments. Labor is NOT just there for the plucking by the employer. Workers have their own, independent, subjectivity, habits and firm views about standards of living.

So the standard of living theory is the mirror image of the marginal product value theory. Elsewhere in economics it is generally accepted that it is the interaction of supply and demand that determines cost. Remember, too, that there has to be a demand for the product for it to have a value. MPV looks at labor demand and product supply; SoL looks at labor supply and product demand.

What I'm getting at, from the static view, is that your total rejection of a relationship between hours and income distribution is to say, in effect that supply of labor has absolutely NO effect on relative factor prices. Alright, fine, let's say that IS your position and that you justify it by pointing to the dynamism of the economy.

Here is where I appeal to Chapman's theory, which is to say, in a nutshell, that technology makes leisure more valuable. The corollary to that is that increased value of leisure in turn raises the value of labor, if we accept an opportunity cost argument. But... and this is the kicker -- it only does so if the increased leisure is realized.

Now, admittedly, you may have to read through Chapman's theory to understand why this is so. I could repeat the argument here but since I've just posted the whole theory I see no reason to expect anyone to bother read my recap if they won't look at the original. The general idea is that competitive markets do not lead to optimal hours of work -- they lead to hours that are too long.

As anonymous points out above, Marx produced essentially the same results starting from the tenets of the classical tradition. But Marx isn't necessary. If you push the marginalist analysis to the end of the line it ends up in the same place.

Anyway, Barkley, you'll be glad to know that 2 out of 3 Harvard professors agree with your position. The one who doesn't being the guy who has actually researched and published on the topic.

Sandwichman said...

Make that 3 out of 4. Number 4 has also published on the topic but is famously right wing.

Anonymous said...

The empirical data supports the hypothesis that longer hours lead to greater inequality of income.

I direct your attention to labor force participation rates, aggregate hours of work, and income inequality since World War II.

All of these will prove conclusively that hours of work and income inequality are positively correlated.

Below I attached a chart for changes in net worth and disposabole income since 1992:

And below I attach a chart showing that as individual hours of work fell, aggregate hours have nearly doubled since 1964:

Sandwichman said...

"...empirical data supports the hypothesis that longer hours lead to greater inequality of income..."

The stock answer to that is that correlation does not imply causation. Except, of course, in those exceptions where the data show that longer hours aren't always correlated with greater inequality of income.

Barkley Rosser said...


I am not operating on a computer on my own and do not have access to my normal sources of info.

"Slander" and "ad hominem arguments"? It may not be true that you view reducing working time as a "panacea," but I fail to see how saying that you appear to think so (and you do appear to think so, or mightly close to it), constitutes either "slander" or is an "ad hominem argument," unless there is something evil about suggesting that reducing working hours, and I certainly do not think that there is anything evil about making such an argument.

As it is, you are the one who is callling me a "stiff-necked dogmatist," and falsely claim that I jump at the sound of the word "lump." Come off it, S-man, the first is ad hominen, and the second is simply incorrect.

So, on the computer I am on I am unable to access a lot of sites for alphabet reasons. But, you can find estimates of wage inequality across nations at the UTIP site run by James Galbraith, and I did find some rankings of working hours by doing a bit of googling. It may be that a simple correlation would say inequality is positively related to inequality, but it looks to me to be at best a very weak relation, if it is there at all.

So, South Korea has the world's longest working hours, period. However, about a third of the world's nations appear to have greater wage inequality than Korea, including several OECD ones.

Yes, both inequality and working hours have been rising in the US, but inequality has been rising almost everywhere, and there are quite a few countries with longer working hours than the US, but greater wage equality, including Australia and Japan.

Needless to say, the above is also in reply to Anonymous, to whom I would simply note that if you wish to invoke Marxian theory, which variety of it are you invoking?

Sandwichman said...


Please see my anticipatory comment about correlation not implying causation except in the case of exceptions.

BTW I didn't call you a stiff-necked dogmatist. I said I was "surprised at your stiff-necked dogmatism on this." That was in response to your flat assertion that, "Shortening work hours does not necessarily increase labor share. End of your argument."

That's not an argument. It's an assertion. Likewise, "Simply no necessary relation whatsoever, none, zip, nada." is not an argument. It's just contradiction... (for the rest of this explanation see the Monty Python "Argument Clinic" sketch).

Barkley Rosser said...


This is getting old, needless to say. However, my alleged "stiff-necked dogmatism" was in relation to your argument in comments on this thread that reducing working hours would help stabilize the financial markets. You laid that out above in 12 successive points above that followed each other in a logical sequence. I have disagreements with several parts of the sequence, but given that it was a sequence, all that was needed to end the argument was to dispute the first point. That point was your claim that reducing working hours would reduce income inequality. So, we have been debating this since, with people like Tim Worstall and I referring to actual data while you and Anonymous prefer to refer to theories laid out in numerous postings.

If you wish to argue this equality and work hours relation, I would suggest you stop spouting Chapman endlessly and start providing some actual empirical evidence.

Anonymous said...

Barkley: "Yes, both inequality and working hours have been rising in the US, but inequality has been rising almost everywhere, and there are quite a few countries with longer working hours than the US, but greater wage equality, including Australia and Japan."

Ooh, good point. I have never examined Japan or Australia on this.

S-man: "The stock answer to that is that correlation does not imply causation. Except, of course, in those exceptions where the data show that longer hours aren't always correlated with greater inequality of income."

Point taken as well. Particularly in light of Barkley's point.

Sandwichman said...

I would suggest you stop spouting Chapman endlessly and start providing some actual empirical evidence.

I'll let the tone speak for itself.