Monday, May 6, 2013

A Very Big Puzzle: How Many Ways to Skin Katz?

DAVID LEONHARDT wrote, in "The Idled Young Americans," NY Times May 3, 2013:
And while the American economy has come back more robustly than some of its global rivals in terms of overall production, the recovery has been strangely light on new jobs, even after Friday’s better-than-expected unemployment report. American companies are doing more with less.

"This still is a very big puzzle," said Lawrence F. Katz, a Harvard professor who was chief economist at the Labor Department during the Clinton administration. He called the severe downturn in jobs "the million-dollar question" for the economy.
I do not like thee, Doctor Katz. The reason why... well, actually, in 1998 Katz wrote a commentary to an article by Jennifer Hunt that contained one-half of one of the most duplicitous arguments I have seen in my life (it offers a clue to why a jobless recovery is a "very big puzzle" to Katz): "if hourly wages rise and labor is viewed as more inflexible, such policies could induce capital substitution for labor."

What's wrong with that? That's only half the argument; the other half, delivered in a 2011 white paper co-authored with David Autor: "Technological improvements create new products and services, shifting workers from older to newer activities. Higher productivity raises incomes, increasing demand for labor throughout the economy."

It helps to understand that "technological improvement" is a euphemism for "capital substitution for labor." They're both hollow platitudes but with contrary spin. Use the former phrase when you want everyone to think everything will work out just fine and dandy (in the long run). Use the latter phrase when you want to warn against unwise policies that might -- shudder! -- lead to higher hourly wages.

It's a perfect heads I win, tails you lose trifecta! And how do I know that "technological improvement" and "capital substitution for labor" are two sides of the same coin for Katz? Simple. They both proceed from "lump of ___ fallacy" claims:

Many individuals believe that cuts in the work week (that is, reductions in working hours per worker) can reduce unemployment. In what has been labeled the lump of output fallacy, most advocates of work-sharing implicitly assume that output is held constant in response to a policy effort to reduce hours per worker, so that total hours of work to be done each week are unchanged... (1998 -- "capital substitution for labor")
This ‘lump of labor fallacy’—positing that there is a fixed amount of work to be done so that increased labor productivity reduces employment —is intuitively appealing and demonstrably false. (2011 -- "technological improvement")
If anyone wants to track down these citations and verify my interpretation, you're welcome to do so. I won't bother a point-by-point explication because I've learned that trying to explain gibberish just confuses people. There's nothing to explain. It's self-contradictory gibberish.

Anyway, according to the impeccable Katz logic, there is no need for higher hourly wages because "higher productivity raises incomes" (presumably without any capital substitution-inducing demands for higher hourly wages from workers).

Or perhaps those raises in income come from working more hours with no rise in hourly wages? As Professor Katz has shown, there is more than one way to skin a worker. Workers may want to know that there is more than one way to skin a Katz:
It is a fallacy to suppose that Katz are skinned alive. In the first place, to skin a Katz when alive would be utterly impossible; and, secondly, it does not make any difference in the quality of the skin. The origin of the fallacy is probably that a Katz is easier skinned immediately after death than if allowed to become rigid. It is very remarkable how fashions set by English ladies influence wild and tame animals even in the most distant parts of the world. I am very glad the ladies have made Katz fashionable, as at last some use is found for these animals, which, being untaxed, are so abundant that any night, and in any weather, Katz—many of them half-starved—swarm in the London streets, and the poorer the neighbourhood the more abundant are the Katz.


Jack said...

Add up all the factories built during the past two decades in places like China, India, Pakistan, etc, and you get a reasonable answer to the question of persistent unemployment in the US, or any other less than total labor exploitation country.

john c. halasz said...

Hi Sandwichman:

This is completely off topic and amounts to a request for help.

I recently ran into trouble with John Quiggin over at Crooked Timber. I'd made a claim that half the used/embedded energy of the automobile-industrial complex wasn't a matter of directly propelling locomotion. Quiggin sought to cast doubt on that claim, offering a link to some empirical estimates. (They struck me as doubtful, since they weren't necessarily addressing the question as framed. Rather such matter as increased fuel economy and how the different metals involved would effect manufacturing energy-cost. At any rate a 10% estimate strike me as way too low, since, e.g. oil extraction alone would have a 6% energy cost).

But it's not the rude empirics that concerns here, (since even if re-arranged they wouldn't negate the force of my basic conceptual point, but perhaps even strengthen some of it), but the apparent conceptual reductio that Quiggin seemed to be attempting to cast doubt of the empirical estimate. Which I couldn't make heads-or-tails of.

So he says:
1) "A car with a lifetime distance travelled of 200 000km and efficiency of 10l/100km would use 20 000 litres of fuel or about 5000 gallons, costing pretty much the price of a car. So, unless a car is pure energy, or there are radical differences in energy costs, the claim doesn’t stack up."

And when asked for a clarification of his logic or premises again 2) "The point is that, if you spend an amount equal to the entire purchase cost of the car on energy to run it, then the only way the energy content of the car can be of equal value is for the car to consist solely of energy."

So I'm asking you, given your extensive practice of unraveling such claims, if you could explain and make sense of his conceptual point?

Sandwichman said...

Two points:

1. Quiggin's ballpark estimate of fuel cost relative to the purchase price of the car sounds about right. But I would add the cost of maintenance to the price of the car over its lifetime, otherwise it won't make it that far. And then there's embodied energy cost of the infrastructure...

So Quiggin is low balling by just including the purchase price of the car.

2. The 10% estimate also strikes me as rather low. I calculate about the equivalent of 0.06 gallons of gasoline (equivalent) consumed in the U.S. per dollar of GDP (2012, USEIA). At $3.30 a gallon, that's about 20 cents on the dollar.

So if the fully-loaded cost of the car plus maintenance plus infrastructure was, say, twice the cost of the gas used directly to run it, then maybe 25 to 30% of the total energy cost would be outside of what's used to run it. This is of course very rough estimation.

john c. halasz said...

Thanks for the response.

I did some further searching on the tubz on this and came up with an Aussie pdf. on the fully hybridized life-cycle energy cost of roads, which put the embodied energy of manufacturing a car at 270 billion joules, compared to 660 billion joules from 5000 gallons of gasoline. But then the road costs were in addition to the manufacturing cost.

But, as I said, my puzzlement wasn't empirical, but conceptual. Why, if the pre-purchase energy cost is equal in "value" to the post-purchase energy expenditure, (though actually 5000 gallons at current prices is about 60% of the purchase price), does it then follow that the car would have to be made out of "pure energy"?

Can you unravel the conceptual "logic" there or is it just a non sequitur? (As an aside Quiggin told me once that he finds notions of economic value "uninteresting" so I was surprised to see him insisting on a "value" claim). Was he making a telling point or was he just "pulling rank"?

Sandwichman said...

If the purchase price of the car is $15,000, then the energy cost is going to be some fraction of that -- maybe around $3,000 if we use the energy intensity of GDP as a guide or $6000 using the Aussie estimate of the embodied energy cost of manufacturing a car.

One needs to be wary of the pitfalls of double counting and misplaced decimal points in these kinds of calculations and of relying on conversion tables that might have transcription errors in them, etc.

If Quiggin's point is that the purchase price of a car isn't the same as the embodied energy cost of making the car, then I certainly agree with him. That's how I would read the quote you posted.

john c. halasz said...

O.K. Thanks.

But the if/then form of the point implied some sort of confutation, which I still don't understand.

Mind, the 270 GJ figure is 41% of the gas consumption figure, and 25% of the purchase price of $30,000, of which the subsequent gas consumption is 60%. The estimate for annual expenses of maintaining a car is $8000, so assuming 10 years life-cycle, $80,000. And some part of the embodied energy of roads is attributable per vehicle-miles. And energy is not the only natural resource involved, nor are GHGs the only form of waste.

So the basic conceptual point I was making, that existing capitalism as we've known it, while perhaps inducing efficiency in (over-)production doesn't induce efficiency in consumption, pointing to the automobile complex as a massively redundant, wasteful system of personal transport in terms of passenger-miles/time/unit of energy or index of natural resources, remains. The 50% figure I quoted came from a lecture I attended by a physicist, and it seems probably closer to the mark than the 10% figure provided by Google Answers. And empirically rearranging the resource accounting involved doesn't necessarily obviate the conceptual point, since it might weaken one part while strengthening another part, (such that, e.g., increasing the % of fuel for locomotion would increase the efficiency gains from electrification).

I responded to Quiggin by asking him to explain his point and only got a repetition. To which I replied it sounded like a combination of an argument from authority and from incredulity. Of course, he thinks he's being purely empirical and that suffices for refutation via logical form, (whereas I think that economics as a discipline is not very empirical at all and that "pure empiricism" is neither possible, nor desirable).

So thanks again, but I think I'll keep on plugging away at my point, since the incredulity it evokes suggests it's running against some powerful reifications.

BTW have you done a similar calculation of unit energy/ unit GDP for Europe?

Sandwichman said...

The energy intensity of GDP figures are available globally from the U.S. Energy Information Agency.