Lots of people, including Joe Biden, have said that some foreigners would be challenging Obama early on. I see two candidates at the front of the pack, one a nominal ally. The first is Russia, which has arguably already done so with its announcement of moving missiles next to the Polish border in response to Poland accepting an anti-missile shield. It could be that they did not mean this as a challenge to Obama, but rather had been waiting until after the election to do this so as not to influence the election. However, this looks all too much like the half-baked thinking of Putin who somehow thinks that threatening others will make things go Russia's way. Obama had long expressed reservations about the shield, and the Poles had been resisting Bush's pressure to install it. Obama also initially had a nuanced view of the Georgian-Russian conflict. But then, Putin invaded Georgia proper. This pushed Obama to support Shaakashvili unreservedly, and also triggered Poland to accept the anti-missile shield. Putin (or more likely, Medvedev) might have been able to negotiate with Obama to withdraw the shield or put it on hold, but with this missile move there will be no way that Obama can do that. He will have to show that he can stand up to the Russian bear and support the shield. Just plain dumb on Putin's part.
The other likely challenge may come from Israel, which has been very weak in its congratulating Obama. This may be the flip side of all the enthusiasm for Obama in the Arab and Muslim world, with even President Ahmadinejad of Iran sending congratulations. The Israelis are nervous about Obama's middle name and his family background, and although he has spoken unreservedly about supporting Israel, they may feel a need to test him on this, to do something unpleasant and provocative to get him to show more openly his support and to weaken the enthusiasm for him in the Arab and Muslim worlds. The obvious move would be a strike against Iran, although there are other possibilities out there. Maybe they will not pull something like this, but at the moment, the signs look worrisome to me.
Saturday, November 8, 2008
Lame-Duck Pâté
by the Sandwichman
Robert Reich wrote, "For now, focus on the unemployed."
Sandwichman focuses:
Samuel Gompers said,
Behind that statement is a theory of working time and wages -- Ira Steward's eight-hour theory. It is a distinctly American theory of social economy. Dorothy W. Douglas wrote during the Depression that it was "strangely apposite" to the economic problems of the day. It is again today "strangely apposite."
Steward's theory finds unexpected (and unaware) support in Sydney J. Chapman's theory of the "Hours of Labour," which was the established orthodoxy in neoclassical analysis until it was simply forgotten about by mathematically-fixated model builders in a hurry. Even Alan Greenspan knows there's a flaw in his model of how the world works. He just doesn't know where that flaw is. Hint: look at hours of work and Chapman's theory, Al. Go back and study Ira Steward's eight-hour theory.
But, you may object, folks are barely getting by with their current hours, how are they going to live on even less??!! Mary Steward (Ira's wife) had the answer: "Whether you work by the piece or work by the day; decreasing the hours increases the pay."
Man, it all sounds too good to be true. It's counter-intuitive! Like the theory the earth revolves around the sun rather than the other way 'round?
Yes, indeed the slogans do sound hard to believe. That is until you go back and read what Steward's theory and Chapman's theory actually had to say and what economists have conveniently (for their mathematical model building) forgotten. Then you can begin to realize that our contemporary economics makes a lot of assumptions that just aren't so and that aren't even backed up by coherent arguments. A lot of what passes for untheoretical "common sense" makes those same assumptions without actually saying so.
For a century economists have ridiculed the 'lump-of-labor' fallacy made by people who think, along with Gompers, that "so long as there is one man who seeks employment and cannot obtain it, the hours of labor are too long." And you know what? Turns out that lump-of-labor fallacy is a figment of those economists' imagination.
Do you want to fight unemployment? Don't bother with lame-duck stimulus hocus-pocus. Reduce the hours of work. LOTS. NOW.
Robert Reich wrote, "For now, focus on the unemployed."
Sandwichman focuses:
Samuel Gompers said,
"The answer to all opponents to the reduction of the hours of labor could well be given in these words: 'That so long as there is one man who seeks employment and cannot obtain it, the hours of labor are too long.'"
Behind that statement is a theory of working time and wages -- Ira Steward's eight-hour theory. It is a distinctly American theory of social economy. Dorothy W. Douglas wrote during the Depression that it was "strangely apposite" to the economic problems of the day. It is again today "strangely apposite."
Steward's theory finds unexpected (and unaware) support in Sydney J. Chapman's theory of the "Hours of Labour," which was the established orthodoxy in neoclassical analysis until it was simply forgotten about by mathematically-fixated model builders in a hurry. Even Alan Greenspan knows there's a flaw in his model of how the world works. He just doesn't know where that flaw is. Hint: look at hours of work and Chapman's theory, Al. Go back and study Ira Steward's eight-hour theory.
But, you may object, folks are barely getting by with their current hours, how are they going to live on even less??!! Mary Steward (Ira's wife) had the answer: "Whether you work by the piece or work by the day; decreasing the hours increases the pay."
Man, it all sounds too good to be true. It's counter-intuitive! Like the theory the earth revolves around the sun rather than the other way 'round?
Yes, indeed the slogans do sound hard to believe. That is until you go back and read what Steward's theory and Chapman's theory actually had to say and what economists have conveniently (for their mathematical model building) forgotten. Then you can begin to realize that our contemporary economics makes a lot of assumptions that just aren't so and that aren't even backed up by coherent arguments. A lot of what passes for untheoretical "common sense" makes those same assumptions without actually saying so.
For a century economists have ridiculed the 'lump-of-labor' fallacy made by people who think, along with Gompers, that "so long as there is one man who seeks employment and cannot obtain it, the hours of labor are too long." And you know what? Turns out that lump-of-labor fallacy is a figment of those economists' imagination.
Do you want to fight unemployment? Don't bother with lame-duck stimulus hocus-pocus. Reduce the hours of work. LOTS. NOW.
Friday, November 7, 2008
Not One... Not Two...
by the Sandwichman
But three! Three! Three mints in one!
Krugman says, "It’s time to raise Keynes: we need big fiscal stimulus, now now now."
What part of the word three(3) don't these stimulus addicts understand?
One: investment.
Two: expanded consumption.
Three: working less.
What John Maynard Keynes wrote. In May 1943. "The Long-Term Problem of Full Employment."
In the final phase of post-war economic performance,
But talking about shorter hours is anathema to post-Samuelson Anglo-American economists. Why? You need to talk about ingredient three, Paul. NOW NOW NOW.
But three! Three! Three mints in one!
Krugman says, "It’s time to raise Keynes: we need big fiscal stimulus, now now now."
What part of the word three(3) don't these stimulus addicts understand?
One: investment.
Two: expanded consumption.
Three: working less.
What John Maynard Keynes wrote. In May 1943. "The Long-Term Problem of Full Employment."
In the final phase of post-war economic performance,
"It becomes necessary to encourage wise consumption and discourage saving,--and to absorb some part of the unwanted surplus by increased leisure, more holidays (which are a wonderfully good way of getting rid of money) and shorter hours."
But talking about shorter hours is anathema to post-Samuelson Anglo-American economists. Why? You need to talk about ingredient three, Paul. NOW NOW NOW.
Going down the U-tubes
by the Sandwichman
Last night, the Sandwichman was tempted to predict that the BLS unemployment report coming out this morning would be higher than economists' expectations. It was. But my unpublished prediction was just a hunch based on skepticism about the perpetual rosy scenario projections of the usual gang of idiots.
I should explain that everything the Sandwichman writes is based on a very different philosophy of unemployment than that which prevails at the Bureau of Labor Statistics, in the economics academy and on the business pages of the newspaper.
The mainstream view was nicely summarized by Ira Steward as being that there is a Goldilocks amount of unemployment -- just enough to keep workers dimly aware of the lash of hunger. Sandwichman's position is that a lot of what gets counted as employment is actually a mislabeled form of under-employment. The job of sandwich-man epitomizes (albeit anachronistically) those precarious occupations filled by people unable to obtain adequate employment. The Sandwichman embodies the idea of systemic underemployment.
Let this mornings news be notice that the unemployment crisis has arrived. Actually, it has been around for decades, nicely covered up. Over the months and years ahead it will become increasingly difficult to sweep it under the rug. My colleague, PGL, says we need "aggregate demand stimulus" and, although I applaud the sentiment, I have to ask "demand for WHAT?" Demand for more barrels of oil? Demand for tanks and missiles? Demand for arcane financial instruments? The problem with "aggregate demand" is precisely its imprecision. When the path of the economy have been so rutted by decades of aggregate demand stimulus, more stimulus is just going to follow those same ruts.
I forget how many times I've mentioned Keynes's "three ingredients of a cure" for unemployment. But I remember exactly how many times my colleague, PGL, has taken the bait and replied. Zero. My question is: what is it about today's "aggregate demand stimulus" that exempts it from Keynes's explicit acknowledgment of its limitations?
Last night, the Sandwichman was tempted to predict that the BLS unemployment report coming out this morning would be higher than economists' expectations. It was. But my unpublished prediction was just a hunch based on skepticism about the perpetual rosy scenario projections of the usual gang of idiots.
I should explain that everything the Sandwichman writes is based on a very different philosophy of unemployment than that which prevails at the Bureau of Labor Statistics, in the economics academy and on the business pages of the newspaper.
The mainstream view was nicely summarized by Ira Steward as being that there is a Goldilocks amount of unemployment -- just enough to keep workers dimly aware of the lash of hunger. Sandwichman's position is that a lot of what gets counted as employment is actually a mislabeled form of under-employment. The job of sandwich-man epitomizes (albeit anachronistically) those precarious occupations filled by people unable to obtain adequate employment. The Sandwichman embodies the idea of systemic underemployment.
Let this mornings news be notice that the unemployment crisis has arrived. Actually, it has been around for decades, nicely covered up. Over the months and years ahead it will become increasingly difficult to sweep it under the rug. My colleague, PGL, says we need "aggregate demand stimulus" and, although I applaud the sentiment, I have to ask "demand for WHAT?" Demand for more barrels of oil? Demand for tanks and missiles? Demand for arcane financial instruments? The problem with "aggregate demand" is precisely its imprecision. When the path of the economy have been so rutted by decades of aggregate demand stimulus, more stimulus is just going to follow those same ruts.
I forget how many times I've mentioned Keynes's "three ingredients of a cure" for unemployment. But I remember exactly how many times my colleague, PGL, has taken the bait and replied. Zero. My question is: what is it about today's "aggregate demand stimulus" that exempts it from Keynes's explicit acknowledgment of its limitations?
How Bad is the Labor Market?
BLS reports:
While a 240 thousand drop in just one month for the payroll survey measure of employment is quite significant, how on earth did the unemployment rate increase this much? Only a small part of the story comes from the labor force participation rate, which rose from 66.0% to 66.1%. The household survey shows that measured employment dropped by 297 thousand, which lowered the employment-population ratio from 62.0% to 61.8%. This compares to an employment-population ratio of 63.4% as of December 2006 and an employment-population ratio of 64.4% as of December 2000. The need for aggregate demand stimulus is clear and it is good to see that President-elect Obama is quickly assembling his economic team.
Nonfarm payroll employment fell by 240,000 in October, and the unemployment rate rose from 6.1 to 6.5 percent
While a 240 thousand drop in just one month for the payroll survey measure of employment is quite significant, how on earth did the unemployment rate increase this much? Only a small part of the story comes from the labor force participation rate, which rose from 66.0% to 66.1%. The household survey shows that measured employment dropped by 297 thousand, which lowered the employment-population ratio from 62.0% to 61.8%. This compares to an employment-population ratio of 63.4% as of December 2006 and an employment-population ratio of 64.4% as of December 2000. The need for aggregate demand stimulus is clear and it is good to see that President-elect Obama is quickly assembling his economic team.
Missing: the strange disappearance of S. J. Chapman’s theory of the hours of labour (5)
...now you don't? Part III
Although Hicks didn't explicitly introduce a simplifying assumption, that isn't the end of the story. Hicks discussed Chapman's theory and the optimal length of the working day in his chapter on the theory of individual labour supply (Ch. V). Later on in the book, though, Hicks turned his attention to the regulation of hours and working conditions (Ch. XI). Here Hicks no longer dealt with pure theory but with "reality" – at least with reality as Hicks perceived it. He announced at the beginning of Part II that it was, "now time for us to take a further step towards actuality" (p. 136). This was the moment Hicks had anticipated when he referred to "think[ing] back our arguments into a more cumbrous but more realistic form." Chapter XI was intended to present that 'more realistic' discussion of hours and working conditions than the purely theoretical discussion of Chapter V! But was it more realistic?
At the beginning of Chapter XI, Hicks credited Robbins with having conducted the "general study of the economics of hours-regulation" and declared that there was "no need for us to go over yet again ground which is by now sufficiently well trodden" (p. 217). After stating (without further explanation) that there was no material difference between the situations created by union demands for reduced hours and that created by demands for increased wages, Hicks surmised that it was "true that if the working day has previously been fixed at a length which is greater than the 'output optimum' the Union will not usually need to exert any considerable pressure in order to bring about a reduction" (p. 217). On the sole basis of that assertion, then, Hicks limited the rest of his discussion to a situation where union demands would reduce the hours of work below the hypothetical output optimum. If such a limitation had been proposed in a theoretical discussion, it would indeed have represented a simplifying assumption. As Hicks presented it, however, it was an alleged, but unverified 'fact' – a fact, moveover, that contradicted what theory would predict.
Next.
Although Hicks didn't explicitly introduce a simplifying assumption, that isn't the end of the story. Hicks discussed Chapman's theory and the optimal length of the working day in his chapter on the theory of individual labour supply (Ch. V). Later on in the book, though, Hicks turned his attention to the regulation of hours and working conditions (Ch. XI). Here Hicks no longer dealt with pure theory but with "reality" – at least with reality as Hicks perceived it. He announced at the beginning of Part II that it was, "now time for us to take a further step towards actuality" (p. 136). This was the moment Hicks had anticipated when he referred to "think[ing] back our arguments into a more cumbrous but more realistic form." Chapter XI was intended to present that 'more realistic' discussion of hours and working conditions than the purely theoretical discussion of Chapter V! But was it more realistic?
At the beginning of Chapter XI, Hicks credited Robbins with having conducted the "general study of the economics of hours-regulation" and declared that there was "no need for us to go over yet again ground which is by now sufficiently well trodden" (p. 217). After stating (without further explanation) that there was no material difference between the situations created by union demands for reduced hours and that created by demands for increased wages, Hicks surmised that it was "true that if the working day has previously been fixed at a length which is greater than the 'output optimum' the Union will not usually need to exert any considerable pressure in order to bring about a reduction" (p. 217). On the sole basis of that assertion, then, Hicks limited the rest of his discussion to a situation where union demands would reduce the hours of work below the hypothetical output optimum. If such a limitation had been proposed in a theoretical discussion, it would indeed have represented a simplifying assumption. As Hicks presented it, however, it was an alleged, but unverified 'fact' – a fact, moveover, that contradicted what theory would predict.
Next.
Abstract: Sidney Chapman's theory of the hours of labour, published in 1909 in The Economic Journal, was acknowledged as authoritative by the leading economists of the day. It provided important insights into the prospects for market rationality with respect to work time arrangements and hinted at a profound immanent critique of economists' excessive concern with external wealth. Chapman's theory was consigned to obscurity by mathematical analyses that reverted heedlessly to outdated and naïve assumptions about the connection between hours and output. The Sandwichman is serializing "Missing: the strange disappearance of S. J. Chapman's theory of the hours of labour" on EconoSpeak in celebration of the centenary of publication of Chapman's theory. (To download the entire article in a pdf file, click on the article title.)
Thursday, November 6, 2008
Election Followup in the Shenandoah Valley
I hear this evening that the inner core of elite Republican conservatives are meeting at Brent Bozell's estate in the Shenandoah Valley of Virginia to plot their comeback after their defeat in the US presidential election of 2008. As it is, for the first time since 1964, Virginia voted for a Democrat for president, the victorious Barack Obama (and as someone who was in actual civil rights demonstrations back in the early to mid 1960s and saw Martin Luther King, Jr. speak, this is an immensely satisfying outcome). It was 52% to 47%, only slightly more pro-McCain than the overall national outcome of 52% to 46%, fitting the forecast of Virginia as the ultimate marginal state, now reflecting average national views (sorry that the results were so slow coming in, but there were major ballot box issues here, leftover suppression, including a major scandal here in Harrisonburg where Obama's top operative was not allowed to vote, among other nonsense coming out of the registrar's office, something occurring elsewhere in the commonwealth as desperate Republicans tried to hold on to power).
While the rural Shenandoah Valley continues to be very Republican (Rockingham County around Harrisonburg went 68% for McCain, compared with 73% for Bush in 2004), the city of Harrisonburg broke its past pattern of matching closely Virginia statewide averages. It went 58% for Obama, but then we had a visit from Obama a week before the election, which definitely fired up his supporters, who came out big time. On a personal level, local Democrats who happen to be friends of mine swept the city council races, with the founder of the internationally known Orange Band Initiative, Kai Degner, a former James Madison University student, coming in on the top, and the father of my daughter's longtime boyfriend, Richard Baugh, coming in second, with one of them probably going to become mayor of the city (my daughter put together his campaign website, :-)).
While the rural Shenandoah Valley continues to be very Republican (Rockingham County around Harrisonburg went 68% for McCain, compared with 73% for Bush in 2004), the city of Harrisonburg broke its past pattern of matching closely Virginia statewide averages. It went 58% for Obama, but then we had a visit from Obama a week before the election, which definitely fired up his supporters, who came out big time. On a personal level, local Democrats who happen to be friends of mine swept the city council races, with the founder of the internationally known Orange Band Initiative, Kai Degner, a former James Madison University student, coming in on the top, and the father of my daughter's longtime boyfriend, Richard Baugh, coming in second, with one of them probably going to become mayor of the city (my daughter put together his campaign website, :-)).
Greg Mankiw ClaimsYoung Voters Are Supply-Siders
Greg Mankiw must not be happy with the choice of Sarah Palin as McCain’s running mate:
I agree that the new GOP should move away from the theocrats known as social conservatives but let’s be honest – George W. Bush and the 2008 vintage of John McCain were NOT pushing a serious agenda of less government spending. They did push the agenda of the free lunch – tax deferrals disguised as tax “cuts”. Why would a college student vote for anyone who is shifting the long-run tax burden away from old farts like me and towards them?
I am not enough of a political scientist to be sure, but recent conversations I have had with some Harvard undergrads have led me to a conjecture: It was largely noneconomic issues. These particular students told me they preferred the lower tax, more limited government, freer trade views of McCain, but they were voting for Obama on the basis of foreign policy and especially social issues like abortion. The choice of a social conservative like Palin as veep really turned them off McCain. So what does the Republican Party need to do to get the youth vote back? If these Harvard students are typical (and perhaps they are not, as Harvard students are hardly a random sample), the party needs to scale back its social conservatism. Put simply, it needs to become a party for moderate and mainstream libertarians.
I agree that the new GOP should move away from the theocrats known as social conservatives but let’s be honest – George W. Bush and the 2008 vintage of John McCain were NOT pushing a serious agenda of less government spending. They did push the agenda of the free lunch – tax deferrals disguised as tax “cuts”. Why would a college student vote for anyone who is shifting the long-run tax burden away from old farts like me and towards them?
Missing: the strange disappearance of S. J. Chapman’s theory of the hours of labour (4)
...now you don't? Part II
What Hicks did with Chapman's theory in The Theory of Wages cannot be called a simplification either – at least not an acknowledged one. If he did assume somewhere that the given length of the working day was optimal (which he may well have done), Hicks didn't announce it. What Nyland mistook for such an acknowledgement, was only an appeal to disregard transition costs in entertaining the concept of a given length of a working day that was optimal for output. Hicks did not specify that he was assuming that the given day actually was that length. The difference is that the assumption Hicks actually made still allows for the circumstance where the given day is longer or shorter than optimal, whereas the alleged simplification would not. The statement cited by Nyland as evidence of a simplifying assumption was thus also in accord with Chapman's theory.
The closest Hicks (1932) came to specifying the alleged simplification is when he argued that, "[provided certain limitations were respected], it is perfectly possible to treat labour as a commodity consisting of discrete homogeneous units, for which there are well-defined curves of supply and demand" (p. 92). Such treatment may imply the assumption that the given day is optimal for output because it would be hard to conceive of Chapman's hours – during which productivity may vary with the effects of fatigue – as consistent with "discrete homogeneous units". Indeed, if such homogeneity implies that output per hour is constant, then treating labour as homogenous could go farther down the simplifying path than merely assuming that the given day was of optimal length. Hicks acknowledged, though, that treating labour as such was "a method with very considerable dangers, which can only be avoided if we think back our arguments into a more cumbrous but more realistic form as frequently as possible" (p. 93)
Next.
What Hicks did with Chapman's theory in The Theory of Wages cannot be called a simplification either – at least not an acknowledged one. If he did assume somewhere that the given length of the working day was optimal (which he may well have done), Hicks didn't announce it. What Nyland mistook for such an acknowledgement, was only an appeal to disregard transition costs in entertaining the concept of a given length of a working day that was optimal for output. Hicks did not specify that he was assuming that the given day actually was that length. The difference is that the assumption Hicks actually made still allows for the circumstance where the given day is longer or shorter than optimal, whereas the alleged simplification would not. The statement cited by Nyland as evidence of a simplifying assumption was thus also in accord with Chapman's theory.
The closest Hicks (1932) came to specifying the alleged simplification is when he argued that, "[provided certain limitations were respected], it is perfectly possible to treat labour as a commodity consisting of discrete homogeneous units, for which there are well-defined curves of supply and demand" (p. 92). Such treatment may imply the assumption that the given day is optimal for output because it would be hard to conceive of Chapman's hours – during which productivity may vary with the effects of fatigue – as consistent with "discrete homogeneous units". Indeed, if such homogeneity implies that output per hour is constant, then treating labour as homogenous could go farther down the simplifying path than merely assuming that the given day was of optimal length. Hicks acknowledged, though, that treating labour as such was "a method with very considerable dangers, which can only be avoided if we think back our arguments into a more cumbrous but more realistic form as frequently as possible" (p. 93)
Next.
Abstract: Sidney Chapman's theory of the hours of labour, published in 1909 in The Economic Journal, was acknowledged as authoritative by the leading economists of the day. It provided important insights into the prospects for market rationality with respect to work time arrangements and hinted at a profound immanent critique of economists' excessive concern with external wealth. Chapman's theory was consigned to obscurity by mathematical analyses that reverted heedlessly to outdated and naïve assumptions about the connection between hours and output. The Sandwichman is serializing "Missing: the strange disappearance of S. J. Chapman's theory of the hours of labour" on EconoSpeak in celebration of the centenary of publication of Chapman's theory. (To download the entire article in a pdf file, click on the article title.)
Wednesday, November 5, 2008
I will be giving a talk in San Francisco next Wed.
It would be fun to meet the people that I encounter on lists.
San Francisco Peace and Freedom Party Presents:
A Forum
The Financial Panic, The Causes and The Solution
with
Author
Michael Perelman, CSUC Economics Professor and Author of
THE CONFISCATION OF AMERICAN PROSPERITY
From Right-Wing Extremism and Economic Ideology to the Next Great Depression
Wednesday November 12, 2008 7:00 PM
522 Valencia St/16th St. 3rd Floor
San Francisco, CA
$5.00 Donation requested (no one turned away due to financial need) strikers and unemployed Free
Sponsored By Peace and Freedom Party, San Francisco
For more information call (415)637-3787
http://www.peaceandfreedom.org
San Francisco Peace and Freedom Party Presents:
A Forum
The Financial Panic, The Causes and The Solution
with
Author
Michael Perelman, CSUC Economics Professor and Author of
THE CONFISCATION OF AMERICAN PROSPERITY
From Right-Wing Extremism and Economic Ideology to the Next Great Depression
Wednesday November 12, 2008 7:00 PM
522 Valencia St/16th St. 3rd Floor
San Francisco, CA
$5.00 Donation requested (no one turned away due to financial need) strikers and unemployed Free
Sponsored By Peace and Freedom Party, San Francisco
For more information call (415)637-3787
http://www.peaceandfreedom.org
Meaning of the Eight-Hour Movement
From the 1868 pamphlet by Ira Steward:
A reduction of Hours means more than an Increase of Wages. It means a more equal and just Distribution of Wealth. For, to increase Wages, without increasing the cost of Production, is a more equal Distribution of Wealth.
A better Distribution of Wealth, means, at the same time, the gradual eradication of. Speculation, Idleness, Public Debts, Interest, Fashionable extravagance, Woman's endless Drudgery and Low wages, Prostitution, Intemperance, Corrupt Legislation, Land Monopoly, Polygamy and War.
Human life will be lengthened, less time will be lost in attending the sick, woman will become far more healthy, as well as beautiful, and men, as well as women, will be placed more upon their good behavior.
Amusements will be made to- "serve to second too some other use."
Wealth will increase, while Capitalists as we now understand them will be known no more forever; for the Laborer and the Capitalist will be One! Beyond the power or the necessity, at present, of the imagination to conceive, are the blessings, without number, which will grow up among us, when we turn our footsteps in this direction...."
Missing: the strange disappearance of S. J. Chapman’s theory of the hours of labour (3)
...now you don’t?, Part I
So much for the theory; now to its disappearance. Nyland's explanation for the disappearance of Chapman's theory was that Robbins and Hicks, in 1929 and 1932 respectively, had each introduced a simplifying assumption that the given length of the working day was optimal for output. According to Nyland (1989), the requirement for such a move arose because the variability of both the duration and intensity of working time made it difficult – if not impossible – to calculate returns to the various factors of production. Subsequently, in Nyland's account, Robbins's and Hicks's simplification came to be regarded as the way things were in reality.
However, a re-examination of the texts by Robbins and Hicks fails to detect the simplifications that Nyland identified. Both authors made statements that may seem to announce such a simplification. But a careful re-reading of the wording and context of those statements challenges Nyland's interpretation. In Robbins's article (1929), the context for the statement Nyland takes to be a simplifying assumption involved, first, acknowledgements to Chapman for his theoretical analysis of the hours of labour and to Philip Sargant Florence for the empirical confirmation of Chapman's theoretical insights. Second, Robbins offered the disclaimer that in his discussion, he wasn't examining what factors might lead to a reduction of the hours of labour but only the effects that would proceed from it, assuming such a reduction to take place. Finally, came the alleged simplifying assumption itself: "If we are to predict the effect of a given variation in hours we must conceive of it in relation to a working day of maximum productiveness" (p. 27). Robbins's working day of maximum productiveness is thus not posited as the given working day but only a point of reference to which any given variation in hours must be related. If the given day was longer than the hypothetical day of maximum productiveness, then a reduction in hours would induce an increase in production. If the day was already shorter than optimal, then a further shortening would lead to an decrease in production. Such an analysis remained in accord with Chapman's theory.
Next.
So much for the theory; now to its disappearance. Nyland's explanation for the disappearance of Chapman's theory was that Robbins and Hicks, in 1929 and 1932 respectively, had each introduced a simplifying assumption that the given length of the working day was optimal for output. According to Nyland (1989), the requirement for such a move arose because the variability of both the duration and intensity of working time made it difficult – if not impossible – to calculate returns to the various factors of production. Subsequently, in Nyland's account, Robbins's and Hicks's simplification came to be regarded as the way things were in reality.
However, a re-examination of the texts by Robbins and Hicks fails to detect the simplifications that Nyland identified. Both authors made statements that may seem to announce such a simplification. But a careful re-reading of the wording and context of those statements challenges Nyland's interpretation. In Robbins's article (1929), the context for the statement Nyland takes to be a simplifying assumption involved, first, acknowledgements to Chapman for his theoretical analysis of the hours of labour and to Philip Sargant Florence for the empirical confirmation of Chapman's theoretical insights. Second, Robbins offered the disclaimer that in his discussion, he wasn't examining what factors might lead to a reduction of the hours of labour but only the effects that would proceed from it, assuming such a reduction to take place. Finally, came the alleged simplifying assumption itself: "If we are to predict the effect of a given variation in hours we must conceive of it in relation to a working day of maximum productiveness" (p. 27). Robbins's working day of maximum productiveness is thus not posited as the given working day but only a point of reference to which any given variation in hours must be related. If the given day was longer than the hypothetical day of maximum productiveness, then a reduction in hours would induce an increase in production. If the day was already shorter than optimal, then a further shortening would lead to an decrease in production. Such an analysis remained in accord with Chapman's theory.
Next.
Abstract: Sidney Chapman's theory of the hours of labour, published in 1909 in The Economic Journal, was acknowledged as authoritative by the leading economists of the day. It provided important insights into the prospects for market rationality with respect to work time arrangements and hinted at a profound immanent critique of economists’ excessive concern with external wealth. Chapman's theory was consigned to obscurity by mathematical analyses that reverted heedlessly to outdated and naïve assumptions about the connection between hours and output. The Sandwichman is serializing "Missing: the strange disappearance of S. J. Chapman’s theory of the hours of labour" on EconoSpeak in celebration of the centenary of publication of Chapman's theory. (To download the entire article in a pdf file, click on the article title.)
Tuesday, November 4, 2008
Missing: the strange disappearance of S. J. Chapman’s theory of the hours of labour (2)
Now you see it: Chapman's theory of hours
It wasn't as if Chapman's theory was eccentric or Chapman himself was a radical fringe figure. Chapman's theory built on Stanley Jevons's well-established analysis of individual labour supply, supplemented by an accumulation of statistical and experimental evidence. Chapman had been Marshall's star pupil at Cambridge for three years before moving on to Manchester where he completed a prize-winning study of the Lancashire cotton industry (Tribe, 2004). He rapidly rose to a professorship of political economy at Manchester's Owens College (which in 1904 became Victoria University) and was appointed dean of the newly established faculty of commerce and administration there. In that role, from 1904 to 1917, he pioneered an exemplary teaching and research program.
At the start of the first world war, Chapman was asked by the British government to direct research into wartime production. By 1918, he had become a full-time civil servant. The following year he was appointed joint permanent secretary of the Board of Trade and subsequently served seven years as permanent secretary. In 1920, he was knighted for his contribution to the war effort. In 1927, Sir Sydney Chapman was appointed chief economic advisor to the British government, a post he held until 1932.
Before chronicling the eclipse of Chapman's theory, it would be appropriate to present a brief summary of it. Chapman argued that the importance of leisure, both to industrial productivity and to individual well-being, must rise along with technical progress. As industrial processes became more intensive and specialized, the faster pace of working and the mental concentration demanded from workers would accelerate fatigue and thus would make it less productive to continue working longer hours. The optimal length of the working day would thus decline. At the same time, increased incomes from higher output would also make leisure time more attractive and affordable to workers. Those changes in both the optimal length of the working day and the value of leisure to workers would lead to demands for corresponding reductions in the actual length of the working day: "agitation for shorter hours will be constantly breaking out anew" (Chapman, 1909, p. 358).
Chapman arrived at this conclusion after reviewing a mass of evidence from the 19th century that reductions in the hours of work had not led to proportionate declines in output. From that evidence, he inferred that workers required more leisure time to fully recover from the fatigue of work as industrial methods became progressively more intensive. Thus when the hours of labour were reduced, the better-rested workers were often able to produce as much or more in the shorter hours than they had previously in longer hours.
Most importantly, Chapman's analysis also suggested that competition between employers would make it unlikely that a working day of optimal length could be established solely through the working of a free market. The reason for this was that the long-term maintenance of a working day of optimal length for output would require employers to exercise short-term restraint. Such restraint, however, could be undermined because competing firms could always offer higher wages to poach well-rested employees from a firm that did exercise such restraint. The enlightened firm would thus be making a sort of investment without equity in the workers' well-being. For this reason, the length of working day sought by employers under competitive conditions would tend to be longer than would be optimal for output. A working day of optimal length could only be maintained if all employers acted together in enlightened accord.
The length of day that would be best for workers' welfare would be shorter than that which could produce the greatest total output. But workers, too, would tend to disregard the long-term effects of working time on fatigue, productivity and ultimately on wage levels. In forming their preferences for income and leisure, they would be predominantly influenced by current wage levels. This would result in workers seeking a working day longer than would be prudent in the long run, although still shorter than that sought by employers acting competitively. The prevailing concern of both employers and workers for immediate self-interest would bias the preferences of each toward a longer than optimal length of the working day.
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It wasn't as if Chapman's theory was eccentric or Chapman himself was a radical fringe figure. Chapman's theory built on Stanley Jevons's well-established analysis of individual labour supply, supplemented by an accumulation of statistical and experimental evidence. Chapman had been Marshall's star pupil at Cambridge for three years before moving on to Manchester where he completed a prize-winning study of the Lancashire cotton industry (Tribe, 2004). He rapidly rose to a professorship of political economy at Manchester's Owens College (which in 1904 became Victoria University) and was appointed dean of the newly established faculty of commerce and administration there. In that role, from 1904 to 1917, he pioneered an exemplary teaching and research program.
At the start of the first world war, Chapman was asked by the British government to direct research into wartime production. By 1918, he had become a full-time civil servant. The following year he was appointed joint permanent secretary of the Board of Trade and subsequently served seven years as permanent secretary. In 1920, he was knighted for his contribution to the war effort. In 1927, Sir Sydney Chapman was appointed chief economic advisor to the British government, a post he held until 1932.
Before chronicling the eclipse of Chapman's theory, it would be appropriate to present a brief summary of it. Chapman argued that the importance of leisure, both to industrial productivity and to individual well-being, must rise along with technical progress. As industrial processes became more intensive and specialized, the faster pace of working and the mental concentration demanded from workers would accelerate fatigue and thus would make it less productive to continue working longer hours. The optimal length of the working day would thus decline. At the same time, increased incomes from higher output would also make leisure time more attractive and affordable to workers. Those changes in both the optimal length of the working day and the value of leisure to workers would lead to demands for corresponding reductions in the actual length of the working day: "agitation for shorter hours will be constantly breaking out anew" (Chapman, 1909, p. 358).
Chapman arrived at this conclusion after reviewing a mass of evidence from the 19th century that reductions in the hours of work had not led to proportionate declines in output. From that evidence, he inferred that workers required more leisure time to fully recover from the fatigue of work as industrial methods became progressively more intensive. Thus when the hours of labour were reduced, the better-rested workers were often able to produce as much or more in the shorter hours than they had previously in longer hours.
Most importantly, Chapman's analysis also suggested that competition between employers would make it unlikely that a working day of optimal length could be established solely through the working of a free market. The reason for this was that the long-term maintenance of a working day of optimal length for output would require employers to exercise short-term restraint. Such restraint, however, could be undermined because competing firms could always offer higher wages to poach well-rested employees from a firm that did exercise such restraint. The enlightened firm would thus be making a sort of investment without equity in the workers' well-being. For this reason, the length of working day sought by employers under competitive conditions would tend to be longer than would be optimal for output. A working day of optimal length could only be maintained if all employers acted together in enlightened accord.
The length of day that would be best for workers' welfare would be shorter than that which could produce the greatest total output. But workers, too, would tend to disregard the long-term effects of working time on fatigue, productivity and ultimately on wage levels. In forming their preferences for income and leisure, they would be predominantly influenced by current wage levels. This would result in workers seeking a working day longer than would be prudent in the long run, although still shorter than that sought by employers acting competitively. The prevailing concern of both employers and workers for immediate self-interest would bias the preferences of each toward a longer than optimal length of the working day.
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Abstract: Sidney Chapman's theory of the hours of labour, published in 1909 in The Economic Journal, was acknowledged as authoritative by the leading economists of the day. It provided important insights into the prospects for market rationality with respect to work time arrangements and hinted at a profound immanent critique of economists' excessive concern with external wealth. Chapman's theory was consigned to obscurity by mathematical analyses that reverted heedlessly to outdated and naïve assumptions about the connection between hours and output. The Sandwichman is serializing "Missing: the strange disappearance of S. J. Chapman's theory of the hours of labour" on EconoSpeak in celebration of the centenary of publication of Chapman's theory. (To download the entire article in a pdf file, click on the article title.)
Monday, November 3, 2008
A Beautiful Mind in Splendid Isolation
Sometimes I forget how much pure enjoyment one can get from the economics literature. Consider this:
And why do we need coauthors?
"The Optimal Jury Size When Jury Deliberation Follows a Random Walk"
Public Choice, Vol. 134, No. 3-4, 2008
Robert Day School of Economics and Finance Research Paper No. 2008-3
ERIC HELLAND, Claremont McKenna College - Robert Day School of Economics and Finance, RAND
Email: ehelland@cmc.edu
YARON RAVIV, Claremont McKenna College - Robert Day School of Economics and Finance
Email: yraviv@cmc.edu
The existing literature does not agree on the optimal jury size. We demonstrate that the probability of type I and type II errors is not sensitive to the number of jurors under the following three conditions: jurors received independent signals about a defendant's guilt during the evidence stage of the trial; the jurors truthfully reveal their signal before deliberations in the first ballot via their vote; and the jury deliberation can be modeled as a random walk. Since the opportunity cost of jury service is positive, this implies the optimal number of jurors is one.
And why do we need coauthors?
Missing: the strange disappearance of S. J. Chapman’s theory of the hours of labour (1)
The days are gone when it was necessary to combat the naïve assumption that the connection between hours and output is one of direct variation, that it is necessarily true that a lengthening of the working day increases output and a curtailment diminishes it. – Lionel Robbins
On August 26, 1909, Sydney J. Chapman unveiled his economic theory of the hours of labour in his presidential address to the Economics and Statistics Section of the British Association for the Advancement of Science meeting in Winnipeg, Manitoba. The theory was subsequently published in The Economic Journal (Chapman 1909). Chapman's analysis arrived at several remarkable and far-reaching conclusions. First, the length of working day that would be best for workers’ welfare is shorter than the length that would produce the largest output. Second, the play of competition would tend to make the working day too long, even from the standpoint of production. Third, improved methods of production would lead to a progressive reduction of the optimal length for the working day. As a consequence, renewed conflict over the length of the working day would break out from time to time.
Not only were those conclusions novel from the point of view of conventional economic theory, they also had important practical implications for public policy regulating the hours of work. If the hours of work established by the market were likely to be too long, even from the perspective of total output, then legal limitation of the working day could aid not only equity but also economic efficiency. This possibility challenges the popular myth – often presented as an economic truism – that there is a "trade-off" between equity and efficiency goals and, furthermore, that economic efficiency is best served through the workings of a competitive market. Chapman’s theory calls both of those suppositions into question. It does so from within the tradition of neoclassical economics, using the approved tools and standard assumptions.
The leading economists of the day acclaimed Chapman's theory. Alfred Marshall (1961) cited Chapman's theory as authoritative. So did Marshall's successor at Cambridge, A.C. Pigou (1920), who based his own discussion of working time in The Economics of Welfare on Chapman’s theory. Lionel Robbins (1929) referred to Chapman's article as having effectively dealt with "one of the chief problems of the analysis of economic equilibrium" (p. 25) – i.e., the determination of the hours of work in industrial civilization. John Hicks (1932), called the theory the "classical statement of the theory of 'hours' in a free market" (p. 102n), and presented a meticulous six-page précis of it.
Twenty-four years after Hicks had proclaimed Chapman's theory authoritative, H. Gregg Lewis (1956) referred to something completely different as the "orthodox approach" to analyzing the individual supply of labour time. According to the newly-crowned orthodoxy, individuals choose how many hours they want to work based on their relative preferences for income and leisure. In the income-leisure choice model, leisure is viewed as a normal consumer good – no different from shoes, cabbages or sealing wax. Between the earlier classical statement of the theory of hours and the later orthodoxy lay a gulf and an enigma. In his history of worktime thought, Chris Nyland (1986) described the unchronicled transition as a matter of "now you see it, now you don’t" (p. 32).
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Abstract: Sidney Chapman's theory of the hours of labour, published in 1909 in The Economic Journal, was acknowledged as authoritative by the leading economists of the day. It provided important insights into the prospects for market rationality with respect to work time arrangements and hinted at a profound immanent critique of economists' excessive concern with external wealth. Chapman's theory was consigned to obscurity by mathematical analyses that reverted heedlessly to outdated and naïve assumptions about the connection between hours and output. The Sandwichman is serializing "Missing: the strange disappearance of S. J. Chapman's theory of the hours of labour" on EconoSpeak in celebration of the centenary of publication of Chapman's theory. (To download the entire article in a pdf file, click on the article title.)
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