Joblesse Oblige?

by the Sandwichman

Both the Congressional Budget Office and the White House Office of Management and Budget released economic estimates and projections today showing unemployment averaging around 10% (9.8% OMB, 10.2% CBO) next year and remaining above 8% until at least the end of 2011. Last March, the OMB estimated would average 8.1% in 2009 and decline thereafter.

In short, the unemployment rate is now much worse than anyone expected five months ago, it will get even worse and it will stay worse longer. Where are the proposals to respond to this unacceptable level of unemployment? Where is the political movement to demand a solution?

Should Journals Have To Compete For Papers?

During the course of the discussions in various locations over the matter of proper formatting of papers for journals, the point was made that in some hard science disciplines (not sure which ones) it is acceptable for authors to submit a paper to more than one journal simultaneously. This is a major taboo in economics, with many journals asking specifically if one has submitted the paper elsewhere when one submits. However, it has always struck me as a bit inconsistent that it is OK to submit book proposals to more than one publisher. My thought on how to resolve this was that book proposals involve the author making money, whereas this is almost never the case for journal articles (although in some hard sciences, one has to pay for pages published in a journal).

I am wondering what people think of this. Should economics journals have to compete for the best papers (and the person who noted this in hard sciences said that this happens)? I can see the taboo arising from the interests of editors and referees. There is already a major problem of finding suitable and willing referees who will get reports back in reasonable time (hard sciences referees also tend to get their reports back much more quickly than do economist referees). Would this make it worse? The argument for moving towards the hard science view is that it is more likely to avoid the problem many young professors face of having their paper sit for lengthy periods of time at journals, only to get rejected, and putting them in danger of not having enough publications to get tenure, even if they have written a sufficient number of good papers.

James K. Galbraith On The Current Situation

James K. Galbraith has issued a white paper based on a meeting that occurred in Paris at the Mayer Foundation this past June. It is entitled "Financial and Monetary Issues as the Crisis Unfolds," and is available at either http://www.epsusa.org/projects/crisisworkinggroups/financeandbanking.htm or http://www.levy.org/vtype.aspx?doctype=9. It is about 9,000 words in total, and the report concludes as follows:

In brief conclusion, the group of experts convened in Paris in June warns that the crisis is not over, that policies so far set in motion are not sufficient, and that the goals set by the authorities so far, which amount to a restoration of previous conditions, are neither desirable nor possible. It is time now to begin to take account of the irreversible characteristics of recent events, to chart a course of new construction instead of reconstruction, and to build the domestic and financial monetary institutions and safeguards necessary to make it possible to pursue that course.

Beyond the f-word: The Teagle Plan

by the Sandwichman

The Teagle Committee was recruited in August 1932 by President Hoover in an attempt to promoted voluntary work-sharing as a palliative to unemployment. It is part of the context for the introduction of the more sweeping Black-Connery Thirty-Hour Bill in 1933.

THE SHARE-THE-WORK PLAN: TEAGLE ANSWERS ITS CRITICS

The Chairman of the Movement Holds That the Burden Is Carried Not Only by Men With Jobs but by Employers Also

In the share-the-work plan of dealing with unemployment, who bears the burden—the employer, the employee, or both? This is a question frequently raised in labor circles. In the article that follows it is answered by the chairman of the Share-the-Work Movement, who is also president of the Standard Oil Company of New Jersey, one of the large employers of labor.

By W. C. TEAGLE.

A POPULAR commentator on current affairs in one of our metropolitan journals writes that “there has been altogether too much bunk about share-the-work.” And a telegrapher In Oklahoma writes: “I have worked seven days per week for the last ten years. I would be very agreeable to the five-day week, for I realize It is the only way we will ever put the unemployed to work. Practically every one in my profession would be strongly in favor of this, and I do not see how the railroads could object, for it would not increase their costs. If this could be put in operation at once I know of ten or fifteen men with families that have been cut off the extra board who would be called back to work. It might cut my pay 40 per cent, but I would be glad to give that for the duration of the depression.”

In these two quotations we have the destructive and. constructive views of the move to extend work-sharing throughout the nation.

Most of the criticism has turned upon the allegation that it shoulders the total cost of unemployment on those who are least able to bear it, the wage earners. Sometimes it is characterized as a device for using public philanthropy as a cloak to cover the nakedness of a scheme to lighten tax burdens. The most radical go even further in saying that the movement is a deep-laid plot to get wages down to a subsistence level now so that when business revives and workmen are in demand corporations can make large profits.

The Origin of the Plan.

Sometimes the best way to understand an organism is to investigate its forebears. Let us look at the origin of the plan to help the unemployed.

Work-sharing is not somebody’s pet idea born in the past few months and developed under the careful nursing of theorists. It became established as a product of the times at least two years ago and was in successful operation in many industrial plants before any one gave thought to the matter of attempting to propagate it for wider usefulness. It grew naturally on sheer merit as a logical means of protecting the best interests of employers and workers in a period of poor business.

In 1930 a number of manufacturers began to spread a diminishing quantity of work as an alternative to laying off employees. There was no theory enunciated and no common plan of action agreed upon by those who reduced hours and wages to keep the largest possible number at work. Such a policy was in force at some refineries of Standard Oil Company of New Jersey subsidiaries from the time that the management first faced the necessity of laying off permanently a large number of workers, due to the installation of more efficient refining units; by United States Steel, Bethlehem Steel and International Harvester, among others.

No one thought to criticize this action, to credit its motivation to 'bunk' perhaps because it was essentially so fair and natural. It was not until two years later, when an organization got behind the plan, that any one discovered sinister aspects connected with it. And then the criticism did not emanate from those affected.

Limitations Pointed Out.

As a matter of record, initiation of the movement followed the most careful consideration of its possibilities, bad as well as good. A warning was incorporated in the first piece of literature and has been repeated in every subsequent presentation of the plan, to this effect:

A remedy used unwisely may aggravate the disease for which it is prescribed. Job-sharing has its limitations. While it holds obvious and far-reaching possibilities for improving the business situation, it is an emergency measure to help those without work and should not go beyond a certain point. This limitation is for the community and employer to decide with the cooperation of the employee. Many men and women now at work have incomes barely covering the necessities of life and they cannot in fairness be asked to divide with others.

In view of the emphasis placed on the limitations by proponents, it is strange that adverse criticism should rest on the assumption that the plan will not work after this emergency is over, or on its alleged unfairness to the employee receiving too little to permit him to get along comfortably if his wages are reduced by the amount of time shared.

Again and again the committee has asked support for work-sharing only as a proved remedy immediately available for a severe unemployment crisis. We have said that as business picks up and jobs again begin to seek the man, this movement will evaporate like gasoline in the open air. In every instance where it developed that workers were getting only enough for their needs we have urged that the employer try to see his way clear to the employment of more help without putting the cost on his existing force. In a number of instances, where the labor element is not too large an item in the cost of doing business, employers have shortened the week without reducing wages.

The New Hampshire plan, one of the earliest forms of work-sharing, exacts a financial contribution on a sliding scale from those in the higher wage or salary classifications, and the money thus released is used to pay added workers in lower brackets. In another variation, work-sharing has been accomplished by reducing pay uniformly by a small percentage down to a minimum wage agreed upon. In no case that has come to our notice has the employer taken advantage of the plan to reduce his operating overhead. On the other band, frequently he has assumed part of the cost in order to do his utmost for the relief of unemployment.

Parenthetically, it might be remarked here that the fellow who stands on a sidewalk finding fault with men who are trying to rescue persons involved in a street accident is not contributing anything helpful to the situation. If he knows a better way of effecting rescue he should take his coat off and go to it. To date, none of the critics who have sought to discredit the share-the-work movement has proceeded beyond efforts at belittling. If they have ideas for bettering a distressing situation, they are strangely reticent after finding fault with what others are doing.

Whatever its faults, no one can say the Share-the-Work Movement exists only as a theory. It got to work immediately and has produced far-reaching results exactly in keeping with its objectives. A single participant has 50,000 people In his plants and offices who would not be on his payroll but for his conviction that the times required a division of jobs and payrolls in the common interest; another, 35.000.

While the accomplishments in taking the idle from the street and putting them into jobs have not been so striking, the total thus employed, made up of a few here and a few there in various lines of activity, nevertheless is substantial. It will be much larger if employers of what is euphemistically referred to as the white-collar class will participate as generally as have the manufacturing industries.

Sponsors of the movement have never claimed that they are doing something of permanent value. They advocate it in spite of the feeling that, if carried too far, it has definite points of weakness. The driving thought is that we can meet an emergency situation through use of an emergency measure.

Less frequently the plan has been criticized because it contains no provision for increasing wages. No doubt this would be highly desirable in many lines and would greatly stimulate purchasing by those receiving the higher rewards. How a workman is to persuade his employer that he deserves more pay, with two or three of the idle waiting for his job at lower wages, the critics do not say. It is the man out of work who answers those who ask why the wage scale is not raised in cases where employees receive too little to participate in work sharing.

Some of the opposition to dividing work would disappear if a few fundamental facts about unemployment were thought through. No amount of shuffling him about will put the unemployed man where he is not a burden upon his fellows. We have in the United States a very large number of idle—exactly how many nobody knows because it is impossible to complete a census. Perhaps 10,000,000 is the best estimate. This is about one-fourth of the number gainfully employed outside of agriculture at the height of business activity.

Kepler's Astronomia Nova

by the Sandwichman

I was under the impression that Copernicus definitively established the idea of the heliocentric universe. However:

In Kepler's day three models existed to explain the observed motions of the "wandering stars." However, no clear criteria of physical "truthfulness" existed to discern which of these models corresponded to the actual, physical universe. Each model could be used to predict the future longitude and latitude of planets in the sky for a few years out. All of them became less accurate as time progressed.

Copernicus's model was no more accurate than Ptolemy's because he built his system on Ptolemy's 1,500-year old data!

It was Kepler who painstakingly, over the course of 10 years, worked out the orbits and orbital planes of Mars and Earth and thus established a system for accurate measurement of the movements of the planets solar system.

What was the key to Kepler's intellectual rigor? The "difference between the straight and the curved" or the importance of "incommensurable magnitudes." Now, if we assume, "for simplicities sake" that a line is as good as a curve, we might be able to make short-term predictions, but we're going to miss something essential.

Beyond the f-word: The Odenheimer Plan

by the Sandwichman

Below is the proposal made in November 1932 by Sigmund Odenheimer, a New Orleans cotton manufacturer and written up by Thomas Dabney in a book titled Revolution or Jobs?. Back in the Great Depression, even capitalists proposed radical solutions to unemployment!

We are confronted with a great emergency. It is said that the unemployed in this country equal in numbers the unemployed in all European countries. Nothing appears to be in sight to alleviate this condition. From a humanitarian standpoint, it is the most severe shock we have yet experienced. Viewing it in the light of safety to our institutions, and of the permanence of our present civilization, it is a menace of incalculable proportions. From what I can learn, the problem is growing worse.

There is only one remedy, and I propose that remedy.

It is, Jobs for every one, every week in the year.

We will need legislation to open these jobs; we will need an amendment to the Constitution.

That amendment would give Congress the power to legislate on hours of labor.

Only our government can meet our need in this critical time.

This amendment passed, Congress would create an 'Hours of Labor Commission.' The members would be appointed by the President, and would be responsible to him. The law would make it mandatory that one week after the Commission was appointed, it would issue a proclamation that the hours of labor in all industries, work shops, stores, etc., employing a minimum number of persons—say five—should not exceed a certain total a week.

Penalty for violating this law would be fine AND imprisonment for the employer.

The work-week would be just long enough to give jobs to every one. My estimate is that we need a 20-hour week now. Industry and business could operate as many hours a week as they wish; they would only have to put on more shifts.

This regulation of the work-week would be permanent. The Hours-of-Labor Commission would make the work-week short or long, as economic conditions changed. No matter how much or how little production—that is, work—there was, everybody who wanted a job would have one. We would lose the long line of unemployment; never again would we fall a victim to that unnecessary stupidity.

The present emergency justifies the immediate calling of Congress to pass on the submission of the Constitutional amendment to the Legislatures of the different states. It justifies the immediate convening of the Legislatures, to take action on the amendment.

With everybody employed, the nation would be freed of the terrific strain that is now almost causing it to fly into a thousand pieces, like a crystallized wheel.

The country would be freed of the burden of public and private contributions to support the destitute.

The unemployed would be freed of the misery of doubt about the next meal.

Those who are employed would be freed of the agony of fear that they will lose their jobs.

We would have a confidence which, by comparison with our present condition, would be the return of prosperity.

We would see an immediate pick-up in consumption, for two reasons:

First, employment, even on part-time, would give our present unemployed more money to spend than they now have under the piddling dole of the Reconstruction Finance Corporation;

Second, those who are employed would feel free to spend their hoardings for things they need but are doing without, because they would not be afraid of being thrown upon the street to-morrow.

I do not propose that a full week's pay should be given for a part-week's work. That would be a shock to the economic system which I do not believe it could stand without preparation.

It may be said that this plan would put no more purchasing power into the country than it now has, because it merely divides the present wages among more persons. That is true, in theory, and it would be true in practice, but only for a short time.

I believe that consumption would be so increased by the removal of the fear to spend, that there would be an instant increase in production. This would mean a call for more man-power, which would mean a longer work-week and more pay.

I believe that business would be so stabilized by this confidence, and by the elimination of dumping and rushing upon greater losses, that all employers would be justified in immediately increasing wages at least ten per cent, and probably twenty-five per cent, or even more, after a few weeks.

As conditions improved, I believe we would work into a higher rate of pay than we have seen in the past. The trend of wages has been upward for a century, and if we help that trend, we will be contributing impressively to the development of our country, the enjoyment of its resources, and the living standards of the people who would measure their wealth by consuming power, not by the standards of the past.

Fiscal Policy and Recoveries in Various Large Countries – a National Review Nitwit Opines Before Checking the Facts

It is been a long time since I ventured over to the National Review’s writings on economics but a “friend” suggested I check out Mark Steyn’s Why the Stimulus Flopped:

Meanwhile, in Brazil, India, China, Japan, and much of continental Europe the recession has ended. In the second quarter this year, both the French and German economies grew by 0.3 percent, while the U.S. economy shrank by 1 percent. How can that be? Unlike America, France and Germany had no government stimulus worth speaking of, the Germans declining to go the Obama route on the quaint grounds that they couldn’t afford it. They did not invest in the critical signage-in-front-of-holes-in-the-road sector. And yet their recession has gone away. Of the world’s biggest economies, only the U.S., Britain, and Italy are still contracting. All three are big stimulators, though Gordon Brown and Silvio Berlusconi can’t compete with Obama’s $800 billion porkapalooza. The president has borrowed more money to spend to less effect than anybody on the planet.

Of course the absolute value of our stimulus was larger than that of the UK or Italy but I have to wonder if Steyn bothered to read something Paul Krugman offered:

A number of commenters have argued that Germany’s slight growth in the second quarter proves that you don’t need a fiscal stimulus to fight the slump. Many points here - Germany had a much deeper slump than the US, etc.. But one thing I gather people don’t know is that there’s a dissonance between what Germany says and what it does: the Finance minister denounces Keynesianism, but at least according to the IMF Germany’s actual stimulus package is quite substantial — comparable to that of the United States! Meanwhile, France has suffered a smaller slump, 3.1% over the past year. Not too surprising, given that France didn’t have a big housing bubble and isn’t as dependent on durable manufactured exports as Germany.

Krugman’s post offers two insights that Mr. Steyn seems to have missed: (1) movements in real GDP depend not only on the size of the fiscal stimulus but also on the economic shocks it had to contend with so we should not be surprised that France’s economy is recovering as ours was still declining last quarter (albeit by not as much as before the fiscal stimulus started to work; and (2) Germany did have significant fiscal stimulus. Paul also provided a link to this IMF report with a table entitled “Stimulus Packages in Large Countries (in percent of GDP)”. The totals for 2008 to 2010 for the U.S. and Germany were 4.8% and 3.4% and note that for China, this was 4.4%. Yet Steyn appears to think China did not have significant fiscal stimulus. On the other hand, he thinks the UK and Italy did but their totals were 1.5% and 0.3% respectively as compared to France’s total which was 1.3%. Also note Japan’s total was 2.2% but Steyn thinks Japan has less fiscal stimulus than either Italy or the UK.

It would seem one does not need to know much about the size of the actual fiscal stimuli in different nations to write a comparative analysis on the topic for the National Review.

Claiming the Social Security Benefits Will Fall

Stephen Ohlemacher must be out to scare people with Millions face shrinking Social Security payments:

Millions of older people face shrinking Social Security checks next year, the first time in a generation that payments would not rise. The trustees who oversee Social Security are projecting there won't be a cost of living adjustment (COLA) for the next two years. That hasn't happened since automatic increases were adopted in 1975. By law, Social Security benefits cannot go down ... Cost of living adjustments are pegged to inflation, which has been negative this year, largely because energy prices are below 2008 levels ... All beneficiaries received a 5.8 percent increase in January, the largest since 1982.

The Social Security Administration states:

Beginning in 1975, Social Security started automatic annual cost-of-living adjustments. The change was enacted by legislation that ties COLAs to the annual increase in the Consumer Price Index (CPI-W) ... Based on the increase in the Consumer Price Index (CPI-W) from the third quarter of 2007 through the third quarter of 2008, Social Security and Supplemental Security Income (SSI) beneficiaries will receive a 5.8 percent COLA for 2009.

CPI-W is the Consumer Price Index for Urban Wage Earners and Clerical Workers – if one is interested in how this index has behaved of late, check this out. When prices rose, nominal benefits also rose so as to keep real benefits the same. In the last year, this price index has declined and appears to be expected to decline for a while. So with unchanged nominal benefits – wouldn’t a better title be real benefits are expected to increase?

Ohlemacher may have a point if the relative price of premiums for the Medicare prescription drug program increases substantially but by his own account, the extra premiums do not appear dramatic enough to justify his scare title.

Is It A Smart Signal To Submit Papers To Econ Journals With Incorrect Reference Formats?

Duh, the answer is no. But Alex Tabarrok at marginal revolution, http://www.marginalrevolution.com/marginalrevolution/2009/08/inefficient-journal-submission-policies.html#comments, told his microbiologist wife that if she submitted a paper with correct Reference formats she would be signaling that she is a "newbie," with nobody who knows anything doing that in economics. She followed his advice only to have her paper rejected upfront. He complained about an "inefficient equilibrium" of journal policies in the hard sciences, only to have lots of hard scientists point out that it is two lines of LaTEX to change formats. Of course, few economics journals require LaTEX, and few economists use it Now it is true that econ journal editors generally tolerate submissions not in correct formats, which get "fixed" later if accepted, and a majority of submissions do come in that way. But it is no signal of intelligence, experience, or anything else impressive for several reasons.

1) It is a pain in the ass for editors to ask accepted authors to fix this later, and is costly in time if the journal staff has to do the fixing themselves.

2) If anything, journal editors are somewhat sympathetic to "newbies" trying to get tenure and publish out of their dissertations.

3) Trying to signal that one is "experienced" by any means is a lost cause unless the editor has heard of the submitter. If the editor has not heard of the submitter and realizes the person is experienced, this simply counts against them, a loser who has been around but so pathetic or unproductive or worthless that that they are unheard of by the editor. If the editor has not heard of someone, better almost to be a "newbie." (Although, of course, showing multiple citations to one's own work in respectable journals in the paper can offset such an impression.)

3) Having correct Reference formats may signal that the paper has been submitted first to the journal, which sometimes strokes the egos of editors.

4) Of course, worse than simply having incorrect formats (which is tolerated in econ) is having sloppily incomplete or incorrect references, with papers cited in the paper not there or papers in the references not cited, or misspelled names or incorrect years or paper titles, etc. This is just incompetence and signals such pretty clearly. Bottom line is that References that are complete and accurate and in proper format signal professionalism, not some damning lack of experience.

San Quentin vs. Higher Eduction in California

No words needed; the numbers speak volumes.

Thanks to Seth Sandronsky

http://michaelperelman.wordpress.com/?attachment_id=1219

Open Letter to the Queen

Your Majesty,

We, the undersigned, noted with interest the letter to Your Majesty of 22nd July 2009 from the British Academy in which they respond to your question about how the current economic meltdown was missed. They talked of a "failure of the collective imagination of many bright people" and a "psychology of denial".

The Academy wrote "It is difficult to recall a greater example of wishful thinking combined with hubris." You will be aware of HRH The Prince of Wales's speech on 9th July 2009 in which His Royal Highness focused on far more serious examples of wishful thinking and hubris. We are writing to you because we are concerned that the British Academy's letter focuses on one particular aspect of current insecurity, namely financial, failing to address the wider context of more serious macro issues facing mankind. We are also writing to the Academy to invite them to debate these issues with us.

Symptoms of a much greater systemic failure

We live in tumultuous times. Many developed world citizens are losing their livelihoods. The effects on the world's poorest will, as ever, be dreadful. However we are surprised that the Academy has not addressed anything outside the narrow remit their letter covered. Far greater insecurities threaten the world's poorest due to our effects on the natural world.

The letter ignores the physical constraints which are central to this bubble and indeed most bubbles. It speaks of "the bigger picture" and of "individual risks being small" and "the system as a whole being vast", yet, for us has a limited horizon.

Our premise is that our current economic malaise is symptomatic of a far more serious systemic failure to acknowledge what Archbishop Rowan Williams has identified in saying "It has been said that 'the economy is a wholly-owned subsidiary of the environment'. The earth itself is what ultimately controls economic activity because it is the source of the materials upon which economic activity works".

Energy underlies everything – Scylla and Charybdis of peak oil and climate change. The underlying cause of the current economic meltdown is a multi-generational debt-binge inextricably linked to a concomitant multi-generational energy-binge. The Academy's letter focuses on some "imbalances in the global economy". However, the key to addressing our current situation is to recognise the far more serious imbalances between our insatiable hunger for energy, its finite nature and the environmental pollution in its use.

Energy is the lifeblood of any economy. Our exponential debt-based money system is in turn based on exponentially increasing energy supplies. It is therefore clear that the supply of that energy deserves our very highest attention. That this attention doesn't appear in the Academy's analysis is deeply worrying.

The impending peaking of production of oil and other hydrocarbons, along with the resulting peak in food production and everything on which oil relies, is now widely accepted. Leading UK companies including Arup, Scottish and Southern Energy, Solarcentury and Virgin have warned that a peak in cheap, easily available oil production is likely to hit by 2013, posing a grave risk to the economy. On 2nd August 2009, the International Energy Association's Chief Economist, Dr Fatih Birol, warned of an oil crisis in 2010.

The letter refers to the "overheating economy" but gives no mention of the effect and cause of the overheating of planet Earth. Climate change is now recognised by the world's scientists, political and business leaders as the most serious threat to mankind and is described by Sir Nicholas Stern as "the greatest market failure of our times". On an almost daily basis we get increasingly urgent signals that unstoppable, runaway climate chaos is almost upon us.

Members of The Prince of Wales's UK Corporate Leaders Group on Climate Change, including AXA, Shell, Tesco, Unilever and Vodafone, have now repeatedly asked politicians for more urgent action on climate change.

Growth versus prosperity

The Academy's letter mentions unprecedented global economic growth - yet it fails to mention the rapidly escalating environmental destruction caused by this insatiable growth. It also mentions the poor of the developing world who have been brought out of poverty to 'prosperity'; but not the far greater numbers condemned to an increasingly inequitable world and the ravages of peak-food and climate change.

Not just for ourselves, but also for the poor and disenfranchised, we in the rich world must now seek to redefine 'prosperity' and shift away from blind growth to an economic development fit for our damaged world. The distinction between quantitative 'growth' and qualitative 'development' is key.

A reverse gear for atmospheric carbon is needed and energy use must be radically reduced and redirected where it is most needed – into investments in a radical transition to a zero-carbon economy and the alleviation of poverty. However, the current Marshall-plan, to pump yet more economic growth, with a green veneer, risks plunging us headlong back into climate chaos.

As Professor Tim Jackson, author of the Sustainable Development Commission (SDC) report 'Prosperity Without Growth?' says: "Faced with the current recession, it is understandable that many leaders at the G20 Summit will be anxious to restore business as usual. But governments really need to take a long, hard look at the effects of our single-minded devotion to growth - effects which include the recession itself..... The myth of growth has failed us. It has failed, spectacularly, in its own terms, to provide economic stability and secure people’s livelihoods".

The letter talks of a "general feel-good factor", but doesn't address the fact that, in the developed world, general wellbeing long ago ceased to be linked with GDP growth. In July, The Prince of Wales called for an end to the "consumerist society where growth is an end in itself." His Royal Highness also said that "progress has come at a price" and that it "depends on how you define both 'growth' and prosperity’...in our modern situation these 'ends' have become dangerously confused with the 'means', to the point where, now, wealth, innovation and growth have become the final goals."

The debate is changing

Sir Jonathon Porritt says in his recent report Living Within our Means : "In their bones, world leaders know that if the global economy keeps growing at around 5% per annum (as it has done over the last couple of decades), then its game over for human civilisation as we know it." Adair Turner, past head of the CBI and now Chair of the FSA and Climate Change Committee, says in Do Good Live Have to Cost the Earth that we need to "dethrone growth'.

Despite the sclerotic nature of our politics, a notable few political figures are beginning to engage with the 'progress beyond growth' debate. These include President Horst Köhler, President Barroso, EU Environment Commissioner Dimas, OECD Secretary General Angel Gurria, David Cameron, the Swedish centre-right and President Sarkozy's Stiglitz Commission.

Beyond rhetoric there has been little deeper debate in politics about these issues. As the Sustainable Development Commission puts it, "We see [today] a society and a Government whose primary objective is still the achievement of economic growth as conventionally understood and measured, with as much social justice and environmental protection as can be reconciled with that central goal. We envisage a society whose primary goal should be the wellbeing of society itself and of the planetary resources and environment that sustains us all, with economic objectives shaped to support that central goal rather than the other way around."

Yes we can

Things can change. Harvard Professor John Quelch’s 2008 study Too Much Stuff says: "The mass consumption of the 1990s is fast fading in the rearview mirror."

Our current form of corporate-consumer-capitalism has been shown to be what many of us knew it was: a fundamentally flawed system which badly needs updating. Jeremy Paxman has asked if we are seeing the "end of capitalism". Martin Wolf of the FT has said that "the dream of global free market capitalism is dead". Bank of England Chair Sir Mervyn King has agreed saying Wolf's comment "strikes a chord."

Thomas Freidman said recently in the New York Times "Let’s today step out of the normal boundaries of analysis of our economic crisis and ask a radical question: What if the crisis of 2008 represents something much more fundamental than a deep recession? What if it's telling us that the whole growth model we created over the last 50 years is simply unsustainable economically and ecologically and that 2008 was when we hit the wall — when Mother Nature and the market both said: 'No more'."

Thankfully there is a vibrant debate in civil society on these issues. Groups like Transition Towns, described by Jeremy Leggett as 'scalable microcosms of hope', and digital democracy Moveon.org, Getup.org, Dosomethingaboutit.org.uk, Localeyes.org and 38degrees.org.uk are giving individual citizens and collectives a new voice and real power in politics of change.

An invitation

It would appear from the British Academy's letter that they are not aware of the rapidly growing and vibrant debate around these issues. We agree with them about the need for "authorities with the power to act" and for appropriate levels of regulation fit for the task in hand. Their prescription is to consider how they "might develop a new, shared horizon-scanning capability". We will invite the Academy to join with us in a public dialogue about these issues and ask them to consider how this 'new capability' can make its primary horizon the the issues we raise in this letter.

We will of course report findings of such debate to Your Majesty.

Yours faithfully

Phillip Blond, CEO, ResPublica; Alain de Botton, Philosopher; Tom Burke CBE, co-founder E3G; Professor Herman Daly, Maryland University; Geraint Talfan Davies, Chairman, Institute of Welsh Affairs; Professor Lord Anthony Giddens; Stephen Hale, CEO Green Alliance; Andy Hobsbawm, Chair Agency.com, Founder dothegreenthing.com; Rob Hopkins, Founder of Transition Towns; Prof Tim Jackson, SDC; Tony Juniper, Author and ex Executive Director, Friends of the Earth; Professor Melissa Lane, Princeton University; Neal Lawson, Chair, Compass; Jeremy Leggett, Chair, Solar Century; Peter Lipman, Chair, Transition Network; Jules Peck, Partner, Abundancy Partners; Robert Phillips, Co-author, Citizen Renaissance; Sir Jonathon Porritt OBE, ex Chair, SDC; Mike Robinson, CEO, Royal Scottish Geographical Society, Chair, Stop Climate Chaos Scotland; John Sauven, Executive Director, Greenpeace; Anthony Seldon, Master, Wellington College; Matthew Taylor, CEO, the RSA; Professor Peter Victor; York University, Canada.

(Can't Stop) Endlessly Spouting Chapman II

by the Sandwichman

In 2001, the Government of Queensland further summarized Sandwichman's summary of Chapman's theory in its submission to the Australian Industrial Relations Commission's Reasonable Hours Test Case. At 400 words, it's the shortest comprehensive summary of Chapman's theory I know of.

5.2.1 Theoretical review

The study of the relationship between work intensity and fatigue owes much to S.J Chapman's theory of the hours of labour, where in 1909 Chapman demonstrated market failure in the determination of working time. This argument initially involves the establishment of a concept of 'optimal hours'. The main points of this argument can be summarised as follows:

• a mass of evidence indicating that reductions in hours of work had not led to proportionate declines in output;
  
  
• in modern industry fatigue was increasingly less physical in nature and more a combination of psychological and physiological as a result of specialization and increased need for mental concentration;
  
  
• the reduction of hours allowed better-rested workers to produce as much or more in the shorter hours;
  
  
• the total value of the output would initially rise as the working day increased but eventually the total output as well as the output per hour would decline as the working day became so long that it prevented adequate recovery from fatigue for workers;
  
  
• this is the case because, beyond a certain point, each additional hour of work would be contributing to the output of the current day's total output but at the expense of the following day's output capacity; and
  
  
• the intensity of the work involved would dictate the point at which total output begins to fall and thus the length of the 'optimal' working day.
  

The second half of this argument explores whether the free market can arrive at the 'optimal' length of day, and can be summarised as follows:

• the maintenance of a long-term optimum by employers would require short-term restraint;
  
  
• each individual employer could never be certain of reaping the benefit of their restraint as another firm could potentially entice the employer's well-rested workers away with a wage premium;
  
  
• therefore the optimal output work time is a form of investment without equity;
  
  
• simultaneously, Chapman assumed that workers would choose a longer working day than was prudent (although not as long as the working day preferred by employers), primarily because of a general short-sightedness that would mean workers would consider their immediate earning capacity more than their long term earning capacity; and
  
  
• the outcome in a free market situation would therefore be one where employers and employees acting in self-interest would each tend to select a working day that was longer than the 'optimal' hours.

Flash: The Head of the Bank of England Confesses

"As I look back, it now seems that, with all the thought and work and good intentions, which we provided, we achieved absolutely nothing ... nothing that I did, and very little that old Ben did, internationally produced any good effect -- or indeed any effect at all except that we collected money from a lot of poor devils and gave it over to the four winds."



Boyle, Andrew. 1967. Montagu Norman (London: Cassell): pp. 327-38.

(Can't Stop) Endlessly Spouting Chapman

by the Sandwichman

Here's a shorter summary of the Chapman model, originally published in "The 'lump-of-labor' case against work-sharing: populist fallacy or marginalist throwback." from Working Time: International trends, theory and policy perspectives and reposted on MaxSpeak in 2006.

Chapman revisited the issue of the hours of labor in his presidential address -- delivered in Winnipeg, Manitoba -- to the British Association for the Advancement of Science, Section on Economic Science and Statistics (1909). That analysis came to be considered the "classical statement of the theory of 'hours' in a free market" (Hicks 1932: 102n.; Nyland 1989). Arthur Pigou restated Chapman's argument in Economics of Welfare (Pigou 1952; 462-469). Alfred Marshall referred to Chapman's analysis as authoritative, as did Lionel Robbins (Marshall 1961: 695; Robbins 1929: 25). Concluding his footnote reference to Chapman and Pigou, Hicks declared, "There is very little that needs to be added to the conclusions of these authorities." Very little, perhaps, other than the strange occurrence that although Chapman's argument has never been challenged, economists today are oblivious to its major conclusions. Most are unaware not only of the theory's authoritative status but even of its existence.

Unlike [John] Rae, Chapman saw no particular danger in workers' views -- "fallacious or otherwise" -- about the mechanics of distribution (Chapman: 365). On the contrary, Chapman suggested that such attitudes probably had protected workers "against the injurious consequences of short-sightedness."

Chapman began his discussion of the hours of labor by reviewing the mass of evidence that reductions in the hours of work had not led to proportionate declines in output. Chapman attributed the phenomenon to the fact that as production methods become more intensive, workers require more leisure time to fully recover from the fatigue of work. He emphasized that in modern industry fatigue was increasingly psychological, resulting from the demands of modern industry for specialization and mental concentration as well as from the workers' attitude toward leisure rather than from the strictly physiological demands of the work. 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.

The total value of the output from standard working days of different lengths would thus initially increase as the day became longer but eventually the total output -- not only the output per hour -- would decline as the standard day became too long to allow the worker to recover sufficiently from fatigue. Beyond a certain point, each additional hour of work would continue to add a quantum of output to the current day's total output but only at the expense of reducing the next day's hourly pace. What that point was, Chapman maintained, depended on the intensity of the specific production methods and thus would vary in response to changes in those methods.

Having established the idea of an optimal length of standard working day that would maximize output, Chapman next turned to the questions of whether such an optimal length would likely be established by the workings of a free market and whether the optimal length of day for output coincided with the optimal length from the perspective of the workers' welfare. His conclusions in both cases were negative.

From the perspective of the employer, Chapman argued, the optimal length of day for output could only be achieved if all employers acted in enlightened accord. This is because the maintenance of the long-term optimum would always require some short-term restraint. A single employer could never be entirely certain of reaping the benefit of that restraint. Another firm could always potentially offer a small wage premium and hire away the first firm's well-rested workers. For employers, the optimal output work-time would thus be a form of investment without equity:

The reforming employer would run the risk of paying the whole cost of the labour value created by shorter hours and getting little in return; other employers might secure and exhaust the new labour value and no permanent good would be effected (1909: 361).

From the perspective of the worker, the optimal length of day could, for all practical purposes, be considered to be shorter than the optimal length of the day for output. Chapman considered three elements in assessing the optimal day for the worker:

1. the wage, which Chapman assumed for the purpose of analysis to exactly equal the worker's marginal productivity;
2. the marginal value of leisure, which Chapman assumed to vary in response to changes in the level of wages; and
3. the disutility of work, which Chapman assumed to also be a function of the length of the working day -- during some intermediate period of the working day, Chapman assumed that work could often be experienced as pleasurable.

Chapman maintained that in forming their ideal of a working day, workers' would disregard the effects of changes in work time on efficiency, and hence on wages. As a consequence they would tend to prefer a working day longer than would be prudent in the long run, even though it would not be as long as that preferred by employers acting competitively. Thus the exclusive concern of both employers and workers with immediate self-interest would bias the preferences of each toward longer than optimal hours (1909: 367).

In the two decades following Chapman's address, his demonstration of market failure in the determination of working time led to systematic empirical study of the relationship between fatigue and work intensity. According to Nyland (1989), however, attention to the question of work intensity faded during the 1930s and after, largely because "the fact that worktime had both a temporal and intensive character made it difficult to utilise marginal productivity theory to determine the return on various factors of production" (1989: 33). As a simplifying abstraction, economists assumed that the given working day was of optimal length. Eventually, the hypothetical -- and antithetical -- status of that assumption came to be overlooked. Economists negligently reverted to a pre-Chapman faith that unencumbered market forces would spontaneously lead to the establishment of an optimal length of work time.

What "Academic Standards"?

by the Sandwichman

Posner writes at the end of his column:

This raises the question of the ethical responsibility of academic economists... who write for the media or join the government, either to adhere to academic standards in their nonacademic work or to make clear to the public that they are on holiday from those standards.

Sandwichman would like to know just what academic standards these are? Academic economists make shit up all the time, both in their nonacademic work and in their academic work. The only academic standards I know about for academic economists is "don't rock the boat" and "go along to get along".

Be that as it may, below is an as yet unanswered email the Sandwichman sent two days ago to David Ellwood, Dean of the Harvard Kennedy School of Government regarding "the question of the ethical responsibility of academic economists":

Dear Dean Ellwood,

I note that the Harvard Kennedy School website has posted Professor Edward Glaeser's Boston Globe op-ed from August 8. While I welcome Professor Glaeser's viewpoint and substantially agree with his argument regarding the efficacy of the Cash-for-Clunkers program I am writing to inform you that Professor Glaeser's piece also contains a egregious item of misinformation and misrepresentation with reference to the so-called "lump-of-labor fallacy", the alleged motives for recent policy initiatives in Europe regulating the hours of work and the outcomes of those policy initiatives.

I have extensively researched the quasi-fraudulent nature of the lump-of-labor fallacy claim and have published the results of my research in two scholarly publications, one in a peer reviewed journal, the Review of Social Economy and the other in the anthology, Working Time: International trends, theory and policy perspectives, edited by Lonnie Golden and Deborah M. Figart. I should point out that my 2007 article, "Why Economists Dislike a Lump of Labor" received over 400 abstract views last month making it the top ranking article in that category on the Research Papers in Economics website. Below is the abstract for that article:

"The lump-of-labor fallacy has been called one of the “best known fallacies in economics.” It is widely cited in disparagement of policies for reducing the standard hours of work, yet the authenticity of the fallacy claim is questionable, and explanations of it are inconsistent and contradictory. This article discusses recent occurrences of the fallacy claim and investigates anomalies in the claim and its history. S.J. Chapman's coherent and formerly highly regarded theory of the hours of labor is reviewed, and it is shown how that theory could lend credence to the job-creating potentiality of shorter working time policies. It concludes that substituting a dubious fallacy claim for an authentic economic theory may have obstructed fruitful dialogue about working time and the appropriate policies for regulating it."

After I read Professor Glaeser's op-ed in the Boston Globe, I emailed him offering to debate hiim on his lump of labor assertions. I received no reply. I also wrote a an op-ed article in response and sent it to the Boston Globe. I have also received no reply from the Globe. I am writing to you to request that, in the interest of balance and of critical scholarship, you post and publicize my response to Professor Glaeser's lump-of-labor claims on the Kennedy School website. I am pasting the text to that response below. I look forward to your positive response to this request.

Yours sincerely,

Tom Walker

----------------------------
Professor has 'lumpy' reasoning

Do Europeans really harbor an uncanny delusion that there is a "fixed amount of work to be done?" Do the resulting policies they espouse discourage hiring and reduce employment? That's the verdict pronounced by Harvard Professor Edward Glaeser. In an op-ed published last week in the Boston Globe, Professor Glaeser claimed that European policies restricting working hours are based on a lump of labor fallacy and are detrimental to employment.

Glaeser's parroting of the hoary fallacy claim is ill informed – and callous. The allegation has a curious history, originating as a yarn about workers' propensity to withhold work effort and evolving into reactionary textbook dogma about the futility of combating unemployment through reducing the hours of work.

One problem with the fallacy story is that there is no evidence for it or credible theory behind it. Unless, that is, countless repetition of unsubstantiated and implausible assertions counts as both theory and evidence. Here is some history:

In 1891, British lawyer and journalist, David Schloss, coined the phrase, "the theory of the lump of labour" – and decried it as a fallacy – in an article discussing workers' objections to piecework. As applied to shorter hours and unemployment, the theme originated with a Scottish journalist, John Rae, a proponent of shorter hours. Because reducing hours raised productivity, Rae discounted it as a remedy for unemployment. An American economist, Charles Beardsley, soon demonstrated Rae's argument to be inept.

At the turn of the twentieth century, the National Association of Manufacturers, under its militantly anti-union president, David Parry, raised the fallacy claim (minus the productivity gain) as its battle cry in the fight against legislation to establish an eight-hour day for government contractors.

In 1902, a U.S. Industrial Commission, appointed by Congress, concluded that, "there can be no question respecting the desirability of fewer hours, from every standpoint… arguments for reduction need no qualification from the standpoint of the workers and little from that of employers." John R. Commons, a founder of American labor economics, was principal researcher for that commission.

On August 26, 1909, Sydney Chapman presented what came to be regarded as the definitive theory of the hours of labor for neo-classical economics. Chapman's theory affirmed and gave algebraic expression to the conclusions of the U.S. Industrial Commission. Such notable economists as Alfred Marshall, Cecil Pigou, Lionel Robbins and John R. Hicks lauded Chapman's theory as authoritative.

In 1926, automaker Henry Ford introduced a five-day, forty-hour week in his factories. His rationale echoed arguments for shorter hours articulated some 60 years earlier by labor organizer Ira Steward. Six years later, at the height of the depression, economist Dorothy W. Douglas praised Steward's theory as "a philosophy of American wages and unemployment that sounds strangely apposite today." What most impressed Douglas was Steward's argument that long hours, low wages and unemployment lay at the root of economic depression.

Meanwhile, opposition to the Black-Connery thirty-hours bill came from 'orthodox' economists who also insisted that the proper way to stimulate economic recovery was to cut wages and slash government spending – positions few economists today would endorse. In 1937, the NAM – reversing itself to claim credit for an outcome it had long and adamantly opposed – erected billboards across the U.S. boasting the "world's shortest working hours" as the free enterprise fruit of the "American Way."

Toward the end of World War II, John Maynard Keynes wrote to the poet, T.S. Eliot, explaining that "the full-employment policy by means of investment is only one particular application of an intellectual theorem" and that the "ultimate solution" for unemployment was working less. Keynes had outlined these views two years earlier in a Treasury Department memorandum on "The Long Term Problem of Full Employment."

The above is only a sampling. Nevertheless, first-year economics students are diligently taught to "refute" a fallacy almost no one actually upholds. Never mind the allegation itself is bogus, incoherent and obstructs thinking about how to combat unemployment.

In the world outside Professor Glaeser's Harvard classroom there were 35,000 fewer private sector jobs in the U.S. in July 2009 than there were ten years earlier. One would hope economists would climb down from their lofty pulpits long enough to check their facts – and their dogmas.

Tom Walker
Vancouver, BC, CANADA

Tom Walker is author of two historical studies: "The 'lump of labor' case against work-sharing: populist fallacy or marginalist throwback?" and "Why Economists dislike a lump of labor."