Only So Much To Go 'Round

The Sandwichman commented the other day on The Economist article, "Britain’s Green Party proposes a three-day weekend." Regrettably, though, I didn't pay much attention to their "rebuttal" to the alleged assumption of a fixed amount of work:

In fact, if people worked fewer hours, demand would drop, and so fewer working hours would be on offer.

I have seen stupid explanations before of why there is not a fixed amount of work. Layard, Nickell and Jackman argued that if work time reduction and redistribution succeeded in reducing unemployment, it would be inflationary and that would probably cause the central bank to intervene to re-establish the "non-accelerating inflation rate of unemployment." That's pretty stupid but not nearly as stupid as what The Economist article claimed as "fact." Pardon me for repeating the whole dreadful argument:

The Greens’ proposals encounter two problems. First, the theory. They argue that the reduced hours worked by some could be redistributed to others in order to lower underemployment. They thus fall prey to the “lump of labour fallacy”, the notion that there is a fixed amount of work to be done which can be shared out in different ways to create fewer or more jobs. In fact, if people worked fewer hours, demand would drop, and so fewer working hours would be on offer.

According to the above, the Greens "argue that the reduced hours worked by some could be redistributed to others in order to lower unemployment." So the idea is that a given number of hours of work could create more jobs if each person worked fewer hours.

For example, if there are 100,000 people employed 40 hours a week and 25,000 unemployed, you could, ceteris paribus, employ all 125,000 people for 32 hours a week. That is admittedly a very big ceteris paribus, but the argument is clear for illustrative purposes. In spite of using the number in the example, there is no assumption --implied or otherwise -- that there actually are "4,000,000 hours" of work to be done. Likewise there is no assumption that the actual number of hours of work to be done, whatever they may be, is unchanging.

But in addition to reprising the straw man attribution of  a "notion that there is a fixed amount of work to be done," the Economist article introduces an innovation in stupidity: using the same example as above, the hours of the 100,000 employed people cannot be redistributed because... they vanish! If the hours of 100,000 employees are reduced from 40 to 32, then aggregate hours of work are reduced accordingly from 4,000,000 to 3,200,000. The 100,000 employees have less money to spend and demand falls correspondingly.

But, using a similar logic, presumably those 100,000 employees commute to work. At some point in their trip, they are half-way between home and work. Later, they are half-way between work and the half-way point from home to work. And so on. They will never get there!

War is the Health of the State

Excerpts from Randolph Bourne's The State:

War is the health of the State. It automatically sets in motion throughout society those irresistible forces for uniformity, for passionate cooperation with the Government in coercing into obedience the minority groups and individuals which lack the larger herd sense. The machinery of government sets and enforces the drastic penalties. The minorities are either intimidated into silence, or brought slowly around by subtle process of persuasion which may seem to them really to be converting them. Of course, the ideal of perfect loyalty, perfect uniformity is never really attained.  

War is the health of the State. Only when the State is at war does the modern society function with that unity of sentiment, simple uncritical patriotic devotion, cooperation of services, which have always been the ideal of the State lover. With the ravages of democratic ideas, however, the modern republic cannot go to war under the old conceptions of autocracy and death-dealing belligerency. If a successful animus for war requires a renaissance of State ideals, they can only come back under democratic forms, under this retrospective conviction of democratic control of foreign policy, democratic desire for war, and particularly of this identification of the democracy with the State. 

War is the health of the State and it is during war that one best understands the nature of that institution. If the American democracy during wartime has acted with an almost incredible trueness to form, if it has resurrected with an almost joyful fury the somnolent State, we can only conclude that the tradition from the past has been unbroken, and that the American republic is the direct descendant of the English State. 

And what was the nature of this early English State? It was first of all a medieval absolute monarchy, arising out of the feudal chaos, which had represented the first effort at order after the turbulent assimilation of the invading barbarians by the Christianizing Roman civilization. ... The modern State begins when a prince secures almost undisputed sway over fairly homogeneous territory and people and strives to fortify his power and maintain the order that will conduce to the safety and influence of his heirs. The State in its inception is pure and undiluted monarchy; it is armed power, culminating in a single head, bent on one primary object, the reducing to subjection, to unconditional and unqualified loyalty of all the people of a certain territory. This is the primary striving of the State, and it is a striving that the State never loses, through all its myriad transformations. 

... 

The President is an elected king, but the fact that he is elected has proved to be of far less significance in the course of political evolution than the fact that he is pragmatically a king. It was the intention of the founders of the Constitution that he be elected by a small body of notables, representing the ruling propertied classes, who could check him up every four years in a new election. This was no innovation. Kings have often been selected this way in European history, and the Roman Emperor was regularly chosen by election. That the American President’s term was limited merely shows the confidence which the founders felt in the buttressing force of their instrument. His election would never pass out of the hands of the notables, and so the office would be guaranteed to be held by a faithful representative of upper-class demands.

Thank God it's Boilerplate Thursday and The Economist is Lumping its Labour

The Economist and Jonathan Portes are at it again. "Lump of labor! Lump of labor!" The occasion? A proposal for a four-day workweek announced by the U.K. Green Party at their convention this week in Liverpool.

The Economist pretended to find "two problems" with the Greens' proposal:

The Greens’ proposals encounter two problems. First, the theory. They argue that the reduced hours worked by some could be redistributed to others in order to lower underemployment. They thus fall prey to the “lump of labour fallacy”, the notion that there is a fixed amount of work to be done which can be shared out in different ways to create fewer or more jobs. In fact, if people worked fewer hours, demand would drop, and so fewer working hours would be on offer. 

Second, the cost. Increased productivity could cover some of the costs of paying a five-day wage for a four-day week, suggests Sarah Lyall of the New Economics Foundation, a think-tank. She points to a Glasgow marketing company that did just that, and experienced a 30% leap in productivity. But that is an astonishing increase to expect across the board.

First the theory: why does the idea of redistributing work require a "fixed amount of work to be done"? I can cut up a pie in many different ways. I can also cut two, three, many pies in different ways. In what sense does redistribution imply a constant amount? It doesn't.

Furthermore, what does The Economist mean by "fixed"? The word seems to refer to a constant or unchanging amount. It is unlikely that it means "repaired," as in the amount of work used to be broken but now it is fixed." But there is third possible meaning of fixed that is very significant: a quantity that is determined or regulated by a proportion. Here is an example of this usage from a 19th bankers' magazine: "it is the proportion between supply and demand that fixes the price of the metal." Here is another example: "the market price of cotton is fixed by the proportion between the demand and the supply." A third example: "It has been always understood, that the price of commodities is fixed by the proportion between the demand and the supply."

The word "fixed" thus has a well-established place in partial equilibrium analysis. It refers to a proportional relationship between supply, demand and price. Thus a "fixed amount of work to be done" could conceivably refer to a variable quantity whose variation is regulated by the wage rate. This, of course, is the (partial equilibrium) argument trotted out perennially by opponents of the minimum wage. This is also the logic behind the argument that markets are self-adjusting and will clear, provided that prices are flexible.

It short, the lump-of-labor "fallacy" claim hinges on a deceptive ambiguity. It is a bamboozle. But apparently not enough of a bamboozle for The Economist, which doubled down with a second sleight of rhetorical hand, "the cost." The Greens' argument was that productivity could cover some of the cost. The New Economics Foundation cited an exemplary productivity gain of 30% at a Glasgow marketing company. The Economist harrumphed the whole argument away by sneering that it is "an astonishing increase to expect across the board."

Did anyone claim that such an increase was expected across the board? No. Would such an increase across the board be needed to cover some of the cost? No.

Could Incompetence Lead To Reelection?

I know, I know, it is way too early to talk about the presidential election of 2020, so maybe this is more relevant to midterms, and more likely it is just something merely momentary.  Nevertheless, it occurs to me that the increasingly apparent incompetence of our current president could possibly play into helping him get reelected in 2020.

His incompetence is manifesting itself substantially in his inability to achieve many of the things that he campaigned on most loudly, including repealing and replacing Obamacare, introducing massive trade protectionism, sharply cutting taxes for the rich, and sharply stopping immigration. Of course his new administration, which included probably the most incompetent, insane, and corrupt set of cabinet secretaries and other officials in US history, are doing and will be doing things that will be terribly damaging to American society on many fronts, including the environment, education, womens' rights, the arts, financial market stability, minority rights, and a long list of others, with many of these very important.  The Trump administration is doing and will do a great deal of damage.  But none of  these were really red meat headline issues in his campaign.  They were not the items that got his angry mobs at rallies chanting and yelling and more generally making public fools of themselves while scaring much of the rest of the population.  Those issues were the ones I mentioned up front, the ones that Trump seems so far not to be actually doing much about after all the ranting and raving.

So how could this incompetence-fueled failure aid his possible reelection? At least two reasons.  The first is that succeeding with some of these could really seriously hurt lots of people, including in some cases especially his own supporters, who might then become unhappy with him if this happened, even though so far polls show most of his supporters supposedly sticking with him even when they hear that he might do something that might hurt them personally.  They either do not believe that he will or think that his policies will hurt others they do  not like more.  In any case the poster boy for this is certainly the health care issue.  Trumpcare has proven to be unpopular and Obamacare now finally has a majority supporting it.  Lots of people have figured it out that they might get hurt if that campaign promise were kept to repeal and replace.  So the upshot is that people do not get hurt and become angry at him.

On immigration and trade policy, these would have mixed effects, but there certainly would be economic damages from seriously enforcing either of them, especially immigration policy, and there already appears to be some damage coming from some of that even indirectly, such as the likely fall in foreign tourists coming to visit the US and also  an apparent likely decline in smart foreigners applying to attend US universities, with probably fewer of them than sticking around later to be innovative and job-creating entrepreneurs.  But for the moment the attention is on all  those judges knocking down Trump's efforts to simply ban people from certain countries entering the US.  But probably these damages will not be noticed that much by the majority of Trump supporters.

So, assuming that all this would continue, which it may not as he may get his way on some issues where he has not so far, with cutting taxes for the rich the most likely to get through at least in part,  how does this help his reelection campaign?  Because he can run again on these same old issues, complaining about all those judges and Democrats and bad Republicans who did not help him get them passed.  Maybe he will drop pounding on Obamacare if  it gets even more popular, but, heck, on immigration and trade for sure he could get back to ranting his red meat and getting those angry mobbing troops chanting and screaming again.  Hate the terrorist foreigners who are taking away our jobs!  It could well work again, especially given that a lot of his supporters seem not to be able to add two  and two and avoid getting five.

Barkley Rosser 

Mixed Methods Forecasting

There’s a nice piece up today at Bloomberg by Noah Smith on the utter failure of macroeconomists to develop a functioning forecasting model.  Complex models can be calibrated using past data but fail out of sample going forward.  The literature Smith cites doesn’t look at heterodox models (all those stock-flow consistent entries), but I’d wager they’d fail the same tests.

My take—aside from a general disbelief in the theory that underlies DSGEism—is that the objective is unrealistic.  I can’t imagine there will ever be a single model that does what we want for forecasting.  What I can imagine is a set of models that do the job, providing you know which model to call on when.  That ability to size up a situation, see what’s important and pick the model appropriate for it, relies on judgment, a qualitative assessment of a single, immensely complex moment.  Judgment can’t be bottled and marketed as an off the shelf model; it’s a different kind of process.  But it can be learned, more or less the way it’s learned in other realms of life, through apprenticeship, practice and reflection.

Think of a medical analogy.  Would you want to replace an MD (or PA or NP) with a machine that followed algorithmic instructions to diagnose patients and prescribe treatment?  (This is not a hypothetical question; we’re on the cusp of doing something like this.)  I’d say, in general, no.  There is a valuable role for all sorts of tests and decision algorithms based on them.  In the end, however, care will still be better if a knowledgeable human assesses the overall condition of a patient and turns to the diagnostic models that seem to make the most sense under the circumstances—and then interprets the output to see if it still makes sense.  Maybe at some point in the future AI can completely replace human judgment, but I wouldn’t go there yet.

An economy is even more complex than a single human body (from a treatment/intervention point of view), there are vastly less observations to calibrate on, and AI, as represented by economic models, is still further from displacing qualitative assessment.  What’s needed is a mixed approach.

Why Economists Are Bad At Economics

If you want an informed, thoughtful analysis of the effects of robotization on productivity, investment, employment and wages, ask an art school professor. Jason E. Smith's two-part series, "Nowhere to Go: Automation, Then and Now," (part one and part two) at Brooklyn Rail cuts through all the statistical aggregation category errors to highlight the accumulation dilemma that economists just don't seem capable of either grasping or admitting.

Current speculations on both the promise and threat of automation are confronted with an ongoing crisis of accumulation. In this climate, a fragmentary implementation of automation is unlikely either to liberate large fractions of humanity from work, or produce mass unemployment of the sort envisioned over and again by commentators for the past century.

Smith has a PhD in comparative literature, which perhaps explains why he can tell the difference between an arbitrary catch-all term like "service sector" and the very different and distinctive components that are lumped together in it. Both promise and threat evaporate when the components are dis-aggregated and the jumble untangled. Definitely worth a read.

Fascism And You Know Who (YKW)

[from when the Italian Fascist government was 'but a few years old"]

"The Secretary of the Fascist Party visits a large factory, accompanied byt the obsequious company director.  At the end of the tour all the workers are massed in the yard to listen to a speech. Before addressing them the Fascist chief looks them over proudly from his podium and asks the director: 'What are these people's politics?' The director answers: "One-third of them are Communist, one-third Socialist, and the rest belong to several small parties.' The Fascist's face turned livid. 'What?" he cries, 'And how many of them are Fascist?'  The director reassures him quickly: "All of them, Your Excellency, all of them.'"

Luigi Barzini, The Italians, 1965, pp. 225-226.

I shall simply list a bunch of characteristics associated with fascism and see how YKW (He Of Whom We Cannot Speak) fits as of now, an ongoing situation as it were.  So my list would include extreme nationalism, militarism, racism, sexism (and homophobia), left-right populism ultimately going right, mixed relations with organized religion, building infrastructure, control of arts, megalomania, dictatorship, and suppression of human rights.

1. Extreme nationalism.  YKW seems to fit the bill here. Totally.

2. Militarism.  It would seem that he does here too, proposing a $54 billion increase in the military budget even as he proposes slashing most other parts of the budget to the point of eliminating completely some agencies.  OTOH, he claimed to be anti-Iraq war (although he supported it initially) and campaigned on how he would pull US out of Middle East conflicts. So far looks  like he is going the other way, sending more troops to Syria, Iraq, and Afghanistan, if not yet going off the deep end, although making loud noises towards North Korea, and China, if not Russia.  Also, OTOH, he has never served in the military personally, indeed got out of Vietnam War service due to an obviously phony claim about some foot spur that just disappeared conveniently.  He does not himself seem into wearing military uniforms and strutting about like Mussolini and some others have done.  But he has also  appointed more generals to high positions in his administration than we have ever seen in US history, and weirdly enough many of us are counting on them to be Voices Of Reason in this completely wacko and incompetent administration.

3. Racism.  His dad was arrested in a KKK demo back in the 20s or thereabouts, and among Trump's first business activities were managing housing complexes that were convicted of racial discrimination, not just once but twice.  His whole history stinks of racism, although it looks like he is more anti-Hispanic and Mexican in particular than anti-black, although the family KKK history is certainly the latter.  I mean he does keep Ben Carson around a few other friendly African-Americans, but Hispanics of any sort are very hard to find in this admin, and his anti-Mexican screeds, attitudes, and policies seem deep-died, with his ridiculous campaign to "build that wall" one of the few things he seems to be really set on, although he may yet not be able to get funding for it from Congress.

4. Sexism (and Homphobia).  Well, quite aside from all his notorious "grab..." quotes and wandering through the dressing rooms to see scantily clad teenage girls during some of the events he has hosted over the years, and despite some token stuff about child care that favored daughter Ivanka managed to talk him into (not likely to go anywhere in current Congress), he seems to be playing into current views on Planned Parenthood  and so on of the current GOP.  On LGBTQ he has played a bit of a mixed game, again with perhaps Ivanka and Jared trying to hold him back as well as the fact that obviously all those years in NYC and show biz has left him with many gay acquaintances, he seems in the end to  siding with the traditional GOP conservative view, even if  the Log Cabin Republicans supposedly find some things to like about him.  Anyway, very sexist, although not pushing a fully classic kinder, kirche, kuche line (a kkk rather than a KKK).

5. Left-Right Populism Ultimately Going Right.  Yes, this is certainly a forte of his, dragging those poor sucker coal miners to stand with him while he trashes environmental policies when we all know that there will be no new coal jobs in the US probably ever simply due to market forces, definitely reinforced by his anti-enviro policies, especially not slowing fracking, which is what  has given us cheap natural gas, which has become the death knell for the coal industry.

The other aspect of this is of course the trade issue, and certainly on this we have portions of the old midwest manufacturing working class that he is appealing to and has made moves to please, at least with his withdrawal from TPP, even if  other moves to protectionism are floundering in his ongoing incompetence.  Will there be a major restructuring of NAFTA?  Will there be a trade war with China?  I don't know, but increasingly it looks like probably not, but who knows?

As for Going Right, well, traditional fascists tended to appoint their party hacks who came up through the ranks with lower class backgrounds (like Mussolini and Hitler themselves) and their cronies, who would go all corrupt once they got government positions.  But with spoiled brat YKW who would be wealthier by all reports if he had simply reinvested and sat on his inheritance, we have the biggest flood of full out billionaires into top positions we have ever seen, with many of them apparently amazingly incompetent on top of all their money (see DeVos).  Libertarians like to argue that the fascists and Nazis were socialists because, well, the fascists did nationalize some industries, and "Nazi" is short for "National Socialists," although the Nazis did not nationalize companies and were quick to make friends of big business such as I.G.Farben, even if big business had not been among their original supporters, who were,  well, little guy populist suckers, just like those supporting YKW.

5.  Mixed Relations With Organized Religion. For classical fascists this has largely meant the Roman Catholic Church, although in Germany Hitler had a stronger base in the Protestant rural North than in the Catholic South, even though his initial base was uber-conservative and Catholic Bavaria.  Mussolini was initially anti-Church, and the Nazis long pushed their pseudo-Wagnerian neo-paganism, even as Wagner himself ultimately went with the Church in his final opera, Parsifal. Certainly the softer fascists in Spain and Latin America have tended to side up with reactionary elements in the R.C. Church, and in the end Mussolini made peace with the Church in the 1929 Lateran treaties, aka "Concordat," that settled relations between the Church and the Italian state, a deal that still holds today (Barzini credits Mussolini with this, saying it is the one clearly good thing he did).

This is harder to call because Protestanism is more important in the US than Catholicism.  Like the old fascists it looks like YKW is really not very religious, if not openly anti-religious in the way Mussolini was for awhile.  But he has made peace with the US conservative religious establishment, with so-called Evangelicals among his strongest supporters in the election, as well as conservative elements in the Catholic Church, as well as Orthodox Jews.  He has clearly set himself up against the liberal Pope Francis, with his alt-right de facto fascist adviser, Steve Bannon, openly involved in an effort to combat the current pope.  So, he has allied himself pretty firmly with traditional religion.  No wonky neo-paganism for him.

6. Building Infrastructure.  Ah yes, a classic fascist fixation given their fixation on Ancient Rome, which did a good job with infrastructure.  On this YKW has talked a lot, although the rumbles have involved silly stuff such as tax breaks to private companies to privatize infrastructure.  Given his massive incompetence, for better or worse his talk about a big infrastructure program looks like it is going nowhere.  This is one area where maybe we would wish that he was more of a "good fascist" than he is.  I mean, Mussolini did make those trains run on time, more or less. Looks like YKW could care less.

7.  Control of Arts. Classical fascists would ban certain types of art and push certain other types that they viewed as building up the nation and state.  YKW has proposed simply eliminating funding for NEA, no more Big Bird, so it does not look like he is out to Control Art, although clearly he simply does not care about it all, major vulgarian that he is.

8. Megalomania.  Yep, like nationalism, this one YKW has in spades.  It  is All About Him.

9.  Dictatorship.  Thankfully this is  one area where he has run into  a brick wall thanks to the US constitution and judicial system, at least so far.  He obviously has fascistic tendencies and would really like to just be able to order people to do what he wants and have them do it. After all, this is a CEO view of the world.  The real question will be if he ends up pulling a Reichstag Fire routine and uses some incident, cooked up or  not, to declare martial law, and if he does so, will he get away with it. If he does, well, then we shall have the full monty fascism here in the US.  If he is held back by the courts, his incompetence, or whatever, well, for all his tendencies, we shall fortunately hold back from full out fascism.

10.. Suppression Of Human Rights.  This is obviously tied to the previous one as the really serious suppression of human rights that we saw in classical  fascism with death camps and all that came with dictatorship.  But even without that his racist-motivated anti-immigrant push has been one of the few things that he has seemed really into pursuing vigorously, even as he has run into road blocks from the courts on some of  his initiatives. But in terms of horrifying episodes happening since he became president, the worst have involved deportations and people being held trying to enter the country, including people with a full right to do  so.  YKW may not (yet) be a full blown fascist, but in this particular area his fascistic tendencies have probably shown their fullest and most egregoius manifestations.  Let us hope that it does not get worse.

Barkley Rosser

Addendum:

One point I missed is that of the economic policy labeled "corporatism," which both Mussolini and Hitler officially subscribed to.  Aspects of it were described above in the part about "left-right," but it should be commented on.  While both of them came from anti-clerical initial positions, corporatism as a term and a concept came from the Roman Catholic Church in the late 19th century in reaction to  the socialist movements of the time.  The idea was that the class conflict was to be overcome or subsumed in a national unity that would involve state-private interaction within the moral codes of the Church.  This implied that some bones should be thrown to  the workers, underlying the "left" part of the appeal, although in practice under fascism unions were suppressed as the state claimed to speak for the workers.  There was also much state interference in the private  sector, often to support national leading companies, but in some cases more directly,with Mussolini nationalizing some industries and Hitler through Hjalmar Schacht instituting command central planning, although firms remained privately owned, hence formally capitalist.


Another area where YKW does not resemble these  earlier leaders is that he is personally wealthy and out to add to that in office in violation of the emoluments clause of the constitution and in a way unprecedented in US history.  Thus he resembles more the recent buffoonish Italian leader, Silvio Berlusconi more  than the officially poor Mussolini and Hitler, even if they did have lavish lifestyles while in power.

The Intersectionality that Dare Not Speak Its Name

The New York Times ran a Nate Cohn piece today that epitomizes the way conventional liberals spin American politics.  On the one hand we have the turnout and voting preferences of people of color—blacks, Hispanics, Asian-Americans.  On the other we have whites and, in particular, the white working class.  Not much happened in the 2016 presidential election on the POC side, says Cohn; nearly all the movement was among working class whites.

I suppose it’s good that political discourse can now acknowledge the presence of a working class, at least where white people are concerned.  Wouldn’t it be nice if they allowed people of other hues to be workers too?

Seriously, what’s the basis for dichotomizing the political terrain into race versus class?  Why not examine not just white workers, but workers?

The issue is not simply how many nonwhite workers switched their vote to Trump or waited out the election altogether.  The starting point should be that Trump ran the most openly racist presidential campaign since George Wallace, and this should have cost him big time among all the groups he disparaged—but it didn’t.  So let’s do a class breakdown for nonwhite voters the way it’s now becoming fashionable to do for whites.  How did Clinton do with working class black and Hispanic voters compared to more affluent POC?  How does adding the nonwhite slices of the electorate change how we assess the role of the working class as a whole in electing Trump, if at all?

The working class is multiracial, and it is also a working class.  There’s nothing either/or about it.

Say's Other Law: "Misery is the inseparable companion of luxury"

It was a dark and stormy global night economy and a spectre task was haunting facing Europe...

A new supply-side agenda for the left

The task facing Europe is to meet the challenge of the global economy while maintaining social cohesion in the face of real and perceived uncertainty. Rising employment and expanding job opportunities are the best guarantee of a cohesive society. 

The past two decades of neo-liberal laissez-faire are over. In its place, however, there must not be a renaissance of 1970s-style reliance on deficit spending and heavy-handed state intervention. Such an approach now points in the wrong direction.  

Our national economies and global economic relationships have undergone profound change. New conditions and new realities call for a re-evaluation of old ideas and the development of new concepts. 

In much of Europe unemployment is far too high - and a high proportion of it is structural. To address this challenge, Europe's social democrats must together formulate and implement a new supply-side agenda for the left. 

-- Tony Blair and Gerhard Schroeder, The Third Way/Die Neue Mitte, 1998.

In a 1981 review of George Gilder's Wealth and Poverty, Anna Weniger and Hank Robinson succinctly described "the essence of supply-side economics" as "simply a campaign to redistribute income from poor to rich, dressed in the garb of economic theory." Gilder's economic theory was fundamentally an affirmation of Say's so-called Law. "The essential thesis of Say's Law," he insisted, "remains true: supply creates demand. There can be no such thing as a general glut of goods."

I'm not going to bother trying to debunk supply-side economics. What would it take to change the mind of someone who "can't see what's wrong" with a theory about a monetary economy that is based on the assumption it is a barter economy? What would it take to change the mind of someone whose belief in the theory is intimately tied to their identity?

So let's assume that anyone I could persuade with the following argument is already inclined to agree with Weniger and Robinson's assessment of supply-side economics as mere pretext. Theoretical flimsiness is no problem for conservatives because the argument is, after all, consistent with their values and objectives. Supply-side rhetoric is their sales pitch.

But what about "the left"? If we take Blair's and Schroeder's representation of their position on the left at face value, the question arises of what in Hell did they think they were selling? A social democratic redistribution of income from the poor to the rich? It appears they were selling the supply-side rhetoric to themselves and to corporate media and campaign donors as "realism."

The old ideas that were thinly veiled ends in themselves for conservatives were to be repackaged as new concepts that would enable electoral success in an environment that was inhospitable to the Labour Party's own "old ideas." Whether the "new concepts" could somehow deliver social cohesion and expanding job opportunities as well as redistribution of income from the poor to the rich was seen by Third Way acolytes as strictly a matter of cleverness. Third Way proselytizers were supremely confident of their cleverness.

You Don't, Say?

On the assumption that those who believe Say's Law -- or those who cling to the argument as a ready-made justification for their preferred policy outcomes -- will not change their minds, I would like to present what might be described as Say's other law:

Misery is the inseparable companion of luxury.

A position Say proclaims "as false in principle, as it would be cruel in practice" is that misery and want are indispensable as incentives to work:

The apologists of luxury have sometimes gone so far as to cry up the advantages of misery and indigence; on the ground, that, without the stimulus of want, the lower classes of mankind could never be impelled to labour, so that neither the upper classes, nor society at large, could have the benefit of their exertions.

Of course the Third Way manifesto didn't overtly "cry up the advantages of misery and indigence." The phrasing was more subtle and nuanced:

But providing people with the skills and abilities to enter the workforce is not enough. The tax and benefits systems need to make sure it is in people’s interests to work... Part-time work and low-paid work are better than no work because they ease the transition from unemployment to jobs. ... The labour market needs a low-wage sector in order to make low-skill jobs available.

In short, there needs to be more low-wage jobs to transition people away from benefits and benefits need to be restricted so that they are not an impediment to people accepting low-wage jobs. Or, in blunter words, "without the stimulus of want, the lower classes of mankind could never be impelled to labour."

Say's "other law" appears in the chapter "On Consumption" in his Treatise on Political Economy; or the Production, Distribution, and Consumption of Wealth. Here's more:

Economics: Part of the Rot, Part of the Treatment, or Some of Each?

Is mainstream economics, with its false certitudes and ideological biases, one of the reasons for the dismal state of policy debate in countries like the UK and the US, or are its rigorous methods an important antidote to the ruling political foggery?  That’s being debated right now, live online.

Our starting point is a post on Unlearning Economics, dated March 5, which argues that the flaws of mainstream economics contribute to lousy policy on several fronts: downplaying the role of monopoly, cheerleading for the shareholder value imperative in the corporate world, knee-jerk support for trade agreements under the banner of comparative advantage, and regressive macroeconomic policy, among others.  A particularly pointed paragraph brought up the Reinhart-Rogoff 90% affair and accused the economics profession of dereliction of duty by not taking action to rebuke the wrongdoers:

Where was the formal, institutional denunciation of such a glaring error from the economics profession, and of the politicians who used it to justify their regressive policies?

UE’s conclusion is that mainstream economics needs to be taken down several notches, which would open more space for alternative approaches to economics and, indeed, alternative approaches to policy that place more weight on human outcomes, broadly understood, than the formalistic criteria of efficiency, etc.

Simon Wren-Lewis responded by arguing that UE has it exactly backwards.  Restricting himself to UE’s critique of macroeconomics, SWL says, yes, reactionary politicians have invoked “economics” to support austerity, but “real” economists for the most part have not gone along.  True, there were a few, like Reinhart and Rogoff and those in the employ of the British financial sector (“City economists”) who took a public stand against sensible Keynesian policies in the wake of the financial crisis, but they were a minority, and, in any case, what would you want to do about them?  Economists, like professionals in any field, will disagree sometimes, and having a centralized agency to enforce a false consensus would ultimately work against progressives and dissenters, not for them.  Let’s put the blame where it really belongs, says SWL—on the politicians and pundits who have brushed aside decades of theoretical and empirical work to promulgate a reactionary, fact-free discourse on economic policy.

Yes—but, adds Brad DeLong.  He largely agrees with SWL, but delves more deeply into the Reinhart-Rogoff affair.  He shows that, even without the famed Excel glitch, a cursory look would reveal that R-R were trumpeting nonexistent results:

• The 90% debt cliff was an artifact of the way R-R set up their bins.  Replace binning with a continuous relationship between growth and debt and the cliff disappears.

• The correlation between growth and debt supported no particular causal interpretation, and R-R provided no other evidence to support their particular causal argument.

• The correlation itself was so weak that the practical implication of R-R’s claim was nil.  Fiscal stimulus that could make or break a recovery was being rejected on the basis of future economic growth effects that would be too small to measure.

So the R-R claim that fiscal consolidation was necessary and urgent was unfounded from the get-go, and these two were both respected mainstream economists, so what can we infer?  DeLong’s takeaway is that economists do need to recognize that they operate in a political environment (the sewers of Romulus) in which their work will be seized upon by interested groups, with real practical outcomes.  In this situation, the profession as a whole has a responsibility to assess high profile but dubious work.  Although he isn’t explicit, my reading is that DeLong wants some sort of professional quality control, but not institutionalized in the way UE seems to call for.

I have a few points to make in addition to those already in the public stream (or sewer).  First, I think that, apart from the specific value of particular economic theories, there is a giant problem in mainstream economics resulting from a false certainty that the overarching theory, the economy as an arena in which agents are constantly maximizing subject to constraint, with their interactions entirely mediated by markets, is correct.  Believing they are operating within a correct framework, most economists grossly narrow the scope of the questions they allow themselves to ask.  This shows up in virtually every applied area, from the economics of the family, to industrial organization, labor markets, environmental problems, etc.  Just to take one example, consider the immense labor economists have put into estimating the social cost of carbon, as their primary instrument for “optimal” climate policy.  It’s true that one needs such a magnitude if the goal is optimality, but why is that the goal?  In the end, it’s because there’s no other model of decision-making: all agents are assumed to be constrained maximizers, and the public objective is simply to correct for the non-maximizing effects of an externality like greenhouse gas accumulation.  You can’t even pose a question like, what are the risks that a climate catastrophe will destroy the foundations of human civilization?  That’s not an assumption, that climate change will do this—it’s a question, which one could investigate.  Start with the social cost of carbon framework, and you will be sure not to ask it, or dozens of other questions about the meaning of climate risk for fundamental human values.  (Where in your integrated assessment models will you find the cost of cultural memory resulting from sea level rise and coastal inundation?)

The false certainty about core theory has in turn given rise to a pernicious tendency in econometrics to calibrate rather than actually test models.  This is true almost by definition in most structural econometrics: a set of equations is derived from theory, and their parameters are estimated from an available dataset.  This procedure makes sense if you know the structure is right, since you aren’t actually testing it.  Incredibly, the bar is lowered still further, since many theories remain in circulation even when their structural estimations fail out of sample or are inconsistent with one another.  There doesn’t exist in mainstream economics a culture of radical self-testing, since there is no professional cost to having one’s results disconfirmed by a subsequent study.  Hey, we’re all just playing with our models, which is OK since they follow the proper rules, with maximizing agents and everything.  The world of DSGE modeling is rife with this, but you’ll see the same thing in the micro world; it just hasn’t been called out as vociferously up to now.

So where do these biases come from?  What would need to be changed in order for mainstream economics to be a reasonably reliable, self-correcting body of knowledge?  I don’t have all the answers, but here’s a hypothesis: the simplistic, formulaic introductory economics course—the infamous Econ 101—has brainwashed not only generations of students for whom this is their only exposure to the field, but also generations of professional economists themselves.  The so-called “economic way of thinking” dished out to neophytes serves equally as the way sophisticates understand their own field of study.  The empirical basis for this claim is my own anecdotal experience working with economist colleagues in a number of educational and research institutions over the years.  I might have this wrong, but hear me out.

The first causal mechanism is selection.  After all, Econ 101 is where the light begins to glimmer in a few heads: hmmmm, maybe I should think about becoming an economist.  A professor (or grad student) is going on and on about rational this and optimal that, illustrated with simple geometry, and the beauty of it seizes upon some small proportion of the students scribbling notes.  Someone in this multitude is thinking, yeah, this is the real deal.  And that someone goes on to become an economist.

The second is the power of discourse.  Econ 101 introduces the framework and language economists use to think through the problems they’ll face further down the road.  Yes, they will complexify and qualify it as their knowledge deepens, but the fundamental terms are set in place.  Many of the framing effects are subtle: thinking of economic relationships solely as encapsulated in their moments of exchange, adopting a particular conception of rationality, etc.  This is not to say that there exists some mentally liberated existence beyond discourse and framing—hardly.  But mainstream economics is a discourse, and it has no self-awareness of it.  This is a problem because, for many of the practical areas economists get involved in, there are other, competing discourses (management, political theory, psychology, cultural and historical theories) that economists can barely perceive, much less understand.  These leads to the hermetic quality of economic practice that many have noted.

The third is the role of default assumptions.  Economics is a giant, multifarious discipline with lots of detailed, arcane specialties.  Some people spend their lives studying health care markets.  Others the economic impacts of immigration.  Or petroleum markets.  Or the effects of cash transfer programs in low income countries.  And so on.  In their own fields of specialization economists often develop complex understandings of the forces at play, and cross-disciplinary applied work with colleagues from other backgrounds is becoming more common.  (This contradicts what I just said about hermetic economics; it’s an evolving contradiction.)  One of the stock arguments of those who deny the existence of any mainstream at all is that if you look at these subfields you will see well-recognized scholars wielding all sorts of hybrid models, and there is truth to this.  But the process that gives us intensive specialization also gives us widespread ignorance of the specialization of others.  The economist who burrows deeply into markets for health services has to rely on a hazy sense of the rest of the discipline and how her work connects with it.  Where does that hazy sense come from?  To some extent (yeah, this is quite a hedge) it comes from Econ 101 or at most the field surveys undergraduates take in addition to their core requirements.  Consider a world in which there is a discipline like economics and four equally populated subdisciplines A, B, C and D.  All economists take Econ 101, after which they specialize in their own subdiscipline.  In 101 they learn that markets mostly work, agents are mostly rational, and economic policy is mainly about marginal tweaks to keep the machine humming.  Then they dive into their subdisciplines.  In A they learn that behavior is complicated, institutions matter, and markets are embedded, with contradictory impacts.  It’s all messy and fascinating, and it keeps them busy.  But the denizens of A believe, due to their initial training in Econ 101, that B, C and D, together the bulk of the discipline, are all basically variations on 101-ness, so they see their specific problems as exceptions to the general account of how the economy works.  And the same is true of the B, C and D tribes.  Each of them comes to understand how different their subdiscipline is from the norm laid forth in Econ 101, but also how these differences should be seen as exceptional.  Thus, taken together, the economics profession would simultaneously be creative and heterodox in its day-to-day work and rigid and orthodox in its general view of the entire field and the principles that ought to govern it.

So this has gone on rather long, hasn’t it?  My point is that, while SWL is right that there is a lot of work in economics that can be used as a resource for thinking clearly about making the world a better place, UE is right that mainstream economics is also a big part of the problem.  I agree with DeLong that the profession needs to take more seriously the problem that there are few if any professional incentives that lead economists to scrutinize their own work lest it be subsequently disconfirmed.  A false sense of having the correct overarching model, hammered out in Econ 101, pervades the entire field and undermines what ought to be the effects of the ongoing turn toward empiricism.  From the header: mostly rot, some treatment, could be more.

Complacency Or Community Commitment? Human And Social Capital Reconsidered

I have been poking at Tyler Cowen's recent book on The Complacent Class, along with those who have praised it unstintingly, with my main complaint being that what he calls complacency may really be fear.  In an exchange posted today between Tyler and Noah Smith at Bloomberg, Noah makes many of my points, saying that what people who are not moving or changing jobs are doing is seeking "safety and security," with "complacency" sounding like "blithe optimism." Tyler then admits that "many people are afraid," but then says that they are still complacent because they are not reacting "with urgency."  He also says that a lack of increased income volatility shows that they do not have reason to feel they are facing more risks than those in the past did, although it looks to me like the greater risks they face are more due to higher payments they must make for health or education rather than greater volatility of income.  But this is not what I want mostly to address here, at least further.

I wish to go back to the implications of people not quitting jobs and not moving as much as they used to. Rather than rerunning the fear versus complacency point, I want to think about how this relates to human and social capital accumulation.  In particular, I think  that while people may increase their individual human capital by moving around more, there may be an increase in social capital from people staying in one place more.  This greater social capital may result in more committing by people to the quality of their communities, more engagement in civic groups, and so  on.  It may be that the human capital part means that greater mobility improves economic growth, but this may be at the expense of better quality of life and other parts of economic growth associated with having high quality communities with high social capital.

Since I am setting up in effect a competition between human and social capital, I must admit that some of  the early work on these matters,  especially by sociologists like James Coleman and political scientists like Robert Putnam, initially argued that they were linked, that social capital enhances human capital.  Now I am not going to deny that. Certainly a person with a larger network of trusting acquaintances may be able to be more productive in their work and have essentially higher skills than someone who does not. Nevertheless, I am going to note how they may also be in conflict.

A crucial issue here involves externalities.  I  think that social capital involves and leads to more externatities than does human capital.  Or, even if I am wrong, they will involve different kinds of externalities.  So, someone who moves around a lot from job to job and state to state may well acquire more narrow technical skills that will lead them to earn more money and possibly produce more as well in their jobs than someone who stays in the same job in the same place.  Silicon Valley is full of people constantly changing their jobs, although this is a special case where while they change their jobs a lot, they do not move away, with this being a classic "industrial cluster" case, where the externalities involved mean that they must stay in the same location to get the full advantage of their human capital. Of course, we may also have the hard-to-separate out matter that those who do so  much moving and accumulating of human capital are more likely to be the ones with greater skills and education to begin with, compared to those who fearfully hang onto one job while staying in one place, and it may be that these latter are also  less able to provide all those community benefits associated with possibly accumulated social capital from staying where they are. Certainly we expect this to be true in very depressed communities with declining jobs.

The literature on social capital is voluminous, and there are competing definitions, with the leading candidates being generalized trust versus levels of civic engagement or membership in social groups.  Usually it is argued that these are correlated, but not necessarily.  Empirical  studies have tended to find the former to be more important for economic growth than the latter, as with the classic 1996 QJE paper by Knack and Keefer.  But either way, what is involved with social capital, especially "bridging" social capital that extends broadly and not just to others in a very specific social group, involves lots of externalities. And the  literature on how more social capital aids the building up of quality neighborhoods and communities is also voluminous.  It is also very much in the literature that this sort of social capital is accumulated, if you will, more by people staying where they are longer so  that they can establish these local networks and build up these groups, as well as  the trust involved in doing so.

I would note, that while we expect the high flying movers to have all  this productive human capital, there is also a benefit to firms of having people who stay with them, accumulating social capital within the firm, which in turn can enhance the human capital of those there, again given the externalities involved.  Indeed, this sort of view was part of what lay behind the old Japanese management practices, with lifetime employment in a firm a common practice, with this involving employees moving around from one type of job in the firm to another.  They gained much firm-specific human capital, rather than profession-specific human capital.  This is where we see this conflict between narrow human capital and social capital coming out.  It is true that lifetime employment in Japan has been declining, but the days when this was practiced was also the period when the Japanese economy performed most spectacularly.  There are clearly gains to firms and to society of having at least some people stay put where they are, although hopefully changing specifically what they are doing where they stay put.

I note a possible exception to all this that Tyler raises in his debate with Noah Smith.  He brings up one of  his favorite pet peeves to punch, the supposedly lazy, or now complacent, millennial without a job who sits at his (or occasionally her) parent's home playing video games.  I  must admit that such people are not going to be generating much social capital or go out and work in community organizations or civic groups probably very much.  However, it may be that this is somewhat of a caricature, and in any case, I would say that such people are more likely to be afraid than complacent, although I cannot say that for sure.

In any case, my argument here is not about unemployed video  game players, but about those who have jobs, but stay with them and in their communities.  They may contribute more and commit more to those communities and their social and economic development than do those high human capital people who are constantly moving from one job and place to another.

Barkley Rosser

Fifty Shades of Yellow? Post-Truth Then and Now

Simon Wren-Lewis can’t take it anymore.  I’ve just read his fulminations on the blatant dishonesty of right wing media outlets in the US and the UK, untethered to any residual professional attachment to standards of evidence and nakedly in the service of political ideologues.  He’ll get no argument from me about that.

But I think his distinction between post-truth outlets and the other kind (pre-truth?) is much too clean.  We won’t understand the new frontier of news/fiction unless we see what connects it to the rest of the media world.

A first hint appears in his discussion of the difference between UK and German media on the issue of immigration.  The nativist tabloids in the UK bombarded its readership with several stories per day that dehumanized immigrants and presented them as threats to jobs, services and civil order, while their counterparts in Germany (e.g. Bild) had heartwarming portrayals of immigrants overcoming great odds to save themselves and their families.  This is true; I saw it myself when I was in Germany during the runup to Merkel’s adoption of a Welcome Culture policy.

But this was also the period during which Greece, led by Syriza, faced off against Schäuble and his EU Wall of Nein.  Here the ruling interests in Germany showed their other side, and the popular press was filled with made-up atrocities about the lazy, dishonest crew in Greece whose main purpose in life was to fleece the German taxpayer.  (I posted here at the time about the false news, widely reported in Germany, that Syriza, financed by EU funds, had made rail travel free as a ploy to buy votes.)  Obviously the probity of German journalism was selective.

And similar post-truth spasms have characterized media outlets in the English-speaking world ever since the advent of the printing press.  These were in the service of fomenting war fever (the Spanish-American War, World War I, Vietnam, and Iraq, to mention examples from US history), demonizing labor organizers and civil rights activists or whatever cause needed a bit of extra buttressing.

If there is anything new, I think it might be on one of these fronts: (1) The doctrine that deceit and manipulation are virtuous in the service of the Cause, an element of fascism and Leninism alike, has now found a home in somewhat more mainstream ideologies on the right.  A self-conscious defense of making stuff up increases its effectiveness, because embarrassment at being caught out is no longer a risk.  (2) Post-truth is being deployed, to some extent, against the interests of the capitalist class, particularly as it attacks globalization.  It is “out of control”, the figurative loose cannon on the deck of the battleship, rolling around and capable of firing in any direction.  It needs to be domesticated again.

The reality is that the elevated devotion to truth has always had moments—particular issues or political exigencies—during which it was expected to look the other way.  We won’t understand what’s new and different about today’s propaganda unless we recognize the continuities as well.

Three Quarters Of Population Fear Losing Homes, So Fear Dominates Complacency

A poll taken last September by the NHP Foundation and reported by Kriston Capps of City Lab that 75 percent of Americans were worried that they could lose their housing in a crisis.  That is three times as many people as were not worried about this.  I note that housing is a basic necessity, along with food and clothing.  This is very basic fear.  People having this sort of fear cannot remotely be called complacent, so at least three times as many people are fearful rather than complacent.  This is the reality of America today, people afraid of losing basic necessities, not complacent about their wonderful and glorious state of life.

Barkley Rosser

Review of Economism: Bad Economics and the Rise of Inequality by James Kwak

There’s economics, a field that has been renewing itself, shaking off theoretical rigidities through more attention to behavior and institutions and shifting its center of gravity toward empirical observation and testing.  And then there’s economics as it exists in standard political discourse, seeing the whole world as refracted through supply and demand diagrams where markets are always efficient and outcomes always socially optimal.  This second, dumbed down, knee-jerk libertarian creed is the object of James Kwak’s new book, Economism.

If ever a book arrived to fill a need, this one has.  Neoliberalism, which is essentially simplified pseudo-economics in action, is finally beginning to break down, but rather than yielding to a more rational  politics it is giving us Brexit, Trump and similar delusionary movements.  Required to choose between the stale cant of economism and authoritarian fairytales of denial, the public is opting for the second door.  Unless economism is disposed of quickly, there won’t be an opening for a more enlightened third option.

In many ways, Kwak is an ideal person to take on the job.  He’s very, very smart.  He generally knows his economics, but he’s not in thrall to the profession.  (He’s actually a law professor.)  He writes clearly and explains economic concepts with a minimum of lecture-itis.  His book is short and to the point.

Most chapters follow the same general template.  Kwak begins by laying out an area of policy and briefly explaining why it’s important; topics include income distribution, taxes, health care, finance and trade.  He then goes into a thorough exposition of the standard economistic analysis, usually based on casual assumptions concerning rational choice, competition, and the market as a cost-benefit device.  His next step is to show this conceptual framework in action, as mouthed by politicians and journalists.  The critical deconstructive move follows, in which Kwak surveys the empirical literature, showing that, in real economics, the conventional assumptions are either flat out wrong or at least seriously qualified.  He then concludes by explaining the policy implications of a more informed approach.  It gets to be a bit formulaic, but it is effective and easy to follow.

I can imagine using a book like this in an introductory microeconomics class.  (Except for a bit of macro here and there, the book’s focus is micro.)  It’s exactly the right antidote for the tendency of introductory textbooks to oversell markets and undersupply critical thinking.  I hope lots of faculty teaching Econ 101 adopt it.

That said, I think it could have been even better than it is.  In a future second edition—and I expect there will be one—Kwak should consider these improvements:

1. His adoption of the voice of economism is very extended.  He will go on for several pages presenting the economistic worldview as if it were his.  Yes, I know, academics like Kwak, myself and perhaps you are trained to cope with this.  It’s nothing for us to read a book in which the author takes on the personna of someone with a differnt point of view for many pages at a time.  Most general readers are not familiar with this, however.  I can say from personal experience that something like half my students would come away thinking that Kwak himself espouses economism and is contradicting himself when he criticizes it.  What to do about this?  Of course, it’s important for Kwak to present economism in a neutral, even sympathetic voice, and to do so at the length it requires.  Perhaps he considered adding, every paragraph or so, a qualifier like “from this point of view”, but decided it was too clunky.  In that case, an altered typeface, like italics, could have been used to set off his temporarily assumed voice as expositor of economism.  One way or the other, markers are needed for readers unused to academic protocols.

2. He would do well to distinguish between the normative and positive aspects of economism.  In a policy context, both are usually entailed: the positive view that this is how the world works is given political salience by the normative view that demand curves represent “benefits” to society and the supply curve “costs”.  It’s important to recognize that economism can fail on either account: either empirical work can show that this is not how the world works, or the assumptions about how markets represent social interests can be challenged, or both.  In practice, Kwak relies more on the first critique, and the book usefully draws together key empirical findings on topics like minimum wages, health costs, etc.  But the market failure framework could have been given more of a workout than it received; in practice these arguments are effective.

3. The chapter on international trade is timid.  Kwak points out that the full-dress neoclassical trade model (Heckscher-Ohlin-Samuelson, although he doesn’t identify it as such) recognizes losers as well as winners from trade liberalization and makes this the conceptual linchpin of his critique of economism in this area.  In this he has a lot of company; H-O-S with lots of friction has become the standard progressive position.  However, the impacts of trade liberalization on employment may be worse than this, since the proposition that the trade balance is unaffected by changes in the degree of openness requires adjustments in exchange rates that, at the very least, are empirically unreliable.  (All exchange rate adjustments in response to anything are empirically unreliable.)  In practice it’s entirely possible, likely even, that a major liberalization event like the US opening to trade with China at the time of its WTO accession has an effect on the aggregate trade balance and not just the composition of industries on each side of the ledger.  I shouldn’t make a big deal of this, because Kwak is no doubt eager to avoid criticism that he is unknowledgeable about economics, and most economists would regard my criticism as falling under that shadow—but I don’t think I’m wrong about this.

4. The very end of the book—the final four pages—are simply weak.  To wrap up, Kwak points out that, whatever its faults, economism delivers by having a simple, all-purpose, easy-to-grasp message and then asks, “What’s our message?”  His answer is that wealthy economies don’t need economic growth or even economic efficiency as they used to, and we should all turn away from economic concerns and embrace happiness instead.  Huh?  Now, before I launch into a critique of this view, I should make it clear that I agree with a lot of it on matters of substance: economic values, like income, are not the same as human values.  One can live well on less money, and the pursuit of wealth should not be the primary goal either for individuals or societies.  Yes, of course.  But that doesn’t mean that “downplay money” is the logical message to set against economism.

One obvious reason is that the difference between wealth and happiness played no role whatsoever in the chapters that led up to his conclusion.  Economism is wrong about how labor markets work, how health care works, how international trade works and so on, not because money doesn’t buy you love, but because its analysis is wrong.  If we’re looking for a common message that applies to all these topics and pokes a hole in the economistic world view, wouldn’t we look for common elements in the arguments we’ve already made?  It’s always a mistake in a piece of writing to go off in a new direction at the point where we should be summing up; this should have occurred to Kwak or been pointed out to him by his reviewers.

The other reason is that downplaying economics—saying that income and other economic measures don’t mean so much—violates the spirit of the book.  At its best, Economism is feisty.  It challenges sloppy thinking about how the economic system works and makes the case for progressive policies that would result in greater income equality and access to economic goods.  Excellent!  Why at the end turn around and say, in effect, OK, we’ll give the conservatives economics, and we’ll take happiness instead?  No!  Don’t give them that!  They don’t deserve it!  The unifying progressive message is not that economics doesn’t matter so much; it’s that the economics of knee-jerk libertarianism is doctrinaire, false and self-serving.  Our message is that we reject the ideology of universal unlimited acquisitiveness as a reasonable way of organizing human affairs, and that the evidence is on our side.  I’d love to see a hard-hitting conclusion replace the flabby one that’s currently there.

It’s in the nature of a review like this to dwell on the negative, but I don’t want you to be dissuaded from buying and reading this book.  Economism is an important work of popular education that needed to be written.  Kwak has the skills to do it well—even better than he has this time out.

The Role of Experts in Public Debate

Jonathan Portes asks, "What’s the role of experts in the public debate?" He assumes it is his prerogative, as an expert, to define that role:

I think we have three really important functions. 

First, to explain our basic concepts and most important insights in plain English. Famously, Paul Samuelson, the founder of modern macroeconomics, was asked whether economics told us anything that was true but not obvious.  It took him a couple of years, but eventually he gave an excellent and topical example – simply the theory of comparative advantage. 

Similarly, I often say that the most useful thing I did in my 6 years as Chief Economist  at DWP was to explain the lump of labour fallacy – that there isn’t a fixed number of jobs in the economy, and increased immigration or more women working adds to both labour demand and labour supply – to six successive Secretaries of State. So that’s the first. 

Second is to call bullshit.

O.K. I call bullshit. What Portes explained "to six successive Secretaries of State" was a figment of the imagination of a late 18th century Lancashire magistrate, a self-styled "friend to the poor" who couldn't understand why poor people got so upset about having their wages cut or losing their jobs -- to the extent they would go around throwing rocks through windows, breaking machines and burning down factories -- when it was obvious to him that it was all for the best and in the long run we would all be better off... or else dead.

I call bullshit because what Portes explained to six successive Secretaries of State was simply the return of the repressed -- the obverse of "Say's Law" (which was neither Say's nor a Law) that "supply creates its own demand," which John Maynard Keynes demolished in The General Theory of Employment, Interest and Money and that John Kenneth Galbraith subsequently declared "sank without trace" in the wake of Keynes's demolition of it.

I call bullshit because when Paul Samuelson resurrected the defunct fallacy claim that Portes explained to six successive Secretaries of State, he did so on the condition that governments pursued the sorts of "Keynesian" job-creating policies that the discredited principle of "supply creates its own demand" insisted were both unnecessary and counter-productive.

But the lump of labor argument implies that there is only so much useful remunerative work to be done in any economic system, and that is indeed a fallacy. If proper and sound monetary, fiscal, and pricing policies are being vigorously promulgated, we need not resign ourselves to mass unemployment. And although technological unemployment is not to be shrugged off lightly, its optimal solution lies in offsetting policies that create adequate job opportunities and new skills.

[Incidentally, as Robert Schiller has noted, the promised prevention of mass unemployment by vigorous policy intervention did not imply the preservation of wage levels. Schiller cited the following passage from the Samuelson textbook,  "...a decrease in the demand for a particular kind of labor because of technological shifts in an industry can he adapted to -- lower relative wages and migration of labor and capital will eventually provide new jobs for the displaced workers."]

I call bullshit because what Portes explained to six successive Secretaries of State was not even Paul Samuelson's policy-animated zombie lump-of-labour fallacy but a supply-side, anti-inflationary retrofit cobbled together by Richard Layard and associates and touted by Tony Blair and Gerhard Schroeder as the Third Way "new supply-side agenda for the left." Central to that agenda were tax cuts to promote economic growth and "active labour market policies" to foster non-inflationary expansion of employment by making conditions more "flexible" and lower-waged:

Part-time work and low-paid work are better than no work because they ease the transition from unemployment to jobs. ... 

Encourage employers to offer ‘entry’ jobs to the labour market by lowering the burden of tax and social security contributions on low-paid jobs. ... 

Adjustment will be the easier, the more labour and product markets are working properly. Barriers to employment in relatively low productivity sectors need to be lowered if employees displaced by the productivity gains that are an inherent feature of structural change are to find jobs elsewhere. The labour market needs a low-wage sector in order to make low-skill jobs available.

I call bullshit because in defending the outcomes of supply-side labour policies, Portes soft-pedaled the stated low-wage objectives of the Third Way agenda. In a London Review of Books review, Portes admitted that "it may drive down wages for the low-skilled, but the effect is small compared to that of other factors (technological change, the national minimum wage and so on)." In the Third Way supply-side agenda, however, a low-wage sector was promoted as a desirable feature -- making more low-skill jobs available -- not a trivial bug to be brushed aside. In other words, in "driving down wages for the low skilled" the policy was achieving exactly what it was intended to but Portes was "too discreet" to admit that was the stated objectives of the policy.