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The Outlaws of Political Economy

‘I don’t have to show you
any stinking badges.’

Perusing Palgrave’s Dictionary of Political Economy from 1894 alerted me to the odd interaction of a pair of distinctions. The first distinction was between the study of “what is” and “what ought to be.” The second distinction was between “economic science” (or “economics”) and “political economy.” Economic science presumably distinguished itself from political economy by its strict focus on describing “what is” rather than on prescribing “what ought to be.”

Palgrave’s explains the latter distinction to have been at least partly motivated by the confusion that arose over just what kind of laws — legal or natural — so-called “laws of political economy” were. Even after the attempt at rebranding, however:

“…even well-educated persons still occasionally speak of “laws of political economy” as being “violated” by the practice of statesmen, trades-unions and other individuals and bodies.

You can’t “break” scientific laws. They are simply generalized descriptions of fact. A flying airplane doesn’t break the law of gravity. It conforms to a more comprehensive complex of physical laws. The law of gravity isn’t the only law.

Palgrave’s Dictionary further noted that the “great complexity and variety of circumstance which surround every economic problem are such as to render the enunciation of general laws, on a large scale, barely possible and if possible barely useful.”

So the whole “positive” economics rigamarole wasn’t just about methodological rigor. It was a purification ritual to rid the political economist of the stigma of dogma. Economists who invoke the violation of so-called laws aren’t only forfeiting any legitimate claim to economic science. They are contaminating their profession with atavistic hokum.

Speaking of atavistic hokum, I have been trying to track down ANY accessible published record of a trade unionist or advocate of the reduction of the hours of labor EVER overtly expressing the belief that there is a fixed amount of work to be done or a certain quantity of labor to be performed or whatever synonymous equivalent. There is none.

There is a reasonable explanation for this absence of evidence. The alleged false belief is expressed in abstract language that was not vernacular to the people accused of harbouring it. It’s the wrong answer to a question workers never asked themselves.

False belief requires two conditions to be fulfilled: 1. the idea is false and 2. it is believed by someone to be true. The matrix below shows the possible states of belief and falsehood. An idea does not have to be true to be “not false” and it doesn’t have to be believed to be false to be “not believed to be true.” The fallacy claim asserts a simplistic (and false!) polarization in which the beliefs of the “unenlightened” are “the opposite” of economic orthodoxy.

In an 1861 letter to the Times of London “A Master Builder” alleged that George Potter, secretary of the carpenters’ union, and his associates had “absurdly argued that there was only a certain amount of work to be done” during a 1859 strike and lock-out of the London building trades. There is a detailed report on the 1859 strike in an 1860 report on Trades’ Societies and Strikes published by the National Association for the Promotion of Social Science. The 23-page account presents several items of correspondence from Potter outlining the union’s position with not a hint of a lump in the load. The “certain amount of work to be done” was what Mr. Master Builder thought he heard when he mentally translated Potter’s argument into his own capitalistic patois.

There was something else interesting in the 685-page document — an overarching controversy about whether or not labor was a commodity just like any other and therefore whether or not unions violated the laws of political economy by trying to regulate wages and hours of work. The employers who maintained this were pretty dogmatic about it. “Rates of wages cannot be settled by mediation, but must be left to the free operation of supply and demand.” It’s the law!

This was not simply political economy It was vulgar political economy of the most self-serving and disingenuous kind. One has no difficulty whatsoever finding multiple evocations by employers of the so-called laws of political economy but the elusive lump remains “one of the most tenaciously held and generally least articulated of trade union beliefs.”

Least articulated? Least articulated is an understatement. Try NEVER articulated. There is no there there. The alleged false belief is a pure projection by the laws-of-political-economy crowd onto the unbeliever. The eighth annual report of the New York Bureau of Labor Statistics for the year 1890 contains the responses of over 600 labor union locals to the question of whether and why they support an eight-hour day. Not one claims there is only a certain quantity of work to be done.

Below is an example of what an overt statement of the theory of the lump of labor looks like. It is not from a trade union manifesto or a pamphlet of the eight-hour day movement. It is from a propaganda tract put out by Nassau Senior’s crew of Whig-Benthamites in defense of their New Poor Laws, which abolished outdoor relief and established the workhouse test:

The fact is, there is a certain quantity of work to be done, and the question is who ought to do it — those who live by their labour, and their labour only, or those who have thrown themselves on public charity.

Can anyone find such an unequivocal articulation of the false belief by a trade unionist? Of course not. It’s not the way that workers talk about their work. Work is not an abstract, disembodied quantity to those who do it. It is part of a lived experience. “A certain quantity of work to be done” is political economy speak, plain and simple. It’s ceteris paribus and “all else being equal.”

Paradoxically, for old school vulgarians there both is and is not a certain quantity of work to be done. There is a certain quantity of work to be done when it comes to disparaging the idea that workers might increase wages their through collective action:

There is a certain quantity of work to be done, and a certain number of hands to do it; if there be much work and comparatively few hands, wages will rise; if little work and an excess of hands, wages will fall. It is self-evident that combinations and strikes cannot alter this law. They can neither increase capital, nor diminish population; and, therefore, it is utterly impossible, in the very nature of things, that they ever can procure a permanent rise of wages.

But there isn’t a certain amount of work when it comes to explaining why such foolish action isn’t even necessary:

There is, say they, a certain quantity of labour to be performed. This used to be performed by hands, without machines, or with very little help from them… The principle itself is false. There is not a precise limited quantity of labour, beyond which there is no demand. Trade is not hemmed in by great walls, beyond which it cannot go. By bringing our goods cheaper and better to market, we open new markets, we get new customers, we encrease the quantity of labour necessary to supply these, and thus we are encouraged to push on, in hope of still new advantages. A cheap market will always be full of customers.

Five years ago I compiled a database of over 500 instances of the claim in books and journal articles between 1890 and 2010 (Excel file). That’s 500 claims without a single overt statement of the false belief from an alleged believer. Six claimants (about one percent) named culprits whose argument “arguably depends upon…” “makes an error equivalent to…” “indicates a belief…” “seems hopelessly involved in…” “is an example of the strange conclusions to which one may be carried by clinging clinging firmly to…” and “are driven by implicit assumptions.” Each of those turns out to be a false alarm — an uncharitable, speculative inference. Five hundred boys crying “wolf” and not a single wolf to be seen?

This is an astonishing performance. This compulsion to repeat is not “careless” or “dogmatic.” It’s neurotic.

The patient cannot remember the whole of what is repressed in him, and what he cannot remember may be precisely the essential part of it.. He is obliged to repeat the repressed material as a contemporary experience instead of remembering it as something in the past.

The atavistic return of the repressed “laws of political economy” conforms faithfully to a description toward the end of chapter 3 of Beyond the Pleasure Principle where Freud talks about the experiences of “people with whom every human relationship ends in the same way” and gives as a “singularly affecting” final example the events in a romantic epic, in which the hero, Tancred, repeatedly slays his beloved, Clorinda, each time she reappears in a different guise. In this example, as Gavriel Reisner notes,

Freud reverses the compulsion to repeat, showing how we will sometimes injure others in order to avoid injuring ourselves. Freud concludes that we often project the internal, masochistic drive as the external, sadistic drive, victimizing others to redirect an intent toward self-victimization.

The utilitarian political economists styled themselves advocates for “the greatest good for the greatest number” and viewed opponents as apologists for narrow special interests. The supposed laws they discovered, which operated through isolated exchanges between individuals in the market, vindicated a system of natural liberty and consequently freedom entailed obedience to those laws. Collective action and collective bargaining violated the laws of individual exchange, resulting in sub-optimal outcomes. Such perversity could only be motivated by false beliefs. The false beliefs of the adversary were presumably the opposite of the true beliefs of the faithful: trade unions operated through tyranny and their bizzaro-world political economy assumed that less output meant more income.

Reality discredited that polemic of political economy and calmer heads sought to rebrand the enterprise as economics. The ersatz laws were scaled back to tendencies, which operated within the admittedly abstract ceteris paribus pound of the economist’s static model. Real life and the evolution of economic relations operated outside the ceteris paribus pound but maybe the static model could shed light on dynamic economic activity.

It was no longer fashionable to denounce “The Evils of Collective Bargaining in Trades’ Unions” (Thomas Cree, 1898) because it was increasingly understood that the so-called laws of supply and demand operated quite differently with regard to the peculiar commodity of labor power (Richard Ely, 1886):

While those who sell other commodities are able to influence the price by a suitable regulation of production, so as to bring about a satisfactory relation between supply and demand, the purchaser of labor has it in his own power to determine the price of this commodity and the other conditions of sale.

But even as old-guard political economy was being gradually displaced by rebranded economics in the universities, employers’ associations and business journalism emerged to propound and propagate the old-time religion. The break with quasi-scientific, quasi-legalistic, quasi-religious pseudo-laws was ambivalent, the reconciliation surreptitious. Employers’ associations told the college teachers what to teach. Textbooks served up a smorgasbord of the obsolescent and the innovative.

In this twilight of science and superstition, the fallacy claim offered uncertain economists a distinctive advantage. It enabled them to continue to denounce violations of the laws of political economy without actually having to specify which laws were being violated. That left them exempt from any obligation to justify the validity of defunct laws. The burden of proof deftly shifted and the providence of economic science affirmed, albeit by default.

Economic science thus gets to have its “what is” humility… and eat its “what ought to be” hubris too! Evidence be damned.

That there was one particular offense singled out for condemnation by the self-appointed economic police is suggested by the example given in Palgrave’s Dictionary for the common confusion between the legislative and scientific senses of law: “Thus it is often said that to regulate the hours of labour, or to introduce differential import duties, is to break economic law.” The anachronism of such a view should require no explanation. The hours of labor are regulated.

Any proposal to repeal the Fair Labor Standards Act of 1938 on the grounds that it “breaks economic law” would no doubt be laughed at by Paul Krugman, David Autor, Jonathan Portes or Alan Manning. But, inadvertently, that is precisely the historical grammar of their lump-of-labor fallacy taunt. Although there is no logical imperative that links the law-breaking claim to the fallacy claim, they have been inseparably paired in usage from their inception. To invoke the latter is either to imply the former or it is a non sequitur.

At long last, economists, have you no scientific self-respect? On this labor day, 2016, would you still insist that regulating of the hours of work breaks the laws of economics?

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Did Jonathan Portes Cause Brexit?

I should like to show that Jonathan Portes most probably did not cause Brexit. To do so, however, I first must examine the plausibility of the case that his actions and words did indeed provoke a decisive margin for the Leave vote in the EU referendum last June.

Portes is Principal Research Fellow, formerly Director, at the National Institute for Social and Economic Research in London. From 2002 to 2008, he was chief economist at the U.K. Department of Works and Pensions and, following that, chief economist at the Cabinet Office. David Goodhart has described Portes as “one of the architects of Labour’s immigration policy” during that period. He is a regular contributor to the Guardian, frequently on migration issues.

In a 2012 blog post, Portes fondly reminisced that explaining the lump-of-labour fallacy “to six successive Secretaries of State for Work and Pensions, usually in the context of immigration… was probably the most useful thing I did, from a public policy perspective, in my six years as Chief Economist at Department for Work and Pensions.”  The lump-of-labour fallacy is the spurious claim that supporters of some policy or other are motivated by a false belief that there is only ever a “certain amount” of work to be done.

The alleged belief is indeed false, as is the claim that support for the policy in question is motivated by it. The bogus fallacy claim was a staple of 19th century anti-trades union propaganda. Portes thus prided himself on his acumen in persuading Labour cabinet secretaries “to go out and defend policies that were consistent with” an archaic, reactionary view of the labour market.

That is not to say that the policies defended by cabinet secretaries coached by Portes were reactionary. The phrase “were consistent with” is notoriously ambiguous. Wearing an amulet is “consistent with” being a Satanist. It is also consistent with not being a Satanist. One must always be wary of “affirming the consequent.”

Not wearing an amulet is consistent
Portes not being a Satanist.

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Question for Labor Day, 2016

“…it is often said that to regulate the hours of labour, or to introduce differential import duties, is to break economic law.” — Palgrave’s Dictionary of Political Economy, 1894

Do you agree that regulating the hours of labor is a violation of economic law?

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The Road to Trumpdom

I always Google my headline ideas to try to avoid the appearance of plagiarism. I was thinking of the title for this post as I was looking at a cartoon adaptation of Hayek’s The Road to Serfdom, originally published by Look magazine in 1945 and subsequently distributed in the 1950s as a pamphlet by the General Motors Corporation. As Ned O’Gorman explained,

“The Look version departed far enough from Hayek’s original text that it hardly merited the same title. Nevertheless it did present the outlines of a popularized version of the neoliberal account of legitimation crisis that Hayek articulated.”

Dick Meyer’s very fine essay The road to Trumpdom: The backstory of the biggest character in politics takes its cue from a Hayek quotation,  “As is so often true, the nature of our civilization has been seen more clearly by its enemies than by most of its friends.” Meyer traces the Republican dysfunction to the elevation of the primaries in American presidential politics, the reality TV show vulgarity and celebrity-adulation of American popular culture and ultimately to the long-term decline, since the 1960s, of Americans’ trust in government.

Meyer’s essay concludes with the decline in trust but doesn’t elaborate on the reasons for it. Of course, this has been a well-worn topic, with contributions ranging from Jurgen Habermas’s thesis of Legitimation Crisis to Michel Crozier. Samuel P Huntington and Joji Watanuki’s diagnosis of an “excess of democracy.”

My own view hearkens back to the nominal success of the O,E,C,D, growth target and its substantive failure. Under pressure from the U.S., the newly fledged institution adopted a target of 50% during the 1960s. Inadvertently, they exceeded this target by around 5%. I say “inadvertently” because when they adopted the target in 1961 they really had no idea what it meant. It just seemed like a good idea at the time.

In the meanwhile, all sorts of social, environmental, political and financial difficulties emerged that GNP growth was obviously not solving — some of them growth was exacerbating. And then the decade of the 1970s failed to repeat the economic growth “success” of the 1960s. Economic growth, it turned out, was not the promised panacea. On the other hand, lack of economic growth just made things worse.

Here is were the cartoon version of The Road to Serfdom comes into its own. “The ‘Planners’ promise Utopia…” is the title of panel 3 “…but they can’t agree on ONE Utopia” concludes panel 4.

3 and 4

In the comic book Hayek, this lack of consensus immediately leads to an impasse that can only be resolved by a strongman. In real life, the lack of consensus about concrete Utopias was resolved by targeting economic growth. A rising tide would lift ALL boats. “Everybody will be happier that way,” as Henry Wallich later reaffirmed, because:

Growth is a substitute for equality of income. So long as there is growth, there is hope, and that makes large income differentials tolerable. The environment will also be better taken care of if the economy grows. Nothing could cut more dangerously into the resources that must be devoted to the Great Cleanup than an attempt to limit resources available for consumption.

Well, growth has turned out not to be a “substitute for equality of income.” Most growth for three or four decades has gone to those at the top and large income differentials have just gotten larger and larger and larger — not more tolerable. The expanded resources have not been devoted to “the Great Cleanup” — a not insignificant amount has been devoted to denying the necessity for any cleanup whatsoever. The environment is a hoax.

The latter view is understandable in that the “planners” have taken over the environment with much the same rhetoric that they invested in economic growth. “Green Growth” is predicated on exactly the same growth paradigm. Immigration enlarges the size of the pie — there is not a fixed amount of work to be done, don’t you know — without doing much for the slice that goes to those who aren’t at the top.

Which brings us to the nomination of Donald J. Trump.

9 and 10
11 and 12

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The Great Growth Target Leak of 1961

In Doctor Strangelove, General Ripper explains to Captain Mandrake why Clemenceau’s dictum on war is now obsolete:

He said war was too important to be left to the generals. When he said that, 50 years ago, he might have been right. But today, war is too important to be left to politicians. They have neither the time, the training, nor the inclination for strategic thought.

Oddly enough, it was not generals who were at the forefront of strategic thinking but academics like Henry Kissinger, Herman Kahn, Thomas Schelling and Daniel Ellsberg. Meanwhile, liberal politicians had concluded that the economy was too important to be left to the economists — let alone to the unscripted dealings of consumers and producers. Soon after Kennedy’s inauguration, signs appeared in the Commerce Department asking, “What have you done for growth today?” [implicitly: ask not what growth can do for you…]

The American proposal of a coordinated decade growth target for the countries in the newly formed Organization for Economic Coordination and Development was controversial. The Secretary-General of the OECD, Thorkil Kristensen, the British, Canadian and Belgian delegations were skeptical. There had even been doubt raised in the U.S. Treasury Department about “the focus on GNP as a measure for progress and the propaganda value of a target below an unrealistic average growth rate of 5 percent annually” (Schmelzer, p. 175).
Nevertheless, the U.S. delegation was determined to announce an OECD growth target as a riposte to the Soviet Party Congress’s grandiose plans announced for 1970 and 1980. Somehow the proposal and opposition to it were leaked to the press. The Americans were widely suspected. As Matthias Schmelzer details The Hegemony of Growth (2016), the leak changed “the entire dynamic of this discussion”:

The entire dynamic of this discussion suddenly changed when OECD bureaucrats and delegates learned that immediately before the MCM [ministerial meeting] the US proposal to set a growth target had leaked to the press. First in the New York Times and then around the world, newspapers were analyzing the viability and hidden motives of the target and reported on the different views on the proposal among OECD member countries. In all articles the initiative was interpreted as a direct response to Khrushchev’s announcements, an allegation the US delegation denied. The press was generally skeptical, in particular in Europe, and argued that the proposal was unrealistic. Characteristically, the German business daily Handelsblatt stated that member states did “not at all command the necessary economic policy instruments to force onto their industry and agriculture a specific growth rate.” Furthermore, there was some fundamental critique. For example, John Allen complained in the Christian Science Monitor that the growth target set by the OECD could not be achieved because the US had “grown nearest the top of the tree.” Arguing that the richest nations have “the ‘worst’ growth rates” and that for America and Britain growth rates were bound to decline, he stated: “The United States already has run a race and won. It does not have to accept the challenge to the same race over again, against a fresh runner.” Instead, the US should focus on improving the quality of education and housing, on alleviating poverty, and aim “to lift the underdeveloped countries up to Western standards.” Irrespective of these more nuanced critiques, the prior leak of the US plans put immense pressure on OECD ministers. Although it was not stated explicitly in the debates, at least the German delegation seems to have interpreted the leak as an intentional act of the US delegation to get agreement on its “propagandistic” target. At the meeting the German Economics Minister Ludwig Erhard accordingly complained that it was “improper that Ministers should read in the newspapers of the previous day and the day before what they were to decide that day.”

It is interesting to note that within all the extensive discussions among OECD experts and the key economists from member countries, the idea that a distinction could be made between absolute and relative growth numbers, between the size of an increase of the economy and the rate of increase, had not been brought up. Although no one expected the US and Britain to grow at the same rate as Italy or Japan due to the possibilities for catch-up, the shared assumption was that given the right policies growth rates could be stabilized between 4 and 5 percent annually for all countries, irrespective how rich they were and how large their economies had already grown. The growth rate dominated economic policy debates in the 1960s, exponentiality was the implicit ideal, not linearity.

So that is how co-ordinated growth targeting first leapt onto the world stage — as a panacea propaganda stunt without the technical know-how for accurate forecasting, targeting or policy selection to meet the targets. By happenstance, the OECD countries came close to meeting their joint 1960s growth target. The econometric analysis and policy prescriptions came as an afterthought.

In terms of enshrining the hegemony of economic growth as a policy imperative, the OECD growth targeting has to be judged a success. What that means in terms of global financial stability, the demise of the Bretton Woods system, environmental and social impacts is another question. But what struck me as I was reading Schmelzer’s documentary account the 1961 decision is how much the concept of greenhouse gas emissions reduction targeting mimics the American proposal for economic growth targeting. This is not a good sign.

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Can John Cochrane and Jennifer Rubin handle the truth about the lump-of-labor fallacy?

An open letter to John Cochrane and Jennifer Rubin

Dear John Cochrane and Jennifer Rubin,

I read with interest your column, Jennifer, which led me to your chapter, John, in Blueprint for America on trade and immigration. I have studied the history of the lump-of-labor fallacy claim for nearly 20 years and have have published several articles dealing with that history. I have to wonder if there is any other assertion that has endured for so long, produced so little evidence, ignored all refutation and enjoyed so much authoritative consensus as the lump-of-labor fallacy claim.

Let me repeat, so as not to be misunderstood: I am talking about the bogus fallacy claim and not the fallacy itself. The claim consists of two parts, one of which is self-evidently true and the other of which is not proven. The self-evident part is that there is not a fixed amount of work to be done. The unproven part is that belief to the contrary — that there is only so much work to be done — is the driving force or the “idea behind” opposition to some policies and support for others.

Not proven is an understatement. In my research of 236 years of the fallacy claim, I have come across very few examples of claimants offering any evidence whatsoever for the existence of the belief. In a virtuoso display of circular reasoning, support for or opposition to particular policies is offered as prima facie evidence for the fallacious belief, which is then posited as the motive for support or opposition to those particular policies.

The claim has been refuted definitively by several economists, including A. C. Pigou and Maurice Dobb, but claimants have never addressed or even acknowledged those counter-arguments. Last month, Omar al-Ubaydli of George Mason University and the Mercatus Center attributed advocacy for shorter hours of work to belief in the lump-of-labor fallacy. I subsequently invited Omar to an ethical debate on the substance of the fallacy claim. I would like to extend the same invitation to John Cochrane. Here is an overview of my exchange with Omar.

A few days ago, in an interview in Foreign Affairs, Kwasi Kwarteng, a Conservative member of parliament in U.K. made some very perceptive remarks about whether people’s perceptions were driven by belief in a lump-of-labor or by other perceptions, regardless of whether those perceptions are accurate:

A lot of clever people talk about the “lump of labor fallacy” and all the rest of it, but there are lots of different economic theories involved. But the perception was what drove the politics, not the economic theory. In large parts of rural England—a town like Boston, which your own town of Boston is named after—the perception was that things were changing, life wasn’t getting better for quote-unquote indigenous people, and they voted against that.

The perception that “life is not getting better” is subjective and is in comparison to some retrospective expectation — life has not improved “as much as I thought it would.” Economists are saying a rather astonishing thing when they “view with contempt” the presumably rational economic actors’ satisfaction and expectations. They are claiming that subjective utility is wrong. Think about that.


Tom Walker [Sandwichman]

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It’s An Idea (not all) Economists View With Contempt…

As the derisive name suggests, it’s an idea economists view with contempt, yet the fallacy makes a comeback whenever the economy is sluggish. — Paul Krugman

Professor Krugman is currently “Distinguished Scholar at the Luxembourg Income Study Center, at The Graduate Center of the City University of New York.” Janet Gornick is the Director of the Luxembourg Income Study. The following excerpt is from Peter Frase and Janet Gornick, “The Time Divide in Cross-National Perspective: The Work Week, Gender and Education in 17 Countries.”  (Dec. 2009) Working Paper No. 526 in the Luxembourg Income Study Working Paper Series:

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“Why Are Voters Ignoring Experts?”

That is the question Jean Pisani-Ferry asks at Project Syndicate. In the wake of the Brexit vote there is a veritable chorus of experts and economists asking the same question. One explanation I don’t expect to see very often is that the supposed experts systematically ignore their own critical literature. Hubris.

Professor Pisani-Ferry inadvertently presents an example when he suggests that economists should “move beyond the (generally correct) observation” that “if a policy decision leads to aggregate gains, losers can in principle be compensated.” This is not a “generally correct” observation. It is, in the words of I. M. D. Little “unacceptable nonsense.”

This “compensation principle” — also known as the Kaldor-Hicks criterion — has been thoroughly refuted. I have documented the embarrassing career of this supposed principle in several posts over the last two years at EconoSpeak. Here are links to four of those posts:

Public Works, Economic Stabilization and Cost-Benefit Sophistry
#NUM!éraire, Shmoo-méraire: Nature doesn’t truck and barter
For the Euthanasia of Kaldor-Hicks/Cost-Benefit Pseudo-Science
Cost-benefit analysis as “unacceptable nonsense”

Opposed to the critical literature is simply a game of make believe. Let’s pretend those fatal criticisms don’t exist or that we didn’t see them or that they’re not all that important or that we can continue to use the fundamentally flawed criterion “until something better comes along.” This is not good enough. For a single economist to not know about the invalidity of the compensation principle would be malpractice. For the professional consensus to tolerate and even promote such malpractice is malfeasance.

People ignore experts because the experts have been systematically misleading them about what the benefits of policies are likely to be.

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