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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.

Cheers,

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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FLEXIT

“If, as a result of Brexit, the economy crashes it will not vindicate the economists, it will simply illustrate once more their failure.” — Ann Pettifor

You can see immigrants. You can’t see NAIRU or flexible labor market policies. Most people wouldn’t know a NAIRU from a Nehru jacket and have probably never heard of flexible labor market policies.

There is a simple logic behind the “growth through austerity” policies beloved by Cameron and Osborne: “wages are too damn high.” But there is also a more technical-sounding  obfuscation. This more convoluted explanation is that there is a long-run, “natural” rate of unemployment that is unaffected by aggregate demand, therefore fiscal stimulus will result in inflation. Thus the only non-inflationary way to reduce unemployment is to fine tune this hypothetical natural rate by removing labor market rigidities.

Sounds plausible? What it means in practice is “wages are too damn high.” In the 19th century, this superstition was known as the wages-fund doctrine. Also known as this magazine of untruth.

Another euphemism for these “flexible labor market policies” (i.e., “wages are too damn high.”) is “structural reforms.” In a press release from the  Center for Economic and Policy Research, Mark Weisbrot pointed out the connection between Brexit and these so-called structural reforms:

“While the movement in the UK to leave the EU had right-wing, anti-immigrant and xenophobic leaders, in most of Europe that is not the driving force of the massive loss of confidence in European institutions. The driving force in most of the European Union is the profound and unnecessary economic failure of Europe, and especially the Eurozone, since the world financial crisis and recession.

“It has cost European citizens millions of jobs, trillions of dollars in lost income, and is sacrificing a generation of youth at the altar of fiscal consolidation and ‘structural reforms.’ It has delivered an overall unemployment rate in Europe that is twice the level of the United States; more than seven years of depression in Greece; more than 20 percent unemployment in Spain, and long-term stagnation in Italy. In recent weeks French workers have been fighting against ‘structural reforms’ that seek to undermine employment protections and the ability of organized labor to bargain collectively.”

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The Iatrogenic and Incoherent “Theory” of Flexibility

In its report on “The long-term decline in prime-age male labor force participation,” President Obama’s Council of Economic Advisers writes:

Conventional economic theory posits that more ‘flexible’ labor markets—where it is easier to hire and fire workers—facilitate matches between employers and individuals who want to work. Yet despite having among the most flexible labor markets in the OECD—with low levels of labor market regulation and employment protections, a low minimum cost of labor, and low rates of collective bargaining coverage—the United States has one of the lowest prime-age male labor force participation rates of OECD member countries.

Although it has indeed become conventional, the ‘flexible’ labor markets mantra is not a theory. It is dogma. An article of faith. The theory behind the nostrum of flexible labor markets is Milton Friedman’s natural rate theory of unemployment, which, as Jamie Galbraith pointed out twenty years ago, was constructed by adding expectations to the empirical Philips Curve observation of a relationship between unemployment and inflation:

The Phillips curve had always been a purely empirical relation, patched into IS-LM Keynesianism to relieve that model’s lack of a theory of inflation. Friedman supplied no theory for a short-run Phillips curve, yet he affirmed that such a relation would “always” exist. And Friedman’s argument depends on it. If the Phillips relation fails empirically— that is, if levels of unemployment do not in fact predict the rate of inflation in the short run—then the construct of the natural rate of unemployment also loses meaning.

Galbraith’s evisceration of the natural rate theory and NAIRU is incisive, persuasive and accessible. Read it.

At the other end of the flexibility spectrum, intellectually, is Layard, Nickell and Jackman’s Unemployment: Macroeconomic Performance and the Labour Market. In their influential textbook, Layard et al. grafted the dubious NAIRU concept onto the archaic lump-of-labor fallacy claim to create their own chimera hybrid, the LUMP-OF-OUTPUT FALLACY.

Galbraith’s “Time to Ditch NAIRU” has 293 citations on Google Scholar. Layard et al’s “Unemployment” has 5824.

To appreciate the pretzel logic of Layard et al., one has to first understand that the old fallacy claim is essentially an inversion of the “supply creates its own demand” nutshell known as Say’s Law. Jamie’s dad, John Kenneth Galbraith, had argued back in 1975 that Say’s Law had “sank without trace” after Keynes had shown that interest “was not the price people were paid to save… [but] what was paid to overcome their liquidity preference” and thus a fall in interest rates might encourage cash hoarding rather than investment, resulting in a shortfall of purchasing power.

So, at one end of their graft Layard et al. were resuscitating the old dogma that Keynes had supposedly “brought to an end.” At the other end of the graft was Friedman’s tweaking of an atheoretical empirical observation — the Philips Curve — that was  “patched into IS-LM Keynesianism to relieve that model’s lack of a theory of inflation. (James Tobin once elegantly described the Phillips curve as a set of empirical observations in search of theory, like Pirandello characters in search of a plot.)” And let’s not even get started with IS-LMist fundamentalism.

Churchill’s “riddle wrapped in a mystery inside an enigma” quip about the Soviet Union has nothing on Layard et al.’s antithetical and anachronistic graft on a tweak of an atheoretical patch on an unsatisfactory “attempt to reduce the General Theory to a system of equilibrium,” as Joan Robinson described IS-LM “Keynesianism”:

Whenever equilibrium theory is breached, economists rush like bees whose comb has been broken to patch up the damage. J. R. Hicks was one of the first, with his IS-LM, to try to reduce the General Theory to a system of equilibrium. This had a wide success and has distorted teaching for many generations of students. Hicks used to be fond of quoting a letter from Keynes which, because of its friendly tone, seemed to approve of IS-LM, but it contained a clear objection to a system that leaves out expectations of the future from the inducement to invest.

And by “expectations,” Keynes clearly had in mind uncertainty, not honeycomb equilibrium.

So that’s the tangled ‘theory’ behind ‘flexible’ labor market policy prescriptions. A regurgitated dog’s breakfast of contradiction and amnesia.

Layard et al.’s lump-of-output fallacy flexibility chimera thus resembles a sort of a theoretical ouroboros chicken-snake swallowing its own entrails:

To many people, shorter working hours and early retirement appear to be common-sense solutions for unemployment. But they are not, because they are not based on any coherent theory of what determines unemployment. The only theory behind them is the lump-of-output theory: output is a given. In this section we have shown that output is unlikely to remain constant.

This is simply FALSE. Shorter working hours is based on the same theory as full employment fiscal policy: Keynes’s theory. But don’t take my word for it. In an April 1945 letter to T.S. Eliot, Keynes wrote:

The full employment policy by means of investment is only one particular application of an intellectual theorem. You can produce the result just as well by consuming more or working less. Personally I regard the investment policy as first aid. In U.S. it almost certainly will not do the trick. Less work is the ultimate solution.

 

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Is “Political Correctness” to Blame for Orlando Massacre?

Well, well, the dear old National Rifled Assholeciation has weighed in with its theory. Assault weapons don’t kill people, “political correctness” does.

“The National Rifle Association (NRA) on Tuesday defended gun rights, two days after a gunman killed 49 people and left 53 others injured at a gay nightclub in Orlando,” Jesse Byrnes at The Hill reports:

“In the aftermath of this terrorist attack, President Obama and Hillary Clinton renewed calls for more gun control, including a ban on whole categories of semi-automatic firearms,” Chris Cox, executive director of the NRA Institute for Legislative Action, wrote in a USA Today op-ed.

“They are desperate to create the illusion that they’re doing something to protect us because their policies can’t and won’t keep us safe. This transparent head-fake should scare every American, because it will do nothing to prevent the next attack,” he said.

Cox said “political correctness” allowed for the deadliest mass shooting in U.S. history to take place, noting that the FBI had interviewed the shooter multiple times since 2013 and that he maintained a government-approved security license.

“Unfortunately, the Obama administration’s political correctness prevented anything from being done about it,” Cox wrote.

Presumptive Republican presidential nominee Donald Trump, who the NRA has endorsed, also attacked “political correctness” in a speech following the shooting.

So what exactly is the connection between “political correctness” and mass murder? Let’s ask an expert: mass murderer Anders Breivik (the following is reposted from EconoSpeak, August 2015)

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Dear Omar al-Ubaydli:

omartwitter

Yes, Omar, I would be delighted to elaborate. Thank you for asking.

The point I am trying to make was stated by John Stuart Mill in On Liberty, “He who knows only his own side of the case, knows little of that.” The truth of that maxim is illustrated by the claim, in your counterpoint to Dean Baker, that “proponents of work-sharing believe an economy requires a fixed amount of work to be performed by a limited number of people.”

Not only is that assertion untrue, but it has been repeated ad nauseum for two hundred and thirty-six years without any effort by claimants to ascertain what “proponents of work-sharing” (etc.) actually believe.

Not only is the claim unfounded, but it has been refuted half a dozen times or more by notable economists. Those rebuttals have never been addressed by the antagonists who repeat and repeat the fixed amount of work mantra.

Not only is the claim untrue and unfounded, but it is rote — a monotonous, mechanical repetition of the same catchwords and phrases that have been recited a thousand time over the span of more than two centuries.

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As Common as Ditchwater

I would like to draw the readers’ attention to an item I posted yesterday and say a few words about the significance of the discovery mentioned in it. The mock “theory of the Lump of Labour” was invented in 1891 by David Frederick Schloss in an article titled “Why Working-Men Dislike Piece Work.” The Oxford Dictionary cites Henry Mayhew’s London Labour and the London Poor (1851) as an early published instance of “lump labour,” referring to a form of labor subcontracting that was common on the docks and persisted in the building trades.

John Mills’s 1843 novel, The Stage Coach, or the Road of Life predates Mayhew by more than half a decade, it employs the exact phrase, “lump o’ labour” rather than a close approximation and, most importantly, it provides a substantial context that illustrates what the characters meant by the phrase. From that context, it is clear that the lump of labor refers to a given expenditure of effort and is related to the expectation of a proportionate reward for that effort. Jack Hogg’s father ruminates, “we ought to be well satisfied when we get moderate profits to a lump o’ labour or pain.”

Evidence that the phrase is consistent with working-class London patois from the period is found in the expression “lump o’ lead,” which is Cockney rhyming slang for head. The Lump or “lump hotel” is a slang term for the workhouse. Mills’s lump o’ labour thus had a concrete reference and is not an abstraction contemplating change — or lack of it — in the macro-economy. The theory of the lump of labor is strictly Schloss’s fiction. More precisely, the kind of fiction Schloss engaged in was caricature, based on social class, that presumed the superiority of the classes from which the readers of The Economic Review were drawn. Such derisive caricature — frequently based on ethnic, racial and gender stereotyping — was rampant in the late 19th and early 20th century.

Schloss’s caricature of “theory” was relatively mild — condescending rather than overtly hostile and defamatory. But that should not obscure the fact that it patently wasn’t an attempt to explain or understand what workers thought. Rather it was a routine maneuver in the construction of otherness — so standard as to be a cliche. Schloss’s “certain fixed amount of work to be done” hearkened back more than a century to Dorning Rasbotham’s “certain quantity of labour to be performed” by way of half a dozen or so intervening slight paraphrases and reiterations.

It is almost as if the Schloss/Rasbotham fixation on fixedness is trying to tell us something about their own discourse. In “The Other Question,” Homi Bhabha described the “dependence on the concept of ‘fixity’ in the ideological construction of otherness” in colonial discourse:

Fixity, as the sign of cultural/historical/racial difference in the discourse of colonialism, is a paradoxical mode of representation: it connotes rigidity and an unchanging order as well as disorder, degeneracy and daemonic repetition. Likewise the stereotype, which is its major discursive strategy, is a form of knowledge and identification that vacillates between what is always ‘in place’, already known, and something that must be anxiously repeated… as if the essential duplicity of the Asiatic or the bestial sexual license of the African that needs no proof, can never really, in discourse, be proved.

To state it plainly, the lump-of-labor fallacy myth is colonial discourse in which the worker is the colonized other — the “idiot Luddites” Larry Summers was taught as an undergraduate at M.I,T, to dismiss as “a bunch of goofballs.” That was way back in the 1970s. Just the other day, in a point/counterpoint with Dean Baker (Point: Shorter Workweeks Will Defeat the Robots), Omar al-Ubaydli (Counterpoint: Shorter Workweeks Will Increase Unemployment) trotted out the old formula:

A glaring red flag is how simple the proposed solution seems to be: Proponents of work-sharing believe an economy requires a fixed amount of work to be performed by a limited number of people.

That tired old colonial discourse. Shame.

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Pain for Profit

from The Stage Coach, or the Road of Life (1843) by John Mills, Chapter XI “The Mudlark”

The night was very bright; a sharp frosty air whistled from the east, and the moon and the stars sparkled like frozen sleet in the sun. After the governor had scraped off the worst part of the slush, cleaned my face, and did the best he could for me, he shelled out the contents of the sack upon the side o’ the wessel, and commenced countin’ and feelin’ the pieces of silver with wonderful pleasure.

“I feel, Jack,” said the governor, smilin’ as if a feather was blown into his ear, ” I feel, Jack, as though I could play leap-frog with the lamp-posts. There’s a hundred ounces if there’s one.”

“If there hadn’t been a good swag,” replied I, almost fit to blubber with smarting so, “there’d a-been a deal o’ pain for short commons o’ profit.”

“As common as ditchwater, that is,” added my father, fixin’ the sack over his shoulders, “and we ought to be well satisfied when we get moderate profits to a lump o’ labour or pain. However, Jack, get on my back, and I’ll carry ye home.”

lumpolabour

The above is the earliest literary mention of the “lump o’ labour” that I have ever found. “One-eyed” Jack Hogg is telling the story of the time when he was 10-years old and there was a fire at the silversmith’s shop at the corner of Adam Street.The melted silver was carried by the water into the storm drain. Jack’s father, a scavenger (the “mudlark”), sends him into the sewer to recover the lumps of silver but on his way back Jack drops his lantern and is immediately attacked by the sewer rats. He runs to the exit where his father beats off the last clinging rats and then cleans him up in the river. The retrieved “swag” is enough to keep the family in relative luxury for the next six months.

The preceding chapters of the book tell the story of a visiting professor of phrenology and the ruse played on him using a plaster cast from a Swedish turnip.

 

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