« Vatican Unequivocally Confirms Automatic Excommunication for Anyone Involved in Abortion
Why East European Leaders Have Issued a Plea to Mr. Obama: Gazeta Wyborcza, Poland »
An Economic Koan
Of late we’ve been hearing a lot about an economic recovery. No one seems to know exactly when this might come to pass, but those who think it might happen soon all seem to agree it will be a “jobless recovery.” The economy will start to grow again, in other words, but for a variety of reasons this will not occur in tandem with a lot of presently unemployed people going back to work.
In thinking about such a state of affairs, I was at first totally confused. The two words “jobless” and “recovery” didn’t seem to have any business joined together in a single phrase. If more people aren’t working they aren’t buying, and those who still have jobs will likely save rather than shop because they’re afraid of losing their own posts. So if people aren’t buying, aren’t shopping, and 70 percent of the economy is based on such consumption, how could there be a “recovery?”
Then it dawned on me that perhaps “jobless recovery” is a kind of economic koan—a koan being a technique employed by Zen Buddhist teachers to help their students move closer to true understanding. A koan is a nonsensical riddle with no answer, like the famous: what is the sound of one hand clapping? You meditate on this nonsensical statement long and hard enough and maybe, just maybe, a flash of wisdom is bestowed.
So I meditated on the phrase “jobless recovery” long and hard. And sure enough, there was this blinding flash and at last I understood.
For my entire life as a business, financial and economic writer, I had believed there was a relationship, not always exact but always somehow there, between what economists and market watchers called “the economy” and the economic reality of most people’s lives. But the meditative wisdom spawned by focusing on the “jobless recovery” koan enriched my understanding, and I realized that these days the two are related hardly at all.
Markets can now levitate on clouds of institutional investors playing with a lot of OPM, on analyst blather, and on scads of new greenbacks churned out by Treasury printing presses. Corporate profits can increase on the savings realized by laying off more and more workers while making survivors work longer and harder for less. Add in a few numbers from the Labor Department and private bean counting organizations that can be interpreted in positive ways and lo! An economic recovery! The same number of folks languishing in the economic doldrums need not be acknowledged at all in this computation.
So now I, too, believe, that we are headed for a recovery in the near future, a jobless recovery. Wall Street will smug along happily. Government types will boast of their achievement. As for the rest of us, well, our role will simply be to cheer that which brings us no relief or cheer at all.
10 Responses to “An Economic Koan”
“So if people aren’t buying, aren’t shopping, and 70 percent of the economy is based on such consumption, how could there be a “recovery?”
If you're going to judge the economy on consumption growth, then according to you the recession ended in the first quarter. Also, by this same standard, there never was a recession in 2001 despite 3 million jobs being lost.
Michael,
Up until the 1960s, unions advocated for shorter working time as a remedy for unemployment. The shorter day was the founding philosophy of the American Federation of Labor. In the wake of the Great Depression, full employment became a central policy goal of the federal government. At first, economic growth was touted as the surest path to full employment. So economic growth became the means for achieving full employment. But in the 1970s, full employment was criticized by Milton Friedman as inflationary. So non-inflationary economic growth became the goal instead of the means. Meanwhile, the unions had jumped on the “economic growth as a means for achieving full employment” bandwagon.
The only way to get back to having a dialog about full employment is for the unions to get back to their traditional advocacy of the shorter day and the shorter week. Here's what Samuel Gompers, first president of the AF of L said back in 1888:
“When thousands and hundreds of thousands of our fellow working men and women, through no fault of their own, are consigned to be paupers, tramps, or worse, while all become competitors for the labor of those who are fortunate enough to find employment, I then, as now, laid particular emphasis upon the question that strikes deeper into the evils of society than all others combined; that question which raises man out of the sloughs of poverty and despair; that question which reaches the farthest ramifications of society; that question which creates the greatest revolution in the conditions of the people with the slightest friction upon any; that question of all questions: THE REDUCTION OF THE HOURS OF LABOR.”
And here's what the AFL-CIO was saying in 1962:
“The case for shorter hours does not rest on the notion it is the best way. It is based rather on the view, supported by ample evidence in the past decade of mounting unemployment, that: (1) other economic measures to achieve full employment are not being applied and perhaps cannot be applied; and (2) even if other economic policies are successful in stimulating greater growth in the period ahead, the rate of advance in technology and other labor-displacing changes is gathering such momentum that, unless part of the gains in efficiency are distributed in reductions in hours, it is virtually inevitable that it will show up in persistent and increased unemployment.”
And here's what the AFL-CIO and the Change to Win federation are saying today:
“Up until the 1960s, unions advocated for shorter working time as a remedy for unemployment.”
They were stupid, insisting that the amount of work to be done is a fixed size (not to mention arguing for deliberate overpayment of labor). Related to that is the stupidity of expecting the government to achieve or to create Full Employment in this country, which no government or anyone else ever should be expected to do.
And
* * *
“If you're going to judge the economy on consumption growth”
Isn't that short-sighted, or distorted (even psychologically, a childish insistence on gratification kind of thing)?
DLS: “They were stupid, insisting that the amount of work to be done is a fixed size…”
That repeats an ancient canard, the so-called lump-of-labor fallacy. I've published two academic articles on the alleged fallacy and tracked down hundreds of assertions of it. You can find my articles at: Why Economists Dislike a Lump of Labor and The Lump of Labor Case Against Work-sharing: Populist fallacy or marginalist throwback?
I've also offered a $10,000 prize to anyone who can refute my rebuttal of the l-o-l claim and get their article published in a leading economics journal. The $10,000 is just bait. Anyone who actually researched the claim rather than mindlessly repeating it would soon discover there is no point in trying to defend the claim.
Sandwichman, sounds like an interesting topic, and I regret I wasn't able to read your first paper nor follow your second.
But isn't the fixed-size-of-work theory obviously false in the sense that there's always more that needs doing, which someone somewhere would be willing to pay for? There are diseases that need curing, lawns that need mowing, litter that needs clearing, etc.
It seems to me you can postulate a fixed lump of work only if you assume something is fixed, no? What are the economists you cite assuming?
Dr. J,
There is neither a fixed amount of work to be done nor is the assumption of a fixed amount of work inherent in the case for shorter working time.
Consider the following sentences:
1. The moon is a balloon.
2. Copernicus said the earth revolves around the sun.
3. Copernicus thought the earth revolved around the sun because he believed the moon was a balloon.
Statement 1 is obviously false. Statement 2 is true. Statement 3 is a non-sequitur. There is no inherent connection between the idea that the moon is a balloon and the idea of the earth revolving around the sun other than the fact that the moon, earth and sun are heavenly bodies. But saying that sentence number 3 is nonsense doesn't affirm that the moon is a balloon.
The claim about unionists “insisting that the amount of work to be done is a fixed size” is utterly false. It is a red herring and a distraction from the merits of the case.
Sandwichman, I have great confidence that our union leaders have entire warehouses brimming with innovative arguments for shorter working time.
But I wasn't asking about unionists, I was asking about the other economists you seem to be debating. Whereas the unionist will assume the size of the factory and the number of machines in it are a fixed constant, I would expect economists to look at the whole economy. And that doesn't appear to have a limit on the number of jobs that can be created and work-hours that can be done.
Shall I shout louder, then, Dr J? The advocates of shorter hours DO NOT ASSUME a fixed amount of work. The short hour theorists, Ira Steward, George Gunton, Sidney Webb, Harold Cox, John R. Commons, Sydney J. Chapman, Dorothy W. Douglas — even John Maynard Keynes (yes indeed) assumed no such thing and, in fact, repeatedly denied the requirement for any such assumption. What part of “DO NOT ASSUME” are you having trouble following? But not to change the subject, here is what an Industrial Commission appointed by the U.S. Senate concluded in 1902 (John R. Commons, one of the founders of labor economics was the investigator):
“On the side of the working population there can be no question respecting the desirability of fewer hours, from every standpoint. They gain not only in health, but also in intelligence, morality, temperance, and preparation for citizenship. Even in those cases where machinery has not increased the intensity of exertion, a long workday with the machine, especially where work is greatly specialized, in many cases reduces the grade of intelligence. The old hand-work shops were schools of debate and discussion, and they are so at the present time where they survive in country districts; but the factory imposes silence and discipline for all except the highest. Long workdays under such conditions tend to inertia and dissipation when the day's work is done. Lessening of hours leaves more opportunity and more vigor for the betterment of character, the improvement of the home and for studying the problems of citizenship. For these reasons the short workday for working people brings an advantage to the entire community….
“Furthermore, a reduction of hours is not accompanied by a permanent reduction in the daily rate of pay. Doubtless it is good policy for labor organizations, in demanding a reduction of hours, to concede a temporary reduction in the rate of pay per day, which might be consistent with an increase in the rate per hour. The granite cutters adopted this plan, and when their hours were reduced from 10 to 9 they accepted a drop of 25 cents a day in wages. One year later they regained the wages of the 10-hour day. Again they dropped 25 cents in order to get the 8-hour day, and in another year they regained the 25 cents. A reduction of hours is the most substantial and permanent gain which labor can secure. In times of depression employers are often forced to reduce wages, but very seldom do they, under such circumstances, increase the hours of labor. The temptation to increase hours comes in times of prosperity and business activity, when the employer sees opportunity for increasing his output and profits by means of overtime. This distinction is of great importance. The demand for increased hours comes at a time when labor is strongest to resist, and the demand for lower wages comes at a time when labor is weakest. A gain in wages can readily be offset by secret agreements and evasions, where individual workmen agree to work below the scale; but a reduction of hours is an open and visible gain, and there can be no secret evasion. Having once secured the shorter working day, the question of wages can be adjusted from time to time according to the stress of the market.”
“What part of “DO NOT ASSUME” are you having trouble following?”
The part that pertains to the fixed-lump-of-work fallacy at a macro level, if that's where anyone applies it. But if it's frustrating you to try to explain it, please stop.
Look, I've explained it and I've given the links to the explanation. The unionists' shorter work time theory didn't assume a fixed amount of work. It was based on an argument (found also in David Ricardo's and John Stuart Mill's political economy) that the customary standard of living in a country determined wages and that greater leisure led workers to expect a higher standard of living and to demand — and receive — higher wages.
It would be fair to criticize that theory on its own terms. But economists who opposed the theory didn't do that. Some economists accepted the theory. Those who opposed the theory did so on illegitimate grounds. They made up a nonsense theory, “the theory of the lump of labor” and attributed it the unionists. They said, in effect, “Don't listen to what those people say. We will tell you what they really believe.”
Of course, having made up your mind, Dr J, it is rather presumptuous of me to try to confuse you with facts. So I'll stop.