PK on the lump of labor fallacy

[Eubulides <paraconsistent@xxxxxxxxxxx>]

[cue to the Sandwichman........]

[New York Times]
October 7, 2003
Lumps of Labor
By PAUL KRUGMAN

Economists call it the "lump of labor fallacy." It's the idea that there is
a fixed amount of work to be done in the world, so any increase in the
amount each worker can produce reduces the number of available jobs. (A
famous example: those dire warnings in the 1950's that automation would lead
to mass unemployment.) As the derisive name suggests, it's an idea
economists view with contempt, yet the fallacy makes a comeback whenever the
economy is sluggish.

Sure enough, the lump-of-labor fallacy has resurfaced in the United States -
but with a twist. Traditionally, it is a fallacy of the economically naïve
left - for example, four years ago France's Socialist government tried to
create more jobs by reducing the length of the workweek. But in America
today you're more likely to hear lump-of-labor arguments from the right, as
an excuse for the Bush administration's policy failures.

The latest lump-of-labor revival came to my attention when I realized how
eagerly certain commentators were picking up on a new study by economists at
the Federal Reserve Bank of New York. In it, Erica Groshen and Simon Potter
argue that the pattern of laying off workers during recessions and rehiring
them during recoveries has changed: since 1990 employers have become much
less likely to rehire former workers. It's an interesting study, and it
might - repeat, might - shed some light on why businesses have added so few
jobs during our so-called recovery.

But I was puzzled at first by the enthusiasm with which a relatively
academic paper was seized upon by usually bullish, supposedly hardheaded
business commentators. The puzzle vanished, however, when I read these
remarks more carefully: they were mainly trying to make excuses for the
administration's dismal job record. You see, they say, it's not that an
economic policy consisting largely of tax cuts for the rich has failed to
deliver. No, it's a structural problem with the economy, which just happens
to have arisen now, and nobody could have done better.

Oh, well. But partisan politics aside, the growing lumpishness of American
thinking about jobs is dangerous, in two ways.

First, it encourages fatalism - if politicians and the public believe that
new jobs can't be created, they will stop pressuring our leaders to find
more effective policies. And that would be a shame, since the Bush
administration has resolutely refused to try the policies most likely to
improve the employment picture.

Since 2001, sensible economists have been pleading for federal aid to state
and local governments so schoolteachers and police officers needn't be laid
off because of a temporary fall in revenues. They've also urged the
administration to stop dragging its heels on much-needed homeland security
spending, not just because such spending is needed to make the country
safer, but also because it would create jobs and put more income into the
hands of Americans likely to spend it. (And if you're worried about
spending's leading to increased deficits, why not cancel some of those
long-run tax breaks for upper brackets?) Until we've done the obvious
things, there's no reason to despair about job creation.

Second, lump-of-labor thinking - and the policy paralysis it encourages -
feeds protectionism. If the public no longer believes that the economy can
create new jobs, it will demand that we protect old jobs from new
competitors in China and elsewhere. Economists can explain until they are
blue in the face why limiting exports from developing countries would be a
bad idea - why keeping our markets open to new producers is in America's
interest both economically and diplomatically. But theoretical arguments for
free trade will count for little if the real-world experience of jobs lost
to Chinese competition can't be offset by a credible promise that new jobs
will be created to replace them.

History seems to be repeating itself: a similar rush to blame foreigners for
U.S. problems happened during Bush I's jobless recovery (which looked like a
hiring boom compared with recent experience). Remember the president's
literally nauseating trip to Japan in the company of auto executives? But if
the early 1990's flirtation with protectionism had the feeling of farce,
today's employment stagnation - and the protectionist talk now emanating
from both parties - has the makings of tragedy. If we don't get some real
job creation soon, the politics of jobs may become dangerously
self-destructive.




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To this day, no one has come up with a set of rules for
originality. There aren't any. [Les Paul]