Friday, May 20, 2011
Economics Prof falls for Lump of Labour fallacy!
Prof. Robert Skidelsky, for whom I normally have a lot of respect, has gone right off the rails in this article. (Incidentally, my previous post (16th May) was about economics Profs who have gone off the rails. And some goes for the next post in a day or two. So welcome to my “economics profs off the rails” series!)
As the world recovers from the Great Recession, it has become increasingly difficult to discern the true trend of events. On the one hand, we measure recovery by our success in regaining pre-recession levels of growth, output, and employment. On the other hand, there is a disquieting sense that today’s “new normal” may be slower growth and higher levels of unemployment.
So the challenge now is to formulate policies to provide work for all who want it in economies that, as currently organized, may not be able to do so.
Hang on. Since when have we been able to “provide work for all who want it”? Never! No country or economy has ever been able to do that, so the fact that we currently, or in the future wont be able to, is no big deal.
On the other hand if Skidelsky is suggesting that we won’t be able to “provide work” for AS MUCH OF THE WORKFORCE as we used to, what’s his basis for this suggestion? No more, far as I can see, than the “disquieting sense” mentioned in his first paragraph. That is not a logical argument.
The problem has two aspects. As countries become more prosperous, one would expect their growth rates to slow. In earlier times, growth was fueled by capital scarcity: capital investment attracted a high rate of return, and this created a virtuous circle of saving and investment.
Cobblers! Why does the fact of becoming more prosperous mean that growth rates decline? GDP per head in what is now the UK was more or less constant between the time of the Roman Empire and about 1,500AD. Then by around 1900 it had shot up. But it didn’t stop rising after 1900 did it?
As for the idea that “growth” is “fuelled by capital scarcity”, that’s a strange one. Skidelsky claims there is a “capital scarcity”, but in the next sentence claims there is a “virtuous circle of saving and investment”. Now that’s what I call a self-contradiction. Is he saying that “in earlier times” there was an adequate supply of capital or not? Darned if I know.
And as for the idea that “capital scarcity” can “fuel growth”, I’m baffled. If we couldn’t afford computers, roads, houses, factories, etc etc, that would “fuel growth” and make us better off?? Sorry: I don’t get it.
Today, capital in the developed world is abundant; the saving ratio declines as people consume more; and production shifts increasingly to services, where productivity gains are limited. So economic growth – the rise in real incomes – slows. This was already happening before the Great Recession, so generating full-time jobs that pay decent wages was becoming ever more difficult. Hence the growth of casual, discontinuous, part-time jobs.
More nonsense on stilts. Why on earth does the fact of economic growth slowing down mean that “generating full-time jobs that pay decent wages becomes more difficult” and that the prevalence of “casual, discontinuous, part-time jobs” rises?
Suppose that economic growth ceases altogether, say because improvements to technology grind to a halt, why does that make it more difficult to pay “decent wages”? Given constant GDP per head, wages will just remain constant, other things being equal, won’t they? And why does “generating full time jobs” become more difficult? Again, given constant GDP per head, why on earth does that mean that half the workforce switches from full time to part time work. That is, why does aggregate demand decline? I can think of no reason whatsoever. Skidelsky continues:
The other aspect of the problem is the long-term increase in technology-driven unemployment, largely owing to automation.
Hang on. He is simply assuming the validity of the Luddite argument, i.e. that technology causes unemployment. No reasons given, apart from the “disquieting sense” mentioned above.
The market’s solution is to re-deploy displaced labor to services. But many branches of the service sector are a sink of dead-end, no-hope jobs.
Oh yes? Take doctors and nurses: they’re a real bunch of “dead-end, no hopers” aren’t they? And then there are lawyers and computer programmers: also a bunch of thick headed, knuckle dragging, uproductive, time wasters, I don’t think. He continues:
Immigration exacerbates both aspects of the problem. A large part of migration, especially within the European Union, is casual – here today, gone tomorrow, with none of the costs associated with full-time hiring. This makes it attractive to employers, but it is low-productivity work, and it increases the difficulty of finding steady employment for the majority of a country’s workforce.
Immigration exacerbates unemployment…is Skidelsky a BNP member? Immigration can certainly cause temporary disruption to labour markets, e.g. the big influx of East European construction workers to the UK between around eight and three years ago. That certainly pushed significant numbers of UK construction workers out of their jobs. But there is no LONG TERM effect: those pushed out of work retrain or retire, etc etc. America has absorbed A MILLION IMMIGRANTS PER YEAR FOR TWO HUNDRED YEARS!!! How come unemployment in the US over the last few decades has been no different to other developed countries? Skidelsky continues:
So, are we doomed to a jobless recovery? Is the future one in which jobs are so scarce that many workers will have to accept a pittance to find any employment and become increasingly dependent on social transfers as market-clearing wages fall below the subsistence level? Or should Western societies anticipate another round of technological wizardry, like the Internet revolution, which will produce a new wave of job creation and prosperity?
What? Unless GDP per head dramatically falls there is no reason to suppose the average wage will fall or that “workers will have to accept a pittance”.
As for the idea that “technological wizardry . . . will produce a new wave of job creation and prosperity”, I thought the learned professor was trying to push the idea that technology CREATES unemployment. Now he’s saying it does the opposite: i.e. reduces unemployment.
I’ve had enough. But your’re welcome to go through the rest of Skidelsky’s article. It’s as “entertaining”, if I can put it that way, as the first half of the article.