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March 29, 2012

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Tom Freeman

4. The paradox of thrift. If I cut back my spending so that I can weather a possible recession better, that makes sense for me. But if we all do it, we make the recession more likely.

Leigh Caldwell

You overstate the case slightly. If everyone worked harder/smarter to find a job, one would expect job matching to improve, resulting in faster job offers (slightly lower unemployment), more productivity (and output) and a (perhaps small) multiplier effect which will create net new jobs. However this is a minor effect compared to the fallacy which Cameron appears to be indulging in.

There is a more sinister interpretation. Perhaps Cameron knows full well about the fallacy of composition. Maybe he wants to create a division between those slightly more effective, skilled or hard-working unemployed people who will get the few jobs, and those a few steps behind who just miss out - and can then be blamed as feckless losers. Those who do get (or keep) a job will make the mistake of thinking "I worked hard like Mr Cameron said and I got a job, so if _she_ didn't get one she must be a lazy so-and-so". A recipe for class division and potentially, the creation of new loyal Tory voters.

I don't really believe this; I just think Cameron says whatever he thinks sounds plausible and will get him re-elected. He probably suspects that nothing the state can do will make any (positive) difference - the simplest and most fundamental ideology of Tories - so it's just a matter of doing as little as possible and staying in power as long as he can.

Jen

Very interesting, thanks for sharing! Are you by any chance aware of other governments who take these issues into account? Is there a "socially optimal" solution here?

Robin

Didn't Cameron also tell us all to save more and spend less at the last Tory conference. Before withdrawing his remarks a few hours later.

David S

Why is it necessarily collectively self-defeating?

If everyone starts the strike with a full tank, that would obviously be better (collectively) than many people starting it with a partially empty tank.

It is a facutal question whether there is sufficient easily available petrol to cover the short-term increase in demand caused by people filling up more often without there being shortages. If there is, then the policy is both individually and collectively rational.

Phil

There certainly doesn't appear to be enough petrol on the forecourt at any one time for everyone to top up - nor would I expect there to be. Let's hope there isn't another Northern Rock on Cameron's watch.

I think the simplest explanation is that the guy isn't very bright; he's never needed to be, after all.

Phil Ruse

For the sake of argument, could not the same be said for the myriad back-to-work schemes for the unemployed? If we all, for example, learn how to write a better CV this isn't "aggregatively beneficial". Should we therefore scrap such schemes altogether?

Ralph Musgrave

In contrast to Leigh Caldwell above, I don’t think items 1. and 2. Above are “slightly overstated”. I think they are wholly invalid.

If X people fill vacancies, that improves aggregate supply relative to aggregate demand which means AD can be bumped up by enough to create X new vacancies.

Same point applies to immigration. The U.S. has imported about a million immigrants a year for the last two hundred years. And about half of those seek and find work. But mysteriously, unemployment as a proportion of the total workforce has not changed over the long term.

But Chris produces a large amount of quality stuff per day, so I’m prepared to forgive the occasional error :-)

Phil

On second thoughts there's a simpler and less derogatory explanation. It's not so much that they see the country in terms of an individual's actions, more that they see governing the country in terms of advising their circle of friends. If you factor that in it all makes sense - *people like us* should nip out to the petrol station (and do it now before the oiks catch on); *people like us* who can't find a job just jolly well need to look harder; *people like us* could spare a few hours a week to keep the local library open... It's a government by people like us, for people like us, and I think deep down they really believe it's government *of* people like us (plus a few Trots and scroungers).

UnlearningEcon

'You might reply that the increased labour supply would force wages down and so create demand for workers. But even if this were true in theory, it is blocked by the minimum wage.'

And of course, it isn't true in theory because it is based on:

a) A ceteris Paribus argument that is violated so extensively by changing the composition of an economy that it becomes useless.

b) The incoherent MVP theory of wages.

Account Deleted

As a previous Tory leader once said:

"There is no such thing as society. There are individual men and women, and there are families. And no government can do anything except through people, and people must look to themselves first. It's our duty to look after ourselves and then, also to look after our neighbour."

We're all in it together, but look after your own interests first.

Keith

Ralph Musgrave is missing the point. Total economy wide demand is not determined by the action of any one worker, immigrant, or unemployed person. The USA has imported millions of Immigrants, but it has done so by allowing its economy to grow fast enough to absorb them. If you screw up your economy millions could emigrate to escape the disaster and you would still have unemployed workers as in Zimbabwe under Mugabe. Phil is right I suspect, but that is also the same argument about errors of composition in a slightly different form. To look at politics from only your own class perspective is the sign of a incompetent statesman says Aristotle, On Politics, as the ruler of a polity should rule so as to be acceptable to all classes and interests. But maybe that philosopher is too advanced for the tory party!

Sean

Or it could be counter intuitive.

To preserve the strategic reserve better to get people thinking about their usage now before the summer starts. Thus keeping your tanks full at not running at a third full will push the refiners to pump up production and when the shit hits the fan later in the summer in the Gulf (remember the Israeli security cabinet have voted 8-6 to attack Iran) the reserve will have more bang for its buck so to speak.

I noticed this with the Veto, he does game theory. Probably too clever by half but maybe we will all get lucky and still be able to laugh at the end of the summer.

charlieman

@Chris: "Some will find work. But in doing so, they’ll merely get those jobs at the expense of other job-seekers..."

That is true if job seekers are applying for advertised vacancies. It is not always true for prospective applications -- here are my skills, do you have a job? -- which may create jobs and wealth.

Ralph Musgrave

My answer to Keith is that my argument (March 29, 2012 at 06:31 PM) was based on the assumption that the relevant economy is not “screwed up”, to use Keith’s phrase. And that is a perfectly reasonable implicit assumption to make.

You can demolish any argument by assuming someone screws things up. For example, a way to get a cup of coffee is to go into a café and ask for one. Works 99.% of the time. But if the relevant café “screws things up”, then of course you may not get your cup of coffee. But that is not a very good argument against the proposition that “a way of getting a cup of coffee is to go into a café and ask for one”.

Montesquieu

Most people are missing a trick here. The fuel queues were engineered to bring forward a substantial chunk of retail spending into Q1 and stave off a technical double dip recession. It's a close run thing probably just 0.1% or so so it's worth the mayhem to avoid those 'failed Plan A' headlines.

Of course the following quarter will be correspondinly reduced but a recession is two quarters negative in a row, having zero or minimal growth in between two duff quarters means it isn't, technically, a recession.

Keith

Montesquieu I like your contribution, very cynical. Do you think Thatcher started the Falklands war on purpose?

Ralph Musgrave I agree assumptions are difficult things; but if a fascist dictator like Mr Mugabe has thrown the coffee shop owner out of the country saying "a way of getting a cup of coffee is to go into a café and ask for one”. May not get you cafinated beverage as required. The kind of social failure involved is a failure of collective action problem. The characteristics of individuals is only one element of the situation. Most social facts are outside of our personal control.

thebomber

There's an amazing sense of prejudice in a lot of these comments - namely that Tories have a peculiarly posh kind of stupidity, and they only look out for their friends (ie other posh people). It's the type of comment that is never directed at other political types and is in itself a form of confirmation bias.

The simple explanation for the self induced panic is that it was politically motivated - move the news agenda back to badly behaved trade unionists and away from the dreadful headlines of the last week.

Mark Liversedge

The Falklands Conflict was triggered by the withdrawal of HMS Endurance, so yes, perhaps she did start it on purpose (or was unbelievably ill-advised).

Hoover

May I first remind commenters that Maggie didn't start the Falklands War?

On the subject of petrol: There's evidence that the petrol panic was not a mistake (see eg claimed comment "a bit of petrol panic isn't a bad thing" or words to that effect). The argument that it clusters spending into Q1 isn't entirely fantastic either.

On the subject of looking for employment: It's not as entirely zero sum as the author suggests.

A basic model to start the ball rolling: If two people are unemployed, and one gets a job, the remaining unemployed person's chances are increased. Demand will rise, animal spirits will be filled with joy, confidence will return, etc, etc.

The concept of "making work pay" is not an error. Benefits are structured so that under certain circumstances it makes sense to refuse a part time job and take welfare instead. But the author has provided little detail in that paragraph and I confess I don't fully understand this particular argument.

On the minimum wage forming an insuperable barrier: It should be noted that the minimum wage is now far from rigid. That's to say, there are government schemes under which people work for less than the minimum wage. Thousands of people are doing unpaid internships. And inflation is reducing the minimum wage in real terms.

Underlying all my points above is a desire to deal with wot really happens, rather than claims about motivations and intentions.

Ceiswyn

"If two people are unemployed, and one gets a job, the remaining unemployed person's chances are increased."

How? Sure, there's one less competitor, but there's also one less job. By reducing this to the simplest possible model - one where there are two jobseekers and one job - we can easily see that the unemployed person's chances are the opposite of increased.

Even if we assume that unemployment isn't zero sum, is it *significantly* not-zero-sum to invalidate the argument?

Hoover

@Ceiswyn I don't know an answer to your question.

Has anyone worked on it, I wonder.

Speculative: One person gets a job, increases demand, creates 0.1 of another job. Multiply that ten times and you've created a job from thin air.

It has a melancholy Keynesian beauty.

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