When labour isn't fungible

Tim Worstall gives us a nice example of the classical liberal mindset. Objecting to Owen's talk of the "trauma" of deindustrialization, he writes:  

People have moved away from an activity that no longer adds value to other occupations that do add value. And so does the human species become ever richer, as we move capital and labour from low...activities to higher value adding ones.
The same is true of the manufacturing in the North that people so decry the disappearance of. The game is all about adding value and if it turns out that staffing an old folks home adds more that humans value than does making thing to drop on your foot then we're richer for the change in what people do.

In saying this, Tim is committing the error I've accused some classical liberals of making; he's mistaking the map for the terrain. He gives a good account of how a well-working labour market should work. But he fails to ask: is this how the market works in reality? And the answer is: maybe not. The fact unemployment rates are high in many areas that experienced a lot of deindustrialization alerts us to the possibility that labour isn't completely fungible; workers made redundant in heavy industry don't swiftly become care home workers. One study of the effect of pit closures in the 1980s found (pdf):

Between 1981 and 2004, 222,000 male jobs were lost from the coal industry in [mining] areas; this was offset by an increase of 132,400 in male jobs in other industries and services in the same areas.

You might object that 132,400 out of 222,000 means Tim is more than half-right. But this omits the fact that unemployment is a massive source of misery. Even if the transition from miner to care home worker does eventually occur, the temporary joblessness during the shift isn't just a waste of resources, but a big loss of happiness.

In this context, Tim is too sanguine about relative decline. He says: "going from being a comparatively rich part of the country to being a comparatively poor one is not the same as becoming poorer or impoverished." This overlooks the fact that relative poverty matters. As Adam Smith - who gave his name if not much else to the Adam Smith Institute - wrote:

By necessaries I understand not only the commodities which are indispensably necessary for the support of life, but whatever the custom of the country renders it indecent for creditable people, even of the lowest order, to be without. A linen shirt, for example, is, strictly speaking, not a necessary of life. The Greeks and Romans lived, I suppose, very comfortably though they had no linen. But in the present times, through the greater part of Europe, a creditable day-labourer would be ashamed to appear in public without a linen shirt, the want of which would be supposed to denote that disgraceful degree of poverty which, it is presumed, nobody can well fall into without extreme bad conduct.

In saying all this, I don't mean that Tim is entirely wrong. He's right that, over time, labour must shift; we need care workers more than a stovepipe hat factory. Tim's error, instead, is to understate the pain - and time - involved in this shift.

In doing this, and in writing of the human species becoming richer, Tim is coming close to the view that the happiness of some individuals must be sacrified for the welfare of the collective. Which seems to me to be nearer to Stalinism than to classical liberalism.

Comments

[Tim Worstall]

Apologies, grammar there. We took from Adam Smith rather more than just the name.

[Dave Timoney]

To put it in Gary Becker-like terms, deindustrialisation occasioned extensive human capital destruction. But that's OK, because we've opened more free schools in West London.

[theOnlySanePersonOnPlanetEarth]

Why do you quote this worthless piece of shit Worstall? Is he a drinking buddy?

“People have moved away from an activity that no longer adds value to other occupations that do add value.”

People didn’t move away but were removed by force! I remember the pitched battles with the police! This wasn’t some neutral working of the free market, some collective national agreement but an attack by a government. You may have liked the attack but I think re-writing history was something else attributed to Stalinists! I bet you say the when the Jews took the train and set off for Auschwitz.

“And so does the human species become ever richer, as we move capital and labour from low...activities to higher value adding ones.”

Who is the we in all of this? You may as well substitute Max Hastings abused those girls to we abused those girls, it makes as much sense. Anyway,if you read the UN and Oxfam reports some become much more richer than everyone else, and when I say much richer I mean staggeringly so.

“The same is true of the manufacturing in the North that people so decry the disappearance of. “

It didn’t disappear but upped sticks and moved elsewhere. For example world coal production reached record levels in 2012 (7831Mt).

“The game is all about adding value and if it turns out that staffing an old folks home adds more that humans value than does making thing to drop on your foot then we're richer for the change in what people do.”

How is this economic illiteracy allowed to pass? For example, coal is the major fuel used to generate electricity worldwide. Forget Admin Smith, this guy needs a lesson in Ricardo!

[Peter Whale]

Your wrong Tim is right.
I used to be in the Wholesale game when London was filled with corner shops.
Variety disappeared but wealth increased for the betterment of the whole
Is that not how commercialism works?

[theOnlySanePersonOnPlanetEarth]

The holocaust in the words of Tim Worstall,

One day we all had a very big meeting and decided that things needed shaking up a little, the jews got on the train and went off to Auschwitz to get involved in higher value production, after all the low value banking and lawyer stuff they were doing before. We decided to test a new high value substance on the Jews and it worked like magic. We were all delighted with the results. Everybody said, this stuff is really really good stuff, that we have decided is very high value. We all said, let’s move more capital to this stuff and away from that low value stuff, as the low value stuff just isn’t making us rich enough. And we all agreed that the human species was the better for it.

[guthrie]

Not that I think he's an imperialist, but exactly the same highly abstract sentences could be applied to imperialism, ending up with countries producing much greater value. Shame about all those murdered and starved because they objected to it or didn't understand what was going on.

[rogerh]

As technology and wealth advanced some new thing would be more profitable and pay better than some 'low level' employments displaced or abandoned. But no longer true, labour is cheaper and just as good offshore. But the cost of living here is defined by those classes still in work, the price of houses and skinny lattes is set by what the middle classes can pay and everyone else must pay the same. This factor plus the rules also set by the middle classes make placing lower level work here less attractive - so vicious spiral. In that sense labour is prevented from being fungible because in order to live it must charge too high a price.

There is another sense in which labour is not fungible - intelligence, training, education, life skill and mobility are not the same across the product, there are big variations. You cannot easily swap a Kensington estate agent (smooth, cunning and knows the ropes) for a riveter even if the riveter could get digs anywhere near Kensington. That situation seems to be getting worse.

So govt has a tricky problem, not wishing to offend the capitalist employers, not being able to control where they hire workers and having to tax heavily to fund people who will not be offered work. Even if education and life skills and mobility could be improved I doubt the cost would be repaid by the increased number of estate agents or marketing consultants. Now if only we could force down middle class wages and house prices......

[theOnlySanePersonOnPlanetEarth]

Erm Max Hastings should have read Max Clifford!

9/11 in the words of Tim Worstall,

One fine morning we decided we didn't need the world trade centre buildings in New York as they were spoiling the view, what expert economists would say were now low value. We all agreed that the best way to bring the buildings down would be to fly a couple of planes into them, and helpfully those working in the building moved to the ground floor to facilitate this process, eventually.

We replaced the low value buildings with something we thought of higher value, as we are always moving capital to things we like more (or are of higher value to give the technical economic concept), like when we all decided we had had enough of analogue t.v.

We all agreed humanity was the winner.

[Catch Boy]

One suspects Worstall would have a less detached view of labour market changes if it were Yaffle-esque, middle-aged, middle-class thinktank bloviators being sacked in huge numbers.

[Zofel]

Without considering any other thing than health and risk to health and human life, do we prefer unemployed or miners?

[andrew]

Long story short:

Progress is traumatic.
... but it is better than the alternative.

[theOnlySanePersonOnPlanetEarth]

The horse meat scandal in the words of Tim Worstall

We all loved our ready meals, our convenience foods; we decided to allocate loads of capital to these areas. Thus, as the economic experts would tell us, they became high value areas.

But then one day we all had a very big meeting, the entire human race attended and we all said we don’t like beef within our wonderful ready meals. Lets re allocate the capital from beef to horse meat we all agreed. So at once we set about moving capital from beef to horse, and as the economic experts would tell us we changed beef from high to low value and changed horse meat from low to high value.

We all agreed that humanity was the better for this.

"Without considering any other thing than health and risk to health and human life, do we prefer unemployed or miners?"

Remembering the importance of coal production to electricity, to put it another way, do you like the days before electricity or the days with electricity?

[Dipper]

Love theOnlySane's riffs and he has a strong point.

There is a strand of economic argument that says the current choices are the best because they are the current ones. There is no external measure, and the only valid measures are the current values. These are exactly the arguments used about the huge expansion of credit and leverage in the noughties, that everything was fine because the market behaved as though it were fine.

There seem to be lots of things in economics such as a deficit of £2000 per person per year in the UK that are fine because currently the market tolerates them, and they carry on being fine right up to the moment when they aren't, and then its too late to do anything about it. Its a similar argument to saying that driving a car at 100mph in a built up area is safe because you haven't yet crashed.

[Neil]

Wow, that final paragraph... So how does hitting this cow's arse with a banjo feel, Chris?