Against one-trick ponies

Those of you who believe that bourgeois economics is mere ideology have had two data points of corroboration recently.

First, Stephen Moore, Art Laffer and Steve Forbes said: "don’t expand welfare and other income redistribution benefits like paid leave and unemployment benefits that will inhibit growth and discourage work."

This contain layers of nonsense. For one thing, during the current public health crisis we want to discourage people from working so they don’t infect others. But even in normal times. Their statement would be wrong. In one survey of the evidence Abhijit Banerjee and Esther Duflo conclude that “there is no evidence that cash transfers make people work less.” (Good Economics for Hard Times, p289). One reason for this is suggested by the fact that the unemployed are much unhappier (pdf) than a lack of income alone would predict: work is a source of meaning and identity.

The second piece comes from ECB council member Robert Holzmann who claimed that the virus might “release positive cleaning forces.”

It is true that some recessions (pdf) can sometimes have this effect. If aggregate demand falls, people are likely to cut spending on the goods and services that offer worse value, which are likely to come from the worst-managed firms. And capital scrapping can raise aggregate profits and so spur future investment. But it’s obvious that this recession is not one of these cases. The hardest-hit firms will be those most hurt by lockdowns such as pubs and restaurants. These are not necessarily the least efficient or profitable ones.

What we have here, then, are two especially egregious examples of an error which Dani Rodrik warned us against (pdf): we must not impose the same model upon every problem. Instead, we must have a variety of models or theories and apply the right one in the right place. Economists cannot be one-trick ponies – especially when as in Laffer’s case, that trick is a lousy one.

In this sense, there’s a big difference between these rightists and we Marxists. As I’ve said, many of us are unideological about many matters (such as the impact of minimum wages) because we’ve no dog in those fights.

This is true of crises. Although Marx held the ideological (and correct) view that capitalism was inherently prone to crises, he saw that these would take many different forms. As one of the earlier and better of his commentators put it:

Crises are extraordinarily complicated phenomena. They are shaped to a greater or less extent by a wide variety of economic forces…the actual economy [is] so much more complicated than the model systems which were analysed in Capital (Paul Sweezy, The Theory of Capitalist Development, p133)

It should be obvious to anyone who isn’t an ideologue that a public health crisis, and the attendant economic crisis, requires a greater degree of state intervention than would be appropriate in normal times. Just as there are no atheists in foxholes, nor are there any intelligent libertarians.

The smarter people on the right get this. “Treating this event as a normal market adjustment seems perverse” says Ryan Bourne. He says the aim of policy should be to

mitigate distress among vulnerable households and businesses, preventing business failures or mass layoffs in viable firms, or severe hardship for those without significant savings or employer benefits. 

“Paying people not to work”, he says, “becomes, for the time being, a virtue.”

He would put far more stress on those words “for the time being” than many of us on the left would, who favour more redistribution and automatic stabilizers even in normal times. This, however, should be a debate for another time. The fact is that what’s appropriate in a crisis might not be appropriate in normal times*. Today, the distinction is not between left and right, but between those who get this and those who don’t.

* This is true in another sense. A universal basic income and/or helicopter money are, I suspect, good ideas for the future, but not so appropriate today.

Comments

[LJC]

Robert Holzmann might be right, but not for the reason he thinks. One consequence of coronavirus is that people who can do so are working from home, which reduces the environmental costs of commuting and may well continue after the pandemic is over. Also, it is quite likely that some airlines will go out of business due to the pandemic and the demand for flights may not return to levels before the pandemic as people realise that air travel was a major factor in spreading the disease.

[aragon]

It is important to be effective rather than efficient.

All people can not manage without an income!
i.e a basic income is comprehensive, and any wastage is a windfall for the recipients.

Better waste than destitution. Also KISS (Keep It Simple Stupid) the existing welfare system is too complex, to cope with a massive increase in demand.

People are the priority. I get it.

https://capx.co/there-is-now-a-strong-case-for-a-temporary-universal-basic-income/

[Adam Akhtar]

Great article

[Robert Mitchell]

"One reason for this is suggested by the fact that the unemployed are much unhappier (pdf) than a lack of income alone would predict: work is a source of meaning and identity."

Doesn't this assume ergodicity: an ensemble average is assumed to be the same as an individual's time-series average? The ensemble is made into a single representative agent that allows you to make policy prescriptions but ignores individual time series?

Work for me is even more depressing. I wonder if the authors find ways of throwing out data from others like me. I may be unhappy and unemployed but I was much more unhappy when employed.

My brother was employed and committed suicide. Is his experience completely discounted? Work was meaningless and a source of a fraudulent identity. But you find ways of simply throwing his individual time series out of the story you want to tell about work? Math says he's unlikely to exist, so his life can safely be sacrificed for the sake of ergodicity assumptions?

[John]

Agree with Robert. I'm not sure who did it but I believe there is research in India comparing physiological effects of low paid, insecure work against self-reported wellbeing. Lots of people reporting being happier in this work than unemployment, but their bodies were showing something else, massive stress hormones, higher blood pressure etc.