Tag Archives: lump of labour

Experts and Real People: Three Lessons for Experts in the Age of Post-Truth Politics

Recently, I was invited to an interesting INET conference organized by the Young Scholars Initiative YSI. One interesting and recurrent topic that came up during the discussions was that even if economists show objectively that migration is not a real problem on objective grounds, people rarely believe this story. Instead the expert opinion sounds counter-intuitive in most people’s ears and hence necessarily wrong.

Ironically enough many experts and pundits have thus now diagnosed the end of policy making informed by expert opinions (e.g. here). The age of Brexit and populism is an age of post-truth politics, in which people cannot easily distinguish between facts and fiction any more.

Unfortunately, this makes the expert the lone hero, a prophet in the dessert which, if only listened to, would know how to fix all problems of humanity. This heroic stance is sometimes noble, but often very misleading. Instead, experts should ask themselves, if the problem lies on their side. The lessons to be learned from this recent crisis of expertise are more complicated than most experts admit. In my own work on the lump of labour idea I have realized that experts suffer from three different problems when dealing with what the public thinks.

First, experts routinely understate their own uncertainty about policy issues. Expertise creates tunnel vision, and experts very often prefer technical fixes over messy political solutions. They also overestimate their own predictive and analytical powers.

Just as an example, Paul Krugman was, for a long time, the champion of those who saw the dangerous potential of the lump of labour fallacy. For most economists the idea that our society runs out of jobs, and that jobs can only be created by taken them away from those who already have a job, is a fallacy. Krugman perhaps feared more the consequences of this belief – for instance a reemergence of protectionism – than the actual veracity of his opinion, but he recently jumped ship to some degree. In the wake of digitalization and automatization processes he recently admitted that problems of transition from job to job are greatly intensified by technological advances and that even very flexible labour markets have a limit in relocating millions of people in a short time span. While one has to applaud a scholar’s flexibility to change opinions, it is also a worrisome sign that scholars engage too much in the publicity game and form too strong positions which, one way or the other, turn out to be wrong.

Lesson 1 to be learned is hence, experts should never overstate their claims and understate the uncertainty around certain claims. They should be more humble.

Second, even if the lump of labour fallacy was a clear fallacy from the perspective of economic experts, ordinary people have every reason to see, perceive and realize the problem way differently. If workers become redundant, or fear that, once they lose their jobs they would have severe difficulties finding a new, similarly paid job, it is very easy for them to see the labour market as a zero sum game in which some workers take other workers’ jobs away. The business cycle, labour market institutions and other factors further enhance this impression.

Lesson 2 is hence that truth operates on very different levels of cognition and perception. It’s simply not enough if experts only focus on quite artificial ‘objective’ facts such as the ‘macro level’, the ‘long run’, or easily measurable outcomes.

Third, once experts acknowledge the uncertainty of their own opinions and the gap between their opinions and those of ‘ordinary’ people they need to develop a strategy for bridging this gap. As a political economist the simplest solution that comes to mind is paying off those who are (or think to be) losers of processes such as globalization, digitalization etc. But in times of severe budgetary problems this is not a feasible, and perhaps not even efficient strategy. For the better or worse, experts need to understand the psychology of public opinion better. In many instances, the real issue is not one of money, or only partly so. The psychological consequences of joblessness or similar seemingly existential threats are much deeper and lead to much hostile reactions against innocent bystanders (refugees, migrations, good citizens). Hence, in a deeper sense experts must learn how to convey a message of meaning to people who think they are losers. For instance, it is well known among psychologists that scarcity tremendously increases demand for something, much more than a market-driven price mechanism could handle. If our society (temporarily or permanently) runs out of jobs, people paradoxically value the remaining jobs much more highly, and enhance the already existing level of ‘objective’ competition. Instead, people need to learn how to cope with job scarcity in many ways, and they need to learn how to define alternative livelihoods not exclusively built around standard work arrangements.

Hence lesson 3 sounds somewhat esoteric, redefining the meaning of life, but it is essential for winning back the masses of disgruntled people.

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Why I am for the Swiss basic income proposal, but for somewhat unorthodox reasons

 

Swiss people will be the first to vote on the introduction of a nation-wide basic income scheme. While the details of such a scheme would be to be designed at a later stage, it is quite clear that such a move would be quite revolutionary. I myself quite literally sit on the fence, but I would arguably vote for a modest and well-designed version of a basic income scheme. Yet, I do not necessarily share the beliefs in the pros and cons often mentioned.

First and foremost, one has to be honest: there is a huge uncertainty proposing such a scheme. No country has ever done it on this scale. If you are risk averse that’s not good news. It’s honest news though. And perhaps, we should also give a premium on policy experiments (see below). Now let’s move to some arguments usually held against the basic income scheme.

A main argument is about work incentives. I think this cannot be easily discarded, but it shouldn’t be exaggerated either. If there is any type of graduation in the benefit, say in the form of a negative income tax, people taking up work ‘graduate’ into paying full tax load. At the margin, taking up work still will make sense (much more than with a standard social assistance scheme). The work-incentives literature is very complex and somewhat contradictory, but if anything it shows the disincentives are less than often feared. This is good news. That’s said there could be a major one-time reshuffling of the labour market which is hard to anticipate. Some jobs may simply prove to be too unattractive to do, once people have more choice and less financial pressure. Some of these jobs may also be jobs that would fade away due to technological progress anyways. In other cases, e.g. care personnel in social services society would need to re-evaluate its worth.

The perhaps even bigger argument against basic income schemes are the fiscal costs. That’s the aspect where a fiscally conservative country like Switzerland would truly break a barrier. There is even agreement on this point between advocates and critiques (gated link only, thanks NYT) of these schemes. The total costs seem enormous, even if, in part, they are offset by savings on other programs. Yet, more to the point, it would send a strong signal: you can still do progressive welfare state policy in an age of austerity. I don’t think it likely that one can finance such a scheme through yet another innovation such as a financial transaction tax (which, anyways would only really work if countries coordinated on such a tax). The main alternative would be a rise in VAT, in part eating up the benefit, and perhaps further increasing inflation. But the regressivity of the VAT raise would at least be compensated by the fact that the basic income scheme benefits the poor more than the rich.

Now to the alleged advantages. Most observers argue that such a system is very simple, very efficient, since it saves a lot of costs of targeting, monitoring conditions of standard social minimum programs etc. But is it true that a simple tax & transfer system is necessarily a good one? I am a bit more skeptical about the long run implications of such a system. While it is true that different forms of social protection and assistance have grown too far and sometimes even contradict each other, welfare states have to be necessarily multi-dimensional, complex institutions with several different programs.

The argument about simplicity seems to what unites what, in other respects, is a fairly heterogenous support group. Some conservatives would see a basic income scheme as a chance to put a tap on all other forms of spending: Why having an unemployment insurance, pension insurance with some redistributive qualities if you have a basic income?

There is a real-world example which exemplifies this danger. The closest relative to basic income schemes, social assistance/ minimum assistance programs are usually not very generous, one might even call them stingy (usually a country spends some 1-2% of GDP on social assistance, but up to 6-7% for pension or health). Some scholars call this the paradox of redistribution: only when the middle class benefits they agree on social policies. Does the middle class benefit from basic income? Not much, given that typically their tax allowance would eat up most (or all) of the basic income transfer. That could make them very skeptical about the scheme in the first place.

One of the key normative benefits of basic income is also one of its key political weakness: unconditionality. You may argue why unconditionality is normatively speaking a good thing:  why should rich people also get it? But on the plus side, these schemes are easy to implement, and do away with much of paternalistic welfare state policy and monitoring. Basic income schemes also take away a lot of stigma applying for the social minimum etc. But this feature is also what seems to make some conservatives quite hostile against these schemes: They want to see conditions (employment, health etc., having children) attached. These conditions often make little sense economically, and are sometimes, quite frankly inhumane (for instance, by asking lone mothers to work for a minimum wage). But very often, unconditional cash transfers are hard to sell to this ideology.

A final argument in favour of minimum income schemes is of the type ‘desperate times need desperate means’. Even some prominent economists nowadays come around on the question whether technology generates or destroys jobs. Not long ago, this position was still called a (lump-of-labour) fallacy. Yet, you don’t need to support basic income because you think technology makes labour redundant. Even if you don’t believe in a strong version of lumps of labour, the enfolding dilemma of a materially tremendously prosperous society with a very unequal distribution of income and work is enough to merit tools for insurance and redistribution.

This is where the basic income scheme has received new tailwind. It’s a type of thinking outside the box. To some degree, European welfare states have been stagnant, self-devouring, or plainly in decline for the last 30 years. Going further back in time reveals that welfare states have always struggled with structural change in labour markets. The first big transition (from agriculture to industry) was the cradle of the welfare state; the the second (industry to service) already showed some of its limits;  the third (more automatization) will need a more inventive approach to policy. Given that labour markets will see sectoral change, perhaps at even increasing speed in the years to come, experimentation wouldn’t necessarily be a bad thing, it might be the only thing.

Given my own level of doubts, comments are greatly appreciated.

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Book Review: The Second Machine Age

Throughout history, people have predicted the end of work, but so far it has never materialized. Is this time different? In their book The Second Machine Age Erik Brynjolfsson and Andrew McAfee argue it is. Machines already beat people regularly in chess and in the near future they will drive our cars, educate our students or do Amazon’s logistics. The authors call this the 2nd machine age. The first machine age, the industrial revolution, fundamentally transformed the world of the 19th century. In a similar way, the infinite re-combinations of computers and robots will transform our society.

Lao Tzu allegedly said “Those who have knowledge, don’t predict. Those who predict, don’t have knowledge.” Indeed, the authors show that some predictions about the new age have proved remarkably wrong. Until recently, for instance, most experts believed that computers are bad at pattern recognition and good at routine tasks. Today it seems hard problems (computing a strategy for chess) are easy for computers, but easy tasks (found in the care or service sectors) are surprisingly difficult. In general however, the frontier of things machines can do is shifting rapidly. Automatically generated contents in newspapers or machines grading students’ essays are just two examples of what intelligent machines can do. The world seems at an inflection point. The authors invoke the famous Moore’s law that computer power doubles every year and find exponential growth confirmed in many dimensions of technological progress.

Skeptics wonder why this has not transformed into higher growth rates in the last years. Indeed, freely available content and cheap replication make it hard for many economists to see the profitability of it all. And yet, there is massive positive change even if its traces are more difficult to measure. First, the internet, Brynjolfsson and McAfee argue, has risen well-being by much more than growth in GDP; so much, in fact, that the 2nd machine age needs a different metric to think about social progress.  The authors estimate that intangible assets would add another 2 trillion to existing capital assets in the U.S. alone. Second, it will need time to make people realize the full potential, just like in the 1st machine age: it took several decades from the invention of the steam engine to using it in transportation and construction. Third, modern information technology lets people increasingly access to the world’s stock of knowledge. Options multiply. This is good news.

The bad news is, the benefits are not evenly spread. Sure, consumers benefit enormously, but the majority of employees will lose. Skill-based technological change puts a huge premium on college degrees, and creates job loss especially in routine blue- and white-collar occupations. Technical change can be relentless. Photo company Kodak, which in its heyday employed nearly 150,000 people, filed for bankruptcy in the same year Instagram, merely employing 15, was sold to Facebook for $1 billion.  Upswings in the economy create less and less new jobs, the share of labor in GDP is on decline in recent years, and even within this share, the spoils are distributed more and more unevenly. We experience the rise of what they (and others) call the superstar economy.

The dynamics of the superstar economy can be described in many ways: the Matthew effect (“For unto every one that hath shall be given, […] but from him that hath not shall be taken even that which he hath.”), a winner-takes-it-all society, or, more prosaically, the dominance of power laws. One J.K. Rowling sells a multiple of books of her closest competitors, those competitors sell a multiple of their closest rivals etc. These effects are hard to deny. Even if the authors refute simplistic fallacies, they are remarkably ambivalent about the possibility of what Keynes famously called technological unemployment. Granted, voluntary unemployment might be a society’s ultimate goal, freeing human potential from menial occupations, but this would require a very different social contract from the one we are seeing nowadays.

It is hard to predict in which domains the comparative advantage of humans will survive. Skills complementary to machines, e.g. engineering or data analysis, will probably be in higher demand. ‘Nerd is the new sexy’, as they say (though I suspect that it is, by and large, nerds who say that). To rather race with than against the machines the authors suggest a (laundry) list of short-term policy recommendations: teach children well, use technology, improve matching on the labor market, more infrastructure etc. In the long run, the authors recommend more controversial tools such as basic income schemes, or labeling products with high percentage of human content.

All in all, this is a very easy, sometimes gripping, even alarming read. The authors’ liquid writing style, in combination with a nice batch of anecdotal and systematic evidence attracts huge readership in and beyond academia. In some ways, the book is remarkable, especially given its provenance: M.I.T. It seems that the recent crisis has truly shaken mainstream economics and opened the cracks for heterodox thinking. Talking about technological unemployment seemed to be close to blasphemia only years ago. In this sense, the book is a welcome game changer that allows the public discourse to talk about really important issues of our time. The problem is, many economists tend to be ill equipped for these purposes.

In the same way economists for long have defined away the problem of inequality as none of their business, job scarcity has, by and large, been a temporary or government-related issue. In some sense, this has changed. The new rise of automatization has created a lot of scholarly interest, much of which is referenced in the book: David Autor, Daron Acemoglu, Joseph Stiglitz, Lawrence Summers to name but a few. The diagnosis coming from this research seems sound – as far as I can judge – even if somewhat partial. Most examples come from technology enclaves around M.I.T. and Stanford. It is a bit alarming that many of the aforementioned authors even use the same case studies, which questions the generalizability of these findings. A bit of long-term perspective would also sometimes be consoling: perhaps the largest transformation of labor markets so far was not the industrial, but the agricultural revolution, which essentially made everyone work for endless hours on the fields, only to barely survive on a highly unbalanced diet of mono-crops.

Whereas the diagnostic part of the book is fascinating, the sections about policy recommendations are disappointing. They basically don’t go beyond the litany of ideas found in any econ 101 textbook. Looking at some policy recommendations in more detail fully reveals a kind of helplessness usually only seen in a rabbit shortly before being gobbled up by a snake. When it comes to schooling the authors first criticize the tendency of educational institutions of being too lax and not making students work enough before they praise Montessori schools for letting pupils decide themselves what they are best at.

In more general, the book shows the kind of lop-sided thinking which cares much more about allocation than distribution. However, the main issue has and always will be a problem of distribution. Taking away unemployment benefit systems and job agencies, takes away (legally defined) unemployment, but it does not take away underemployment, inequality and poverty. In this sense, the recommendations found in the book are fairly limited. If social scientists like Karl Polanyi are right, the first industrial revolution generated a new kind of welfare model. Back then higher growth did also not turn automatically into benefits for everyone, and perhaps would have never, if not for better organization and more solidarity among workers. If contemporaries of the industrial revolution had recommended something akin to things Brynjolfsson and McAfee suggest, we would still have Speenhamland (British 18th century poor laws) instead of the modern welfare state. In this sense, the new revolution, assuming that there is one, will only benefit everyone, if accompanied by fundamental changes in the social contract.

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my five cents to the Greek austerity debate

You find the blog post at
LSE’s Europp

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Article in JPP: The political consequences of the lump of labour fallacy on welfare state reforms

Here is a piece I have been working on for eight years now! (Talk about efficiency…) I paste the abstract and the link:
The end of work or work without end? How people’s beliefs about labour markets shape retirement politics
Achim Kemmerling

Department of Public Policy, CEU Budapest, Hungary E-mail: Kemmerlinga@ceu.hu

Abstract

This article argues that public opinion on retirement is related to people’s causal beliefs about how labour markets work. Whereas voters do not think that there is an employment trade-off between older and younger workers in some European countries, in others, this is a dominant paradigm. When they believe this trade-off exists, people are more hostile to reforms that lead to longer working lives. The article uses Eurobarometer data to investigate the determinants of this belief – for instance, more people being led to believe in such a trade-off under high levels of labour market regulation. The article then goes on to show that this belief is related to policy preferences about early retirement. Finally, the article illustrates the political consequences of this belief and shows that it affects many policy areas even beyond early retirement.

For details and the paper:

Journal of public policy

For an ungated version see Kemmerling_JPP_manuscript_for_website.

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