March 26, 2018

End of the Lump-of-Labor sitcom

Comment on Sandwichman on ‘LOLFF on TED’


Economists are storytellers, they do not answer any economic questions and put them to rest but merely recycle silly narratives ad infinitum. A classical example is the Lump-of-Labor Fallacy.

The story starts as follows: “It was a British economist, David Schloss, who gave it this name in 1892. He was puzzled to come across a dock worker who had begun to use a machine to make washers, the small metal discs that fasten on the end of screws. And this dock worker felt guilty for being more productive. …”

This, of course, is the kindergarten version of the theory of employment, and this blather is neither worth to be discussed nor debunked. That economists are not ashamed of recycling this proto-scientific garbage tells one all about their substandard IQ.

The elementary version of the axiomatically correct (objective, systemic, behavior-free, macrofounded#1, #2) Employment Law is shown on Wikimedia: #3

From this equation follows:
(i) An increase of the expenditure ratio ρE leads to higher employment L (the Greek letter rho ρ stands for ratio). An expenditure ratio ρE greater than 1 indicates a budget deficit = credit expansion, a ratio ρE less than 1 indicates credit contraction.
(ii) Increasing investment expenditures I exert a positive influence on employment.
(iii) An increase in the factor cost ratio ρF≡W/PR leads to higher employment.

The complete Employment Law contains in addition profit distribution, the public sector, and foreign trade.

Item (i) and (ii) cover Keynes’ familiar arguments about aggregate demand. The factor cost ratio ρF as defined in (iii) embodies the macroeconomic price mechanism. The fact of the matter is that overall employment INCREASES if the AVERAGE wage rate W INCREASES relative to average price P and productivity R.

With regard to an increase in average productivity R then follows (under the initial condition of I given and ρE=1) that overall employment L DECLINES. In order to prevent this and to keep employment at the given level, the factor cost ratio ρF≡W/PR has to be kept constant. So, either the average wage rate W has to rise in lockstep with productivity, or the average price P has to fall.

This follows straightforwardly from the macroeconomic Employment Law. Of course, nothing at all ever follows from the recycling of the pseudo-psychological crap of the dockworker who felt guilty for being more productive.

False theory leads to false policy guidance. With their defective employment theory and their endless pseudo-psychological sitcom blather, economists bear full responsibility for the social devastation of mass unemployment.

Egmont Kakarot-Handtke

#1 The macrofoundations approach starts with three systemic axioms: (A0) The objectively given and most elementary configuration of the economy consists of the household and the business sector which in turn consists initially of one giant fully integrated firm. (A1) Yw=WL wage income Yw is equal to wage rate W times working hours. L, (A2) O=RL output O is equal to productivity R times working hours L, (A3) C=PX consumption expenditure C is equal to price P times quantity bought/sold X. For a start it holds X=O.
#2 For details of the big picture see cross-references Employment.
#3 Wikimedia AXEC62 Employment Law

Related 'The role of labor and business in a well-organized society' and 'False and true economic laws' and 'Unemployment is the outcome of political economics'.