Home > political-economy, shorter work time > Another reason why economists should be neutered: The case of Bruce Bartlett

Another reason why economists should be neutered: The case of Bruce Bartlett

February 24, 2010 Leave a comment Go to comments

Bruce Bartlett, oddly self-argumentative

According to Forbes magazine, Bruce Bartlett is a former Treasury Department economist and the author of several books. His association with the Treasury Department alone, in our opinion, recommends him for a pink slip from the gene pool – we already have enough people waiting in line to destroy the lives of billions, we needn’t add to this extensive list. But, Bruce is a special case: As an economist he is capable of arguing with himself in public in a fashion we find odd. If there is a genetic basis for this capacity among economists, we think it should be purged from the human family tree.

Last week, Bruce published a post, How Not To Create Job, and put on display for the world that deeply disturbing ability. He examined some of the proposals for job creation, including our favorite: the reduction of working hour. Of shorter hours, Bruce had this to say:

Another bad idea making the rounds is work sharing. If the economy is not going to create enough jobs, some people argue, then maybe we need to divvy up the jobs we have more broadly. Reducing the standard workweek by 10% from 40 hours to 36 hours, so the thinking goes, would force employers to hire 10% more workers. Indeed, a British group is actually promoting the idea of a 21-hour workweek.

Economists often refer to this as the “lump of labor fallacy.” It rests on the idea that there is a fixed amount of work to do that can simply be spread among a greater or lesser number of workers. The problem is that the amount of income being produced would still be the same. While some unemployed workers would gain jobs and income, current full-time workers would become underemployed and see a reduction in their incomes. It’s hard to see how this benefits the economy as a whole.

Consequently, whenever work sharing has been mandated–several countries in Europe have done so–governments have insisted that weekly wages be unchanged. In other words, a worker would continue to receive pay for 40 hours of work even though he was only allowed to work 36 hours.

In such cases it is clear that that the government has simply forced hourly wage rates up by 10%, which is why Franklin Roosevelt opposed a bill that passed the Senate in April 1933 that would have reduced the standard workweek to 30 hours. He thought it made more sense to establish a national minimum wage instead, which became a key element of the National Industrial Recovery Act that was enacted in June 1933. (The current minimum wage dates from legislation enacted in 1938 after the Supreme Court struck down the NIRA.)

Bruce makes two major arguments against shorter hours of work:

  1. It assumes there is a fixed amount of work to be done, and
  2. It increases labor costs

If you noticed, Bruce is apparently arguing that shorter hours both reduces wages and increases them at the same time. How does he perform this instance of magical thinking? He accounts for the latter effect by adding the assumption that a worker gets paid the same wages as before for working fewer hours. Government plays a role in this by mandating that this be true. Although total income does not increase, total wages must increase. Bruce never explains why it is necessary for wages to remain unchanged in the event of shorter hours of work – no one gets paid for staying home on weekends in our economy. From where does the necessity for this requirement arise?

We can ignore the oddness of this suggestion to pay people for not working for a moment to delve into the thinking behind it.

So where does this extra income for leaving wages unchanged with a reduction in hours of work come from? Well, wages are not the only form of income in the economy – there are also profits and taxes. If wages are to remain unchanged, those additional wages have to come from profits and/or taxes – which are the only other destinations for income being produced by the society. Given no change in income produced, if wages rise, profits and/or taxes must fall.

But, Bruce argues as if the only source of higher wages must be the profits of the company:

Unfortunately, as we know from logic and experience, when the government raises the cost of employment the result is fewer jobs. We even have recent evidence proving this fact. As University of Chicago economist Casey Mulligan notes, when the minimum wage was increased to $7.25 per hour from $6.55 in July 2009, there was an immediate falloff in the number of part-time jobs that were created. (In an earlier column I discussed the economics of the minimum wage in more detail.) Obviously, raising the cost of labor is not going to create jobs …

Bruce Bartlett was an advocate of smaller government; why on earth would he not be advocating that wages might be unchanged if the tax burden on working families is reduced – leaving their after tax wage income unchanged. We know why he wants to protect profits – he is an economist after all. But, why would he be protecting tax revenues?

The answer, of course, is that absent the taxes paid by working families, the only source of government tax revenue would be profits. Government adds nothing to the national income – despite what progressives try to pretend. The right, however, is not so stupid as to fall for the progressive argument. They know that if the taxes on working families fall, the taxes on profits must rise or the deficit increases. Bruce is only trying to protect profits from even the remotest threat of Washington’s revenue hunger.

What we found really fascinating, however, was this passage in Bruce’s article:

The payroll tax credit also suffers from all the same problems that made the targeted jobs tax credit ineffective … [U]nder current economic conditions, any reduction in the cost of labor is unlikely to have much impact on employment because the fundamental economic problem is a lack of demand for business output. As Bill Rys of the National Federation of Independent Business recently put it, “At the end of the day, if you don’t have work for the employee to do, there is really no reason to bring an employee in. It’s a heavy cost to carry around if you’re not generating any income.”

In the end the best way of creating jobs is to grow the economy by increasing the demand for goods and services. When the real gross domestic product is rising steadily, employers will have to hire more workers to increase production. As economist Mark Zandi recently put it, “Historically, changes in employment and unemployment closely follow changes in GDP.”

If we understand his argument here, according to Bruce, increasing the cost of labor – paying the same wage for less work – will not produce jobs, but reducing the cost of labor – by reducing payroll taxes – won’t work either. It would appear that the cost of labor has no impact on jobs whatsoever. Now why would this be? Well, read the paragraph – you can’t just expect us to explain everything to you:

As Bill Rys of the National Federation of Independent Business recently put it, “At the end of the day, if you don’t have work for the employee to do, there is really no reason to bring an employee in. It’s a heavy cost to carry around if you’re not generating any income.”

So, Bruce introduces evidence that there is not enough work available to have full employment when people are working a 40 hours week. After accusing advocates of shorter hour of work of holding to the view that there is only a fixed amount of work available, he then argues, to paraphrase:

“There is not a fixed amount of work available, but there is an insufficient amount of work available to fully engage the working population for 40 hours.”

Like a rat on a wheel, Bruce argues against tax cuts because there is insufficient work available to support a 40 hours work week for everyone, and then argues against reduction of hours of work because it is an unnecessary constraint on the amount of work to be done.

It must be one of those, “On the one hand … and on the other hand,” kind of things.

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