Tuesday, October 25, 2011

Unemployment, Machines and Social Cost

Peter Frase reviews the e-book by Erik Brynjolfsson and Andrew McAfee of MIT, Race Against the Machine. Mark Thoma links to a New York Times review of the e-book.

To the Sandwichman, it looks like deja vu all over again. Eternal return of the same old, same old. I'm sure Professors Brynjolfsson and McAfee mean well, but it sounds to me like they are thinking inside the boxes -- and by boxes, I mean "those empty boxes" that D. H. Robertson lampooned in 1924:
The boxes, if I may make free with the metaphor, are not in my view properly to be loaded upon the same cab. It is almost as though one were a hat-box, and the other a monstrous compound of a box at the opera and a [flower?] box growing alongside a garden path.
"The problem of unemployment" is a phrase that has two meanings. One of those meanings has to do with an understanding of what unemployment is. The other has to do with the dislocations caused by unemployment and the search for a solution. You're not likely to find a good solution to unemployment if you don't understand what it is. And modern thought seems committed to avoiding such an understanding.

Unemployment is not an unfortunate accident, a structurally-inexorable tragedy or the just deserts of lazy people not spending enough time and effort honing their marketable skills. Unemployment is a functional relationship that both enables and compels firms to shift part of their overhead costs to society and individual workers. Is that so hard to grasp? Unemployment works -- that is until it doesn't anymore.

Guns don't kill people. People kill people. Machines don't discharge workers. Firms discharge workers. One would think, therefore, that unemployment would have something to do with "the nature of the firm" as well as the problem of social cost. All that other stuff is empty boxes.

Both John Maurice Clark and Ronald Coase examined "the nature of the firm and the problem of social cost." Clark received a standing ovation when he presented his paper, "Some Social Aspects of Overhead Costs," to the annual meeting of the American Economic Association in 1922. The reception of Ronald Coase's theorem by the Chicago school economists was initially more muted. George Stigler recalled the occasion when Coase was summoned to Chicago from the University of Virginia to explain:
We strongly objected to this heresy. Milton Friedman did most of the talking, as usual. He also did much of the thinking, as usual. In the course of two hours of argument the vote went from twenty against and one for Coase [with Coase voting for the affirmative] to twenty-one for Coase. What an exhilarating event! I lamented afterward that we had not had the clairvoyance to tape it.
There's just one little problem with "the problem of social cost." The word "unemployment" doesn't appear in Coase's article. Nor does the word "labor." The word "employment" does appear but it refers to employment of factors of production, not to jobs. That's what Sandwichman's paper, "The Problem with The Problem of Social Cost" (which will soon be edited into two complementary papers) is all about.

Sandwichman wants to know: is there a Sveriges Riksbank prize for taking down a Sveriges Riksbank prize-winner?


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