A Curious Case of Plagiarism... and of Contradiction

Back in April 2008, the Sandwichman reviewed an IMF Working Paper on "The Effects of Early Retirement on Youth Unemployment." The concluding paragraph began as follows:

BUT the positive side to this dumb paper is the sentence, "Those who make the fallacy claim fail to offer specific evidence of the supposed belief in a fixed amount of work." That's a paraphrase of what the Sandwichman has been saying for 10 years!

Well the Sandwichman was wrong. That was not a paraphrase of what the Sandwichman had been saying. That was exactly what the Sandwichman had written three years earlier, with but one word changed. "Those who make the fallacy claim neglect to offer specific evidence of the supposed belief in a fixed amount of work."

Well, so what? So it turns out that the IMF Working Paper evolved into a chapter in a book edited by Jonathan Gruber and David Wise (2010), Social Security Programs and Retirement around the World: The Relationship to Youth Employment, published by the University of Chicago Press and the National Bureau of Economic Research. Six chapters in the book identified the lump-of-labour fallacy as a key driver of European early retirement policy and, yet again, those who made the fallacy claims neglected to offer specific evidence of the supposed belief in a fixed amount of work. There were no interviews, survey research or content analysis to substantiate the assertions that policy-makers were motivated by a fallacious belief in a fixed amount of work. There was, however, at least a citation of Walker's 2007 paper, "Why Economists Dislike a Lump of Labor."

A couple of years have passed and in the meanwhile the Sandwichman has journeyed to Farnworth, Lancashire to commune with the spirit of Dorning Rasbotham, esq., originator of the fallacy claim -- that some persons held the false principle that there was "a certain quantity of labour to be performed" -- a principle that he upheld at the top of page 18 before condemning it at the bottom. In the meanwhile, Canadian Prime Minister Stephen Harper traveled to Davos to announce that he would raise the eligibility age for Old Age Security some time in the distant future. And, in the meanwhile, Lucy Kellaway wrote a column in the Financial Times affirming that "The best thing I can do for today’s youth is quit," observing that she "tried this idea out on various contemporaries and they all say it’s rubbish. They mutter about the 'lump of labour fallacy' with a panicky look in their eyes."

And so now we know, why they get that panicky look in their eyes!

How Would Romney Pay for the Repairs in the Safety Net?

This morning on CNN, Mitt Romney said:

“I’m not concerned about the very poor, we have a safety net there,” Romney said. “If it needs repair, I’ll fix it. I’m not concerned about the very rich, they’re doing just fine. I’m concerned about the very heart of America, the 90, 95 percent of Americans who, right now, are struggling, and I’ll continue to take that message across the nation.”

I guess some Democratic hacks could take the very first part of this statement out of context (Romney is not concerned about the very poor) but let’s do as he lectured Soledad O’Brien and finish the sentence. The safety net does need repair and that would involve an increase in government spending. Now if Mr. Romney has decided to agree with President Obama about the very rich doing fine, then have him say we will pay for this increase in government spending by raising taxes on the very rich. But wait – his tax proposal would dramatically reduce Federal revenues by giving the very rich even more tax breaks. So the arithmetic just does not add up unless Mr. Romney is proposing even bigger deficits. Of course, this kind of doubletalk is where Mitt Romney excels.

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It’s amazing, isn’t it, that professional economists could argue about the relationship of identity and equilibrium and fail to come to a quick agreement?  I see that David Glasner and Scott Sumner are still having at each other over at Uneasy Money.  And I am truly baffled by Glasner’s claim “that it is incoherent to state that the income-expenditure model of national income requires savings to equal investment whether or not equilibrium obtains...”

It’s all rather easy: an accounting identity imposes a necessary relationship between a set a variables on the basis of their definition, but it doesn’t say what the value of any particular variable will be.  Behavioral arguments, which may employ the concept of equilibrium (but don’t have to), attempt to explain or predict these values.  A behavioral argument may be right or wrong—people may behave the way you say they do, nor not—but an identity is an identity is an identity.

I disagree strongly with Noah Smith and Paul Krugman, however on the question of whether one can learn anything substantive from identities; clearly the answer is yes.  Rather than make a theoretical argument, I will link to a chapter from my introductory macroeconomics text.  It is all about identity---there is no discussion at all about equilibrium—but I think students would learn a number of useful things about national and global economic patterns from reading it.  See if you agree.

And the next time you accuse someone of not fully comprehending an identity, look in the mirror.