October 7, 2003

#124: Lumping It

P. Krugman

Lumps of Labor (10/07/03) has to be one of the most nonsensical columns Paul Krugman has ever written. Incredibly, he begins by citing the "lump of labor fallacy" [the idea that there is a fixed amount of work to be done in the world, so any increase in productivity reduces the number of available jobs.] as the centerpiece of his column, but then fails to explain why it is a fallacy. Next, he blasts the Bush administration for not refuting the fallacy with job creating policies that will stave off pessimism and protectionism. Excuse us! Did someone say pessimism? Peddling pessimism for partisan advantage is Krugman's stock and trade.

First of all, "lumps of labor" is a fallacy because rising national income (the principal result of productivity growth) leads to greater aggregate demand. The labor released in some areas of the economy as a result of greater productivity doesn't just stand around forever. The growing demand absorbs it into other areas of the economy where it is needed. There is nothing new about this process and it should come as a surprise to no one. How many people do you know still employed in the whale oil industry? In Moby Dick's day this was a major source of jobs.

As economies become more advanced several things tend to happen. There is an employment shift from producing things to supplying services. There is a shift in the production of things requiring low and semi-skilled labor to countries that have a large supply of that kind of labor. And some industries simply disappear, e.g., whale oil, due to obsolescence. Most economists call this progress. What about it PK?

If Krugman has a point at all here, it is that the growth process is not frictionless. People do get uprooted and have to look for other jobs and are sometimes unemployed for several months. These growing pains are especially difficult during periods such as the present when productivity growth is high and the economy is emerging from recession. But the lumps of labor fallacy is a fallacy precisely because these problems are a) temporary and b) the price we all pay for a higher standard of living. Try finding this point anywhere in Krugman's column! In fact, with each Labor Department report, it is becoming clear that the "jobless" part of the current recovery IS temporary and has run its course. Jobs are growing again.

As to his point about protectionist sentiments arising out of the fallacy, this is laugh out loud funny. His clumsy attempt to blame it on Bush, leads him smack up against the likelihood that the next Democratic presidential candidate is likely to be a virulent protectionist riding the lump of labor fallacy all the way to defeat. Should be fun to watch.

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at October 7, 2003 7:26 AM
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