February 20, 2006
THE LUMP OF LAFFER REVELATION
by the Sandwichman
Meet Ruth Lea. Ruth sits upon a scarlet coloured beast, full of names of blasphemy, having seven heads and ten horns She is Director of the Thatcherite Centre for Policy Studies. She is on the University of London Council and is a Governor of the London School of Economics.
In "It's time to break the Government's web of tax fallacies" (Daily Telegraph, Feb 20), Ruth Lea links up the hoary claim about a lump-of-labor fallacy with the... umm... proposition that tax cuts are April showers that inexorably bring the May flowers of enhanced revenues. But I'll let Ruth explain:
One of economists' favourite conceits is the "lump of labour fallacy", which is rooted in the proposition that there is a fixed amount of work to be done in an economy - a "lump" of labour - which can be shared out in different ways to create fewer or more jobs.
If, goes the argument, people worked 10% fewer hours then employers would have to hire more employees and unemployment would shrink.
The notion was behind the French "35-hour week" in a vain attempt to curb unemployment. The proposition is "fallacious" because, quite simply, dynamic economies do not respond like this.
Shorter hours mean higher unit costs (unless there are pay cuts), which undermine competitiveness and growth potential. This, in turn, can reduce the demand for labour and lead to higher unemployment.
May I suggest there are two fallacies of similar ilk that beset the current debate over taxation and public spending? (cont.)
No, Ruth, may I suggest that you are spouting made-up, boilerplate, right-wing balderdash.
UPDATE: RUTH LEA KNOWS SHE'S SPOUTING HOGWASH!
Note to MaxListeners:
Please feel welcome to send letters to the Telegraph editor at: dtletter@telegraph.co.uk
Send your letter in plain text in the body of the message, not as an attachment. Include your name, address and telephone number or your letter won't be considered for publication. It is also best to include the article's title and date in the subject line: "It's time to break the Government's web of tax fallacies: Feb. 20."
You might want to also mention that you heard about it on MaxSpeak and send a copy of your letter to Ruth Lea, ruth@cps.org.uk. My epistle to the Telegraph:
Sir -
Around ten years, I first heard the claim of a so-called lump-of-labour fallacy and puzzled over its seeming incoherence. Six years ago, I decided to respond to the claim, which required that I first investigate its history and classic formulation. What I found out is that the fallacy claim is clap-trap -- a sheer piece of made-up, boilerplate, right-wing balderdash. My findings (more moderately phrased, of course) were published as "The 'lump-of-labor' case against work-sharing: Populist fallacy or marginalist throwback?" in a chapter in Working Time: International trends, theory and policy perspectives (Routledge, 2000).
In her view in today's Telegram, Ruth Lea spouts the hoary platitudes about policies for reduced working time being based on a belief in a fixed amount of work. This is simply a lie and a most tiresome and pernicious one. It is indeed a Sisyphusian effort responding to the ceaseless and ignorant promulgation of one of the "economists' favourite conceits," as Lea termed it. Perhaps someday people will come to realize how much damage has been done by the spread of this falsehood and from that point on will never again listen to the promulgators.
Tom Walker
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