Thursday, June 12, 2014

Keynes' Over-worked Grandchildren?

In a New Yorker book review essay, Elizabeth Kolbert revisits one of my favorites, "Economic Possibilities for Our Grandchildren" by John Maynard Keynes:
Keynes delivered an early version of “Economic Possibilities” as a lecture at a boys’ school in Hampshire. He was still at work revising and refining the essay when, in the fall of 1929, the stock market crashed. Some might have taken this as a bad sign; Keynes was undeterred. Though he quickly recognized the gravity of the situation—the crash, he wrote in early 1930, had produced a “slump which will take its place in history amongst the most acute ever experienced”—over the long run this would prove to be just a minor interruption in a much larger, more munificent trend. In the final version of “Economic Possibilities,” published in 1931, Keynes urged readers to look beyond this “temporary phase of maladjustment” and into the rosy beyond.

According to Keynes, the nineteenth century had unleashed such a torrent of technological innovation—“electricity, petrol, steel, rubber, cotton, the chemical industries, automatic machinery and the methods of mass production”—that further growth was inevitable. The size of the global economy, he forecast, would increase sevenfold in the following century, and this, in concert with ever greater “technical improvements,” would usher in the fifteen-hour week.

To Keynes, the coming age of abundance, while welcome, would pose a new and in some ways even bigger challenge. With so little need for labor, people would have to figure out what to do with themselves: “For the first time since his creation man will be faced with his real, his permanent problem—how to use his freedom from pressing economic cares, how to occupy the leisure, which science and compound interest will have won.”
As Kolbert notes, Keynes' predictions about growth were pretty well on-target. He wrote: "I would predict that the standard of life in progressive countries one hundred years hence will be between four and eight times as high as it is to-day."  That implies an annual growth rate between 1.39% and 2.08%.  According to Maddison project data, UK real GDP per capita rose 4.37 fold between 1930 (when Keynes wrote) and 2010, which gives an annual growth rate of 1.84%.

While Keynes was correct about growth, his prediction about leisure has not come true.  At least not fully - hours worked have fallen, though much more in Europe than in the US -
but even Western Europe is far short of "three hour shifts or a fifteen-hour week." 

That we're still working so much calls into question how we think about work, leisure and preferences.

Among the explanations are:"conspicuous busyness" - i.e., that appearing overworked is a signal; Paul Krugman discussed this on his blog a while back:
First of all, [James Surowiecki is] right that for what he calls knowledge workers — I’d just say elite workers in general — the whole time ethos has changed. When I was growing up on Long Island, there was a clear class hierarchy on commute times. Early trains were filled with menial workers; the later the train the more and fancier suits, with executives starting their day at 9:30 or 10. These days it is if anything reversed: lots of hard-driving suits on the early trains, much more mixed later on.
So what is this about? Surowiecki emphasizes the incentives of employers, and their difficulty in taking the negative effects on productivity into account. My sense, however, is that the most important factor — which he alludes to but doesn’t put at the center — is signaling. Working insane hours is a sign of commitment, of willingness to sacrifice for the job; the personal destructiveness of the practice isn’t a bug, it’s a feature.
This may be true in parenting, as well - as Kolbert writes (referring to "Overwhelmed" by Brigid Schulte): 
One theory she entertains early on is that busyness has acquired social status. The busier you are the more important you seem; thus, people compete to be—or, at least, to appear to be—harried. A researcher she consults at the University of North Dakota, Ann Burnett, has collected five decades’ worth of holiday letters and found that they’ve come to dwell less and less on the blessings of the season and more and more on how jam-packed the previous year has been. Based on this archive, Burnett has concluded that keeping up with the Joneses now means trying to outschedule them. (In one recent letter, a mother boasts of schlepping her kids to so many activities that she drives “a hundred miles a day.”) “There’s a real ‘busier than thou’ attitude,” Burnett says. 
Another hypothesis is that people derive satisfaction and a sense of identity from work.  Kolbert quotes from "Revisiting Keynes" - 
A third group of economists challenges the Keynesian presumption that leisure is preferable to labor. Work may not set us free, but it lends meaning to our days, and without it we’d be lost. In the view of Edward Phelps, of Columbia University, a career provides “most, if not all, of the attainable self-realization in modern societies.” Richard Freeman, of Harvard, is, if possible, more emphatic. “Hard work is the only way forward,” he writes. “There is so much to learn and produce and improve that we should not spend more than a dribble of time living as if we were in Eden. Grandchildren, keep trucking.”  
Phelps and Freeman are correct that our standard treatment of work (bad) versus leisure (good) often misses something important.  This was present in the early "romantic" Marx, who said, "man is a tool-using animal".  The relevance varies a great deal, I suspect - some of us have the good fortune not to feel "alienated" from our labor, though, for many, work is the drudgery that standard economic theory assumes it to be. 

A third explanation relates to the fact that "quality" is a relative concept and the desire for ever-higher quality goods keeps the consumption motive from slackening - this was explained well by Robert Frank in an NYT column.


Henri Tournyol du Clos said...

But overall "working time" has in fact gone down in quite the proportion Keynes guessed it would if you actually include household chores. Tim Worstall had a good piece on this

Bill C said...

Thanks. Yes, its important to bear in mind "home production" when thinking of "leisure". Some of Worstall's other points seem a little fuzzy, though.