Author: conversableeconomist

Job openings were sky-high in late 2022, and while the level has come down since then, they remain high compared to the previous 20 years. But why should job openings have skyrocketed after the pandemic recession? And what is it telling us?

Here’s the basic data, from the ever-useful FRED website run by the Federal Reserve Bank of St. Louis. The blue line shows job openings as a percentage of the total existing labor force; the red line (to which I will return) shows rates at which workers are quitting their jobs (that is, voluntarily leaving) as a percentage of the labor force. The data is from the monthly Job Openings and Labor Turnover Survey conducted by the US Bureau of Labor Statistics.

Simon Mongey and Jeff Horwich of the Minneapolis Fed discuss these patterns in “Are job vacancies still as plentiful as they appear? Implications for the ‘soft landing,’” subtitled “Data on U.S. job openings have become untethered from other indicators, complicating labor market outlook” (December 1, 2023).

Mongey and Horwich suggest that the sharp rise in job openings (which they sometimes refer to as “job vacancies” after the pandemic represented employers who were, with the worst of the pandemic in the rear-view mirror, trying to rebuild their companies. However, with a low unemployment rate, hiring workers was proving difficult. Thus, the more recent decline in job openings represents employers who have given up on hiring as many people, and moved to other business strategies.

However, the authors also point out that the job openings rate has moved in a way not reflected by statistics on job turnover. The graph above shows that while the share of people quitting jobs does rise in 2022 (a phenomenon sometimes labelled, with a whiff of exaggeration, as the “Great Resignation”), the rise isn’t nearly as sharp as the rise in job openings. So why are job openings so high? Here’s one possibility they suggest:

We do not take a stand here on what has caused this shift in the vacancy data. One trend to consider, however, is that digital technologies have dramatically changed the cost to employers of job posting, recruiting, and evaluating candidates. These changes, over time, might have contributed to a steady increase in measured vacancies.

In other words, it’s become much easier and cheaper for employers to list job vacancies and to do a first cut at the responses that come in. The employer might then either proceed with hiring someone–or wait.

The authors offer a back-of-the-envelope calculation of this rise in the job openings rate: basically, they look at how other labor market factors were correlated with the job openings rate before the pandemic, and then estimate based on those factors what the job openings rate would have been if those earlier correlations had continued unchanged. This “adjusted” rate for the job openings rate is considerably lower. Thus, the authors argue that employment prospects are not as good as the elevated job openings rate might suggest. Moreover, they point out that unemployment rates have been creeping up (“unemployment has ticked up modestly from 3.4 percent in April to 3.9 percent in October”), and they suggest that additional decline in the job openings rate might be accompanied by unemployment rising higher.

The US spends a much higher share of its GDP on health care than other advanced economies. But is that higher spending due to higher prices for delivery of health care services or to a greater quantity of health care being provided? This “prices or quantities” question has been around for awhile, but the OECD takes a crack at providing some estimates in the most recent Health At a Glance 2023: OECD Indicators (November 2023).

A primary challenge in comparing health care prices across countries is that the quality of certain kinds of care surely differs. For example, consider a comparison of “patient-days in a hospital.” In the US health care system, a hospital stay is often a very intensive health care experience, where you then do much of the recovery at home; in other countries, a hospital stay might be longer, with expensive technology used only part of the time. Thus, saying that a US hospital day costs more is really about differences in what a “hospital day” means across countries. To compare health care prices, you want to compare (at least roughly) the same services. Then, in addition, you need to compare between US dollars and other currencies.

The OECD has tried to put together a fair price comparison for health care across countries. For the US hospital sector (about 30% of health care costs in most countries), it uses an “input” measure of costs based on the salaries of those working in hospitals. For other aspects of health care, and for hospital care in other countries, it uses “output” measures of price per service (or per drug) provided.

Here’s the result of the OECD measure, which estimates that the price levels in the US are 43% higher than the OECD average.

Working backwards, if you know that total spending is prices multiplied by quantities, and you know the overall spending gap between countries, and you know the differences in price levels, and you can then infer the underlying differences in health care quantities. Using that method, here’s the OECD estimate of the quantities of health care consumed across countries:

I should note that while the OECD has a well-deserved reputation for taking care in doing these kinds of computations as well as they can be done, the method here is necessarily imperfect. For example, differences in administrative costs across countries will not be well-captured here, nor will differences in what kinds of technologies are available across countries.

With such concerns duly noted, it’s interesting that per capita quantities of health care consumed in the US are highest of any country–and remember, this is after adjusting for the higher US price levels for health care. People in Germany and France consume about the same quantities of care as those in the US, but at about one-half the price level. Conversely, the other countries with high health care price levels similar to the US, like Switzerland and Norway, have per capita consumption of health care that is much lower.

Thus, the US economy is the only one near the very top of both the prices and the quantity rankings for health care, which then leads to the high share of the US economy going to health care, compared with other countries. Of course, every dollar the US spends on health care is a dollar of income received by someone in the health care industry, so changing this dynamic is quite difficult.

One common concern or complaint about studying economics is that by taking the position that people make choices and respond to incentives, the discipline is in effect advocating that people pursue self-interest–rather than just acknowledging that in many contexts, from looking for a higher-paid job to buying what’s on sale at the grocery, people do act in these ways. Moreover, the complaint continues that when economics advocates self-interest, it will shape the pliant minds of impressionable students, leading them to wear “Greed is Good” t-shirts next to their hearts rather than becoming responsible citizens.

Gathering evidence for or against this claim is tricky. Just comparing economics majors to those in other disciplines won’t prove that studying economics caused anyone to change their level of selfishness, because it’s quite possible that those who already tended to selfishness were more likely to seek out the haven of economics in the first place. In addition, a simple survey that asks about feeling of selfishness isn’t the best approach either, because it is possible that a class in economics might lead people to be more willing to admit selfish motives, while not actually changing their behavior. A researcher needs a way to measure the degree of selfishness–preferably a way revealed by actions, not by words. 

Daniele Girardi, Sai Madhurika Mamunuru, Simon D. Halliday, and Samuel Bowles dig into the topic in “Does studying economics make you selfish? (Southern Economic Journal, forthcoming, published online November 23, 2023). They point to some previous studies on the subject, and a few years back I pointed to a review of such studies as well. Here is the Girardi et al. group on some previous evidence:

A much smaller set of articles has addressed our question, namely, is there a causal effect of the study of economics on social values and policy preferences? Two identification strategies have been deployed. The first is to observe students’ attitudes or behavior over time, contrasting those in economics courses with those taking other courses. Frey and Meier (2003) study (real-world) giving behavior of students in economics and other courses over their period at university. They find no evidence that studying economics reduces contributions. Bauman and Rose (2011), using a similar design, find no evidence that taking economics courses reduces the contributions of economic majors to a public interest group. However, they find a negative effect on the contributions of non-economics majors who take economics courses.

The second strategy is to implement a controlled experiment, briefly exposing randomly selected subjects to economic concepts or language, and a control group to an exposure that is otherwise similar but unrelated to economics, and then observing the difference in the before-after measures of interest. Ifcher and Zarghamee (2018) randomly assign some experimental subjects to the treatment—economics exposure—by means of language affirming “(1) that all individuals are self-interested and (2) that all individuals attempt to maximize their payments.” Subjects then play incentivized games. The authors find that compared to subjects exposed to non-economic language, the exposure to economics shifts behavior towards self-interest. In another experiment, Molinsky et al. (2012) asked mid-career business leaders acting as “managers” to convey to a “subordinate,” some bad news, for example reassignment to an undesirable location or dissatisfaction with the subordinate’s job performance. Immediately prior to this, managers had been randomly selected to create a sensible phrase from a scrambled bunch of words, some of which contained economic content (e.g., in unscrambled form: “analyse costs and benefits”), and some that did not (the control). In communicating the bad news to the subordinate the managers who had been exposed to the economic words experienced less empathy and conveyed less compassion to the subordinate than did those in the control group.

The Girardi et al. study is based on an online survey given to students in five classes at the University of Massachusetts-Amherst at the beginning and end of the semester. They write:

We administered an online survey at the beginning and at the end of the semester to a group of undergraduate students enrolled in four intermediate microeconomics courses and one non-social science course. The survey includes questions on personal characteristics and policy preferences, and four economic games with real monetary stakes—a Trust Game (TG), a Triple Dictator Game with charities (DG), and two belief elicitation questions about the behavior of others in the same games. We use these to obtain individual-level measures of “deviation from self-interest” due to generosity (DG) and reciprocity (TG), and beliefs about the social preferences of others. …

The economics students in our sample start the semester with a more favorable opinion of market competition and relatively more conservative policy views, and display lower generosity and higher reciprocity in experimental games. But other than economics students being substantially more “pro market,” these effects of differential selection into economics are relatively small and imprecisely estimated.
We found little to no causal effect of studying economics on social preferences and beliefs about other people’s social preferences. Differences in these outcomes between economics students and the control group did not change during the semester, and are also unaffected by the content of the economics course. We find no effect on an aggregate “left–right” measure of political positions, nor on views of markets, government intervention, and green policies. The sole evidence of a substantial effect is that economics students come to express less opposition to a highly restrictive statement about immigration policy.

I’m not overly confident that any of these studies on whether economics causes selfishness should be treated as dispositive. But the empirical evidence that does exist for the claim seems weak.

As Girardi et al. point out, economics is not purely about selfishness. As they write:

We outlined at the outset a line of reasoning that might lead us to affirm the commonplace view that studying economics leads to more self-interested behavior. But there are also cogent reasons to expect the opposite. Montesquieu, Voltaire, Smith and other 18th century thinkers held that markets promote honesty and cooperativeness towards others, and that these predispositions are as important as self-interest in making markets work. Students in today’s economics courses might well marvel that in markets, even when interacting with total strangers, adherence to social norms of respect for others’ property rights and reciprocating goodwill (e.g., not stealing the other’s goods) can be the basis for mutually beneficial exchange. Exposure to this message could promote social preferences as well as self-interest.

When thinking about economics and selfishness, I also remember the comment from John Stuart Mill arguing that selfishness should be viewed as a natural force, like gravity or the wind. Mill wrote:

The same persons who cry down Logic will generally warn you against Political Economy. It is unfeeling, they will tell you. It recognises unpleasant facts. For my part, the most unfeeling thing I know of is the law of gravitation: it breaks the neck of the best and most amiable person without scruple, if he forgets for a single moment to give heed to it. The winds and waves too are very unfeeling. Would you advise those who go to sea to deny the winds and waves—or to make use of them, and find the means of guarding against their dangers? My advice to you is to study the great writers on Political Economy, and hold firmly by whatever in them you find true; and depend upon it that if you are not selfish or hard-hearted already, Political Economy will not make you so.

Social scientists and policy analysts often work with numbers. But for the rest of humanity–including, say, voters–the numbers may not mean much. Ed Leamer is a prominent econometrician, which means that among other virtues he knows how the quantitative games are played. Way back in 1983, in a now-classic article called “Let’s Take the Con out of Econometrics,” he was pointing out that if you chop a dataset into enough separate parts, and then apply a large enough variety of statistical effects to each part, you can pretty much almost always get some results that confirm your biases and preferences.

For some discussion of how economists have tried to address this challenge, a useful starting point is the four-paper symposium on “Let’s Take the Con out of Economics” in the Spring 2010 issue of the Journal of Economic Perspectives (where I work as Managing Editor), which includes an article from Leamer.

Here, I just want to point out a comment from Leamer in a book review that is forthcoming in the Journal of Economic Literature. The book is The Unequal Effects of Globalization, by Pinelopi Koujianou Goldberg with Greg Larson, but Leamer’s point is a more broadly applicable. He writes:

After teaching econometric theory at the PhD level for many years, I switched to “Turning Numbers into Knowledge,” and I tried to leave behind three words: pictures, stories, and numbers, emphasizing that humans are best at processing images, pretty good with stories, and no one really understands the numbers. When I arrived on the academic scene, economist opinions about globalization were almost 100 percent story based (theory). Mathematics was used to “prove” that free trade is the best option for a country, using the words “Pareto efficiency” to explain the neglect of the income redistribution that comes with a rise or fall of trade barriers. Numerical evidence became more prevalent in international economics the 1990s …

Leamer’s comment resonated with me for a couple of reasons. One is the casual way that he equates economics based in mathematical proofs with “story-telling.” I sometimes hear a comment from economists along the lines: “If we don’t do the math, it’s just story-telling.” I agree, but would also add: “If we only do the math, it’s just story-telling.” The intellectual action of economics as a social science happens when the insights from mathematical theory, statistics, and logic must be blended with knowledge about markets, people, history, laws, organizations, and social structures.

In addition, Leamer’s description of economic persuasion dovetails with some of what I often do on this blog: that is, tell a “conversable” story and include some graphs for the pictures. I sometimes offer a brief sketch of how a certain estimate or number was calculated. Nothing here should be taken as a discouragement to the social science researchers who used clever methods to generate more believable statistical estimates. But yes, my sense is that what people “know” is more determined by images and stories, which has implications for how research in economics is best communicated for those outside the seminar room.

I mostly encounter two reasons for learning about the economy or anything else: either it helps you to get a better job, or it helps you to advocate better policies. However, I have been writing this blog in May 2011.  Any tidbits of job-relevant material have been unintentional. While I do sometimes offer policy-relevant commentary, I am aware that it lack a 21st-century fighting spirit–that is, zingers and insults are notable mainly by their absence. Anyone reading here for instrumentalist purposes has doubtless been disappointed.

So what am I doing here? One a year or so, often around New Year’s Day, I mull over this topic. I’d like to believe that there is virtue in understanding. Just to make some other wild-eyed and crazy claims here, I also think that I benefit from reading good literature, from trying out new cookie recipes, from good walks, from occasionally misfingering my way around a Bach prelude on the piano, and from time spent with my wife, family, and friends. In short, I am not opposed to good jobs and sensible public policy, but not everything needs to be for the purposes of a job or a political cause.

One of the guiding texts of our time, it seems to me is the Karl Marx’s comment in his Theses on Feuerbach (the 11th thesis, if you are counting): “The philosophers have only interpreted the world, in various ways; the point is to change it.” I’m not against change, sometimes (I’m the kind of boring person who wants to know about the change before endorsing it), but Marx’s phrase “only interpreted” strikes me as dismissive and wrong-headed. To me, understanding has its own rewards. 

I find that I am more in the spirit of Joseph Schumpeter, as described in a 1950 obituary by Gottfried Haberler, where Haberler wrote:

The main reason why no Schumpeter school developed is that Schumpeter was neither reformer nor an enthusiastic partisan of capitalism, socialism, planning, or any other ism; he was a scholar and an intellectual. … In the purely scientific sphere Schumpeter’s open-mindedness and universality, the lack of fighting spirit for any particular approach, the fact that he found something useful and acceptable in almost every theory and method helped to prevent development of a Schumpeter school.

Similarly, near the beginning of his 1939 book on Business Cycles, Schumpeter wrote:

I recommend no policy and propose no plan. Readers who care for nothing else should lay this book aside. But I do not admit that this convicts me of indifference to the social duty of science or makes this book — including its historical parts — irrelevant to the burning questions of the day. What our time needs most and lacks most is the understanding of the process which people are passionately resolved to control.

Again in a similar spirit, Schumpeter said in a farewell address to his students when leaving the University of Bonn in 1932, before moving to Harvard University: “I never wish to say anything definitive; if I have a function it is to open doors, not to close them.”

Just to be clear, I believe that improved understanding can help functional outcomes in careers and public policy. But I also think such effects often operate along unexpected and unpredictable pathways. I’m a believer that the process of learning can be as important as details of content; for example, learning how to master a body of content, how to absorb and look critically at text and data, how to experiment provisionally with new ideas, and how to communicate in speech and writing with others who may disagree are all generalizable skills. It’s true in my experience that learning is very rarely wasted in the longer term, but even if specific lessons don’t recur in the future, learning can be its own reward.

Conversely, it feels to me as if selling education to students as a sort of “golden ticket,” where good grades lead to financial success and personal happiness, can be misleading and even harmful both to high-performing students as well as to the 50% of student who, inevitably, find that their academic performance is below the median. When it comes to policy discussions, it feels to me as if passion and partisan affiliation can be substitutes for efforts to understand. For me, Schumpeter’s comment from 1939 remains relevant today: “What our time needs most and lacks most is the understanding of the process which people are passionately resolved to control.”

Housing affordability is an issue in cities around the world, and Albert Saiz performs yeoman’s work in pulling together a wide range of policy options and examples from many cities and countries in “The Global Housing Affordability Crisis: Policy Options and Strategies” (IZA Policy Paper No. 203, October 2023).

It’s nearly impossible to summarize the Saiz paper. He lists 30 different housing programs used around the world. He characterizes them in terms of local versus national implementation; supply versus demand orientation; public versus private ownership; and de jure versus de facto impact.” He points out that housing assistance programs can be focused in different ways: for example, is the goal to have affordably priced housing for sale to the middle class, or affordably priced rental units for the working poor, or available shelter for the homeless? Where will the affordable housing be located; in particular, should it aim to help people live in more expensive parts of urban areas? What should be the quality of “affordable” housing? Should the goal be to redevelop neighborhoods with a mixture of affordable housing and amenities, or on support for lower-income renters wherever they locate, or to support builders operating at smaller scale across many locations? And what about the role of nearby public amenities, schools, social programs, and jobs?

One reasonable takeaway from this report is that “affordable housing” has become such a big-tent term that it can obscure details. Here, I’ll focus on the comments from Saiz about one case study that may be unfamiliar to non-European readers: the Dutch rental housing associations. He writes:

Dutch Housing Associations (HA) are private, nonprofit enterprises that develop and manage affordable housing in the Netherlands. They account for approximately 75% of the three million rental homes and 35% of the entire housing stock, per 2016 estimates. HAs must lease 80% of their vacant units to low-income families and 10% to people with intermediate incomes. Ten percent can be leased to high-income families, which allows the associations to cross-subsidize their social mission. A government-regulated point system determines each unit’s rent, always
substantially at below-market levels. Twenty-five percent of the total points are based on the tax-assessed market value of the property and 75% on the dwelling characteristics (Schilder and Scherpenisse, 2018). The higher the number of points, the higher the allowed rental price. Points are also awarded based on factors such as size of the housing, facilities, and energy efficiency. The point system provides incentives to partially fund improvements with rental revenue growth. Subsequently, rents can only increase at a prespecified percentage annually (currently 3.3%). …

HAs gained financial independence through policies in the 1980s-1990s that decentralized, deregulated, and denationalized social housing. The most notable was the 1995 Grossing and Balancing Agreement, by which housing associations’ outstanding debts were written off against future government subsidies. Combined with strong prices in the housing market, this helped infuse associations with substantial equity. HAs utilized a revolving fund model that—in addition to their equity—is sustained through rental revenue from tenants and sale proceeds from parts of their stock to investors. Excess funds are reinvested into renovating existing buildings, developing new affordable housing units, or developing neighborhood regeneration projects.

For example, it is possible for HAs to nimbly sell properties in the most expensive neighborhoods and exchange them for larger housing portfolios in middle-class areas. However, the tradeoff between affordable housing and social outcomes comes to the forefront in these cases … The associations do not require outside investors and can accept a lower or zero return on their equity. These, and their lower credit costs, allow them to charge lower rents (Schilder and Scherpenisse, 2018). Importantly, they do not utilize direct government subsidies. Instead, they benefit from cheap loans obtained through a three-level guarantee structure …

This triple guarantee system has allowed the WSW [the Guarantee Fund for Social Housing] to maintain top credit ratings and gain access to public capital markets. HA finances its debt at large discounts. The approval for a WSW guarantee is based on the creditworthiness of the association, whose financial position is evaluated based on its assets. If admitted, the association must meet certain solvency requirements. … While driven by a social mission, the system currently relies on sophisticated financial know-how, professionalism, and prudent underwriting. To reach that point, nonetheless, excessive financial risk-taking from some HAs had to be curtailed (Aalbers et al., 2017). …

The CFV [Central Fund for Social Housing] operates as the chief financial regulator of the HAs. Financial assessments of key metrics such as loan-to-value and interest coverage ratios are made through mandated due diligence, involving annual reports and supplementary information. The CFV provides early-warning signals to the national government when an association is experiencing financial weakness. A distressed association cannot attain WSW guarantees, but CVF provides interest-free loans for three years until self-sufficiency. During that period, another CFV member will take on management responsibilities and engage in financial restructuring if necessary. …

In my view, the Dutch HAs model represents one of the most successful housing policies worldwide and is ripe for replication in other countries. The model has been perfected over the years through regulations providing the right economic incentives and checks and balances. Replicating the model requires careful legal and intuitional reform, stemming from a belief that decentralized, non-profit entrepreneurship can help solve housing affordability problems. This type of institution will not fare well in countries where politicians try to always be in control.

This analogy isn’t a perfect one, but the Dutch Housing Association model reminds me a little of how US banks work. US federal and state government don’t run the banks, just as Dutch governments don’t run the Housing Authorities. Instead, US banks have the legal ability to accept deposits and provide other banking services, and they have considerable autonomy to make financial choices in a decentralized way, but they are held accountable by a mixture of government regulators and financial markets. It is especially striking to me that the Dutch Housing Associations run 75% of the rental properties and about one-third of the total housing stock for the Netherlands as a whole.

Although the overall purpose of the Trade Expansion Act of 1962 is captured by the title of the legislation, it also included some loopholes. One of the most infamous is Section 232, allow the president to impose tariffs on an imported product when it is “being imported into the United States in such quantities or under such circumstances as to threaten to impair national security.” Just to be clear, this providing is not about blocking exports of goods that might involve technologies including weapons or armaments–but instead about limiting imports.

One can easily imagine a few cases where the United States might have an interest in preserving and protecting certain products to assure that the US military would have a solid supply chain. Of course, it’s awkward to consider the possibility that foreign firms could be providing these products at equal or higher quality and lower cost, and that US industry is failing to match the international standard, but set that issue aside for now. But what appeals to industries looking for protection from imports is that Section 232 doesn’t require any additional fact-finding or legal action by Congress. The discretion of the president is enough.

Section 232 was used in relatively few cases from its passage in 1962 up to the Trump administration: instead, when tariffs on imports were imposed in the past, it was typically through legislation, or as part of “anti-dumping” actions. Section 232 was sometimes used to block the US from importing petroleum from certain countries (like Libya), but in other cases, the president would announce that although petroleum imports did threaten national security, no action would be take. But the Trump administration produced Section 232 findings that imports of six products violated national security: steel, aluminum, automobiles and auto parts, uranium ore and products, titanium sponges (used in aerospace applications), and transformers and certain grain-oriented electrical steel parts. The Trump administration used Section 232 to impose tariffs in two of these industries: steel and aluminum.

But the allure of using the Section 232 “national security” exception never goes away. Recently, Senator Rick Scott of Florida proposed that “national security” required limiting imports of garlic from China. In a letter written to the US Secretary of Commerce, he says:

Section 232 of the Trade Expansion Act of 1962 authorizes the Secretary of the Department of Commerce (Secretary) to conduct investigations “to determine the effects on [US] national security” of imports of an article. This law allows any “interested party” to request Commerce initiate such an investigation to ascertain the effect of specific imports on the national security of the United States. I write to request such an investigation into imports from Communist China of all grades of garlic, whole or separated into constituent cloves, whether or not peeled, chilled, fresh, frozen, provisionally preserved or packed in water or other neutral substance, and the threat they pose to U.S. national security. Food safety and security is an existential emergency that poses grave threats to our national security, public health, and economic prosperity. …

As garlic is a widely-used product for cooking and food preparation, the integrity and safety of this product are paramount to the entire population. To maintain a strong and stable economy, domestic tranquility, a productive society, public health and our national security, we must assure quality and confidence in our food supply to all Americans and their families. If our food is not safe to eat, we cannot expect our men and women in uniform to be equipped and able to do their jobs to defend our nation and her interests. Doctors, police officers, nurses, teachers, firefighters, military service members, retirement communities, moms and dads, and every American expects our government can and does make sure our food is safe to eat.

What’s especially weird about the letter is that it also refers to regular issues of trade, like whether garlic in China is produced in safe and sanitary conditions, and whether it is being “dumped” in the US by selling at under the cost of production. I take no position here on these regular meat-and-potatoes (with or without garlic) trade issues. What’s interesting to me is the florid invocation of Section 232 and national security on behalf of a root vegetable.

Scott’s letter reminds me of one of the classic attempts to use national security as a justification for import tariffs. It’s from back in 1962, when the Congressional hearings before the Trade Expansion Act and Section 232 were passed into law. During the hearings, a representative of the scissors and shears industry offered testimony. Through the magic of Google Books, you can easily check the full testimony (starting on p. 1969), but here is an excerpt:

Mr. Chairman and members of the Committee on Ways and Means, my name is B. C. Deuschle. I am vice president of the Acme Shear Co., located in Bridgeport, Conn. I appear before this committee as president of the Shears, Scissors & Manicure Implement Manufacturers Association, the only national trade association of domestic manufacturers of scissors and shears. …

We realize that the domestic scissor and shear industry with its 1,000-plus employees accounts for only a fraction of 1 percent of the gross national product, but we see this as no justification for letting the industry be completely destroyed by imports produced with low cost labor. …The United States would then become wholly dependent on imported scissors and shears. We cannot understand how it could be in the national interest to permit such a loss. We would lose the skills of the employees and management of the industry as well as the capital investment in production equipment. In the event of a national emergency and imports cutoff, the United States would be without a source of scissors and shears, basic tools for many industries and trades essential to our defense.

The scissor and shear industry is one of the oldest in the world. … Scissors and shears of all sizes and types are used in every school, retail establishment, office, factory, hospital, and home in the United States. Scissors cannot be classified as a luxury, gimmick, or novelty. Scissors are used to separate us from our mothers at birth; to cut our toenails; to trim the leather in our shoes; to cut and trim the materials used in every piece of clothing that we wear. They are used to cut our fingernails, to trim our mustaches, the hair in our ears and nose, and to cut the hair on our heads—even down to the end of the road when our best suit or dress is cut down the back so that the undertaker can dress us for the last ride. Scissors are truly used from birth to death. They are essential to our health, education, and general welfare.

I ask you gentlemen, is this an industry that should be permitted to become extinct in this country?

You might not have previously believed that topics like garlic or scissors could galvanize such levels of oratory. But when national security is at stake, it is apparently inspirational.

Robert Solow (1924-2023) died last week. As a starting point for understanding his life and his work on growth theory, the Nobel prize website, since he won the award in 1987, includes an overall description, a biographical essay, and his Nobel lecture. I can also strongly recommend an interview that Steven Levitt carried out with Solow last summer.

For those of us who toil in the editorial pits of economics, Solow was among his other gifts one of the best expository writers the profession has known. For a flavor, consider a couple of paragraphs from the Presidential Address he gave to the American Economic Association in 1979, “On Theories of Unemployment,” published in the American Economic Review (March 1980, 70: 1, 1-11). Solow is setting the stage for his discussion of unemployment by talking about a more fundamental issue in economics: the tension between recognizing the advantages of market mechanisms and also recognizing the limitations and costs of market mechanisms. Most economists (perhaps contrary to popular belief?) try to do both. Here, Solow describes his own attempt to hold the balance–which to some extent involves a contrarian reaction to whoever is speaking. As you read, consider in particular Solow’s gift for fluently combining technical and nontechnical language.

There is a long-standing tension in economics between belief in the advantages of the market mechanism and awareness of its imperfections. … I think that outsiders, who tend to see economists as simple-minded marketeers, would be astonished to learn how much of the history of modern economic analysis can be written in terms of the study of the sources of market failure. The catalog runs from natural and artificial monopoly, to monopolistic competition, to the importance of public goods and externalities of many other kinds, to–most recently–a variety of problems connected with the inadequate, imperfect, or asymmetric transmission of information and with the likelihood that there will simply be no markets for some of the relevant goods and services….

There is a large element of Rohrschach test in the way each of us responds to this tension. Some of us see the Smithian virtues as a needle in a haystack, as an island of measure zero in a sea of imperfections. Others see all the potential sources of market failure as so many fleas on the thick hide of an ox, requiring only an occasional flick of the tail to be brushed away. A hopeless eclectic without any strength of character, like me, has a terrible time of it. If I may invoke the names of two of my most awesome predecessors as President of this Association, I need only listen to Milton Friedman talk for a minute and my mind floods with thoughts of increasing returns to scale, oligopolistic interdependence, consumer ignorance, environmental pollution, intergenerational inequity, and on and on. There is almost no cure for it, except to listen for a minute to John Kenneth Galbraith, in which case all I can think of are the discipline of competition, the large number of substitutes for any commodity, the stupidities of regulation, the Pareto optimality of Walrasian equilibrium, the importance of decentralizing decision making to where the knowledge is, and on and on. Sometimes I think it is only my weakness of
character that keeps me from making obvious errors.

The critics of the mainstream tradition are mistaken when they attribute to it a built-in Panglossian attitude toward the capitalist economy. The tradition has provided both the foundations for a belief in the efficiency of market allocations and the tools for a powerful critique. Economic analysis by itself has no way of choosing between them; and the immediate prospects for an empirically based model of a whole economy, capable of measuring our actual “distance” from the contract curve, are mighty slim. The missing link has to be a matter of judgment–the Rohrschach test I spoke of a minute ago. For every Dr. Pangloss who makes the ink blot out to be of surpassing beauty, give or take a few minor deviations–the second-best of all possible worlds, you might say–there is a Candide to whom it looks a lot like an ink blot. Maybe there are more Panglosses than Candides. But that was true in Voltaire’s time too–just before the French Revolution, by the way–and has more to do with the state of society than with the nature of economics.

There’s a sort of parlor game that the economically-minded sometimes play around the Christmas holiday, related to A Christmas Carol, by Charles Dickens. Was Dickens writing his story as an attack on economics, capitalism, and selfishness? After all, his depiction of Ebenezer Scrooge, along with his use of phrases like “decrease the surplus population” and the sarcastic use of “a good man of business” would suggest as much, and a classic example of such an interpretation is here. Or was Dickens just telling a good story with distinct characters? After all, Scrooge is portrayed as an outlier in the business community. The warm portrayal of Mr. Fezziwig certainly opens the possibility that one can be a successful man of business as well as a good employer and a decent human being. And if Scrooge hadn’t saved money, would he have been able to save Tiny Tim?

It’s all a good “talker,” as they say about the topics that get kicked around on radio shows every day. As part of my own holiday break, I republish this essay each year near or on Christmas day.

I went looking for some other perspectives on how Charles Dickens perceived capitalism that were not embedded in a fictional setting. In particular, I checked the weekly journal Household Words, which Dickens edited from 1850 to 1859. Articles in Household Words do not have authors provided. However, Anne Lohrli went through the business and financial records of the publication, which identified the authors and showed who had been paid for each article. The internal records of the journal show that Dickens was the author of this piece from the issue of February 11, 1854, called “On Strike.” (Lohrli’s book is called Household Words: A Weekly Journal 1850-59, conducted by Charles Dickens, University of Toronto Press, 1973. Household Words is freely available on-line at at site hosted by the University of Buckingham, with support from the Leverhulme Trust and other donors.)

The article does not seem especially well-known today, but it is the source of a couple of the most common quotations from Charles Dickens about “political economy,” as the study of economics was usually called at the time. Early in the piece, Dickens wrote: “Political Economy was a great and useful science in its own way and its own place; but … I did not transplant my definition of it from the Common Prayer Book, and make it a great king above all gods.” Later in the article, Dickens wrote: “[P]olitical economy is a mere skeleton unless it has a little human covering and filling out, a little human bloom upon it, and a little human warmth in it.”

But more broadly, the article is of interest because Dickens, telling the story in the first person, takes the position that in thinking about a strike taking place in the town of Preston, one need not take the side either of management or labor. Instead, Dickens writes, one may “be a friend to both,” and feel that the strike is “to be deplored on all accounts.” Of course, the problem with a middle-of-the-road position is that you can end up being hit by ideological traffic going in both directions. But the ability of Dickens to sympathize with people in a wide range of positions is surely part what gives his novels and his world-view such lasting power. The article goes into a fair amount of detail, and can be read on-line, so I will content myself here with a substantial excerpt.

Here’s a portion of the 1854 essay by Dickens:

“ON STRIKE”

Travelling down to Preston a week from this date, I chanced to sit opposite to a very acute, very determined, very emphatic personage, with a stout railway rug so drawn over his chest that he looked as if he were sitting up in bed with his great coat, hat, and gloves on, severely contemplating your humble servant from behind a large blue and grey checked counterpane. In calling him emphatic, I do
not mean that he was warm; he was coldly and bitingly emphatic as a frosty wind is.

“You are going through to Preston, sir?” says he, as soon as we were clear of the
CharPrimrose Hill tunnel.

The receipt of this question was like the receipt of a jerk of the nose; he was so short and sharp.

“Yes.”

“This Preston strike is a nice piece of business!” said the gentleman. “A pretty piece of business!”

“It is very much to be deplored,” said I, “on all accounts.”

“They want to be ground. That’s what they want to bring ’em to their senses,” said the gentleman; whom I had already began to call in my own mind Mr. Snapper, and whom I may as well call by that name here as by any other. *

I deferentially enquired, who wanted to be ground?

“The hands,” said Mr. Snapper. ” The hands on strike, and the hands who help ’em.”

I remarked that if that was all they wanted, they must be a very unreasonable people, for surely they had had a little grinding, one way and another, already. Mr. Snapper eyed me with sternness, and after opening and shutting his leathern-gloved hands several times outside his counterpane, asked me
abruptly, ” Was I a delegate?”

I set Mr. Snapper right on that point, and told him I was no delegate.

“I am glad to hear it,” said Mr. Snapper. “But a friend to the Strike, I believe?”

“Not at all,” said I.

“A friend to the Lock-out?” pursued Mr. Snapper.

“Not in the least,” said I,

Mr. Snapper’s rising opinion of me fell again, and he gave me to understand that a man must either be a friend to the Masters or a friend to the Hands.

“He may be a friend to both,” said I.

Mr. Snapper didn’t see that; there was no medium in the Political Economy of the subject. I retorted on Mr. Snapper, that Political Economy was a great and useful science in its own way and its own place; but that I did not transplant my definition of it from the Common Prayer Book, and make it a great king above all gods. Mr. Snapper tucked himself up as if to keep me off, folded his arms on the top of his counterpane, leaned back and looked out of the window.

“Pray what would you have, sir,” enquire Mr. Snapper, suddenly withdrawing his eyes from the prospect to me, “in the relations between Capital and Labour, but Political Economy?”

I always avoid the stereotyped terms in these discussions as much as I can, for I have observed, in my little way, that they often supply the place of sense and moderation. I therefore took my gentleman up with the words employers and employed, in preference to Capital and Labour.

“I believe,” said I, “that into the relations between employers and employed, as into all the relations of this life, there must enter something of feeling and sentiment; something of mutual explanation, forbearance, and consideration; something which is not to be found in Mr. M’CulIoch’s dictionary, and is not exactly stateable in figures; otherwise those relations are wrong and rotten at the core and will never bear sound fruit.”

Mr. Snapper laughed at me. As I thought I had just as good reason to laugh at Mr. Snapper, I did so, and we were both contented. …

Mr. Snapper had no doubt, after this, that I thought the hands had a right to combine?

“Surely,” said I. ” A perfect right to combine in any lawful manner. The fact of their being able to combine and accustomed to combine may, I can easily conceive, be a protection to them. The blame even of this business is not all on one side. I think the associated Lock-out was a grave error. And
when you Preston masters—”

“I am not a Preston master,” interrupted Mr. Snapper.

“When the respectable combined body of Preston masters,” said I, ” in the beginning of this unhappy difference, laid down the principle that no man should be employed henceforth who belonged to any combination—such as their own—they attempted to carry with a high hand a partial and unfair impossibility, and were obliged to abandon it. This was an unwise proceeding, and the first defeat.”

Mr. Snapper had known, all along, that I was no friend to the masters.

“Pardon me,” said I; ” I am unfeignedly a friend to the masters, and have many friends among them.”

“Yet you think these hands in the right?” quoth Mr. Snapper.

“By no means,” said I; ” I fear they are at present engaged in an unreasonable struggle, wherein they began ill and cannot end well.”

Mr. Snapper, evidently regarding me as neither fish, flesh, nor fowl, begged to know after a pause if he might enquire whether I was going to Preston on business?

Indeed I was going there, in my unbusinesslike manner, I confessed, to look at the strike.

“To look at the strike!” echoed Mr. Snapper fixing his hat on firmly with both hands. “To look at it! Might I ask you now, with what object you are going to look at it?”

“Certainly,” said I. ” I read, even in liberal pages, the hardest Political Economy—of an extraordinary description too sometimes, and certainly not to be found in the books—as the only touchstone of this strike. I see, this very day in a to-morrow’s liberal paper, some astonishing novelties in the politico-economical way, showing how profits and wages have no connexion whatever; coupled with such references to these hands as might be made by a very irascible General to rebels and brigands in arms. Now, if it be the case that some of the highest virtues of the working people still shine through them brighter than ever in their conduct of this mistake of theirs, perhaps the fact may reasonably suggest to me—and to others besides me—that there is some little things wanting in the relations between them and their employers, which neither political economy nor Drum-head proclamation writing will altogether supply, and which we cannot too soon or too temperately unite in trying to
find out.”

Mr. Snapper, after again opening and shutting his gloved hands several times, drew the counterpane higher over his chest, and went to bed in disgust. He got up at Rugby, took himself and counterpane into another carriage, and left me to pursue my journey alone. …

In any aspect in which it can be viewed, this strike and lock-out is a deplorable calamity. In its waste of time, in its waste of a great people’s energy, in its waste of wages, in its waste of wealth that seeks to be employed, in its encroachment on the means of many thousands who are labouring from day to day, in the gulf of separation it hourly deepens between those whose interests must be understood to be identical or must be destroyed, it is a great national affliction. But, at this pass, anger is of no use, starving out is of no use—for what will that do, five years hence, but overshadow all the mills in England with the growth of a bitter remembrance? —political economy is a mere skeleton unless it has a little human covering and filling out, a little human bloom upon it, and a little human warmth in it. Gentlemen are found, in great manufacturing towns, ready enough to extol imbecile mediation with dangerous madmen abroad; can none of them be brought to think of authorised mediation and explanation at home? I do not suppose that such a knotted difficulty as this, is to be at all untangled by a morning-party in the Adelphi; but I would entreat both sides now so miserably opposed, to consider whether there are no men in England above suspicion, to whom they might refer the matters in dispute, with a perfect confidence above all things in the desire of those men to act justly, and in their sincere attachment to their countrymen of every rank and to their country.

Masters right, or men right; masters wrong, or men wrong; both right, or both wrong; there is certain ruin to both in the continuance or frequent revival of this breach. And from the ever-widening circle of their decay, what drop in the social ocean shall be free!

Charles Dickens wrote what has become one of the iconic stories of Christmas day and Christmas spirit in A Christmas Carol. But of course, the experiences of Ebenezer Scrooge are a story, not a piece of reporting. Here’s a piece by Dickens written for the weekly journal Household Words that he edited from 1850 to 1859. It’s from the issue of January 26, 1856, with his first-person reporting on “A Nightly Scene in London.” Poverty in high-income countries is no longer as ghastly as in Victorian England, but for those who take the time to see it in our own time and place, surely it is ghastly enough. Thus, I repeat this post each year on Christmas day.

Economists might also wince just a bit at how Dickens describes the reaction of some economists to poverty, those who Dickens calls “the unreasonable disciples of a reasonable school.” Dickens writes: “I know that the unreasonable disciples of a reasonable school, demented disciples who push arithmetic and political economy beyond all bounds of sense (not to speak of such a weakness as humanity), and hold them to be all-sufficient for every case, can easily prove that such things ought to be, and that no man has any business to mind them. Without disparaging those indispensable sciences in their sanity, I utterly renounce and abominate them in their insanity …” 

Here’s a fuller passage from Dickens:

A NIGHTLY SCENE IN LONDON

On the fifth of last November, I, the Conductor of this journal, accompanied by a friend well-known to the public, accidentally strayed into Whitechapel. It was a miserable evening; very dark, very muddy, and raining hard.

There are many woful sights in that part of London, and it has been well-known to me in most of its aspects for many years. We had forgotten the mud and rain in slowly walking along and looking about us, when we found ourselves, at eight o’clock, before the Workhouse.

Crouched against the wall of the Workhouse, in the dark street, on the muddy pavement-stones, with the rain raining upon them, were five bundles of rags. They were motionless, and had no resemblance to the human form. Five great beehives, covered with rags— five dead bodies taken out of graves, tied neck and heels, and covered with rags— would have looked like those five bundles upon which the rain rained down in the public street.

“What is this! ” said my companion. “What is this!”

“Some miserable people shut out of the Casual Ward, I think,” said I.

We had stopped before the five ragged mounds, and were quite rooted to the spot by their horrible appearance. Five awful Sphinxes by the wayside, crying to every passer-by, ” Stop and guess! What is to be the end of a state of society that leaves us here!”

As we stood looking at them, a decent working-man, having the appearance of a stone-mason, touched me on the shoulder.

“This is an awful sight, sir,” said he, “in a Christian country!”

“GOD knows it is, my friend,” said I.

“I have often seen it much worse than this, as I have been going home from my work. I have counted fifteen, twenty, five-and-twenty, many a time. It’s a shocking thing to see.”

“A shocking thing, indeed,” said I and my companion together. The man lingered near
us a little while, wished us good-night, and went on.

We should have felt it brutal in us who had a better chance of being heard than the working-man, to leave the thing as it was, so we knocked at the Workhouse Gate. I undertook to be spokesman. The moment the gate was opened by an old pauper, I went in, followed close by my companion. I lost no
time in passing the old porter, for I saw in his watery eye a disposition to shut us out.

“Be so good as to give that card to the master of the Workhouse, and say I shall be glad to speak to him for a moment.”

We were in a kind of covered gateway, and the old porter went across it with the card. Before he had got to a door on our left, a man in a cloak and hat bounced out of it very sharply, as if he were in the nightly habit of being bullied and of returning the compliment.

“Now, gentlemen,” said he in a loud voice, “what do you want here?”

“First,” said I, ” will you do me the favor to look at that card in your hand. Perhaps you may know my name.”

“Yes,” says he, looking at it. ” I know this name.”

“Good. I only want to ask you a plain question in a civil manner, and there is not the least occasion for either of us to be angry. It would be very foolish in me to blame you, and I don’t blame you. I may find fault with the system you administer, but pray understand that I know you are here to do a duty pointed out to you, and that I have no doubt you do it. Now, I hope you won’t object to tell me what I want to know.”

“No,” said he, quite mollified, and very reasonable, ” not at all. What is it?”

“Do you know that there are five wretched creatures outside?”

“I haven’t seen them, but I dare say there are.”

“Do you doubt that there are?”

“No, not at all. There might be many more.”

”Are they men? Or women?”

“Women, I suppose. Very likely one or two of them were there last night, and the night before last.”

“There all night, do you mean?”

“Very likely.”

My companion and I looked at one another, and the master of the Workhouse added quickly, “Why, Lord bless my soul, what am I to do? What can I do ? The place is full. The place is always full—every night. I must give the preference to women with children, mustn’t I? You wouldn’t have me not do that?”

“Surely not,” said I. “It is a very humane principle, and quite right; and I am glad to hear of it. Don’t forget that I don’t blame you.”

“Well!” said he. And subdued himself again. …

“Just so. I wanted to know no more. You have answered my question civilly and readily, and I am much obliged to you. I have nothing to say against you, but quite the contrary. Good night!”

“Good night, gentlemen!” And out we came again.

We went to the ragged bundle nearest to the Workhouse-door, and I touched it. No movement replying, I gently shook it. The rags began to be slowly stirred within, and by little and little a head was unshrouded. The head of a young woman of three or four and twenty, as I should judge; gaunt with want, and foul with dirt; but not naturally ugly.

“Tell us,” said I, stooping down. “Why are you lying here?”

“Because I can’t get into the Workhouse.”

She spoke in a faint dull way, and had no curiosity or interest left. She looked dreamily at the black sky and the falling rain, but never looked at me or my companion.

“Were you here last night?”

“Yes, All last night. And the night afore too.”

“Do you know any of these others?”

“I know her next but one. She was here last night, and she told me she come out of Essex. I don’t know no more of her.”

“You were here all last night, but you have not been here all day?”

“No. Not all day.”

“Where have you been all day?”

“About the streets.”

”What have you had to eat?”

“Nothing.”

“Come!” said I. “Think a little. You are tired and have been asleep, and don’t quite consider what you are saying to us. You have had something to eat to-day. Come! Think of it!”

“No I haven’t. Nothing but such bits as I could pick up about the market. Why, look at me!”

She bared her neck, and I covered it up again.

“If you had a shilling to get some supper and a lodging, should you know where to get it?”

“Yes. I could do that.”

“For GOD’S sake get it then!”

I put the money into her hand, and she feebly rose up and went away. She never thanked me, never looked at me— melted away into the miserable night, in the strangest manner I ever saw. I have seen many strange things, but not one that has left a deeper impression on my memory than the dull impassive way in which that worn-out heap of misery took that piece of money, and was lost.

One by one I spoke to all the five. In every one, interest and curiosity were as extinct as in the first. They were all dull and languid. No one made any sort of profession or complaint; no one cared to look at me; no one thanked me. When I came to the third, I suppose she saw that my companion and I glanced, with a new horror upon us, at the two last, who had dropped against each other in their sleep, and were lying like broken images. She said, she believed they were young sisters. These were the only words that were originated among the five.

And now let me close this terrible account with a redeeming and beautiful trait of the poorest of the poor. When we came out of the Workhouse, we had gone across the road to a public house, finding ourselves without silver, to get change for a sovereign. I held the money in my hand while I was speaking to the five apparitions. Our being so engaged, attracted the attention of many people of the very poor sort usual to that place; as we leaned over the mounds of rags, they eagerly leaned over us to see and hear; what I had in my hand, and what I said, and what I did, must have been plain to nearly all the concourse. When the last of the five had got up and faded away, the spectators opened to let us pass; and not one of them, by word, or look, or gesture, begged of us.

Many of the observant faces were quick enough to know that it would have been a relief to us to have got rid of the rest of the money with any hope of doing good with it. But, there was a feeling among them all, that their necessities were not to be placed by the side of such a spectacle; and they opened a way for us in profound silence, and let us go.

My companion wrote to me, next day, that the five ragged bundles had been upon his bed all night. I debated how to add our testimony to that of many other persons who from time to time are impelled to write to the newspapers, by having come upon some shameful and shocking sight of this description. I resolved to write in these pages an exact account of what we had seen, but to wait until after Christmas, in order that there might be no heat or haste. I know that the unreasonable disciples of a reasonable school, demented disciples who push arithmetic and political economy beyond all bounds of sense (not to speak of such a weakness as humanity), and hold them to be all-sufficient for every case, can easily prove that such things ought to be, and that no man has any business to mind them. Without disparaging those indispensable sciences in their sanity, I utterly renounce and abominate them in their insanity; and I address people with a respect for the spirit of the New Testament, who do mind such things, and who think them infamous in our streets.