"Don't work too hard, or you'll screw up the economy"? | Hacker News Reader

"Don't work too hard, or you'll screw up the economy"?

paul.kedrosky.com

29 pointscwan15 comments

If anyone is curious, the author of the underlying paper argues that if the demand curve for labor is vertical (inelastic in the short run) that a sudden increase in desire for work will shift the supply curve out and cause wages to fall, reducing inflation. If nominal interest rates are near zero, a fall in inflation will amount to an increase in real interest rates. Increasing real interest rates reduces aggregate demand for goods and firms reduce their demand for workers in response.

Then a bunch of math is thrown in to make it seem sophisticated enough to get published.

It is an edge-case in a short-run model with carefully tuned parameters. Interesting, but probably not too important. Good blog fodder, though.

This paper describes the one idea that I have repeatedly tried to explain on HN:

Demand is not unlimited.

When you have a flame-bait title like this, the many die-hard libertarian/Austrians here will be sure to pull out the "broken window fallacy" and other knee-jerk retorts as evidenced by the other highly voted comments here.

Demand may not be unlimited, but mass-(over)production sure tries to make it so. It's easy to artificially create demand that wouldn't have otherwise been there in a free(thinking) market.

Demand is still very very far from unlimited, __especially__ when you take into account mass-production.

http://www.guardian.co.uk/world/2010/jan/07/h-m-wal-mart-clo...

In this example, if demand scaled along with production, there would be no need to junk clothes that didn't sell. According to you, they should've been sold! Instead, H&M is trying to maintain the scarcity/demand of their clothing by destroying excess products rather than give them to the poor. The people who have money simply don't need any more cheap clothes!

My point was, you know, sort of tongue-in-cheek... Of course demand can't be unlimited, but you're just further proving my point- corporations will produce and produce and produce far beyond the actual demand, because we aren't living in an actual free-market where if they get to a certain point they're losing money and go out of business.

In this case, yes, H&M would go out of business if they just kept producing and producing, but just take a look at the corn industry in the US for a great example of production far exceeding what demand would ever be in anything close to a free market- in fact, we (I say we meaning the US since I'm from the US, but I obviously don't condone this practice) keep inventing new ways to use the corn because there's too damn much of it!

Also, it may not be unlimited in the case you mention, but the consumerism ingrained in our societies is still striving for the goal of making it "unlimited" (as in bandwidth)- just because they aren't quite successful yet doesn't mean it's any good.

The number of people that don't understand basic economics very well is much greater than the number of people that understand it so well that they can ably critique it and support a view that contradicts the mainstream. Using Bayesian probability, it is far more likely that the average commenter on an internet message board espousing a new economic theory that seems to contradict the foundations of capitalism falls into the first category.

The Broken Window Fallacy in particular is among the most common and grievous economic sins committed by journalists and the public at large, so it's worth repeating.

This is an excellent excuse! "I'm not wasting time, I'm saving the economy" :)

Single-handedly nonetheless.

And in next week's issue of "Gross Misunderstandings of the Very Nature of the Economy": Hot New Trend: Breaking Your Own Windows to Stimulate the Economy.

It really is the broken window fallacy, but in reverse; that working harder could decrease aggregate employment implies that working less hard (or more counter-productively) could increase aggregate employment.

This is even more hare-brained than the suggestion that we should all work less to allow more people to be employed. Increases in productivity (e.g. working harder) can only be harmful in a closed economy with very fixed consumption practices. Pretty much any country or region, however, cannot be said to exist in isolation, nor does it have fixed consumption. When either world interest rates go to 0% or people become miraculously content with everything they have, let me know so I can slack off, but until then I'm gonna keep working.

>It really is the broken window fallacy, but in reverse; that working harder could decrease aggregate employment implies that working less hard (or more counter-productively) could increase aggregate employment.

Not all system responses are reversible. I can start working really hard, making it feasible for my company to lay someone else off. I could later stop working so hard, but there's no reason to expect that job to come back.

> This is even more hare-brained than the suggestion that we should all work less

Did the article make a suggestion? I think it was more of a scientific statement that this would happen. Of course in a global competitive market it's irrational for any single individual to start working less. That in no way refutes the claim being made. Depoliticize for a second and consider the claims being made. Your stance is right, but you have no need to defend it here.

Oh, come on, folks...do you really think that the authors of a paper on the website of the New York Federal Reserve Bank aren't aware of the same bit of pop economics that any armchair economist can read on Wikipedia?

I suspect that the original paper merits a refutation of slightly greater weight than the parent comment.

The problem is that the many Austrian economists here feel they are smart enough to disregard the foundations of modern economics. And thus they will use the "broken window fallacy" to refute everything.

For everyone else here that has not jumped on the Austrian bandwagon, read the following to understand why you should not be parroting a school of thought that is based on what the founders think is "logical" rather than the scientific method:

http://www.gmu.edu/depts/economics/bcaplan/whyaust.htm

first of all, its irrelevant, the equilibrium behavior of the masses won't be affected of a few of us slack off. second, in the macro scheme of things, its not really possible to run out of value-add opportunities.

> The conditions for the paradox to apply are that the short-term nominal interest rate is zero and

Things are already broken very badly if free money is being given away. Or if things aren't broken very badly when the free money starts being given away, it will be broken very badly very soon.

Reply on news.ycombinator.com