Gittinomics

I’ve long been in two minds about SMH economics columnist Ross Gittins. A couple of years ago I suggested that there were two Ross Gittins, the Saturday Ross Gittins whose column in the paper’s business section is often an easily-understood explanation of economic ideas and behaviour, and the Wednesday Ross Gittins whose column on the opinion page is regularly a Clive Hamiltonesque critique of modern society – we’d be better off working less, having fewer material goods, facing less confusing choice etc.

I think we need more writers like the Saturday Ross Gittins, demystifying economics and correcting mistaken ‘common sense’ economic reasoning. The boom in science writing for a general audience has not been matched by a boom in similarly-pitched economics writing, though books like Tim Harford’s The Undercover Economist and Steve Levitt’s Freakonomics have sold well (though the latter is not really about the economy as usually understood).

Whether we need more writers like the Wednesday Ross Gittins is another matter. As with the Saturday Ross Gittins, the Wednesday Ross Gittins is mainly a recycler of other people’s research, but usually of non-economists. But for some reason – perhaps because he is supposed to be an economics columnist, or maybe because many writers enjoy the pose of ‘dissent’ – the Wednesday Ross Gittins contrasts the view he is presenting with those of ‘conventional economics’, ‘economic rationalists’ or businesspeople. But, as is common in the anti-economics literature, these are never named economists or businesspeople. The smell of straw men burning comes from these arguments.

Both Ross Gittins are on display in his new book Gittinomics (extract here), which joins quackonomics as a play on Levitt’s Freakonomics. While there is not much conventional micro or macro economics to be found, there is interesting information to be found about what he calls ‘home economics’ – work, education, family, housing, health etc.

There is also the usual series of attack on the ‘assumptions’ made by economists, but often to no clear purpose. For example, on pp.30-33 economists are criticised for not recognising that work is an end and not just a means, that many of us work because we like it and not just to make money. Gittins claims that their model ‘assumes all work is an unpleasant way of gaining money and the unemployed are to be envied for all their leisure time’. But which economist says this? Every economist I have ever read assumes that unemployment is bad (even if the value of the free time is not regarded as zero, unemployment is bad overall).

Gittins then complains that this assumption has led to policies designed to make work more efficient, which has made jobs ‘less secure and less satisfying’. But as I have pointed out many times, the less job security meme is based on a myth, supported by neither objective nor subjective statistics. It’s not clear that there has been any decline in job satisfaction either, though I have not been able to find matching surveys for long-term comparison. The National Social Science Survey in the mid-1980s found 77% of people were satisfied with their work and 8% dissatisfied. The 2005 Australian Survey of Social Attitudes found that about 80% of workers were satisfied with their jobs, and 9% dissatisfied. The questions were different, the NSSS included unpaid work, and there were different scales used to record responses. But the similarity of the results suggests that satisfaction is both high and stable, despite major changes in IR laws.

This criticism of economists becomes confusing when we read on. By p.218 economists are being praised rather than condemned for recognising the value of leisure, which Ross thinks we should have more of. With economists off the hook it is (unnamed, of course) ‘defenders of capitalism’ ‘telling us we cannot afford to take a few days off because we have to keep working and getting richer’ (p.223).

But it gets more confusing still. At various places in the book we are working as much as we do not because we enjoy it, as Ross originally insisted was possible, but because we have ‘acquired an addiction to material goods’ (p.226) or because we think material goods will make us happy (p.10) or because we are trying to improve our ‘position in the pecking order’ by purchasing ‘positional goods’ (p.238).

At other points (pp. 191, 245) Ross isn’t so sure that it is positional competition we are observing, but rather we are buying what we see other people buying because we are ‘herd animals’ with a desire to ‘fit in’, because we feel ‘comfortable when we’re doing what everyone else is doing’. Sociologically and psychologically, trying to stand out and trying to blend in are very different.

Or perhaps people aren’t taking as much leisure as they should because they feel that they are a key person at work (a reason given by about 40% of those who hadn’t taken a holiday in the last 12 months, according to a survey cited by Gittins on p.225).

After all this, are we really left with much of a critique of work patterns? Apart from the survey on leave, Gittins has no real evidence about motivation – the rest is based on his own inference from behaviour. But if there are so many possible motivations, how can we sensibly infer motivation from behaviour?

Perhaps Gittinomics is just, as he suggests on p.3, a self-help book. But if so, it’s not likely to be very helpful. ‘Work-life balance’ isn’t a brilliant new idea or a powerful social critique, it’s just what most people have always tried to achieve, knowing that there will always be trade-offs to be made. Not everyone makes the optimal trade-offs, of course, but it’s not likely that politicians, bureaucrats, social critics or newspaper columnists would do a better job, given the very diverse circumstances, needs, and aims of millions of Australians.

What we need on work-life balance is not what we have in this book, but a Saturday Ross Gittins column – explaining how decentralised mechanisms can offer better incentives and achieve better trade-offs than a centralised authority.

7 Responses to “Gittinomics

  • 1
    Sinclair Davidson
    March 5th, 2007 09:17

    How you must have suffered in writing this review. A bit of shameless self-promotion.

  • 2
    Sinclair Davidson
    March 5th, 2007 09:17

    Okay, no html code.
    http://www.ipa.org.au/publications/publisting_detail.asp?pubid=565

  • 3
    Rajat Sood
    March 5th, 2007 15:26

    Sounds like the usual Hamiltonian stuff.

    I might help on this point:

    “Gittins claims that their model ‘assumes all work is an unpleasant way of gaining money and the unemployed are to be envied for all their leisure time’. But which economist says this? Every economist I have ever read assumes that unemployment is bad (even if the value of the free time is not regarded as zero, unemployment is bad overall).”

    Simple general equilibrium models of the economy tend to assume that people face a choice between two basic ‘goods’ – consumption and leisure, both of which are desirable. To consume, you need to work, which is by implication unpleasant. Hence there is a trade-off between consumption and leisure. This is used to derive predictions like higher wages (or lower taxes on labour income) allow workers to consume more and thereby induce people to supply more labour. If there weren’t such a trade-off (at least at some point), everyone would just work all the time for no money. It would not be possible to generate stable equilibria without making complicated assumptions about when too much work becomes unpleasant and requires a wage (increase) to compensate the worker.

    Unemployment is a different issue because it means people are looking for work but cannot find it. That is an unambiguous bad.

    So, yes, Gittins is crudely right and perhaps GE models or models of the labour market could take account of the psychic benefits of working. But the real issue is which model better predicts what people actually do, rather than what Ross or Clive thinks people ought to do.

    When I looked at this issue at uni, I read that men often have fairly inelastic labour supply, in that higher wages tend not to affect their working hours much, but women had an upward-sloping labour supply curve, meaning that they were responsive to higher wages. Transposing this to the simple GE world, men are fairly indifferent to leisure while women actively prefer leisiure. This makes sense, because working women often face the opportunity cost of having to pay for childcare or have to do housekeeping after hours.

  • 4
    Rajat Sood
    March 5th, 2007 15:37

    Correction – I should not have said:

    “If there weren’t such a trade-off (at least at some point), everyone would just work all the time for no money.”

    I should have said something like: “If working were pleasant, people would be willing to sacrifice pay to work more.”

  • 5
    Andrew Norton
    March 5th, 2007 16:04

    “But the real issue is which model better predicts what people actually do, rather than what Ross or Clive thinks people ought to do. ”

    Gittins claims (p.6) that conventional economics is ‘notorious for its poor record in predicting human behaviour’. But it is far from clear that Ross’s theories can even explain in hindsight, let alone predict anything, as was the case when he alleged that various ‘reforms’ urged by economists would reduce job security and satisfaction, when neither happened.

    I think we should have modest expectations in social science, including economics. We are almost always talking about tendencies, not laws of behaviour. People tend to respond to financial incentives; that not all do or do in varying degrees does not show that the tendency does not exist.

  • 6
    Club Troppo » Missing Link
    March 8th, 2007 00:23

    [...] Norton reviews Ross Gittins’ new book which is worked up from his enjoyable columns. He even spells his name correctly which a number of [...]

  • 7
    Wal
    October 24th, 2007 17:17

    Improving our ‘position in the pecking order’ by purchasing ‘positional goods’ and trying to ‘fit in’, because we feel ‘comfortable when we’re doing what everyone else is doing’ do seem contradicting at first.

    Isn’t he just saying that everyone is on the treadmill of consumerism, first stop endless happiness, and I’m gunna get there faster than you?