King Ludd reigns eternal

Two hundred years ago, in 1811, Europe was enjoying a temporary respite from the Napoleonic Wars.  Bonaparte had defeated Austria and gobbled up huge chunks of Eastern Europe into his empire.  For the moment, he seemed sated.

But in northern England, British troops were on the march, not against the Emperor Napoleon but against King Ludd and his army.  King Ludd (also known as “General Ludd,” “Captain Ludd,” or “Ned Ludd”) was not a person, he was just the personification of common complaint: the advent of “frames”, huge mechanized looms that could make textiles much faster and cheaper than hand-loomers could.  Ned Ludd’s troops, hordes of enraged textile workers, took to destroying the frames, burning down factories, and even assassinating factory owners, in an effort to save their jobs.  The violence and destruction continued until the British government stepped in and took the then-commonsense measure of hanging all the ring-leaders.

The “Luddites”, as they were called, had two arguments, one true but unpersuasive, the other persuasive but false, false, false.

The first argument was, well, the frames were reducing them from skilled artisans to poorly paid factory workers and they didn’t like that.  True, as I said, but unpersuasive.  The argument that farm-hand Peter should pay six times as much for a pair of socks so that textile worker Paul could get better wages might have been convincing to Paul but less so to Peter — and Britain was full of farm-hands and shop-assistants and even other factory workers who liked inexpensive clothing.

The second argument was broader: frames caused unemployment.  Many textile workers would be laid-off themselves, the rest would receive lower wages, making them less able to buy other manufactured goods, farm produce, and so on.  Skilled workers, the argument ran, were the engine of the economy.

Say the owner of a sock factory saved £10 a month by replacing two skilled hand-loomers with a machine and one attendant.  The Luddites would argue that £10 of salary would no longer be available to the economy.  Those two loomers would have, had they remained employed, used their pay to purchase food, clothing, manufactured goods, services; the domino effect of those two layoffs would ripple across England.

This argument appealed even to those not directly involved.  It was very appealing then and, as we will see, today.

The problem with this argument is, it’s utter nonsense.  It isn’t even a little bit true.

Think about it.  Where did that £10 actually go?  Well, some small part, it goes to the factory owner.  A much larger portion goes to the people who buy socks.  Whichever, that money isn’t thrown into the Channel.  Whoever has that money spends it, buying the same food, clothing, manufactured goods, and services that the laid-off sock-makers would have bought if they were still employed.

And what about those sock-makers?  They may be out of a job for the moment, but there is now £10 of extra demand floating around — the newly rich sock-factory owner and the people who saved money on socks need somebody to make the things they want to spend their new money on.

The economist Henry Hazlitt summarized what has become known as the Luddite Fallacy:

Among the most viable of all economic delusions is the belief that machines on net balance create unemployment. Destroyed a thousand times, it has risen a thousand times out of its own ashes as hardy and vigorous as ever. Whenever there is a long-continued mass unemployment, machines get the blame anew.

The belief that machines cause unemployment … leads to preposterous conclusions. Not only must we be causing unemployment with every technological improvement we make today, but primitive man must have started causing it with the first efforts he made to save himself from needless toil and sweat.

Tuesday, President Obama became the latest victim of this delusion.  In an interview with the Today show, he told Ann Curry:

There are some structural issues with our economy where a lot of businesses have learned to become much more efficient with a lot fewer workers.  If you see it when you go to a bank you use the ATM, you don’t go to a bank teller. Or you go to the airport and you use a kiosk instead of checking in at the gate.

Partly, this is simple desperation.  ATMs first became popular in the 1970s; airport kiosks are younger but all the kiosks in all the airports in the US haven’t replaced a thousand people.  He just needs some explanation why unemployment has doubled during his term in office — and he certainly isn’t going to take the blame himself.  So he grasps at any available straw.

But why this particular straw?  Why not blame the bankers or the Republicans or the Chinese?

My guess: he thinks it sounds plausible.  People, he thinks, will buy it, and he may be right.

Of course, my guess only pushes the question back one step:  Why does he think it sounds plausible?  One possibility is that he has an accurate grasp of the ignorance of the American electorate and the brutal cynicism to exploit that ignorance.  I hope that’s true.  I hope that the President of my country is manipulative and dishonest.

Because the other possibility is worse.  It might be that he thinks the Luddite Fallacy sounds plausible to other people because it sounds plausible to him.  It might be that the President of the United States is ignorant of the basic facts of economics.

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