Why Americans Work So Much Despite Keynes's Prediction | Hacker News Reader

Why Americans Work So Much Despite Keynes's Prediction

theatlantic.com

61 pointse15ctr0n71 comments

One answer is that the market forces tend to funnel all increases in income to landowners as rent.

I was not familiar with this theory until a few days ago, when someone here on HN linked to an online version (edited and abridged) of Henry George's Progress and Poverty [0]. I've been reading it since; its clarity is stunning: I feel as if a great veil has been lifted from my eyes. Whether I'll still feel that way in a few days, months, or years remains to be seen, but for the moment, Henry George has me eating out of the palm of his hand.

Whatever the general validity of his theory, it certainly seems to explain the SF Bay Area extremely well. Salaries here sound incredible to people outside the area, but then it costs so much more to live here as to deny the wage earner much of the benefit. Broadly, we can break the population into three groups. Renters, obviously, have to pay the market rents, which seem to rise inexorably. Those who bought houses here years ago, before the big increases in property values, and are still living in them, are the ones who can really enjoy the high salaries they can earn here. Those who bought property here more recently, on the other hand, have large mortgages, because someone who previously owned the property made a pile of money when they sold it. In effect, the mortgage is like rent being paid to whichever previous owner or owners saw the property appreciate.

George's theory starts with Ricardo's law of rent [1], which is a truism of classical economics (and another idea I was not aware of until just recently). One could say it takes that law to its logical conclusion.

EDITED to add: while George's theory has not been fully embraced by mainstream economics, it hasn't been completely rejected by any means. Joseph Stiglitz, Herbert Simon, and to some extent Milton Friedman are some of its adherents, and Hayek credits George with awakening his interest in economics. [2]

[0] http://www.henrygeorge.org/pcontents.htm

[1] https://en.wikipedia.org/wiki/Law_of_rent

[2] https://en.wikipedia.org/wiki/Georgism

One answer is that the market forces tend to funnel all increases in income to landowners as rent.

This is partially a result of Americans choosing to consume more housing than citizens of peer nations or, indeed, Americans historically. The size of the average owned American home doubled since 1950. You can save a substantial amount of money if you're willing to live like a 2015 Japanese salaryman or a 1950 American middle class family, but the modal American considers that standard of living "poverty" and is unwilling to accept it.

Another layer is that big houses gate access to good school districts, which is a very, very deep can of worms.

Yes, but the effects George describes would operate even in the absence of those forces. They are inherent to urbanization itself.

The house/ school district connection is not a small matter: it transforms housing into a positional good, and (under present conditions) a zero-sum game. In many places, it is not possible to exercise a preference for a cheaper, more modest home without also accepting a tradeoff in school quality.

> The house/ school district connection is not a small matter

If you are a parent, it is a BIG deal. Over the past 10 or so years my location movements have had available education in the top three criteria (along with price and crime rate).

Zoning has a lot to do with home sizes. In general American cities are zoned to not allow smaller units, even for those who might prefer the cheaper rent if given a choice. Japan has much simpler and more flexible zoning laws.

...But Japan doesn’t have the history of racially motivated urban design in general, so the story is a bit complicated.

That, and America has been heavily subsidizing an automobile-based lifestyle for 60–70 years, encouraging people to trade more living space for longer commutes, without facing the full infrastructure costs of the choice.

Japan does have a quite different problem with real estate, however[1].

[1] http://freakonomics.com/2014/02/27/why-are-japanese-homes-di...

Japan has extreme ghettoization of immigrants; most landlords will simply refuse to rent to foreigners.

Sure. I don’t mean that Americans are as a rule more racist than Japanese, or anything like that.

What I mean is, Japan didn’t design its whole large-scale metropolitan plan around racial segregation, the way many places in America did.

This is a nice comparison between Japanese and US zoning laws:

http://urbankchoze.blogspot.de/2014/04/japanese-zoning.html

I think in a lot cases you might have this backwards.

Many new schools, especially in the South, are built in the county or in a more rural part of the town, because property is cheap or donated there.

If the school is a "good" (you can decide on what that means for you) school, then all of a sudden, the property near that school become much more valuable to build home on for parents.

If the value of the property goes up, taxes go up in those new divisions.

Now, you have a situation where THE SCHOOL has driven off poor families and increased its own budget ... just because it was "good" to start off with!

So it isn't always that people are building the "good" schools on already expensive property to cater to the wealthy.

Productivity growth is measured in terms of the lowest quality mass produced consumer goods that are still around across the decades, because it's measured along with estimating inflation, which is measured that way. So inflation has been higher than the conventional government provided numbers, and productivity growth lower. You can buy more cheap boxed stuff for an hour's wages, and you can get much more advanced technology and other advances in the quality of products and services. But people can't live on enhanced quality, phones with more features, or increased quantities of the lowest quality of food, when they're trying to live an American lifestyle that takes a car, housing, medical care, education, and so on.

Also consider that the median wage in the U.S. includes the effect of a lot of immigration. Average immigrants make more than they would in their countries of origin, but less than average Americans, while average American born workers have done better than the median statistic. College educated American born workers have done better yet, but a lot of that increase has been paid in the form of mortgages and rent to retirees and the rich, because of urban housing market inflation, as ScottBurson pointed out.

The focus on rent is a good legacy of George's theory. However, I was quickly disappointed by the book that was linked. George was doing well critiquing previous economic theory that had separate theories of wages, rent, and profit. He showed instead that it must be that production = wages + rent + interest, as a formula that relates them and can be rearranged. Then in the next chapter, 12, he falls into a sort of absurdity about the nature of interest, where he claims interest exists because of natural increase, such as of bees or ageing wine, and wouldn't exist otherwise.

That's not an advanced enough theory of why there's interest on capital and the rate of it. It doesn't even seem quite sane, in comparison with the example of reasoning that he was setting and teaching up to that point. There should be some school of economics that promotes a George-like view of rent, but that isn't embarrassing when it comes to explaining capital and interest.

George is also fairly "antique" as far as macroeconomists go. It's not too much of an exaggeration that anything from before the ~1950's is consider little more than curiosities that illustrate progress of economics thought.

For the most comprehensive book on the subject, see http://www.amazon.com/Modern-Macroeconomics-Origins-Developm...

> Then in the next chapter, 12, he falls into a sort of absurdity about the nature of interest

Yes, I noticed that too. I'm not enough of an economist (obviously) to know what he should have said instead.

It's a weakness, but I don't think it's fatal to his key point, which is that urban land values are socially created and should benefit society as a whole.

I'd be careful to apply what's happening in the bay area globally. It's a bit of a unique set of circumstances. On the east coast, where suburban sprawl is much more common, we don't have the rent issues of SF even in places like the triangle where there's a fair amount of technical development going on.

Fortunately, there's an easy workaround for the ever-increasing land rents, which should work even in places like the SF Bay Area: you can just have a group of people pool their resources to pay for a given plot of land, usually in the form of an "apartment building". Unfortunately, those are illegal in almost all of the Bay Area, and in SF itself, even in the few places where you can build a new one, the process takes forever and costs a lot of money. As a result, housing becomes a rare and collectible good, and people have to either crowd into the existing units, pay a lot of money, or have punishingly long commutes.

>apartment buildings are illegal

Well, I guess they don't want tall buildings falling over due to a quake...

They should get Japanese engineers to come in and build the apartment buildings then. Tokyo is still standing.

has nothing to do with that, has everything to do with maintaining the "look and feel" of SF.

This is equally the case in most other US cities, most especially the expensive ones, but even including the likes of Chicago. It's kind of baffling: a four bedroom house with one kitchen and four roommates is perfectly fine per the zoning code, but that same house split into two apartments with two people living in each one would only be allowed in a relatively small fraction of the city (generally a smaller fraction than _actually has_ such buildings, btw). It's almost like the zoning bureaucrats think stoves are some kind of evil that needs to be strictly limited.

Because when you devalue the currency through a policy of secular inflation, you have to work harder to maintain the same standard of living: this is the whole point of manipulating the economy using the inflation/employment connection (aka Phillips curve). You can't negotiate a wage reduction with your employee due to sticky wages, so for a country to make it appear like they're doing a good job keeping employment numbers up, they have to screw over everyone (of course screwing the poor the hardest)

The simple answer is: because Keynesian economics doesn't work.

When a company buys a 2x faster copy machine, they don't double the salary of the human operator. If a department is able to lay off half its staff thanks to automation, they don't double the salaries of the remaining staff.

There's little in the way of forces that push wages up. Unions, basically, acting on the idea that rich companies should share the wealth. The market value of a human butt-in-chair operator remains low. Unskilled labor is a commodity, and it can be found increasingly cheaply on the global market.

Keynes died before the first computer was invented. Probably his concepts of "technological innovation" and "worker productivity" do not apply today.

This article is deeply flawed... change in wages != change in standard of living.

But that aside, in addition to people wanting to take part in higher standards of living, I'd hypothesize that another driver is social status. In our culture, wealth seems to translate pretty directly to social status, and I think that's a pretty core human need/desire that most people aren't willing to opt out of competing for.

> This article is deeply flawed... change in wages != change in standard of living.

Measuring "standard of living" is a very hard problem. At least they're being clear about their definition, so I can judge the correlations they find for myself.

Sure, maybe coming up with a good rigorous definition is difficult, but I think it's pretty obvious that standard of living is rising drastically. Smart phones are now ubiquitous, for example, whereas they essentially didn't exist a decade ago. You could have had all of the wealth of the planet but no antibiotics less than a century ago. Conflating wages with standard of living is a glaring error.

I think the biggest complaint is that the improvement in quality of life and agency, is not even slightly evenly distributed. I'm not knowledgeable enough to posit good arguments, so you'll have to research this on your own. I'm sure with a modest bit of effort and investigation you'll come to a more balanced position.

There are some aspects of wealth that basic economic concepts and models don't capture. Here for example, diminishing marginal utility doesn't seem to play as big a part as it did.

My guess is that competitive dynamics dominate this issue. Within a career/job it is hard to progress with less than full effort because of competition, for example. On the consumption side, by working less an individual becomes poor relative to his peers. This in itself is meaningful. Where 4 kids in a small 2 bedroom was normal and middle class throughout Europe in Keynes' time, it is hardship today. Living without smartphones or Internet is hard because they are normal, both psychologically and practically.

Second, inflation is unevenly distributed. The average salary/price ratio for bread and cheese and cutlery sets improved miraculously but the ratio for a tennis lesson did not.

Then, there are many markets that are zero sum or reduced sum. The price of real estate in many limited supply areas like cities rises to the limit of affordability for the corresponding percentile of the population. IE the median house corresponds to the maximal borrowing amount for a median household.

I also think "you make what you measure" applies. Our governments' highest measurable priorities are usually gdp and employment. Then there's wealth distribution. Will the median person's wealth increase 8 fold?

All that said. I think number of working years is a place to look for any changes that did occur. College, travel retirement. People had longer working lives back the, especially considering life expectancy.

Number of hours worked per week is not everything. I suspect that Americans do work less over the whole lifetime -- the retirement age has decreased (at least for men, see [1]) while life expectancy is increasing. The problem is that it's impossible to estimate total hours worked over lifetime for people presently in their 20s-30s and current pensioners give you a delayed statistic.

Personally I think that economy based on a 15-hour work week would be sub-optimal. Total salaries being equal, I'd rather employ a single person working 40 hours than three working 15 where you need to deal with lots of communication and administrative overhead.

Maybe the solution would be taking multiple "gap years" during your career or "mini retirements" but many employers don't like holes in your CVs.

[1] https://www.soa.org/News-and-Publications/Newsletters/Pensio...

That's the trouble. From an employee's perspective, I'd like a job with less than 40 hours per week (but also be paid lesson for it). But full working hours are favourable to employers.

You're right but I wouldn't like that even as an employee (which I am). Imagine your that your team triples in size and everyone is in some kind of part-time arrangement that makes it difficult to synchronize any kind of real-time communication. Horror.

It seems easy enough to agree some kind of core - "everyone comes in 2-4pm on Wednesday and we do any meetings then" or some such. I mean, all-remote teams manage to get work done.

Yes, but you presume that single worker working 40h/w will charge you the same hourly rate as the one working just 15h/week. It very much depends on peoples' own perception of how much work is "normal", and if you ask them to work more then the usual norm they'll probably ask to be better paid (per hour) for extra effort. Which would make them more expensive to hire, which would lead to hiring more 15h/w workers... some sort of equilibrium would surely arise, but only for jobs that are in high demand... unqualified workers will only work more and more...

I think much of the choice of work hours must be down to human nature. We are awake about 112 hours a week and choose to work between a half (56 hours) and a quarter (28 hours) typically. People are seldom very happy unemployed. If money was the only reason people worked, the likes of Paul Graham would put their feet up when they cashed in for millions from Yahoo but they almost never do.

I really doubt that. Choose to work 40 hrs?

There are a few people who are lucky enough whose work is their hobby, and who feel happy doing it, but mostly, work is draining and stressful. And I don't mean physically draining.

I'm convinced the 'Fall from Eden' story was inspired by the invention of agriculture. Suddenly, people had to work a lot more (hunter-gatherers typically work 4-5 hours a day). Only the aristocracy inherited the privilege of having a lot of leisure time and being able to hunt(barring the US, hunting is extremely restricted).

Nutrition got worse, it took millenia of improvement till skeletons of farmers started to look as well-fed as those of hunter gatherers.

And of course proximity to farm animals and greater population introduced all those nice pathogens: tuberculosis, smallpox, flu...

That's a remarkable explanation for the myth.

I find it convincing too. Check out the 'Big History' lecture series. Particularly the lecture on the transition to agriculture. I was inclined to think that humans transitioned to agriculture as soon as it was 'invented'. But the lecture suggests that humans knew perfectly well how to farm long before, but didn't because it seemed like too much hard work. We didn't transition until forced to by climatic conditions.

The evolution of light skin and ability to digest cow milk also happened due to the nutritional deficiencies of the agricultural lifestyle. Still, the benefit of being able to build a permanent home must have been strong for people to make the switch.

In my current job I've been working six hours a day, between one and three days a week. My favourite has been two days - enough to feel like I'm contributing to a collectively-held goal and have some workplace socializing, but short enough that I feel like my "real" life is away from work.

Having said that, I spend nearly all the rest of my days industriously grinding away at my own projects. But that doesn't feel like work.

That sort of fits with both my and RogtamBar's points that you spend most of your time working if you include your own stuff but not so much on formal employment. Maybe what we need is for employment to be more fun rather than less of it.

Your experience makes sense. I've read articles analyzing happiness at work and there is a very strong correlation with job autonomy. (And that explains why executives often love work - studies find that executives control their time and choose their work. That is also why bosses are so often surprised when their subordinates aren't equally enthusiastic about the work they are assigned.) Really, it takes somebody very disconnected from the reality of working people to think that everyone wants to work at jobs as they are currently constructed in our society.

People are seldom happy when doing nothing; they like to be recognized as worthy and valuable members of their group/community. Work is the most frequent way to partly achieve that, but it is not the only one, depending on how you define 'work' (generally involving exchange of money or service).

I'm not aware of any empirical or historical justification for the range 28-56. People are indeed seldom happy unemployed, but I haven't seen any evidence that people would be unhappy on e.g. 14 hours/week (of course it's very hard to control for status aspects).

The kind of person who can cash in for millions is an outlier in many ways - the working habits of such people say very little about those of the general population.

>What Keynes foretold was a very optimistic version of what economists call technological unemployment—the idea that less labor will be necessary because machines can do so much. In Keynes’s vision, the resulting unemployment would be distributed more or less evenly across society in the form of increased leisure.

I would be shocked if that actually happened. From what I can tell most people would rather make more money than have more leisure, even if it's not a conscious decision. Since employers would rather hire one guy for 40 hour weeks instead of two guys for 20, if marketable people don't demand shorter hours (and less money) it's never going to happen.

Also, it's an overly simple view of technological innovation. Technology tends to eliminate low skill and unskilled jobs, creating fewer numbers of higher skilled positions. It's pretty naive to think if you automate a steel mill you're going to be able to transition people from that mill into medicine or software development.

>From what I can tell most people would rather make more money than have more leisure

Totally false in most places in the world. Totally true in the U.S.

I don't know how much it's true in other countries, but in the US it's pretty common to see people trap themselves in debt. You see a lot of people with six figure incomes living paycheck to paycheck. They can't afford to take less money because they've already spent it.

The U.S. is full of all kinds of behavior that is uniquely American. I was amazed how different the U.S. actually is when I left it several years ago to live and work in other nations. the U.S. has a lot it could learn from other places. I definitely think Americans are on average unhappier than the citizens of other Western nations, for a wide range of reasons.

The thing about capitalism is that the capitalists tend to win. Gains have accrued to capitalists mostly. Lack of leverage on the part of labour means they are expected to be more productive not work less.

> The thing about capitalism is that the capitalists tend to win.

That's because the capitalists are the ones that already "won".

A capitalist - or aspiring capitalist - that fails, is/becomes a worker.

Anything that squeezes the economy of capitalists as a group forces some of them into the working class.

This comment adds nothing to what was said above. Capitalists started out advantaged at the advent of modern commerce and have accrued gains.

That's wild oversimplification. A lot of people have become capitalists without a privileged start, and a lot of people have lost all their privilege.

The point is that what was said above was a meaningless truism to say that "the capitalists tends to win" because (still) being a capitalist is the prize.

Not even worth responding to

That sounds pretty legitimate.

My first thought is that what you're worth is not what you want, and not according to your contribution to productivity. You're paid according to what you'll accept.

So you gotta wonder, if there starts to be a slight shortage of jobs, what do the different actors do? The middle manager and the employee... Well, as an employee you have less and less say, and you probably want to try to prove yourself and work harder or longer. Motivation is toward equal or higher hours than normal.

And the employer just wants to get the job done. They don't want to sift through MORE employees to do it. That means more training, more managing, and generally more hassle. Motivation is toward giving employees equal or more hours than normal.

Meanwhile, the Netherlands has a new law in effect on January 1 that requires employers to allow for shorter working days unless there is a strong reason to prevent them. And since the Netherlands is one of several European companies on the list of world's "most prosperous" [0], a list which does not include the U.S. in the top 10, perhaps this is validation of Keynes afterall.

[0] http://www.prosperity.com/#!/

We are hostages to our genetic and cultural heritages. Until the last 100 years (and even less in many countries) wealth = survival. To expect this drive to go away after 10,000 years of enormous selective pressure because the need for wealth has gone away is not how evolution (both culturally and genetically) works.

So that the rich people can get richer, it's that simple :)

If somebody has income without working, the somebody else is working without getting an income.

Fear, manufactured competition and a lack of a social safety net?

all of these comments are totally wrong. why do the richest Americans work the most, why did Gates work insane hours like 100 a week?

obviously it's not because they can't afford to stop working. it's because America has a culture that work is - awesome.

what other country could give developers unlimited vacation days? (for example.)

Can you think outside of the communist box?

Competition is in part due to the fact there are more humans alive today fighting for the same resources. It's kinda similar to dating, where things are not getting easier(except for those who inherited good genes). Today with dating you have to do more to get the same result people use to get with less effort.

Lack of social safety net? Why do you care about that? You don't have a safety net when you get dumped. You know, if your girlfriend dumps you, you don't get another girl to give you blowjobs, because otherwise you might get depressed and suicidal. You're expected to figure it out on your own and you might not do it - you might end up lonely, without dates and maybe even commit suicide because of that. So, why not hold wage earners to the same standard? Don't be a hypocrite!

I like the way you think, but it's not two things you can compare. For once, living in decent conditions (3 meals a day, a roof on top of your head, ...) ranks much higher than dating and reproducing on Maslow's hierarchy of needs. Also, the gene pool is quite diversified and most people can find a match during their lifetime. It's not common for attractive people to have multiples spouses.

Who cares about 'Maslow's hierarchy of needs'? It's an arbitrary pyramid - you can create your own if you wish where you can rank internet as the most basic necessity.

Also, the jobs pool is quite diversified and most people can find work during their lifetime. It's not common for highly skilled people to have multiples jobs.

"..there are more humans alive today fighting for the same resources"

If by "resources" you mean world GDP, then no, the GDP per person has never been higher:

http://www.wolframalpha.com/input/?i=world+gdp+%2F+world+pop...

What does GDP have to do with resources? GDP measures volume of transactions. Resources are oil, gas, silver etc. Also, there is real estate. Land on Earth is limited. There are 10s of millions of people who want to live in Malibu, for example. But, number of spots there is limited, so who is going to live there? Those who have the most money.

Do you get it now - more people alive means more competition for land and other resources.

> You don't have a safety net when you get dumped. You know, if your girlfriend dumps you, you don't get another girl to give you blowjobs, because otherwise you might get depressed and suicidal. You're expected to figure it out on your own and you might not do it - you might end up lonely, without dates and maybe even commit suicide because of that.

So maybe think outside your own box and figure out if there's any cheap social policy that would improve the lot of such people? I come up with: legalize prostitution, shorten copyright terms for pornography. Maybe lower emphasis on marriage and greater acceptance of polyamory, though that could go both ways. Try to culturally de-emphasize sex, and provide more life paths where singledom is accepted or expected (e.g. I've heard it argued that monasteries used to serve this function).

> So, why not hold wage earners to the same standard?

Huh? That's backwards. If giving everyone a decent dating partner was as easy as raising taxes a little bit and subsidising a few government-run services, of course we'd do it.

Your comment is basically flame bait, but I'll bite.

Comparing a paying job with a girlfriend doesn't work. People can live perfectly well without a girlfriend, but it's hard to eat and pay rent if you don't have a stable income. This gives a lot of leverage to employers because employees can't just quit their job.

Yes, comparison works and is spot on.

You can survive without stable income - humans and many other animal species have been doing it for hundreds of millions of years. Yes, it's hard, but so what? Why would that be a reason to create a safety net(by taking from productive people and giving it to parasites)?

'People can live perfectly well without a girlfriend' This is false. Some people who are asexual can do it. But, most will be frustrated, maybe even depressed. Are you familiar with Elliot Rodgers? A mass shooter who over a year ago killed/injured a bunch of people(students) in California. Why? He tells us - because women didn't want him. If you read some comments online, a lot of guys are sympathetic to his feelings, even though they wouldn't go as far as he did.

Also, because straight men have a strong sexual desire + desire for reproduction, women can be like employers. What if you quit relationship with your girlfriend/wife? Will you able to find another one? It would be like you're a low-skilled employee. Women have a lot of leverage.

>You can survive without stable income - humans and many other animal species have been doing it for hundreds of millions of years. Yes, it's hard, but so what?

Oh, you mean removing yourself from society and illegally living in the wilderness?

How do you pay for your hunting and camping licenses?

>But, most will be frustrated, maybe even depressed

This is obviously very different from being dead due to lack of food, water or shelter.

"Oh, you mean removing yourself from society and illegally living in the wilderness?"

- Yes, living in wilderness illegally or even taking resources from others. You don't pay for anything - you do what you gotta do, take what you want and try not to get caught.

"This is obviously very different from being dead due to lack of food, water or shelter."

Being frustrated or depressed is worse than being dead. When you're dead, you don't feel anything, so good/bad don't even make sense.

3/10

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