The Paradox of Toil

Posted on July 4, 2010 by jck

Paper by Gauti Eggertsson

Abstract:

This paper proposes a new paradox: the paradox of toil. Suppose everyone wakes up one day and decides they want to work more. What happens to aggregate employment? This paper shows that, under certain conditions, aggregate employment falls; that is, there is less work in the aggregate because everyone wants to work more. The conditions for the paradox to apply are that the short-term nominal interest rate is zero and there are deflationary pressures and output contraction, much as during the Great Depression in the United States and, perhaps, the 2008 financial crisis in large parts of the world. The paradox of toil is tightly connected to the Keynesian idea of the paradox of thrift. Both are examples of a fallacy of composition.

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5 Responses to The Paradox of Toil

  1. jck says:
    July 12, 2010 at 4:04 pm

    no idea, it is an unusual pattern…

  2. Ilya says:
    July 12, 2010 at 3:59 pm

    JCK, I have a question related to GLD/GC options Implied Volatility. This IV rises with the farther expirations while, say for SPY is stays about the same.
    For instance:

    GLD August options: IV is about 18
    GLD Jan’11 options: IV is about 22.3
    GLD Jan’12 options: IV is about 27.4

    SPY August options: IV is about 23
    SPY Dec’10 options: IV is about 25
    SPY Dec’11 options: IV is about 25

    Any thoughts? TIA, Ilya

  3. andrew says:
    July 6, 2010 at 4:19 am

    In a non-Marxian world, Gregor’s comment would read “I do not like green eggs and ham”.

  4. David Merkel says:
    July 6, 2010 at 3:29 am

    I commented on this paper before. Point 3 of this piece:

    http://alephblog.com/2010/03/04/notes-and-comments-2/

  5. Gregor says:
    July 5, 2010 at 1:09 am

    In a non-Orwellian world, the abstract would read: “This paper utilizes a silly hypothesis to prove a lie.”