Faculty

LIVING BETTER, WORKING LESS  

THE OUTCOME OF ENVIRONMENTAL PROGRESS  

by Dan Aronson
Raritan Valley Community College
P.O. Box 3300
Somerville, NJ 08876

This essay is dedicated to the memory of my father Herman, who was aware of these ideas long before they were in fashion.  

PREFACE  

During the past generation, we have witnessed substantive gains in civil rights, a revolution in the role of women in the workplace and the near total defeat of totalitarian communism. I mention this because, although virtually everyone who has reviewed this essay has expressed support for its basic arguments, many have stated that it is unlikely that we could make progress on reducing work time. I am not necessarily an optimist; it may take many years to implement these proposals. But history tells us that it is in fact possible for citizens to make a difference.  

My student assistant tells me that her husband, a hardworking manager, listens to voice mail messages from his children so that he can occasionally hear their voices. When his children are adults, I hope that they have more time for their families and hobbies, and that they look back at today's hectic lifestyle as belonging to "the old days."  

I would like to express my gratitude to Barbara Brandt, Ben Hunnicutt, Arlene Griffing, Katie Portas, Michele Russo and Adele Barree for their invaluable assistance.  

INTRODUCTION  

One of the main goals of environmentalism is to fulfill our material needs more efficiently, to do more with less. Notice that increased efficiency is a form of conservation that does not involve sacrifice. One expert on energy, Amory Lovins, is fond of saying that with increased efficiency we get our cold beer and hot showers, but use less energy. Actually, environmental progress in general can improve our quality of life while reducing resource use and pollution.  

This is an advantageous prospect, but being more efficient also means fulfilling our material needs with less labor-hours, and this raises the possibility of job loss. We can avoid an increase in unemployment, however, by using increases in productivity, or output per labor-hour, to reduce the workweek without a cut in pay. This can be explained with an oversimplified example for purposes of illustration, which can then be modified to make it more realistic.  

Let's say that over a fifteen year period a typical company can produce in 30,000 hours what it originally produced in 40,000 hours. This productivity increase could be used to cut the workweek from 40 to 30 hours without a cut in pay, and the reduction in hours would enable us to maintain the same number of jobs. Of course, in this example the company is giving the full benefit of the productivity increase to the employees; no additional profits are realized, so there will be no incentive to bring about increases in productivity. The benefits could be shared, however, by giving the workers a smaller cut in hours.1  

The idea of reducing hours is not unrealistic, for in the first half of this century productivity increases were used to reduce the workweek from 60 to 40 hours while increasing total pay. Since World War II, the workweek has remained relatively constant, and productivity increases have been used almost entirely to increase total production and total pay. But environmental progress, by allowing us to live cheaper and better, could enable us to use productivity increases to once again cut the workweek without a cut in pay.  

There are two issues that must be addressed before continuing: workers' gains from productivity increases, and fringe benefits. People often ask, Why should businesses share productivity gains with workers? The mere fact that this question is posed shows that we have lost sight of a very basic concept, namely, that in an industrialized economy, the general population expects to be better off over time. Indeed, if workers never enjoyed gains from productivity increases, we would still be working sixty-hour weeks. Over the past twenty years, the benefits of productivity increases have gone more to stockholders than to workers, but this must be seen as an aberration. Perhaps this recent trend cannot be easily reversed, but it is normal for the general public to be better off over time.  

The payment of benefits by businesses could be an obstacle to reducing the workweek, because once employers incur the fixed cost of benefits they will want to hire fewer employees to work as many hours as possible. But Ellen Bravo (Executive Director of 9 to 5, National Association of Working Women) points out that this can be resolved by prorating benefits (197). Juliet Schor, a Harvard economist, makes the same argument in The Overworked American (145).  

It will be shown that these ideas are consistent with mainstream opinion. If this is indeed the case, then it is not necessary to change basic attitudes, and the likelihood of implementing these proposals will be greater. Furthermore, environmentalists will not have to soften their ideas to make them acceptable to the general public; since these ideas are already compatible with mainstream opinion, environmentalists can pursue their goals without compromise and still enjoy public acceptance.  

Of course, there are many instances in which strong environmental measures will threaten particular interests, but solutions to the broad problems of energy use, agricultural pollution, and population growth offer wide-ranging economic benefits.  

The essay is organized as follows:   

  1. How environmental progress can enable us to live cheaper and better.  
  2. Economic policies that promote environmental progress.  
  3. Using real wage increases to cut the workweek without a cut in pay.  
  4. Why conservatives and liberals alike can support these proposals.  

 

I. HOW ENVIRONMENTAL PROGRESS CAN ENABLE US TO LIVE CHEAPER AND BETTER  

Energy  

Energy is a critical environmental issue because certain fuels are finite and because energy use is responsible for the bulk of air pollution. But we can turn this problem into an opportunity, because decreasing energy use through increased energy efficiency reduces costs. The increase in energy efficiency that occurred in the U.S. between 1973 and 1986 has saved us $150 billion per year. And according to the Electric Power Research Institute, we can reduce electricity consumption 23% at a cost of 3 cents per kilowatt-hour, which is less than the cost of generating electricity (Ogden 2). 2  

In addition to reducing costs, increased efficiency offers quality of life improvements. Homes with superior insulation are less drafty, and compact fluorescent bulbs that use one-fourth the electricity of conventional bulbs for an equivalent amount of light offer better quality lighting. Trees can significantly reduce the need for air conditioning while enhancing a home's surroundings.  

Just one example of how energy efficiency can benefit businesses is the effective use of daylight in office buildings. The Lockheed Missiles and Space Company has a building that uses "daylighting," and the employees are so pleased with this attractive feature that absenteeism has dropped 15% while productivity has increased. And because daylighting saves Lockheed 75% on its lighting bill while simultaneously reducing air-conditioning costs (daylight generates less heat than office light), the building runs with about half the energy cost of a typical building of a similar size (Ogden 23).  

Lighting upgrades at a Boeing airplane plant improved workers' abilities to detect defects by 20%. The next time you fly in a jet manufactured by Boeing you may feel reassured by these lighting improvements. And because of the energy savings, the upgrades paid for themselves in just two years (Ogden 27).  

Convenient and fast mass transit is another example of how energy efficiency can offer quality of life improvements and save money. Effective mass transit reduces congestion, which means a faster ride for van-poolers as well as auto commuters. And since the cost of a new car averages $6,500/year, even a partial reduction in our reliance upon cars could offer substantial savings (AAA).  

It is often argued that our suburban sprawl is not conducive to mass transit, but there are practical steps that we can begin to take right now. The Internet can be used to form van pools for people who live and work in nearby locations. After all, it would be easier to form a van pool for people who work in the same area, rather than in the same company. Individuals need not subscribe to the Internet; the service could be provided by businesses or civic organizations.  

Also, a recent technological development called Global Positioning Systems (GPS) makes it possible to have a flexible, demand-responsive suburban van service. A GPS vehicle-equipped van service would have instantaneous and complete knowledge of every vehicle's location, the individual destination of all passengers, and traffic conditions. With all this information, the vans could pick up customers on demand for local trips. Arno Penzias, a Nobel prize winner in physics, describes the service this way:  

The limo arrives on the button - a plush van with comfortable reclining seats. The driver swipes your credit card through the reader as you board and take your seat. As the van picks up speed you key in a request for your favorite beverage and settle back with a newspaper or chat with a fellow passenger (pg.125).

Is this just the vision of an advanced research scientist? Not at all. A company in Princeton, A. Nelessen Associates, has been developing plans with Orlando and Atlanta, as well as Bergen County, NJ to implement such a service. To make it cost effective, customers would simply have to walk to a designated stop no more than two to five minutes from their homes (Nelessen 16).  

Notice that the concept of a demand-responsive van service is consistent with suburban living; it does not to attempt to force people onto fixed route bus lines. But while suburb-to-suburb transit requires innovative, flexible approaches, we can still improve upon and make better use of existing commuter train lines: more express runs scheduled, improved parking, and van service to local businesses.  

Furthermore, long distance transit is not even affected by suburban sprawl, and there are improvements that we can make right now in this area. Amtrak has plans to use high speed trains on the Northeast Corridor line (Boston to Washington), and we should plan to use these trains elsewhere in the U.S. In some cases we would have to upgrade the rail lines in order to accommodate high speed trains, but upgrades are far cheaper than installing totally new tracks. Japan and Western Europe have already enjoyed high speed train systems for 25 years; now they are testing maglev trains (short for magnetic levitation) that can travel at 300 mph. Maglev technology was developed in the U.S., but it is only being applied overseas.  

Of course, there will always be times when it is necessary to use a car. But for the occasional times when even well-run mass transit cannot do the job, it is not necessary to own a second or third car. Entrepreneurs can form auto clubs in which an initial payment enables members to use a car for a few hours at inexpensive rates, instead of having to rent a car for a day at a time. Such clubs have existed in Europe and Canada for years, and one is now operating in Portland, Oregon (Marketplace Audio, 1998).  

It is often argued that Americans won't give up their cars, but that is because our current mass transit system is deficient. When the Metro was built in the Washington, D.C. area, many commuters chose to take the train to work rather than drive in bumper-to-bumper traffic.  

It is no surprise that commuters will choose convenient transit options instead of a car, because they will be less tired when arriving at work. General Motors Corporation understands this. The auto maker is now offering bus shuttles for its employees. A GM spokesman stated that the whole purpose of providing shuttles for employees is "to make their work as fun and as stress-free as possible. We think mass transit is a good way to accomplish that." (Christian B1).  

Mass transit is not the only method for achieving energy efficiency in transportation, for increased fuel efficiency in vehicles can make a contribution as well. But mass transit should be a priority because: (1) it is more efficient than individual vehicles; (2) only mass transit can reduce congestion; and (3) a reduction in vehicle ownership can yield significant cost reductions. A separate point is that mass transit is far safer. Automobile accidents are the greatest cause of death for people between the ages of 15 and 24.  

In general, energy efficiency involves technological advances that decrease costs, a practical idea that need not require a basic change in attitudes. And actual experience between 1973 and 1986 indicates that, with the right incentives, the American economy can succeed brilliantly in increasing energy efficiency. Moreover, a New York Times poll conducted in November 1997 indicated that a majority of Americans were willing to invest in new appliances and insulation in order to cut energy use (Cushman A35).  

Agriculture  

Agriculture is responsible for many environmental problems, including soil erosion, animal waste seeping into our water, and deleterious health effects from the use of pesticides and fertilizers. More natural forms of agriculture can reduce some of this pollution, but even greater progress can be gained by eating lower on the food chain; i.e., eating more legumes, vegetables and grains, while reducing meat consumption.  

Greater vegetable consumption would alleviate agricultural pollution because it takes far fewer crops to provide a given amount of nutrients from vegetables than from meat. Let's make a comparison regarding high-protein food, which we can get from vegetables by combining grains with dry beans. If we get our high-protein food from eating feedlot beef, it takes five times the amount of crops than if we eat the vegetables directly (Matters of Scale). And since far fewer resources are needed to produce vegetables than meat, eating lower on the food chain reduces costs.  

These facts are based upon hard science, but is it realistic to expect Americans to significantly change their diets? The answer is a resounding "yes!"  Between 1972 and 1997, per capita consumption of beef fell 22%, whereas per capita consumption of dry beans and fresh vegetables rose 21% and 26%, respectively (Putnam 34). The major exception to this trend is a rise in poultry consumption. Poultry does create environmental problems; witness the excessive chicken manure that polluted the rivers of Arkansas. Still, pound for pound, the consumption of chicken poses less environmental problems than that of beef.  

Furthermore, a Gallup survey found that over 40% of all Americans, when dining out, were "likely or very likely" to order a main dish salad with vegetables and grains, or vegetable stir-fry (6). And according to the latest Menu Analysis of the National Restaurant Association, menus offering meatless entrees other than pasta increased 27% between 1989 and 1994 (39).  

So Americans have been eating more vegetables and dry beans and eating somewhat less meat. Rather than having to change basic attitudes, the environmentalist's task is to speed up an existing trend.  

But is it not a sacrifice to reduce meat consumption in favor of vegetables? Aren't Americans foregoing their culinary desires in order to avoid health problems? Actually, making greater use of vegetables and beans is a great way to live "cheaper and better." To take just one example, the national dish of Brazil is a combination of pork, black beans, vegetables, herbs and spices. Compare that to one big slab of pork with some string beans and potatoes, and there is simply no contest.  

This is not just a personal viewpoint. According to the Gallup survey cited above, among the high percentage of Americans who expressed a strong interest in ordering vegetarian entrees, 61% stated that they were influenced by health reasons, but 61% stated that taste preferences were very important as well (10). These are preferences for strictly vegetarian items. If we include meals that combine vegetables with a small amount of meat or fish, then diners will be even more inclined to express strong taste preferences for eating lower on the food chain.  

Even the French, whose culinary sophistication is legendary, have been eating less meat and more vegetables (Whitney A4).

Interestingly, both elite food lovers and the general public can appreciate vegetable based cuisine. James Beard, who was by far the most prestigious American chef and food expert of this century, wrote an article entitled "Beans, U.S.A.," in which he stated that, while beans are a symbol of thrift, they are "worthy of the epicure" (67). Yet Pillsbury and Betty Crocker recipe books entitled Pasta, Rice and Beans were recently sold on supermarket checkout shelves. Then again, James Beard frequently declared that anyone could learn to be a good cook, and so the line between the elite and the general public could become blurred.

As stated above, the environmentalist's task is to accelerate an existing trend toward eating lower on the food chain. One way of achieving this goal is to improve upon vegetable based cuisine. Bland health food should not be the representative of this diet. Whether it be strict vegetarian fare or simply cuisine that emphasizes more vegetables, there is no question that we can make it great tasting.  

Population Growth  

It was previously mentioned that from 1972 to 1997, per capita consumption of beef fell 22%. This is a significant decline, but U.S. population increased by 28% over the same period, so the total environmental impact did not improve (Statistical Abstracts of the United States 8). This is a perfect example of how population growth can defeat efforts to achieve environmental progress.  

Annual population growth was slightly less than 1% per year during this period. That may not seem like a high growth rate, but it caused the total population to rise 58 million. This is the special nature of compound growth: when we already have a large population, a growth rate of just 1% per year will yield very large increases in total numbers.  

In order to achieve environmental progress, population growth must stop.  

That may seem like a stark statement, but we can be heartened by the fact that the solution to this problem is beneficial in its own right. Specifically, the most powerful factor that reduces population growth is an increase in educational and employment opportunities for women, and this offers both short and long term economic benefits. In the short run, a more educated workforce is a more productive workforce. In the long run, fewer children per family means that each child will inherit a greater portion of family wealth.3  

Birth rates have been steadily falling, and are expected to stay low, so we can expect a substantial increase in per capita wealth. This provides us with the option of reducing living expenses. For example, wealth can be used toward the purchase of a home, enabling a household to reduce the amount it must borrow. To be sure, each generation could choose to build ever larger homes rather than enjoy reduced housing costs, but an increase in per capita wealth does enable us to cut borrowing costs.  

In the United States, the average number of children per family is now down to two, so in a large sense we have achieved our goal (World Population Data Sheet 1998). Our population is still growing at 1% per year; one third of this growth due to immigration, the rest occurring because many baby boomers are still in their reproductive years (De Vita 2). Obviously, a stop in U.S. population growth will require a dramatic reduction in immigration. But this is not the ultimate solution to the problem because the environmental effects of world population growth will have a direct bearing upon us. We must, therefore, encourage the existing trend toward higher educational levels for women throughout the world.  

There is one other complication. While halting population growth is necessary for achieving environmental progress, it is not sufficient. Industrialized nations such as the U.S. have nearly stopped population growth, but their excessive levels of production are responsible for most of the world's environmental problems. Consequently, we need to simultaneously pursue the following two goals:  

(1) Maintain support for the high levels of education for women that already exists in the industrialized world, and accelerate existing trends for greater educational opportunities for women throughout the developing world. (This trend is bearing fruit. Whereas in 1965 the average number of children per family in the third world was six, it is now down to three.)  

(2) Reduce growth in production in the industrialized world by living cheaper and better, and provide incentives for environmentally sound, efficient development in the third world. Inducements for efficient third world development need not be entirely financial; since the developing world is trying to live like us, our own lifestyle decisions will influence by example.  

We have just shown that the most comprehensive solutions to environmental problems yield substantial economic benefits. This is very significant, for it means that we don't have to waste our time arguing about whether we must take steps to avoid severe ecological disaster; we can implement the solutions because they are beneficial in their own right. It also means that our efforts to achieve environmental progress can gain political acceptability.  

Moreover, we do not have to fundamentally change people's values to achieve these goals. Americans are already eating lower on the food chain and are reducing population growth, so the environmentalist's task is to merely accelerate existing trends. Furthermore, the dramatic increases in energy efficiency that occurred between 1973 and 1986 did not require a change in basic attitudes.  

To sum up this first section: Environmental progress can enable us to enjoy greater comfort in buildings, better transportation, interesting and varied foods -- all of this and a reduction in costs. Also, the reduction in population growth that we are already experiencing will yield an increase in per capita wealth. In short, we can live cheaper and better.  

Next, let us discuss economic policies that promote energy efficiency, mass transit and education.  

II. EXTERNALITIES  

The concept of externalities provides the foundation for economic policies that foster environmental progress. Externalities are the effects that an economic activity has upon society as a whole. These effects can be either positive or negative, but we'll begin with negative externalities, which mostly consist of pollution.  

Negative Externalities  

Pollution imposes tangible costs upon society, whether it be increased health bills, declining tourist revenues, or lost jobs for fishermen. If these costs are not borne by the firm that pollutes, then these costs are external to the firm ­­ hence the term "externalities."  

To determine the full cost to society of producing a commodity, we must add the cost of externalities to the costs that the firm sees in its accounts. Consequently, when a firm does not incur the costs of pollution, its costs will be lower than the full cost of production to society. This will result in a relatively low price for the good it produces, a price that does not reflect the full cost of production.  

The low price encourages consumers to make relatively large purchases of the good, which in turn leads to excessive production and pollution.  

The most common policy that economists recommend to address this problem is to impose a tax -- we'll call this a "green tax" -- so as to bring the price of the good in line with its true cost of production. The higher price would cause consumers to reduce consumption, thereby reducing production and pollution.  

For a specific example, let's discuss fossil fuels, i.e., oil, coal and natural gas. When we buy these fuels, the price that we pay does not include the cost of pollution, the environmental cost of mining and transportation, or the cost to future generations of depleting these nonrenewable resources. In the case of oil, the price does not reflect our dependence upon unstable oil­producing nations, nor the cost of maintaining armed services in the Persian Gulf. The price of gasoline is lower than the price of bottled water; no wonder we are using this finite resource, which took tens of millions of years to develop, as if it were water.  

Since the prices of fossil fuels do not reflect their full costs, a stiff tax on fossil fuels is warranted. This would lead to a reduction in their consumption and production because the higher price would lead to increased efficiency. Finally, the reduction in production would reduce the costs resulting from negative externalities.  

Raising taxes and prices could be burdensome to consumers, which is why some economists are recommending that the public be compensated in some manner. It should be noted, however, that even if taxes were not imposed, consumers would still be subjected to high costs in the form of negative externalities.  

Nevertheless, a significant problem with taxes on fossil fuels (and green taxes in general) is that they disproportionately burden lower income families. To understand this problem and to see how to overcome it, taxation must be discussed in further detail.  

Regressive Proportionate and Progressive Taxation  

Lower income families spend a greater percentage of their income on basic necessities, such as gasoline and heating oil, than upper income families. Lower income families spend less in total on gasoline and heating oil (they have fewer cars and smaller homes), but the percentage of their income that is devoted to such expenditures is much greater in comparison to upper income families. Consequently, a tax on basic necessities will take a higher percentage of the incomes of poorer households. Such a tax is called "regressive," and there is no question that a higher tax on fossil fuels would be regressive.  

A tax that takes the same percentage of the income of all households is called "proportionate." Finally, a tax that takes a higher percentage from upper income households is called "progressive." The federal income tax code tends to be more progressive, while state sales taxes are notoriously regressive since the poor have to spend a larger portion of their income on consumer goods.  

One can argue the merits of a proportionate tax (sometimes called a "flat tax") vs. a progressive tax. It is very difficult, however, to defend a regressive tax. The idea of taking a greater percentage of income from the poor should be considered thoroughly unacceptable.  

Most advocates of green taxes recommend that some assistance be provided to lower income families in order to offset the disproportionate burden that these families would suffer. The problem with such a policy is that aid to the poor has become politically unpopular, as the proponents of this policy acknowledge themselves. There is another problem with the policy of compensating the poor ­­ a problem of substance, not just politics: What of the families with incomes just above the point where aid is given? These families have financial problems as well and should not be arbitrarily burdened. Consequently, I would argue that all the revenues from green taxes should be returned to the public, each individual receiving the same amount. The simplest way to do this would be to offer income tax credits (or a check to households that don't pay taxes), the amount being proportional to family size.4  

A common response to the idea of rebating the entire green tax is: If all the money is returned, wouldn't households maintain their consumption of fossil fuels and other polluting goods? This question assumes that the intended reduction in consumption is supposed to result from a reduction in income. The purpose of the green tax, however, is to raise the price of fossil fuels, not to reduce incomes. And if we do maintain incomes (which the rebates would accomplish) while significantly raising the price of fossil fuels, then fossil fuel consumption will definitely fall. We saw this between 1973 and 1986, when national income grew by 36% while total energy use remained constant (Morrill). Energy prices shot up in 1973 and then declined in the mid-1980's. We can see that energy efficiency responded mainly to the price changes, not to the income changes.  

There is a simple reason why the rebates would not stop fossil fuel consumption from declining. If we sharply increase the price of energy, then an investment in energy efficiency will pay for itself a lot sooner and yield greater savings. Let's say that insulating a house costs $1,000 and cuts utility bills by $200 per year. The initial investment would pay for itself in five years. If, however, we doubled the price of energy, the investment would pay for itself in two and half years.  

The idea of rebating all the revenues from a tax may seem strange. But if we accept the idea of giving money back to the poor to offset their burden, then we must keep in mind that families just above the poverty line will be arbitrarily cut off. Political acceptability is a prerequisite for imposing a high tax on fossil fuels, so compensating the middle class is necessary. More importantly, the purpose of green taxes is to change consumption, not to raise revenues. The latter should be obtained from income taxes, not regressive green taxes. Even a flat income tax is more fair than a regressive green tax.  

The argument that we should rely upon income taxes to raise revenues rather than green taxes deserves special emphasis because influential environmentalists and economists are advocating the very opposite. For example, the President's Council on Sustainable Development and the Worldwatch Institute have recommended that an increase in taxes on fossil fuels be offset by reducing income taxes; in effect, they want to rely more upon regressive taxes. They take this position because they believe that income taxes discourage work and investment (Report of the President's Council; Brown 181-3). A look at the facts, however, disproves the argument. During the Kennedy/Johnson administration, the top income tax rate ranged between 91% and 70%, but investment as a percent of national income was at record highs. On the other hand, during the Reagan administration income taxes were far lower, and there was actually a decline in investment as a percent of national income (Bagby 48; Fleenor 99).  

Sometimes it is argued that the revenue from green taxes should be used to fund research and development on energy efficiency, as well as mass transit and initial investments in more efficient equipment. These measures would offset the economic burden of green taxes. But while such measures are indeed a very important supplement to green taxes, again, they should be funded through income taxes rather than regressive green taxes.  

Realism tells us that the fossil fuels industry can block increases in energy taxes. In the Spring of 1993, the Clinton administration attempted to impose a significant energy tax, but lobbyists caused the administration to settle for an increase in the federal gas tax of only 4.3 cents/gallon. To overcome the power of the oil, coal and natural gas companies, environmentalists must convince the public to support energy efficiency at the ballot box.  

Is it hopelessly idealistic to think that the public at large would support a stiff tax on fossil fuels? Not really. During the 1992 presidential campaign, Ross Perot explicitly called for a 50 cent increase in the gas tax -- without rebates -- and for some time he led Clinton and Bush in the polls. If we offered rebates, public support for a significant energy tax might be forthcoming. Perot lost favor with the public mainly because of his personality quirks. His gas tax proposal, about which he was very upfront from the start, never seemed to hurt him. Furthermore, Clinton's first proposal for a tax on all fossil fuels did pass the House of Representatives and failed in the Senate by only two votes.  

In addition to the regressive nature of green taxes, there is also the problem of competition with overseas markets. Specifically, prices will be forced up for goods that take a lot of energy to produce, so American goods could become less competitive internationally. But under existing trade agreements, this problem can be overcome by allowances for certain exported goods (Hoerner 18).  

Having discussed ways to overcome the burdens of a tax on fossil fuels, let's discuss some of its advantages. The main benefit is that it will lead to increased efficiency. It bears repeating: with the current low price of energy, investments in efficiency take a long time to pay for themselves, whereas higher energy prices would shorten the payoff period.  

A related point is that higher energy prices will create markets for all sorts of energy efficient appliances and machinery. Energy prices are far higher in all other industrialized nations, so there is a demand for energy efficient equipment overseas. The demand for such equipment is far lower in the U.S., so there is no incentive for our companies to innovate. If we substantially increase energy prices, we will avoid a situation in which America again loses important markets to foreign competitors.  

Producing more energy efficient goods would also serve to offset the higher energy prices, so that while the unit price of energy would dramatically rise, total spending on energy might not. (Indeed, it could conceivably fall.) Economically speaking, it might appear that we would be back at our original position, because our total energy bills will have remained the same. But the reduction of externalities from consuming less fossil fuels will mean that we'll be ahead of the game. Think about it: Our total energy bills might be the same, but we will have lower health bills because of a reduction in pollution, less military obligations in the Persian Gulf, less spending on cleanups of oil spills, etc. Best of all, the money we spend on fuel will be spent here rather than overseas. This is a very significant point, because the money we spend on oil constitutes 34% of our trade deficit (National Energy Information Center).  

This last point drives home the fact that a tax on fossil fuels would not reduce our national income. Such a tax would merely cause us to direct our income to more energy efficient uses and cause less of our income to be transferred to other countries. In addition, if we make use of rebates, a stiff tax on fossil fuels would involve no sacrifice at all. The fossil fuels industry would be required to change, but this would reflect progress.  

It is fascinating that some fossil fuel companies have already started to change. The chairman of BP oil has publicly declared that we must use less fossil fuels and has overseen investments in solar energy. Amoco has invested in solar energy as well (French 160). The sweetest result of a stiff tax on fossil fuels is that these pioneering businesses would profit immensely. Wall Street, out of sheer self-interest, would pour funds into the innovative companies, while the more conventional companies would be taken over by the innovators.  

In addition to green taxes, there are other methods of achieving increases in efficiency, such as building codes, Corporate Auto Fuel Efficiency (CAFE) standards, tax credits for initial investments in more efficient equipment. Furthermore, providing expert information to businesses about the potential returns from investments in efficiency is absolutely essential. But green taxes would reinforce and supplement such measures. These are not mutually exclusive approaches.  

Some organizations, including the Sierra Club and the Rocky Mountain Institute (Amory Lovins' organization), argue that green taxes are unnecessary, and that we can rely entirely upon the types of methods just described. There are two problems with their approach: First, raising energy prices has proven to be effective in promoting efficiency, as shown by actual experience between 1973 and 1986. Second, green taxes would involve less governmental/bureaucratic intervention; businesses and households would have the option of how to respond to the higher prices. All of that being said, however, green taxes do need to be reinforced by the other regulatory measures just described.  

The Sierra Club believes that the political will doesn't exist to raise energy taxes significantly (Associated Press). But of course rebates would resolve that problem.  

Yet another reason for promoting green taxes is that they would make solar energy more competitive. And by enjoying larger markets, the solar energy industry would be able to produce on a mass scale, thereby becoming even more competitive. The organizations that are uneasy about green taxes may want to rethink their approach.  

Positive Externalities  

When economic activities yield benefits to society as a whole, the externalities are positive. The main examples of economic activities that yield positive externalities are education and mass transit.  

Education benefits society as a whole because it leads to a more highly skilled workforce and higher productivity, i.e., increases in output per labor-hour. As shown in the introduction, higher productivity does not necessarily mean higher production; it could mean producing the same amount with less labor hours. But the point is, higher productivity means higher average living standards for the general public. And since education helps to bring about this public benefit, the public should pay the bill through taxes -- as is already the case with K­12 public education and with some secondary education.  

It should be understood that when we require the public to foot the bill, we're not asking the public to do a favor for the students. After all, if taxpayers did not subsidize education our entire economy would decline, causing everyone -- including taxpayers -- to suffer.  

Similarly, taxpayers are expected to subsidize mass transit because they receive benefits even if they do not use the van-pools or trains. Automobile drivers benefit from improved mass transit because they experience less congestion. The public as a whole benefits because of less pollution, less dependence on foreign oil, increased safety, and a better economy because of improved transit. And as was previously mentioned, some families would be able to reduce part of their car expenses. Again, taxpayers are not doing mass transit commuters a favor when they subsidize fares, for if they did not pay those subsidies, they would lose all the benefits just listed.  

In recent years the federal government has slashed subsidies for Amtrak, making the United States the only industrialized country (with the possible exception of England) that requires its national railways to operate without subsidies. As a result, we are suffering more pollution and greater dependence upon foreign dictators, all because our politicians do not have a sufficient understanding of positive externalities. This lack of understanding also explains why only foreign nations are committing funds for maglev trains, although Americans developed this technology.  

The challenge of developing viable mass transit was discussed above. Notice that a sharp tax on gasoline (say $6 to $8/gal.) combined with substantial subsidies for mass transit would raise the cost of driving while lowering fares for mass transit. This would increase rail and van-pool ridership, which in turn would warrant more scheduled runs (including express runs) as well as other upgrades.5  

With regard to raising educational levels, increased spending alone will not do the job. Greater parental involvement and a determination by public schools to maintain discipline are necessary as well. But while money is not sufficient to increase educational levels, it is often a prerequisite. More funding is needed to reduce class size and attract more qualified teachers.  

The idea of increased public spending on mass transit and education might appear to be more in the tradition of the Western European social democracies than in the American tradition. But it was the United States that pioneered the policy of free education for all in the 1830's. Also, U.S. railroads were built with substantial government assistance (first with land grants, later with subsidies) prior to those in Europe. So these policies are entirely consistent with the American tradition.  

In this section we have seen how the straightforward concept of externalities provides the groundwork for policies that encourage energy efficiency, education and mass transit. As we have learned, these things can enable us to live cheaper and better. In turn, this can make workers more inclined to press for a reduction in hours.  

III. REDUCING THE WORKWEEK  

As explained at the outset of this essay, productivity increases can be used to reduce the workweek without cuts in pay. Actually, this apparently simple idea requires a fair amount of elaboration.  

Real Wage Increases  

First, it should be clear that a reduction in hours without a cut in total pay means that the hourly wage has increased. Inflation is being taken into account here, so we're referring to an actual increase in purchasing power, i.e. a real wage increase.  

Second, it is productivity increases, or increases in output per labor-hour, that give rise to real wage increases. Increases in productivity are caused by business investment in new equipment (which embody the latest technological advances) and investment in the skills of our labor force. When productivity increases, wages can rise without -- or at least faster than -- price increases. Firms can enjoy greater profits as well.  

It has been argued that over the past twenty years, the real wages of American workers have stagnated while productivity has increased about 20% (Bronfenbrenner 54-55). If this is the case, it is a tremendous aberration, for over the generations wages have risen as a result of productivity increases. As previously shown, workers may not be able to enjoy all the gains from productivity, as businesses would have no incentive to generate productivity increases. Still, rising productivity is expected to be followed by rising real wages.  

Let's provide some context on this matter. In Japan, unions and businesses have worked out a mutually beneficial arrangement. Since 1958, the unions have agreed to have their wage increases not exceed productivity increases, thus helping to prevent inflation. In return, Japanese businesses have made substantial investments that have caused the productivity of Japan to increase faster than that of America. As a result, Japanese workers have enjoyed substantial real wage increases, but they have also behaved in a cooperative, even conservative manner.  

The point is, if American unions insist that they receive at least some of the benefits of productivity increases, they would not be taking a militant stance. To the contrary, they would be acting like the unions in conservative Japan. American labor may be too weak to achieve even this reasonable goal. For now, however, let us agree that in an industrialized economy we expect real wages to rise over time. About this there is no argument.  

But what would we do with the real wage increases that we all expect and deserve? Since World War II, workers have opted not to reduce hours, but rather to work the same hours in order to acquire an increase in total pay. But we don't have a choice in the matter, because our lifestyle requires endless increases in income. If, however, we can live cheaper and better, workers might choose to work less hours for the same pay.  

Overcoming Obstacles to Reducing the Workweek  

From a business standpoint, the main obstacle to this idea is the payment of fringe benefits. If a business has to pay a given amount of benefits per worker, then it will be in the business's interest to have each employee work longer hours. And when productivity increases, the business will prefer to lay off some employees and have the remaining employees do all the work.  

There are two possible solutions to this problem. First, if workers win a reduction in the workweek, they can match the employer's flexibility by prorating benefits. Second, it is in the interest of government to assume some of the expenses of benefits: as we just saw, the payment of benefits by businesses creates a strong incentive for businesses to lay off workers, and this results in higher costs for government. Greater unemployment not only leads to an increase in payments for unemployment insurance and welfare, it also decreases tax revenues because the unemployed don't pay taxes.  

This is not academic. In 1996, the French government announced that, for any company that reduced its workweek by 15%, it would pay nearly half its payroll costs for six years (Rifkin, Interview).  

Once the obstacle of benefits is overcome, a reduction in the workweek would be a distinct advantage to businesses because workers would be less tired and more motivated. In the 1930s, the Kellogg's Company unilaterally implemented a six-hour day in order to reduce unemployment. At first, the workers had to take a cut in pay because the reduction in the workday was not matched by a similar increase in productivity. But the reduction in the workday by itself led to such an increase in productivity that Kellogg's was able to resume the original amount of pay within two years (Running out of Time, Video).  

Recently, there has been an explosion of interest among businesses in the idea of reducing work time. Ron Healey, a management consultant, has created 30/40 Company Workshift Concepts to advise businesses on these issues. Healey has worked with eleven companies to cut their workweek to 30 hours while paying their employees for a full 40 (Saltzman 79). Precision Plastics and Metro Plastics, both in Indiana, took Mr. Healey's advice and recruited workers by offering the 25% reduction in hours without a cut in pay. The companies discovered that productivity gains offset the higher hourly pay. And in the case of Precision Plastics, all workers receive full benefits (Wells).  

The idea of workers using real wage increases to cut the workweek poses no disadvantage to businesses, for profitability will be maintained. In fact, it is in the interest of businesses, and management is gradually starting to understand this. In the late 1980s, the overwhelming majority of American managers were opposed to the idea (Rifkin 227). But according to a 1997 U.S. News and World Report poll, 62% of managers say shorter work hours would give employees an incentive to be more productive and would have little effect on living standards (Saltzman 80).  

One fascinating aspect of this story is that management could have the most to gain. While hourly workers have won the forty-hour workweek, managers have no protection whatsoever, and must therefore work so many hours that they hardly see their families. There is, however, some reason for hope. Forty-six percent of managers have seriously considered cutting back on their hours (Saltzman 81).  

Furthermore, the Society for Human Resources Management (which provides information for personnel managers) has found that 23% of employers now offer sabbaticals, up from 14% at the beginning of this decade. Sabbaticals are normally for management. But George Russell, chairman of a multi-billion dollar pension investment firm in Tacoma, WA, provides for all of his 14,000 employees a two-month sabbatical every ten years with pay. Mr. Russell states that this new policy has increased retention and given him an edge in recruiting new talent (Morning Edition 7/25/97).  

So some inroads are being made in management, but how does the overall workforce feel about this issue? In a 1996 issue of The National Business Employment Weekly, it was reported that two-thirds of working adults said that they would take an average 21% pay cut if they could have 21% more time out of the office ("Employment Briefs" 22). According to the 1997 US News poll, just 17% would be willing to take a 5% pay cut in exchange for a 5% reduction in work hours. These are widely varying results, but in any case, it is safe to say that cutting work time without a cut in pay would enjoy far greater support. When the Indiana plastics companies offered a 30-hour workweek without a cut in pay, they received a fantastic upsurge in the number of qualified applicants (Wells).  

Best of all, 65% of Americans think a movement to shorten the workweek is a good idea. Of those, 58% think it is a realistic goal (Saltzman 81). And they are justified in regarding it as realistic, for reduced work time is a reality overseas; West Europeans enjoy five to six weeks vacation, while the American average is about two weeks. Only the Japanese work more hours than we do, but even they have finally decided to reduce their workweek to forty hours. Perhaps they're fed up with the high number of Japanese who are literally working themselves to death, or are ashamed at the sight of grandparents who, unable to see their families, actually hire actors to visit them and play the part of an affectionate family.  

Of course, the prime factor that could encourage workers to push for fewer hours is the ability to live cheaper and better. Unfortunately, many environmentalists emphasize the idea of "doing with less" instead of the significant quality of life improvements that environmental progress can offer. To take just one of many examples, a video on air pollution featured a man from Los Angeles who stated that he enjoyed a sense of power from driving his fancy sports car. The man entered his car, gunned the engine and sped away. His personalized license plate read "AT Z TOP." The message of this video was that our personal desires must be restrained if we are to rely less upon automobiles. But it would have been perfectly accurate for the video to show this man stuck in bumper-to-bumper L.A. traffic, and then switching scenes to a fast-moving train on the light rail system in Portland, Oregon, or a car moving swiftly in an HOV lane. Since environmental progress can offer significant improvements in our quality of life, there is absolutely no reason for environmentalists to argue that we must curtail our personal desires.  

In addition to living cheaper and better, an important factor that is needed to bring about a reduction in work time is an increase in wages at the bottom, for workers whose earnings are very low will always have to work more hours. Is bringing up wages at the bottom a socialist idea? Not unless you consider Japan to be socialist. In pro-business Japan the typical worker earns 1/16 the pay of a typical CEO, the smallest differential in the industrialized world. In the U.S. the typical worker earns 1/120 the pay of a typical CEO (Bagby 56). No wonder Japanese corporations enjoy more cooperation from their workers. (The Japanese economy is experiencing a downturn, but this does not controvert over forty years of fantastic economic success. This is their first recession in 23 years; the U.S. has experienced two recessions in that time. Moreover, Japan still enjoys a 4.6% unemployment rate -- low by U.S. standards -- and a highly educated workforce.)

It will be difficult to make progress on this issue in the United States, but there is a growing concern over the rise in inequality that we have been experiencing in recent years. The 1996 increase in the minimum wage was passed by a Republican Congress because there was such overwhelming public support for the measure, and recently the Clinton administration recommended yet another increase. Raising the minimum wage is certainly not the only solution, but there is growing public support for raising wages at the bottom. Even Business Week points out that, "Heady stock market gains primarily benefit the top 25% of families, leaving...the American dream...out of reach for many. And while income inequality at last has begun to narrow, the chasm between top and bottom is much wider than it was 25 years ago" (Bernstein 64-5).  

But even if we succeed in living cheaper and better, and bring up wages at the bottom, we must also change an ingrained cultural idea that our jobs can provide all the fulfillment for life's needs. The sociologist Arlie Hochschild found that employees at a major corporation did not take advantage of family-friendly policies (flex-time, family leave, etc.) Instead, they chose to work long hours because their home life did not provide the sense of fulfillment and accomplishment that they received from their jobs. But our work should not, and ultimately cannot be the realization of our life goals. And Americans are starting to appreciate this fact, as indicated by the recent survey results that show more favorable attitudes toward reducing work time.  

Up to this point, it has been shown that environmental progress and a reduction in work time are consistent with practicality and realism, but there is an idealistic side to this issue that deserves our attention. Reduced work time allows families to enjoy more time together, and enables people to pursue personal goals.  

Let me tell a little story here. Years ago I was visiting Jerusalem, and I needed to take a bus out of the city on a Friday afternoon. I waited too long. Afternoon turned into evening and I was stranded, for the buses stop running from Friday evening to Saturday evening. I was annoyed at being stuck there another day, but I witnessed something on Saturday that has remained in my memory ever since. Everywhere I looked, fathers were quietly walking or sitting with their children. They were not shopping, channel surfing TV's with 1,000 channels, nor chauffeuring their kids from place to place. They were simply spending time with their children.  

While spending time with one's family is an end in itself, it is not sufficient for the good life. We also need to challenge ourselves, to pursue creative goals -- whether it be studying the arts, engaging in sports, or doing work that we enjoy instead of tedious, unsatisfying work. But quietly being with our families or working hard on our personal goals takes time. We may not be able to acquire a significant reduction in work time in the immediate future, but we can definitely move in that direction. What sense is there in working an endless amount of hours only so that our children have to eventually do the same? Consider the following quote from John Adams, the second President of the United States:  

I must study politics and war that my sons may have liberty to study mathematics and philosophy. My sons ought to study mathematics and philosophy, geography, natural history, naval architecture, navigation, commerce, and agriculture, in order to give their children a right to study painting, poetry, music, architecture, statuary, tapestry, and porcelain (Bartlett 338).

Many people doubt that these ideas could be accepted by our capitalist culture, in which businesses are always seeking to produce more, and individuals are seeking to get ahead. But businesses can increase profits by reducing costs through higher productivity, as well as by increasing production.  

With regard to individuals "getting ahead," it is true that some people would like to acquire ever more goods. It is also true, however, that mass transit and ride sharing can offer significant quality of life improvements including comfortable rides and reduced congestion. High speed trains can offer efficient, luxurious long distance travel. And eating a greater variety of foods, including more vegetables, is very much a part of the "good life." Upper income families make vegetables a main part of their diets not to save money, but because they want to enjoy good food.  

Let us not forget that the "good life" includes leisure. Reducing work time would enable people to stay young -- in terms of both health and appearance -- for a greater number of years. We all know people who look older than their years as a result of the stress of working tremendously long hours; avoiding this problem hardly means giving up a better life.  

No, reducing work time does not contradict capitalist culture. W. K. Kellogg, who was responsible for Kellogg's six-hour day, believed that increased leisure was one of the achievements of capitalism (Running Out of Time Video). Herbert Hoover, a Republican President and a defender of capitalism, spoke enthusiastically of Kellogg's experiment and recommended that other companies adopt it. In 1956, Richard Nixon, another Republican who ardently defended capitalism, suggested that we could move to a four-day workweek (without increasing hours per day).  

Even John Stuart Mill, the nineteenth century laissez faire economist, pointed out that in an economy with no growth in production, "…industrial improvements would produce their legitimate effects, that of abridging labor" (516).6  

One major challenge that we do face is free trade, for if unions push for reductions in hours without pay cuts, companies could pick up and move overseas. But this challenge could turn into an opportunity. It was stated earlier that environmentalism is ultimately a global problem. Consequently, unions should fight for reductions in hours and higher hourly pay on a global basis. Free trade is already causing American and foreign unions to work together, and this is so much the better.  

IV. COMMON GROUND BETWEEN CONSERVATIVES AND LIBERALS  

Most of the ideas that have been advocated up to this point are regarded as liberal, but it can be shown that they are also completely consistent with conservative thinking. If this is indeed the case, then a very powerful result necessarily follows: Whereas diverse parties normally have to compromise in order to work together, the existence of mutual interests enables them to work together without compromising one iota.  

Liberals usually desire to change public beliefs and social systems in order to perfect human behavior. Conservatives are skeptical of attempts to fundamentally change basic attitudes. But the proposals addressed in this paper are already consistent with existing attitudes, for population growth has been declining and Americans have been eating lower on the food chain. Furthermore, recent history has shown that Americans can dramatically increase energy efficiency without transforming our whole society.  

Another distinction between the two ideologies is that conservatives prefer equality of opportunity while liberals prefer equality of outcomes. Notice that investments in education offer greater opportunities, not guaranteed outcomes.  

Liberals are perceived to be sympathetic to the economically distressed while conservatives are perceived to be pro-business. The proposals addressed here are consistent with this view of conservatism as well. As was previously explained, energy efficiency reduces costs for businesses. Actually, the very idea of being more efficient is one of the most businesslike characteristics imaginable.  

There is no question that in the near future there will be a tremendous global market for energy efficient machinery and appliances. As discussed earlier, since the price of energy is cheaper in the U.S. than in other industrialized countries, there is little incentive for our businesses to invest in energy efficiency. The result is that we will once again lose a major market to our foreign competitors. So a stiff tax on fossil fuels, by creating markets for energy efficiency, will save American businesses.  

Mass transit not only saves energy but is extremely beneficial for business as well. It should be obvious that convenient, fast and uncongested transportation will enable businesses to move goods and provide services more effectively. As Christie Whitman, the Republican Governor of New Jersey, recently remarked about a suburban transit project, "Cutting down the volume of traffic on our roadways eases the burden on commuters and the environment. This suburban transit service is a needed contribution to our state's business friendly atmosphere and is a positive example for all" ("Everyone's Talking About Wheels").  

An increase in educational levels for women is also good for business as it leads to a more productive workforce as well as a greater pool of employees.  

It was mentioned that Japanese CEOs typically earn only sixteen times the pay of their workers. It is no surprise that this is the case in the most pro-business country in the world because narrow income differentials makes it easier for management to motivate workers and to acquire the cooperation of unions. Actually, there is another important reason why narrow income differentials is pro-business: A recent study indicates that countries with low inequality tend to enjoy higher productivity gains (Glyn 3).  

These are not merely academic ideas. The head of the Confederation of British Industry recently declared that workers should be paid more because "businesses want consumers to spend more" (Marketplace Audio, 1996).7 It could be added that the expanded markets for businesses resulting from increases in workers' pay would make businesses more confident about making investments. This could explain the high productivity gains that are enjoyed by countries with low inequality.  

Increases in productivity also result from improvements in workers' skills, an especially important issue these days because of rapid changes in technology. Notice that a reduced workweek would provide employees with more time to upgrade skills. Over time, this would represent a valuable asset for businesses.  

Yet another distinction between liberals and conservatives is that the latter tend to be tough on foreign policy matters. Well, what is tougher and stronger than making our country less dependent on foreign dictators for our energy needs?  

This last point is of such importance that it must be emphasized. Having gone through the two OPEC oil embargoes of the 1970s and the Persian Gulf War, it is inexcusable that we should permit our country to remain at the mercy of feudal tyrants. Most self-declared conservatives have done nothing to make the U.S. less dependent on foreign energy, and they should be condemned for this weakness. But it is more regrettable that some environmentalists do not emphasize the tough, patriotic nature of their position.  

The idealistic examples of reducing work time previously discussed -- Saturday in Jerusalem and John Adams' vision of successive generations having greater opportunities to fulfill personal goals -- have conservative aspects to them as well. The idea of a day of rest is very traditional, and spending more time with family is an activity that the entire family values movement could support! Pursuing personal goals is in complete accord with the most established of American values. After all, the phrase "the pursuit of happiness" is a fundamental part of the Declaration of Independence. Moreover, John Adams was a conservative.  

We have not taken liberal ideas and made them more conservative. To the contrary, these supposedly liberal ideas are already totally consistent with conservative thinking. And again, this means that there is potential for the two sides to work together on many basic issues without compromising principles.  

AFTERWORD  

In this essay, several ambitious goals are being advocated all at once, but the combination is not overwhelming. A movement for energy efficiency already exists, and there is a growing number of activists who are fighting for the reduction in work time already enjoyed by the Europeans. Regressive taxation is not a major issue these days, but it is not a difficult concept to understand. There is no reason that various groups cannot come together over these disparate issues.  

But there is a great obstacle to environmental progress that was pointed out by the economist Robert Heilbroner. Environmental problems do not pose an immediate threat, he said, and so it will be difficult to persuade people to take action now. But reducing the workweek could have an immediate, visceral appeal. This idea is not a magic bullet, but if people can see the connection between environmental progress, improving our quality of life, and reducing the workweek, then environmentalism might get much needed additional support.  

Currently, the United States is falling behind other industrialized nations on environmental issues. This is terribly unfortunate, for it was in the United States that the environmental movement began. Moreover, greater opportunities for women -- so essential for stopping population growth -- took root in the United States. How tragic it would be if the United States continued to default in its leadership role.  

APPENDIX  

Appendices are often used to keep difficult material away from the main part of a book. This appendix contains some of the economic theories that underlie the aforementioned arguments, but rest assured that a discussion of theory does not have to be difficult.  

To achieve some of the goals advocated here -- reductions in work time, narrower income differentials, stronger unions, and a cooperative arrangement between unions and corporations -- we would not be relying upon the free market to determine wages and hours. This is a point about which our society seems to be conflicted. On the one hand, there was overwhelming public support for the recent increase in the minimum wage. On the other hand, we would feel uneasy if a politician were to explicitly declare, "Let us not rely upon the free enterprise system to determine compensation; the federal government should set all wages." We would have good reason to feel uneasy because the heavy hand of government can be disastrous. The experience of this century has taught us to reject socialism.  

We do not have to choose, however, between the extremes of excessive government bureaucracy and totally free markets. As previously mentioned, the Japanese have a custom of ensuring small differences between lowest and highest paid employees, and have recently passed a law reducing work hours. They also achieved fantastic economic success for forty long years. This violates conventional economic theory, which states that deliberate decisions to set wages and hours -- as opposed to relying upon free market forces -- will reduce the performance of the economic system. Obviously, there is a conflict between fact and theory here. This is so because the conventional theory is wrong.  

In constructing their theory on labor, conventional economists conceive of a situation in which we add a worker to a company while holding everything else constant. Specifically, the amount of machinery and work space stays the same as we add one worker. The additional production obtained is that worker's contribution to the company.  

According to the theory, we can also hold labor constant and add one machine -- and again, the resulting increased production is that machine's contribution to the company. Whether a worker or a machine is added makes no difference; they are both regarded as interchangeable factors of production.  

When a factor of production is added while everything else is held constant, the increased production obtained is that factor's "marginal product."  

The theory goes on to state that, if the free market is left to its own devices, workers will be paid according to their contribution (i.e., their marginal product) and the amount of hours they work will be optimal for both themselves and their employers. This situation is ideal: businesses and workers are free to choose, everyone gets paid according to his or her contribution, and the amount of hours worked is optimal.  

A long explanation of how each worker gets paid the value of his or her marginal product is unnecessary, because the concept of the marginal product itself can be challenged. Let's say we have a car engine, and while keeping everything constant, we remove a belt. (Removing a factor of production is as much a part of the theory as adding one.) The car will malfunction and eventually break down. The same will occur if a hose is removed. Now, it makes no sense to say that either the belt or the hose is responsible for the entire operation. Most of the parts are essential to running the engine, and it's impossible to say just how much each part contributes.  

Clearly, if we add a factory to a firm, we can say how much added production the entire factory yields. But that's referring to the whole operation; we cannot say, "The machines added this much while the workers added that much."  

If marginal productivity theory has no meaning, then there is no reason to impute some precious quality to the wages and hours determined by the free market, and deliberate decisions to set hours and wages (whether by law or custom) do not violate good economics. Let's elaborate on this. Normally, limiting work hours or narrowing income differentials are considered to be moral objectives that are gained at the expense of economic performance. But as was just mentioned, the Japanese do not rely entirely upon the free market and their economic performance has been fantastic. Economic experience in the United States bears this out as well: After we intervened in market forces during World War II, and during the Kennedy/Johnson administration, our economic performance was excellent. And the recent increase in the minimum wage, passed by a Republican Congress, has not been interfering with current economic successes. Reality tells us that there is often no conflict between moral and economic goals, and we can now see that the theory that claims there is a conflict is bereft of meaning.  

 

Endnotes

1. Business and labor would bargain over the gains from higher productivity. The point is, there is no absolute pro-business or pro-labor principle here. The productivity increase over this fifteen year period is slightly under 2% per year, which is not at all an unusual rate. Also, we should differentiate between the terms "productivity" and "efficiency," using the following example. If we double the amount of oil extracted in the same amount of labor hours, then productivity is doubled. If, however, our homes remain uninsulated and our vehicles guzzle gas, then we are not being energy efficient.

2. The 3 cents per kilowatt-hour comes from calculating the initial investments in energy efficient equipment and then accounting for the number of years for which the equipment yields energy savings.

3. For the reader who is not familiar with economics, the distinction between wealth and income should be explained here. Whereas income is a flow of money over a period of time, wealth is a stock of accumulated assets at a point in time. An example of income would be wages, while savings is an example to wealth.

4. A few details should be ironed out here. First, some have remarked that the rebate system would create another cumbersome bureaucracy, but this would not be the case because federal income tax preparation already accounts for family size. Second, each household would receive a lump sum payment/credit; this is not a cut in the income tax rate. Finally, since it is easy to predict the revenues obtained from a given increase in fossil fuel taxes, the government could reimburse the public as soon as the tax is imposed; such reimbursements would be called "prebates."

5. Some people become alarmed by the idea of an $8/gal. tax on gasoline, but recall that rebates would offset the financial burden.

6. Admittedly, the contention that shorter work time is consistent with capitalism is more complex than is presented here. Still, the advocates of capitalism themselves often base their defense of the system on the fact that the general public can benefit from it. Of course those benefits include higher wages and shorter hours. Even capitalism's opponents cannot deny that the system yields exponential increases in productivity. And it is possible for society to use those productivity increases to benefit the public as a whole - as in the first half of this century, when hours fell and total wages went up.

7. An increase in consumer spending would not necessarily contradict environmental goals, for with green taxes and subsidies, consumers will spend more on insulation, energy efficient appliances, etc. We would be stimulating economic activity today on things that will enable us to live more efficiently, and with less work tomorrow.

 

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