January 30, 2003
From the desk of Jane Galt:Great column by Arnold Kling on Idiotarian Economics.
Posted by Jane Galt at January 30, 2003 9:07 AM | TrackBack | Technorati inbound links"); ?>"For example, in his opus on income inequality, (Paul) Krugman wrote, "if the rich get more, that leaves less for everyone else."
Holy cow, I was unaware that Krugman ever said something this stupid. One expects such zero sum thinking from a radical Marxist nut ball, but isn't Krugman suppose to be a highly respected economics professor? My guess is that Krugman so desperately wants to be perceived as a liberal among his academic colleagues--and the New York Times editorial board--that the man has damaged his ability to think and follow a logical argument.
I also highly recommend that those wishing to start an internet business read Arnold Kling’s “Under the Rader.” This book deserved a much larger audience, but unfortunately was released shortly before 9/11. It’s apparently now out of print, but you might wish to hunt down a copy.
Posted by: David Thomson on January 30, 2003 9:38 AMIt just goes to show what a mouthpiece-parrot hack Krugman is.
Posted by: Michael Ubaldi on January 30, 2003 10:07 AMNo sense in 'defending' Krugman. It's clear by now that there is no nonsense partisans won't believe if it fits their notions of how the world works.
But if you guys are really interested in learning about economics, there is only one way. It's not easy, it requires study and lots of mathematics.
And reading Internet articles by HIGH SCHOOL professors is no substitute. That's like reading Ayn Rand and thinking you have mastered philosophy.
As for bad economics one of the few economic 'truths' that is completely counterintuitive is that of comparative advantage. maybe some of you should explain it to this White House and ask them why they imposed those steel tariffs?
Posted by: GT on January 30, 2003 10:15 AMHe's got a PhD from MIT, GT, and he worked for a Federal agency until he left to start his own business. You'd be advised to check your sources before you start insulting them.
Posted by: Jane Galt on January 30, 2003 10:17 AMSorry, that tells me quite little. He's completely distorting Krugman's point (which is mathematically true). So he either is an idiot or a liar. Which do you choose?
Posted by: GT on January 30, 2003 10:20 AMWell before you mouth off on how dumb Krugman is or make dittohead comments, why don't you go and read the paragraph that follows the quote. As far as the more economics based Krugman columns go this one was poor, but it is not as dumb as selective quoting makes it out to be.
There you go Jane, you got two people calling Krugman idiots, and two people defending him. Your work is now done.
Posted by: achilles on January 30, 2003 10:24 AMOh, and there are hundreds and thousands of people with PhD freom top universities.
Only a very small portion go on to be professors and academic researchers.
An even smaller portion go on to be professors at the top schools.
And even within that gorup an even smaller portion go on to be considered the top in their field.
Finally, even among those only 10 in the last 20 years have been awarded the distinction of being considered the best economists under 40 (Clark Medal).
So if someone who has probably never done any academic research and has no reputation on that matter is going to comment on the writing on the economist that the MIT economics department described as the 'preeminent economist of his generation' he should be a bit more humble and make sure he understands what is being described.
I have found that the use of the word Idoltarian is often the result of a complete misunderstanding of the positions being labeled as such. For instance the writer of the article suggests that "Idoltarians" consider drug company profits as evil. Are there people who see profit as evil? I guess there are, but there are those who point out quite reasonably that manipulation of the legislative process by industry lobbyists have produced laws that skew the principals of market pricing. This creates a governmentally protected profit stream that would not exist unless the industry had the benefit of the governments exclusive police power protecting it. The profit itself is not evil, the profit being made as a result of inequitable manipulation of the free market is.
The author also points out the absurdity of that idea that our economy is a zero sum game. What he doesn't mention, and is equally absurd, is that wealth creation is bandwidth on demand. Resources such as raw materials, labor, skills, capital and so forth are not unlimited therefore the creation of wealth has a ceiling at any given time.
The author confuses sloganisum for economic thought. "Tax cuts for the rich" not unlike its equally moronic twin, "Class Warfare" are merely icons for concepts that are too complex to discuss in the 15 second sound bite. While there are undoubtedly people who believe that sound bite politics is a valid substitution for sound economic thought, there are also people who are convinced we never landed on the moon. So what?
I have heard many tell me that by cutting taxes the economy will create enough jobs to return to the treasury enough revenue to wipe out the deficit. Really? Has anyone done this math? How many new jobs must we create in order to increase federal revenues by 400 billion dollars? My back of an Eskimo Pie wrapper calculations say between 40 and 60 million. Do people who believe this qualify as Idoltarians?
Posted by: Rick DeMent on January 30, 2003 10:28 AM“And reading Internet articles by HIGH SCHOOL professors is no substitute.”
Argument ad hominem attacks are a poor substitute for reasoned analysis. A defender of Paul Krugman should instead deal with his peculiar remarks. Are they taken out of context? Was Krugman not feeling well when he wrote them? Did the editor accidentally delete a few lines? Have space aliens taken over Krugman’s identity? Can anyone offer an explanation that makes him sound even half way sensible?
Posted by: David Thomson on January 30, 2003 10:36 AMGT, Kling didn't say that Krugman didn't understand the concept; he said his writing sounded suspiciously un-economic. As it does; few economists I know use zero-sum economic models.
I wasn't saying that Kling was better credentialed than Krugman: just better credentialed than you. If you want to play that game, you're as unqualified to comment on Kling as he is on Krugman. And you can't justify everything Krugman says with his credentials, because I'd be happy to drag up multiple Clark medal winners who disagree with pretty much every assertion you defend. For example, given your politics, I'm sure you're not going to want to unreservedly accept everything Kevin Murphy says because he's got THE CLARK MEDAL. All of which is irrelevant, because none of the stuff in Krugman's columns, except a few on steel tariffs, is even vaguely related to the work that got him the medal; he's not really more qualified to comment on, say, energy or labor policy than your average economics grad student. So why don't we keep it on the merits of the argument, hmmm?
Posted by: Jane Galt on January 30, 2003 10:43 AMOf course, the quote is pulled out of context. The next sentence in Krugman's piece puts it in context; he states that "if the rich get more, that leaves less for everyone else" is a simple matter of arithmetic.
This makes it clear that "get" is being used in an intransitive sense which I regard as grotesque but comprehensible. For any given level of income, the larger the fraction x, the smaller the fraction not-x. Krugman ought to use "have" here rather than "get", but any but the most heroic grammarian would have to admit that that boat sailed long ago.
I would also note that Kling's own statement immediately following the bit where he calls Krugman an idiot is, IMO, truly idiotic. He says that "that when someone earns a high income this is because the contributions that the individual makes in the economy have a high market value". If I were to play substantially less fast and loose with transitive and intransitive senses than Kling does, I would note that "making a contribution" is usually understood to refer to an action, and that much of the income of many of the very wealthy comes not from "making a contribution" under the ordinary language meaning of the term, but rather from ownership of wealth, which, whatever else it is, is not an activity.
Don't they teach you at MIT that it makes you look like a crank to put capital letters on Common Phrases in the Middle Of Sentences? Or at the very least, it raises suspicions that you are rather ashamed of the way in which you are trying to use words. Maybe Kling went to school in Germany or something, but even so.
Posted by: dsquared on January 30, 2003 10:53 AMI think most of us commenting on this board are less qualified than Kling.
However, the fact is that what Kling would LIKE Krugman to be saying - which is that the economy is a zero sum game in which a bigger slice of the pie for one implies a smaller slice of the pie for the rest- is NOT what he IS saying.
Krugman's statement is that if the top 1% have a larger share of a pie that has grown in size, they must have taken more of that growth than everyone else. As a statement this is factually correct, and does NOT qualify for idiotarian economics.
Now there may be many people who reasonably agree that the conclusion Krugman draws from it: namely that we should be concerned about the top 1% getting more of that growth in the pie is just wrong. In fact, that kind of debate provocation I would argue is the point of such an article. But to take one misleading sentence nad brand it idiotarian economics while taking shots at Krugman strikes me as, well slightly idiotic.
Of course, I suppose it's pretty natural that MIT doesn't teach a decent course on Marx, but someone who is ignorant(arian) enough to think that:
>>Marx did not portray capitalism as an impersonal system of Market Pricing. Instead, he viewed it as a mechanism for Authoritarian Ranking, in which the capitalist class exploits the working class. The alternative, naturally, was Communal Sharing: from each according to his abilities, to each according to his needs.
really ought to either note that Marx's analysis of the wage-labour relation did not differ in any important particular from that of Adam Smith, or (preferably) to shut up about it.
Posted by: dsquared on January 30, 2003 10:56 AMHis analysis of the micro transaction was similar, but his analysis of the macro picture fits Kling's analysis. Labor theory of surplus value, anyone?
>>As it does; few economists I know use zero-sum economic models.
Krugman is here doing his usual, useful job of reminding people of an adding-up constraint; the amount of production in a year, less the amount taken by the rich, less the amount taken by the non-rich, must sum to zero. You surely can't interpret the following paragraph of Krugman's article to indicate that he is using a zero-sum model in any other sense?
In any case, what do you mean, "zero-sum models"? Are you claiming that the majority of economists you know don't use general equilibrium arguments? Bizarre.
Posted by: dsquared on January 30, 2003 11:01 AMIt looked like he might have an interesting point in there about the way in which economic thinking is, like much of statistics and science in general, counter-intuitve to people. But I wasn't able to finish it since I was so annoyed at his determination that "idiot" was synonomous with "people who disagree with me."
You can argue that free markets give you the best result. You can argue that to much communal sharing is actually bad for everyone. But simply labeling anyone that puts any value on communal sharing as an idiot is ridiculous, and makes me completely uninterested in anything else you have to say.
And judging from his apparent willingness to utterly distort the words of Krugman (or that he even bothered trotting out such a hoary old hot-button whipping boy), I'd say my initial impression was right.
Posted by: Doug Turnbull on January 30, 2003 11:01 AMAre you arguing that general equilibrium is the same as saying that there is a 1-for-1 correspondance between forward-looking tax reductions and the amount of income that gets redistributed to the poor?
>>His analysis of the micro transaction was similar, but his analysis of the macro picture fits Kling's analysis. Labor theory of surplus value, anyone?
C'mon, you're bluffing. I'm happy to explain this if people are interested, but I first would appreciate it if you'd admit that you were bluffing when you claimed to understand the distinction between Adam Smith's political economy and that of Karl Marx, in the particular context of the wage-labour relation.
Posted by: dsquared on January 30, 2003 11:04 AMFeel free to enlighten me, D^2. I've read most of the original works, although it's been some time, but I don't claim to be an expert in Marxist theory. I'm more than willing to learn how the labor theory of surplus value does not, in fact, illustrate the the belief that capital is stealing from the commons. Could you also touch on the deliberate impoverishment of workers is consistent with the market pricing model? Or reality?
Posted by: Jane Galt on January 30, 2003 11:08 AMDoug, I don't think that's what he's saying. I think he's saying that when people frame market pricing behavior as authoritarian behavior in order to frame it as stealing from the commons, they're very wrong. I'd agree.
Posted by: Jane Galt on January 30, 2003 11:10 AM>>Are you arguing that general equilibrium is the same as saying that there is a 1-for-1 correspondance between forward-looking tax reductions and the amount of income that gets redistributed to the poor?
Dunno. Maybe. Maybe not. Not sure what you mean, to be honest. But since Krugman has never made this claim in anything I've read, I don't necessarily think it's a productive discussion to be having. Particularly, the article "For Richer..." is not about redistribution and doesn't have much in it about the poor.
And just to clear up a point upthread, Krugman is supremely qualified to comment on labour economics as he has written some excellent papers in this field (admittedly, related to the effects of trade on labour), which certainly were part of the work which got him the prize. The game-theoretic analysis he applied to the California case also looked structurally very similar to some of his work on trade.
And with a bit more reading of that article ... (god what a rambling portmanteu post), I notice that Krugman has a direct argument against Kling's contention that "that when someone earns a high income this is because the contributions that the individual makes in the economy have a high market value". The conclusion to section III is built around the argument that "it's not the invisible hand of the market that leads to those monumental executive incomes; it's the invisible handshake in the boardroom. ". To ignore such a direct argument against one's own position while calling someone an idiot for ignoring it, is pretty intellectually dishonest(arian).
Posted by: dsquared on January 30, 2003 11:12 AM"Are you arguing that general equilibrium is the same as saying that there is a 1-for-1 correspondance between forward-looking tax reductions and the amount of income that gets redistributed to the poor?"
I am not sure what you are getting at with that remark, Jane so I won't comment directly on it. But on the tax issue that Kling raises, he says that
"The phrase "tax cuts for the rich" is designed to trigger an idiotarian response. You are supposed to see a conflict between the Communal Sharing of the tax revenue that naturally belongs to all of us and the Authoritarian Ranking of powerful rich people stealing from this communal resource."
I think this is flat wrong too. The argument here is that one purpose of the tax cuts are designed to achieve stimulus, many have argued quite validly that the magnitude of the tax cuts overall dwarfs stimulus. So then you are left with three possible arguments:
1) The liberal one, which is that from the many different strams of taxes that make up this "communal pool" Bush is picking the one that would help the rich the most if cut.
2) The conservative one, which is that this is an important distortion that should be removed regardless of the distributional effect.
3) The supply side one, which is that the economy will grow like crazy as a result and netiher tax revenues nor distributional effects will be much more than second-order effects.
There is no idiotarian economics in the phrase "tax cuts for the rich" as it has emerged in the current context. Kling again would like to take the phrase out of context but he is ignoring many more obvious examples of idiotarian economics: farm subsidies, steel tariffs, extensions of patents on existing works that don't fit into his political ideology.
Posted by: achilles on January 30, 2003 11:15 AM“...but I don't claim to be an expert in Marxist theory.”
Heck, I’ll take it one step further. Karl Marx was not even “an expert on Marxist theory.” Interpreting Karl Marx is like taking a rorschach test. Has anyone really tried to read Das Kapital?
Posted by: David Thomson on January 30, 2003 11:25 AMKing’s analysis rings true with me. I have often discussed issues of economics with people (very smart people) who spent their college careers studying journalism, philosophy, literature, etc. It’s not that they “don’t get it”, sometimes they do (after a while), it’s that the very concepts are so foreign to them. It is a little like explaining simple algebra to someone who has spent their life doing only arithmetic and is completely unaware of the concept of algebra.
I remember talking about the minimum wage with a relative of mine (very smart, high school valedictorian, nearly a 4.0 GPA in college). I explained to him that raising the minimum wage might discourage employers from hiring people they otherwise would have hired. Furthermore, the very people that might not get hired would be those with the least skills, often poor, who were not “worth” the higher wage.
The point here isn’t the minimum wage – I want to keep this as non-partisan as possible – the point is the look on his face as he reasoned through this. It was like watching someone try to figure out a rubik’s cube. It was a thought that had never occurred to him. More important, it was a thought that never would have occurred to him had someone not pointed it out.
This is the silver lining that I find in (don’t shoot me) Paul Krugman. Besides conservatives who want to rant, his audience is generally the highly liberal liberal-arts majors who like what he is saying about politics in general and Bush in particular. Though I virtually never agree with his conclusions, he often introduces such people to economic (market-price) reasoning.
A good example is the energy crisis/shortage in California that became his crusade. As wrong as his conclusions were, he actually did a pretty good job of explaining the breakdown in the economic cause and effect chain. Trust me, your typical graduate from the Columbia School of Journalism had never heard such reasoning before.
>>I've read most of the original works, although it's been some time,
You've read Wealth of Nations, Ricardo's Principles, Capital, the Critique of the Gotha Program and the German Ideology? Chrikey! You must be older than I think, or have had a lot of spare time at some point. Capital is like three volumes long. I haven't read any of them from cover to cover except the Manifesto 1844 manuscripts and those weren't mainly about economics; I did the sensible thing and bought a good commentary and only read excerpts.
>> but I don't claim to be an expert in Marxist theory. I'm more than willing to learn how the labor theory of surplus value
Well, it's been a long time, but maybe you'll recall that there is a "labour theory of value" and a concept of "surplus value", which are not the same thing.
>> does not, in fact, illustrate the the belief that capital is stealing from the commons.
the accepted translation is "alienating", a less value-laden term. Since Marx agrees with Smith that all value is measured in hours of productive labour, the fact that there is a positive return to ownership means that, since this value comes from somewhere, it must come from the wage-labourer. This is ground on which Marx, Smith and Ricardo all agree; Marx's new departure is in stating that the capitalist owner is not necessary to the production process. Under Marx's analysis, all that the capitalist contributes is entrepreneurship and the generation of new ideas. Thus, under historical materialism, there will come a (utopian, but Marx thought we were near to it in 1830!) point at which new technologies are no longer needed to provide a decent life for everybody and the capital-owner will at that point also no longer be necessary. He will at that point have adopted the status of the noble under feudalism or king under slavery and be part of a class dependent on a social relation which no longer serves the dialectic process of human development. Hence revolution, etc, etc. Marx himself believed that that time was nigh and that we should have a revolution, but it wasn't necessary to his theory.
>>Could you also touch on the deliberate impoverishment of workers is consistent with the market pricing model? Or reality?
Marx had a relatively simple model under which price competition between capitalists drove down prices, while the need to keep on redeploying an ever-increasing capital stock under decreasing returns to a fixed factor meant that capitalists could only earn a positive return on capital by driving down wages to the minimum, which meant the subsistence level. It's not a particularly good model, IMO, and it hasn't explained the last hundred years pretty well, but it's very clearly based on market pricing, and is not at all based on the error Kling ignorantly imputes to it. Surely in your perusal of Capital you must have come across some of the myriad references to capitalism as an impersonal process with its own inexorable logic?
sheesh.
D^2:
That's undoubtedly true at the corporate CEO level. I wouldn't disagree; I think an adequate solution to the principal-agent problem is one of the most interesting questions in economics right now. But CEO or other incestuous executive pay is a tiny fraction of people paying the taxes Krugman is talking about. The top bracket kicks in at just around $200K; those folks are highly compensated, mostly professional, but they aren't getting their salary as what Galbraith called "a warm personal gift from the CEO to himself." I had a friend who was pulling in nearly 3/4 of a million a year as a technology consultant, not because he knew someone, but because he was damn good at what he did. Trying to structure our tax policy around Michael Eisner may be emotionally satisfying, but it's also stupid.
Posted by: Jane Galt on January 30, 2003 11:27 AM>>Has anyone really tried to read Das Kapital?
David, plenty of English translations of Das Kapital are available, usually entitled "Capital". You really are making things tough for yourself if you insist on trying to read it in the original when you have no background in the field.
Posted by: dsquared on January 30, 2003 11:29 AMPerhaps my memory fails me, or my childish college socialism. I've been meaning to get back to Marx, but unwilling to lay out cash for those pricy tomes that are all they ever seem to have in stock. Nonethless, if memory serves, there is a model under which all the value in excess of the input factors belongs to labor, and capital siphons it off, nu?
Posted by: Jane Galt on January 30, 2003 11:31 AM1) I read very, very fast -- about 3 textbook pages a minute.
2) I was a socialist in college.
Which is not to say that I properly understood what I read; only that I read it.
Posted by: Jane Galt on January 30, 2003 11:33 AM>>I had a friend who was pulling in nearly 3/4 of a million a year as a technology consultant, not because he knew someone, but because he was damn good at what he did.
Jane, Krugman wasn't writing a whole article about the top tax bracket. He's quite clear that he's writing about the top 1% (starts around $300k?), and within that, most particularly about the top 0.1 per cent. And his whole argument is that they're not a "tiny minority"; they've been doing well enough to skew the whole distribution. I dunno if it's true or not because I haven't done the work, but give the guy credit for what he's saying.
>> Trying to structure our tax policy around Michael Eisner may be emotionally satisfying, but it's also stupid.
Well are you going to tell the current government that or should I?
My point is that even among that top 0.1%, there are 280,000 people. There are 500 CEO's of Fortune 500 firms. There are 5000 CEO's of companies large enough to have noticeable market caps, and of those CEO's, only a small fraction will see compensation in the $1m+ range. Krugman is telling us that we need to tax all 280,000 more heavily because 500-1000 of them - 0.15-0.3% - are getting sweetheart deals. You could deal with another large chunk by spiking the return to capital, but that's not such a hot idea.
Posted by: Jane Galt on January 30, 2003 11:38 AM>>Nonethless, if memory serves, there is a model under which all the value in excess of the input factors belongs to labor, and capital siphons it off, nu?
In fairness to Jane, this is a quite common interpretation of Marx; although G A Cohen has a very good couple of hundred thousand words about how it's wrong, it's not uncommon and not without support from things Marx said. But my point is that if Marx is committed to it, so's Smith, from the point of view of economic theory, because they both agree that the only source of value is labour, and they both make the distinction between capital and labour.
Posted by: dsquared on January 30, 2003 11:39 AMI myself have never understood what the big deal about the labor thoery of value was. Admitting that labor is the source of all value does not, in my opinion, necessarily lead to the conclusion that capitalists are useless parasites. The coxswain provides no motive power to the rowboat; does that mean he should be thrown overboard?
Posted by: jimbo on January 30, 2003 11:44 AMAs I say, I am certainly no Marxist theorist; 19-year-old fellow travelers generally don't have very well developed political leanings. But the question, I believe, is not whether or not Adam Smith made what Kling considers this idiotic mistake (and Adam Smith wasn't really much of a macroeconomist), but whether a reasonable interpretation could conclude that Marx did. I think the general reading of Marxist theory supports Kling's assertion, even if a more sophisticated analysis might disqualify it. Especially since most economists probably understand Marx's work through the later summaries in marxist literature, not close reading of the originals.
Posted by: Jane Galt on January 30, 2003 11:45 AMI'd like to see Krugman revisit his article now that the income distribution stats are so wildly skewed by equity-based compensation. If one divides the 280,000 top 0.1% by the 5000 CEOs, then one only needs 56 directors and general managers on adventurous stock-option plans per CEO, which seems high but in the ballpark. But obviously, showing the extent to which it was all about stock options means that using the 2000 data was likely to be horrendously misleading.
Posted by: dsquared on January 30, 2003 11:47 AMInteresting point, jimbo. Actually, Marx deals with this in making a distinction between the "wages of supervision" and the "returns of ownership", arguably foreshadowing the development of the modern Berle/Means corporation with separation of ownership and control.
Of course, nobody was "much of a macroeconomist" before Keynes published the General Theory ... but I don't accept your defence of Kling. Nobody who had read any Marxist economics at all could have failed to grasp that Marx's analysis was explicitly based on the operation of the price mechanism.
Posted by: dsquared on January 30, 2003 11:53 AM“In fairness to Jane, this is a quite common interpretation of Marx; although G A Cohen has a very good couple of hundred thousand words about how it's wrong..”
There is no such thing as an authoritative interpretation of Karl Marx’s works. It’s usually a matter of whatever floats your boat. The stuff was such gobbledegook that even Marx probably couldn’t explain it. One is perhaps better off interpreting Nostradamus.
Posted by: David Thomson on January 30, 2003 11:59 AMThen one gets into what "supevision" is: is it just the barking out of orders on the factory floor, or does it take into account the whole structure of financial markets that reward certain endeavors and punish others in the marketplace? Like I said, one can admit that all value comes from labor while admitting that the whole structure of capitalism is necessary in order for labor to be properly directed. (I believe that evolutionary game theory would be quite good at explianing this...) Conventional economists seem to have a need to make capital into something "real", apart from its existance as "crystalized labor", which leads to much foolishness, IMO... (Cambridge capital controversy, anyone?)
Posted by: jimbo on January 30, 2003 12:10 PM>>Like I said, one can admit that all value comes from labor while admitting that the whole structure of capitalism is necessary in order for labor to be properly directed
Add "at this point in historic time", and you've got a reasonable summary of Marx's historical materialism, subject to much cavilling on the matter of what value judgments lurk beneath the word "properly".
Posted by: dsquared on January 30, 2003 12:14 PMI read parts of the Krugman piece to see if he "idiotarian" or not - and it seems to me he is dancing around the zero-sum model of economics. He wants to assert it, and he wants to suggest it, but he knows its not right, so the most he can bring himself to do is say things like "you can make a case that our society would be richer if its richest members didn't get quite so much... I could make this argument on historical grounds." Well sure you could, but will you? Then he gives an argument on historical grounds, so you are meant to believe he thinks it is decisive. But he never says clearly that he thinks the economy is zero-sum.
On a tangent, I was quite amused to find this in the middle of the piece. Krugman is talking about corporate "looting":
Economists who study crime tell us that crime is inefficient -- that is, the costs of crime to the economy are much larger than the amount stolen. Crime, and the fear of crime, divert resources away from productive uses: criminals spend their time stealing rather than producing, and potential victims spend time and money trying to protect their property. Also, the things people do to avoid becoming victims -- like avoiding dangerous districts -- have a cost even if they succeed in averting an actual crime.Just plug in "tax" for "crime" and he makes the case against himself quite handily.
Posted by: Leonard on January 30, 2003 1:10 PM
Jane,
I was going to address the specific deficiencies of Kling’s article but d^2 has done it so much better.
I raised the point of relative credentials not because Kling is unqualified to comment on Krugman but rather that the wide disparity should make him more aware of the need to be as precise as possible (and, by the way, he is not more qualified than me. Based on what I read I would argue the opposite, but in any case that is not the issue.)
Krugman’s academic credentials do not mean he is always right. If he consistently made silly or simple mistakes regarding economics (let’s leave his more subjective political views aside for the time being) than all the Clark Medals in the world would not compensate for that.
But I see in this thread what is now clear to me is a common theme across the blogging world. Accusations against Krugman’s economic points fly with ease but, upon further analysis, they all seem to be based on either outright lies or an inability to understand the points being made.
Such is the case of the “if the rich get more, that leaves less for everyone else." argument. But d^2 already dealt with that.
I have pointed out, in previous threads, the many times you yourself have made specific comments against Krugman that turned out to be wrong once they were look at more carefully. You never responded to my very specific comments so I won’t bother repeating them yet again.
There is a deeper issue here. Kling is wrong from the very first sentence, where he quotes Glenn Reynolds as saying What bloggers are more than anything, I think, is anti-idiot."
This is completely false. Bloggers, I think, tend to view themselves that way but in reality much, if not most, of political/economic blogging is simply a reprise of talk radio. Posters start with pre-determined views and are generally unwilling or unable to accept when they are wrong. That’s just how it works, I guess.
One of the few things I’ve written on my blog is a comment on something Don Luskin wrote, about how bloggers will overtake the NYT. It is this kind of delusion, mixed with the arrogance of the ignorant that will probably lead to blogging never living up to the potential many believe it has.
Oh, please. Do you really think that Paul Krugman is so ignorant as to believe that taxes don't cause a net loss? Of course taxes have a net cost and I expect every single undergraduate economics major understands this. Perhaps in your fantasy world stupid liberal economists are ignorant of the distortions of the income tax, but I doubt that is the case in reality. Perhaps you should pose the question yourself at Delong's website, where a lot of liberal economists seem to gather.
Unfortunately, things like public goods, social preferences, and political influence ensures that we need government expenditures and therefore tax revenue is required. Economists of all stripes seem to disagree on exactly what spending is needed, how taxes should be assessed etc, but that is very different from arguing that taxes don't cause a loss. The relevant argument is trying to figure out what taxes are the most appropriate way of raising revenue (i.e. what is the least distorting). Other than Thatcher's brief unpopular experiment with poll-taxes I don't know of any recent examples of non-distroting taxes but I'll be the first to say I am not a history buff.
Posted by: achilles on January 30, 2003 1:43 PM>>But he never says clearly that he thinks the economy is zero-sum
Presumably it's just because I'm coming at it from a more sympathetic angle, but I think that what you're seeing here is a quite clever argument from Krugman that some levels of inequality are positive sum (say, those prevailing in the 1950s), while some levels of inequality (say, those prevailing in Russia in the 1990s) are *negative-sum*, because, like very equal societies, very unequal societies create perverse incentives. I really don't think that PK can be accused of the simple lump-of-output fallacy; whatever his argument is, it's obviously based on an understanding that dynamic efficiency matters.
Posted by: dsquared on January 30, 2003 1:47 PMWhy, no Achilles, I don't think he's that stupid. But I've never seen him say anywhere in his columns that it does. No one thinks he believes his simplistic column-world, and that's exactly the point. His omissions are, shall we say, strategic.
Posted by: Jane Galt on January 30, 2003 1:48 PMI think you're reading in a good argument that's not there, D^2. It's like the folks I talked to in the financial community who said things like "What kind of idiot would buy something based on a stock analyst's recommendation?" Well, if you didn't know how the system worked, you. It seems to me that y'all are trying to parse what he said on the basis of "Well, of course he couldn't believe such a simplistic thing", which is true, but not useful, because I don't want to know what he believes -- I want to know what his readers will believe when they are through. Reading what he actually said, as opposed to how it would be interpreted by a reader with above-average understanding of matters of political economy, he seems to me to indeed be conveying an argument to the general reader that the reason the rich are getting richer is that they are stealing from the commons.
Posted by: Jane Galt on January 30, 2003 1:54 PMJane,
One last point,
You claim that Krugman is not really more qualified to comment on, say, energy or labor policy than your average economics grad student.
As d^2 explained you are factually wrong.
But you are also conceptually wrong.
The idea that Krugman, or any other top economist for that matter, is no better than the average graduate student on topics he has not written on is simply ludicrous. Economics, as much as it can claim to be a scientific endeavor, comprises a set of methods and models that are common across the discipline. A top economist has shown, by definition, an ability to think in economic terms (something that not all PhDs manage, IMO) and use those basic models and methods.
That’s probably what explains why Krugman got the CA energy crisis so right (another one of your mistakes you never owned up to). He is no expert on energy economics. But he is a good enough economist to know what questions to ask (and that’s usually half the challenge). Something that can’t be said of most graduate students or most people, for that matter.
Damn, the computer ate my last post so now I have to write again.
Jane, I think you have Krugman's column world exactly backwards. In a simple world, lower taxes have less cost than higher taxes. No one who has studied economics will disagree with that, I don't think. But Krugman's column deals with the world we face today in which the primary benefit of lower taxes is a) more stimulus b) reducing economic inefficiency and the primary costs are c) higher budget deficits in the long run and d) greater income inequality. In a simple world c) and d) are not typically factored into the analysis.
So I don't think it is correct to say that Krugman does not lay out both sides of a tax issue. his columns have very directly addressed the four points I raised above [See columns on 2/28/01, 3/17/01, 3/18/01, 5/16/01, 7/18/01 and 7/29/01 for a partial list of examples (I lost the rest in my earlier post) and any of the recent columns on dividend taxes].
You and I can disagree on the relative merits of d), and that Club for Growth guy and I can disagree on the relative merits of c), but disagreeing with how Krugman weights these things is very different from calling him a deceiver who doesn't lay out the facts. So yes, I think Leonard is deluding himself if he thinks Krugman does not understand the cost of taxes.
I think Krugman's old columns were better than his new ones, and I think his tendency to take political potshots often means that he writes less about economics than he should. Alas, those political potshots have brought in a whole bunch of people who like nothing better than to believe the man is stupid and will jump on any half-assed out of context paraphrasing to confirm their own world view.
GT: although I agree with you on the particular point of Krugman's competence on economics matters he hasn't written about in professional journals, Jane makes a valid general point: just because an economist is an expert in a particular field does not guarantee that he will not say appallingly stupid things in another field.
Case in point: Maurice Allais, who won the Nobel in 1988 (on general equilibrium theories), and who has repeatedly made ludicrous comments about globalization, including the exact arguments debunked in Krugman’s “hot dogs and buns” parable.
“I think Krugman's old columns were better than his new ones, and I think his tendency to take political potshots often means that he writes less about economics than he should.”
I totally agree. One merely needs to read Paul Krugman’s older Slate.com pieces. Unfortunately, he must now dance to the tune demanded by the New York Times ultra left wing editorial board. It recently dawned upon me why neo-Liberal economists Paul Krugman and Brad DeLong get so goofy. Theses guys are trying to survive on Liberal campuses and therefore it behooves them to prove that they aren’t right wing conservative Republicans. It scares the living hell out of them when realizing that at the end of the day---they have far more in common with Milton Friedman and Ludwig Von Mises than Karl Marx.
Posted by: David Thomson on January 30, 2003 3:16 PMJane makes a valid general point: just because an economist is an expert in a particular field does not guarantee that he will not say appallingly stupid things in another field
I don’t think that’s exactly what Jane said. Her point, as I understood it, was that someone like Krugman had no special claim to expertise beyond a graduate student on areas not directly of his expertise. I disagree. But let's leave that aside.
I agree with your point and would take it even further. Even an expert on one field can say stupid things about that very field. If Krugman said something stupid about international economics it would remain stupid despite that it is an area of his expertise. So has he said really stupid things?
The problem with most if not all of the criticisms I have read of Krugman on economic grounds is that, every time I look at them carefully they end up like the one we are discussing now. Simply the result of a misunderstanding (or worse, a bald-faced lie) on the part of the accuser.
Please David, spare me the stuff about Princeton being a liberal campus that would punish Paul Krugman if he seemd too right wing. And if you think the students at Berkeley (especially those wacky left-wing undergrads you like to make fun of) have any influence over Brad De Long you grossly overestimate how much tenured professors in research universities (much less professors of the caliber of DeLong and Krugman)care about currying favor with their undergrads.
Krugman's columns in NYT are more frequent, and less long. I think those two factors are the primary explanation (perhaps added to the fact that he has to write more about domestic economics than international economics) than any meddling by the editorial board. And Krugman is a pretty irascible guy in general, he has been exceptionaly mean in putting down economists that certain members of the far left idolize like Robert Kuttner or J.K. Galbraith.
More than anything though, you are too blinded by what you like to believe. I doubt there are no more than a handful of academic economists who don't believe that they owe more to Milton Friedman than to Karl Marx. It is only in your fantasy world that Brad De Long and Paul Krugman identify with Karl Marx and are shocked to find out they agree more with Friedman than with Marx.
Posted by: achilles on January 30, 2003 3:36 PMThe problem is either frequency or obsession. Every single one of his columns is "Bush administration evil"; it's no more appealing in a liberal columnist than "Bill Clinton: Second Coming of Satan" was from the usual suspects on the right. I don't think anyone's calling him a Marxist.
And Achilles, Princeton and Berkely are the bastions of liberal economics. It's not their campuses, but their departments. Just as you expect to find a certain kind of economist at Chicago or Rochester, you expect to find another kind in those two programs. So that's not inaccurate.
Posted by: Jane Galt on January 30, 2003 3:46 PMTwo points. David's argument was that"Theses guys are trying to survive on Liberal campuses and therefore it behooves them to prove that they aren’t right wing conservative Republicans", quite a different one from yours, in that it focused on the ideology of the campus and the students and not the department and that was what I was responding to.
But to respond to yours. So why do you say Princeton is a "bastion" of liberal economics? It is certainly more liberal than Chicago, but does that in and of itself constitute a "bastion?" My limited knowledge helps me identify three liberal economists: krugman, Krueger and Blinder. Looking at their website I see another guy Bernanke who is currently on the Fed, another guy Woodford who was a professor at Chicago, three other guys Honore, Williams and Kimmel who got their Ph.D. from Chicago, a guy SIms who was big in the Rochester, Minnesota circles, and a guy Shimer who did some econometric work (IIRC) on the Bush side of Bush v. Gore. Now I know very little about the rest but perhaps you can explain better to me why this is a "bastion of liberal economics".
Berkeley is more fitting of a bastion (Yellen, Tyson, Auerbach, DeLong, Card etc are all names I have seen in the Clinton adminsitration's time or in Brookings papers). It is still along way to go from that to say that Brad DeLong is liberal because he wants to curry favor with his students.
Posted by: achilles on January 30, 2003 4:00 PMAnd let's be clear.
Although many of the faculty may be liberal, and so could be described as liberal economists, that is not the same thing as liberal economics.
What is liberal economics?
Is it just economic work done by academics who happen to be liberal?
Posted by: GT on January 30, 2003 4:06 PMWhen a department is predominantly staffed with economists who would, say, never work for a Republican administration, but joyously join almost any Democratic administration that asked, I think it's fair to call it a liberal economics department. And you know what I mean and I am now calling a halt to semantic arguments about trivialities.
Posted by: Jane Galt on January 30, 2003 4:11 PMIn other words you have nothing to back up your claim about why Princeton is a 'bastion' of liberal economics. Unless you know that Princeton professor as a general rule avidly vow never to work for Republican ADministrations.
But sure, we can call it semantics and call a halt.
Posted by: achilles on January 30, 2003 4:14 PMWell, I don't know what you mean.
I wasn't sure if you were implying that there is some subset of economic theory that could be called liberal economics.
If all you are saying is that there is a greater preponderance of economists that vote for the Dems in Berkeley or Princeton than in Chicago I would agree.
But if that somehow were used to imply that they practiced a different sort of economics then that is a different matter altogether.
Posted by: GT on January 30, 2003 4:16 PMRichard Hofstadter rightfully criticized the anti-intellectualism of the idiots. There is nothing good to be said about those who condemn rational thought. However, there is a very valid “anti-intellectual” tradition that Americans should be proud to advocate: we tend to suspect that those possessing an advanced degree behind their name might be a bit nutty. I know that I’m not being totally fair, but so often professional academics are to put it mildly--downright weird! Indeed, earning a living as a professional academic, especially in the “soft” sciences, seems to cause more harm than good. And make no mistake about it, an economist is first, last, and foremost, a philosopher who uses a lot of math to back up their arguments.
Posted by: David Thomson on January 30, 2003 4:22 PM"an economist is first, last, and foremost, a philosopher who uses a lot of math to back up their arguments."
Really, I always thought an economist was a social scientist who knew too much math or a physicist who didn't know enough :)
“But if that somehow were used to imply that they practiced a different sort of economics then that is a different matter altogether.”
Imply? Heck, I’m explicitly stating this as a fact. Hard scientists might usually be on the same page because 2+2 always equals 4. The economic philosophers, however, will reach dramatically different conclusions due to the premises underpinning their reasoning. For instance, does one believe that human beings are innately good? I strongly hold that the at least metaphorical reality of Original Sin is alive and well on planet Earth. My economic conclusions will therefore almost certainly contradict those embracing a Marxist perspective.
Posted by: David Thomson on January 30, 2003 4:36 PMDavid,
Given your previous posts forgive me for not giving much weight to your understanding of academic economics.
Posted by: GT on January 30, 2003 4:41 PMDavid, you are railing against demons that don't exist. Go to the 20 best known economics departments in the land, see if you can find 5, heck see if you can find any marxists teaching there. And modern day economics, as far as I understand it, is certainly not built on metaphorical realities and philosophy. In fact I would be so bold as to say that outside of a History of Thought class, all that hi-faluting Marxist stuff that Jane and D^2 were arguing over will not appear in any undergraduate (or graduate) course in economics.
Posted by: achilles on January 30, 2003 4:43 PMLet’s go the text, shall we? Here’s the full context of Krugman’s statement:
“After all, we really are the richest major nation, with real G.D.P. per capita about 20 percent higher than Canada's. And it has been an article of faith in this country that a rising tide lifts all boats. Doesn't our high and rising national wealth translate into a high standard of living -- including good medical care -- for all Americans?
"Well, no. Although America has higher per capita income than other advanced countries, it turns out that that's mainly because our rich are much richer. And here's a radical thought: if the rich get more, that leaves less for everyone else. That statement -- which is simply a matter of arithmetic -- is guaranteed to bring accusations of class warfare”
So Krugman's statement is made in the context of statistical comparisons of income levels across countries. He’s talking about arithmetic, not economic theory. If country A has a higher per capita income than country B, that doesn’t necessarily mean the majority of people in country A are better off. It might just be a few people at the top of the income distribution are a lot better off. That’s all he’s saying.
If a reader is confused as to what Krugman is saying, then that confusion ought to get cleared up in the very next sentences, when he switches to talking about economic theory:
“If the accuser gets more specific, he'll probably offer two reasons that it's foolish to make a fuss over the high incomes of a few people at the top of the income distribution. First, he'll tell you that what the elite get may look like a lot of money, but it's still a small share of the total -- that is, when all is said and done the rich aren't getting that big a piece of the pie. Second, he'll tell you that trying to do anything to reduce incomes at the top will hurt, not help, people further down the distribution, because attempts to redistribute income damage incentives.
"These arguments for lack of concern are plausible. And they were entirely correct, once upon a time -- namely, back when we had a middle-class society. But there's a lot less truth to them now.”
Then, after a discussion of various statistical data, Krugman goes on to say (in a clear example of nonzero sum thinking):
“The moral of this comparison is that even if you think that America's high levels of inequality are the price of our high level of national income, it's not at all clear that this price is worth paying. The reason conservatives engage in bouts of Sweden-bashing is that they want to convince us that there is no tradeoff between economic efficiency and equity -- that if you try to take from the rich and give to the poor, you actually make everyone worse off. But the comparison between the U.S. and other advanced countries doesn't support this conclusion at all. Yes, we are the richest major nation. But because so much of our national income is concentrated in relatively few hands, large numbers of Americans are worse off economically than their counterparts in other advanced countries.
And we might even offer a challenge from the other side: inequality in the United States has arguably reached levels where it is counterproductive. That is, you can make a case that our society would be richer if its richest members didn't get quite so much.
I could make this argument on historical grounds. The most impressive economic growth in U.S. history coincided with the middle-class interregnum, the post-World War II generation, when incomes were most evenly distributed.”
So Krugman discusses the counter-arguments to his, even going so far as to brand them ‘plausible’. He acknowledges the generally understood tradeoff between equity and efficiency, and when he speculates based on empirical data that in certain cases this relationship might actually be reversed, he correctly acknowledges that this is a conjecture.
So where exactly is Krugman being irresponsible? It’s instructive in this case to contrast Krugman’s nuanced arguments to Kling, who flagrantly misrepresents Krugman, and brands people who disagree with him as ‘idotarian’ while presenting almost nothing in the way of actual economic theory or empirical data.
Posted by: RC on January 30, 2003 4:45 PMActually, I'd always thought that an economist was someone who was good with numbers, but lacked the personality to be an accountant...
Posted by: Rand Simberg on January 30, 2003 4:59 PM“David, you are railing against demons that don't exist. Go to the 20 best known economics departments in the land, see if you can find 5, heck see if you can find any marxists teaching there.”
I sure there are very few per se Marxists teaching at the major American universities. That’s not my point. However, there are vast differences of opinion regarding how much government should be involved in the economy. These arguments almost certainly revolve around one’s view of human nature. Nobody truly leaves their ideological baggage at the door.
Posted by: David Thomson on January 30, 2003 5:02 PMI agree with you there. But for someone who claims that Marxism was not their point the owrd 'Marx' appeared a staggering number of times in your prior posts.
Well anyway, I like R. Simberg's idea and hope that that the provision of many more economist bashing jokes becomes the future goal of this thread so I have something to bust my friends' chops over.
Posted by: achilles on January 30, 2003 5:05 PMThis would be the same anti-idiotarian crowd that fell head over heels for that absurd "Black Mississippi residents are richer than Swedes" study?
The point here isn’t the minimum wage – I want to keep this as non-partisan as possible – the point is the look on his face as he reasoned through this. It was like watching someone try to figure out a rubik’s cube. It was a thought that had never occurred to him. More important, it was a thought that never would have occurred to him had someone not pointed it out.
Have you considered that the reason it was such a difficult thing to reason through is that in real life a) we have a minimum wage but b) we don't have mass unemployment? A $30/hour minimum wage would lead to those kind of distortions, but we haven't ever seen that in the US. It doesn't change the underlying truth that, in general, the minimum wage increases unemployment, but in the specific implementation we have it doesn't seem to do all that much.
But CEO or other incestuous executive pay is a tiny fraction of people paying the taxes Krugman is talking about. The top bracket kicks in at just around $200K; those folks are highly compensated, mostly professional, but they aren't getting their salary as what Galbraith called "a warm personal gift from the CEO to himself."
Maybe this is just a thread I pick up in his stuff, but Krugman rarely talks about the piddling ~$200k earners. It's all about the bazillionaries.
Just plug in "tax" for "crime" and he makes the case against himself quite handily.
You forgot "taxation pays for government services to the public." Otherwise.....
Posted by: Jason McCullough on January 30, 2003 5:24 PMI started to post a long comment, but re-reading Krugman's article just makes me annoyed at his tunnel vision. So I'll confine myself to two short points. (Besides, GT assures us that economics requires a lot of math. It must have changed a lot since I got my BA, then.)
David Thomson says: I also highly recommend that those wishing to start an internet business read Arnold Kling’s “Under the Rader.” (That s/b Under the Radar, of course.) It's still in print, or at least Amazon still has it, with used copies as low as $3.75: click here
As for Krugman's article, I tend to agree with Leonard's post that Krugman's piece dances around a zero-sum analysis without actually endorsing it. His overall argument is that when rich people make more, there's less for the rest of us. Sure, that's mathematically true, but not in a dynamic economic model. And any rational economic model has to be dynamic, doesn't it? Except that Krugman's whole article is static: no mention of families moving in and out of the quintiles of income distribution, conflating 1950s CEO "salary" and 1990s CEO "pay packages", as well as the all too common theme that "rich"="high income".
Posted by: PJ/Maryland on January 30, 2003 5:49 PMThat's probably true, Jason, although it's almost certainly raising the minimum employable IQ, but there are a large number of people out there who think it would be a boon to the poor if we just raised the minimum wage to $15.
Posted by: Jane Galt on January 30, 2003 5:50 PMHave you considered that the reason it was such a difficult thing to reason through is that in real life a) we have a minimum wage but b) we don't have mass unemployment? A $30/hour minimum wage would lead to those kind of distortions, but we haven't ever seen that in the US. It doesn't change the underlying truth that, in general, the minimum wage increases unemployment, but in the specific implementation we have it doesn't seem to do all that much.
Jason,
The studies I remember showed a significant jump in unemployment among minority teens and young adults whenever the minimum wage was raised. It's exactly this least-skilled sector where you would expect to see the results.
I agree, the results would be much more noticeable at $30/hr, or even $10/hr. Which is why Ted Kennedy never goes that high.
Actually, I think some of the "living wage" laws passed by some cities go as high as $10 or even $12/hr; has anyone seen studies on the damage resulting from these? (And what kind of jobs do high school students get in those cities, anyway?)
Jason: crime pays for criminal services to the public. You know - boosting retail spending to pump the economy, wealth tranfer from rich to poor to help reduce social income disparities, providing extra money that can be redistributed as charity to selected women and children, providing "protection", and defense against the threat that some other gang will move into the turf.
PJ: the effets of an increase of the minimum wage on wages and employment are lots more complex than what's suggested in a simple supply/demand model.
See for instance Card/Krueger; googling for card-krueger shows up plenty of controversy.
Jane,
That's probably true, Jason, although it's almost certainly raising the minimum employable IQ, but there are a large number of people out there who think it would be a boon to the poor if we just raised the minimum wage to $15.
And a lot of them live in San Francisco.
Seriously, I think the very idea that a high minimum wage would make some people effectively unemployable is simply completely unfamiliar to a lot of people. If any jurisdiction were actually to try a "living wage" proposal on the $12/hr. order (I mean not just for city contracts — SF has that already — but for all employment), it would become obvious, but it isn't now.
Posted by: Michelle Dulak on January 30, 2003 6:47 PMDsquared said:
"Well, it's been a long time, but maybe you'll recall that there is a "labour theory of value" and a concept of "surplus value", which are not the same thing."
No, but the latter is entirely based on the former, so that it should really be called the theory of the surplus value of labor. The whole basis of Marx's theory was the notion that while a laborer puts in, say, 10 hours of work a day, the food, clothing and housing required to keep him alive for that day requires something less than 10 hours to produce--say, 8 hours. So, since the labor theory of value dictates that you pay for things in proportion to the labor required to produce them, the capitalist pays wages equivalent to 8 hours of labor (the cost of "producing" a day's worth of labor power) and in return receives 10 hours of labor. In Marx's world, it's only this unique property of commodified labor--that it gives the purchaser more in value than it costs to purchase--that makes profit possible.
Dsquared also says:
"[Kling] really ought to either note that Marx's analysis of the wage-labour relation did not differ in any important particular from that of Adam Smith, or (preferably) to shut up about it."
Smith believed in the labor theory of value, yes. But where did he provide an "analysis of the wage-labour relation" that draws the same conclusions as Marx? I'd be interested to read it, if you can point me to the appropriate chapter.
Posted by: CMN on January 30, 2003 7:42 PM"PJ: the effets of an increase of the minimum wage on wages and employment are lots more complex than what's suggested in a simple supply/demand model."
That's absolutely false. A so called "simple supply/demand model" is always of paramount importance. The book you cite "Myth and Measurement: The New Economics of the Minimum Wage" by David Card and Alan B. Krueger, is only able to contend that up to now the national minimum wage law has not impacted negatively on employment rates. Common sense dictates, however, that sooner or later, this will not be the case. The only legitimate question is where the line will be drawn. Will it be an hourly wage of $7, $8, $9, or higher? Regardless, no restaurant owner will be able to pay their dishwashers $100.00 per hour and stay in business.
Posted by: David Thomson on January 30, 2003 7:57 PMA few observations:
Regardless of one's understanding of classical growth theory, why does it make any sense to redistribute money away from one economy (or individual) merely because on a per capita basis it is richer than the other?
The 15 largest economies in Europe have a combined population of 375 million, yet they have a combined GDP of nearly $2T less than the US (which also has 80 million fewer people).
To me this suggests that Europe has the labor potential to eclispe the US or at least become equal to the US. Yet, we know that are large part of Europe's problem is its own fault because of the high cost of regulation (compared to the US).
So if Europe is doing everything it possibly could to mitigate endemic problems in its economy (such as lack of cheap real estate), I might be willing to say maybe we should redistribute money to them to fill the gap. Yet, we clearly know that Europe isn't doing everything it can.
Now I've used a non-emotional example of why it doesn't make sense to redistribute wealth. At least I hope no one here is overwhelmed with guilt about Europe's situation.
So why should we feel guilty about Africa's situation or Asia's? I'm not arguing that we shouldn't give them any money at all, I'm just questioning why we should give them money without also asking them to get their house in order.
Let's take India for example. The country clearly turns out an educated class that bar none is the smartest in the world. So why then isn't India's economy also the largest in the world?
I would suggest that it is largely because India's government hasn't done all that it could to reform its economy. Nor has it done all that it can do to make opportunities available to its citizens.
And what about Saudi Arabia? or Egypt? Or Kenya? Nigeria? The Phillipines? Indionesia? Thailand? South Korea? And the list goes on.
In the face of such logic, we (the US) are often told that merely asking other countries to reform is a kind of economic colonialism. And yet, the question stands, why should we unquestionably help those who will not help themselves?
Why wouldn't the same logic also work for the individual?
I find it interesting that dsquared and others have taken the argument down a road where in order for one to participate, one must have extensive knowledge of Marx. While it's certainly noble for one to understand Marxism in its entirety, it is clearly not essential to require it for this discussion unless someone has an axe to grind. Furthermore, I find it odd that Marx has suddenly gained credibility as economic theory when it has been resoundly defeated as an illogical and intellectually incomplete social and political theory.
“While it's certainly noble for one to understand Marxism in its entirety, it is clearly not essential to require it for this discussion unless someone has an axe to grind.”
The radical Left loves to claim that one has no right to speak about their intellectual darlings like Karl Marx, Jacques Derrida, Teilhard DeChardin, or Michael Foucault, unless you have read virtually every single word they have ever written. It’s a form of one-upmanship that dishonestly gets away from the essential point that these clowns really don’t have substantially much to say.
Why is anyone seriously studying Karl Marx? On a priority list of one through ten, Marx rates a negative twenty. A student needs to know something about this disgusting man, and the incredible evil he has caused throughout the world. But there is no logical reason to do any advanced studies on this mediocre individual. There are many other more brilliant economic philosophers and ideas deserving of your attention. This is what should said to someone claiming to be a Marxist scholar: “Dude, you have too much time on your hands. Why don’t you go fishing, play checkers, or do something else that might make some sense? I am afraid that you have essentially wasted your life away.”
Posted by: David Thomson on January 30, 2003 8:47 PMKimon, thanks for the Card/Krueger mention; I was thinking of them when I read the earlier posts about "liberal economics", but couldn't remember any names.
I remember reading about their original study in Reason, and found it online here. Sorry, the tables don't seem to be available online.
I also followed a Google search link to here, where the National Center for Policy Analysis (a conservative group, I'm guessing) has a minimum wage overview highly critical of Card/Krueger.
Not sure this qualifies as controversy so much as some limited debate. I think Card and Krueger will need better data to overcome the effect of other studies (as well as simple logic); I'll put their book on my reading list and see if they found better data. Even if they did, their argument is more that "raising the minimum wage doesn't have much effect" than a direct contradiction of the CW.
I find it interesting that dsquared and others have taken the argument down a road where in order for one to participate, one must have extensive knowledge of Marx. While it's certainly noble for one to understand Marxism in its entirety, it is clearly not essential to require it for this discussion unless someone has an axe to grind.
Yeah, understanding Marx is pretty pointless when you're discussing how Kling apparently doesn't understand Marx.
Regardless of one's understanding of classical growth theory, why does it make any sense to redistribute money away from one economy (or individual) merely because on a per capita basis it is richer than the other?
Krugman doesn't talk about redistributing between economies at all, so I'm not sure of the relevance. For individuals, there's the old thought experiment of a the gold-mining society, where income is based entirely on luck. Obviously life isn't like that, but it isn't 100% Randian self-reliance, either.
On unemployment, my only point was that "the minimum wage increases unemployment" is amazingly at odds with the average person's casual knowledge of the labor market; its not too shocking that someone would have trouble grasping it. Now, if they couldn't figure out why a freeze in Florida increases the price of orange juice.....
Posted by: Jason McCullough on January 31, 2003 2:44 AMCNN: I'll have a look for the reference. Marx cites Smith throughout the relevant section of Capital.
Everyone else: would somebody like to admit that the "obvious", supply/demand model of the minimum wage, is a static, zero-sum model? Please?
Posted by: dsquared on January 31, 2003 2:45 AMWealth of Nations, Book 1, Chapter 6, "Of the Component Parts of the Price of Commodities". Obviously, this isn't a complete exposition of surplus value a hundred years before its time, but a similar concept is there, as noted by Marx in "Theories of Surplus Value". Importantly given that the context of the argument is Kling's claim, Smith in this passage also notes that the surplus value arises from a political-hierarchical structure; the fact that the entire world is owned. This wasn't controversial before about 1830.
---------
[07] ... the whole produce of labour does not always belong to the labourer. He must in most cases share it with the owner of the stock which employs him. Neither is the quantity of labour commonly employed in acquiring or producing any commodity, the only circumstance which can regulate the quantity which it ought commonly to purchase, command, or exchange for. An additional quantity, it is evident, must be due for the profits of the stock which advanced the wages and furnished the materials of that labour.
[08] As soon as the land of any country has all become private property, the landlords, like all other men, love to reap where they never sowed, and demand a rent even for its natural produce. The wood of the forest, the grass of the field, and all the natural fruits of the earth, which, when land was in common, cost the labourer only the trouble of gathering them, come, even to him, to have an additional price fixed upon them. He must then pay for the licence to gather them; and must give up to the landlord a portion of what his labour either collects or produces
--------------------
Yeah, understanding Marx is pretty pointless when you're discussing how Kling apparently doesn't understand Marx.
I thought we were talking about how Kling thinks Krugman is an idiot. While it may be helpful to compare one idiot (Marx) to another idiot (Krugman) in order to establish a relative baseline, I would suggest (and have) that the only reason one would pick Marx would be because somehow they didn't like their chances in the original discussion.
Krugman doesn't talk about redistributing between economies at all, so I'm not sure of the relevance. For individuals, there's the old thought experiment of a the gold-mining society, where income is based entirely on luck. Obviously life isn't like that, but it isn't 100% Randian self-reliance, either.
My point in talking about economies was simple. If an economic theory justifies a purpose for the distribution of wealth amongst individuals shouldn't it also justify the same for aggregate groups of individuals (ie, an economy)? Using the examples that I did was just an easy way for me to highlight the irrationality of the notion that wealth is randomly assigned.
To suggest that executives are rich merely because they are lucky is to suggest that America is rich merely because it is lucky. Yet we clearly know that America is rich because it is less regulated than other economies that otherwise would have a similar probability for generating wealth.
Posted by: Matt Johnson on January 31, 2003 4:24 AMTo suggest that executives are rich merely because they are lucky is to suggest that America is rich merely because it is lucky. Yet we clearly know that America is rich because it is less regulated than other economies that otherwise would have a similar probability for generating wealth.
Hmm, ok. Let's try it:
America is rich because, in addition to having a grand old incentive system for productive inventions and getting those inventions into use, we were the luckiest bastards in human history. We have a continent to ourselves, practically. The only thing we needed to "defend" ourselves from(after 1812) was native americans; their pre-industrial state, and vulnerability to european diseases, let us drive them off all the valuable areas with an amazingly tiny proportion of national output. I'm not particularly sure where the civil war fits in, but note that we only had an army for the bare minimum of time it took to finish it. We also stole 1/3rd of the continent from Mexico, thanks to their weakness on emerging from colonialism, and bought 1/3rd of it at a cut rate from the French, thanks to their interest in funding great power wars.
We have virtually every resource in abundance; coal, iron, wood, oil, farmland, grazing land, you name it, all in a temperate climate. We started out with a population of skilled artisans, little to no disruptive class issues, and we outright stole half of Britain's inventions. To boot, we stole the labor of black americans for 100 years, in a strict sense, and to a lesser extent continued to extract labor at below-market rates (we got a lot more from them than we paid them, that's for sure) for another 100.
By comparision, all of the other nation states started with a losing hand. Add in the two world wars bleeding every last one of the great powers dry, and is it any wonder we're ahead of anyone else? As a particularly amusing analogy, ignoring governments and culture, in a historical game of Civilization, which nation would *you* like to play in 1850?
We have an extremely good history of productivity growth, partly due to culture and partly due to governmen. However, we also had a particularly ludicrous disparity in factor endowments and the other powers made horrible decisions (the Louisiana Purchase, the British fucking up the war of 1812.)
I thought we were talking about how Kling thinks Krugman is an idiot. While it may be helpful to compare one idiot (Marx) to another idiot (Krugman) in order to establish a relative baseline, I would suggest (and have) that the only reason one would pick Marx would be because somehow they didn't like their chances in the original discussion.
Kling made a claim about Marx, dsquared said he was wrong, then there was much discussion of whether Kling was right or not; after all, it's kind of central to his thesis, isn't it?
Posted by: Jason McCullough on January 31, 2003 5:59 AMJason -- you could make almost all the same arguments about Argentina or Brazil. Nor did our growth slow noticeably during periods of hog-wild defense spending. Nor do natural resources seem to be correlated with national wealth -- the reverse, if anything. Any capital created through slave labor was destroyed by the Union troops, especially Sherman, even before we try to calculate the rest of the cost of the war. Black labor was certainly kept at lower wages, but it was also lower-productivity, because blacks were kept in the lowest level jobs and domestic work, which has very low productivity. As for the two wars bleeding everyone else dry -- Japan surpassed them all from a much lower baseline, plus we destroyed them too. The "America stole it" and "America lucked out" models just don't seem to me to have much empirical basis.
Posted by: Jane Galt on January 31, 2003 7:51 AMI note this display of class prejudice:
>> So if someone who has probably never done any academic research and has no reputation on that matter is going to comment on the writing on the economist that the MIT economics department described as the 'preeminent economist of his generation' he should be a bit more humble and make sure he understands what is being described.
The "preminent economist of his generation" being the same guy who made a jackass of himself with a chapter in his book, "Peddling Prosperity", which was titled: "The Economics of Qwerty". And which he had to repudiate in an interview with Lee Gomes in the WSJ.
But even more hilarious, who is better qualified to comment on economics, Those Who Can (and do) build a multimillion dollar business from scratch and retire in their forties (as someone else mentioned, Kling wrote a book about his experience, that is very instructive)?
Or Those Who Can't, but merely teach?
Those of you defending Krugman, do you dispute this statement:
"if the [poor] get more, that leaves less for everyone else." ?
Posted by: Patrick R. Sullivan on January 31, 2003 10:21 AMThe notion that abundant narural resources are essential to, or a guarantor of, national wealth generation is too silly for words, contradicted by so many historical examples to the contrary that it begs one to ask if it really is necessary to list them. First and foremost, culture is the key determinant to wealth generation, and one aspect of American culture that has been observed by outside observers since it's inception is the the unusual degree to which the making of money is highly esteemed in American culture. Yeah, such a focus has it's crass effects, but it is the best predictor of a society's economic output, as long as it is combined with a tradition of relative neutrality in the application of the rule of law. It was not Marxism alone that made Russia backward and poor, and not lack of natural resources, and Jason, there were these fellas known as "serfs" who had their labor stolen from them, right into the 20th century, without greatly increasing national wealth. In fact, state-sanctioned and enforced theft of labor or property is an inhibitor of wealth generation.
Posted by: Will Allen on January 31, 2003 10:40 AMMore of Krugman's disingenuous, at best, claims:
>> "You are one of only a handful of major players selling wholesale electricity. Surely the thought has to occur to you: what would happen to prices if one of my plants just happened to go off line? And when companies act on that thought . . . well, you get the picture."
Krugman wrote that in March 2001, and repeated it in September 2002. And it isn't true. Generating capacity was in use during the worst of the crisis at levels never seen before, even in the drought year of 1994.
More Krugman:
>> And that's the real mystery of the California crisis: how could a $30 billion robbery take place in broad daylight?
>> True, it was always hard to pin down specific acts of market manipulation. Stanford's Frank Wolak ....
>> But the evidence is starting to pile up. First there were those Enron memos.
I selected the above because Frank Wolak specifically said the strategies in the Enron memos had either nothing, or very little, to do with the crisis. They were garden variety arbitrage strategies used not only in California, but elsewhere in the U.S. Krugman knows this, because he referenced Wolak's study in a piece on his website.
So, why is Krugman lying?
Posted by: Patrick R. Sullivan on January 31, 2003 10:44 AMFor all you conspiracy buffs, here's what Frank Wolak had to say about the Enron memos:
...the vast majority of the strategies described in sufficient detail to
understand them are *standard arbitrage strategies* that were known to the
independent market monitoring committees for California ISO and Power
Exchange well before the summer of 2000.
Power markets are not fundamentally different from common stock, commodity,
and foreign exchange markets. Traders in financial markets constantly
attempt to earn profits from arbitraging differences in the prices for same
product across time, space and maturity. .. Because 1 kilowatt-hour (KWh) of
electricity contains the same amount of energy regardless of which firm
produces it and the cost of transporting electricity over very long
distances is extremely low, we would expect that there are many
opportunities for power traders to earn profits from arbitraging small
differences in electricity prices across locations in the transmission
network.
[First ]..versions of most of these strategies exist in the wholesale
electricity markets operating in the eastern US.
Second, none of these strategies *involved zero risk* on the part of the
trader executing them. For example, a trader would lose money from buying
energy in the day-ahead market and selling it in the real-time market if
contrary to the trader's expectations, the price in the ISO's real-time
market was less than the price in the PX's day-ahead market, a circumstance
which often occurred in the California market.
Third, all of the arbitrage strategies described in the Enron memos were
available to all buyers and sellers in the California market. Like all
arbitrage strategies, as more market participants gained experience
participating in the California market, their profitability most likely
declined.
An argument can even be made that many of these strategies *enhanced the
efficiency* of the California electricity market. ..
The above logic implies that the strategies described in the Enron memos
are, at best, a small part of the cause of the California electricity
crisis. ..
----------endquote-------->>
D^2: Everyone else: would somebody like to admit that the "obvious", supply/demand model of the minimum wage, is a static, zero-sum model? Please?
Well, the usual model isn't static, since we're (at minimum) looking at before and after. I haven't heard anyone suggest that the total wages to all minimum wage workers remains unchanged (is that the zero-sum you mean?), ie a minimum wage raise from $5 to $6 leads to firing of 1/6 the workers (ie, 5/6 get raises, 1/6 lose jobs, total wages remain constant).
One of the criticisms of Card/Krueger is that they may be missing some of the dynamic changes, such as fast-food restaurants that close shop.
The standard minimum-wage model, as I understand it, says lowest-productivity workers will be fired (or never hired) as the incentives shift to hire more productive workers, or to replace workers with capital (eg, instead of two people cleaning your McDonald's, you hire one with a cleaning machine). This would presumably happen over time, perhaps over a year or more, as various businesses adjust.
Posted by: PJ/Maryland on January 31, 2003 10:59 AMPatrick,
You provided selective quotes from Krugman, and I know very little about energy so I am just asking some clarification questions here.
I read throught Wolak's congressionsal testimony on Enron ftp://zia.stanford.edu/pub/papers/commerce.senate.test.pdf
and I came across the section under the title "Market Power, Market Manipulation and the California Crisis" on page 6. This section, in which Wolak describes firms exercising what he calls 'unilateral market pricing power' sounds exactly like what the first passage of Krugman you quote is. Wolak points out that this is not illegal under U.S. anti-trust law, so it is wrong if Krugman claimed it was illegal. But Wolak concludes that unilateral market power was the 'cause of the unjust and unreasonable [sic]in electricity prices". I don't see why generating capacity being higher than the drought of 1994 has anything to do with it, by 1999 Silicon valley had a lot more people and a lot more companies, as did the rest of the California economy so demand would be MUCH higher wouldn't it? So I guess I don't understand how you say Krugman lied about this when his words seem to match word for word, Wolak's description of what happened, unless of ocurse Krugman called it illegal.
The last three quotes were incomplete so I have no idea what you were getting at. Wolak does conclude that Enron's trading strategies were legitimate but it is not as clean as you would like it to be (of course not!). On page 6 of Wolak's memo he informs us that the strategies that 'were described in sufficient detail to understand them' in memos were standard arbitrage strategies, and that 'some of the strategies outlined in the Enron memos may be violations of market rules or illegal under U.S. anti-trust law but it is difficult to tell for sure because of the incomplete and sometimes inconsistent descriptions given in the memos'.
Not exactly as cut and dry as your selective reading may like us to believe. But as I said, I know nothing about energy markets and perhaps someone who knows more about energy economics perhaps at DeLong's site can tell us more.
Wow, Patrick, now you are dragging out the QWERTY brush to tar Krugman as being an idiot, oh excuse me a 'jackass'. The economics of QWERTY was a famous economics papers written by Paul David, who is now an eminent historian at Oxford. For a long time QWERTY was accepted wisdom in the field, Liebowitz and Margolis' paper destroyed the conventional wisdom as good researchers do. I don't know what interview you were talking about, but a quick Google search produced the following Lee Gomes piece:
http://www.elmhurst.edu/~darrinh/eco210article15.html
in which it certainly sounds like Krugman thinks that Liebowitz and Margolis are right, but Paul David does not seem to still buy their story. So Krugman is a jackass because he changed his mind when someone made a more convincing economic argument that showed conventional wisdom on QWERTY was wrong?
Phew, I hope you are not a professor for teh sake of your students! Oh, wait, I forgot, only those who don't understand economics teach and write columns. Those who do truly understand economics build companies from scratch and presumably, issue scathing rebukes of economists on random blogs.
Jason,
You usually make some pretty good points, and you keep the conservative/libertarians on the forum (like me)honest.
But your argument that America "got lucky" is just plain crazy. It makes you sound like the worst sort of ecomomic populist. It is the kind of thing Ross Perot would say.
Posted by: Mike Plaiss on January 31, 2003 11:27 AMI agree with PJ on the minimum wage thing. Card and Krueger's piece got a lot of press because it showed that minimum wages did not seem to cause much job loss. But even if the results hold up, it can only be an aberration in talking about small increases in minimum wages. The living wage stuff is not talking about small changes in wages, and is in my opinion extremely counterproductive.
Posted by: achilles on January 31, 2003 11:29 AMachilles,
Krugman wrote several pieces over time on the CA crisis. His very first one explained pretty well what happened and, more importantly, how to solve it.
Several of the following ones focused on different aspects of the CA crisis including the botched deregulation.
On march on '01 he explained what is now widely acccepted as the main explanation of the crisis, the exercise of market power. Nobody really debates that. In fact Wolak is one of Krugman's main sources and Krugman credit Wolak in his web page (Wolak and Krugman were colleagues in Stanford a few years ago). You may be interested in this.
Posted by: GT on January 31, 2003 12:40 PM
The following item may be interest:
“But the Card-Krueger study compiled its data through a telephone survey of fast-food joints -- a method that may not produce the best results if the fellow at the other end is answering questions while hovering over the deep-fat fryer. In fact, as the Employment Policies Institute points out, "[t]he data set used in the New Jersey study bears no relation to numbers drawn from the payroll records of the restaurants the New Jersey study claims to cover."
“To be specific, after economists David Neumark and William Wascher recreated the study using information drawn from actual payroll records rather than a chat with a teenager in a paper hat, they found that "the New Jersey minimum wage increase led to a 4.6 percent decrease in employment in New Jersey relative to the Pennsylvania control group."
http://www.free-market.net/spotlight/regulation/in-depth/
Sooner or later mandated higher wages will force employers to seek alternatives. It's merely a question where the line will be drawn. One can employ all the macroeconomic jargon they so desire, but reality has a way of squashing such dream world theorizing.
Posted by: David Thomson on January 31, 2003 3:52 PM"To boot, we stole the labor of black americans for 100 years"
Slavery did not enrich America, but hindered its economic development. The reliance on coerced low cost laborers discourages investment in more efficient machinery. It is analogous to the frog who is unaware of being boiled alive because the cooking process is slow and gradual. The South would have been far wealthier if it had never permitted slavery. Furthermore, making it illegal to educate the slaves considerably worsened the situation. What can be dumber than to outlaw the education of so many of those residing within your territory?
A slave nation is inherently a poor one. Any wealth it generates will be restricted to a mere small handful of its leaders. The middle class will be very small, or even nonexistent.
Posted by: David Thomson on January 31, 2003 4:09 PMachilles, I would suggest you take it up with the guy who raised the credentials issue. All I was doing was pointing out how he betrayed his prejudices in so doing. But, since you asked:
>> The idea that Krugman, or any other top economist for that matter, is no better than the average graduate student on topics he has not written on is simply ludicrous.
The above is why I brought up the QWERTY issue. Not only was Krugman not "better than the average graduate student" on this, he was inferior to someone with no economics degree at all; namely me. The first time I heard of this particular urban legend, alarm bells went off immediately. Why didn't they for a John Bates Clark medal holder?
BTW, do you find it as amusing as I do that Paul David (and Brian Arthur, and their acolytes) is now claiming that it doesn't matter that the typewriter keyboard story has turned out to be false, yet hasn't bothered to re-name his paper along the lines of "Clio and the Economics of 'A Market Failure To Be Named Later'"?
Posted by: Patrick R. Sullivan on January 31, 2003 4:16 PM
" The reliance on coerced low cost laborers discourages investment in more efficient machinery. "
So... in other words, making labor more expensive provides incentives to invest in more efficient machinary. So, if we want to increase productivity, we should... raise the minimum wage! Thanks, David, I couldn't have put it better myself...
Posted by: jimbo on January 31, 2003 4:21 PMPatrick,
A couple of responses to your last post:
1) The quote you seem to attribute to me about the relative knowledge of Krugman and graduate students was NOT made by me.
2) I am impressed that reading about QWERTY set of alarm bells immediately in your mind even before you had read the Liebowitz/Margolis paper. My understanding was that Paul David's piece was conventional wisdom for a while until the new paper came along, but maybe those economists were just not seeing the obvious. Typical.
3) I still don't understand how you can claim that Krugman was going against conventional wisdom when he wrote the QWERTY piece given what conventional wisdom was. I know nothing about this but was there a firestorm of articles in 1994 pointing out that Krugman was an idiot for putting that in his book? He has clearly changed his mind now, once the Liebowitz/Margolin argument has sunk in - as the article I posted made clear.
4) I completely AGREE with you that it is embarassing that Paul David has not acknowledged that his original piece now seems to be in serious disrepute. Which is why I found it curious that you initially ripped on the guy who recognized that the new research was correct and left the guy who refused to acknowledge it alone.
Posted by: achilles on January 31, 2003 4:37 PMJason -- you could make almost all the same arguments about Argentina or Brazil.
Brazil's jungle-heavy geography isn't anywhere near as good; virtually the entire population lives in 10% of the country. Argentina's a good counter-example; they basically screwed up their government and suffered for it. That still doesn't change my point that we have the *best* factor endowments, and all other things being equal, you'd expect the nation with the best endowments to be the richest.
The "America stole it" and "America lucked out" models just don't seem to me to have much empirical basis.
Wow. I thought "the US had the best factor endowments on earth, and it's part of the reason we're richer than everyone else" would be about as controversial as "the sky is blue." Apparently not.
The above is why I brought up the QWERTY issue. Not only was Krugman not "better than the average graduate student" on this, he was inferior to someone with no economics degree at all; namely me. The first time I heard of this particular urban legend, alarm bells went off immediately. Why didn't they for a John Bates Clark medal holder?
Maybe if "alarm bells went off," you should have submitted a paper saying so. Certainly no one else did for a few years.
Krugman wrote that in March 2001, and repeated it in September 2002. And it isn't true. Generating capacity was in use during the worst of the crisis at levels never seen before, even in the drought year of 1994.
Ah, yes, *online* generating capacity was in use at a "rate never seen before", but what about the dog that didn't bark? In Figure 8 of this chart from FERC, between April 2000 and April 2001 the number of megawatts offline went from about 3000 (trendline) to 15000. No doubt the remaining capacity was 100% in use; these two data points together are entirely consistent with the market manipulation model Krugman reiterated from Wolak.
A slave nation is inherently a poor one. Any wealth it generates will be restricted to a mere small handful of its leaders. The middle class will be very small, or even nonexistent.
Maybe true, but we had slavery and got a middle class, didn't we?
Posted by: Jason McCullough on January 31, 2003 4:41 PMSo... in other words, making labor more expensive provides incentives to invest in more efficient machinary. So, if we want to increase productivity, we should... raise the minimum wage! Thanks, David, I couldn't have put it better myself...
Well, yes, as a matter of fact, it would be quite effective, if you don't mind throwing large numbers of the least employable out of work...
Posted by: Rand Simberg on January 31, 2003 4:50 PMwow - 103 comments so far. Is this a new record for most comments on a single Jane Galt article?
Speaking of, I don't know how many of you were on the Internet back in '91, but the Gulf War was a watershed moment for the Internet, particuarly IRC (internet relay chat). There were many people on the ground in the middle east who fed back their experiences in real time using IRC.
I'm certainly not proposing that we go to war merely because it would be cool for the blogosphere, but one has to wonder: given the role that it has already played in helping the nation come to grips with understanding 9/11, will war with Iraq transform the blogosphere to an even more important medium? (just as the first war did with IRC).
Posted by: Matt Johnson on January 31, 2003 4:50 PMwow - 103 comments so far. Is this a new record for most comments on a single Jane Galt article?
Speaking of, I don't know how many of you were on the Internet back in '91, but the Gulf War was a watershed moment for the Internet, particuarly IRC (internet relay chat). There were many people on the ground in the middle east who fed back their experiences in real time using IRC.
I'm certainly not proposing that we go to war merely because it would be cool for the blogosphere, but one has to wonder: given the role that it has already played in helping the nation come to grips with understanding 9/11, will war with Iraq transform the blogosphere to an even more important medium? (just as the first war did with IRC).
Posted by: Matt Johnson on January 31, 2003 4:51 PM“So... in other words, making labor more expensive provides incentives to invest in more efficient machinary. So, if we want to increase productivity, we should... raise the minimum wage! Thanks, David, I couldn't have put it better myself...”
Yup, that’s definitely true. This is why I am somewhat ambivalent about minimum wage laws. I am sure that there are many instances where long run productivity gains will occur if we mandate higher minimum wage laws. A restaurant owner that shies away from purchasing the super duper dish washer may very well do so once the law mandates that they must pay a worker $15.00. Sooner or later, the lower educated worker will be unable to earn even a modest living.
Posted by: David Thomson on January 31, 2003 4:51 PMSelf service would also become more of the norm. A restaurant owner compelled to pay waiters $20 per hour will most assuredly get rid of them. This will result in more cafeterias. Also, a theater owner legally obligated to pay ticket window personnel an exorbitant amount of money will likely sell tickets only by machine. Is this what you want? be careful what you wish for---you might get it!
Posted by: David Thomson on January 31, 2003 5:02 PMI agree that lower-productivity jobs will be lost in the short term, but it is unclear to me why those workers whould be unemployable in the long term. (I would refer you to Krugman's old Slate piece on hotdogs and buns...) Total employment depends on aggregate demand, which is determined by monetary factors, not technical ones. Higher minimum wages (widespread ones - not "living wages" in local jurisdictions, which only serve to move jobs to lower wage adjoining jurisdictions) would, given monetary policies to maintain full employment, have two effects: redistribution of income toward lower-producitivity workers, and an increase in overall productivity. It's possible to go too far, of course - set too high, you would get inflation and other bad effects, but you could find a balance.
Posted by: jimbo on January 31, 2003 5:12 PM"I agree that lower-productivity jobs will be lost in the short term, but it is unclear to me why those workers whould be unemployable in the long term."
The worker would not unemployed in the long run---if they acquire further education. However, that might be the rub. Dishwashers are usually marginally to functionally illiterate. What will they do in the meantime while they attend the necessary classes? Also, what does the mentally challenged individual do? I’m sorry that I make life so difficult for everyone. There’s just some things you better think about right here and now.
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