Krugman forgets his own past?
Today Paul Krugman wrote… Link
“Many economists used to think of the labor market as being pretty much like the market for anything else, with the prices of different kinds of labor — that is, wage rates — fully determined by supply and demand. So if wages for many workers have stagnated or declined, it must be because demand for their services is falling.”
Here is what Paul Krugman wrote in 1998 to undermine the living wage movement… Link
“In short, what the living wage is really about is not living standards, or even economics, but morality. Its advocates are basically opposed to the idea that wages are a market price–determined by supply and demand, the same as the price of apples or coal.”
It appears that Paul Krugman is one of the economists who he says used to think that wages are pretty much determined by honest supply and demand. Does he realize that he used to think that way?
“Until the Card-Krueger study, most economists, myself included, assumed that raising the minimum wage would have a clear negative effect on employment.”
“many liberals have changed their views in response to new evidence. ”
Yes, he does.
“Paul Samuelson, the Nobel laureate from the Massachusetts Institute of Technology, recalled that John Maynard Keynes once was challenged for altering his position on some economic issue. “When my information changes,” he remembered that Keynes had said, “I change my mind. What do you do?””
Are Workers People? (Views Differ)
“…our understanding of wage determination has been transformed by an intellectual revolution… workers are people” — Paul Krugman
Sometimes Krugman impresses. Other times, he leaves me slack-jawed in amazement. It is as if economics only started with the so-called rigor of the Lucas critique and microfoundations. Miracle the U.S. enacted the FLSA back in 1938, 55 years before they discovered that workers are people.
““Many economists used to think of the labor market as being pretty much like the market for anything else, …”
Let me fix that :
“Many supply-side economists used to think of the labor market as being pretty much like the market for anything else, …”
Good to know that some of the old supply-siders , like Krugman , have realized that labor’s wages are also a pretty important demand-side component.
Something tells me DeLong still has nagging doubts , though…..
Back in 2005 during Bush’s Social Security Tour, during which he got some pushback by Krugman and of course others, people loved to drag up a quote by PK from 1994 or so where he totally endorsed Social Security ‘crisis’. Ha, ha!!
But actually if you went back and read the Reports from 1994 or whatever year you found that the data and projections at that point totally supported the crisis narrative and had Trust Fund Depletion happening in the early 2020s. But 1996 that had been revised to the mid-late 2020s and by 2005 all the way into the early 2040s (SSA) or late 2040s (CBO).
That is based on a standard of ‘best available information’ PK was right to say “Social Security is in crisis ” in 1994 and just as correct to call out that same judgement by the Bushies in 2004 as being bullshit. The projections changed and so too did the judgement.
Interestingly the outlook for Social Security actually deteriorated significantly from 2004 to 2014. We are not nearly back to the dire projections of 1994 but in retrospect my confidence in the future of SocSec as expressed back in 2005 is much more qualified today. For example back then I thought the kind of proposals that led to the development of the “Northwest Plan for a Real Social Security Fix” were at best premature. Four years later I was contributing to that development. And I am willing to modify that further on release of the 2015 Report on Wednesday.
So as far as PK goes: “What Joel said”. Which is to say “What P. Samuelson said that Keynes said”.
“Until the Card-Krueger study, most economists, myself included, assumed that raising the minimum wage would have a clear negative effect on employment.”
Problem with the Samuelson argument is that the Card-Krueger study came out in 1993 and the first Krugman quote cited above was from 1998 when he described the study as “iffy”
In the 7-17-15 NYT opinion page Mr. Paul Krugman says that advancing technology is changing the demand for labor. ( See Martin Ford “Rise of the Robots”…As the wages of recent college grads has been flat for the past 15 years. Wage raising has become a social experiment of “other” gained attributes such as moral boosting, lower turn over rates and increased productivity that often more than off sets the higher labor cost. Often allowing worker greater “ownership” by choosing a good wage-compensation strategy or a (Hoshin Kanri) business strategy…Often productivity increases if compensation is tied to a profit sharing strategy that allows for greater employee “buy ins”.
two things, neither of which may hold up under further analysis:
the Krugman quotes by Lambert do not support Lambert’s conclusion. both quotes are hedged in the kind of language that could mean “others have thought”…not “i think.” or even “i thought”.
second…. Dean Baker wrote about Krugman’s conversion on the SS numbers. it had more to do with Krugman revising his “back of the envelope” calculations and realizing he had been led down the primrose path than by any objective change in the SS situation.
Labor market version of supply and demand — don’t forget (usually forgotten) WILD LEVERAGE:
If a retailer lives on 5% profit and raises prices 5% which in turn loses 5% of sales then the retailer ends up back in pretty much the same place — because the retailer is working from profit on gross income (100%).
If a labor union forces the retailer to raise prices 5% which in turn loses 5% of sales then the labor union is way ahead — because labor (in this example) represents only 10% of retailer costs. Total sales drop 5% but labor’s price is up 50%.
OTH, if the retailer can squeeze (unorganized) labor back to 5% of costs while maintaining the same price level then the retailer will double his (formerly 5%) profit.
Note: “titanic” labor price struggle can happen completely out of sight of the consumer market — causing barely a ripple — 5% up in price; zero down. Curiouser and curiouser.
Don’t forget LABOR’S DESPERATION:
Labor has a product that it has to sell every day or it evaporates. Labor has to sell or laborers will evaporate so to speak — be reduced to sleeping in the street and picking food out of dumpsters.
GIVEN THE WILD LEVERAGE INCENTIVES FOR BUSINESSES TO SQUEEZE LABOR AND LABOR’S WILD DESPERATION some kind of legal/social mechanism is needed to keep labor’s supply and business’ demand (really consumers’ demand when thinking about setting prices) in more even balance of market power — something that has been around for a long time in fair and balanced economies around the world and used to be equally prominent here: labor unions.
How to rebuild this counterbalancing mechanism in the USA — against supposedly implacable oppostion? Couldn’t be simpler or easier. Organizing laws are already in place — have been since early last century — just have to give them “dentures.” What other kind of market arm breaking is not penalized heavily by law? Just have to make union busting a felony. Simple as that. Everything else will fall into place (politically as well as economically).
Our time has come. Pew poll reports 55% of Americans under 30 years of age approve of labor unions — only 29% disapprove. Among Republicans under 35, approval edges out disapproval 45% to 44%. The propaganda hasn’t worked – the hour is ours.
http://prospect.org/article/what-made-difference-gawker-boss [fourth paragraph]
Just one progressive state has to make this vicious market warping practice a felony and state and federal RICO will be enabled. The idea — once somebody raises it out loud — should spread like a grass fire. I am trying to interest journalists, unions, anybody who might listen, even churches in key primary states by spam campaign, Best I can do from my old codger terminal.
Dennis D – A felony charge?
To me, the biggest challenge to unions in 2015 is the TPP. Obama has gone to the mats to get fast-track on this. There is a good likelihood that TPP will become law before Obama leaves office.
You think Obama should face a felony rap for this?
No, and I don’t envision businesspersons being chained together, dragged into court like a scene from Lucky Luciano’s trial in the 1930s. Being free to unionize (in reality) could work out the way anti-racial discrimination worked: big firms had no way to evade; little businesses who nobody was looking at who could play games. But you’re changing the culture. Also, when the biggies and others get unionized the smallies will have to worry about giving their own guys the same deal.
“The biggest challenge to unions”? What unions?
But, I’m so glad somebody picked up on the all-important topic of making union busting a felony (you did — sort of). Anybody else — everybody else? — want to get going on this pivotal issue. I would call it “the defining issue of our time?”
i have been on your side for a long time.
but i have no more luck than you selling my defining issue.
and krasting is right, unions were busted by the economics of our times. the unions could have fought the politicians and bosses and won. they did it before.
but the economics of the “strong dollar” beat them. and the “trade agreement” will put them and democracy in their grave. along with the working man’s hope of being able to retire before he is ready for the rest home.
Keynes may have changed his mind in the face of new information.
Others never understood the information in the first place.
Krugman discovered late that SS was not in crisis, but he still does not understand fundamental nature of Social Security. Neither do others whose minds change from time to time in the face of new ‘information.”
Social Security is insurance paid for by the workers themselves. This saves it, or would if politicians were honest or the people smarter, from attacks by “the rich” who resent paying for someone else’s retirement. The “cost” of Social Security is never more than the reasonable cost of a basic retirement. SS works by “saving” the workers own money, protecting that savings from inflation and market losses, and insuring the workers (with their own money) from personal misfortune including especially the misfortune of never making enough money over a lifetime to save enough to retire at a reasonable age.
The only crisis Social Security has ever been in is the failure of the people to realize they pay for it themselves, and can always pay for it, and must pay for it, and must insist the politicians let them pay for it.
The government’s only role is to protect that savings plan, it does not pay for it.
Changing predictions about the death date of the Trust Fund don’t have a damn thing to do with the “solvency” of Social Security.
” unions were busted by the economics of our times”
They weren’t busted in Western Europe. Different culture I guess. They started out as “Les Miserables”; we started out as the land of opportunity (supposedly). Time to take a reassessment.
according to what i read (Greider: Secrets of the Temple) american companies went abroad, not because of cheap labor, but because the strong dollar made it hard to sell to other countries and easier for them to sell here. i don’t know that Europe would have had the same problem from a strong American dollar.
That was in about 1980. Might be different now.
Europe never would have let happen what happened here: the dissolution of organized labor with the vast majority hardly aware that it was happening. Different culture I suppose.
so, how about dem Greeks?
Coberly in 1994 the Trust Funds were projected to go to Depletion in 2029 with a 75 year actuarial gap up to 2.1% from 1.5% the previous year and up from 0 in 1992.
This move from fully funded to a 23% gap at TF depletion was significant however you want to frame it or however Dean likes to explain Krugman’s before and after reasoning.
sorry, i don’t agree.
a 35 years to depletion projection is meaningless as a matter of principle: the depletion is not the problem. the cost of saving an adequate amount for retirement is the problem. if the TF went to depletion tomorrow and it cost us each an extra 2% or 5% of payroll to make up for the “loss”, we would simply have to do it. Most people would not even feel it. It would not be what we’d want, no more than we’d want to see the price of food go up by 5% next year with no increase in wages. But if it did, we’d simply have to pay it. Same with the price of retirement.
The insignificance of the projection, however, is made manifest by the fact that the projection chanes by quite a bit from one year, or decade, to another. It is just not the kind of “prediction” that one can take seriously. And as Dean said, hearing that it’s going to rain in 35 years is not a good reason to tear the roof off the house.
As for the 2.1% “actuarial gap”, from a 1.5% gap projected the previous year, this is more of the same: a “prediction” about 75 years in the future… nearly meaningless as a prediction, completely meaningless in terms of human needs and “whatever else is coming down the pike that will determine what the “difference” actually means.
As you know the one tenth of one percent raise in the tax each year that the prediciton is “reasonably” close can take care of the expected actuarial gap with no one even noticing it, absent the Big LIe. And even if the actuarial gap had to be filled “immediately and permanently” you are talking about a sixth tenth of one percent of payroll adjustment… something no one would feel, thought they might talk about it for a few months until the people got tired of hearing about it and got on with their lives.
OR you can say, with the Krastings, “Gee, from 1.5% to 2.1%, wow, that’s, let’s see… tap tap tap … that’s a whopping 40% increase !!!”
I call this percent paresis. It’s less than a five dollar per week decrease in take-home pay out of a 40k income. And you get the money back, with interest, when you need it.
It would be a joke if so many serious people didn’t take it so seriously.
(Well, it’s still a joke, but won’t be if they stampede the real people into letting them “fix” Social Security.)
Labor markets are anti-math, at least in the eyes of Proggers. Price elasticity of supply/demand magically change whether the subject is labor income taxes or labor income subsidies.
Then again most Proggers don’t know math.
Yawn . . .
Jay, I guess I don’t know what a progger is, or even what you are getting at.
But I can tell you I spent a career correcting the “math” of those with advanced degrees and professions in mathematical (arguably) subjects.
They generally knew how to go through the algorithms. They just didn’t understand the problem.
When the government provides a wage subsidy, like Medicaid or TANF, Wal-Mart gets the subsidy by paying lower wages than otherwise.
When the government taxes wages, think FICA, Wal-Mart pays the same wage than otherwise and the 42% pay the tax.
These two world views are mathematically incongruous.
When companies pay a fair wage the need for SNAP, Medicaid, CHIPS, etc. goes away. It is pretty simple.
Like a good religious sheeple, yawn away at obvious hypocrisy in your faith-based belief.
You got the wrong person for religion.
I am afraid you have revealed yourself as probably not worth talking to.
But a hint for you: mathematics when you don’t know what you are talking about is playing with yourself.
Run75441, to blind to realize they are as bigoted as the KKK.
“When companies pay a fair wage….”
If the wage is not “fair”, why do so many people accept it?
If they could make more for their labor, why don’t they?
because they have to eat. and the power relationship is generally heavily in favor of the employer,
life is not so simple as Ayn Rand thinks.