We have had a sighting of an man employment eating beast right here in North America! And this one doesn’t seem to have the tail of poisonous spines or multiple rows of teeth.
And what is this vicious creature? A reduction in the minimum wage. Paul Krugman castigates the Focks news crowd for thinking that lowering the minimum wage might expand employment. No longer is it OK to recognize that labor demand curves, like every demand curve in human history, is downward sloping. To say that a labor demand curve is downward sloping simply recognizes that when the cost of employing workers increases, firms reduce how much labor they use, and therefore when the cost of employing workers falls they use more workers.
Apparently when you win the Nobel Prize you get to call people who understand this knuckle dragging economic luddites. Why? He argues that while this may in fact be true for any particular firm or sector of the labor market, it is not true for the entire labor market.
Note that I have a PhD in Labor Economics and I am confused.
Krugman argues:
But if everyone takes a pay cut, that logic no longer applies. The only way a general cut in wages can increase employment is if it leads people to buy more across the board. And why should it do that?
For the record, before I begin, let me say that I am not all that obsessed with employment – I’d prefer a world where I had the same goods and services I command now and had the opportunity to work less – employment for the mere sake of it is not desirable. Further, I do not think the magnitudes in this discussion are all that economically relevant, but being as I believe the minimum wage is a violent, ineffective and immoral policy, I would favor abolishing it even if the “benefits” of doing so did not materialize in a macroeconomic sense. OK, so where does that leave us? In perhaps increasing order of importance:
My point is that you do not need to see an increase in output across the board in order to see an increase in employment. And Krugman himself (or so I thought) was a fan of digging ditches – so wouldn’t this be an attractive option? To think of this another way, up until very recently the grass on the grounds near the Taj Mahal was cut by women using very sharp shears, by hand. Today, that same amount of grass is cut, but far fewer people (thankfully) are employed doing it, and that is because the relative cost of labor and capital have changed.
Truth be told, I really don’t have much of a clue what he is talking about. For someone who is such a great communicator (I mean that sincerely, right now I am reading his excellent book, “The Return of Depression Economics“) I really can’t make up from down out of that post. Perhaps they will take away my PhD for publicly admitting this – maybe I should just believe the great one, he does sing such a beautiful song, with all that stuff about real balances, outside money, traps, and the like … but …
Like the legendary manticore:
Manticores have a melodious call, like the lower notes on a flute blown together with a trumpet. Despite the beauty of the sound, most animals know to flee when they hear it. Humans would do well to follow their lead.
Thanks, Wintercow. I had not known what a Manticore was.
Of course Paul Krugman has not the slightest idea of what it means to employ anyone, another reason to suspect that his writings are worthless babblings.
Paul thinks that by raising the minimum wage that everything else that is tied to it will somehow benefit the working class, or the class that is hardly working. He is stuck in his ideology. If you were spared some of that, I’m happy, but I’m sick of it. He refuses to move on beyond 1969.
What’s more, he’s consistently been wrong, making himself a good indicator of what the future holds.
Save your analysis in your achives, so I can quote it in my book.
Or save it for your book.
Sadly, imho, Krugman long ago ceased to be a legitimate and trustworthy source of economic logic. He’s now little more than a leftist, statist shill. Though it is scary that he has so many followers.
I think it’s funny to watch the response of the blogosphere every time Krugman claims demand curves slope upward. He does it on a fairly regular basis, and every time everyone writes an article refuting him. You, Sumner, Cowen, Mankiw, and the other Rizzo all get quite excited. Krugman’s defenses of free trade earlier in his career were quite good, but his macro leaves something to be desired.