Thursday, June 12, 2014

Thomas Piketty; reactionary

Proving once again that it's always a good idea to read the book from which you're supposedly quoting;
Thomas Piketty, the economist and author of Capital in the Twenty-First Century, has ignited the economic left in a way that hasn't been seen since the first flames of the Occupy movement. The nerdy, unassuming Frenchman has become the patron saint of the class struggle. 
But did everyone read every page of Piketty's entire 600-page tome before quoting it?
Nope, if Seattle's new minimum-wage law is any evidence. 
Of course, it's doubtful that the authors of Seattle's minimum wage ordinance read much of anything to the right of Leon Trotsky.
The authors of the law were happy to welcome Piketty, the economic data-cruncher and rockstar, warmly into the fold, giving him a quote and a compliment right at the top of the Seattle ordinance
Whereas, the noted economist Thomas Piketty wrote in his landmark book Capital in the 21st Century, the need to act on income inequality as "[r]eal wages for most US workers have increased little if at all since the early 1970s, but wages for the top one percent of earners have risen 165%, and wages for the top .1% have risen 362%"
One problem: Piketty didn't write that. It appears nowhere in his book. That quote, and those numbers, are from Paul Krugman, in the New York Review of Books, in his analysis of Piketty. Maybe it's the case of potato-potahto: if you've seen one rock-star economist, you've seen them all. 
And, what Piketty actually did write shows that he knows Seattle is on a self-destruct mission; seems likely that the increase in minimum wage of nearly 25% (from $7.25 to $9 an hour) currently envisaged by the Obama administration will have little or no effect on the number of jobs. Obviously, raising the minimum wage cannot continue indefinitely: as the minimum wage increases, the negative effects on the level of employment eventually win out. If the minimum wage were doubled or tripled, it would be surprising if the negative impact were not dominant.
 Iow, Adam Smith had it about right, prices (wages) are determined by the interaction of supply and demand. And besides, minimum wage laws are a lousy way to help the poor;
The best way to increase wages and reduce wage inequalities in the long run is to invest in education and skills. Over the long run, minimum wages and wage schedules cannot multiply wages by factors of five or 10: to achieve that level of progress, education and technology are the decisive forces. 
Thomas, Thomas, he's your man, Seattle!

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