Friday, March 6, 2015

Book Review Paul v. Op-ed Paul

The irrepressible Robert Murphy finds another example of Nobel laureate Paul Krugman contradicting himself over government interference in labor markets; This time from Paul's 1998 review of a book, Living Wage: What It Is and Why We Need It by Robert Pollin and Stephanie Luce. In it, Krugman amply demonstrates why he used to be such a good economist (before his paychecks were signed by the New York Times);
The standard economist's solution [to income inequality], which is also the main way the U.S. welfare state operates, involves "after-market" intervention: Let the markets rip, but then use progressive taxes and redistributive transfers to make the end result fairer. However, many liberals have always felt that this solution is unsatisfactory. Instead, they want to increase "market" wages, notably through support of collective bargaining, and through the imposition of minimum wage standards.
Of which, the Living Wage advocates are the latter. Krugman the economist knows what will happen then in the market for lower skilled labor; the higher wages will make it more difficult for sellers of that labor to find buyers (i.e. fewer will find jobs, so the unemployment rate will increase). And he isn't having any of that Card-Krueger sophistry;
...much-cited studies by two well-regarded labor economists, David Card and Alan Krueger, find that where there have been more or less controlled experiments, for example when New Jersey raised minimum wages but Pennsylvania did not, the effects of the increase on employment have been negligible or even positive. Exactly what to make of this result is a source of great dispute. Card and Krueger offered some complex theoretical rationales, but most of their colleagues are unconvinced; the centrist view is probably that minimum wages "do," in fact, reduce employment [our bold], but that the effects are small and swamped by other forces.

What is remarkable, however, is how this rather iffy result has been seized upon by some liberals as a rationale for making large minimum wage increases a core component of the liberal agenda--for arguing that living wages "can play an important role in reversing the 25-year decline in wages experienced by most working people in America" (as this book's back cover has it). Clearly these advocates very much want to believe that the price of labor--unlike that of gasoline, or Manhattan apartments--can be set based on considerations of justice, not supply and demand, without unpleasant side effects. This will to believe is obvious in this book: The authors not only take the Card-Krueger results as gospel, but advance a number of other arguments that just do not hold up under examination.
But now it's not 1998, and Paul's will to believe has overwhelmed his professional integrity. His NYT Op-ed contains this gem;
What’s the evidence? First, there is what actually happens when minimum wages are increased. Many states set minimum wages above the federal level, and we can look at what happens when a state raises its minimum while neighboring states do not. Does the wage-hiking state lose a large number of jobs? No — the overwhelming conclusion from studying these natural experiments is that moderate increases in the minimum wage have little or no negative effect on employment.
Book Review Paul said, minimum wages "do" in fact, reduce employment.  Op-ed Paul says, moderate increases in the minimum wage have little or no negative effect on employment. To so conclude, Paul has to ignore significant, and recent, economic studies to the contrary.

Op-ed Paul's big finish is;
Raise minimum wages by a substantial amount; make it easier for workers to organize, increasing their bargaining power; direct monetary and fiscal policy toward full employment, as opposed to keeping the economy depressed out of fear that we’ll suddenly turn into Weimar Germany. It’s not a hard list to implement — and if we did these things we could make major strides back toward the kind of society most of us want to live in.
The point is that extreme inequality and the falling fortunes of America’s workers are a choice, not a destiny imposed by the gods of the market. And we can change that choice if we want to.
While Book Review Paul's was;
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. And it is for that reason, rather than the practical details, that the broader political movement of which the demand for a living wage is the leading edge is ultimately doomed to failure: For the amorality of the market economy is part of its essence, and cannot be legislated away.
But that was when Paul was an economist.

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