Matt Yglesias: Creating Jobs by Cutting Wages
 

@Slate.

Well that's gotta sting.

How do we shoehorn this into the progressive narrative? Matt's freedom of expression at ThinkProgress was compromised by the corporate shackles of Slate?

Re: Matt Yglesias: Creating Jobs by Cutting Wages
 

I didn;t take him to be endorsing this as a solution, merely expanding the definition of the problem.

Wages are kind of a collective action/free rider problem. Most companies depend on some kind of middle class consumer base for their profitability. But each individual company also profits most by paying its workers lower than middle class wages. So a company will be most profitable when it pays its workers low wages and most other companies don't. It's a classic example of free riderism. Simply increasing the number of jobs that don't support the middle class isn't at all a solution to this problem.

Re: Matt Yglesias: Creating Jobs by Cutting Wages
 

Yeah, it sucks, but it's hardly something Matt's never said before or which is going to be surprising to anyone. Maybe in your imaginary world all liberals think protectionism is the way to go and could perfectly cure the problems of competition from cheaper labor in other countries, etc. (see also the claims about immigration, even more common on the right), but that doesn't actually reflect the real world.

Re: Matt Yglesias: Creating Jobs by Cutting Wages
 

So many words used by miceelf and stephanie... but what did they actually say? They were all very good words, some of them were even big and technical (I just love "free rider") but when strung together in sentences they really have no particular meaning.
I guess lots of words signifying nothing pretty much sums up the progressive narrative.

Re: Matt Yglesias: Creating Jobs by Cutting Wages
 

Just as your unapologetic pride in ignorance, and economic myopia sums up the tea party.
Niether world view is helping to reverse the scrapping of our middle class, and both share equal blame for driving us off a cliff, IMO.
I think, however, they are smarter and more empathetic, so I choose to pick on your brand of drivel. Do you actually believe that if you declare that you don't understand something that others will take it as evidence that what was said is meaningless? Perhaps "arrogance in ignorance" is a more descriptive phrase. In any case, Thompson's "fear and loathing" best describes my new perspective on what drives the American political rhetoric of failure.

Re: Matt Yglesias: Creating Jobs by Cutting Wages
 

They actually have very particular meanings. But we agree that you are unlikely to understand the progressive narrative in any form.

Re: Matt Yglesias: Creating Jobs by Cutting Wages
 

Smarter and empathetic? How so? Is this just a feeling you have? because nothing in these posts demonstrates either in my estimation.

What does this mean? It's pretty obvious and uncontroversial that companies will pay people the lowest wage possible. But what the hell does free rider have to do with any of this? It certainly has nothing to do with the article and assumes that companies don't compete with each other on wage assessment.

According to Matt there are two ways to lower wages. One way is the magic of monetary expansion. He favors this because he says this will affect everyone in the economy equally. He, along with all the people who advocate this, say that everyone will feel the pain. But that isn't at all proven and so far hasn't worked. It's just one of those economic theories that people continue to advocate for. The other way is just to lower wages, which he doesn't favor because as he says at the end of the article:

But that's just the progressive line. All one need do is mention favoring wealthy people and it's a dog whistle for progressives. Baaaaad! No one knows for certain how to fix the economy. What is certain is that the political class pretends that it knows and lines up in predictable ways on one side or the other.

See, there's another example of a couple of meaningless sentences. But yes, Gonzo would be my first pick for inspiration and clarity. He kept a tape recording of a woman being gang raped by his bed so he could listen to it in the dead of night. He was a real peach.

Re: Matt Yglesias: Creating Jobs by Cutting Wages
 

I honestly can't think of a simpler way of stating it. Most companies depend on having consumers with some disposable income, i.e., a middle class. Companies that depend, for profitability, on OTHER companies to pay middle class wages while avoiding paying such wages themselves are free riding on those other companies.

Like I said, your not understanding is overdetermined, but the above in case someone out there buys your "I'm just a simple country lawyer" routine.

Re: Matt Yglesias: Creating Jobs by Cutting Wages
 

Lol

Re: Matt Yglesias: Creating Jobs by Cutting Wages
 

Well those sentences are much simpler than your first effort and, I might add, quite understandable. But free riders can't ride free forever unless they want to go out of business. I would point out that the economy is fluid, (sort of, for now). When wages change, prices change. Unless of course there are controls on either or both.

Your second pargraph (sentence) makes no sense to me.

Re: Matt Yglesias: Creating Jobs by Cutting Wages
 

If it were axiomatically true that wage decreases lead to price decreases (it isn't), then that would be an excellent argument against any wage decreases ever. That's because the dynamic that you are describing, in which falling wages lead to falling prices, in turn causes firms to cut hours or lay off workers, meaning that wages will fall still further, causing prices to fall, etc. etc. etc. That's deflation, and it's an absolutely horrible dynamic to have. After all, if money is becoming more valuable while the value of anything you can buy with it is dropping, then people won't spend or invest, the economy will contract, and we'll have mass unemployment with lots of productive resources sitting idle.

Re: Matt Yglesias: Creating Jobs by Cutting Wages
 

Hence the economic powerhouse of Zimbabwe, made great through the miracle of inflation?

Re: Matt Yglesias: Creating Jobs by Cutting Wages
 

I thought you made a broad statement concerning the evil other side:
Inspired by the fear and loathing that each side has for the other... just a feeling I have.
Meaningless? Is that just a feeling you have?
You really know how cut to the essence of an author's body of work.

Re: Matt Yglesias: Creating Jobs by Cutting Wages
 

Yes, because of course the only alternative to my being in favor of deflation is to be in favor of the hyperinflation. Sulla, do you put on a coat when you walk outside and it's cold? Bear in mind that if you say yes, I'll tell you that you're an idiot for doing so, since of course standing inside of a blast furnace will kill you.

Re: Matt Yglesias: Creating Jobs by Cutting Wages
 

No shoe-horning necessary.

Do you ever notice how progressive Keynesians (but I repeat myself :-p) talk about how the monetary authority should purposely strive for a positive rate of inflation to help pull the economy out of recession? Well, the way Keynes himself explained this is that wages are "sticky" such that they more easily go upward than downward. Inflation, he said, would facilitate a lowering of real wages as nominal wages failed to keep pace with inflation.* That in turn would allow for an increase in the returns to the owners of capital and a decrease in the returns to labor that would induce capitalists to hire more workers at the lower real wage.

In essence, what Keynes was calling for — and what many of his modern followers are calling for when they call for inflation — is to increase employment by decreasing (real) wages, based on the theory that current wages are above the market rate for labor, so that there should really be greater returns to capital in order to induce greater employment of labor.


*=[Incidentally, I am not convinced that wages actually have to be sticky in precisely the way Keynes formulates it in order for this dynamic to occur. It is enough that at some margin wage prices are more rigid or labor supply is less elastic than prices/supply for final goods. This can go both ways, and explains why, in a well-functioning banking system, moderate price deflation need not create the deflationary spiral that Don_Zeko talks about down-thread, but can actually shift returns from capital to labor.]

Re: Matt Yglesias: Creating Jobs by Cutting Wages
 

I think that rests on at least two fallacies. First, firms in a particular economic environment may depend on a middle-class consumer base, but firms do not inherently depend on the middle-class. Second, firms are most profitable when they maximize the difference between the cost of their (labor) inputs and the product of those inputs; that can mean that the greatest profits come from very highly paid workers. The incentive of firms are not to pay wages that are lower than middle class earnings, but to pay wages that are the minimum amount higher than the next-most-productive use of their employees' labor.

The story you are telling appears to be one in which middle-class laborers across all sectors are taking home large amounts of rents (payments not needed to induce them to provide their labor for its current use) extracted from employers, without which the middle class would be unable to afford anything like its current basket of consumption goods; and if employers were able to stop those rents from being extracted, then producers of that current basket of goods would cease to be viable.

But I see no evidence whatsoever for that theory, which, at best, holds true only for limited number of sectors mostly corresponding to those with high unionization. I think the reality is that middle class laborers do the lion's share of consumption and investing in this country because they also hold the lion's share of valued productive resources (their labor and their human capital therein) that exists in the economy. Their wages and spending power are not the result of what they have been given, but the result of what they have the power to demand.

It is perfectly easy to imagine an economy (or several thousand years of economies) in which ordinary laborers do not hold the lion's share of valued productive resources — because the resources that command the greatest returns are agricultural lands, or slaves, or monopoly rents or other things held by a small aristocratic minority. Such an economy can hum along quite nicely, producing good returns for firms that produce consumable goods. But the basket of goods that they produce will be the goods that the aristocratic minority wants to purchase, not the goods that laborers want.

Now, it has become reflexive for some to say that you can't have stable consumption based on rich people, because rich people don't spend all of their money the way middle class people do, and so that money doesn't go back into the cycle of production and consumption the way it should. But that overlooks two things. First, consumption is not the sole form of economic transaction — the money that rich people don't consume is either spent on capital goods or is lent out to others who either consume it themselves or invest it in capital goods, all of which cause the money earned by the rich people to continue to cause the full employment of productive resources.

Second, it is by no means inevitable that the rich won't consume all their income — rich people now invest large amounts of money because there are good investments to be had, but history shows us lots of examples of times when there weren't great investment opportunities and rich people just lived extravagant lives, and what they didn't consume themselves was lent to other (over-mortgaged) aristocrats who consumed beyond their means.

I know I must get a bit tedious always railing against the Henry Ford fallacy on these boards, but I think it is really important to stress that capitalism is mostly indifferent to the distribution of wealth, and the distribution of capacity to take future returns, that exists in the society at large. Capitalism won't collapse, eat itself or correct itself, before it produces what we might, for other reasons, regard as highly undesirable distributive outcomes. Which is to say, there are interventions we can make that will produce these outcomes and the system won't cry foul.

Re: Matt Yglesias: Creating Jobs by Cutting Wages
 

I am failing to see the distinction you are making. My point is not that most workers have historically been gettings rents which are now being exposed as corrupt. It is that the balance of power has shifted so that workers have now less power to demand recompense for their labor than they did before. I agree with you that capitalism is indifferent to this, and I hope you didn't take my brief post as a critique of capitalism. I certainly agree that avoiding some horrific outcomes isn't inherently anti-capitalist.

Rather, I am critical of a legal framework that has given corporations all of the rights of personhood and none of the responsibilities, along with an entire political party that believes, contra you, that the way to create jobs is to simply shower corporations and the few wealthy individuals who head them with more wealth; that wealthy people create jobs naturally out of their excess wealth and the virtue that this wealth reflects, rather than that jobs are created from demand for goods and services and a populace living hand to mouth is in a less likely position to demand goods and services (or for that matter, to bargain for fair value for labor).

Re: Matt Yglesias: Creating Jobs by Cutting Wages
 

Hah. I do recall this at the beginning of the The General Theory of Employment. Sounds pretty damn classical to me, but I'm sure Matt has an explanation.

Maybe inflation needs to apply after removing all price controls. Can't be sure but the recent boost in minimum wage seems to have had a large impact on unemployment (in a bad way).

Re: Matt Yglesias: Creating Jobs by Cutting Wages
 

Wasn't your response to modest support for curbing wages to enhance productivity and lower costs that any wage decrease leads to a deflationary spiral?

Re: Matt Yglesias: Creating Jobs by Cutting Wages
 

I believe I've found the source of contention. Mice, your beef seems to be with globalization. Companies ship jobs overseas because it's cheaper to produce, and that pushes down wages domestically. You seem to believe that if Labor had more bargaining power, they'd get a bigger "fairer" wage. Possibly; that's the purpose of unions. But this only works for the short term. For example, you might get the current corporation in your hometown to dole out higher wages because the cost of them to move out of state would be more expensive than staying in-state. But any potential new corporations, aka new jobs, will not come to your state because of the new union presence. High unionization in Michigan meant all the car factories moved out. This is not a matter of opinion. This is plain fact. I'm sure I've mentioned labor arbitrage many times before on this board, but the left seems ever resistant to acknowledge this reality.

This is also the source of Elizabeth Warren's idea that the middle class has been squeezed and pushed and whatever else she says has been done to them. But this brutality of capitalism is what allows more goods and services to be produced by lowering its cost. This high productivity is what allows everyone to have a cell phone in 2011 while only drug dealers had them in the 1980s. But the very ubiquity of increased standard of living gives the impression that one is not special. If anything modern day Progressives are upset with capitalism because it's achieved the promise of socialism -- it provides everyone with the basic necessities of life.

See:
Louis C.K. on everything's amazing and nobody's happy.
America's bottom 20% richer than the rest of the world's 80%.

Re: Matt Yglesias: Creating Jobs by Cutting Wages
 

??? Do you really think the ubiquity of cell phones is at all a compensation for the fact that families used to be able to survive on the income of one wage earner, and now cannot?

Re: Matt Yglesias: Creating Jobs by Cutting Wages
 

No.

Re: Matt Yglesias: Creating Jobs by Cutting Wages
 

It appeared to me that you were saying something different than this when you analogized the wages paid to middle class workers by the producers of middle class consumer goods to a free-rider problem. My point is that there is no free rider problem: if power shifts so that workers have the power to demand less recompense, and members of a higher social class can demand more, then producers of goods aren't stuck hoping middle class consumption was higher but stopped from using wage increases to make it so by a free-rider problem, they will just make products demanded by the higher class.

It seems like there are two distinct criticisms you may be making there. One is that economic growth isn't the result of giving the most productive economic actors better end-results in terms of wealth and money, it is the result of giving them better incentives and opportunities for finding profits. So doling out tax benefits in order to reduce the tax burden of a major company and increase its total revenue, will not predictably create jobs or growth. I, of course, agree with such a criticism.

But I do disagree with the other criticism you seem to be making, which is that the capacity of a particular segment of the population to consume is a necessary condition for the economy to run well. As long as your monetary/banking structure is working correctly, supply creates it's own demand. Even if it isn't laborers, someone is getting the return from production; and no one ever produces anything for nothing, they will demand things in return for that production (even if it is "excess wealth"). A populace living hand to mouth is bad for other reasons, but not because a society in which this occurs is incapable of sustaining full demand for goods and services; it is capable.

* * *

Now, I am also somewhat skeptical of the idea that the relative economic power of middle class has been, or is being, much eroded. (It has recently fallen in absolute terms, but so has the power of all classes, the rich moreso.) But if it is, a significant part of the solution is for members of the middle class to engage in less consumption and more investment, such that they capture some of the purportedly disproportionate gains that have accrued to capital over labor, but also such that they increase the relative scarcity (and therefore power) of labor.

Part of making that happen is to pull back on government interventions that are either aimed at, or had the effect of, increasing current consumption by the middle class at the expense of savings/investment. Such interventions chiefly include our failed housing policies and our misregulation of the financial sector, but they also include stimulus measures and proposed inflationary policy.

Re: Matt Yglesias: Creating Jobs by Cutting Wages
 

How the heck do you get that from this?:

They were all very good words, some of them were even big and technical (I just love "free rider") but when strung together in sentences they really have no particular meaning.

Re: Matt Yglesias: Creating Jobs by Cutting Wages
 

I guess this is probably the heart of it. I think of the middle class as the majority of people, not a niche group.


How, exactly does someone downsized into a minimum wage job, or into a part-time "consultant" job so that their employer doesn't have to pay benefits rustle up the capital to invest? I would certainly grant that such a person is going to consume less, but not clear on where the money is going to come from. Perhaps I am being too literal, but I dont see how this works in practical terms.

Re: Matt Yglesias: Creating Jobs by Cutting Wages
 

Hint: what he was referring to came after the colon you quoted, not before the statement.

Re: Matt Yglesias: Creating Jobs by Cutting Wages
 

How do minimum wage requirements affect the system?

San Francisco just raised it's rate to $10.24 ph. I'm sure there won't be any unintended consequences because of it:

But here's what an unnamed U of C professor (hopefully not of economics) said:

Re: Matt Yglesias: Creating Jobs by Cutting Wages
 

Families haven't been able to survive on the income of one wage earner (or haven't thought they could) for at least thirty years and that was largely due to women entering the workforce in large numbers.

Re: Matt Yglesias: Creating Jobs by Cutting Wages
 

I guess lots of words signifying nothing pretty much sums up the progressive narrative.

no mention of evil there, but thanks for the tip.

Re: Matt Yglesias: Creating Jobs by Cutting Wages
 

I don't know about the economy as a whole, but it seems that if your customers can't buy your product because they don't have enough cash, you will need to lower your prices to keep your business, go after another market or close your doors.

Re: Matt Yglesias: Creating Jobs by Cutting Wages
 

I guess acting like you don't understand the discussion at hand, and pretending there is no shame in it, does have the benefit of getting you off the hook.

Added:
Well played!

Re: Matt Yglesias: Creating Jobs by Cutting Wages
 

i'm not playing. but thanks.

Re: Matt Yglesias: Creating Jobs by Cutting Wages
 

I'm skeptical that the heart of it. Nothing in my post was meant to imply that the middle class is a niche group and not the majority of people. The point is that whatever is your economy's current pattern of consumption, there is nothing inviolable about it. Even a shift that affects the consumption patterns of the vast majority of current consumers, while it will have transitional costs, can support an altered and viable pattern of consumption. To repeat, I think it is undesirable for (mostly) non-economic reasons to see a drop in the economic power of the middle class diminish, my point is that the economy as a whole doesn't enforce that normative preference: it isn't going to resist such a shift or collapse as a result of it.

The circumstances that present any given individual are certainly going to determine whether it is wise or foolish for them to have any configuration of consumption, savings and investment. Your hypothetical individual might rationally do best to have a negative savings rate, and consume more than 100% of his income. Of course it might be good if the incentives facing him were such that his savings rate would be less negative than it might otherwise be.

(Indeed, much of what we are talking about in terms of shifting the consumption-investment balance among the middle class is having savings rates that are less negative, particularly in the form of restoring equity to houses that were revealed to be underwater when the housing bubble burst.)

It is also the case that if, as stipulated, the issue we are facing is that owners of capital can demand higher than socially desirable rates of return because the supply is too scarce relative to the supply of labor, then inducing the middle class, in the aggregate, to engage in higher rates of investment will have both direct effects for individuals who will reap returns on those investments, but also indirect effects for all laborers, whether they make investments themselves, whose labor will be able to demand a greater share of returns as greater amounts of capital chase the same amount of labor.

Re: Matt Yglesias: Creating Jobs by Cutting Wages
 

In the particular discussion of macroeconomic theory at hand, the existence and meaning of "sticky wages" refers to something more fundamental and pervasive in labor relations than minimum wage laws, which mostly affect particular sectors.

Minimum wage laws are an additional thing that can make wages sticky in the downward direction, but sussing out their effect on the macroeconomy is a complicated empirical question that is beyond my ability to answer for you. It isn't simple multiplication because one sector's loss may be another sector's gain: what is bad for the restaurant industry and reduces employment therein may be good for the frozen dinner industry and increase employment therein.

Re: Matt Yglesias: Creating Jobs by Cutting Wages
 

It's definitely tempting to believe that she is pretending to not understand the discussions she participates in around here, but at some point it hits you: "My god, she's not acting!"

By the way, handle: Welcome back! You've been missed these many months.

Re: Matt Yglesias: Creating Jobs by Cutting Wages
 

I confess, it was all sarcasm..
Thanks for the kind words!

Re: Matt Yglesias: Creating Jobs by Cutting Wages
 

reunited at last!

http://t1.gstatic.com/images?q=tbn:A...0vuAsATArEYGpq

Re: Matt Yglesias: Creating Jobs by Cutting Wages
 

Thanks. I did actually know that sticky wages and minimum wage requirements are two different issues. What amazes me is that anything about economics could be considered simple multiplication or division or addition or subtraction...although I know that the study of economics is composed of mathematical equations.

How do they know the mathematical equations are indeed correct or predictive in any way? BTW, that's just a rhetorical question. :)

Re: Matt Yglesias: Creating Jobs by Cutting Wages
 

Don't such rhetorical questions work better when they don't have simple, obvious answers?

Re: Matt Yglesias: Creating Jobs by Cutting Wages
 

you betcha.

So what would be your simple, obvious answer to my question?