I Have Found a Nobel Economist Calling Krugman’s Walmart Article Crankish
[UPDATE below.]
Remember in his recent Walmart piece that Krugman wrote:
Conservatives — with the backing, I have to admit, of many economists — normally argue that the market for labor is like the market for anything else. The law of supply and demand, they say, determines the level of wages, and the invisible hand of the market will punish anyone who tries to defy this law.
But labor economists have long questioned this view. …[B]ecause workers are people, wages are not, in fact, like the price of butter, and how much workers are paid depends as much on social forces and political power as it does on simple supply and demand.
In my response at Mises CA, I pointed out that in his own textbook, Krugman himself first used supply & demand to show that price floors on butter lead to “butter mountains,” and then he went right into saying that price floors on labor lead to unemployment.
Yet here is another example of an economist doing the very thing that Krugman criticizes in his recent Walmart piece:
So what are the effects of increasing minimum wages? Any Econ 101 student can tell you the answer: The higher wage reduces the quantity of labor demanded, and hence leads to unemployment. This theoretical prediction has, however, been hard to confirm with actual data. Indeed, 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, 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”…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….
…[The authors of the book being reviewed] also argue that because there are cases in which companies paying above-market wages reap offsetting gains in the form of lower turnover and greater worker loyalty, raising minimum wages will lead to similar gains. The obvious economist’s reply is, if paying higher wages is such a good idea, why aren’t companies doing it voluntarily? But in any case there is a fundamental flaw in the argument: Surely the benefits of low turnover and high morale in your work force come not from paying a high wage, but from paying a high wage “compared with other companies” — and that is precisely what mandating an increase in the minimum wage for all companies cannot accomplish. What makes this an odd oversight is that the book contains a lengthy and rather well-done critique of attempts by local governments to create jobs through investment incentives, arguing that they mainly end up in a zero-sum poaching war; how could the authors have failed to notice the parallel?
… 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.
I don’t suppose at this point you guys have any doubt as to the author of the above? (HT2 C. Van Carter.)
By the way, look at how Krugman’s archives classified the piece above. It’s filed under “cranks.” In other words, it’s not merely that Krugman in 1998 held the view that Krugman in 2015 is ridiculing conservatives for holding. Rather, back in 1998, he considered someone who holds the view of Krugman 2015 to be a crank.
People are allowed to change their minds. But I don’t think polite, intellectually honest people can mock others for holding views that they themselves had in the past, when they are now pushing views that their old self thought were evidence of being a crank.
P.S. David R. Henderson had written about this before, but I’d forgotten.
UPDATE: Someone pointed out on Twitter that the archives holding this old Krugman essay are billed on the main page as the “Unofficial Paul Krugman Archive.” I had thought this was maintained by Krugman himself, because (I think?) he occasionally links to it from his blog posts. But, in light of this new information, I now retract the claim that Krugman himself is calling Krugman a crank. At best, all we can say is that Krugman’s fan, relying on Krugman’s 1998 book review, would classify Krugman 2015 as a crank.
Nice find.
Bob, for once I agree wholeheartedly with you. This isn’t just a Krugman Kontradiction, this is an out-and-out contradiction. You just need to juxtapose these two quotes:
1. “And its justification for the move echoes what critics of its low-wage policy have been saying for years: Paying workers better will lead to reduced turnover, better morale and higher productivity.”
2. “They also argue that because there are cases in which companies paying above-market wages reap offsetting gains in the form of lower turnover and greater worker loyalty, raising minimum wages will lead to similar gains. The obvious economist’s reply is, if paying higher wages is such a good idea, why aren’t companies doing it voluntarily? But in any case there is a fundamental flaw in the argument: Surely the benefits of low turnover and high morale in your work force come not from paying a high wage, but from paying a high wage “compared with other companies” — and that is precisely what mandating an increase in the minimum wage for all companies cannot accomplish. ”
And these two quotes:
3. “B]ecause workers are people, wages are not, in fact, like the price of butter, and how much workers are paid depends as much on social forces and political power as it does on simple supply and demand.”
4. “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 isn’t simply a flip-flop on a policy position (whether to raise the minimum wage or not), this is adopting the exact arguments that you used to criticize, in almost the exact same wording. Krugman clearly has some explaining to do.
Your previous attempt to point out a Krugman Kontradiction, concerning what he wrote in his textbook, seemed tenuous to me; he would probably say that you shouldn’t judge his views based on the simplifications he makes in his textbook. But this time it seems clear and unequivocal to me.
But Keshav, couldn’t Krugman say you shouldn’t judge his views based on a simplification he made in a book review?
No, in the textbook case he could say he’s just trying to present the standard supply and demand view to students, even if there are complicating factors he chooses to skip over. But here he’s reviewing a book that’s about those very complicating factors, so he couldn’t say the same thing.
Keshav, if you are saying something like, “It was wrong of Darth Vader to kill the rebel soldier when he was looking for the Princess on the ship, but it was *really* wrong for him to blow up that whole planet,” then OK fine. But you sound like you’re saying I was being nitpicky for thinking Krugman shouldn’t have criticized conservatives for agreeing with his textbook treatment, without at least having the decency to tell his readers that that was the situation.
Yeah, I don’t think Krugman did anything wrong by neglecting to mention that he gave a standard supply-and-demand explanation of minimum wages in his introductory economics textbook. I don’t think that’s a relevant detail; in his textbook Krugman’s job would be to introduce economic concepts and present a basic picture, not necessarily describe how the world actually works. So what he said in his textbook isn’t really relevant to him criticizing conservatives for their beliefs about how the world actually is.
In fact, I wouldn’t be surprised if Krugman had examples in his economics textbook involving a free market in healthcare producing optimum results, even though on his blog frequently he says that there are fundamental market failures in healthcare, which in his view would make a few market solution disastrous.
Keshav, so when Krugman wrote this:
Conservatives — with the backing, I have to admit, of many economists — normally argue that the market for labor is like the market for anything else.
…you and lots of Krugman’s readers were thinking, “Oh, I bet Krugman means those economists really *believe* it, not just that they wrote it in their textbooks. Like, if they wrote a book review.” ?
Bob, I think the problem is that we have different standards for what is misleading. Your standard is almost “If from a statement a reader would not be able to infer everything that the speaker has said or done that’s remotely related to the topic at hand, then the speaker’s omission is misleading.” My standard is something like “if from a statement a reader would mistakenly infer that the speaker has always believed and/or publicly supported a given position, then the speaker’s omission is (at least potentially) misleading.” So insofar as what Krugman wrote in a textbook in the course of explaining principles of supply and demand are not relevant to the positions he actually supported, it is not misleading in any way if he doesn’t mention it.
One last little thing Keshav: You don’t even think it’s the slightest bit weird that when Krugman wanted to give a specific example of how these people wrongly think about things, that he brought up them first talking about “butter mountains” and then going right into minimum wage–when that particular style of exposition comes right from Krugman’s textbook?
To repeat, that particular style of exposition is not normal. I have never heard any other economist talk about “butter mountains” like that. I’m not saying Krugman invented the phrase, but I am 99% sure that the particular exposition he had in mind, when criticizing the economists who are misleading conservatives, was the exposition he gave in his own textbook.
If you don’t think that’s weird, I guess I can’t force you to. This is a libertarian blog.
Yeah, I certainly agree that Krugman was thinking of what he said in his textbook when he gave the example of butter mountains. I imagine what was going through Krugman’s head was something like, “I want to convey that the standard supply-and-demand view of the minimum wage that you see in textbooks is not at all how the labor market works in practice. How did I describe things in my textbook when I discussed the supply-and demand view? Oh yes, I used the example of butter mountains.” I don’t think he was trying to hide the fact that it was in his textbook at all. In fact I wouldn’t be surprised if Krugman in other posts mentioned that he discussed it in his textbook.
In any case, we shouldn’t bury the lede, which is that for once I’m agreeing with you on a Krugman Kontradiction. Krugman really needs to explain how he would refute the arguments he made in 1998 against the arguments he’s making now.
Keshav wrote:
In any case, we shouldn’t bury the lede, which is that for once I’m agreeing with you on a Krugman Kontradiction.
Fair enough!
“But I don’t think polite, intellectually honest people can mock others for holding views that they themselves had in the past,”
-I think they can, but at least they should counter their previous reasoning.
Fair enough E. Harding. Probably in general polite people shouldn’t mock anyone, period, but if they do, then it’s more important to me that they acknowledge they used to hold the views in question.
Now that is what I would call a smoking gun.
Wow, this is pretty darn damning. Am trying to think of what wiggle room he has left himself, but uncharacteristically there doesnt seem to be any, apart from explaining why he changed his mind. I think that’s his only option, to say that he changed his mind as a result of new studies that supposedly show that increasing he minimum wage by a certain amount need not and did not have the unemployment consequences that conventional wisdom among economists suggests.
And so because ‘the facts changed’ he changed his mind, and conservatives who still think like Krugman did in 1998 are dogmatically clinging to ideas that fit their biases but that have been refuted.
If he uses this line of defense he would not need to admit he was wrong in 1998, or that he was as dogmatic or whatever back in 1998 as conservatives are now, because in 1998 not enough studies had been done to show that conventional wisdom was flawed. Once such studies started to appear, Krgman changed his mind accordingly.
So he would not need to admit intellectual or moral error while still being free to accuse others of intellectual and moral error.
The only thing this line of defense would not address is the question why he did not mention that he himself used to hold the views that he now mocks.
Or he can just pretend Bob Murphy does not exist and ignore it
Krugman still believes exactly what he used to believe, but now he places greater emphasis on morality, and in turn less emphasis on living standards. Personal preferences… evolved.
Is there anything George Lucas hasn’t done first? I mean is there?
Good catch Tel. Obi-Wan was a Keynesian. And Han shot first.
I recall a recorded Mises talk given many years ago by Richard Vedder (or Llowell Galloway?) in which he recounts a debate between himself and Joseph Stiglitz. Using a mock-serious tone, he did an impression of Stiglitz: “People aren’t potatoes!”
I guess Krugman is just swimming with the intellectual tide.