07
Jun
2016
Contra Krugman Episode 38
We actually halfway agree with Krugman on this one; success in business doesn’t mean success in economic analysis.
We actually halfway agree with Krugman on this one; success in business doesn’t mean success in economic analysis.
Did you guys all agree that a Donald Trump/Ross Perot ticket will make America great again, economic analysis be darned (sigh, the political correctness on this blog is killing me)? I watched only half the episode, so I wasn’t sure.
LOL come on now you’re just devolving into self parody.
This is LK level trolling.
Yes. But was it high-quality trolling?
Quality makes all the difference.
Krugman mentions Herbert Hoover (entrepreneur and self-made millionaire) only to dismiss him as an “outlier”… Well do you think Donald Trump might be something of an “outlier” ?
Discussion on Herbert Hoover’s success as a business manager, but failure to manage the US economy… someone should write a book about it.
Interesting that Krugman makes the claim Hoover is the ONLY American President who started out with a business career. I mean Warren Harding owned and managed a successful newspaper. Seems that Krugman must automatically presume every newspaper isn’t a business at all, but instead represents some sort of covert political operation. I can’t imagine what makes him think that.
They are like large Virginia plantations that way.
Bob, thought you might be interested in this if you haven’t seen it
http://www.adamsmith.org/blog/paul-krugman-has-gone-too-far-this-time-lets-re-train-him-as-a-cosmonaut
Tough question, but let’s examine some options:
– Plato wrote the Republic (how to rule) but was supposedly a very poor ruler
– Eisenhower, for my money, was one of the very best presidents precisely because he was very hands-off (and framed the argument against the military industrial complex). He had the misfortune of inconvenient business cycles. A big plus for military men (contrast with Grant who was a pushover for cronyism).
– FDR, a beneficiary of a bad business cycle and ultimately the architect of the Democrat party’s policy of using bad policy (oftentimes of their own making) to their advantage). As a career leftist politician was effective as a politician in implementing bad policy (see Bob’s books).
– Mondale (two term senator and VP for Carter), after having left politics and tried to run a business, astutely observed that he should have tried to run a business before becoming a politician
– Cruz, daring to make economic statements, excoriated by the likes of Bob Murphy because his economics statements were closer to Sumner than Murphy.
The bottom line is that there is no sure bet on who would make a good politician. Example Mondale suggests that it doesn’t hurt to know some business; example FDR suggests that effective government does not mean good government; example Plato suggests effective government does not flow from good ideas; example Cruz suggests that making economic statements will turn 3/4’s of the economists against you; example Eisenhower suggests that libertarianism won’t work because, in the popular mind and in the press good governing is identical to active governing.
Bob, you were far, far too soft on Krugman in this episode. One need only point to the experience of the 1930s to see that the idea wage increases are what’s needed in a recession is precisely the opposite of the truth, and Krugman is poisoning economic discourse with his lies.
Keynesians are going to misinterpret you as saying that increased purchasing power is not needed in a recession.
A helpful qualification would be that, since consumers don’t want, or can’t afford, the goods that are currently being produced in a recession, the production processes which produce those goods are naturally not going to make as much money as when they were being artificially propped up by prior stimulus / interventions.
If, *and only if*, a producer is hell-bent on keeping a production process going that is not supported by consumer demand, he is going to have to lower his costs to do so, which means that *for the businesses in that particular production process* wages must come down in order to remain profitable.
That’s just logic. We shouldn’t expect higher wages when there’s lower consumer demand.
And it’s helpful to say that laborers are a cost, not an asset. The producer’s goal is to sell something that he owns to the consumer (or to the next-lowest-order production process).
If there’s demand for what he has, he will get up to a certain amount of money for it, the limit decided by the consumer. The issue that remains is how much profit the producer wants to make off the consumer, and that will be decided by the spread between what the consumer will pay and the opportunity costs the producer is willing to bear.
The laborer doesn’t add to consumer demand – either the consumer wants a product, or he doesn’t. Demand is entirely up to the consumer. In other words, the producer gets the same amount of money for his goods no matter what his costs are.
Rather, the laborer lowers the costs of supplying goods to the consumer.
(Changing consumers’ spending patterns by suppressing higher-ranked preferences doesn’t change the fact that consumers must still demand a product if they’re going to buy it.)
Laborers are a means to an end for the producer, and are expendable.
The point of going into business is to make money off of consumer demand – not to create jobs.
Producers bear all the risk of guaging future consumer demand (since all production takes time and is therefore future-oriented). Laborers come in and use someone else’s tools and get paid almost immediately.
Laborers are not the foundation of a business, they are always a burden.
When they are *less* of a burden than if the producer were to do the same tasks on his own, then it becomes profitable to hire.
“Keynesians are going to misinterpret you as saying that increased purchasing power is not needed in a recession.”
But that’s just it, higher wage rates does not equal higher purchasing power. Only higher real cash balances afford people greater purchasing power, and higher wages can only result in that if they raise real incomes.
What E Harding is getting at citing the 1930’s is the correct observation that when the High Wage Doctrine was put into practical policy by the Hoover Administration and later by FDR through the National Recovery Administration, higher incomes-even higher nominal incomes-did not result. Instead, these policies depressed output and employment.
I think there are many problems with Sumner’s book on the Great Depression, but one of the things he does seem to get right is identifying these “wage shocks” and their clear negative effect.
“… but one of the things he does seem to get right is identifying these “wage shocks” and their clear negative effect.”
Wages are *supposed* to go down when consumers don’t buy enough of something to make its production profitable enough in the eyes of the producer.
Wage shocks are only negative to the extent that laborers have been mislead into accepting employment at firms that have been artificially stimulated, and then persist in thinking that their prior wage was sustainable and therefore they’re entitled to that wage.
Solution: Plan better by not using non-commodity money, or at least trying to use less of it.
Do *something* in that direction. I mean, we keep telling people that paper causes the business cycle, and that the government can control us more easily because they can buy what they want with printed money.
So obviously the goal should be to stop using non-commodity money.
Try consciously bartering once a month, or one week a year.
Sound money comes out of barter.
“Wages are *supposed* to go down when consumers don’t buy enough of something to make its production profitable enough in the eyes of the producer.”
The wage shocks in question are wages being hiked *up* by fiat of government policy. And yes, precisely at a time when, as you say, they needed to be going *down.*
Sorry Bob just trying to figure out edits again, feel free to delete this.
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