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Tuesday, August 12, 2003

Clash Of Titans: The Cal Pundit Versus Paul Krugman

The sparks fly as highly regarded blogger Kevin Drum takes on highly regarded economist Paul Krugman:

From Mr. Drum:

Can there ever be a decent Republican party while they oppose simple acts of decency like a (barely) livable minimum wage? I doubt it.

And, as if in reply, from a 1998 review of "Living Wage: What It Is and Why We Need It", by Robert Pollin and Stephanie Luce, Professor Krugman says:

...yet there is a problem with markets: They are absolutely and relentlessly amoral.

...Some conservatives have managed to convince themselves that this poses no moral dilemma, that whatever is, is just. And one supposes that there are still unrepentant socialists who believe that one can do away with market determination of incomes altogether.

...The standard economist's solution, 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.

The brighest light in the economic firmament then presents, and rebuts, several arguments offered by advocates of a higher minimum wage. His conclusion:

Why increase the cost of labor to employers so sharply, which--Card/Krueger notwithstanding--must pose a significant risk of pricing some workers out of the market, in order to give those workers so little extra income? Why not give them the money directly, say, via an increase in the tax credit?

One answer is political: What a shift from income supports to living wage legislation does is to move the costs of income redistribution off-budget. And this may be a smart move if you believe that America should do more for its working poor, but that if it comes down to spending money on-budget it won't. Indeed, this is a popular view among economists who favor national minimum-wage increases: They will admit to their colleagues that such increases are not the best way to help the poor, but argue that it is the only politically feasible option.

But I suspect there is another, deeper issue here--namely, that even without political constraints, advocates of a living wage would not be satisfied with any plan that relies on after-market redistribution. They don't want people to "have" a decent income, they want them to "earn" it, not be dependent on demeaning handouts.

...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.

He is a genius when I agree with him. Well, so is Mr. Drum.

UPDATE: I draw return fire from Mad Max, who should probably be Dr. Sawicky for purposes of the current discussion.

He points out that my post "glosses over the difference between the minimum wage and the living wage. The latter is a national network of decentralized, independent campaigns to raises wages in localities.

Well, yes I do, because the Krugman article does. As to Dr. Sawicky's point that localities should be free to choose, well, let Federalism live! In fact, many states have a minimum wage of their own, some higher than the Federal minimum, so the lines are blurry everywhere (bit of an aside, but I lost my glasses over the weekend).

Since his main beef is with Prof. Krugman, I should slip away while the elephants tussle. But I will grasp this point:

It's true that, contra Krugman and [the MinuteMan], the left would like to bring some morality into the market.

As would we all. However, we on the right, along with our new best friend Paul, constantly fret about unintended consequences, especially predictable ones. Bringing morality into the market by pricing unskilled folks at the bottom out of the market doesn't grab me somehow.

As Krugman suggests, expand Federal programs like the EITC, if a higher effective wage at the bottom of the ladder is the goal. This will force folks on the right to present a new set of heartless generalities and evasions to explain why that is a bad idea.

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