Embarrassing economists

[GURPS]

EMBARRASSING ECONOMISTS



Some people suggest that if the price of something is raised, buyers will take more or the same amount. That’s silly because there’d be no limit to the price that sellers would charge. For example, if a grocer knew he would sell more — or the same amount of — milk at $8 a gallon than at $4 a gallon, why in the world would he sell it at $4? Then the question becomes: Why would he sell it at $8 if people would buy the same amount at a higher price?

There are economists, most notably Nobel Prize-winning economist Paul Krugman, who suggest that the law of demand applies to everything except labor prices (wages) of low-skilled workers. Krugman says that paying fast-food workers $15 an hour wouldn’t cause big companies such as McDonald’s to cut jobs. In other words, Krugman argues that raising the minimum wage doesn’t change employer behavior.

Before we address Krugman’s fallacious argument, think about this: One of Galileo’s laws says the influence of gravity on a falling body in a vacuum is to cause it to accelerate at a rate of 32 feet per second per second. That applies to a falling rock, steel ball or feather. What would you think of the reasoning capacity of a Nobel Prize-winning physicist who’d argue that because human beings are not rocks, steel balls or feathers, Galileo’s law of falling bodies doesn’t apply to them?

Krugman says that most minimum-wage workers are employed in what he calls non-tradable industries — industries that can’t move to China. He says that there are few mechanization opportunities where minimum-wage workers are employed — for example, fast-food restaurants, hotels, etc. That being the case, he contends, seeing as there aren’t good substitutes for minimum-wage workers, they won’t suffer unemployment from increases in the minimum wage. In other words, the law of demand doesn’t apply to them.

 

[stgislander]

EMBARRASSING ECONOMISTSSome people suggest that if the price of something is raised, buyers will take more or the same amount. That’s silly because there’d be no limit to the price that sellers would charge. For example, if a grocer knew he would sell more — or the same amount of — milk at $8 a gallon than at $4 a gallon, why in the world would he sell it at $4? Then the question becomes: Why would he sell it at $8 if people would buy the same amount at a higher price?

There are economists, most notably Nobel Prize-winning economist Paul Krugman, who suggest that the law of demand applies to everything except labor prices (wages) of low-skilled workers. Krugman says that paying fast-food workers $15 an hour wouldn’t cause big companies such as McDonald’s to cut jobs. In other words, Krugman argues that raising the minimum wage doesn’t change employer behavior.

Before we address Krugman’s fallacious argument, think about this: One of Galileo’s laws says the influence of gravity on a falling body in a vacuum is to cause it to accelerate at a rate of 32 feet per second per second. That applies to a falling rock, steel ball or feather. What would you think of the reasoning capacity of a Nobel Prize-winning physicist who’d argue that because human beings are not rocks, steel balls or feathers, Galileo’s law of falling bodies doesn’t apply to them?

Krugman says that most minimum-wage workers are employed in what he calls non-tradable industries — industries that can’t move to China. He says that there are few mechanization opportunities where minimum-wage workers are employed — for example, fast-food restaurants, hotels, etc. That being the case, he contends, seeing as there aren’t good substitutes for minimum-wage workers, they won’t suffer unemployment from increases in the minimum wage. In other words, the law of demand doesn’t apply to them.

Hey Gurps... what are you fishing for???

 

[tommyjo]

Perfect article for you Grups. Completely unable to be discussed or debated.

Your source doesn't provide a link to the comments of Mr. Krugman nor does he quote anything Mr. Krugman said.

What an amazing way to write an article. Accuse someone of saying something or having some particular position, but don't put forth any evidence that the person actually said the thing. This is right up your intellectual alley. You can believe this in full...because it can't be refuted.

Of course your author does get the basics wrong....or rather he pushes the typical half truths you are so good at cut and pasting. Demand as it relates to price is NOT the same for all goods or services. The author (in the typical right wing fashion) uses non-comparable items and very fuzzy conclusions to feed the confirmation bias of the uneducated (like you).

Yes if a piece of jewelry doubles, demand will drop. If the price of milk doubles, demand will drop--but not as much as the demand for jewelry if that price doubles. If the price of gas doubles, demand drops but not nearly as much as milk. They may drive less or they may stop buying other things long before they stop buying gas.

I know this is beyond your mental capabilities so let me dumb this down as much as possible. There are things people NEED and there are things people WANT. Demand for NEEDS is less elastic than the demand for WANTS. A distinguished professor in econ from George Mason SHOULD know this.

 

[Larry Gude]

It's a sad article by Williams, who I like and rarely find reason to quibble with and I think Krugman spends most of his time wrong and is all too easy to refute with even a half decent argument.

For one thing, people just got done buying more and more of something where the price KEPT rising; houses.
There is the example of Ford whose company grew, at least in part, because he paid his people more and more.
That is two ready example, one where a cost went up and people bought it anyway and another where a company chose to spend more and more on something, both with the intent to profit from it.

We can't talk about every issue as though it is the exact same thing because they're not. Falling feathers, working at McDonald's. The cost of living, energy, food, housing, are all crushing low skill low wage workers and have been for some time. Immigrants can sustain this to some extent because their standard of living is lower, especially in terms of living density; they'll share housing. If we say 'get more skills so you can earn more' there simply are not enough upward jobs. There's not. Enormous productivity gains and profit demands incessantly constrain 'next level' jobs. They just do. So, to that extent, Krugman is right about the non trade-able part. You can automate only so much at McDonald's. Further, because McDonald's is so big, they are a political target and, thus, fairly easy to push around outside the context of supply and demand. So, they have pressure on them to both raise wages and not fire people thus...even higher prices which they can do because eating is also a 'non trade-able' industry, so to speak. They have locations, ease of use.

Williams argues using traditional economics and old school logic and reasoning in a world where those things are not only quaint but, no longer in use. Krugman spends most of his time, when he's not pontificating on the 'proper' wage at McDonald's, crowing about how low inflation is in the face of conservative economists, like Williams, warning of inflation due to all the loose money policies of the last 6 years. Well, it hasn't happened and Krugman argues, incorrectly, that is it because Keynesian economics don't cause inflation. He totally excludes quantitative easing, an ongoing 6% 'rub' to GDP as the distorting impact that has had. Williams, and others, didn't even begin to contemplate a fake economy would be part of the bargain, such as QE, when predicting that, in the traditional sense, that if you have more of something, money, it's value drops.

QE is a lot like the housing boom, or any other boom; if there is gain to be seen in rising prices, people will pay more and more for something. The housing boom had nothing to do with supply. There was plenty of it and growing all the time. It was, simply, a gold rush fueled by easy money and managed by a stunningly efficient and responsive ability by business to meet demand while keeping costs in fairly good cost, especially consumer goods where things like big screen and phones and computers were under more and more and more demand AND prices fell.

This is the thing Bernanke and Geithner and Paulson and Krugman and Williams all seem to not really take into account; the results of ENORMOUS gains in productivity, the large supply of reasonably well trained entrepreneurs and the responsiveness of the world in terms of materials and manufacturing; immediacy. Inflation is a phantom for the foreseeable future because of this and it is why TARP was SOOOOO wrong. TARP was the solution in 1929 because the economy was nowhere near as nimble or responsive. Not 2008.

The money goes know this and that is why they won't allow QE to stop. They are the disciples of growth and they know the second QE stops and things have to start to earn for real and not based on stock prices, that deflation will hit with a vengeance as ALL that capability and talent and resource chain starts to fight for a place in a stabilizing reality.

The smart guys don't want to have to earn a living by having a good, reliable mouse trap. They don't want to earn by actual competition. They want to earn by reducing it. That means model after model shows costs crushed, including labor, while executive pay continues it's boom and stocks keep everyone with a 401k satiated. Thus, growth at the top and, by necessity, growth at the bottom because they can't afford food and energy, all paid for by the middle class who can only hope that fake housing prices and fake 401k's hold up long enough for them to get out. To where, I don't know because the whole world is engaged in this but, that seems to be the idea.

 

[GURPS]

Hey Gurps... what are you fishing for???

Swing and a line drive up the 3rd base line into the stands

 

[GURPS]

You can automate only so much at McDonald's. Further, because McDonald's is so big, they are a political target and, thus, fairly easy to push around outside the context of supply and demand. So, they have pressure on them to both raise wages and not fire people thus...even higher prices which they can do because eating is also a 'non trade-able' industry, so to speak. They have locations, ease of use.

it has been stated in numerous articles, if the minimum wage gets raised to $ 15 or higher
.... machines will be cooking and assembling burgers



I'll guess there will maybe 10 employees all day .. instead of 15 on a lunch rush shift ...
a manager, a couple of machine loaders / floor mopers ... maybe a cashier or 2 ... unless the food delivery is automated

then their would be less

back to sweet cheeks point - people don't NEED to eat a McDonald's
.... if FF gets expensive enough, people will start brown bagging it again ... or go to a sit down place

 

[Larry Gude]

it has been stated in numerous articles, if the minimum wage gets raised to $ 15 or higher
.... machines will be cooking and assembling burgers



I'll guess there will maybe 10 employees all day .. instead of 15 on a lunch rush shift ...
a manager, a couple of machine loaders / floor mopers ... maybe a cashier or 2 ... unless the food delivery is automated

then their would be less

back to sweet cheeks point - people don't NEED to eat a McDonald's
.... if FF gets expensive enough, people will start brown bagging it again ... or go to a sit down place

This takes the position that McDonald's hasn't been automating all along and won't automate anything else if wages stay the same. McDonald's as major corporation, publicly traded, WILL replace every pair of hands they can because their purpose, as so many of us on the right like to point it, is to make money. Not serve the community.

At some point, that is worth considering.

 

[GURPS]

This takes the position that McDonald's hasn't been automating all along and won't automate anything else if wages stay the same.

well McD's hasn't made any official statement of course ... it has all been conjecture by people studying business trends



they have, the soda fountains have been automated for a while now
deep fryer .... I have seen baskets of fries 5 high .... they automatically drop, and are manually pulled

think about it .... stand around jobs - filling a soda cup / dropping fries ..... sure someone has to load the baskets, but when you load 5 at a time .... then go do something else, not a constant fry load

 

[Larry Gude]

well McD's hasn't made any official statement of course ... it has all been conjecture by people studying business trends



they have, the soda fountains have been automated for a while now
deep fryer .... I have seen baskets of fries 5 high .... they automatically drop, and are manually pulled

think about it .... stand around jobs - filling a soda cup / dropping fries ..... sure someone has to load the baskets, but when you load 5 at a time .... then go do something else, not a constant fry load

All I am commenting on is that no corporation is going to wait for wages to reduce labor costs. I no more want to dig ditches for a living than the next guy but, somewhere in there, there is 'good' labor and we've lost that and I'm not real big on taking a corporations side on much of anything when their 'side' is about maximizing profit and minimizing what's best for the community.

 

[GURPS]

All I am commenting on is that no corporation is going to wait for wages to reduce labor costs.

Indeed

but Larry, until OIL was $ 100 a barrel, it was not COST Effective to Frack or convert Shale to OIL .... so to with McDonald's until the price of labor exceeds purchase and maintenance costs of automated burger machines, Manual Trabajo will continue flipping burgers ...