Monday, January 6, 2014

Krugman without his econ hat and inconsistent on worker bargaining power

From John Goodman this AM, a number of great observations on Krugman and economics in general-- and on labor markets and health care in particular.

1.) Goodman: "Pick up any introductory textbook in economics and see if you can find the word 'bargaining' or the word 'fear.' I bet you can’t. That’s just by way of warning you that Krugman’s depiction is not the way real economists would describe any of this."

Krugman has a Nobel Prize in econ, but when he talks like this, he's moved (well) outside econ-- let alone, the particular/narrow expertise for which he was (deservedly) awarded the Prize. Knowingly or out of ignorance, people who cite Krugman in this mode are playing a Fallacy of Authority card.

2.) "Krugman says that in a weak economy workers have weak bargaining power" and "employers are in a position to work them harder, pay them less, or both".

a.) There is some work on this-- which comports with the common sense here. But Goodman cites work from Arthur Brooks which indicates that the concerns here are smaller than one might anticipate.

b.) Goodman calls Krugman on the carpet for advocating much greater reduction in bargaining power for doctors-- under "single payer" HC! "Why is it good for doctors to live in fear, but not [other] workers? And if the single payer bargaining is good for medicine, why wouldn’t it work just as well for college professors — given that higher education seem to have all the same problems that the health care system has."

c.) As Keynes taught us, prices and wages are "sticky downward". Some of this is natural. (Of this, some is cultural. E.g., in South Korea, workers are much more willing to allow wages to fall, so that others will not lose their jobs.)  Much of it is artificial-- e.g., through minimum compensation laws, unemployment insurance, artificial strengthening of unions, etc. Whatever the size of the impact of a higher MW, it works against the need to reduce wages to clear the labor surplus-- increasing unemployment further and reducing worker bargaining power (to the extent that one buys Krugman's argument).


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