Arnold Kling  

The Hobgoblin of Simple Minds

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Tyler Cowen notes the apparent inconsistency between supporting both labor unions and aggregate demand expansion during a recession. The one seeks to raise real wages and the other seeks to lower them.

I think it is hard to maintain a consistent view of the economy. You have to explain the large number of long-term unemployed and the fact that the distribution of unemployment is concentrated among the uneducated.

Finally, I think Tyler's stagnation hypothesis is somewhat inconsistent. On the one hand, he wants to say that productivity growth has been sluggish. On the other hand, he wants to say that the economy is creating value without creating jobs--which sounds a lot like productivity growth.

My father, a political scientist who never studied economics, had a more internally consistent outlook. He always said that we will have to pay people to play corkball. His view was that there were many people, ranging from unskilled workers to humanities scholars, whose work was becoming less valuable. When he was alive, I always discounted my father's view, based on the basic economic principle that markets eventually clear. Perhaps wages for some people would be lower, but we would not need to pay them to play corkball.

Now, I am leaning closer to my father's view. I think that a lot of structural changes are taking place that are driving the marginal product of many workers well below their opportunity cost. Their lost output is not missed terribly much, because productivity is doing so well elsewhere.


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COMMENTS (10 to date)
Les Cargill writes:


Isn't this just that people operate modally? They operate as consumers one minute, and producers in another minute. So any inconsistency simply reflects a basic scism *within* people. If macro is like "gas laws", then this schism would be analogous to particles of an ideal gas behaving one way from 9:00 AM to 5:00 PM and a totally opposite way outside that range...

SWH writes:

Did your father have any answers as to how we survive, politically, paying for corkball? Will that be an endgame or a waystation to a social/economic paradigm jump?

Maniel writes:

Arnold,
I believe that your post would be clearer if you wrote that “labor unions seek to raise real wages for some” (union members). A labor union within a private company draws a boundary between managers and workers, thereby immediately rendering the company more adversarial, less efficient, and less competitive and, eventually, lowering overall compensation for all (even union members). In the public sector, of course, any gain in union compensation lowers real taxpayer wages, and as we are now seeing, ultimately will lower public worker compensation as well.

Matt C writes:

Maybe the reason markets don't seem to be clearing in the U.S. is because our economy has become ossified. As has been pointed out here before, we're kicking out the bottom rungs of the employment ladder by increasing the cost of hiring everybody.

I'm just thinking out loud here, but I think there has also been a change in corporate culture that obstructs restructuring and reallocating labor. Being an HR-friendly applicant now makes a big difference in landing a job, and what HR wants is costly to get (paper credentials, even if they're not really important) or difficult to learn (bland, superficially polite, fake-enthusiastic corporate demeanor). There's a cultural wall between the 45 year old laid off construction worker and a lot of potential new jobs.

(One way that I am a heretic from libertarian dogma is that I think an inefficient culture can sometimes overwhelm competitive economic pressures. If there is a definite fashion in corporate management, companies are going to follow it, even if it is fairly evident that it is stupid.)

I do not think relying on corkball can work in the long run because economies that play too much corkball will suffer brain and talent drain. I think (and hope) migration of talent is going to be a big deal in the next century. I'm curious what clever and nasty terms the bad guys will come up with to label the phenomenon.

david (not henderson) writes:

Note that the famous quote is not that "consistency is the hobgoblin of small minds", it is that a "foolish consistency is the hobgoblin of little minds". This is not surprising since the former mistatement is equivalent to saying that reason itself is the hobgoblin of small minds which, of course, would be a very odd thing to say.

Chris T writes:

David - Right, the saying is meant to apply in situations where a person adheres to tradition or beliefs even in the face of new situations or contradicting information. In this case, continued adherence to Kling's prior beliefs, even in the face of new evidence, would be evidence of a small mind.

Internal ideas should be consistent at a given time. This is the very definition of logic and the complete opposite of what Kling seems to be implying in this post!

Doc Merlin writes:

Why not just lower the opportunity cost instead of raising it?

Floccina writes:

It seems to me that an hourly wage subsidy would be a good way to get the employed working but it would be difficult to police. Maybe economists should spent some time thinking about how to design an hourly wage subsidy that can be easily policed.

Floccina writes:
I think that a lot of structural changes are taking place that are driving the marginal product of many workers well below their opportunity cost. Their lost output is not missed terribly much, because productivity is doing so well elsewhere.

It is my observation that many people are using their time either working for cash and not paying taxes or producing goods and services for consumption in the the family. That is not so bad in wealthy country like ours.

Erich Schwarz writes:

"I think that a lot of structural changes are taking place that are driving the marginal product of many workers well below their opportunity cost."

For one thing, we're making it more expensive to hire marginally-valuable people -- by piling on anarcho-tyranny and regulatory churn -- at exactly the moment we're in a recession. Smooth move.

Eric Raymond commented on this some months ago.

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