Style Versus Content

Paul Krugman pauses to wonder why he’s been characterized as immoderate when — according to him — “there’s not a lot of air between my views and those of, say, staff economists at the Fed.” His conclusion: “What was radical, if you like, was my style, not my content.”

Bingo. Krugman’s detachment from mainstream economics is indeed a matter more of style than of content. But one symptom of that detachment is his failure to recognize that style is all that matters. Economics is most valuable not as a repository of received truths, but as a way of thinking — a way of thinking that has proved itself extraordinarily valuable as a bulwark against nonsense and claptrap. It’s that way of thinking — the style of economics — that Krugman so often and so depressingly abandons.

Here’s an example: The minimum wage is much in the news these days. There’s some controversy over whether a minimum wage hike would substantially reduce employment. Krugman, in a recent column, reported that he’d reviewed the evidence and concluded that the employment effect would be quite small. From this, he jumped to the conclusion that a minimum wage hike is a good thing.

But the economic style of thinking does not allow such leaps in logic. It demands that we recognize that any income transferred to low-wage workers has to come from someone else, in this case from the owners and customers of businesses that employ a lot of low-wage workers. (Probably more from the owners in the short run and more from the customers in the long run, as some of these businesses disappear and prices accordingly rise.) And then it demands that we ask why these particular people should foot the bill. Why not finance a transfer to low-income workers through general tax revenues, or via a specific tax on, oh, say, newspapers, as opposed to an implicit specific tax on McDonald’s hamburgers?

Anyone, left, right or center, can write about how minimum wages might affect low wage workers. The economist’s unique contribution is to insist that you’re not done until you think about how it might affect the typical Wal-Mart shopper (who, incidentally, has a substantially below-average income). By ignoring that question, Krugman chose to write not as an economist, but as a partisan hack. That’s a style choice, and it goes to the heart of why so many economist have stopped taking him seriously.

This is not an isolated lapse. When Krugman wrote to endorse boycott threats to enforce better working conditions in Third World countries, he wrote about the potential good that could come from those threats, while completely ignoring the potential harm. You don’t need an economist, let alone a Nobel laureate, to point out the potential benefits of boycott threats, just as you don’t need an economist to point out the potential costs. What you need an economist for is to insist that you account for both the costs and the benefits and that you try to construct some sort of intellectual framework for weighing them against each other. Krugman was so interested in stating his conclusion (i.e. his content) that he forgot to include any of his reasoning — or even to acknowledge that reasoning is called for. Once again, he adopted the style of a hack.

What might he have done better? Let me offer this old blog post of mine as an example. Unlike Krugman, I drew only tentative conclusions. But also unlike Krugman, I tried to lead the reader to see both sides of the story, and more importantly to suggest ways of estimating the relative importance of various factors. I’m sure it’s imperfect, but it’s at least an honest attempt to engage the reader in the economic way of thinking. Krugman, by contrast, prefers to do your thinking for you, except on those occasions when he skips the thinking part altogether.

These are not isolated lapses. If you want more examples, start here.

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72 Responses to “Style Versus Content”


  1. 1 1 Harold

    I came across an interesting minimum wage study from the UK. They observed that the evidence suggested that there was very little effect on employment, so they looked for where the costs went. They found that there was no effect in prices, but did observe a reduction on profitability. In a competitive market, this should have caused marginally profitable firms to go out of business. They conclude:”We show that profitability was significantly reduced by the minimum wage. Importantly, we also show that low wage firms were not forced out of business by the higher wage costs resulting from the minimum wage. On possible explanation (that requires more research attention in future) is that firms were making profits from paying low wages prior to the minimum wage introduction and that one consequence of the introduction of the minimum wage to the UK labour market was to moderate these excess profits by channeling them back to the wages of low paid workers.” Exploitation anyone? http://164.36.50.178/lowpay/research/pdf/NMW_profits_and_prices.pdf

  2. 2 2 FC

    And in the same vein of http://www.nytimes.com/2014/02/05/opinion/freeing-workers-from-the-insurance-trap.html?hp&rref=opinion&_r=0Actually, we are used to lack of decent analysis, but I especially find this sort of attempt to cut off further thought becoming wearying:Last sentence: “It is hard to view this as any kind of disaster.”If you are going to use rhetorical tricks to sell an idea it would really be a nice change to use something a little more sophisticated than this old hoary chestnut. The Greeks must be spinning in their graves about our lack of imagination and skill …

  3. 3 3 Jim W K

    I think the thing is, sweatshops are abhorrent, but the alternative is abhorrent too – an alternative that was very much a reality in the early part of the 20th century – most of the world’s jobs were in the world’s richest countries making it very hard for starving people in the third world to have a chance of breaking into the labour market. Sweatshops may be abhorrent, but not having sweatshops is often even more abhorrent for the people who are longing for the chance to sell their labour to feed their children. It’s the worst of two horror stories. I suppose we agree that a world in which every worker is paid a decent wage is desirable – I’m just not convinced that such a world is realistically possible so quickly. I wish it were – but I know of no mechanism that could bring this about. It may be that we are starting to develop the capacity to bring about these changes – but this global perspective is still in relative recency, so now may be the time that the world is about to be galvanised. Governments are reluctant to help because foreigners have no votes to buy. The best chance is charities and benevolent billionaires who help developing countries not just with aid but with business opportunities. What will really and I mean REALLY help is when banking becomes more advanced, enabling individuals to simply place money directly in other people’s accounts – it’d work like the sponsor a child systems work, but much more directly. This has been tried in Kenya, I believe, and had good results. It’s called GiveDirectly – it is a charity that passes donations straight to poor families in Kenya!16 hours ago · Like..James Knight It has been tried in Uganda too. Poor entrepreneurs are given grants by people like you and me, and they manage to achieve a high rate of return.It’s a study by Chris Blattman, Nathan Fiala and Sebastian Martinez, see here – http://chrisblattman.com/…/dear-governments-want-to…/ They helped the Ugandan government give out $10,000 to groups of young people, selected randomly. Per person, these grants were 2 x the annual income of the young people in question. Blattman and his colleagues then looked at what happened over the following 4 years, and found that many people set themselves up in a new skilled trade and were able to transform their opportunities.

  4. 4 4 Jim W K

    By the way, nice idea having a click to receive notification function.

  5. 5 5 Dan Hill

    Or as Bastiat might put it, he has abandoned any discussion of the unseen and talks only about the seen, and has therefore stopped writing (and thinking?) as an economist should.

  6. 6 6 Daniel

    I agree that Krugman’s presentation at times leaves much to be desired. As a fellow economist I never stop at just taking his word for fact but I can see the diservice this does for people who won’t look further into things themselves. That said, Krugman comes up with a lot novel ideas and it wouldn’t be right to ignore these ideas based solely on his lack of grace in presenting them.

  7. 7 7 Daniel

    Also, I generally rate Krugman’s blogposts about things other than international economics and liquidity trap restrained economies to contain less accuracy than say “minimum wage”, and am more skeptical when he veers from his more established field of expertise.

  8. 8 8 Harold

    #6 There is Krugman the economist and Krugman the columnist. Steve wishes there was more of the former in the latter.

  9. 9 9 iceman

    @5 – “like”rnrn@1 – Harold you don’t really jump to exploitation? That would seem to be bad style as well

  10. 10 10 Harold

    Well, they do say it needs further research, but excess profits at the expense of workers’ wages sounds a lot like exploitation to me.

  11. 11 11 Yancey Ward

    Excellent essay, Steve.

  12. 12 12 maznak

    Harold, define exploitation please. And “excess profit” too.

  13. 13 13 mike

    @Harold:First quoting Steve: “(Probably more from the owners in the short run and more from the customers in the long run, as some of these businesses disappear and prices accordingly rise.)”Then quoting the article you linked:”While this may be consistent with a redistribution of profits away from owners of capital to low wage workers it must be noted that our analysis of entry and exit only covers short run adjustments in industry structure.”

  14. 14 14 Ken B

    @Harold #1Nice to see you second Steve and join in his condemnation of Paul Krugman’s approach.What? You don’t think you did? Well that’s one of the reasons I don’t trust surveys. Your expressed preference is to post data and reasoning, to attempt to find a causal link between two effects and to justify your policy conclusion on that basis. Stylish.

  15. 15 15 Ken

    Harold, Can you define “excess profits”? And can you explain why reducing profits to business owners in order to transfer money to lower wage workers doesn’t make those lower wages “excessive” and those profits now “excessively small”? If wages are forced higher and profits are made smaller through the use of the police state, rather than set naturally in free markets, it sounds like wages are excessive and profits are unnaturally small, not the other way around.

  16. 16 16 RJ

    Exploitation: To take advantage of another individual by benefiting from their work/being without providing adequate compensation. Excess profits would naturally result from such treatment of workers.

  17. 17 17 Harold

    #15 Ken. RJ has it. They found a reduction in profits. In a “normal” profits situation some firms should then go out of business. Since this apparently did not happen, one way to explain this is for the profits to be above “normal” profits – or excess profits. If the profits were now excessively small, then businesses would close. Mike at #13 hints at another possible explanation – that he study period was too short to observe the exiting of firms. I think the authors felt that the period was long enough to see such an effect if were real and accounted for all the costs of the minimum wage, but I suspect that is one reason they call for more research.

  18. 18 18 Thomas

    Exit is not necessary or even all that likely: sunk costs often mean that investments, once made, will be operated as long as their operation generates positive cash flows.What will not happen, however, is new investment. It is not necessarily that current employees will be laid off; it is that future employees will be hired in smaller numbers. New business that use low-cost labor will not be founded and financed – but others, that use less labor, may be financed, although in the past they would not have been.Meanwhile, the legal switch to higher labor costs does indeed involve exploitation: it exploits the fact that, once capital is committed, it cannot readily be withdrawn.

  19. 19 19 Ken B

    @Harold 17:You’ve defined excess as more than adequate. Fine as far as English usage, but I think you were asked for a criterion not a synonym.However on to my main point. If no firm in industry X is close to failing, all making above average profit, then that is the result of signals in the marketplace. These signals say “we want more”. So existing firms can grow or new ones enter. This provides the “more” that is wanted, a good thing, and will create jobs in the longer term, a good thing (technically the good thing is the salaries paid). So your proposal short circuits that information processing loop. A consequence will be to slow job growth, and to do it most likely in a market where (this is your postulate) there is an “excess’ of available labor. That is, people who need jobs. Another will be to halt the provision of that “more”. Your proposal would have short circuited the development of cell ones for example.In short your proposal is short sighted.

  20. 20 20 Jim W K

    It cannot be exploitation if workers are selling their labour voluntarily. It’s unfortunate if wages are low, but it’s not exploitation.

  21. 21 21 RJ

    This provides the “more” that is wanted, a good thing, and will create jobs in the longer term,There is no reason to assume that exploitation cannot occur even in the long-run. More jobs doesn’t equal less exploitation. Furthermore, unless you’re using the perfectly competitive model, which is nothing more than a freshman introduction in economic models, there isn’t necessarily any reason to assume in the long-run there are more jobs. (actually, even in the perfectly competitive model, there aren’t).

  22. 22 22 RJ

    It cannot be exploitation if workers are selling their labour voluntarily. It’s unfortunate if wages are low, but it’s not exploitation. Actually, yes it can be. There’s nothing in the definition of exploitation that states it can only be exploitation if it isn’t voluntary. I don’t know why people think this. All you need is information asymmetry and then exploitation can occur, even if the worker signs up voluntarily.

  23. 23 23 iceman

    The other night I paid my son $10 to babysit (which he happily accepted) while my wife and I went out to dinner. If a law said I had to pay him $15 I would’ve still gone out. Did I exploit him? In the spirit of this post aren’t we supposed to do better than simply observe the benefit of giving someone more $ for doing the same job?

  24. 24 24 Ken B

    RJ: “All you need is information asymmetry and then exploitation can occur, even if the worker signs up voluntarily.”I agree. This is an argument for action where such asymmetry exists. You got an argument this is all the time? Because minimum wage laws apply all the time. Isn’t it an argument for wage caps too? After all, asymmetries can exist both directions.

  25. 25 25 RJ

    iceman 22I wouldn’t use that example; you already give your son (presumably) a roof over his head, TV, food, clothing, internet access, medical care, etc. You should make him do more stuff. A better example would be having a poor person do all your house and yard work for let’s say $20. I know it’s difficult to define fair or adequate compensation when speaking of exploitation, but I think a good measure of it is applying the golden rule in this case. Would you have done it all for $20 (I mean everything, pulling weeds, cleaning your chimney, making the bathroom sparkle, etc.)? Obviously it was voluntary and the person was happy-ier to do the task, but can you justify the low pay if you yourself wouldn’t have done it for a higher amount?

  26. 26 26 RJ

    Ken B 23: I wasn’t advocating minimum wage, I merely jumped in and stated how exploitation can occur. I wasn’t making any positive/normative claims. On that note, yes, you’re correct that it can go both ways but I would argue that minimum wage and wage caps are different in that one is more fair and efficient than the other. But I really don’t want to debate that because I don’t have the patience for it currently :/

  27. 27 27 iceman

    I don’t give my son medical care, he’s on his own for that. But ok what if the kid-next-door-who-looks-just-like-my-son would’ve been happy to do it for $7? I think it’s hard to define these things lacking a clear concept of fairness. People (legitimately) have different marginal utilities of leisure which get distilled into a market wage. You seem to suggest instead that in every transaction, the hirer (only) must negotiate away all of his/her consumer surplus. Even then you’d get different outcomes for people doing the same job — fair? While your golden rule doesn’t seem to require asymmetry, I’m not sure why people seem to presume the job *market* is persistently skewed in favor of employers. Otherwise exploitation would seem to require collusion – any evidence for that being suggested here? To me at the end of the day the basic problem is you’re conflating companies with charities; better for each to perfom its proper function (allocating vs. redistributing resources).rnrnI take it everyone has stopped hitting again…maybe an incentive for shorter comments

  28. 28 28 RJ

    Iceman: You seem to be mixing up consumer surplus and indifference wage. Nothing I stated said suggests giving away all of one’s consumer surplus. Going back to your babysitter example, lets assume two competitors, your son and the neighbor, and one employer, you. Assume you want to purchase a babysitter and are willing to pay up to $15 for the service but you yourself in the situation would only do it for at least $10. In this case, your son’s indifference wage matches yours, so I would claim that’s a square deal and you get a consumer surplus of $5. If the neighborhood kid did it for $7, you’d get a $8 consumer surplus, you’re both better off. You still exploited the kid in the latter scenario.

  29. 29 29 Ken

    RJ (@16),You simply substituted “excess” with “adequate”. If you can’t define one, you can’t define the other. Additionally, you now have the added complication of defining what it means to “take advantage of another individual”. Finally, why assume that only employers take advantage of employees? Isn’t it equally plausible for an employee to take advantage of an employer?Harold (@17),How does RJ have it? See my response to him. They found a reduction in profits.So? Why would you claim lowering a person’s salary (in the case the business owner) is a success? If someone loses his job or can’t find one because no one will pay them at a wage defined by a politician, certainly, you wouldn’t claim that this reduction in salary is a good thing, would you?In a “normal” profits situation some firms should then go out of business.What is “normal”? Why are you or some politician the decider? Why not use the information aggregated by free markets? And further why should you or some politician be deciding when a firm “should” go out of business? You’ve eluded defining “excess” to now using equally squishy and ill defined words as “normal”, without even a passable attempt at defining it.

  30. 30 30 Daniel

    @Ken,Under what conditions could an employee take advantage of an employer?

  31. 31 31 Ken B

    @DanielAny company employing someone who posts comments as obtuse as 30? By the way, your car you hired me to fix is almost ready to go, but I still have to assemble all the pieces I took apart. I guess you could hire RJ but since you need to travel this weekend I guess you won’t object to paying me $250 an hour to put it together.

  32. 32 32 Sy

    RJ:“There’s nothing in the definition of exploitation that states it can only be exploitation if it isn’t voluntary.”I strongly suggest that you go to your employer and, after explaining your “Golden Rule,” state in no uncertain terms he/she is exploiting you since clearly Bill Gates wouldn’t do your job for the pittance you’re paid. You may want to preface your comments with, “it’s not a joke” just to eliminate any chance of being misunderstood. Be advised though, you may find yourself involuntarily unexploited.

  33. 33 33 Sy

    Ken (29),I agree with you that both RJ and Harold are using squishy terms. However, Harold may be thinking of economic profit when he is talking about normal and above normal profit. (Economic profit being any profit higher than that necessary to keep a business owner in the business he’s in.) As has been pointed out by Thomas (18), because of sunk costs, businesses can continue quite some time even with higher wage costs. Harold may also be missing the critical function of economic profit. As was mentioned above, economic profits are signals in the market to move capital into those industries where there is more demand, i.e., the invisible hand. That’s how we get more of what we want, and less of those things we don’t.

  34. 34 34 RJ

    Ken 29: Incorrect. I suggest you re-read my 16th post, I didn’t switch any terms. I used adequate when relating to compensation for employees and said excess profits result from this. Furthermore, I suggest you read my follow up posts regarding the subject for I have already answered both your questions. They’re short and sweet.

  35. 35 35 RJ

    Sy 32: And I strongly suggest you re-read my post as well unless you’re being intentionally dense, in which case I’m not going to bother responding to a strawman. (It’s not even a clever strawman, how does someone like Bill Gates fit into the picture?)

  36. 36 36 Jim W K

    Actually, yes it can be. There’s nothing in the definition of exploitation that states it can only be exploitation if it isn’t voluntary. I don’t know why people think this. All you need is information asymmetry and then exploitation can occur, even if the worker signs up voluntarily.>>>But RJ, information asymmetry can work two ways – I was only talking about the issue of low wages being accused of being exploitative.The thing is, it’s all perspectival anyway. Suppose there is a consultant company called UNISPEC in New York paying specialists $45 per hour. That’s a good wage for most Americans. Bill Gates and Warren Buffet are having lunch talking about their latest billion dollar venture, and they see an article about UNISPEC. Bill turns to Warren and says “Huh, that’s terrible money – I couldn’t dream of working for such a pittance”. Through the Gates/Buffet lens $45 per hour probably feels like it would be a pittance – but through the wage lens of most Americans it would be most welcome. That’s a little like how it is when we look at sweatshops in Bangladesh – to us it’s a terrible working wage, but to people whose other choices are prostitution or starving to death it probably feels most welcome to have the opportunity to sell their labour to feed their family.

  37. 37 37 Harold

    Ken B – I wasn’t aware I had made a proposal – I just pointed out and commented on what others had reported.

    The term excess profit is used in the quotation I give in #1. We must try to understand what they meant, and get things on a less squishy basis. Possibly they refer to profits above normal profits in the strict economic sense. Normal profit is the minimum level of profit needed for a company to remain in a competitive market. In a competitive market it is impossible to earn more than normal profit except in the short run, because more firms would then enter the market – the price signal or invisible hand. Normal profit includes opportunity costs. I think we can take it that several years is more that the short run in the context of the minimum wage businesses studied. A policy (minimum wage) causes a measurable reduction in profits. There is no increase in firm closures. We can conclude that the firms are operating at above normal profits, otherwise closures would have resulted. We must now try to determine why and how the firms were able to operate at above normal profits. As pointed out, this may be a signal that more firms should enter the market, and thus a temporary “good thing”. Alternatively, it may be an indication that the market has failed in some way – a “bad thing” that may be improved by policy change.If it were a price signal, then we must have arrived at the scene at a particular point where there was an increase in demand or reduction in costs or some other shock, and new firms had not yet been able to get established. Remember we are not finding that some firms make economic profit, but the whole sector. In a high turnover sector containing small and large businesses it seems very unlikely that this should be the case. So whilst it can not be completely ruled out it is very unlikely that this is the reason the firms are making more than normal profits.So it seems we have some market distortion that allows firms to make economic profit over sustained time periods. The reasons could include artificial barriers to entry (e.g. planning regulations) and all sorts of other things. The authors say that the minimum wage had re-distributed some of this excess profit to the workers. They further say that the firms may have been making profits by paying low wages – I take this to mean they were making excess or economic profits as a result of paying low wages. My use of “exploitation” is based on this interpretation of the statement in the paper, which I think is reasonable. In summary, taking the results at face value, there are reduced profits, no increase in firm closures, therefore we have excess (or economic) profits. This must have resulted from some market failure. One possible market failure is under-paying workers (exploitation). There are other explanations (barriers to entry and more). In either case, the minimum wage causes a re-distribution of these economic profits from owners to workers. Is this a fair assessment?

  38. 38 38 Harold

    We have a paragraph problem again by the way

  39. 39 39 Daniel

    @ken b, I’m sorry did I say there weren’t conditions or did I ask what were the conditions? Also the answer you gave is not an employer-employee relationship, it’s a customer-seller relationship. Ken said that it’s equally likely that an employee will take advantage of an employer. I find that comment obtuse and your comment was just an unrelated distraction.

  40. 40 40 Harold

    #30 and subsequent. I don’t think it is impossible for employees to take advantage of an employer, particularly where unions are strong. I think the London Underground drivers may be in this category. A London underground driver takes home more than train or bus drivers with arguably similar levels of skill and responsibility. The employer is local government, so cannot easily go out of business. There is certainly a case to be made that they are overpaid, and thus could be said to be taking advantage their employer.

  41. 41 41 Harold

    Apologies – paragraph test. I will type two returnsThen type this, then pointybracketppointybracket and two returns Then this

  42. 42 42 Daniel

    @ Harold,Right, that’s exactly what I was getting at. When labor markets are tight, or when unions have some coercive control seems like the most prominent examples here. It’s interesting that Ken said that it’s equally likely that employees can take advantage of an employer, when this has been the case for such short periods (1950-1970) in most industries and for even shorter period for what we’re talking about here, people in the minimum wage labor market.

  43. 43 43 RJ

    Before I post I want to test something

  44. 44 44 RJ

    Jim W K: Yeah, so what? Killing an innocent person is murder, but if there was a twisted sociopath who held my family hostage and gave me the ultimatum of murdering a nun or he would make them suffer, I’d take the former option. Being paid a pittance, even if the person wants it, still doesn’t change the fact that it’s exploitative on the employers end. That’s the whole nature behind it, it’s ultimately preying on the weak and keeping them weak. Or do you not consider something like “Bum Fights” to be exploitative? Going a step farther, I would argue there are 13 year old girls in Bangladesh those who think back alley prostitution is better than starving to death. Would you call that not exploitative just because they welcome it? Dismissing it as ‘all perspective’ doesn’t gain you any points; market prices, for example, are one giant aggregate of perspectives yet are no less real.

  45. 45 45 iceman

    @42 – how about this – when labor markets are tight leverage tips to employees, when there’s slack it tips to employers, the rest of the time it’s pretty balanced. For some reason people tend to envision employers as oligopsonists (word?), but anyone who’s run a business knows the constant challenge of finding, training *and retaining* help.

    @28 – I think you mean “reservation wage”, a different concept to be sure but I’m not sure this changes the story much. [First remind me why I’d accept $10 to do something if I’m willing to pay $15 to avoid doing it?] Anyway, I can think of lots of legitimate reasons why I might value an hour of leisure more than someone else, like maybe they don’t have kids. And your “standard” seems to create all sorts of new fairness issues that a market wage based on MRP does not. Again is it fair for me to get paid more *for the same job* than someone else just because my employer is wealthier (i.e. higher reservation wage)? When my company is sold to someone else do the “fair” wages for everyone suddenly decrease? And if I pay $3 more for babysitting than the neighbor kid was willing to take, is it fair when I tell his brother I don’t have enough left for him to mow my lawn? I still think at the end of the day you’re conflating companies with charities; better to let each do the function it is designed for, allocating versus redistributing resources.

  46. 46 46 RJ

    Iceman: Yes, I did mean reservation wage, sorry about that. Anyway, you’re willing to pay $15 because you’re actually trying to purchase time to spend with your wife for a date night, which is assumed to be valued at at least an extra $5. There’s no contradiction between having a higher willingness to pay for a similar service when you would perform said service for cheaper because it also usually involves other ‘bonuses’ that you place a monetary value on.

    And your “standard” seems to create all sorts of new fairness issues that a market wage based on MRP does not.

    Except market wages in the real world are not based on MRP, that assumes perfect competition. You’re making the mistake of taking a theory and assuming it as a representative fact, and it’s a bad theory to boot. Wages based on MRP assume perfect competition.

    Again is it fair for me to get paid more *for the same job* than someone else just because my employer is wealthier (i.e. higher reservation wage)?

    Yes, why would you have someone else work for less than what you yourself wouldn’t do?

    And if I pay $3 more for babysitting than the neighbor kid was willing to take, is it fair when I tell his brother I don’t have enough left for him to mow my lawn?

    Why don’t you? You had a $5 dollar consumer surplus.

    I still think at the end of the day you’re conflating companies with charities; better to let each do the function it is designed for, allocating versus redistributing resources.

    I still think at the end of the day you don’t really grasp the argument.

  47. 47 47 Daniel

    @Iceman 45,

    Which do you think occurs more frequently in low-skill markets?

  48. 48 48 RJ

    Sorry for the double post, but I don’t feel that I answered something adequately.

    Again is it fair for me to get paid more *for the same job* than someone else just because my employer is wealthier (i.e. higher reservation wage)?

    Disparity between one employee and their employer versus another is irrelevant. Fairness only involves the affected parties in a particular transaction. If you have a problem with this, then I assume you’ll take an equal stance against price discrimination?

  49. 49 49 Sy

    RJ (35) “And I strongly suggest you re-read my post as well unless you’re being intentionally dense, in which case I’m not going to bother responding to a strawman. (It’s not even a clever strawman, how does someone like Bill Gates fit into the picture?)”

    The fact is, I had read most of your comments up to that point. Frankly, I found your logic and understanding of economics to be spurious. (At your suggestion, I went back and reread some of them and they haven’t gotten better.) Instead of trying to comment on every one of your misunderstandings, I thought that drawing on your own definition of exploitation (per 25) to illustrate its ridiculousness might have engendered something other than repetition. I, of course, stand corrected.
    Please do note there is a distinction between a straw man argument and argument by analogy. Address the analogy or demonstrate why it’s a straw man argument. Otherwise, it’s just a vacuous statement.

    (16) “Exploitation: To take advantage of another individual by benefiting from their work/being without providing adequate compensation.”

    You don’t define adequate compensation here, but I assume your “Golden Rule” would apply. So (in similar vain to iceman) if a parent pays the kid next door (let’s call him Jimmy) $20/hr to babysit that would be exploitation as long as this high income parent would not be willing to babysit a neighbor’s kid for that money. Now let’s take the next step, if that parent is willing to babysit for $150, then anything less would be exploitative. Let’s take it one step further. If Jimmy takes another babysitting job, this time for a parent (Jane) working at a minimum wage job. If Jimmy asks for $20/hr, because that’s what he gets from his other gig, would he now overpaid because Jane would be happy to babysit other people’s kids for less?

    (22) “All you need is information asymmetry and then exploitation can occur, even if the worker signs up voluntarily.”
    Since you don’t say what type/s of information asymmetry you have in mind, I will assume you’re talking about a situation where the employer values the employee’s labor higher than what he pays her. Similarly, when being hired the employee knows more than the employer whether she’s a hard worker or a shirker. Now you can say that the employer would figure this out at some point and get rid of her. (There are costs for the employer to replace an employee, including some positive probability that the replacement would also be a shirker as well, and maybe even a worse one.) As the shirker can be fired, the hard worker (the one producing “surplus value” for the employer) can look for another job with better pay. Sort of like having a market for labor.

  50. 50 50 RJ

    The fact is, I had read most of your comments up to that point. Frankly, I found your logic and understanding of economics to be spurious.

    Interesting. I’d be careful about commenting on other people’s knowledge of a given subject when you’ve yet to demonstrate the capability to be able to grasp a rather simple argument presented. However, do proceed forward with the understanding that your mental retardation is not my fault, if you’re still struggling I’d be happy to assist.

    Please do note there is a distinction between a straw man argument and argument by analogy. Address the analogy or demonstrate why it’s a straw man argument. Otherwise, it’s just a vacuous statement.

    You’re analogy was god-awful and wasn’t related to the argument I presented. I clearly stated in my comments that adequate compensation involved what someone was willing to work for and what the employer’s reservation wage (I mistakenly said indifference wage) for a given job was. Bill Gates having a higher reservation wage than me for the same job has no relevance. Furthermore, what does my employer’s acceptance of a moral perspective of mine have anything to do with the validity of it? Just because they may not like something doesn’t make it any less true.

    What exactly do you find difficult about this? Do you need the visual aid involving a puppet show perhaps?

    You don’t define adequate compensation here, but I assume your “Golden Rule” would apply.

    Yeah, because that’s what I stated it would be in my posts. Frankly, I find your reading comprehension to be spurious.

    So (in similar vain to iceman) if a parent pays the kid next door (let’s call him Jimmy) $20/hr to babysit that would be exploitation as long as this high income parent would not be willing to babysit a neighbor’s kid for that money.

    Yes.

    Now let’s take the next step, if that parent is willing to babysit for $150, then anything less would be exploitative.

    No, unless $150 was the reservation wage.

    Let’s take it one step further. If Jimmy takes another babysitting job, this time for a parent (Jane) working at a minimum wage job. If Jimmy asks for $20/hr, because that’s what he gets from his other gig, would he now overpaid because Jane would be happy to babysit other people’s kids for less?

    Maybe. Is there another babysitter that would babysit for a price lower than Jimmy’s asking price but at least at Jane’s reservation wage? In that case, yes, she overpaid unless Jimmy has some sort of skill that makes the extra money worth it.

    Since you don’t say what type/s of information asymmetry you have in mind,

    Didn’t think I need to because it’s not relevant and I assumed I wasn’t talking to the slow and stupid (I, of course, stand corrected)…

    I will assume you’re talking about a situation…blah, blah, blah, blah….

    As posters above noted (like Ken B and Jim, both of whom I actually enjoy responding to) information asymmetry can go both ways, and I agreed. The only thing I was trying to point out (quite obviously, actually) was that exploitation can occur even if a transaction and/or agreement is voluntary. That’s it! Have you ever heard of fraud? That whole paragraph was nothing but blather.

    So Sy, read the fucking comments before you waste my time with your goddamn special needs. Goodnight!

  51. 51 51 Sy

    I may have just had an epiphany. I’m beginning to see exploitation in its wider context:
    It now seems that most women are exploited when they give birth, since most men wouldn’t be willing to endure it.
    I can detect exploitation when a vegetarian restaurateur sells a BLT to his customer.
    When a parent tells their kid to study a subject they themselves would not.
    Could the definition of exploitation be understood to include the situation where someone uses adjectives about me that I would not use for myself? It seems only fair.

  52. 52 52 RJ

    Wait, are you saying just because I would apply the golden rule in one case that I would have to apply it in all cases? So if I believe killing is wrong then I don’t think there can be any exceptions to the rule, like a soldier in times of war?

    If you want a shortcoming, here’s a good one; a judge sentencing a criminal, except even in this case the criminal didn’t apply the rule himself in the first place.

    Here’s another example, budget constraints. The rule can be said not to apply if the employer has razor thin profit margins and if paying a lower wage would ensure larger quantities of employment because in this case a greater good is committed. Iceman was picking up on this, but his example it didn’t work because he had a $5 consumer surplus and the neighbor’s brother would mow the lawn for $3 dollars.

    It now seems that most women are exploited when they give birth, since most men wouldn’t be willing to endure it.

    But women can get pregnant without men if they so wish it. It’s equally nonsensical to apply the rule if the person can/will do the act regardless. For example, if I thought cleaning up asbestos is good fun and was willing to clean out my neighbors house of the material, but they said “No way, that’s dangerous. I could never ask you to do something that I myself wouldn’t do.”, I’d probably try and do it anyway (assuming of course they wouldn’t call the police on me.)

    I can detect exploitation when a vegetarian restaurateur sells a BLT to his customer.

    See above.

    When a parent tells their kid to study a subject they themselves would not.

    See above. If the parent doesn’t benefit from it anyway, I don’t see how it can be exploitation in the first place.

    Could the definition of exploitation be understood to include the situation where someone uses adjectives about me that I would not use for myself? It seems only fair.

    It’s not exploitation if you state a fact. I’d say I’m being charitable, considering I literally had to help you in criticizing my argument.

  53. 53 53 Sy

    I appreciate your help in making my point. Now, hopefully it’s clear that your golden rule for identifying exploitation (with its many special circumstances and caveats) is arbitrary in its application and outcome, even when limited to economic transactions. Not so golden after all.

    Have a good day. I’ve had fun.

  54. 54 54 Harold

    How about this. I employ someone at $10/hour. They accept this willingly, but only because they have not fully foreseen the need for a decent pension and requirement for medical cover since they are hungry and this rather clouds their long-term vision. If they considered this properly they would not work for less than $12/hour. I derive $20 benefit from the person’s work. Am I exploiting the worker?

    In this hypothetical, I would say I was exploiting them. Is this situation possible in reality?

    According to econ. 101 it is not, because another firm would offer $19 to poach the labor. However, we have seen in the paper cited that there was not free competition, since there were no firm closures when profits reduced. In free competition, some firms must be operating at the margin of profitability, or else others would enter the market. Therefore exploitation of workers was possible, if not certain.

  55. 55 55 RJ

    I appreciate your help in making my point. Now, hopefully it’s clear that your golden rule for identifying exploitation (with its many special circumstances and caveats) is arbitrary in its application and outcome, even when limited to economic transactions. Not so golden after all.

    Think what you want, you’re still wrong. Explain how it’s arbitrary when there is actually a method and reason behind my argument, which is completely contrary to the definition of arbitrary? (Nor were there many special circumstances and caveats). You didn’t really make a point either, what you did was shamelessly flaunt your ignorance as if it exemplified some sort of superior thinking.

    My guess is you’re probably a freshman in college who just completed a 101 course, but whatever…

  56. 56 56 Henri Hein

    Geez, people. It is almost like you are trying to make an effort to demonstrate Steve’s point.

    John Locke wrote an essay reflecting on just prices, Venditio. Mike Munger summarizes it here: http://www.michaelmunger.com/Venditio_Summary.pdf
    Locke’s observations are, as always, insightful and ahead of his time. What’s depressing is how little, in some ways, economics have advanced in 3.5 centuries. Locke seems more sophisticated in his analysis than many contemporary economists.

  57. 57 57 iceman

    RJ – just checking back in – civil discourse still ok?

    Your “budget constraint” exception seems like a doozie. Making buyers pay more than sellers’ WTA suggests by definition that fewer mutually acceptable arrangements can be made. Which seems hard to justify on equity grounds. [Note my example didn’t say the 2nd kid would mow the lawn for $3, it said the 1st kid was willing to babysit for $7 but you insist I pay him $10, so less likely I can meet whatever the 1st kid’s reservation wage is. Plus consumer surplus doesn’t necessarily translate to cash in my pocket.]

    Rather than get hung up on how literally MRP applies in the real world, the point was to compare the general fairness of paying the same wage for the same work, vs. paying some more than others (by mandate) based on who hired them. You say “fairness only involves the affected parties in a particular transaction”, but of course lots of research says we often define fairness in relative terms. Price discrimination is an interesting analogy; I’d say the contradiction is that you want to intervene in mutually agreeable exchanges in labor markets, but presumably not in product markets (I could agree with you in the latter case btw). And of course in the real world your proposal seems unworkable – even if we could measure reservation wages, hard to see how this could be sustained absent laws of course — but clearly not minimum wage laws since those are the same for everyone.

    WTA vs. WTP: while interesting, this seems like kind of a side issue – either way you’re arguing that a buyer is obliged by one of these standards to pay something more than a seller’s WTA. Some think the difference between a buyer’s WTP and a seller’s WTA is “the social surplus generated by trading goods” (Wikipedia). Regarding WTP vs. WTA for the same person, it looks like research suggests any persistent “gap” between the two is mainly empirical / behavioral, and WTA tends to exceed WTP.
    Which brings me back to – what happens if I don’t have a date, I just require $10 to give up my soft couch for manual labor? And if I also have to give up an hour with my wife that I value at $5 (hopefully a lot more), why wouldn’t I want to get paid for that too?

    Respectfully…

  58. 58 58 RJ

    Your “budget constraint” exception seems like a doozie. Making buyers pay more than sellers’ WTA suggests by definition that fewer mutually acceptable arrangements can be made. Which seems hard to justify on equity grounds.

    There is no reason to believe that this will be the case unless you’re assuming a frictionless market and perfect competition.

    [Note my example didn’t say the 2nd kid would mow the lawn for $3, it said the 1st kid was willing to babysit for $7 but you insist I pay him $10, so less likely I can meet whatever the 1st kid’s reservation wage is. Plus consumer surplus doesn’t necessarily translate to cash in my pocket.]

    Then your point is moot if his brother won’t work for <= $3. And yes, that is what consumer surplus translates into, it's extra 'cash in hand' because consumer surplus is the difference between what you're willing and able to pay and what you actually pay.

    Rather than get hung up on how literally MRP applies in the real world, the point was to compare the general fairness of paying the same wage for the same work, vs. paying some more than others (by mandate) based on who hired them.

    Then why didn’t you just say that? You also seem to have this misconception that I claimed there ought to be a mandate.

    You say “fairness only involves the affected parties in a particular transaction”, but of course lots of research says we often define fairness in relative terms.

    What research?

    Price discrimination is an interesting analogy; I’d say the contradiction is that you want to intervene in mutually agreeable exchanges in labor markets, but presumably not in product markets (I could agree with you in the latter case btw).

    Interesting. Am I to understand that you think there aren’t any ad hoc rules that must or ought to be applied to labor markets versus a market for commodities?

    And of course in the real world your proposal seems unworkable – even if we could measure reservation wages, hard to see how this could be sustained absent laws of course — but clearly not minimum wage laws since those are the same for everyone.

    Again with this mandate nonsense. If I think, for example, people shouldn’t cheat on their spouses, must I make it policy?

    WTA vs. WTP: while interesting, this seems like kind of a side issue – either way you’re arguing that a buyer is obliged by one of these standards to pay something more than a seller’s WTA.

    In some cases yes, that will be the case.

    Some think the difference between a buyer’s WTP and a seller’s WTA is “the social surplus generated by trading goods” (Wikipedia).

    Wikipedia (especially since this isn’t even linked) isn’t a legitimate source. Even still, I’m aware of this; it’s still a shaky concept the more you consider it. Suppose an employer has a consumer surplus of $100 from hiring a worker for much cheaper than what he is willing and able to pay. This employer can do one of two things, spend the $100 on consumption or save it. (Actually, they can do a bit of both, but that consideration can be ignored for convenience). If the employer spends the moeny, the employer bids up the price level, benefiting certain producers and hurting other consumers. If the employer saves the money, the employer bids down the interest rate (or price level if the employer stuffs it under a mattress), benefiting borrowers but hurting savers (or benefiting creditors and hurting borrowers in the case of deflation).

    These are pecuniary externalities, and they are ignored by economists for the most part because one person’s gain is another person’s loss, so it’s a wash. But I’ve yet seen anyone address how these externalities don’t wash out these supposed ‘surpluses’ when you consider saving.

    Regarding WTP vs. WTA for the same person, it looks like research suggests any persistent “gap” between the two is mainly empirical / behavioral, and WTA tends to exceed WTP.

    What research? (Anyway, of course it’s empirical behavioral :/ )

    Which brings me back to – what happens if I don’t have a date, I just require $10 to give up my soft couch for manual labor? And if I also have to give up an hour with my wife that I value at $5 (hopefully a lot more), why wouldn’t I want to get paid for that too?

    This is a bit scattered, I don’t know what you’re asking.

  59. 59 59 Jim WK

    RJ, I must say, you’ve given me cause to think more carefully about my assumption. Thank you. If learning is a good thing, which it undeniably is, then it is a good thing to continually search for ways that you might be wrong by subjecting your views to rigorous scrutiny. If your views withstand that scrutiny then you’ve further reinforced your confidence, and if an alternative, modified or augmented view takes its place then you’ve learned something that enhances your thinking, which is win-win for you. So a good life lesson is this; looking hard, with honesty, for ways that you might be mistaken can only benefit you either way, because justified reinforcement or justified correction are both good things.

    You make two good points:

    1) Being paid a pittance, even if the person wants it, still doesn’t change the fact that it’s exploitative on the employers end.

    2) I would argue there are 13 year old girls in Bangladesh those
    who think back alley prostitution is better than starving to death. Would
    you call that not exploitative just because they welcome it?

    I know what you mean – just because someone does something without being physically forced doesn’t mean they are not being exploited.

    I can go along with that, after further consideration – but it still doesn’t solve the real problem; that corporations are going to look for places where labour is cheapest and set up there, and also that even though we can agree it is exploitation (even though exploitation is clearly a broad spectrum) it is still the first stages of what will go on to be prosperity for them in the end.

    This is evidenced by two facts: 1) poverty levels have been falling for every decade, with some of the developing countries recording the fastest growth rates. And 2) many of the poorest countries of today are roughly equivalent to what America or Britain was like in the early 19th century, which shows that just as it took time for us to grow and prosper back then, it naturally takes time for developing countries of today to prosper now (but not as long because unlike us, they have other countries who are very rich, whereas we didn’t).

    Given the foregoing, I have considered the possibility that despite our wishes, it may be nigh-on impossible to expect every country to grow and prosper with the rapidity that we in the West have.

  60. 60 60 iceman

    JimWK – I think most people agree it raises ethical issues to, say, squeeze someone who’s in a desperate situation far below what one would “normally” expect to pay for something simply because there’s a lack of competition to keep things in check. The twist here seems to be that some are defining a “pittance” based not on what similar things typically sell for, but effectively on the income of the buyer which seems to introduce a whole lot of almost random variability into the notion of fairness. Also Harold likes to see asymmetric cognitive deficiencies lurking behind every bush :).

    RJ – seems like you’re kind of in wax-off mode now, but I thought the fairness of equal pay for equal work vs. unequal pay based on who someone happens to work for was the main issue we’re talking about. [I bet I get more votes for the former.] Unfortunately I referred to MRP as a version of equal pay, so you dismissed the whole thing with “perfect competition”.

    The budget constraint issue in particular doesn’t seem to require such assumptions, just the basic logical principle that $1 used one way is $1 less to be used any other way. I didn’t say I only had $10, I just said you would have me — or, you would prefer I adhere to a standard that leads me to (I’m trying to avoid the term “mandate” which you also clearly dislike) — pay $3 more than the seller’s WTA for one job, which would seem to assure there is some other transaction that could’ve happened on mutually agreeable terms but no longer will. Like if I have anything less than $17 (for two similar jobs…I agree whether wealth is cash in my pocket was a throwaway point).

    Misc – I am admittedly wary of ad hoc approaches reflecting conflicting priorities and having adverse consequences, but the point was a position of not intervening in mutually acceptable outcomes in either case is at least a consistent one.
    - Sorry I don’t have time to annotate, but on how people (other than you perhaps) often tend to perceive fairness in relative terms, I guess you can look up anything by Thaler or probably any other prominent member of the behavioral finance crowd.
    - You seemed to be suggesting WTP exceeds WTA not vice-versa, and for logical / theoretical reasons; so my “scattered” bit was probing why we’d expect this to be the general case.
    - I’m wondering what in your view are the gains from trade?

  61. 61 61 Harold

    “Also Harold likes to see asymmetric cognitive deficiencies lurking behind every bush :)” Could be a cognitive deficiency I have there.

    Nonetheless, some cognitive deficiencies have been shown to be remarkably consistent and persistent.

    An example here RJ “I would argue there are 13 year old girls in Bangladesh those who think back alley prostitution is better than starving to death.” Jim WK “I know what you mean –just because someone does something without being physically forced doesn’t mean they are not being exploited.”

    One reason this is exploitative is because 13 year olds are not capable of giving fully informed consent. In other words, they have a cognitive deficiency. If we exchange this for a 25 year old, then for some the issue of exploitation disappears.

    With child labor, it is possible that the exploiter is the parent. After all, markets work because the person making the choice is the person who suffers or gains from the exchange. We assume complete coincidence of interests of parent and child, but that may not be the case. One cognitive deficiency that is persistent is the ability to justify choices we make for our own benefit as best for others as well.

  62. 62 62 RJ

    Apologies for the late responses, I’ve been feeling lazy as of late.

    seems like you’re kind of in wax-off mode now, but I thought the fairness of equal pay for equal work vs. unequal pay based on who someone happens to work for was the main issue we’re talking about. [I bet I get more votes for the former.] Unfortunately I referred to MRP as a version of equal pay, so you dismissed the whole thing with “perfect competition”.

    iceman, you seem to keep following this pattern of non sequiturs based on what I’ve said.

    1. I did not say my rule of providing adequate compensation ought to be law.

    2. It does not condone equal pay for equal work, that would be nonsensical because it would ignore things such as differing levels of productivity between workers for the same job, for example.

    3. The initial subject was not about some universal fairness or how other people define it. In fact, that whole subject, other than how it relates to a ‘fair deal’ between the and only the contracting parties, is irrelevant. It’s just a red herring.

    4. There is no intervention in labour markets.

    Here’s what I did post. I defined exploitation, some asked to define adequate compensation, I admitted it’s a bit tricky but then applied basic ‘golden rule’ approach. That is all.

    The budget constraint issue in particular doesn’t seem to require such assumptions, just the basic logical principle that $1 used one way is $1 less to be used any other way.

    Iceman, Here’s what you stated.

    And if I pay $3 more for babysitting than the neighbor kid was willing to take, is it fair when I tell his brother I don’t have enough left for him to mow my lawn?

    I then pointed out that you stated earlier that you claimed you would be willing to pay $15 dollars for the service in order to have a date night with your wife, thus you ought to have $5 consumer surplus to afford that. You responded that you just meant to say you’re just less likely to meet the lawn-mowing kid’s reservation wage. Fine, here’s the thing though, that $3 dollars didn’t disappear, it merely went from your pocket to the other kid’s pocket. The potential for another mutually agreeable transaction didn’t evaporate, the other kids now has an extra $3 to buy a book, visit an arcade, see a movie, etc. The lawn-mowing kid might be hurt, but it’s offset by the babysitting kid’s gain. (Even still, that might be dubious. Now the lawn-mowing kid, since he’s not mowing your lawn, is free for someone else to use or provide some other economic service).

    Misc – I am admittedly wary of ad hoc approaches reflecting conflicting priorities and having adverse consequences, but the point was a position of not intervening in mutually acceptable outcomes in either case is at least a consistent one.

    And if you consistently applied “Save all your money earned.” you’d starve to death. Ad hoc approaches to labour markets are not a contradiction because for the simple fact that humans aren’t commodities.

    Furthermore, where is the intervention that you seem to think I advocated?

    - Sorry I don’t have time to annotate, but on how people (other than you perhaps) often tend to perceive fairness in relative terms, I guess you can look up anything by Thaler or probably any other prominent member of the behavioral finance crowd.

    Poppycock! You have time to post rational argument, then you have time to link/reference. If you need more time, then fine, I can be patient.

    - You seemed to be suggesting WTP exceeds WTA not vice-versa, and for logical / theoretical reasons;

    No I didn’t.

    - I’m wondering what in your view are the gains from trade?

    Not addressing this because it’s not relevant.

  63. 63 63 RJ

    Double post again, sorry.

    Unfortunately I referred to MRP as a version of equal pay, so you dismissed the whole thing with “perfect competition”.

    ^Because perfect competition is a ridiculous model that doesn’t apply to the real world. If you’re going to criticize my argument for having fairness implications that MRP doesn’t have, even though MRP applies to a utopian economic model, well…I would say that’s not very ‘fair’.

  64. 64 64 RJ

    Jim W K:

    I’m not disagreeing with you in that respect. I do view, in special cases, exploitation as a necessary evil. For example, it makes no sense to claim someone as lacking in justice and compassion for letting a child drown in a lake if that person themselves does not know how to swim. It is unacceptable if that said person does know how to swim. Similarly, I would view it as unacceptable to not adequately compensate someone when the means are there.

    Anyway, a salud!

  65. 65 65 andy

    Similarly, I would view it as unacceptable to not adequately compensate someone when the means are there.

    Suppose you have 2 persons – one will mawn your lawn for $10, the other for $15. Who will you hire and how much will you pay? Are you exploiting the one who would do it for $10? Why?

  66. 66 66 andy

    RJ, I don’t quite understant the golder rule idea:

    I wouldn’t use that example; you already give your son (presumably) a roof over his head, TV, food, clothing, internet access, medical care, etc. You should make him do more stuff. A better example would be having a poor person do all your house and yard work for let’s say $20. I know it’s difficult to define fair or adequate compensation when speaking of exploitation, but I think a good measure of it is applying the golden rule in this case. Would you have done it all for $20 (I mean everything, pulling weeds, cleaning your chimney, making the bathroom sparkle, etc.)? Obviously it was voluntary and the person was happy-ier to do the task, but can you justify the low pay if you yourself wouldn’t have done it for a higher amount?

    Yes, I would. Definitely. If nobody offered me more and I felt I needed the money, I would.

    Now if I had a $1 billion in a bank, I might decide that I simply would not do it for any price.

    Supposing I have $1 billion, am I exploiting the worker while thinking “if I had $0 in a bank I would do it”? Am I exploiting the worker, having $20 in a bank, working 20 hours being paid $1/hour so that I could pay the person $20, as I wouldn’t want to do it for $100?

    Wages based on MRP assume perfect competition.

    1) “Perfect competition results in wages equal MRP”
    2) “Wages based on MRP assume perfect competition.”
    Logic question: are these 2 statements equal?

  67. 67 67 Steve Landsburg

    andy:

    1) “Perfect competition results in wages equal MRP”
    2) “Wages based on MRP assume perfect competition.”
    Logic question: are these 2 statements equal?

    As a matter of logic, no — because it is true that “Mechanisms other than perfect competition can lead to wages based on MRP”. But at the same time, it is decidedly false that “*Plausible* mechanisms other than perfect competition can lead to wages based on MRP”. So if one adds the assumption that everything that happens must be plausible, then the two statements do indeed become logically equivalent.

  68. 68 68 Jim WK

    So Steve, given the foregoing discussion in the past few posts, if exploitation is a spectrum, do you have or know of a good rule of thumb for ascertaining when labour sold voluntarily should still be seen as exploitation?

  69. 69 69 Daniel

    Quote from Krugman’s most recent column:

    “For example, House Republicans tried to introduce a provision into the farm bill that would have allowed states to mandate drug testing for food stamp recipients. (A commenter on my blog suggested mandatory drug tests for employees of too-big-to-fail financial institutions, which receive large implicit subsidies. Now that would really cause a panic.)”

    An example for why even if you hate Krugman, you should still follow him.

  70. 70 70 iceman

    68 – again the first step is to agree on a yardstick for the spectrum – relative to a “normally-expected” price, or the buyer’s WTP…but never the seller’s WTA? Some presume sellers never have leverage to exploit, but Ken B gave a counterexample. I also suggested people can have different marginal utility of leisure for perfectly legitimate (e.g. family) reasons. So why couldn’t it be “do unto others as you would have them do unto you, if our roles were reversed?” E.g., “Hey give the guy a break he’s got 4 kids and is desperate for a night out with his wife…don’t ‘gouge’ him just because you can.”

    This is all aside from the whole issue about fairness implications from the perspective of people not directly involved in each transaction…like the kid who got paid less for mowing the same size lawn, or the kid who didn’t get hired at all (assuming he can go find another equally preferred transaction (including search costs) is a proposition that would seem to require perfectly frictionless markets). And literature on “community standards of fairness”, reference points, endowment effects, “internal equity” etc. Of course RJ is right that people are free to *choose* to pay more (or accept less?) for things; but “ending exploitation” has a different ring to it – unless like MRP this isn’t supposed to bear any relation to the real world either?

  71. 71 71 RJ

    andy

    Suppose you have 2 persons – one will mawn your lawn for $10, the other for $15. Who will you hire and how much will you pay? Are you exploiting the one who would do it for $10? Why?

    Did you read my posts further?

    Supposing I have $1 billion, am I exploiting the worker while thinking “if I had $0 in a bank I would do it”? Am I exploiting the worker, having $20 in a bank, working 20 hours being paid $1/hour so that I could pay the person $20, as I wouldn’t want to do it for $100?

    Yes in the former, no in the latter (the latter can be a legitimate exception, as in the case of budget constraints since you don’t even really have the means to support this other person.)

    1) “Perfect competition results in wages equal MRP”
    2) “Wages based on MRP assume perfect competition.”
    Logic question: are these 2 statements equal?

    Biconditional statement.

  72. 72 72 andy

    @Steve… point taken. Didn’t think this through. Agree, MRP has nothing to do with this discussion.

    @RJ
    Did you read my posts further?
    Yes.

    Yes in the former, no in the latter (the latter can be a legitimate exception, as in the case of budget constraints since you don’t even really have the means to support this other person.)

    Well, then obviously working 1 year in order to have rest the other year seems to be absolutely immoral, because the other year will be full of exploitation?

    Second part: The answer to your golden question is: I wouldn’t do it for $20. My reservation wage for the job is $100. How come I am NOT exploiting?

    Another situation: 2 jobs – reversed priorities (I hate job 1, the other person hates job 2). I would never do a job 1 for less then $100, would do job 2 for $20.
    I do job 2 for $20, pay the other $20, the other person does the reverse.

    Would you have done it all for $20 (I mean everything, pulling weeds, cleaning your chimney, making the bathroom sparkle, etc.)?

    Answer for both of us is NO. Therefore, are we both exploiting ourselves?

    why would you have someone else work for less than what you yourself wouldn’t do?

    Because of different preferences? What’s wrong with that?

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