Don\'t Kid Yourself

From an editorial in today's WaPo (free registration required):

THE D.C. COUNCIL, which opens hearings today on Mayor Anthony A. Williams's Way to Work Amendment Act of 2005, is well positioned to address the city's high unemployment rate and the lack of job readiness among large numbers of its residents. Troubling statistics on the estrangement of many residents from the job market demand that legislators carefully examine the causes of joblessness and then fashion policies to address them. Unfortunately, the mayor's Way to Work initiative, with its emphasis on mandates and special levies on businesses, and the imposition of a living wage requirement on organizations with city contracts, will not solve the underlying problems of so many D.C. residents who, for reasons ranging from lack of education to deficient job and interpersonal skills, are unqualified to fill existing jobs.

The editorial board is lamenting that the imposition of a living wage requirement will not be enough to curb unemployment in DC. Russell Nelson would probably take it a step further:

Don't kid yourself into thinking that workers deserve a minimum wage. Nobody deserves to have their job destroyed.

[via Truck and Barter]

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"The problem with mandated

"The problem with mandated benefits is that supply-demand analysis is no longer applicable, it creates an oversupply of labor.1 In this situation there are decreased options available to the laborers, both employed and those wanting to be employed. This decrease in options is the environment where employers have greater power over laborers. In the case where a laborer wants a raise, he has more negotiating power if he can realistically leave."

If supply and demand analysis no longer applies as you say, how can you then say that labor is "oversupplied"? If wages are unrelated (or unknowably related) to the status of supply and demand for the labor market, how can we be sure that an increase in the wage will do anything to demand?

David- yes you're right that

David- yes you're right that I mistyped. I'll respond in full in a second.

"if you force firms to raise

"if you force firms to raise wages and benefits above the marginal value product of the workers, the firm will either leave the area or go out of business after short term fixed costs are used up."
this is of course true. The question is: are wages set to the marginal value of their product? Why should we assume that wages are related to marginal productivity?

Look, your argument absolutely depends on marginal productivity theory- in fact it depends on the concept of diminshing marginal productivity. If each additional worker adds greater and greater value, why would we be having the discussion? Every firm would have it in their best interest to hire an infinite number of workers. That is, unless they were constrained not by factors internal to production (as the argument assumes) but exogenous factors like marketing.

You didn't respond to my illustration above about supply and demand for labor (and you should.) Instead you put forward something uncontroversial: no business will operate for long at a loss. That begs the question though- I'm asking you to show that minimum wage laws produce such a loss. Doing so relies on the supply and demand curve and hence requires a response to my above demonstration about the interdependence of supply and demand for labor.

Matt, may be a typo or I'm

Matt, may be a typo or I'm misreading you, but I think you have the supply and demand curves backwards. Labor is a good supplied by laborers and demanded by employers. If the supply of labor increases then the price for labor (wages) decreases. If demand for labor increases then wages increase.

Now you are right that changes in labor supply and demand will cause changes in the supply and demand of other products, and thus come back to affect labor supply and demand. But that does not address the problem of mandated benefits (including minimum wage). The problem with mandated benefits is that supply-demand analysis is no longer applicable, it creates an oversupply of labor.[1] In this situation there are decreased options available to the laborers, both employed and those wanting to be employed. This decrease in options is the environment where employers have greater power over laborers. In the case where a laborer wants a raise, he has more negotiating power if he can realistically leave. If there is unemployment because of taxes and mandated benefits then he has much more limited options and may not be able to afford to "walk out". Businesses that already pay above the minimum wage and offer the benefits that will be mandated want those benefits to be mandated because it hurts any competition that is not providing those benefits and limits the optoins of their own employees. In essence, mandated benefits not only provide a floor, but also a wage and benefit ceiling.

Notes:
[1] In a welfare state market such as the U.S. the effects of the minimum wage are overshadowed by the effects of taxes, welfare benefits, and unreported market activity. The recent studies finding no correlation between employment and minimum wage are to be expected given these other effects. But that's a hefty academic paper worth of stuff that I won't dive into here.

I should note that my

I should note that my argument does not rely on the claim that wages equal marginal productivity under all circumstances, though given the logic of supply and demand, I'd be surprised if that wasn't the case the vast majority of the time. Rather, my argument relies in the claim that no business will knowingly hire workers who represent a net cost, which seems so obvious to me that I'm not sure how I could even explain it any further.

It’s the theory that the

It’s the theory that the poor don’t work hard enough because they’re paid too much and that the rich don’t work hard enough because they’re not paid enough.

I think the quote is applicable here.

How is this quote applicable to the minimum wage debate? That debate has nothing to do with how lazy or energetic workers may be. I'm not aware of that being an issue in economics at all.

Even without the apparatus of the the state, sizeable businesses can influence the policies of a given location just by throwing their weight around. It undermines the sovereignty of people without as much money.

This reminds me of predatory pricing arguments; possible in theory, but not very likely given the costs and disincentives, and little empirical evidence to support the accusations. Businesses don't just move around costlessly; I'd be surprised if their cost of moving relative to their overall wealth is smaller than a lower-middle class worker's cost of moving relative to that worker's wealth.

This is really not a very controversial idea: if you force firms to raise wages and benefits above the marginal value product of the workers, the firm will either leave the area or go out of business after short term fixed costs are used up. If you care about the condition of these workers, as you and I both do, then it would make more sense for us to focus on means that actually achieve our desired goals.

Galbraith summarized

Galbraith summarized Neoclassical economics as follows: It's the theory that the poor don't work hard enough because they're paid too much and that the rich don't work hard enough because they're not paid enough.

I think the quote is applicable here. More importantly, though: even if corporations didn't have their hands in the politicans pockets they'd still be able to influence politics by throwing around their weight, like so. Because of the power of GM (or whomever) to pack up and go wherever, the workers really would be better off without healthcare or minimum wage (at least they'd have a job.) Of course, that doesn't mean they should stop fighting for healthcare- they should fight harder. It's funny when you see the sort of twisted logic- as long as you accept that a corporation (meaning an entity granted a corporate charter and under state protection) has absolutely no social responsiblity and can go wherever it pleases, well then yeah fine.

I'm glad this came up, because as far as I'm concerned this is as good a reason as any why Libertarianism wouldn't work. Even without the apparatus of the the state, sizeable businesses can influence the policies of a given location just by throwing their weight around. It undermines the sovereignty of people without as much money. You can argue, as Kevin Carson does I think, that large businesses would be impossible but I find this to be a tenet of faith.

The jobs are "destroyed" simply because it's more profitable for the business to move somewhere else, and for various typically bad reasons, it has the power to do so. The jobs aren't destroyed because the demands are untenable in some absolute sense.

Please, someone get on here and tell me that the demands actually are untenable because of the diminishing marginal utility of labor and supply curves.

-Matt

Alex- I'm glad you believe

Alex-
I'm glad you believe in the quote- it demonstrates its accuracy.

While I'm fond of Rothbard's attempt to make economics much more understandable, it obscures some of the fundamental assumptions of economics which are incorrect. I have about 5 different good reasons why wage level aren't set to marginal productivity (or the result of a single intersection of supply and demand.) If wages are related to marginal productivity you might consider asking: are American CEOs 24 times a productive as Japanese CEOs?

Labor is a broad "commodity", and there are good reasons why Labor shouldn't be subject to the standard supply and demand analysis on which your case rests. So according to the inuitive supply and demand analysis, any increase in the supply of labor requires an increase in the price of labor and vice versa (this is according to standard economics analysis). However, the subsequent changes in income distribution caused by such price shifts will affect the demand for commodities in different ways, and hence their prices. Most changes in the demand for commodities will result (as firms react) in a change of the demand for labor. That means that the supply of labor affects the demand of labor, whereas a supply-demand curve assumes them to independent. The result? instead of a smoothly sloping demand, you have entirely different lines at every point on the labor supply curve- every change in labor price makes things go haywire in ways you can't predict. Multiple "equilibria" will exist, and there's no reason to prefer one intersection over any other (i.e. the results of a market over the results of a minimum wage law.)

Scott- I'm no fan of the state, but there is an extent to which the state is "the people" (an ever decreasing extent unfortunately) and as a result Gov't acts to restrain major businesses in some ways (the Minimum wage laws under discussion for example) and to that end actually decrease the power of business in some cases. Now clearly the state increases the power of businesses to a larger extent, but that's not my argument. My argument is that a significant portion of that could be done without the state (via non-governmental judical bodies like the WTO , in addition to the "do what I want or I'll leave" power we both agree on.) And without the state, we'd lose what little regulatory power we have at the moment. I don't consider this a very big disagreement by the way, because since businesses want a strong state and have such power over said state the only way to achieve your end (the dissolution of the state) is via my end first (the reduction in power of private tyrannies.)

Plenty more where that came from,
Matt

The Galbraith quote actually

The Galbraith quote actually makes sense, if you think about it: if you quantify how hard every poor person is working and average it out, then the poor people who are unemployed because the government makes it too expensive to hire them will drag down the average, so on average they're not working hard enough (because many of them are being denied the opportunity to work as hard as they would like, that is, work at all), and it's because they're being paid too much. As for the rich (or the working non-poor, anyway), that's a no-brainer - would you work 100% harder if you were only going to see 40% of the fruits, or would simply enjoying your free time and pursuing more non-work activities suddenly look a whole lot more attractive in comparison?

As for companies relocating out of a country and dragging down the economy, that will make labor being offered by that country's people cheaper or more plentiful or both (depending on the minimum wage laws), right? In other words, that will make their labor a more attractive proposition for employers, who would cease to leave and might even start coming in to the country in question. It all tends toward an equilibrium, or at least it does until the ability of people to seek the best value for their money is constrained - remember those supply-demand graphs with the horizontal lines cutting across the curves to show how price controls cause surpluses and shortages?

Finally, Scott nailed it about "throwing weight around" - without the synergistic effect of slanted government regulations multiplying the effect of that weight and the friction of red tape, suppliers are freer to introduce more alternatives into the market and, in turn, consumers are freer to take advantage of those alternatives.

I'll leave that to someone

I'll leave that to someone else.

It may be true that large business could bear quite significant influence even without a powerful state with which to channel its influence through. But it's not--to me at least--an unreasonable belief to think that without that powerful state facilitating business's influence, the influence of large business would be less.

I imagine the size of a business depends upon, among other things, the economics of scale within the industry in question.

Galbraith told a joke in his autobiography, that went something like this:

I was walking along a path on my father's farm with a girl. We were both teenagers and she was quite attractive. As we walked, we spotted a steer mounting a cow in one of the fields.

Being the typical lusty youth, I said to my companion: "You know, I'd like to try that."

She responded: "Go ahead. It's your cow."

Why should we assume that

Why should we assume that wages are related to marginal productivity?

Because if wages are set below marginal productivity, that creates a profit opportunity, and we would expect other firms to offer slightly higher wages to attract these underpaid workers and extract profit. Repeat this process and firms compete with each other for workers until the economic profits disappear and the revenue is transferred to workers through higher wages.

You didn’t respond to my illustration above about supply and demand for labor (and you should.

I'm not sure I understood your point, other than the fact that changes in every market effects other markets, which may effect changes in the original market, which is a trivial and obvious point and from which nothing seems to follow from what I can understand.

I’m asking you to show that minimum wage laws produce such a loss.

If minimum wage laws set wages above market clearing levels (i.e. higher than marginal productivity), we both agree that the result is unemployment. If minimum wage laws set wages below market clearing levels, then this would not result in unemployment, again as we both seem to agree. So what is your point? That firms systematically offer wages below marginal producitivity, and that, for some unexplained reasons, competing firms don't attempt to capture this surplus by offering higher wages, and thus minimum wage laws transfer income from firms to labor without causing unemployment? Care to explain why competing firms allow this to happen? Do you have any evidence for your claims?

Doing so relies on the supply and demand curve and hence requires a response to my above demonstration about the interdependence of supply and demand for labor.

But since every market has some level of substitutes and complements, I don't really see your point.

Matt, we have only inference

Matt, we have only inference at that point. We no longer know what the supply or demand curves look like below the price of the mandated benefit(s). We can see that a number of people who are not employed are sending resumes and filling out job applications and not getting jobs - but we do not know how many would give up at any given market price point (thus actual labor supply for that type of job).

Matt, jumping in on Micha's

Matt, jumping in on Micha's bit of discussion: There is always the "automation" or "offshoring" substitution. Many times automation may not be worthwhile, until labor costs increase too much. If minimum wage is set at $X and previously the jobs were done for $X-2 and automation (or offshoring) costs $X-1, ... I think the result is obvious.

Look, your argument

Look, your argument absolutely depends on marginal productivity theory- in fact it depends on the concept of diminshing marginal productivity. If each additional worker adds greater and greater value, why would we be having the discussion? Every firm would have it in their best interest to hire an infinite number of workers.

Even if we hold productivity constant or let it increase, I don't see how anything follows. Firms will still only hire those workers who produce more than they cost, and not hire workers who cost more than they produce. If we suppose that firms have increasing returns to scale (which they don't, by observation, and we attribute this at least partially to the inefficiencies of large scale planning, the principle-agent problem, and all the other sorts of problems also associated with centralized government agencies), they would continue to hire workers until the available supply of labor ran out, or until the demand for labor caused the price of labor to rise higher than the marginal producitivy. Still not sure what your point is.

And without the state,

And without the state, we’d lose what little regulatory power we have at the moment.

I don't agree.

This is for the first post

This is for the first post by Matt27, and does not take into account anything written thereafter that bears resemblance to what I write here or maintains disagreement with it.

First of all, I don't think that brief comedic quotes by old, much disproven economists are any kind of a sound argument against anything. Too simplistic.
You claim that large companies can simply pack up and leave if they don't have the demands on labour they wish met. This is not so simple a process as you seem to think. A GM plant costs hundreds of millions of dollars to construct and maintain. Relocating is by no means a matter of picking up a few suitcases and leaving. The costs are tremendous and, often crippling. Furthermore, Who is to say there would not be other emplyment oppurtunities made available should GM or whomever leave. The sudden large pool of labour would lower labour costs and probably cause incentive for other companies to quickly reabsorb the unemployed.

If there is no mechanism of state, then a sizeable business would have no central policy maker to influence, all matters relating to emplyment benefits and such would be solely a matter between the employers and the employed, because both parties have something to lose and something to gain, the likelyhood of a settling somewhat favourable to both is very likely. Ie: GM faces huge costs in leaving but will if employees are too unreasonable. Employees face losing their jobs if GM refuses to negotiate, but will take it if GM is unwilling to give any ground. Thus an incentive exists for both parties to negotiate mutually favourable terms. Its not quite a simple matter of GM easily threatening the "poor" employees" and cowing them into acceptance of a poor wage under threat of mass firings. there are more factors at stake. Pure employee/emplyer negotiation is a far more unmuddled method of decision making then inviting a disconnected third party of debatable qualifications to intervene (government).

when was it cast in stone that companies have a "social responsibility" to their employees anyhow? The company is organized to serve consumers and shareholders. Not the ones it hired to build its products. It's not their babysitter, nor should it be. Just as a company is responsible for its own sustainment, so are the workers within it. To further their value/cost they should further their skills, just as a company must do to further its value. Their relationship need not be anything more then a contract to certain work for a certain pay. Why should there be company obligations beyond this? Give me a good reason without undermining the idea that individuals are soveriegn and free willed actors.
Businesses serve communities by providing usable products at the cheapest prices that the competition forces them into. They do this, not by playing nanny to their workers, but by exploiting them for what marginal utility they can (amongst other things). The employees do likewise and en masse.

To conclude, whether the demands are untenable or not based on diminishing marginal utility, is irrelevant. How the company can best serve its shareholders and consumers is what really increases standards.

Micha- In mainstream

Micha-
In mainstream economics theory, comptitive firms take the price of labor as a given, such a price being determined by the trade-off between labor and leisure. The number of workers hired is determined by diminishing returns which force the "gap" between productivity and the wage to shrink to zero. The last worker hired will be the one whose productivity adds a slightlygreater amount than his wage. Thus firms are price-takers, not price setters.

Even if we hold productivity constant or let it increase, I don’t see how anything follows

It will never intersect the real wage and hence mainstream economics is unable to explain wage levels. That's a huge problem.

I’m not sure I understood your point, other than the fact that changes in every market effects other markets, which may effect changes in the original market, which is a trivial and obvious point and from which nothing seems to follow from what I can understand

Assumption number one behind the supply and demand curve is that the two curves are independent. If you think about it for two seconds you'd realize why- otherwise there'd be no smooth slope and there'd be multiple interesections and hence "equilibia." The "trivial and obvious point" that I raise is indeed obvious but has been assumed away by mainstream economics and hence is therefore trivial. If you're happy to accept such an analysis you'll have to concede that points like this: "demand for labor caused the price of labor" are incorrect. If the supply and demand curve is unreliable then how can we prodict how changes in demand for labor will affect anything?

David- the point is even more severe than that: if demand intersects supply at several different points (which it may well do) then there's no such equilibrium price or equilibrium wage. This whole idea of "one wage, set by the market, under god" is garbage- there's no reason to assume that the market is setting it to a "preferable" equilibrium, since there are multiple such Equilibria.

"I don’t think that brief comedic quotes by old, much disproven economists are any kind of a sound argument against anything. Too simplistic."

Yeah Stephan, niether do I. It was a funny quote, and true I think but not an "argument." You may have noticed 3 paragraphs following the quote that provided argumentation- I provided those for precisely such a reason. I also happen to agree that Galbraith isn't good for much other than witty quotes, by the way, though I don't know why you've chosen to call him "old"... Do you only like young economists?

"You claim that large companies can simply pack up and leave if they don’t have the demands on labour they wish met. This is not so simple a process as you seem to think."
I didn't imply that it was simple, but such companies are usually much more mobile than the labor force is (with a laborer packing up his house and moving being the equivalent.) It's also worth noting that it's getting closer and closer to the "simple" ideal you're "debunking", as many companies turn toward outsourcing their production.

"The sudden large pool of labour would lower labour costs"
So people get their wages driven down, exactly my point. Workers, already facing hardships not shared by management of GM, are forced to "get a job for less money" or "starve to death". Similar to the glorious choice offered you by a mugger when they say "your wallet or your life."

when was it cast in stone that companies have a “social responsibility” to their employees anyhow?
I said that they should, and they should because most of these companies we're discussing are protected by the state- they are limited liability, and also recieve significant "welfare" from the state in ways that I'd guess you're familiar with. With so many benefits from the state, they should have a social responsiblity to fulfill. I do know, by the way, that they are legally required to "serve the shareholders", that is "to hold profit above all else" but that's completely ridiculous.

"Why should there be company obligations beyond this? Give me a good reason without undermining the idea that individuals are soveriegn and free willed actors."
sovereign and free willed actors are best served by having legitimate rights to self-determination. That is achieved (in part) by having the economic capacity to make meaningful decisions, dissimilar from "your wallet or your life". It's also achieved by allowing such "sovereign" actors the ability to make important decision regarding their own livlihood, including but not limited to democratic control over businesses, the ability to strike and not be replaced by scabs, and so forth.

If we're concerned with the "freedom" of individuals we should be concerned over their capacity to make choices in a meaningful context.

To conclude, whether the demands are untenable or not based on diminishing marginal utility, is irrelevant. How the company can best serve its shareholders and consumers is what really increases standards.
Truer words have never been written Stephan- this is exactly the problem I'm decribing.

The number of workers hired

The number of workers hired is determined by diminishing returns which force the “gap” between productivity and the wage to shrink to zero.

Diminishing marginal returns may effect how many workers a firm hires, but it is not the primary mechanism (if it is causal at all) of reducing the gap between productivity and wages. As I explained above, that occurs because of the incentives of firms to compete over profit opportunities.

It will never intersect the real wage and hence mainstream economics is unable to explain wage levels. That’s a huge problem.

Huh? I have no clue what you are talking about.

Assumption number one behind the supply and demand curve is that the two curves are independent. If you think about it for two seconds you’d realize why- otherwise there’d be no smooth slope and there’d be multiple interesections and hence “equilibia.” The “trivial and obvious point” that I raise is indeed obvious but has been assumed away by mainstream economics and hence is therefore trivial. If you’re happy to accept such an analysis you’ll have to concede that points like this: “demand for labor caused the price of labor” are incorrect. If the supply and demand curve is unreliable then how can we prodict how changes in demand for labor will affect anything?

As I said earlier, all real world markets effect each other, and thus themselves, yet economists assume "all else being equal," i.e. they focus on one specific market while holding all other markets static in order to seperate out unimportant phenomenon. If you wish to argue that these phenomenon are important enough to include in the analysis, that would mean we would not be able to model one market without modeling all markets at once - a difficult thing to do. Do you have empirical evidence that these assumptions lead to more confusion than light? If not, what is your point?

This whole idea of “one wage, set by the market, under god” is garbage- there’s no reason to assume that the market is setting it to a “preferable” equilibrium, since there are multiple such Equilibria.

I'm not sure who you are arguing against here. Who here is arguing that the intersection of supply and demand is sacrosanct? It merely represents, conceptually, how some buyers and sellers come together at any given moment to agree upon a price.

So people get their wages driven down, exactly my point. Workers, already facing hardships not shared by management of GM, are forced to “get a job for less money” or “starve to death". Similar to the glorious choice offered you by a mugger when they say “your wallet or your life.”

So you believe that GM "owes" these people a job? That these people "deserve" to be employed and are entitled to these jobs more than an Indian or a Mexican? GM is not taking anything from its employees that they would have had had GM never existed. The mugger is taking something from the victim that they would still have if the mugger had never existed.

I said that they should, and they should because most of these companies we’re discussing are protected by the state- they are limited liability, and also recieve significant “welfare” from the state in ways that I’d guess you’re familiar with. With so many benefits from the state, they should have a social responsiblity to fulfill.

That was never the deal. If you don't like corporate welfare and special benefits (though some form of limited liability can and would exist without the state), argue against that. But don't claim that there was any sort of social agreement that corporations would owe some sort of social responsibility by virtue of their unjustified position in society.

It’s also achieved by allowing such “sovereign” actors the ability to make important decision regarding their own livlihood, including but not limited to democratic control over businesses, the ability to strike and not be replaced by scabs, and so forth.

What's stopping groups of people from getting together, starting their own corporations, and giving each employee equal control over all decision making and ownership? And why should employees have the right to collude with each other and have this collusion protected by law, yet firms are not only not protected by law when colluding (common law does not enforce collusive agreements) but are actually prohibited from colluding in the first place? Why not apply an equal standard to all: everyone, both employees and firms should be permitted to collude, but the law should refuse to enforce any collusive agreements?

Also, this whole "shifting

Also, this whole "shifting equlibria" thing applies only to specific industries, not to the economy as a whole. Yes, an increase in the minimum wage might initially increase demand for products consumed mostly by low-wage workers. But those extra wages have to come from somewhere. And that means that demand for products consumed mostly by those who bear the burden of the extra wages is going to fall. If you look at demand across all segments of the economy, you'll see a shift in the distribution, but you won't see an overall increase.

Even if we grant that the government should help the "deserving" poor, a wage floor is a stupid way to do it. Many, if not most, workers affected by the minimum wage are young, part-time workers with no dependents. They don't need subsidies! And those who really do need help may be rendered unemployable by the price controls. It's far better (but still bad) for the government to supplement their incomes directly, ideally in a way that minimizes the disincentives to get a better job.

I suspect that the real reason for the appeal of the minimum wage is that it helps to perpetuate the left-wing fantasy that unskilled workers really do deserve higher wages, and that the only reason they don't get them is that they're being exploited by greedy capitalist pigdogs who are making money hand over fist.

It’s also achieved by

It’s also achieved by allowing such “sovereign” actors the ability to make important decision regarding their own livlihood, including but not limited to democratic control over businesses, the ability to strike and not be replaced by scabs, and so forth.

When a significant majority of consumers choose to purchase a particular good from one company the left calls it a "monopoly" and demands that the government do something to make them buy from another company. So why is it that when independent workers try to compete with a labor union, you call them "scabs" and demand that the government enforce the union's monopoly power?

What are the rules that I should know, to determine when the government should encourage competition, and when it should destroy it?

Diminishing marginal returns

Diminishing marginal returns may effect how many workers a firm hires, but it is not the primary mechanism (if it is causal at all) of reducing the gap between productivity and wages. As I explained above, that occurs because of the incentives of firms to compete over profit opportunities.

those two ideas are not contradictory. As I've written, economic theory takes these things for granted. Because of competition, it's argued, firms can't attempt to set wage prices at all. I think you're trying to redirect the argument by "proving" that competition ensures that wages aren't set by the firms. I can argue that (it's pretty simple, since perfect competition hardly exists) but I'm granting that point in order to expose a more fundamental flaw in the economic theory of wage determination. Wages are set when the last worker hired is no longer profitable (as you've said) and this is caused by the diminishing marginal productivity of labor. The fact that increasing the supply of labor increases the price of labor is just another factor to complicate things- and one that you shouldn't bother bringing up as it's akin to shooting yourself in the foot. I'm already arguing that assumption #1, supply and demand are independant, is inapplicable. Now you're arguing that assumption #2, that the price of inputs can't be affected in the short run, is also inapplicable. I know you think you've got other arguments up your sleeve as to why wages are still fair, but I'm pointing out that the neoclassical argument for it is invalid. And you're helping me.

matt: It will never intersect the real wage and hence mainstream economics is unable to explain wage levels. That’s a huge problem.

micha: Huh? I have no clue what you are talking about.

this situation is graphed with a flat real wage line and a curved productivity line which "intersects" the wage line at a certain point. This point represents how many workers are hired and how much they are paid. My point is that without D.M.P. there is never such an intersection and hence hiring decisions are simply not explained by the graph.

As I said earlier, all real world markets effect each other, and thus themselves, yet economists assume “all else being equal,” i.e. they focus on one specific market while holding all other markets static in order to seperate out unimportant phenomenon. If you wish to argue that these phenomenon are important enough to include in the analysis, that would mean we would not be able to model one market without modeling all markets at once - a difficult thing to do. Do you have empirical evidence that these assumptions lead to more confusion than light? If not, what is your point?

Surely you can see the irony in asking for an empirical justfication of my critique of a logical argument in economics of all disciplines. There's been plenty of work done in the history of economics that shows how dubious many of the "proofs" of mainstream economics are... but ultimately this isn't my cross to bear- I'm undermining the model here and saying it's inapplicable. Am I saying that the resulting model of a new demand slope at every point on the supply curve is better? Not at all- I don't even believe that, of course, it's just what logically follows from the neoclasical dogma. I'm certainly not arguing for this ridiculous hooey- that all firms have incentives to produce infintely? It's nonsense. Before you start trying to turn this into a "what do I believe then?" sort of debate, let's handle the argument at hand and see if the neoclassical edifice collapses.

Do you think that the assumption that markets can be studied in isolation is a fair one? I've shown that it's internally contradictary to the other tenets of mainstream economics, so I think it'll take a powerful argument to convince.

I’m not sure who you are arguing against here. Who here is arguing that the intersection of supply and demand is sacrosanct? It merely represents, conceptually, how some buyers and sellers come together at any given moment to agree upon a price.
it's not a representation; it's offered as a proof. It's also used to explain why minimum wage laws create unemployment and so forth. If you're willing to drop supply and demand curves altogether then I might consider asking on what grounds you'd choose to argue the point we're discussing.

So you believe that GM “owes” these people a job? That these people “deserve” to be employed and are entitled to these jobs more than an Indian or a Mexican? GM is not taking anything from its employees that they would have had had GM never existed. The mugger is taking something from the victim that they would still have if the mugger had never existed.

that's simply not true- we have no idea what society would look like if huge corporations hadn't gained control of gov't and set laws up in their own interests, attracting all manner of subsidies and market distortions along the way. Nevertheless, my point is about the freedom of choice and your argument doesn't dispute it.

That was never the deal. If you don’t like corporate welfare and special benefits (though some form of limited liability can and would exist without the state), argue against that. But don’t claim that there was any sort of social agreement that corporations would owe some sort of social responsibility by virtue of their unjustified position in society.

oh it was never the deal, eh? Even if you can't be bothered to read a history on the subject like Miller's "The Modern Corporate State" there's even a movie that explains this point now (the corporation.) This was precisely the deal when corporations originated. Because they managed to achieve a remarkable level of power they were enable to enact changes in laws to eliminate, among other things, the requirement for social responsibility. Besides- your argument assumes that there is some kind of "fair deal" in which the taxpayers just freely voted to provide these subsidies, which is patently ridiculous (and I'm sure you know it.) Companies conspired with gov't to steal taxpayers money- they do owe retribution.

What’s stopping groups of people from getting together, starting their own corporations, and giving each employee equal control over all decision making and ownership? And why should employees have the right to collude with each other and have this collusion protected by law, yet firms are not only not protected by law when colluding (common law does not enforce collusive agreements) but are actually prohibited from colluding in the first place? Why not apply an equal standard to all: everyone, both employees and firms should be permitted to collude, but the law should refuse to enforce any collusive agreements?

What's stopping them? Plenty of things- the invisible handshake for one. There've been studies showing that worker managed companies are more efficient (which I've cited for you before), yet they don't exist... Of course you'd like me to demonstrate why (at which point I'd like to remind you to look above when you start asking me for empirical evidence when your theory comes into question, the exact opposite of what you'll argue here) but that's actually up to you- it's your theory that assumes that capitalism rewards efficiency and efficiency only. I tend to think that for instance modern corporations rely on enough closed-door, "who you know" kind of dealings to render worker-controlled companies uncompetitive.

Why should people be protected to a greater extend than fictional entities? differences in power that are there by definition, for one thing.

When a significant majority of consumers choose to purchase a particular good from one company the left calls it a “monopoly” and demands that the government do something to make them buy from another company. So why is it that when independent workers try to compete with a labor union, you call them “scabs” and demand that the government enforce the union’s monopoly power?

this is sort of argument that looks okay in the thin rarified air of academia but seems silly when you look at a real world example. In reality, scabs tend to be workers so desperate that they are effectively unable to not work. If you want to argue this let's argue a concrete case so we can see what you're advocating. Why is it that you'll probably acknowledge all the unfair advantages large businesses have attained by colluding with the gov't, but when it comes down to brass tacks you're most interested in attacking the worker's rights to defend themselves against such powers?

What are the rules that I should know, to determine when the government should encourage competition, and when it should destroy it?
Lipsey and Lancaster's "Theory of the second best" would be a good start.

Also, this whole “shifting equlibria” thing applies only to specific industries, not to the economy as a whole. Yes, an increase in the minimum wage might initially increase demand for products consumed mostly by low-wage workers. But those extra wages have to come from somewhere. And that means that demand for products consumed mostly by those who bear the burden of the extra wages is going to fall. If you look at demand across all segments of the economy, you’ll see a shift in the distribution, but you won’t see an overall increase.

in practice this is usually not true, brandon- factories are made with significant excess capacity and farms tend to feature land which "lies fallow", so firms can amp up supply without taing land from other uses, which tends to negate the effects of what you describe. Nevertheless, embacing such an idea is rather devastating to most neoclassical positions, for instance: since we can't know which distribution of goods will maximize utility, and (as you admit) every change in demand radically shifts curves in all markets, it results in different prices and therefore different distributions of income. Since we can't objectively measure utility anymore like old man bentham did, we have no way of knowing which distribution maximizes utility, and we can no longer prove that markets maximize utility.

I suspect that the real reason for the appeal of the minimum wage is that it helps to perpetuate the left-wing fantasy that unskilled workers really do deserve higher wages, and that the only reason they don’t get them is that they’re being exploited by greedy capitalist pigdogs who are making money hand over fist.

your suspicions are likely correct- I happen to think this is true (though I wouldn't use as much hyperbole.) If you look at history, powerful organizations have always sought to oppress the underclass, be it the church or the monarchy or whomever. Such organizations have always created an ideology which not only justifies the oppression, but often "proves" that they're helping the underclass. It'll take alot to convince me that the new glorious era of capitalism is any exception to the rule and as a result I tend to approach problems as if they're the same ones that have existed for a few thousand years.

Perhaps you think that history shows poor workers exploiting the rich and powerful of the world- that would explain alot.

-Matt