Comments on: Underconsumption Is Not the Problem

By: Jan to July 2010 Browseworthy Stories Archives « Clear Thinking

Jan to July 2010 Browseworthy Stories Archives « Clear Thinking — Tue, 01 Feb 2011 22:38:16 +0000

[...] 3-10-10 William Anderson at The Freeman Online NYT’s head progressive economist zealot gets it wrong–again. Underconsumption Is Not the Problem [...]

By: Sherwood Kaip

Sherwood Kaip — Tue, 24 Aug 2010 04:49:25 +0000

Mr. Thorsen, your statement that “The primary driver of employment is the *need for workers*.” is slightly misleading. The primary driver of employment is that the employer get more in value (profit) from his employees than he pays (If he gets less, it’s called bankruptcy). Just like in all economic trades, both the employer and employee expect to gain–if either thinks he is losing, there will be no trade.
If raising the minimum wage has no significant effect on employment, let’s raise the minimum wage to $100 dollars per hour and we’ll all be rich–or out of jobs til we get it all sorted out!
If the object is to raise the average wage, one of the simplest ways to do it is to kill everyone who makes less than the current average wage. Come to think of it, that’s what we do when we raise the minimum wage above what some people are worth to an employer. We cut off the bottom rungs of the economic ladder for the least productive (currently) among us, often people who are just trying to get into the work force. If employers can profit from hiring (more) workers, they will do so. If they can’t, they won’t. Would you be willing to hire and manage 100 workers for no profit, even if you didn’t go bankrupt either?
While it is certainly true that employers will pay no more than they have to, it is also equally true that workers will work for no less than what they can get.

By: Terry Thorsen

Terry Thorsen — Mon, 15 Mar 2010 04:21:58 +0000

I agree with the article but draw issue with the conclusion that the raise in minimum wage affected teenage employment. The primary driver of employment is the *need for workers*. In a deleveraging economy the majority of businesses scale back due to capital constraints and falling revenue. For businesses, the cost of the worker affects profit margins but (except in boom times) does not impact the quantity of workers hired.

This translates to logic that doesn’t require a degree in economics. A bad economy means there is less work. Teenage employees are more likely the victims of their own relatively low productive value. If this were not the case then we would instead expect to see low cost teenage workers *retained* at the expense of higher cost workers. We would see cashiers being promoted to middle management.

Certainly at some point a high wage conflicts with the level of employment but I suspect that this effect to be a curve. I doubt very much that a 50 cent change in the minimum wage really has a significant effect on employment rates whereas the effect of mandated health insurance at $7,000 a year would put quite the damper on hiring.

Not to say that higher labor costs are good news. The primary result of artificially high labor prices is a higher cost of goods (per the law of cost of supply). Higher costs put goods out of the reach of a greater number of people and thus lower the standard of living. I can’t help but feel that when we argue against the minimum wage that we are off tack, making the argument a question of employment rates (which plays right into the neo-classical court) as opposed to lowered costs of living which is a demonstrably positive result.

By: Tim

Tim — Sun, 14 Mar 2010 04:51:46 +0000

Basically economic law applies just as stringently to nations as it does to individuals. One cannot produce wealth merely through consumption. Wealth creation depends the efficient use of scarce resources and the only way that can be acccomplished is via the free market. Once government intrudes, political choices supplant market choices and society is made poorer. After all, if politicians were blessed with keener insight into the public’s wants, they’d stop being politicians and become entreprenuers and earn their money through voluntary transactions rather than extortion.

By: Peter Marengo

Peter Marengo — Wed, 10 Mar 2010 17:09:46 +0000

Excellent analysis – the more people understand this the more they become appalled by statism in all of its forms

By: Underconsumption Is Not the Problem « thak’s cool links

Underconsumption Is Not the Problem « thak’s cool links — Wed, 10 Mar 2010 16:41:27 +0000

[...] The Freeman | Ideas On Liberty » Underconsumption Is Not the Problem. More on the Keynesian fallacy. [...]

By: Steve Farrell

Steve Farrell — Wed, 10 Mar 2010 16:17:18 +0000

Good thoughts as always!