Ok I Think I Get Morgan Warstler on the Labor Market

     He's been arguing that the minimum wage is a problem-that it leads to unemployment and enables Wallmart to pay low wages. I've disagreed with him-I argued that really what the wage subsidy really is amounts to a subsidy for Wallmart-you could call it the Wallmart Subsidy-it enables them to underpay workers. 

    However, regarding the minimum wage I pointed out that we had a much higher MW in the past and it did no harm-we had it at its highest level evern in 1969 and employment was much better then than today. Morgan countered with this which I find very interesting:

     :"Saxie,   You are close, so here's last point.  TODAY IS NOT YESTERDAY. What used to happen, cannot happen again. This is what Summers and DeKrugman and Secular Stagnation are stumbling around, describing. This is WHY so may are screaming about Guaranteed Income."

     "This is Tyler Cowen noting that there are MORE Zero Marginal Product workers every year. It's because we have a digital global economy. We only need 57 employees to build WhatsApp.So now you have ALL the pieces, you have no excuses."

     "You know today is not yesterday, so what used to be - is no longer going to be. You can imagine having 50%+ of our population in the future not being able to earn their own way. So now we can say IF Saxie accepts these two ideas might be true, THEN the WAY to provide social commitment is to FORGET ABOUT LIVING WAGE / MINIMUM WAGE."

    "Look, man STOP worrying about wages and FOCUS on consumption.If we do GI/CYB the poor get to consume more immediately."

   http://diaryofarepublicanhater.blogspot.com/2014/03/morgan-warstler-identifies-problem-and.html

     Notice that this is a very different argument he's making against the MW then the standard one at this point. When Bob Murphy for instance knocks the MW he uses standard Neoclassical Supply and Demand analysis-if you increase the price of a good you drive down supply-he sees the labor market as no different than any other one. 

     Which is how standard S&D analysis has seen it since at least Walras. Of course, one might think that the labor market is different. Certainly I think morally we have to say that the market for human beings looking for work is qualitatively different than say any other market like for apples, bananas or rock salt. However that's ethics, and traditionally economics ignored that-or at best it's 'normative rather than positive economics.' The idea that econ is or should be a pure science is to say only positive arguments matter. 

    Since the Depression, at least, we no longer believe that every market works on the classic S&D framework.  Most mainstream economists believe in S&D but they don't think it applies to every market--Sumner obviously makes one big exception with the money market where he thinks wage stickiness means that money is different from other markets. A Republican like Mankiw-I'm currently reading his textbook-makes that point very clear there that not every market has pure competition or even anything close-there is market power in many markets where employers are not pure price takers. 

        When FDR passed minimum wage legislation in the 30s few economists thought this was a good idea yet we did it anyway. Why? Because while Sumner says there is no such thing as public opinion in economics, economic policy is often set while disregarding the often rather strange sounding preferences of economists. We got the MW in the 30s not by consulting the economists and doing whatever they told us but because society as a whole decided that it was unacceptable for people to be paid such meager earnings. The classic S-D argument is that this increases unemployment by reducing demand for labor. However, the MW didn't become law through 'positive' arguments but through 'normative' ones. We decided that it simply isn't right for someone people to make below a minimal level. 

        It's the same thing in many other examples of social progress-many economists argued against ending job discrimination based on race, sex, etc. and argued against the end of segregation. Had we listened to them it would still be legal and acceptable to refuse black people, gay people or whoever else service. Morgan clearly has some sense of this. He argues that the liberal goals eliminating rampant poverty and helping those out of work and down on their luck are shared by everyone it's just a question of how to get there. 

      As a conservative, of course, he wants a market based solution. Again, I pointed out that a very high minimum wage is consistent with full employment. What's interesting is that he more or less concedes my point. This is why his argument against the MW is different than the traditional one-simply S-D where if you just leave the market along supply and demand will get back in line. 

       On the one hand, he seems to arguing for  very deep negative effects form the MW-suggesting that we have 30 million out of work because of it. This is more radical than even most conservative economists who argue against the MW-even Sumner only thinks it takes maybe half or at most maybe one percent off of unemployment. Yet he admits to me that this wasn't always the case-the labor market has changed radically due to the Internet and data revolution. The funny thing is that-whether or not you believe the central role of the MW as he does, I don't-I do think something radical happened to the labor market due to the data revolution. This is the kind of suggestion that mainstream economists find incredible-they don't think that the market can fail-that is demand and supply get out of whack-in the long run. 

        What I know is that things seemed to me to change overnight round about 2001. All of a sudden there were a lot less white collar jobs out there-as computers absorbed so many of their functions-what computers didn't absorb, outsourcing to Asia and South American did.  In the first half of 2001 I was just coming into the labor market for accounting. I was with a temp agency and until June that year there was always work. If one assignment ended the agency had another one for me the next day. In June a 3 month assignment I had with a waste disposal company-doing accounts receivable ended. I wasn't concerned figuring they'd find me something else. I never got a call. I called them back a few times and they always said they'd have something soon but they never did. 

         I remember at the time George W. Bush spoke about this problem. He helpfully said that people like me should go back to college and get another degree. Yeah, it must be nice to have the time and resources to say 'Gee after 4 years of college and $100,000 in student loans it turns out that my degree isn't going to get me a job. However, let me put up another $100,000 and another 4 years and I'm sure something will turn up.' I never really got back into the field. I got jobs here and there but nothing really stuck. If I had started out 10 years earlier, 5 years earlier I would have been on easy street. So I came into the labor market at just the wrong time. I got my second career alright-as a pizza delivery driver. 

        I was able to keep myself afloat for 6 years doing this. Then I couldn't even find a decent paying delivery job. In 2009 I got to come back to New York-I had been in Mass for years-and live in my parents basement. Yes now things have turned around-I've found yet another career, telemarketing which I've been at since 2012 so since September 2012 I have had work. Last September I finally found full time work-calling maintenance guys to talk them into buying sewer and drain cleaner. I made a splash right away doing this and in January my boss gave me a raise and promised that if I maintain performance I'll get another raise. Now as I revealed recently, I've inherited a little money. How little? Enough to move out of my parents' basement and buy a house and a car and have something to live on besides. 

        So I know something like this has happened through my own experience and not just mine but millions have gone through the same thing. I've spoken to people in this area-this is Nassau county for God's Sake-and talked to people at these job fairs who said they just want anything-they really don't care what the job is, and they were previous white collar workers.If anything I'd say we're much more of a Center Left country today than we were in 2001. I think the country was a lot more conservative-economically then. In the 90s even I thought there was something in the arguments against 'lazy people on welfare'-if only they weren't lazy they could get a job though I was a Democrat. It was very easy to get work back then. However, after 2001 all I saw was Republicans denying the elephant in the room-and of course they're the biggest elephant around LOL-and I said these guys sound like Marie Antoninette, just let them eat cake. In truth the cluelessness I and many others perceived was real. 

        Alan Greenspan in his 2007 book Age of Turbulence described the 2001 recession as 'mild and shallow.' It might have looked that way for those who only look at the official unemployment statistics as Greenspan did. So yes, in 2006, early 2007 you could still deceive yourself that the economy was working great-I mean GDP was 3.5%, unemployment was allegedly only 4.8%. Note that Sumner's hobby horse-NGDP was 'benign' as well, about 7% or so. This is the kind of thing that someone like a Sumner never can get. He thought everything was fine until all of a sudden in 2008. What happened though was not caught by the official unemployment rate. It wasn't that people didn't have jobs it was that they had crappy jobs. Jobs that paid $7 an hour rather than the $20 an hour their college diploma was supposed to make their birthright right out of college. 

     In the past Morgan has struck me as something of a technophile. I mean I love tech as well-I think the Internet is just crazy-I mean how can you even begin to assess how much it has changed our lives? I mean the last 5 years have been tough but at least I had the Internet. This gave me an outlet. In 2010, 2011 I was  out of work and spent the whole day everyday at the Baldwin Public Library here on Long Island However, I thought maybe he overestimates a little how much productivity it can give us. However, I see now that he understands this phenomenon as well as anyone I've read. Most mainstream economists have been totally unaware of this.  Interestingly liberals like Joseph Stiglitz have also made this argument and been dismissed by mainstream econ. 

      http://diaryofarepublicanhater.blogspot.com/2011/12/stiglitz-guilty-of-macroeconomic-heresy.html

       This is the book that goes as furthest in analyzing this.  

          http://www.amazon.com/Race-Against-Machine-Accelerating-Productivity-ebook/dp/B005WTR4ZI/ref=sr_1_4?s=books&ie=UTF8&qid=1395454212&sr=1-4&keywords=rage+against+the+machine. 

          Essentially then Morgan's argument is thanks to this phenomenon we can no longer have a MW. So he's arguing that there's been a structural change in the labor market which is permanent. 

        So I certainly tend to follow him on the idea of a a radical change-I'm not sure though that it's permanent in the labor market-though I'm still not at all convinced that the MW is this big roadblock.. When I say it's not permanent is that can imagine the market changing in ways that will eventually get us past it. At best what he's saying is that the demand in the labor market is for a much smaller number of workers than in 2001 or so and so low wages would be the way that we can get all the unemployed and underemployed-which I argued was the real legacy of 2001-jobs.