Cumberland Times-News

November 3, 2013

Reader provides answers about economics

To the Editor:
Cumberland Times-News

— R. Steele Selby, in his commentary of Oct. 22 supporting a minimum wage hike, says he knows little about economics and then sets out to prove his point. So let me answer each of his questions.

1. Barack Obama’s chief economic adviser is Alan Krueger. In 1994 he co-authored a paper purporting to show that the minimum wage did not reduce — in fact increased — employment at the big fast food chains (like McDonald’s) in New Jersey. This claim was challenged by scholars and subsequently discredited.

2. Why would unions support something that reduced employment? Why would the UAW prevent GM from laying off workers and force it to pay them for sitting in a “jobs bank?” I’m sure their demands had nothing to do with GM’s bankruptcy. Unions undoubtedly support the minimum wage because, with less than 7 percent of private sector workers in unions, they are desperate for members and see it as an organizing issue. They also know that, since the minimum wage is a base upon which other wages are scaled, an increase will push up wage rates across the board.

3. John Kenneth Galbraith? The “gold standard” in modern economics? Galbraith was a darling of (only) the liberal “intelligentsia” for his support of big government and central planning: he once advocated nationalizing the largest corporations. An economist who made no lasting contribution to economic theory, he was remembered by the respected Economist magazine as one whose “faith in government … verged sometimes on the bizarre.” He said in 1984, five years before the Soviet Union collapsed: “Partly, the Russian system succeeds because, in contrast to the Western industrial economies, it makes full use of its manpower.” Yeah, and if you don’t like the wage set by the government, you’re off to the Gulag.

4. Robert Reich is not an economist; he’s a lawyer.

5. When it comes to citing the analysis of academic economists, my advice to Mr. Selby is: don’t try this at home. Arindrajit Dube never said that labor productivity has risen by a factor of 22 — because that would be ridiculous. The increase since 1960 is more like 2.2. And it does not follow, as Professor Dube states explicitly, that the minimum wage “should” be $22 today. (Google his name and read his actual testimony.) He surely knows that productivity growth is largely the result of increasing capital (plant and equipment) per worker and technological innovation.

 Therefore, some of the increase in revenue per worker accrues to the suppliers of capital and the undertakers of Research and Development. Unless you believe, as did Karl Marx, that any return to capital over depreciation is “surplus value” stolen by the capitalists from workers.

6. Mr. Selby is apparently (and not surprisingly) unaware of the contretemps between Paul Krugman and Harvard professor, Niall Ferguson. Documenting his history of flip-flops, inconsistency and hypocrisy in a series of articles in the liberal Huffington Post, Professor Ferguson concludes that Krugman is one “whose predictions (and proscriptions) no one should every again take seriously.”

7. The compensation of CEOs is absolutely irrelevant to the level of the minimum wage and is of no concern to anyone but the owners of the corporation. If the shareholders think that executives are overpaid relative to their performance, then they should move to replace them.

8. The point of the gasoline analogy (which Mr. Selby apparently missed) is that “progressives” support higher taxes on goods they dislike, such as fossil fuels and tobacco, because they believe the higher prices will discourage their use. But when it comes to labor, they deny the very same principle. And by the way, Karl Marx defined labor as a “commodity” like all others which are bought, sold and priced in markets.

9. What kind of economist am I? A “heartfelt humanist” (whatever that is) or a Scrooge-like “vulture capitalist?” Bah! Humbug!

David M. Kiriazis