Timothy Taylor On Social-Security

He warns:

The figure, taken from the annual report of the Social Security actuaries released in May 2011, tells the story.  Up until 2011, the “non-interest income” for the Social Security trust fund–which basically means payroll taxes–exceeded the costs of the system. Under the rules of federal budget accounting, Social Security was providing extra funds that could be used to purchase Treasury bonds, and thus reduced the amount size of the budget deficit that needed to be financed by borrowing from the public.After 2011, however, the costs of the system are slated to exceed non-interest income. Under federal budget accounting rules, now each year the rest of the budget will need to repay the Social Security trust fund. . 

Thus, we are switching from a situation where the Social Security system helped to hold down the federal deficit each year, to a situation where the Social Security system will be contributing to a larger federal deficit each year. To be sure, this effect won’t be large for a few years. But I suspect that this change will gradually bring changes to Social Security into the debates over reducing budget deficits in a way that they haven’t previously been. 

The link can be found here.

30 Responses to “Timothy Taylor On Social-Security”


  • HP,

    I’m sorry that this is completely unrelated, but I wanted to get your take on this article:

    http://www.thenation.com/article/161057/wikileaks-haiti-let-them-live-3-day

    I know what your opinion is of the minimum wage for American workers, but I was wondering how you felt about a minimum wage law for Haitian workers?

  • Hey LaurenceB,

    Did you know I subscribed to the Nation? Yep. Did so until a few months ago…they are like the Economist, just too many publications per month. Not enough time to read them all. So of course, now that I discontinued my subscription, they are all over the news! Grrr…Anyway, onto the meat of the article….

    As a general rule, I would be against it as well, but for different reasons. Let me explain. I start with the premise that the solution to Haiti’s problems is more corporations, not less (leads to more competition, which leads to higher wages, higher standard of living, etc). With that said, why would a company decide to operate in Haiti as opposed to say, the United States?

    Think about it: the United States has stronger property rights, a stronger rule of law, a more educated workforce, a more efficient government, closer access to consumers, speaks the global language and on and on. The reasons are numerous for operating in the United States vs any poor country, especially one as poor as Haiti. So again, with all of this in favor of the United States, what does a poor country have to offer???

    Low wages. That’s pretty much it! The more you close that gap between wages, the less reason there is for a corporation to operate out of a poor country. Of course, as more and more companies begin to operate in a poor country, wages will naturally start to rise (as they have in China, see here), and corporations will eventually find another home, bringing with them more prosperity and rising standard of livings.

    But if you do this artificially (by the minimum wage, or other non-competitive means), you stunt this natural progression. You reduce the incentive for companies to operate there and reduce the market share of companies that are already operating there*.

    But would this be good for the workers themselves? Likely not. What minimum wage laws in underdeveloped countries have historically done is shifted the power away from the workers and onto the managers, or those in charge of making hiring decisions. Where without a minimum wage, prices were dictated by supply and demand: if a company paid the workers too little, they would either go to a different company or find other means of income (farming, prostitution etc). But what would happen if the company was forced – not because of increased demand for their product, but artificially forced – to pay its employees more? Well for one, for the same demand, if labor costs rise, the company would be forced (by competitive pressure) to hire less workers. So now the supply of paying jobs has decreased. This harms workers.

    Second, since wages have risen, this causes the demand for labor to also increase. Think about it this way. I have a cousin who is in his 30’s and still living at home with his parents. No job. He enjoys sleeping in and living a life full of TV and video games. He claims that all the jobs pay too little. But if tomorrow there was a $20/hour minimum wage, well at that wage, he will surely get off his lazy ass and try to look for a job. The same concept applies in underdeveloped countries (but of course there, the alternatives are much more grim). A higher wage means more people than previously will now want to work at said factories.

    So that previous employee who was looking for work in a competitive labor market (without a minimum wage) is now also looking for work but there are now less jobs and more people chasing the remaining jobs. Who does this benefit? The hiring manager of course! They benefit from bribery, gifts, and other means employees use to separate themselves from the fold.

    That is precisely what you have historically seen in underdeveloped countries with minimum wages. Looong lines of people hoping, praying, begging to get in. Rampant bribery of those in charge of making the hiring decisions. And worse working conditions. Worse working conditions also makes sense…after all, you are essentially paying these people wages far higher than they are likely to find anywhere else – what can they do if you force them to work in worse conditions? Certainly not quit and find another equally paying job!

    Of course you can try to regulate it even further but you run into the same catch-22, with every step making the situation worse. And eventually, killing the prospects of this poor country ever escaping poverty. This is why, ALL economists, from the right to the left, from Paul Krugman and Brad DeLong on the left to Tom DiLorenzo on the right, from Matthew Yglesias, Ezra Klein and Nick Kristof on the left, to Bill Easterly, Mark Perry, Greg Mankiw and Benjamin Powell on the right, have all supported sweatshops.

    I’ve blogged on sweatshops (somewhat related) many years ago, see here, here, here, and here.

    *btw, you will see articles and posts claiming that the rise in a minimum wage will “only” cost these clothing manufacturers some value X, and that value will largely be simply the added labor costs. But the added labor costs would likely be the least of their costs. The real cost would come from loss in market share. The manufacturing of clothing is an extremely competitive market and even a slight rise in costs can easily translate to a large loss in market share. With other clothing companies trying to also find the cheapest labor to make their products, a nearly 41% (the proposed minimum wage increase) rise in labor costs would put clothing manufacturers operating out of Haiti at a severe disadvantage.

  • I guess that’s pretty much the argument I expected. I see the logic of it, but my personal feeling is that to oppose a 60 cent minimum wage in Haiti is a living, breathing example of taking a good principle and extending it beyond it’s reasonable application.

    For example:

    You may believe in the right to bear arms. Fine. But does that extend all the way to hand grenades? Artillery? Tanks?

    It seems to me there comes a point where the general principle loses out to common sense. In Haiti, I think that point has been reached.

  • But my argument is not based on “principles”, I am not arguing the way things should be or basing my arguments on some moral claim. Certainly if I was god, I would not have made the world this way. It morally repulses me as well. I dont like it. I wish things would be different. I am just giving you the rules of the world the way they are.

    I am arguing for the way things are – in other words, I am arguing that the chain of events above are about as certain as gravity. Its not that I agree with gravity, it has certainly caused the deaths of many innocent people – but it is what it is, and you either deal with it, or make things worse.

    It reminds me of this apt quote from Paul Krugmans article on sweatshops:

    Such moral outrage is common among the opponents of globalization–of the transfer of technology and capital from high-wage to low-wage countries and the resulting growth of labor-intensive Third World exports. These critics take it as a given that anyone with a good word for this process is naive or corrupt and, in either case, a de facto agent of global capital in its oppression of workers here and abroad.

    But matters are not that simple, and the moral lines are not that clear. In fact, let me make a counter-accusation: The lofty moral tone of the opponents of globalization is possible only because they have chosen not to think their position through. While fat-cat capitalists might benefit from globalization, the biggest beneficiaries are, yes, Third World workers.

    You raise the minimum wage and sure, you quench your moral outrage, but you also make things worse for the employees in Haiti. The question is: which is more important?

  • To do business corporations want not just cheap labor, but also a stable low crime environment. From the perspective of a sweat shop instant quarterly profit increases can come if you slash labor costs. But this produces a long term problem. With no revenue the government is starved and becomes incapable of providing that stable environment the corporation needs.

    A government can take a long term approach. That’s what Haiti was gunning towards with this minimum wage increase. Short term it’s going to gut into profits for Hanes and Levi-Strauss. Long term it’s going to make this a better environment for them to operate.

    I think we see this playing out in Mexico. NAFTA created millions of unemployed peasants that were then pushed into slums. This drove down labor costs. Incomes for Mexicans are not increasing like NAFTA proponents claimed they would. But I wonder if at this point some of these corporations that wanted these low labor rates are now looking at Mexico with regret. Maybe they don’t want to operate there with all the lawlessness and chaos. It was good for short term profits, but is it a good long term approach?

    In any case maybe we can agree on this much. Haiti should be permitted self-determination. If they want to raise their minimum wage our government shouldn’t pressure them to keep it low. And if this means they lose the sweatshops and suffer the consequences, so be it. I personally think under those conditions they’d improve their situation. HP, you’d probably think they are harming themselves. It seems to me that the people that happen to have the boot on their throats are able to see clearly what is in their own best interest. HP, you think you know better. Haitians don’t know what’s good for them. You do. That’s the pattern we see historically. An army of prominent economists from the colonial country telling the peasant country what’s in their own best interest while the peasant country resists. Then in retrospect we can see that the peasants really were right. I think that’s what we have here.

  • I’m curious Jon – what do you think of Chinas development? Your theory sounds good, but we havent seen it ever really happen (and weve seen plenty of the reverse – it making things worse). China, on the other hand, fits perfectly within the Chain of events I described above (as well as the beginning stages of all other industrialized countries)…and we’d both have to agree that China would be the envy of Haiti – yet both started at roughly the same place.

    Another hole in your theory: whats to stop these companies from jumping ship and just going to a different country? Say Vietnam or Cambodia? How does that play into government revenue?

    I see the Obama Haiti interference problem differently: I see it as Obama warning Haiti what would happen if it went through with these minimum wages. In other words, Hanes and others have communicated to Obama what this would do to their bottom line and what it would mean for their future business. Obama wants to help Haiti – its a political win, being so close to the USA and after all they have been through – and is trying to work out a viable solution for both.

    I doubt he is threatening military intervention or any other serious threat. Its more like, “dude, these companies will leave, trust me, do what you can…”.

    Oh, and btw, my argument above is NOT that the companies will leave. They often dont. They have already invested in various factories and infrastructure that is too costly to just up and go. So the momentum will be to stay. My argument is that it will impede future growth (less companies will relocate there than otherwise would) and you shift the gains to those in charge of making hiring decisions at the detriment of those looking for work.

    Theory and experience are on my side.

  • We’ve never seen my theory happen? Ever heard of Britain, the United States, Japan, South Korea. You know, the world’s leading economic powers? How did they do that? Aggressive free trade? Nope. Like I’ve mentioned in the case of the United States, Adam Smith’s advice was exactly that. Britain was an industrial powerhouse (thanks to aggressive protectionism). So he told the colonies that they should do what they do best. Trap, fish. Don’t bother with industrialization because Britain is so efficient at that. That would be a waste of time. And under British rule that neoliberal advice was enforced. Not just in the US of course. Also other colonies, like India where the corresponding suffering was immense.

    After independence the US had the power to ignore that benevolent advice and did so. And the result was astonishing economic growth.

    So what about China? How can you say China is neoliberal? China is doing exactly what I suggest. Managing globalization such that it serves their interests. They would not permit the importation of products that they regarded as key for development. Even today I think tarriffs are like 35%. They block superior things in order to develop their industrial base. And what has happened? Astonishing growth once again. Like 9% per year over the last 30 years.

    It’s really quite simple. If a country wants to do well they allow free trade in areas where they are not interested in developing or in areas where they are to the point where they can compete on a global scale. If there’s an area they think they should develop, but they see themselves as still too weak, they just block imports. Internal demand generates the internal supply, and finally when ready they launch on a global scale. Toyota is a good example of that.

    Now, where do we see free markets imposed on an unwilling population? Latin America, all of Africa (managed by the IMF and WTO over the last 30 years, which always means neoliberalism), Haiti, Bolivia, etc. The failure is so spectacular as contrasted with managed development it’s quite incredible.

    Obama just warning Haiti, eh? Really he just loves them so much he’s doing them a favor. It’s not that he’s serving corporate interest? He’s just so nice? Do you really believe that?

    And my question to you was this. Should Haiti be permitted independence?

  • My question was more specific Jon: When have you seen a country raise the minimum wage ahead of current pay? It certainly isn’t happening in China. They are raising the minimum wage only after wages were already rising anyway (see here). And even then, the raise in the minimum wage is relatively small. Tiny increments up.

    It certainly isn’t happening in the United States. Even with our current minimum wage, a mere 2% of the population earns the minimum wage . Or take Hong Kong, a country that experienced the greatest alleviation of poverty in the history of man, its barely now, debating whether to even have a minimum wage – throughout the rise of its development, it had none (nor any other industrial policies, tariffs or restrictions on trade…neoliberalism success).

    With Haiti, it would be unprecedented. You would take a country with about 50% unemployment, and raise their minimum wage ~135% – at a time when most people probably earn around the current minimum wage.

  • Regarding independence: of course it deserves independence. But a country that demands absolute independence and disregard of basic economic principles shouldn’t receive any of our aid either, IMHO. It would be a waste of tax payers money.

  • I’m not sure I understand what you mean. You are asking about raising wages ahead of current pay. What does that mean? Because if they raise to 61 cents that’s going to be moving ahead in pay for the people presently making the minimum wage, but not for the people presently making more. So it’s ahead of pay in that sense. That’s what every minimum wage increase does. When the US moved from $3.85 to $4.25 (if I remember the jump right) it was a raise ahead of current pay for me since I was making $3.95 at the time, and a lot of people bagging groceries along side me were in fact making $3.85. So the US has done it. According to this study it’s a pretty good thing to do.

    http://thehill.com/blogs/on-the-money/801-economy/157627-study-minimum-wage-increases-dont-negatively-effect-employment-levels

    Is Hong Kong the greatest alleviation of poverty in human history? I checked Gapminder (a source you recommended to me) and contrasted HK to South Korea. SK of course had massive state intervention in the economy, as I’ve talked about before. HK goes back only to 1950, so comparing HK and SK (SK has a larger population) HK increased GDP/person 10 fold in that time frame. SK increased 32 fold in the same time period.

    Not that free markets are bad. That’s not my claim. My claim is that free markets are great if conditions are right. That is, if the services a country aspires to provide are mature enough to where they can compete on a global scale. HK is China’s financial services wing. Their policies attract corporate headquarters. I have no problem with that. A country can set policies as they see fit in order to attract the kind of services that they want to attract. So free markets have worked for Hong Kong (though I’d add some caveats. I think most of the land is state owned and managed, a violation of neoliberal principles). China, Japan, South Korea, India, the United States. These countries also saw massive economic growth, but they needed state intervention to do it. That’s because the work they aspired to do needed protection in order to mature, just like a child would. I mean, I could throw my kids into the free market today, but for them to really achieve their full potential (say becoming a brain surgeon) they are going to need insulation from the market.

    Your final comment here is basically how the IMF works. The IMF basically is a wing of the US Treasury. They serve the interests of their corporate backers. So now that free markets have destroyed Haiti’s enterprises they have lots of debt and are dependent on foreign aid. US corporations want low labor rates. So if Haiti attempts to do what S. Korea did, that is allow some short term pain in order to achieve long term gain, we just put the screws to them by threatening starvation. So they fall back into line and remain in poverty. Same story in Africa where it’s neoliberalism through and through. That’s a very cruel attitude. Self determination is what history shows is required for them to get out of their rut. What you offer is status quo for them.

  • let me try to explain it better:

    Traditionally, the minimum wage increase has affected a very small percentage of the population – something like 2% of working people earn the minimum wage (and even then, its concentrated in the teenage and less educated minority sector). I’ve argued against a raise in the minimum wage even though it affects such a small percentage of the working population, for reasons I’ve stated here, but this is a whole different debate than say raising the minimum wage 135%…that would affect probably nearly 40% of the population. That would have far more severe affects.

    In other words, raising a wage that 2% of the population makes by say 10%, or even 20%, is not really that big of a deal – positive or negative. It’s simply in the noise, on a lot of levels (though I would still argue, from a minority perspective, important). It’s basically raising the minimum wage to levels that most working people (say 95% of the population) wouldn’t have worked at anyways. It’s already too low for them. This is what I call raising the minimum wage after the fact. They wait until wages have already risen above a certain level, then make that floor level stick. So China, for example, will wait until something like 90% of its population makes more than $1/hour (not actual numbers, but you get idea), then make the minimum wage $1/hour. When wages rise higher, it bumps up the minimum wage in tandem. What’s important here is that the process of competition raising wages is already in affect, and the minimum wage is just used to lock in a certain level of wages. This is what the countries you referred to historically did. The United States, China, South Korea, etc…their minimum wages are a lot like our minimum wage – it affects a very small percentage of the population, and its used as a way to prevent companies from going backwards. It in no way affects the wages of the vast majority of people.

    Now granted, I still think the affects are bad. As a minority, I would continue to argue against them. But I would not go so far as to claim that these minimum wage increases reverse the competitive pressures that drive up the wages of 90% of the population. That’s not an argument I would make, nor is it one that I think is valid.

    On the other hand, Haiti’s minimum wage would affect a large percentage of the population. They have nearly 50% unemployment. Most people probably make close to the minimum wage and certainly less than the proposed minimum wage. This is what I call raising the minimum wage ahead of current wages.This certainly would have far more severe consequences and would (significantly) reduce the competitive pressures that drive up the wages of 90% of the working population.

    In other words, the real comparison between Haiti’s minimum wage law is not minimum wage laws in other countries – they are on a completely different scale – the real comparison to Haiti’s rise in the minimum wage would be something like a living wage increase here in the United States. And even proponents of minimum wage rises, would reverse course and oppose a living wage increase. Take for example, Paul Krugman (an economists you have said you sympathize with), he supports the minimum wage but is against a living wage, see here.

    These are two very different animals.

    PS: If you find the Card/Krueger study convincing (which I am sure you do, since it confirms your already pre-confirmed intuition), see this rebuttal. I’ve seen a lot of rebuttals to the Card study, but my favorite is a rebuttal from himself, published later. :-)

  • Well, you say the effects on Haiti would be severe. Adam Smith had advice for the colonies that in retrospect we can see was bad. Even though he regarded it as benevolent. It served Britain’s interests, though he didn’t seem to see that at the time.

    You think they’re making mistakes. I say that having the boot on your throat focuses the mind a bit more. Maybe they know something you don’t. South Korea, Japan, the US, Britain. They all pulled themselves out of poverty by embracing policies that you would have advised against. All of the crap countries have been embracing polices you recommend for decades (Africa, Haiti, Latin America, Mexico). Seriously, look at Mexico. NAFTA was going to save them. I mean, they’re right next door to the world’s leading economy. Tons of contacts within the states. Easy commerce. You couldn’t ask for a better setup from the neoliberal perspective. They’ve gone straight down the crapper under neoliberalism. Banking crisis, falling incomes, escalating crime. A veritable disaster. Not everything in economics is provable, but one thing seems obvious. Neoliberalism is a spectacular failure.

    And it seems so intuitive. A child needs insulation from the market. What’s true of a child is true of an industry that is in its infancy. You flood Japan with Model T’s and all these GM products, and who’s going to buy a Toyota? And how is Toyota going to develop? If you don’t protect them they will never mature. And look where they are today. Lexus is synonymous with quality. That’s all impossible on a neoliberal regime. Had your advise been followed by Japan they’d be another Haiti or Ivory Coast.

  • I’m not going to get into the big economics of it Jon – I’m coming to the conclusion that it’s a waste with you. You see things differently than I do. You trust linguists, journalists, and directors more than economists. Plain and simple. I’ve already told you repeatedly – argued in fact, with historical data and economic theory – that your simplistic view of the world is too simplistic, and often, goes against mainstream economics. You disagree, and that’s fine. I don’t argue against creationists, or global warming deniers, or any other fringe group that claims their side is right – and the vast majority of academics are wrong. I see it as a waste of time.

    This is why specifically, I have asked your for comparable examples of what Haiti is trying to do. I am making the claim that even assuming what you say is true (which I don’t believe, but arguendo, because my point is that strong) it still doesn’t apply in this situation. Haiti is going far and above what other (successful) countries have done. Your rebuttal has simply been: other countries violated free market principles and succeeded, so Haiti violating free market principles is likely to be beneficial. But I’m not a purist here. I am in favor of violating free market principles if its been shown to work. I’d sleep just as good at night. I am more interested in the specific free market principles and the magnitude of it specifically, here. Not some purist notion.

    In other words, please deal with the argument in the specifics, not the abstract. Let me ask you this: what boundaries would you put on Haiti’s legislating away free market principles? Would a 3000% increase in the minimum wage bother you? What about a $5 an hour minimum wage? $10 an hour? What about 100% tariffs? What about moving towards workers taking over the factories? Where would you stop, and why?

    As Krugman would say, “you have to have a lot of faith in Card-Krueger not to worry that some jobs might be lost.”

    There are minor violations of economic principles, and then there are serious violations of economic principles. The more you move to the latter, the more economists will step in and say, hey, you have went too far…this will really cause more harm than good. My point is that what Haiti is doing is more on the latter…historically, countries have done more of the former. Its a fundamental difference. So you cant just come back and rebut that countries have done the former. I say fine, thats a debate for another day – but right now, lets debate Haiti’s doing the latter!

    In order to think this through and make thoughtful decisions, you have to roll up your sleeves and get dirty with the economics. Overall principles like “other countries have violated free market principles and been successful therefore ALL violations of free market principles would lead to success” is not going to work. Lives are at stake here. Standard of living and the future of a country is at stake here.

  • There are plenty of economists that see things exactly as I do, including Joseph Stiglitz, Ha-Joon Chang, Prahbat Patnaik. John Maynard Keynes. Alexandar Hamilton. Not exactly lightweights. That’s pretty good company.

    I don’t pretend to know exactly what level of increase would be ideal for Haiti. Like I said earlier, for Hanes this would cost them another $1.6 million per year. So the % increase is a lot. But the dollar value cost isn’t much. Their CEO made $10 million last year. Seems it wouldn’t break the bank.

    Now, when I said this before you replied with “Very ignorant leftist talk, claiming that profits don’t matter.” I didn’t actually say profits don’t matter. Beware of the temptation to force feed my arguments into categories frequently rebutted by the right wing.

    Where would I stop in terms of the wage increase? I’d stop at what works. None of us know exactly what level that would be, but 61 cents seems perfectly sensible. What if they wanted $1? I wouldn’t object. It might not work though. It might be harmful. But that’s for them to decide. I tend to think they know what’s best for themselves.

    Did you seriously just claim that in my view ALL violations of free market principles would lead to success? Look above. I had written:

    Not that free markets are bad. That’s not my claim. My claim is that free markets are great if conditions are right.

    I’ve said this many times. Come on man, you’ve got to at least try to give my view a hearing. You’ve got to at least deal with my position as stated.

  • Let me reiterate: these economists may agree with you on the “former” point above, but that does NOT mean they agree with you on the “latter” point above.

    In other words – and I am really repeating myself here – I am making the claim that the magnitude of Haiti’s minimum wage rise is unprecedented. Were not debating small bumps to the minimum wage. But more than doubling – at a time when the unemployment rate is 50%. These things matter! I am arguing that this is FUNDAMENTALLY different than what the USA, or South Korea, or Japan, or China, or etc have done previously.

    In other words, my concern here is NOT that Haiti is violating some free market principles – my concern is the MAGNITUDE by which they are violating these principles.

    I used Paul Krugman because he is in the same camp the economists you listed above are in – under normal circumstances. He favors small bumps in the minimum wage. And if Haiti were to be proposing 10% minimum wage increases – you can use history and liberal economists to back up your claim. But just as Paul Krugman switches roles when the magnitude increased is a living wage – my argument is that this would result in the same thing, economists switching roles because of the magnitude in Haiti.

    And lastly, I addressed the “this would cost them another $1.6 million per year” argument in my first post on this topic above. To which you conveniently ignored.

    Oh, one more thing, I agree with you 100% that we should let Haitians themselves decide…just as I agree that if they start violating such free market principles so egregiously, we should withdraw all forms of economic reform aid as possible.

  • The increase is a lot in terms of % but not a lot in terms of overall costs. You’re saying that the economists I listed would oppose this increase that Haiti proposed? Do you have any evidence for that claim?

    I would say your claim for supporting independence is fake. Sure, feel free to be independent. But if you do we’ll starve you. You have choices here because we think you should have self determination. Independence or starvation. That’s not independence.

    Remember, their desperate condition is a result of colonial abuse. First the French, then with Woodrow Wilson. We’ve reaped the rewards. They get pushed to the edge, and in fact are pushed off. So because they’ve been so destroyed you think it makes sense to offer them the choice of an independent course or starvation. What in fact you offer is another form of colonial rule.

  • Where do you base your claim that Joseph Stiglitz would support the Haiti minimum wage? This is your claim, you should provide proof, not me. Please show me that in fact Stiglitz would support such a raise…and remember, my claim here is that this raise in the minimum wage is fundamentally different than what other countries have historically done. This is a much higher raise in the minimum wage and done so with a 50%+ unemployment. So you cant just say, he supported raises in the minimum wage here in the United States, therefore he would in Haiti. That’s different. And is precisely why I used the Paul Krugman (another favorite economists of yours, except when he disagrees with you) example above.

    Oh and, I dont doubt that you can find some heterodox economists (ie Ha-Joon Chang) or Marxist economists (ie Prahbat Patnaik) who supports the Haiti minimum wage raise. But that is precisely my point: they are not mainstream economists. They are considered outside the norm precisely because they hold such extreme views. I’m sure you can also find some heterodox Christian biologists who argue that evolution points to Christianity, but they are far out of the mainstream, and probably for a reason.

  • You said I trust linguists and movie directors rather than economists. So I listed economists that agree with me. Well, apparently you meant that I trust linguists and movie directors specifically when it comes to this particular wage increase in Haiti. Aren’t you saying that when it comes to this wage increase economists, even the ones I listed, don’t agree with me? If you are going to tell me what they think I’m going to ask for evidence.

    Now you turn it around and say I have to prove that these people support this specific policy in Haiti. Look, this counting economic noses is your thing. That’s fine if you want to do it and I understand it. But don’t put the burden on me. You are making claims about what they think on a specific issue. I say you have to back it up. I’m making no claim. If Siglitz thinks Haiti is making a mistake (a claim it sounds like you are making, not that I’m claiming the reverse) then support it. If you don’t know then why are we talking about it?

  • And by the way, if linguists are so bad why do you rely so heavily on Meghan McArdle? Her degree is in English literature. She also has an MBA. She is not an economist.

  • Let me be more specific then: you trust linguists, movie directors and then only those economists that tend to agree with these linguists and movie directors (specifically heterodox and Marxists ‘economists’).

    You write, Aren’t you saying that when it comes to this wage increase economists, even the ones I listed, don’t agree with me? If you are going to tell me what they think I’m going to ask for evidence.

    I did! I used Paul Krugman as a proxy. You have stated previously that he shares your political philosophy. You have used him previously as a source. And, like the other economists you listed, he generally favors the minimum wage. However, when that minimum wage approaches higher numbers – say a living wage here in the United States – he changes gears, and opposes it strongly.

    So I extrapolate from that that the others would likely do the same. Now granted, the economists you mentioned are more heterodox than Krugman. So they may still support your view (and that’s worth knowing, especially in the Stiglitz case). But that’s not my point. My point here is that the mainstream economists, both right AND left (where the Krugman example comes in) would not. I am not arguing that every single person who calls themselves an economist – Marxists, heterodox, or otherwise – will be against this. My argument is that this is against the spirit of mainstream economics. Just like creationism is against the spirit of mainstream biology – even though you may find a Christian biologist here and there who argues otherwise.

    But outside of actually finding something they have written specifically on Haiti and the minimum wage – what more can I do? This is my second best attempt to see what they would argue.

  • I ask if you are saying the economists I listed disagree with me and shouldn’t you provide evidence. You say “I did. I talked about Krugman.” Krugman was not listed by me. You’re being weird man.

    But let’s talk about Krugman anyway. Krugman thinks Haiti’s policy of increasing the minimum wage to 61 cents is a bad idea? Remember, you are saying that they disagree with me on this specific policy. When I assumed you were speaking generally you corrected me. We’re talking about this specific minimum wage increase. But I don’t recall any evidence that Krugman has a problem with this specific policy.

    My suspicion is that once again he would agree with me. Sure, he wants Haiti to be attractive for employers. But for him, as me, being attractive in the short term by slashing wages can make them unattractive in the long term (due to the corresponding chaos that’s present in Haiti, also Mexico). It’s not that he thinks sweatshops are evil. Neither do I as I’ve explained before.

    The reality is you say everyone agrees with you. That’s not true generally I say. Well everyone agrees with you on Haiti’s minimum wage. OK. Any evidence? Not only do you not produce any evidence from the people I listed, in fact I see no evidence from the people you are touting and trying to tie to me. I don’t see that you’ve shown that even right wing economists agree with you.

    For being an elitist you’re not doing so well. Maybe you can find an English Lit major that agrees with you.

  • Hey Jon,

    You write, Krugman was not listed by me. You’re being weird man.

    Of course he wasn’t. He (likely) disagrees with you. This is typical: you only quote and support economists when they agree with your already preconceived notions of the world (see Ludwig Von Mises quote above). So when Krugman agrees with a conclusion you like, he is an acceptable source. When he doesn’t, he doesn’t count. I get it now.

    You say your hunch is that Krugman would agree with you on this point, then answer this question: why would he agree with you regard to Haiti’s drastic rise in the minimum wage but disagree with you with regard to the United States having a drastic rise in the minimum wage (called living wage)? It seems to me that the direction would be backwards. It’s those that would accepta drastic rise in the minimum wage here in the United States first that would likely (though not certainly) accept it in Haiti. Think about it: we have much larger support mechanisms to help those who may lose their jobs. It’s a lot harder for the companies to break off all ties to the United States than it is to Haiti. And lastly, we have less people unemployed than Haiti does (with Haiti’s unemployment rate near 50%). So our labor force can absorb the shock better than Haiti could.

    So please explain to me why you would assume that even though he disagrees with a drastic rise in the minimum wage in the United States, he would still nonetheless support one in Haiti? What economics would lead him to change his views?

    Btw, I specifically addressed the request to show you that economists you site disagreed with you when I wrote: I used Paul Krugman as a proxy…But outside of actually finding something they have written specifically on Haiti and the minimum wage – what more can I do? This is my second best attempt to see what they would argue.

    Before I even used Krugman as a proxy, I looked for something specific Krugman or Stiglitz has written on the Haiti minimum wage. Couldn’t find it. So let me turn the question on you: You made the claim that these economists supported you in regard to Haiti raising the minimum wage. Can you please provide links(and really, all I care about is Joseph Stiglitz, dont much care what the Marxist and heterodox economist thinks)? I’d be interested to see those quotes.

    You talk a lot about me not providing links but I don’t see anything different from your side. In fact, I am the only one in this thread reaching across the board and atleast trying to understand what the other side (Paul Krugman) thinks. Where are your links?

  • You said no economists agree with me. So I list some. So you say “But those economists agree with you. Why do you only cite those that agree with you.” What the flip, man? What do you want from me?

    why would he agree with you regard to Haiti’s drastic rise in the minimum wage but disagree with you with regard to the United States having a drastic rise in the minimum wage (called living wage)?

    Because a similar rise in the US is actually far more costly than it is in Haiti. 150% rise in Haiti costs Hanes $1.6 million. Assume 100% rise in the US costs McDonalds $500 million. If the rise is going to bankrupt the company that matters.

    Once again, if you can’t support the assertions you make then don’t make the assertion. I thought you were saying that economists disagree with me generally. I assumed that these economists haven’t spoken on the Haiti issue, so I assumed you weren’t saying they disagree with me on Haiti. Nope. According to you they disagree with me on Haiti. That’s a pretty specific claim. Back it up. Now you can’t and you think I’m being unreasonable asking you to back it up.

    I never said they agree with me on Haiti. I wouldn’t make such a claim without having some evidence. I said they agree with me generally. I’ve talked about how I suspect Krugman would agree with me on Haiti, but that’s just a suspicion.

    Come hell or high water I am going to teach you to back up your assertions. You want links from me? Show me the disputable claims I’ve made that I haven’t supported and I’ll provide links.

  • Jon,

    You write, You said no economists agree with me. So I list some.

    You stated they agreed with you. But I did not see the proof. Let me say it again: I would really really like to see a link showing Joseph Stiglitz agrees with you on Haiti. Not saying it doesn’t exist – but I certainly can’t find it, so I’d like to see it. Pretty please! If I missed it above, please point it out to me.

    You write, Because a similar rise in the US is actually far more costly than it is in Haiti. 150% rise in Haiti costs Hanes $1.6 million.

    Did you even read the living wage link by Paul Krugman I posted? He is against a (forced) living wage even when its the government paying! The government cannot go bankrupt! Atleast not because of a living wage.

    So again I ask: why would Krugman oppose a living wage in the United States, but support one in Haiti?

    You write, I assumed that these economists haven’t spoken on the Haiti issue, so I assumed you weren’t saying they disagree with me on Haiti. Nope. According to you they disagree with me on Haiti. That’s a pretty specific claim.

    Here are quotes from what I said:

    “I used Paul Krugman as a proxy.”

    “So I extrapolate from that that the others would likely do the same. ”

    “Before I even used Krugman as a proxy, I looked for something specific Krugman or Stiglitz has written on the Haiti minimum wage. Couldn’t find it.”

    Here is where I really laid down my case:

    “So I extrapolate from that that the others would likely do the same. Now granted, the economists you mentioned are more heterodox than Krugman. So they may still support your view (and that’s worth knowing, especially in the Stiglitz case). But that’s not my point. My point here is that the mainstream economists, both right AND left (where the Krugman example comes in) would not. I am not arguing that every single person who calls themselves an economist – Marxists, heterodox, or otherwise – will be against this. My argument is that this is against the spirit of mainstream economics. Just like creationism is against the spirit of mainstream biology – even though you may find a Christian biologist here and there who argues otherwise.”

    I alluded to, over and over, that without actual writings on the Haiti minimum wage, the best I can do is extrapolate. Take someone roughly in the same camp you mentioned – Krugman came to mind, and deduce from there his views. I never mentioned nor meant to imply that they had specifically written about this topic.

    On the other hand, you wrote:

    “There are plenty of economists that see things exactly as I do, including Joseph Stiglitz, Ha-Joon Chang, Prahbat Patnaik. John Maynard Keynes. Alexandar Hamilton. Not exactly lightweights. That’s pretty good company.”

    Hmm. Interesting. I’d really like to see a post by Joseph Stiglitz on the Haiti minimum wage. And I’d really really like to see one from John Maynard Keynes. And especially one from Alexandar Hamilton. Now that would be amazing! Please provide these sources Jon!

  • Are you crazy man? How many times have I said that I cited Stiglitz, Chang, etc as agreeing with me generally. Immediately after that post you said that you don’t mean generally. You mean specifically with regards to minimum wage in Haiti. They don’t agree with me, says you. OK, show me that. I was talking generally, not regarding Haiti.

  • Were talking past each other: When I said they didn’t agree with you specifically, I meant I didnt see that. I cant find that. I dont see your proof that they agree with you generally.

    Anyway…bottom line, we were both speaking generally. You don’t have proof that they agree with you regarding the specific case of Haiti and the minimum wage. I don’t have proof to the contrary. But only one of us has atleast showed what they likely would support with proof (ie, Paul Krugman and the living wage – to which you have yet to answer my DIRECT question).

    I’m still waiting. In case you missed it, let me type it again:

    “Did you even read the living wage link by Paul Krugman I posted? He is against a (forced) living wage even when its the government paying! The government cannot go bankrupt! Atleast not because of a living wage.

    So again I ask: why would Krugman oppose a living wage in the United States, but support one in Haiti?”

  • I hadn’t read the Krugman link. I have now. Why does he oppose a living wage in the US? Well, did you read him? He makes it pretty clear. He says that moving to a living wage at the end of the day really only provides a marginal benefit to the worker. His increase in wages are offset by reductions in what he’s getting through welfare. So this big burden on the employer doesn’t produce a corresponding big gain for the employee.

    You can agree with that or not, but in any case it doesn’t apply to Haiti. Haiti doesn’t have the welfare state that we do. Really if anything this would suggest Krugman would agree with me on Haiti. Not necessarily, but it’s implied. He opposes living wage in the US because the big cost to the employer doesn’t produce a big gain for the employee. But in the case of Haiti the big cost would directly translate to the big gain for the employee, since the cost is not offset by reductions in welfare. So in that case (for Krugman) it would seem to be worth it.

    It’s true that it’s a big change in terms of %. Like 25 cents per gallon milk, if you make a dramatic change like that you can cause problems. But these points are not like mathematical axioms that always apply in precisely the same way from country to country. 25 cent milk is a 10 fold reduction in the price (back in 1998). If Haiti went from 26 cents to $2.60 I’d say you’re right. That could do more harm than good. It’s the government of Haiti’s job to try to work that balancing act. And with me not present I imagine they’ve considered such things. This is a point I’ve made many times. 61 cents is a lot by %, but not a lot for money. The legislature probably tried to figure how much they could raise it without chasing a lot of employers out. It’s not cheap and easy to move a factory. Lots of risks. When you are a multi-billion dollar company you might just pay that extra $1 million and try to get the cost reduction elsewhere rather than risk it. Not that I know. I’m not here to tell them or Haiti what to do. I just figure they know better what is in their own interest than you or I do.

    So yeah, I seriously doubt Krugman would agree with you on Haiti.

  • Jon,

    I hadn’t read the Krugman link. I have now. Why does he oppose a living wage in the US? Well, did you read him? He makes it pretty clear. He says that moving to a living wage at the end of the day really only provides a marginal benefit to the worker. His increase in wages are offset by reductions in what he’s getting through welfare. So this big burden on the employer doesn’t produce a corresponding big gain for the employee.

    So let me get this straight. You read the Krugman article and your take away is basically that Krugman is arguing that the living wage is good (‘marginal benefit’), but because its benefit is reduced by welfare offsets (‘offset by reductions in welfare’), its a bad idea? This seems to be what you are saying above. I spell it out here, because I don’t want to respond and then you come back with “you misrepresented me…”. So is this what you meant to say? Am I interpreting you correctly here?

    So assuming that is your take away, my response is to read the article again. He states pretty clearly (or so I thought) why he opposes the living wages. Allow me to quote the relevant parts:

    “So what are the effects of increasing minimum wages? Any Econ 101 student can tell you the answer: The higher wage reduces the quantity of labor demanded, and hence leads to unemployment. This theoretical prediction has, however, been hard to confirm with actual data….Exactly what to make of this result is a source of great dispute. Card and Krueger offered some complex theoretical rationales, but most of their colleagues are unconvinced; the centrist view is probably that minimum wages “do,” in fact, reduce employment, but that the effects are small and swamped by other forces.

    What is remarkable, however, is how this rather iffy result has been seized upon by some liberals as a rationale for making large minimum wage increases a core component of the liberal agenda. Clearly these advocates very much want to believe that the price of labor–unlike that of gasoline, or Manhattan apartments–can be set based on considerations of justice, not supply and demand, without unpleasant side effects.

    Here, he is arguing that the belief that these large increases in the minimum won’t have “unpleasant side effects” is wishful thinking. In other words, it’s one thing to argue for small increases in the minimum wage, that may or may not have serious negative employment affects, but to go from that to large increases in the minimum wage does not follow(“….without unpleasant side effects”). Later in the article, he made this point more clear, when he wrote: “…you have to have a lot of faith in Card-Krueger not to worry that some jobs might be lost.”

    So the first problem Krugman has with a living wage (large increase in the minimum wage) is the loss of jobs. But he doesn’t end there. He then goes on to rebut a claim you have been making (here for example), , that a rise in costs to employers can simply come out of ‘profits’. Krugman rebuts that with:

    “For example, the authors argue at length that because only a fraction of the work force in the firms affected by living wage proposals will be affected, total costs will be increased by only 1 or 2 percent–and that as a result, not only will there be no significant reduction in employment, but the extra cost will be absorbed out of profits rather than passed on in higher prices. This latter claim is wishful thinking of the first order: Since when do we think that cost increases are not passed on to customers if they are small enough? And the idea that employment “of the affected workers” will not suffer because the affected wages are only a small part of costs is a non sequitur at best. Imagine that a new local law required supermarkets to sell milk at, say, 25 cents a gallon. The loss in revenue would be only a small fraction of each supermarket’s total sales–but do you really think that milk would be just as available as before?

    I’m curious Jon – would you? Please answer Krugmans question: “Imagine that a new local law required supermarkets to sell milk at, say, 25 cents a gallon. The loss in revenue would be only a small fraction of each supermarket’s total sales–but do you really think that milk would be just as available as before? “ If the answer is no, why?

    His point here is that it’s “wishful thinking of the first order” to think that even small costs increases to the employer will not be passed onto customers. Remember that argument you made before, that increasing costs on employers will somehow come out of management pay, or CEO pay and would likely not result in being passed onto consumers? This seems to directly rebut that. Also, notice that here again, he brings up his first point, the employment reduction likely to come from a (large) rise in the minimum wage(“And the idea that employment “of the affected workers” will not suffer because the affected wages are only a small part of costs is a non sequitur at best.”).

    So now there are two objections Krugman has to the living wage: the likely reduction in jobs, and the increased costs the consumers.

    Then he goes on to debunk another common claim that you tend to make (a raise in the minimum wage, like a raise in vacation, can simply result in more productive workers), he writes:

    They also argue that because there are cases in which companies paying above-market wages reap offsetting gains in the form of lower turnover and greater worker loyalty, raising minimum wages will lead to similar gains. The obvious economist’s reply is, if paying higher wages is such a good idea, why aren’t companies doing it voluntarily?

    Wow! Who does this sound like? This sounds exactly like your favorite right-winger, Hispanic Pundit here. Again, this validates the point I made in the Liberal Economists post and this David Leonhardt post: economists, whether right-wing or left-wing will tend to have more in common with conservatives than leftists. Based on what Krugman has said here, whose side do you think he would take in our exchange on healthcare costs and wages here? His arguments sound awfully familiar!

    He gets through all of this and only then, starts to talk about what you mentioned above: ‘offset by reductions in welfare’.So let me recap here, because this is the meat of his response and a part that you seem to have completely glossed over. My reading of the article is that Krugman is basically rebutting four points the authors seem to have made in their book (this is a book review) in support of a living wage. First, he rebuts the claim that it won’t have an affect on employment. Second, he rebuts the claim that the increased cost will simply come out of profits. Third, he rebuts the claim that the increased pay will simply result in a better scenario for the employer. Fourth, and this seems to be the only argument you understood, he then argues that a living wage will largely be eaten up by a reduction in welfare payments.

    In fact, not only does he argue against the living wage, but he does so using very much the same arguments I do (what a right-winger, that Krugman guy!)! For example, check out his criticism of the level of the minimum wage increase, where he writes: “According to their estimates, as long as he or she remained fully employed, the living-wage law would raise earned income from $10,860 to $14,500–and also mandate $2,500 in health coverage. (This is, incidentally, a 57 percent increase in the cost to employers; you have to have a lot of faith in Card-Krueger not to worry that some jobs might be lost.) “

    First, he doesn’t look at the living wage increase in terms of absolute numbers (what you tend to do) but in the more important percentage terms (also what economists tend to do). And even with a measly (as compared to the proposed Haiti increase) increase of 57%, he still finds this troubling (“…you have to have a lot of faith in Card-Krueger not to worry that some jobs might be lost.)

    So again I ask: based on this, what do you think Krugman would say to a ~135% increase in the minimum wage in a country with nearly 50% unemployment? Or if you think I am misreading Krugman, please explain where I read him wrong.

  • A minimum wage hike can increase unemployment. But it can also have no effect. It depends on the conditions, which are unique in Haiti.

    When I say the actual cost increase is low in terms of real numbers that’s another way of saying it’s low in terms of % of costs. In other words the emphasis should be on the fact that it’s a % increase in labor costs. An employer doesn’t care if wage rates are high as long as overall the cost of doing business remains low. If Haitians get 61 cents, does this mean the total cost of doing business has gone up a lot?

    There are tons of things that affect costs in Haiti besides wages. Wages are probably among the smallest part of it. The % increase in wages is high. When your wage rates are that low it could still be in the noise. As I say above that’s something for the Haitian legislature to consider. Sure, they’d love it if people were paid $20 an hour, but they know that’s going to drive away the business. They know their own situation better than us. Let them have the opportunity to strike that balance. Without the threat of starvation.

    Remember that argument you made before, that increasing costs on employers will somehow come out of management pay, or CEO pay and would likely not result in being passed onto consumers?

    Actually no, I don’t remember that at all. I said costs wouldn’t be passed on to consumers? I don’t think so. I offered some options for where money could come from. Profits, increased productivity, mangerial pay. I’m not limiting it to these. I’m just giving options. Sure, raise the rates. That’s another one. There are more I’m sure.

    Yeah, maybe I would disagree with him on his claim that if it improved productivity a company would do it anyway. My thinking is that in the short term you can improve profits by chipping away at benefits. Long term though you can reduce productivity. So an employer has a short term incentive to do something that hurts him long term.

    But I wasn’t attempting to address every point, and I don’t have to agree with Krugman on everything. The issue here is 61 cents for Haitians and you attempting to extrapolate that he would disagree with me on this. I doubt it. But I don’t know. And I don’t regard this as proof.

  • Hello Jon,

    You see what I mean about economists though? Think about it: Krugman is a big time liberal economist. He is the lefts version of Milton Friedman. But read his article on the living wage and contrast that to the arguments I have been making vs the ones you have. Who do they sound more similar to? I agree with every point he makes. You dont. It’s because when it comes to basic economics – even liberal economists are more conservative than liberals. And this should tell you something.

    Anyway, I already addressed your response above. Let me re-paste it here:

    “*btw, you will see articles and posts claiming that the rise in a minimum wage will “only” cost these clothing manufacturers some value X, and that value will largely be simply the added labor costs. But the added labor costs would likely be the least of their costs. The real cost would come from loss in market share. The manufacturing of clothing is an extremely competitive market and even a slight rise in costs can easily translate to a large loss in market share. With other clothing companies trying to also find the cheapest labor to make their products, a nearly 135% (the proposed minimum wage increase) rise in labor costs would put clothing manufacturers operating out of Haiti at a severe disadvantage. ”

    Lets assume that the more than doubling of the minimum wage translates to a mere 10% total increased cost to the clothing manufacturers. Since you agreed above that there is a very real possibility the added labor costs will have to be passed onto the consumer, think about what that means to their market share. If clothing company A operating out of Cambodia charges X for their clothes, and clothing company B operating out of Haiti now has to charge 1.1X (10% increase) for the same clothes, that does NOT mean that clothing company B will simply suffer a 10% loss in sales. In highly elastic markets, that could kill a company. That could be a 90% drop in market share. After all, that is the main thing these clothing companies can distinguish themselves with – price.

    And it’s precisely that cost sensitivity that the Obama administration seems to be most concerned about.

    PS: Like I said above, I have no problem with allowing these countries to do as they wish (provided we reserve our foreign aid to those countries that are more economically coherent) but you really have to stop acting as if legislative bodies somehow make wise and well informed decisions. They certainly don’t do so in the United States and you would expect them to do an even worse job in underdeveloped countries, that don’t benefit from as stable an infrastructure.

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