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Matt Yglesias' Important Point

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Friday, 08 March 2013 17:00

Matt Yglesias is on the money when he points out that when progressives want workers to get more money, they must implicitly want someone else to get less. Now there is a real real big exception to this point, that being the current economic slump. In a context where the economy is producing at a rate that is around 6 percent (@ $1 trillion) below its potential, then we can literally talk about a situation in which we expand the pie and there is more for everyone.

This is why the concern about waste in the stimulus was so absurd. If the issue was whether we had spending that was partially wasteful or no spending, then the answer is spending that is partially wasteful. Otherwise the resources would just sit idle (meaning more workers are unemployed) and we get to celebrate that we didn't put people to work on partially wasteful projects. (Of course less wasteful is always better than more wasteful.)

But if we envision one day being back in a world where the economy is operating near its potential, the good guys getting more means the bad guys getting less. The right eats, breathes, and sleeps with this logic. They understand that when they push down autoworkers' or school teachers' wages, there is more for them. They understand that cutting Medicare or Social Security means more for them.

If progressives want to secure more income for ordinary working types and the poor then it will have to come at the expense of someone else. I have my list (CEOs and their friends, doctors and lawyers, Wall Street financial types, bringing corporate profits back to earth would also be a good idea). Others may have a different list. But if there is no one who is going to lose out in progressive policy post-full employment, then there is no one who is going to win either.

Of course at the speed we are getting to full employment many of us won't have to worry about this problem in our working lifetime. 

 

Addendum:

After reading the comments, let me make the point a bit more clearly. The right has found ways to use the market to kick our asses. Progressives should find ways to use the market to kick their asses. These ways are all over the place: opening up trade in health care, making it easier for foreign doctors and lawyers to practice in the country, make the financial sector pay the same sort of taxes as every other sector, ending too big to fail in the banking industry, etc. These are mechanisms that require the government to get out of the way (in the case of financial sector taxes -- not privileging one sector over others). If Occupy Wall Street was saying these things they were not very effective in getting their message out.

Comments (24)Add Comment
Good guys vs bad guys
written by Vikram, March 08, 2013 6:12
Dean, thanks for all your educative posts.

Re: good guys vs bad guys, lets not call them good or bad. I interpret the bad as "selfish, insensitive and egoists" and good as the rest.

selfish because they view the world as wanting to grab the largest share of the pie at the expense of others rather than growing the pie.

insensitive because of the indifference they exhibit to the sufferings of the millions of others.

egoists because they refuse to view the world from different points of view. Egoism essentially forms the only manner in which they can rationalize everything against any data or study which is contrary to their world view.
Now is the Time for Trickle Down: The Right Kills Its Own Economics With Dogma
written by Last Mover, March 08, 2013 8:39
Trickle down has always been integral to any economic position from the right. Taken literally, it requires a postive sum outcome to work because growth is necessary for it to manifest. It essentially means some are made better off as no one (like employers) is made worse off.

In turn, that implies either the economy is not at its potential in order to allow that growth, or the potential level of employment itself must shift upward in supply side fashion. Otherwise trickle down can't work because those who get more would cause others to get less.

Yet as Baker points out, the right also eats, breathes and sleeps with zero-sum trade-off logic that directly contradicts its own stance on trickle down, steeped in deficit/debt fearmongering designed to justify deep cuts in government spending claimed necessary to reduce debt and "free up" private spending, yet is actually designed to transfer more of the economic pie to the rich from everyone else.

So which is it? Postive sum trickle down outcomes for everyone or zero sum trade offs between winners and losers?

In the context of the deep recession, it is Baker and the progressives who are the true supporters of trickle down economics, ripe for maximum potential given massive unemployment of resources available for immediate use that would indeed send not just trickles, but full on waves of added income and jobs through a powerful multiplier effect.

The right has tripped over its own fatally flawed logic to kill trickle down exactly when it works best - when government could spend and employ resources that the private sector cannot.
...
written by Chris Engel, March 08, 2013 9:16
the plutocrats aren't bad guys.

this may seem like a Randian rationalization, but they're just reasonable individuals who are maximizing their own personal position given their preferences for utility.

it's the duty of journalists, public policy pundits, politicians, to educate the masses as to what is going on so that we can elect representatives who will change the system.

it's the plutocrats' job to do what they can to influence policy to benefit themselves.

it's our job to inform the people about this so that they can make rational decisions in our democracy to change the incentives and alter outcomes in our system.
Remember it's the .001%
written by Jennifer, March 08, 2013 9:16
Or maybe it's the .0001% but something to keep in mind is that it's really the very top percent of the 1% that has the most. If you knocked down the really really rich- the financial people, the CEOs and the like you are not effecting that many actual people but you are effecting a lot of money. Radical economic changes are in the best interests of more then 99% of the population.
Logic
written by Jeffrey Stewart, March 08, 2013 9:31
It seems Mr. Yglesias uses the false dilemma logical reasoning fallacy. Everyone can have more if national income grows. What matters is the distribution of that growing income.
...
written by watermelonpunch, March 08, 2013 11:21
If progressives want to secure more income for ordinary working types and the poor then it will have to come at the expense of someone else.


Yes, well, what moral person would have a problem with extremely rich people making less so that people who do things like... collect the garbage nobody wants piled up at their house, work on growing the food everyone eats, dig the sewer lines that so many depend upon in order to not have feces in a ditch in front of their house... so that those people, doing real chores necessary to civilization, can actually make enough to feed clothe & shelter themselves??
What moral person thinks it's wrong that someone will have to have 5 luxury cars instead of 12, to allow for vast masses of people to eat and be able to see a dentist???
LXDR1F7
written by LXDR1F7, March 09, 2013 12:25
To raise wages you need to make the economy grow more. Otherwise you can increase the minimum wage which will give some workers more money but others will get laid off because employers only have limited money for wages. To make the economy grow you need stimulus and at the moment monetary stimulus isn't working because the credit markets are over saturated and blocked. Therefore to make stimulus work bypass the credit markets and modify the fed so it conducts monetary policy directly with the public.

internationalmonetary.wordpress.com
Important point?
written by LSTB, March 09, 2013 7:52
Matt Yglesias is on the money when he points out that when progressives want workers to get more money, they must implicitly want someone else to get less.


I thought liberals knew this and assert it explicitly. That's why it was called "Occupy Wall Street" and not "Occupy the Gross National Income Accounting Identity."

Otherwise, I think Jeffrey Stewart is right: The national income pie isn't static, so it's theoretically possible to convince the wealthy that they can have a smaller slice of a larger pie.
Yglesias' remedy is also wrong.
written by LSTB, March 09, 2013 8:01
Sorry to double-comment, but Yglesias concludes:

But the way to raise real incomes across the board is for that same wave of technological change that's transformed the media to start transforming the health care, education sectors, and transportation sectors. Cheaper health care and college and better transportation is a raise for every janitor, short-order cook, yoga instructor, and nurse in America.


No, the way to increase real incomes is to recognize that some incomes are unearned and should therefore be taxed instead of the incomes of poor people. No matter how cheap technology can make college education, it doesn't obviously help janitors and short-order cooks.
Research Director, Topos Partnership
written by Andy Brown, March 09, 2013 8:09
In research with regular people, I've noticed that more of them are saying that the big corporations are sitting on piles of cash and not doing anything with it. There is something about that idea that seems to resonate with people and energize them to look for ways to put that idle cash into circulation -- down here in the economy where people could use it, spend it, and stimulate the economy. (It comes up in the context of conversations about raising the minimum wage.) I think a lot of people who aren't comfortable with just taking stuff away from the rich, are willing to re-think it when they believe the rich (or their companies) are hurting the economy by just piling wealth up and not sharing any of it.
...
written by liberal, March 09, 2013 9:35
LSTB wrote,
No, the way to increase real incomes is to recognize that some incomes are unearned and should therefore be taxed instead of the incomes of poor people.


Yes, and the first thing to recognize is that land rent is the biggest chunk of unearned income, by at least an order of magnitude.
...
written by skeptonomist, March 09, 2013 9:37
There is no reason to think that the "free market" can solve all economic problems. In fact we know that if left alone, it results in concentration of wealth and a destructive boom-and-bust cycle. A belief that free markets can lead to economic perfection is as delusional as the belief that socialism can do so. A free market is not generally a state of equilibrium; while in some cases there is true competition initially, inevitable some people get an advantage and can use economic power, let alone political power, to concentrate their wealth and power even more. Those who oppose the concentration of wealth must use collective power to restrict markets, not make them more "free". Some services are best provided by government rather than private enterprise and it is now clear from international evidence that health care is one of these services; "opening up trade" is probably the wrong way to go for health care.

The state has the power to reduce inequality greatly through taxation. It did so during the post-WW II war era in the US and many other countries; marginal tax rates were such that it was very difficult to build up great wealth, yet there was no lack of enterprise. Why do many "liberal" economists go along with the obviously false assumption about incentives that is consistently advanced by conservatives? Neither conservative nor liberal economists really know enough about the psychology of incentives to make economic "laws" based on their imagining of how people should or would react to taxation.
...
written by liberal, March 09, 2013 9:40
LXDR1F7 wrote,
Otherwise you can increase the minimum wage which will give some workers more money but others will get laid off because employers only have limited money for wages.


First, the Cark-Kruger result shows empirically that this is not necessarily true. Second, it's likely that if businessness have to pay more in wages, they'll just pay that much less in land rent. So it's very possible that those working against raising the minimum wage are just serving evil in the form of commercial landowners (who, like all landowners, produce absolutely nothing).
...
written by liberal, March 09, 2013 9:47
watermelonpunch wrote,
What moral person thinks it's wrong that someone will have to have 5 luxury cars instead of 12, to allow for vast masses of people to eat and be able to see a dentist???


I don't disagree, but let's not lose focus on a different angle: most of the wealth held by the truly rich is unearned. Not merely unearned in the sense of not stemming from labor, but even unearned in the sense of not stemming from investment in productive capital. The truly rich get that way---usually---by collecting economic rents (first, in the form of land rents, second, in the form of other state-granted monopoly rents, like so-called intellectual property, or other state-granted monopoly privileges).

The problem isn't that the government is insufficient in transferring money from the rich to others; rather, the problem is that the government excessively transfers wealth from others to the rich, in return for no contribution to economic production.
...
written by Forrest Leeson, March 09, 2013 10:42
"when progressives want workers to get more money, they must implicitly want someone else to get less"

...except when the people who will "get less" have displayed a tendency to use the money they keep to create negative money, which is why they needed a bailout...
on the addendum
written by Jennifer, March 09, 2013 10:44
I would say that a lot of Occupy was behind these ideas in theory, but the nature of the movement was such that getting a clear message out was difficult. Since then, smaller Occupy groups have taken up different aspects of these ideas. The inherent problem was what made Occupy a movement was its simple message and democratic ideal/non-hierarchical structure. Unfortunately a non-hierarchical structure is not suited to distinct policy measures, plus there was a small but substantial libertarian sector that would have had a different take on some of this. But the larger problem is something liberal gets at:
most of the wealth held by the truly rich is unearned
I know this was a concept I did not get until fairly recently. Most people work to get their paycheck and the idea you can make a lot of money effortlessly (that is if you start with a lot of money) is not as well-known as you might think. Also, while the rich may understand to give everybody else more they have to give something up I don't know the reverse is as true. That is, that the non-rich see the rich as taking from them. Of course it helps that the media pumps up the super-rich as worthy and positive members of society, as opposed to the vampire squids that they are.
Response to the Addendum
written by LSTB, March 09, 2013 11:05
Dean, I think your readers are agreeing with you generally. We want competitive markets, not "free" ones. We may dispute the efficacy of some of your solutions, but that's a different issue.

My disagreement is with Yglesias, and I believe he was due a harder press-beating than you gave him. I think liberals are explicit about wanting to unredistribute the wealth. The Occupiers may not have been end-of-loser-liberalism cadres, but they did substantially help shift the national discussion to "income inequality" by pointing out that banksters had lots of money and might not have earned it fairly—or, if you will, competitively.

Instead, Yglesias says poor people would benefit from technology reducing aggregate prices (just like he did!), but his janitor's problem isn't want of medical technology so much as it's untested, and then the hospital extorts him with chargemaster prices. Technology should allow Yglesias' short-order cook to get an education quite cheaply, but instead the government tells her she won't get a decent job unless she pays hundreds of thousands of borrowed dollars to an overseas, for-profit veterinarian school that's essentially busting-out the federal loan program. The nurse's transportation is expensive because our land policies favor oil-fueled urban sprawl that promotes traffic congestion, unearned land rents, and global warming.

Yet Yglesias thinks the Left doesn't know what it's talking about when discussing the causes of low wages and the implications of their solutions for solving them.
...
written by watermelonpunch, March 09, 2013 4:56
Andy Brown nails the "average person" attitude, I believe.
And I say that being an average person.

We hear that companies can't afford to pay their workers more, because they'll go out of business.
But then we see all these corporations having HUGE profits.
Profits, by definition, are income of a business BEYOND keeping it in business.
So there's a definite contradiction I see there.

I think the most savvy approach a liberal leaning person could take in politics is to finally educate small business owners of their REAL situation. In that the average truly small business owner bears NOTHING IN COMMON with these big corporations... yet they seem to identify with them for some reason.
??????????????????????????????????????

The epitome was this dog groomer shop owner I heard on Talk of the Nation on NPR on a segment about Minimum Wage.
It never occurred to this woman that maybe her wealthy clients would be ABLE and probably willing to pay a bit more to have their pooches groomed... but that her employees can't possibly survive well on what she's paying them.
She seemed to identify with Wal-Mart, when in reality she has more in common with entry level Wal-Mart associate employees than she does with high level Wal-Mart executives.
DOH

That's where the real tragedy in the liberal message lies.
That people don't even know what side of the fence they're truly on.
liberal
written by LXDR1F7, March 09, 2013 6:17
Can you provide a link to the Karl-Kruger study if it exists online?

"Second, it's likely that if businessness have to pay more in wages, they'll just pay that much less in land rent. So it's very possible that those working against raising the minimum wage are just serving evil in the form of commercial landowners (who, like all landowners, produce absolutely nothing). "

If less is paid in land rent then there will be less incomes going into those sectors and the people in those sectors will earn lower wages. Land owners are productive otherwise we wouldn't need them for anything.

...
written by urban legend, March 09, 2013 7:37
". . . "when progressives want workers to get more money, they must implicitly want someone else to get less"

No, I don't want anyone to get less and I believe history shows they do not get less. I think Matt (and, I guess, Dean) is dead wrong. The statement assumes a static economy with a defined pot. The pot is fluctuating all the time. In a dynamic economy, there are numerous effects that grow the pot, including higher wages more broadly due to a higher floor being established (and employers trying to maintain some differential, lower training costs for employers and higher productivity from higher morale, more money floating around as higher wages stimulate more local spending than that money sitting in New York in some derivative, higher consumer confidence for various reasons, including government dloing something positive for people and a higher floor in the event a higher-paying job is lost. A stronger economy also improve asset values (with growth in net wealth as the equivalent of income), so the wealth of the wealthy is enhanced. It's complex, a lot more complex in a dynamic economy than a simple supply-and-demand curves can capture.

After the 1996 and 1997 increases, jobs exploded and wages grew faster than ever in modern times. The job markets after 1990 and 1991, 1961-64, 1956 and 1950 were also positive. It's not causation, but on net nobody lost a job. Any lesser income for the giver, besides being easily sustainable, is extremely temporary.
Problem with importing doctors: we already have plenty of talent.
written by Rachel, March 09, 2013 7:53

Yes, bringing down the cost of health care, or at least the rate of health care inflation, is one of the best ways to effectively improve workers' lives in general. (We also waste too much money on the legal and financial systems.)

But is importing more doctors the best way to reduce doctors' fees? That's not so obvious. For many years now there's been concern that the cost of education, and in particular, medical education, is too high. We also limit the numbers of doctors that we train. One result, in our very unmeritocratic nation, is that medicine has become too much the enterprise of the children of the well-off and the well-connected . . . whether from the U.S. or overseas, what is the difference? We need to work more on offering opportunity to the less-well-off by keeping education costs down, and making more medical training available.

(And why, why, why do we need to import nurses in California, and deny opportunities, increasingly, to Hispanic- and African-American nurses? We're a minority-majority state, and the minorities are by-and-large not wealthy people. But as smart as anyone else. So why are we doing this?)
...
written by watermelonpunch, March 09, 2013 10:03
@ Rachel
One result, in our very unmeritocratic nation, is that medicine has become too much the enterprise of the children of the well-off and the well-connected . .


I think the argument of importing doctors is, in lieu of doing the obviously more sensible thing that the free marketers don't want.
IE: The importing doctors is the free marketer type argument for this.
Since they won't agree to anything that would help poor kids get support (from some sort of government benefits) until they're 30 to become a doctor, like many doctors have, during their education & training, from their parents.
...
written by liberal, March 10, 2013 10:49
LXDR1F7 wrote,

Can you provide a link to the Karl-Kruger study if it exists online?
See
http://en.wikipedia.org/wiki/M...nd_Krueger for a discussion and links.

If less is paid in land rent then there will be less incomes going into those sectors and the people in those sectors will earn lower wages. Land owners are productive otherwise we wouldn't need them for anything.


LOL. Do you know anything about economics whatsoever?
(1) No one earns "wages" from land rent. Rent is separate from wages (income from labor) and profit (income from capital).
(2) Landowners, like all economic actors, have multiple roles. In their role as landowners per se, however, they add absolutely nothing whatsoever to the economy---as commonly put, they add nothing to production. This has been known ever since Ricardo discovered the law of rent. Why is this? Because the land was already there, and any increment in site value is due to the activities of others, not the landowner himself.

As John Stuart Mill wrote,
The ordinary progress of a society which increases in wealth, is at all times tending to augment the incomes of landlords; to give them both a greater amount and a greater proportion of the wealth of the community, independently of any trouble or outlay incurred by themselves. They grow richer, as it were in their sleep, without working, risking, or economizing. What claim have they, on the general principle of social justice, to this accession of riches? In what would they have been wronged if society had, from the beginning, reserved the right of taxing the spontaneous increase of rent, to the highest amount required by financial exigencies?


Adam Smith, writing before the law of rent was discovered, wrote
Both ground- rents and the ordinary rent of land are a species of revenue which the owner, in many cases, enjoys without any care or attention of his own. The annual produce of the land and labour of the society, the real wealth and revenue of the great body of the people, might be the same after such a tax as before. Ground-rents, and the ordinary rent of land are, therefore, perhaps the species of revenue which can best bear to have a peculiar tax imposed upon them.
Getting more at the expense of others
written by Paul Roszko, March 10, 2013 8:15
I am just curious as to why you would throw doctors on your list in terms of people who could have less given to them so others can have more. Most doctors I know now-a-days lose out on potential income earning years into their early 30's while they go through college, post-bachelor work, medical school, residencies, and fellowships. Meanwhile, their banking and lawyer contemporaries finish their training by their mid-20's and ultimately carry much less debt into the start of their productive working years. Of your group that you list, I'm not sure why doctors should lose out, when they start off their working years with huge amounts of debt and less years to build wealth

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Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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