A 'Jobs Council' is not an Economic Council

Eve Troeh:

The president's Council on Jobs and Competitiveness is set to end tomorrow. It came together two years ago, to generate ideas and policies for accelerated job creation. I asked economist Gary Burtless at the Brookings Institution what he thought about the president's jobs council calling it quits.

"Well, as probably more than one economist would remark to you, I didn't even remember we had one," he says.

Most of the American public would answer the same, though the 26 members of the council did include some big names, mostly CEOs from companies like GE, Intel and DuPont. Burtless says the general idea was to have leaders in the business community offer advice to the president on how jobs could be created more quickly with government help.

But he says those leaders had a hard time seeing past their own interests. Their insights and suggestions mostly applied to their own companies.

The lesson here is that business leaders have no special insight into the macroeconomy. This is not, of course, news, but it bears repeating because the fallacy that the economy is solely composed of businesses, and therefore business leaders are the great sages of the economy as a whole, is ruthless and persistent.

Obviously, most business leaders are smart people, so it makes some sense that they are included in discussions of the macroeconomy. Their precise expertise is microeconomic in nature, however. That is, they can tell us something about the decision-making of individuals and firms. But, while a nuclear biologist could tell you something about the composition of muscle cells, you wouldn't ask her to perform your heart surgery.


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Repost: MLK Day Every Day

Today I am reposting an essay I wrote last year on the occasion of Martin Luther King Day. I don't have much to add, except some edits for clarity.

MLK Day Every Day

Today, our nation honors its single greatest citizen, Dr Martin Luther King, Jr. Dr King seized upon the ideals of the founders and sought to bring intellectual honesty to the precept, "Justice for all." Like so many people of beneficent conscience, he sought to remake the world in the image of what it could be. Unlike so many before or since, he succeeded, at least in moving our society toward that goal, chiefly through the relentless courage of his convictions.

In the immediate aftermath of the Second World War, black Americans who'd served overseas began to agitate for the sort of equality to which they'd been exposed in Europe. They came to realize that, if they were to fight and die for the American cause, perhaps that cause ought to include their interests. From this burgeoning movement emerged Martin Luther King. A young minister with a degree in divinity, he was radicalized by the rampant culture of abuse inflicted upon American blacks, particularly in the south. His expansive philosophical interest led him to, among others, Henry Thoreau, whose views on the tyranny of the majority were the intellectual foundation of Dr King's interpretation of the problem faced by black Americans, and Mohandas Gandhi, whose philosophy of non-violence was the inspiration for Dr King's solution.

The importance of the cultural shift under way in the 1950s to the effectiveness of Dr King's message cannot be overstated. In the years after the Second World War, Americans collectively enjoyed a growth in prosperity previously unseen. As more and more white Americans escaped poverty and enjoyed President Roosevelt's "freedom from want," it became increasingly clear to non-whites that they were not to be included. The expansion of radio and the advent of television hammered home the point that economic security and middle class luxury in 1950s America were monochromatic. Radio and television also provided the viscerally powerful orator an audience wider than that enjoyed by earlier prophets.

In 1965, Dr King's focus on social improvement expanded to include the economically disadvantaged, regardless of race. The escalation of the war in Vietnam struck at the heart of Dr King's fervent belief in non-violence. He also came to see conscription, as practiced in 1960s America, as an unfair burden upon the less fortunate, and blacks in particular. His inclusion of poor whites in the pantheon of the dispossessed whose lot he sought to improve posed a particular threat to the political and economic establishment because then, as is still so sadly the case now, this establishment relies upon poor whites as their agents of oppression, forming a bulwark against the political and economic gains of poor minorities.

That Dr King was killed before his job was done is not to be mourned. It is not appropriate, either, to draw primary inspiration from his tragedy. It is a disservice to his legacy to focus our attention too greatly on any aspect of his story beyond his message. Dr King was no utopian; he lived in, and was of, our time. He did not advocate equality of result, merely equality of opportunity. Much of the last forty years has seen the rise of philosophies committed to the maintenance of the status quo, such as free-market fundamentalism. While this would surely sadden Dr King, it is important to take a long view, as Dr King acknowledged when he observed that “The arc of the moral universe is long, but it bends toward justice." To recognize that our society has come so far in furtherance of the betterment Dr King envisioned is not to blindly settle for what progress has been made, but rather to understand how much more is possible.

The holiday in honor of Dr Martin Luther King, Jr comes once a year, in January. Every day that we consider the plight of the poor and of the disadvantaged and work toward improving our shared prosperity, however, is Martin Luther King Day.

"True compassion is more than flinging a coin to a beggar; it comes to see that an edifice which produces beggars needs restructuring."

Adam Ozimek Just Can't Help Himself

In a nutshell, Mr Ozimek sees an attempt at legislation that is likely to help workers and acknowledges that workers may in fact be made better off, but his Republican instincts just can't be kept down. In other words, "workers' improvement is always and everywhere baaaad."

Should Employers Be Allowed To Prevent Workers From Sharing Their Salary Information?There are a variety of social norms around talking about wages and salaries. It's often considered rude to ask someone what they are paid, and this is sometimes true within workplaces. In fact some employers go so far as to not permit workers to share wage and salary information with each other. Employers would be banned from doing this by the Paycheck Fairness Act, which has failed to pass in congress twice. Is this a good idea? 

The case for this law is pretty common sense: knowing what their coworkers make will give employees bargaining power, and may even prevent discrimination. However, I think there is a not-so-obvious case for why this aspect of the law may be a bad idea: it could allow fairness norms to increase unemployment. 

Consider a simple case where an employer has market power. In this case they will set wages like a monopolist, which will put wages and employment below efficiency level. However, this assumes that employers must pay a single price for workers. If workers can price discriminate by offering marginal employees lower wages, then market power need not create unemployment. This is a specific example of the general rule that price discrimination can increase everyone's welfare by increasing output. 

So why wouldn't employees do this? Fairness norms may make paying some employees less than others untenable in the workplace. This can matter in situations other than marginal hiring decisions as well. In a recession it can be difficult for employers to cut wages, and it seems obvious that this would be even more true when wages need to fall unevenly, e.g. not 5% for all workers, but 10% for some and 0% for others. Fairness norms may prevent employers from making these cuts and instead forcing them to rely on firing some workers. If workplaces can prevent wage and salary information from being shared, it may stop fairness norms from getting in the way of employment maximizing wages. 

Some important caveats are obviously in order. First, I am not presenting a concrete case against this law, as there are many other provisions in it. Second, I am not even presenting a concrete case against the specific aspect of the law discussed above. I am simply offering a possible downside to this law. It very well may be the case that sharing of wage and salary information would not lead to much or any extra unemployment.  The upsides would be that workers may better learn about their marginal productivity, and it could thus lead to more efficient allocations of labor. Or perhaps it would lead to the harmless redistribution of rents from firms to employees. But is important we consider all possible effects of this law, and this is one of them.

The only "argument" Mr Ozimek can muster assumes monopsony power on the part of the employer. Leaving aside the fact that many (most?) employers do not enjoy such power, Mr Ozimek's contention seems to be that, given inordinate market power on the part of employers, the proper "solution" is not to seek to abrogate that power, but rather to ensure that all employees everywhere are kept from information that would help their negotiating positions and aid potential discrimination lawsuits.

"Pay no attention to Montgomery Burns behind the curtain!"