Here’s a letter that I sent yesterday to the New York Times:
To combat unemployment, Paul Krugman supports “labor rules that discourage firing” (“Free to Lose,” Nov. 13). If a student in my Principles of Economics course ever wrote such a thing on an exam, he or she would earn an F.
But no student in my class would ever write such nonsense. My students learn from day one to distinguish intentions from results. So my students understand that the intention of such labor rules might be to decrease unemployment, but that the result will be to increase it – because my students also understand that labor rules that discourage firing raise employers’ costs of hiring workers to begin with. Firms will think twice – thrice! – before hiring employees who, once on the job, are difficult to fire.
If the goal is to decrease unemployment, raising firms’ costs of hiring unemployed workers is emphatically counterproductive.
Sincerely,
Donald J. Boudreaux
Steve Landsburg also weighs in at The Big Questions. Steve opens his post with humor as biting as it is appropriate:
It’s always impressive to see one person excel in two widely disparate activities: a first-rate mathematician who’s also a world class mountaineer, or a titan of industry who conducts symphony orchestras on the side. But sometimes I think Paul Krugman is out to top them all, by excelling in two activities that are not just disparate but diametrically opposed: economics (for which he was awarded a well-deserved Nobel Prize) and obliviousness to the lessons of economics (for which he’s been awarded a column at the New York Times).
It’s a dazzling performance. Time after time, Krugman leaves me wide-eyed with wonder at how much economics he has to forget to write those columns.
Podcast RSS Feed
Full EconTalk Text
{ 44 comments }
I cease to be surprised by anything Krugman has to say. Nevertheless, one would think that the French experience in the field of “no firing!” would be obvious enough for anyone to learn the lesson written in the post. It’s like a “choose your own reality” game…
Well personally I feel flattered in the revelation of Krugman’s stupidity. As a matter of fact since my thinking on this subject is much more clear and correct than Krugman’s, I will nominate myself for the next Nobel prize.Any one with two brains cells to rub together has to recognize, that beyond Don’s argument above, any one who can’t be fired is also one who does not have to work or produce.A right to a job, means some one has to be forced to provide that job, and it also means that the employer (if such could be called that) can also set no, or enforce no, standards for performance. How the hell would an employer is such circumstances even demand the employee show up?The man in the street may be, in many cases, a lazy worthless piece of flotsam jetsam; but he isn’t stupid like Krugman and all of them will have it figured out before you could say “pay me”.That is the ultimate stupidity that will certainly destroy business and consequently the economy.
——-
Well I wrote the above going just on the information in Don’s post and without reading Krugman’s articles (linked). Having now read the article I might modify my comment but it really doesn’t matter because I still believe that forced employment, a right to a job, is where Krugman is headed in his thinking.
To further criticize his thinking, what man is going to want to share his job and the income with another man, which is what working less hours so that some one else can work the ones you aren’t means, and will that man feel good about giving up the income that went with those hours? I don’t think so.
So what is the answer? Pay the man who has the hours taken away the same amount for his less work. Pay the new guy the same for doing the hours that were handed to him. Either way, pretty quick they realize that this forced redistribution of the work means that the government rules on the standards not the employer.
Oh that is just such a great way to make an economy productive! What business wouldn’t want to shutter its doors here and move to another country?
Giving your students an F for something that seems to be working in the real world doesn’t seem fair.
http://www.spiegel.de/international/business/0,1518,658952,00.html
It works!? Unlike the employees who are being retained because of the taxpayer provided subsidy. As a test of faith, muirgeo, you go long EWG, hold for five years, and report back to us just how well that position works out for you.
You should spend some time in S. America (Particularly Brazil) to see just how well “worker protection” laws have worked.
Reading Krugman’s column, I cannot help but walk away from it thinking that, “There’s a well designed policy for every issue/situation just waiting to be unloaded on the people. These policies can fix anything, there’s no real tradeoffs being made, and that free lunches can, in fact, be had.”
Even as I reflect and the doubts begins to creep in, I always go back to the fact that this guy is just so smart, has earned his Nobel, and currently teaches as a prestigious univiversity. There’s just no way he can be wrong. Do you have a Nobel, Don?
Ummm… how about paragraph nine for a tradeoff that you’d have to make for this kind of policy? You guys always say “wow he used to be so smart – what happened”. He seems to be saying here exactly what he suggested caused the Europeans to have such high unemployment when he was active in that debate back in the 80s and 90s – these sorts of active labor market policies. But the point is, ALMP impose a different burden during booms than they do during busts. I don’t see why people find it so inconsistent when in the 80s and 90s Krugman says “gee Europe – your active labor market policies are what’s screwing you over”, and in 2009 “gee America – an active labor market policy would allow you to spread out the pain”. These aren’t two inconsistent statements. He’s the same guy he was twenty years ago!
Let me point this out: “Spread out the pain”.
Yes, the Devil. And you’re playing the advocate!
But what else should we expect.
Yeah and he is on record predicting this crash… where as most free marketeers cheered us right off the cliff.
Plenty of free-marketers predicted this crash. Particularly among the more extreme free-marketers.
What is wrong with education in America? We can’t fire our bad teachers. Reason magazine did an outstanding six page cartoon on this within the past 2 years… how impossible it is to get rid of one bad apple in the New York school system. I have seen it first hand here in our local school. It’s madness.
Didn’t the not firing people thing work in Atlas Shrugged?
I’d disagree with Krugman’s prescription here too – but you’re not exactly giving his argument a fair hearing.
If you bothered to quote more than five words from his article, it would be clear that he never said this would reduce unemployment in general. In fact, if you quoted from nine paragraphs down you would find that he specifically said it would hurt the economy during “normal times”. Krugman was clearly advocating an unemployment-smoothing strategy across the business cycle, which would increase unemployment in boom times but reduce it in busts. That shouldn’t be too hard for your students to swallow.
I still think it’s a bad idea. Maybe this would have been worth considering at some other time, but firm-specific human capital is less important now than it used to be. I’ll take labor market flexibility, thank you very much. But that doesn’t mean I’m going to criticize a distorted version of Krugma’s argument. His argument was for a business-cycle smoothing policy. I’m having a hard time finding where he wrote that it would reduce unemployment overall (perhaps you could help me find it if you know where it is – I may just be missing it… but that ninth paragraph seems to suggest he doesn’t need any advice from intro econ students).
Daniel,
I neither said nor implied that Krugman said that the policy he advocates works regardless of the situation. Krugman is indeed talking about how to increase employment NOW — in the current high-unemployment situation. And he clearly lists “labor rules that discourage firing” as among those policies that he believes will increase employment in today’s high-unemployment economy.
Do you interpret Krugman differently? If not, what about my letter is unfair to him?
If that’s what you intended to write then that’s more appropriate. But you never gave any indication in your letter that you interpreted him as saying anything like “this policy can help now but will hurt at other times and will increase structural unemployment” – which has always been what Krugman’s said about these sorts of policies, dating back to the 80s and 90s when you guys apparently didn’t have as much of a problem with him. You never wrote about “now” or “today”, which certainly gave the impression that you thought he was thinking in static terms.
It’s also a little misleading to ONLY note the rules that discourage firing, since he also mentioned rules that encourage hiring in his article. If we were to implement policies like this, and we all could tentatively agree that it would increase unemployment during booms, decrease it during busts, and raise structural unemployment, there would still be a chilling effect at the initiation of such a policy that would probably cut deeply into new hiring. By only mentioning “labor rules that discourage firing” and then moving on to cite your principles students, you make it appear as if Krugman doesn’t recognize this. If you mentioned the hiring policies he also talked about, it would have been clear that he does recognize it.
In the end, your letter essentially lifts up this caricature of Krugman as someone who thinks regulations can lower unemployment because of good intentions, and that he completely misses the ways that these policies increase unemployment. You mention none of the boom-time/bust-time tradeoffs that Krugman takes time to mention in his article – you just talk about increasing and decreasing unemployment. Come on Don – I know you know that’s not what Krugman really thinks about these active labor market policies. The version of what he said in your letter isn’t even what he says in his NYT article, much less what he’s said about it in other venues.
I’m with you in opposition to the policy prescriptions, but I fail to follow the faux-incredulity over Krugman that provides so much material for this blog, because even if some of the readers here believe the caricature of Krugman to be true, I know you know it isn’t.
$#%&! Krugman completely skirts any mention of costs/tradeoffs. He writes that the usual objection is this. Well, why not state just how often there’s an objection made. Why not specifically write that there will be long-term growth issues rather than just stating that that’s just an objection that’s usually made [as if implying to his central-planning oriented audience that sometimes this is made but, not to worry, it's just the free-market kooks who are making it]?
No, Krugman says, in essense, “yeah, there’s something to be said for that argument because there *MAY* be kernals of truth in it but the short-term benefits will definitely outwiegh any labor market distorting signals that *MAY* affect any labor and capital moving toward there long-term most productive and effecient uses. And that’s even in normal times; but these aren’t even normal times…by the way, can we get an even bigger stimulus together as we consider my latest bit of imparted brilliance and wisdom?”
Now that’s a charactature of Krugman. But uis it all that far off?
You can keep your “in essence”s. He point-blank says there’s something to be said for it. It doesn’t matter how many times you write “may” in all caps, LCJ – it doesn’t change the fact that he never entertained the prospect that this wouldn’t hurt in normal times. Does he downplay it? Of course he does – just like Don downplays business-cycle smoothing. That’s what you get when you read advocates. But don’t pretend he wasn’t clear about the costs, or that he hasn’t been clear in the past when he’s written about this.
Apologies for the length – have a good weekend everyone.
“Apologies for the length”
Dorkiel should be apologizing for content. Oh well.
>>If you bothered to quote more than five words from his article, it would be clear that he never said this would reduce unemployment in general.<<No, Krugman has a different Rx for that but unfortunately congress doesn’t seem to have enough political courage for it. But here’s Krugman, in his own words, on that: But we are not, in fact, expanding the total amount of work — and Congress doesn’t seem willing to spend enough on stimulus to change that unfortunate fact. >>In fact, if you quoted from nine paragraphs down you would find that he specifically said it would hurt the economy during “normal times”.<<Really!? Specifically?The ninth paragraph:
If by specific you mean Kuehn-style fence-sitting, you may be on to something. Does he write anything about the frequency of the ‘usual objections’? Does he specifically write that this type of policy would be harmful? No, he specifically couches any such ‘harm’ [he never comes close to using that word] in writing that, “there’s something to be said for American-style “free to lose” labor markets…”. If so, why won’t Krugman write more about this? Why doesn’t he specifically talk about the harms…harms that you think he so specifically mentions?>>I still think it’s a bad idea…I’ll take labor market flexibility, thank you very much.<<Well, it’s a good thing this policy proposal doesn’t have your endorsement. I guess the whole thing is derailed from the start if you’re not onboard.>>But that doesn’t mean I’m going to criticize a distorted version of Krugma’s argument. His argument was for a business-cycle smoothing policy.<<And look at who’s distorting the argument! Don specifically is criticing the “labor rules that discourage firing”. Those are not the short-term business-cycle smoothing policies. Those policy rules have been in place for some time and are not implemented as the business-cycle would call for it; the subsidies on the other hand, are temporary. But that’s not what Don spoke to. You are the one who is distorting, here, Kuehn.
RE: “If so, why won’t Krugman write more about this? Why doesn’t he specifically talk about the harms…harms that you think he so specifically mentions?”
I can’t read his mind – but I assume because we’re in the middle of what seems like it’s going to be a long slump. He’s an advocate – that’s what advocates do. Of course he doesn’t want to emphasize that. After all, Don is an advocate of not doing it, so of course he doesn’t emphasize the business-cycle smoothing enjoyed by Europeans. That would hurt his case, so he only mentions the cost – the increase in structural unemployment – without mentioning the dynamic benefits. But Krugman does give a brief mention to the boom-time costs here, and he certainly hasn’t been shy talking about those harms in the past, has he?
Re: “Well, it’s a good thing this policy proposal doesn’t have your endorsement. I guess the whole thing is derailed from the start if you’re not onboard.”
No… I’m just expressing my disagreement with it like several other people have so far.
Re: “Those are not the short-term business-cycle smoothing policies. Those policy rules have been in place for some time and are not implemented as the business-cycle would call for it”
What are you talking about? Of course they’ve been in place (in Europe) for some time – that’s the whole POINT of smoothing the business cycle. You’re not smoothing the business cycle if you only implement it during recessions. Europe has less drastic increases in unemployment during recessions, less drastic decreases during recoveries, and higher structural unemployment in the U.S.. That’s called “smoothing the business cycle”. How else would you expect it to look like?
>>What are you talking about? Of course they’ve been in place (in Europe) for some time – that’s the whole POINT of smoothing the business cycle. You’re not smoothing the business cycle if you only implement it during recessions. Europe has less drastic increases in unemployment during recessions, less drastic decreases during recoveries, and higher structural unemployment in the U.S.. That’s called “smoothing the business cycle”. How else would you expect it to look like?<<
Okay, now you've just further stepped into it. So, if Krugman advocates a permanent government/labor/jobs policy that will always smooth the employment rate across the continiuos business cycle — and you can see that this is what Krugman so clearly advocates — then he has just entirely invalidated that ninth AND TENTH paragraph that you have affections for.
Ever feel like your caught in a run-down? Might as well run toward the advancing base, Kuehn.
re: “then he has just entirely invalidated that ninth AND TENTH paragraph that you have affections for”
Allow me to introduce you to the concept of a tradeoff – you tradeoff costs in boom periods when the costs are easier to bear with benefits in busts. That’s the whole idea. It’s entirely consistent with the costs he recognizes in the ninth paragraph.
Daniel,
Companies are dropping people now (in a bust) because it makes sense to drop them now.
Now, if what Krugman means by labor rules that discourage firing are things like stopping the punitive legistative actions currently underway, then I agree with him. But if he means further legislative actions to punish employers who fire in spite of the anticipated punitive actions, then he’s simply a fool.
“Krugman was clearly advocating an unemployment-smoothing strategy”
If there’s anything Dorkiel likes, it’s policy wonking!
He must have such a clause in his contract.
Without reading Krugman’s article, I suspect that the intent is not to increase employment, but to keep unemployment, via layoffs, from rising.
So what if more firms go out of business because they are unable to contract their labor force.
You really should read it. I swear it’s frustrating how much the man has faith in policy-as-magic. If the column leaves you scratching your head with a dozen or so “But how…?” questions, I’m sure than Keuhn can decipher Krugman-speak for you on put you on the path of understanding.
It takes me a while to discern things, but one thing that occurs to me about Keynesianism, of all stripes, is advocacy or assumption of fiat economic functioning.
Think of a goal, conceive a policy that superficially appears related to the goal, and voila, goal achieved. You don’t even have to look at the results, and if the desired results don’t appear, blame that failure on some other factor.
To combat unemployment, Paul Krugman supports “labor rules that discourage firing” (”Free to Lose,” Nov. 13).
Haha. Because that’s done wonders in France…
It seems that Krugman believes that playing with how the numbers are collected will impact the outcome. If a business needs 10% less man hours and cuts 10% of the work force, the unemployment statistics go up, but if that business just cuts 10% from the hours worked, the unemployment was shifted from the unemployment column to the underemployment column. This is no real change.
I would like to add that there are already “labor rules that discourage firing”. But they are natural (laws), not legislation. If an employer fires 100% of his employees, he will no longer have a productive business. If he hires 100% of the people on the planet, he will no longer have an efficient business.
Employers already have natural laws that govern some optimal amount of hiring- precisely as many as needed to produce the maximum profit, and no more than the goodwill created by the amount of profit he is willing to forego.
As situations change, employers make marginal decisions that may mean letting a marginal number of workers go. A business that did the opposite, hires more people to “help out” in a bad economy, would go bankrupt, and be no help to it’s customers or employees once economic conditions were better again.
I believe they are ghost written by a graduate student of political science.
This reminds me of the old joke:An economist visits China and a Chinese government official proudly shows him various sites around the country. At a construction site, the economist observes numerous laborers digging a large ditch using shovels. The economist asks his government tour guide why they are digging ditches manually instead of using a backhoe or other modern construction equipment. The government official states happily that using shovels provides employment for more people. The economist replies, “Why don’t you give them spoons?”
exhibit a: france.
Steve Landsburg is too kind. Paul Klugman doesn’t forget economics in order to write his columns. Instead, he deliberately ignores economics to write columns that please left-wingers and the Obama administration. This makes him unethical rather than forgetful.
This is more like it.
I read Landsburg to be saying the same thing — I’m sure he doesn’t believe it’s the case that Krugman actually forgets his economics.
Don’s title is on the money. I’m surprised Krugman forgot this fact.
Everyone would love to slack off and get paid for it. But slacking off at work gets you fired.
BUT!
If you make it harder to fire people, the “cost” of slacking off at work – chances of getting fired – goes down. As per the demand curve, people will demand more of this particular activity. They’ll slack off on the job more. Their productive output will VERY likely fall.
Then again, I suppose this isn’t THAT far off for Krugman and his fellow Keynesians. They’ve been confusing employment for productivity for generations.
When I was in grad school, my professor told me that whoever would find a solid exception to the law of demand would have a shot at the Nobel in economics. But my professor seems to have been completely wrong for it seems that IF one has a Nobel in economics, THEN he is free to claim exceptions to the law of demand willy-nilly as Krugman has. Krugman is in good company too with another Nobel winner, Gary Becker, who cavalierly (sans evidence) claimed that restaurant demand was alternatively downward sloping, then upward, then downward again (resembling a roller coaster). But at least Becker knows that “discretion is the better part of valor”; he has declined the offer extended by Dan Klein to respond to the critique of his roller-coaster-shaped-demand curve that Klein published in his EJW. Still, it should shame a Nobel winner to be on Klein’s “sounds of silence” listing (of challenged authors who haven’t the stomach for debate, or the humility to admit error).
Steve
After reading any recent column by Krugman I find myself screaming. It doesn’t realize how the real world works. You have shown me why this is true. Also he joins that distinquished
Nobel winners list of Carter, Gore, etal.
>>it doesn’t change the fact that he never entertained the prospect that this wouldn’t hurt in normal times.<<
So, you're most excellent at parsing the meaning of Krugman's words; does Krugman want a permanent policy that will hurt the labor market during normal times but may help it during non normal times?
If yes, has he just invalidated what he wrote in paragraph nine? That the objections really do not have merit, all things considered? That there might be 'something to it' but that weighing all things, a permanent policy should be adopted because there's less 'harm' involved. Quickly, Keuhn, the infielder with the ball isn't all that far away from you have no momentum because you've just shifted the direction of your movement.
“Allow me to introduce you to the concept of a tradeoff – you tradeoff costs in boom periods when the costs are easier to bear with benefits in busts. ”
Wonk wonk wonk. Daniel thinks he’s better than the invisible hand.