Novel Economic Theories

by Russ Roberts on December 4, 2013

in Stimulus

George Packer at the New Yorker explains why the economy is working poorly:

In other words, as Steven Greenhouse reported in a bleak post-Thanksgiving article, too many Americans now work low-paying jobs—for example, stocking inventory and ringing up merchandise in big-box stores like Walmart and Target—to have enough purchasing power to boost sales. Americans are too poor to stimulate economic growth.

Not sure I’d call that reporting. I’d call it theorizing. It’s a strange theory. It is what might normally be called a tautology. Saying that Americans are too poor to “stimulate economic growth” is really just another way of saying growth is low. But the theory behind this idea is that if Americans were paid more, then the spending would stimulate more spending and that in turn would create growth that would allow the higher salaries to be paid. That somehow, the growth of low-paying jobs means less growth for the economy.

How would that work? How would the act of paying people more make the economy more productive? How would paying people more be a way to get more from less? Do people really believe that the difference between good economic times and bad economic times is when low-paying jobs pay too little and growth is held back?

I don’t understand Keynesian economics.

Check out this EconStories song that John Papola wrote. He had the right idea:


 

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