Here’s a letter to a hostile correspondent:
Mr. Marion Ellis
Dear Mr. Ellis:
Of course the market for human labor differs in detail from the market for other goods and services such as automobiles. Contrary to Krugman’s suggestion, however, these differences do not render standard supply-and-demand analysis any less applicable to the market for human labor than it is to the market for automobiles. After all, the market for automobiles differs in detail also from the market for zucchinis, yet I doubt that Krugman would assert that such differences mean that the same supply-and-demand analysis used successfully to explain the workings of the market for automobiles doesn’t work to explain the workings of the market for zucchinis.
Are workers – sellers of human labor-time – less likely than are sellers of zucchinis to prefer higher to lower prices for what they supply to buyers? Are employers – buyers of human labor-time – less likely than are buyers of zucchinis to respond to higher prices by adjusting their purchases to reduce the costs they incur as a consequence of these higher prices?
At the end of the day, everything offered for sale is offered for sale by humans, and only by humans. The zucchini farmer is a human being who makes his living by selling squash; the low-skilled worker is a human being who makes her living by selling labor-time. Whatever “human considerations” (as you call them) apply to those who make their living selling their labor-time apply no less to those who make their living selling automobiles or zucchinis.
So if Krugman really believes that supply-and-demand analysis is inapplicable, at least without serious modification, to the market for human labor because humans are central to that market, then he must also believe that such analysis is inapplicable, at least without serious modification, to everything. If such an assault on the foundations of economic science is Krugman’s goal, then he should make that case explicitly rather than assert, as countless economically uninformed people have done throughout the ages, that because the market for this or that particular good or service is ‘different,’ the standard conclusions of economic analysis do not apply to that market.
Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mecatus Center
George Mason University
Fairfax, VA 22030