Krugman Misses the Plain Truth Right In Front of His Eyes

Krugman Misses the Plain Truth Right In Front of His Eyes
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In another welfare-state praising column, Nobel Laureate and vulgar Keynesian mudslinger Paul Krugman attempts to deduce the real downfall of American society.  Forget the fact that Krugman called for the creation of the housing bubble in the early part of the decade which has since caused an incredible amount of economic and emotional damage for now; we are talking about the dependency creating welfare state here.  On the contention that income mobility and wealth creation are suffering due to a loss in family values, Krugman actually comes close to nailing the real cause of a downtrodden economy:

So we have become a society in which less-educated men have great difficulty finding jobs with decent wages and good benefits. Yet somehow we’re supposed to be surprised that such men have become less likely to participate in the work force or get married, and conclude that there must have been some mysterious moral collapse caused by snooty liberals. And Mr. Murray also tells us that working-class marriages, when they do happen, have become less happy; strange to say, money problems will do that.

Admittedly, Krugman’s logic is pretty sound to a point.  Certainly the lack of jobs and ability to be productive and make a living certainly weighs down a man’s ability to raise a family.  But money, which is simply a medium of exchange, is not the real issue here as Pater Tenebrarum demonstrates:

However, we must never lose sight of the fact that what every one of us is producing is not actually money. We produce goods and services that can be exchanged for money, but not money as such.  What is spent is money and what is saved is money. However, what really happens when we decide to save is that we forego consumption. We may do so by not spending a certain amount of money we have received in exchange for our production, but this means that for the money saved, there is now an equivalent amount of consumer goods that remain unconsumed.

Money represents the ability to obtain goods so it’s not a lack of money that limits man’s potential but his lack of a means to achieve sustenance and beyond.

But where does this barrier to achieve the ability to demand goods come from?  Krugman blames stagnating wages (aren’t wages supposed to be cleared and then boosted through inflation?) and a lack of health insurance.  In short, growing economic inequality is driving the poor man down while the Wall Street fat cats laugh all the way to the bank.  Hence Krugman’s fetish with raising taxes on the rich despite that such an economically ignorant policy goes against the Keynesian narrative that deficits should be increased during downturns.

Still, Krugman misses the real point: why is there growing economic inequality and why can’t those on the lower rungs of society’s ladder find job opportunities?

The answer is simple- the imposition of the minimum wage which keeps those whose productivity falls below the artificially established wage floor.  As Rothbard states in Making Economic Sense:

All demand curves are falling, and the demand for hiring labor is no exception. Hence, laws that prohibit employment at any wage that is relevant to the market (a minimum wage of 10 cents an hour would have little or no impact) must result in outlawing employment and hence causing unemployment.

And as Mises points out in Human Action:

All that minimum wage rates can accomplish with regard to the employment of machinery is to shift additional investment from one branch into another. Let us assume that in an economically backward country, Ruritania, the stevedores’ union succeeds in forcing the entrepreneurs to pay wage rates which are comparatively much higher than those paid in the rest of the country’s industries. Then it may result that the most profitable employment for additional capital is to utilize mechanical devices in the loading and unloading of ships. But the capital thus employed is withheld from other branches of Ruritania’s business in which, in the absence of the union’s policy, it would have been employed in a more profitable way. The effect of the high wages of the stevedores is not an increase, but a drop in Ruritania’s total production.

And then of course there is the seemingly indefinite prolonging of unemployment benefits:

Assistance granted to the unemployed does not dispose of unemployment. It makes it easier for the unemployed to remain idle. The nearer the allowance comes to the height at which the unhampered market would have fixed the wage rate, the less incentive it offers to the beneficiary to look for a new job. It is a means of making unemployment last rather than of making it disappear.

How Krugman misses this simple fact is demonstrative of his glaring ideological bent.  Human demand never ceases; that is man acts continuously till all needs are sufficed.  That means that the ability to produce to meet man’s indefinite desire shows that prolonged unemployment can’t occur in a truly uninhibited market.  But Krugman will have none of it as it flies in the face of his statist agenda.  Despite empirical studies claiming that minimum wage laws don’t lead to an increase in unemployment (such as the infamous one by former Obama economic adviser Alan Krueger), logical deduction overwhelmingly says otherwise.  There are too many variables in constant human action to make such a claim.  In other words, correlation doesn’t automatically mean causation.  One of my favorite examples of this is a short though construct used by an old college professor of mine.  In looking at increases in rapes committed, there is also a growth in ice cream sales.  From the empirical positivism perspective, surely ice cream sales cause instances of rape, right?  But of course that is completely wrong and one can easily figure out that the  change in weather, from cold to warm or hot, tends to mean more people are outside and thus at risk for kidnapping, rape, and other violent incidents than during colder months.

As long as Krugman keeps trumpeting on about government intervention to fix income inequality, he will never see the true cause of prolonged unemployment and lack of job opportunities.  Unfortunately, his sphere of influence probably won’t shrink as false logic continues to be spilled across the editorial pages of the New York Times.

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James E. Miller is editor-in-chief of Mises Canada and a regular contributor to the Mitrailleuse . Send him mail

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