Thank you for your very thoughtful response.

You wrote,

“Of course, one can (and should) invest the curve with meaning.”

No. One should dispense with it altogether. This is economics, not geometry.

You said that I failed to address the Keynesian point. I thought I had done so. I’d be most grateful if you could tell me exactly wherein I failed to do so.

As I pointed out, even saving money in a mattress does not withdraw purchasing power from circulation. With fewer dollars in circulation, prices will fall, and the purchasing power of the dollars remaining in circulation will rise correspondingly.

And so long as labor is scarce relative to land, the owners of land must still employ all of the available labor in order to maximize the profitable use of their land. The prices or wages at which they do so is immaterial.

What more need be said?

I don’t know what your fish story has to do with anything. Granted that at some point it would pay to switch from fishing to some other productive activity, or from activity altogether to leisure.

How does that justify a minimum wage law?

Thank you for your very thoughtful response.

You wrote,

“Of course, one can (and should) invest the curve with meaning.”

No. One should dispense with it altogether. This is economics, not geometry.

You said that I failed to address the Keynesian point. I thought I had done so. I’d be most grateful if you could tell me exactly wherein I failed to do so.

As I pointed out, even saving money in a mattress does not withdraw purchasing power from circulation. With fewer dollars in circulation, prices will fall, and the purchasing power of the dollars remaining in circulation will rise correspondingly.

And so long as labor is scarce relative to land, the owners of land must still employ all of the available labor in order to maximize the profitable use of their land. The prices or wages at which they do so is immaterial.

What more need be said?

I don’t know what your fish story has to do with anything. Granted that at some point it would pay to switch from fishing to some other productive activity, or from activity altogether to leisure.

How does that justify a minimum wage law?

Thank you for your very thoughtful response.

You wrote,

“Of course, one can (and should) invest the curve with meaning.”

No. One should dispense with it altogether. This is economics, not geometry.

You said that I failed to address the Keynesian point. I thought I had done so. I’d be most grateful if you could tell me exactly wherein I failed to do so.

As I pointed out, even saving money in a mattress does not withdraw purchasing power from circulation. With fewer dollars in circulation, prices will fall, and the purchasing power of the dollars remaining in circulation will rise correspondingly.

And so long as labor is scarce relative to land, the owners of land must still employ all of the available labor in order to maximize the profitable use of their land. The prices or wages at which they do so is immaterial.

What more need be said?

I don’t know what your fish story has to do with anything. Granted that at some point it would pay to switch from fishing to some other productive activity, or from activity altogether to leisure.

How does that justify a minimum wage law?

Have a health insurance premium floor of let’s call it $10m per family per month.

This should have no effect or a positive effect on health insurance coverage.

Why? Because if health insurance companies are earning so much per family policy, they can pay their workers and shareholders more who then demand other products in the economy, bidding them up and everyone else’s wages ad infinitum and eventually we are all rich with universal coverage.

“The problem is that the marginal revenue product of labor depends on demand for the product – but that demand depends on income, and income depends on wages. So, if wages RISE, then incomes RISES, which drives UP the demand for the product – which, in turn, drives UP the demand for labor – in the same proportion that wages ROSE. So, in the end, there’s A POSITIVE impact on employment. The INCREASE in wages caused a corresponding INCREASE in employment.”

It’s saying the same thing…so raise the minimum wage to infinity and we will have 0% unemployment forever (trust me).

Newsweek – if you’re reading this, give me a call…I’m available for the cover shoot this weekend.

duh why don’t we make minimum wage $1m a minute and make everyone rich and fix the economy? duh…..

simple

where’s MY nobel prize in economics?

The problem: workers aren’t homogeneous.

Actually, I think it’s perfectly possible that pay could increase by seniority on a free market for a reason like this: Experience generally increases productivity. More “senior” workers have more experience and therefore are generally more productive than new workers. If it’s expensive to determine a worker’s level of individual productivity, it may be that the best option is just to approximate productivity with seniority.

Put differently, the different workers aren’t actually doing the “same” work.

“In pictures or in words, a curve by itself has no meaning in economics.”

I definitely agree. My purpose here was just to present the “typical” Principles-level argument. Experience suggests that my statement is very close to what Principles-level classes teach. Of course, one can (and should) invest the curve with meaning.

The difficulty with your argument about tendency toward equilibrium eliminating unemployment is that Krugman, as a Keynesian, would say that there is such a thing as “equilibrium involuntary unemployment” that can’t be solved by lower wages – taking the idea straight from Keynes. The argument runs more or less along the lines that I presented. Simply claiming that tending toward equilibrium eliminates unemployment in the face of that argument could (I think rightly) be seen as simply refusing to deal with the argument that was presented. The argument presented here was largely an attempt to deal with Krugman “on his own grounds”, simply taking the standard Keynesian argument and tweaking it a few places to show its fragility.

Now, I do have to disagree with your statement re: production and wages. Consider a very simple example of Robinson Crusoe. He fishes for one hour, and that gets him 5 fish. His real wage then is 5 fish per hour. He fishes a second hour. Assuming that diminishing marginal returns is true (which is reasonable), he catches fewer than 5 fish – say 3. So, if he works 1 hour, production is 5 fish, and his real wage is 5 fish per hour. If he works 2 hours, production is 8 fish, but his real wage is 4 fish per hour. So, production and wages can move in opposite directions. Though I feel like we might have a difference of definitions…

I get a pretty good wage despite not having a college degree, because I have 25 years experience and some useful certifications (e.g. from the American Society for Quality). I show up on time (something of a dying art) and I mentor less experienced workers.

Other people bring their own advantages such as experience with automated tools. Bottom line: we have several people doing the same job, but some do it better than others, and the pay scales (to some degree) reflect that.

You lost me at the outset with this statement.

“Demand for labor is downward sloping. The supply of labor is upward sloping. This establishes an equilibrium wage where the quantity demanded and supplied are equal.”

In pictures or in words, a curve by itself has no meaning in economics. It must still be explained in other terms. With the other terms, why do you need the curve? If demand goes down as price goes up, why not just say so, why that “the demand curve slopes downward?” Why translate from straightforward language into a circular maze, and meaning into non-meaning?

Confusion is complicated, economics simple, and, if it isn’t simple, it isn’t economics. And this discussion certainly hasn’t been simple. Let me try to make it so.

The market tends toward equilibrium between the supply of and demand for labor, as for anything else, and, interference with it, toward disequilibrium, which, in the case of a minimum wage law, would be an oversupply of labor and unemployment.

As DD pointed out, eliminating the minimum wage law simply eliminates the unemployment. There is not less but more production and more overall demand.

This was the core of the Keynesian argument, as you related it:

“…if wages fall, then incomes fall, which drives down the demand for the product – which, in turn, drives down the demand for labor.”

Wages per se fall only when production per se falls. If production per se is constant, wages per se are constant. If some are falling, others are rising.

Even if all wages were falling, in money terms, because, say, people started saving more money in mattresses, there would be no less purchasing power, demand, and employment. Prices and wages would fall. The purchasing power of each dollar would rise. There would be just as much purchasing power, demand, and employment as before, just at lower prices and wages.

“…if some subset of the work force accepts lower wages, it can gain jobs.”

There is absolutely no reason to refer to a “subset of the work force” collectively other than to obfuscate the point that it’s precisely those people who AREN’T working that would be able to “gain jobs.” He equivocates between the working work force in the first part of the sentence and the non-working work force in the second. Are people really dumb enough to fall for this semantic manipulation?

How can there be people doing the same work yet getting different pay rates? ‘Seniority’ doesn’t exist in a free market – it’s union-imposed entity. If an employer found he can get workers who will do the same work for $10/hr instead of the current $20/hr then he drops the wages and/or hires the $10/hr workers. News story have shown people are currently willing to take a pay cut over unemployment ($10/hr is better than $0/hr).