The Hobgoblin of Simple Minds
Tyler Cowen notes the apparent inconsistency between supporting both labor unions and aggregate demand expansion during a recession. The one seeks to raise real wages and the other seeks to lower them.
I think it is hard to maintain a consistent view of the economy. You have to explain the large number of long-term unemployed and the fact that the distribution of unemployment is concentrated among the uneducated.
Finally, I think Tyler’s stagnation hypothesis is somewhat inconsistent. On the one hand, he wants to say that productivity growth has been sluggish. On the other hand, he wants to say that the economy is creating value without creating jobs–which sounds a lot like productivity growth.
My father, a political scientist who never studied economics, had a more internally consistent outlook. He always said that we will have to pay people to play corkball. His view was that there were many people, ranging from unskilled workers to humanities scholars, whose work was becoming less valuable. When he was alive, I always discounted my father’s view, based on the basic economic principle that markets eventually clear. Perhaps wages for some people would be lower, but we would not need to pay them to play corkball.
Now, I am leaning closer to my father’s view. I think that a lot of structural changes are taking place that are driving the marginal product of many workers well below their opportunity cost. Their lost output is not missed terribly much, because productivity is doing so well elsewhere.