Every labor economist has noted the presence of a “poverty trap.” Do they just have too much math?

Is it really sufficient, intellectually, just to yell some term at an idea in order to dismiss it? The economy has been Keynesian my whole life, and it has been a fairly good life. I’m afraid you’ll have to do better than that. Prasch may be right and he may be wrong; but if he is wrong, you will have to have more to your objections than to merely label him, at least if you expect to persuade reasonable men.

As an aside, I’m seeing an uptick in articles that blame economics for over-mathematization. People have been complaining about it for years, and they always blame the side they don’t agree with. So again, this presents nothing new to people who have perused recent economic philosophy. Readers of this article would do well to approach Dr. Prasch’s work with some healthy skepticism.

I’d also be interested in seeing the evidence which you believe supports the claim that aggregate labor demand is not upwards sloping in wages. There’s a long literature dedicated to measuring the aggregate labor supply curve, and I can’t think of any study that has found a downward slope.

I am pretty sure that the labor specialists have a more nuanced view, mainly because the common view is impossible to maintain in the light of the evidence. But this just points to another problem within the profession, namely that some pretty basic things have become “specialties” without actually informing either public policy or even the ordinary economist. These basic things are land, money, and labor, Karl Polanyi’s “fictitious commodities.”

I think what you’re calling “evil” is really just called “simplification”, or “approximation”. It’s really not that much different from talking about Newton’s first law without mentioning that it only works in an inertial reference frame, or talking about gravity without talking about general relativity. Would you call teaching F=MA or Newtonian gravity evil?

Even though an individual’s labor supply curve is not everywhere upward sloping, what we actually measure is an aggregate labor supply curve. The aggregate supply curve is roughly upwards sloping, and this is because what constitutes subsistence or satiation varies from individual to individual, somewhat smoothing out the curve. So if we hold constant demand for labor, and increase wages, aggregate hours worked also rise. So drawing an upward sloping demand curve is a good local (near the average level or wages and hours) approximation for what we observe in the economy.

There are countless other ways of making a model of labor supply more complicated. For instance, most people don’t decide the number of hours to work: they are hired at full-time or part-time hours. This doesn’t appear in an aggregate supply/demand story of labor supply. Neither does the fact that sometimes people are fired or laid-off and must seek out new employment, or that some people are self-employed and so face uncertain “wages”, or that some people receive government assistance, changing their incentives. Neither does the fact that labor supply is not a static decision, but all future expected wages and hours, as well as wealth, determine how much a person works, or if they choose to. Notably, these things do not appear in Dr. Prasch’s model either. All models are simplifications.

There’s only so much material that can be covered in a survey of economics class, and there’s only much depth that can be attempted before students become lost. I know this painfully well, since I teach an introductory economics section. I imagine that this is true in most disciplines.

And its not labor markets that do not have a standard commodity S&D curve, but credit and land markets as well.

I’ll admit to being a bit dumbfounded. Are you claiming that a freshman survey introductory economics text for non-majors is more representative of what economists think about labor economics than a standard graduate text dedicated to labor economics?

This post is called “Naive Experts: Economists and the Real World”, not “Naive Freshman: The Perils of Simplification in Economics Education”; it begins by talking about why economics is not a useful discipline as it is, and you claim that the author offers useful innovations not incorporated into the mainstream of economics.

I have just demonstrated that nothing he (or you) calls an innovation in labor economics would be surprising or new to anyone who has studied the subject at a graduate level, and your response is to show me a freshman intro text written by someone from the Austrian school? I think you’re going to have to mount a better defense than that.

No, I don’t get the picture. I think Bob’s analysis is quite correct.

As my training is in labor economics, it seems most fitting to address the comments about labor supply. There are so many errors that I cannot address them in full, as this post itself constitutes procrastination from studying for my exams. Prasch doesn’t seem to even have a passing familiarity with the theoretical and empirical research in labor economics.

Medaille says “Prasch’s most interesting work concerns labor markets, and here he parts company with the standard theory in the most radical way. The standard theory treats labor as just another commodity with a “normal” supply and demand curve. Looked at in this way, all government interference in such a market, such as minimum wage laws, would be counterproductive.”

This is not true on multiple levels. It is true that the simplest possible toy model of markets will say that the minimum wage increases unemployment. It is also the case that some economists believe that the minimum wage is counterproductive under certain circumstances. But you can open up any standard graduate labor economics textbook and read reasons why the minimum wage makes sense. In fact, I just did. You can read why perfectly orthodox, neoclassical economics can justify a minimum wage here: http://bit.ly/c61Xef.

I’m not sure what is meant by a “normal supply and demand curve”, but judging from the following paragraphs, I think we are meant to understand that labor supply should be upward sloping in wages. We can deal with that after we tackle the argument about leisure.

Medaille: “Standard theory contrasts “work” with “leisure,” and all that is not (paid) work is leisure. But it is a travesty of language to say that people living on the streets are enjoying leisure. Further, much of the time spent apart from paid work is given to other kinds of work, such as that necessary to maintain a family and a household. Leisure, properly considered, is a joint product of free time and purchasing power, and only those with sufficient purchasing power can “substitute” leisure for work. Therefore paid work is balanced against leisure and other forms of work. ”

This was certainly a revolutionary idea in economic modeling… 50 years ago when it was introduced by the perfectly neoclassical University of Chicago economist Gary Becker, who talks about how what economists term “leisure” for convenience and historical reasons is actually composed of many activities. You can read his 1965 paper about time allocation here: http://bit.ly/90QspH. You can also turn to page 14 of a standard graduate labor economics textbook and read modeling “household production”, those tasks done at home to either raise additional income or are required for the maintenance of a household. Google Books won’t show you that page, but you can see it in the table of contents: http://bit.ly/9HDMDA.

Because of this mistake, Dr. Prasch makes the mistake of thinking that economists believe that an individual’s labor supply curve is upward sloping everywhere. This is, not true, of course, and you can flip to page 12 to see an example of a labor supply curve with 3 equilibria: http://bit.ly/cG1XGi.

I could go on and on, but you get the picture. The point is that reading this article (and evidently, the book it reviews) will leave you massively misinformed about what economists believe, and what standard economics says. This is unfortunate, because there are many critiques to be made of the current economic orthodoxy. Instead, Dr. Prasch goes tilting away at poorly constructed strawmen.

Part A of that quote is correct, with some significant qualifiers. Part B is true only of some American conservatives, certainly not all of us.

And, this article makes me feel a little safer on my plans to do a Ph.D in Political Economy.

http://www.opendemocracy.net/ourkingdom/jonathan-rosenberg/if-thou-wouldst-what-true-freedom-is-thou-shalt-see-it-lies-in-take-bi

Bruce, “individualism” was the old liberalism but is now the new “conservatism.” This means that the purpose of modern conservatism is to regulate the rate of surrender to liberalism.

Valerie, the failures of economics are being evident; the solutions are not.

DW, spot on. Since helping out the “little guy” by giving money to the big guy, the little has become smaller and the big bigger. Quelle Surprise! There are at least a few economists of my acquaintance who would have reversed the procedure.

For a few weeks in September of 08, The Fed and Treasury were a chop shop, helping the still wobbling Financial firms in the stripping of dented Mercedes and Ferraris of the sub-prime fiasco and overseeing their re-emergence as part of the fleets of those left standing…or wobbling…. bigger and no less failure prone given the rot afoot.All, of course, to “help the little guy”.

Meanwhile, the Government and Business fail to recognize that one can just change a single word in the phrase “too big to fail” in order to arrive at the truth of our moment in time:

“Too Big to Succeed”. Bureaucracy and its conventional pieties has infected Business and Government with a fatal dose of consumption and “fresh air” is the last thing you’ll see emanating from the corridors of Big International.