Saturday, August 21, 2004

The Wall Street Journal Is Wrong

I know, it is a bold statement to make, for someone who hasn't taken a single course in economics.  But, on the other hand, economics is merely a form of psychology, applied to greedy and hungry masses of flesh.  Psychology is something I know about. 

I noticed this snippet on Brad DeLong's blog.  I stated to leave a comment, but decided not to.  What I had to say, while related to the article he quoted, was not related to the point he was trying to make.  So it belongs in my own blog. 

The WSJ article is available by subscription only, but Dr. DeLong kindly quoted a snippet:

WSJ.com - Political Capital: The big economic-policy challenge facing the next president isn't how to boost job growth -- that will happen in time -- or how to boost wages -- they will inevitably rise with productivity. The big challenge is how to survive the retirement of the baby boomers, which begins in just five years, without dramatically altering the nature of American society. Left untouched, Social Security and Medicare could cause the U.S. government to swell to 30% or more of the economy from 20%. The welfare state that the U.S. held at bay through the final quarter of the 20th century would expand with a fury. And make no mistake about it: Social Security and Medicare, as now constituted, are a form of welfare.

I am bothered by the comment about how social security and Medicare are "a form of welfare."  While this is true, it is an unnecessary political jibe: it does not contribute to the substance of the article.  Such snide asides are OK for bloggers, but do not belong in a serious newspaper.  Anyway, my real point is this: the author states that wages "will inevitably rise with productivity."  This is false.  It is not inevitable.  Wages will rise with productivity if workers are paid fairly.  Increased productivity may be inevitable; the fairness of pay is anything but inevitable.  This was illustrated by a recent piece on NPR:

New Overtime Rules Take Effect Monday

Aug. 19, 2004 -- Americans spend more time on the job than workers in any other industrialized country. Most who put in more than 40 hours per week are supposed to be paid overtime -- time and a half.

Some labor studies indicate that as many as 30 percent of employees are working off the clock. But complaints filed with the Labor Department are increasing; back pay awards jumped 30 percent last year.

No snide comments about liberal bias at NPR will be accepted.  The statistics they cited about unfair denial of overtime pay come from the Department of Labor.  Right now, the DOL is decidedly pro-business.  They found that 100% of garment-industry companies were guilty of unlawful denial of overtime pay.  The numbers were around 75% for a couple of other industries: poultry and something else.

The implication of the new overtime regulations are hotly controverted, but only by hotheads.  Cooler individuals  know that there will be a huge decrease in the amount of overtime pay that companies will have to put out.  Therefore, rising wages are not  inevitable.  Certain persons will do all they can to keep wages down.  Indeed, since the minimum wage is not indexed to inflation, (the new overtime rules also are not) if nothing is done, real wages will inevitably fall.