Regulations and frictionless marketplace assumptions

“Starting assumptions have consequences.”

Of course they do: but this works all ways, not just Friedman’s. If we assume away Public Choice then we’re going to get very different answers about what is a good or interesting legislative proposal than if we assume Public Choice. And so on with any starting assumptions.

Harking back to the Red Plenty thread and Cosma (??) on the computing required to plan in detail. If we assume that planning is possible then we end up with a 70 year economic monstrosity: if we assumed at the start that such planning was not possible then we’d have had a different experience.

Assume that teachers’ unions are out to screw the general public for the benefit of teachers and Wisconsin looks a little different than if we assume that Walker is simply some Koch funded destroyer of all that is right and good in public service.

As an entirely personal point I’m convinced that almost all economic disagreements are precisely because of different starting assumptions usually guided by differences in morals/prejudices. Fortunately I know where I stand for I really am out to screw the workers……

In the absence of evidence, what’s your proposed alternative to defaulting to the Econ 101 story? Is there an equally-plausible Crooked Timber theory that we can default to instead? Should we just try passing regulations without any theoretical response and see if they work?

Well, you could start by recognizing that your conclusions depend on the validity of your assumptions. And you could reject hypotheses that were contradicted by empirical data – regardless of how well they might comport with “common sense” and “intuition.” Aristotelian physics is intuitive but wrong; Newtonian physics breaks down in the realm of high velocity, high acceleration, or on tiny physical scales.

If that sounds too obvious, it isn’t. You’d be surprised by how often people forget this.

Sigh–“use” rather than “sue”. I mistype that all the time, rather inconveniently in my profession as a lawyer.

@Aaron Swartz

I think you misunderstand the point Henry is making. To quote.

‘”In a frictionless marketplace regulations would reduce wages but with frictions it’s likely to increase long-term unemployment which is worse in social welfare terms.
is quite striking. ”

It is even more striking, because the back-up claim in the second quote (above) has no compelling empirical support. Comparisons across advanced industrial democracies find no evidence that increased labour market regulation (including a variety of regulations that one might expect to have much more direct consequences than e.g. body searches) lead to higher unemployment. ‘

To say the point being made has no ‘compelling empirical support’ is therefore an extremely polite way of putting it. A much more cogent and accurate way of putting it would be ‘it is false because it does not accord with the relevant empirical data’.

So there is no absence of evidence per se. What there is, is an absence of evidence that |supports the ‘official story’ which is a rather different issue.

MY writes a lot about real property: taxes, zoning, parking, private vs. public functions, etc. Although his thinking is somewhat libertarian on these issues, it is often insightful.

When MY thinks about employment, he runs down into Econ 101/libertarian ruts that appear completely divorced from the real world.

I think this because Matt really doesn’t understand the importance of a job to most people, and the catastrophic effects of not having one. He writes as if losing a job and getting a new one is on a par with finding a new apartment after your lease expires. This leads him to ignore the power imbalance between employers and employees, particularly in times of long-term high unemployment.

What’s this “full employment” thing anyway, and why does it necessarily improve my bargaining position?

Workers have more bargaining power if there is a surplus of jobs and a shortage of workers to fill them, as oppsoed to there being (like now) not enough jobs to keep everyone employed. Supply and demand . . .

“I think this because Matt really doesn’t understand the importance of a job to most people, and the catastrophic effects of not having one.”

But doesn’t the logic of this say we should care less about improving the workplace condition of those with jobs, and more about helping the unemployed to get jobs? In other words, fewer workplace regulations, but full employment – which is exactly Yglesias’s argument.

In the absence of evidence, what’s your proposed alternative to defaulting to the Econ 101 story?

Well, I suppose you could start learning Econ 102, or 201, or however the US high education numbering system works.

My point is, that the “Do as the boss says, or you’re fired” employment relation is particular to an administrative hierarchy

I’ve noticed that the original proposition – “Fuck me, or you’re fired!” – that got the libertarians all twisted up inside has evolved now to “Do as the boss says, or you’re fired!”, of which the above is just an example.

This is misleading and possibly disingenuous change. The latter proposition isn’t on the face of it unreasonable. Your employment contract requires you to do a certain job, and odds are there is a boss who tells you, more or less, what to do.

The big question is what are the implied parameters of doing a certain job, and the argument with the libertarians is who should be the person (legal or natural) who decides. “Fuck me or you’re fired!” is way outside what most people would imagine are those implied parameters, and watering the example down is in danger of invisibly conceding a big chunk of ground to the libertarians.

Isn’t the economics of regulation pretty straightforward? You know, transaction costs, incomplete contracts, incomplete information, prisoner’s dilemma, Robert H. Frank’s status stuff, etc. None of this is hard. It’s a bummer that libertarians can get people so knotted up so easily with so little. I’d rather start with a socialist baseline and work from there, but it’s not hard to get to where you want from a libertarian baseline either.

MPAVictoria asked:

Martin why should countries undergoing a recession be excluded from the discussion?

I think Martin’s point is that at full employment, neither employee nor employer as any market power so that the econ 101 story can be taken seriously. In periods of recession or more than full employment (e.g., the US in the late 1990s), one side or the other does have market power and can extract rents. Outside of these periods (i.e., very occasionally) either employees or employers (much more frequently the latter) can extract rents which can take the form of ridiculous demands (e.g., FMOYF).

My understanding of Martin’s assertion is that if neither side has market power, if the market is competitive, then prospective employees are able to find reasonable jobs at a competitive wage w/o having to suffer degrading conditions. Whether or not this is the case is another matter and of course depends crucially on where we define full employment.

“Isn’t the economics of regulation pretty straightforward? You know, transaction costs, incomplete contracts, incomplete information, prisoner’s dilemma, Robert H. Frank’s status stuff, etc. ”

I’m smiling, because if “transaction costs, incomplete contracts, . . . etc.” is “straightforward”, then the term doesn’t mean what I think it means.

One of the consequences of bouncing back and forth between analytic models that are so simple, because their assumptions abstract away from every detail that might matter, (e.g. perfect competition and complete information), and analytic models that seem to stuff all the details that matter into a formless blackbox (e.g. transactions costs), is that we cannot talk straightforwardly about these problems, as if we lived with our interlocutors in a common reality.

MVPAVictoria,

Basically what Marcel said: there is little point in comparing countries that are in a recession or have other economic problems to countries that don’t have said problems when it comes to comparing the effects of labor market regulations on unemployment.

When doing cross-country comparisons you have to compare like with like so as to be able to compare the difference in unemployment due to the difference in labor market regulations.

For anyone who wants to play around a bit with labor market regulations and unemployment I’d recommend having a look at http://stats.oecd.org/. There is quite a bit of data that’s easily downloadable in excel.

Marcel,

To correct you though: the story has little to do with market power on either side of the market. You are right though that market power could change circumstances, however the market power of employees vs. employers is so very much interwoven with labor market regulation that does not matter very much: i.e. labor market regulation is probably the main determinant of market power to the exclusion of much else.

The reason to exclude countries in recession is simply that most countries (in 2007) are not and that recessions are weird. So even if all countries were such a comparison would be problematic IMO. In that sense you’re spot on with Keynes; I do implicitly use the Samuelsonian Neoclassical Synthesis here: econ 101 is safe to use outside depressions/recessions.

As a very obvious example of this, unpaid overtime is illegal for many job categories. Yet it still happens.

Katherine @ 20: “I’ve noticed that the original proposition – “Fuck me, or you’re fired!” – that got the libertarians all twisted up inside has evolved now to “Do as the boss says, or you’re fired!”, of which the above is just an example. This is misleading and possibly disingenuous change. The latter proposition isn’t on the face of it unreasonable. Your employment contract requires you to do a certain job, and odds are there is a boss who tells you, more or less, what to do. The big question is what are the implied parameters of doing a certain job . . .”

Yes. The big, continuing political question is, what are the legitimate parameters of the job?. That’s in the nature of an incomplete contract: there’s a continuing negotiation over the legitimate parameters, while the variable of compensation is held, more or less fixed.

And, the boss’s request for sexual intercourse would seem to be an easy case. It is not a case that MY or the libertarians seemed to be equipped to answer, and that’s telling about their model of how the economy works.

Is full-employment a remedy for sexual harassment?

Bruce Wilder and chrismealy hit the nail on the head in terms of the question “can we use econ 101 style thinking to talk about labor markets.” Labor economists actively engaged in the field would be extremely unlikely to model a labor market for an academic paper like MY does here. Yet in discussions of economics in the punditocracy (and by that I mean op-eds, blogs, the sort of writing people see on a day-to-day basis if they aren’t research economists), these econ 101-style toy models are exactly what’s frequently deployed. My experience is that researchers frequently do what Henry suggests in the(“Simple economic models are useful…” paragraph. In my classes, I always stress that the assumptions are, and should be(!), the most contentious part of any economic model. That emphasis on thinking carefully about assumptions doesn’t seem to translate well to the type of communication prevalent on the Internets.

Side comment- One mystifying aspect of the internet to me is the prevalence of people spouting Austrian/libertarian economic arguments despite the fact that Austrian/libertarian economists are about as common as Marxist economists in academia (that is to say, an endangered species). I’ve seen some attribute it to the fact that this style of economics appeals to people who disproportionally use the internet. An alternative explanation that also makes sense to me is that Austrian/libertarian arguments are far more amenable to blog and comment style arguments, but get ground to bits in long-form peer-reviewed journal articles.

“that the econometric results ‘supporting’ the story that labour regulation leads to higher unemployment are completely insufficient to provide proper evidence”

Right, but Henry, this doesn’t mean that there’s “no evidence” that tighter labor-market regulation leads to higher unemployment. It means this one paper, written by people ideologically supportive of tighter labor-market regulation, interprets a series of fuzzy econometric studies to arrive at the conclusion that tighter regulation doesn’t matter. This one paper hardly settles the question.

And, the boss’s request for sexual intercourse would seem to be an easy case. It is not a case that MY or the libertarians seemed to be equipped to answer, and that’s telling about their model of how the economy works.

I don’t think it actually says anything one way or the other about how their model of the economy works. It’s more about how their model of human psychology works. People who try really, really hard to find ways of excusing “fuck me or you’re fired” are generally people who just don’t think it’s that big a deal. But that’s not an ok thing to say, so what they do instead is hide behind complicated models when all you need is a little imaginative empathy (h/t Belle) and decency.

“What do you think would happen if the government mandated that employers contribute a specified amount to employer pensions, without changing anything else? Would cash wages go up or down?”

Well, at my wife’s place of employment, this is exactly what happened when they got bought out by a larger firm. Current wages dropped because the new company had a fixed contribution to employee pensions. Pay me now, or pay me later. Following that, a whole slew of annoying rules restricting workplace activities were instituted and employee responsibilities were increased to cover people let go in the merger of the two firms, and amazingly, weages did not increase. WHO COULD HAVE KNOWN!?!11?!

Or perhaps a “shorter” would suffice:
Deferred compensation in the form of pension contributions is exactly like being asked to have sex with your boss.

The first middle class was created in the wake of the Black Plague. With substantially fewer peasants (and a fewer lords to lord it over them) the remaining peasants simply left for the cities and nobody could stop them. The ones who remained charged higher wages for their services. Bad times for the landed gentry. The kings of the time responded with wage and price freezes. The old medieval world was gone.

I wonder if every middle class has arisen as a response to some sort of disruption of this sort. If wages rise, it’s because there’s competition for skilled labour. Even the peasant knew how to manage draft animals, plough, sow, cultivate, harvest. How many of us could manage that stunt today?

There’s an endemic problem in China at present: workers, especially in the construction industry, are being cheated of their wages. Not merely underpaid, but not paid at all. Without some underpinning at a contractual level, some arbiter, the whole system breaks down. The great motor of Chinese economy has no oil in the crankcase.

The metaphor of “friction” in the system is itself a red herring. Markets require regulation and have been regulated since Hammurabi, whose famous code established the wage for shepherds and shipbuilders, the requirement for receipts, titles, land leases, all concepts we understand today. How can a market be “frictionless” ? It’s an oxymoron. Regulation is a market lubricant, separating winners from losers with brisk efficiency. Without such regulation nobody will participate in markets. The need for regulation rises proportionately with risk.

If society wants efficient workplace regulation, the answer seems fairly obvious. The Germans have the Betriebsräte, I suppose you might call them worker’s councils, from which workers’ representatives can be put on the Aufsichtsrat, one of the two boards of directors for any publicly traded firm. It’s not a perfect system, but it’s a working mechanism for negotiating worker rights, where it matters, at the board level.

46. His point is that women are liars who lie. People should check out that article, it is a doozy. Here is some of it’s advice for identifying cases where women are lying about rape.

“”””””” In discussing the alleged rape, false accusers may be unable to provide detailed descriptions of the rape or may provide too much detail. Although a significant number of true rape cases include numerous sexual acts in addition to penile penetration, those fabricating allegations of rape tend to describe very limited and narrow sexual activity. “”””””””

Maybe we should file this under “why women don’t comment on these threads”.

Misaki, you’re not responding to my comment or the question I asked in it. So, um, maybe you should do that “beam in your eye versus mote in neighbor’s eye” thing about scoring points.

Misaki @48: In the United States, “fuck me or you’re fired” is illegal. The law is enforced, to the extent it is enforced generally through sexual harassment lawsuits, and through employers privately enforcing their own anti-harassment policies either from fear of being sued or because having your supervisors and managers giving preferential scheduling and the like to people who are blowing them, or firing good workers who refuse to, is not in the company’s best interests. The company I work for, for example, has been known to fire people against whom credible claims of sexual harassment have been made.

>In the US we had low unemployment in recent memory – not full employment, but sufficiently low that it challenged theories of the natural minimum rate. And yet we got intrusive behavior by employers and stagnant wages for the middle class. Incomes for the very wealthy soared.

If you mean the late 1990’s, that’s one of the few periods in the last three decades were wages increased, tracking productivity. This isn’t the best chart but… http://stateofworkingamerica.org/charts/growth-of-productivity-average-hourly-compensation-and-median-hourly-compensation-by-gender-1973-2009/

Here’s some more ok-ish charts about wage growth vs productivity, which (like similar charts) shows inequality increasing after about 1980, and complicated arguments about a model that tries to predict where wages would be at if there had been full employment for the past 30 years: http://jaredbernsteinblog.com/full-employment-a-force-against-rising-inequality-and-stagnant-incomes/

etv13:
>In the United States, “fuck me or you’re fired” is illegal. The law is enforced, … The company I work for, for example, has been known to fire people against whom credible claims of sexual harassment have been made.

oh, well that’s good.

I think it’s been pretty well-established in the discussion which this blog post is a part of that “libertarian” principles work much better with full employment… which of course, was the whole point of Matt Yglesias’s ‘red herring’ post. As merian pointed out in 54, regulations of the work contract are less necessary in an environment where workers can be trusted to uphold a fair work environment. I assume anyone who is interested in the actualization of libertarian ideals is, therefore, prepared to devote an appropriate amount of effort toward full employment, like the solution linked above.

@Tom Bach
In east central Europe the entrenched elites increased their power over serfs in the Plaque’s wake. How does your theory account for this fact of history?

In the time of Edward III, the Statute of Labourers (1351) enacted wage and price freezes and made migration illegal. It would lead to the Peasant’s Revolt of 1381, Wat Tyler’s Revolt. Though the revolts were put down, the economic landscape had changed too much to ever return to the status quo ante of serfdom. Though the elites did increase their power, they never slept comfortably in their beds thereafter. Wat Tyler had tightened every titled sphincter in the land.

Misaki, #59:

212 out of 1,218 is 17.4%. Add that to 27% and you get 44.4%. Do you really think an article with that much work put into it, by someone with the credentials “PhD, JD, MBA”, is going to make a basic arithmetic error? I do agree that the wording is slightly confusing, and the way the bolded part focuses attention on what immediately came before does not help, but that formatting is in the original so I thought it appropriate to retain it. To be clear, “these complainants” in the quote refers to the 1,218 reports, not the 546 unsolved cases (I assume the complainants were all female but you never know…).

Give me a sec to pick myself up from the floor, get that giggle under control and put on a hazmat suit.

Point one, while the original paper quoted by your initialism-rich author isn’t available on the internet, others quote it, too, and in several places I see the 27% applied to 566 (not 546), not the total number[1]. So 17.4% of 1218 plus 27% of 566 is definitely not 45% of 1218. Sorry. And that’s all I’m going to say about that old misogynistic chestnut of rape-crying women that you’re singling out for no discernible reason because…

Point two, you’re the only one who seems to think that false accusations of the boss man is in any way a relevant obstacle to improving the dignity of workers despite the fact that the case you’re so concerned with IS already illegal AND against every conceivable company rule book. Plus, this started out as a hypothetical example where even the libertoonians were agreeing that it’s Not A Good Thing To Do, but were embarrassed because they just couldn’t argue why-on-Earth not from their peculiar theoretical framework. Where this is an actual, real-life problem, it’s not because employers or the countries in which they operate have no rules or structures for enforecement: it’s because the company culture protects the transgressors and silences the employees who find themselves targeted. In any sane cultural environment, this is a non-issue.

[1] As you can imagine, this old warhorse of a study is trotted out in rather unsavoury corners on the internets. According to those, after having identified those 30-or-so % of lying sluts, the authors then extract a few dozen of characteristics of “false accusations” and retro-fit them to the original 1218 reports to end up with a whopping 60% of lying rape-accusers. SRSLY. What a load of bullcrap.

temp @43:

What do you think would happen if the government mandated that employers contribute a specified amount to employer pensions, without changing anything else? Would cash wages go up or down?

That’s exactly what has been happening in Australia since the early 1990s. The current required contribution is 9%. Wage growth has been positive since then, unemployment has generally been low (it’s currently 5%) and aside from a period of time when the government was tinkering with the kinds of industrial legislation that libertarians dream of, productivity growth has been positive.

I’m not a fan of these super contributions and I think they would have been better as mandatory pay rises, but I think it’s safe to say they haven’t created an economic or labour market catastrophe in Australia…

@Tom Bach
In east central Europe the entrenched elites increased their power over serfs in the Plaque’s wake. How does your theory account for this fact of history?

Have you considered the possibility that Black Death affected this area to lesser extent?

I just woke up a couple of hours ago and am reading it in dismay.

I’m not sure what the point is in posting it all, except to say maybe that apparently since women lie about being raped therefore there shouldn’t be any reason to stop bosses saying “Fuck me or you’re fired”?

Heckman (quoted in OP): “In the absence of empirical evidence, logically consistent stories that accord with intuition have great appeal.”

I don’t share Heckman’s intuition. In general, psychological egoism isn’t an intuitively plausible doctrine. It appeals to cynicism, not intuition. Heckman’s flaw seems to be to generalize from the fact that incentives SOMETIMES makes intuitive sense to a doctrine that we are econ incentive automata that react reliably proportionally to econ incentives.

Shorter Misaki: Even if ‘FMOYF’ is bad, regulation would be worse because sly conniving women would use it to shaft their poor innocent bosses.

I’m almost starting to feel nostalgic for some of the earlier debates. Since this seems entirely irrelevant to the OP, and is clearly against the stated comments policy besides being offensive and offensively stupid, why are these appalling posts still here?

“Fuck me or you’re fired” was a hypothetical example, from some libertarian essay; a thought experiment, abstract, conceptual musings. In real life, obviously, every kind of extortion, whether it involves money, sex, or any other services that a reasonable person would find irrelevant to the work functions, should be, and I’m pretty sure already is, a subject of criminal law. As well as filing a false police report. What else is there to say?

Proposal: blog commentators should be charged money to post libertarianism. This would improve the quality of comment threads while being impossible for them to argue against.

Nachasz
It didn’t.

Alex Tabarrok has responded.

I don’t know the first thing about the empirical evidence, but this, from Tabarrok’s post, strikes me as really odd: “What the theory and the empirical results are saying is that people exposed to a higher risk of sexual harassment are paid more.” Really? Maids, waitresses, barmaids? Or is this statement intended to apply only to comparisons within specific jobs (i.e. only waitresses, rather than waitresses versus lawyers), or specific kinds of workplaces (i.e. only waitresses in comparably scuzzy diners, rather than waitresses in scuzzy diners versus waitresses in high-class restaurants)?

misprint: the post at BHL said that FMOYF is unacceptable because it is way outside what the *employee* could have reasonably expected when she took the job.

BTW, I would add that I did not find a reasonable explanation from people at CT on why prostitution is morally acceptable, while FMOYF is not: Flanigan’s explanation seems fine to me, but Chris (and I think the other people at CT) did not like it; so: what is their take?
(apologies if it has been answered in comments).

Woops, I see that other commentators have raised similar points.

Yglesias is pretty clearly right in the real world — if you had the choice, you would take (permanently) tight labor markets plus less labor regulation over more labor regulation and slack labor markets, right? The first increases the power of the worker and creates all kinds of decentralized pressures for better treatment, while the second gives more nominal power to the worker but greater actual power to the bosses and creates all kinds of decentralized pressure for worse treatment. The best that happens in the second scenario is that the labor rights are operative for employed workers who become a privileged in-group but there is an out-group of workers who are unemployed or employed in the informal economy and have great difficulty getting hired. BTW, for employment rights that affect the employer’s ability to fire workers the standard undergrad econ theory is *not* that these will increase unemployment, but that they will lower labor turnover and create more permanent in-groups and out-groups.

Tabarrok seems to think that not sexually harassing is more expensive than sexually harassing because a burger with fries costs more than a burger. That is literally an analogy that he makes.

Yglesias is pretty clearly right in the real world—if you had the choice, you would take (permanently) tight labor markets plus less labor regulation over more labor regulation and slack labor markets, right?

Is there some kind of empirical evidence that labor markets are going to go all slack if bosses cannot coerce sex from their employees? Because otherwise I’d say this is a pretty false dichotomy.

Managers at large companies routinely shaft shareholders; thus, it is not implausible to claim that in the case of sexual harassment the interests of owner and employees coincide (i.e.: they both gain if they get rid of sexual harassment); and similarly, for many other oppressive work conditions.
However, the claim can be tested by considering small companies where manager and owner are the same person.
Do women get harassed less or more in such companies than in large one? Are working condition better in such small companies or worse?

Jerry, I see it as a practical matter, more than principle: i.e., should we expect that owners of large companies to side with workers against managers in asking for laws against (certain) abusive work conditions? Does it happen in practice? If not, why?

Is there some kind of empirical evidence that labor markets are going to go all slack if bosses cannot coerce sex from their employees? Because otherwise I’d say this is a pretty false dichotomy.

I was not saying that there was any consistent empirical tradeoff between full employment and regulations — this depends entirely on the regulation, and certainly I don’t think there would be such a tradeoff in the FMOYF case. It’s actually weird to apply microeconomic theory to the full employment tradeoff anyway, as basic economic theory is about efficiency and utility maximization and not employment at all — a regulation requiring everyone to have their own personal butler would be extremely inefficient but would likely create a lot of jobs. I think there is a reasonable argument for some kind of tradeoff between regulations that restrict firing and the ease of moving between jobs and between the formal and informal economy (thus creating in-groups and out-groups), but you have to look at the whole institutional framework.

But if there was any tradeoff I’d take full employment. Over the past few decades there has been a proliferation of new legal rights on the books for workers but at the same time the decentralized mechanisms that support localized worker power — unions and tight labor markets — have been greatly weakened. That hasn’t worked out too well.

it’s incorrect to say “the law is really helping the managers here, not the workers.”

that’s not what I was saying, you’re reading that in yourself. Just because the law helps owners (not managers) doesn’t mean it doesn’t help workers, there is no contradiction. Your pension fund might be the owner. The point was that anyone whose primary concern is the actual productivity of the firm would obviously not want the managers treating it as their personal bordello. And that is hard to police; not only are top managers frequently not the owner but the presence of multiple owners means that one owner can exploit others.

Also: I don’t remember Chris Bertram’s reasons, but Flanigan’s argument (as you’re presenting it and IIRC that’s correct but I don’t have time to read it again right now) implies that if most women expect to be asked to perform any personal service for their boss, up to and including sexual favors, there’s nothing any other woman can do about it, because it’s implied to be part of her contract too.

Watson–you’re absolutely right about sexual harassment but wrong about Davis Bacon–show me the evidence, as opposed to the libertarian fantasy, that it reduces employment. That said, the Tabarrok post is revolting on both positive and normative grounds. The idea that employers “pay for” sexual harassment is the kind of clever-clever nonsense by which the Marginal Revolution types shittify the profession’s reputation.

Just because the law helps owners (not managers) doesn’t mean it doesn’t help workers, there is no contradiction. Your pension fund might be the owner. The point was that anyone whose primary concern is the actual productivity of the firm would obviously not want the managers treating it as their personal bordello. And that is hard to police; not only are top managers frequently not the owner but the presence of multiple owners means that one owner can exploit others.

Sure, I agree with all that. But the problem of policing sexual harassment doesn’t really go away if you make it illegal. If the firm is as productivity-maximizing as all that, then it’s already concerned with sexual harassment (on the grounds that it hurts employee output). So that firm doesn’t even need the law to help it, even if it doesn’t otherwise care about the issue at all. On the other hand, firms that aren’t already policing sexual harassment would seem not care that it damages productivity, so they can’t be disincentivized on those grounds. That’s who the laws are for. I’m not sure we’re really disagreeing here, but I think it’s important to point out that sexual harassment is not something that occurs as some sort of market mechanism; it occurs because of power imabalances and bad people thinking they can get away with abusing that power.

Bianca, if by “put out for the boss” you mean “have sex with him”, the whole point is that that is NOT how workplaces are: sexual harassment happens, but it is not the norm.
In those jobs where sexual favors are part of the job (as in “explicitly written in the contract”), asking to have sex is fine; in the vast majority where they are not part of the job, they are not.

@MQ
Yglesias is pretty clearly right in the real world—if you had the choice, you would take (permanently) tight labor markets plus less labor regulation over more labor regulation and slack labor markets, right?

I’m not sure these are the only possible choices. It’s my observation, having watched other economic recoveries, employment numbers are the last to gain traction. Workplace regulations hardly enter into it. The demand for labour is driven by consumer activity and is not particularly attenuated by workplace regulation, by my lights. Costco pays its employees more than Sam’s Club and doesn’t lock them into the store. The Costco employees also steal less.

Tabarrok opines in his reply: All else the same, cars that get more miles per gallon will sell for higher prices than cars that get fewer miles per gallon. .

After the OPEC embargo under Carter, the auto industry tried to supply econoboxes which got better mileage. Nothing doing — the consumer market wanted sport utility vehicles which got worse mileage. The auto industry responded accordingly. When the Cash for Clunkers program was in effect, people didn’t buy the lowest-mileage vehicles. The begged question resides in the ceteris paribus of mileage alone: a Prius or a Volt can arguably recoup the higher sunk cost of a battery-powered system over time in reduced fuel costs but that’s not how consumers weigh their purchasing decision.

In a world driven by short-term results, not long-term investments, neither workers nor managers cannot be reduced to Marxist caricatures. The managers are in the same predicament: decisions come down from on high like the thunderbolts of Jove. Often middle management is the first part of the order of battle to be pared away in the “Rightsizing” of a corporation, as nasty a bit of Newspeak as was ever coined. All this talk of “in-group” and “out-group” doesn’t make any sense. There’s the board of directors, who report to the shareholders. They’re the “in-group”. Everyone else is in the “out-group”. Until that situation is corrected, until worker have a say in the management of the corporation, as we see in ESOP corporations such as Southwest Airlines, we shall continue along this tediously Marxist lines.

“your uncle with the shall-we-say statistically unlikely employment history“

bianca, if I understand you correctly, you are asking “what would be the right moral approach to a society quite different from the one where we live”?
And my answer is: I don’t know, and I don’t care: general moral principles are useful only insofar as they give a guide here and now; the fact that they might be contradictory in unlikely situations does not bother me one iota.

Manta1976:
Well, I’m really glad now that I took the time to take your comments seriously.

Bianca, the principle exposed by Flanagan seems to perform well _in real life_: “normal” worker have the right to refuse sex, prostitutes must have sex if they want to get paid.

If you have a better principle, I would be glad to hear it: but by “better” I mean “works well in practice”.

“YA”: “Yet Another”, i.e. “Yet Another Matthew Yglesias Thread”

JV: “it’s important to point out that sexual harassment is not something that occurs as some sort of market mechanism; it occurs because of power imabalances and bad people thinking they can get away with abusing that power.”

Manta1976: ““normal” worker have the right to refuse sex, prostitutes must have sex if they want to get paid.”

Sexual harassment occurs in “the workplace” because “the workplace” is typically a hierarchy, not a market, where the power imbalances are part of the design, for instrumental economic reasons.

To the extent that ethical principles have an institutional context, it is a pretty straightforward exercise in moral reasoning, to see why sexual harassment is illegitimate: it is an exercise of power in the hierarchy, which doesn’t serve the legitimate economic functions of the hierarchy in controlling a production process.

If prostitution is a legitimate economic “production process” — if you can buy sexual intimacies from a sex worker — that might, to some, seem like a contradiction. I don’t think it is.

You don’t have to believe that prostitution is morally acceptable as an economic good or process. Even if you do choose to think sex work or prostitution, in some forms, is morally acceptable as a part of commerce, you might still think that it shouldn’t be a commercial activity carried out by hierarchies, precisely because the power imbalances introduced, increase the hazards and reduce the ability of the prostitute to manage and protect him/herself in the most intimate and personal ways.

We don’t permit slavery, which is to say we don’t allow people to commit themselves, even voluntarily, let alone be committed involuntarily, to working in hierarchies, under the most extreme terms. Even if you sign a contract committing yourself to general employment for a term of years, courts of law are very reluctant to compel such specific performance, as enforcement of the contract, because that would be equivalent to permitting slavery, which is outlawed; you can never alienate your own free will and inherent moral capacity to refuse, to quit.

The libertarians seem to want to argue that the inalienable right to quit is morally sufficient to all circumstances, to resolve every problem, without organization among the subordinates or governance in the public interest by the state. I think that’s nuts, and I actually find myself struggling to engage with people, who insist that that is their view. What are they missing about one of the most ubiquitous economic relations any of us experience, that they can think what they claim to think? If they are struggling with the issue of sexual harassment in the workplace, what are they going to do with hazardous chemicals or dangerous jobs in general?

I am confused: Henri, if you don’t want YAMYT, why did you write one?

About Tabarrok’s response and your answer to it: for sexual harassment there is a “reporting” problem. But Tabarrok’s analysis applies also to other working conditions, where reporting is not a problem: for instance, do call center with worse working conditions (to take an extreme, the “no bathrooms break” example in the post) pay more or less on average than other call centers?
I would expect that such studies exist, and should not suffer of the same problems (but maybe different ones?). Any suggestion?

The major difference is that Matthew sees a useful tool with modifications and caveats. Economics is actually good at investigating tradeoffs, especially when prices are involved, so when we are talking about employment (an activity with a price) it isn’t a bad place to start.

You apparently don’t think economics offers a very useful tool here, and you want to replace an economic mode of analysis with ummm well it isn’t clear. I think it has something to do with power dynamics.

The problem I see (which may be me misunderstanding you) is that you seem to want to throw out the only generally useful tool available and replace it with mushy political analysis. Matthew seems to want to say something along the lines of “yes, we can take power dynamics in to the already useful (but not infinitely useful) economic analysis”.

He also bothers to notice the trade off positions which libertarians and leftists both seem to ignore when they try to reduce everything to a ‘rights’ analysis. This particular set of exchanges seems to want to leverage the “fuck me or your fired” case into the idea that ALL employer demands ought to be analyzed through a prism of rights. It is the libertarian mistake made exactly in mirror image.

Matthew argues that the workplace involves lots of tradeoffs between employer and employee needs. He argues that trying to analyze that in a ‘rights’ framework is counterproductive in the vast majority of actually occurring workplace issues. He argues that analyzing it from a ‘rights’ framework is likely to hurt the material well being of poor people in a non-full-employment economy by keeping them from getting jobs at all.

Sebastian 07.11.12 at 5:34 pm

” The major difference is that Matthew sees a useful tool with modifications and caveats. Economics is actually good at investigating tradeoffs, especially when prices are involved, so when we are talking about employment (an activity with a price) it isn’t a bad place to start.”

The whole theme of this set of posts has boiled down to that it’s not.

” You apparently don’t think economics offers a very useful tool here, and you want to replace an economic mode of analysis with ummm well it isn’t clear. I think it has something to do with power dynamics.”

Yes – power dynamics, sociology, and that reality stuff.

” The problem I see (which may be me misunderstanding you) is that you seem to want to throw out the only generally useful tool available and replace it with mushy political analysis.”

See my first line above.

Manta1976@94: You ask why owners don’t join with workers in advocating for laws against sexual harassment. My off-the-cuff answer is “because defending lawsuits is expensive.” Also, here in California and elsewhere in the U.S., we already have laws against sexual harassment — both civil laws, and, in the extreme, pure case of “fuck me or you’re fired,” criminal ones. Speaking from the perspective of someone who is in-house counsel to a company with about 3000 employees, and who has taught the biannual sexual harassment course required by California law, we can and do say, “Not only will we fire you for this, but your victim can sue you and you will be facing potentially tens or hundreds of thousands of dollars in damages as well as all the embarassment of being a defendant in a harassment suit.” Of course, the victim can, and most likely will, if he or she chooses to sue, also sue the company. Do the productivity gains/avoided losses from the extra disincentive to harassment the prospect of a lawsuit provides make up for the hundreds of thousands of dollars a single wrongful termination suit will cost the company? Do they even make up for the cost of the premiums for the company’s EPLI policy? I very much doubt it.

Let me be clear that I am not advocating that we get rid of these laws. I think we need them. I am simply attempting to explain to people who wonder why owners aren’t necessarily enthusiastic about laws that force them to do something that is in their best interests to do anyway.

I would add — and given how I make my living, I am definitely not arguing in my own economic interests here — maybe lawsuits aren’t the best way to enforce these laws. In the wage-and-hour context, California employees have the option of complaining to the Labor Commissioner rather than filing a lawsuit. When they do, the first thing that happens is you get a settlement conference presided over by a hearing officer who actually knows something about the topic at hand. They can make a credible assessment of what (if anything) you owe the employee, and these cases often resolve themselves before you run up a six-figure bill in attorneys’ fees and court costs. In my experience, cases where the EEOC (or the California equivalent) actually conduct an investigation rather than simply issuing a right-to-sue letter also tend to resolve themselves more cheaply.

The problem, Dr. Farrell, is that the economic conditions under which people grow up contributes to their politics and the rhetoric with which they express them, and so consideration of those economic conditions is necessary for effective political dialogue. Even if you find it rude.

Sorry, Henry. I could have made that point without mentioning Yglesias, and should have.

No one’s mentioned the issue of dignity. I can’t explain the mechanism in economic terms, but an executive making in the high six figures is hardly going to go without the perks he feels entitled to, be they A/C or whatever. Whatever the reason, if it isn’t customary to go without it, he may never live it down–may never get that perk back again, even in places where it’s expected–he could get stuck back ata the lower-prestige job where it isn’t expected. You could see both the low wages and the poor working conditions in a low-end restaurant as going along with a lower-tier job, and the people who stay there as being the ones who don’t get any farther. And a woman who works five years in an office where she’s not subject to sexual harassment will have better work experience and generally a better chance of having her next job be a good one, at the end of that time, than one who was at a decent workplace where she was treated as the equal of her male coworkers.

In econ 101 models, total compensation is a reflection of (market) power relations, but firms should be indifferent towards the form of compensation granted to workers (working conditions vs wages).

So, the violation of econ 101 is that sometimes firms do act like they care about the form of compensation. And this is due to “power within organizational hierarchies.” I understand how this works in the sexual harassment example: abusive managers don’t want to protect workers from abuse. The case can be evaluated by considering the interests and the powers of all relevant actors. But how does this work in the employee search scenario? Do you agree with Bruce Wilder that managers will inflict arbitrarily abusive conditions on employees (such as unnecessarily intrusive search) just to preserve their own status? Is that the proposed mechanism here?

? Do you agree with Bruce Wilder that managers will inflict arbitrarily abusive conditions on employees (such as unnecessarily intrusive search) just to preserve their own status?

Yes, absolutely.

That paper Tabarrok quotes is generally terrible. It has numerator-denominator bias in the calculation of the exposure variable, for starters; it doesn’t adjust for individual confounders, so it’s not able to explore relationships between workplace variables or individual variables and the supposed relationship (let alone account for variation between workplaces within industries); the author hasn’t allowed for the possibility that the data is missing not at random; and hourly wages are calculated on the assumption that “usual hours worked per week” are correctly reported in the CPS. Also, is the CPS a probability survey and if so did the author use probability-weighted sample estimates for denominators?

Plus of course there’s the completely obvious reporting problem that Henry identifies in his post, that throws out the entire conclusions anyway.

I guess Tabarrok was just desperate for supporting evidence …

To slightly paraphrase John Kenneth Galbraith*, The modern libertarian is engaged in one of man’s oldest exercises in moral philosophy; that is, the search for a superior moral justification for boorishness.

*conservative/libertarian, selfishness/boorishness (I ‘m taking selfishness as a subset of boorishness, with the broader term also covering harassment or any other objectionable behavior a truly free person might wish to “buy”.)

I often suspect that libertarianism is just a cover story for authoritarianism. It can be either the authoritarianism of the dictatorial daddy, who feels completely and narcissistically justified, or the authoritarianism of the dutiful and protective child of the dictatorial daddy, who is sure that the abuse was always for the child’s own good; the Fox News conversation between the two seems to flow smoothly with little consciousness of the deceptions necessary to maintain that smooth relation.

But, here, in comments on this topic, where many people have little to do with either mode of political psychology, it seems particularly jarring. I think I’ve made it abundantly clear that I think the Econ 101 mode of reasoning is inadequate to the case of labor relations within a bureaucracy, but Econ 101 does address conflict — Supply and Demand, Firms and Households, Sellers and Buyers, Capital and Labor are in conflict and Econ 101 does have some things to say about the consequences of an imbalance of power in that conflict — what happens to price and output and the allocation of surplus value and deadweight losses, when one party exercises the “power” of a monopoly (or monopsony), and behaves strategically, to even a minor degree. And, what happens is far from ideal. The deal goes south from its ideal optimum.

So, though, I think the Econ 101 model is wrongly applied, I wonder where the intuition comes from, which suggests that the party in the conflict with greater power, “maximizing” its own profit, is going to act benignly, so benignly that introducing some countervailing power — organization among the subordinates to coordinate their actions (a union) and/or government intervention to improve fairness in the arbitration of disputes — is just naturally going to be futile or counterproductive, instead of moving closer to the optimal ideal of perfect competition, where all strategic behaviors are neutralized and a perfect balance of interests prevails.

Random Lurker @147 offers this caveat: “if their employers were forced to pay higher wages, many of them would simply be unemployed and thus in a worse situation” and I offer this as an example of what seems to me to be an intuition at odds with what Econ 101, read plainly, should suggest. (I apologize for putting Random Lurker on the spot; I definitely do not intend any kind of accusation of authoritarianism; it was just the most recent comment I could use as an example, and a mere aside in Random Lurker’s comment.)

It seems to me that, if employers of the farm workers in question, could be forced to pay higher wages, many of the farm workers would earn more and work shorter hours, and from what little I understand of the factual cases where grapes or lettuce or tomatoes in the U.S. were concerned, I’m guessing the impact on the price of produce would be fairly trivial. Improving the balance of power ought to move, generally, in the direction of a more positive-sum game, with smaller deadweight losses to strategic manipulation. It seems to me that’s intuitive “moral” you should derive from a plain reading of the textbook fable of perfect competition and monopoly, as opposite poles.

But, that’s not the story, and especially not the moral of the fable, the libertarian conservative pushes forward.

It is characteristic of the political worldview of an authoritarian to want to invoke the authority of the conventional “ought”, so it is not surprising to see the conventional textbook analysis invoked. It is also characteristic to defend, with the force of strenuous denial, the basic goodness of powerful authority figures and the world they have made for us.

There are some sophisticated (some might say convoluted and tendentitious), Friedmanite and Public Choice theories, which can justify the usual conservative critiques of futility and unintended consequences, for any policy intervention, of course. But, that’s not Econ 101. You have to take a long journey from Econ 101 to get there, and it won’t feel like solid ground, because it’s not. Econ 101 does feel like solid ground, and in some ways it is; but, it would seem to indicate that moving in the direction of greater balance of power improves outcomes. That’s not the story authoritarians want to tell though.

It’s nice to feel that the long-winded by-products of a hobby horse are not completely wasted. Thanks for the notes of appreciation. And, thanks again to temp, for his stubborn patience in conversing with me.

“I often suspect that libertarianism is just a cover story for authoritarianism.” B.W. @150

I haven’t followed all of these threads, but, though slightly OT, (though my idea is debating with MY is a waste of time and energy), I’ll add my $.02 worth on libertarianism as an ideology, (rather than taking it seriously as an economic theory). It’s not just that libertarians’ idea of human agency, i.e. “freedom”, is asocial and effectively impossible, a metaphysical phantasy full of wishful thinking, nor just the fact that they quickly elide questions about human agency with obsessions about property rights, ( with contractual relations the model of all volitional action). It’s that they don’t really care about “freedom” at all; rather they only invoke “freedom”, (actually 1st person solipsism), in order to impose discipline on others, in the name of “personal responsibility”. Libertarianism is really disciplinarianism. This also goes to the strange alliance between economic libertarians and religious fundamentalists. It’s the same antinomian theology in both cases, whereby the invocation of inviolable “liberty” converts into the cause of submission to the pre-ordained order.

@Bruce Wilder

This is, famously, in Knight, so this is pretty conventional, even traditional economics, and not a fatuous claim that economists simply have it all wrong, because people are not rational, or whatever.
The assumption of economic rationality makes the concept of society impossible because it assumes utility is solely a function of individual choice. It’s important to challenge this not because “economists simply have it all wrong … or whatever” but because it’s a profoundly ideological statement that distorts all subsequent discussion.

Which isn’t to say that the assumption isn’t incorrect. When a deer calf is isolated and frightened it goes silent and still, but frightened human infant will cry out. This is because for as long as humans have existed as a species babies have only had the chance of survival so long as they lived in safe environments, environments only made possible by the cooperation of many individuals bound together culturally and emotionally: by society in other words. This is about as basic an observation of human life as it’s possible to make. And when an assumption is taken as axiomatic that is both self-evidently false and ideologically biased, it’s an error to permit that to go unchallenged.

Rationality is not without its place. If a behavioural economist detects biases in the actions of share traders it’s reasonable to conclude that they’re errors simply because profit is the sole motive of the exercise. But, to take just one example, applying the same rationale to someone like Giordano Bruno who chooses to hold to his beliefs regardless of cost shows both how easily it unravels and where we’d all be if everybody took it to heart. Bruno went to his death because he knew what every human child under the age of two innately understands: that there really is such a thing as society. It exists regardless of culture and has been a consistent evolutionary motif for hundreds of millions of years.
But Bruno’s sacrifice only made sense because his views were so unusual. If everybody bar the inquisitors shared his opinion, he’d have been a fool not to recant. So it’s not possible to evaluate Bruno’s utility function without previously examining society as a whole, which is enough to conclude that economic rationality is a simplifying assumption that is of no use in simplification.

Every baboon understands the distinction between “our troop” and “their troop” and the utility function has no utility in making sense of this. And to observe that such an idea, recent and political in origin, warps all subsequent discussion in a way that favours a given party’s interests is quite different from a “fatuous” claim that economists are “simply wrong”. It’s only sensible to wonder why one faction might insist on basing all argument on a claim that it’s trivial to refute.

Adrian, I am not an economist, but it seem to me that you are misunderstanding what an “utility function” is.
(If I understand it correctly), a utility function is a “black box” used inside a model to encode the preferences of the individual (and it may remain unknown).
Thus, nothing prevents my utility function from taking into account your well-being.
To take your “baboon” example: the utility function of a baboon will take into account the well-being of others individual in his tribe, and not the one of baboons not in his tribe; or maybe it might even consider individuals in other tribes in a negative way.

Thanks to etv13 at@130 for his answer: in retrospect, the answer should have been clear (firms do not like laws against sexual harassment, because lawsuits cost money to them…).

@Manta1976

Two points:

Firstly, the utility function concept fails as a simplifying assumption if the opinions and desires of all other individuals must be assessed in order to assess one person’s utility function.

Secondly, the point about the baboons is that only by observing their behaviour collectively is it possible to form a complete picture of them as individuals. The reverse is not possible: you cannot comprehend baboon kind by observing a succession of baboons in isolation. As humans we may hope to rise above tribalism of course, but it still holds true that any picture of humanity that excludes as does economic rationality concepts like hatred, loyalty, affection or grief is willfully and pointlessly blind.

I would add as a personal opinion that the idea that Bruno somehow derived satisfaction (utility) from being roasted alive is pretty bizarre. The notion of his sacrifice being of value to him as educating others can be accounted for via the utility concept, though only as you say as a black box — which is of no predictive value. But this utility is contingent both on the thoughts and beliefs of others (making Bruno’s utility function a (time-variant) function of everyone else’s utility functions) and on Bruno’s understanding of the (totally irrational) impact his sacrifice would have.

So we have two concepts of Bruno’s act:

A) For reasons unknown (black box) he enjoyed (derived utility from) being burned alive.

B) He sacrificed himself for the greater good, understanding the impact this powerful display of fortitude would have.

Now Bruno was more of a mystic than a rational or scientific thinker, but it’s a fair guess that he understood well the emotional power of his sacrifice, which called to mind in a Christian legal tribunal those of the Christian martyrs before him. And we have two stories (A) and (B) describing this act. (A) is not only absurdly convoluted, it lacks any descriptive power. (B) on the other hand is a very simple narrative, and makes no false claims to the imprimatur of science.

According to Wikipedia, “in economics, utility is a representation of preferences over some set of goods and services”. It goes on regarding revealed preferences to quote Alfred Marshall as writing that “utility is taken to be correlative to Desire or Want. It has been already argued that desires cannot be measured directly, but only indirectly, by the outward phenomena to which they give rise: and that in those cases with which economics is chiefly concerned the measure is found in the price which a person is willing to pay for the fulfilment or satisfaction of his desire”.

Utility may not be useful describing a single individual, but it’s routinely used in that way all the same. But the real point remains that all conclusions predicated upon such an assumption are ideologically biased in addition to being merely inaccurate.

Well that obviously-oh-so-important point was slightly weakened by the italics tag closure. Sorry everyone, blame it on the Japanese craft beer.

also, universal health care.

Thank you JP Stormcrow.

SJ:

Australia also has pretty strict immigration laws that would prevent 100 million impoverished Americans from moving there permanently and legally working even at McDonalds.

We have surfing in Ghana too and if you have PhD in history you can get a job here that pays more than minimum wage. Alas we have no McDonalds in Ghana.

@163: You don’t prove causality with stats, you prove it with a well designed experiment

Yup,there’s a feasible suggestion: let’s randomly assign people to be sexually harassed.

I too have qualms about IVs, but (a) they’re nowhere near as full-of-crap as you seem to think; and (b) you’re proposed alternative is infeasible.

While people could certainly benefit from toning down causality claims (although when you look at actual articles they’re often quite good on this), we need to work with the tools available – of which IVs are one, but not the only one. As with experimental evidence, replication (in this case potentially more triangulation using different methods) can just as/if not more valuable than better design in an individual case.

hey, CT just completely ate my post!

conchis, look at the wikipedia summary I linked to: there’s not a single condition that Tabarrok’s pet paper meets. Most importantly: plausible mechanism. No IV will rescue you from the simple fact that your suggested causal mechanism is complete and arrant shite.

People seeking to become managers are going to be disproportionately people who like bossing others around, and having elevated status.

True, and also, as I was saying in another thread (before I got distracted), elevating a person to a position of authority makes them domineering assholes. Scientific fact.
http://en.wikipedia.org/wiki/Stanford_prison_experiment
http://www.cracked.com/article_18777_5-scientific-reasons-powerful-people-will-always-suck.html

I’d like to add something about full employment as a protection against abuse. I live in a full-employment society (Japan) and it is consistently observed that the worst factor of Japanese people’s lives is their jobs, which are hard, demanding and often quite low paid. It’s a deflationary society, and wages growth is static, so full employment is no guarantee of good wages; and because there is not enough work to go around, everyone works very long hours. Furthermore, when you work in Japan you really work, there’s none of this facebook-at-work or “homing from work” crap that happens in, say, the UK.

Also, because there’s not enough work to go around and finding new workers can be tough, employers find other creative ways to keep workers. The main one, of course, is an employer culture of frowning on people who move jobs a lot, and people here are extremely reluctant to change jobs lest they slowly slide down the employment ladder.

Even where there’s an over-supply of workers and wages are hideously low – like in hairdressing – working hours are very long and excess staff are not hired. I’m willing to bet very few people on this thread have ever worked like a Japanese hairdresser in a full employment economy, or for such poor wages.

Full employment doesn’t protect Japanese staff against summary dismissal, unreasonable demands, having only 1 day off a week (routine) or having one’s two days off separated and scheduled differently from month to month. It doesn’t stop employers having long reduced salary probation periods, and it doesn’t make work environments safer. See, e.g., people who work in the convenience stores here, who earn 700-800 yen ($7 – $8) an hour and have to do all their own heavy lifting, frying, and electrical work in often cramped and hazardous spaces (I have witnessed accidents in these environments). It also doesn’t protect consumers when their underpaid and overworked bus driver, for example, crashes his bus into a retaining wall because he fell asleep at the wheel.

So full employment is no panacaea for workplace abuse, and if you think otherwise I suggest that you come to Japan and take up a manual labouring job.

But let’s take all this Tyler Cowen stuff seriously:

Will all the REMFs take a nice paycut for their safety, while widows get grand compensation? No? World doesn’t work like that, Tyler.

DDD work is all undercompensated. Pleasant, rewarding, work of various kinds, especially in third world countries are overcompensated. They are artifacts of politics and social positions.

Women who trade sexual encounters with superior usually get noneconomic benefits, and if anything, such women depress wages for other women. Same with women who put up with abusive bosses.

Oh yeah, it’s the women’s fault.

I wasn’t comparing minimums, but Australia’s minimum with the US’s median.

Yes, I was aware of that. I’m sorry if you found my answer confusing; I should have been clearer.

It’s not so useful higher up the income scale, nor for internationally traded goods.

Which don’t make up the majority of most people’s spending. It’s housing, food, transport, fuel, and so on – non-internationally traded goods. I don’t imagine that, even in Australia, minimum wage workers are buying many iPads and Toyotas per year. The PPP rate may not be perfect, but it’s a better comparison for a conversation about minimum and median wages and living standards than the market exchange rate, and using the PPP we can see that your claims about the superiority of Australian minimum-wage employment for the typical American are exaggerated.

There’s also another aspect to the World Bank’s PPP that seems to work in the US’s favor, but really doesn’t if you think about it a bit. The PPP adjustment also includes the cost of labor. It does not help the average working slob in the US that she gets paid less than the average working slob in Australia.

No, but it helps her that other working slobs are being paid less, because they’re the ones providing her with goods and services.

If we’re comparing Australia with the US, then food, transport and fuel are internationally traded goods.

Not really, no. Think about transport: we’re talking about (for example) bus tickets here.

Maggie: even if we lived in a word where sexual harassment was the default, employees could ask that the contracts specify “no sexual harassment”.
They may find difficult to get a job with such a contract: but the problem stems from the fact that in such a word in most job you get sexually harassed in the first place.

The analogous situation in the actual word would be “many people can choose only among jobs with shitty working conditions”.
But people, including libertarians, DO have things to say about it; in the present discussion, for instance, the disagreement stems from very different opinions about HOW to remedy this situation (push for more regulations or for better macro policies? As people before, I don’t see why you cannot push for both, but I am not a libertarian), not whether it is a good one.

bianca, I don’t see what you are trying to say.
If by “Very Important Work Thingie” you mean “working conditions”, I will remark that the title of the post is “Regulations and frictionless marketplace assumptions”, and deals with the question if and how much better/more regulations can prevent abuse of workers, up to and including preventing sexual harassment: thus, your ire would be better directed to Henry for making a post that mixes sexual harassment with other workers abuse.

Manta1976 WTF?!

You’re claiming that because the OP didn’t distinguish initially between sexual harassment and other abuse, you’re prohibited from pointing out that he should have?

When I read your post, I was not sure whom you were complaining, and about what: in particular, I thought that you were objecting to some comments (including mine) that were not distinguishing sexual harassment, and I pointed out that the post itself was “guilty” of that.

bianca, I think our discussion went too long for other people to find interesting, so this will be my last answer.
First of all, when someone writes a barely intelligible post in a very angry tone just after a post of mine, and this barely intelligible post seems to be related to what I wrote, I tend to assume that the poster is angry at me specifically: I am glad, though, that it was misunderstanding, and I apologize for that.

My defense was “the approach to the topic in discussion was chosen by Henry”, not “I agree with whatever the Henry is saying”, nor, much less, “I am repeating the same things the Henry was saying, but I am doing it better”.
The part I left unspoken is “… and I imagine Henry can defend himself better than I would defend him”.

shah8: “1) Every day, and on Sundays, too, I will trade full employment over increased labor regulations.”

I know I’m not telling you anything you don’t already know, but that trade is not available.

Economists talk meaninglessly about “microfoundations”, because the rational expectations revolution was the intellectual equivalent of a front lobotomy, but, in real life, micro and macro have a reflexive relationship. It is tempting to think that one is the climate and the other is the weather, and you can improve the weather, by improving the climate, but, in the case of the economy, at least, the relationship runs both ways: a lot of bad local “weather” adds up to a bad economy. The Great Recession, a period of poor macro performance, is a consequence of losing the regulatory battles over the distribution of income and risk, as well as a cause of the loss of middle and working class income, jobs and wealth. It would almost be more accurate to say that the Great Recession caused the “realization” of middle class losses, a mere accounting acknowledgment of the economic consequences of political policy losses, in the regulation of banks and bankruptcy and trade and labor relations, which should have accrued in the public mind much earlier, when they occurred, when they were put into effect.

Except too few pundits, journalists, politicians and economists had either the insight or integrity to draw the connection between poorly regulated mortgage banking, poorly regulated finance, a housing bubble, and the prospective fleecing of the middle class in taxpayer-financed bank bailouts combined with a wave of foreclosures under corrupted procedures, bankruptcy reform that removed home owner protections, etc. Even after the fact, mainstream economists were modeling the financial crisis as a “shock” — a bolt from the blue, I guess, a terrible, unpredictable storm, which gathered without ever darkening the visible horizon. The Mark Thomas are going to get back to us real soon now with DSGE models that will earnestly explain how we should respond to such a large financial “shock”, but no confessions concerning how or why so many economists worked so long and hard to create that financial catastrophe have been forthcoming.

shah8: “2) . . . “Yglesias . . . has very little faith in institutions anymore.”

After the libertarians and the neoliberals have destroyed the New Deal institutions, with predictable results, Yglesias has lost “faith”.

We don’t need “faith”; we need the opposite: a common pragmatic understanding of functional necessity and consequence in the operation and design of our institutions.

When we enter into the neoliberal/libertarian framework of ideas, adopt their stilted jargon and cliched conventional wisdom (never mind models and assumptions), to conduct our public political discourse concering economic policy, as Yglesias the pundit does, we haven’t just “lost the argument” in the stylized battle between ideological partisans, we’ve lost our ability to even make sense to one another. We aren’t using terms, with clear denotations to things we can observe; we aren’t talking about relationships we’ve experienced. We are talking about policy for a “market economy”, which isn’t, mostly, an economy of “markets”. We’re using a vocabulary of vague metaphors — “markets” and “skills” and “frictions” and even vaguer explanators: “supply and demand”, and, wait for it, “business confidence”.

Arguments are more hypnosis than logic, and the neoclassical fairy tale has us in an enchanted trance. We don’t need to have or lose faith; we don’t even need to challenge assumptions, so much as we need to wake up.

shah8: “3) I really would have liked a more specific discussion about cheap labor conservatism and what that really entails both in market terms and in political economy terms.”

Yeah, me, too. And, not just cheap labor conservatism, but financial fraud conservatism and environmental pollution conservatism and rent extraction through privatization conservatism and a bunch of others.

While the ideologues claim innovation and efficiency, the politics is holding hostages to carry out a robbery: if we can’t poison your groundwater, you can’t have jobs or gas.

Perhaps you can tell me why I am “loopy” for listing the findings of economic historians about the causes of economic growth and the failures of government programs. I am not a regular readerof the blog, so it would be most helpful to the conversation if you sent a copy to me directly, deirdre2@uic.edu

@Deirdre: to modify your own statement about it “We’re here to help.”

Markets cannot exist without regulation. There must, at least, be a master of the market, honest weights and measures, acceptable currency. Without regulation, banks cannot work. As varies risk, so varies the need for regulation. What’s more, the regulated will always attempt to corrupt the regulators. These are simple facts, beyond discussion, known since the dawn of civilisation, seemingly acceptable to every Libertarian I’ve known.

The signal error of the bad historian is looking at the past through the lenses of the present. Let us charitably discount the opening broadside fired at economists in your 1983 Rhetoric of Economics: its resembles nothing so much as the gigantic mine detonated on first day of the Somme Offensive and was about as effective.

The scientific method is, in the words of Monty Python, not dead yet. It is doubt, not clarity or tolerance, which guides us forward. It has been my observation that those who would discount physics and mathematics in the study of economics do not understand enough about either mathematics or physics to say such things. Mathematics and physics attempt to describe the world as it is: if those descriptions fail, they fail to account for new evidence.

It is not Rhetoric but Proof which is the great persuader in these things, for rhetoric is utterly reliant upon the evidence. Proof does not trump Doubt: proof only means the current model has survived its latest battle with the evidence. But those battles take place in time, as the Battle of the Somme opened on that hot day on the first of July, 1916.

Je doute, donc je suis.

Let history show the perennial failure of the market to regulate itself and the beneficial effects of such regulation on those same markets. The creation of the Securities and Exchange Commission was not an “experiment”, it was an entirely necessary reaction to the failure of markets.

As for the pernicious effect of the trade union, they served the cause of markets well enough, staving off the rise of totalitarian Communism where they appeared. Unions did not reduce wages for the non-unionised work force, it demonstrably improved wages and working conditions across the board. If the electricians insisted upon raising the standards for home wiring, they saved many lives in so doing. Zoning laws have served their purposes well enough: they have been a part of municipal life since the Egyptians and Romans first put the tanneries downwind of their cities. The cavalcade of begged questions and leading answers presented in Factual Free Market Fairness is completely unsupported by evidence.

I grew up in Nigeria. I knew it before and after oil. In the Niger Delta, where once pygmy hippopotami and storks lived, rivers and swamps where elegant people poled on long canoes is now become a Mordor. For this transformation, you may thank the (unregulated) oil companies who created that hell and the asymptotic corruption of that wretched country. Nigeria was completely unprepared for what was to follow: Saudi Arabia was, because the Saudis were guided through 1938 by St. John Philby, a truly remarkable human being and a Socialist to boot, whose guidance might have made of the Middle East a very different place than we see today.

As a historical aside, the poor of Rome were not confined to holding pens. They weren’t confined at all: it was a destination for people from all over the empire. Because the Roman culture was reasonably well planned, over a million people were able to live in apartment blocks because they had access to garbage collection and drinking water. Not until the rise of London did another city feature over a million people. But even London got in trouble where Rome did not: until the great sewers of London were dug, old wells filled in and clean water piped in, London routinely had cholera outbreaks.

It doesn’t matter, really. The Libertarian and the Marxist are logical inverses of each other and all their excuses for failure are the same. Free Markets and Communism both aim for the attenuation of the State. Both have failed, selon les fidèles, because they weren’t properly implemented. And like the Marxists, they argue endlessly among themselves. And like the Marxists, they won’t be trusted with power by anyone who has ever lived in close proximity to their ideological paradises.