From the same perspective you adopt to oppose the minimum wage.
I think not.
I take the values of market participants as a given, against which i can examine how political non-market agents, intervene and disrupt their activity.
whereas you posit ‘sensible’ values for market participants as a given, against which you can excuse political non-market agents attempts to correct for the wrong headed values of the market participants.
Absolutely not, the two ‘oughts’ could hardly be more different. The difference is: from whose decision is the wage kept high?
This is quite an ironic position for you to take, considering some of your other historical posts.
filc, what do you mean?
I only said that under the assumption of downward nominal wage rigidity, wages are higher than they ought to be to maximize social welfare.
Okay, but my question was how it was resolved. Help me out here because my understanding of RE is rather weak. When I try to think like a neoclassical economist my head explodes.
RE asserts that individual expectations do not, in the aggregate, diverge from equilibrium prices; that they avoid systematic errors. But how can that be true when we know that endogenous wage rigidity exists (which causes all sorts of macro economic problems)?
nirgrahamUK, I believe that, theoretically, political agents can either help or harm economic efficiency; I don’t have an a priori case against idealized intervention (especially in the case of market externalities).
Hence, my opposition to the minimum wage, more or less, is simply that it is a hindrance to wealth-maximization; likewise, nominal downward wage rigidity leads to the same consequence. The arrangement is not socially optimal in either circumstance; coercion, like other resources, is not a variable I consider relevant to this argument.
Esuric, like me, you seem to prefer philosophic consistency; hence, wedding rational expectations to price rigidity seems entirely contradictory.
Remember that neoclassical methodology is content with approximations to observed reality; relaxing the assumption of rational expectations to include price rigidity is an attempt to create a model that more closely resembles what the economists believe to be the case. New Keynesians, such as N. Gregory Mankiw, openly celebrate rational expectations as conceived by Muth, Lucas, et al., but they then incorporate tweaks to the model to create a version that more nearly conforms to their research agenda (e.g., efficiency wages, etc.); additionally, these Keynesians and others typically assume monopolistic competition (so price-making, rather than just price-taking, is a possibility).
I already explained why you are wrong, if you don’t wish to engage my position by arguing against what i wrote, then I see no point in merely restating what i have already said. good day. hope your confusion concerning the values of consumers and producers, and how they determine trades in the market place clears up.
I understand your point: you argue against Statist coercion in the marketplace since it often reduces total utility; however, you accept voluntary markets outcomes unconditionally, even if more optimal solutions are conceivable.
I simply disagree: we should strive to maximize wealth, whether the inefficiencies are the result of coercion or the result of suboptimal decision-making by free individuals.
what do you mean when you say ‘wealth’? do you think its a concept divorcable from the values of individuals? like how they might value being employed at some wage as opposed to being unemployed and spending time in other ways?
Value, crudely measured by willingness to pay.
not interested in opportunity cost then? just dollars spent?
Opportunity cost is a factor.
so I ask you again, on what ‘wealth’ analysis do you ground your criticism of an unhampered market in which some workers reservation demand for labour/their time is such that some choose unemployment for a period rather than the wage offered them by any employer?
If unions achieve a high wage due to bargaining, do you believe that has any consequences on the unemployment rate?
P.S. I am not claiming that “some choose unemployment”; rather, I am stating that unemployment happens to some due to others gaining an above-market-clearing wage.
In essence, I am saying that workers in a labor market that are psychologically averse to downward nominal wage movement will increase the unemployment rate.
When prices should go down, but don’t, then there will be a surplus. I don’t care if this is due to heavy-handed government policies or due to peculiarities of human nature in a voluntary setting.
However, if if one believes in the assumed hypothesis, then there is evidence proposed by some true believers that the market is cutting wages more appropriately nowadays.
If unions achieve a high wage due to bargaining, do you believe that has any consequences on the unemployment rate?
in what context? where unions have legal powers that individuals lack; powers granted by leviathon?
rather, I am stating that unemployment happens to some due to others gaining an above-market-clearing wage.
fine… under interventionism.
however, in a free-market…
When prices should go down, but don’t, then there will be a surplus.
I don’t care if this is due to…peculiarities of human nature in a voluntary setting.
this is some cognitive dissonance …
They very peculiarities of human nature in a voluntary setting, that you think cause disequilibria are precisely the peculiarities which cause markets to function at all.
OK, i’ll try to lay it out for you as bold as I can.
I am saying that workers in a labor market that are psychologically averse to downward nominal wage movement will increase the unemployment rate.
I am saying that in a free market, if there are workers considering their options in the labour market, their psychological aversion to falling wages is simply another way of saying that they may value not working at all but doing other things instead of working, than taking a job at the lower rate (assuming it is an effective aversion), which is another way of saying that they are acting to ‘maximise their wealth’
who are you to say that any one of them faced with such a choice,should have valued the lower wage rather than the alternative?
Let me repeat that I personally believe that prices are reasonably flexible (not so rigid as to create recession-style unemployment).
Secondly, one can believe that humans are mostly rational but that our decision-making has idiosyncratic quirks (as emphasized, or perhaps overemphasized, by behavioral economics); these quirks, for the most part, do little to actually undermine free markets. For instance, undersaving for retirement is a foible of human nature, but it won’t ruin capitalism (of course, increased savings and investment would be a boon for us all).
If the price level is deflating but the labor market is resisting that downward turn, then that phenomenon needs to be explained.