Krugman’s Economic Mistakes

Paul Krugman’s article the other day is certainly in the running for one of his worst.  There are many mistakes in it (most of them are mistakes one would expect someone with no economic training to make, certainly not a Nobel laureate).  Many others, including Don Boudreaux and David Henderson have addressed several of the issues, and I’ll not waste time rehashing their arguments here.  Rather, I’d like to add my own insight onto this pile.

Krugman’s argument for Wal-Mart et al raising wages (which we first reported here), is essentially that it is a political move for them, that with labor, there is no “simple supply and demand.”

Even if we accept Krugman’s explanation as correct, it still doesn’t make sense given context:

The US economy is expanding.

US real wages are rising (nominal wages are outpacing inflation).

Job openings are at the highest level since the recession.

The Labor Supply/Demand Rate is at pre-recession lows (a good thing; that means there are fewer unemployed people per job opening).

I can go on, but all statistics indicate that the labor market is tightening, a period where simple economic analysis indicates wages would naturally rise.

If Wal-Mart’s wage hike came in a period where rising wages were not to be expected (say, the depths of a recession), then ok, I could at least understand Krugman’s argument. But this is a period where “simple” supply and demand analysis says wages should rise and, lo and behold, they are! It seems to me Krugman is merely trying to post hoc justify his biases rather than base it on any analysis.

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