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Friday, July 27, 2007

Questions for Prominent Economists

A couple of things from Greg Mankiw and George Borjas caught my attention, so I want to make sure I understand what they are saying. First, Greg Mankiw says:

Brooks on the Economy, by Greg Mankiw: A prominent Harvard economist emails me to recommend David Brooks's column from a few days ago. He calls it "truly fantastic and obviously correct."

With such a strong recommendation from a colleague, I ... read Brooks. ...[T]he Brooks piece is well worth reading. It is far more informed by cutting-edge economic research than most things you find on the op-ed pages.

In case you missed it, here is Brooks [...reprint of column...]

If Greg is going to claim the authority of a "prominent economist" as standing behind this, he should tell us who that person is, there's no reason for secrecy here, but my question is if Greg (and "prominent economist") stand behind all the claims in Brooks article (see here for a list of posts questioning the claims)? If not, if this isn't a blanket endorsement, could you please give us more guidance as to where you agree or disagree so we can better evaluate your position? There are implications that can be drawn from Brooks's column, e.g. that low-income people are generally lazier than higher income, well-educated people:

today, many highly educated people work like dogs while those down the income scale have seen their leisure time increase by a phenomenal 14 hours a week

so it would be helpful to have positions on this and other points Brooks makes clarified, especially in  light of claims that high taxes have caused high-income individuals to reduce their work effort.

And I was a little bit surprised to find out that George Borjas believes that:

No matter how disappointed one is with the Bush administration, all it takes is a little googling of John Kerry's latest nonsense to appreciate that things could be worse.

This statement is made in the context of the minimum wage, so if the statement is not intended to be broader than policies surrounding the minimum wage, I'm less surprised. But if it is intended as a broader comment, then I have to strongly disagree. Iraq alone is enough to convince me, and that's just the beginning of the missteps from this administration. How could things be worse?

On the other point George is making, in response to a quote from Kerry on how raising the minimum wage can cause "increased productivity, ultimately improving a firm's bottom line," he says:

If a $5.85 minimum wage creates a more "prosperous future for our small businesses" than a $5.15 minimum wage, isn't it a little irresponsible to stop there? Let's go for the $10.00 minimum wage? Or a $15 one? Or...

Without endorsing Kerry's argument, I believe he has in mind an efficiency wage argument where raising wages enhances incentives for low income workers - much as cutting taxes makes the rich work harder in supply-side stories - and thus can stimulate productivity and reduce costs. If so, then one would expect diminishing returns to further increases in the minimum wage so that pushing the wage up to $10 or $15 wouldn't necessarily, by the efficiency wage argument, continue to be worthwhile.

Update: Brad DeLong has follow-up comments.
Update: George Borjas responds.

    Posted by on Friday, July 27, 2007 at 01:44 PM in Economics, Income Distribution, Iraq and Afghanistan, Policy, Politics | Permalink  TrackBack (0)  Comments (61)


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