Talking Topsy Turvy

EconTalk Extra
by Amy Willis
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Timothy Taylor on Government v... Adam Ozimek on the Power of Ec...

This week, EconTalk host Russ Roberts chats with the Conversable Economist, Timothy Taylor. Together they explore the topsy turvy nature of public conversation about the respective roles of business and the government today.

Russ thinks we're living in the "golden age" of economics communication...So let's not let him down! Respond to the prompts below (and pose them to your friends!) in the Comments...Let's be golden!

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1. In discussing why people tend to turn toward the private sector, or capitalism, for fairness and justice,Taylor warns about what happens when you don't pay attention to your golden geese. What does he mean by this, and what lesson(s) does this suggest for private firms? For public policy?

2.Does shopping more at WalMart really increase the demand for lower-skilled labor, as Roberts suggests? How would an opponent of shopping at Wal-Mart respond to Roberts?

3. Have you ever had a conversation that ended with your partner saying, "I just don't like to think of the world this way," as Taylor's did (or getting up from the table and walking away, like Roberts's did)? What was the context, and how did you respond? What do you think is the best way to respond in such a situation?

4. Taylor notes several times that he'd like to see the federal government allocate more funding to research and development. How does he justify this? What arguments might be made on the other side?

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COMMENTS (8 to date)
Monica writes:

If we take a snapshot of the labor market at a given time, we see people working in jobs that require skills that are highly compensated and in jobs that don't command high wages. Theoretically, everyone should be able to go through the education system and obtain skills that will allow them to earn at least moderate rate of pay. If that were the case, I wonder if we could have a new expectation low wages roles can be filled by the following groups: the young (high school aged); the old; those who are new to this country and trying to get a foothold in the economy; and those who are supporting another pursuit (e.g., parenting or the arts). If low wage jobs were thought of as a step on the way to greater opportunities (or as positions for those who had already spent many years in another profession), then it wouldn't be so bad that the wages are so low. If we had leaders in government and business who could work together and articulate a vision of an economy where there is no permanent underclass (and fix the education system), then I think people on the lower end of the economic spectrum would feel more hopeful. This economic vision would also need to articulate an understanding of the way the US labor force fits in to global market for labor now and in the future and a plan for forecasting and responding to changes in technology.

Russ Roberts writes:

Monica,

I have not looked at the data lately, but I think a lot of the groups you mention do get most of the low wage jobs. And in many cases, they are a step to greater opportunity. This EconTalk episode with Katherine Newman deals with this issue.

David W Brisco writes:

Prof. Taylor's comments about role reversal between government & private sector reminded me of the situation in Canada from the late 1950's to the 1970's. The federal government in Canada wanted to attract the best and the brightest to public service: the newly educated boomer generation. At the same time, our political leaders saw an opportunity to lead by example the private sector. They provided union rights, health care, pension, and other social benefits to public servants, both to make the federal government a 'career of choice' , but also to provide what it hoped would be a model for the private sector. To an extent the private sector was forced to respond in order to remain competitive in the labor market. The system is still much in place, and in my opinion, has worked. Pro business writers still complain bitterly about 'coddled' public sector workers, but the federal public service still provides the gold standard in employee social benefits.

This may not hold true in the future. The millennial, and later generations seem to have ideas different from boomers about work, life balance, job benefits and security, but our system has worked well for 50 or so years.

Mark Crankshaw writes:
1. In discussing why people tend to turn toward the private sector, or capitalism, for fairness and justice,Taylor warns about what happens when you don't pay attention to your golden geese. What does he mean by this, and what lesson(s) does this suggest for private firms? For public policy?

The basic idea is that, if the private sector is politically prodded to attend to rather nebulous and ambiguous concepts such as "fairness" or "justice" rather than economic production and growth (the golden eggs) than there is a distinct possibility there will be far fewer golden eggs in the future.

I do somewhat take issue with the idea that "people", in general, are prompting this political prodding towards "fairness" and "justice". This predominantly is a feature of left-of-center politics.

As was alluded to in the podcast, left-wing politicians are really limited in legislative pursuit of "fairness" or "justice" when it comes to raising taxes. As it turns out, in the US, a significant proportion of the most dedicated, most loyal Democrat Party voters are very affluent voters (making $100-250K per annum) living in and around coastal urban areas. This particular voting bloc indeed wants "the government" to spend more on "fairness" and "justice" but they insist that someone else pay for it all (as is their want). In fact, this rather affluent group actually insists they want their own taxes to be lowered thereby significantly limiting the governments ability to raise the funding necessary for such legislative initiatives. Any "progressive" politician who were to significantly raise taxes on wealthy "progressives" won't stay a politician for long.

Since the bloc of voters making over 250K are both politically nimble and powerful enough to defeat tax increases on "the rich", a significant increase in taxes from them is politically unlikely. So left-of-center politicians must "offload" this spending onto the private sector through regulatory measures imposed on the private sector (or through spending financed through debt, thereby passing on the tax increase to voters too young to retaliate against todays' politicians). It certainly doesn't help that terms such as "fairness" and "justice" are so ill-defined and thoroughly subjective when it comes to crafting legislation, so a further impediment to coherent legislation is the complete lack of political consensus on what these terms mean or how to achieve them even if we knew what they meant. Haphazard and clumsy regulatory constraints or impositions on the private sector are simply easier to implement politically for the time being.

I think this should suggest to actors in the US private sector that this type of the politics-of-convenience, to the detriment of consumers and business alike, may well continue in earnest...

Amy Willis writes:

Several of the comments have me mulling the role of the ever-ambiguous notion of culture...The incentive-based explanations for actions of individuals in the public and private sector make sense to me, of course, but how do we change mindsets as some of you suggest? For example, changing the perception about low-wage jobs...Or the idea of where the "best and brightest" should. Have Millenials, for example, really shifted public perspective on the value of a life/career in the private v public sector? Just thinking...As always, you guys always give us more to consider.

Mark Crankshaw writes:

[Comment removed. Please consult our comment policies and check your email for explanation.--Econlib Ed.]

Mark Crankshaw writes:

@ David W Brisco


our system has worked well for 50 or so years.


This statement made be think of an issue that has been reverberating in my mind lately. There definitely is a tendency in political discourse to describe political and economic systems in a binary way (good vs. bad, work vs. not work). This has always struck me as somewhat inappropriate. I immediately think "worked well for whom" or "good for whom"?


My criticism of Canada, Europe, the Eastern Bloc, and "Bernie Sanders' vision for America" isn't that this left-of-center approach can't work for anybody but rather that I contend that such systems work very well from some, work not at all others, and are outright harmful to still others.


Supporters of such systems seem to believe that such a system "helps those on the bottom". I have never seen any evidence to back up that claim. On the contrary, it seems clear to me that providing generous benefits to public employees, employees who have jobs for life regardless of performance or productivity, employees who are completely cosseted from economic competition is great for the few "insiders" who get those jobs and burdensome to the "outsider" majority. High levels of taxation work the same way. The better a system is for "insiders" the fewer opportunities will naturally exist for "outsiders". And how many young, talented Canadians have emigrated to the US (relatively more free market than Canada, at least for now) lately?


Of course, it is only natural that such systems must heavily rely of "social welfare" payments, that is, exchanging cash benefits to "outsiders" in lieu of jobs and economic opportunities of advancement, since those jobs and economic opportunities will not ever be forthcoming for large segments of the population. The "welfare state" is not a feature, but rather a persistent bug of such systems.


Having failed miserably in my initial attempt to be born to affluent parents with political/business connections who were willing and able to finance my education (at all) and provide me with connections of any kind, I tend to see myself as an "outsider". My concern about the ever burgeoning social welfare state and socialism in general, is that the considerable effort I undertook to claw myself into the middle class will be completely undermined by such systems by eliminating or dampening my economic opportunities and by rapidly expanding my cost of living at a much faster rate than my income growth thus steadily eroding my purchasing power and eventually my standard of living. A process well underway...


My fear for my children is the avenue I used to batter my way up economically may soon be closed: even an advanced degree may, one day soon, not result in any decent opportunities or a reasonable standard of living, except for the affluent privileged few "insiders" who have connections, as taxes and the cost of living march relentlessly upwards while pay remains flat (or if we move ever leftwards--pay actually falls). That may be great for the affluent left-of-center few (or those high on the "hierarchy of oppression" of the social justice left), but it stinks for all the others.


The "red" flag for me (how appropriate) is that it is those areas of the US (NYC, DC, the Bay Area) that, over a number of generations now, the affluent few have endlessly championed left-of-center re-distributive policies are precisely those same areas that the gap between the top and bottom has grown the most, where the "middle class" is noticeably absent, and where the opportunities for the bottom are fewest (all while pursuing left-of-center re-distributive policies that are supposedly designed to ameliorate these same defects). Perhaps those policies are actually working as they were designed to...

Andrew writes:

Mr. Taylor says:

'Look, minimum wage, the extra money for that minimum wage, it has to come from someplace. And maybe it comes from hiring fewer workers or maybe it comes from more productivity or maybe it comes from cutting certain job perks or it comes from higher prices to consumers or it comes from lower wages--but it comes from some place. And so, without specifying the place, you have to understand where it comes from. And you have to think about that tradeoff.'

It's interesting that he doesn't mention or glosses over two places where higher wages might "come from": lower corporate profits or a flatter wage curve. I'm no economist, so forgive my folk thinking, but it seems that when Wal-Mart is regularly recording $30 billion profits per quarter, the balance may have shifted too far in favor of ownership and away from labor. Also, when CEO and other senior management at many of the largest companies are now receiving upwards of several hundred times the pay of the median worker at their firms, this too is another sign of where things seem to have tilted out of whack. Yes, changing these would shift incentives and might alter the "energy" of the capitalist world, but it seems like these are fair areas for a higher minimum wage to "come from" that wouldn't be out of line with a functioning capitalist economy.

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