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Overpaid economists

If there were any question that mainstream economists will end up in the same circle of hell as Wall Street’s wizards, today’s “Breaking Views” column in the New York Times should dispel any lingering doubts. In the column, in which the Times repurposes the “independent financial commentary and analysis” that appears on the Web site, former equity analyst Edward Haddas and former international merchant banker Martin Hutchinson opine that American workers are overpaid when compared to workers in other lands. The authors don’t specify which lands – American auto workers are actually paid less than their German counterparts, even though Germany exports its cars while we import ours. That Americans make less than their counterparts in China, Vietnam and Bangladesh is obvious. That American wages should fall to meet those nations’ level is a more problematic assessment.

What evidence do the authors provide that American workers are overpaid? The rise in unemployment! “The recession shows that many workers are paid more than they’re worth,” the authors note. This, of course, was the argument of pre-Keynesian economists who believed that the solution for the Great Depression was to cut wages and lay off workers (“Liquidate men,” in the words of Herbert Hoover’s Treasury secretary, Andrew Mellon). But the effect of Mellonomics was to reduce purchasing power to the point that fully one-fourth of American workers were jobless. Only by employing millions of Americans in programs like the WPA was the Roosevelt administration able to break the cycle of declining income, declining purchases, declining production and, again, declining income.

In the real world, median American household income actually went down during the years between the recessions of 2000 and 2008, precisely because virtually all income was going to profits and investment income rather than wages. Still, if the fearless economists of are concerned about uncompetitively high wages, why don’t they volunteer to take a pay cut themselves? How much are and the Times (the latter through its content-sharing agreement) paying for opinions they could get from any historically illiterate 17-year-old in the sway of Ayn Rand?

By Harold Meyerson  | November 11, 2009; 2:17 PM ET
Categories:  Meyerson  | Tags:  Harold Meyerson  
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The obvious point is that if all economists were laid off would the country suffer? Not really.

Posted by: garbage1 | November 12, 2009 12:39 AM | Report abuse

read what Ayn had to say about the Economic Good

Posted by: JohnGalt8 | November 12, 2009 12:49 AM | Report abuse

The underlying message is this: kill all the lawyers AND the economists.

Posted by: cdreimer | November 12, 2009 2:33 AM | Report abuse

Hey John Galt,we all read Ayn Rand in middle school, give it a rest.

Posted by: crw3 | November 12, 2009 7:54 AM | Report abuse

If American made cars could be sold for the price as German made cars, then wages might be the more equal between German and American workers.

Posted by: e121 | November 12, 2009 8:26 AM | Report abuse

Why would I read (or should I say re-read) the opinion ofAyn and?

In my view she let her families misfortunes at the hands of tyrants shape her world view to the extent that she was incapable of understanding that government can be used for the common good and that an ego-centric existence is inevitably hollow and without meaning?

Posted by: wtjoyce1956 | November 12, 2009 9:00 AM | Report abuse

What other evidence than a surplus of labor do you need to prove that wages are too high? I would never say people are paid more than they are worth because, in the absense of more explanation, it looks like you are denigrating those who are employed. I say the answer is to lower wages in those areas where there is high unemployment and rehire or keep the workers employed. I believe Ayn would say the same.

Posted by: jackdoitcrawford | November 12, 2009 9:41 AM | Report abuse

I agree some wages in the US are too high. Particularly those in the financial sector. If it weren't for serious market distortions (TARP and other narrowly focused bailouts) those wages would have adjusted to appropriate market levels (zero in many cases.)
Other distortions the authors might want to consider:
1) China's fixed foreign exchange rate that lowers the price of its exports thus lowering demand for American workers.
2) US govt borrowing that (normally) puts upward pressure on US dollar and devalues the exports of American workers.
3)Foreign govts' subsidies of manufacturing sectors in their countries.
4) Health care and legal costs that are much lower for offshore companies. (Why?)
After accounting for all this, are American workers wages too low? Or is our economic system skewed against our own workers?
I am not a pro-union shill, but I do think the pendulum has swung too far.

Posted by: cndb | November 12, 2009 10:39 AM | Report abuse

The irreplaceable Molly Ivins pointed out that unless people are given decent wages there won't be anyone to buy the crap that our captains of industry are producing.

Posted by: newsraptor | November 12, 2009 10:55 AM | Report abuse

Let 'em volunteer to take a pay cut. Sounds good. And, given Rabbi Meyerson's endless rants on how Americans are under taxed, let Harold and his followers volunteer more cash to the treasury.
That way Meyerson wouldn't be a first-class hypocrite.
Fat chance.

Posted by: ej_smug | November 12, 2009 12:52 PM | Report abuse

Wages are only one piece of the puzzle. People are paid on their productivity. If unions would increase productivity by getting rid of outdated rules that inhibit efficiency, then wages would probably rise because productivity would increase.

Of course another big piece of the puzzle is health care - everyone has been getting "raises" in the form of increased expenditures on health insurance from their employers.

Posted by: sold2u | November 12, 2009 1:25 PM | Report abuse

Meyerson, I am surprised. I would have expected you as a proud socialist to be pushing that all Americans need to be paid exactly the same amount no matter what their job. Isn't that the goal of wealth distribution in the socialist concept. Well, of course with the exception of the ruling elite intelligentsia such as yourself who should be paid a must higher salary and be given special privileges much as was the norm in the Soviet Union. The idea that an individual be paid what ever the capitalistic market has to offer is such a odd concept for the socialist to accept.

Posted by: staterighter | November 12, 2009 3:54 PM | Report abuse

I don't think it is possible to look at one variable like wages and identify it as the problem. Every economy develops "golden ratios" that define its standard of living. A golden ratio might be the cost of housing or rent relative to median income. Our standard of living seems to have established over time, that we should be spending 30% of income for the roof over our head and that total household debt not exceed 40%. If the median income is cut in half, then all costs should be reduced proportionally. A new 1700 foot home should cost $75,000. This would generate much lower local school taxes which would require lower service fees. The house would require lower material costs and land costs. You can't just focus on one variable without adjustment of all variables. Call it the Depression Distortion. It makes a strong case for central intervention if the distortion is considered temporary. The rapid increase in household debt ratio was another warning sign of an unstable economy.

China may have different golden ratios, nothing is set in stone other than the ratios exist and when they change, there is a commensurate change in the standard of living and ultimately the economic make up of the national economy.

Spending disproportionate amounts on communications and entertainment relative to necessities is probably not sustainable for most. Look at the effect on the economy when we suffered the energy distortion. It has become embedded in our minds and spending patterns. Variable rate debt paid with fixed wages is a very hazardous economic situation. Folks with big credit card balances have just learned that lesson.

Posted by: Beacon2 | November 13, 2009 1:53 AM | Report abuse

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