Wage Stagnation, Market Outcomes, and the Progressive Target for Economic Policy

August 26th, 2013 at 5:23 pm

Riffing off of an important new study from EPI, over at the NYT Economix blog.

BTW, there’s one thing I wanted to add here, as the NYT piece was already getting too long.  This is a key point of the piece:

…when it comes to economic policy, the difference in recent years between Democrats and Republicans, or most liberals versus conservatives, is that the former are willing to alter the secondary distribution through more progressive taxes and transfers. The latter are content to leave market outcomes alone.

But neither wants to alter the primary distribution.

There are, of course, exceptions.  President Obama’s support for a higher minimum wage and for policies to support manufacturing are two examples of targeting the primary distribution.

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5 comments in reply to "Wage Stagnation, Market Outcomes, and the Progressive Target for Economic Policy"

  1. Dave says:

    The primary force for altering the primary distribution in the past was labor unions. But given the rising globalization forces, and the cowardly response by officials to just defer to the market entirely, labor unions couldn’t succeed because the jobs could simply be moved overseas or to the south where wages were a fraction of our minimum wage let alone our union wages.

    Unions did shoot themselves in the foot by demanding ever increasingly generous pensions, which in large part are not realistically sustainable even without globalization. However, even if they hadn’t gone down that path, all outsoursable and globalize jobs would have escaped union forces anyway.

    Unfortunately, globalization and the lack of an adequate secondary redistribution system led us down a path where even a robust secondary redistribution system is not enough to create living wages for the working poor.

  2. Dave says:

    Actually, I think PK is correct in today’s blog post regarding the scientific nature of economics. He lays out the papers that define the best models.

    However, they neglected one problem: quantitative easing is asymptotically impotent and the markets know it. You have to provide a potent outlet, namely, non-intermediary assets distributed evenly. It is an omnipotent redistribution outlet.

    • Jared Bernstein says:

      I think Paul’s being too kind to economics and too harsh to the authors of the piece. Their point regarding predictive accuracy still holds and has everything to do with the underlying nature of economic variables as largely social/behavioral constructs. The insight that the Fed buying lots of longer-term bonds will nudge down long-term interest rates is not what they’re talking about. And even that conclusion is apparently not a slam dunk! (and ftr, I’m a supporter of QE): http://www.washingtonpost.com/blogs/wonkblog/wp/2013/08/23/why-the-feds-bond-buying-may-not-have-helped-the-economy/

      • Dave says:

        Thanks, that was an interesting article. It shows the asymptotical data with regard to MBS purchases. I actually hadn’t seen it presented, but it is what one would expect.

        It is interesting that many at the federal reserve prefer treasury purchases over MBS purchases. But if they really didn’t believe in picking winners, there is another way as I’ve stated. I’m sure it wouldn’t be popular with anyone that has a current career in banking or expects a future career in banking after leaving their role in the government.

        Nevertheless, I think it would be very popular with a vast majority of the voters.