Friday, September 9, 2011

NPR economics

I happened to catch a few minutes of Marketplace on NPR yesterday in between dropping off my charming daughter at the YMCA and arriving at the luxury dentist office (recommended, by the way, and not just for the over-the-top website) for a teeth cleaning. The NPR folks were analyzing the red team debates from the night before.

The first topic addressed by "personal finance guru" Chris Ferrall was the minimum wage. Would lowering the minimum wage increase employment? After summarizing the position advanced by some of the debaters, which centered on the controversial theme that demand curves slope down, Ferrall explained that, in fact, it is clear that employers would not respond to a reduction in the price of low skill workers because right now, at the current price, they are not hiring very many of them.  Think hard about that now: the level provides evidence on the slope.  That's good stuff, regardless of your actual view on the likely employment effects of short-run decreases in the minimum wage (which I think are probably small, as there is no reason for employers to think the wage will not go right back up again once the recession is over, making any sort of capital investments that complement unskilled labor unlikely to be undertaken and, thus, demand unlikely to be much increased).

The second topic addressed by Ferrall was Rick Perry's comments about social security, the pay-as-you-go US federal public pension scheme, being a Ponzi scheme. Ferrall reassured NPR listeners that it is not a Ponzi scheme, though without offering any sort of empirical or theoretical argument as to why this rather obvious characteristic of the system should be overlooked. In fact it is a Ponzi scheme, and there would be nothing wrong with that if it were supported by long-run trends in US demography, but it is not. Much as one would like to tar the FDR administration as rank idiots and white collar criminals for saddling us with a pay-as-you-go defined benefit system in place of a more sensible forced savings defined contribution plan, there is no particular reason that people at the time should have been able to foresee what would happen with birth rates and life expectancy 50 or 70 years in the future. Less innocently, the New Dealers were presumably also keen on the much higher short-run vote-buying potential of a pay-as-you-go system. In Ferrall's defense, he did state that social security might need some minor modifications despite not, in his view, being a Ponzi scheme.

So, 0-2 for NPR yesterday in my small sample yesterday. Good thing the government subsidizes the creation of all this high level, unbiased, evidence-based, serious journalism.

1 comment:

László said...

I am not particularly good at identifying political motives and games, I always envied the self-confidence of political economists (let alone commentators). But note what Feldstein and Liebman quote in their handbook chapter about the Roosevelt and his team (page 6 in the NBER WP version: http://www.nber.org/papers/w8451.pdf). Roosevelt had a funded system in mind, but Republicans of all people were afraid of the government commanding a huge fund. There goes your speculation about New Dealers' cynical and myopic vote-buying with PAYGO.