Quotable: Krugman latest on GOP “employment” policy

The Republicans’ latest big idea is that if they lay off government workers, thus raising unemployment, then this will place downward pressure on wages, and these lower wages will then lead to higher employment!

Soon bosses shouldn’t have to pay workers hardly anything at all, and there’ll be so many more jobs!

Paul Krugman sums up this posturing buffoonery:

[T]he argument … says that by reducing demand, you cut the price, which increases demand, which means that you end up selling more than before. Um, no — that’s the kind of answer that, in Econ 101, has you suggesting that the student get special tutoring.

He’s so right, but watch the Tea Party crowd lap it up. They keep cheering for Supply Side Jesus when they should be paying attention to Inigo Montoya.

h/t Americablog

Categories: economics, education

5 replies

  1. I’m not “new” to economics, and I’m pretty sure he has a good point, but I can’t say I undersant him. Shame, really, ‘cuz I love it when people give good arguments that leave the GOP looking like a bunch of bufoons who somehow failed to grasp basic logic,

  2. If you have to reduce demand in order to cut prices so that the lower prices then raise demand, then this subsequent raised demand only gets you back to where you were before wrt demand.
    So nothing actually improves on the bottom line. And that’s even before you add in complex and confounding factors.

  3. Oh, I thought it might be that. Thanks very much, tigtog. I feel less stupid now.

  4. Sounds suspiciously like a crash diet…

  5. Here’s a story that goes into some more detail about the Keynesian “paradox of thrift” regarding governments having to spend more during a recession when individuals are spending less, in order to stave off depression. (bonus squee: the link was tweeted by Tim Minchin)
    Ideas like the GOP’s will only cut back individual demand/spending even more as the sacked workers have less discretionary income, so the bosses won’t end up with the increased demand for their goods required for them to take on new workers anyway. Cutting back government spending only contracts the economy faster. The only way forward to a growing economy with greater employment is increased government spending.
    I literally learnt this in high school commerce classes – it wasn’t even Economics 101 yet.

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