Dean Baker Is An Idiot

I think all economists are idiots, actually. They think that economics and business are the same thing, and that having studied some arcane formulas which purport to predict the rise and fall of economic conditions under certain civil circumstance while sitting in an ivory tower, that they then know how to manage an actual brick and mortar business in the real world.

Baker writes a piece today discussing the claims by employers that they are having difficulty filling some jobs due to a lack of qualified applicants. He claims, as he always does, that all they have to do is raise the offered wage and they will get more applicants than they can handle, and that regardless of the skills required, there is a complete adequacy of any skill set available.

He admits that those skilled workers might not be currently unemployed, but might be presently working for other employers. He says that is not a problem, however, because all the company in question needs to do is raise the offered wages high enough to hire the workers away from their present employer and the problem is solved.

I see two small problems with that; perhaps not all that small. The first being that his plan has not solved the problem at all; it has merely moved it from one employer to another. Now the company from whom the employees were pirated is faced with the need to find qualified employees, so the problem still exists in the same nature, and to precisely the same degree. It merely exists for a different employer.

Economists are prone to thinking that relocating a problem is the same as solving it. “If it’s no longer my problem, then it isn’t a problem at all.”  Baker once solved Europe’s shortage of hotel workers by arranging for parking lot attendants and taxi drivers to take those jobs. He didn’t stop to think that he had merely created a problem for parking lot and taxicab company owners.

The other problem with Baker’s solution here is something called a “wage/price spiral.”  Everyone is busily pirating employees from everyone else, meaning that wages are rising higher and causing prices to do the same, which leads to inflation. We’ve been there before, and it wasn’t pretty.

Dean Baker is, of course, an economist and therefor thinks that inflation is a good thing because he lives in that ivory tower and does not have to deal with the real world effects of it. He thinks that it has all sorts of beneficial effects, like “diminishing debt,”  reducing effective interest rates and minimizing the impact of the federal deficit on GDP.

He doesn’t realize that it makes milk, eggs and heating your home cost more, and doesn’t seem to care that the reduction to effectiveness of interest applies to savings as well as debt. He also thinks that wages rise at the same pace as inflation. Haha, dream on.

In fact, the reason that we have employer-provided health care benefits is that a wage/price spiral was damaging the economy so badly that the government froze wages in an effort to put a stop to it. Unable to offer higher wages to hire workers away from other employers, which is what Baker is suggesting here, and which they had been doing until the government stopped them, companies began offering “fringe benefits”  instead of wages to pirate workers from other employers.