Dean Baker Has An Accident

What is the saying about what even a blind pig does once in a while? I believe Dean Baker actually said something rather profound yesterday, but it's okay because I'm pretty sure he was unaware of the meaning of what he said.

Economists are baffled by the failure of something called the Phillips Curve in today's labor market. Phillips was an economist, of course, who drew a curve which showed that as unemployment decreased wages increased, and posited cause and effect. Today, however, unemployment is plummeting and wages are essentially flat and people like Dean Baker are tearing their hair out trying to figure out where Philips went wrong why. (Philips, of course, could not have gone wrong because he was an economist. Economists never go wrong, so there must be something wrong in today's labor market.)

Baker actually touched on part of the answer in yesterday's column when he referenced the low participation rate, which reflects a high number of people who are not working but are also not looking for work and are therefor not counted as unemployed. That means the actual unemployment rate is much higher than what is being reported, which plays hell with the Phillips Curve (even if the Philips Curve did make any kind of sense, which it does not), but the participation rate does not suit a number of Baker's other pet arguments and so he is forced to disregard it here.

Then he starts in on "quit rates," which is another of his pet theories having to do with when more people are quitting jobs wages go higher. I think he has it backward; that people quit as a result of higher wages, rather than people quitting being a cause of higher wages. Fred quits working for my company, so I'm going to hire Tom and pay him and Sam a higher wage. I don't think so.

Then he says that, "Fewer people are now employed in sectors with few quits, like manufacturing, and relatively more people are employed in sectors with frequent quits like retail trade and restaurants."

I recall many years ago, when there was much talk about the nation "transitioning to a service economy," something which Dean Baker seems to acknowledge has been fully accomplished, my father made the dry comment that, "Hell, we can't all make a living selling each other hamburgers."

I think Dean Baker has pointed out that Dad had it completely right.