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March 24th, 2017

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Ideological heretics: Prominent Leftwing economists battle their own positions

Larry Elder

By Larry Elder

Published Feb. 5, 2015

President Barack Obama, in his State of the Union speech, called for a minimum-wage hike and for government-mandated paid family and medical leave.

"We are the only advanced country on Earth," said the President, "that doesn't guarantee paid sick leave or paid maternity leave to our workers." On the minimum wage, Obama issued this challenge: "And to everyone in this Congress who still refuses to raise the minimum wage, I say this: If you truly believe you could work full-time and support a family on less than $15,000 a year, try it. If not, vote to give millions of the hardest-working people in America a raise."

Minimum wage and paid family leave are not only moral imperatives, says Obama, but good economics to boot. Employees, he tells us, are happier and therefore more productive. Minimum wage and paid medical leave, understand, actually benefit business. It's just that dumb businessmen and women don't realize it.

But what does it say that perhaps the two most high-profile leftwing economists once opposed the minimum wage and paid family and medical leave?

When Obamacare architect/economist Jonathan Gruber and The New York Times economist Paul Krugman actually practiced economics, they both opposed the minimum wage. In Gruber's case, he also opposed government mandated for paid family and medical leave.

In 2011 -- less than four years ago -- Gruber gave an MIT lecture called "Applying Supply and Demand." About the minimum wage, Gruber said: "Let's say the government rolled in and set a minimum wage. ... Workers want to supply more hours than firms want to hire. ... You end up with excess supply. And we call that excess supply 'unemployment.'" He also insisted that a higher minimum wage pressures an employer to turn to automation: "We have a downward sloping demand curve, and why is it downward sloping? Because the higher the wage, the fewer workers the firm wants to hire. It would rather use machines instead."

As to paid leave, Gruber also argued against it. In 1994 Gruber wrote: "I study several state and federal mandates which stipulated that childbirth be covered comprehensively in health insurance plans, raising the relative cost of insuring women of childbearing age. I find substantial shifting of the costs of these mandates to the wages of the targeted group." In other words, Gruber said that an employer forced to pay for family leave will simply reduce the employee's wages to offset the cost -- not net benefit to the employee.

This brings us to The New York Times columnist/economist Paul Krugman, who currently supports a $15 minimum wage. He, too, has done a 180 on the issue.

In 1998, Krugman reviewed a book that supported the living wage, titled "The Living Wage: Building a Fair Economy." But Krugman slammed the idea: "The living wage movement is simply a move to raise minimum wages through local action. So what are the effects of increasing minimum wages? Any Econ 101 student can tell you the answer: The higher wage reduces the quantity of labor demanded, and hence leads to unemployment."

Krugman even dismissed Card-Krueger, the widely cited minimum-wage study that purports to show its positive effect. Krugman pretty much dismissed it. "Indeed," he wrote, "much-cited studies by two well-regarded labor economists, David Card and Alan Krueger, find that where there have been more or less controlled experiments, for example when New Jersey raised minimum wages but Pennsylvania did not, the effects of the increase on employment have been negligible or even positive. Exactly what to make of this result is a source of great dispute. Card and Krueger offered some complex theoretical rationales, but most of their colleagues are unconvinced; the centrist view is probably that minimum wages 'do,' in fact, reduce employment, but that the effects are small and swamped by other forces. ...

"In short, what the living wage is really about is not living standards, or even economics, but morality. Its advocates are basically opposed to the idea that wages are a market price -? determined by supply and demand, the same as the price of apples or coal. And it is for that reason, rather than the practical details, that the broader political movement of which the demand for a living wage is the leading edge is ultimately doomed to failure: For the amorality of the market economy is part of its essence, and cannot be legislated away."

In sum, Gruber and Krugman once made Milton Friedman-like, Econ 101 arguments against minimum wage and its cousin, the livable wage. And in Gruber's case, he even argued against government-mandated paid family and medical leave.

The late Democratic Sen. Daniel Patrick Moynihan is attributed with the following quote: "You're entitled to your opinion, but you're not entitled to your own facts." In the case of Gruber and Krugman's current support for "progressive" policies they once opposed, what changed? The facts -- or the politics?

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Larry Elder is a best-selling author and radio talk-show host.

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