Please read this. And don't get thrown. It is not "wonkish" unless wonkish means deliberately obfuscating some pretty simple concepts.
Krugman presents the following graph:
He writes the following: "Now, in a perfectly competitive
economy (don’t worry, we’ll talk about what happens "if not"* in a
minute), we would expect the labor force to achieve full employment by
accepting whatever real wage is consistent with said full employment. And what
is that real wage? It’s the marginal product of labor at that point — which,
graphically, is the slope of the aggregate production function where it crosses
the vertical blue line." (* quotes added for clarity and emphasis
added by me)
This is, so far as any economic theory can be,
correct. Krugman then goes on to make the point that under certain
circumstances, technological improvements can lead to lower real wages.
This, too, is correct. The workers may not share fully in the
productivity gains. So the next logical question is "so what?"
So long as the wage matches the marginal product of one's labor, then
we're good. Unless some people think it better to pay people for work
they are not doing so long as those wages for unproductive labor
are being paid by someone else, but who would be so damn fool as to think
that's a good idea?
But before I come across as callous about people being
paid less money for less work (yes, I understand fully the problems and
pressure a family can face if, through no fault of one's own, if wages are
lower in real terms in succeeding years), let me address what Professor Krugman
skips over with an all-too-casual afterthought. He writes:
Start with the notion of an aggregate production
function, which relates economy-wide output to economy-wide inputs of capital
and labor. Yes, that sort of aggregation does violence to the complexity of
reality. So?
Furthermore, for current purposes, hold the quantity of capital fixed and show how output varies with the
quantity of labor.
In the first part he explicitly acknowledges that the aggregate
models has no real bearing in reality.
Will that stop him? Of course
not.
In the second part, he “hold[s] the quantity of capital fixed”
in order to show how his spurious function using a bogus model will affect real
wages. The problem is that in any real
economy, the quantity of capital is not fixed.
And in a thriving free-market system (which ours isn’t, but if he can
live in a fantasy world, why can’t I) far more capital is created than
destroyed and everyone is better off.
Further, technological improvements affect positively all of the factors
of production, if not there would be no increase in efficiency and thus it
would not be considered a “technological improvement.” Does a technological improvement increase all
factors of production evenly? No, of
course not. But productivity is
increased. And this benefits the economy
as a whole, however marginally. And that
is reality.
