Look: I am eager to learn stuff I don't know--which requires actively courting and posting smart disagreement.

But as you will understand, I don't like to post things that mischaracterize and are aimed to mislead.

-- Brad Delong

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Thursday, March 18, 2010

On Hackery

Oh my.  I stumbled onto CAFE HAYEK, where exactly 37 months ago today, Russell Roberts wrote a post titled, with apparent ironic intent but a total lack of prescience: I'M A HACK.

Here's why, as Roberts's self query and answer in a linked L.A. Times piece indicate.

So where does the average worker get bargaining power if unions are in decline?
The simple answer is that bargaining power comes from having
 alternatives. Even in the absence of unions, employers have to treat
 workers well to attract and keep them. In a workplace as dynamic as
 that of the United States, where millions of jobs are destroyed and 
created every quarter, a company’s ability to exploit workers is
 greatly limited by how easy it is to find another job.
Ultimately, it is competition among employers that protects us from exploitation. 
Even those who would seem to be the most vulnerable — immigrants who 
struggle to speak English, for example — can earn much more than the
 minimum wage simply because of competition for their skills. Cleaning 
people routinely earn $20 an hour, more than most cities’ so-called 
living wage.

OK. I'll grant that this probably didn't look as mind-bogglingly stupid in the halcyon days of February, 2007 as it does in March, 2010, when there are six workers competing for every available job.  But that business about "Cleaning 
people routinely earn $20 an hour" had to be a hoot, even back in the day.

When called a hack by Kevin Drum of the Washington Monthly, Russell, with characteristic Libertarian aplomb retorted:

I assume his facts are right. Only they have nothing to do with the point I was making. I didn’t say that the national average for janitors was $20 an hour. I wasn’t saying that it’s fun to be a cleaning person. I was trying to make a much simpler point. In many American cities, the going rate to have someone come to your home and clean your house is $20 an hour.

Setting aside that he made NO indication that he wasn't talking about janitors,  Russell must have been assuming that the fee that is payed translates into the rate that is earned - no transportation time or expenses, no overhead costs, no intermediary skimming off the top, etc.  Also, no realistic chance to make $40 x 20 = $800 dollars in a 40 hour work week.  Clearly, he was scrambling to cover his ass.

This is what you can always expect from Hayek acolytes: a world that bends itself to their pre-conceived notions of ideal economic balance and equilibrium, courtesy of THE FREE MARKET FAIRY, and her (his?) magic wand.

In Hayek's world, markets are rational and perfectly efficient.  If you lose your job today, all it takes to find one tomorrow is some serious looking.  Details such as a likely pay cut, necessity to relocate, to retrain, or whatever else you might have to do are simply indicators that you need to adjust yourself to the realities of your situation.  Being trapped, helpless and hopeless is not a reality the Austrian Economists are able to recognize.  Or if they are, so what.  Get off your duff and start working, slaggard.  Unemployment compensation is just a paid vacation.

RUSSELL ROBERTS is a professor of economics at George Mason University and a distinguished scholar at the University's Mercatus Center. He does a weekly podcast at EconTalk.org.

JazzBumpa is a holder of two Masters Degrees in totally unrelated disciplines, neither of which is economics, who is distinguished by his bizarre poetry and strange habit of producing sounds by shoving air through a variable-length tapered metal tube.   He occasionally performs this odd activity in public.



RussRoberts said...

Actually, Hayek wasn't an efficient markets guy where everything works perfectly. He was interested in the market process. It's messy. Full of trial and error.

You're right. When unemployment is close to 10%, the work gets harder, the pay gets lower and the any perks tend to shrink or disappear. I'd agree with you there.

Cleaning people who make $20 an hour don't make $40,000 per year. People cancel on you and there's travel and it's hard to fill all the time. But why do they earn $20 an hour? Why do people who hire maids and cleaning crews for their house pay $20 to someone who doesn't have a union, who often can't speak English, and who often takes it in cash and doesn't pay tazes? Why don't they pay almost triple the minimum wage?

Because that's the going rate. The going rate isn't $10 or $7. It's about $20. And what keeps it at that level with whatever take-home after expenses that implies, is competition.

BadTux said...

And unicorns. And sparkle ponies. Don't forget the sparkle ponies! Please do note that maids and cleaning people that you hire for your house are making minimum wage once you consider expenses, intermediaries, etc. What causes them to charge $20 is not competition, but, rather, the fact that they'd be making less than minimum wage if they charged less, and if they did that, they might as well go to work for McDonald's for minimum wage.

In other words, it is a government regulation -- minimum wage -- setting the price here. Yay, the wonders of government regulation, exactly like you said! Well, exactly like you said in some other universe. I wonder if you've ever even run a real business in your life? You *do* realize that what gets charged to the customer by a business is not the same thing as a wage, that there are expenses and shit that need to be taken out of it? For those of us who've been there, done that, run a small business, the notion that the billable hours are the same thing as a wage earned by the person doing the work is nothing but a cruel joke by someone who is an idiot.

- Badtux the Business Penguin

Jazzbumpa said...

Greetings, Professor -

I appreciate your gracious reply.

Don't forget the demand side of the equation. A significant subset of the people who pay $20 an hour to have someone clean their house are those to whom $20 is less than decimal dust. The others are people who for whatever reason can't or won't get it done themselves, and are desperate enough to pay the going rate.

In any case, the cleaner is very likely not somebody from the same neighborhood.

I think Tux has an excellent point, relative to the real costs and the effect of the minimum wage, vis-a-vis McDonald's. Competition doesn't explain why the going rate isn't $10. It explains why it isn't $50.

And wasn't it Hayek who said that high German unemployment in the 30's was due to people deciding not to work?

As an aside, I'll note that my sainted Hungarian immigrant grandmother was a house cleaner in Toledo, OH, back in the day. This was not in her youth. My oldest cousin was already old enough to have memories, so this was probably around 1940, and grandma was probably close to 50.

She road the bus across town and had to transfer downtown. This took, at a minimum, an hour each way. Possibly twice that.

Her one customer that I know about was the wife of a wealthy banker. There is a street in Toledo named after him.

I remember my grandmother as a weather-beaten old woman with large, gnarled hands and a sweet smile. She would lapse into Hungarian in the middle of a sentence. She lived into my adulthood, but I never got to know her very well.

If nothing else, this conversation has given me a moment of wistful nostalgia.

JzB the low overhead trombonist

Jazzbumpa said...

Upon further review, another thing that the Austrian analysis misses - or choses to ignore - is the extreme asymmetry in the employer-employee relationship. The linked article that started this discussion is typical.

If it were true that when you got pissed off (or pissed on), you could just walk down the street and get a comparable job, then the idea of employment alternatives = employee bargaining power would have some merit.

But remember, the union movement started due to that extreme asymmetry, and people lost their lives to murder in the process. West VA coal minors provide an extreme example.

During the other great depression, factory foremen in my old home town would go to the gate and pick who was going to get to work that day. Imagine the powerlessness of the desperate would-be workers, and what they might be forced to pay or do to get a day's work at depressed wages.

This is the cold reality of employment. Employers will treat their employees ONLY as well as they need to, and not one whit better. Even in the best of times, this is nowhere near a level playing field.

Which is part of why wealth has been accumulating at the top, the poor have gotten poorer, and the middle class is getting squeezed.

We are so well and truly screwed.

Jazzbumpa said...

More currently relevant are the examples of --

1) WalMart, which likes to work people just enough hours to not have them qualify as full-time employees so they can deprive them of benefits. The presence of a WalMart is terrible for local businesses, and actually causes a local reduction in living standards.


2) Engineering used to be a profession. I don't know how it is in other parts of the country, but now in MI, Engineers mostly get work with contract houses, who job them out to Big companies, where they work side-by-side with real employees who make a much higher wage, but the contractors are expected to do the same quality of work.

Contract employees are utterly powerless - otherwise they wouldn't have a shitty contract job, right? Contract houses skim a huge margin off the top. This arrangement costs the employing Co. more on a daily basis, but avoids having to pay into any kind of pension or 401K plan.

If a worker changes contract houses to make an extra buck, the Co won't let them back in.

This is why Austrians are against Unions. They want that uneven playing field.