Again, If Pundits Are So Smart, Why Aren’t Pundits Super-Rich?

(Don Boudreaux)

Tweet

Here’s a letter to a first-time correspondent:

Mr. Chuck W___:

Thanks for your e-mail prompted by my AIER column in which I argue that if workers who lose jobs to imports really would prefer to keep those jobs, these workers can do so by offering to lower their wages to levels that make continued operation of their factories worthwhile.

You write in response that, when imports increased, workers “weren’t offered the option of staying employed in the same job at lower pay.”

You’re correct that, in response to greater competition from imports, employers generally downsize or even shut down rather than ask workers to accept lower wages as a means of avoiding any loss of existing jobs. But we must ask why.

Compared to downsizing or shutting down, employers would surely prefer that workers agree to wage cuts that restore these factories’ profitability. The very fact that employers today almost never even ask for such wage cuts reveals that employers know that too many workers would refuse. And the reason workers would refuse is because most workers prefer their alternatives to the option of working at wages low enough to restore profitability to the affected factories. Don’t forget that one key reason wages in those factories rose their current levels is that factory owners had to offer those high wages in order to attract workers to begin with – a reality that implies that workers generally have options that are superior to that of remaining in those jobs at lower wages.

But what if all current owners of factories are mistaken? What these current owners don’t realize that many workers would actually prefer to keep their jobs even if doing so means accepting lower wages? Well, that’s a profit opportunity for alert entrepreneurs. Entrepreneurs can buy factories on the cheap and then employ the workers in their old jobs but at lower wages.

The last paragraph is not fanciful. People such as Oren Cass routinely assert that workers value job security more than the market realizes – which is to say that people such as Oren Cass claim to have spotted entrepreneurial profit opportunities. He and like-minded folks should therefore put their money where their mouths are and purchase factories that compete heavily with imports, and then rework the employees’ contracts to ensure greater job stability.

That Mr. Cass and like-minded folks content themselves with talking and never actually take such actions indicates one of two things: These people either do not understand the implications of what they assert about markets, or they don’t actually believe what they say. Because people such as Mr. Cass strike me as being sincere, I believe that they do not understand the implications of what they assert about markets. Either way, however, the inconsistency of the actions of people such as Mr. Cass with their words is powerful evidence that their policy prescriptions do not deserve serious attention.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030