The Left's Big Economic Mistake

Moneybox
A blog about business and economics.
March 8 2013 3:26 PM

Want Higher Wages? Dream of Cheaper Stuff  

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Discount stickers are placed on windows at a store during winter sales, on January 9, 2013, in Nice, southeastern France.

Photo by VALERY HACHE/AFP/Getty Images

Without appropriate peg, here's my big hazy generalization about what the left gets wrong about the economy. The left is rightly concerned about the real wages and incomes of ordinary working people. But the left fallaciously analogizes from a bargaining dynamic at a single firm to the entire economy.

The way a given worker or class of workers improves his real wages is by persuading his boss to give him a nominal raise that outpaces the growth in the cost of living. But the way the economy as a whole works is that my income is your cost of living. If Slate doubled my salary, I'd be thrilled. But if everyone's boss doubled everyone's salary starting on Monday, we'd just have one-off inflation. As it happens, a little inflation would do the macroeconomy some good at the moment. But the point still holds that while "you get a raise" is the way to raise your living standards, "everyone gets a raise" is not the way to raise everyone's living standards.

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To raise real wages across the economy rather than for some favored group of insiders, what you need to do is make things cheaper. And that generally entails an accumulated series of events that make selected groups of people's nominal incomes lower. If everyone could be chauffered around cheaply by autonomous cars, then the people who currently earn a living driving cabs and buses and trucks will lose out. If computers take over routine diagnostic work, then doctors will lose out. If online courses that serve tens of thousands of students displace community colleges, then community college instructors will lose out. The Internet, as best as I can tell, has been a total disaster for the relative earnings of journalists. But by the same token, in a small way the widespread availability of free online content has raised the real wages of everyone else. Newspaper and magazine subscriptions just weren't ever a very large part of anyone's consumption bundles. But the way to raise real incomes across the board is for that same wave of technological change that's transformed the media to start transforming the health care, education sectors, and transportation sectors. Cheaper health care and college and better transportation is a raise for every janitor, short-order cook, yoga instructor, and nurse in America.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

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