A common refrain these days is that standard economics has been proven wrong by the world. Thus, of course, we need a new economics, one that is ready to spring from the fertile mind of whoever he insistent that standard no longer works. The truth here being, well, you know, not so much. Most microeconomics we’re pretty sure we’ve got just about right. Sure, we can argue about how important our pet theory is at any time but the basics we’re really pretty sure of. Supply, demand and prices lead a merry dance, price controls are not useful, people work harder if they get more for working harder. Much of it is really just common sense, the difficulty coming in how important any particular part of the whole is at any one time.
The reason for all of this should be obvious enough. Economics is trying to understand human beings. Human beings are pretty good at understanding human beings – we’re all either or both cooperating or competing with them, all 7 billion of them, all the time. That what we’ve got written down in the economics textbooks is also in folk memory shouldn’t thus be all that much of a surprise.
However, one bit that is still shouted about – how fast is it? How long does it take for an effect to come into action? That difference of speed can give us entirely different macroeconomic theories. To be unfair, New Classicals insist all prices and quantities adjust immediately therefore we can never have a recession. Keynesians that sometimes they never do. New Keynesians that they do, but slowly and in chunks, not smoothly. This would, of course, entirely horrify as an explanation to anyone who knew what they were talking about but it’s still a useful shorthand explanation. How fast stuff happens leads to entirely different models of the whole economy. Even if our microeconomic insistence that it does actually happen is entirely true.
Long-awaited wage growth posted its biggest increase of the economic recovery in August while payroll gains beat expectations and the unemployment rate held near a generational low of 3.9 percent, according to a Bureau of Labor Statistics report Friday.
We’re really very certain indeed that when there aren’t that many unemployed people around then wages will rise for everyone. This is so basic that even Karl Marx managed to get it right. But note that long-awaited:
Average hourly earnings for private workers increased 2.9 percent from a year earlier, a Labor Department report showed Friday, exceeding all estimates in a Bloomberg survey and the median projection for 2.7 percent. Nonfarm payrolls rose 201,000 from the prior month, topping the median forecast for 190,000 jobs. The unemployment rate was unchanged at 3.9 percent, still near the lowest since the 1960s.
For there are those who have been telling us that the absence of wage rises despite low unemployment tells us the basic theory is wrong. That, thus, we should have more unions, or raise the minimum wage, or something.
The U.S. economy added 201,000 jobs in August, the Labor Department said on Friday, continuing its nearly eight-year streak of monthly gains.
8 years is longer than we thought it would take, certainly. My own supposition there is that the unions power people are right. In the absence of that countervailing power we’ve not been having wage inflation until we’ve a very low unemployment rate. Which is good of course, because it means we can leave the boom to run longer instead of having to cut it off to bring down inflation caused by said union power. That is, they’re right in saying that Reagan’s killing of the unions is causing the slow wage growth. But then that was the point.
However, the real lesson here is that standard economics does indeed work. Low unemployment leads to higher wages. Great, we’ve not got to do anything else to get wages up then, do we?