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June 26, 2007

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As someone who is effectively going through Econ 101 as foundation work for a MBA, let me tell you they do simply teach that, "raising the minimum wage increases unemployment" with any further statement. Straight from the text book.

I've spent a lot of my time rolling my eyes in this class.

As far as the actual piece, I didn't realize it could get worse without turning to actually armed combat in the street.

Meltdown uninterrupted in Zimbabwe. Vegas should be taking bets on how much longer its failed president will stay in power. It looks like Mugabe bypassed Econ 101 in school and went straight to Advanced Socialist Command-and-Control Theory.

Charles - Zimbabwe's problems are much deeper than socialism. Corruption, incompetence, tribalism, and simple viciousness are the underlying reasons for this mess. Government interference with the economy is the one of the mechanisms by which the root causes are expressed, but there are good reasons that Belgium (f'rex) isn't seeing the kind of inflation Zimbabwe is.

I'm beginning to think that the end of this crisis will only come with invasion by South Africa, which is seeing refugees pouring over the border. Mugabe will not leave on his own, and if he dies he'll be replaced by one of his cronies.

As someone who is effectively going through Econ 101 as foundation work for a MBA, let me tell you they do simply teach that, "raising the minimum wage increases unemployment" with any further statement. Straight from the text book.

I won't get dragged into an OT discussion on this point, but raising wages (P) does tend to decrease employment, because, among other things, higher wagers makes labor marginally more expensive than capital (production) and also makes the prices of goods more expensive (output) -- both of which may result in lower employment. We can talk about whether that this occurs at every wage level, the relative substitutability of capital v. labor (which various among industries and jobs within industries), and the price elasticity of demand -- all of which may lead to exceptions, modifications, and nuances in the general rule. But, as a beginning point, saying that a wage increase puts negative pressure on employment is absolutely correct.

Now, back on topic:

The problem with Hilzoy's broad point is the Econ 101 does explain a great deal of why particular policies are good or bad, in broad terms. But it does so only if you use Econ 101 to analyze each individual constituent part of a policy -- rather than the policy as a whole -- and do your analysis in a sophistocated way, and then carefully aggregate the results and account for how different constituent results affect other constituent results. Economic problems are not simple problems, because economic problems are human problems -- and human behavior is not simple either alone or in the aggregate.

I'm also a little disappointed that no one ever says that this problem is Econ 102. Why does macroeconomics get no love?

As someone who is effectively going through Econ 101 as foundation work for a MBA, let me tell you they do simply teach that, "raising the minimum wage increases unemployment" with any further statement. Straight from the text book.

I won't get dragged into an OT discussion on this point, but raising wages (P) does tend to decrease employment, because, among other things, higher wagers makes labor marginally more expensive than capital (production) and also makes the prices of goods more expensive (output) -- both of which may result in lower employment. We can talk about whether that this occurs at every wage level, the relative substitutability of capital v. labor (which various among industries and jobs within industries), and the price elasticity of demand -- all of which may lead to exceptions, modifications, and nuances in the general rule. But, as a beginning point, saying that a wage increase puts negative pressure on employment is absolutely correct.

Now, back on topic:

The problem with Hilzoy's broad point is the Econ 101 does explain a great deal of why particular policies are good or bad, in broad terms. But it does so only if you use Econ 101 to analyze each individual constituent part of a policy -- rather than the policy as a whole -- and do your analysis in a sophistocated way, and then carefully aggregate the results and account for how different constituent results affect other constituent results. Economic problems are not simple problems, because economic problems are human problems -- and human behavior is not simple either alone or in the aggregate.

I'm also a little disappointed that no one ever says that this problem is Econ 102. Why does macroeconomics get no love?

Look what happened when the white farmers -whose families had been in Rhodesia/Zimbabwe for over 150 years- were driven out and "the people" took over. Inexperience, ineptitude, carelessness and indolence: the crops are scorched and withered, the machinery broken down, crucial techniques of planting and reaping, learned over generations lost or ignored.

I don't mean to be too hard on the poor Zimbabweans- here's my somewhat wimpy liberal caveat- but the expulsion of the white Zimbabweans from their farms was a tragedy, and the disastrous results are now apparent.

It does nothing to right the wrongs that black Zimbabweans suffered over the years, and everything to ensure they are even worse off than before.

"Government interference with the economy is the one of the mechanisms by which the root causes are expressed, but there are good reasons that Belgium (f'rex) isn't seeing the kind of inflation Zimbabwe is."

I'm pretty sure that if Belgium took many of the most profitable businesses away from their owners and willy-nilly distributed them to people who had no idea what they were doing, that Belgium would have some serious economic problems too.

The problem with Zimbabwe is that its leader seems to have taken all of the worst lessons of the past and decided to prove why they were so bad. It isn't just seizure-based socialism or corruption or price controls. It is everything at once.

Von, in the systems where I've been, Macro was 101 and Micro was 102. But I've seen other places with that reversed. So perhaps a problem with the terminology. It's hard to communicate when differnet people use the same terms to mean different things.

=)

Why does macroeconomics get no love?

Whether it's 101 or 102, the fact that when you print tons of money you get runaway inflation is pretty basic macroeconomics.

Look what happened when the white farmers -whose families had been in Rhodesia/Zimbabwe for over 150 years- were driven out and "the people" took over. Inexperience, ineptitude, carelessness and indolence: the crops are scorched and withered, the machinery broken down, crucial techniques of planting and reaping, learned over generations lost or ignored.

You didn´t mention another probable fact.
The "people" didn´t take over, a lot of the farms became property of the new government elite.

The ordinary "black Zimbabweans" probably are totally innocent. Just trying to make a better live for themselves. The Zimbabwe government however...

I did read that a lot of their most important members "somehow" gained ownership of more than one farm for themselves.

I utterly fail to understand why the South African government fails to blast them them for their own enrichment.

von: I agree that econ 101 gives good general guidance. My quarrel was only with the idea that it settles questions about many actual policies.

Take raising the minimum wage (by some specific amount), for instance: while I completely agree that in a very general way, raising wages tends to lower employment, you can't answer any question about a specific proposal to raise the minimum wage using nothing but that fact.

In my Econ 101 (macro), we did not discuss such questions as: do employers exert monopsony power in labor markets? What effects, if any, does this have on wages? Under what conditions would a minimum wage raise wages in a monopsonistic labor market? Does the present proposal, in the present market, meet those conditions? And so on.

Not econ, but I have to say that I found that advice by the MP chilling. It's not often that you hear something like that, from someone in a society that still functions, if only just, but that stands on the brink of a terrible & unavoidable collapse. Something about that pragmatic tone in talking about how to deal with the total collapse in local civilization that you see coming.

Having just returned from Zimbabwe I can add a couple of observations. One of the strong cultural features of this country is the extended family concept. Several generations, aunts, uncles, cousins, etc. are all considered to be part of one's family. If any member of the extended family is doing OK, they feel compelled, culturally, to help out the rest of the family. Currently nearly every extended family in Zimbabwe has someone in diaspora. Those expatriated individuals are working in functioning economies and bringing or sending home enough for survival. It's the only way they can make it.

A teacher (as of last week) in Zimbabwe made one fourth the cost of a survival food basket for a family of four. They were in such short supply that they were being replaced by "Tutors" with less training and education who were making the equivalent of five cents per month. This is why teachers are going to South Africa to become waitpersons and supporting their entire family by doing so. Their once proud education system is obviously broken, too.

Another interesting observation is that two different people that I talked to in South Africa seemed to still believe that Tony Blair and/or the West, not Mugabe, is the problem. This, of course, has been Mugabe's mantra all along. My friend there, who was a teacher and is now a tour guide, says many, if not most rural Zimbabweans pretty much believe in Mugabe.

The most common attitude I heard was "No one lives forever".

South Africa's president has a vision of a "United States of Africa", which causes him to try very hard to maintain solidarity with the other African states. He seems very reluctant to criticize or take any action against Zimbabwe. Some think there is even a family or tribal tie between him and Mugabe. I was unable to confirm or refute that. Just a rumor there.

One of the many sad things (I was going to say the saddest, but it probably isn't) is that Zimbabwe was doing fairly well not so long ago. I'm not sure if it used to be a bona fide African success story, but it certainly wasn't one of the many very depressing countries. Just, sad.

Charles - Zimbabwe's problems are much deeper than socialism.

Never said otherwise, tog. Mugabe has followed the well-worn path of despotism, taking along all the dysfunction that goes with it.

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