These are all terms that have been misused in comments on this blog (all by one person!). For purposes of facilitating coherent discussion, I provide some short definitions.
- Market failure : Failure to achieve a competitive market equilibrium due to the presence of externalities, public goods, or (potentially) due to market imperfections.
- Market imperfections: Monopoly, duopoly, oligopoly, monopsony, oligopsony, imperfect information (non-exhaustive)
(The above are sometimes used interchangeably on the web, but I learned from textbooks, so I’ll hew to a textbook distinction).
- Monopoly power: pricing power exerted when there are less than infinite number of producers (regardless of whether is just one producer or not).
- Monopsony power: pricing power exerted when there are less than infinite number of purchasers (regardless of whether is just one purchaser or not).
- Competitive market: a market devoid of market failures and market imperfections.
- Free market: a market devoid of government intervention of any type.
- Potential GDP: Is not necessarily a “binding constraint ” on GDP. The most common is that it is the level of output consistent with the utilization of factors of production at normal rates. It can be estimated using the production function approach (CBO), or inverting a Phillips curve (Ball-Mankiw), which would be consistent with NAILGDP, i.e., Non-Accelerating Inflation Level of GDP. A “binding constraint” interpretation is the Delong-Summers approach, proxied here.
- Trend GDP: typically a statistical measure of GDP that proxies for potential GDP. Hodrick-Prescott, band pass, and Hamilton are several statistical filters that are used, while deterministic trends are out of favor.
- Chain weighted: The weights ascribed to prices used to construct a price index and resulting quantity index are “chained” together such that weights vary over time. This contrasts with fixed weights as in the CPI (for main categories). Ratios of chain weighted quantity indices do not have a ready interpretation, i.e., the (x/y)*100 cannot be interpreted as x as a percentage of y when x and y are chain weighted indices.
- (The?) Taylor rule: an equation summarizing link between implied policy rate and an output gap, inflation gap, and a (real) natural rate of interest and inflation rate. There is not one single Taylor rule with one single set of parameters that dominates (unlike the one ring to rule them all, in LotR).
- Confidence interval: A reported confidence interval is a range between two numbers. The frequency with which an observed interval (e.g., 0.72–2.88) contains the true effect is either 100 % if the true effect is within the interval or 0 % if not; the 95 % refers only to how often 95 % confidence intervals computed from very many studies would contain the true size if all the assumptions used to compute the intervals were correct.
Nice reference post except for one thing – most of the links brings up a person we are all tired of hearing from – Steven Kopits. He really thought a long time series showing the ratio of government purchases to real GDP was meaningful? I guess he does not realize relative prices can change over time.
pgl: Yes, it was written for the benefit of one person.
“Empoyers do not have effing monopsony power in the minimum wage category. And you know that.”
I guess effing is not a curse word so let me note the person who wrote this is an effing idiot.
They just don’t make consultants and policy advisors like they used to. It’s kinda like Dr. Pepper and they replaced the pure cane sugar with corn syrup. I don’t know actually…… my consultant in New Jersey told me it’s all the same.
All my professional life I have had to endure some really stupid consultants as well as consultants who make money by lying for their clients. So yea – we have seen the likes of Princeton Steve way too much for way too long. I will say, however, most of these clowns do not make their incompetency and dishonesty as apparent as Stevie Pooh does. So he is indeed in a class by himself.
Coke made in the US did replace the sugar with fructose – which is why I only drink Dr. Pepper!
Now Mexican Coke is pretty good.
A little pricey though, the supermarket I shop at beats almost everyone in the city, on about 80%+ of what they offer. But If I remember right one of the glass bottles of Mexican Coke cost me 99cents about 3 weeks ago. I like cane sugar, but not that much. What I do is buy the cheapoh generic sodas, like Shasta, and then I add some Torani syrup with the cane sugar, (the Vanilla Torani added with Dr. Pepper rip-off is pretty good) that works out pretty well. They also make some pumpkin syrups in smaller plastic bottles that I bet would beat Starbucks. I add those to the generic cheapoh coffee when the spirit moves me and the syrups keep forever.
I stopped drinking sweetened drinks 20 years ago because they’re not good for you.
However I strongly recommend them to pgl. He needs all the sweetening he can get…and even then it’s probably not enough!
You do have serious emotional problems. Get professional help.
If sugar over-load is good enough for David Lynch, it’s good enough for me. Nyaaaa nyaaaa.
: ) Yes, that includes cherry pie and coffee. (preferably more fruit-packed and “syrupy”, but either really).
*preferably more fruit-packed than syrupy. Damn I gotta check the spell check on this thing, I turned it off some months ago, but maybe it “re-set” when we lost power during the ice storms this year?? That spell-check is very annoying and bordering on the scourge of my existence.
Actually I have had one soda in the last 10 years and it was a Mexican Coke that some Latin cutie bought me. But she has a boy friend so back to being just a nasty human being!
Weird, it’s not on.
*Off I meant, I think I just figured out the true problem, my brain. Anyone know where I can purchase a syntax-checker for my brain?? Or at least tell me where I can find system preferences interface in my brain to change the settings?? Thanks ahead of time.
It used to be that you could find Coke made with sugar in Kosher markets during Passover as high fructose corn syrup is not Kosher during the holiday. I don’t know if this is still the case or not but if it is, just try to buy a year’s supply!
That’s interesting. If there’s no place to get that during other parts of the year that seems like a market opportunity. I sometimes search out kosher products in the “goy” supermarkets because I always assume the products are more hygienic, With a very few exceptions the best I ever do is Mogan David and Manischewitz. But in all seriousness I’d like to find other goods. I know I could probably go into the Jewish part of town and find others, but I’m terrified I will do something in the store behavior wise that will be socially incorrect,
This is a short educative post. Well done.
Of course education is a Trumpian world is highly problematic
Well, thank you for doing a post for my benefit.
For the avoidance of doubt: “Employers do not have effing monopsony power in the minimum wage category. And you know that.”
Put up or shut up.
“Put up or shut up.”
I would say you are a child but most children are not this pathetic. Do you even know what the “minimum wage category” even is? Please, please, please stop proving the obvious – you are indeed the dumbest troll ever.
PrincetonKopits says: “And you know that”
Does this phrase remind you of anyone???——->> https://www.youtube.com/watch?v=6u5Ab08ioyM
You wrote: “Market failure : Failure to achieve a competitive market equilibrium due to the presence of externalities, public goods, or (potentially) due to market imperfections.
Market imperfections: Monopoly, duopoly, oligopoly, monopsony, oligopsony, imperfect information (non-exhaustive)”
I wrote and you quoted:
“And furthermore, a higher minimum wage should lead to higher employment in a standard monopsony model and at the same time lead to lower selling prices. But the CBO tells us that a $15 min wage would actually cost 1.4 million jobs. So the CBO does not appear to believe in monopsony either. Of course, you can then start using modified monopsony models, but then you have to start arguing a cascade of market failures one after another. It’s nightmarish.”
I used “market failure” to mean “failure to achieve a competitive market equilibrium due to monopsony”.
My statement is consistent with your definition, isn’t it?
Steven Kopits: Depends – some markets might be better described as monopsonistic, while others not. In the more competitive markets, you might have job losses. Depends where the constraint binds.
For clarity, note the CBO analysis under discussion here cites in turn this CBO report, https://www.cbo.gov/system/files/2019-07/CBO-55410-MinimumWage2019.pdf, which discusses extensively the implications of monopsonistic behavior for assessing impact of the minimum wage increase.
Do you actually read these things?
Apparently he does not. You see – management consultants are not paid to actually understand the concepts they pretend to know so they so bilk their clients for incompetent advice. But hey – Stevie works 12 hour days and only is paid for 8 hours!
That’s how consulting actually works, yes. My work days in New York, including commuting, typically averaged 14 hours.
And you billed them for 18 hours a day I bet.
Let’s quote the very first paragraph from the CBO report linked above.
In an average week in 2025, the $15 option would boost the wages of 17 million workers who would otherwise earn less than $15 per hour. Another 10 million workers otherwise earning slightly more than $15 per hour might see their wages rise as well. But 1.3 million other workers would become jobless, according to CBO’s median estimate. There is a twothirds chance that the change in employment would be between about zero and a decrease of 3.7 million workers. The number of people with annual income below the poverty threshold in 2025 would fall by 1.3 million.
So the CBO’s headline number is a job loss of 1.3 million. Slice it, dice it, that’s the view that they put right up front. That 1.3 m arises by bifurcating the minimum wage market. Those who make the cut will more or less make the same but with fewer hours worked (on the books), as Joseph has pointed out to us earlier. Some will both make more money with no reduction of hours and be better off.
This gain will come at the expense of those who lack work. And who will these be? Well, it could be a random percentage of the current min wage workforce. But again, if we use a standard economic model, the principal beneficiaries will be those whose market value is between the prevailing min wage around $10-11 and the $15 min wage. A higher minimum wage will tend to allow employers to access this higher valued-added labor. The losers will be those at the lowest level, meaning those with the worst skills, worst work education, worst work ethic, criminal records and problematic personal histories like that of drug abuse.
So what do the statistics say about where the impact will be felt the most?
From the Brennan Center:
A 2009 Justice Department study found that a past criminal conviction of any sort reduced the likelihood of a job offer by 50 percent. Moreover, the negative effect of having a conviction in their criminal history was found to be twice as large for black job-seekers as compared to their white counterparts.
https://www.brennancenter.org/our-work/analysis-opinion/just-facts-many-americans-have-criminal-records-college-diplomas
On black educational attainment. from the The Journal of Higher Ed
In a continuing trend of lower scores among minority groups over the past decade, more African American and Latino students in the Class of 2019 failed to reach SAT benchmarks for college readiness than on the previous year’s test. While 31 percent of Latino and 21 percent of black test takers last year achieved at least a 480 out of 800 for evidence-based reading and writing and 530 out of 800 for math, those numbers dropped to 29 percent and 20 percent in 2019, according to the College Board’s most recent test results, published today.
In 2019, the average SAT scores (perhaps not a perfect proxy for the min wage market) was 180 point higher for whites than blacks (and 110 points higher for Asians than whites).
https://www.insidehighered.com/admissions/article/2019/09/24/minority-and-first-generation-sat-scores-fall-behind
Drug Arrests, from The New York Times
Although many arrests don’t result in conviction — some are dismissed and some result in pleas to a lesser offense — any drug conviction can harm employment, housing and educational prospects. And this continues to disproportionately affect African-Americans and Hispanics, even as many conservatives have joined liberals in saying that racial disparities in the criminal justice system need to be addressed.
According to New York State’s Division of Criminal Justice Services, there were 75,897 arrests for drug felonies and misdemeanors in New York in 2018, which includes any arrest where fingerprints were taken. About 35 percent of those arrests involved people who were identified as white; 37 percent as black; 25 percent as Hispanic; and 2 percent as Asian. The remainder were listed as other/unknown. (In New York State, blacks make up 18 percent of the population, and Hispanics 19 percent.)
https://www.nytimes.com/2019/11/05/upshot/is-the-war-on-drugs-over-arrest-statistics-say-no.html
I would guess that those 1.3 million lost jobs might be around those proportions, with about 30% coming from the black community; 25% from the Hispanic community; and the other 45% coming from everyone else. A high binding minimum wage will disproportionately affect the minority communities, but in both good and bad ways. In will split those markets into winners and losers. The losers, as ever, will be principally young black and Latino men with problematic resumes.
It is in this sense that I use the term super-regressive and super-racist, because a high minimum wage market will split the minority, min wage labor force in two, between those who made the cut, and those who did not. Those who did not, to use Menzie’s words, deserve to be treated as ‘adulterated food’ or ‘child prostitution’, and the government should protect us from them by forbidding them to work.
I personally think this is terrible public policy. If you want to help the lower wage groups, then the key is to limit supply, ie, legal and illegal unskilled immigration; and invest in increasing productivity. Critically, as I repeatedly assert, the key to improving the economic condition of inner cities, and by extension its residents, is to improve safety. The number one way to do that is to legalize drugs.
Next paragraphs noted the impacts of $12 and of $10 but liars like you want to pretend those did not exist. Of course you lift all sorts of stuff about stupid black criminals or whatever racist agenda you are now spewing just to get another invitation of Fox and Friends.
Have you read it, Menzie?
The CBO has an exposition of the general topic of monopsonies on pages 9-10. This is a more or less textbook introduction of the topic, but the first sentence sums up the CBO’s position:
“In some limited circumstances, increasing the minimum wage can boost employment.”
They make no calculation of this number and the bottom line for the CBO is declining employment associated with mandating a higher binding minimum wage. In other words, if there are minimum wage monopsonies out there, the CBO has not found them, unless I have missed something elsewhere in the text.
Wow you finally cut and paste something that lays out the basic theory that Joan Robinson wrote generations ago. Of course it was not the task of the CBO to summarize the vast empirical literature that you will never read. Impressed we are not.
“The CBO has an exposition of the general topic of monopsonies on pages 9-10.”
If you had a shred of integrity which you do not you would note they covered all sorts of issues in just 3 plus pages. They did not take the time in their short summary of presenting ANY empirical work. But you claim that their not citing any situations where a higher wage floor did raise employment per the standard model as evidence that no such evidence could be found.
That is a lie and you know it. It is also a very stupid lie as this blog has presented many such studies. Yea – the CBO did not cite the vast literature but that was not their mission.
Is this how you managed to bilk client for your consulting work? Tell any lie that they wanted you to tell? Lying is your forte.
I tried to watch Trump’s attorney but I had to turn this clown off. He cannot utter two sentences without telling 3 bald faced lies. I might suggest Bruce Hall and Steve Koptis watch this troll so they can up their game. Geesh!
I’m giving him bonus points for using “Holy Cow” and “Jiminy Crickets” in a relatively short time frame. I do feel mildly let down he never mentioned Jewish Space Lasers though…….
Now now now, Moses, we know you are perfectly capable of engaging in “doing something” that is “socially incorrect” even in goyish circumstances.
Of course, even if you do mess up in the kosher section of a supermarket, you can just tell them that you are “Moses Herzog” and all will be just fine.