4 ms·

And since empirical evidence trumps conjectures, we throw the so called "law" of supply and demand into the garbage bin. Would you mind expanding on this point

by shawn 8y ago

And since empirical evidence trumps conjectures, we throw the so called "law" of supply and demand into the garbage bin. Would you mind expanding on this point? It wasn't supported by your other assertions, and I'm curious how such a counterintuitive conclusion might be true.

gota 8y ago
I interpreted it as follows: If unemployment is indeed down (and he asserts that it is) then the supply of extra workers is down also. The salaries, following the supply/demand ratio, should be up. And they are not. Since they're not, the law of supply/demand dictating 'prices' does not work for worker's compensation.
- bko 8y ago
  What people call "salaries" does not include employer cost of benefits. For instance, US health care spending grew 4.3% in 2016 [0]. Since many employers cover health care in the US, a growth in health care expenditures on the employer side can be seen as a increase in salary. And since health care benefits is a disproportionate amount for low or middle income workers, this will hamper their wage growth the most in relative terms. In other words, if 25% of your "pay" is health care, and health care is growing at 4%, your effective "salary" can be said to be growing at 1% as long as your premiums and coverage stay the same. [0] https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsHistorical.html https://www.cms.gov/Research-Statistics-Data-and-Systems/Sta...
  - eptcyka 8y ago
    I think the meager growth in health care spending is not nearly big enough to cover the discrepancy between the increase in salaries predicted by extrapolating market forces and what the salaries actually are. Not to mention, most low paying jobs don't provide health care.
    - bko 8y ago
      This is something that can easily be referenced. Benefits make up around 30% of workers wages with health insurance around 8%. If health care expenditures grow at 4%, that's 0.32% wage growth from health care costs. You may consider that insiginificant but I don't. https://www.bls.gov/news.release/ecec.nr0.htm https://www.bls.gov/news.release/ecec.nr0.htm
      - SketchySeaBeast 8y ago
        > If health care expenditures grow at 4%, that's 0.32% wage growth from health care costs. So if you earn $100,000 each year you get a raise of $320 due to health care? To be honest with you, that seems pretty insignificant. And it's also sort of a feedback loop - the quality of care isn't increasing - the system is only costing more because the system can charge more. All that's doing is accounting for "healthcare inflation", and if a cost of living raise is a significant raise, something is wrong.
  - conanbatt 8y ago
    Excellent point! Healthcare truly should be the #1 policy discussion in the US, due to the magnitude of its economic impact and how the current status quo is not supported by economists on either side of the aisle. I wish that someone drafted some economic-concensus presidential mandates for trump to irresponsibly sign before his term is over and someone argues for socialization of healthcare.
- ianai 8y ago
  Supply and demand can be affected by externalities. In the labor market, those externalities include legal discrepancies between individuals and companies as well as international trade. With inappropriately cheap shipping costs local labor is competing against foreign labor. So the model would have to take into account wage levels abroad. Ie until US wages sink to Brazilian, Chinese, and Indian levels no broad wage increases are likely locally (as a strong interpretation).
- zip1234 8y ago
  Other things to keep in mind: - Labor market is bigger than a single country - Other costs may affect wages (if profits are squeezed, increased competition, rising costs of goods or benefits, etc) - Government policies impact wages (law of unintended consequences)
- randomdata 8y ago
  > The salaries, following the supply/demand ratio, should be up. And they are not. Supply and demand says that offers will go up. And they have. After all, if you are unemployed, employers see your value as being less than the amount you are willing to work for (which can be no lower than minimum wage). If they could hire you for $0, or a negative amount, they most certainly would. There is always some price point where it is worthwhile. Those rising offers is what has allowed those previously unemployed to find jobs with agreeable compensation and join the employed where previously offers were not high enough to reach an agreement (by choice or due to the law). > Since they're not, the law of supply/demand dictating 'prices' does not work for worker's compensation. The law of supply and demand is being observed exactly as expected here.
- walshemj 8y ago
  Or there are a lot of hidden unemployed that are not captured by the statistics.
Joeri 8y ago
A law is a universal truth. If you find that empirical evidence disproves it, clearly it is not universal, and you cannot call it a law without suffixing it with exceptions. Following from this, supply and demand is a tendency, not a law.
- zip1234 8y ago
  Also, the poster has not applied the law. He is saying that because the labor supply in the US is low, wages should be up. However, the US can outsource functions, which means that the labor supply is bigger than the US.
- logicchains 8y ago
  Anyone who'd read even an introductory economics text would know that such laws are defined "ceteris paribus", meaning all other things being equal. Like in physics: the fact that a law that assumes something is a perfect sphere doesn't work perfectly when something is not a perfect sphere doesn't disprove the law, it just shows that it alone isn't sufficient to model complex phenomena.
- hellogoodbyeeee 8y ago
  The law of supply and demand is a law, but many people don't understand that it is a law in a very basic economic model with major assumptions. If you remove the assumptions in real life, then of course the law will no longer always hold.
bjourne 8y ago
I've been reading on the philosophy of science for a while. According to Karl Popper, what distinguishes science from pseudo-science such as Astrology is that the former is able to produce falsifiable theories. Is economy science or pseudo-science? If it is, then its theories needs to be falsifiable. But apparently you can't falsify the Law of Supply and Demand (LSD). When the world again and again doesn't work in accordance with what the LSD predicts, its adherents always comes with excuses as to why it didn't work in this particular case. But there are huge labor shortages across the whole US, but wages still doesn't increase! So you throw the theory into the garbage bin.
- chimeracoder 8y ago
  > But apparently you can't falsify the Law of Supply and Demand (LSD). When the world again and again doesn't work in accordance with what the LSD predicts, its adherents always comes with excuses as to why it didn't work in this particular case It's weird that you dismiss "more advanced models that explain the behavior we observe and provide better predictions" as "excuses". Yes, it's more convenient to argue against a straw man (the most basic formulation of "supply and demand" that doesn't even cover what's taught in introductory economics classes), but it doesn't mean you'll produce valid criticism from it.

by shawn 8y ago

gota 8y ago

I interpreted it as follows: If unemployment is indeed down (and he asserts that it is) then the supply of extra workers is down also. The salaries, following the supply/demand ratio, should be up. And they are not. Since they're not, the law of supply/demand dictating 'prices' does not work for worker's compensation.

bko 8y ago
What people call "salaries" does not include employer cost of benefits. For instance, US health care spending grew 4.3% in 2016 [0]. Since many employers cover health care in the US, a growth in health care expenditures on the employer side can be seen as a increase in salary. And since health care benefits is a disproportionate amount for low or middle income workers, this will hamper their wage growth the most in relative terms. In other words, if 25% of your "pay" is health care, and health care is growing at 4%, your effective "salary" can be said to be growing at 1% as long as your premiums and coverage stay the same. [0] https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsHistorical.html https://www.cms.gov/Research-Statistics-Data-and-Systems/Sta...
- eptcyka 8y ago
  I think the meager growth in health care spending is not nearly big enough to cover the discrepancy between the increase in salaries predicted by extrapolating market forces and what the salaries actually are. Not to mention, most low paying jobs don't provide health care.
  - bko 8y ago
    This is something that can easily be referenced. Benefits make up around 30% of workers wages with health insurance around 8%. If health care expenditures grow at 4%, that's 0.32% wage growth from health care costs. You may consider that insiginificant but I don't. https://www.bls.gov/news.release/ecec.nr0.htm https://www.bls.gov/news.release/ecec.nr0.htm
    - SketchySeaBeast 8y ago
      > If health care expenditures grow at 4%, that's 0.32% wage growth from health care costs. So if you earn $100,000 each year you get a raise of $320 due to health care? To be honest with you, that seems pretty insignificant. And it's also sort of a feedback loop - the quality of care isn't increasing - the system is only costing more because the system can charge more. All that's doing is accounting for "healthcare inflation", and if a cost of living raise is a significant raise, something is wrong.
- conanbatt 8y ago
  Excellent point! Healthcare truly should be the #1 policy discussion in the US, due to the magnitude of its economic impact and how the current status quo is not supported by economists on either side of the aisle. I wish that someone drafted some economic-concensus presidential mandates for trump to irresponsibly sign before his term is over and someone argues for socialization of healthcare.
ianai 8y ago
Supply and demand can be affected by externalities. In the labor market, those externalities include legal discrepancies between individuals and companies as well as international trade. With inappropriately cheap shipping costs local labor is competing against foreign labor. So the model would have to take into account wage levels abroad. Ie until US wages sink to Brazilian, Chinese, and Indian levels no broad wage increases are likely locally (as a strong interpretation).
zip1234 8y ago
Other things to keep in mind: - Labor market is bigger than a single country - Other costs may affect wages (if profits are squeezed, increased competition, rising costs of goods or benefits, etc) - Government policies impact wages (law of unintended consequences)
randomdata 8y ago
> The salaries, following the supply/demand ratio, should be up. And they are not. Supply and demand says that offers will go up. And they have. After all, if you are unemployed, employers see your value as being less than the amount you are willing to work for (which can be no lower than minimum wage). If they could hire you for $0, or a negative amount, they most certainly would. There is always some price point where it is worthwhile. Those rising offers is what has allowed those previously unemployed to find jobs with agreeable compensation and join the employed where previously offers were not high enough to reach an agreement (by choice or due to the law). > Since they're not, the law of supply/demand dictating 'prices' does not work for worker's compensation. The law of supply and demand is being observed exactly as expected here.
walshemj 8y ago
Or there are a lot of hidden unemployed that are not captured by the statistics.

Joeri 8y ago

A law is a universal truth. If you find that empirical evidence disproves it, clearly it is not universal, and you cannot call it a law without suffixing it with exceptions. Following from this, supply and demand is a tendency, not a law.

zip1234 8y ago
Also, the poster has not applied the law. He is saying that because the labor supply in the US is low, wages should be up. However, the US can outsource functions, which means that the labor supply is bigger than the US.
logicchains 8y ago
Anyone who'd read even an introductory economics text would know that such laws are defined "ceteris paribus", meaning all other things being equal. Like in physics: the fact that a law that assumes something is a perfect sphere doesn't work perfectly when something is not a perfect sphere doesn't disprove the law, it just shows that it alone isn't sufficient to model complex phenomena.
hellogoodbyeeee 8y ago
The law of supply and demand is a law, but many people don't understand that it is a law in a very basic economic model with major assumptions. If you remove the assumptions in real life, then of course the law will no longer always hold.

bjourne 8y ago

I've been reading on the philosophy of science for a while. According to Karl Popper, what distinguishes science from pseudo-science such as Astrology is that the former is able to produce falsifiable theories. Is economy science or pseudo-science? If it is, then its theories needs to be falsifiable. But apparently you can't falsify the Law of Supply and Demand (LSD). When the world again and again doesn't work in accordance with what the LSD predicts, its adherents always comes with excuses as to why it didn't work in this particular case. But there are huge labor shortages across the whole US, but wages still doesn't increase! So you throw the theory into the garbage bin.

chimeracoder 8y ago
> But apparently you can't falsify the Law of Supply and Demand (LSD). When the world again and again doesn't work in accordance with what the LSD predicts, its adherents always comes with excuses as to why it didn't work in this particular case It's weird that you dismiss "more advanced models that explain the behavior we observe and provide better predictions" as "excuses". Yes, it's more convenient to argue against a straw man (the most basic formulation of "supply and demand" that doesn't even cover what's taught in introductory economics classes), but it doesn't mean you'll produce valid criticism from it.