How Krugman Distorts Employer & Employee Relationships

By, Chris Rossini

Evidently, Paul Krugman wants to end 2013 by defiling basic economics at least one more time. Although, four days still remain, so let's not write him off just yet. Today he writes:

Some people would have you believe that employment relations are just like any other market transaction; workers have something to sell, employers want to buy what they offer, and they simply make a deal.

"Some people?"

Look...the dying ideas of John Maynard Keynes may still hold sway with the political masters. After all, they really have nothing else to hang their hats on. But basic economic concepts go back many centuries, and are understood (even today) by more than just "some people".

In a free market (which has just about disappeared in the U.S.) the relationship between employer and employee is really simple. We must start out by defining who the real bosses are...and that's the customers. In the free market, the customers are King. Employers and Employees work together in profitably making sure that the real bosses are happy and satisfied.

If the real bosses are not satisfied (at a profit...remember we live in a world with scarce resources) then everyone packs up and goes home. Employer? Employee? It doesn't matter. If you fail to satisfy the real bosses, you can pack your bags.

In order to get together, and achieve the goal of making sure that the real bosses are happy, employers and employees must be on the same page. They bring different things to the table. Employers bring all of the accumulated capital that will be used. They also shoulder the financial risk that's involved.

Workers bring their skills and labor to the table. They seek to sell their labor to the employer for a wage. Workers do not bring accumulated capital to the table, nor do they shoulder any of the financial risk. They sell their labor for the wage. Wages are arrived like all other prices: supply & demand.

In order to make sure that everyone is on the same page, a contract is made. When an agreement is reached as to what labor will be performed and at what price, it indicates that both sides believe they are better off by making the contract versus not. In a free market, either side has the right to refuse and seek out better offers.

This is very basic stuff. Yet in Paul Krugman's world "some people would have you believe" that this is how it works.

Let's go back to Krugman:

The fact is that employment generally involves a power relationship: you have a boss, who tells you what to do, and if you refuse, you may be fired.

Hold on a second! A "power relationship"? Krugman is so wrapped up in the State that everything looks like "power" to him.

Once again, a mutually agreed upon contract is made between the employer and employee. Neither was forced to enter the contract, and both are were free to walk away to look for better alternatives. Krugman points out that the employer can fire you. So what? An employee can quit!

The "power", in Krugman's eyes, lies in the hands of the employer. He goes on:

If employers value their workers, they won’t make unreasonable demands.

Yeah, so if an employer breaks the original contract, and tells you to jump into a dumpster to fish out a quarter, you can quit.

But ridiculousness can work both ways. If you break the original contract, and say you're going to come in 2 hrs. late everyday, then the employer can fire you.

So employment is a power relationship, and high unemployment has greatly weakened workers’ already weak position in that relationship.

Again, Krugman is naturally blinded by "power". But let's flip the switch here. Let's talk about the elephant in the room. Let's talk about how "government power" has screwed the process that was described above, and has created the problem called "high unemployment".

First, let's assess the situation. Do the real bosses still exist? In other words, are there still consumers who have problems that need to be solved, and needs to be met? The answer is yes.

Next series of questions...Are there entrepreneurs? Does capital exist? Are there people who would love to use their accumulated capital to profitably satisfy consumers? The answer is yes.

Finally, are there workers with skills? Are there people who want to sell their labor for wages? The answer is yes.

So nothing has changed. The ingredients are all there.

Where's the bottleneck? Who has twisted the process into a knot? Who screwed up the market?....The answer is "power", and not Krugman's fictional portrayal of power. I'm talking about the real thing. The institution that disregards voluntary contracts, and that throws away free association. The institution that applies force and coercion ... I'm talking about "government power".

Here's how bottlenecks are created. Put yourself in an employer's shoes:

• You can't hire anyone under the minimum wage.
• Do you provide healthcare coverage?
• Do you have over 50 employees? Obamacare is coming for you.
• Be careful hiring John or Julie....You may end up with a sexual harassment suit.
• Did you fire him because of X, Y, or Z? You can't do that.
• Are you providing enough "time off" for this, that, and the other thing?
• Are you an "Equal Opportunity Employer"?
• Do you have "enough" women on your board of directors?
• Did you hire "enough" minorities?
• You're not hiring any illegal immigrants are you?
• Did you not hire him because you think he's too old? 
• Are the men & women in your company being paid equally?
• You're paying "overtime" and "time-and-a-half" right?
• Have your employees passed the physical exam?
• Have they passed the blood test?
• How about the urine test?

Do you see what has happened here?

And that only scratches the surface. We can go on and on ad infinitum. We haven't even touched on the paperwork yet. Government has made the process of hiring someone a major pain in the ass! 

No longer is it Employer and Employee getting together to satisfy consumers. The hiring process has the crazy glue known as "government power" seeping through every crack and crevice. Eventually, unless this stuff is peeled away, the crazy glue will dry and the economy is finished.

It doesn't have to be this way. It's well passed the time to end the "power relationship" that Krugman has completely wrong and is incapable of seeing.

It's time to get "government power" out of Employer & Employee relationships.

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