During my time as a journalist, I came up with some informal rules for explaining economic ideas to people without a technical background:
1. Avoid jargon wherever possible, and keep clunky Latinate words to a
minimum.
2. Always show the intuition behind a point as well as the logic and
math.
3. If you can't explain something in terms a bright teenager would
understand, then you probably don't understand it yourself.
I thought I would share these rules after reading a piece on Slate today:
I have a PhD in economics, and on my first reading I found the piece pretty opaque. Here's how I would rewrite the second half to make the point that I think the author was trying to make:Creating jobs by cutting wages
By Matthew YglesiasThe depressing truth is that the easiest way to bring good, high-paying manufacturing jobs back to America is to make them less good and less well-paying:
[Note: I'm not sure where the italicized quote came from, as it wasn't referenced.]
With labor costs moving down at its appliance factories here, [General Electric] is bringing home the production of water heaters as well as some refrigerators, and expanding its work force to do so.
The wages for the new hires, however, are $10 to $15 an hour less than the pay scale for hourly employees already on staff - with the additional concession that the newcomers will not catch up for the foreseeable future. Such union-endorsed contracts are also showing up in the auto industry, at steel and tire companies, and at manufacturers of farm implements and other heavy equipment, according to Gordon Pavy, president of the Labor and Employment Relations Association and, until recently, the A.F.L.-C.I.O.'s director of collective bargaining.
This is unfortunate, but the reality is that story that begins with mass unemployment is inevitably going to end with lower average real wages. The hope is that the increase in the number of employed people and the increased availability of full-time work leads to higher real incomes. But this goes back to some key points about the magic of currency devaluation. One of the primary mechanisms through which monetary expansion can stimulate a depressed economy is precisely because it does reduce average real wages. But when you reduce wages through monetary expansion rather than nominal wage cuts, you're undertaking a symmetrical reduction of the real debt burden so your income:debt ratio improves. Attempting to make the needed adjustment purely through nominal wages cuts is slower, more awkward, and much less favorable to families burdened with outstanding mortgages or credit card debts. Part of the political economy of prolonged depressions is precisely that this slower less effective adjustment process is more favorable to wealthy people and some classes of retirees.
This is too bad, but whenever you have mass unemployment, you're going to see individual workers' buying power drop. Still, allowing wages to fall isn't the only way to make American workers more competitive. A less painful option is to print money.Which passage is easier to understand? I'll let you be the judge. I'm not claiming mine is perfect; I just think it's possible to convey the same idea in simpler terms without dumbing anything down. And if I've missed the point of Mr. Yglesias's article, then I apologize - but I hope he would reflect on what that meant, too.Governments often print money to create jobs in the short term, and one way this works is by cutting the cost of labor. Printing money tends to lower the value of the dollar, since it puts more dollars into circulation. If each dollar is worth less, then American wages will look relatively cheaper to, for example, an international company deciding where to locate a factory. The key is that actual wage rates - the ones listed on pay stubs - don't change. As a result, it shouldn't be any harder for Americans to pay their mortgages or credit card bills.
So, there are two ways of cutting wages to make American workers more competitive. One is for actual wage rates to fall, and the other is for the government to print money and devalue the dollar. The second is likely to be better for American workers, as long as they don't buy a lot of imports. But if the government doesn't print money, then wages are bound to fall as workers facing a slack job market begin to accept lower prices for their labor.