A Taste of the Calculation Debate

December 15, 2008

Market signals are telling the American car manufacturers to stop making cars. Congress disagrees.

In exchange for a bailout, Congress would like the auto workers to take a pay cut, down to the same level as Americans who work (in America) for foreign car companies.

Nobody seems to have noticed that this is nonsense. How in the world could Congress know that the value of an American auto worker’s marginal product in the American auto industry is equal to the marginal product of workers in the foreign auto industry? Because their marginal product is what people are supposed to be paid.

This is not the scope of the problems with ignoring the market and trying to decide what businesses should stay in business and which should fail. It’s just a taste. But wages are supposed to mean something. You don’t just pick them out of a hat.

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