Figured It Out

I read Paul Krugman's columns and blog regularly. I find him very convincing on economics. He has a Nobel Prize in economics, but so do others that disagree with him. I have struggled to find something about his work that makes him more credible that others. Well today I found it. Krugman bases his work on empirical facts. 

Todays' blog post is about how some macroeconomists refuse to include wage stickiness in their models. Wage stickiness is the concept that it is much harder to get people to accept lower wages. In recessions companies are much more likely to layoff some people rather than lower all wages. There is a lot evidence that wage stickiness is a real fact and can be explained by behavioral ecomonics, and there are simple arguments to explain it. Would you like to have 100% of your staff pissed off at you and still working for you or would you prefer to 10% of your staff keeply pissed off and out the door while the remaining 90% are still working.  

Some economists insist that economic models should be based on principles that can be mathematically derived from a maximizing principle. As a scientist I find this concept absurd. Evidence is the heart of science. You ignore it at your peril.