An interesting thing happened earlier tonight in the macroeconomics class. The topic of the moment was stickiness of prices, especially wages. Professor mentioned that employment contracts are long term and the wages don’t fall quickly enough for markets to clear.
Now, let me tell you, these are MBA students with very little, if any, background in economics. Most of them lean left, as far as I know. I am the only libertarian in the class. If there is a conservative, I do not know who that is. We are talking Silicon Valley here, folks.
I earnestly asked a question to the professor – as to why the employers prefer to cut headcount rather than wages! Granted, there is always a 3-5% of the bottom of the employee pool which is not productive to justify their place in the company, and employers often see a decline in sales/profits as an opportunity to trim away that fat. Who could blame them? However, even when the proposed layoffs are 10, 15 or 20%, employers very rarely use pay cuts as opposed to head count cuts. I really do not know why, hence I asked the question mentioned above. Before waiting for answer, I took liberty to claim in front of the whole class that if the students were the employees of a company in distress, and if they were asked whether they prefer a 10% drop in head count or a 10% across the board pay cut, most would opt for the 10% pay cut. I suddenly heard the professor, and, also, a bunch of students disagree with me, politely. They all claimed that people would opt for 10% cut in head count. I reminded them that the people who choose to put 10% of the heads on the chopping block will not know if one the head is going to be theirs.
Why is this interesting? The professor, from time to time, says that some of the (Keynesian) policies are necessary to care for the poor, the sick, the hungry etc. she often implies that her ideological opponents often do not care about these things. The whole class usually agrees, I can tell from their reaction to such innuendo. This even confirms my suspicion about the left. Their caricature of libertarians as uncaring, selfish group of people is a façade – it is clear that many a progressive personally do not care at all the poor and the downtrodden. Given a choice between losing 10% of the pay and sending their friends to the poor house, most of the would choose the latter. They just accuse others of being uncaring. Charity and caring comes from one’s heart; its costs come straight out of one’s own pocket, but not according to these folks, to them it should come from their neighbor’s pocket. How else should I interpret this?