Yglesias on left economic mistakes

Matt Yglesias has a post today explaining that the only way to increase someone’s real income is by decreasing someone else’s real income. He rightly points out that some on the left are confused about this. They tend to think about jacking up wages only in terms of the workers who got a higher wage without considering how the cost of that higher wage is distributed.

Yglesias concludes the post somewhat oddly though:

But the way to raise real incomes across the board is for that same wave of technological change that’s transformed the media to start transforming the health care, education sectors, and transportation sectors. Cheaper health care and college and better transportation is a raise for every janitor, short-order cook, yoga instructor, and nurse in America.

The argument here is that technology that makes things cheaper increases the real incomes of those who purchase those things. This is true of course, but it does not “raise real incomes across the board.” As Yglesias points out prior to this conclusion, disruptive technology that makes things cheaper by making workers redundant does not increase the real incomes of the workers made redundant. There are losers in this process, and the existence of these losers negates the notion that there is always an “across the board” real income increase. Or to put it another way, these efficiency gains are not necessarily Pareto improvements.

So it is not enough to just push as much labor-replacing technology as possible. Since that technology does create definite losers (even as it expands the economy), we need distributional policies that ensure those laid off still do pretty well. That means at the very least some social safety net programs that can help laid off people get into new jobs. More than that though, that means distributive policies that ensure the social product is as evenly distributed as efficiently possible. So we need things like targeted cash transfers, social wages, basic incomes, and so on.

This is a really important point, one I believe Yglesias agrees with, but one he leaves out in his post. It is really easy to make fun of leftists complaining about efficiency-boosting changes that cause layoffs, but that complaining is not that ridiculous in a system like ours that offers so little help to those hammered by such layoffs. In an ideal world, efficiency-boosting layoffs that expand the economy would never leave someone suffering. Since such layoffs expand the economy, that means we have more total economic product than we had before. Why should someone suffer when we actually have more stuff to distribute? They shouldn’t, but they do.

It is this bizarre institutional reality that motivates the left’s concern about layoffs, even when the layoffs are the result of technological changes that will raise the real incomes of everyone else. I am all for lampooning the left for this fallacious thinking, but only after we install the social safety net and distributive institutions that make such lampooning appropriate.