One thought on “NRO: The Case for the Wage Subsidy

  1. As I understand it, the argument has two main premises:

    • Subsidising workers’ pay is morally acceptable as a matter of compassion.
    • Because the resulting incentives would align with rational economic theory, the practice is desirable.

    I reject the first premise out of hand because “compassion” is not a valid motive for public spending. As a concept, compassion is too infinitely subtle and variable to be codified; to be able to say, for example, that compassion or social justice is desirable in one context, but not another.

    My criticism of the second premise is more fundamental. I take it as a given that how money is spent is immensely important, because some expenditures produce no goods. Wage subsidies would be like that, although the non-productive consequences might not be readily apparent.

    Nothing is easier than to expand the money supply either in volume or velocity in comparison to some prior equilibrium. But monetary expansion is mathematically devaluatory until and unless a corresponding expansion of goods follows. The puzzle for the economist is to show that the expansion of goods will necessarily occur.

    One can certainly imagine scenarios in which expansions of money do result in expansions of goods, but there are are just as many imaginative scenarios in which the opposite occurs. You can’t grow an economy with defense spending, for example.


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