Here’s his letter responding to Krugman’s latest rant:
Editor, The New York Times
620 Eighth Avenue
New York, NY 10018
Dear Editor:
Unimpressed that wage flexibility creates jobs in Texas, Paul Krugman writes that "at a national level lower wages would almost certainly lead to fewer jobs" ("The Texas Unmiracle," August 15).
By asserting - for he has no evidence - that job growth in Texas comes at other states' expense, Mr. Krugman reveals his Keynesian confusion.
But he can be forgiven, for Keynes himself was deeply confused. While it's true that in some parts of the "General Theory" Keynes alleges that falling nominal wages won't increase overall employment, in other parts of that book - parts in which Keynes more carefully spells out his assumptions - he sings a different song. Consider Keynes's conclusion on this matter from Chapter 18: "If competition between unemployed workers always led to a very great reduction of the money-wage level ... there might be no position of stable equilibrium except in conditions consistent with full employment.... At no other point could there be a resting place."*
Translation: "If wages are flexible, competition for jobs will reduce nominal wages until there is full employment." Keynes himself here contradicts his modern-day St. Paul.
Sincerely,
Donald J. Boudreaux
Professor of Economics
George Mason University
