"... the academic review of published work on the minimum wage, which opponents of the minimum wage use most frequently in defence of their position, had actually said it couldn’t find strong evidence that the minimum wage caused unemployment"
This is a good article. But it's too kind to contemporary economics. Contemporary economics especially neoliberalism is simply a pseudo-scientific justification for crushing workers rights globally and maximizing profits for those at the very top.
Economists told us for decades that wages are tied to productivity, when all the data points in the exact opposite direction. Economists told us that opening up developing countries' markets would result in their development and increase in standard of living. How's that going in 2022?
Hasnt the economic story of 2020-2022 so far has not been "lets see what happens when we open up" but rather "lets see what happens when we close down"?
How does 2022 so far imply to you negative evidence of "here's what happens when you open economies?" I am sincerely curious.
It's brought hundreds of millions of people out of poverty [0], drastically increased their life expectancies [1], and significantly improved their chances of making it to adulthood [2].
If you're going to use those things as the yardstick for success, may I take a moment to point out that China has accomplished all that, much faster, on a much larger relative scale, via a distinctly non-neo-liberal economic system. (50x GDP/capita growth over the past 40 years, +13 years of life expectancy, a reduction in absolute poverty from 88% to 0.7%, etc, etc.)
But I generally don't see many Western economists singing their system's praises.
China did that by massively reducing the influence and scope of government control & influence over their markets. I don't care whether or not you call that "neoliberal" but it's the same root cause driving those improvements worldwide.
"Socialism with Chinese Characteristics" is just a euphemism for capitalism. Modern China isn't a democratic nation. but it is a capitalistic one by any standard.
The claims I made are not solely about China: they're true about very many other developing countries as well. See, for example, India.
That said, I would dispute the claim that China's economic system is distinctly non-neoliberal. In fact, most of the key elements of China's economic reform were about bringing it closer to neoliberalism rather than taking it further away.
> Economists told us for decades that wages are tied to productivity, when all the data points in the exact opposite direction.
That's because the data is based on salary and wages, when the actual number used needs to be "total compensation". Total compensation also includes so-called "employer paid" benefits. It includes other costly mandates required by regulation.
The other problem is productivity increases are very uneven. Productivity for some jobs has gone way up, for others it has not changes. The latter are not going to see compensation increases if their individual productivity did not rise.
The sections of this article which are descriptions of current work being done by several Clark medal winners are reasonably accurate and fair summaries.
The rest is a complete mess written by someone who is uninformed at best. The discussion of tobacco taxes and the discussion of wages in the Premier League are both particularly bad. Please don't take it seriously as a description of what's going on in the field or what the current problems are.
When I teach my freshman undergrads supply and demand in two weeks I will make very clear to them that we do not have that much empirical support for the claim that minimum wages increase unemployment and that it is an unsettled question. This is the first college-level economics class they will take in our department and I am going to make sure they understand that point. I would be willing to bet that nearly every one of my colleagues teaching similar classes throughout the US and abroad will do the same when they discuss minimum wage policies.
I graduated with an econ BSc from a Russel Group University in the UK, it was definitely not made clear where and where not there was actual empirical evidence for the conclusions of the neoclassical modelling we were taught. The state of syllabi around the world is a total embarrassment.
The first question to ask is when you graduated. Syllabi continue to become more and more empirical, but that process started in the 90’s and accelerated in the 2000’s.
MIT’s Micro Principles class has at this point been rewritten so that it is “the Principles of Economics and Relevant Empirical Evidence.” (That’s my gloss on it not the actual title.)
My class definitely features examples from the news every week or every day.
I cite the research literature when I can, but it’s not really possible to get in depth with students who are taking their first course in the subject.
Can you explain how it’s a complete mess? I have been interested in economics for a long time and as such read many published articles but I have a hard time actually applying it to anything in the real world. Often the majority of economists are completely wrong just look at recent inflation predictions. You don’t have to look hard to find the field is consistently far off the mark.
I'm not an economist but the examples with tobacco and premier league wages struck me too as extremely bad. Supply/demand curves are an abstraction and for that abstraction to be remotely useful, you need to assume all else is being equal. You can't just take decades of data, with massive change in culture and health consciousness, and declare "Supply/demand curves are wrong because tobacco price fell, while consumption also fell! The economists lied to us when they told us price is the only thing that drives consumption!"
Well, bullshit, no economist ever claimed that.
And the rising salaries of the premier league plays are not a big mystery. If all clubs can fire the worst 50% of their players, their salary budget is increased. If that happens in a company like McDonalds, you can can just keep paying the rest the same or even less because everyone can flip burgers. Premier league clubs can't just pocket the "saved" money, they still need the absolute top players to win and if you don't pay your talent the most you can afford, some other club will.
This has nothing to do with the failings of supply/demand curves. If anything it's a prime example of them working exactly as expected.
More over the risk of death is part of the cost calculation for tobacco. Not all prices / values are monetary. This is a crucial aspect any serious economist incorporates and this article completely misses.
I'm slowly feeding a budding interest in economics and started with Basic Economics by Thomas Sowell. With all the stories and references, I take the basic principles as mostly scientific.
However when I told someone with more background in economics, they made me feel as if I'm reading a heretical book that only tells half the story.
Do you have similar views on that book/author, or if not familiar - do you have any recommended books/courses?
I can't help but feel economics learning comes married to a politics, but it's not clear when reading.
Haven’t read it so I can’t comment on it. Economists of a more conservative bent do praise the book, but that’s all I know about it.
Really any intro principles book should be fine for the basics. Mankiw is a popular choice. Wolfers and Stevenson is one I use for examples and class problems. The book my department uses is set by committee and because they give the students at our university a (very good) deal relative to competitors.
Economics does not need to come with any politics at the intro or any level, frankly.
In my class, I do criticize a lot of very stupid things DJT did as president when they intersect the material I am teaching, but I’m happy to note when Biden (who I happily voted for) does something I disagreed with.
Wouldn't you want to bring up the work of David Card, who won a Nobel prize by analyzing "natural experiments" on the effects of minimum wage and unemployment?[0]
"The law of supply and demand" is never going to fit everything the way the law of gravity does. It's a rough guideline that applies to artificial models better than it does to the real world.
It seems like economists need to admit it when a minimum wage law don't have the effect they think it "should" instead of stubbornly insisting they're right.
However, you can tell a "journalist" wrote this...
>Isaiah Andrews, one of these new ‘empiricists’, won the 2021 John Bates Clark Medal – the most distinguished economics prize in the United States. Andrews has worked on the problem of publication bias – whereby research that confirmed prior beliefs could have a better chance of being accepted by academic journals
I don't see what this has to do with supply & demand. "Confirmation bias" is more of a social science study area, not economics.
> In 2020, the UK government appointed Mark Carney – a former governor at the Bank of Canada and the Bank of England – as climate change adviser. Carney was quick to declare the problem to be essentially a mispricing of the cost of emitting carbon. Neither Sunstein nor Carney are experts in climate economics, let alone climate change.
Whatever "climate economics" is and how it differs from just "economics."
> The problem is one I call ‘free lunch thinking’. Milton Friedman popularised the saying that there was ‘no such thing as a free lunch’, yet his worldview was that, if government just stepped back – didn’t spend money solving problems, didn’t trouble itself with regulation, and left all the messy decisions around how to organise society to the ‘market’ – things would hum along and we’d all get richer magically. That sounds a lot like a free lunch.. [italics added]
No, it's not "free lunch thinking." It's describing how laws work. It's not magic if you turn on the burner under the teakettle and the water gets hot.
> Yet there is no reason why adhering to the scientific method of basing conclusions and world views on observable facts should be more challenging in economics than in physics. Except that the incentives are against it. If you have a dogmatic neoclassical view of how the world works, you’ll always have a solution to the economic problem of the day.
Actually, there IS a reason: in physics you can do experiments quite easily, and in the social sciences and economics, you can't. Thus Freakonomics and successor books focus on "natural experiments," like the two school districts in Canada whose boundaries seem to be randomly drawn. Minimum wage increases in one state or city are not a natural experiment.
So astrophysics isn't science? You can't just make a supernova on demand. Some sciences are inherently historical -- that is you can look at past events and make models but are powerless to create new events.
He seems to create a lot of straw men and then claiming he has defied economics by showing those examples turned out wrong.
I am not an economist but I remember from the basic textbook that nobody actually knows the supply and demand curve. So his claims that economist predicted explicit values for tobacco seems unusual. Also his example of more poor people ending up smokers than rich people - does he think the numbers would be reversed if smoking would have remained cheaper? Also even if prices were increased via taxes, it doesn't mean demand could not also be increased for some other reasons? People don't smoke because they want to spend money, after all.
Minimum wage of course comes up all the time. Here in Germany (which is also mentioned in the article), I don't thin unemployment is measured in a very concise way, as it is also a political number. Politicians want to be able to say unemployment went down.
So there are lot of people who are not actually being counted in the official number, like if they are not actively seeking employment, or only doing side jobs. Minimum wage increases usually are also not that high. I think there might still be jobs lost, just not those that are being counted. An example would be a pensioner doing a side job to earn a little extra income. If her job falls away, she doesn't file for unemployment because she already is a pensioner. Student jobs might be another example.
I guess it is true that it is difficult to predict some things, but surely, if you can present a theory that is good at predicting, it would make a dent in economics? No need to declare classical economics silly and claim to be inventing a new kind of economics.
Badness of the article aside much of the axioms that make up the foundations of Economics are simply not true imo. The bedrock of the field is that people act rationally. But they don’t. Firms do. And maybe groups of people do: but individuals don’t. Not always.
I always thought the field could use updating to reflect more of what we really see and not what the theory suggests we should see.
> First, employers in the US and Europe have reported that they can easily pass on minimum wage increases to customers. To ‘blackboard’ economists this makes no sense – after all, if customers were prepared to accept higher prices, the companies would have already tried to increase them
Wouldn't competition between businesses for those customers keep prices low than the max customers were willing to bear, and then a minimum wage just raise the min bar?
Economics is and has always been ideology disguised as “facts” or “science”. There are many incompatible schools of economics that constantly battle for supremacy. And the current winner is always the school that best support/explain/justify the current ruling class. So you can almost predict who the ruling class is at any given time based on the school of economics most taught at Universities at that time. Kinda obvious when you think about it since the ruling class decide who the economists are that teach at Universities.
28 comments
[ 3.0 ms ] story [ 85.5 ms ] threadEconomists told us for decades that wages are tied to productivity, when all the data points in the exact opposite direction. Economists told us that opening up developing countries' markets would result in their development and increase in standard of living. How's that going in 2022?
How does 2022 so far imply to you negative evidence of "here's what happens when you open economies?" I am sincerely curious.
It's brought hundreds of millions of people out of poverty [0], drastically increased their life expectancies [1], and significantly improved their chances of making it to adulthood [2].
For more, see https://www.gapminder.org.
[0] https://www.gapminder.org/tools/#$model$markers$line$encodin...
[1] https://www.gapminder.org/tools/#$model$markers$line$encodin...
[2] https://www.gapminder.org/tools/#$model$markers$line$encodin...
But I generally don't see many Western economists singing their system's praises.
That said, I would dispute the claim that China's economic system is distinctly non-neoliberal. In fact, most of the key elements of China's economic reform were about bringing it closer to neoliberalism rather than taking it further away.
That's because the data is based on salary and wages, when the actual number used needs to be "total compensation". Total compensation also includes so-called "employer paid" benefits. It includes other costly mandates required by regulation.
The other problem is productivity increases are very uneven. Productivity for some jobs has gone way up, for others it has not changes. The latter are not going to see compensation increases if their individual productivity did not rise.
The rest is a complete mess written by someone who is uninformed at best. The discussion of tobacco taxes and the discussion of wages in the Premier League are both particularly bad. Please don't take it seriously as a description of what's going on in the field or what the current problems are.
When I teach my freshman undergrads supply and demand in two weeks I will make very clear to them that we do not have that much empirical support for the claim that minimum wages increase unemployment and that it is an unsettled question. This is the first college-level economics class they will take in our department and I am going to make sure they understand that point. I would be willing to bet that nearly every one of my colleagues teaching similar classes throughout the US and abroad will do the same when they discuss minimum wage policies.
That ia, clever and learned people with a rich, well documented history, studying a fantasy.
MIT’s Micro Principles class has at this point been rewritten so that it is “the Principles of Economics and Relevant Empirical Evidence.” (That’s my gloss on it not the actual title.)
My class definitely features examples from the news every week or every day.
I cite the research literature when I can, but it’s not really possible to get in depth with students who are taking their first course in the subject.
Well, bullshit, no economist ever claimed that.
And the rising salaries of the premier league plays are not a big mystery. If all clubs can fire the worst 50% of their players, their salary budget is increased. If that happens in a company like McDonalds, you can can just keep paying the rest the same or even less because everyone can flip burgers. Premier league clubs can't just pocket the "saved" money, they still need the absolute top players to win and if you don't pay your talent the most you can afford, some other club will. This has nothing to do with the failings of supply/demand curves. If anything it's a prime example of them working exactly as expected.
Do you have similar views on that book/author, or if not familiar - do you have any recommended books/courses?
I can't help but feel economics learning comes married to a politics, but it's not clear when reading.
Really any intro principles book should be fine for the basics. Mankiw is a popular choice. Wolfers and Stevenson is one I use for examples and class problems. The book my department uses is set by committee and because they give the students at our university a (very good) deal relative to competitors.
Economics does not need to come with any politics at the intro or any level, frankly.
In my class, I do criticize a lot of very stupid things DJT did as president when they intersect the material I am teaching, but I’m happy to note when Biden (who I happily voted for) does something I disagreed with.
[0] https://davidcard.berkeley.edu/papers/njmin-aer.pdf
It seems like economists need to admit it when a minimum wage law don't have the effect they think it "should" instead of stubbornly insisting they're right.
However, you can tell a "journalist" wrote this...
>Isaiah Andrews, one of these new ‘empiricists’, won the 2021 John Bates Clark Medal – the most distinguished economics prize in the United States. Andrews has worked on the problem of publication bias – whereby research that confirmed prior beliefs could have a better chance of being accepted by academic journals
I don't see what this has to do with supply & demand. "Confirmation bias" is more of a social science study area, not economics.
> In 2020, the UK government appointed Mark Carney – a former governor at the Bank of Canada and the Bank of England – as climate change adviser. Carney was quick to declare the problem to be essentially a mispricing of the cost of emitting carbon. Neither Sunstein nor Carney are experts in climate economics, let alone climate change.
Whatever "climate economics" is and how it differs from just "economics."
> The problem is one I call ‘free lunch thinking’. Milton Friedman popularised the saying that there was ‘no such thing as a free lunch’, yet his worldview was that, if government just stepped back – didn’t spend money solving problems, didn’t trouble itself with regulation, and left all the messy decisions around how to organise society to the ‘market’ – things would hum along and we’d all get richer magically. That sounds a lot like a free lunch.. [italics added]
No, it's not "free lunch thinking." It's describing how laws work. It's not magic if you turn on the burner under the teakettle and the water gets hot.
> Yet there is no reason why adhering to the scientific method of basing conclusions and world views on observable facts should be more challenging in economics than in physics. Except that the incentives are against it. If you have a dogmatic neoclassical view of how the world works, you’ll always have a solution to the economic problem of the day.
Actually, there IS a reason: in physics you can do experiments quite easily, and in the social sciences and economics, you can't. Thus Freakonomics and successor books focus on "natural experiments," like the two school districts in Canada whose boundaries seem to be randomly drawn. Minimum wage increases in one state or city are not a natural experiment.
Which is exactly why neither are actual science.
Sometimes you have a natural experiment which may tell you something. But then, almost by definition, no one can replicate it.
I am not an economist but I remember from the basic textbook that nobody actually knows the supply and demand curve. So his claims that economist predicted explicit values for tobacco seems unusual. Also his example of more poor people ending up smokers than rich people - does he think the numbers would be reversed if smoking would have remained cheaper? Also even if prices were increased via taxes, it doesn't mean demand could not also be increased for some other reasons? People don't smoke because they want to spend money, after all.
Minimum wage of course comes up all the time. Here in Germany (which is also mentioned in the article), I don't thin unemployment is measured in a very concise way, as it is also a political number. Politicians want to be able to say unemployment went down.
So there are lot of people who are not actually being counted in the official number, like if they are not actively seeking employment, or only doing side jobs. Minimum wage increases usually are also not that high. I think there might still be jobs lost, just not those that are being counted. An example would be a pensioner doing a side job to earn a little extra income. If her job falls away, she doesn't file for unemployment because she already is a pensioner. Student jobs might be another example.
I guess it is true that it is difficult to predict some things, but surely, if you can present a theory that is good at predicting, it would make a dent in economics? No need to declare classical economics silly and claim to be inventing a new kind of economics.
I always thought the field could use updating to reflect more of what we really see and not what the theory suggests we should see.
Wouldn't competition between businesses for those customers keep prices low than the max customers were willing to bear, and then a minimum wage just raise the min bar?