Open Letter to David Sirota

by Don Boudreaux on July 16, 2011

in Myths and Fallacies, Prices, Reality Is Not Optional, Seen and Unseen, Work

Dear Mr. Sirota:

A friend just sent to me a link to your 2006 essay in the Huffington Post accusing journalist John Stossel of being “a pathological liar.”  Your marquee evidence in support of this harsh accusation is Mr. Stossel’s claim that “people on the margins lose jobs when minimum wages go up.”  You combine your own personal astonishment that anyone could possibly say such a “ludicrous” thing with a mention of two empirical studies – one being the famous work by economists David Card and Alan Krueger – to conclude that only a pathological liar would assert that minimum-wage legislation destroys some jobs.

I presume, then, that your epistemology leads you to conclude that the author of the following paragraph, written in 1998, is also a pathological liar:

“So what are the effects of increasing minimum wages?  Any Econ 101 student can tell you the answer: The higher wage reduces the quantity of labor demanded, and hence leads to unemployment.  This theoretical prediction has, however, been hard to confirm with actual data.  Indeed, much-cited studies by two well-regarded labor economists, David Card and Alan Krueger, find that where there have been more or less controlled experiments, for example when New Jersey raised minimum wages but Pennsylvania did not, the effects of the increase on employment have been negligible or even positive.  Exactly what to make of this result is a source of great dispute.  Card and Krueger offered some complex theoretical rationales, but most of their colleagues are unconvinced; the centrist view is probably that minimum wages ‘do,’ in fact, reduce employment, but that the effects are small and swamped by other forces.”

The author of the preceding paragraph – who went on to describe the conclusion that raising the minimum-wage does not reduce employment as “iffy” – is Prof. Paul Krugman.

Sincerely,
Donald J. Boudreaux
Professor of Economics
George Mason University
Fairfax, VA 22030

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Daniel Kuehn July 16, 2011 at 10:45 am

I generally agree with Krugman that the effects are minimal, but he does this thing I see people do a lot – chalk the opposition’s coping up to “complex theoretical arguments” – i.e., bending over backwards to get the answers you want.

I disagree with Krugman here. The two reasons I’m aware of are (1.) monopsony, and (2.) the local economy where minimum wages are binding is operating below full employment. These are hardly “complex theoretical arguments”. These are things I learned about in my half-year high school AP econ class. Rhetorically, though, it pays off to give the impression that the opposition is doing complex mathematical voodoo. After all, it’s precisely these theoretical arguments that should lead us to not be surprised to find that the impact of the minimum wage is minimal (rather than increasing unemployment substantially).

My biggest concern with Card and Krueger is methodological – along the lines of Bound, Jaeger, and Baker’s (1995) critique of the paper. Then again, David Jaeger taught me econometrics and labor economics so it’s not surprising that I’ve picked those suspicions of IV modeling up from him.

Don Boudreaux July 16, 2011 at 10:52 am

Daniel: (1) Do you believe that the market for unskilled workers is monopsonized? (2) How does a situation of less-than-full-employment nullify the fact that raising the minimum-wage raises the real price of labor?

juan carlos vera July 16, 2011 at 1:59 pm

Don:
I believe that some human beings, including Keynesian, will never recognize the complexity of economic phenomena. They will never realize the significance of spontaneous order. They will never recognize their own limitations for ordering an as complex and far-reaching organization as a society. They believe that the social world is like the physical world: a collection of mechanical or quasi-mechanical phenomena. They believe that with the arrogance of mathematics and tautological simplifications one can understand and describe economic events …

Daniel Kuehn July 16, 2011 at 2:55 pm

You really have no idea what you’re talking about, and you’re coming across as quite ignorant of the group of people you’re trying to criticize.

Greg Webb July 16, 2011 at 3:17 pm

Daniel, Juan’s comment makes a lot of sense and reflects my own experience with Keynesians and others refusing to “recognize the complexity of economic phenomena.” You, however, are being quite rude. If you have a logical, coherent argument to make opposing Juan’s views, then please make it. If not, then you are the one who is quite ignorant.

Gary July 16, 2011 at 3:28 pm

Daniel, first reply again. Kudos!

muirgeo July 16, 2011 at 5:15 pm

But Jaun Carlos understands these issues well enough to make the claim that doing nothing is better than doing what the social democracies have done to lead the civilized world into the era of prosperity. And as soon as one of his perfect uncluttered societies spontaneously emerges he’ll have comparable data to proove to you what he now believes… scratch that… now knows is right… of course disregading the world Dickens, Marx and George all described so well. But
yeah… don’t be pompass in your assumptions.

juan carlos vera July 16, 2011 at 5:19 pm

I’m expecting some interesting argument from you. I do not see for now…

Daniel Kuehn July 16, 2011 at 5:37 pm

No Greg, I’m not being rude. I’m just pointing out that Juan – instead of trying to actually grapple with people who see things differently – is accusing them of being ignorant. What possible argument could I make to convince Juan otherwise. When people make sweeping accusations of ignorance there’s not much you can do aside from pointing it out.

Greg Webb July 16, 2011 at 7:53 pm

Yes, Dan, you were being quite rude.

Juan said, “I believe that some human beings, including Keynesian, will never recognize the complexity of economic phenomena. They will never realize the significance of spontaneous order. They will never recognize their own limitations for ordering an as complex and far-reaching organization as a society. They believe that the social world is like the physical world: a collection of mechanical or quasi-mechanical phenomena. They believe that with the arrogance of mathematics and tautological simplifications one can understand and describe economic events.”

Basically, he is saying that most Keynesians refuse to accept the idea that a mere mortal human being can know everything that he or she needs to know to direct even a simply economy. He is not saying that Keynesians are ignorant about spontaneous order or man’s inability to know enough to centrally plan an economy. He is saying that they refuse to accept this reality. That is a debatable proposition.

You were the only one who claimed another was ignorant. You response to Juan’s proposition was “You really have no idea what you’re talking about, and you’re coming across as quite ignorant of the group of people you’re trying to criticize.” And, that type of comment in response to what Juan wrote is both condescending and rude.

Sam Grove July 16, 2011 at 8:40 pm

is better than doing what the social democracies have done to lead the civilized world into the era of prosperity

and into bankruptcy…

juan carlos vera July 17, 2011 at 2:30 pm

Dear Daniel:
I never said that you are ignorant. On the contrary, I myself take up my own ignorance about the essential details of a social phenomenon as complex as economic. At this point I agree with Hayek as he says, more or less: organized complexity of the economy is indomitable and, given our intellectual limits, there is almost no alternative to observe the emergence of its spontaneous order.
I apologize if you felt offended by my comment…

muirgeo July 16, 2011 at 5:33 pm

Likewise…

juan carlos vera July 17, 2011 at 1:59 pm

Dear muirgeo: I have two questions for you:
1 – What are, for you, the causes that explain or determine the prosperity of men?
2-What is the meaning, for you, of “doing nothing”?

muirgeo July 17, 2011 at 10:34 pm

The causes for prosperity are well regulated markets balanced and supported by proper government infrastructure. Doing nothing is basically setting up a minimalist government as the libertarians would recommend which exist no where in the real world, has NO proven effectiveness, is theoretically and logically incoherent and actually ends up being a policy structure that allows for the massive concentrations of wealth, power and government corruption we now see in our stagnated inefficient economy.

juan carlos vera July 18, 2011 at 4:26 pm

Dear muirgeo: Your answer was very predictable for me. I have three comments, if you do not mind.
1-I have a different interpretation to You on determinants of human prosperity. For me, one key cause of prosperity is the reign of justice. The reign of justice occurs when “any” man causes damage to the rights of other men without receiving their deserved punishment. The reign of justice occurs when no man has the right to cause damage to the natural rights of other men: personality, liberty and property. “No man” wants to say that any of them, including enlightened men of the government, have the right to damage these natural rights. Dear muirgeo, I know no other organization more perverse, more damaging and more destructive of the rights of other men that such government that you seem to defend. I also know that every time mankind has come to the reign of justice, whenever the destructive power of rulers has been limited, has emerged a period of sustained prosperity.
2-Equally, I have another interpretation of the meaning of “doing nothing”. “Doing nothing” means, for me, that no man does things to damage the natural rights of other men. In other words, “doing nothing” is the imminent result of the reign of justice: the men “do” what they have the right to do in post to develop, improve, and cultivate their own existence. So the statement “doing nothing” must be completed as: “doing nothing to damage the natural right of the men.”
3-His interpretation of “doing nothing” is inconsistent in itself. If you read it carefully, you will discover its own inconsistencies…

Atte. JCV.

Daniel Kuehn July 16, 2011 at 2:54 pm

It’s quite possible they have some monopsony power – particularly associated with moving costs. A lot of the youth that work these jobs have little mobility, and that’s a classic source of monopsony power. I don’t know the situation well enough to say for sure, but it’s certainly plausible.

The idea that almost all the wages paid from a minimum wage bolster demand is almost certainly true.

There are lots of other arguments besides these. My point is only that Krugman is wrong to say they are “complex theoretical rationales”. If any economist finds the typical theoretical rationales overly complex, they should find another job.

Look, if a plain vanilla supply and demand model characterized circumstances here we’d expect a big drop in employment. Decades of empirical work just doesn’t show this. The effects are very modest. When I see the modest empirical effects plus some very plausible theoretical explanations, I’m definitely going to take it seriously. That’s not to say I buy Card and Krueger’s coefficients – I don’t. But I don’t think the recent minimum wage increase contributed in any way to the recent recession either.

Don Boudreaux July 16, 2011 at 3:53 pm

I’m pretty sure that all Krugman is referring to is indeed the fact that, for Card and Krueger to explain theoretically why an increase in the legislated minimum-wage would increase employment, they must go beyond standard supply-and-demand analysis. (Footnote: Odd that I’m the one defending Krugman here – but that’s Prof. Krugman and not Mr. Krugman.)

Moreover, it’s not true that supply and demand analysis predicts any particular SIZE of effect. There’s no reason why the actual effect must be “a big drop” – especially given employers’ and employees’ ability to adjust on the work-intensity margin. Krugman’s explanation strikes me as perfectly sensible.

As for buyers of unskilled labor in today’s American market having monopsony power, I find that allegation to be completely unbelievable. What “moving costs” do you have in mind? The difficulty of walking across the street from McDonald’s to Burger King? The obstacle of telling your employer, ABC Landscaping Co., that you’re going to work for XYZ Landscaping Co.?

Most of the youth that work these jobs live in cities or suburbs, places with concentrations of businesses, many of which hire unskilled workers.

Daniel Kuehn July 16, 2011 at 4:10 pm

I don’t think Krugman’s lost or forfeited his professoriate.

You should know that monopsony power and being a monopsony are two different things, just like a firm can have monopoly power without being a “monopoly” in the sense of a single provider with no competition.

Don Boudreaux July 16, 2011 at 4:27 pm

Daniel writes to me: “You should know that monopsony power and being a monopsony are two different things, just like a firm can have monopoly power without being a “monopoly” in the sense of a single provider with no competition.”

Yes, Daniel, I’m aware of that fact. I’ll rephrase: Is it likely that the monopsony power, if any, possessed by employers of unskilled workers is really so great that use of standard supply-and-demand analysis is rendered unjustified? Is this monopsony power likely so intense that minimum-wage legislation works to the benefit of unskilled workers?

And do you believe it to be plausible that the “monopoly power” possessed by Burger King and McDonald’s – MONOPOLY power, note carefully – is sufficiently great that maximum-burger-price legislation is justified? Would you regard the case for such legislation to be “plausible”?
….
More generally, and for the record, I have long been with Schumpeter, Hayek, Mises, Kirzner, Demsetz, Armentano, and the late Donald Dewey (among others) who offer sound theoretical reasons to believe that a firm can have any power appropriately called “monopoly power” only if that firm enjoys government-granted protection from competition. (Mises and Kirzner made an exception for what they call “resource monopoly,” but I don’t buy this exception.)

UPDATE: I just re-read my comment to which Daniel responded. In it I in fact use the term “monopsony power”; that is, I didn’t there carelessly describe the allegation to be that each employer of unskilled workers is a “monopsonist.”

vikingvista July 16, 2011 at 5:09 pm

Can we do updates to our comments too?

Daniel Kuehn July 16, 2011 at 5:39 pm

Don – I know you used the term monopsony power, but you also seemed to act like the presence of two employers as opposed to one made my argument irrelevant, which I don’t think is quite right.

brotio July 16, 2011 at 7:08 pm

Daniel,

It’s rather muirduckian of you to respond to Prof Boudreaux’s 4:27PM comment with, “I know you used the term monopsony power…”, and not bother to respond to any of the substance of the debate. Several questions were asked of you, and I’d like to see your reply.

Russell Nelson July 17, 2011 at 1:02 am

I suppose that replying to Daniel is more rewarding than replying to Muirgeo, because at least Daniel puts his ignorance into the *form* of economics. But in the end, they’re both students of anti-economics. They don’t understand the economic way of thinking, so that explanations which invoke economics, simply don’t appeal to them.

Facts and logic will not change the minds of people who made up their minds without using facts and logic.

My conclusion is the same as Dr. Krugman’s: that at the levels of increases typically seen in minimum wage laws, the amount of unemployment created is difficult to discern from all the other types of unemployment also being created for other reasons.

If you want to see an industry destroyed by a minimum wage law, you have to look at Haiti’s lace industry. A minimum wage law passed in the 1930′s accidentally also applied to Haiti, and doubled most hourly worker’s wages. The lace manufacturers could not withstand this increase in cost, and moved elsewhere. Lace, if it is made on Haiti at all, is a craft and not an industry.

That’s why I laugh at the idiots who want to double the minimum wage. We’ve already tried that experiment and it was a massive failure. But if they REALLY want to make the poor suffer, then yes, we should double the minimum wage.

Ryan Vann July 18, 2011 at 6:53 am

I don’t see how limited mobility corresponds to monopsony power. Monopsony power is a situation of limited buyers; in this case, for labor. How does worker mobility factor in here?

Henri Hein July 16, 2011 at 3:06 pm

Daniel,

Maybe Krugman is right and maybe he is wrong, but clearly the issue is something reasonable people can disagree about. Therefore, when Sirota calls Stossel a pathological liar, he is unworthy to call himself a journalist.

Daniel Kuehn July 16, 2011 at 4:11 pm

I can agree with that. I understand completely why Stossel rubs people the wrong way, but I’m clearly not defending the language “pathological liar”. I hope you would agree if I had the inclination to cite equally hyperbolic language from Stossel.

Subhi Andrews July 16, 2011 at 4:44 pm

Yet, Daniel, you don’t understand why Paul Krugman rubs people the wrong way. It is your bias, Daniel. I have never seen Stossle call people names the way Krugman does.

Don Boudreaux July 16, 2011 at 5:06 pm

Moreover, Stossel is quite clear that he has significantly altered his world-view over time. Mr. Krugman denies that his has altered in any fundamental way. True, Krugman was always a left-liberal, but Prof. Krugman was a fine economist who wrote many things that contradict or are inconsistent with the things that Mr. Krugman today routinely writes – yet Mr. Krugman still poses as the economist that Prof. Krugman was.

Mr. Krugman, for example, has on several occasions in recent years ridiculed opponents of raising the minimum-wage for being either economically uninformed or cruel or both. Yet Prof. Krugman understood – and explained why – opposition to the minimum-wage is both economically justified and (hence) not cruel.

Daniel Kuehn July 16, 2011 at 5:41 pm

I absolutely understand how Paul Krugman rubs people the wrong way and mention that I understand that a lot. I mentioned his confrontational nature on my own blog this morning, in fact. I try to avoid bias, although certainly we’re all guilty of it to some extent.

Subhi Andrews July 16, 2011 at 6:23 pm

Daniel,

Your favorite phrase when describing Krugman critics is “catnip”. I have read you in more than one occasion saying “you don’t understand why Krugman is like catnip” to some people”; I want to emphasize the word “critic”( as opposed to Krugman fans). I am sure you wanted to express something more “nuanced” than what I understood. I don’t think I am alone in reading you that way; that’s all I need to know.

brotio July 16, 2011 at 7:15 pm

Subhi,

I’m sure you realize that Leftists always close ranks when one of their own is criticized. It’s perfectly OK for Daniel to criticize Mr Krugman, but if you (or one of our Professors) do so, expect Daniel to rush to Mr Krugman’s defense.

Imagine the entertainment we could have at this Cafe if individualists rushed to DG Lesvic’s defense every time he was criticized by Daniel, or one of the other Statists.

Daniel Kuehn July 17, 2011 at 7:45 am

Subhi -
Yes, a lot of people irrationally jump on him for saying stuff that seems pretty reasonable to the rest of the world and need to spend a while wriggling around in a comment section to work it out of their system. Catnip seems like a good word for it to me.

brotio –
You realize you’re saying this in a post where I’m saying Krugman is wrong. It’s not the first time I’ve said that either. It’s not my fault that most times Don brings him up he’s making a poor argument against him. You’re going to have to raise that issue with Don, not me.

brotio July 18, 2011 at 12:45 am

You realize you’re saying this in a post where I’m saying Krugman is wrong.

Perhaps my post to Subhi was too nuanced for you. I’ll repeat this:

It’s perfectly OK for Daniel to criticize Mr Krugman, but if you (or one of our Professors) do so, expect Daniel to rush to Mr Krugman’s defense.

I hope you now understand that I was acknowledging that you feel it’s OK for you to criticize Krugman.

It’s not my fault that most times Don brings him up he’s making a poor argument against him.

You are one of two people at the Cafe that believe this, and you never fail to rush to Krugman’s defense. You write more coherently than Yasafi, so it’s more entertaining when you divine for us what Krugman means versus what Krugman writes, but I have no reason to accept your divinations as more accurate than Don’s quotes.

Daniel Kuehn July 16, 2011 at 4:08 pm

That paper was in response to their returns to education paper, I just realized. Still – skepticism about this class of models is always good.

DG Lesvic July 16, 2011 at 11:44 am

You’ve all missed the simple straightforward point that the market, always tending toward equilibrium per se, always tends toward full employment, equilibrium between the supply of and demand for labor, and, interference with it, conversely toward disequilibrium, unemployment, an oversupply of labor (or undersupply of it).

No empirical studies can overturn that logic, for economics is not a science of empirical studies but of reasonable assumptions. And full employment at greater than market, equilibrium, full employment wages is not one of them.

vikingvista July 16, 2011 at 1:11 pm

Replace labor with dollars and merrily overturn that logic.

DG Lesvic July 16, 2011 at 1:59 pm

You are still confusing an object of exchange, labor, with the medium of it, money. There can be oversupplies and undersupplies of the objects, but, as Mises stated, not of the medium.

DG Lesvic July 16, 2011 at 2:00 pm

And don’t forget to call me a moron and accuse me of misrepresenting Mises.

vikingvista July 16, 2011 at 3:39 pm

You’re a moron and you mischaracterize Mises all the time. Mises said no such thing. HE was not a moron.

DG Lesvic July 16, 2011 at 4:40 pm

TwistedVista

We already had this discussion. I presented you with the quote from Mises. You acknowledge it, but continued to argue with me on the basis of your confusion of the medium with the objects of exchange. Whatever the merits of that argument, it didn’t warrant saying that Mises said no such thing,” after you had acknowledged that he had said it.

Am I really obligated to continue discussing things with people like yourself? I don’t think so.

vikingvista July 16, 2011 at 5:18 pm

I politely acknowledged the quote and explained to you why you were wrong. Then in true DG style you mischaracterized me just as you routinely mischaracterize those I learn from including Mises and Rothbard. It is so consistent and routine for you, that it strains belief to think you aren’t doing it deliberately.

DG Lesvic July 16, 2011 at 6:11 pm

Ya, you “politely acknowledge the quote” and then said “Mises said no such thing.”

And I am the one misrepresents.

Viking, from now on, you’re on my no fly list, along with Muergio.

Drop dead!

Greg Webb July 16, 2011 at 1:50 pm

DG, you said, “No empirical studies can overturn that logic, for economics is not a science of empirical studies but of reasonable assumptions.” You really don’t know what you are talking about. Logic is defined as “the science of correct reasoning; science which describes relationships among propositions in terms of implication, contradiction, contrariety, conversion, etc.” Webster’s New World College Dictionary. Thus, empirical studies are used to make logical arguments in favor of or opposing a proposition.

What you call “logic’ seems to be simply statements by you about what you wish to be true. Then, you criticize evidence to the contrary by making the conclusory statement that empirical studies cannot overturn your “logic.” In other words, damn the evidence, I win the argument because I say that I win the argument. And that is supremely illogical…bordering on the incoherent.

DG Lesvic July 16, 2011 at 4:36 pm

Theories of human action “are, like…logic and mathematics, a priori…not subject to verification or falsification on the ground of experience and facts…both logically and temporally antecedent to any comprehension of historical facts…a necessary requirement of any intellectual grasp of historical events. Without them we should not be able to see in the course of events anything else than kaleidoscopic change and chaotic muddle.”

Mises

How could you observe the Invisible Hand?

Observing its effects is not observing the Hand itself, and is not economics. Observing an economic event doesn’t make you Adam Smith any more than seeing an apple fall from a tree made you Sir Isaac Newton. Economics is not what any man in the street could observe, but the reasoning no one could.

Without it, empirical data is a meaningless jumble. There is economics without the jumble, but not without the reasoning, and, without the Chicago School altogether, but not without the Austrian.

Greg Webb July 16, 2011 at 8:43 pm

DG, now, I understand Vikingvista’s reference to “purgatory”. I’m sure that your comments make sense to you. Perhaps thorozine will help me understand your point of view.

vidyohs July 16, 2011 at 12:13 pm

Can a street guy ask some questions and get a reaction?

Is it not one of the beliefs of the Libertarians, that if something is subsidized we will see more of it?

Does not an arbitrary minimum wage increase the wages a business must pay an employee without gaining anything in productivity, and therefore amount to a subsidy that businesses are forced to give to employees?

If the above is true, then seeing employment drop when a minimum wage (subsidy to employees) is imposed seems to be the exception that proves the rule?

Yes? No?

gregworrel July 16, 2011 at 12:44 pm

As another non-economist, I can say that your logic is clearly flawed. Perhaps you could say that the employee is subsidized by the employer but that just means that you get more applicants for the job. The employer, who is the one doing the hiring, is penalized, not subsidized, so we naturally get less hiring.

jeffmeh July 16, 2011 at 12:47 pm

Street guy response: Price elasticity of demand shows the response of demand to a change in price. Isn’t the minimum wage an example of price elasticity of supply, where the price increases and we expect demand to fall?

Minimum wage is a price floor, articificially raising the price of labor supply, so labor demand would fall. If the subsidy was paid to the employer, lowering the price of labor supply, then I would expect labor demand to rise.

Hey, but I’m just another street guy….

vikingvista July 16, 2011 at 1:22 pm

The MW by itself isn’t expected to raise any prices in any significant way. It merely identifies a group of willing potential employers and employees at wages between zero and MW, and bans them from trading. By banning an entire lower wage class, the AVERAGE wage of those employed becomes higher as a statistical aberration, in spite of nobody’s wages increasing.

However, some employment contracts peg wages to multiples of the minimum wage. Because of that, and restrictions to layoffs, you would expect MW to raise prices, at least up to the point where layoffs become possible, such as with the shutdown of entire plants.

The Other Tim July 16, 2011 at 1:23 pm

First of all, the fact that we see more of something which is subsidized isn’t a libertarian belief, it’s a consequence of market economics.

And yes, we will see more of something which is subsidized, but the minimum wage doesn’t “subsidize” the consumption of labor (i.e., the creation of jobs), it “subsidizes” the production of labor (i.e., the number of people that want jobs). Since the number of the unemployed is equal to the number of people who want jobs minus the number of people who can get jobs, what you’re “subsidizing” is driving up unemployment, not driving it down.

I use the scare quotes around “subsidize” above because, while the minimum wage is similar in superficial respects to a subsidy, it’s really a price floor, and these have a serious distinction. While a subsidy tends to cause producers to produce more of their product, it also tends to drive down the price of what they’re selling, because the losses in sales caused by selling at a lower price are being canceled out by the increased subsidy the producer is receiving because he manufactures and sells a greater inventory. Because the price goes down, demand goes up, and the increased volume of goods being subsidized will all get consumed by an increased demand.

On the other hand, a price floor “subsidizes” something not via handouts from a third party, but by increasing the amount the second party has to pay the first party. This increases supply like a subsidy would, but decreases demand. Hence, while everything subsidized will generally get consumed, everything governed by price controls will not, creating a situation where producers want to produce, but their goods (or labor) cannot find buyers. Hence, in the labor market, we see that the minimum wage (and unions, and other wage-fixing schemes) will increase unemployment.

Ron H July 16, 2011 at 1:36 pm

As a street guy, I’m not sure ‘subsidy’ is a good word to use here. A subsidy is money provided by a third party to a transaction, usually government, to affect either supply of demand.

The minimum wage, a price floor, will keep those whose labor isn’t valued at the minimum, unemployed. Those whose value is higher that the minimum wage will continue to be hired.

It is a barrier to those with low, or no skills, as the analogy of “raising the bottom rung of the ladder” indicates. It hurts just those people it is intended to help.

An increase in minimum wage actually favors those who produce more than the minimum by eliminating their lower priced competition.

Gil July 17, 2011 at 1:33 am

Someone who makes much more than the minimum wages isn’t competing against someone who can’t make the minimum wage because there has to obvious a huge skill difference between the two.

Emil July 17, 2011 at 3:36 am

of course he is, maybe not directly but most certainly indirectly.

Gil July 17, 2011 at 5:03 am

How so? If you’re a highly-skilled car mechanic, how is the lackey who’s employed at the minimum wage to simply clean up the workplace competing with you?

Emil July 17, 2011 at 6:21 am

Of course he would be competing with me… through mechanisation and automatisation it is very likely that he could do many of the things that I do (although maybe not all).

vidyohs July 16, 2011 at 3:14 pm

Here lately there has been a frequent lengthy delay between submitting a comment and actually seeing it post that I do not know if my reply actually made it. I assume it did not as I see Ron H below just posted a few minutes ago, so here goes again.

You guys definitely provided good response, but I am still not satisfied that you see my perspective.

Okay (Ron H et. al.) forget about what a subsidy is normally called or how it normally works and let your mind go outside the box.

Remember, I am asking not telling and I don’t see a real answer yet.

Call it by any name you choose, but the act of being coerced to cough up money to provide for the activities of others who give you no benefit, or no increased benefit for the money, it is a subsidy.

Does a third party have to be involved in the transfer of money in order for it to qualify as a subsidy? Government taking my money and putting it into a fund that subsidizes poor folk’s eating habits really only involves two parties, me and the government, forget the poor folks they only receive the benefit of the subsidy because they are targeted by the government which could just as easily target ugly people and provide plastic surgery for them using the money taken from me.

But, what if the government used its force to coerce me into actually buying food, cooking it three times a day, and feeding a large poor family. Technically I am still subsidizing the poor’s eating, but the subsidy isn’t going through a second party, the subsidy only exists in response to the force brought to bear by the second party, and the money used in the subsidy is the same. In short I am out the same amount of money and receiving no more for it.

If I am an employer and a minimum wage law is passed and I have employees working for me at minimum wage, the increase in wage is not equaled by an increase in production because we all know the increased money is not the magic that causes increase in production. Therefore when the government forces me to pay the increase, the government is forcing me to subsidize the employee’s wage increase, as in the example in my previous paragraph. I get no more for it.

That leaves me, the employer, with some options because though I will be forced to subsidize low skilled employees with an increase in wages, nothing in the law says I have to continue to employ them, nor does anything compel me to hire new employees. So, the coerced subsidy I will be forced to pay will likely reduce the number of employees I can afford to pay, and will act as a disincentive to additional employment.

I also know that to stay competitive I can not realistically expect to pass that subsidy on to my customers, I will be forced to eat it, thus making my response most likely to not hire and reduce current hires.

This makes the subsidy of the minimum wage an act that actually reduces what it is being subsidized, which is employment.

Sophistic argument? The exception that proves the rule? A new dimension to an old truth? Stupid frivolous question from a dumb guy?

Chucklehead July 16, 2011 at 5:43 pm

The thesis is easily testable by increasing the minimum wage to $1000.00/hr
Since you get increased costs, you can take less profit or increase price. A increase price will typically lead to decreased demand, and you will need fewer employees. In today’s low interest rates, your most likely response would be to automate and fire everybody in production.
As another non-economist, I just look at a minimum wage as outlawing all jobs that pay less than a minimum wage. There are prices I will pay to have a service provided, and to exceed those prices, I will choose to do them myself or not have them done at all. Depending on the productivity of the persons providing these services, they may or may not be able to earn the minimum wage.

Ron H July 16, 2011 at 7:27 pm

Vidyohs: “This makes the subsidy of the minimum wage an act that actually reduces what it is being subsidized, which is employment.

The fact that this case doesn’t fit the rule that if you subsidize something you will get more of it, should tell you that the word ‘subsidy’ , and its definition, don’t apply here.

Does a third party have to be involved in the transfer of money in order for it to qualify as a subsidy?

Yes.

Government taking my money and putting it into a fund that subsidizes poor folk’s eating habits really only involves two parties,

This involves 3 parties. The poor folk ARE a party. If I gave the money directly to them, there would be 2 parties. Government must be a third party, as it has no money it hasn’t taken from me, or you.

This is indeed a subsidy, as you will get more eating by poor people.

But, what if the government used its force to coerce me into actually buying food, cooking it three times a day, and feeding a large poor family. Technically I am still subsidizing the poor’s eating, but the subsidy isn’t going through a second party…

Again, there is 3 parties; me, government, and poor family. buying and cooking food is interchangeable with money – I can pay someone to do it for me – unless you are considering involuntary servitude. It doesn’t matter whether government takes money from my pocket, or forces me to do so myself, it is an additional party to the transaction.

As before, if I voluntarily bought food and cooked it for a poor family, there would only be 2 parties, but my being forced, as in your example, requires a third party.

This is, again, a subsidy, as you will get more eating by poor people, or as in your other example, more plastic surgery used by ugly people.

The subsidies in the above examples affect transactions between poor people and their grocer, and between ugly people and their surgeons. The price appears lower to the buyers and higher to the seller due to the dislocation caused by the subsidy.

BUT

If I am an employer and a minimum wage law is passed and I have employees working for me at minimum wage, the increase in wage is not equaled by an increase in production …”

What do you suppose is being subsidized in this case? It’s not employment, as the price of labor is higher for both the employee and employer.

As you correctly point out, as an employer, I won’t hire someone whose productivity is less than the new min wage, and I will fire those whose work I value less than the min wage. I am not being forced to hire people, nor to keep them.

Also, as the price of labor rises, I can more easily justify substituting capital for labor.

Ron H July 16, 2011 at 7:32 pm

Please imagine an end-ital tag after the words
“equaled by an increase in production..”.

vidyohs July 16, 2011 at 9:32 pm

@ Ron H
Ahhhhhh “A rose, a rose, by any other name should smell so sweet.” Shakespeare. What that means is call it what you want, but it remains what it is.

@jeffmeh
Sir, your use of the language in your comment made me wonder about your credentials, so I checked the National Register of Street Guys and did not find your name. I suspect you are a pro operating under cover. No street guy would use that wording in talking to another street guy, say my barber or the operator of the gas station where I fill up.
:-) shame on you for flying false colors.

Hey it has been interesting and fun. Thanks for the friendly instruction.

Ron H July 17, 2011 at 4:36 pm

@jeffmeh

LOL

That’s a first. I’ve never before been accused of being an economist, but thanks for the compliment – I think.

I swear, I’m just a street guy, but I did let my NRSG membership lapse, hence you didn’t see my name listed. I’m renewing it as we speak. :)

Ron H July 17, 2011 at 7:00 pm

Oops! Sorry, mis-read source and target of that comment.

kyle8 July 17, 2011 at 9:35 am

I completely disagree with this paragraph.

“” I also know that to stay competitive I can not realistically expect to pass that subsidy on to my customers, I will be forced to eat it, thus making my response most likely to not hire and reduce current hires “”

Since every single other businessman is facing exactly the same increase in his wage costs from a rise in the minimum wage then nearly the entire cost will be passed on to consumers in the form of higher prices, thus negating any benefit to the wage earner.

vidyohs July 17, 2011 at 11:03 am

Well now that is a fair point, but who among the competition is going to be the first to raise prices? Perhaps if I am first, my competitors can make up their difference from the increased sales they get from my old customers who have turned to them because they held to the cheaper price?

kyle8 July 18, 2011 at 6:35 am

The law is well anticipated and the price increases sometimes take place even before the law is implemented.

This is not theory, this is what actually happens. I don’t remember where I read about it. but that is what retailers and especially the service economy does in reaction to mim wage increases.

vidyohs July 18, 2011 at 9:25 pm

Yes sir, but the passage of the law has what to do with the scenario I proposed?

I can pass the increase on to my customers and be one of the herd, or I can eat the increase and play my cheaper price card to try and pick up the difference by raiding your customers.

Not the most plausible scenario, but still possible.

Single Acts Of Tyranny July 16, 2011 at 12:53 pm

It always amuses me that the people who support minimum wage legislation don’t seem to have any idea of its history. A great many white workers sought minimum wage laws to stop recently freed slaves undercutting them in the labour market.

vikingvista July 16, 2011 at 1:25 pm

To be fair, those white workers, who still exist today, tend to be equal opportunity protectionists. They demand the same against any significant low wage immigrant group. What they really want, is government protection from competition.

Greg Webb July 16, 2011 at 1:37 pm

Vik, you are exactly right! But, don’t say that too loudly because you might hurt the feelings of protectionists everywhere. After all, they want everyone to think that they are good people…even as they continue to cheat consumers by protecting themselves from competition. As with all statists, you have to watch what they do, not listen to what they say.

Chucklehead July 17, 2011 at 1:06 pm

“In 2007, the United States enacted a law incrementally raising the minimum wages in American Samoa and the Commonwealth of the Northern Mariana Islands (CNMI) until they equal the U.S. minimum wage. American Samoa’s minimum wage increased by $.50 three times, and the CNMI’s four times before legislation delayed the increases, providing for no increase in American Samoa in 2010 or 2011 and none in the CNMI in 2011. As scheduled, American Samoa’s minimum wage will equal the current U.S. minimum wage of $7.25 in 2018, and the CNMI’s will reach it in 2016.
In American Samoa, employment fell 19 percent from 2008 to 2009 and 14 percent from 2006 to 2009. Data for 2010 total employment are not available. GAO questionnaire responses show that tuna canning employment fell 55 percent from 2009 to 2010, reflecting the closure of one cannery and layoffs in the remaining cannery. Average inflation-adjusted earnings fell by 5 percent from 2008 to 2009 and by 11 percent from 2006 to 2009; however, the hourly wage of minimum wage workers who remained employed increased by significantly more than inflation. Private sector officials said the minimum wage was one of a number of factors making business difficult. In the tuna canning industry, future minimum wage increases would affect the wages of 99 percent of hourly-wage workers employed by the two employers included in GAO’s questionnaire. The employers reported taking cost-cutting actions from June 2009 to June 2010, including laying off workers and freezing hiring. The employers attributed most of these actions largely to the minimum wage increases. Cannery officials expressed concern in interviews about American Samoa’s dwindling global competitive advantage. “

vikingvista July 16, 2011 at 1:08 pm

The triumph of data over reason.

Jim July 16, 2011 at 1:16 pm

Sure the economy is complex, and so causality is difficult to establish.

On the other hand, immediately after California instituted their own minimum wage laws 30% higher than federal law, their teen unemployment soared compared to the national average.

Apart from that, I imagine any survey of employers who typically hire unskilled labor will tell you how they adjust to minimum labor laws. I have seen all of these:
1. Don’t hire. Disperse simple work among others.
2. Pass the cost on to the consumer (raising prices) if at all possible, sometimes over time.
3. Reduce costs in other areas, such as benefits or reduced quality.
4. Force longer hours from other employees.
5. Hire slightly more skilled labor at higher cost; the marginal production outweighs now outweighs their marginal cost.
6. Move low skilled labor to a pay schedule which side-steps the minimum wage; piece payments or contracts.
7. Shut down if margins are low.

In my first job, I was almost fired when the government raised the minimum wage. As it turned out, they just fired the other guy.

Gil July 17, 2011 at 1:46 am

However how was the blockage of teen unemployment unplugged? In other words, how did the teens become skilled enough to become employed as adults? Or is there a large bloc of adults still unemployed because they couldn’t ever get their proverbial foot in the door?

Ron H July 17, 2011 at 4:15 am

Those teens remained unemployed until inflation raised the lowest nominal market rate above the minimum wage rate.

Gil July 17, 2011 at 5:01 am

So if the minimum wage had kept up with inflation then those teens would be middle-aged and unemployable?

SMV July 17, 2011 at 9:08 am

They would most likely either work for free or pay to gain skills. School and internship.

Ron H July 17, 2011 at 1:39 pm

Yes.

However it’s possible, that some of them, while living in their mother’s basement, might watch an episode of “Dirty Jobs”, and realize that there is some really nasty job they would be willing to do, that paid more than min wage.

Sam Grove July 16, 2011 at 1:41 pm

When minimum wage rates are established, the are typically not so high as to cause mass layoffs.
What is more likely to happen is that an employer will pass over someone who might be worth a lower wage for someone worth a higher wage, or plans to hire will be modified, perhaps delayed.

The question to ask: if minimum wage doesn’t affect employment, why don’t they make it $20 an hour or more?

The answer is that they know a minimum wage does affect employment unless they keep it so low that it affects a minimum number of voters.

vikingvista July 16, 2011 at 3:44 pm

Bingo. And the hardest hit victims of minimum wage laws tend not to vote–usually because they are prevented by law from doing so.

Frank33328 July 16, 2011 at 1:44 pm

If minimum wage does NOT cause unemployment than those make minimum wage law are completely immoral for setting the wages too low. Since it causes no harm, why not give people more money? They are also guilty of double-talk (or more kindly Orwellian Double-think), since these are the same people that claim low cost “foreign” labor causes American jobs to go overseas.

Mesa Econoguy July 16, 2011 at 1:52 pm

Don, you owe me 3 minutes for reading that crap.

I think it’s one of the dumbest things ever written.

My friend coyote was on Stossel’s show talking about this nonsense:

http://www.foxbusiness.com/on-air/stossel/blog/2010/12/30/minimum-wage-hurts-workers-tonight-on-fox-news-10pm-et

It’s astounding that leftist think tanks have clueless jerkoffs like this tool who have never met payroll out front telling people how to run their businesses.

Greg Webb July 16, 2011 at 1:55 pm

Good letter, Don. Anyone with common sense should be able to understand that employers will find alternatives to hiring unskilled workers once a minimum wage rate is established at artificially high levels given the demand for and the supply of such workers.

JohnL July 16, 2011 at 2:04 pm

Recently read “Economics in One Lesson” written by Henry Hazlitt in 1946. He has a chapter on Minimum Wages Laws that clearly discusses its negative impact on employment. This is really not a new idea. Must be the Econ 101 book that Krugman refers too.

Ron H July 16, 2011 at 5:38 pm

You are right, this isn’t a new idea. The laws of supply and demand have been with us since modern humans first walked the planet, and the negative impacts of price controls have been evident since the dawn of civilization.

In my opinion, “Economics in One Lesson” is one of the most important books ever written, and if you have read it, and understand it, you know 99% of the economics you will ever need, unless you are a professional, in which case you need addition training in the use of jargon, so you can demonstrate to others how smart you are.

Andrew_M_Garland July 17, 2011 at 1:20 am

Bad economic ideas don’t arise from the dead by themselves. They are dug up and reanimated by interest groups which want to capture government policy.

EO -> Economics in One Lesson: The Lesson
By Henry Hazlitt (1946)

== ==
[edited excerpt] Economics is haunted by more fallacies than any subject known to man. This is no accident. The difficulties of the subject are great enough, and they are multiplied a thousandfold by the special pleadings of selfish interests.

Every group has interests antagonistic to all other groups. Some public policies benefit everybody in the long run. Other policies benefit only one group at the expense of all other groups.

The group that benefits by such policies has such a direct interest in them that they argue for them plausibly and persistently. The group hires the best buyable minds to present its case. It will either convince the public that its case is sound, or so befuddle the argument that clear thinking becomes next to impossible.
== ==

Economics In One Lesson by Henry Hazlitt (1946) is available free in this PDF file.

Andrew_M_Garland July 17, 2011 at 1:22 am

Bad economic ideas don’t arise from the dead by themselves. They are dug up and reanimated by interest groups which want to capture government policy.

EO -> Economics in One Lesson: The Lesson By Henry Hazlitt (1946)
http://easyopinions.blogspot.com/2008/11/economics-in-one-lesson-lesson.html

== ==
[edited excerpt] Economics is haunted by more fallacies than any subject known to man. This is no accident. The difficulties of the subject are great enough, and they are multiplied a thousandfold by the special pleadings of selfish interests.

Every group has interests antagonistic to all other groups. Some public policies benefit everybody in the long run. Other policies benefit only one group at the expense of all other groups.

The group that benefits by such policies has such a direct interest in them that they argue for them plausibly and persistently. The group hires the best buyable minds to present its case. It will either convince the public that its case is sound, or so befuddle the argument that clear thinking becomes next to impossible.
== ==

Economics In One Lesson by Henry Hazlitt (1946) is available free in this PDF file.
http://www.hacer.org/pdf/Hazlitt00.pdf

Pom-Pom July 16, 2011 at 2:13 pm

From when Krugman was not total shill for the Democrat party:

In Praise of Cheap Labor
Bad jobs at bad wages are better than no jobs at all.
By Paul KrugmanPosted Friday, March 21, 1997, at 3:30 AM ET

http://www.slate.com/id/1918/

The Other Tim July 16, 2011 at 3:04 pm

Krugman used to write some good stuff on globalism and trade. It’s always fun to show it to Democrats and watch them squirm.

muirgeo July 16, 2011 at 4:43 pm

The best way to increase both employment would be to set a maximum wage.

Right now minmum wage has been relatively stagnant or decreasing and we have >9% unemployment. Back in 1968 when real minimum wage was at a peak unemployment was <5%.

What matters more than minimum wage is wage inequality. As inequality goes done wages will increase, along with demand and jobs.

That's a fact. If it ever happens it I will be here to point it out to. Likewise as long as no policy changes occur or if spendingrates decrease it will be hereto point out the continued bad economy.

Right now we have high levels of trade, low minimum wage, stagnant wages, poorly regulated finance, poorly regulated corporate rules, increasing inequality and cuts in government spending. And for all these neoliberal policies I can point you to a dire economy unlikely to improve any time soon.

Time and history will show this pediatrician to be a more accurate predictor of the coming economy then the professors of economics who, for a living
get paid teaching what they do.

Chucklehead July 16, 2011 at 5:46 pm

Once I reached the maximum wage, why would I want to become more productive or effective. Overtime wouldn’t this degrade quickly into the old soviet ” we pretend to work and they pretend to pay us.”

Craig July 16, 2011 at 6:57 pm

What matters more than minimum wage is wage inequality.
The term broken record doesn’t even begin to describe you lol.
What is the income inequality like in North Korea or Cuba? Do you think those economies are good?

“The best way to increase both employment would be to set a maximum wage.”
Who gets to decide what this maximum wage would be? Also how do you define a wage? Just a salary? All benefits? What? Do we cap say the amount of equity Bill Gates can earn in the company he founded? What happens to the rest? Would say JK Rowling aonly be allowed to sell X number of books or would you just confiscate what she sells beyond a certain point? How would that increase employment?

Ron H July 16, 2011 at 7:43 pm

Who gets to decide what this maximum wage would be?

Well, the folks who decide what a correct minimum wage is, of course. If they can determine one, they should be able to determine the other.

Chucklehead July 16, 2011 at 11:08 pm

I just hope the maximum wage is annual and not hourly. That way we can take the rest of the year off and go to the Utopian theme park: Obamaland, where all results are equal.

Greg Webb July 16, 2011 at 7:07 pm

LOL, George! My, you do think a lot of yourself don’t you. I think that you are wasting you talents. I think that you should become the new Grizzly Man and save the bears.

brotio July 16, 2011 at 7:23 pm

Then, like the Grizzly Man, he might actually amount to shit, someday.

(HT: Ron White)

Russell Nelson July 17, 2011 at 1:11 am

Shut up, moron. You are a waste of perfectly good carbon, which could be recycled and put to use doing something useful. When are you going to die? I’ve got a beer waiting in the fridge to celebrate the news of your demise.

andy July 17, 2011 at 4:22 am

Hi mureigo,

they did this in fascist germany in the ’30s. They basically forbade companies to lure employers by offering higher wages. The results? Practically zero unemployment (yeah!!). In a few years the real wages got 25% lower (oops). Companies had big big problems finding good workers. Economy went down and if germany didn’t start WWII, it would probably come to a grindstall..

Emil July 17, 2011 at 6:25 am

not to mention that there are, as clearly illustrated in your post, many other undesirable side-effects from such stupid laws besides wrecking the economy

Emil July 17, 2011 at 6:33 am

“Right now minmum wage has been relatively stagnant or decreasing and we have >9% unemployment. Back in 1968 when real minimum wage was at a peak unemployment was <5%."

This sounds as a perfectly controlled experiment, in which two very similar periods that were distinguished only by different minimum wages are compared…

"That's a fact. If it ever happens it I will be here to point it out to."

If it is a fact then it must already have happened or be happening all the time. Otherwise it is not a fact.

"Right now we have high levels of trade, low minimum wage, stagnant wages, poorly regulated finance, poorly regulated corporate rules, increasing inequality and cuts in government spending. And for all these neoliberal policies I can point you to a dire economy unlikely to improve any time soon."

You may well be correct that high levels of trade, low minimum wages and cuts in government spending are neoliberal policies. Poor regulation is not neoliberal (little regulation would be, but that is not what we have). Stagnant wages and increasing inequality is not neoliberal (pointing out that increasing inequality may not be a bad thing might be neoliberal but there's no neoliberal policy that pursues increasing inequality per se).

Furthermore, I though Obama was in charge and not the neoliberals? And there are not really any cuts in government spending, but in the increases in these – of course we already know that you are completely incapable of distinguishing between a level of something and its growth rate.

SMV July 17, 2011 at 9:18 am

And after setting maximum wages and fixing all the problems of the world Peter told Wendy that pixie dust would allow them all to fly to the land of liberals where your brain never developed past 12. And medical doctors where great economists.

cmprostreet July 18, 2011 at 9:21 pm

Muirgeo,

In addition to reducing income inequality, can we also make leisure time, physical attractiveness, and athletic prowess equal among all people?

Income is not the only thing which matters- why do you care so much that some people have more income than others, while you never complain that the people with less income often enjoy much more leisure time than those with higher incomes?

Chucklehead July 16, 2011 at 5:58 pm

Where is the graph of national minimum wages with national unemployment? That should show correlations at least.

kebko July 16, 2011 at 7:48 pm

BLS statistics make clear that very few heads of households depend on min wage. The vast majority are teenagers, part timers, and workers for tips. So, I would expect to see little evidence in the aggregate numbers, but I think there are some pretty strong effects found among the affected sub-groups.

Chucklehead July 16, 2011 at 11:12 pm

So they would be less likely to file for unemployment and therefore show up on statistics? How can that be? I am always told they need to make a living wage to support their family of four, even my 13 year old babysitter ( I guess she is supporting her parents, I hope.)

kebko July 17, 2011 at 1:18 am

I’m just saying that if only 2% of the workforce is affected by a change, the effects on the entire 100% aren’t going to give much insight.

Chucklehead July 17, 2011 at 2:02 am

I know, your explanation is valid. I was going for humor and failed. My point about the living wage was how they hold it up as justification for increasing the minimum when it effects such a small part of the population and hurts even more, especially young minorities. I see my typo which should of read “So they would be less likely to file for unemployment and therefore not show up on statistics”

vidyohs July 16, 2011 at 10:01 pm

“The truth is, you can’t solve our deficit without cutting spending,” Obama said. “But you also can’t solve it without asking the wealthiest Americans to pay their fair share — or without taking on loopholes that give special interests and big corporations tax breaks that middle-class Americans don’t get.”

If the fool just has sense enough to stop with the first sentence I might could believe he has two brain cells to rub together.

However I do agree that a good close look should be taken at the relationship some rent seekers have with government. Not because I necessarily believe it is is crucial to solving the deficit problem, but on moral and practical grounds alone.

Chucklehead July 17, 2011 at 2:10 am

Eliminating all rent seeking expenditures would solve the debt problems.
The “big corporations tax breaks that middle-class Americans don’t get” are the depreciation of plant and equipment that the middle-class doesn’t have.

DG Lesvic July 16, 2011 at 11:33 pm

To my friends here:

Have you ever known me to be anything but completely honest and reliable? And can you not see the blatant dishonesty exhibited by Viking, and the outrage of his accusing me of it. I don’t mind the ordinary insults, moron, idiot, for they simply mean that I’m right, and they know it, but the accusation that I’m being dishonest from those who are blatantly so is intolerable. So I’m drawing a line in the sand between the honest people and the goddamned liars here. And the gloves are off. If you want to be one of the goddamned liars, don’t expect any immunity for it. For I’ll call you for what you are, a goddamned liar, just like Viking.

DG Lesvic July 17, 2011 at 12:29 am

Note: I didn’t start the degeneration of this discussion. I simply presented a philosophic case and was met with the vilest attacks upon my character.

Who was responsible for the degeneration of the discussion, those who started it or the one who finally got fed up with it? And what could it all mean other than that my critics didn’t have a philosophic leg to stand on?

There was no necessity for the personal attacks upon me. Had I committed philosophic errors, they could have exposed them without attacking me personally. Had I misrespresented other writers, again they could have pointed this out without attacking me personally.

And they would certainly have done so had they been able to, and been the more convincing for it.

There can be no doubt that those who started the personal attacks are the ones responsible for them, and ,by their admission, were in error.

Greg Webb July 17, 2011 at 11:25 am

DG, you are good at playing the victim. Woe is you! LOL!

DG Lesvic July 17, 2011 at 12:40 am

From now on, I shall respond only to reason, not emotion.

If all you want to do is sound off, then just keep coming at me with the emotion. But if you really want a response, just give me reason.

So goodby to the cry babies, Viking, Greg, and the rest.

I am here only for the economists, of the street or otherwise.

If you really want a response from me, just give me reason. If

Greg Webb July 17, 2011 at 1:35 am

DG, I think that we are all waiting you to keep your promise to vacate Cafe Hayek. Don provided you with the requested example. Now it’s time for you to take it like a man and honor your promise.

DG Lesvic July 17, 2011 at 2:13 am

Apparently Greg did not read my response to Don.

Here, again, for his benefit, and with regrets for the imposition on everyone else.

Prof Boudreaux offers “MV=PQ — the equation of exchange” as “an example of mathematics that is helpful in economics.”

Here’s a bit of what Mises had to say about it:

“In every chapter of catallactics the devastating consequences of the mathematical treatment of economics can be tested. It is enough to refer to two instances only. One is provided by the so-called equation of exchange, the mathematical economists’ futile and misleading attempt to deal with changes in the purchasing power of money. The second can be best expressed in referring to Professor Schumpeter’s dictum according to which consumers in evaluating consumers’ goods ‘ipso facto also evaluate the means of production which enter into the production of these goods.’ It is hardly possible to construe the market process in a more erroneous way.

Economics is not about goods and services, it is about the actions of living men. Its goal is not to dwell upon imaginary constructions such as equilibrium. These constructions are only tools of reasoning. The sole task of economics is analysis of the actions of men, is the analysis of processes.”

Human Agony, 3rd ed., P 357

There are no equations in economics, for, if you and I exchange my A for your B, it is only because I value your B more than my A and you value my A more than your B. If we both valued A and B equally, there would be no exchange, for nothing could be gained by it.

The use of symbols in place of words is not by itself mathematics. It is just shorthand. Here is what Rothbard had to say about it:

“…it is the great quality of verbal propositions that each one is meaningful. On the other hand, algebraic and logical symbols, as used in logistics, are not in themselves meaningful…to develop economics verbally, then to translate into logistic symbols, and finally…back into English, makes no sense and violates the fundamental scientific principle of Occam’s razor; which calls for the greatest possible simplicity in science and the avoidance of unnecessary multiplication of entities or processes.”

Man, Economy, and Barf, P 65

The question is two-fold: is the mathematical superior to the logical and literary method as a means of analyzing the problems of economics and of expressing even its non-mathematical concepts? Since English is our first, native language, and we could not evaluate your translations of it into the foreign language of mathematics without knowing what you were translating from, you must start out with English, stating your objective, and explaining why and at what point you would switch to math, before actually making the switch, for starting out with it was not to prove but assume its superiority, and not answer but beg the question.

Prof. Boudreaux didn’t explain the “equation of exchange.” He didn’t tell us what its objective was. He didn’t even bother to tell us what his symbols stood for. He certainly didn’t tell us how any of this was helpful in economics.

He just begged the question.

Does that require me to leave Cafe Hayek forever?

Greg Webb July 17, 2011 at 11:22 am

DG, I read your response to Don. It was filled with qualifications and standards that you were introducing for the first time. Your original statement was, ““Give me that example of mathematical economics I’ve been asking for, and I’ll do just that. I’ll leave Cafe Hayek, never to return.” As you can clearly see, you did not provide any qualifications or standards to this easy to comply with standard.

Don Boudreaux provided your requested example with his post, “MV=PQ — the equation of exchange.” But now you are trying to weasel out of the deal that you offered by presenting qualifications and standards after the fact. It is cowardly to do so, and it is reminiscent of the pompous statements of similar statists like Sean Penn, Alex Baldwin, etc. who promised to leave the country is George Bush won the 2000 election. No one really believed that they or you would keep your promise because statists are all members of the Church of Me.

Those who cannot keep their promises in small things cannot keep their promises and commitments in large things. So, you are right in saying that we cannot have a meaningful conversation because you have proven that you do not mean what you say.

DG Lesvic July 17, 2011 at 2:15 pm

Greg,

Didn’t it go without saying that the example I asked for had to be valid? Was it really my obligation to spell that out?

Do you really think that I meant to obligate myself to leave the Cafe if anyone could come up with a few meaningless symbols?

Wasn’t that an unreasonable inference, and isn’t it unfair to hold me to account for someone else’s unreasonableness?

Pointing out that the standards of validity were being violated was not introducing the rules after the game had begun. They were there right from the start, and the fact that they had been ignored and that it was necessary to invoke them was not the fault of the one invoking them but of the one ignoring them.

There was a difference of opinion, between Prof Boudreaux’ opinion of the equation of exchange and Prof Mises opinion of it.

If you’d like to discuss it, and can uphold Boudreaux’ opinion, against that of MisesI shall depart Cafe Hayek.

That’s your challenge if you’re actually an economist, and anything more than a character assassin.

Robert Bosich July 17, 2011 at 12:45 am

Anyone who buys is price sensitive for the most part..why do people say “how much?”.

DG Lesvic July 17, 2011 at 12:54 am

These people have turned Cafe Hayek from a society of economists and philsophers into something more akin to the proceedings of the Communist or Nazi Parties.

I refuse to be a party to that. I am not here to engage in brawls with intellectual thugs, but only in discussions with honest economists, whether of the street or academy.

DG Lesvic July 17, 2011 at 2:05 am

Don’t think that rolling around in the filth of character assassination will earn you a free pass from me. I shall still expose your errors. I just won’t roll around in the filth with you. That you can have all to yourselves.

J Cuttance July 17, 2011 at 4:13 am

DG don’t leave me don’t me leave me aaaaahh!!!

DG Lesvic July 17, 2011 at 10:39 am

Don’t worry. I’m not going to let a bunch of fanatics drive me away.

I’m going to stay right here and keep showing them up for the phonies they are.

Greg Webb July 17, 2011 at 11:27 am

DG, no one is trying to drive you away. We just wanted you to comply with your promise to leave if someone provided you with the example that you wanted. Don provided such and example, and you have weaseled you way out of complying with your promise. And, that is typical with statists who want laws, regulations, and rules applied to others, but never themselves.

DG Lesvic July 17, 2011 at 12:01 pm

You’re nothing but a bald-faced liar.

Greg Webb July 18, 2011 at 8:31 pm

Tsk, tsk…more character assassination…how typical of the angry, emotional statist…

Daniel Kuehn July 17, 2011 at 10:48 am

Says the man who just suggested Cafe Hayek was like the Nazi Party.

DG Lesvic July 17, 2011 at 12:05 pm

And you aren’t much better.

Muergeo is better than the lot of you. I don’t bother with Merge any more. But when I did have discussions with him, I found him to be an honorable adversary amenable to logical argument.

Not these people. They are ego maniacs who care not one whit what any honest and reasonable person thinks of them but only their fellow fanatics and ego-maniacs.

Trying to argue with them is like arguing with Hitler or Stalin.

It’s like Bolshevism and Nazism all over again, in libertarian clothing.

DG Lesvic July 17, 2011 at 12:08 pm

Daniel,

Do you think I am breaking my promise to leave Cafe Hayek if anyone presented me with the example I asked for?

Don’t weasel out.

Answer the question.

And remember that Don likes you and that your whole credibility here hangs on your answer.

So let’s have it.

DG Lesvic July 17, 2011 at 12:10 pm

And no tap dancing around it.

Did I break my promise?

Yes or No.

Greg Webb July 18, 2011 at 8:32 pm

Yes, you did, you statist weasel.

brotio July 18, 2011 at 8:13 pm

I found him to be an honorable adversary amenable to logical argument. – DG Lesvic RE: Yasafi

DG,

Now you’ve got me wondering about your sanity. Yasafi has never offered logical debate, and has never shown any indication that he comprehends that 2+2=4. In fact, I’m reasonably sure that if His Holiness: The Divine Prophet Algore I proclaimed that Mother Gaia would become uninhabitable unless 2+2=4 was changed to 2+2=5, that Yasafi would be trumpeting “2+2=5″ until the next Ice Age.

You’re a two-trick pony, in that you don’t want math and economics to commingle; and you’re uninterested in any argument about income redistribution other than it makes everyone poorer. I’m not interested in your math debate, so I’ve paid little attention to it, however, you do make valid and logical arguments about income redistribution making everyone poorer, so you’ve provided valuable ammunition to me in debates with Lefties. For that reason, (and the fact that I appreciate your sense of humor) I’d hate to see you leave, so please knock off the Yasafi-esque pledge to leave.

Yasafi was an out-and-out liar when he vowed to leave and never come back, and the Cafe is poorer for it. The Cafe would be poorer if you kept your vow.

andy July 17, 2011 at 4:18 am

On some blog (maybe here?) there was a mention of a study that some government agency did regarding low-wage earners. They found out that a huge percentage does not follow the work law (work hours, overtime etc.)

My conclusion is that when the state institutes minimum wage, quite many companies just ignore it (work around it). That’s why the effect on employment is rather small.

kyle8 July 17, 2011 at 9:19 am

Here is my own take on the effect of minimum wages. They don’t do much because they are mostly set to somewhat below the actual market minimum wage.

Even when politicians raise them they are mostly only keeping up with inflation so their effect is minimal. What this points to is the absolute cynical pandering of politicians who sell a minimum wage increase.

They claim to want to help the working poor, (never-mind that people earning minimum are usually teenagers). But they know that if they raised it too much then it would cause a big employment problem. So they penny-ante it. If they really believed it would help the poor then why not go all the way an mandate a five dollar expansion to the minimum ?

Because if they did that then it would cause a huge disruption, not to mention that it would cause immediate inflation. (just think how much more a pizza would cost if wage costs doubled?) So the poor, even if they kept their jobs, would be no better off than before.

If is a morally and intellectually indefensible idea.

DG Lesvic July 17, 2011 at 12:30 pm

And what about the rest of you?

Does anyone else want to say I broke my promise?

Stand up and be counted!

I guarantee you that there is one man who will not say that I broke my promise. Don Boudreaux. He will never say that. Never. I can imagine Viking saying it. I can imagine Methinks saying it. Don will never say it.

And whom do you respect more, Don or Viking, Don or Greg, Don or Daneil, Don or Methinks.

You can stand with the rest. I’ll stand with Don.

And he will never stand with you. He will never say that DG broke his promise.

Never!

DG Lesvic July 17, 2011 at 5:17 pm

And has anyone stopped to notice, amidst all the red herrings, that there has still been no example of the superiority of the mathematical over the logical and literary method in economics. Beyond a feeble, failed attempt at it, there has been nothing but attempted character assassination. Cafe Hayek has been diverted from a consideration of economics to that of the character of DG Lesvic.

Suppose I grant all of the accusations against me.

Could we then get back to economics?

OK. I am an idiot, a moron, a liar, but what about my economics?

Where is that example that I have been asking for, a valid example, valid by the criteria of reason, of the superiority of the mathematical over the logical and literary method of economics, or even of its equality with it?

I predicted, years ago, that we would never see it.

Was I right, or was I right?

DG Lesvic July 17, 2011 at 5:22 pm

And I still stand by my promise to leave Cafe Hayek if I ever see it.

And how about you, Greg, would you do the same, promise to leave if anyone could show that you have been unreasonable, unfair, disingenuous, and dishonest?

Come on, big talker, stand behind your words.

DG Lesvic July 17, 2011 at 5:32 pm

And how about the rest of you big talkers here, especially Viking and Methinks? Will you stand up for your big words, too?

Or am I the only one with the courage of my convicitions?

DG Lesvic July 17, 2011 at 5:53 pm

And can there be any doubt that if my critics could have defeated my ideas, that that is what they would have focused on, and that their focus on me instead of the ideas was an admission of their intellectual defeat?

DG Lesvic July 17, 2011 at 6:11 pm

There’s another point we have been missing here. If there are no equations in economics, how could Don’s equation of exchange be an example of anything in economics?

I asked for an example of mathematics in economics, not pseudo economics.

DG Lesvic July 17, 2011 at 8:41 pm

“And how about the rest of you big talkers here, especially Viking and Methinks? Will you stand up for your big words, too?”

Now, don’t all volunteer at once.

Adam July 18, 2011 at 12:27 am

One simple question I have for Mr. Sirota is whether he believes that raising the minimum wage from its current level to say $100/hr would cause an increase in unemployment. I doubt that anyone would think that it would not. So it seems to me that the real question is not whether raising the minimum wage increases unemployment but by how much and at what threshold. Is $5.15 to $7.50 enough? $7.50 to $10.00? $10.00 to $13.00? To argue that the wage level doesn’t matter at all, which is what Mr. Sirota appears to do, goes against not only sound economic theory, but common sense.

Khadijah July 18, 2011 at 10:25 am

Quite. To even raise these points in a vacuum without considering the scope of the increase (or decrease) (min wage raises don’t affect employment, min wage raises do affect employment…..) seems rather trivial without discussing the scope of the change. I find it quite reasonable if one were to find that a 1% change in min wage (e.g., $7.07 from $7) produces no measurable change in employment, while a doubling of the min wage quite obviously would cause significant change (most likely, we’d be walking into McD’s and cooking our own burgers).

But, more importantly, if a person accepts the logic that a doubling of the minimum wage would have a negative effect on employment, then they also must accept (or be ruled irrational) that a halving or termination of the minimum wage would have a positive effect on employment.

–Kady

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