Minimum-Wage, Maximum Analysis

by Don Boudreaux on February 16, 2013

in Complexity & Emergence, Curious Task, Data, Economics, Hubris and humility, Myths and Fallacies, Prices, Reality Is Not Optional, Scientism, Work

By far the still-most-celebrated researchers to find evidence against the unpopular economic proposition that modest increases in the legislated minimum-wage reduce the employment prospects of low-skilled workers are economists David Card and Alan Krueger.  The attention that the minimum-wage is once again receiving, and the fact that so many people are drawn eagerly to evidence that government can alter economic reality to its liking, warrant my posting here the short but devastating 1995 review by Douglas Adie and Lowell Galloway of Card’s and Krueger’s 1995 book, Myth and Measurement.

….

Until I re-read Adie’s and Galloway’s review last night, I’d forgotten that Card and Krueger dedicate Myth and Measurement to Richard Lester.  Lester was a mid-20th-century economist whose misunderstanding of marginalism and of the nature of economic analysis led to a classic, mid-1940s exchange in the American Economic Review.  On one side was Lester (also here); on the other was Fritz Machlup (also here) and George Stigler.  Machlup and Stigler devastated Lester – or, at least, that’s my reading of the exchange.  Yet Lesterism, conforming largely to the economically uninformed prejudices of the man-in-the-street, has never gone away in the popular mind – a fact that makes findings of the sort published by Card and Krueger seem so sensible to the typical journalist, politician, and voter who cling to the superstition that prices, wages, incomes, the income ‘distribution,’ work conditions, and other economic phenomena can be consciously determined by well-meaning government officials, and all without much in the way of unintended consequences.

One important lesson of the Lester-Machlup-Stigler exchange is that deep and serious thinking about the nature of analysis – serious theorizing – is just as important for learning lessons from empirical data and from history as are the processes of data-gathering, sorting, reporting, and reading.

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