Cafe commenter Thomas Hutcheson’s regular theme is that policy questions should be settled more frequently by empirical investigation and (necessarily) less by principled adherence to rules. Mr. Hutcheson presumes that there are, for many (most?) policy questions in their various real-world situations, objective answers – ‘right’ policies – that can be discovered only by careful and unbiased examination of the facts. An example is Mr. Hutcheson’s argument (made more than once here in the Cafe’s comments section [and, if he is the “ThomasH” at EconLog, also at EconLog]) that the desirability or undesirability of the minimum wage depends upon the elasticity of demand for low-skilled workers – that is, upon the percentage of low-skilled workers who are likely to suffer worsened job prospects as a result of some given hike in the minimum wage. Presumably, if this percentage is small, minimum-wage legislation is ‘good.’ If this percentage is large, minimum-wage legislation is ‘bad.’
I believe that Mr. Hutcheson’s criterion for assessing the desirability of government polices is fundamentally wrong. In earlier posts (such as this one) I offered some reasons for my disagreement with Mr. Hutcheson. In future posts I’ll likely offer other reasons for my disagreement. Here I wish to address his argument, made in this comment of his on this post of mine, that
I [Mr. Hutcheson] even wonder in an expected value sense, if a poor, entry-level worker would not rationally prefer a slightly lower probability of being hired at a higher minimum wage than a higher probability of being hired at a lower wage. I’d guess that this would depend on the change in probabilities (the change in employment brought about by the higher minimum wage) and the increase in the wage.
Such a question is interesting to ask. And perhaps asking questions such as this one serves some important intellectual end. But as a guide to formulating government policies questions such as this one are, at best, impractical and, more likely, quite dangerous.
Such questions are impractical for at least two reasons.
The first reason is obvious (although not unimportant): it is impractical (to use the example offered above by Mr. Hutcheson) for researchers to get reliable enough knowledge of any such collective preference of entry-level workers. How to gauge such preferences independently of the actual choices made under actual situations by actual entry-level workers? How to aggregate into some collective preference the different, and no doubt often changing, preferences of each individual worker? That we can talk of entry-level workers as a group ‘having’ this preference or that preference, and that we can talk also of objective researchers empirically quantifying what that preference is, does not make such a preference real or the ability to quantify it practical.
The second reason such questions are impractical – and a reason why giving them legitimacy in policy discussions is dangerous – is that they make policy-making far more open-ended than even the most ardent champions of active government intervention likely endorse. There’s no practical end to such questions. If the question that Mr. Hutcheson’s asks (in his attempt to supply potential justification for the minimum wage) is appropriate as part of a practical policy discussion, then so, too, is this question that might be posed to someone who, as a matter of principle, opposes a proposal to have government set a maximum wage for entry-level workers:
I [John Doe] even wonder in an expected value sense, if a poor, entry-level worker would not rationally prefer a slightly higher probability of being hired at a lower maximum wage than a lower probability of being hired at a higher wage. I’d guess that this would depend on the change in probabilities (the change in employment brought about by the lower maximum wage) and the decrease in the wage.
Should we, on the basis of the possibility indicated here, be agnostic about a maximum-wage policy for entry-level workers?
And why stop with asking questions about possible worker preferences? How about this question?
I [Jane Doe] even wonder in an expected value sense, if consumers would not rationally prefer a slightly higher probability of being able to buy pharmaceutical products at lower prices even if these products are known to be of a lower quality than than they would be at higher prices. It’s possible, as an empirical matter, that a government restriction on the amounts that pharmaceutical companies and retail pharmacies spend on quality control will improve consumer welfare on net. The reduction in quality, although unquestionably a ‘bad,’ might be more than made up for by the corresponding reduction in prices, which is unquestionably a ‘good.’
Does the possibility mentioned just above – which cannot as a matter of logic be denied – require us to take seriously a proposal for government to restrict the amounts that pharmaceutical companies and retail pharmacies spend on quality control?
One lesson is that the range of ‘what is possible’ is vast. Nearly everything that is possible will never occur. Therefore, pointing out that X is possible is an insufficient reason to consider X when making policy. (The mere possibility of X is even an insufficient reason, in and of itself, to study X in a scholarly way – although a great deal of Xs that ought, for practical reasons, never be considered in policy discussions are indeed legitimate subjects for scholarly research.) Far more relevant – for both scholarship and, especially, policy-making – is what is plausible. And even more relevant for policy-making are those outcomes that are legitimately judged to be probable. Mere possibilities are irrelevant and boring (at least to people who are interested in more than mere puzzle-solving).
…..
Here’s one final such question:
I [Randy Roe] even wonder in an expected value sense, if consumers would not rationally prefer a slightly higher probability of being able to buy higher-quality pharmaceutical products even if such higher quality means higher prices than otherwise. It’s possible, as an empirical matter, that a government requirement that pharmaceutical companies and retail pharmacies spend some very high minimum amount on quality control will improve consumer welfare on net. The rise in price, although unquestionably a ‘bad,’ might well be more than made up for by the corresponding increase in quality, which is unquestionably a ‘good.’
I’m pretty sure that this third hypothetical question of mine (the one posed by Randy Roe) strikes far fewer people as being as odd and as absurd as does the second hypothetical question of mine (the one posed by Jane Doe). The reason is that this third hypothetical question refers, in fact, to many policies already in place (such as, effectively, at the FDA). Somehow forcing people to buy higher-quality products than they would choose on the market seems acceptable while forcing people to buy lower-quality products than they would choose on the market seems unacceptable. Yet, economically, because prices adjust, in each case, in offsetting ways, there is precious little analytical (or policy) difference between these two cases. In neither case are we justified in presuming that the government-forced price-quality combination is preferred by consumers to the price-quality combination that would emerge on the market.
