In my most recent Pittsburgh Tribune-Review column I applaud Adam Smith for his pioneering work to explain the reality and the nature of complex, productive orders that are undesigned. A slice (links added):
No one designed the economic processes that result in pencils. No one could possibly do so. Yet these processes obviously exist. They exist because they emerged, unplanned, over the years from economic competition guided by market prices.
Long before Darwin explained how order emerges unplanned in the natural world, Adam Smith — a Scottish moral philosopher whose work gave birth to the science of economics – explained how individuals in a society with private property but without any guidance from government act in ways that unintentionally create an economy that is stupendously productive.
GMU Econ alum Mark Perry offers here the third installment in his excellent series entitled “Rethinking the Standard Economics Textbook Presentation of the Minimum Wage.” (It turns out that, yes of course, a simple intro-economics textbook model is, well, a simplification of reality. But if that simplification is done well – if it prompts us to think correctly and in a more complete way about the interpersonal connections, about trade-offs, and about the nature of competition – when that simple model is infused with more complications from the real world the basic account of reality that is given by that simple model remains valid. Were this not the case, the simple model would be not only simple but also, at best, useless.) Here’s a slice from Mark’s post (original bolding):
Bottom Line: In this three-part series (“Rethinking the Standard Economics Textbook Presentation of the Minimum Wage”) I’ve tried to make the case that a richer and more nuanced analysis of the minimum wage could be achieved by: a) labeling the horizontal axis in the top left diagram above as “Hours of Low-Skill Work” instead of “Number of Employees” to more accurately describe the staffing decisions of employers following minimum wage hikes (Part I), b) labeling the vertical axis on the standard textbook diagram above as “Compensation per Hour” to capture changes (reductions) in fringe benefits and changes in non-wage jobs attributes following minimum wage hikes (Part II), and c) introducing a dynamic aspect to employer responses to higher labor costs by labeling the horizontal axis in the top left diagram above as the Rate of Change or Growth Rate in Low-Skill Jobs or Hours of Work (Part III). Research that fails to find negative employment effects from minimum wage hikes when focusing mainly on employment levels might not be uncovering other negative effects on low-skilled workers including: a) reductions in hours worked leading to lower weekly earnings, b) reductions in fringe benefits and non-wage job attributes leading to lower hourly compensation and less favorable working conditions, and c) reductions in the rate of change in jobs or the job growth rate leading to fewer employment opportunities for low-skilled workers in the future.
James Pethokoukis celebrates the reason why America’s middle-class is shrinking (they’re becoming richer), but warns that occupational-licensing restrictions and other interventions threaten to slow or stop this happy trend.
David Henderson is not otiose when pointing out that if Smith starts with bargaining chips A,B,C,D, and E, and then Jones forcibly prevents Smith from using bargaining chip E, then Smith – having now as bargaining chips only A,B,C, and D – has less bargaining power than before. The reason David is not otiose when pointing out this reality is that it’s a reality to which many people are blind. These blind people do not see that spending a bargaining chip – for example, agreeing to work at a wage lower than some other worker is paid – is the very point of having a bargaining chip. A bargaining chip is valuable only if it can be exchanged – only if it can be given up. A bargaining chip is valuable only if the person possessing that chip is willing and able to part with its value, because only then does the person who ‘spends’ that bargaining chip get something of greater value in return. People blind to the fullness of this reality see only the giving-up part of Smith’s bargain. These blind people see Smith giving up bargaining chip E and conclude that Smith is thereby made worse off. These blind people then applaud themselves for their magnanimous concern for Smith when they succeed in preventing Smith from bargaining with bargaining chip E.