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This entry at EconLog by my colleague Bryan Caplan is the best blog post you’ll read today – indeed, it’s likely the best post that you’ll read this week, and possibly even this month.  Bryan here says much more than I’ve said in my many postings, over the past month, on the minimum wage; Bryan says it much more concisely; Bryan says it much more compellingly.  Here’s Bryan’s conclusion:

From the standpoint of public policy, the minimum wage is a symbol of the view that “feel-good” policies are viable solutions to social ills: “Workers aren’t paid enough?  Pass a law so employers have to pay them more.  Problem solved.”  From the standpoint of social science, the minimum wage is a symbol of the myopic view that you can become an expert on X by reading nothing but the leading research that explicitly addresses X: “Does the minimum wage reduce employment?  Read the top papers on the minimum wage.  Problem solved.”

We need to get rid of the minimum wage.  But that’s only a first step.  Our ultimate goal should be to get rid of the errors that the minimum wage has come to represent.

My only disagreement with Bryan is that, unlike him, I do not admire David Card’s and Alan Krueger’s now-famous research on the minimum wage.  Bryan says that this research is “well-done” – by which I take him to praise the research.  I can agree that this research is well-done in many dimensions – it’s careful; it’s honest; it’s clever – without agreeing that it is good research.  I think it is not good research, for three reasons.

The first reason is that I cannot get past my initial reaction to reading Card’s and Krueger’s chief paper, in the American Economic Review, nearly 20 years ago; that reaction was “These guys completely miss the point of Fritz Machlup’s and George Stigler’s objections to the claims of Richard Lester.”  (The quotation found here from Thomas Sowell nicely captures the Machlup-Stigler point.)

My second reason for dissenting from Bryan’s favorable assessment of Card’s and Krueger’s research is that the theoretical model brought forward as the alleged explanation for their results is wholly unconvincing; as an explanation its application is simply too contrived.  There is literally no monopsony employer of low-skilled workers.  So to salvage the monopsony model in this instance resort is had to the claim that the supply curve of low-skilled workers facing employers is upward sloping.  This fact – as discussed in previous posts here – does indeed yield the neat conclusion that each worker’s hourly wage is kept below that worker’s hourly contribution to his or her employer’s bottom line.  But as I (and I’m sure others) have pointed out, this same model applies also in output markets; because every seller faces a downward-sloping demand curve for its product, a theoretical case can be made for price-ceilings – a case that shows that such ceilings might actually increase the quantities supplied in equilibrium on markets.  And yet I doubt that more than a minuscule handful of economists would leap from this textbook possibility to the conclusion that price ceilings are good policy.

The third reason I cannot follow Bryan in applauding Card’s and Krueger’s research on the minimum wage is found in everything else that Bryan says in his profound and penetrating post.  Because Bryan is both correct and wise in all else that he says in his post, I can conclude only that Card and Krueger, and those economists who buy their conclusions, disagree with much, and perhaps all, of Bryan’s arguments.

Empirical researchers who claim to find an exception to the law of demand – especially when any alleged confirmation of such an exception stands to please powerful political forces and to satisfy the popular priors of most people who have no exposure to formal economic theory – must be unusually careful.  I have absolutely no doubt that Card and Krueger conducted their research, and promote its findings, with the highest scientific integrity.  But that reality doesn’t render their research worthwhile.

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Here’s a letter to the Washington Times:

Pres. Obama cancelled public tours of the White House in response to sequestration cuts (“White House visitors, get lost,” March 8).  Before doing so, I wonder if the president consulted with Alan Krueger, chairman of his Council of Economic Advisors.

Mr. Krueger argues (along with some other economists) that a modest hike in the minimum wage causes no increase in unemployment, in part because firms respond to the higher wage by using greater resourcefulness in working their low-wage employees.  More generally, as Mr. Krueger said last month in a PBS interview, “employers might also discover some ways of saving waste that they had before when the minimum wage increases.”*  Mr. Krueger’s presumption is that firms operate with enough ‘slack’ to permit them to absorb minor hikes in their wage bill without changing their procedures.

But if private firms can easily and without any negative effects adjust to a small, government-imposed tightening of their budgets, why cannot government agencies do the same?

Perhaps, after all, political cynics are correct that heads of government agencies are both less resourceful and less responsive to their customers’ desires than are private business people.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030

* “The Man and the Thinking Behind the Minimum Wage Hike,” PBS News Hour, February 14, 2013.

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The Independent Institute’s Anthony Gregory reflects, in this video, on Sen. Rand Paul’s recent Senate filibuster.

The Wall Street Journal‘s Mary Anastasia O’Grady reflects on the awful record of Venezuela’s late el presidente Hugo Chavez.

Speaking of this particular el hombre – this particular el salvador – Rory Carroll had this to say a few days ago in the New York Times.  (HT Peter Minowitz)  A slice:

The legacy of his [Hugo Chavez’s] 14-year “socialist revolution” is apparent across Venezuela: the decay, dysfunction and blight that afflict the economy and every state institution.

The above reflections on Senor Chavez’s recent ascension into what is undoubtedly the socialist paradise of the hereafter reminded me of a 2006 essay by Chesa Boudin in The Nation – a remarkable piece of nonsense reflecting the delusion-inducing power of some people’s will to believe in earthly saviors.

In today’s New York Times, Michael Dear pleads “Mr. President, tear down this wall” – the wall being the anti-immigration fence along the U.S.-Mexican border.

Doug Bandow is completely right: minimum-wage legislation is completely wrong.

Steve Landsburg points us to some research by Salim Furth on the burden of government debt.

My GMU Econ colleagues are brilliant, relevant, and important.  Today’s exhibit is this post by Garett Jones.

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… is from pages 461-462 of Stanley Lebergott’s indispensable 1984 volume, The Americans: An Economic Record; specifically, this passage is from Chapter 35 (“The New Deal”) [footnote excluded]:

The economy was still one in which private enterprise was expected to provide most jobs, and owners of private property were expected to invest and thereby stimulate the hiring of most of the unemployed.  But the usual cues that private firms and investors used to guide their investment and employment decisions were now changed largely, frequently, and unpredictably.  These changes were associated with the New Deal legislation and administration, much of which represented a long-delayed response to changes in the society.  The problem for investors was in part the vagaries and irrelevancies of the early attempts to drive up prices as a recovery technique.  In part it was the shifting advantage given to certain large firms and industries (via the NRA) and certain large planters and farms (via the AAA).  In part it was the changing advantage given to one group of financial institutions as against others in the competition for funds.  In part it was the passage of legislation that many considered due, and overdue, but which suddenly threatened to change costs of one industry or one product versus others in unpredictable ways.

Can you say “Robert Higgs”?

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Shikha Dalmia is always excellent; here – responding to Matthew Continetti’s call, in The Weekly Standard, for a “conservative welfare state” – she is at her very best.  A slice:

In short, the ideal conservative welfare state would be a libertarian dystopia of even bigger proportions than the liberal welfare state. There is less welfare and more state in it.

But what is deeply ironic is that a magazine that accuses libertarians of isolationism because they oppose American military interventionism has no qualms about recommending a restrictionist immigration policy to keep foreigners out and a protectionist trade policy to keep foreign goods out. If I had to pick a term for this foreign policy, I’d call it neo-isolationism. And maybe I lack imagination, but it is hard to see how a party that wants to engage the world through its “fearsome military” — rather than through voluntary exchange and mutual cooperation — could gain enough moral high ground to craft a winning political message, especially in a war-weary country.

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… is from page 263 of Joseph Epstein’s superb 2012 collection, Essays in Biography; specifically, it’s from Epstein’s 2008 essay, in Commentary, entitled “Arthur M. Schlesinger, Jr.”:

Captured with present-tense fidelity, his [Schlesinger’s] Journals provide the sad portrait of the liberal New Dealer in his old age: a man … who assumes that business is inherently vile, capitalism utterly corrupt, and government essentially benevolent; whose political judgments are formed chiefly on the basis of taste (which is to say, on snobbery); and who, filled with a stirring sense of his own virtue, proclaims his concern for the people, for justice, and for enlightenment without feeling the least need to sacrifice on behalf of any of these things.

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… is from pages 127-128 of volume II (“The Mirage of Social Justice,” 1976) of Hayek’s Law, Legislation, and Liberty:

In a spontaneous order undeserved disappointments cannot be avoided.  They are bound to cause grievances and a sense of having been treated unjustly, although nobody has acted unjustly.  Those affected will usually, in perfectly good faith and as a matter of justice, put forward claims for remedial measures.  But if coercion is to be restricted to the enforcement of uniform rules of just conduct, it is essential that government should not possess the power to accede to such demands.  The reduction of the relative position of some about which they complain is the consequence of their having submitted to the same chances to which not only some others now owe the rise in their position, but to which they themselves owed their past position.  It is only because countless others constantly submit to disappointments of their reasonable expectations that everyone has as high an income as he has; and it is therefore only fair that he accept the unfavorable turn of events when they go against him.

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On Sunday evening (8:00pm, EST) on the Fox News channel, John Stossel’s latest special – Myths, Lies, and Complete Stupidity – will air.  I’ll be tuned in!

In this short video from LearnLiberty, Steve Horwitz puts his finger on one of the many issues that are too frequently overlooked these days in discussions of income inequality.  (At the end of this video, you’ll find a link to the full debate between Steve and Jeff Reiman on income differences.)

Writing in today’s New York Post – no bastion of non-interventionism on the foreign-policy front – Seth Lipsky vigorously defends Sen. Rand Paul’s recent filibuster on the Senate floor.  Here are two slices (with a most-appropriate condemnation of Sens. John McCain and Lindsey Graham):

Those questions [regarding Pres. Obama’s foreign policy] deserved to be pressed and debated out in the open, particularly because our president hasn’t deigned to make a public case for what he has been doing – neither for the drone warfare nor for his failure to seek a vote in the Congress before launching a war in Libya.

So Paul deserved an answer to the question he put to the Justice Department.  He was comfortably within his prerogatives. And it’s outrageous for Sen. Lindsey Graham to assert – as he did yesterday – that Paul’s question is somehow offensive.

…..

But, in sharp contradistinction to Sens. McCain and Graham, I find it nigh impossible to imagine a situation in which it is wrong for Rand Paul to press the president on a constitutional question.  The Republican Party is lucky to have someone prepared to do so.

Here’s Steve Landsburg on the minimum wage and on the earned-income-tax credit.

Here’s my colleague David Levy and Sandra Peart on “James Buchanan’s Final Thoughts on Freedom and the Law.”  (HT Pete Boettke)

Speaking of the late Jim Buchanan, here’s Geoffrey Brennan’s hot-off-the-e-press essay, “James M. Buchanan: An Assessment.”

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Ed Leamer always has interesting things to say. Here, I interview him for my chartcast series, The Numbers Game. His argument is that the last three recoveries from recession have been mediocre because of changes in the manufacturing sector. He downplays the role of monetary and fiscal policy. Very interesting. Let me know what you think.