Why Economists Have Failed
Many years ago, my older son, David Ricardo Palmer, had a summer job paying minimum wage. When the province raised the minimum wage, he thought it was a great idea. He said something to me like,
If economists have such a lack of success in explaining their tools and analyses, we're doomed to have increasing amounts of inefficient gubmnt interventionism.
Mike Moffat, prompted by Gabriel Mihalache, explains why views which are so widely held by economists hold so little sway with the general public. His answer is two-fold:
Unfortunately, the comparatively few economists who do try to popularize our consensus views (see here, here, and here, for example) do not seem to be convincing very many people (comparatively few, that is, relative to the special interest groups arguing for gubmnt support, protection, intervention, etc). Even Milton Friedman, one of the most convincing and brilliant economist-libertarians, had only limited success.
One reason for this lack of success is that no matter what we say, no matter what evidence we present, it is just too easy in the case of trade to see who loses, and not at all obvious to many people that consumers all gain from lower prices, increased choice, etc. And for many voters, these small gains for the many just do not seem worth the imposition of losses on a few.
Similarly for minimum wages, it is easy to see that those who have jobs receive higher wages. But rarely, if ever, are people actually laid off because of an increase in the minimum wage, and so it is difficult (or impossible) to point to someone who wasn't hired and say, "See? That person was hurt by the minimum wage."
Politics seems to be very visible. Politicians and voters seem to respond to visible, obvious, winners and losers. I'm not sure economic analysis can overcome this phenomenon.
I know you don't like the minimum wage, Dad, but it means I'll get paid more.Explaining to him that a higher minimum wage would lead to increased unemployment among teenagers just didn't carry much weight with him; he didn't know of anyone who had been laid off because the minimum wage had been raised, and he knew he'd be better off. Based on his own experience, he simply didn't believe the economic analysis of minimum wages.
If economists have such a lack of success in explaining their tools and analyses, we're doomed to have increasing amounts of inefficient gubmnt interventionism.
Mike Moffat, prompted by Gabriel Mihalache, explains why views which are so widely held by economists hold so little sway with the general public. His answer is two-fold:
1. Economists are really lousy at presenting ideas to the general public....I completely agree with both of his points.
2. The incentives for academic economists are really, really screwed up.
Unfortunately, the comparatively few economists who do try to popularize our consensus views (see here, here, and here, for example) do not seem to be convincing very many people (comparatively few, that is, relative to the special interest groups arguing for gubmnt support, protection, intervention, etc). Even Milton Friedman, one of the most convincing and brilliant economist-libertarians, had only limited success.
One reason for this lack of success is that no matter what we say, no matter what evidence we present, it is just too easy in the case of trade to see who loses, and not at all obvious to many people that consumers all gain from lower prices, increased choice, etc. And for many voters, these small gains for the many just do not seem worth the imposition of losses on a few.
Similarly for minimum wages, it is easy to see that those who have jobs receive higher wages. But rarely, if ever, are people actually laid off because of an increase in the minimum wage, and so it is difficult (or impossible) to point to someone who wasn't hired and say, "See? That person was hurt by the minimum wage."
Politics seems to be very visible. Politicians and voters seem to respond to visible, obvious, winners and losers. I'm not sure economic analysis can overcome this phenomenon.
Category: Economics, Gubmnt Posted on
Wednesday, January 9, 2008 at 1:01am
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The latest U.S. jobs report is pretty interesting in that it identifies who the biggest job losers are as the national rate of unemployment jumped from 4.7% in November to 5.0% in December 2007: teenagers.
December's much higher rate of unemployment for this one group compared to others might have a lot to do with employers moving to take their youngest employees off the books ahead of when many states were set to implement their own higher minimum wages in January 2008. Nine states (and San Francisco) were set to do then, following the lead of 15 others that did so in the previous six months. And those are the states raising their own minimum wages above and beyond the U.S. federal minimum wage that was just increased in July 2007.
How does that affect teenage employees? First, here's a chart showing the percentage of minimum wage earners by age group (as of just 3 years ago - the relative percentages really haven't changed.) Teenagers are the biggest single group of those making the minimum wage and, when combined with those of university age, make up more than half of all minimum wage earners.
Second, here are the most recent U.S. unemployment rates by age (check the top lines since these are for the youngest workers.) This is interesting because December is typically when a lot of retail stores that seek to bring on additional holiday season help hire a lot of teenagers in December.
And finally, here's a tool for measuring the impact of a minimum wage increase on a small business - hopefully, it might help explain why minimum wage workers (aka teenagers) are being shown the door. (Their bosses don't really have much of a choice if they want to stay in business!)
It always comes back to Bastiat: that which is seen versus that which is not.