Economists as Camp-following Whores

“The inverse relationship between quantity demanded and price is the core proposition in economic science, which embodies the presupposition that human choice behavior is sufficiently relational to allow predictions to be made. Just as no physicist would claim that “water runs uphill,” no self-respecting economist would claim that increases in the minimum wage increase employment. Such a claim, if seriously advanced, becomes equivalent to a denial that there is even minimal scientific content in economics, and that, in consequence, economists can do nothing but write as advocates for ideological interests. Fortunately, only a handful of economists are willing to throw over the teachings of two centuries; we have not yet become a bevy of campfollowing whores. “

That’s a favorite quote from James M. Buchanan. He wrote that in the 1990s in response to a Wall Street Journal interview in which the disemployment effect of minimum wage legislation was questioned.

The theoretical case that minimum wage laws adversely affect low-skilled workers is as sound as anything else in economics. The empirical evidence is also as sound as the empirical evidence for “dog bites man.” What makes the news is when “man bites dog.” That exception does not invalidate the general case that dogs bite men.

The inverse relationship between quantity demanded and price is depicted as downward-sloping demand schedules. Demand slopes downward as certainly as water flows downhill. What justifies that claim? Because quantity demanded falls as the price rises. We know this from our own experience: we buy less when price goes up and buy more when price falls.

Granted, there are curiosities in price theory — Veblen goods (for which demand increases as the price increases, e.g. luxury goods), backward-bending supply curves, Giffen goods[1], et cetera.

Identifying curiosities and corner cases, and using them in support of ideologically-motivated policies is tantamount to joining a bevy of camp-following whores. Journalists often do. Economists? A few outliers do, and some even get recognized by the economics “Nobel” prize committee.

For a bit of context, read this March 2019 The Nation piece “Alan Krueger’s Radical Empiricism.” Note that I am not endorsing the content of the article; I’m just using it to provide context. And here’s a bit more context:

NOTES:

[1] Investopedia on giffen goods:

Giffen good are a rarity in economics because supply and demand for these goods is opposite of standard conventions. Giffen goods can be the result of multiple market variables including supply, demand, price, income, and substitution. All of these variables are central to the basic theories of supply and demand economics. Giffen goods cases study the effects of these variables on low income, non-luxury goods which result in an upward sloping demand curve.

See also their description of Veblen goods.

 

 

Author: Atanu Dey

Economist.

5 thoughts on “Economists as Camp-following Whores”

  1. The inverse relationship between quantity demanded and price is the core proposition in economic science.

    no self-respecting economist would claim that increases in the minimum wage increase employment.

    Of course, slave labor will always be in greater demand than wage labor, if it were legal. After all, the US southern states fought a civil war over this, despite overwhelming odds. Also, in 19th century UK, advocates for ideological interests, passionately preached the virtues of children laboring for 12 hours a day, so as to keep them away from mischief, before child labor was banned in the UK.

    The minimum wage law is intended to increase the costs of such “free” labor as teen/migrant/’volunteer’/prison/slave labor and therefore decrease the quantity demanded of such labor.

    BTW, current situation in the US:

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    1. Normally I do not waste my time telling random people on internet that they are wrong. But I am making an exception here because I found that every single sentence in your comment is factually wrong. Now, we can all ignore that one bad driver on the road but if a blind drunk man is driving a large semi on full speed, we have an obligation to do something about it. Hence this response.

      Of course, slave labor will always be in greater demand than wage labor, if it were legal.

      This is false. Even if slavery is legal, most employers will not employ slaves in modern economy because slaves are pretty much useless in modern world. Slaves are useful only for grunt work. Even in 19th century USA and even for the grunt work, there is some (though not conclusive) evidence that slave labour was in fact less efficient than waged labour.

      I am willing to bet that total labor in USA that can be converted to slave labor is only miniscule.

      You see, leaving ethical issues aside, I will not ride in a car driven by a slave driver simply because the slave driver has no incentive to drive safely. I will not hire slave computer programmer because despite feeding him, providing him with healthcare etc. I simply won’t know if he is writing terrible code or not leaving some tech debt that causes me more losses in future. I am not going to a hospital where the nurse is a slave. It will be lot cheaper for me to hire a maid for say $2000 a month than a slave because a slave would probably cost lot more (assuming I pay upfront capital costs to buy a slave).

      I do not think end of slavery had anything to do with white people figuring out that black people are people. The industrial revolution had made slavery far less profitable. Large cities had figured this out and they supported ending this institution. Slavery as an institution was already dying by the time civil war happened.

      After all, the US southern states fought a civil war over this, despite overwhelming odds.

      It is a common misconception that the war was fought to preserve slavery. There is a correlation but that was not the principle behind the war. The left in USA spreads this claim but it is simply not true. Which poor young boy will go on war so a rich guy in his town could own slaves which are cheaper ? This is equivalent of residents of Seattle rioting because Federal government created some law that hurts Amazon Inc. ​

      The “united” part of USA was supposed to be ovluntary during formation of USA. As federal government clashed with southern states over the issue of using slaves on federal property, southern states decided to exercise their right to separate from USA. Abe decide to use force to stop them from doing this.

      Even the claim that Abraham Lincoln would go to war for ending slavery is false as Abe ran his election campaign on “states rights” issue claiming each state must get to decide the fate of slavery, He found it politically justifiable to end slavery at federal level and his real beef with states was on usage of slaves on Federal lands and federal contracts.

      The idea that civil war was somehow fought to preserve “free labour” is nonsensical as states and their supporters ended up spending far big of a fortune on the war compared to what they might have saved with slaves.

      Also, in 19th century UK, advocates for ideological interests, passionately preached the virtues of children laboring for 12 hours a day, so as to keep them away from mischief, before child labor was banned in the UK.

      Child labour is one of those issues that people think is bad without applying their own mind due to sheer propaganda. This is especially true in countries like India.

      Child labour is bad only when child has better default alternatives. For example someone kidnaps my school going child and makes her work in a sweatshop.

      Child labour is good when the alternative are far worse. The greatest example of this (as shown by Paul Krugman, the patron saint of Progressive left himself) is was in Bangladesh where kids as old as 8 worked 12 hours a day in cloth factories that exported clothes to Europe. EU in its infinite wisdom launched a trade war to end this claiming these children should be in school instead and forced the factories to make sure they do not involve children anywhere in their supply chain. The end result of this was that all those unemployed kids were now forced to work in rice field for even lower wages an unsafe conditions and a large chunk of female children ended up working as underage prostitutes.

      Parents liked their children to work in those clothe factories for Rs 12 a day because it was better than working in a rice farm or as a prostitute. Going to school was never an option for those poor little kids.

      The minimum wage law is intended to increase the costs of such “free” labor as teen/migrant/’volunteer’/prison/slave labor and therefore decrease the quantity demanded of such labor.

      I have never heard this argument from any supporter of minimum wage. But you are right in an unintentional way. Minimum wage laws were first introduced in USA through davis bacon act. That world was less politically correct and hence it was clearly stated that this law was meant to prevent black people from undercutting white people’s wages since newly freed slaves were happy to work for lower wages just to get new skills.

      You are however wrong on the details here because higher minimum wages actually make it far more attractive to employ illegal immigrants and teens who are happy to work off the books. Prison labour has a blanket exemption from minimum wage laws and if you dig enough you will find that many judges accept bribes from prison labour companies to send more and more people to jail for longer and longer sentences.

      BTW, current situation in the US:

      The meme is utter nonsense. Wages in USA are going up and as of today Costco, Amazon, Walmart and every major employer has increased minimum wages significantly. In fact it is record breaking compared to last 20 years. None of these wage increases have anything to do with government action but these companies have done this in their search of workers.

      H2B visa which is used to get Mexican workers for grunt work on wages above minimum wage is fully subscribed for the next 12 months. H1B visa which bring in Indian workers on a higher wage is oversubscribed by around 4x.

      https://apnews.com/article/business-wages-salaries-increase-8ce98ea3bcc14c4810eb5a1111e1df49

      Note that Amazon or Walmart doe not really pay wages of their employees, it is eventually consumer of their services who pay those wages. As of today prices of most things in USA are up : ”

      Rental cars: 42.9%
      Gas: 42.1%
      Used cars: 24.4%
      Hotels: 18%
      TVs: 12.7%
      Furniture: 11.2%
      Meats, poultry, fish and eggs: 10.5%
      New cars: 8.7%
      Appliances: 7.1%
      Electricity: 5.2%
      Restaurant prices: 4.7%
      Rent: 2.9%

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  2. Buchanan wasn’t dogmatic on the issue. He himself admitted possibility of increased employment due to minimum wage in his 1954 textbook, written with others, ‘Prices, Income, and Public Policy’:

    “The adverse effects of minimum-wage legislation have been stressed so far, and these PROBABLY outweigh the beneficial results. On the other side, minimum-wage legislation undoubtedly prevents some employers from paying workers less than their marginal revenue product. This is especially apt to happen when workers do not “shop around” enough to be aware of alternative employment opportunities or if these alternatives are few or nonexistent. This is the monopsony case, discussed in Chapter 13. Under this sort of situation it is possible that the imposition of a minimum wage will make the firm hire more rather than fewer workers. For this effect to follow, however, the legal minimum wage would have to be placed between the wage rate actually being paid by the firm and the marginal revenue product of the labor employed.”

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    1. That point was explicitly made on twitter by Phil Magness which I linked to in my post above.

      Buchanan went on to point out that an industrywide or statewide minimum wage does not have that effect — it only works at the firm level. He wrote, “… the wage rate actually being paid by the firm …”

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    2. This is especially apt to happen when workers do not “shop around” enough to be aware of alternative employment opportunities or if these alternatives are few or nonexistent.

      Great example of this is H1B/L1 visa. US government mandates a minimum wage for such workers but bans them from changing jobs or shopping around for jobs. This leads to a situation where many companies prefer to hire H1B holders rather than US citizens.

      Liked by 1 person

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