Wednesday, August 15, 2012

Bryan on Bastiat

1. Bryan Caplan making a somewhat atypical foray into giving people he disagrees with the benefit of the doubt and soliciting their views on Bastiat. I have some comments there.

2. Bryan going back to the usual schtick of assuming that people he disagrees with professing acceptance of Bastiat because they actually try to obscure him because their policies are irrational (where once again I can't help but think that "irrational" is simply defined as "disagreeing with Bryan Caplan... needless to say, not a classic definition of irrational).

Unfortunately, facebookers seem to prefer the latter post.

Bryan attaches a lot of adjectives and innuendo to the defense of the minimum wage that I wouldn't ("mean employers", for example). But the simple, naive story in my view isn't that bad a defense. I would say to the general public that for everyone to get by in the market economy we ensure that everyone earns a certain minimum level. Of course the sophisticated defense gets more complicated than that, but that is a true statement, right? It's not a "Nobel Lie" as Bryan put it. It's not a lie at all. It is a simplified version of the truth, I'll agree, but that's different from a lie and there's nothing in Bastiat that disputes that.

What is in Bastiat (and every single intro textbook or dinner table conversation about the minimum wage) is the opportunity cost of the minimum wage. The general public understands that a minimum wage makes it more expensive to hire workers than not having a minimum wage. That's the whole damn point - to raise the price of labor. I don't honestly believe that Bryan Caplan - a guy that got into Princeton - was not told this or exposed to this in high school. I think this is the "Nobel Lie" Bryan tells himself about his own past to justify his complaints about defenders of a safety net.

That represents a real trade-off.

But everyone already knows this. Otherwise people would be advocating $20 minimum wages, and they're not doing that. Republicans wouldn't be making these arguments to the general public if the general public didn't know this. You don't learn things from politicians, after all - you get what you already know reinforced and reemphasized.

Anyway, I was encouraged by the first post but did not find the second post very insightful or imaginative.


  1. My experience concerning liberal arguments for the minimum wage is quite different from yours. Yes, while in college, where everyone I hung out with was at least partially interested in social sciences, the dynamic effects of the minimum wage were taken for granted and the arguments fell on elasticities of supply and other such concepts. But since leaving college and going in a technical field (I'm a software engineer) I've mostly spent time with people who don't have much training in social sciences and have generally not spent much time thinking about economics. Among those people and other such friends, whether they know about the dynamic effects of the minimum wage almost perfectly aligns with their politics. The liberals think it's just a conservative lie and the conservatives generally have a ridiculous version of the model in their heads where the minimum wage accounts for like 90% of the unemployment. And those are not stupid people. But the liberals basically think in terms of evil employers and helpless employees who get saved by the minimum wage. In my experience, liberal political rhetoric and popular liberal media content also usually ignore the dynamic effects of the minimum wage. I'm also French and while I now no-longer follow French politics, left-wingers were pretty frequently proposing rather ridiculous increases to the minimum wage and when the dynamic effects (companies cutting jobs) were presented to them, they saw it as blackmail rather than just the effect of a price increase on quantity demanded.

    My guess Daniel is that because you stuck with academia, you probably still spend most of your time with people who are sophisticated thinkers on these issues and so don't often encounter people who have the majority model in mind.

    PS: It's not like the conservatives are any better. Their simplistic stories are just different.

    1. I think you are changing my argument a little. I'm not saying the general public is aware of the nuances of making an economic argument for the minimum wage around supply and demand elasticities or the general equilibrium effects of a minimum wage (a point that I think is too often neglected). I agree they don't.

      All I'm saying is that what Bryan says the general public misses - the opportunity costs and the first order negative employment effects on the people we're trying to help - the public does not miss. This stuff is the bread and butter of the minimum wage debate and I refuse to believe that someone like Bryan Caplan never came across people talking about it until he read Bastiat. I find that claim completely implausible.

      re: "But the liberals basically think in terms of evil employers and helpless employees who get saved by the minimum wage."

      I keep getting this line but I don't know if I've ever heard a liberal refer to employers writ large as "evil". I've only heard that when a specific employer does something really reprehensible.

    2. I may not have expressed myself very well.

      I didn't mean that the general public doesn't know about the nuances of the arguments. That would be an absurdly high standard. I actually meant that in my experience, the general public does not understand that raising the price of labor through the minimum wage will reduce demand for labor and cause people to not get hired. (They especially don't seem to understand that those who are most affected by this are the least skilled and most vulnerable workers) There is a caveat. They seem to understand it, but only in the context of competition with workers in third-world countries. In other words, they think that if we only just closed borders, the minimum wage would have no effect on the quantity of labor demanded.

      I meant to talk about your argument regarding why people don't ask for $20 minimum wage. I have heard on multiple occasions smart and well educated liberals ask for much higher minimum wages. ($15, $16, never $20) When I brought up the issue of higher unemployment rate, it was quasi-universally dismissed as conservative propaganda.

      I also want to say that most of those people could probably be fairly easily brought to the conclusion that the minimum wage does cost some jobs. They may even "know" it on some level. But they don't think it and they don't incorporate it in the way they reason about the world.

      On the evil of employers, I don't think liberals think all employers are evil. What I'm saying is that the section of the general population that is liberal thinks of the minimum wage as protection for those workers that are helpless from those employers that are evil. In their minds, if employers were all decent people, minimum wage laws could be abolished because all employers would pay better than the minimum wage.

      Of course, this is all based on anecdotal evidence.

  2. Another thing - lots of moderates support the minimum wage (like... um... me), and presumably conservatives do too since as far as I know they've never tried to abolish it. So it's probably not very helpful to talk in terms of liberals and conservatives.

  3. You're missing Bryan's point. He's asserting that dinner table conversations about the minimum wgae don't happen very often (and if they do there will usually only be supporters present).

    1. Can we stop saying "I'm missing Bryan's point"? I'm really not.

      Frequency is relative. There are less dinner table conversations about the minimum wage than the kids' soccer game, I agree.

      And yes, given that most of the country supports the minimum wage your parenthetical is certainly true. But we aren't arguing over support. We are arguing about the sophistication with which people understand the policy.

    2. Bryan thinks nobody considers whether it's actually good policy. (Evidence to this is people thinking that EVERYBODY (other than the evil rich) would see wages drop if the minimum wage were repealed, something most economists would not agree with.)

  4. Regarding Bastiat, the reason that essay tends to be so controversial is that it intermingles two different counter-factual arguments. Firstly, if the shopkeeper's window is not broken then he continues to enjoy that capital good. Society benefits from that fact in the long-term. Secondly, if the shopkeeper's window is not broken then he *may* spend his income on other output which has a labour component. The problem is it's by no means certain that he will spend it that way. He may keep his money for a long while (of course not forever) or he may spend it on existing capital.

    It's essential that economists break up these two ideas which don't belong together and analyze each separately.

    Society as a whole may be richer even if the shopkeeper doesn't spend the income he has saved as a result of the window not been broken. From that point of view the argument about employment later is unnecessary. But, the lower classes may be poorer than if the window had been broken, because breaking it causes labour demand to rise. The argument about the shopkeeper spending his money elsewhere is important for that.

  5. In the second thread a huge argument arises over whether Bryan's claim that he'd never heard the disemployment argument against the minimum wage until he was 17 is true.

    I can't remember that far back well. But, I think it would be great if someone could do some empirical research on the public understanding of economic issues like the minimum wage. A good questionnaire with well phrased questions would be very useful. I looked on the internet to see if someone has already done this, as far as I can tell they haven't.

    1. I looked around too and similarly came up with nothing. There's lots of polls about whether people support a minimum wage (most do), but that's of course a different question.

  6. Daniel, you used to have a problem with people assuming that their intellectual opponents support X, Y, or Z for unfounded reasons. Why is it that now you assume the public understands (and because of that understanding) support X, Y, or Z?

    Do you have any quantifiable data that the average high school student, in both poor and wealthy school districts, understands the bread and butter of the minimum wage debate? Or is this more of your recent streak of being contrarian to the contrarians (i.e. calling Sumner overly snarky on, of all the possible topics, Brad Delong. If that's not a huge ideological bias on your part I don't know what is)?

    1. Explain the bias. I don't understand your first paragraph.

      I have said in the past that I don't like it when people assume that because they support something the other side must oppose that thing, but that's not what seems to be going on here.

      Ultimately all sides are being anecdotal here. My anecdotes come from experience in a very liberal school district where I certainly remember discussing how employers might respond to the minimum wage. It's such a blatantly obvious response, I really just can't comprehend the idea that people wouldn't get it. This isn't high-falutin academic jargon. Higher labor costs mean employers can employ less people.

      Conservative politicians say this stuff in stump speeches. Those speeches are aimed at the average American, so the fact that they say this stuff is a pretty good indication that the average American comprehends what rising labor costs do.

      It's the same deal with layman's talk about China, right? They know jobs are moving there because Chinese wages are lower, right? This is not rocket science.

      So we both have anecdotes. I obviously trust mine more than theirs. But there's is also much less plausible on its face.

      It's also much more natural to assume that you are smarter or more aware of what's going on than everybody else. It's a natural cognitive bias. So it's not surprising that they would be remembering this wrong.

      But please - elaborate on my bias. I'm not sure I'm quite getting your argument.

      Me thinking that there are people out there that are wrong hardly meets the bar of "ideological bias", unless you've got more of an argument.

  7. You're giving way, way, way too much credit to the general public. For one thing, I don't think anyone thinks the purpose of the minimum wage is "to raise the price of labor", which you can do with a simple labor tax. At the very least, the goal should be a to raise the market-clearing price of labor -- i.e., to get the same people employed, but at higher wages. High labor prices don't help anyone if most people aren't able to sell labor. (And that's a crucial, not nit-picking difference.)

    Also, the reason people don't (visibly) support a $20 minimum wage is not because of some nuanced economic model, but because they *know it sounds absurd and hurts their credibility*, even though they like the idea. Advocacy of arbitrarily high minimum wages is *implied* by people's mental model that says:

    "If you mandate higher pay, that will give everyone a raise with no fires."

    (And yes, that is miles from the truth.) This model is implied by virtually every popular-press argument (or "objective news article") framing the debate. "Proposed law could mean a raise for workers."

    It's just that people aren't able to logically advocate a minimum wage and yet identify where it stops becoming an argument for $100/hour minimum wages. You don't have to take my word for it: jump into any reddit discussion, point out how someone's position implies $100 minimum wages would be a good idea, and see if they respond with a (plausible) economic model that shows where the benefits to the minimum wage fall off and higher is no longer better.

    You WILL NOT get such an answer. Instead, you will get replies like, "no one's advocating that", "that's a strawman", "we wouldn't want to overdo aggregate demand", etc.

    And get some gauze on that ivory tower nosebleed!

    1. How can I be the one that you invoke ivory towers with in a dispute between me and Bryan Caplan of all people. Bryan's position is the very definition of an ivory tower perspective on this.

    2. All the more reason to support it.

    3. Bryan_Caplan was invoking his past, younger, non-ivory tower experience of arguments in favor of the minimum wage.

  8. Looks like numerous commenters over there agree that you're wrong about the state of the minimum wage debate in the minds of the public.

    Is it possible you're just wrong here, and simply want to believe that the public accepts more of the reality of the minimum wage's negative effects than it really does?

    Just a thought...

    1. Of course it's possible, but I think highly unlikely. It's telling what type of people think I'm wrong on this, don't you think? If we were commenting on a blog other than Bryan's I think the breakdown would be very different. Watch the selection bias, Silas.

    2. Select however you want to, Daniel_Kuehn. I defy you to find *any* group of people matching your experience with all these popular-but-sophisticated arguments for the minimum wage.

      If things would be different on another blog, why is it you can't actually find such a blog with this opposite response? If anything, the internet debaters-by-day on leftist sites barely know of the sophisticated arguments against the minimum wage to begin with, and those with less interest in econ will be even worse.

      How many people do you think you would have to grab off the street before you found one that could explain the argument that the minimum wage could cause unemployment?

      How much disconfirming evidence do you have to encounter before you start entertaining the notion that you're just flat-out wrong here?

    3. Silas:

      1. No. Not "popular-but-sophisticated". I've said several times now the sophisticated arguments are not made by the general public. Try to keep up. Popular-but-simple arguments are made.

      2. re: "How many people do you think you would have to grab off the street before you found one that could explain the argument that the minimum wage could cause unemployment?" - Most would be able to explain that to the sophistication of the average libertarian on the internet.

      3. I haven't seen ANY disconfirming evidence yet, Silas. Feel free to give me some. I've only seen extremely implausible anecdotes. I just googled "the minimum wage is bad". You should too. It comes up with all sorts of news articles and youtube videos by non-economists making the simple Bastiatesque argument against it. This is very obvious stuff. It's not sophisticated economics.

    4. Buturovic and Klein find that 47.5% of adults say that the minimum wage increases unemployment.

      Now presumably there's a further percent that understands the simple Bastiat argument for that conclusion - they understand that first order effect - but answered that it does not increase unemployment because of a more complicated general equilibrium or elasticity argument.

      This was heavily correlated with political ideology. Since it's unlikely that conservatives and libetarians are smarter than liberals, it's likely that liberals understood the arguments for why the minimum wage would increase unemployment and had other arguments in mind that they found even more convincing, or understood the arguments for why the minimum wage would increase unemployment but answered the question normatively rather than positively.

      See my response for the major problems with Buturovic and Klein's interpretation of their data:

  9. I don't think you know what "disconfirming evidence" means. An entire thread of people having the same experience as Bryan_Caplan (and *extending* to *present day* discussions with their families) *is* disconfirming evidence. It may be weak evidence (because of how you multiply entities in your hypothesis, but it is evidence).

    I'm still waiting for your link to a blog discussion of lots of people saying, "oh, yeah, I totaly heard the argument about disemployment effects growing up". It's not that this is hard to find, I assure you; it's that it doesn't exist. At all.

    No. Not "popular-but-sophisticated". I've said several times now the sophisticated arguments are not made by the general public. Try to keep up. Popular-but-simple arguments are made.

    You're just being difficult here, as you know exactly what I meant: I'm referring to all these (non-existent) layfolk that understand the potential for disemployment effects of the minimum wage. Say something responsive to that, rather than whining about how I'm not keeping up.

    Finally, as for the 47%, that's adults *who were introduced to the argument by the pollsters*, not ones who had already been familiarized with it growing up.

    1. An entire thread of people claiming to have an experience many years ago that is implausible and affirms their political views.

      I don't think you know what "evidence" is.

      I'm not going to cater to your trolling. I suggested you do something: google "the minimum wage is bad". Just read what average people are capable of understanding.

      My purpose in life is not to satisfy Silas Barta because all my experience with you is that nobody who disagrees with you can provide any argument that will make you change your mind. But I've satisfied myself looking at the discussions out there (NOT politically libertarian people recounting their high school years in a way that reflects positively on them today).

      Do the same, or don't. Your call. When you don't provide any evidence yourself and I've already provided you with some, I don't feel the need to convince a mind that's never shown interest in an honest discussion in the past.


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