Potpourri
==> In the latest Contra Krugman, I finally tell Tom he is officially an economist.
==> I don’t think I did anything with it at the time, but Scott Horton refers me to a leftist who blew up Paul Krugman’s whitewashing of U.S. empire.
==> The world of Trump is so upside down, that the NYT publishes Walter Block–and I mean a piece by him, not a hit piece on him.
==> Steve Patterson, fresh from overturning mathematics, turns his attention to the (alleged) abuse of a priorism in economics. I think a lot of his post at best just nitpicks some economists who might be sloppy in their presentation, but eventually he got to (what I think) is a pretty solid point when he argues:
Imagine that the following were true:
“When the minimum wage increases, it changes the self-image of employees. They view themselves as being higher-quality workers and raise their productivity levels accordingly.”
If that were true, then an increase in the minimum wage could, in fact, increase employment. The increased productivity of workers could make their employers more money, which means the employers could afford to hire more people.
Notice that this is not a ceteris paribus scenario. The minimum wage would change, causing another variable to change: the ideas of employees.
So the question is this: do we live in a world where increasing the minimum wage changes the ideas of workers so that they are more productive?
It’s an empirical question.
Now, I personally don’t think we live in such a world. (Or if we do, the gains in productivity are not sufficient enough to offset the additional costs of employment.) However, I didn’t arrive at those conclusions through a series of logical deductions. I’ve observed the world, and I don’t think that’s the one we live in.
Mises deals with exactly this kind of reference to experience in Chapter 2.10 of Human Action
Right. I didn’t think either this was a point missed by Austrian economists. Also, ceteris paribus is the default so unless you can show (apriori or empirically) the impact is counterbalanced by another factor, the original one still stands.
“Also, ceteris paribus is the default…”
I think you missed the point here:
“Notice that this is not a ceteris paribus scenario.”
He explicitly notes that he is NOT violating ceteris paribus in this scenario.
That’s not the way I understood it – quite the contrary, he is saying that his example is not ceteris paribus, i.e. it is violating ceteris paribus, i.e. other things are not equal, namely productivity is now not equal (it’s higher).
“Also, ceteris paribus is the default so unless you can show (apriori or empirically) the impact is counterbalanced by another factor, the original one still stands.”
I think this is the area of disagreement. What does “still stands” really mean? In a theoretical model that is fine – it is a tautology in effect. However, the assumption that there is no counterbalancing factor has no more validity than that a possible counterbalancing factor does in fact exist. Perhaps one can argue that Occam’s Razor supports the fewest assumptions, and that would be that no counterbalancing factor exists, but Occam’s is not a law, just a guide. Even then, we know that there are possible other factors that definitely exist, we are just assuming they do not have an effect.
It is reasonable to say “we think everything else stays the same because we have not been able to measure anything that changed, but we might have missed something.” It is not OK to reject evidence that runs counter to your ceteris paribus assumption on the basis that everything else must remain the same, as Steve Landsburg did when I presented some evidence that a raise in minimum wage did not result in measurable disemployment. I think he was trying to be amusing, but it is an important point. Economists may get too wedded to the theories and forget that the assumptions are not proven, and they are not axiomatic as they are for mathematics.
I agree with you Harold. I don’t think I said I assume there is no counterbalancing factor. I just said you start from ceteris paribus and you only add counterbalancing factors once you find them, either empirically or apriori. So I agree with your statement in quotation marks at the start of your last paragraph. I think that approach works for both physics and economics. I don’t think Newton thought his theories would never be built upon. But with knowledge being where it is at the moment, you just have to work with distance = speed * time. You just have to be openminded so you don’t miss the next big breakthrough.
So: the impact of a raise in minimum wage is, other things equal, the same or higher unemployment, never lower. It can be that other things are not equal, of course, nobody denies that. But you have to prove it first. Patterson didn’t prove it, he just raised it as a theoretical possibility. But nobody denies it is indeed theoretically possible.
” I think he was trying to be amusing, but it is an important point. Economists may get too wedded to the theories and forget that the assumptions are not proven, and they are not axiomatic as they are for mathematics.”
I think you’ll come to the realization that true economic assumptions are, indeed, axiomatic, once you become convinced that it’s not at all the number of jobs that is the meaningful metric by which we determine whether or not the minimum wage causes unemployment.
Consider what would happen if we banned the use of machines. Job opportunities would skyrocket as more people would have to manufacture more of their own stuff for themselves.
So, it’s not the number of jobs that matter, but whether or not the jobs are economically meaningful.
And since we now realize that the numbers, themselves, don’t matter, what that means is that the issue has now moved to the realm of philosophy and theory as we wrestle over what it means for a job to be “economically meaningful”.
Only individuals can do any act, including any acts of economizing (collectives do not have a will, they are merely groups of individuals) so we can know that whatever “meaningful” means, it applies only to individuals.
At this point we have the necessary information to conclude that, if the minimum wage reduces the standard of living for any individual when he otherwise would have considered himself better off for entering a mutually beneficial employment arrangement, then it follows logically that that it has caused economically meaningful unemployment.
And that was all reasoned from a thought experiment, not hard data. And since you’re not going to disagree with the first point, that just leaves us debating whether or not the other points are valid – points that data aren’t going to be capable of analyzing.
Also, Henry Hazlitt responded to your general point about ceteris paribus analysis vs. including the existence of counterbalancing factors in his book “The Failure of the New Economics”.
From the book:
“In any case, no good modern economist ever mistakes such concepts for descriptions of any actual economy. …”
“… It is a concept, a tool of thought, a postulate, an imaginary construction—or (to use a word which is becoming increasingly fashionable) a model. It is necessary to frame such postulates, such imaginary constructions, in order to study their implications and deduce their hypothetical consequences. …”
“… “Static” analysis is a necessary first step to “dynamic” analysis. …”
“… Many modern economists, in a hurry, despise all the more simple or “static” assumptions and imagine that they can analyze full dynamic reality in a single leap by a sufficiently complicated set of simultaneous algebraic equations. This is self-deception. …”
“… It is a mistake to believe that we can skip over all “static” assumptions for the superficial reason that such assumptions are “unreal.” This would be as foolish as it would be for a ballistic-missile designer to skip over all preliminary calculations of the probable flight or parabola of his missile through a frictionless medium, on the ground that no actual medium is every really frictionless.
“In order to understand the consequences of dynamic assumptions we must first of all understand the consequences of static assumptions. The method of science is that of experimental or (when that is impossible) “hypothetical isolation.” It is the method of “successive approximations.” It is to study one change, force, or tendency at a time, whenever that is possible, even when it usually, or perhaps always, acts in combination with other forces, and then to study later the combinations, interrelations, and mutual influences of all the main changes, forces, or tendencies at work.
“The belief that we can skip over all these tedious preliminaries, and surprise the secrets of the actual economy in one great leap by the use of simultaneous differential equations, is a double delusion. It disdains a method that is indispensable in order to embrace a method that is inappropriate and illegitimate.”
” if the minimum wage reduces the standard of living for any individual when he otherwise would have considered himself better off for entering a mutually beneficial employment arrangement, then it follows logically that that it has caused economically meaningful unemployment.”
This seems like a discussion if the difference between Pareto and Kaldor-Hicks efficiency. Almost no exchange is Pareto efficient. I buy a carrot from a market stall, both I and the vendor gain. But someone is worse off because that stall is there and they have to walk round it when they would have prefered to walk straight on.
Since every transaction causes some harm to someone, one is forced to abandon any such standard as soon as one goes from the hypothetical to the real.
” it’s not at all the number of jobs that is the meaningful metric by which we determine whether or not the minimum wage causes unemployment.”
Indeed it should not just be the number of jobs that is considered regarding the harm or otherwise of a minimum wage, I agree with you there. But given the carrot situation above it cannot be down to whether an individual would prefer it the other way. We must have some way of aggregating the gains and losses if we are to talk about the real world.
““… It is a concept, a tool of thought, a postulate, an imaginary construction—or (to use a word which is becoming increasingly fashionable) a model.”
A model is ” A systematic description of an object or phenomenon that shares important characteristics with the object or phenomenon. “. It will always be wrong (otherwise it would be reality), but it may be useful. If these economic postulates are a model then their value is only in so far as they are useful. Useful here means that they tell us something about the real world. Economics therefore is not a perfect logical system derived from axioms. That may be praxiology.
“This would be as foolish as it would be for a ballistic-missile designer to skip over all preliminary calculations of the probable flight or parabola of his missile through a frictionless medium, on the ground that no actual medium is every really frictionless.”
Yet this is exactly what they do. Nobody starts with a vacuum if they have the equations for air resistance.
It was essential in developing the equations for air resistance that somebody started with a vacuum, but once the situation is known for the real world there is no need to go back to square one for every calculation. One simply puts in the air resistance factor at the start and skips over the vacuum case. When designing pipework one does not start with assumption of frictionless flow. One just plugs in the values for friction in the pipes you are using and the number of bends etc. Electrical wiring is designed using resistance of the wires from the beginning – nobody calculates it for superconductivity then develops it by adding resistance. It is not foolish to skip over these preliminary calculations at all.
It s important to see what he actually said, rather than derive some alternative version that makes sense and might be what he meant. He said the missile designer is foolish not to calculate the flight in vacuo before calculating the flight in air.
Do you mean part 2, chapter X: Exchange within Society?
I think you mean part 1, chapter 2 section 10, “The procedure of Economics”.
Yes
Wow re: Walter Block. Thanks, Murphy!
The NYT should be denounced for daring to publicize and promote the work of a well-known neoconfederate and defender of slavery (according to the NYT).
I have a real problem with the way this trade war stuff keeps getting framed. I was optimistic going in that I would not find the same problems in Walter’s article but, alas, I came away disappointed.
So, Trump placed tariffs on certain Chinese imports and Block’s like, “Hey dummy, those tariffs hurt Americans more than anyone else!” Okay. Fine. That’s reasonable.
But then China slaps America with retaliatory tariffs on farming exports. Now I would expect the consistent response to be, “Geez, China just shot itself in the foot! If they were smart, they would just drop all tariffs and accept our exports with open arms even though we’re taxing their imports.” But no, Block blames Trump again, this time for China’s tariffs, and claims that those tariffs are also hurting Americans. What the heck?
I get that Austrians generally oppose tariffs but the discourse around this stuff is really unbalanced. Somehow American leadership is responsible for both our tariffs and the tariffs of all of our trading partners but, also, we shouldn’t concern ourselves with what their tariff policies are; we should just eliminate all of our tariffs. And if multinational corporations move their facilities overseas and sell their products back to us in order to avoid said tariffs, well that’s just economic efficiency! Who in their right mind could be against that?
I think the entire field of economics has a huge blind spot on international trade with regards to the mobility of capital across national borders. Trump is trying to stop the bleeding and economists are standing around yelling, “Hey don’t remove those! Everyone knows that leeches are a standard medical treatment!”
He’s blaming Trump for retaliatory tariffs. Which makes sense. He’s also saying just as a New York tariff on Iowa pigs would hurt the Iowa pig farmers, while also hurting New York more overall, Chinese retaliatory tariffs will hurt specific export businesses in the US, but would still disproportionately hurt themselves.
Also, if multinational companies are moving overseas to produce things, so what? Should California be able to put tariffs on Texas to prevent companies from leaving their state? If Trump was to keep those jobs here then lower taxes, cut regulations, reduce welfare, etc. You don’t make the US more prosperous by raising taxes through tariffs. And you certainly don’t make us more prosperous by following up your tax hike with borrowing money from China to subsidize the companies your tariffs just hurt. It’s all nuts.
Trump is working to eliminate asymmetric trade barriers that disfavor the United States. I don’t think that it makes sense to say that Trump is at fault for retaliatory tariffs from China given that the trade barrier was asymmetric before he did anything. Trump didn’t force China to do anything. And obviously China could have implemented their new tariff policy without any action from Trump. But why would Block criticize Trump no matter what China did? By his framework, their tariff policy should have zero impact on US trade policy. It is a useless data point as far as he is concerned. Do you disagree? Do you think that we should change our trade policy based on what China does with tariffs? And if not, then how can you criticize Trump when China raises their tariffs?
It’s great that Texas and California have near perfectly symmetrical trade barriers. And I think the US should work to achieve that kind of symmetry at an international level. Sure there are even more things that could be done to improve our economy but some of the things on your wish list are outside of Trump’s immediate control.
And don’t worry, it isn’t Trump’s tariffs that are hurting the farmers, it’s China’s. And China’s tariffs are gonna hurt them a lot more than they hurt us, remember?
I can criticize Trump for starting an idiotic trade war. But, yes, China is being extremely stupid to respond to Trump raising taxes on us by raising taxes on their own people.
“Sure there are even more things that could be done to improve our economy but some of the things on your wish list are outside of Trump’s immediate control.”
Yeah but Trump could also have not raised taxes. It’s not that he did something good while I think he should’ve did a different good thing. He raised taxes. That shit is idiotic.
“And don’t worry, it isn’t Trump’s tariffs that are hurting the farmers, it’s China’s. And China’s tariffs are gonna hurt them a lot more than they hurt us, remember?”
Yeah, and Trump started this shit. He kicked the farmers in the teeth by raising their taxes through tariffs, and that caused idiots in China to raise their tariffs which kicked the farmers again, although hurting themselves more, and Trump responds to that by borrowing money from China to subsidize the farmers. It’s the dumbest shit ever.
“Trump didn’t force China to do anything. ”
No, but he did something that had a very predictable outcome, since this has been the outcome often in the past. When that predictable outcome manifests it is reasonable to blame someone for such things.
Like all arms races and games of chicken, the way to win is to convince the other person that you will not give way no matter how much harm is done to you.
Economists argue that both countries are better off if trade is free. This assumes that each country has no reason other than economics to maintain any particular industry or economic practice. Many countries have a nostalgic fondness for small farms as it keeps the countryside looking a certain way, for example. Or keeping strategic industrial capability may be seen as important. Or protecting one segment of employees may get more votes than you lose by selling out the other sectors. Thus there are reasons why countries may use protection or tariffs even if they accept that they will be worse off as a whole.
I think that if China puts up tariffs on USA goods it hurts both China and USA. However, China has chosen the costs it is happy to pay for other reasons, such as those described above. Thus the USA is hurt in ways it is not happy to pay. How can it prevent this happening? By making sure that China is certain that if it imposes tariffs, the USA will respond and hurt China in ways that China does not want to pay. It works the same the other way. Thus China is logically justified in retaliatory tariffs when USA increase tariffs on steel and aluminium. The key thing is that *everyone knows* this is what will happen. It is only by everyone knowing that the system works. So when Trump sets the ball rolling by increasing tariffs on steel, yes he is to blame for the predictable results.
OK, but the way you justify China retaliating, then Trump is justified because he was just reacting to Chinese tariffs. So they got the ball rolling. In reality, none of their actions are logically justified. It’s idiotic on all sides.
Thanks Harold. I agree with everything you wrote (except that Trump set the ball rolling). I’m not saying that a person is never at fault for foreseeable retaliation. I’m saying that Trump’s tariffs were themselves retaliatory (as Dan pointed out) and that Trump and China are engaged in a game of tariff chicken as you put it.
Also, I would amplify your comment about “strategic industrial capability.” I think that’s a lot more important than it appears in general economic analysis and I think that a lot of the US’s trade partners have used asymmetric trade barriers to pull certain industries to their shores from the US.
From Block’s piece:
>Surely, New Yorkers would be far better off continuing to produce goods and services in which they have a comparative advantage (Broadway shows, dairy products, financial services, jewelry, maybe even newspapers)
Savage!
Seriously, I never thought I’d see the day when Block would be in the NYT. Didn’t he write an article about the benefits of saying what you want on lewrockwell.com instead of watering down your message in an attempt to get into the NYT?
That is awesome Silas good catch! I hadn’t noticed that.
I thought Walter Block was suing the New York Times.
Patterson failed to take into account that a priori deductions on the quantity theory of money.
KEK
Block wrote:
“As an economist who shares President Trump’s belief that we should be cutting taxes and shrinking government, I might be expected to be enthralled by his policies. But that is not the sentiment I and many other libertarians feel when it comes to his decision to impose tariffs on steel, aluminum and a host of other products made overseas, particularly in China.”
The real reason for the tariffs on imported steel and aluminum is because of national security.
They were selling lower quality steel and aluminum to the US military on purpose to make the planes, tanks, and military equipment easier to destroy.
There was a bombshell discovery of imported material specs being falsified.
By the way, Trump wants zero tariffs between all nations, that’s what was very recently negotiated with the EU.
Glad Block was published by a fake news outlet. Will help awaken people.