Author Archive for Per Bylund

Projecting Projection: Paul Krugman

749px-Paul_Krugman_BBF_2010_Shankbone-300x239Paul Krugman, an official ranter at a blog hosted at the New York Times, recently wrote a hilarious column on (what he calls) libertarians. As usual, it is not very clear what Krugman is actually talking about, but some of the statements are spot on. At least if we take a step back to look at what Krugman seems to really be saying. It is quite insightful.

The column at first appears to be about some kind of surge in libertarianism within the republican party. But it is really a critique of blind political rants. Writes Krugman:

Libertarians … tend to engage in projection. They don’t want to believe that there are problems whose solution requires government action, so they tend to assume that others similarly engage in motivated reasoning to serve their political agenda — that anyone who worries about, say, environmental issues is engaged in scare tactics to further a big-government agenda.

He then goes on to talk about Paul Ryan, which makes the use of the label libertarian quite confusing, but the general point that people involved in the bickering of political parties tend to project opinions onto their opponents is made quite persuasively. Krugman also writes:

libertarians deal with the problem of market failure both by pretending that it doesn’t happen and by imagining government as much worse than it really is

All we need to do is replace “libertarian” with any label that Krugman uses and “government” with “the market” (and vice versa) to see that there is fundamental truth in these words: “Keynesians/progressives/[whatever] like Krugman deal with the problem of government failure both by pretending that it doesn’t happen and by imagining the market as much worse than it really is.”

But perhaps this is unfair? Well, maybe not: “Keynesians/progressives/[whatever] like Krugman tend to engage in projection.” Of course, my stating this is but a scare tactic.

Was Ronald Coase an Austrian?

Ronald H. Coase was one of the few very influential economists of the 20th century, and was awarded the “Nobel Prize” in economics in 1991. He was hardly an Austrian economist. On the contrary, he was a self-declared socialist – at least in his youth. But there is reason to believe he was well aware of Austrian theories while an undergraduate student at LSE in the 1930s (which was when he wrote one of his most influential articles, “The Nature of the Firm” published in 1937). This is when Hayek gave a series of lectures on capital theory and business cycles at LSE, and later the same year was made part of the faculty.

Coase notes in his reflective work that the whole department was affected by Hayek’s lectures and the content of the latter were part of the discussion among faculty and students for months. At the same time, it would be strange to assume that the leading figure in the department – Lionel Robbins, at the time somewhat of a Misesian – had no impact on Coase. We know that Arnold Plant, head-hunted and employed by Robbins (and mentioned as an Austrian in Hülsmann’s Mises biography), was the faculty member that influenced Coase’s thinking most. So there are several obvious “touch points” between Coasean thought and Austrian economics.

But there is more. Coase was obviously well aware of Mises’s argument against socialism, which he refers to in his 1937 article noting that “economists in the West were engaged in a grand debate on the subject of [economic] planning” (Coase, 1988, p. 8). This (and related) statements in Coase’s lauded 1937 article have been quite overlooked by scholars, but they may very well be important. In fact, as I elaborate on in an article in the September 2014 issue of the Journal of the History of Economic Thought, there is good reason to read Coase’s “The Nature of the Firm” as not primarily a treatise on economic organization in general – but a discussion on economic planning intended to support the market socialist argument in the Socialist Calculation Debate.

Coase not only positions his article in the great debate, but refers to Austrian arguments while seemingly relying on insights borrowed from Hayek’s lectures (but misunderstood). This apparent relationship between Coasean thought and the Austrian framework sheds new light on the modern theory of economic organization, which is often based on or even ”starts with” Coase. (The probably most influential theory is Transaction Cost Economics, developed by Oliver E. Williamson but based on Coase’s contributions.)

My article is here: Ronald Coase’s “Nature of the Firm” and the Argument for Economic Planning (2014, gated). An ungated working paper version, Mises Working Paper #0001/14, is here.

Hayek’s Real Thoughts On Praxeology

One happy camper

One happy camper?

In the introduction to Mises’s autobiography Memoirs, FA Hayek denotes Mises’s “a priori character of economic theory” an “exaggeration” that the latter was “driven to” because other economics scholars did not accept the Misesian argument at face value. Whether this is itself an exaggerated description to make a point about Mises’s psychological state (or theoretical argument?), or – as some may have it – an attack on the master after his passing, the statement is quite interesting as it may reveal Hayek’s actual view of science.

Assuming Hayek actually believed Mises’s Praxeology was an exaggerated response to being misunderstood by the profession, then Hayek would appear to have accepted “part of” the argument. The question, of course, is what “part of” the “a priori character of economic theory” means, if anything. While the research designer needs to balance forces and interpretations in the art of econometrics and statistical manipulation, surely such a balancing act is neither desirable nor scientific in purely deductive theorizing.

Such balancing amounts to balancing the argument that our point of departure is true or balancing the logically stringent deduction from this argument. Both necessarily mean a “balancing” act between truth and untruth. So what is Hayek getting at in this statement? I elaborate on this on my blog Economic Reasoning in a post called Theory, Exaggerated or in Moderation?

The Market on Piketty

piketty_0With all the fuss about the French economist’s tome on capital and perpetually growing inequality, one perspective that is uncommon in the commentary is what “the market” thinks of Piketty’s characterization of it. In other words, do those involved in investing and developing capital agree with Piketty’s analysis?

Whereas one should hesitate to place too much value on individual people’s anecdotes, the “real world” rather than outrageously simplified models should be close to any Austrian’s heart on economic theory. After all, we are proponents of causal-realist analysis of the market and economy. So whereas it may not serve as scientific evidence, this comment by well-known investor Marc Andreessen is as interesting as it is revealing about the “socialist calculation” view of the economy held by the likes of Piketty:

The funny thing about Piketty is that he has a lot more faith in returns on invested capital than any professional investor I’ve ever met. It’s actually very interesting about his book. This is exactly what you’d expect form a French socialist economist. He assumes it’s really easy to put money in the market for 40 years or 80 years or 100 years and have it compound at these amazing rates. He never explains how that’s supposed to happen.

The comment, from an interview in Vox, goes to the core mechanistic assumption in Piketty’s system – and shows why it is wrong: it includes neither uncertainty nor entrepreneurship. Sometimes economists would benefit from listening to “the market.”

Human Action in Swedish

125px-Flag_of_Sweden.svgAs we noted a couple of months ago (here and here), the Swedish Mises Institute (officially the Ludwig von Mises-institutet i Sverige) were organized a crowd funding campaign to finance the translation and subsequent publication of Mises’s magnum opus Human Action in Swedish. They eventually reached (exceeded, actually) their goal of SEK 60,000 (almost $9,000) and are now working on getting the translation done, proofed, and then published. If all goes well, they hope to have the book available already in the fall – at least in a digital format. (This, of course, would require quite a bit of human action.)

Those of you who read Swedish or wish to learn – and this is obviously a great opportunity for Misesians in e.g. Minnesota and Wisconsin with Swedish or Scandinavian ancestry - may want to consider investing in a copy or two of the final product. Keep an eye on the site for updates on how this project progresses. Find the post We Made It! here in English translation.

Nope, Money Ain’t It

gold moneyIt is funny, really, how so many can be so fundamentally in agreement about the worthlessness of a science based on a widespread and complete misunderstanding of what it is about. Who hasn’t heard that economics is all about money? Yet, of course, it isn’t. If economics is about anything, it is about the effects and implications of value. Or, more accurately, the actions that are taken by individuals aiming to achieve something they deem of comparatively higher value. It is important to recognize that

…value is distinct from money and can be studied completely without involving money. In fact, it can often be easier to completely exclude money and instead talk about wants, preferences, or even “utility” to make it clear what is analyzed. And value is a subjective appreciation of something, which necessarily has a tacit component and therefore cannot fully be communicated to others. We can use all sorts of proxies or estimates, but they will never correctly “measure” the value as it is seen or felt by the individual him- or herself. This is not simply because people change their minds and preferences all the time, but because value is fundamentally immeasurable – there is no value unit that can be used to accurately measure the satisfaction felt by the individual achieving it.

Read more in my EconReason post It’s Not About the Money.

Another Economist’s Anti-Economics

download (3)Ha-Joon Chang, development economist at Cambridge University, has published a new book: Economics: The User’s Guide. The Huffington Post publishes a selected excerpt that makes for utterly terrifying reading. Not only does this book “on economics” appear to be written as some form of dismissive narrative (?), but it makes assertions and produces stacks of baseless or misleading statements about economics that supposedly comprise “arguments.” And, to top it off, Chang claims open-mindedness in his narrow-minded “takedown” of economics.

I couldn’t resist going through the statements in the HuffPo excerpt one by one and put light on this shady reasoning. Chang seems happily ignorant of what economic analysis entails. He never produces an argument in the excerpt; the only thing he accomplishes is to advertise how limited his understanding of the field he represents must be.

From my commentary, Ha-Joon Chang, Yet Another Economics Skeptic:

At first glance, this may seem like a worthy criticism – look, economics is supposed to be value-free, but not even its supposed value-free methods are value-free. But it really just amounts to a dishonest application without much relevance even to neoclassical economists. As readers of this blog know all too well, neoclassical economists tend to use “models” based on rather absurd and highly simplified assumptions such as “perfect information.” Well, they also commonly assume “perfect competition,” but Chang somehow misses this point. Instead, he assumes that the use of the Pareto criterion in abstract models under such assumptions is applied directly and thoughtlessly on empirical analyses.

Granted, if we take the Pareto criterion without thinking about it and apply it on an empirical situation akin to the ones we find in the developing world, then it appears rather outrageous. There’s nothing “natural” or equal or just with the starting point, which means the Pareto criterion only cements this situation – where radical change may be more just. In this sense, one can only agree with Chang. Except, of course, for the fact that economists don’t use the Pareto criterion inductively; they use it deductively, which in fact means that it is a criterion only from a starting point that is accepted as “untainted” by politics, privilege, etc.

More here: Ha-Joon Chang, Yet Another Economics Skeptic

Disrupting Economics?

economicsIt has become fashionable to attack and dismiss economics. In an age where the likes of Piketty can become an “authority” in the eyes of the public by writing a tome of scientifically questionable content but that says what people want to hear, it may seem like we are heading for a disruption in the study of economics. Perhaps this is a good thing, considering how economics professors at renowned institutions can get away with - and even be praised for – saying really dumb things like

Economics is a political argument. It is not – and can never be – a science; there are no objective truths in economics that can be established independently of political, and frequently moral, judgments. Therefore,… you should never believe any economist who claims to offer ‘scientific’, value-free analysis.

As Austrians, we have long claimed economics needs to do away with its ridiculous “physics envy” and study the market and economy for what they are. In this sense, we’re both ready for and welcome a disruption. But only if it entails a revolution in the right direction – toward a sound study of the real world. But tis is hardly what progressive unthinkers have in mind; they would rather replace the economic analysis of the world with empty slogans and policy.

As they often remind us, economics is but ideology – it is not science – and therefore cannot be trusted. How can they say this? Because the “Scientific Marxists” claim so. (The contradiction obviously escapes them.)

Economics can be both scientific and different from the statistical “mathturbation” it has often degenerated to. I try to summarize how and why in a recent text, The Fundamental Importance of the Trade-Off.

“But Who Will Build the Roads?”

solar-roadway-bike-pathAs always, the market comes to the rescue through innovative entrepreneurship. And in this case, not only do these entrepreneurs promise to build roads – they will use the roads to generate electricity for sale on the market. So they solve two problems at once. Nay, three – the roads use part of the generated power to keep snow and ice off the surface, thereby making them safe even in cold weather. Wait, four – the roads can display lights to warn drivers of danger ahead such as wild animals.

The venture, called Solar Roadwaysis fully crowd-funded (closing in on double what they requested) but is looking to ”improve” existing government roads (which shouldn’t be all that hard) rather than lay their own. Too bad government doesn’t allow competition.

From Noahpinion to No Clue?

Over at The Week, Noah Smith, an economics professor at Stony Brook University and of online “Noahpinion” fame, attempts a dismissal of the Austrian school of economics. His critique is intended to show that “the Austrian School’s demise came not because its ideas were rejected and marginalized, but because most of them were co-opted by mainstream macroeconomics.” But Smith is obviously far from an expert on Austrian theory (or the history of it).

The argument that Austrian ideas have already been incorporated in mainstream economics has already been repeated by mainstreamers so many times that it would be strange if they don’t believe it by now. It is easy to see where Smith got the “idea” to add to the myth-building. But there was perhaps some truth to it, at least in the 1930s, as Pete Boettke noted in 2002:

By the mid-30′s … the idea of a distinct Austrian program, even in the minds of the Austrians themselves, was seriously waning, in part because the mainstream more or less absorbed the important points the Austrians were making. Mises (1933, 214) had argued that while it is commonplace in modern economics to distinguish between the Austrian, Anglo-American, and Lausanne School, “these three schools of thought differ only in their mode of expressing the same fundamental idea and that they are divided more by their terminology and by peculiarities of presentation than by the substance of their teachings.”

But since then several things have happened and the Austrian and mainstream/neoclassical schools have drifted apart. Not only has the Austrian school further developed and strengthened its theory (by such “minor” works as Human Action and Man, Economy, and State) and seen a resurgence, mainstream economics has stumbled down a very non- (anti-?) Austrian path of unreal assumptions hidden in layers of excessive mathematization, and, thanks to their adherence to Whig theory, lost most of its economic heritage and sound grounding. Read More→

Human Action, Swedish edition

Or is there?

Is there a place in Marxist countries?

The Swedish Ludwig von Mises Institute is working on translating (and will then publish) Mises’s Human Action: A Treatise on Economics into Swedish. Obviously, a Swedish translation will be more accessible to Swedes than the original English, especially for the older generations who are generally less proficient in English. As Swedes are a comparatively highly educated people, it is not impossible that Human Action can end up on the book shelves in the homes of Swedish Average Joes (Sven?).

Perhaps this is an opportunity to get the sound economic reasoning of Mises into the minds of Swedes and then into the highly progressive Swedish political discourse. Who knows, maybe Human Action could potentially play a similar role in Sweden as the samizdat copies of Hayek’s Road to Serfdom played behind the Iron Curtain during the cold war? Whether or not this will actually be the case, Human Action in Swedish would pave the way for Austrian economics in this socialist utopia. Who can argue with such a noble goal?

More information on this project (in English) can be found on the web site along with a call for support.

The Perception of Economics

655px-Bifoklabrille_fcmA recently published article at The Week, with the title “How can we unleash positive animal spirits into the economy? Change the narrative,” provides a clear example of what’s wrong with the perception of economics and why modern economic approaches, possibly aiming to amend the shortcomings “identified” by this perception, is at a loss of explaining anything important.

Perhaps the title of the article, written by John Aziz, is sufficiently telling, but let’s have a look at the assumptions and assertions in the first couple of paragraphs – and how they apply (if at all) to economics. Aziz begins:

Economics is a tough science. People are complicated — they have different (and unstable) desires, react differently to events, and view the world in different ways. Markets are complex interactions between millions of these different people.

It appears Aziz finds it highly problematic for economics that people have different desires. This is indeed a problem for a science attempting to understand or predict those desires. In this sense, I certainly feel for those psychologists working on such issues. But as an economist, it is hard to get puzzled by the statements. Rather, one feels excitement about the “complex interactions” that Aziz mentions. Yes, that’s where it gets interesting – the social phenomena arising due to individuals’ actions independently, in concert, and within an institutional framework. Here’s where the economics is. So let’s see where Aziz takes us from here:

In this respect, understanding the economy requires an understanding of people’s motivations. They invest and spend money (or withhold from investing and spending money) to fulfill certain desires and objectives, such as making a profit, building a nest egg, or simply acquiring useful goods and services. Sometimes these economic decisions are rational. Other times, instincts like greed (during an economic boom) and fear (during and after a bust) can cloud our rationality.

This paragraph is at best puzzling. The first sentence makes no sense: why does understanding “the economy” requiring understanding “people’s motivations”? It does not follow. The economy does not reflect the motivations, but people’s actions based on them. In order to understand what happens to the water when ice melts we do not need to know what the source of heat is. In order to understand the storyline of a novel we do not need to know on what type of machine it was typed or printed. Likewise, we do not need to understand people’s motivations to study the outcome of their actions.

Aziz continues: Read More→

Bylund on Resistance Radio

I’ll be on Resistance Radio 98.9FM WGUF at around 12:15 EST discussing Obamacare and Sweden’s health care. My take on the former is that it is much like the latter used to be, but that as America is going for public health care Sweden is going for markets.

Bylund on Liberty Talk Radio

I’ll be on Liberty Talk Radio, KFAQ-AM in Tulsa, OK, tonight (2/22) discussing the similarities between the Affordable Care Act and Sweden’s public health care system. I’ll be on from around 7:35 PM CT (8:35 PM ET), and for those interested the radio show also airs nationally on

Reasonableness In Minimum Wage “Debate”

800px-Supermarket_check_outIf President Obama has a legacy in the history books of the future, it will likely be the utter ignorance of and contempt for economics expressed in his policies. Assuming, of course, that the next president is not even worse (which is not unlikely).

The debate following the proposal to raise the minimum wage to $10.10 is just the most recent example of Obama’s view of the world. (Central planning of health care is another.)

Granted, there is an ongoing debate among economists about the “real effects” (by which is meant: measurable, statistically significant effects in collected data) of minimum wage regulation. As Bob Murphy shows, this is not really a debate on the effect of outlawing low-paying jobs (which is what we are really talking about) but about empirical measuring techniques, data selection, econometric formulae, and statistical juggling.

The academic minimum wage debate is really only a symptom of the real problem: economics as an empirical science. Since economics is a social science, the “data” it relies on are necessarily interpreted and selected before plugged into lacking equations the statistical results of which must then be interpreted again. But “data” somehow still gives the results an air of untainted, unquestionable objectivity.

Nevertheless, modern economists seem to have swallowed the “data” illusion hook, line, and sinker. And while at it, they throw out all the babies they can find with what little bathwater they’re already pushing out the window. Read More→

The Ridiculousness of Economics?

People have a strange habit of ridiculing economics for its assumptions and [benchmark] models of optimality. While modern mathematical economics (i.e., professional mathturbation) admittedly rely on sometimes outrageous assumptions that make most of the resulting predictions irrelevant, there is nothing ridiculous or unscientific about economic reasoning. In order to study the social world we need to consider and analyze what’s observed empirically from the point of view of the theory-derived counterfactual. Economic science necessarily begins with theory.

As Mises noted, in the social world there are no constant relations. Consequently, inductive number crunching based on (the seemingly irrefutable phenomenon) data cannot tell us much about the world. So we must rely on what we logically find to be necessarily true, and from it derive specific truths that help us understand observed phenomena in the real world. We thus create counterfactuals that help us assess and perceive what is actually going on, rather than blindly observe.

Interestingly, while economic reasoning is laughed at and ridiculed, people tend to place great faith in applied fields such as medicine as though it were a real science. So perhaps if economics were more like medicine, it would earn the respect as a science (side-effects aside)? Read More→

Turning Their Backs on Sweden’s Welfare State

800px-Flag_of_Sweden.svgAs noted by e.g., Yahoo! News recently reported that Swedes are increasingly turning their backs on their globally lauded utopian welfare state. While very little known, Sweden’s welfare state “worked” through the early 1970s thanks to deliberately preserving capitalist institutions and expanding its scope at a slower rate than the country’s overall economic growth. This changed in the 1970s, which necessitated several devaluations of the currency in only a few years intended to “boost” exports, and then a somewhat lost decade in the 1980s.

The welfare state finally imploded under financial problems in what can best be categorized as an economic depression in the early 1990s. The social democratic government resigned, government lost control (to the extent it ever had any), and politicians from all parties got together to enforce strict budget discipline (no deficits) and consistently cut back on the state’s generous welfare benefits. At the same time, pseudo-market forces were reintroduced through Friedmanite voucher systems, private health care was no longer prohibited, and the national pharmacy monopoly was privatized. Even Sweden’s railway traffic is now carried out largely by private companies.

Also, since 2006, Sweden has also seen relatively extensive (for being Sweden, at least) tax cuts.

Of course, these measures were necessitated by the great crisis in and around 1992 – the state does not limit its own power unless it absolutely has to. And the welfare system is still quite generous with almost-”free” health care and fully taxpayer-funded education from kindergarten through university degrees and doctorates. This is, as us Austrians have known for quite some time, unsustainable, and it has in Sweden impacted the economy as well as the morals in the country.

While Sweden has lately ”fallen” from the #1 position on the global tax rate list to #4, public spending still amounts to well over half of the country’s GDP. The national debt as a fraction of GDP, not including pensions and other liabilities, has halved over the course of the last two decades. Twenty years of reform, away from the extensive welfare state and socialist experiment, explains Sweden’s relatively strong finances in the present financial crisis. But much remains to be done.

As the Yahoo! News report shows, Swedes are fed up with their “great” public health care (which is very costly, highly qualitative, but mostly inaccessible) and gladly (and in great numbers) take advantage of the market solutions made available through recent reform (in this case, private health care insurance). This fact is yet another empirical case indicating both that socialism, even “limited” such in the form of a welfare state, is disastrous – and that if common folks get to choose (rather than vote or elect), they choose the market.

The Credit Cycle “Explained”

debt-moneyI was recommended to watch a 30-minute video by Bridgewater Associates available at explaining How the Economic Machine Works. The phrasing “economic machine” should be enough to raise the blood pressure of anyone with the slightest economic literacy. And sure enough, while there are some truths in the video, it is a masterpiece in no-says and well disguised fallacies.

The video sets out and purportedly succeeds in explaining how the economy works, describing the roles of productivity, credit/debt, credit cycles, and transactions. It is beautifully produced, and is in fact a masterpiece in making assertions and unfounded statements sound like “obvious” causal explanations. For instance, we learn that “a cycle that goes up must come down” and this supposedly explains why a credit-infused boom comes to an end. Anyone dumbfounded by the complexity of the modern economy (or the nice graphics of it) might be tricked into thinking such a statement has to do with causality, while it obviously doesn’t.

The economy, the video notes, consists of three tendencies: a stable increase in productivity, which somehow is fixed and doesn’t change (!); the long-term credit cycles almost a century long; and the short-term credit cycles of 5-8 years. I guess we are supposed to take their word for it, but an explanation would be nice. Oh, sorry, there is an explanation provided: when people are offered credit, it becomes a problem because “people push it” since it is in “human nature” to push for more. This creates an unsustainable credit-infused and credit-fueled boom. Why?

Explanation: “this obviously cannot continue forever, and it doesn’t” - “the cycle reverses itself.” Oh, okay.

Then what? Well, the economy goes in reverse, credit is cut and incomes fall because there is deflation (yikes, everybody take cover!). This is when the central bank steps in to lower interest rates so that people can get back to spending. Because, remember, “spending drives the economy,” so getting people to spend again saves the day. More credit, happier people.

But when we reach the end of a long-term credit cycle, such as in 1929 and 2008, lowering interest rates to zero (0) doesn’t cut it. So the central banksters must print money “out of thin air” and counteract the deflationary pressure by creating inflation. But this is tricky, so we must have really smart people on Capitol Hill and on the Federal Reserve board. Thanks to these great people, the central bank and the rest of the government can perfectly balance the economy’s horrible deflationary pressure with measures to create beautiful releasing inflation. When this is done, ”there can be a beautiful deleveraging” (emphasis in the narration) that sets the economy back on track again.

Phew, imagine what kind of situation we would be in if the government did not step in to refuel, service, and grease the “economic machine.” We are obviously very fortunate to have the central planners, because otherwise we would all be extremely poor - if not dead.

It’s just one thing that is missing from this beautifully made propaganda video. But this is also what makes it propaganda rather than educational: an explanation. There is not one single explanation for any of the phenomena discussed in the video. And this is how the economic machine works…?

The Real Greenspan

225px-Greenspan,_Alan_(Whitehouse)In a recent not-an-interview on Harvard Business Review‘s HBR Blog Network, Alan Greenspan reveals his true self as a central banker and student of ”economics.” One might think that the former Collective member would understand and appreciate the workings of the market, but if there ever truly was a Greenspan like that he’s long gone.

The Greenspan that emerges in this text is a man who romanticizes about economic planning, who believes in his ability to rationally plan and thereby ”save” the market (from itself). It is possible that the author’s anti-market bias shines through in the text’s “heavily edited excerpts,” but the Greenspan that is portrayed is the typical megalomaniacal central banker. And he obviously approaches the study of economics from a purely statistical, quantitative, and inductive point of view.

To illustrate, at the beginning of the “interview” Greenspan expresses his real disappointment about not being able to get down to [statistical] business:

I had an idea of constructing a certain statistical procedure. I called in a bunch of the senior analysts and I say this is what I have in mind. They all said, “Oh, it’s a terrific idea. Let’s do it.”

I said, “I’m going to do this one.” Silence. One guy says, “You’re CEO. You’re a chairman. You do CEO/chairman stuff. We do the research here.” I mean, I was really put down.

Poor Greenspan had the power to rule them (us) all, but was not expected to do “real” economics: fiddle with the statistical models used in controlling the economy.

The “interview” is unsurprisingly littered with talk about looking at the ”data,” as well as phenomena that Greenspan seems to think appear spontaneously. Bubbles, it is suggested in the text, have no obvious cause, but Greenspan, in all his divine experience, has come up with a novel (?) idea: bubbles seem to be preceded by “good central bank performance” (!) and hence by “a prolonged period of economic stability, stable prices, and therefore low risk spreads, credit-risk spreads.” I guess that’s one way of putting it, and staring at the data won’t ever get us closer to the truth than “there seems to be a correlation here.” (Even Paul Krugman knows better.)

This “interesting theory” (according to the author of the article) is obviously not interesting enough to spend time talking about, because the “interview” rushes on to discuss the real problem for the central bank. In Greenspan’s words, “the question is, do you quash the bubbles?” Right, when bubbles mysteriously appear “despite” the central bank’s “performance,” what do you do?

Something tells me there is no good answer to this highly irrelevant question.

Does a Minimum Wage Reduce Poverty?

In a long and seemingly technical blog post on the Washington Post “wonkblog,” Roosevelt Institute fellow Mike Konczal suggests that raising the minimum wage will reduce poverty. He primarily relies on one meta study (Dube 2013, unpublished) to show that economists “do agree” “that raising the minimum wage would reduce poverty.”

Quickly reading through the article, it is obvious that this is the kind of perception Konczal wants the reader to get. Well, not so fast. The blog post exclusively refers to aggregates of different kinds, which obscures the analysis. And, if one reads more closely, Konczal includes several limitations and constraints to his thesis, and in fact agrees with the age-old truth that raising the minimum wage would kill off jobs. Minimum wage mandates above the present market wage of course has only one direct effect: jobs below that level are outlawed. Hence, any person on the job market with a productivity level (whatever the reason) below the minimum wage mandate will not be able to find a job.

Konczal’s text is a balancing act relying on arbitrary limits and vague language. For example, he relies on extrapolating on the elasticity of minimum wage found in several studies to be around -0.24 (which means, statistically, that raising the minimum wage by 1 % would reduce the number of poor people by 0.24 %), but says that one “shouldn’t take the effects of small changes to see what would happen if we, say, increased the minimum wage 500 percent, or to levels that don’t actually exist right now.” Right. This is true, but not because the elasticity of minimum wage at the level studied “is” -0.24, but because it was – using the specific data and methods in the particular study.

There are no constant relationships in the social world, which is the reason Konczal shows reluctance to extrapolate too far from the mean; but the same fact should also make him weary to assume the found elasticity is applicable on different time periods. (But the latter obviously doesn’t bother him.)

Throughout, Konczal uses the term “poverty.” But poverty statistics take into account only income, not what tasks are carried out within employment. If raising the minimum wage prohibits certain jobs (on which Konczal agrees), is it then not likely that the remaining jobs will change? Some of the tasks carried out by low-productivity labor cannot profitably be carried out by employees with higher wages, which means – to the extent they must be carried out – business owners and entrepreneurs will need to find other ways to get them done. Perhaps through excessive automation and capital investments, which would slightly increase the demand for labor in higher-earning professions (while raising the barriers to entry for other entrepreneurs). (This is, by the way, one of the rather crazy progressive arguments for outlawing manual labor – that it forces entrepreneurs to “innovate,” which increases productivity and thus wages for those remaining employable.)

Is it not likely that a higher minimum wage, which prohibits certain low-producing jobs, will force those in such jobs by choice (that is, those choosing low-productivity employment though they would be able to earn higher wages elsewhere) will instead seek employment with higher productivity? Is it not also likely that those who cannot muster higher productivity levels would accept unpaid overtime or other types of unpaid work just to remain salaried? Both of these effects may reduce the aggregate poverty statistic while forcing those unwilling or unable to get such “perks” from employers into unemployment. (It is furthermore probable that this in turn leads to an increase in black market employment opportunities, as well as outright abuse in the work place, as unscrupulous employers seeks ways to “deal” outside the system’s restrictions.)

But Konczal seems oblivious to these effects, perhaps because they cannot easily be studied using aggregates: the type of studies he refers to tend to perform statistical magic on selected data that reveal “levels” of employment, wages, poverty, etc. Exactly what the results tell us is far from clear, but this is typical for mainstream research. Changes within employment aren’t generally observable in the aggregate data, so why not assume it is unimportant?

Of course, Konczal cannot get around the fact that raising the minimum wage above the market wage will cause unemployment. And, which is unfortunate for statistics-enamored progressives, unemployment shows up in the aggregate employment statistics too. So he concludes that, based on the studies he cites, it is the case that “there are significant benefits, whatever the costs.”

Yes, some aggregate statistics will indeed look “better.” Whatever the costs.