Asymmetrical Information

Amen, sistah!

Now to put the words into song:
"Honesty ... it's such a lonely word
Everyone is so untruuuuu-ue
Honesty is hardly ever heard
And mostly what I need, from you"

But all of us bloggers should remember to watch ourselves for those tendencies as closely as we watch everyone else.

Let me repeat the obvious point that a key value of criticism and robust debate is that it is often easier for people to watch each other and catch each other's mistakes, than it is for people to catch and admit their own mistakes.

Blogging is just another technical advance that allows people to do this "better-faster-cheaper."

OK, Megan, here's a question for you. This is serious, not sniping.

How about a list of things that you think are genuinely consensus opinions in economics? Let's say, things that 90-95% of economists would agree with. And be fair!

That could be an interesting list, and an interesting discussion, no?

Double amen, sister! Can a law be passed requiring that this post be run as a crawl everytime an economist appears on the tube, and does the equivalent of a T.V. weatherman predicting the high temperature 700 days from now, except with an unacknowledged political agenda? It can also be run as disclaimer after every column by an economist in a major newspaper. Some are better than others, but good grief, the way some of these people behave encourages incredible cynicism about the entire profession.

Jane:

You prove your point by knocking PK, but not right-wing supply-siders.

T.S.

Given the context, one might have thought that "It does not tell us, as many advocates have argued, that we could raise the minimum wage to $10 with salutary effect on poverty" could have done with a source or two.

Google doesn't make it easy to search for terms like "$10", but the EPI, usually in the forefront of such things, were talking about $6.15 in 1999, and the highest figure I could find was $8.50.

>>How about a list of things that you think are genuinely consensus opinions in economics? Let's say, things that 90-95% of economists would agree with. And be fair!

This is going to be all the more fun because there are a fair couple of propositions which 95% of economists would agree with, but which are actually logically inconsistent!

D2: search on "living wage". Advocates here are trying to hit the $11.50 mark.

Kevin: Let me think about that. It's hard because there's a long list of things, like "if you set the price of something below market level, you will soon have a shortage of that thing" that aren't particular policies, but are, if you get my drift. I mean, get out your micro textbook -- that's a list of things pretty much everyone agrees on. Free trade's a big winner. Particular policies may see a lot of quibbling over details but not basic truths: you can argue about many features of the California deregulation plan, but the basic fact that the disconnect of price from consumers, combined with a legal mandate to supply power up to the limits of the utilities' purchasing ability, was the primary cause of the market's failure to clear, and thus the enormous arbitrage profits traders were able to make by exploiting artificial differences in pricing. Maybe I'll post the question and let others answer it.

TS: I've reamed out the supply-siders too. Krugman had a quote I wanted to use which provides a neat illustrations of the pitfalls of the desire to make policy, even among those who know the danger.

change the contest, let's see if there is anything which Jane, Drum and D2 can agree to and go from there.

hi all,
"Or they omit crucial data, or they forget to mention that half the profession disagrees with them"

that wouldn't be applicable to this new series of proposed tax cuts the administration wants to implement, would it?

95% of economists agreeing--are we talking about all economists (classical, marxist, neo-ricardian, etc.) or just neo-classically trained card carrying members of the profession?

if the later, income compensated demand schedules are always downward sloping.

if the former, perhaps, the major motivation of most firms is to make profits.

dsquared wrote:

"Given the context, one might have thought that "It does not tell us, as many advocates have argued, that we could raise the minimum wage to $10 with salutary effect on poverty" could have done with a source or two."

"Google doesn't make it easy to search for terms like "$10", but the EPI, usually in the forefront of such things, were talking about $6.15 in 1999, and the highest figure I could find was $8.50."

There are local "living wage" ordinances with higher figures (up to $11), but, AFAIK, they're in the higher-cost areas of the US.

What the Card study showed was that increases in the minimum wage had a much smaller effect on employment than previously thought. (Though there's an interesting excerpt from the economist here http://members.verizon.net/~vze2mtyq/TheEconomist.html)

Actually, it'd be interesting to see whether there was a differential effect in how the minimum wage increases affected businesses where the franchiser allows the franchisee to keep a good portion of the profits (e.g. McDonalds) versus businesses where the franchiser soaks the franchisee for every penny (e.g. Subway).

I don't have access to economic lit. searches anymore, so D^2, what's the current state of play in the battle v. Card and Neumark?

Jane: basic truths are OK with me, although I guess I'm thinking a little beyond things like the law of supply and demand. "Free trade is good" would certainly count as an example of policy that has very broad consensus agreement.

Re: Minimum Wage

IIRC wasn't the original minimum wage about $0.25 an hour and set in 1938?

In which case if we had adjusted it for inflation we'd actually lower it to about $3.00 an hour.

http://www.bu.edu/econ/faculty/cooper/rcplays/minwage/T1_fedmin38_97.htm

"what's the current state of play in the battle v. Card and Neumark?"

There was an exchange between Card/Krueger and Neumark/Waschler in the AER, I think in the December 2000 issue. I posted on it in the comments here a few months back.

N/W had been charging, for some time, that C/K's data were flawed and unrepresentative. The exchange of articles showed pretty convincingly that in fact, it was N/W's data that were unrepresentative, and therefore their results which were suspect.

Jane, as far as proposals to "raise the minimum wage to $10," you still haven't provided any substantiation, as "living wage" ordinances, as Tom noted, are very narrowly targeted--they apply to specific, high-cost urban areas, and normally target only businesses which receive local govenment contracts. So lets see you either 1) link to a proposal to raise the federal minimum wage to $10, or 2) acknowledge that it is at least possible that you are wrong.

On another point, it would be more accurate to say that "the supply and demand model predicts that if you set the price of something below market level, you will soon have a shortage of that thing." This is a far more limited prediction, as it applies only to the theoretical situation of pure competition, where all sellers are price takers. If a seller has market power, as virtually all real world sellers have, the outcome is far more ambiguous.

Now there's a statement I doubt you'd get agreement on: employees are almost always price takers.

The living wage advocates I've talked to here don't seem to want to restrict the living wage to government contractors; that may be the opening salvo, but it isn't the ultimate goal. The fact that cities have high cost of living is not really relevant to the question of whether doubling the minimum wage will cost jobs.

Nor do I think you can assert that C&K definitively got the better of it, since most of the people I've talked to, outside of the extremely high-sodium schools, seem to feel differently, including people who are very interested in finding non-conforming marginal behavior.

But this isn't about the minimum wage. It isn't about whether $5.15 is better than $6.00 or $4.00 -- we can have that no doubt fascinating discussion another time. This is about the temptation to advocacy, which is what y'all are doing by leaping on stupid irrelevancies rather than focusing on the discussion at hand.

Did anyone else read the same post that I did? Jane quite rightly points out the pitfalls of policy advocacy, especially with regard to the supposedly objective field of economics. She offers a few examples of statements or studies that are essentially flawed because they spend too much time advocating and too little time actually studying.

The response is the standard.

Argue the point folks, it isn't about any particular study, it is about the very fact that the political premises taint any study. The end result of not separating your politics from your science degrades both.

"But all of us bloggers should remember to watch ourselves for those tendencies as closely as we watch everyone else."

Interesting that you pick out Card, Krueger, and Krugman to criticize and then tell everyone to be carefule of letting personal political opinions influence economic thinking.

Physician, heal thyself.

And you were nowhere to be found when I was jumping all over Art Laffer, for some inscrutable reason. I'm free-market oriented. I'm sorry that makes you unhappy, but there you are. I've tried to present Card and Krueger's arguments fairly. I'd like to present Paul Krugman's arguments fairly, but having grasped his central insight that Bush is the anti-Christ, I feel it's a waste of time to keep rereading it twice a week. The question is not whether I have to be mean to a conservative every time I'm mean to a liberal -- it's whether I'm hiding evidence, stretching the truth, or trying to imply things I wouldn't say outright. I'm sure I'm guilty of it at times, but I don't think I'm guilty of it here -- Card and Krueger are getting nicer treatment than they would on many other Chicago school sites.

"And you were nowhere to be found when I was jumping all over Art Laffer, for some inscrutable reason."

Maybe 'cos fish-in-a-barrel shotgun practice isn't our favorite sport.

"I'm free-market oriented. I'm sorry that makes you unhappy, but there you are."

Sure. But acknowledge your lacunae. I'm sure on some level you acknowledge there are economists outside the Chicago school, but you do a great job of concealing it.

"I've tried to present Card and Krueger's arguments fairly. "

Sorry Jane, you didn't. Go back & read what you in the initial post.

Fair play to you for posting your opinions and taking the consequent heat. But don't think of yourself as being unaffected by the ideologies you have soaked in your education & experience - just like me, you, and everyone else. As Barbara Ehrenreich has said:

'We like to flatter ourselves with the Rashomon story -- that every one of us brings a unique perspective to the world; in fact most of our thoughts, minute by minute, are borrowed from the common fund of socially acceptable nonsense.'

So maybe let's give the "knowledge is socially constructed" folks some slack, eh?

A "living wage" campagin is not the same as one aimed at the "minimum wage" and again, given the context, I think it was wrong of you to confuse the two. At the very least, you should have made it clear that the source was "people you had talked to", rather than anything we could check up on.

I disagree that you have treated Card & Krueger's study fairly. You have described it as "hotly disputed" and then used the phrase "even if it were true", implying that it isn't. If the people you have talked to think that C&K did not come out best from the American Economic Review exchange, then I am very worried that you have been talking to people who didn't understand the issue; or perhaps they were being polite to you.

And I've just noticed that Paul Krugman is being vilifed for (correctly) stating that the USA does not face a pensions crisis. I thought that even Martin Feldstein had given up on this one.

Well, those econ professors often have trouble understanding articles in the AER. Its all those numbers or something.

One's opinions on the C&K study, like one's opinions on the 2000 election, seems to track remarkably closely with one's voting record -- except at Chicago, where a number of Democrats voiced the opinion that it was crap. There may be Republicans saying it isn't elsewhere, but I haven't met them.

Of course I haven't read the thing myself. But I followed the Lott controversy for a while (not the latest imbroglio over the study he took his name off), and was assured by a number of social scientists that Lott had been soundly defeated, when it turned out that each time his interlocutors had found yet another way to throw out most of the sample. As Lott himself said "If someone says 'the effect disappears when you throw out large counties and Florida', that tells you someone's been working overtime. It's not as if 'large counties and florida' is a combination that logically springs to mind." Which is not to say I'm endorsing Lott's numbers. I'm not, especially after the latest shenanigans. I'm just pointing out that people who knew about statistics seemed bewilderingly sure on the basis of rather thin remarks -- so I'm going to withhold judgement.

This argument about minimum wage/living wage is retarded, since the issue is whether, as I think someone just claimed, a price floor on labor is okay because employers are price setters, not whether living wages have interesting special features (the living wage advocates make the same argument, except their argument is that it won't cost jobs or raise taxes). Even Paul Krugman thjinks so:

The "living wage" movement, which has attracted considerable support in several major U.S. cities, is a variant on this tradition. As described in Robert Pollin and Stephanie Luce's new book Living Wage, it essentially involves putting a floor on wages not through a conventional minimum wage law, but by requiring minimum wage standards of firms that do business with a local government. Aside from novel enforcement issues (I know this lawyer who will explain to you about creating dummy companies for the contract work, leaving the rest of the business unregulated), this is basically a distinction without a difference: The living wage movement is simply a move to raise minimum wages through local action.

Idaho

Canada (It's in Canadian dollars, but the magnitude is similar to what we were talking about)

Ralph Nader's Green Party Campaign

The Living Wage

Card and Krueger cited in support of a 25% increase in the minimum wage
Card and Krueger cited by someone who wants to raise it to $8.24

That's just the first two Google pages; unfortunately I have to go now.

Prediction: D^2 and Mark either disappear, or claim that the folks I found advocating the minimum wage increases aren't up to some hypothetical level of prestige -- their think tank is in, but Nader is irrelevent.

Wow... some people will argue with anything, even if they have to pick something that's tangential to the point. Good post and certainly accurate on the problems of bias and advocacy.

I just thought I'd post and saw that I also see the living wage/minimum wage argument as being somewhat pedantic and off-point.

Bolie IV

>>Prediction: D^2 and Mark either disappear, or claim that the folks I found advocating the minimum wage increases aren't up to some hypothetical level of prestige -- their think tank is in, but Nader is irrelevent.

Advocates of a living wage certainly want to increase the minimum wage and I don't see how anyone could possibly have interpreted me as making the ridiculous argument that they didn't.

However, advocates of a "$10 living wage" are all advocating that wage for a subset of companies, in a particular locality. They want to have an effect on all wages everywhere, but you cannot say without evidence that they would necessarily want to set "the minimum wage" (which has to mean the Federal minimum wage) to a level of ten dollars.

Bolie: Pedantry is not "off topic" in a discussion about rigour and getting facts right. It is the topic.
An example might be that I am a moderate puritan who wants to see wine priced a little more expensively to discourage children and the poor from drinking it. I am, say, in favour of a $2 tax on wine, but cannot get political support for that proposition. But I can get support for a $5 tax on French wine. So I advocate a "tax French wine" policy, in the belief that the effect of such a tax will be to deliver a windfall gain to the producers of non-French wine, with the market equilibrium settling at a point where wine costs $2 more.

Now clearly in this case, it is correctly to say that I am an advocate for more expensive wine. But it is wrong to pin the figure of $5 onto me and say that I want all wine to be $5 more expensive. Etc, etc.

Prediction: I carry all before me and am borne out shoulder-high amid tickertape and laurels.

Oh rats, I somehow garbled that post:

Advocates of a living wage certainly want to increase the minimum wage and I don't see how anyone could possibly have interpreted me as making the ridiculous argument that they didn't.

However, advocates of a "$10 living wage" are all advocating that wage for a subset of companies, in a particular locality. They want to have an effect on all wages everywhere, but you cannot say without evidence that they would necessarily want to set "the minimum wage" (which has to mean the Federal minimum wage) to a level of ten dollars.

An example might be that I am a moderate puritan who wants to see wine priced a little more expensively to discourage children and the poor from drinking it. I am, say, in favour of a $2 tax on wine, but cannot get political support for that proposition. But I can get support for a $5 tax on French wine. So I advocate a "tax French wine" policy, in the belief that the effect of such a tax will be to deliver a windfall gain to the producers of non-French wine, with the market equilibrium settling at a point where wine costs $2 more.

Now clearly in this case, it is correctly to say that I am an advocate for more expensive wine. But it is wrong to pin the figure of $5 onto me and say that I want all wine to be $5 more expensive. Etc, etc. As far as I can tell, the term "living wage" was at least partly coined to distinguish these local campaigns from those surrounding national minimum wages.

prediction as above.

D^2 wrote:

"Prediction: I carry all before me and am borne out shoulder-high amid tickertape and laurels."

Ave Daniel! Proeliator invictus!

Jane, did you err in setting some of those links. The "Nader" link goes to a poster advocating raising the [i]Canadian[/i] minimum wage to $10--which would correspond to about $7 or so US. The last two links both go to the same article, by someone who favors raising the New York State minimum to $7.65 per hour. None of the ones I can read--two of them are "Economist" articles that require a premium subscription--advocates raising the US minimum to anywhere near $10.

"Now there's a statement I doubt you'd get agreement on: employees are almost always price takers."

As someone who teaches labor markets in my econ courses, I don't agree. Several points come to mind:

1. Price taking occurs only in markets with pure competition, and one of the conditions for pure competition is a standardized product. Labor hardly is a standardized product.

2. Many employees clearly do have market power--anyone who is covered by a union contract, any skilled professional, many creative artists of all kinds, etc.

3. Indeed, any worker who has been on a job long enough to establish a record their supervisors can look at probably has at least a little market power.

4. In addition, pure competition requires price taking on both sides of the market, and many employers clealy have at least some market power.

What sort of employees would be price takers? Probably new hires with little or no established employment history would be price takers for all practical purposes. But once they prove themselves to their employers, they will acquire at least a little leverage, and therefore a little market power.

One of my wisest professors in grad school, Benjamin Klein (a Chicago Phd, I might note) used to tell us "in the real world, everybody has at least a little bit of market power." I think he was essentially right--if you look at the world that way, you'll be far closer to a correct analysis than you'll be if you assume everyone is a price taker.

Tom -- okay, there's some problem. If you go look at the Nader/Green platform, you'll find they were advocating a national minimum wage on the order of $10 +/- $2. The other links went to organizations or states advocating minimum wages above $7.50 either locally or statewide. You can take my word for it, or you can search on "+ Card Krueger raise minimum wage" and "+ Card Krueger wage $10" and get the same results I did; they were all off the front page.

Daniel, this is trivial. Raising the minimum wage doesn't have to be at the federal level -- I doubt the workers are any less unemployed with a state wage -- and that sort of quibbling is pointless. Now I am finished with this discussion, because it's totally irrelevant.

"Tom -- okay, there's some problem."

"If you go look at the Nader/Green platform, you'll find they were advocating a national minimum wage on the order of $10 +/- $2."

Firstly: I have absolutely no objections to you beating up on Nader & the Greens.

Secondly, when I did a search on "Card, Krueger, (Nader or "Green Party") and "minimum wage", I didn't find anything that hinted that they were basing their $10+ minimum wage platform on Card & Krueger's study (I'd actually be fairly surprised if they opened a copy of AER or within a beagle's gowl of a tenured labor economist when coming up with their platform).

You may feel free to correct me.

>>Raising the minimum wage doesn't have to be at the federal level -- I doubt the workers are any less unemployed with a state wage -- and that sort of quibbling is pointless.

If the context is whether or not X wanted to raise the minimum wage to $10, and if it comes in an article about rigour and political spin, then the question of whether a political opponent of the difference between $8.24 and $10 isn't a quibble and it isn't pointless.

With regard to some of the early attacks on Lott's work, it is absolutely false to claim that they relied on throwing out most of the sample. Black and Nagin found that removing Florida caused most of the effects to vanish whether or not the sample was restricted to large counties (which is what the talk of "throwing out most of the sample" refers to).

It is also highly misleading to refer to restricting the sample to large counties as "throwing out most of the sample". Lott's regressions were weighted by population, and make up most of the sample when weighted. Lott knew this, and he also tried restricting the sample to large counties and found that it made the results stronger. Despite this, he peddled the line that Black and Nagin's results depended on throwing out 86% of the data. Quite false, and he knew it.

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