June 28, 2017

The minimum wage debate: a showpiece of economists’ hereditary idiocy

Comment on Sandwichman on ‘Seattle Minimum Wage’

Blog-Reference and Blog-Reference

“In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum)

The fact is that economists do NOT have the true theory. Fact is, in methodological terms, that economics is axiomatically false. The lethal blunder comes under the label of microfoundations or as Krugman put it: “most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point.”

The methodological blunder of the minimum wage debate consists of partial analysis and microfoundations. This type of analysis NEVER leads to results that can be generalized, but always to results that change from place to place and from time to time. So, this type of analysis (i) runs directly into the Fallacy of Composition, and (ii), remains forever inconclusive.

Interim result: the traditional microfoundations approach is as false as one can get and has to be fully replaced by the macrofoundations approach.

The axiomatically correct macroeconomic Employment Law/Phillips Curve#1 is reproduced on Wikimedia: #2

From this objective-structural-systemic relationship follows inter alia:
(i) An increase in the expenditure ratio ρE leads to higher employment L (the Greek letter ρ stands for ratio).
(ii) Increasing investment expenditures I exert a positive influence on employment.
(iii) An increase in the factor cost ratio ρF≡W/PR leads to higher employment.

The complete structural-systemic Employment Law is a bit longer and contains, in addition, the public sector and the foreign trade sector.

Item (i) and (ii) cover the familiar arguments about how effective demand affects employment. Item (iii) embodies the macroeconomic price mechanism. It works such that overall employment L INCREASES if the average wage rate W INCREASES relative to average price P and productivity R and vice versa.

From this, in turn, follows:
(1) The average wage rate has to be prevented from falling because this leads to rising unemployment and deflation. One possibility is to fix a minimum wage rate that increases over time. Note that this is a SYSTEMIC necessity and has NOTHING to do with social policy.
(2) The minimum wage rate has to be implemented nationwide (strictly speaking worldwide). To implement it locally or for certain branches is absolutely counterproductive.
(3) The implementation has to be done intelligently. It is, for example, stupid to kill the marginal firms with the introduction of a nationwide minim wage.
(4) Given their track record of idiocy, economists have to be kept out of further discussion and implementation.

The minimum wage policy has to be carried out under the macroeconomic condition w greater than p+r+pr, that is roughly speaking, employment increases if the increase of the average wage rate w is greater than the increase of average price p and productivity r.

To make local and partial minimum wage increases will in all eternity lead to inconclusive results and only keep a bunch of incompetent economists busy with senseless debate, inconclusive empirical studies, and brain-dead blog posts. Partial minimum wage increases have a distributional effect: those who do not get a wage increase pay in real teams for those who get an increase if employment and output are kept constant and the expenditure ratio is ρE =1.

Egmont Kakarot-Handtke

#1 Keynes’ Employment Function and the Gratuitous Phillips Curve Disaster
#2 Wikimedia AXEC36b Structural-systemic Phillips Curve

Related 'Economics and the Fallacy of Insufficient Abstraction' and 'The role of labor and business in a well-organized society' and 'Rethinking the Phillips curve' and 'Attention: there are THREE types of inflation' and 'Supply-demand-equilibrium employment theory as an example of proto-scientific soapbubbling' and 'Wage rate and employment: the basics' and 'Textbooks and the mental cloning of dumb economists' and 'Minimum wage ― a fatal error in economic reasoning' and 'No doubts about wage-led growth' and 'Demand-led and wage-led growth' and 'NAIRU, wage-led growth, and Samuelson's Dyscalculia'. For details of the big picture see cross-references Employment/Phillips Curve.

REPLY to Barkley Rosser on Jun 28

Note that the EconoSpeak admin = your sidekick Sandwichman has deleted since Jun 24 the following posts:
The minimum wage debate: a showpiece of economists’ hereditary idiocy
Note on Marshall’s Magic Wand
Economics and the Fallacy of Insufficient Abstraction
The role of labor and business in a well-organized society

In these posts and the references, you find the detailed refutation of your unqualified blather.#1

#1 See also cross-references Employment/Phillips Curve and cross-references Scientific Incompetence.



REPLY to Barkley Rosser on Jun 29

I agree with you about the brilliance of Joan Robinson which is encapsulated in her assessment of economics: “Scrap the lot and start again.”

The others, who are brilliant in your eyes, will not even make it into a footnote of the history of science. With regard to Adam Smith, I concur with Schumpeter: “… he had no such ambitions; in fact, he disliked whatever went beyond plain common sense. He never moved above the heads of even the dullest readers. He led them on gently, encouraging them by trivialities and homely observations, making them feel comfortable all along.” If this is your definition of brilliance you are probably one of the dullest readers.

For an assessment of the rest of your list see:
Marx, the moron
Walras is long gone
How Keynes got macro wrong and Allais got it right
Hayek and other informationally retarded proto-economists
The father of modern economics and his imbecile kids
How Arrow pushed economics over the cliff

Economics is a failed science and those you call brilliant messed it up.

Addendum on Jun 29

“Few people, and least of all we economists ourselves, are prone to offer us congratulations on our intellectual achievements. Moreover, our performance is, and always was, not only modest but also disorganized. Methods of fact-finding and analysis that are and were considered substandard or wrong on principle by some of us do prevail and have prevailed widely with others.” (Schumpeter)


Twitter Oct 28, 2021 An example of econogenics

For more see AXECquery.