from the excellent blog, Cafe Hayek, Don Boudreaux posts Good Economists Ask Questions Such As These [1]
excerpts:
As I argued in this earlier post [2], to do good economics is chiefly to ask the right questions. The good economist is an incessant questioner; the good economist is neither blinded nor numbed by the popularity of familiar mantras or presumptions into accepting these mantras and presumptions as being valid. Even if there is no specific answer to a probing question asked by a good economist, the asking of the question itself often serves to demolish the weak base of implicit assumptions and poor logic upon which arguments and assertions about the operation of the economy, and about the likely consequences of government interventions, are too often constructed.
Here’s a good example of a popular claim about the operation of the economy that is exposed as highly dubious by the asking of some very simple and straightforward questions. The example comes from a recent New York Timeseditorial [3] praising the Los Angeles city government’s action to raised the minimum-wage in that city eventually to $15 per hour:
Workers’ share of the economic pie has been shrinking for decades, as the gains from labor productivity have flowed increasingly to profits rather than pay.
Overlook the questionable (!) description of the economy as a “pie” (with its childishly mistaken implication that more ‘pie’ for some people necessarily means less ‘pie’ for others). Overlook also the fact that it’s not at all a settled matter that workers’ pay has failed to keep pace with improvements in labor productivity [4]. Instead, ask: If it’s true that profits have been swelling for the past few decades because wages haven’t kept up with labor productivity, why are these profits not attracting even more firms in to the markets where these excess profits exist and persist?
– Or, alternatively, are there barriers that have arisen over the past few decades that prevent profit-hungry entrepreneurs and investors from diving in to try to grab some of these excess profits?
– Even if the U.S. is so bereft of new able and profit-hungry entrepreneurs, or if effective barriers to their entry into markets do exist, what’s with existing and successful entrepreneurs, businesses, and investors? Why do they not compete amongst themselves to bid up workers’ wages, thus causing wages to reflect workers’ improved productivity? Are all existing entrepreneurs, businesses, and investors, while shameless at exploiting their current workers, unwilling to exploit workers even more fully by each trying to hire other firms’ underpaid workers?
HKO
The media pundits report to a narrative and either because of bias or ignorance allow false statements to escape simple scrutiny.