"For 40 years Walter was the heart and soul of George Mason’s unique Department of Economics. Our department unapologetically resists the trend of teaching economics as if it’s a guide for social engineers. This resistance reflects Walter’s commitment to liberal individualism and his belief that ordinary men and women deserve, as his friend Thomas Sowell puts it, “elbow room for themselves and a refuge from the rampaging presumptions of their ‘betters.’"
My emphasis on the two best parts. This paragraph is from Don Boudreaux' WSJ oped for Walter Williams. The highlighted phrases (my emphasis) stuck out to me as a brilliant encapsulation of where economics research and practice has gone, as well as teaching, in the last few decades. A guide for social engineers, indeed. Most papers end up with "policy conclusions" that amount to intensely complex advice for all-powerful (yes) and all-knowing (ha) "policy-makers" aka social engineers. Economics was once more about how people searching for a little elbow room are empowered to help themselves and their neighbors.
Walter Williams passed this week and Ed Lazear passed last week. I am not only saddened by their loss, but that stirring bits of the Chicago - UCLA - George Mason economic philosophy seems to take place increasingly in obituaries.
One tidbit
“What minimum wage laws do is lower the cost of, and hence subsidize, racial preference indulgence. After all, if an employer must pay the same wage no matter whom he hires, the cost of discriminating in favor of the people he prefers is cheaper.
It's not just theory, and Williams wrote extensively. It's not just employers, or discrimination per se. Minimum wages and unions were originally embraced to keep low-wage Black workers out of northern labor markets, as much because they would work for low wages as because they were Black. This sordid history is not well remembered among minimum wage and union advocates today. Minimum wages still privilege the dependable, well trained, and able to adapt to the employer's schedule, over the transient, the kids needing some time and acculturation to work, ex-cons, immigrants undocumented or with poor English skills, people needing flexible schedules and so on. This redistribution, rather than overall labor demand, strikes me as the great crime. All protection starts by reducing competition, and the easiest place to reduce competition is from the vulnerable and powerless.
Marginal Revolution has a lovely remembrance and points to additional ones by Jayme Lemke David Henderson and (especially recommended) Thomas Sowell. Also Peter Boettke. Williams' intellectual trajectory, like that of Sowell, Thomas, Loury and others is interesting. Update: Even the New York Times does a good job.
Somewhere I have it bookmarked, but there was a research article that came out a few years ago that confirmed that a higher minimum wage correlated with less youth, minorities, and ex-convicts getting hired. It confirmed that the preferences of the employer AND their customers, along with higher wage costs made these employers less likely to hire people from these groups. I will try to find and link it.
ReplyDeleteMicroeconomics might take exception to your characterization of the minimum wage. If we recall that the marginal cost of labour equals the quotient of the wage rate and the marginal product of labour, then it behooves the manager/owner of the establishment to find and hire those units of labour that offer the highest marginal product. Algebraically, MCL = w / MPL. The higher MPL for a given wage rate, w, the lower the quotient MCL (the marginal cost of labour). If the ex-con is unreliable, if the "kid" is inefficient, and those whose language skills are doubtful (if knowledge of English is needed), then those categories will be less favoured because employment of that labour will raise the marginal cost of operations and lower profitability. Could this be the reason Walter Williams observed lower employment rates of labour in those categories? Does a rational impulse to lower marginal cost comport with discrimination on the basis of race, or age, or mental capacity? Perhaps it is simply the profit motive at work.
ReplyDeleteSuppose the "kid" is inefficient and knows it. Suppose you know it too. Suppose the kid is smart enough to also know that there is a w for which his MPL lowers your MCL? In a free market he could offer to work for w, improving his life prospects, and you could accept, improving your profitability. With Minimum Wage Laws you are both prevented from improving your respective situations. My grasp of Williams' point is that if you are a racist there is no economic cost to you of being one. At the same time, a poor kid of race loses a bargaining chip for moving forward. With no minimum wage law the kid can appeal to your profit motive for a chance to get a job. Play this game a million times a year and see what plays out.
Delete@Old Eagle Eye: The equation you present here makes precisely the point Williams made. Less productive workers are COSTLIER per unit of output than their peers if they are paid the same wage. The obvious solution? If you aren't very productive, you can always offer to do the job for less money per unit of labor.
DeleteSee where we're going with this? You can negotiate yourself into a job, even if you aren't very good, provided you do it for the right price. Your equation says EXACTLY that: managers care about marginal production costs and complementary/substitution across labor types. If you have no wiggle room to undercut wages, there are opportunities to work you will loose -- and it's going to hit people at the bottom, not the top.
Some years ago, I was the operations manager for a mid-sized manufacturing concern which had located its manufacturing operations in a plant near an Indian reservation. We were involved in a military procurement supply contract and the government inquired as to what proportion of the plant workforce was Indian, what proportion was non-Indian and visible minority, and what proportion was female of any racial category. My workforce was of a mixed and diverse ethnicity and there were a notable proportion of women in the workforce, and they were as ethnically diverse as the male cohort of the workforce. Wages varied by the nature of the work and the skill of worker (higher productivity or marginal product of labour garnered higher wages). The plant had two unions--one for the mechanical shop and one for the electrical shop. The female workers worked in the electrical shop and in the administration area. A minimum wage was dictated by legislation, but it applied only to shop custodial workers ("sweepers") who lacked a skilled trade. Needless to say, we had but two sweepers and those two worked a full shift. As to Indians from the local Indian reserve, we had none. They lacked the skills and the aptitude to work in either the mechanical shop or the electrical shop and wouldn't have managed to keep up with the workload in the administrative area. It was cultural--they lacked the motivation in part because they had not been raised to working in a fast-paced engineering shop and they lacked the specific skill sets required which could only be obtained through the rigorous apprentice-journeyman-master-craftsman multiyear progressive education and work experience. It had nothing to do with race, but a lot to do with cultural proclivity. None of this was reported to the government. No report was made, and nothing was filed in response to the government's inquiry. Nor was there a follow-up by the government agent.
ReplyDeleteHow does one hire low-wage employees for a privately owned firm? Typically, hires are identified by word of mouth. Job openings are posted inside the firm. If the opening is an entry-level position, then it is more than likely that one or more current employees will know of a promising youth who is looking for work and will either make a recommendation to the personnel or operations manager or suggest to the youth that he or she make an application to the firm. Only when there are no prospective applicants does the firm look outside its intramural community for a new-hire. The hiring process winnows out the applicants through a multi-step process of evaluation and trial. If the candidate doesn't come up to scratch, he or she is passed over if not yet employed or let go if employed, and the search process resumed. What is the employer looking for in a new-hire? In a nutshell, high potential. What else should the employer look for? Reliability, promptness, honesty, and an ability to work well in the work environment. In other words, labour productivity that is additive to the existing workforce. Anything less detracts from profitability of operations. It was ever thus. Your average basketball coach will tell you the same thing.
ReplyDeleteWell, yes, you've just described internal labor markets. They tend to work because the people being considered are already known quantities, have been screened and have jumped through the necessary hoops. But these are rarely minimum wage positions.
DeleteWilliams was curious in that he eschewed the label as being a libertarian, endorsed and even supported discriminatory practices, all the while trying to expose the nature of preferences and how they work their way through labor markets and hiring decisions. Yes, skills matter, as do access to acquiring them, which has largely been uneven. But even with equal skills, preferences as to hiring make a huge difference in acquiring general and specific training, which help people climb the socio-economic ladder. This is why in my mind legislating morality is folly because it removes the role of preferences and creates an impossible task in generating a more equal distribution in hiring amongst different groups, especially those that have been marginalized or have been forgotten.
Until preferences change internally, not much will change.
"Economics was once more about how people searching for a little elbow room are empowered to help themselves and their neighbors."
ReplyDeleteI think the better explanation of the history of the Economics profession is that it did not start out innocently and devolve into sin. It began in the US in the early 20th Century as an illiberal "Scientific" enterprise intended to empower and guide social engineers. See: "Illiberal Reformers: Race, Eugenics, and American Economics in the Progressive Era by Thomas C. Leonard (2016)
https://www.amazon.com/gp/product/0691169594/"
Only in the wake of the 1930s, and of the emigration of the Austrian school to the US and the UK triggered by the Nazis did some economists revive earlier traditions.
An enormous countervailing force was the mathematical formalism of Paul Samuleson and the social effects of the invention of electronic data processing that made data gathering and manipulation on a scale theretofore unthinkable, routine.
I'm going to break ranks here and talk about the man himself.
ReplyDeleteI have enjoyed his books (heavily dog-eared) and articles for years. He was always able to get his messages across to the public without a single equation.
He rose from poverty to professor and his stories about confronting racism in the Army in the 50s gave him impeccable credentials to comment on social issues, however politically incorrect.
He had a great sense of humor, often tinged with irony. I had a brief email exchange with him a few years back regarding his definition of a "right", which was "a right imposes no obligation on another. For example, the right to free speech is something we all possess simultaneously. My right to free speech imposes no obligation upon another except that of noninterference. Similarly, I have a right to travel freely. Again, that right imposes no obligation upon another except that of noninterference.".
Kind of like the Jefferson quote "it neither picks my pocket nor breaks my leg"
I wrote to Dr Williams and asked him about the right to a trial by a jury of your peers. Doesn't that mean that someone could be coerced into jury duty to fulfill that right?
He wrote back, "Hey, it's an imperfect world".
Sometimes I was able to catch him on talk radio when he was sitting for the regular host. He was witty and provocative.
To me Dr Williams' essays were up there with Bastiat's Broken Window Fallacy and the Candlemakers Petition. He was a fantastic communicator, examining and discussing socioeconomic issues for people with no special knowledge of the field.
The Candlemakers Petition demanded the French government take protective action against unfair competition from the sun. I suspect Dr. Williams enjoyed Bastiat's satire on tariffs.
DeleteHe was my Econ 101 professor. And I spent 30 years lobbying against mandated wages before federal, state and local governments without compensation. Just the common sense teaching Walter Williams and the notion that I was responsible, as a citizen, to testify to the impact of these legislative efforts as I knew then to be. While I wasn’t his best student, I may have been the most affected. Five minutes into his first lecture, he changed my life forever. God bless, for me you will forever be remembered as a terrific teacher with the ability to blend economics and great stories that young men and women could relate to their daily lives. Thank you.
ReplyDelete