The Manski Critique

Chuck Manski's recent NBER working paper, "Policy Analysis with Incredible Certitude" (non-gated version) ought to be a must-read for anyone doing or interested in policy analysis.

The study is written in an accessible way, such that it can be in principle followed without explicit academic training in Economics/Econometrics (there are plenty of further references for the technical details), and essentially sums up some of Manski's conclusions from his well known research agenda on empirical methods in social sciences such as partial identification, and using decision theory with credible assumptions, for policy inference-- see for instance his books on these topics (which any applied econometrician should have on his/her shelf; though I confess, my copies are currently still in Aarhus, awaiting my shipping/bringing them to Chicago), Identification Problems in the Social Sciences (1995), Partial Identification of Probability Distributions (2003), Social Choice with Partial Knowledge of Treatment Response (2005), and Identification for Prediction and Decision (2007).

Manski catalogues the 'incredible analytical practices' and provides examples for each category. His set consists of "conventional certitudes", "dueling certitudes", "conflating science and advocacy" and "wishful extrapolation". I find particularly compelling the sections on the conventional and respectively the dueling certitudes, which are preceded by a concise introduction on the incentives for certitude (wherein, as usually, USA presidents' alleged statements always come in handy). Similarly, Manski pins down very well the "wishful extrapolation" practice, when often very strong, unwarranted, invariance assumptions are made (see his example on the selective incapacitation studies performed by RAND researchers in the early 80s, which gave rise to some hot political debates).

The one section that I find less thorough than the others in Manski's paper is the one on "conflating science and advocacy". Acknowledging that impartiality in social science (in fact, with some contextual caveats, this point is relevant for science in general) is the ideal, and that often research falls far from this ideal, I think Manski's pointing out that conflating science and advocacy is one of the main reasons for incredible policy analysis is absolutely correct. His illustration with excerpts from Milton Friedman's arguments for educational vouchers is also fine; indeed some of the crucial empirical evidence necessary for Friedman's stated policy implications in that context was (and still is, as Manski also states) missing, such as whether there are significant neighborhood (or peer) externalities involved (however, for making that point stronger, plenty of better, and/or more recent examples could have been used...). What I did not particularly fancy is the between-the-lines allusion that Friedman used to do this (i.e., conflating science and advocacy) on a frequent basis or, perhaps, all/most of the time. For instance, Manski states on page 20, "Milton Friedman [...] had a seductive ability to conflate science and advocacy" [...]. See Krugman (2007) for a broader portrait of Friedman as scientist and advocate". That particular NYRB article of Paul Krugman that Manski cites (presumably for other depictions of Friedman seductively conflating science with advocacy, and related-- line which is otherwise not followed up or further substantiated in Manski's paper) has however a considerable number of inaccuracies and misunderstandings, which others very well pointed out in subsequent articles, see for instance Nelson and Schwartz's reply to Krugman's; in fact, many would easily think that Krugman is himself guilty of conflating science and advocacy here (and elsewhere; some do actually substitute 'conflating science and advocacy' with 'ignoring science for advocacy' as practice in many of Krugman's NYT pieces- 1st bullet point...). And yes, ok: I wrote myself a post about that Krugman portrayal of Friedman, shortly after his article appeared. All in all, however, this minor point does not in any way diminish the essence of Manski's thesis; it's only that if it is about impartiality and professionalism in scientific practice (which Chuck Manski is one of the champions of, no doubt), we should make sure that is also the (only) between-the-lines message.

Sunday night econlinks: Interviews edition

• Sequence of very welcome interviews by John Cassidy with several members of the “Chicago School”, about the status of Economics in the context of the current crisis, the Chicago School nowadays, the Milton Friedman legacy etc: interview with Richard Posner; Eugene Fama; John Cochrane; Gary Becker; Jim Heckman; Kevin Murphy; Raghuram Rajan; and Richard Thaler (my favourite interviews here are the ones with Murphy, Heckman, and Rajan).

• Interesting interview with urban and environmental economist Matthew Kahn on green cities, environmental Kuznets curves, demographics in major cities, policies to attract and retain a skilled population base etc. Here’s one of the parts I like most: “I'm an honest man. I think it's important to know what you don't know. When you know that you don't know something, the answer is to experiment! “ Valid beyond this context.

• A chat with Greg Mankiw, Harvard professor, successful Economics blogger, former CEA head, and a total family guy.

• December ’09 video interview with John Nash; inter alia briefly touching on inaccuracies in A Beautiful Mind , childhood, home encyclopedias, meeting his wife, asking refugee status in Europe, willingness to still do some academic work etc.

• Interview with entrepreneur Peter Thiel, among other things cofounder of Paypal, and first investor in Facebook. Though confused about a few specific issues, his overall idea makes a lot of sense.

• Short interview with Yoram Bauman, the one and only stand-up Economist, on the need for humor and cartoon textbooks in Economics. We love this quote: “I put my left hand on the small of her back, I put my right hand on the curve of her hip, I put my invisible hand on her thigh”

• And finally, a very special simultaneous interview/debate (or, rather: rap) with John Maynard Keynes and Friedrich August von Hayek, on recipes for dealing with the current, or any other, economic crisis. The lyrics, if you want to learn this by heart.

Econlinks

• "First -- Chill -- then Stupor -- then the letting go": a historical perspective on the market, starting with the Great Crash

• What would Milton Friedman say about the current financial crisis? And he wouldn't be wrong.

• Here's an excellent answer if you ever wondered why people are interested in finding prime numbers with tens of millions of digits. And a nice exposition of the Lucas-Lehmer test for Mersenne primes by Terry Tao, to whom I owe also the previous link.

• "If Krugman were not too valuable to the profession for his own work, we should appoint him to a permanent position as the translator of economics journals into English." This is from Avinash Dixit's appraisal of Paul Krugman's work many years ago, when Krugman won the John Bates Clark medal. Very actual also as motivation for Krugman's winning the Nobel this year. And here's somebody who has actually bet on Krugman winning in 2008.

• Bill Easterly excellent on the dangers of developping countries learning the wrong lessons from this crisis.

Read of the week / Quote of the week

My read of the week is John Cochrane superbly answering to this... well, "protest letter" (the latter being the reason why one of the labels for this post is "pathetic"). Probably only Milton Friedman himself could have done a better job than Cochrane here... I actually choose the following paragraphy as quote of the week:

Milton Friedman stood for freedom, social, political, and economic. He realized that they are inextricably linked. If the government controls your job or your business, dissent is impossible. He favored, among other things, legalizing drugs, school choice, and volunteer army. To call him or his political legacy “right wing” is simply ignorant, and I mean that also as a technically accurate description rather than an insult.

Via Tyler Cowen, on MR.

And here's the website of the new Milton Friedman Institute (MFI), the object of controversy in the exchange above (you can also read the proposal to establish the MFI, signed by some of my idols within Economics)

Best phrase I've read today

Sure, let those who have become rich under capitalism try to do good things for those who are still poor, as Mr. Gates has admirably chosen to do. But a New-Age blend of market incentives and feel-good recognition will not end poverty. History has shown that profit-motivated capitalism is still the best hope for the poor.

The above is by Bill Easterly and is part of the best article I've read today.

HT to Greg Mankiw.


PS. You might also want to remember what a corporation's unique goal is supposed to be (I mentioned this also before, in the end of this post).

Econlinks for 27-12-'07

• How to avoid recession in USA: Greg Mankiw's answer. Gary Becker and Richard Posner advocate a similar perspective (the argument is centered, of course, on the subprime housing mess). Former Fed boss Greenspan already said that one should do absolutely nothing and wait for the bubble to break on its own, just as the people above (e.g. in Mankiw's words: "Sometimes, bed rest and wait-and-see are the best we can do"), see my previous post on that. This also takes me to a link by Mankiw on 'bad press for Ben Bernanke ", the new Fed chair; while I think some of that criticism is valid, I'd say there is really no reason to panic and that one should trust the Fed and its chief governor, with handling this. After all, the great Milton Friedman already said Ben Bernanke is a great choice and is expected to do a good job (& remark here: this youtube clip linked above is almost one hour long wisdom from Friedman; no second of that is expendable).

• "Morality matters for economic performance": A very interesting summary of recent research plus the agenda for further research in the context, by Guido Tabellini, on voxeu.org. Tabellini already presented (part of) this in the 2007 EEA-ESEM conference from Budapest (more precisely, as the EEA Presidential Address, from the 30th of August), for those of you who have also been attending.

• "Lawsuit investment" as the new hype: "Juridica will make investments in ongoing legal claims, mostly in the US, and loans to law firms to finance their costs in pursuing claims."

• Markets in everything, one more exotic episode from Tyler Cowen's book, "Discover your inner economist" (read here the previous one). Today about the 'business of renting wedding guests':

A report from India tells of a firm that rents out wedding guests, so that the wedding and the party do not look empty. The "guests" will wear either traditional Indian dress or Western clothes, depending on what the customer dictates. They are told to dance and make small talk, and show a knowledge of the marrying couple,without letting on that they are hired. The firm's owner, a Mr. Syed, told one newspaper: "The breaking up of joint families and lack of affection among relatives also creates a demand for paid guests". The Best Guests Centre, at Jodhpur in Rajasthan, is looking to expand. To each his own: I would pay some people to stay away from my wedding.

Econlinks for 27-11-'07

• Becker and respectively Posner, on tax evasion. Why is tax compliance higher than one would expect (with a reservation here: it also follows from Posner's argument than in fact tax evasion isn't necessarily lower than rationally expected...) and is that mainly due to the rational fear of punishment or to the taxpayers' feeling of moral duty/ fairness etc? For me Posner wins this argument (they do oppose each other on the essence herein, which after all rarely happens on the Becker-Posner blog...): it is much more the deterrence effect of the fear of punishment plus the costs associated with getting to know how to evade the taxes 'properly', than a feeling of moral duty or fairness, particularly when no other individual is directly involved; after all Posner's got the comparative advantage in this area and it is very very difficult to beat that...

• From now on (until I'll exhaust all notable examples), I'll present within the 'econlinks' posts my favourite examples of 'markets in everything' from Tyler Cowen's recent book, "Discover Your Inner Economist"-- one of my best reads this year (that does not mean that its chapters cannot be ranked: there are very good and also not so good, parts). Check for instance some quotes from it previously taken over for my quote-of-the-week rubrique, here or here. For today about the drinking-and-dialing-problem and equally exotic market solutions to prevent it (and from a more personal perspective, I think there is scope for a drinking-and-emailing-problem resolution as well :-)).

We have all known people who make phone calls when they shouldn't, especially when they are drunk. A survey of 409 people by Virgin Mobile found that 95 percent had made drunk calls, mostly to ex-partners (30 percent), 19 percent to current partners, and 36 percent to others, including their bosses. Fifty-five percent of those people looked at their phones the next morning to see whom they had called-- similarly, someone is waking up in the world this minute and checking to see who it is he or she is sleeping with.
To alleviate the drinking-and-dialing problem, a phone company in Australia started offering customers blocked "blacklist" numbers, which they select before going out to drink. In Japan they sell a mobile phone with a breathanalyzer, to see if you are really fit to drive home, or for that matter to make a phone call. If a bus driver fails the test, his location is sent immediately to his boss by GPS.

• Some wisdom from the one and only Milton Friedman. More actual than ever (in fact I recalled this old interview with Friedman after mentioning the very recent one with Richard Freeman in a previous post and disagreeing with some details in Freeman's address). The most spontaneous and brilliant economist you've ever heard, I promise. So listen and relisten and... relisten. To all of it. And learn. About 30 min clip on YouTube.

• And finally, I will be a millionaire (albeit in DK Kroner, but after all one has to start somewhere) for the next two years. I have been awarded (mange tak!) a prestigious (and generous, academe-wise) independent postdoctoral research grant of The Danish Social Science Research Council (Forskningsrådet for Samfund og Erhverv) for my project "Wages, Productivity and Firm Sizes in Imperfectly Competitive Markets", submitted for the grant applications' contest last August. So yes, you can congratulate me :-). And no, they won't let me buy Belgian beers for all that money. Though I guess that some top wine for research inspiration is allowed :-). Cheers!

One hour conversation with Richard Freeman (on YouTube)

Shortly after having posted a link to an IZA clip about Richard Freeman among a recent 'econlinks' post, I discovered, via Greg Mankiw, this other link to a very recent (October 31st) whole one hour interview with Freeman on YouTube, within the "Conversations with History" series, having Harry Kreisler as host. Richard Freeman talks, inter alia, about his own career path and decision to become a labour economist, about globalization and its implications, about the 'feminization' of the labour market, about the relationship institutions-market and the role for governmental policies etc. Very clear talk, aimed to a general audience, hence if you want to learn more about all these topics (although the discussion is mostly within a US context, it is generally applicable everywhere), the easiest thing you can do is take some time and watch this video (tip: watch it in more sessions, as I did, that way you don't have to allocate a full hour in one shot...).

Now, inasmuch as my opinion is concerned, I agree 95% with the views of Prof. Freeman expressed in this interview and I think he is one of the current best labour economists able to explain them clearly also to a non-specialist audience. The disagreement arises in some of the details (precisely where a general audience- including his otherwise witty and sympathetic host- would in all likelihood feel lost): namely, a. with respect to Freeman's (seemingly uncritical) support for a raise in the federal minimum wage (see here a sequence of posts I had on that debate), though he stated previously that he strongly favours the Earned Income Tax Credit (EITC)- well, so do I, and I see that that as the best alternative to the raise-the-national-minimum-wage policy- and b. regarding the possible implication of his saying that there is a lot of scope for governmental intervention in 'leaning against the wind' inasmuch (potentially 'heavy') corporate regulation is concerned (suffice to say that US has one of the highest corporate taxes in the world: I am not sure whether Freeman hinted to anything in this regard, but I can hardly see how you can eventually make that even higher or enact similar measures...). With respect to this latter point, maybe we should all remember- and once again give the last word to the one and only Milton Friedman- that "corporation conscience" is not possible (and neither desired...). Come on, join the Milton Friedman choir: "Freedom to choose, says Friedman, or you will lose, says Friedman, freedom is freedom, says Friedman..." :-).

Best "Political Compass" so far. And where I stand on the left-right political-economic plan

You should do this 'politiquiz' (particularly if you are already a politician/ decision maker or consider a career in this direction :-)). There are lots of things that can still be improved in it, but it is the best "where you stand on the political/ economic dimensions" questionnaire I've encountered so far.

Here's a fragment from the intro to the 'Political Compass' to convince you:

Welcome to The Political Compass™.
There's abundant evidence for the need of it. The old one-dimensional categories of 'right' and 'left', established for the seating arrangement of the French National Assembly of 1789, are overly simplistic for today's complex political landscape. For example, who are the 'conservatives' in today's Russia? Are they the unreconstructed Stalinists, or the reformers who have adopted the right-wing views of conservatives like Margaret Thatcher ?
On the standard left-right scale, how do you distinguish leftists like Stalin and Gandhi? It's not sufficient to say that Stalin was simply more left than Gandhi. There are fundamental political differences between them that the old categories on their own can't explain. Similarly, we generally describe social reactionaries as 'right-wingers', yet that leaves left-wing reactionaries like Robert Mugabe and Pol Pot off the hook.
That's about as much as we should tell you for now. After you've responded to the following propositions during the next 3-5 minutes, all will be explained. In each instance, you're asked to choose the response that best describes your feeling: Strongly Disagree, Disagree, Agree or Strongly Agree. At the end of the test, you'll be given the compass, with your own special position on it.

And you can see below where I stand: somewhat more libertarian and much closer in longitude to the center than the far (economic) rightist Milton Friedman; but a (moderate) libertarian rightist I am indeed, as you can see from the picture (click on it to enlarge). Among the examples of personalities discussed at the above link, good old professor Friedman is my only quadrant neighbour :-).

Update, some minutes later: I am being notified that my political/economic position is very close to Tchaikovsky's and Chopin's, among the 'grande musique' composers. So this is it, now you have it, I've just discovered myself: I am a complex combination of Tchaikovsky and Chopin. Unfortunately, in terms of their economic and politic views and not their music. But still...

We're all Friedmanians now! And we're all from Transylvania...

This is a very concise, very well written and largely accesible (to non-economists as well) text of Robert Barro on Milton Friedman and (part of) his work. To join my other blog entries on Milton Friedman. Here's the intro excerpt, meant as an appetizer:

When my son Jason was an economics Ph.D. student at Harvard in the 1990s, he said: “I have observed that only two economists can push you around, Milton Friedman and Gary Becker.” I agreed but argued that it was a good thing. Everyone needed heroes, and Gary had only Milton. Milton had no one, except Ronald Reagan in the 1980s, but Reagan did not really qualify as an economist. Arthur Burns may once have been the economist hero—as an instructor at Rutgers, he apparently helped to persuade the undergraduate Milton not to be an actuary. However, Burns’s exalted status ended in 1971 when he went over to the dark side by endorsing Richard Nixon’s outrageous price controls. Milton tells me that Frank Knight was also his “god,” presumably between 1932 and 1935 when Milton was a graduate student at the University of Chicago and after 1946, when Milton joined the Chicago faculty.

And below there's another fragment from this text that I'd like to emphasize, since I really had no clue about this until now (and for obvious, very objective, reasons that have to do with the fact that I myself am from Transylvania :-)). As it turns out, both Barro and Friedman have Hungarian parental origins and not only that, but, amazingly, Barro's father's origins are in Transylvania. And I wouldn't be surprised if many more current (it is clear that there'll be a few more in the future! :-)) top world economists had their origins somewhere in Transylvania (as some of you might know, there are a bunch of top scientists from various natural sciences, that are originally from Transylvania: one famous exemple that immediately springs to my mind is Albert-László Barabási). So the Vampire Empire should be also famous for other things than the vampires :-). But still, don't get too excited and take it with a humorous note (if you didn't catch that meaning by now): I'm the least likely to believe, a priori, in genetic explanations, ancestry influence and all that, though there's an open empirical question here :-).

I cannot resist noting some intriguing personal linkages between Milton and me. First, we both have Hungarian parental origins from territory that is now part of the Ukraine. (My mother was from Munkacs, now Mukacevo; Milton’s parents were from Beregszasz or Berehovo.) Second, I have the name Friedmann in my ancestry, although from my father’s origins in Transylvania.

Thanks to Greg Mankiw for the link to Barro's paper.

Quote for week 25th to 31st March '07

The society that puts equality before freedom will end up with neither. The society that puts freedom before equality will end up with a great measure of both.

Milton Friedman

Quote for the previous week.

Paul Krugman on Milton Friedman (and my opinion on Krugman's essay)

Quite a long essay of Paul Krugman on Milton Friedman, in the New York Review of Books. I must say I would only call "fascinating", as Greg Mankiw does (with a shadow of irony, I'd like to hope; he couldn't have read the entire article, otherwise), its first part, up to the 3rd section (part which is also well written and informative, I'd say, also for persons who did not have formal training in Economics). For the rest and put as shortly as possible: I believe Krugman is a great scholar, but I think that what impedes him (for the moment) to become even greater is his being so dismissive, despite not having sufficient arguments to backup his opinion, with regard to Neo-Classical Economics, while adhering to the Neo-Keynesian trend too zealously. There is of course some room for debate there but I believe (am I so wrong? comments invited) that most economists see the balance here in a very different way than Paul Krugman does. And that is such a pity for an economist admired by so many people (myself included)!

Update: I wrote part of the comment above too much in a hurry and, re-reading it, I don't find it quite (actually not at all...) what I wanted it to be. Obviously both the 'new classical' and the 'new Keynesian' trends had a few waves over time and there were enough differences even among those. Moreover there was of course also the 'neo classical- Keynesian synthesis' attempt and 'new neo-classical' blend (which takes some Keynesian elements as its core). One excellent recent material that discusses all this very well (and that perhaps justifies in a way- I've thought of it now- why Mankiw called Krugman's text 'fascinating') is in my opinion a recent article by Greg Mankiw in the Journal of Economic Perspectives, the Fall 2006 edition (you need either individual subscription or institutional access) entitled "The Macroeconomist as Scientist and Engineer". I can perfectly agree with the idea Mankiw presents there, that the real 'tension' in macroeconomics is in fact between its "scientific" and respectively its "engineering" perspectives. To some extent Krugman also tackles this 'macroeconomics engineering perspective' when criticising Friedman in the last part of the essay in the NYRB (I still do not agree at all with Friedman's characterization as 'dishonest': in fact one could say he was merely putting forward the scientific view of the macroeconomist also in his public policy advice, if one follows Mankiw's point). But you should definitely read this article by Mankiw to get a full impression of the macroeconomics development, its present status etc. I paste its abstract below:

The subfield of macroeconomics was born, not as a science, but more as a type of engineering. The problem that gave birth to our field was the Great Depression. God put macroeconomists on earth not to propose and test elegant theories but to solve practical problems. This essay offers a brief history of macroeconomics, together with an evaluation of what we have learned. My premise is that the field has evolved through the efforts of two types of macroeconomists, those who understand the field as a type of engineering and those who would like it to be more of a science. While the early macroeconomists were engineers trying to solve practical problems, the macroeconomists of the past several decades have been more interested in developing analytic tools and establishing theoretical principles. These tools and principles, however, have been slow to find their way into applications. As the field of macroeconomics has evolved, one recurrent theme has been the interaction, sometimes productive and sometimes not, between the scientists and the engineers. John Maynard Keynes (1931) famously opined, "If economists could manage to get themselves thought of as humble, competent people on a level with dentists, that would be splendid." As we look ahead, "humble" and "competent" remain ideals toward which macroeconomists can aspire.

Milton Friedman Day: Jan 29, 2007

Mark your calendars for "a day of national celebration and remembrance of Friedman’s life and his influence on American society and economic systems". See also Dubner's entry about the event, on Freakonomics.

More on Milton Friedman.

Friedman-Fenwick vs. Shmidlapp (and raising minimum wages in USA...)

I kept updating my entry on the minimum wage controversy in the USA with new posts by Greg Mankiw. And yet again thanks to Professor Mankiw's blog (he does have a great influence on me, doesn't he!), I think I found one close-to-perfect illustrative debate on the USA federal minimum wage issue that certainly deserves a separate entry in my blog.

This is a fragment from a wonderful article called "An infuriating man" written as part of a book by Leo Rosten (in 1970!!!), about his good friend "Fenwick", who is no one else than the late Milton Friedman. Having read Leo Rosten's literary view on Milton Friedman's character (this piece is something I would call THE "ode to Milton Friedman") only deepens my regret of not having met Professor Friedman. Fortunately it is still possible to meet him virtually thanks to IdeaChannelTv's amazing idea of making freely available all the original Free to Choose tv series (be patient and hit restart a couple of times, the server is most likely overloaded with requests), which I just started watching for the first time and will continue watching in my spare time.

But coming back to the minimum wage issue, below is the exact fragment depicting the debate between a self-confident and calm (and thus, very infuriating!), Fenwick, who leads the debate all the way, and a very impatient, unsure, although very militant character, Shmidlapp. Although written in 1970 this is EXACTLY touching on the very hot potato in the US Congress today. Same old story after almost 4 decades, many Shmidlapps...

[...] Fenwick and a friend of mine from Washington, a sociological Meistersinger named Rupert Shmidlapp, were talking about minimum wages, which Congress had just voted to raise from $1.25 an hour to $1.40—and ultimately to $1.60. Fenwick stunned Shmidlapp, whom I had forgotten to brief in advance, by mournfully remarking that the minimum-wage laws would of course create unemployment, and that these particular laws would wreak havoc precisely among those unskilled workers (Negroes, teenagers, Puerto Ricans) they were supposed to help.
“What?” gulped Shmidlapp.
“To begin with,” said Fenwick, “the American wage-earner today gets twice $1.40 an hour, so the bill is not going to affect him——-”
“The bill is designed to help the unskilled and the undereducated,” retorted Shmidlapp.
“An admirable intention,” beamed Fenwick, “because a tragic proportion of that group is unemployed. But if employers aren’t hiring them at $1.25 an hour, is there any reason on earth why they will hire them at $1.40?”
I poured a stiff drink for Shmidlapp.
Fenwick continued: “Surely the unemployed will have less chance of finding a job under the new, higher minimum-wage laws than they had under the old.”
"What?” cried Shmidlapp. “Can you prove that?”
“Yes,” said Fenwick. “Every time minimum wages have been raised, the ratio of unemployed teenagers has risen— and mostly among Negroes and Puerto Ricans, who are the teenagers it seems absolutely insane, if you look at the crime rate, to force onto the streets with nothing to do! ... Don’t you agree that every time you raise the minimum, you must push more unskilled or inexperienced or poorly educated or discriminated-against workers onto the unemployment and relief rolls?”
Instead of repairing his fences, Shmidlapp attacked on the flanks. “What about the greedy employers,” he demanded, “who cruelly exploit their workers by not paying them enough to live on?!”
A twinge of pain crossed Fenwick’s boyish features. “Oh, very, very few employers can hold on to their workmen if they pay them less than the workers can get elsewhere.”
“It isn’t what they can ‘get,’ it’s what they’re worth!” Shmidlapp thundered.
“Only God can decide how much a man is ‘worth,’” sighed Fenwick. “Let us consider the best wage a man can get— for his labor, services or talent——”
“Some men just can’t live on that! Or feed and clothe their children! Or pay their medical bills!” This was Shmidlapp at his best.
"We certainly ought to remedy that,” said Fenwick. “No American who wants to work should go hungry because of the objective (and therefore efficient) forces of supply and demand. Let us by all means give and guarantee the poor a minimum income; that does far less economic and political damage than a minimum wage. A minimum income does not discriminate against the black, the illiterate, the inept——”
“Do you mean to stand there and tell me”—Shmidlapp was too agitated to notice that Fenwick was sitting, not standing— "that no workers are actually helped when Congress raises the minimum wage? !“
“Oh, some workers will have their wages raised from $1.25 to $1.40 an hour,” said Fenwick, “but far more will not get a job they might have gotten at $1.25! And fewer teenagers and Negroes will get on-the-job training, which they desperately need. It is just too costly to train them at $1.40, much less $1.60 an hour—especially for skills that take long training periods. This makes a raise in minimum wages absolutely heartless,” mourned Fenwick. “It prices decent, innocent, willing workingmen right out of the labor market!”
“Then why does Congress pass such laws?” shouted Shmidlapp.Fenwick blinked. “Are you suggesting that Congress never passes foolish or short-sighted——”
“I am asking why, if minimum wages are so goddam stupid, far-sighted humanitarian leaders like Lyndon Johnson and Hubert Humphrey and Governor Rockefeller support them?!”
"Politics,” chuckled Fenwick. “Or innocence. Or ignorance. Or all three. Politicians and labor leaders get a lot of public credit for raising wages, and considerable private satisfaction in imagining all the good they have done.”
“I happen to know that many business leaders, Republicans and conservatives, favor minimum-wage legislation!” swooped Shmidlapp.
“Of course they do. They can be just as wrong, ignorant, or selfish as anyone else,” said Fenwick. “Many of them are manufacturing products in the North——”
“What does geography have to do with it?” demanded Shmidlapp.
“Well, northern manufacturers are delighted to force up their competitors’ costs in the South; in that way, businessmen in the North won’t have to face the desirable effects of that free-enterprise system conservatives and Republicans love to extol.”
“But opinion polls show that the public——”“The public,” sighed Fenwick, “is not well-informed about economics, and will pay for its innocence. Increased minimum wages lead to increased costs, which lead to higher ......... Then many honest, low-wage earners in the South (where the cost of living is lower; which is one reason wages there stay lower) will become disemployed. And many more of the young and no-skilled, in Harlem no less than Dixie, will remain more hopelessly unemployed than they already are.” Fenwick regarded Rupert Shmidlapp innocently. “Tell me, honestly: Would you rather work for $1.25 an hour or be unemployed at $1.40?”
While Shmidlapp was wrestling with many unkind thoughts, Fenwick gave his guileless smile: “I am strongly in favor of wages’ rising—which is entirely different from raising wages. Let wages go up as far as they can and deserve to, for the right reasons, which means in response to demand and supply and freedom to choose... Take domestic servants, Mr. Shmidlapp. Why maids, cooks, cleaning women, laundresses have enjoyed a fantastic increase in their earnings. And notice, please, that domestic servants are not organized; they don’t have a union, or a congressional lobby. Or take bank clerks. . .”
But I can’t bear to go on. I guess you can see why Fenwick is so unpopular. The man is infuriating.

More on Milton Friedman

An update for one of my previous posts. In the last days many have written on Milton Friedman. I chose below a selection of pieces written by well-known economists and not just any of them, but indeed some of my favourites:

• Gary Becker's more personal note, very moving and very well written. See a fragment:

When I spoke on the phone with him last Monday, he sounded strong and a bit optimistic about his health, even though he had just returned from a one-week hospital stay with a severe illness, an illness that a few days later took his life. Although his ideas live on stronger than ever, it is hard to believe that he is not here. I can no longer seek his opinions on my papers, but I will continue to ask myself about any ideas I have: would my teacher and dear friend Milton Friedman believe they are any good?

• Bernard Salanié's excellent piece on L'économie sans tabou. An extract here:

Comme toujours, il serait très excessif de donner trop de poids aux écrits d'un homme. On rappelle toujours cette fameuse citation de Keynes, tellement éculée que je vais vous l'épargner. Pour beaucoup d'Américains, (dont Hillary Clinton, à l'époque !) c'est la campagne présidentielle de Barry Goldwater en 1964 qui signe le point de départ d'un mouvement de masse. Mais Friedman avait déjà écrit Capitalism and Freedom (en 1962), qui est en quelque sorte le manifeste économique de cette école de pensée---sûrement plus que les écrits de Hayek, plus arides et moins diffusés (en tout cas moins lus), mais beaucoup plus profonds à mon sens. Ce livre, comme plus tard Free to Choose (1980--mais le combat était déjà gagné), a eu une influence considérable. Seul Galbraith avait un impact comparable sur ses lecteurs ; mais Galbraith était un poids léger dans le milieu des économistes, et son arrogance comme son manque de sens des réalités lui ont barré le chemin de l'influence politique (au-delà de quelques postes symboliques)---sans parler du fait que ses livres paraissent aujourd'hui très datés. Friedman, lui, était un debater hors normes, et un vulgarisateur génial.

• Richard Posner's good attempt to remain objective and critical, where possible. A fragment:

...I find slightly off-putting what I sensed to be a dogmatic streak in Milton Friedman. I think his belief in the superior efficiency of free markets to government as a means of resource allocation, though fruitful and largely correct, was embraced by him as an article of faith and not merely as a hypothesis. I think he considered it almost a personal affront that the Scandinavian nations, particularly Sweden, could achieve and maintain very high levels of economic output despite very high rates of taxation, an enormous public sector, and extensive wealth redistribution resulting in much greater economic equality than in the United States. I don't think his analytic apparatus could explain such an anomaly.

• And again the very active Greg Mankiw pointing out more great recent editorials on Friedman. I single out two. The first is the tribute to Friedman by Thomas Sowell A fragment below:

As one of those privileged to have studied under Friedman, I felt a special loss at his death but also a sense of good fortune to have learned from him, not only when I was at the University of Chicago but also in the years and decades since then. He was a tough, no-nonsense teacher in the classroom but a kind and generous human being outside.
Students were not allowed to walk into his classroom after his lecture had begun, distracting others. Once, I arrived at the door just minutes after Friedman began speaking and had to turn around and go back to the dormitory, wondering all the while whether what he taught that day would be on the next exam. After that, I was always in my seat when Friedman entered the classroom. He was also a tough grader. On one exam, there were only two B’s in the whole class--and no A’s.

• The second is the op-ed piece written with great style by Larry Summers in The New York Times. An excerpt below:

While much of his academic work was directed at monetary policy, Mr. Friedman’s great popular contribution lay elsewhere: in convincing people of the importance of allowing free markets to operate.
From what I’ve heard, Milton Friedman’s participation on a government commission on the volunteer military in the late 1960s was a kind of intellectual version of the play “Twelve Angry Men.” Gradually, through force of persistent argument and marshaling of evidence, he brought his fellow commission members around to the previously unthinkable view that both our national security and our broader interest would be best served by a volunteer military.

Finally (see also the link from the title), a sampler of views of Milton Friedman, from the Wall Street Journal, also indicated on Greg Mankiw's blog.

Today we lost one of the greatest economists of all times

The following lines about Milton Friedman should say a lot about his principles, even for non-economists:

In 1962, Mr. Friedman took on President John F. Kennedy’s popular inaugural exhortation: “Ask not what your country can do for you. Ask what you can do for your country.” In an introduction to his classic book “Capitalism and Freedom,” a collection of his writings and lectures, he said President Kennedy had got it wrong: You should ask neither.
“What your country can do for you,” Mr. Friedman said, implies that the government is the patron, the citizen the ward; and “what you can do for your country” assumes that the government is the master, the citizen the servant. Rather, he said, you should ask, “What I and my compatriots can do through government to help discharge our individual responsibilities, to achieve our several goals and purposes, and above all protect our freedom.”

Read more in the New York Times obituary from today. And see also an article Greg Mankiw wrote about Milton Friedman back in 1998.