Subclinical economics

Aaaand the Washington Post is trying to boost its credibility with the Left, after being guilty of such horrible openmindedness and thoughtfulness as to hire people like Megan McArdle, by calling for an increase in the minimum wage.

Since 2009, the last time the national minimum wage was raised, there have been various and sundry studies about it, including a “very credible” 2017 study in Seattle saying that Seattle’s 2014 high increase in the M. W. hurt workers, which was so significant in its contribution to that field of study that the acolytes of Paul Krugman have been trying to talk down and blunt it ever since.

Now, there are lots of strong arguments against minimum wages.  They’re price-fixing for labor, people say.  They’re discriminatory against the kinds of businesses that employ minimum-wage workers.  They spur automation, which kills that sort of job entirely.  They hurt the poor that don’t have those jobs because they can no longer afford the new, higher prices of the product.

All of those arguments have a lot going for them.  But today I’m criticizing a different aspect of minimum wages: the science being used to try to justify them.   (Minimum wages need justification because labor is claimed to be an exception to the economic tenet that with most goods, price and demand vary inversely.  Price the good higher and the market demands less.)

Put briefly and bluntly, the data suck.  It’s the usual problems of social and economic scientific studies, which are that the data are usually limited in quantity and accuracy, and it’s sometimes a problem that they were often collected for other purposes, from what may have been an unrepresentative group of people, using assumptions and definitions other than those of the study.  This being the case, there is also usually no way for there to be a reliable control group.  This is a really major flaw, because significant political pressure is on this study from both sides.  Not only does it mean that there are a myriad of opportunities for biased scientists to p-hack (that is, to set the study’s parameters according to which ones appear to validate the conclusion that the scientist wants) but it provides opportunities for people that want to justify mild increases in the minimum wage, which used to be the only politically possible move anyway.  Look, they used to say, mild increases in the minimum wage don’t hurt the economy!  (Although nowadays, they substitute ad hominem attacks upon Republicans in lieu of the adjective.)

What wasn’t possible politically to say is that the data we have are too crude to be able to discern the lower levels of economic damage.  But it’s telling that the places where high minimum wages are being offered are places like Seattle, San Francisco and New York that have strong economies for reasons unrelated to industries with minimum wages.  Hey, let’s test a medicine’s effectiveness without regard to the age and overall health of the patient!

Medicine is actually a good area for economic metaphor, because of the parallels of the human body with the human economy in complexity and in our difficulty collecting data deep enough to really tell us what’s going on.  Many times when people have diseases, their experience of the diseases are “subclinical”, meaning that their symptoms are so mild that the person with the disease doesn’t feel them.  The damage of slight increases to minimum wages to strong economies are, similarly, subclinical.  Not Quite Seen, in the Bastiatic sense.  The damage they do to those economies is very real, but the number of dollars flowing into those cities from Silicon Valley, or Wall Street, simply swamp the already-crude information we have about that damage.  Prosperity skews the null hypothesis wildly.