By Adam Ozimek
Sunday, May 29, 2016
Nick Hanauer made billions of dollars as a tech investor,
and for this reason he is invited to write his thoughts on the minimum wage in
various publications. It’s unfortunate, because he is exceptionally wrong and
uninformed.
So where to begin? To start with, despite pontificating
confidently about the minimum wage for years, he seems to have no understanding
of why many liberal economists are worried about setting the minimum wage too
high. In a piece arguing that it’s “nonsense” to think there is any risk to
raising the minimum wage to $15 an hour, he writes:
But minimum-wage opponents are not
haggling over a number. They are not making a nuanced argument that the minimum
wage might be bad for some people if it’s too high or phased in too fast or if
the economy is too weak to absorb the change.
This is interesting because a lot of critics are making
exactly this argument, and the only way to not know that is to be totally
ignorant of the actual debate about the minimum wage. For example, here
is Alan Krueger, one of the most influential minimum wage scholars in the
world, making a nuanced argument that the minimum wage might be bad for some
people if it’s too high or phased in too fast. But I guess you might not be
familiar with Alan Krueger if you are profoundly ignorant of the actual debate
about the minimum wage.
Too harsh you are saying? Well in a tweet earlier this
year Hanauer said this about Alan Krueger:
@Alan_Krueger carries water for
trickle down Econ. If the rich get richer that’s good. If poor get richer,
bad.”
If you follow the debate on minimum wages at all, or you
have a passing understanding of who Alan Krueger is, this is laughable. How is
it that a person who has spent years writing about the minimum wage doesn’t
know who Alan Krueger is? It’s true he retracted his tweet, but if I said the
earth is flat and then retracted it would I really undo the damage to my
reputation? He also went on to say on twitter that “Alan and I are now on the
same page…. Nice long convo. We were both right.” This suggests he hadn’t
in fact learned his lesson, because I’m not sure the guy who said “you want
poor people to be poor” and the guy who said “no I don’t” can both be right.
So he doesn’t know who Alan Krueger is, or have a
familiarity with the actual debate on minimum wages. That doesn’t mean he’s
actually confused about economics. Let me put some clearly confused quotes of
his that illustrate a disqualifying lack of understanding of economics.
Consider some of the pronouncements made in an article where he thinks he shows
that economics is a “scam”.
If economic “theory” were correct,
if paying workers more resulted in higher unemployment, we would have no
restaurants in Seattle.
Without knowing it at all, Nick is arguing that economic
theory implies that the labor demand for restaurant workers is perfectly
elastic. They will hire as many workers as they can at a particular wage, and
zero if it is a penny above that. Of course, anyone with a passing familiarity
with economics would understand that nobody thinks labor demand is perfectly
elastic and that the case against minimum wages doesn’t rely on it.
Everywhere you care to look, you
can find examples of high-wage places with low unemployment, and low-wage
places with high unemployment… In the overwhelming majority of circumstances,
the high-wage states and cities enjoy low unemployment while the unemployment
rate in low-wage states continues to climb.
Again, you have a total lack of understanding of supply
and demand. There are high equilibrium wages in some labor markets, and low
equilibrium wages in others. What does this tell you about the effect of a
price floor? Nothing. This is like arguing that the existence of Cadillacs proves
that a tax on cars won’t reduce demand because people pay a lot of money for
some cars.
If you think that’s an ungenerous interpretation of his
point, just wait. It gets worse.
Other examples abound. CEO pay, for
instance, has skyrocketed from 30 times median to 300 times median over the
last three decades, but we have more CEOs than ever before. How can this be, if
“theory” predicts that higher wages kill employment? So, too, for tech workers
and financial service workers—wages in those sectors have been climbing like
crazy, and so has employment. So clearly, wages can rise a lot and so can
levels of employment.
He clearly thinks that he is proving that wages going up
doesn’t hurt employment, and has no concept of why higher equilibrium market
wages driven by growing demand are different from a wage floor. This is a guy
who has confused himself with something pretty elementary, and is super proud
about it.
The lack of understanding of basic economics and
unfamiliarity with why even fans of $12 minimum wages are worried about $15 is
perhaps why Hanauer is one of the few advocates to bite the bullet and argue
for a $28 minimum wage. He simply, truly just doesn’t understand why not.
Let me close by saying that I didn’t really want to write
this piece, because I am a fan of civility and it’s hard to make my basic point
here politely. And of course you could argue, why pick on Hanauer when there
are so many wrong pundits out there? What makes Hanauer’s wrongness both
annoying and worth addressing is how extremely elemental his errors are. You
hear a lot of people complaining about the influence of Econ 101, but the irony
is when Hanauer argues economics is a scam he very neatly demonstrates the
value of understanding Econ 101 by showing how confused you can get without it.
And unlike a lot of cranks whose work is broadly understood to be crankish, I
still see people who should know better passing Hanauer’s articles around,
suggesting that many don’t really understand what he doesn’t understand.
Hopefully this article will help fix that.
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