Home > Central Planning, Fiscal Policy, Labor Markets, Minimum Wage, Price Controls > On the Differing Policy Prescriptions of Economists

On the Differing Policy Prescriptions of Economists

To a person who is not a professional economist, it can seem difficult to understand why economists can have such disparate views on economic policy issues.  Part of the explanation for these apparent differences in professional opinion is that some economists are willing to sweep aside the implications of economic theory when theory leads to policy conclusions that the economist dislikes. A recent newspaper article (War on the Poor) illustrates this behavior by some economists.

Alan S. Blinder is a distinguished economist at Princeton University who specializes in macroeconomics. He has produced a substantial body of influential research in his academic career. He also served as a member of the Board of Governors of the Federal Reserve System. He recently published an article discussing what he called a “war” on the poor being waged by the government. This is provocative stuff and he lists a number of policy issues which he believes are illustrative of this so-called war. Here is a revealing quote from this article.

The two parties are now girding for battle over raising the federal minimum wage; it would be the first such increase in almost five years. The Democrats want to boost the minimum hourly wage from the current $7.25 to $10.10 in three annual increments. Even though the evidence suggests that modest increases in the minimum wage raise the incomes of poor and near poor workers without causing much job loss [emphasis added], the opposition is substantial.

As I have written previously on this blog, the minimum wage has labor market effects that any undergraduate taking principles of macroeconomics should understand. If the minimum wage has an effect, it raises the incomes of some but causes job losses for others. Professor Blinder clearly recognizes this fact. But graduate students in economics are trained to know that economists cannot make interpersonal welfare comparisons. That means if a policy makes one person better off but another person is made worse off by that policy, it is not possible for an economist to assess the desirability of a policy creating winners and losers. Thus Blinder’s claim that raising the minimum wage is desirable economic policy is utterly baseless. There are simply no grounds in economic theory justifying the claim that raising the minimum wage is good economic policy.

No doubt Professor Blinder is motivated by a desire to see poor people helped by economic policies set in place by government. I have no desire to quarrel with such a goal but I do take issue with policy advocacy that discards economic theory when its implications are inconvenient. I think it is the job of the economic policy advisor to advocate policies that can be defended on economic grounds. What is the point of the social science of economics if practitioners of that discipline make policy prescriptions that cannot be justified by economic theory? Would it be sensible for physicians to discard good medical practice when they treat us for an illness?

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  1. AF
    February 6, 2014 at 8:40 AM

    Professor: unrelated but figured you might find this interesting, nonetheless

    http://blogs.hbr.org/2014/02/how-economics-phds-took-over-the-federal-reserve/

    • March 27, 2014 at 8:27 PM

      Thanks – I enjoyed reading it. RJR

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Economics One

A blog by John B. Taylor

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One economist's views on economic policy.

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