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Economic Law vs. Occupy Wall Street

Mises Daily: Tuesday, November 15, 2011 by

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Duh!

In their 1995 book, Myth and Measurement: The New Economics of the Minimum Wage, David Card and Alan Krueger argued that increases in the minimum wage in Pennsylvania and New Jersey in the early 1990s not only did not lead to unemployment, as classical economic theory would predict, but actually coincided with an increase in employment.

As it turns out, there were many problems with the Card and Krueger study. But even before these problems came to light, economists who understood that the laws of supply and demand are just that — laws — immediately disregarded the study. Nobel Laureate James Buchanan, writing in the Wall Street Journal, argued,

The inverse relationship between quantity demanded and price is the core proposition in economic science, which embodies the presupposition that human choice behavior is sufficiently rational to allow predictions to be made. Just as no physicist would claim that "water runs uphill," no self-respecting economist would claim that increases in the minimum wage increase employment. Such a claim, if seriously advanced, becomes equivalent to a denial that there is even minimal scientific content in economics, and that, in consequence, economists can do nothing but write as advocates for ideological interests. Fortunately, only a handful of economists are willing to throw over the teaching of two centuries; we have not yet become a bevy of camp-following whores.[1]

Buchanan's quote is relevant today because some Harvard students are upset that not all of their economics professors are yet a bevy of Occupy Wall Street–following whores. Citing Professor Greg Mankiw's classical analysis of the minimum wage as one of their grievances, a group of students recently walked out of Mankiw's introductory micro course to join an Occupy protest in Boston. (Apparently spoiled Harvard kids who can't stand even listening to an opposing view are the 99 percent.)

The protestors probably should have stayed in class, though, because their open letter to Mankiw betrays a formidable level of economic ignorance. When they write, for example, "There is no justification for presenting Adam Smith's economic theories as more fundamental or basic than, for example, Keynesian theory," they expose themselves as blissfully unaware that the modern neoclassical economics that Mankiw teaches owes far more to Alfred Marshall than Adam Smith, and that Keynesianism is a school of macroeconomic thought, unlikely to be covered in their microeconomics course.  It's highly doubtful, therefore, that any of these students have actually taken the time to understand the logic behind the laws of supply and demand and how this logic applies to labor markets.

But that doesn't matter to radical leftists. Logic in economics is irrelevant to them. As Mises explained, to defend their irrational theories they "attack logic and reason and substitute mystical intuition for ratiocination."[2] That's why they protest viewpoints they don't like instead of engaging with and critiquing them. And that's why they shout down dissenters in their creepy chanting assemblies. Independent thought is a threat to them.

That this demonstration took place at Harvard, where Democrat professors outnumber Republican ones by 7-1 (and that's not even counting the Marxists who aren't registered as Democrats), is indicative of the leftism that drives the Occupy protests. It's apparently not enough that these students will never encounter a conservative or libertarian viewpoint in any of their other classes. No, they must be shielded from any professor whatsoever who might challenge one of their prejudices against the free market. Even if that professor once wrote, as Mankiw did, "If you were going to turn to only one economist to understand the problems facing the economy, there is little doubt that the economist would be John Maynard Keynes." If he holds any pro-market views at all, apparently, he must be boycotted.

Mankiw himself lamely addressed the walkout by telling the Harvard Crimson,

While I do not share the specific views of the Occupy Wall Street movement, I am delighted to see students engaged in thinking broadly about social and economic policy. I hope that [Econ 10] can help contribute to [that] ongoing discussion.

But the students who are walking out of his class are not "thinking broadly about social and economic policy." They are thinking narrowly. They are refusing to engage alternative opinions. They are refusing to even try to understand how the economic world works before they go out and tell everyone how to fix it.

Speaking of the anarcho-communist faction of the New Left in the 1970s, Murray Rothbard wrote,

It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a "dismal science." But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance. Yet this sort of aggressive ignorance is inherent in the creed of anarcho-communism.

He could have just as easily said, "This sort of aggressive ignorance is inherent in the creed of the Occupy Wall Street movement." It doesn't matter to them that no serious economist would claim that increases in the minimum wage increase employment, just as no serious physicist would claim that "water runs uphill." All they care about is ideological conformity, even if that means reducing the economics profession to a "bevy of camp-following whores."

Notes

[1] Buchanan, of course, is one of the leading members of the Chicago School, which is an explicitly positivist school of thought. But, as Walter Block explains, if Buchanan had stayed true to his positivist beliefs, he would have taken the study seriously, at least until its empirical flaws were confirmed. The fact that he didn't, however, shows that, at least on this subject, he does implicitly believe that the laws of economics are true a priori, and are not subject to empirical disproof.

[2] Ludwig von Mises, Human Action: A Treatise on Economics. The Scholar's Edition. (Auburn, AL: Ludwig von Mises Institute, 1998), p. 74.