Coyote Blog

From Scientific American Magazine - January 2008 via the Mises Blog

...As with living organisms and ecosystems, the economy
looks designed"”so just as humans naturally deduce the existence of a
top-down intelligent designer, humans also (understandably) infer that
a top-down government designer is needed in nearly every aspect of the
economy. But just as living organisms are shaped from the bottom up by
natural selection, the economy is molded from the bottom up by the
invisible hand.

I need to read the whole article, it looks awesome, but in fact yours truly made the same observation over a year ago (emphasis in the original - I was going through an overuse-of-bold-type phase.

So here is this week's message for the Left:  Economics is a
science.  Willful ignorance or emotional rejection of the well-known
precepts of this science is at least as bad as a fundamentalist
Christian's willful ignorance of evolution science (for which the Left
so often criticizes their opposition).  In fact, economic
ignorance is much worse, since most people can come to perfectly valid
conclusions about most public policy issues with a flawed knowledge of
the origin of the species but no one can with a flawed understanding of
economics....

In fact, the more I think about it, the more economics and evolution are very similar.  Both are sciences that are trying to describe the operation of very complex, bottom-up, self-organizing systems.  And,
in both cases, there exist many people who refuse to believe such
complex and beautiful systems can really operate without top-down
control. 

For example, certain people refuse to accept that homo sapiens could
have been created through unguided evolutionary systems, and insist
that some controlling authority must guide the process;  we call these
folks advocates of Intelligent Design.  Similarly, there are folks who
refuse to believe that unguided bottom-up processes can create
something so complex as our industrial economy or even a clearing price
for gasoline, and insist that a top-down authority is needed to run the
process;  we call these folks socialists. 

It is interesting, then, given their similarity, that socialists and
intelligent design advocates tend to be on opposite sides of the
political spectrum.  Their rejection of bottom-up order in favor of
top-down control is nearly identical.

George Reisman at Mises:

When it comes to matters such as the theory of evolution and
stem-cell research, so-called liberals"”i.e., socialists who have stolen
the name that once meant an advocate of individual freedom"”ridicule
religious conservatives for their desire to replace science with the
dictates of an alleged divine power. Yet when it comes to matters of
economic theory and economic policy"”for example, minimum-wage
legislation"”these same liberals themselves invoke the dictates of an
alleged divine power. Their divine power, of course, is not the God of
traditional religion, but rather a historically much more recent deity:
namely, the great god State.

Traditional religionists believe that an omnipotent God came before
all natural law and was not bound or limited by any such law, but
rather created such natural laws as suited him, as he went along. Just
so, today's liberals believe, at least in the realm of economics, that
the State is not bound or limited by any pre-existing natural laws. In
the case in hand, the State, today's liberals believe, is free to
decree wage rates above the level that would exist without its
interference and no ill-effects, such as unemployment, will arise.

Where have I heard that before?  Oh yeah, I remember:

So here is this week's message for the Left:  Economics is a
science.  Willful ignorance or emotional rejection of the well-known
precepts of this science is at least as bad as a fundamentalist
Christian's willful ignorance of evolution science (for which the Left
so often criticizes their opposition).  In fact, economic
ignorance is much worse, since most people can come to perfectly valid
conclusions about most public policy issues with a flawed knowledge of
the origin of the species but no one can with a flawed understanding of
economics....

In fact, the more I think about it, the more economics and evolution are very similar.  Both are sciences that are trying to describe the operation of very complex, bottom-up, self-organizing systems.  And,
in both cases, there exist many people who refuse to believe such
complex and beautiful systems can really operate without top-down
control.

By the way, the author partially addresses the Card and Krueger study on New Jersey fast food that purportedly showed that employment goes up as minimum wage goes up.  Unfortunately, the author does not get into the now fairly well-known problem with this study.  For those who don't know, here it is:

Card and Krueger looked at the employment in fast food restaurants in New Jersey both before and after the minimum wage went up.  Here is the key process fact you need to know -- they did not look at every restaurant, just at some branches of national chains (e.g. McDonalds).  They did not include, say, Joe's sub shop.  The restaurants they studied shared a couple of traits in common:

• They were all far more professionally managed than the average small restaurant
• They all had higher labor productivity than the average restaurant
• They all had far more capital equipment (e.g. automation of labor) than the average restaurant

In other words, they studied the restaurants that were able to incur a wage increase with the least impact on their total costs (and eventually prices).  Follow-up studies have shown that there was probably a real reduction in total restaurant employment in New Jersey in the studied period, but the differences in productivity cited above caused the impact to disproportionately hit small ma and pa operations as opposed to large capital intensive nation chains.  In fact, during this period, the national chains experienced a gain in market share vis a vis smaller shops, as the higher minimum wage made it harder for local shops to compete with the national chains.  So, in fact, what Card and Krueger observed was not an economic miracle on the order of seeing the virgin Mary in your pancakes, but a predictable shift of market share from low capital to high capital competitors in response to higher wage rates.

This theme of regulation, including the minimum wage, advantaging larger competitors is an old one.  I discussed it a while back in the context of Wal-Mart's support for a higher minimum wage:

Apparently, though I can't dig up a link right this second, Wal-mart
is putting its support behind a higher minimum wage.  One way to look
at this is a fairly cynical ploy to get the left off its back.  After
all, if Wal-mart's starting salary is $6.50 an hour (for example) it
costs them nothing to ask for a minimum wage of $6.50.

A different, and perhaps more realistic way to look at this Wal-mart
initiative is as a bald move to get government to sit on their
competition.  After all, as its wage rates creep up, as is typical in
more established companies, they are vulnerable to competitors gaining
advantage over them by paying lower wages.  If Wal-mart gets the
government to set the minimum wage closer to the wage rates it pays, it
eliminates the possibility of this competitor strategy. 

Recently, the so-called "reality-based community" on the left has developed the theory that US oil companies have purposefully dropped gasoline prices from over $3.00 to $2.00 a gallon solely to help Republican re-election prospects in November.  This notion is so insane as to be, well, insane, and I am not even going to bother fisking it any more than I would bother refuting a flat-earth hypothesis.  OK, I can't resist, here are two quick arguments, by no means comprehensive.

• US oil companies control a minority of world oil supplies, and those folks who do dominate the market (Hugo Chavez, Iran, the Saudis, the Russians) are highly unlikely to be cutting Bush much slack.
• The implication is that either the old, high price or the current low price is somehow an unnatural contrivance.  If the higher price was a contrivance, ie above the normal market clearing price due to some collusion, then we would have been swimming in oil as supplies outstripped demand, and inventories would be overflowing.  If the current lower prices are a contrivance, then demand should outstrip supply and we should have lines at every gas station.  Of course, neither situation has been observed.

So here is this week's message for the Left:  Economics is a science.  Willful ignorance or emotional rejection of the well-known precepts of this science is at least as bad as a fundamentalist Christian's willful ignorance of evolution science (for which the Left so often criticizes their opposition).  In fact, economic ignorance is much worse, since most people can come to perfectly valid conclusions about most public policy issues with a flawed knowledge of the origin of the species but no one can with a flawed understanding of economics.

Postscript: In fact, the more I think about it, the more economics and evolution are very similar.  Both are sciences that are trying to describe the operation of very complex, bottom-up, self-organizing systems.  And, in both cases, there exist many people who refuse to believe such complex and beautiful systems can really operate without top-down control.

For example, certain people refuse to accept that homo sapiens could have been created through unguided evolutionary systems, and insist that some controlling authority must guide the process;  we call these folks advocates of Intelligent Design.  Similarly, there are folks who refuse to believe that unguided bottom-up processes can create something so complex as our industrial economy or even a clearing price for gasoline, and insist that a top-down authority is needed to run the process;  we call these folks socialists.

It is interesting, then, given their similarity, that socialists and intelligent design advocates tend to be on opposite sides of the political spectrum.  Their rejection of bottom-up order in favor of top-down control is nearly identical.

Update:  From Cafe Hayek, letter to the Washington Post

Dear Editor:

Alleging
that today's falling gasoline prices result from a fiendish plot to
keep the GOP in power, Kenneth Jones is certain that "gasoline prices
will go right back up to $2.75-plus after the [November] election"
(Letters, October 2).

If Mr. Jones is correct, he can make a
financial killing.  All he need do is to invest all of his assets going
long in gasoline futures (which are today about 30 percent lower than
they were in late July).  Indeed, he ought even to cash out all the
equity in his house, max out on his credit cards, and borrow heavily
from his brother-in-law so that he can invest as much as possible in
these futures.

He can then contribute his post-election financial bounty to the Democratic National Committee.

Sincerely,
Donald J. Boudreaux