Is economics value-free?

28 Oct, 2020 at 07:15 | Posted in Economics | 6 Comments

jp-imgresI’ve subsequently stayed away from the minimum wage literature for a number of reasons. First, it cost me a lot of friends. People that I had known for many years, for instance, some of the ones I met at my first job at the University of Chicago, became very angry or disappointed. They thought that in publishing our work we were being traitors to the cause of economics as a whole.

David Card

Back in 1992, New Jersey raised the minimum wage by 18 per cent while its neighbour state, Pennsylvania, left its minimum wage unchanged. Unemployment in New Jersey should — according to mainstream economics textbooks — have increased relative to Pennsylvania. However, when economists David Card and Alan Krueger gathered information on fast food restaurants in the two states, it turned out that unemployment had actually decreased in New Jersey relative to that in Pennsylvania. Counter to mainstream demand theory we had an anomalous case of a backward-sloping supply curve.

Lo and behold!

But of course — when facts and theory don’t agree, it’s the facts that have to be wrong …

buchC6The inverse relationship between quantity demanded and price is the core proposition in economic science, which embodies the pre-supposition 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.

James M. Buchanan in Wall Street Journal (April 25, 1996)

Economics — non-ideological and value-free? I’ll be dipped!

6 Comments

  1. So, orthodox economics is not “value free” only because it does not get “the facts” right? And if you get the facts right, you are theorizing beyond ideology?
    This is positivist heterodoxy, and I call the argument put forward here the “counterposed counterproductivity” argument or the “productivity” argument for progressiveness. Cf. link below, p. 30ff.
    The problem is: one acknowledges the “true” market power relations. Positivism is the new form of economism. It is impossible to overcome economism (neoliberalism) on purely positive grounds. On a purely positivist grounds, one cannot but succumb to neoliberalism.

    Click to access Heterodoxy__Positivism__and_Economism__Thielemann.pdf

  2. The reason James Buchanan is wrong is simple Keynesian macroeconomics. Increasing the minimum wage increases purchasing power and in a class that is likely to spend rather than save this increases effective demand, leading to increased aggregate firm income, which stimulates investment and influences further hiring.

    • It’s a matter of basing your microeconomics on a solid macroeconomic framework.

      • Exactly. A freshman mistake of arguing from micro to macro without paying attention to the fallacy of composition, as Keynes pointed out.

  3. I’ve observed a lot of streams with this “water runs uphill” quotation in mind. My conclusion is that a lot of water in a stream is running uphill. Whitewater over rocks sends spray uphill, sustainably. At a confluence, a tributary will often come into the main stream at an angle that makes it flow against the downhill flow of the main stream.
    .
    When a tributary launches its water over a rock it is often pushed upstream against the main stream’s flow. If water always flowed downhill, gravity would force the water downhill while the drops were in the air. But there are other forces than gravity at work which result in water clearly flowing uphill, sustainably, in local places.
    .
    Ergodically, one might say the average particle flows downhill. But many particles flow uphill a lot of the time.

  4. “The Swedish Nobel Laureate Gunnar Myrdal is the dissenting social scientist par excellence. A distinction is made between immanent and transcendent dissent. After a discussion of the nature of dissent, five lines of Myrdal’s criticism of conventional economics are analyzed: 1.
    (a) “inadequacy to reality,” misplaced aggregation, illegitimate isolation and “opportunistic ignorance”
    2.
    (b) abstracting from actual valuations of people;
    3.
    (c) the self-imposed limits of academic disciplines;
    4.
    (d) spurious objectivity
    5.
    (e) twisted and diplomatic terminology.
    Can the inclusion of all relevant variables and the explicit formulation of valuations save the social sciences? The answer is “it depends.” Myrdal’s notion of circular or cumulative causation is then critically examined. He formulated early a theory of self-interest and rent-seeking in the public sector, was one of the first to draw attention to corruption and reminded us of the importance of climate in development.”
    Paul Streeten- The cheerful pessimist: – Gunnar Myrdal the dissenter
    https://www.sciencedirect.com/science/article/abs/pii/S0305750X97100651


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