Progressive Policy and Acceptable Suffering

I didn’t intend to spend much time looking at the minimum wage projections of the Congressional Budget Office (CBO), but somebody tweeted another of Josh Barro’s contrarian uber alles columns, and I had to take a look.

Not, I hasten to add, because Barro unearths particularly interesting next steps in an intellectual discussion, but because I’m fascinated by the processes and gaps in the debate that leave an opening for his contrarianism.

I mean, how fascinating it is to see a columnist — right before our eyes — progress toward the cruel break-a-few-eggs calculations of a technocratic class under no threat of suffering from its policy experiments. He writes: “For every person put out of work by the minimum wage increase, more than 30 will see rises in income, often on the order of several dollars an hour.” I can’t help but wonder if he or the CBO have run the numbers on how much it would increase wages were we to begin euthanizing undesirables.

More fascinating, though, is this complete trust in the theorizing of Barro’s fellow members of the upper intellectual crust. If you’re going to confidently declare the economic value of pushing people out of their jobs, one would hope you’d have a bit more than disputed theories on your side.

Reading the methodology for the CBO’s study, one thing is clear: more assumptions are layered in as they go. The first-run number is the employment loss, which the organization bases on a calculation from theory.

Even at that level, there are multiple assumptions. My favorite is the belief that the published literature shows “an unexpectedly large number of studies report[ing] a negative effect on employment with a degree of precision just above conventional thresholds for publication.” In other words, the CBO has corrected for the fact that there are many studies showing negative effects by making its own estimates more positive.

But there’s only so much you can fudge for the first number in your analysis. By the time the CBO gets to the numbers that make Barro pine for a policy that drives lesser mortals to the unemployment lines, the assumptions are as thick as the snow in a global-warming winter.

They assume, for instance, that the people who lose their jobs because of the minimum-wage hike will soften the economic blow by saving less and borrowing more. Given the demographics of this group, it’s difficult to imagine that they’re doing much by way of saving, except perhaps in the sense of saving up for something big in the near future, like a car or higher education. And to the extent that our society allows its vulnerable members to dig their own financial graves, it means that Barro wants to help the poor by forcing the poorer to live off of their credit cards.

The CBO also assumes that overall demand for products will increase, because:

Low-wage workers generally spend a larger share of each dollar they receive than the average business owner or consumer does; thus, when a dollar from business owners or consumers is shifted to low-wage workers, overall spending increases.

In this way, the CBO and technocrats find an amount of money that they believe forcing an unnatural minimum wage on the market will make appear in the economy. Then, they turn to the question of where that money will come from and where it will go. As this image makes clear, the CBO sees the minimum wage as simply a redistribution scheme:

Families with income above six times the poverty level (that’s $144,600 for a family of four) will simply watch $17 billion of their real income evaporate. On paper sneaking $700 from each higher-income family may seem plausible, but it wouldn’t be an even distribution, and if we think about its sources, it’s not so likely that they’ll let it go:

In CBO’s estimation, overall real income would increase for families with income less than six times the poverty threshold but would decrease for higher-income families, because both the income losses for business owners and the increase in prices would have the greatest effects on those higher-income families.

In all, the CBO expects 70% of the “negative effects on income” to come from the wealthier families. Business owners will simply absorb the hit — even though for its positive estimates, the CBO counted on them to increase their investments in order to capture increased demand. And somehow — even though we’ve already heard about the probability that lower-income families will spend more money — wealthier families will also absorb the negative side of price increases.

In short, then, the farther one wades into the tiers of effects of a minimum wage increase, the more questionable are the assumptions, and the more likely that the analyst will miss some way in which the assumptions contradict each other.

As our society works through the question of whether we need more freedom or more central control of everything, the core consideration is whether central control is possible. Josh Barro is apparently willing to play with other people’s lives, blithely dismissing concerns because, hey, “all methods of helping the poor cause distortions,” as he quotes Richard Thaler.

That might satisfy intellectuals with a firewall between themselves and the effects of their social experiments, but it’s a thin, ambiguous ribbon with which to cushion the hard knocks of reality.

Disclaimer: The views and opinions expressed in The Ocean State Current, including text, graphics, images, and information are solely those of the authors. They do not purport to reflect the views and opinions of The Current, the RI Center for Freedom & Prosperity, or its members or staff. The Current cannot be held responsible for information posted or provided by third-party sources. Readers are encouraged to fact check any information on this web site with other sources.

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