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Thread: Minimum Wage Laws Boosting Wages

  1. #341
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    Re: Minimum Wage Laws Boosting Wages

    Quote Originally Posted by NWRatCon View Post
    But asserting that "most economists" believe anything is almost always hyperbole, and virtually always wrong.
    The list of things almost all economists believe is pretty small.

    1. Markets tend to work reasonably well, so they should be the default way to allocated ressources;

    2. Some market failures are systematic enough to be worth addressing. The clearest case here is pollution. The only real disagreement in the literature seems to be what's the best way to do it;

    3. Financial markets are not efficient, but they are pretty damn close to it. This means something very specific: the EMH essentially imposes a sense of impredictability for stock market returns and that is related to the absence of arbitrage. It's not 100% correct because we can forecasts (very poorly) stock market returns. However, we also know that your forecasting ability is going to be so bad that if you try to take advantage of it to turn an abnormal return on your portfolio, transactions costs will almost always eat everything. That is one of the most solid result in financial economics: it's 55 years of empirical work trying to game the market and concluding it basically doesn't work. In plain English, free lunches either are very rare or they don't exist, so we'll just impose that they don't exist ;

    4. All models are wrong, but some are useful. A little known secret is that we have dozens upon dozens of both marginally and substantially different models in macroeconomics and finance. We also have different tools for analyzing problems going all the way from imposing strict restrictions (DSGE models) to very flexible methods that accomodate very wide classes of theories. The dispute always hinges on what we think are worthwhile complications and which subset of concerns we need to address -- and that obviously varies with the type of question you have in mind;

    5. Freer trade usually is mutually advantageous in the aggregate, but it can hurt some people more than others;

    6. You should dig into microeconomic data to think about macroeconomic models. There are lots of great papers on this, like Bils and Klenow (2004), or Nakamura, Steinson, Sun and Villar (2018). They dug into the issue of price dispersion;

    7. Incentives matter: people actually respond to differences in outcomes. The dispute is not about the fact that opportunity costs matter, but about how exactly it matters in the specific context that interests us.


    You will have people who are completely unknown and who never publish in top journals who will not agree with (1). It's also true that (2) is partly a normative statement, so it depends on how much you agree with cost-benefit analysis. Most economists seem to be willing to at least take it into account in my experience, but someone could be a committed libertarian and disagree. As for (3), it's not the absence of free lunches that is contentious. It's more the problem of figuring out what's the right way to imply the absence of free lunch in an equilibrium model -- it's here that you insert things like behavioral finance and the plethora of models people proposed to explain the puzzling features of financial data. That is contentious.

    So, in economics, the concensus tends to focus on methodology with a few exceptions related to robust patterns found in empirical research or robust features that emerge in theoretical work. You might also find concensus on extremely specific questions -- e.g., what was the impact of a very specific minimum wage increase (specific year and place). Usually, that's because you throw a bunch of reasonable methods at it and you more or less always find the same things, so you're quite confident it's a good answer.
    All people who oppose free speech are trying to sell you snake oil. There is absolutely no exception to this rule.

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    Re: Minimum Wage Laws Boosting Wages

    Quote Originally Posted by iguanaman View Post
    If Americans are prospering they can thank Obama for lifting us out of the worst recession in postwar history
    Obama was an anti business socialist with worst recovery in American History so how could he do anything but harm economy???????? Economy took the day Trump was elected. He is pro-business not anti business anti the economy. 1+1=2

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    Re: Minimum Wage Laws Boosting Wages

    Quote Originally Posted by TheEconomist View Post
    Supply and demand are not fundamental underpining of economics. .
    1) then what is???????

    2) why does a Rolls Royce cost more than an apple?????????

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    Re: Minimum Wage Laws Boosting Wages

    Quote Originally Posted by NWRatCon View Post
    I happen to be very interested in social mobility, and there simply is not much available data to support the assumption that there is much of it in our current circumstance.
    You mean because the nanny state is so large that fewer and fewer really need to be ambitious and change social class??

    How well would Marx have done if not for the illusion of fixed social classes created by capitalism?

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    Re: Minimum Wage Laws Boosting Wages

    Quote Originally Posted by Moonglow View Post
    Capitalism is a joke if it wasn't for the feds the capitalist would fall flat on their face...
    why not try to tell us what the feds do to keep capitalists from falling flat?? wonder why you clean forgot.

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    Re: Minimum Wage Laws Boosting Wages

    Quote Originally Posted by jpn View Post
    The 1980s marks a watershed in which the fortunes of the rich began to soar, leaving the rest of the nation farther and farther behind.
    Rich did well in globalized economy since American business was best in world, the rest suffered as liberals shipped their jobs off shore and invited in 30 million illegals to bid down wages for remaining jobs. Sad, but we elected Trump to fix this and so far so good despite massive Democratic resistance.

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    Re: Minimum Wage Laws Boosting Wages

    Quote Originally Posted by I'm Supposn View Post
    legally mandated minimum wage rates primary purpose is to reduce poverty among the working poor.
    sure by making it illegal to hire the folks not worth the MW who must then go on welfare! LIberals don't have the IQ to understand capitalism so don't understand there is no free lunch. THe more schemes to improve upon the free market the soviets tried the more who died. 1+1=2

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    Re: Minimum Wage Laws Boosting Wages

    Quote Originally Posted by jpn View Post
    Well then I have to ask. Are you familiar with disagreement regarding the efficacy of the New Deal? What's your take?
    The papers I mentionned earlier were focusing very narrowly on the effects of fiscal policy in New Keynesian DSGE models. I did not read about the Great Depression specifically, nor about the details of the New Deal, but I can repond by thinking about it the bulk of those program as a sort of fiscal exapnsion -- i.e., as deficit spending.

    The argument laid out in those papers suggested that you could suspect New Keynesian models allow for unusually large response of macroeconomic aggregates to deficit spending when the monetary authority is stuck against the zero lower bound. In ECON101 style, the intuition is that the downward slope in the aggregate demand side of your model has something to do with the Taylor rule followed by the central bank -- i.e., it tends to kill off part of the kick of deficit spending hikes.

    There are few problems with those arguments, though I think the conclusion might be more or less correct for reasons that I will explain thereafter. The solution methods they all used were problematic. One reason is that even if you concede that the models were good approximations of macroeconomic dynamics, the exact solution would imply multiple equilibria and they artifically end up selecting an equilibrium where the impact is way bigger and it is in a questionable region of the parameter space. That's the Brown, Boneva and Waki (2016) paper that they couldn't read. The other more profound problem is that, except for the Eichenbaum et al. paper, they used small scale New Keynesian models. They are known to not reproduce many important features of the data -- most importantly here, the fact that inflation has a lot of intertia in the data and the relationship between the grow rates of consumption and investment. They also end up imposing implicitly that the central bank is 100% inept at the ZLB and that's a potentially large exaggeration. Cynthia Wu has a beautiful paper on how to measure the "interest-rate equivalent" effect of unconventional monetary policy that was publish about 2 years ago. She calls this the "shadow rate" -- it's the Feds Funds Rate everywhere, except when it hits zero she has an asset pricing argument that builds a negative rate that captures QE. If you put that in their models, I'm pretty sure you kill the whole argument because it's a well know fact NK models tend to imply pretty small multipliers in normal times. I mean, the effect is positive, but it's usually less than 1, so you need a pretty big spike to get big responses.

    Now, it's also true that those models are representative agent models. The problem here is a bit technical, but the behavior of the "average" household with respect to consumption/investment relies on an equation that holds with equality at all times in those models (we call it the the Euler equation) and it basically let the "average" household smoothen out the effects of many shocks by spreading it around. If you can drive a "wedge" in there, you can get bigger multipliers. Gali, Lopez-Salido and Valles (2007) do it mechanically by saying a fixed fraction of people always consumme 100% of the their wage. They never save and they never borrow, so unlike the usual household of macro models, they don't spread out the changes over multiple periods. The changes hit them with full force. It's not a good model because we'd like that fraction to result from the choices all households and all firms make in the model, but it drives home an interesting point about breaking this equation. Benjamin Moll works on models like that, but, to my knowledge, we don't have anything good enough to give you a conclusive answer. My bias is that NK models with representative agents likely understate the impact of fiscal policy by imposing that this specific equation holds. At an empirical level, the least objectionable argument I have seen comes from an example used in Normandin and Guay (2019). They show two things in that example: (1) for the US, the impact of (overall) tax cuts is unambiguously positive, though small; (2) but they cannot tell you how big is the fiscal multiplier. Depending on what you assume, it could be small, moderate or large.

    So, my opinion based on all of those considerations is that the fiscal multiplier arguably was at its largest during the Great Depression. In all fairness, that is based on the presumption that the period where the Euler equation would fit the data the least is that period and the fact that there is some allowance in theory and data for a moderately large fiscal multiplier. I might be wrong, but this would say that the New Deal did not slow down recovery, but probably helped it and the effect for each dollar spent probably was at its largest back in the early stages of the crisis.
    All people who oppose free speech are trying to sell you snake oil. There is absolutely no exception to this rule.

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    Re: Minimum Wage Laws Boosting Wages

    Quote Originally Posted by jpn View Post
    And getting back to this thread, what's your take on the minimum wage? I don't want to sandbag you, so here's Paul Krugman's take on it from 2013:
    I already pointed out earlier that empirical studies on the minimum wage largely comes down against the ECON101 story.

    One reason is that employment dynamics involves comparing a lot more than just wages and some measure of employment, be it the number of jobs or the number of hours worked, so employers might be spreading around their reactions. Another reason I gave is that the supply-and-demand model might not be peculiarly good at capturing important features of the labor market. It's also quite the weird conceptual framework to address the arguments of people who support minimum wage. Proponents of the minimum wage make a point about market power and bargaining capacity that the competitive framework kills by assumption and they aren't making an absurd point, so you need a more general setting to address these concerns. Another possibility is that you sometimes have a negative impact, but it's too small to be statistically significant.

    My intuition is that you might have some slack to use a minimum wage to benefit workers at the expense of businesses if you want to do it. How much slack? Well, I have no idea. The only thing I know is that businesses are started and operated to turn a profit large enough to compensate for risks and you can't stretch their operational costs ad infinitum before it becomes a problem.
    All people who oppose free speech are trying to sell you snake oil. There is absolutely no exception to this rule.

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    Re: Minimum Wage Laws Boosting Wages

    Quote Originally Posted by TheEconomist View Post
    I might be wrong, but this would say that the New Deal did not slow down recovery, but probably helped it and the effect for each dollar spent probably was at its largest back in the early stages of the crisis.
    might be wrong???????????? The Depression only ended when FDR died. How did the New Deal not slow down recovery if there was no recovery but rather depression and world war????????????????????? Please think before you post.

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