I was thinking of the NSA scandal while jogging through Rome’s Park of the Aqueducts  this morning. I guess it was that setting that made me think of our new computer-geek overlords as a virtual Praetorian Guard.  Augustus created the original Praetorian Guard about 27 BCE to protect the emperor. It quickly came to exercise independent power, once even auctioning off the empire to the highest bidder.  This outrage led the Roman general Septimius Severus to march on Rome and displace Emperor Julianus who had won the Praetorian bidding war. Severus disbanded the old Preatorian Guard only to set up a new Praetorian Guard, which quickly achieved a similar authority, power, and autonomy. The “intelligence community” of the US government seems to be playing a similar role today.

We now have secret interpretations of public laws  that some members of Congress have obliquely warned of. These members of Congress issue cryptic warnings of things they could not, presumably, talk about. Oregon Senator Ron Wyden and Colorado Senator Mark Udall have been warning us about secret interpretations of the Patriot Act. In May 2011, Wired magazine covered some of Wyden’s warnings. “We’re getting to a gap between what the public thinks the law says and what the American government secretly thinks the law says,” Wyden said. According to Wired, “Wyden says he ‘can’t answer’ any specific questions about how the government thinks it can use the Patriot Act. That would risk revealing classified information — something Wyden considers an abuse of government secrecy.” We have a representative of the people, a duly elected Senator, claiming that he “can’t answer” specific questions about how “the American government” is perverting a law passed by Congress. Who, pray tell, is “the government” if not the elected representatives of the people?

The New York Times recently said, “Yet shackled by strict rules on the discussion of classified information, Mr. Wyden and Mr. Udall, members of the Senate Select Committee on Intelligence could not — and still cannot — offer much more than an intimation about their concerns. They had to be content to sit in a special sealed room, soak in information that they said appalled and frightened them, then offer veiled messages that were largely ignored.” They quote Senator Udall saying, “I acted in every possible way short of leaking classified information.” Mr. Wyden, they say, “turned his palms to the air. ‘It’s against the Senate rules to get into the details.’ ” Senate rules?

A recent exchange between Representative Jerrold Nadler of New York and FBI Director Robert Mueller is informative. CNET reports,

Mueller initially sought to downplay concerns about NSA surveillance by claiming that, to listen to a phone call, the government would need to seek “a special, a particularized order from the FISA court directed at that particular phone of that particular individual.” Is information about that procedure “classified in any way?” Nadler asked. “I don’t think so,” Mueller replied. “Then I can say the following,” Nadler said. “We heard precisely the opposite at the briefing the other day. We heard precisely that you could get the specific information from that telephone simply based on an analyst deciding that…In other words, what you just said is incorrect. So there’s a conflict.”

Democratically elected Representative Nadler did not feel free to report apparent abuses until an appointed official assured him that the policies in question were not “classified in any way.” Once again it appears as if “the government” is not the elected representatives of the people, but the “intelligence community.”

Since the CNET story broke, Nadler has courageously backtracked.  The Atlantic Wire reports that he said, “I am pleased that the administration has reiterated that, as I have always believed, the NSA cannot listen to the content of Americans’ phone calls without a specific warrant.”  Unfortunately, Nadler does not seem to have asked how the intelligence community interprets “specific” in this context.

The elected representatives of the people cower before a secretive body of unelected officials and private contractors whom they refer to as “the American Government.” Congress should grow a pair.

Because Congress has betrayed its democratic and constitutional duty, the “intelligence community” has acquired an authority, power, and autonomy comparable to that of ancient Rome’s Praetorian Guard. Throughout the Imperial period in the West, Rome had a Senate that provided honors and riches to its members while serving a largely ceremonial function in Roman politics. The real power in Rome was divided between the Emperor and the Praetorian Guard. Something similar has come true in the US today.

Interview with Mario Rizzo

Some readers may be interested in this interview in the May issue of the Lara Murphy Report. It contains some details of my early days as an Austrian economist or, at least, as a budding one. LMR — Rizzo Interview pp. 35 -41.

For the last few days the newspapers have been filled with stories about how western garment manufacturers will now insist on greater safety for the workers who make their clothes in Bangladesh. They will pay for renovations and reconstructions of the physical plants. What is more, the government in Bangladesh will raise the minimum wage and make unionization easier.

So now Pope Francis and the relatively rich in the developed world (many of whom were among the 900,000 names on a petition to improve things that has been circulated) will be pleased and the demands of their social conscience will be satisfied.

This is another instance of the simplistic pseudo-morality of those who can only see what is right in front of them at the present moment. This attitude is closer to a sympathetic reflex than a reasoned moral judgment.

Consider the following. The cost of garment labor in Bangladesh will rise. When public attention moves elsewhere, western manufacturers will either hire fewer workers or reduce the rate at which they hire workers in Bangladesh. Some many even leave the country. (Remember Bangladesh also has bad infrastructure and political instability making it a marginal place to do business.)

Costs will rise not only because of the costs of improved working conditions but also because a rise in the minimum wage will prevent the compensating-downward adjustment of wages. And the increase of unionization will also raise costs and wages. What Bangladesh has going for it at this particular stage in its development is relatively low wages and globalization. We do not do the Bangladeshis a favor by insisting on even early twentieth-century labor standards in an incredibly backward economy.

The nineteenth-century economist Frederic Bastiat asked us to pay attention to the “unseen” as well as the seen in economic life.  Where will Bangladeshis who do not get to work in the garment factories (or perhaps other factories if the new minimum wage and labor standards set in more widely) go? Where will they get an income? Will people in Western Europe and the United States send them compensatory payments?

Too often, as this case demonstrates, people moralize high standards of living and hence of worker safety. Worker safety is a normal good, that is, as income rises we can afford more of it. To say that people have a right to a certain level of worker safety and a “living wage” is an example of the harm the notion of positive rights can do in poor countries – especially when the standards are imported from developed countries.

I am not saying that the death of more than a thousand garment workers isn’t a horrible event. I am not saying that we should not have compassion for these people. What I am saying is that the whole of morality is not about feeling good. It is about doing good. And doing good is a complex affair. It requires attention to the unseen.

Today is Hayek’s birthday. Much has been and will continue to written about him. When I look around at much of what passes for economics today, especially in the prestige circles, I cringe.  But reading his work always comforts me that something better is possible. And, in fact, there are many economists all over the world who take their inspiration from Hayek and his work. This is their day too!

Hayek, of course, was more than economist. He also had profound things to say about the mind, the rule of law, and ethics. Recently, I saw a stark example of the difference in ethical thinking between Hayek and more conventional moralists. This was in the case of the tragic fire in a Bangladeshi factory making clothes for western companies. The new Pope Francis condemned it as an example of corporations only caring about their bottom-line.

Now there are legitimate issues, from the point of view of the individuals working in this and other such factories. Can they rely on the attestations of a certain degree of safety in their working environment? Before people can voluntary assume the risks associated with certain kinds of work they must have at least a pretty good idea of what those risks are.

And yet there is a more fundamental issue.  Workplace safety is a matter of degrees. It is a working condition that is part of the cost of labor. There is an inevitable tradeoff between wages and level of employment, on the one hand, and workplace safety on the other hand. In rich countries workers can afford to sacrifice something for greater workplace safety. This is all part of increasing wealth.

Now major corporations are re-thinking their use of factory labor in Bangladesh.  They don’t want the images of large numbers of dead ruining their reputations. Ostensibly, they will argue that since they cannot trust Bangladeshi authorities to keep the factories safe they will not deal with them. Voila, the moral stance.

But what is really going on. Bangladesh is a very poor country. One of the few things it has going for it is inexpensive labor.  Let the West pull out. Where are the jobs for those who found working in the factory a better option than the available alternatives? Let the cost of labor rise due to greater safety precautions. Then the comparative labor-cost advantage falls. Will people, especially the poor, in developed countries buy as much at higher prices? Are the corporations willing to lose money?  Will individual stockholders, pension funds and other equity holders be indifferent to earnings/price ratios?

I guarantee you that the pope is not considering any of this. He focuses on the seen, but neglects the unseen in economic affairs. He looks only to intentions (Do good!) and knows little about unintended consequences. (However, he is pretty good at the unseen in spiritual life.)

The morality of the extended order that is, the world-wide system of social cooperation, cannot be a morality simply of the seen. We can eliminate fires in factories producing western goods by eliminating the production of western goods in Bangladesh. Not good. We can reduce these by requiring higher safety and this labor costs but then there will be fewer people employed in the best alternatives. Who will examine the health and safety consequences of the employment to which the poor are driven?

Perhaps the pope believes that people should not be concerned with profit and loss signals. We can focus on this one issue in Bangladesh only because it is right before us. But, in general, we do not have the epistemic capacity to investigate all of the circumstances of supply and demand with simple moralisms.

Not all Christians are as confused as this pope. Let us go back to Thomas Aquinas. Aquinas often reminded us that men are not angels. We do not have the psychological or epistemic capacity that they have. So when asked whether a merchant who was carrying grain to an area distressed by a shortage had an obligation to reveal his belief that others were coming later with more grain, Aquinas said that he did not have this obligation in terms of justice. The just price was the market price the merchant could get at the time, absent revealing this information.

Why? Aquinas is not explicit. However, I surmise it is because he knew that what motivated the additional supply to come into the area is the expectation of high profit.

Morality is not equivalent to advocating feel-good courses of action when something bad happens. Sure, we can and should be beneficent. It is good to help fire victims. But it is a good thing in the long run to understand economics. As Jean-Baptiste Say said: A good book on economics should be the first volume of a treatise on ethics.

In a recent piece Jesus Huerta de Soto (2012) argues that the euro is a proxy for the gold standard. He draws several analogies between the euro and the classical gold standard (1880-1912). Like when “going on gold” European governments gave up monetary sovereignty by introducing the euro. Like the classical gold standard the common currency forces reforms upon countries that are in crisis because governments cannot manipulate the exchange rate and inflate away debt. Therefore, to limit state power and to encourage e.g. labor market reforms he views the euro as second best to the gold standard from a free market perspective. Therefore, we should defend it. He finds that it is a step toward the re-establishment of the classical gold standard.

There has been much criticism of the piece that mainly addresses the inflationary bias of the ECB. I actually agree with much of it. In particular, imperfect currency areas have the potential to restrict monetary nationalism. This can be welcomed just as customs unions that allow for free trade (at least in restricted areas). But I have some trouble with De Soto’s conclusions and the view that adhering to the euro (as did adhering to gold) gives an extra impetus for market reform – in spite of the mentioned e.g. labor market reforms in Spain. In fact, if the euro was to proxy the gold standard, some countries should have already left the euro and reintroduced national currencies when facing high refinancing costs and negative growth rates. But euro introduction went along with several steps far beyond “simply going on gold”:

Clearly, in the good times until 2006-7, the euro just like the gold standard of the 19th century has lowered inflation expectations and contributed to substantial capital market integration because countries gave up monetary nationalism. European government bond yields converged as capital flew from the richer core to the relatively poorer periphery countries. Still both the euro and the classical gold standard were no full insurance for low yields. Government refinancing (sovereign bond yields) costs depended on the credibility and trustworthiness of government policies. While they may have been enhanced by being part of the gold or euro club, debt levels could matter as well – and they did in crisis periods.

In bad times, the euro and the classical gold standard are not as comparable as de Soto argues. Countries frequently left the gold standard when fiscal problems were harsh and when facing deflationary pressure (before the turn of the century). With the euro this is not as easy because there are institutional incentives to adhere to the euro standard. In contrast to the gold standard, Euro introduction was part of a big political project toward European political union. The countries agreed upon joint institutions and established joint organizations (such as the ECB to conduct a common monetary policy). Clearly, the degree of institutional integration is higher and the (political) commitment to the euro stronger. The gold standard emerged without formal agreements.

The differences matter when facing sovereign debt problems. If countries wanted to adhere to the gold standard, credible fiscal policies and reforms – perhaps as implemented in the Baltics - were urgent. If impossible, they dropped out, defaulted and started again. Either way, governments were restricted and faced rising borrowing costs. For example Portugal gave in to deflationary pressure in 1890-1 that made its debt to GDP ratio rise substantially. The Portuguese abandoned the gold standard, devalued the currency and defaulted on debt. Also Argentina and Greece suspended the gold standard in the face of high debt problems (Flaundreau et al. 1998).

Currently the countries of the Southern periphery of the euro area have to cope with sovereign debt problems. Negative growth rates worsen problems just like the deflationary pressure in Portugal in the 1890s. But the greater institutional and political integration makes an exit from the euro more costly than with the gold standard. Further the euro is not a one-sided commitment. The general political commitment to the European project allowed for rescue measures and policies that relief the adjustment pressure and at the same time provide additional incentives to hold on to the euro. New European institutions are created and fiscal union is on its way. More, not less government is the outcome.

*A paper on the issue will soon be published with CEVRO Prague.

Earlier this year, we lost one of the greatest economists of this century, UCLAs Armen Alchian, who died at age 98. David Henderson wrote a wonderful appreciation of him for the Wall Street Journal.

Alchian taught at UCLA from the early 1950s until his retirement in the 1990s. Few men have put their stamp on a department as he did. Milton Friedman comes to mind at Chicago. Alchian taught the economic way of thinking, and his approach permeated the course offerings by almost all the other professors. If you took macro from Axel Leijonhufvud, you got a dose of Alchian’s micro. In monetary classes, works like Alchian’s “Why Money” were topics of discussion.  Alchian’s analysis of price searching behavior was background in all the courses.

Liberty Fund published a two-volume collection of his writings. I can obviously touch on only a few issues.

One of Alchian’s greatest contributions was to the theory of market pricing. In his analysis, transactors do not face given prices but a situation of uncertainty with respect to prices. They search for the profit-maximizing price, and in the process move up and down an unknown demand curve. A downward sloping demand curve is not the sign of market power or monopoly, but of competitive markets and uncertainty. Entrepreneurship consists in a superior skill at ferreting out the profit maximizing price.

Alchian’s analysis of price stickiness turns contemporary efforts upside down. In his view, price stickiness is an essential feature of competitive markets. If all markets were auction markets, buyers and sellers would incur high transaction costs because they would be uncertain at what prices they could transact. If prices are to convey information across time in the Hayekian sense, they must be more than transitory.

“Posted,” i.e., sticky prices reduce uncertainty and transaction costs.  Buffer stocks smooth price adjustments. When inventories move outside desired ranges, sellers must either restock depleted inventories or cut prices to sell excess inventories.  If many sellers experience depleted inventories due to an increase in demand, their costs will rise and they will be forced to raise prices. The rise in costs results from a shift in demand, which is communicated through quantity adjustments.

It is the movement in quantities that signal to sellers the need to change prices. Absent quantity adjustments, sellers have no feedback signal telling them to change prices. Again, sticky prices are not an imperfection or an impediment to competitive markets, but essential to their operation.

Alchian’s theory of rents is central to today’s reality. As an avid golfer, he appreciated that California residents enjoy economic rents because of the climate. Rents are an attractive target for taxing authorities. As long as taxes do not exceed rents, the game continues. California authorities have proven adept at creating more rents through such measures as land-use restrictions and occupational licensure. As long as the dynamic creation of rents can be continued, the California government can finance its profligate expenditures, which, of course, create new rents.

In his theory of free (or subsidized) tuition, Alchian explained how public education, especially at the university level, transfers resources from the poor to the wealthy. Students at public universities may be poor in terms of current income, but are wealthy in present-value terms. They will earn higher incomes over their lifetimes. Public higher education is part of a regressive tax scheme.

On March 23^rd, the Alchian family sponsored a remembrance for their father and husband at the UCLA Faculty Club. It was a moving event attended by 100 former colleagues and students. They came from all over the country and the world. Two former students flew in from Beijing. After the event, about 60 of us stayed for a reception and dinner of good fellowship and fond memories.

We have lost another great economist. In my opinion, the Armen Alchians, Jim Buchanans and Friedrich Hayeks are not being replaced by comparative giants.

Cyprus is the latest country to succumb to the financial rot in the European Union. Once a banking center, its citizens now cannot pay for their own imports. Exporters are demanding cash only for goods sent to Cypriote businesses. Credit has dried up. Businesses are closing because they have no goods to sell.

The economic crises in the various countries have fallen into two types. In the first type, highly indebted governments experienced fiscal crises and could no longer service their debts. Banks had lent to these governments and their condition was impaired by the value of the government bonds falling.  The economies went into recession, which was aggravated by higher taxes and enhanced collection of taxes. Greece is the poster child for a financial and economic crisis begat by a fiscal crisis.

In some countries, the country’s banks engaged in imprudent lending to private firms – typically property developers and overextended homeowners.  The banks became insolvent as the loans soured. Credit was curtailed and the economy went into recession. Then government revenue fell and a fiscal crisis ensued. A highly indebted private sector and irresponsible banking sector caused a fiscal crisis. Ireland and Spain exemplify this type of crisis.

Countries can experience banking crises without a fiscal crisis and vice-versa. When the two occur simultaneously, recessions tend to be deeper and prolonged. If there is also a currency crisis, the crisis deepens further. The Euro Zone has thus far escaped that.

There is much outrage over how the Cypriote crisis banking crisis was resolved. An example is Frederic Sautet’s recent post at Coordination Problem. Many were shocked that large depositors lost money in the resolution of two insolvent banks. Let us be clear on how and why that occurred.

First, the banks were insolvent. They had engaged in imprudent lending, particularly to the Greek government. They could not pay their creditors. Depositors are creditors. Second, the Cypriote government could not bailout the banks. The banking sector was outsized compared to the rest of the economy (the ratio of bank assets to GDP was 7.5 by one account). Small countries in which the banking sector is very large relative to the rest of the economy are at risk for banking crises. That was an important factor in both Ireland and Spain. (It was also the story in the earlier crisis in Iceland, which is outside the European Union.)

Third, the Cypriote government could not print money to bailout the banks because Cyprus is in the Eurozone.  Therefore, the only alternative was for taxpayers in other countries, notably in Germany, to pay for a bailout of depositors at Cypriote banks. German (and other) taxpayers are tired of bailing out profligate banks and governments of others countries.

The depositors who lost money were uninsured depositors (deposits above €100,000). What do the critics of the resolution think uninsured means? Surely it means your money is at risk. True, in recent banking failures, governments have been reluctant to let even uninsured depositors lose money. But that was policy, not law.

A sudden regime change is always painful. Indications are that future bank bailouts in the EU may follow the Cypriote model. Bank depositors must understand that they are creditors of the bank. If they lend more than the amount insured, their money is at risk like that of other creditors.

The sad fact is that there is not enough money in the Eurozone to pay off all the debts (private and governmental) incurred in the zone. Households, firms, and governments have taken on more obligations than they can pay. Thus far, to its credit, the European Central Bank has been unwilling to engage in wholesale depreciation of the currency. That may come next. Likely, first there will be more bank failures and resolutions as has just happened in Cyprus.

Critics of the Cypriote bailout must explain what the alternative bailout policy might have been. And they must also explain why we should not be outraged at their alternative.

Income inequality matters. Let me say that again so you know I meant it: Income inequality matters. This statement may be surprising coming from a self-described “Austrian” economist and a “liberal” in the good old-fashioned pro-market sense. It shouldn’t be. It should be one of our issues. The surprise should be that we pro-market types have not spoken up more on this central issue, thereby letting it become associated almost exclusively with more or less “progressive” opinion.

This indifference to income distribution is all the more mysterious because pro-market thinkers generally support a theory of politics that tells us to watch out for ways the state can be used to create unjust privileges for some at the expense of others. We should expect the distribution of income to be skewed toward the politically powerful and away from the poor and politically weak. In a representative democracy “special interests” engage in “rent seeking” to get special favors. Those special favors enrich some at the expense of others. That’s what they are meant to do!

Liberal political theory tells us to expect that sort of thing as a sort of disease to which the body politic is subject under representative democracy. Our presumption, then, should be that much of the inequality of any epoch is produced by tariffs, licensing restrictions, bailouts, and other specific acts of governments. Most of the time the game is rigged more or less. (The trick of constitutional design is to minimize this evil bathwater without tossing out freedom or democracy.) The more a society’s income distribution is determined by politics and not markets, the more it will be skewed away from whatever pattern would emerge in a less fettered market economy. And in general, that skew will be toward greater inequality. As the political component grows, we can expect power to be concentrated in fewer and fewer hands and income distribution be more and more unequal. If political power is growing, we should strongly suspect that some of the rich are using the state to squeeze money from most of the poor.

I cannot cite unambiguous evidence that economic freedom goes with greater equality. There is a small empirical literature on the relationship between economic freedom and income inequality. So far the results are mixed. Both studies showing a positive effect and studies showing a negative effect tend to suggest that economic freedom has a relatively small impact on overall measures of income inequality. It might be, therefore, that my egalitarian presumptions are mistaken. Maybe. But when you have relatively well-defined ethnic groups consistently underperforming the rest of the population, as with America’s black and Appalachian populations, we should presume that such different outcomes depend on different circumstances. And the heavy hand of the state is an important reason different groups in America live in different circumstances.

Here are four ways that the state creates inequality in America today.

1. Privatizing profits and socializing losses

Bailouts move money from taxpayers in general to persons wealthy enough to have portfolios of financial assets. The bigger your portfolio, the more you get in the bailout. And, of course, the greatest gains go to the owners and officers of nominally private institutions that are “too big to fail.”

2. Regulation

If the elements of public choice theory and the theory of regulatory capture are about right, then regulation tends to favor established interests and squelch competition from new entrants. That bad tendency of regulation skews income up the ladder and reduces income equality. I am proud to have been editor of an NCPA report, “Enterprise Programs: Freeing Entrepreneurs to Provide Essential Services for the Poor,” on how regulation makes the lives of poor people more difficult. The report includes a discussion of how housing regulations help to drive the costs of housing out of reach for many poor families.

3. Collapse of the rule of law

The War on Drugs disproportionately harms the poor, especially poor young black and Latino men, tending to marginalize them. The problem is so bad that Michelle Alexander has dubbed it “The New Jim Crow.”  Unfortunately, Alexander’s characterization is all too apt. To cite just one timely example, in New York City poor black and Hispanic men are subject to race-based policies of stop-and-frisk.  Such arbitrary and discriminatory policing is a violation of the most basic idea of the rule of law: We should all play by the same rules. At the same time, there has emerged a power elite that is largely immune to the law and free of its constraints, as Glenn Greenwald has chronicled in “With Liberty and Justice for Some.”  Here again we have a collapse of the rule of law. The situation is so bad that the Attorney General has openly admitted to a policy that has been dubbed “too big to jail.”

We now have not a two-tiered legal system, but a three-tiered legal system in which 1) poor black and Latino men are singled out for scrutiny and sent to prison in disproportionate numbers, 2) the power elite is above the law, and 3) middle class Americans are mostly left alone — so far — if they commit no crimes worse than the drug offenses each of our last three Presidents committed in his youth. This unjust justice system tends to move income up from the lower ranks into the hands of the elite.

4. Public Schools

Finally, I might mention local funding of public schools, which makes it hard educate your child well unless you can already afford to live in a relatively affluent neighborhood.

My fellow (“classical”) liberals should talk more about these evils. We should emphasize the common cause we have on this issue with Progressives and others generally considered left of center. We should make income distribution one of our issues. We liberals all agree that evils such as regulatory capture make it a rigged system. Should we not emphasize, therefore, the evil consequences of rigging the system?

Call for Abstracts

Economics of the Undead:  Blood, Brains & Benjamins

Glen Whitman & James P. Dow, Editors

The editors seek abstracts for essays exploring the relationship between economics and the undead, especially zombies and vampires.  The chosen essays will appear in a collection to be published by Rowman & Littlefield.

Ideal contributions will use economic reasoning to address issues related to the undead, use the undead as a means of exploring economic thought, or both.  Abstracts and final essays should be written in an accessible and engaging style for a popular audience.  Contributions should also make relevant reference to the undead in pop culture, such as the Twilight saga, Buffy the Vampire Slayer, the novels of Anne Rice, World War Z, the films of George Romero, True Blood, and The Walking Dead.

Possible topics include:  supply and demand in the market for blood; the operation of zombie labor markets; the political economy of responding to undead threats; macroeconomic recovery after a zombie apocalypse; what zombie and vampire behavior tell us about rational-choice modeling; etc.

Submission Guidelines:

1.      Send abstract of paper (100-500 words) in Word or compatible format.

2.      Include resumé/CV for each author.

3.      Submit by email to both glen.whitman@gmail.com and jpdow@verizon.net.

4.      Submission deadline is 7 April 2013.

5.      For accepted abstracts, first drafts of essays will be due 15 July 2013.

Feel free to forward this to anyone with economics training or experience who might be interested in contributing.  Although we are only asking for abstracts at this time, if you have already written an unpublished article that fits the subject matter, you may submit the article in its entirely.

The Chicago-Booth IMG Forum asks their favorite economists two questions. Let us examine them.

Question A:

Raising the federal minimum wage to $9 per hour would make it noticeably harder for low-skilled workers to find employment.

Why was the word “noticeably” added to the question rather than some specific quantitative amount?  In other words, the question could have been phrased: “Would it increase unemployment among low-skilled works by approximately 5 percentage points or less?”  I realize that economists would get nervous about mentioning a specific number. But (1) That would reveal the true difficulties in economics of making quantitative predictions and hence tradeoffs; (2) It would take the subjectivity out of the word “noticeable.”  Noticeable for whom, and by what standard?  Noticeable to the public or to the policy maker or to the economist or to the low skilled workers or to union members?

Question B:

The distortionary costs of raising the federal minimum wage to $9 per hour and indexing it to inflation are sufficiently small compared with the benefits to low-skilled workers who can find employment that this would be a desirable policy.

There is a lot here. Let us first separate the raising of the minimum wage to $9.00 per hour from the indexing (one could favor the former but not the latter).

What is meant here by distortionary costs? Does this include the greater number of people who would engage in search for these particular covered jobs as they are misled by the higher price-signal? Or just the ones who are thrown out of work? Does this separate out the effects on the lowest of the low skilled – for example, teenagers who want/need work experience?

As I understand it, the bottom line on “distortionary” effects is that they represent monetary losses to the losers that exceed monetary gains to the gainers. Is this not true here?

What I think the economists are being asked is that, according to their value judgments – their views about equity in the distribution of income – is the tradeoff worth it?

My reaction to this question is to laugh. Do I care what their value judgments are? Do their judgments represent some deeply considered ethical reflection? I sincerely doubt it. Most economists would rather solve equations than study ethics.

But now that we have introduced ethical value judgments, why stop with those relating to the distribution of income? What about the ethical quality of preventing willing employers and willing workers to engage in exchange?

And as to indexing: Well, that adds the additional wrinkle that the policy must be “good” in all economic environments like an inflationary boom and so forth.  This is another matter.

The reader may be forgiven for thinking that I am too fussy here (or perhaps even engaging in sophistry).  However, I think publishing answers to survey questions like these is, by the nature of the questions, misinformation. The reader is clueless how to separate the value judgments of the economist from his scientific judgments.

As Neville Keynes argued in 1890 in The Scope and Method of Political Economy, to talk of policy one must combine the science of economics with ethics and the art of policy. The questions asked by Chicago-Booth are sloppy scientifically and they throw in questions of ethics and policy judgment in with the mix for a brew that just makes us drunk.

I admire the economists who did not answer the questions.