Published September 2, 2006 on

Economics: A Trialogue

by Barry Loberfeld

Scene: the cafe of the BORDERS Books in Commack, NY.

Adam: Whoa, John, here I am -- you nearly walked right past me! C'mon, sit down. So, tell me, how've you been?

John: Okay, okay, everything's pretty much the same. Now, you tell me -- what's this discussion supposed to be about, and who's this guy who's going to join us? Is he going to show up?

Adam: She already has -- she's right behind you with her latte. John, Emma. Emma, John.

John: Oh -- hi, Emma.

Emma: Hi yourself, John.

Adam: Do you want to get something before we begin?

John: No, I'm good.

Adam: All right, so now that we're settled, let's start. You're both here because you're my two birds and this get-together is my one stone. Now John here had invited me to a PeaceSmiths meeting -- a kind of left-of-center political group -- and I picked up some stuff there about "religious socialism" and "Christian economics." And Emma had invited me to a meeting of Long Island Secular Humanists, where I picked up a copy of their newsletter and an issue of The Humanist magazine, which has a column called "Humanist Economics." What struck me was how the believers and the nonbelievers -- the saints and the sinners, if you will -- came to the same conclusions. And by the same means: ideological economics.

Emma: I don't see where you're going with this.

Adam: All right. The newsletter defined secular humanism as "the philosophy of life guided by reason and science, freed from religious and secular dogmas." My main point here is, economics is a science. If secular humanism is committed to science per se, then "humanist economics" -- that is, humanist science -- is a redundancy. It stands in opposition to what -- nonhumanist economics, that is, nonhumanist science? That should be a contradiction, according to the given definition. And John -- "Christian economics"? One is religion and the other is science. God's revelation and man's reason -- two very different things, wouldn't you agree?

John: It just means a Christian perspective on the subject of economics.

Adam: Exactly! You raced right to the issue. Both groups are focusing on the subject of economics but aren't looking at the science of economics.

John: Which means that we should abandon all our morals and ideals to be "scientific"?

Adam: No, no, not at all. Both of you, keep your convictions. What I'm suggesting is that the science of economics might show you that what you've adopted as means might not lead to your convictions' goal. You no doubt want to help the sick, but the science of medicine shows you that leeches aren't the way to do it. It's the same with economics.

Emma: Let me guess -- now we get the demonstration?

Adam: Well, I couldn't help noticing that both the theistic and the atheistic materials thought that the minimum wage was a good idea.

Emma: And science says otherwise?

Adam: First, tell me what "humanist economics" says. Why is the minimum wage a good idea?

Emma: Because we don't want people working for an income they can't live on! You raise their wages to a level where at least they can make ends meet.

Adam: And I would imagine, John, that "Christian economics" says much the same thing?

John: I agree with what she said, yes. I think there should be considerations other than just how little we can get away with paying someone.

Adam: All right. We've raised the minimum wage -- what happens?

Emma: The boss pays more money, the workers get more money.

Adam: None of those workers lose their jobs?

Emma: No, because we're not talking about a ridiculous twenty-five dollar raise that people always throw out as a counterargument.

Adam: Well, it's not a one-cent raise either. Any significant raise is going to destroy the profitability of marginal workers.

John: Okay, now explain that.

Adam: If the profit margin of an employee's labor is 15% and you increase the cost of his labor to 20%, then it no longer pays to employ him.

Emma: So the boss is going to fire everyone and be without any help?

Adam: If all of his workers are marginal workers, yes. The increased cost of labor has driven his business out of business, which, in addition to the unemployment, will mean fewer goods on the market and higher prices for them. But for most businesses, no, the boss isn't going fire everyone, but what do you think he's going to do about the employees he keeps?

Emma: So he'll raise prices a little to pay them the extra amount.

Adam: All right, he'll try to raise them at least in proportion to the salary increase. Now look at the entire situation. He's increasing the price of his product. But it's an elementary fact of economics that -- all other things being equal -- the higher the cost, the lower the number of buyers.

John: Yes, but think about all the wage earners in all fields who've had the increase. They now have greater purchasing power. They can now buy his product whereas before they couldn't.

Adam: Really? What good is their "living wage" increase of 20% if it's met with a cost of living increase of 20% -- or even more? Wage earners are also wage spenders, and it is from their consumer dollars that the employer pays his employees.

Emma: Look, you know what blows all this talk out of the water? There have been a number of studies that found that they raised the minimum wage and it wasn't followed by any mass unemployment like predicted.

Adam: I'm not saying an increase in the minimum wage would destroy all or even a majority of low-end jobs, though it might a significant minority. Again, an increase in the cost of living is the main result of the increase in the cost of labor. But the bigger point here is, empirical studies prove nothing -- not in economics.

Emma: Theorizing around a table is science, but actually measuring the real-world impact of those theories isn't?

Adam: Couldn't have said it better myself!

John: Adam, seriously. What do you mean?

Adam: Science is about nothing if not controls. But the economy isn't a laboratory, and it doesn't allow for controls. Do you realize just how many factors other than the wage increase were responsible for the employment rate? We would have to keep all those factors as a constant in order to isolate and gauge the effects of the wage increase. But that's exactly what we can't do with the real world. These "studies" aren't tests that prove or disprove a hypothesis. At best, they're surveys. Presenting them as experiments demonstrates only the inability to distinguish correlation from causation –- the post hoc ergo propter hoc fallacy.

Emma: So what are we supposed to do with the actual data -- dismiss it completely because it contradicts your theory?

Adam: No, not at all. We evaluate it in light of the theory. It simply means that the depressing effect of the wage increase was obviously overcome by the uplifting effect of other, beneficial factors. Of course we should also keep in mind the many below-minimum-wage workers of the "underground" -- off the books -- economy, who aren't measured by these studies. Their wages purchase, among other things, the labor of workers in the conventional economy, who are measured.

John: It seems to me that since you have theory as the basis of everything, we have to ask what is the basis of this theory.

Adam: Economic science proceeds from theorems, or “axioms,” as some prefer -- I already gave you one: Lower the price, you sell more; raise it, less -- that themselves proceed from knowledge that is available to all people everywhere. A man has five dollars: It's easier for him to buy the one dollar widget than the four dollar one -- and impossible for him to buy the six dollar one. Theory is no more an arbitrary construct in economics than in mathematics. One-plus-one-equals-two isn't merely a "logical" proposition, but something we've observed from the result of putting one rock together with another.

John: And it's by applying these theorems to "economic" questions of production and distribution that we engage in real science?

Adam: Exactly.

Emma: I don't know, Adam, if you've made any converts here, but you've certainly given us a lot to think about.

Adam: Which is just what I wanted.