Tyler Cowen[1] lists a number of economic propositions which he formerly believed, but has abandoned in the light of contrary evidence. Most of these propositions were elements of the economic orthodoxy of the 1980s and 1990s, variously referred to as Thatcherism, neoliberalism, the Washington consensus and, in Australia, economic rationalism. They include the efficacy of monetary targeting, the beneficence of free capital movements and the desirability of privatisation in transition economies.

Following in the same spirit, I thought I’d list a couple of propositions on which I’ve changed my mind in the face of empirical evidence. These are elements of the Keynesian orthodoxy of the 1950s and 1960s, on which I was trained. Following Cowen, I’ll list them as false claims I used to believe

* There is a long-run trade-off between unemployment and inflation

* Keynesian fiscal policy is a powerful and reliable instrument for stabilising aggregate demand

On both these issues, I’ve come to accept that Milton Friedman was largely right, and his Keynesian opponents largely wrong.
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Coming in a bit late, I have the opportunity to survey a range of blogospheric discussion of the topic of minimum wages, which largely supports the view (not surprising to anyone but an economist) that minimum wages are good for low-income workers. The traditional view among economists was that minimum wages reduced employment and thereby harmed workers, but this view has been overturned, or heavily qualified, by empirical evidence, beginning with the work of Card and Krueger.

The debate kicked off with a piece by Stephen Landsburg in Slate, noting that recent US econometric studies had failed to find economically and statistically significant negative effects on employment resulting from higher minimum wages. This was surprising, in view of a range of earlier studies which found right-signed effects, but were statistically weak because of small samples. Landsburg argues that this might be an example of publication bias, in which studies with no statistically significant results tend to get discarded. He concludes

Now that we’ve re-evaluated the evidence with all this in mind, here’s what most labor economists believe: The minimum wage kills very few jobs, and the jobs it kills were lousy jobs anyway. It is almost impossible to maintain the old argument that minimum wages are bad for minimum-wage workers. In fact, the minimum wage is very good for unskilled workers. It transfers income to them

Landsburg then goes on to argue against the minimum wage on the curious ground that it’s a less transparent alternative to policies such as an Earned Income Tax Credit. Brad de Long responds, endorsing the EITC, but arguing that minimum wages are also an effective policy instrument for transferring income to the poor.

There are quite a few interesting responses. Steve Verdon develops Landsburg’s argument, pointing out that a minimum wage increase which raises the general cost of goods and services is like a consumption tax and has an associated deadweight loss. That’s true, but it’s also true of whatever tax may be used to finance the EITC. Robert Waldmann suggests changing the structure of payroll tax, but as he himself points out, his argument disregards the point that the budget is already in deficit. Tyler Cowen observes that increases in wages may be offset be reductions in working conditions. Interestingly, no-one seems to have defended the traditional view on empirical grounds.
An interesting and important question is whether these results can be transferred to other countries like Australia, where the minimum wage is higher relative to average weekly earnings. In the survey of the literature we did for the National Wage Case, Steve Dowrick and I concluded that, although there might be some reduction in employment and some leakage to low-wage workers in high-income households, the evidence showed that minimum wages help low-income workers . Our study is here (PDF file)

Overall, my view is close to that of Brad de Long. Minimum wages are a useful policy instrument, but by no means the only or most important one, to improve the position of low-income workers.

Update Jacob Levy asks, reasonably enough

If, as Landsburg claims, the published studies are “all in agreement” about the direction of the effect, then the underlying distribution of studies can’t be as he describes it, can it? Publication bias in favor of significant findings, superimposed on an actually-neutral relationship ought to generate equal numbers of ostensibly-significant findings in each direction.

Actually, the Card and Krueger study found weak positive impacts of minimum wages on employment using a data set where most of the obvious sources of bias had been removed. There may have been earlier studies with similar results, but they would almost certainly have been discarded, on reasonable grounds of weak statistical significance or omitted variable bias. By contrast, studies with similar weaknesses, but with the expected sign would have been published.

On my recent visit to Israel, the big new “fact on the ground” was the fence/wall/barrier, being constructed by the Sharon government through the West Bank. It’s very visible in lots of places, and it’s hard to imagine a way of breaching such a massive barrier, certainly not one accessible to an individual carrying a gun or bomb.

But, as recent court judgements from both the Israeli High Court and the International Court of Justice have shown, the very effectiveness of the barrier as a defence undermines any defensive justification for any route other than the 1967 border. It’s clear now, that Israel is in a position to safely withdraw its forces to that border, while running very little risk of attack[1].
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I’ll be on Radio National’s Australia Talks Back tonight, sometime between 6 and 7, talking about blogging

In the rush of getting ready to travel overseas, I forgot to note it, but this blog was two years old on 21 June. It seems a lot longer ago than that to me. During that time I’ve moved the blog twice, and seen many other bloggers come and go, and in some cases return. There have been some big changes in the time I’ve been paying attention to the blog world, not all of them in line with what I would have expected.

Although the number of blogs has grown over time, there hasn’t been the explosion I expected to result from the capacity (in my experience highly addictive) to publish your thoughts to the world on a daily basis. By the way, this is a good time to invite anyone who thinks they should be on my blogroll to write and tell me[1].

The relationship between blogs and the print media has reached something that looks like equilibrium for the moment. Most journalists know now what blogs are, and most who engage in political and social commentary are aware that their words are going to be dissected by mostly-hostile commentators (I try to accentuate the positive, but even so, most of my links to articles in the mainstream press are critical).

Of course, as bloggers are to pundits, commenters are to bloggers. This blog developed a robust group of commenters early on, and has sustained lively debate ever since (much of it, unfortunately, lost in various database failures).

fn1. I’m generally happy to link to blogs in the listed category, though I reserve the right to make arbitrary judgements, and to put off updating the roll until I get a round tuit.

In the light of pieces like Trevor Cook’s in the Fin recently, I was beginning to think blogs were making a difference for the better in the mainstream media. But the fact that the Oz can run an op-ed piece on gun control by discredited ex-academic John Lott suggest that a lot more remains to be done.

Lott has been exposed in every possible way by bloggers (of all political persuasions and none) as a liar, a fabricator, and even as an Internet cross-dresser[1] (for the gory details visit the indefatigable Tim Lambert). Yet not only is he still sitting in a cosy billet at the American Enterprise Institute, but newspapers are apparently still willing to publish him. Clearly bloggers have a lot more work to do. Ken Parish takes on the job of demolishing Lott’s latest piece of nonsense, as does Tim Lambert.

fn1. Having said all this, it’s necessary to confront the ad hominem issue. A logical argument doesn’t become invalid because it is put forward by a liar. But an Op-ed piece about an issue like gun control can’t consist exclusively of abstract logical argument. The arguments have to be given some factual basis. And any piece written by Lott should come with a warning, “Do not accept any factual assertion in this article”.

I’m off today on my long-planned trip to Jerusalem and Paris. Posting will be intermittent (not, I hope, nonexistent),so feel free to use this post to start up any new discussion you like.

For those who want something to chew on, Ken Parish has returned to the fray with a series of excellent and thought-provoking posts. This one manages to move effortlessly from Gen X to economic growth in China and there’s also a discussion of Latham’s values.

Update My connections are working OK so far, but then, I’ve only got as far as Brisbane airport

I’ve added links to some more fellow-members of the Crooked Timber academic group weblog, including Eszter and John and Belle. Eszter mostly crossposts her material from CT, but John and Belle have more on their own site than on CT.
Also, another economics site, with the overconsumptionist title General Glut

And, for the hard-core fans among you, I’ve added another picture, published by Gianna a while back, but supplied I think by James Farrell, who seems to be responsible for the Captain Haddock ID.

Ken Parish has inaugurated his “Blog bile” awards, a category that should not lack for entrants. The first winner is Chris Sheil appropriately enough, since he notes that Howard’s 30th anniversary bash made him “puke all over my keyboard”.

At least according to regular commentator Observa, writing in the comments thread, I’m not in the running, and am in fact notable for “serenity”. This word always reminds me of the holiday shack scene in The Castle

, with the high-voltage transmission lines crackling in the background, and not at all of blogging, but there you go.

Optimization Prime is a new group blog. The pun in the title, presumably due to Justin Gundlach should be self-explanatory to members of Gen Y and their parents- the members of the group are all in the former category, I think. My biggest criticism is that comments don’t appear to have been implemented yet, though this should be easy in what looks like a Movable Type set.

Among some interesting posts, Maggie McConnell cites a report that Hallmark is developing a line of greeting cards for gay weddings. This raises a more general point about capitalism as a solvent of traditional social order, going back at least to Schumpeter, which I’ll try to develop some other time.