Math Zero vs. Political Zero
It seems I hit a nerve last week when I said:
But if economists say, as they have for centuries, that a minimum wage raises unemployment, reporters treat them skeptically and feel they need to find a contrary quote to "balance" their story.
Turns out the new Democratic Congress is considering raising the minimum wage as its first big action, and political partisans are itching to argue about the subject. For example, see the commentary at Business Week, Washington Monthly, and Cosmic Variance.
I intended my claim to be interpreted with the usual social science qualifiers. It was about the sign of an average of economist judgment regarding a point estimate of an all-else-equal, causal long-run effect to be expected on overall employment from raising a minimum wage. That sign has been consistently negative for over a century, as seen in most basic economics textbooks. But people instead interpreted me as saying things like:
raising the minimum wage would be bad
every economist dislikes a minimum wage
employment has never risen after a min wage rise
employment in every industry must fall
the effect is always large, no matter how small the rise
the effect is immediate, without delay
no economics model allows the opposite sign
every study’s estimate had a significant coefficient
my favorite model says it, so it must be true
Quite a lesson in the power of misinterpretation (not always accidental). To set the record straight, most all economists should agree that:
A low enough minimum wage has no employment effect
A high enough minimum wage induces a devastating fall
The effect of a small rise is hard to see amid other effects
Models (e.g., monopsony) sometimes allow positive effects
Far more studies have found negative effects than positive
Due to study errors, we always expect some contrary results
We should also agree that regarding a small (e.g., 10%) rise in the min wage in the U.S. today, plausible models do not allow for a large positive effect, but they do allow for a large negative effect, or for a near zero effect.
Part of the problem is that ten years ago two respected Princeton economists used impressive statistical techniques to find estimates insignificantly different from zero for the effect of small rises on particular states and industries, contrary to most of dozens of previous studies. But many others don’t think this changes our total evidence by that much.
Putting it all together, taking into account both theory and data I say:
Regarding our best estimate of the employment effect of a small min wage rise, while many have recently said this is near zero, more say it is substantially negative, and I have asked around and found *no* economist who says that it is substantially positive. Thus, I conclude, any reasonable average of these estimates must be negative, and has been so for a while.
It seems to me that I am on safe grounds for any mathematical definition of "zero." But apparently there is another concept of "zero" out there, because many complain that since some economists say their estimate of the employment effect of a small rise is near zero, I am wrong to say that the economic consensus has long been that a minimum wage lowers employment.
I’m too close to this to be a good judge of what exactly all this says about bias, but it seems to me that it must say something.
wait there are people out there that belive that raising the minimum wage, will decrese unemployment?I have been for raising the wage, but always despite the fact that it will destroy some peoples jobs. (I just think keeping wages artificially high is good for society).
I'm surprised I feel moved to comment, but the discussion of physics vs economics is just too interesting to leave alone.
My opinion as a physicist is that much of physics, especially the physics that gets lots of popular press, is highly speculative and should be treated as such. We don't know how many dimensions the Universe has, we only have some interesting and extremely speculative theories that suggest certain answers. Does anyone really believe otherwise? We have some idea of the age of the Universe, though the accepted estimate has changed significantly in the past decade. Might it change again by a factor of 2 or 10 or 1000 over the next ten years? Probably not, but this is speculative territory and I wouldn't be shocked (just mildly, and pleasantly, surprised).
But then we have other areas of physics, atomic physics, condensed matter physics, fluid dynamics and statistical mechanics, etc, where we have very accurate theories that make wonderfully accurate predictions. All this has been built up over a long period by repeated testing of ideas against experiment. This success (which has made a great deal of modern technology possible), isn't traceable to the brilliance of physicists as people, but to the effectiveness of the scientific algorithm for developing knowledge, in which both speculation and empirical test play equally important roles.
I think economics doesn't get quite as much respect because it hasn't been as strongly committed to testing its theories empirically, and rejecting those ideas that do not work. Serious people are still quibbling over the Efficient Markets Hypothesis, despite absolutely overwhelming evidence against it. It's taken 30-40 years for it to become acceptable for economists even to begin studying systematically the way people really make decisions, in contrast to what perfect rationality would imply.
I also find it more than a little strange that economics papers so often adopt an extremely formal mathematical tone, with theorems and lemmas, etc, much more so that do papers in theoretical physics. My suspicion is that this is in part to give the illusion of scientific certainty, and therefore to confer authority on the theory and its developers. Much more impressive would be theories for basic economic phenomena that met very stringent empirical tests, theories to which every economist could point and say "this clearly works". As far as I understand, there is just no such thing.
One other comment regarding what journalists should believe when asking the experts about how things work. A good journalist doesn't just ask the experts for their opinions, but for the reasoning behind those opinions. If you find that lots of experts have different opinions, and different reasons behind them, you begin to suspect you're dealing with a field in which there isn't a great deal of sound knowledge (in my opinion). And if an expert gives bad reasons, or incoherent and inconsistent ones, you've got reason to suspect their motives.
So, short answer, forget about string theory and dimensions of the universe. On far more basic issues, physics has very powerful and well tested theories and economics has nothing remotely comparable. This might be because the social world is much more complicated. It is definitely NOT, in my opinion, because physicists are smarter than economists, but may also in large part be due to some particularly damaging theoretical paradigms in which much of economics has been stuck for a long time (rational expectations, fixation on equilibria, etc.)