WEBVTT

NOTE Minimum Wage Debate

1
00:00:00.000 --> 00:00:05.600
My next guests are going to engage in a debate. I'm very proud to announce that we're going

2
00:00:05.600 --> 00:00:12.200
to have a debate here on I object justice examined between two eminent scholars on the

3
00:00:12.200 --> 00:00:17.800
subject of the minimum wage. And to the right, we are going to have Dr. Walter Block who

4
00:00:17.800 --> 00:00:26.000
earned his PhD in economics at Columbia University. He is a very prolific author and editor and

5
00:00:26.000 --> 00:00:56.000
and a co-editor of many books. He's written many journal articles. Some of his books include Defending the Undefendable, Lexicon of Economic Thought, Man, Economy and Liberty, Essays in Honor of Murray N. Rothbard. Plus, he's contributed to journals such as the Review of Austrian Economics, Journal of Libertarian Studies, and the Journal of Labor Economics. He is currently a professor and chair of economics at the College of Business Administration at Loyola University. And to the left, we have

6
00:00:56.000 --> 00:01:03.160
Dr. Jared Bernstein, who joined the Economic Policy Institute in 1992, and he has a new

7
00:01:03.160 --> 00:01:09.280
book out called Crunch, Why Do I Feel So Squeezed and Other Unsolved Economic Mysteries, which

8
00:01:09.280 --> 00:01:15.280
follows a book that he wrote earlier, Altogether Now, Common Sense for a Fair Economy. And

9
00:01:15.280 --> 00:01:20.460
he researches in the area of income inequality and mobility and trends in employment and

10
00:01:20.460 --> 00:01:24.460
and Earnings, Low-Wage Labor Markets and Poverty and Other Areas.

11
00:01:24.460 --> 00:01:29.460
He's also the co-author of eight editions of the book, The State of Working America.

12
00:01:29.460 --> 00:01:34.460
He holds a PhD in Social Welfare from Columbia University.

13
00:01:34.460 --> 00:01:36.460
Gentlemen, welcome.

14
00:01:37.460 --> 00:01:39.460
Nice to be here with you, Jerry.

15
00:01:39.460 --> 00:01:40.460
That's great.

16
00:01:40.460 --> 00:01:46.460
Well, I think to start out this debate, probably what we ought to do is have Dr. Bernstein,

17
00:01:46.460 --> 00:02:00.460
Dr. Bernstein, why don't you spend about three minutes making your case about why the minimum wage is a good thing and why it should be raised?

18
00:02:00.460 --> 00:02:09.460
Sure. The minimum wage is an important floor, if you will, on the labor market.

19
00:02:09.460 --> 00:02:38.460
There are a great deal of pressures on low-wage workers in our economy, and since the 1930s, when minimum wages were first introduced, we've recognized that if left to their own devices, market forces will push the wages of low-wage workers down to probation levels that are unacceptable to Congress and to society.

20
00:02:38.460 --> 00:02:39.460
Society.

21
00:02:39.460 --> 00:02:45.940
And it's not just market forces, there's discrimination in play, there's a lack of bargaining power,

22
00:02:45.940 --> 00:02:51.980
sometimes our lowest wage, least advantaged workers are heavily exploited and paid a lot

23
00:02:51.980 --> 00:02:54.820
less what they ought to be.

24
00:02:54.820 --> 00:03:01.380
The economic theory or textbook analysis of minimum wage is quite clear, it suggests that

25
00:03:01.380 --> 00:03:08.120
if you raise a minimum wage or impose a mandate that's one penny above what the supposedly

26
00:03:08.120 --> 00:03:15.120
The Theory of Money and Credit

27
00:03:38.120 --> 00:04:00.120
The New Textbooks Are Saying Different Things Than The Old Textbooks

28
00:04:08.120 --> 00:04:28.120
Well, in my view, Jared Bernstein correctly articulates the view that it's a floor under wages that is the argument in favor of minimum wages.

29
00:04:28.120 --> 00:04:38.120
I think most people see it as a floor. You raise the floor, and you raise everyone's wages to whatever the minimum wage level is.

30
00:04:38.120 --> 00:04:46.120
I don't see it that way at all. I see it rather as a hurdle over which you have to jump in order to get a job.

31
00:04:46.120 --> 00:04:51.120
Because the minimum wage law isn't an employment law, it's an unemployment law.

32
00:04:51.120 --> 00:05:00.120
It says it shall be illegal to pay anyone less than whatever the minimum wage level is, say $5.15 or $6 an hour, or whatever it is.

33
00:05:00.120 --> 00:05:09.120
It doesn't say that anyone has to be hired. It just says you can't pay less than whatever the stipulated wage is.

34
00:05:09.120 --> 00:05:18.120
But we have to dig a little deeper, and we have to ask why is it that employers want to pay wages to employees in the first place?

35
00:05:18.120 --> 00:05:32.120
And the answer is productivity, in general, or marginal revenue productivity if you want to be technical, namely, the employer is paying the worker because of what he can add to his bottom line.

36
00:05:32.120 --> 00:05:46.120
So, suppose you have a teenage worker whose productivity is, oh, $3 an hour. That means that if you hire him, your bottom line is $3 an hour better than it would be if you didn't hire him.

37
00:05:46.120 --> 00:05:53.960
Well, now, if the law says that you have to hire him at $5 or not at all, it's pretty

38
00:05:53.960 --> 00:05:57.240
clear that you won't hire him at all.

39
00:05:57.240 --> 00:06:02.400
Because if you do, you lose $2 an hour on him, and we're assuming profit-maximizing

40
00:06:02.400 --> 00:06:05.860
or profit-seeking behavior.

41
00:06:05.860 --> 00:06:10.940
And if you do that, then why would the employer want to hire the employee at all?

42
00:06:10.940 --> 00:06:17.180
So that's why I say it's not a floor. It doesn't raise anyone's wages. Rather, it makes it

43
00:06:17.180 --> 00:06:22.580
very difficult for people whose productivity is below the levels stipulated by the minimum

44
00:06:22.580 --> 00:06:31.580
wage law to get a job at all. Because if you hire someone whose productivity is $3 an hour

45
00:06:31.580 --> 00:06:39.180
and you have to pay him $5, you lose $2 an hour. Now it's not for nothing that we have

46
00:06:39.180 --> 00:06:43.780
Special exemptions from the minimum wage law, for example, for teenagers, we have a special

47
00:06:43.780 --> 00:06:49.500
lower minimum wage law for teenagers. We have a special lower minimum wage law for mentally

48
00:06:49.500 --> 00:06:53.500
handicapped workers, not physically handicapped workers, because physically handicapped workers

49
00:06:53.500 --> 00:06:59.260
have very high productivity. For example, we could have this debate between Professor

50
00:06:59.260 --> 00:07:03.620
Bernstein and myself if we were both in wheelchairs. But if you're mentally handicapped, then your

51
00:07:33.620 --> 00:07:46.620
with the passage of a legislative pen, we could, you know, solve poverty. We'd all be rich. Now, Dr. Bernstein says...

52
00:07:46.620 --> 00:07:51.620
Can we stick to our three-minute rule here?

53
00:07:51.620 --> 00:07:59.500
Dr. Bernstein, we have a little less than two minutes left on this. I noticed on your

54
00:07:59.500 --> 00:08:05.700
website or at the Economic Policy Institute that you guys dispute that this causes unemployment.

55
00:08:05.700 --> 00:08:07.860
Do you want to discuss that a little bit?

56
00:08:07.860 --> 00:08:12.300
I don't want to cut Walter off. Do you really want to say three minutes each or not?

57
00:08:12.300 --> 00:08:16.140
Well, why don't you go ahead and respond at this point? We only have about a minute and

58
00:08:16.140 --> 00:08:18.260
a half left on this particular segment.

59
00:08:18.260 --> 00:08:21.260
Okay, is that alright with you, Walter?

60
00:08:21.260 --> 00:08:28.260
I don't mind when you interrupt me. If I had the incorrect view, I'd probably be interrupting you.

61
00:08:28.260 --> 00:08:32.260
Oh, now Walter, that sounds a little rude. Be nice.

62
00:08:32.260 --> 00:08:34.260
Well, you were the one that interrupted me.

63
00:08:34.260 --> 00:08:40.260
No, no, I'm just saying that I thought the understanding was we each got three minutes. You were gone for longer than that.

64
00:08:40.260 --> 00:08:44.260
Right, but right now you're wasting time, so why don't you respond?

65
00:08:44.260 --> 00:09:01.540
I think what Dr. Bernstein said was that it's a matter of both theory and state at the same

66
00:09:01.540 --> 00:09:02.540
time.

67
00:09:02.540 --> 00:09:08.820
I'd like to discuss that, but I think the music is sort of cutting me off, is that right,

68
00:09:08.820 --> 00:09:09.820
Jerry?

69
00:09:09.820 --> 00:09:16.820
Well, if you, people who are listening out there on Radioland, if you put a supply and demand curve on a piece of paper,

70
00:09:16.820 --> 00:09:30.820
the equilibrium wage is where supply and demand crosses, and a minimum wage above that level will absolutely, definitively, apathetically cause unemployment of people below that level.

71
00:09:30.820 --> 00:09:40.820
Dr. Bergstein, why don't you reply to the assertion by Dr. Block that the minimum wage is an unemployment law as opposed to an employment law?

72
00:09:40.820 --> 00:09:49.820
Well, I think what Walter was espousing there was very much the theoretical view that I mentioned in my opening statement.

73
00:09:49.820 --> 00:09:57.820
And I totally agree that that is what theory used to predict around minimum wages. It doesn't really do so anymore.

74
00:09:57.820 --> 00:10:27.820
The Theory of Money and Credit

75
00:10:27.820 --> 00:10:34.820
The problem is that we have tested that theory, and in economics, if you don't test a theory, it's really not worth very much.

76
00:10:34.820 --> 00:10:42.820
This is not hard science. It's soft science in that regard. You have to see how these things play out in real life.

77
00:10:42.820 --> 00:10:44.820
How do you test it and what's your data?

78
00:10:44.820 --> 00:11:06.820
Okay, so here's the thing. In 1996, the minimum wage at the federal level was increased from $4.25 to $5.15 an hour. That's the federal minimum wage, but at the same time, over 30 states now have minimum wages that are above the federal level.

79
00:11:06.820 --> 00:11:13.820
And this has presented economists with the opportunity to do something we almost never get to do in economics, which is pseudo-experimentation.

80
00:11:13.820 --> 00:11:15.820
The Theory of Money and Credit

81
00:11:43.820 --> 00:11:49.300
make sense, really play out in the real world. And what that research has shown is that the

82
00:11:49.300 --> 00:11:53.920
minimum wage has absolutely nothing like the kind of impact that Walter suggested. We have

83
00:11:53.920 --> 00:11:58.940
never, ever had an experience where raise the minimum wage and every affected worker

84
00:11:58.940 --> 00:12:05.940
loses their job, which is precisely the empirical outcome of Walter's argument. This is not

85
00:12:07.220 --> 00:12:12.940
to say that no one has ever been disemployed or lost a job due to a minimum wage increase.

86
00:12:12.940 --> 00:12:19.780
Of course, there's no policy that's perfect in that regard, but some studies show a slight

87
00:12:19.780 --> 00:12:25.580
positive effect. Actually, minimum wage led to greater employment growth. Some studies

88
00:12:25.580 --> 00:12:32.140
show slightly negative effect. Most studies hover around zero, and the punch line is that

89
00:12:32.140 --> 00:12:37.900
these policies have their intended effect. They raise the earnings of workers at the

90
00:12:37.900 --> 00:13:01.900
Let me break in because I need to give Dr. Block a chance to comment on the data and the studies. Dr. Block, have you examined this data? What do you think of the legitimacy of it? Is it even really a good approach to analyzing this subject?

91
00:13:01.900 --> 00:13:09.900
No, I don't think that that is very important or very indicative of anything.

92
00:13:09.900 --> 00:13:11.900
And why is that?

93
00:13:11.900 --> 00:13:18.900
Because other things change. If a minimum wage law arises and these people don't lose their jobs and instead they get higher pay,

94
00:13:18.900 --> 00:13:24.900
something else must have changed also. You can't control everything. We live in a very complex economy.

95
00:13:24.900 --> 00:13:29.900
I'm not saying that every worker loses his job right away.

96
00:13:29.900 --> 00:13:36.900
There was an interesting historical case, Dr. Bernstein is interested in history and empirical analysis.

97
00:13:36.900 --> 00:13:47.900
What happened is in the 40s, I think it was the 40s or the 50s, the minimum wage law went up from 40 to 75 cents, which was the highest percentage raise.

98
00:13:47.900 --> 00:13:52.900
And when it was 40 cents, all elevators were manually operated.

99
00:13:52.900 --> 00:13:59.220
75 cents. How many elevator operators, how many manual elevator operators do you think

100
00:13:59.220 --> 00:14:05.100
I fired in the next second? Zero. None. Because it takes a little while to put in automatic

101
00:14:05.100 --> 00:14:11.060
elevators and yet over the next two, three, four, five years all the elevators went from

102
00:14:11.060 --> 00:14:17.380
manual to automatic and it takes a little bit of understanding of economics to realize

103
00:14:17.380 --> 00:14:22.260
that the cause of it was not higher interest rates or this or that or real estate values

104
00:14:22.260 --> 00:14:24.260
but because of the minimum wage.

105
00:14:24.260 --> 00:14:28.060
At a 40 cent minimum wage, these workers,

106
00:14:28.060 --> 00:14:30.500
these low skilled workers, relatively low skilled workers

107
00:14:30.500 --> 00:14:34.420
were very competitive with the high skilled workers

108
00:14:34.420 --> 00:14:35.860
behind the automatic elevators.

109
00:14:35.860 --> 00:14:39.860
But at 75 cents, they lost their competitive advantage.

110
00:14:39.860 --> 00:14:43.420
Now again, this is an econometric study,

111
00:14:43.420 --> 00:14:48.100
but I noticed I went to Dr. Bernstein's webpage

112
00:14:48.100 --> 00:14:50.380
or at least the Economic Policy Institute

113
00:14:50.380 --> 00:14:59.020
with which he is associated, and they listed no fewer than 35 studies, all of which indicate

114
00:14:59.020 --> 00:15:02.980
what he is saying, namely that the minimum wage law is a flaw and not a hurdle over which

115
00:15:02.980 --> 00:15:05.020
you have to jump to get a job.

116
00:15:05.020 --> 00:15:11.300
Interestingly enough, out of the 35, only 19 of them were actually published.

117
00:15:11.300 --> 00:15:16.020
The rest were just working papers or discussion papers or unpublished papers.

118
00:15:16.020 --> 00:15:21.740
Now if you compare that number of studies, econometric studies, with the number of studies

119
00:15:21.740 --> 00:15:27.220
showing the opposite, there were literally thousands. So while I don't think that these

120
00:15:27.220 --> 00:15:31.820
empirical studies mean much, I'm much more of a theoretician, but when it comes to the

121
00:15:31.820 --> 00:15:37.260
empirical studies, I would estimate that oh, 75, 80, 85% of all empirical studies that

122
00:15:37.260 --> 00:15:43.500
have been published indicate that the minimum wage law is a hurdle, not a floor. So even

123
00:15:43.500 --> 00:15:50.340
Even on the grounds of empirical, statistical, econometric studies, it's very clear that

124
00:15:50.340 --> 00:15:51.340
the theory is correct.

125
00:15:51.340 --> 00:15:52.340
This theory doesn't change.

126
00:15:52.340 --> 00:15:55.340
This is basic, basic theory.

127
00:15:55.340 --> 00:15:59.020
It's similar to, you know, triangles have 360 degrees.

128
00:15:59.020 --> 00:16:00.460
You don't test that.

129
00:16:00.460 --> 00:16:01.460
You can only illustrate that.

130
00:16:01.460 --> 00:16:07.300
Well, let me get back to Dr. Bernstein, and I'd like you to respond to that, Dr. Bernstein,

131
00:16:07.300 --> 00:16:12.180
but I'd also like you to answer the question, a question I have, is why should the government

132
00:16:12.180 --> 00:16:21.860
have the right to do this. Let me respond to Walter first and you second. On our website

133
00:16:21.860 --> 00:16:28.660
we have examples of minimum wage research from all sides of the issue but I will say

134
00:16:28.660 --> 00:16:33.900
Walter is correct in that we don't have 70 years of research and that the old research

135
00:16:33.900 --> 00:16:39.900
I would argue is probably closer to the kinds of arguments that Walter is making though

136
00:16:39.900 --> 00:16:49.100
So not nearly so far-reaching. So for example, the old minimum wage research, and I'm thinking

137
00:16:49.100 --> 00:16:53.740
of really the conventional wisdom setting research which was done by an economist named

138
00:16:53.740 --> 00:16:59.640
Charles Brown and really kind of set the stage for years until this new pseudo-experimentation

139
00:16:59.640 --> 00:17:08.480
got underway, that suggested that if you raised the minimum wage 10%, 1-3% of affected teenagers

140
00:17:08.480 --> 00:17:17.560
would lose their jobs. So, 99% to 97% would keep their jobs and get a pay raise, but 1%

141
00:17:17.560 --> 00:17:24.200
to 3% would lose the old research. And by the way, I stress teenagers because this research

142
00:17:24.200 --> 00:17:30.480
could not find an effect on older workers. And by the way, Walter makes a very good point

143
00:17:30.480 --> 00:17:38.000
about capital equipment replacing workers, but the research that's worth its salt in

144
00:17:38.000 --> 00:17:44.400
in this work accounts for that by having what economists called lag indicators. That is,

145
00:17:44.400 --> 00:17:48.920
we're looking at the impact of not the minimum wage just today on employment, but the minimum

146
00:17:48.920 --> 00:17:55.600
wage last year and the year before and well before that. Now, you know, Walter I think

147
00:17:55.600 --> 00:18:00.960
really shows his hand in a way that I would argue is pretty much a checkmate for my side

148
00:18:00.960 --> 00:18:05.920
in this debate, which is that he said, look, this is pure theory. You can't test it. It's

149
00:18:05.920 --> 00:18:23.920
It's just not testable. It's just by definition. I absolutely think that that's the wrong way to view this. These kinds of economic principles have to be tested and tested carefully.

150
00:18:23.920 --> 00:18:32.920
Alan Blinder, by the way, former vice chairman of the Federal Reserve, Joe Stiglitz, a Nobel laureate in economics. There aren't too many of those.

151
00:18:32.920 --> 00:18:36.680
Both of them have changed their thinking on this based on this new research.

152
00:18:36.680 --> 00:18:40.280
Blinder, I'm going to quote him, my thinking on this has changed dramatically.

153
00:18:40.280 --> 00:18:44.040
The evidence appears to be against the simple-minded theory that a modest increase in the minimum

154
00:18:44.040 --> 00:18:47.640
wage can cause a substantial job loss.

155
00:18:47.640 --> 00:18:52.120
That is a former vice chairman of the Federal Reserve, one of the top economists in the

156
00:18:52.120 --> 00:18:53.120
country.

157
00:18:53.120 --> 00:18:55.320
I could quote Stiglitz as well.

158
00:18:55.320 --> 00:18:56.320
Nobel Laureate.

159
00:18:56.320 --> 00:18:59.120
Now, your point was, well, why should the government have a right to do this?

160
00:18:59.120 --> 00:19:02.120
Yes, or have the power to do this.

161
00:19:02.120 --> 00:19:32.120
You know, I think that was challenged. I think there was a Supreme Court challenge of that. Walter may know this better than I. Back somewhere in the 30s or 40s. And the challenge failed. I mean, the government is actually able to intervene in markets in lots of different ways with regulations. In this case, it's under the Fair Labor Standards Act. That's a set of standards, rules, regulations, including overtime law, minimum wages,

162
00:19:32.120 --> 00:19:39.120
You know, basic labor practices that firms have to observe, a well-established right.

163
00:19:39.120 --> 00:19:44.120
So basically because a bunch of men in black robes say it's okay, it's okay.

164
00:19:44.120 --> 00:19:49.120
Sounds like you may object to our legal system.

165
00:19:49.120 --> 00:19:58.120
Well, in some respects I do, and Dr. Block, what do you think of the analysis, his analysis of why the government should have this power?

166
00:19:58.120 --> 00:20:02.120
Well, I don't think they should have the power. I think it's a violation of contract.

167
00:20:02.120 --> 00:20:08.120
You know, we believe in capitalist acts between consenting adults and the idea of putting people in jail

168
00:20:08.120 --> 00:20:12.120
for offering a wage below a stipulated minimum.

169
00:20:12.120 --> 00:20:16.120
And that people agree to just seems very unconscionable to me.

170
00:20:16.120 --> 00:20:20.120
But what I wanted to do is get into this blinder comment.

171
00:20:20.120 --> 00:20:22.120
What he said is a modest increase.

172
00:20:22.120 --> 00:20:32.120
And he also said that 10% increase will only increase the unemployment by 1-3%. Well, 1-3%

173
00:20:32.120 --> 00:20:37.440
is, you know, 1-3% too many, and also it depends upon the time elapsed. As I said, when something

174
00:20:37.440 --> 00:20:46.440
occurs, the market doesn't react immediately. To get that 3% or 1%, the lag was very short.

175
00:20:46.440 --> 00:20:51.280
But if time goes on, then it'll be bigger. But look, you see, Blunder says a modest increase.

176
00:20:51.280 --> 00:20:57.240
So you're talking 10%. But why should it be a 10%? If it's really a floor in the wages,

177
00:20:57.240 --> 00:21:05.120
why not raise it to $100 an hour? Now, Blender or Stiglitz or any of those very famous economists

178
00:21:05.120 --> 00:21:10.760
who misunderstand economics, they would be appalled. This is an utter refutation. Now

179
00:21:10.760 --> 00:21:17.560
look, when I say that it's absolute necessity that the minimum wage law will create unemployment,

180
00:21:17.560 --> 00:21:22.760
And I'm not saying by definition, I'm saying based on the logic of it. And the logic is

181
00:21:22.760 --> 00:21:29.760
time immemorial. It doesn't change over time. If you're assuming profit-maximizing behavior

182
00:21:30.200 --> 00:21:37.200
and the wages higher than the productivity, then the guy can't keep his job. It's just

183
00:21:37.920 --> 00:21:42.880
a matter of finding out alternative arrangements. Now look, the reason older workers aren't

184
00:21:42.880 --> 00:21:47.520
affected is because older workers have higher productivity and they can jump over the hurdle

185
00:21:47.520 --> 00:21:51.720
Well, it's younger workers who can't. That's why you have to have an exception. The teenage

186
00:21:51.720 --> 00:21:56.280
minimum wage is, I don't know, something like $2 an hour, whereas $2 or $3.

187
00:21:56.280 --> 00:21:59.760
Well, I'm going to cut you off right here because I don't know that Dr. Bernstein can

188
00:21:59.760 --> 00:22:06.760
be on the last part. So you have about 30 seconds, Dr. Bernstein, to sum up, to sum

189
00:22:07.000 --> 00:22:07.920
yourself up.

190
00:22:07.920 --> 00:22:14.920
Sure. First of all, the 1 to 3 percent, as I mentioned, I didn't get it, I wasn't able

191
00:22:14.920 --> 00:22:19.320
Research. That's the old research. The new research, which actually looks carefully at

192
00:22:19.320 --> 00:22:24.600
these empirical tests, completely undermines this, you know, I would say pretty simple-minded

193
00:22:24.600 --> 00:22:29.780
notion that workers are somehow paid their marginal product or their productivity. Ask

194
00:22:29.780 --> 00:22:36.780
yourself why the top five hedge fund managers last $12.6 billion. We simply don't have

195
00:22:36.780 --> 00:22:43.520
a good, solid notion of paying people what they're worth. We get in the ballpark, but

196
00:22:43.520 --> 00:23:03.520
Thank you for being on the debate. I mentioned to everyone earlier in the introduction that he is involved with Austrian Economics, which although it's called Austrian Economics, to me it's the real

197
00:23:03.520 --> 00:23:09.320
I mentioned to everyone earlier in the introduction that he is involved with Austrian economics,

198
00:23:09.320 --> 00:23:14.280
which although it's called Austrian economics, to me it's the real economics.

199
00:23:14.280 --> 00:23:22.280
And Dr. Block, why don't you explain to people what is Austrian economics and how is it distinct

200
00:23:22.280 --> 00:23:26.000
from other areas in economics?

201
00:23:26.000 --> 00:23:30.200
Well, first of all, Austrian economics has nothing to do with the economics of the country

202
00:23:30.200 --> 00:23:31.200
Austria.

203
00:23:31.200 --> 00:23:35.200
The reason it's named Austrian Economics, and you have to make that point, I think,

204
00:23:35.200 --> 00:23:42.200
is because the leaders of it, the founding fathers of it, Menger, Boehm-Bawerk, Mises, Hayek, all came from Austria.

205
00:23:42.200 --> 00:23:46.200
Similarly, you have the Chicago School of Economics after Milton Friedman and George Stigler.

206
00:23:46.200 --> 00:23:53.200
It's got nothing to do with the economics of Chicago. It just so happens that it started at the University of Chicago in Chicago.

207
00:23:53.200 --> 00:23:57.200
Now, the difference is that the main difference is methodological.

208
00:23:57.200 --> 00:23:58.200
and Mathematical.

209
00:23:58.200 --> 00:24:03.680
Austrians see economics as a branch of logic, not as a branch of empirical science.

210
00:24:03.680 --> 00:24:10.720
So for us, the claim that trade is mutually beneficial in the ex-ante sense, which means

211
00:24:10.720 --> 00:24:17.600
suppose I buy a newspaper for a dollar, it means that in the anticipation sense, I value

212
00:24:17.600 --> 00:24:22.600
the newspaper more than a dollar and the newspaper vendor values my dollar more than the newspaper.

213
00:24:22.600 --> 00:24:24.840
Now how are you going to test that?

214
00:24:24.840 --> 00:24:26.080
You really can't test that.

215
00:24:26.080 --> 00:24:30.400
If you understand the English language, you understand, now later on I might regret it,

216
00:24:30.400 --> 00:24:34.960
I might find there was no news or something and I regret my purchase, but at the time

217
00:24:34.960 --> 00:24:43.280
of purchase it's absolutely undeniable, not definitional, but apodically true that I value

218
00:24:43.280 --> 00:24:47.720
the newspaper more than the buck and the newspaper vendor values my buck more than the newspaper,

219
00:24:47.720 --> 00:24:50.040
otherwise why are we making a deal?

220
00:24:50.040 --> 00:24:55.920
Now for the Austrian all of economics is like that, it's a series of axioms that you

221
00:25:25.920 --> 00:25:32.920
I want to get in here. It sounds like Dr. Bernstein is Keynesian. Is he Keynesian?

222
00:25:32.920 --> 00:25:39.920
He may well be. I wouldn't put it past him. But what he said about the minimum wage law doesn't definitively tie him as a Keynesian.

223
00:25:39.920 --> 00:25:46.920
It just defines him as far as I can see as a person who doesn't understand the functioning of the minimum wage law.

224
00:25:46.920 --> 00:25:52.920
The thing he was talking about, this controlled experiment, you have two states nearby, one next to the other.

225
00:26:22.920 --> 00:26:29.920
In a meaningful way, and these studies are not meaningful, so I'm not unappreciative

226
00:26:44.080 --> 00:26:47.680
of that, I'm just saying, if we're going to do it, let's not do it in a sloppy way,

227
00:26:47.680 --> 00:26:52.680
Let's do it in a meaningful way, and these studies are not meaningful.

228
00:26:52.680 --> 00:26:59.680
A very small proportion of low-economic studies are the blender and stiglitz kind of studies.

229
00:26:59.680 --> 00:27:04.680
The overwhelming majority of empirical studies show that Austrian economists expect, namely,

230
00:27:04.680 --> 00:27:08.680
the higher the minimum wage law, the more unemployment for people who have productivity

231
00:27:08.680 --> 00:27:11.680
levels below the levels stipulated by the law.

232
00:27:11.680 --> 00:27:18.520
Well, another point is that one distinction between Austrian economics and the Chicago

233
00:27:18.520 --> 00:27:26.520
School with its econometrics and Keynesians is that the Austrian School totally disavows

234
00:27:26.520 --> 00:27:34.320
central planning, whereas the other disciplines seem to at least advocate some level of central

235
00:27:34.320 --> 00:27:41.360
planning, which to me is what a minimum wage is, and also deciding to have a minimum wage

236
00:27:41.360 --> 00:27:50.360
I think what you're saying is historically accurate, but not philosophically accurate.

237
00:27:50.360 --> 00:27:54.360
In other words, both Austrian economics and mainstream economics, whether Chicagoan or

238
00:27:54.360 --> 00:28:02.360
Keynesian, and Chicagoans are Keynesians, is a value-free science, whereas libertarianism

239
00:28:02.360 --> 00:28:08.360
is a value-laden discipline. So an Austrian, quite Austrian, couldn't say the minimum wage

240
00:28:08.360 --> 00:28:13.440
minimum wage law is good or bad or just or unjust, he could just say, or she, that it

241
00:28:13.440 --> 00:28:17.840
has such an effect. Now it just so happens that you're absolutely right that virtually

242
00:28:17.840 --> 00:28:22.760
all Austrians, without exception, are very free enterprise and the Chicagoans and the

243
00:28:22.760 --> 00:28:27.560
Keynesians and the Marxists certainly are not. But it's not because they're speaking

244
00:28:27.560 --> 00:28:32.720
qua economists, because, you know, an Austrian could favor central planning, like if he

245
00:28:32.720 --> 00:28:36.600
was a misanthrope and hated people, he could say, look, I realize that central planning

246
00:28:36.600 --> 00:28:42.200
Well, thanks to Dr. Bernstein's buddies in Washington, Bernanke and other central

247
00:28:42.200 --> 00:28:47.200
I don't know that there are any like that, but there could be one like that.

248
00:28:47.200 --> 00:28:52.200
So we have to be very careful when we're treading on philosophical thin ice.

249
00:28:52.200 --> 00:28:58.200
Well, why don't you tell me, in the little time we have left, where do you see our economy heading right now?

250
00:28:58.200 --> 00:29:08.200
Well, thanks to Dr. Bernstein's buddies in Washington, Bernanke and other central planners in Washington, D.C.,

251
00:29:08.200 --> 00:29:11.400
It's in a very, very poor state.

252
00:29:11.400 --> 00:29:16.360
But the answer is when the government creates successive money supplies or even has fiat

253
00:29:16.360 --> 00:29:21.400
currency as opposed to the gold standard, what they do is they create inflation and

254
00:29:21.400 --> 00:29:25.840
they create the business cycle by artificially lowering interest rates below the level that

255
00:29:25.840 --> 00:29:31.400
would otherwise obtain and thus encouraging investment in very heavy basic industries

256
00:29:31.400 --> 00:29:38.600
that can't be sustained based on the savings and consumption decisions of the populace.

257
00:29:38.600 --> 00:29:45.100
In addition, what they did on the housing market and the, what's that, the corn market

258
00:29:45.100 --> 00:29:46.100
with oil.

259
00:29:46.100 --> 00:29:47.100
Oh, the commodities.

260
00:29:47.100 --> 00:29:50.600
You know, they're making corn into fuel.

261
00:29:50.600 --> 00:29:52.600
Yeah, the commodities.

262
00:29:52.600 --> 00:29:58.240
Right, and creating all sorts of starvation around the world and high food prices.

263
00:29:58.240 --> 00:30:03.240
And what the Boston Fed thought, they found out that there was discrimination against

264
00:30:03.240 --> 00:30:08.320
black people because businesses weren't lending them home mortgages, really it was because

265
00:30:08.320 --> 00:30:12.120
they didn't have collateral and they didn't have a good financial record.

266
00:30:12.120 --> 00:30:18.440
So what the government-made banks do is give people mortgage loans where they had no collateral,

267
00:30:18.440 --> 00:30:23.080
where they had to make zero down payments, where they had no equity in the House whatsoever,

268
00:30:23.080 --> 00:30:29.000
And then the financial institutions catapulted on top of this lousy paper. So that created

269
00:30:29.000 --> 00:30:34.960
the housing crisis. It's sort of like 1929 when the government screwed up the monetary

270
00:30:34.960 --> 00:30:39.120
policy and then they had the Smoot-Hawley tariff. I tell you, if Hillary or Barack get

271
00:30:39.120 --> 00:30:43.600
in and they start in with their protectionism, that'll be just like Smoot-Hawley and it might

272
00:30:43.600 --> 00:30:49.760
be the final straw in creating another 1929 depression. So I'm not a big fan of the economy.

273
00:30:49.760 --> 00:30:53.760
I don't think we have free enterprise. I think we've got socialism and fascism here.

274
00:30:53.760 --> 00:31:07.760
And also, the government screwed it up, but they're going to try to shift the blame to someone else by demonizing these companies, the mortgage companies and all that when they create the mess. That's what government does.

275
00:31:07.760 --> 00:31:16.760
Yes, well it's greed and capitalism that are always to blame for these people and it's just nonsense on stilts. The real cause is we don't have laissez-faire capitalism.

276
00:31:16.760 --> 00:31:22.760
Yeah, according to the government, it's never misjudgment or cronyism on their part, is it?

277
00:31:22.760 --> 00:31:26.760
Oh, no. Certainly not. How could you even think that? I'm ashamed of you, Charlie.

278
00:31:26.760 --> 00:31:31.760
Well, Dr. Block, thank you so much for being with me today. It was nice to have you.

279
00:31:31.760 --> 00:31:36.760
And we'll have you and Dr. Bernstein back for part two of the debate later in the year.

280
00:31:36.760 --> 00:31:38.760
That'll be wonderful. Take care.

281
00:31:38.760 --> 00:31:39.760
Thank you for being with me.