Critics suggest that introductory textbooks should emphasize empirical studies over these models. There are many problems with this suggestion, not the least of which that economists’ empirical studies don’t agree on many important policy issues. For example, it is ridiculous to suggest that economists have reached consensus that raising the minimum wage won’t reduce employment. Some studies find non-trivial employment losses; others don’t. The debates often hinge on one’s preferred statistical methods. And deciding which methods you prefer is way beyond the scope of an introductory course.As you might predict, I have some problems with this. First of all, I don't like the idea that if the empirics aren't conclusively settled, we should just teach theories and forget about the facts. I agree with Kwak, who writes:
I don’t understand this argument. The minimum wage may or may not increase unemployment, depending on a host of other factors. The fact that economists don’t agree reflects the messiness of the world. That’s a feature, not a bug.Totally! This clearly seems like the intellectually honest thing to do. It seems bad to give kids too strong of a false sense of certainty about the way the world works. When a debate is unresolved, you shouldn't simply ignore the evidence in favor of a theory that supports one side of the debate.
As a side note, I think the evidence on short-term employment effects of minimum wage is more conclusive than Strain believes, though also more nuanced than is often reported in the media and in casual discussions.
Strain also writes this, which I disagree with even more:
Even more problematic, some of the empirical research most celebrated by critics of economics 101 contradicts itself about the basic structure of the labor market. The famous “Mariel boatlift paper” finds that a large increase in immigrant workers doesn’t lower the wages of native workers. The famous “New Jersey-Pennsylvania minimum wage paper” finds that an increase in the minimum wage doesn’t reduce employment. If labor supply increases and wages stay constant — the Mariel paper — then the labor demand curve must be flat. But if the minimum wage increases and employment stays constant — New Jersey-Pennsylvania — then the labor demand curve must be vertical. Reconciling these studies is, again, way beyond the scope of an intro course. (emphasis mine)Strain is using the simplest, most basic Econ 101 theory to try to understand multiple results at once. He finds that the theory can't simultaneously explain two different empirical conclusions, and concludes that one or both of the empirical conclusions must be wrong.
But what if the Econ 101 theory Strain relies on is just not powerful enough to describe both these situations at once? What if there isn't just one labor demand curve? Maybe in the case of minimum wage, monopsony models are better than good old supply-and-demand. Maybe in the case of immigration, general equilibrium effects are important. Maybe search frictions are a big deal.
Strain's assumption - that there's just one labor demand curve - seems like an example of what I call "101ism". A good 101 class should teach monopoly models, and at least give a brief mention of general equilibrium and search frictions. And even more importantly, a good 101 class should stress that models are situational tools, not Theories of Everything. Assuming that there's one single labor demand curve that applies to all labor markets is a way of taking one simple model and trying to make it function as a Theory of Everything; no one should be surprised when that attempt fails. And our response to that failure shouldn't be to start tossing out empirical observations, as Strain wants to do. It should be to rethink the way we use the theory.
Anyway, I agree with what Kwak says here:
People like Krugman and Smith (and me) aren’t saying that Economics 101 is useless; we all think that it teaches some incredibly useful analytical tools. The problem is that many people believe (or act as if they believe) that those models are a complete description of reality from which you can draw policy conclusions [without looking at evidence].Exactly.
from Noahpinion http://ift.tt/1s7b9kz