David Brooks: Threat or Menace? On the Minimum Wage

Posted: July 27, 2015 in Threat Quality

david brooks

(I’ve decided to continue with this series, “David Brooks: Threat or Menace?” which was previously called “David Brooks: Hero or Menace?” because I had misremembered a joke about Spider-Man.)

This week isn’t quite as exciting as last week’s; we’re probably never going to get quite the staggering constellation of “white-guy cluelessness” and “fantasy worlds in which Jefferson Davis is Abraham Lincoln’s evil anti-matter duplicate” in our lifetimes. Or maybe we will, it is David Brooks, and there doesn’t seem to be a bottom of the barrel when it comes to this guy’s cluelessness.

Like I said, though, this week isn’t the worst thing I’ve ever seen.  It’s David Brooks talking about the “minimum wage muddle”, in which he stakes out a position somewhere between “Abortions for Some and Tiny American Flags for Others” on the one hand and “helpless shrug emoji” on the other.  I’ve got some things that I want to say about just what is at the root of Brooks’ quivering “let’s-not-be-hasty” timidity masking as moderate patrician condescension, but first I want to at least address just what the “minimum wage muddle” is.

It is, in brief:

My own guess is the economists will never be able to give us a dispositive answer about who is hurt or helped. Economists have their biases and reality is too granular. It depends on what region a worker is in, whether a particular job can be easily done by a machine, what the mind-set of his or her employer is.

Cool, dude, way to lay it on the line for us.

He’s got a number of studies here, and I’ve got to say, the math is a little outside my area of expertise.  I get the feeling that it’s a little outside of Brooks’ expertise too, though – for example, his takeaway from the first study that he’s cited, by Neumark, Salas, and Washer (here) is that it points to “dozens of other” studies that show significant job losses when the minimum wage is raised.

Now, someone else can check on this more thoroughly (if you do, don’t bother telling me, it’s not really relevant and I’ll get to why in a little bit), but it seems to me that this article is actually about the disputation of which kinds of control groups are useful for determining what effect occurred at all – it’s an answer, in other words, to studies that have said that previous studies were doing their experiments wrong.

He’s framed the paper as being one of these “one side there are studies that say this, on others, they say that,” planting himself firmly between and slightly to the right, and to an extent that’s an accurate characterization.  But to be MORE accurate, you’d have to say that there are huge questions about the methodology of these papers in the first place.  This isn’t a question of “we ran the experiment a bunch of times and got a bunch of different results”; this is a question of “we’re not actually sure what a good experiment would look like here”, and an affirmative answer on one side or the other would immediately obviate all of the other papers.

His takeaway form his second example – a paper by Jeff Clemens and Michael Wither (here) – is about the poor income trajectory benefits of a minimum wage increase.  He cites how “low-wage workers get less work experience under a higher minimum-wage regime, they are less likely to transition to higher-wage jobs down the road”, but it’s not clear at all to me how the paper in question drew that conclusion; certainly, if fewer minimum wage workers were getting experience, then fewer would transition to higher paying jobs, and the fear of a higher minimum wage is disemployment.  How would workers getting less experience translate to fewer transitions to higher income jobs, though?  If you were one of those workers, wouldn’t you be getting the same amount of experience?  Also, exactly how relevant is that experience over a two year period?  Work experience isn’t like XP in World of Warcraft; there is a lot of rounding, usually to within the year, is the idea that people were only getting eighteen months of work experience and for some reason weren’t putting “2 years” on their resumes, and so were only getting 75% of the increase in wages?

Nevermind.  It’s also not clear to me if this is the source of Brooks’ claim that upper-middle class teenagers would get less employment (Brooks says a study by  Thomas MacCurdy of Stanford, but he doesn’t cite it, and if he can’t be bothered to I don’t see why I should), but it is mentioned in the Clemens/Wither paper.  It’s close enough to bring me to my point though.

Another thing that Brooks doesn’t mention is that the Clemens/Wither paper points out that the Earned Income Tax credit (essentially: a significant tax credit for people that don’t earn very much money; typically offset by your mortgage tax credit, so it affects almost exclusively low-wage workers who don’t own their homes) is much more effective at getting money into the hands of poor people without disrupting the services provided by low-wage earners in the first place.

Now if you’ll permit me a brief digression:  I don’t, and a lot of other progressive don’t, particularly like the EIC.  The reason for that is not because it doesn’t do what we want it to do:  it mostly does get money into the hands of poor people, and I think that is a good thing.  The problem with it is that, in an environment in which corporate tax revenues represent a decreasing share of federal tax revenue, and corporate profits are increasingly distributed as capital gains (which is taxed at a much lower rate), the burden of paying for the EIC falls more and more heavily on the middle classes.  The people who are making the most money from what are essentially subsidized wages are increasingly isolated from the tax burden; they absent themselves, and the responsibility falls on whoever is in the next tax bracket down.

Companies that take advantage of the EIC in this case and at this time in history, are essentially disclaiming responsibility either from paying their workers a living wage, or from supporting the government that is stepping in to make up that shortfall.

I don’t feel that this is particularly responsible, and I don’t care for it.

The reason that the EIC exists is the same reason that the minimum wage exists, which is often overlooked: both are actually compromises between the progressive solution (extensive and robust social safety nets [me, I’m with Hayek here and vote “guaranteed minimum income”]) on the one hand and the conservative solution (“do nothing; let them fucking die if they can’t buy food”) on the other.  We treat the EIC and the minimum wage as though they’re progressive ideas, but really they’re incrementally-conservative ideas, watered-down versions of plans that might be actually radical or transformative, and because we somehow let conservatives get away with framing the terms of every debate, we continue to compromise rightward over and over, while we consistently masquerade those compromises as stepping back from some extraordinary socialist or communist revolution.

Anyway, that’s the digression, I just want to set the stage here for what I think is at the root of Brooks’ fairly pathetic moral cowardice.  Generally speaking, in America (and probably a lot of other places), we do not clearly distinguish between when we’re talking about the “free-market economy” as a practical economic system (i.e., a set of rules for how wealth can be redistributed) and as a system of moral values (i.e., a set of rules for how we want the world to be).

Brooks’ inability to say anything remotely interesting on the subject but regurgitate numbers indicating that different things happen in different ways under different circumstances, is because of how fraught the tension between the Market-as-a-tool and the Market-as-a-Bible.

Consider his paragraph:

The market is really good at setting prices on things, whether it is apples or labor.

“Good” in what sense?  “Good” for whom?  “Good” how?  What the fuck does that mean?  Do you mean that it’s “good” in the sense that it achieves good results?  Well, this is somewhat self-evidently incorrect if we’re talking about “good results” as being things like “people who work 60 hours a week should be able to afford somewhere to live and to raise a family” (please see numerous memes or consult basic math to figure out how hard it is to live on the federally-mandated $7.25 an hour).

So what does he mean by good?  Well, it seems like he means “facile” – the Market is good at setting the value of labor in the sense that the market does it quickly and often.  But the challenge here is that we know that wages are set “correctly” because the Market has set them – this is a tautology.  We know the Market is good at doing Market things, because Market things are what the Market does.

That’s the kind of value that’s utterly useless in a humane society, but Brooks can’t get away from it.  When you compare, for instance, the possibility that many low-wage workers would see an increase in wages to the possibility that the loss of work would primarily affect teenagers higher up in the income strata (as Brooks does) – this isn’t really a morally difficult question.  Well, it shouldn’t be a morally difficult question, but Brooks (and, let’s be fair, many of the other, probably savvier people who are giving him his ideas) treats it like a serious moral quandary.

Why?  How could we argue that it’s as important for teenagers to have the work experience of a minimum wage job as it is for parents putting in 60 or 70 hour weeks to be able to keep their kids in shoes?

The only way that makes sense is if we forget that the Market is simply a practical tool whose efficacy is judged according to its success, and think of the Market as an end in itself.  Participation in the market is definitionally good; running a business is virtuous because it is running a business, working a job is virtuous because it is working a job.

The fact of the matter is, there’s a finite number of jobs, and more people than we need in order to do them.  If you don’t need to work, you shouldn’t be working, and the only people who’ll tell you that you should are either dopes who’ve inherited some idea that putting a thousand hours in stocking shelves at Wal-Mart is in some way improving, and extremely wealthy people who would prefer that the number of people looking for jobs vastly exceeds the number of available jobs, because this keeps wages low and employers rich.  The latter category routinely exploits the former, but those guys don’t realize it because they’re dopes.  They think they’re taking a stand against the bad morals of laziness and sloth; instead, they’re driving wages into the gutter.

Here’s Brooks’, and by extension, much of America’s confusion in a nutshell:

The key intellectual upshot is that, despite what some people want you to believe, the laws of economic gravity have not been suspended. You can’t impose costs on some without trade-offs for others. You can’t intervene in the market without unintended consequences.

See, he’s almost tricked us into thinking this is a bit of simple physics:  “the laws of economic gravity”, as though economics is anything so easily modeled.  But he ends with “you can’t intervene in the market without unintended consequences”:  this is an argument about moral responsibility.  Of course you can’t intervene in the market without unintended consequences; you can’t do anything without unintended consequences; that is a natural and basic fact of life.  The point here isn’t that those consequences exist, but that we must be responsible for them.

And we should be responsible for them!  But only if you treat the Market as an in-itself object of virtue can you ignore the fact that “doing nothing” is also an act with unintended consequences; it is, in fact, the sum of all the unintended consequences from every other thing we’ve done, up to and including the creation of the Market in the first place (I mean “the Market” as a real thing, not a fantasy theoretical, “if only the government didn’t exist” Market that Libertarians are always insisting would work so well if only we would just try it).

How, in other words, can you say that you refuse to be responsible for the unintended consequences of raising the minimum wage, while simultaneously refusing to accept responsibility for the fact that it doesn’t fucking buy anything?

Well, please see David Brooks’ column this week; the economists can’t decide, and because Brooks has no personal virtue or moral courage himself, he doesn’t know what do to.  Economics is supposed to be both a tool to get people what they want, and also a guideline to tell people what they should want, and to the latter case it’s not providing Mr. Brooks with anything like a useful answer.

I’d pity his discomfiture, except obviously I am going to keep getting columns out of it, so.

  1. Rick Russell says:

    > The problem with it is that, in an environment in which corporate tax revenues represent a decreasing share of federal tax revenue, and corporate profits are increasingly distributed as capital gains

    (1) Eliminate taxes on corporate profits, they’re way to motivated to avoid them and they’re a f*cking pain to collect, and

    (2) Dramatically increase progressive income taxes and change capital gains to something like (regular income rate – the risk free rate – some small percentage), charged marginally above all other income. So if the RFR was 2% and the top marginal tax rate was 45% (a pretty reasonable target), then your capital gains rate might be 45%-2%-2%, or 41%. Revise the rate every 4 or 5 years or something to calibrate to new RFR. And of course you don’t get charged for cap gains if you immediately reinvest the money. But any conversion to cash or liquid assets is taxed in the current tax year.

    That way you do still encourage investment — investing gives you a slight tax advantage over a plain old savings account, but not the massive split you see today between income rates (for the very wealthy) and cap gains.

  2. Rick Russell says:

    I well remember a story by John Stossel (who I largely respect, but he was light years off the mark on this one) talking about income and happiness. He repeatedly quoted studies that showed that “Above about $80000 per year, happiness just doesn’t go up. So why should we worry about income? ” (Note: This was the early 90s.)

    Because the median individual income at the time was $28K per year, that’s why. And family income was something like $36K. He was actually trying to make the argument that we should stop caring because something like 75% of the US population was constantly worrying about money. I guess he thought those people were too busy watch 20/20.

  3. braak says:

    I actually don’t have any real problem with eliminating corporate taxes if they’re coupled with a corresponding dramatic increase in top marginal income and capital gains taxes.

    At the same time, though, I expect we would start to see the kind of thing that we’re effectively getting now, where companies sit on huge piles of offshore profits and then come back to the states and lobby for a decrease in offshore taxes — the idea in this case would be that owners of companies would just sit on their money until the tax rate goes back down before they would collect it.

    In that sense, a certain amount of corporate taxes, if we applied them evenly (most US companies are still enjoying a tax holiday from the 1950s that was designed to encourage overseas investment after the second world war, and we could just end that tax holiday if we wanted overseas profits repatriated), even a slight pressure would encourage more reinvestment, which would often be cheaper and easier than trying to find away around them.

  4. braak says:

    Also, I got to say that I have a hard time crediting John Stossel due to the number of times he seems like he’s being purposefully obtuse.

  5. Rick Russell says:

    > where companies sit on huge piles of offshore profits and then come back to the states and lobby for a decrease in offshore taxes

    Right, but they have to pay their people, and if their workers and C-suite work here and get paid here, then they pay taxes here.

    If their workers work elsewhere and get paid elsewhere, then it was never our problem to begin with.

    If they really do make money, keep it offshore and don’t turn it around into wages, dividends, or reinvestment… what’s the point? That money might as well not exist; it’s producing no economic activity. Their company is literally choosing to produce to get nothing in return.

  6. braak says:

    Yeah but they ARE doing that. The idea is essentially that they’ll hold onto the profits and then extort the US into lowering off-shore tax rates before repatriation. Usually this is stuff that they mean to pay out as dividends or C-suite bonuses or, occasionally, onshore development, but in the meantime they can just hold onto it in the hopes of negotiating a lower tax rate.

  7. Jamie says:

    >Generally speaking, in America (and probably a lot of other places), we do not clearly distinguish between when we’re talking about the “free-market economy” as a practical economic system (i.e., a set of rules for how wealth can be redistributed) and as a system of moral values (i.e., a set of rules for how we want the world to be).

    This is a brilliant distinction, useful for framing and clarifying all kinds of weird discussions I’ve found myself in over the years. I want to put this sentence on the wall of my office.

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