Saturday, October 3, 2009

The Last Shall Be Made Even Laster

I always talk in my economics classes about the dangers of confusing correlation with causality. The problem is that with economic data, separating the two can take some time. For example, economic theory predicts that government programs that artificially hold up wages will exacerbate unemployment. But from what I can tell, it's really only after 70 some years that something approaching an empirical consensus has developed that yes, indeed, the Hoover and FDR programs to prop up wages were causal in the persistence of dismal employment numbers in the Great Depression, even after production had recovered in about 1935.

Fast forward to today. In the midst of the worst recession since the 1980s, the President and Congress enacted a 70 cent increase in the minimum wage effective in July. According to this morning's Wall Street Journal, before the fact economist David Neumark estimated the job loss from this increase would be about 300,00 jobs, and in fact 330,000 jobs held by teenagers have indeed disappeared since then. (I know that I made a mental note to track the jobs figures after the minimum wage kicked in.) Most startling in the Journal story is the report that over the same period the unemployment rate for black male teenagers skyrocketed from 39.2 percent to 50.4 percent, which is consistent with the estimations of economist David MacPherson, who pointed out to the class Doug and I taught that the relative winners from increases in the minimum wage tend to be more highly skilled, middle class, suburban part time workers.

The reason I want to focus on the minimum wage issue is because there is probably no economic issue which is more unanimously and uncritically supported by the leadership of the Mainline Protestant denominations than increasing the minimum wage (and yes I am including single-payer health care). Are the economic effects I described above causal or just correlative? It may take decades to reach a consensus. But, given the predictions of economic theory and given that we are finally seeing some consensus from similar policies in the 1930s, let's consider, just for the moment, that all of the warnings about increasing the minimum wage and job losses among poor and minority workers might just have had some empirical traction. What is, therefore, the moral standing of the leaders of the mainline Protestant denominations in supporting economic policies that disproportionately hurt poor and minority workers?

It can't be from a lack of warning. Dissidents in the mainline denominations have criticized their leaders' captivation with leftish economic policies for years. I can only come up with three ideas, and in talking with Doug, he added a fourth:

1 ) Cognitive Dissonance. Perhaps denominational leaders so much want to believe that what they are doing "does justice" that they have moved beyond any consideration with contrary information as to the way the world actually works.

2 ) Ignorance of Rent Seeking in and by Organizations. It could be that denominational leaders so completely identify justice with the views of the leaders of special interests groups (such as labor unions) with whom they associate that they can't see what economists have seen for years: organized special interest groups do not necessarily represent the best interest of their own members. The possibility that labor union leaders would support minimum wage increases even if it cost low skilled workers their jobs has been known for years.

3 ) Utilitarianism. There are workers who benefit from the increase in the minimum wage. Those workers who keep their jobs and get a higher wage are better off because of the minimum wage increase. Perhaps the denominational leaders calculate that, on average, the wage gains outweigh the wage losses. I don't want to argue the broad philosophical merits of utilitarianism as a moral code here. But I think there are three problems with this idea as it relates to Christian views of justice. First, denominational leaders do not couch their arguments in favor of the minimum wage in utilitarian terms. Secondly, utilitarianism is often specifically rejected by the same leaders in other contexts. And, finally, Jesus' call to help the least among us is not a very utilitarian outlook.

4 ) [Doug's idea]. Modified Utilitarianism. The losers from the increase in the minimum wage are most likely to thereby fall into other parts of the government social safety net, which, if you are already predisposed to identifying government economic and social intervention as justice, may not be seen as such a bad thing.

Maybe many years from now we will find out that this correlation between the minimum wage increase and the dismal job figures is spurious. But, in the meantime, as an economist, I'd like to be able to have a dialog with Christian leaders who admit at least the possibility that there may be unintended consequences from their support of increases in the minimum wage (and other economic issues).

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