David R. Henderson  

Nick Hanauer on Noah Smith

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The Sum of All Fears... Peter Pan in Japan...

A billionaire named Nick Hanauer has weighed in on the minimum wage debate. Am I trying to bias you against him by mentioning his net worth? Not really. Instead, I'm following the lead of PBS, which published his piece. In the "Editor's Note" introducing Hanauer to the audience, the first 5 words are: "Billionaire venture capitalist Nick Hanauer." I look forward to PBS publishing future pieces by billionaires Charles Koch and David Koch.

So what is Hanauer's case? His view is that the evidence is in. Here are his second and third paragraphs:

The more I thought about it, the less sense this premise made. [Noah] Smith's article underscored two big things for me: first, the degree to which people see the evidence they want to see; second, how silly the idea of "economic theory" can be. Smith claims that we don't know what the result of a $15 minimum wage will be. Will it kill jobs or not? But the truth is there's abundant and overwhelming evidence that this theory is wrong and that higher minimum wages don't hurt employment. The evidence is there; you just have to choose to see it.

Let's just look in my own back yard for an example of that evidence. Washington state has had the highest minimum wage in the nation for several years--at $9.47, it's a full 30 percent more than the federal minimum of $7.25. Washington's unemployment rate of 5.5 percent isn't the best in the country, but it's not the worst, either. In fact, it perfectly matches the national rate. Seattle was until recently the fastest growing big city in the country. The first part of the $15 minimum wage rollout was successfully implemented in April, and unemployment in our county promptly plummeted to 3.3 percent.


Whatever economists' views on the minimum wage are, I know no economist who has studied it or written on it who would accept this as sufficient evidence.

Hanauer's earlier statement "[Noah] Smith's article underscored two big things for me: first, the degree to which people see the evidence they want to see" shows just how uninformed Hanauer is. As my late friend Murray Rothbard used to say, that statement should get a horse laugh. It's possible that Noah Smith "sees the evidence he wants to see" on some issues. But on the minimum wage? In the Smith article that Hanauer links to, Smith lays out why he thinks the L.A. "experiment" with the minimum wage is so good: precisely because it will tell us more than we now know about the effects of large increases. Anyone who knows anything about Smith's views knows that on this one, there's a greater than 99% probability that Smith is telling the truth.

I don't normally start my morning by defending Noah Smith, but come on, Hanauer.

Fortunately, Hanauer gives a "tell" at the end of his piece:

The most powerful forces in economics are not numbers or facts. They are prejudices and preferences. No amount of evidence will ever change the degree to which many of the rich and powerful prefer themselves to be richer and more powerful and others poorer and weaker. The $15 minimum wage will work, just like [sic] all the other big historical increases in the minimum wage worked. Workers will be better off, and unemployment rates will be largely unaffected. But the people who prefer the rich to be richer and the poor poorer and the economists who are sympathetic to them will ignore this evidence in the same way they ignore all of the present and past evidence. It's really just about deciding which side you're on.

That last sentence says it all.

HT to Don Boudreaux.


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COMMENTS (14 to date)
Kevin Dick writes:

When one reads a lot of economics blogs it's easy to forget that:

No matter how much you disagree with another econophile, you live down the street from each other on Mars compared to everyone else on Earth.

David R. Henderson writes:

@Kevin Dick,
Really well put. Do you mind if I use it and, if I’m in a hurry in a speech, forget to always give you credit? (I usually will and will do so in my writing.)
Although I might tweak it and have all of the non-econophiles living on Mars.

Kevin Dick writes:

Sure. It's all yours.

Kevin Dick writes:

I put us on Mars because it captures the sense of feeling like a complete alien that I experience whenever I talk about socioeconomic issues with a group of people who otherwise are from the same narrow demographic as I.

David R. Henderson writes:

@Kevin Dick,
Good point. Maybe I’ll tweak by using Venus, instead of Mars. You know, as in “Economists are from Venus.” Oh, wait. :-)

roystgnr writes:

Is the problem a lack of econophilia or just motivated reasoning?

Do you suppose that if you cited the high murder rates in cities with gun bans, Hanauer would be unable to come up with "people who would otherwise be thwarted by those bans just pop outside the city limits" as a confounding factor? And if he did, do you suppose he would immediately realize "oh, low-wage bans probably just drive low-productivity workers to other jurisdictions too"? I'm guessing "no", and "no". Finding flaws in evidence is easy if it seems to contradict our beliefs; hard if it seems to confirm them.

ThomasH writes:

I really have not been keeping score but here is another blast against the trivial distortion in wages of a small subset of those employed and still nothing on the distortions in the relative returns to investment resulting from the corporate income tax.

But alas, the minimum wage issue is not about whose side one is on, but on whether (taking as given the impossibility of increasing the EITC) the value of the income transferred to those who remain employed after the MW increase is worth the loss of income by those who become unemployed, and possibly lower income by consumers of goods produced by low income workers and lower returns to investment in producing those goods. The closer one's estimate of the elasticity of employment wrt the MW is to zero, the more likely one will be to go along with a minimum wage increase.

Too bad he did not spend some of his effort trying to make raising the EITC as live political issue.

Dan Hanson writes:

Here's another experiment about to start: Alberta just elected a left-wing government that has promised to raise the minimum wage across the entire province from $10.10/hr to $15/hr over 3 years. This will be a whopping $4/hr higher than our neighbouring provinces.

It would be nice to get some economists on both sides of the debate on the record with predictions as to what this will do to our unemployment rate. Of course, the economists on the left here claim that it will have either no effect, or it will actually boost unemployment by putting more money in the pockets of people who have a higher propensity to spend.

Myself, as an Albertan I think we're in for some rough times ahead.

khodge writes:

Once again, it's easy for a billionaire to think that all businesses have a billion-dollar pool of "profits" from which to pay employees. It's just so inconvenient for big business and big government to have to put up with these mom-and-pop outfits.

Yaakov writes:

In Israel, we are currently in a two year process of hiking the minimum wage from 4300 shekels a month (about $1100) to 5000 shekels. That is a relatively large hike, even if spread out over two years. Being in just about full employment the hike will probably not have much of an effect, especially since the government just announced it will spend half a billion shekels on additional Kindergarden aids who make just about minimum wages. I wonder if the politicians know to select their actions in such a way that minimum wage hikes do not have the effects economists warn about.

LD Bottorff writes:

I guess that I'm just one of those people who prefers that the rich be richer and the poor be poorer. Well, to be honest, I prefer that the capitalists make good returns and that the poor be encouraged to learn skills that will increase their marginal productivity.
The more I think about it, the more I realize that I really do hate the poor; I want to eliminate them by moving them into the middle class. If I thought that increasing the minimum wage would achieve that, then I would suppress my libertarian leanings and support the minimum wage increase.

Jeff writes:

I clicked through to the article and found this gem:

"In order for something to legitimately be called a theory, it must result in accurate and consistent predictions. For instance the theory F=MA, (force equals mass times acceleration), is never wrong. Ever. In every case ever tested, force actually does equal mass times acceleration. There are no examples in the known universe in which force didn’t equal mass times acceleration."

I guess Hanauer knows as much about physics as he does economics.

Michael writes:

Also this should not be allowed to pass: Seattle had an unemployment rate of 3.7% in March 2015. That is the level from which it "promptly plummeted" to to 3.3% after the minimum wage increase. I suspect most readers, seeing that number just after the statewide 5.5% is mentioned, will depart with a greatly exagerated idea of the plummeting.

Patrick R. Sullivan writes:

[Comment removed for violating comment policies and making ad hominem remarks. --Econlib Ed.]

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