Liberal “Modern Economic Theory” is a Complete Joke, yet Its Proponents Get Nobel Prizes

On Monday, the Nobel prize in economics was awarded to 3 U.S based economists for “completely [reshaping] empirical work in the economic sciences.” -The Royal Swedish Academy of Sciences.

These economists are lauded for using “empirical” “natural experiments” as opposed to “economic theory” to argue minimum wage increases and mass immigration do not increase unemployment.

The arguments made by these economists that got them awarded a Nobel Prize are based on problematic and overly-simplistic analysis, and should really be seen as nothing more than ‘woke’ talking points back with cherry-picked data.

The “natural experiments” they made were simply looking at statistics in an overly specific scenario; only measuring certain aspects of the equation, and then making claims that contradict the law of supply and demand (the undeniable force natural selection applied to the economy). If you know anything about economics, you know this law cannot be violated without catastrophic results. 

In this fashion, the 1993 study that awarded a Nobel prize to Canadian-born economist David Card of the University of California was an analysis of employment rates of big-name fast-food stores in New Jersey, when that U.S. state had increased their minimum wage from 4.25 to 5.05. The study also worked to compare the employment rates of the neighboring state of Pennsylvania whose minimum wage remained at 4.25 as the control. This 1993 study found that unemployment in the fast-food industry did not increase in New Jersey as a result of the minimum wage increase. 

This politically charged study is linked here. Notably, the study takes steps to ensure the use of Pennsylvania as a control would be empirically valid to show that minimum wage increases do not lead to unemployment increases. However, the study does not account for all other changes and the different economies of the two states, despite its claims, and while the study is used by Democrat politicians such as President Joe Biden to justify minimum wage policy, the study does not address the actual arguments against minimum wage increases, made by the majority of economic schools of thought.

The study is limited to the fast-food industry, and limited to large multinational corporations (most of the stores being just Burger Kings), and does not account for the availability of automation for said stores to replace employees over time. The study also only compared employment rates at these stores immediately before the minimum wage increase and then only 7 – 8 months afterward.

The consensus among classical economists is that minimum wage increases in the short term apply pressure against employment of individuals who would in a natural market, in the absence of government coercive intervention, would not produce what the natural law of supply/demand would value as being below the new minimum wage. However, classical economists assert that in the long term, the slow-acting inflation of prices of local and national economies would lead to a decrease in unemployment as those making above minimum wage, who do not see wage increases, would see a decrease in purchasing power at their wage, while in the short term, those making minimum wage would see a temporary increase in purchasing power until inflation brings it back to equilibrium. 

This minimum-wage caused inflation is thought to be found both at the price of the products of industries that employ minimum wage workers as well as at all levels of the local economy affected by artificially increased purchasing power for new sectors of the economy and thus demand (especially for limited supply industries like rental housing, which was not addressed in the Nobel prize study).

Economist John Maynard Keynes, specifically advocates mild inflation for this purpose, as lowering wages without direct awareness of the general population would decrease unemployment while keeping the social fabric stable to avoid fluctuating governance. Essentially to trick the middle-classes into complacency in the face of expanding government and economic inequality.

With this bit of background, it’s incredibly unsurprising to find the 1993 study showed a price increase for fast food in New Jersey at this time. About a 4% price increase was found, which was higher than the estimated effect on employee wage increase for the stores in question, as the study did not account for other costs of production increasing due to their suppliers having to increase wages as well.

It is also worthy to note that 6 of the 410 stores used in the survey had closed after the minimum wage increase, and they were the smaller stores. The study also showed that fast-food stores grew in relative size in reaction.

Another glaring possibility not considered in Card’s 1993 study is the idea of migration of low-skilled workers from out of state or other industries, which could artificially inflate the fast-food industry and lead to long-term loss in self-sustainability for the state; thus long-term unemployment increases yet to have been seen. Again, though, the Card’s study paid no attention to long-term implications whatsoever.

The study on the effects of immigration on the labour market was of a similar “natural experiment” style, looking at local stats in Miami before and after the mass migration from Cuba in the 80s. This anecdotal evidence is used to argue that immigration does not lower wages or unemployment for native populations.

Any look into how mainstream media has covered the Nobel Prize in economics story should demonstrate how ominous this announcement is, with mainstream news outlets such as Reuters, echoing the chair of the economic sciences prize committee, Peter Fredriksson, claiming the research improved economist’s ability to answer causal questions, taking advantage of the economic illiteracy of their readers. The minimum wage debate has long been a source of controversy, and it seems reason and freedom is losing the battle.