On methodology, Long and Friedman are both wrong. A priori, in the Rothbardian version, is absurd and not really worth addressing. Friedman's perspective is more interesting. The philosophy of economics (and social science more generally) literature has advanced a lot since th 50s! Here are a few problems with his methods piece.
1. Unrealistic Assumptions Are Not Harmless
Critics: Uskali Mäki, Tony Lawson, Nancy Cartwright
• Critique: Friedman claimed that unrealistic assumptions are acceptable if the model predicts well. But critics argue that assumptions matter because they can lead to faulty reasoning or harmful policy.
• Mäki’s View: The “as if” methodology undermines our grasp of real causal structures.
• Lawson’s View: Economic theories should reflect ontological realism—identifying actual causal mechanisms, not just formal structures that generate accurate forecasts.
2. Predictive Power Is Not the Only Scientific Virtue
Critics: Daniel Hausman, Wade Hands, Kevin Hoover
• Critique: Friedman prioritized predictive success as the ultimate test of a theory. Critics argue this is too narrow. Science also values explanation, causal insight, and internal coherence. We care about causal mechanisms, in addition to causal effects.
• Hausman’s View: A theory’s value comes from its ability to contribute to understanding, not just prediction.
• Hands and Hoover: Relying solely on predictive accuracy ignores how models can mislead when assumptions diverge from reality.
3. Friedman’s View is Internally Inconsistent
Critics: Alex Rosenberg, Don Ross
• Critique: Friedman’s own examples (e.g., billiard players behaving as if they solve complex equations) contradict his broader claim. If we say agents behave as if they optimize, but they clearly don’t, then the assumptions don’t really help us understand anything.
• Ross’s View: Friedman selectively invokes realism—defending or ignoring it depending on convenience—undermining his claim to methodological consistency.
4. The “F-Twist” Is Methodologically Problematic
Critics: Alan Musgrave, Bruce Caldwell
• Critique: Musgrave labeled Friedman’s idea the “F-Twist”: that the more unrealistic the assumptions, the better, so long as the model predicts well. Critics argue this justifies poor theorizing under the banner of scientific rigor.
• Caldwell’s View: Methodological pluralism is better. Friedman’s monism leads economists to undervalue alternative approaches—historical, institutional, or behavioral.
1. Are there really such "causal mechanisms" in economics? Where to draw the line between realism and Empirical testability?
2. But the way I see it now is that the economics profession does not take prediction as the most important thing tbqh. I think that they -- perhaps unconsciously -- understand that explanation, telling stories, and looking at "causal" relations are also important.
3. On the optimization assumption, Alchian has a great paper explaining that you don't really need to assume that people actually maximize anything to use profit-maximizing arguments.
4. Yeah, that unrealism-prediction binomial put by Friedman sounds weird to me too.
I think that the ability to make predictions is overrated. For me, the real test of an economic model is in whether it hones the intuition in a useful way. If you give me an interesting model with some unrealistic assumptions, leading to demonstrably false conclusions, then I learn something about why those assumptions lead to those conclusions. Later on, I find myself in a real-world situation in which those assumptions (because they are unrealistic) still don't apply, but some other assumptions of a similar flavor DO seem to apply, and your model has taught me something about how to proceed from those assumptions (or others like them) to draw novel (and in this case correct) conclusions about how the world works, and why I should or should not support a specific policy change.
I agree that a model does not need realistic assumptions to be useful. I think your Dad somewhat overlooked the fact that it also does not need to make correct predictions.
I don't have a magic meter stick to distinguish real from imaginary economists, so as to determine whether the real ones consult evidence, but I have noticed that many of those attempting to teach economics skip the evidence, simply teaching theory.
I first encountered this in a Udacity course, which purported to be adequate preparation for the AP economics exam, suggesting to me that the standards for AP economics don't include knowing whether there's any evidence for various assertions, let alone what that evidence might be. I then saw it again, in two books purporting to teach basic economics to laypeople.
FWIW, I notice this particularly with the branch of economics sometimes called neo-classical, which I believe to include the Chicago School. I've seen rather more data from economics books taking other approaches.
As it happens, I question the accuracy of some of the simplifying assumptions from neo-classical economics 101, particularly the assumption that perfect competition is common, let alone preponderant, in e.g. the United States of 2025 - or the slightly more sophisticated assumption that the impact of limited competition is negligible.
And that's before economic arguments blur into political arguments - or bad economics is used in support of bad politics.
Net result: I'd love to see something like the classic scientific method used in economics, complete with theories about which one then asks things like "what evidence would falsify this?" and then looks for it. (That is, IMNSHO, even more important than making predictions in general. Predict something non-obvious, and then check if it's true.) But I'm not holding my breath.
I am not quite sure why anyone teaches perfect competition; it isn't necessary to understanding markets, and really just makes the math calculating surplus a little easier. (And really, only a very little.) Importantly, perfect competition isn't necessary for any arguments or theory; free entry and two competitors (Bertrand Competition if I recall the term) does the trick.
Excelent! I think that too. They just expect us to accept the methodology without actually showing how it is actually applied to real world problems. We need a Feynman Lectures on physics version of economics...
The way I see is that the perfectly competitive/general equilibrium model is unfalsifiable. You don't "test" whether a given market is competitive -- yes, there are concentration indexes and shit, but I am skeptical as to whether they really test these assumptions. In practice, general equilibrium and perfect competition is just a way to tell a "story". Different economic fields have different ways to tell stories. Mainstream economics happens to use more maths. For example, here's what perfect competition and rationality is really about: if people explore arbitrage opportunities, if they trade off scarce stuff, and if they are free to do so -- implicitly they abstract some kind of institution -- then they will pursue it. If that story makes sense, resources should be efficiently allocated, otherwise, there would be arbitrage opportunities. But if this is how the world works, that would be boring. In fact, you see people failing to pursue those arbitrages. The conclusion is that there are constraints to people's happiness-pursuing behavior. Mainstream economists usually think of those as transaction costs, such as externalities, public goods, incomplete markets, asymmetric information, etc. etc.. That's where economics gets interesting, in the view of mainstream economists. For them, perfectly competitive markets are boring. There's nothing to study there. It is precisely when there are failures that economics makes sense, and I think that this is what competitive markets are all about. In sum, competitive markets models are a way to tell a story about when economics is boring. Deviations from it are more important.
I feel like you're talking past each other - or at least talking past the point of Mises with regard to apriorism. Your two examples are not examples of using empiricism to verify or falsify a claim of economic science or to make predictions; they are rather hypotheticals, the outcomes and causes of which are determined by your theoretical outlook, which change the prediction by changing the assumptions made. Your challenge that an economist must then determine which situation actually obtains in order to make a correct prediction is exactly in line with Mises' point about economics: it does not determine whether causes have the effects by examining whether the effects actually obtain through an empirical examination of the data, because this is impossible. It examines the effects under different hypothetical causal regimes, and then in application determines which set of causes are operative for the case under examination. The knowledge of the effects of these causes are given a priori in each case. Consider this statement from Human Action, which I imagine you are already familiar with:
"The imaginary constructions of praxeology can never be confronted with any experience of things external and can never be appraised from the point of view of such experience. Their function is to serve man in a scrutiny which cannot rely upon his senses. In confronting the imaginary constructions with reality we cannot raise the question of whether they correspond to experience and depict adequately the empirical data. We must ask whether the assumptions of our construction are identical with the conditions of those actions which we want to conceive."
From this point of view, your method of procedure here is exactly in line with Mises' comments about methodology; comments, by the way, intended as a description of how economic science operates in practice, not as a prescription for that practice as is often conveyed. Empirically speaking, I would say Mises is accurately capturing the procedures employed.
It is true that in practice we also blend theoretical and empirical aspects of the problem. Economics doesn't only examine statements like "Action is the effort to remove felt uneasiness", but also examines more concrete phenomena that are given in experience. This is true, but it does not alter the aprioristic character of *how* those concrete phenomena are examined; the procedure by which the effects of causes are determines is a theoretical one, one of applying the general principles of theory to a given case. This is how you determined that a monopsonist could pay wages lower than marginal productivity, or that buyers who dislike products made by unskilled workers would be less willing to pay for them.
Finally, a few quibbles regarding your examples.
First, for the monopsony example, I don't think Austrians usually dispute the theoretical claim that monopsony can be a case where minimum wages don't lead to unemployment. They usually argue that monopsony does not really occur in the free market, and cases would usually be caused by government regulation (in which case, wages could be increased by removing those regulations).
Second, the example which uses buyer preferences places two different kinds of products on the same demand curve. If buyers distinguish between products made by low-skill workers and other kinds of products, then ipso facto these are different goods which will demand different prices. Placing these different goods on the same demand or supply curve would be an error and lead to specious conclusions. Properly understood, we should say the minimum wage law would change what products are being offered. Ceteris are not paribus. I think every austrian agrees that a minimum wage, when is not above the marginal productivity of unskilled workers, will not cause unemployment. This is the primary thesis of the analysis of minimum wage viz-a-viz employment. Your example is a sneaky way of getting the marginal productivity of unskilled labor to change compared to the counterfactual; but in that case, I would say you haven't kept other things equal. Similarly, a minimum wage will not cause unemployment if a large increase in inflation or a large increase of productivity is parallel to the minimum wage. This doesn't conflict with the predictions of minimum wage analysis, it is simply changing the assumptions involved, and comparing the results under each assumption. In either case, you use a priori reasoning to know what will happen and how it can happen. In order to determine which situation actually obtains, you need to wait and see which set of assumptions obtains in experience, just as Mises emphasized.
I would be very interested in the Chicago view of the rationality axioms of preference theory. Some economists have tested the axioms to see if they are violated by individuals. And so they have found it to be the case. As I understand it, a Chicago economist would not expect the axioms to describe individual behavior. If this is so, what is the role of these axioms?
As a parkour practitioner, I feel the same way with people who take parkour courses and go to some gatherings, but never seem to look for interesting paths or moves outside of "practice time"; the parkour mindset just doesn't bleed into their everyday life.
I'm not sure why but I find that frustrating.
"I am not inclined to take theology very seriously but, if I did take a course in it, I would expect to learn more and have a more interesting time if the professor was a believer than if he were an atheist."
I would say Scott Alexander's Unsong is a counterexample
Made me laugh in memory of a poseur I used to work with. Ran across him one day at a parking lot on a bicycle path unloading a bicycle. He had driven ten miles from home, planned to ride back on the bicycle path *to his home*, then back to the parking lot, and then drive back home. If that wasn't bad enough, the bicycle looked like it hadn't been ridden in years -- rotten tires wouldn't hold air, chain had no grease. At least your poseurs were doing something.
Of course my first contact with method was Milton Friedman's The Methodology of Positive Economics! I was fascinated, but did not pursue it. There's a sentence in Samuelson's Foundations that says method is important to economics, not to the hard sciences, for they have a self cleansing property, and not to sociology, for it doesn't matter. Next in my education came in the form of Popper's Logik der Foschung [The Logic of Scientific Discovery], all about falsifiability as everyone knows.
As for economics proper, what has impressed me most is the first chapter of Eugene Silberberg's The Structure of Economics -- A Mathematical Analysis. IIUC, Silberberg makes MIlton Friedman more precise. I hope I get the spirit of this right: Forget what we call assumptions for the moment. We have these completely absurd postulates about people's behavior. [No, I don't do calculus when deciding to buy another orange! (Yoram Bauman)] Put it all together and we get empirically refutable propositions. What we are used to calling "assumptions" Silberberg calls "test conditions". Predictions of outcomes based on our models of perfect competition, e.g., can only be expected to turn out fruitfully not refuted when there is something close to perfect competition!
I like.
ETA: This looks all very Chicago to me, but not at all like von Mises, as far as I can tell.
ETA more: I never thought Milton Friedman was engaging in induction as Roderick Long seems to think. I don't think he cited Popper, but falsification must have been in the air at the time.
The difficulty with induction is this, in different words from David's: Your prediction turns out to be wrong, and you have no clue why. With deduction, your prediction turns out wrong, and you know why: Your theory was wrong! So go and fix your theory.
ETA yet more: Somebody once said "the sea of facts is mute", possibly Sir John Hicks.
But in which realm, the 9-5 job or the 5-9 private life? Maybe he really believes in what he teaches, but doesn't want to upset his family, friends, and neighbors.
You ask which realm is the hypocritical one. David's point seems to be that a 'real economist' only has one realm where their principles apply consistently. Creating a separate '5-9' personality to avoid upsetting people by expressing views one does not believe sounds like hypocrisy.
Well, I meant it as a joke more than anything, but it could swing either way. Maybe the guy got his job and after a year or two decided he didn't believe what he was teaching, but didn't want to rock that tenure track boat, so he just fakes it for a few years. While at home, he doesn't have anyone to impress, so he tells the truth.
Do conservative economists defend trade restrictions on economic grounds? Or, are they placing greater value on non-economic issues?
I mean, an economist might agree that trade restrictions economically harm the country imposing them, but are useful because they protect some culturally important sector. I believe this was the argument many European countries used for their agricultural restrictions.
We can concede that your Chicago approach differs from "the extreme a priori approach".
But beyond that, not so much. On page 9 of your wonderful Law’s Order (ISBN 978-0691090092) you state:
"I do not know other people [...] well enough to incorporate their irrationalities into my analysis of the effect of legal rules on their behavior. What I do know about them is that they, like me, have purposes they wish to achieve and tend, albeit imperfectly, to correctly choose how to achieve them. That is the predictable element in human behavior, and it is on that element that economics is built."
Here you concede the teleological _Zweckrationalität_ of the Austrians, as well as the basis of economics in introspection, which is the foundation of their a priori approach.
In your article you say: "there are plausible real world circumstances — perhaps not in America today but in some past market societies — where [a purely a priori prediction] would be false." Well, ya, no doubt. You make your point by leaving out the critical _ceteris paribus_ assumption that defers exceptions like yours to real-world analysis. You can't possibly assert that Austrians exclude real world data.
**** "Newton was wrong," ****
I would rather say, as Roger Penrose does, that Newton is absolutely right, at the appropriate scale of observation:
"As applied to the motions of planets and moons, the observed accuracy of [Newtonian physics] is phenomenal – better than one part in ten million." Penrose, Roger, The Emperor’s New Mind, p198.
There are economists who do not believe in economics? Really? :--)
I think that, when you said "there were a lot of economists who did not really believe in economics", you would have been on stronger ground to say "there were a lot of economists who did not really believe in economics as I believe economics is defined." There are arguments for this difference, but they seem obvious.
As for increasing the minimum wage, I have always had a model in my head like this:
Increasing the minimum wage gives workers more spending power. Workers being able to spend more benefits the economy, especially the local economy where people with less money buy things. This increases demand in the local economy, including demand for more labor. This is a benefit for both labor and managers in the economy.
No? Your arguments vis a vis minimum wage increases do not seem to include these effects.
Your effects do not include any discussion of where the increased pay came from. Did the employer reduce his own pay, and what happened to all the things he used to buy with that money? Did he raise prices, and what happened to all those customers who bought less, and thus the employer had to reduce hours worked so all workers earned less but at a higher rate?
Is it significant that you say it "gives" workers more spending power rather than workers "earn" more spending power? Giving something has little to do with the recipient's efforts, unless it's Neville St. Clair being an excellent makeup artist, whereas workers can earn more pay through their own efforts.
:--) I was using "gives" like the way that fire "gives" heat. It is easier to say "gives" than "causes a transfew of benefit to". In my case "give" is not saying as much as "earn" says. Please let us not get into a discussion of who "earns" something. It is a very fraught word.
What's the impact of such an effect? Not many people are effected by minimum wages and those that are tend to have smaller than average spending habits. Also, some others who lose their employment, or get reduced overall pay due to reduced hours, will have less to spend.
Another issue is: sometimes you dismiss the monopsonistic assumption as implausible. Well, how do you decide whether an assumption is plausible or not? Why do you prefer working with a model that assumes perfectly competitive markets instead of a monopsonistic one? Prediction? Show me the evidence then.
On methodology, Long and Friedman are both wrong. A priori, in the Rothbardian version, is absurd and not really worth addressing. Friedman's perspective is more interesting. The philosophy of economics (and social science more generally) literature has advanced a lot since th 50s! Here are a few problems with his methods piece.
1. Unrealistic Assumptions Are Not Harmless
Critics: Uskali Mäki, Tony Lawson, Nancy Cartwright
• Critique: Friedman claimed that unrealistic assumptions are acceptable if the model predicts well. But critics argue that assumptions matter because they can lead to faulty reasoning or harmful policy.
• Mäki’s View: The “as if” methodology undermines our grasp of real causal structures.
• Lawson’s View: Economic theories should reflect ontological realism—identifying actual causal mechanisms, not just formal structures that generate accurate forecasts.
2. Predictive Power Is Not the Only Scientific Virtue
Critics: Daniel Hausman, Wade Hands, Kevin Hoover
• Critique: Friedman prioritized predictive success as the ultimate test of a theory. Critics argue this is too narrow. Science also values explanation, causal insight, and internal coherence. We care about causal mechanisms, in addition to causal effects.
• Hausman’s View: A theory’s value comes from its ability to contribute to understanding, not just prediction.
• Hands and Hoover: Relying solely on predictive accuracy ignores how models can mislead when assumptions diverge from reality.
3. Friedman’s View is Internally Inconsistent
Critics: Alex Rosenberg, Don Ross
• Critique: Friedman’s own examples (e.g., billiard players behaving as if they solve complex equations) contradict his broader claim. If we say agents behave as if they optimize, but they clearly don’t, then the assumptions don’t really help us understand anything.
• Ross’s View: Friedman selectively invokes realism—defending or ignoring it depending on convenience—undermining his claim to methodological consistency.
4. The “F-Twist” Is Methodologically Problematic
Critics: Alan Musgrave, Bruce Caldwell
• Critique: Musgrave labeled Friedman’s idea the “F-Twist”: that the more unrealistic the assumptions, the better, so long as the model predicts well. Critics argue this justifies poor theorizing under the banner of scientific rigor.
• Caldwell’s View: Methodological pluralism is better. Friedman’s monism leads economists to undervalue alternative approaches—historical, institutional, or behavioral.
1. Are there really such "causal mechanisms" in economics? Where to draw the line between realism and Empirical testability?
2. But the way I see it now is that the economics profession does not take prediction as the most important thing tbqh. I think that they -- perhaps unconsciously -- understand that explanation, telling stories, and looking at "causal" relations are also important.
3. On the optimization assumption, Alchian has a great paper explaining that you don't really need to assume that people actually maximize anything to use profit-maximizing arguments.
4. Yeah, that unrealism-prediction binomial put by Friedman sounds weird to me too.
I've written about methods in economics and the importance of mechanisms, that might be relevant to your first question.
https://nebula.wsimg.com/f325c663b3ba9f1db6e4025209371bfc?AccessKeyId=B292FE55DF6AE1C4A636&disposition=0&alloworigin=1
I think that the ability to make predictions is overrated. For me, the real test of an economic model is in whether it hones the intuition in a useful way. If you give me an interesting model with some unrealistic assumptions, leading to demonstrably false conclusions, then I learn something about why those assumptions lead to those conclusions. Later on, I find myself in a real-world situation in which those assumptions (because they are unrealistic) still don't apply, but some other assumptions of a similar flavor DO seem to apply, and your model has taught me something about how to proceed from those assumptions (or others like them) to draw novel (and in this case correct) conclusions about how the world works, and why I should or should not support a specific policy change.
I agree that a model does not need realistic assumptions to be useful. I think your Dad somewhat overlooked the fact that it also does not need to make correct predictions.
Cool!
I don't have a magic meter stick to distinguish real from imaginary economists, so as to determine whether the real ones consult evidence, but I have noticed that many of those attempting to teach economics skip the evidence, simply teaching theory.
I first encountered this in a Udacity course, which purported to be adequate preparation for the AP economics exam, suggesting to me that the standards for AP economics don't include knowing whether there's any evidence for various assertions, let alone what that evidence might be. I then saw it again, in two books purporting to teach basic economics to laypeople.
FWIW, I notice this particularly with the branch of economics sometimes called neo-classical, which I believe to include the Chicago School. I've seen rather more data from economics books taking other approaches.
As it happens, I question the accuracy of some of the simplifying assumptions from neo-classical economics 101, particularly the assumption that perfect competition is common, let alone preponderant, in e.g. the United States of 2025 - or the slightly more sophisticated assumption that the impact of limited competition is negligible.
And that's before economic arguments blur into political arguments - or bad economics is used in support of bad politics.
Net result: I'd love to see something like the classic scientific method used in economics, complete with theories about which one then asks things like "what evidence would falsify this?" and then looks for it. (That is, IMNSHO, even more important than making predictions in general. Predict something non-obvious, and then check if it's true.) But I'm not holding my breath.
I am not quite sure why anyone teaches perfect competition; it isn't necessary to understanding markets, and really just makes the math calculating surplus a little easier. (And really, only a very little.) Importantly, perfect competition isn't necessary for any arguments or theory; free entry and two competitors (Bertrand Competition if I recall the term) does the trick.
Excelent! I think that too. They just expect us to accept the methodology without actually showing how it is actually applied to real world problems. We need a Feynman Lectures on physics version of economics...
The way I see is that the perfectly competitive/general equilibrium model is unfalsifiable. You don't "test" whether a given market is competitive -- yes, there are concentration indexes and shit, but I am skeptical as to whether they really test these assumptions. In practice, general equilibrium and perfect competition is just a way to tell a "story". Different economic fields have different ways to tell stories. Mainstream economics happens to use more maths. For example, here's what perfect competition and rationality is really about: if people explore arbitrage opportunities, if they trade off scarce stuff, and if they are free to do so -- implicitly they abstract some kind of institution -- then they will pursue it. If that story makes sense, resources should be efficiently allocated, otherwise, there would be arbitrage opportunities. But if this is how the world works, that would be boring. In fact, you see people failing to pursue those arbitrages. The conclusion is that there are constraints to people's happiness-pursuing behavior. Mainstream economists usually think of those as transaction costs, such as externalities, public goods, incomplete markets, asymmetric information, etc. etc.. That's where economics gets interesting, in the view of mainstream economists. For them, perfectly competitive markets are boring. There's nothing to study there. It is precisely when there are failures that economics makes sense, and I think that this is what competitive markets are all about. In sum, competitive markets models are a way to tell a story about when economics is boring. Deviations from it are more important.
I feel like you're talking past each other - or at least talking past the point of Mises with regard to apriorism. Your two examples are not examples of using empiricism to verify or falsify a claim of economic science or to make predictions; they are rather hypotheticals, the outcomes and causes of which are determined by your theoretical outlook, which change the prediction by changing the assumptions made. Your challenge that an economist must then determine which situation actually obtains in order to make a correct prediction is exactly in line with Mises' point about economics: it does not determine whether causes have the effects by examining whether the effects actually obtain through an empirical examination of the data, because this is impossible. It examines the effects under different hypothetical causal regimes, and then in application determines which set of causes are operative for the case under examination. The knowledge of the effects of these causes are given a priori in each case. Consider this statement from Human Action, which I imagine you are already familiar with:
"The imaginary constructions of praxeology can never be confronted with any experience of things external and can never be appraised from the point of view of such experience. Their function is to serve man in a scrutiny which cannot rely upon his senses. In confronting the imaginary constructions with reality we cannot raise the question of whether they correspond to experience and depict adequately the empirical data. We must ask whether the assumptions of our construction are identical with the conditions of those actions which we want to conceive."
From this point of view, your method of procedure here is exactly in line with Mises' comments about methodology; comments, by the way, intended as a description of how economic science operates in practice, not as a prescription for that practice as is often conveyed. Empirically speaking, I would say Mises is accurately capturing the procedures employed.
It is true that in practice we also blend theoretical and empirical aspects of the problem. Economics doesn't only examine statements like "Action is the effort to remove felt uneasiness", but also examines more concrete phenomena that are given in experience. This is true, but it does not alter the aprioristic character of *how* those concrete phenomena are examined; the procedure by which the effects of causes are determines is a theoretical one, one of applying the general principles of theory to a given case. This is how you determined that a monopsonist could pay wages lower than marginal productivity, or that buyers who dislike products made by unskilled workers would be less willing to pay for them.
Finally, a few quibbles regarding your examples.
First, for the monopsony example, I don't think Austrians usually dispute the theoretical claim that monopsony can be a case where minimum wages don't lead to unemployment. They usually argue that monopsony does not really occur in the free market, and cases would usually be caused by government regulation (in which case, wages could be increased by removing those regulations).
Second, the example which uses buyer preferences places two different kinds of products on the same demand curve. If buyers distinguish between products made by low-skill workers and other kinds of products, then ipso facto these are different goods which will demand different prices. Placing these different goods on the same demand or supply curve would be an error and lead to specious conclusions. Properly understood, we should say the minimum wage law would change what products are being offered. Ceteris are not paribus. I think every austrian agrees that a minimum wage, when is not above the marginal productivity of unskilled workers, will not cause unemployment. This is the primary thesis of the analysis of minimum wage viz-a-viz employment. Your example is a sneaky way of getting the marginal productivity of unskilled labor to change compared to the counterfactual; but in that case, I would say you haven't kept other things equal. Similarly, a minimum wage will not cause unemployment if a large increase in inflation or a large increase of productivity is parallel to the minimum wage. This doesn't conflict with the predictions of minimum wage analysis, it is simply changing the assumptions involved, and comparing the results under each assumption. In either case, you use a priori reasoning to know what will happen and how it can happen. In order to determine which situation actually obtains, you need to wait and see which set of assumptions obtains in experience, just as Mises emphasized.
I would be very interested in the Chicago view of the rationality axioms of preference theory. Some economists have tested the axioms to see if they are violated by individuals. And so they have found it to be the case. As I understand it, a Chicago economist would not expect the axioms to describe individual behavior. If this is so, what is the role of these axioms?
I agree with your sentiment
As a parkour practitioner, I feel the same way with people who take parkour courses and go to some gatherings, but never seem to look for interesting paths or moves outside of "practice time"; the parkour mindset just doesn't bleed into their everyday life.
I'm not sure why but I find that frustrating.
"I am not inclined to take theology very seriously but, if I did take a course in it, I would expect to learn more and have a more interesting time if the professor was a believer than if he were an atheist."
I would say Scott Alexander's Unsong is a counterexample
Made me laugh in memory of a poseur I used to work with. Ran across him one day at a parking lot on a bicycle path unloading a bicycle. He had driven ten miles from home, planned to ride back on the bicycle path *to his home*, then back to the parking lot, and then drive back home. If that wasn't bad enough, the bicycle looked like it hadn't been ridden in years -- rotten tires wouldn't hold air, chain had no grease. At least your poseurs were doing something.
Of course my first contact with method was Milton Friedman's The Methodology of Positive Economics! I was fascinated, but did not pursue it. There's a sentence in Samuelson's Foundations that says method is important to economics, not to the hard sciences, for they have a self cleansing property, and not to sociology, for it doesn't matter. Next in my education came in the form of Popper's Logik der Foschung [The Logic of Scientific Discovery], all about falsifiability as everyone knows.
As for economics proper, what has impressed me most is the first chapter of Eugene Silberberg's The Structure of Economics -- A Mathematical Analysis. IIUC, Silberberg makes MIlton Friedman more precise. I hope I get the spirit of this right: Forget what we call assumptions for the moment. We have these completely absurd postulates about people's behavior. [No, I don't do calculus when deciding to buy another orange! (Yoram Bauman)] Put it all together and we get empirically refutable propositions. What we are used to calling "assumptions" Silberberg calls "test conditions". Predictions of outcomes based on our models of perfect competition, e.g., can only be expected to turn out fruitfully not refuted when there is something close to perfect competition!
I like.
ETA: This looks all very Chicago to me, but not at all like von Mises, as far as I can tell.
ETA more: I never thought Milton Friedman was engaging in induction as Roderick Long seems to think. I don't think he cited Popper, but falsification must have been in the air at the time.
The difficulty with induction is this, in different words from David's: Your prediction turns out to be wrong, and you have no clue why. With deduction, your prediction turns out wrong, and you know why: Your theory was wrong! So go and fix your theory.
ETA yet more: Somebody once said "the sea of facts is mute", possibly Sir John Hicks.
OK, that's all I know.
Couldn’t a ‘9-to-5 economist’ be seen as just a more polite way of describing a hypocrite?
But in which realm, the 9-5 job or the 5-9 private life? Maybe he really believes in what he teaches, but doesn't want to upset his family, friends, and neighbors.
You ask which realm is the hypocritical one. David's point seems to be that a 'real economist' only has one realm where their principles apply consistently. Creating a separate '5-9' personality to avoid upsetting people by expressing views one does not believe sounds like hypocrisy.
Well, I meant it as a joke more than anything, but it could swing either way. Maybe the guy got his job and after a year or two decided he didn't believe what he was teaching, but didn't want to rock that tenure track boat, so he just fakes it for a few years. While at home, he doesn't have anyone to impress, so he tells the truth.
Do conservative economists defend trade restrictions on economic grounds? Or, are they placing greater value on non-economic issues?
I mean, an economist might agree that trade restrictions economically harm the country imposing them, but are useful because they protect some culturally important sector. I believe this was the argument many European countries used for their agricultural restrictions.
David,
**** the a priori approach ****
We can concede that your Chicago approach differs from "the extreme a priori approach".
But beyond that, not so much. On page 9 of your wonderful Law’s Order (ISBN 978-0691090092) you state:
"I do not know other people [...] well enough to incorporate their irrationalities into my analysis of the effect of legal rules on their behavior. What I do know about them is that they, like me, have purposes they wish to achieve and tend, albeit imperfectly, to correctly choose how to achieve them. That is the predictable element in human behavior, and it is on that element that economics is built."
Here you concede the teleological _Zweckrationalität_ of the Austrians, as well as the basis of economics in introspection, which is the foundation of their a priori approach.
In your article you say: "there are plausible real world circumstances — perhaps not in America today but in some past market societies — where [a purely a priori prediction] would be false." Well, ya, no doubt. You make your point by leaving out the critical _ceteris paribus_ assumption that defers exceptions like yours to real-world analysis. You can't possibly assert that Austrians exclude real world data.
**** "Newton was wrong," ****
I would rather say, as Roger Penrose does, that Newton is absolutely right, at the appropriate scale of observation:
"As applied to the motions of planets and moons, the observed accuracy of [Newtonian physics] is phenomenal – better than one part in ten million." Penrose, Roger, The Emperor’s New Mind, p198.
There are economists who do not believe in economics? Really? :--)
I think that, when you said "there were a lot of economists who did not really believe in economics", you would have been on stronger ground to say "there were a lot of economists who did not really believe in economics as I believe economics is defined." There are arguments for this difference, but they seem obvious.
As for increasing the minimum wage, I have always had a model in my head like this:
Increasing the minimum wage gives workers more spending power. Workers being able to spend more benefits the economy, especially the local economy where people with less money buy things. This increases demand in the local economy, including demand for more labor. This is a benefit for both labor and managers in the economy.
No? Your arguments vis a vis minimum wage increases do not seem to include these effects.
Your effects do not include any discussion of where the increased pay came from. Did the employer reduce his own pay, and what happened to all the things he used to buy with that money? Did he raise prices, and what happened to all those customers who bought less, and thus the employer had to reduce hours worked so all workers earned less but at a higher rate?
Bastiat had something to say about that.
Is it significant that you say it "gives" workers more spending power rather than workers "earn" more spending power? Giving something has little to do with the recipient's efforts, unless it's Neville St. Clair being an excellent makeup artist, whereas workers can earn more pay through their own efforts.
:--) I was using "gives" like the way that fire "gives" heat. It is easier to say "gives" than "causes a transfew of benefit to". In my case "give" is not saying as much as "earn" says. Please let us not get into a discussion of who "earns" something. It is a very fraught word.
What's the impact of such an effect? Not many people are effected by minimum wages and those that are tend to have smaller than average spending habits. Also, some others who lose their employment, or get reduced overall pay due to reduced hours, will have less to spend.
Another issue is: sometimes you dismiss the monopsonistic assumption as implausible. Well, how do you decide whether an assumption is plausible or not? Why do you prefer working with a model that assumes perfectly competitive markets instead of a monopsonistic one? Prediction? Show me the evidence then.