Max Sewicky on Heterodox Economics

Max Sewicky critiques certain aspects of traditional economics over on TPM. The non-traditional branches of economics make some important critiques, but this article set off my bullshit detector in a number of ways.

On supply and demand:

“In the usual supply and demand model, a minimum wage can only reduce employment. Nothing else is logically possible.”

This is supposed to be a criticism? You drive up the price of anything, including labor, and people are going to consume less of it. THEY CAN’T AFFORD NOT TO. The data supports this conclusion.

On “markets”:

“There is plenty of commerce, but there are very few markets, even though economists pretend they solve most of our problems.”

This, of course, ignores the fact that even imperfect markets often have desirable features that non-market systems often lack. It also makes the claim that an imperfect market is not a market, which is a pretty unconvincing attempt to redefine the economic understanding of the term.

On trade:

“Regulation of markets is allowed, unless the market includes parties from different countries. Then it is strictly verboten.”

It’s hard to fathom that this could possibly be meant to be taken seriously. There are all kinds of regulations that economists consider justifiable in international markets. Quality standards for foods and medicines, for example.

On the natural rate of unemployment:

“Economists used to say it was 6.0, maybe 5.5 percent. Lower would give rise to ruinous inflation. The huge social benefits of another couple of percentage points less unemployment were — are — implicitly discounted. Current rate is 4.5. ‘Nuff said.”

From my experiences in economics, this is just flat out wrong. Every country has a different natural rate of unemployment, determined by structural factors that are not entirely understood. I have never seen it suggested anywhere in current literature, even in textbooks, that it can’t change over the long run. Rather, they suggest that rapid changes will cause inflation. The data is still out on that one.

I have other complaints, but those are the big ones.

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