Saturday, April 14, 2012

DISMAL PERFORMANCES BY LOCAL PRACTITIONERS OF THE "DISMAL SCIENCE"

Yesterday, a century and a half ago, the “dismal science” was called “political economics”; today, “economics.” The reason for this simplification was the effort to make an evolving discipline (appear) scientific by presumably separating the subjective from the objective. From our heated debates about interwoven political and economic issues, we know that the effort failed. Given the different perspectives and stances of America’s political parties, we know which label better represents the truth of the matter.

As befits the greater El Paso area, including Las Cruces, many conservative writers and speakers address political and economic issues. The last week in March, two of them offered conservative commentaries on economic freedom and gasoline prices. Monday, Dr. Nathan Ashby, an assistant professor in the Economics and Finance Department, College of Business Administration, UTEP, had a guest column, “New Mexico needs more economic freedom,” in the Las Cruces Sun-News. Wednesday, he gave a public lecture sponsored by the Rio Grande Foundation, on the larger subject of “economic freedom.” Friday, Dr. Michael Swickard’s column “Those darned Econ 101 deniers” appeared in the Las Cruces Bulletin. The flaws in these commentaries suggest that both imagined a choir to appreciate their preaching, not the unconverted, much less the potentially critical.

Local Practitioner #1: Michael Swickard

Let me discuss Swickard’s column first, to expose not only his mistaken explanation of recently high gas prices, but also his ad hoc belief in the government as the root of all evil in the energy market.

Swickard refers to his previous column on oil prices which received responses critical of his views. Typically, he replies by slurring critics, misrepresenting their criticisms, and shifting his positions. Here, he states that his critics do not know the basics of economics because they assert that a world oil market means that oil has “exactly the same price” everywhere. They asserted no such thing, and plainly their criticisms routed him, for he admits that the “total available oil supply” has the greatest effect on prices.

So Swickard slips past oil wells and settles on refineries and pipelines; his subtitle claims that “the more pipelines and refineries, the lower the price of gas.” However, his explanation that correcting local difficulties in production or distribution would lead to a significant national lowering of the pump price of gasoline is nonsense. He attributes the recent spike in prices to government policies limiting the number of refineries and promoting distribution by tanker trucks. But he is wrong that the government has such policies and absurd to think that they would suddenly cause price spikes. He is wrong that refineries do not adjust to meet demand for different grades of product from oil and that tanker trucks are used instead of pipelines for bulk distribution. Building on his errors, Swickard opines that, if the government would get out of the way, all would be well; more refineries would be built, pipelines would be extended to gas stations—he leaves the companies and their cost-benefit analyses out of his account—and pump prices of gas would decline. My explanation of this error-filled, anti-government column is that Swickard is an agenda-driven amateur in energy policy and energy economics.

Local Practitioner #2: Nathan Ashby

Ashby is quite different; he has the academic credentials and institutional position to suggest scholarly expertise in economic policy. Indeed, he is an assistant professor who holds the Western Hemispheric Trade Research Professorship, a two-year research award funded by the Hunt Family Foundation. His column and lecture derive from his work as the lead author of a Fraser Institute report “Economic Freedom in North America 2011.” This report will likely count as a publication of applied scholarship and support his application for tenure, but it is a work of partisan polemic, not independent scholarship.

The Fraser Institute describes itself in this way: “The Fraser Institute provides a useful public service. We report objective information about the economic and social effects of current public policies, and we offer evidence-based research and education about policy options that can improve the quality of life” (report, p. 87). This self-testimonial merits some skepticism, for the Institute achieved its early notoriety with reports attacking the science establishing the risks of cancer posed by second-hand cigarette smoke. More, reporting “objective information” is not necessarily telling the whole truth (or even any truth which matters) and may mislead the unwary or the uninformed who rely on academic credentials and position to assure themselves of integrity and professionalism.

The Hunt Family Foundation, the Fraser Institute, and Ashby himself have every right to pro-business, libertarian positions. But I have doubts about the relationship between his advocacy of positions like those of his sponsors and supporters, and his academic research and teaching at UTEP. The question is not, of course, about money-laundering, but of the appearance, if not the reality, of bias. I credit Ashby’s faculty profile and a college news release for disclosing the links between these organizations and his work on this report, but I blame his public presentations for not disclosing these links. The reason is simple: they put his positions in a context relevant to understanding them, especially by the public. His failure to do so suggests a partisan, not professorial, approach to public issues, with his university position possibly misleadingly suggesting academic disinterest. Conservatives often claim that liberals dominate academe and indoctrinate students and the public; Ashby may be a partial correction of that canard.

Ashby begins his column with a distortion of history to serve the politics of his economics. He claims that the recent exodus from California reflects its high cost of living and “restrictive regulation and taxation.” However, as these presumed liabilities have not hindered the state’s growth as the most populous state in the country and as the fifth largest economy in the world, so they did not precipitate an abrupt exodus of some high-tech personnel or companies. It began a decade ago, with the bust of the “dot-com” boom, and has continued during the recession. Suddenly unemployed people and unprofitable firms suffering its effects have sought less expensive locales to re-start careers or companies. They moved to states with big cities and good schools. New Mexico, not unfriendly to such exiles, lacks these attractions.

Ashby follows this distorted history with undisclosed politics and dubious economics. For my response, I consider his lecture, with his allusions to, or presentation of materials from, his Fraser Institute report. Toward the end of the open discussion afterwards, I asked Ashby several questions and received unresponsive or inadequate answers.

The most important issue, one which a responsible academic would carefully address, is the definition or meaning of the central concept “economic freedom.” Instead, Ashby quotes from an earlier Fraser Institute report, not identified as such, and accepts it without qualification or reservation:

Individuals have economic freedom when (a) property they acquire with- out the use of force, fraud, or theft is protected from physical invasions by others and (b) they are free to use, exchange, or give their property as long as their actions do not violate the identical rights of others. Thus, an index of economic freedom should measure the extent to which rightly acquired property is protected and individuals are engaged in voluntary transactions. (Gwartney, Lawson, and Block, 1996: 12)
I asked Ashby about three major problems with this definition. My first question: Why does this, his, definition of “economic freedom” limit itself to “individuals”? As I said, most discussions of the subject concern the economic freedom of businesses and markets. Ashby gave no answer. I think his failure reflects a rhetoric intended to persuade his readership or audience to think only of their economic transactions without requiring them to think of the issues involved at the business or market level. For his report gives little attention to individuals and most attention to those levels in terms of “economic freedom.” If he thinks that corporations are people, he did not say so!

My second question: What are the limits on “economic freedom.” I gave an analogy to the Constitutional right of free speech, which is not an absolute, but a limited, right. Free speech does not protect libel, slander, incitement, or perjury, among others. Ashby did not give an answer, as if there were no factors which might justify its curtailment.

My third question assumed aspects of my first two questions: Are individuals “free to use” property not violating the “identical [i.e., property] rights of others” entitled to deny service to others? Ashby recognized that the thrust of my question pointed at Civil Rights legislation and answered as libertarians invariably do. First, he denied that he is racist and affirmed that racism is repugnant to him. Second, he stated that such racist practices are economically self-defeating. Third, and oddly, he held the government—as I understood him to imply, the federal government—responsible for such practices.

I hope that readers will excuse me for opining that this young white professor who has never lived in the South, much less during the Civil Rights movement, doth protest too much. Indeed, methinks his reflexive response is a dead give-away to the contrary. Even his economic argument fails the test of history; Jim Crow was economically viable in the South and showed no signs of failing. His effort at blame-shifting also fails the test of history; white racist communities elected white racist politicians and appointed white racist officials, and, at local and state levels, White Citizen Councils, state legislatures, and governors, implemented and enforced racist practices, and resisted their eradication by federal law.

One of Ashby’s Dismal Proposals for New Mexico

My fourth and final question exposed the lack of empirical support and economic sense for one of his pro-business recommendations for New Mexico. Ashby recommends that the state lower its minimum wage to the federal level to increase competitiveness and create jobs. He did not produce any evidence that doing so would have either effect or any estimation of either effect. I did not challenge him on competitiveness. But I doubt that a small difference in minimum wage makes a big difference in corporate decisions to relocate, and I worry about states starting a race to the bottom, with its dire consequences. New Mexico is just about there already.

I did challenge Ashby on jobs. I asked him, if his claim were true, why unemployed people were not demanding a reduction in the minimum wage. He said that he did not want to appear arrogant in saying that the unemployed often do not understand the effects of higher versus lower minimum wages on the availability of jobs. I replied that people do not need an introductory course in college economics to understand the point and that many people seeking work would have heard someone refuse them or others employment on the basis of a high minimum wage. Ashby began to reply with a story about a family relative, to which I responded rudely by cutting him off with the remark that, as an economist, he should know better than to argue on the basis of an anecdote and that, given up to 15 million unemployed people over the past 3 years, such demands should be well-known and should have been recorded as data for economic analysis. He had no response. I finished by remarking that it seemed that the initiative for lowering the minimum wage comes as usual from business interests which hope to cut costs and raise profits, in the name of, but with little likelihood of, increasing employment. Again, He had no response.

Nevertheless, despite its absurdity, Ashby’s recommendation for New Mexico to reduce its minimum hourly wage to the federal level initially seems to some a sensible one. They might begin as I later did, with the numbers and their implications. I began with the state minimum wage of $7.50 per hour, or, for a 2000-hour work-year, $15,000 per year; and the federal minimum hourly wage of $7.25 per hour, or $14,500 per year.

First point: If the state reduced its minimum wage by $0.25 an hour, or $500 a year, an employer would have to reduce the wages of twenty-nine minimum-wage employees to pay for one additional minimum-wage employee. Since the number of employers in New Mexico with at least twenty-nine such employees is very small, the number of minimum-wage jobs thus created would also be very small. The far larger number of employers with smaller numbers of minimum-wage employees would pocket $500 a year per employee. Ashby knows, or should know, the effects of this recommendation: greater company profits and very few additional jobs.

A related detail: Ashby does not show what kinds of businesses his recommendation would affect in terms of competitiveness or jobs. It is not obvious that even companies meeting this number of minimum-wage employees could benefit. For instance, a fast food chain would not open a new facility in New Mexico instead of Texas because of now-comparable minimum wages. It might have the requisite numbers of minimum-wage employees but not have them at any one facility or need an additional employee at any one facility. As a rule, employers hire additional employees, not on the basis of the minimum wage, but on the need to meet increased demand for goods or services.

Second point: The minimum wage of one worker supports up to two people at 100% of the poverty level of $15,130. If Ashby had his way, that $500 a year reduction in the minimum wage would push a childless couple below the poverty level. A couple with one child suddenly would fall below the poverty level by over $4000. Ashby knows, or should know, the effect of this recommendation on the very poor who work, if they can, at minimum-wage jobs, but he appears not to care about its effects on them.

Concluding Reflections on a Cloudy Subject

Economics has been called the “dismal science.” It need not be dismal, but it becomes so when economists or others propound or manipulate economic policy to support political ideology, or disregard the human consequences and societal costs of their recommendations. It also becomes so when economists or others (like governors, legislators, or department or agency heads) regard it as the sole determinate of public policy or, the same thing, disregard the larger context in which policy decisions are made—“political economics,” indeed.

In their efforts to be objective or scientific, economists making economic analyses tend to regard non-economic considerations as “externalities,” a polite euphemism for “irrelevancies.” However, public policies virtually never rely exclusively on economic analyses—and should not. Invariably, making policy and policy decisions or drafting and debating legislation consider “externalities,” which are often decisive in formulating sound policies and laws. Paradoxically, including them rather than excluding them during deliberations usually results in better decisions with better economic effects.

Unfortunately, Ashby does not know or does not care that politically ideologically motivated economic analyses distort history, discredit economics, and debilitate informed and responsible debate—again, the work of a polemicist, not a professor—often with undesirable outcomes, including undesirable economic consequences.

Have local conservatives no better spokespersons for their political economics than these two purveyors of unperfected positions?

2 comments:

  1. This comment has been removed by the author.

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  2. Professor Ashby informs me that the UTEP College of Business Administration website provided me incorrect information about the relationship between his awarded title and financial support, and the Hunt Family Foundation. Ashby assures me that the Foundation provided no financial support for his work. The COBA has since corrected its initial misinformation.

    Obviously, that misinformation raised some of my concerns about the independence of Ashby’s work with the Fraser Institute and for UTEP.

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