Tuesday, March 29, 2016

Friends Shouldn't Let Jazz Shaw Write About Economics

I've previously written about Jazz Shaw (see here, here and here).  So sum up:

He is a crusader against the minimum wage.  But, he does not have the required background to write about economics.  There is no mention in his publicly available biography indicating a position in the financial services industry or any college level economics training.  As a result, he is completely unfamiliar with micro-economic concepts such as the short-term cost curve and elasticity.   He also used the wrong data to argue Seattle's minimum wage experiment is working.  Again, see the above links for this information.

Now that Califonia has argued it will raise it's minimum wage to $15/hour, Shaw has chimed in with a similarly misinformed piece.  He begins with this statement:

Despite what’s already happened in Seattle and other, more confined locations, the word on the street out on the left coast is that California has cut a deal to raise the statewide minimum wage to $15 per hour incrementally over a few years time.

No.  That is not what has happened.  The article on which he relies was published by the AEI.  It used the wrong data and was meaningless (see links above).  I tweeted this information to Mr. Shaw who ignored it.  Had Mr. Shaw the requisite knowledge in economics, he would be familiar with basic statistical concepts such as sample size and composition.  But, he is not.

His latest article has three huge problems, starting with this paragraph:

One can only imagine how thrilled the waiters and waitresses will be when they’re asked to bus tables in addition to their regular duties after the bus boys are cut loose. And the customers will simply need to adjust to having fewer menu options. If you’re going to cut back on the kitchen staff, you’ll need to slim down the production line so they can focus on a smaller number of dishes they can make in larger numbers. But I suppose if all the eateries have to do it the customers will have no other choice. At least they’ll get to pay more for the meals that are still available!

Mr. Shaw argues that, because businesses may have to cut staff, that waiters will be "less than thrilled."  But, he doesn't recognize that restaurants are a labor intensive business.  When this is balanced against the already known principle that business owners maximize profits, we can assume
the current level of labor is already as low as it can go while at the same time maximizing profits.  Put in less economic terms, there probably isn't much fat to cut in this area.

In addition, he assumes cutting the number of menu items will lead to a massive drop in alternatives.  In fact, most restaurants already know the dishes they would like to cut but haven't for reasons of sentimentality or they are preferred by a few regular customers.  But eventually dropping these items may lead to increased profits for the owners -- a fact which, I assume, Mr. Shaw would approve.  Finally, Taco Bell has yet to have a problem finding new items to serve despite only having maybe 10 items to work with.

And finally, the US is currently in a low inflation environment, meaning businesses have little if any pricing power.   Businesses will be thrilled to have the room to raise prices, using the minimum wage boost as the justification.

Finally, Mr. Shaw's knowledge of the topic is clearly behind the times.  As the noted in today's Financial Times:

Many economists have also changed their views. Economics textbooks used to state that if you raise pay above the value it creates for employers, you reduce demand for labour. In other words, minimum wages cost jobs.

But economists’ opinions are now more nuanced, in large part because of the experience of countries such as the UK, which have so far sustained steady increases in the minimum wage without doing any notable damage to employment.

The early signs from Germany are also positive. In spite of nervousness from businesses about the introduction of a minimum wage of €8.50 an hour last year, the unemployment rate has continued to fall and is now at a record low.

“My view of the history of minimum wages is that we’ve always been surprised about how you seem to be able to push them up without harming job prospects,” says Alan Manning, a professor at the London School of Economics. 

That about sums it up, doesn't it?