The Bear’s Lair: Extraordinary popular delusions and the prizes they bring

Economists David Card, Joshua Angrist and Guido Imbens won the “Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel” last week for their work on “real-world” experiments that drove a truck through market-driven economic theory. This was not surprising. Conventional wisdom among the “woke” intelligentsia is today a far more important driver of the world’s rewards than any amount of knowledge from our civilization-producing ancestors.

Card’s most celebrated study considered the effects of higher minimum wages. It looked at fast food restaurant workers in Pennsylvania and New Jersey in 1992, after New Jersey introduced a higher minimum wage, up from $4.25 to $5.05 per hour. It went through a great deal of analytical effort to reach its preferred conclusion that New Jersey fast-food employment had not suffered relative to Pennsylvania fast-food employment despite the rise in New Jersey’s minimum wages.

However, buried deep in the analysis was the statistic that average wages for all employees in the New Jersey fast food restaurants had declined by 3.1% between the two sample dates (in a period of significant inflation). In other words, the New Jersey chains had simply eliminated the differentials they had paid to longer-standing or more productive employees, or possibly even fired them (normally unnecessary, given the high employee turnover in fast food) and had thereby managed to reduce their wages per employee-hour despite the higher minimum. The rise in New Jersey’s minimum wage had produced not a decline in employment but a decline in average wages, equally damaging to these not overpaid folk. Not a great advertisement for its efficacy! Conventional Adam Smithean economics wins again!

The other study concerned the effect of the Mariel mass immigration of mostly unskilled Cubans to Miami in 1980, which was estimated to increase the Miami workforce by about 45,000. Here there was no long-term effect on wages from this sudden influx, but you would not expect there to be; the Mariel boatlift was a one-off operation in 1980, quite different from an annual influx of unskilled labor such as across the southern U.S. border today. By 1985, unemployment among the Mariel contingent was 20% and its wages were 18% below those of comparably-educated Hispanics, but overall Hispanic wages bore the same relationship to those in other cities they had in 1979.

Only in 1981-82 was there a sharp short-term drop in African-American and Hispanic low-skilled wages. However, that is what you would expect from a sudden influx that did not continue; furthermore, one of the comparison cities, Los Angeles, even in the 1980s had a large flow of illegal immigrants, hence having depressed low-skilled wages itself and biasing the comparison. Overall, the study, while carefully done, proved little and certainly does not seem worth a Nobel, but again its salience was vastly increased by its conclusion’s correlation with the “woke” globalist agenda espoused by the Nobel committee.

The power of conventional leftist wisdom is very great; it dominates the committees that select academic appointments, research funding and the major prizes, thereby producing huge incentives for work by upcoming economists that justifies it. There is always a market for studies that prove that mass illegal immigration does not depress wage rates, or that an increase in the “indentured labor” of H1B and H2B visas does not depress the life prospects of young domestic workers with similar qualifications.

This is not some new and evil feature of modern life; it has always been the case. During the Whig Supremacy of 1714-60, the governing Whigs were scared witless that the mostly Tory working classes would rise up and evict them and the Hanoverian dynasty with them. (In practice, even though the Tories won most votes at every election between 1715 and 1742, the modest success of the ’45 Rebellion proved that fear overblown; the working classes outside London wanted the solid peacemaking Tory government they had elected by a large majority in 1710-14 but had no wish to return to Stuart absolutism.)

Hence the Whigs passed innumerable items of legislation suppressing the working classes, notably the Black Acts of 1723, in an effort to maintain social stability. The Hanoverian Kings George I and George II themselves could have solved this problem by allowing Tories back into government and eliminating the Whig monopoly of power, but they did not have the wit or the knowledge of English politics to do this.

After the Black Acts, the Whigs further demonized the working classes, passing not one but six Gin Acts, about every 3 years from 1731 to 1752, the purpose of which was to suppress the supposedly intractable drunkenness of the workers. These Acts passed by large majorities, even though there was no significant evidence that the working classes were any more drunken at that time than they always had been. Backbench Whig MPs were convinced by Hogarth’s “Gin Lane” cartoons and other anecdotal evidence of something that they in any case wanted to believe.

After 1760, with a new and Tory-friendly King, George III, who opened politics up to all factions, there were no more Gin Acts – and the working classes created the canal system and the Industrial Revolution, which had been suppressed for the previous half century. The newly re-enfranchised Tories were highly suspicious of the Whigs’ friends in the City of London, so created a system of country banks that bypassed the City and financed local industry and infrastructure (canals) through local share issues. The working classes became occasionally Luddite but overall loyalist and productive, so that even the genuinely horrible years of the late 1790s were survived without major disturbances. The gin myth, so convincing to Whig MPs seeking to suppress the Tory working classes, was no longer useful and so disappeared. In reality, the workers had always mostly lived solidly and (when not harassed by Whig governments) happily on Beer Street.

Expert opinions propounding the huge danger of global warming, the benign nature of illegal immigration, the harmless nature of minimum wage legislation and the boundless efficacy of the Covid-19 lockdowns are telling the world what the woke globalist classes want it to hear, and so can be sure of being showered with honors, prizes, promotions and lucrative book deals. I do not begrudge the Nobel Prize for Card, Angrist and Imbens; they may well be worthy of it on general grounds, but their work should be suspect because it fits the Nobel Committee’s preferred narrative too well. Whatever one’s view of climate change, illegal immigration and the like, the same is true of any research or “expert” testimony that backs the preferred narrative.

Disinterested minds will greet each new piece of scientific or economic research with the question: “Cui Bono?” (Who benefits?) If the research benefits the existing leftist globalist power-structure, it should be treated with the utmost skepticism. The incentives to doctor the results to produce an outcome that satisfies the consensus is simply too great. Half a century ago, if the research satisfied a leftist consensus but flew in the face of well-established scientific or economic theory, it would have been greeted with skepticism but not dismissal; that is the origin of the “supply-side” revolution against Keynesianism in the 1970s.

Supply-side economics was simply Smith/von Mises classical economics, applied to modern problems; it violated the Keynesian conventional wisdom, but that conventional wisdom was clearly not working in practice. Today however the forces of conventional leftism are much stronger; the ability for such an intellectual breakthrough to occur is correspondingly less.

Conversely, if a new piece of economic or scientific research is treated with derision by the leftist/globalist establishment, it should be taken seriously by the disinterested observer. Naturally, there are eccentrics and poor practitioners in all walks of enquiry, but if a researcher is capable of putting together a plausible paper that casts conventional wisdom into doubt, yet gets rejected by the system, he or she is almost certainly on to something.

After all, if we had listened to the Whig Oligarchs and suppressed the supposedly drunken working classes, the Industrial Revolution would never have happened!

(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)