David Card - An Emperical Economist

I have a big problem with economics as it's currently taught. The 'Nobel' prizes are won by abstract mathematical economists that have no real world value what so ever. They plug in ridiculous axioms and make so many assumptions to just make their theories work. The sad thing is that these prescriptions are lapped up by policy makers because it turns political choices into market realities. Thus, outside democratic choice.

Take one example, the Coase Theorem. I came across this theory in a Tort class. Law professors love to analyse legal problems with economic tools, because the majesty of purported objective formalism gives a good rationale for an overall encompassing theory of tortious jurisprudence. Thus the Theorem becomes "The starting-point for [The] economic analysis of law" [Markesins & Deakin's:26].

I was intrigued at such an ambitious claim, rarely in jurisprudence does one concept shed light on everything. The only exception I can think of is Hart's distinction between primary and secondary rules, which does a pretty good job of exposing the rest of his legal theory - but even that is general theory, not based on an actual area of practiced law. But much like Hart's primary and secondary rules, which have no evidential basis[p44] - nor does the Coase Theorem, which assumes there are no transactions costs and externalities are quantifiable. This is ridiculous, and free market proponents of the Chicago school advocate this as a viable alternative to Pigovan Taxes.

I was pleased to read an interview by David Card, an economist I hadn't heard of. To surmise his findings in his career

• The minimum wage does not have an effect on employment levels.
• "small raises in the minimum wage won't have much of an effect [on employment levels].

• "Skill-based technical change' does not explain wage inequality [in the US].
• "Like a lot of other ideas in economics, I think that “skill-biased technical change” can be pulled off the shelf and used to explain inequality in a very superficial way"
• SBTC holds that people with lower skill should have slower wage growth than people with higher skill. Women, have lower wages, evidence of their lack of skills. However, during the 1980's women did far better than men. Over the 90s women's relative wages were stable.Basically
• Basically, the trend in the female labour market shows trends SBTC predict.

• Immigration
• imigration has minimal effect on unskilled domestic labour
• "the best available evidence is the effect is on the order of a couple of percents nationwide over 25 years"

Card's summation of the economics profession as a whole is also bang on:

Economics as a whole is really a combination of two kinds of people: those who are very practically oriented and those who are more like mathematical philosophers. The mathematical philosophers get most of the attention. They deal with the big unanswerable questions. Labor economists try to be more scientific: looking for very specific predictions and trying to test these as carefully as possible. The mathematical philosophers get very frustrated by labor economists. They come up with a broad general theory, and we tell them it doesn't fit the evidence.

And this is the problem I have with anarcho-capitalist proponents. Take one example off a message board

it is a well known law of nature (economics) that a monopoly can neither efficiently nor effectively provide goods or services because of the lack of market input in the determination of production values and proper allocation of resources.

This is absurd. Theories of economics and laws of nature are not the same thing. Einstein's theory of relativity is a law of nature, but even physicists aren't so arrogant to call this theory, that has been empirically proven thousands of times, a law. Off hand I can think of examples of efficient monopolist state supplied healthcare, which is far more efficient than the private market.

Furthermore, if theories of Chicago school economists were theories of nature, they would have an essential property of a theory of nature - symmetry. Which means that relativity applies on earth as it does on the moon as it does in a distant galaxy. Also mere mortals cannot break laws of nature, the keyboard I'm typing into cannot teleport over to mars (microscopic quantum tunnelling aside!), but I can easily be an efficient monopoly supplier - if I disobey the first commandment (axiomatic assumption) of free markets - the profit motive. Healthcare is a good example; people are motivated by more than money.

References,

Markesins & Deakin's, Tort Law 5th Ed.