Professor Thomas Piketty of the Paris School of Economics has come to America to tell us that many of our problems could be solved with higher taxes on wealth and an increase in the minimum wage. Sunday’s New York Times called him a Rock Star.
Most of the analysis of Piketty’s 671-page tome Capital in the Twenty-First Century has focused on his examination of income inequality and his recommendation to increase taxes on capital and wealth. But how about his prescription to increase the minimum wage?
The political biases of Capital are nowhere more obvious than in Piketty’s errors in his recent history of the U.S. minimum wage. Piketty, in his introduction, portrays his policy recommendations as “lessons based on historical experience,” but he cannot even offer an accurate historic description of the minimum wage...
One might overlook one isolated error as sloppiness to which we are all susceptible. But Professor Piketty’s supposed wage history is not tarnished by a single error, but by a vast array of systematic errors.
His history is pure revisionist fiction, and revisionist fiction with a political purpose: making Democratic presidents look magnanimous and Republican presidents look uncaring. Yet, over the past quarter century, the period Piketty describes as showing a dramatic increase in inequality, Republican presidents signed into law larger percentage increases in the minimum wage than did Democratic presidents.
Piketty’s analysis of the advantages of increasing the minimum wage neglects negative employment effects on low-skill individuals. He states that increasing the minimum wage lowers inequality at the bottom of the income distribution by raising the pay of low-income individuals.That is partly correct. Measured inequality declines because the difference between the lowest wage in the economy and the average wage is reduced, even if some of the low-wage workers lose their jobs because they are no longer employable. But what Piketty fails to admit is that raising the minimum wage prevents people with skills lower than the minimum from getting jobs.
When the minimum wage is increased, the earnings of the unemployed are nonexistent or unreported. Hey presto—more equality. But the low-skilled are not better off by not working, they are worse off, even though the country in which they are no longer able to work has a “better” income distribution. Read the full article here.
Tuesday, April 22, 2014
The Systematic Errors in Thomas Piketty's New Book
From a review of Capital in the Twenty-First Century by Diana Furchtgott-Roth.