Numbers Only Measure What You Count

In all the tussle over the minimum wage and how it will affect the employment rate, there’s a surfeit of theory and a dearth of data. Maybe the new minimum wage laws in various cities will fix that problem.

Velazquez - The LunchBut speaking of theory, the employment rate isn’t the only number in play. For example, there’s also the income distribution curve, and the curve representing the propensity to spend or consume. If you’re at the low end of the income distribution, you almost certainly have a propensity—a need, really—to spend almost everything you earn, maybe more. If you’re at the high end of the income distribution, you probably have a propensity to spend a much lower proportion of your earnings; instead you’ll save or invest most of what you earn. Is there anybody left in the middle? You could have full employment with a few people earning almost everything and most people earning almost nothing. But what good is that? Odds are you’ll just end up with a revolt and exodus, or maybe a civil war, right? At the other extreme, you’d probably get the same result if you completely untethered effort and reward.

Prices are another number. They depend partly on what people are willing to pay and partly on what people are willing to receive. They also depend on things like the disparity of information between buyer and seller (whether voluntary or not), the raw fear of uncertainty if a deal isn’t done, built-in cognitive biases that distort perceptions of gains and losses, and the willingness to make economic demands on other people without assuming corresponding moral obligations for yourself.

You could say that all of those numbers affect each other in complex ways. But that’s not really true. The numbers aren’t interacting; people are. The numbers and equations are just tools to help people think about the consequences of their actions. (Too bad most of us are terrible at thinking in numbers and equations.) And that shouldn’t be surprising, given that economics grew up out of moral philosophy. The problem is not what we can do to ensure that our economy is humming along with the best possible numbers—because there is no guarantee that the economy with the best numbers will necessarily coincide with the happiest group of people—the problem is how to live well together.

I doubt that changing a single numerical parameter of our economy, like the minimum wage, is going to fix many problems all by itself. That seems to me like telling people not to use racial epithets, and then just hoping that racism will go away. There’s probably more work to do, if that’s the goal. But I also doubt that using economic ideas to atomize human society into a cloud of rational, self-interested actors is going to yield a just and happy world where morality is offloaded into mathematical constructs so that nobody has to worry about anybody else. The purpose of experimenting, gathering data, and formulating theories is to enable us to amplify our concern for each other, not to eliminate that concern.

So I hope that, if nothing else, the minimum wage experiments around the country will prompt people to think about each other as people, instead of just competitors, or costs, or consumers. Numbers are helpful, but they only measure the things we bother to count.

Leave a Reply

Your email address will not be published. Required fields are marked *

Notify me of followup comments via e-mail. You can also subscribe without commenting.