Obama appointed the latest in his string of economic chiefs today. With the departure of Austan Goolsbee as chairman of the White House Council of Economic Advisers, a job opening has opened up (one of the few job openings in the country, it would seem), and Obama has turned to liberal Princeton economist Alan Krueger, via the Wall Street Journal:
If confirmed by the Senate, Mr. Krueger, a labor economist, is likely to provide a voice inside the administration for more-aggressive government action to bring down unemployment and, particularly, to address long-term joblessness.
Mr. Krueger, 50 years old, returned to Princeton a year ago after serving as assistant Treasury secretary for economic policy during the first two years of the Obama administration—which means he has recently cleared the sometimes treacherous Senate confirmation process.
He would succeed Austan Goolsbee, who left earlier this month to reclaim his teaching post at the University of Chicago.
Mr. Krueger has been on Princeton’s faculty since 1987, the year he earned his Ph.D. in economics from Harvard University. He did a stint as chief economist at the Labor Department during the Clinton administration.
Geithner’s downright giddy over Obama’s choice:
Treasury Secretary Timothy Geithner, through a spokeswoman, said that “given his expertise in labor economics, he is precisely the right choice to lead the CEA at this moment in history.”
Geithner’s excitement, presumably, is due to the fact that Krueger’s background as a labor economist makes him uniquely qualified to deal with the nation’s stratospheric unemployment rate. Color me skeptical. Krueger is somewhat of a folk hero on the left for a study he co-authored with fellow Princeton economist (at the time), David Card, in the 1990s which, amazingly, concluded that increasing the minimum wage doesn’t increase unemployment among minimum wage earners. If true, of course, this would stand more than a century of economic theory on its head since the only plausible way such a conclusion could be reached is if we assume the law of demand has been repealed.
For this and other reasons, the Card-Krueger study has been widely panned. For example:
The Card-Krueger model’s method of data gathering has been widely questioned. Via phone surveys, the team interviewed managers from 321 fast-food franchises in New Jersey and 78 in Pennsylvania. This is a very small number of firms to use as evidence for such significant findings. Also, the information given by stores may not be accurate. Burger King managers are not statisticians or even bookkeepers; the study should have employed repeat interviews by a second set of researchers.
Moreover, while the law went into effect on April 1, 1992, the interviews regarding the impact of the legislation were conducted between November 5 and December 31 of that year. By using such a limited window, just seven to nine months after the implementation of the law, Card and Krueger did not give the market sufficient time to develop alternatives, such as automation, to low-skilled labor. (Had they conducted interviews on April 1, their results would have shown zero impact.) Milton Friedman rightly argues that “It takes time for firms . . . to shift to ways of doing things which place less reliance on unskilled labor.”
Yet another possible fault with their findings is the actual significance of the minimum- wage increase. At the time of the hike, two-thirds of the restaurants were already paying more than the minimum. In these cases the market had already provided lower-skilled workers with high wages.
Moreover, even if employment did increase in the fast-food industry when the minimum wage rose, this result is still not necessarily good for society. Economists David Neumark and William Wascher have found that an increased minimum wage will decrease the number of teens enrolled in high school and raise the proportion who are unemployed. Why this paradoxical result? The higher minimum encourages more skilled teens to drop out, while making it more likely that those who were already working will lose their jobs.
The dramatic conclusions of the Card-Krueger project contrast sharply with its poor quality. Observes economist Robert Barro: “An annoying feature of the Card-Krueger research is their eagerness to use their findings to discredit the law of demand. . . . It shows extraordinary arrogance to use tenuous empirical evidence . . . to proclaim the first documented case in which demand curves fail to slope down. A more reasonable view is that the demand curve is just fine, and the Card-Krueger empirical analysis needs repairs.”
Despite these numerous flaws and others, ever since it was released the Card-Krueger study has been repeatedly used by Democrat politicians to justify minimum wage increases. With the addition of Krueger to the vaunted Obama economic team, it’s not difficult to imagine the president proposing another hike in the job-killing minimum wage as his re-election campaign gears up. This would be disastrous, of course. In a couple posts two years ago, I discussed the devastating effect of minimum wage increases on unemployment in general, and youth unemployment in particular. In short, those most hurt by minimum wage laws, America’s youth, are already being hammered by the Obama economy as they suffer through the worst youth labor market since records began in 1948, as the Bureau of Labor Statistics reported last week:
From April to July 2011, the number of employed youth 16 to 24 years old rose by 1.7 million to 18.6 million, the U.S. Bureau of Labor Statistics reported today. This year, the share of young people who were employed in July was 48.8 percent, the lowest July rate on record for the series, which began in 1948. (The month of July typically is the summertime peak in youth employment.) Unemployment among youth increased by 745,000 between April and July, more than last year’s increase of 571,000, but well below the levels seen in 2008 and 2009 (1.2 and 1.1 million, respectively). (Because this analysis focuses on the seasonal changes in youth employment and unemployment that occur each spring and summer, the data are not seasonally adjusted.)
To be sure, I’m not aware of any current plans by Obama to raise the minimum wage again. However, given his demonstrable hostility to free markets, it’s not difficult to imagine him doing just that prior to next year’s election in an attempt to increase the youth vote. It’s not like he has anything else to run on. Further, Obama’s on record favoring an increase in the minimum wage to an absurd $9.50 an hour in 2011, then indexing it to inflation which, under his print, borrow, and spend economic policies, is expected to accelerate. How such an increase wouldn’t damage the labor market further is impossible to imagine…unless you’re Alan Krueger, that is. The addition of Krueger to his economic team certainly doesn’t give me the warm fuzzies.
Update: In 2009, Krueger advocated a $500 billion per year consumption tax. Fantastic.
Update II: (h/t votermom) Hilarious. Via Legal Insurrection, Obama needed two “heavy duty teleprompters” to deliver his three-minute speech introducing Krueger today.
Update III: The Washington Examiner Shares my concern with Krueger and the potential for another job-killing miminum wage increase (emphasis mine):
Don’t expect any new ideas from Krueger. He was among the architects of such economic stimulus failures as the “cash for clunkers” program. As The Washington Examiner’s Conn Carroll pointed out in Beltway Confidential, the clunkers initiative destroyed half a million functioning automobiles as a means of providing automakers a short-term boost in sales. Like all addictions, however, the clunkers fix soon wore off, leaving automakers with the same problem they had before: a recessionary economy and policies in Washington almost certain to prolong the misery.
Krueger first came to public notice during the Clinton years when he co-authored a study seeking to disprove the common-sense economic truth that minimum-wage increases make it more costly for employers to hire teenagers and other low-skilled workers, which means they hire fewer of them, thus driving up unemployment. Legions of liberal politicians and academics have endlessly quoted the Krueger study to challenge critics of higher minimum wages. So don’t be surprised if sometime in the near future Obama endorses minimum-wage increases as an incentive for job creation.