Saturday, December 3, 2016
Economism And Economic Inequality
"Economism" is part of the the title for a new book that explains how the simple supply and demand diagrams that explain almost everything in Economics 101 provide the basis for laws that shape the way society works to disadvantage of many citizens. A simple diagram of the supply and demand for labor is used to explain what the author means by "economism". The graph shows that putting a floor on wages by legislating a minimum wage reduce the demand for labor. Well meaning people who pass a minimum wage law are being harmful because such laws will increase unemployment. That, of course, is what the owners of low wage paying fast food chains argue when they oppose an increase in the minimum wage. It turns out, however, that the evidence is mixed about the relationship between an increase in the minimum wage and unemployment. There is not as much agreement among economists about the effect of minimum wage increases that have actually been legislated and the amount of unemployment. However, the simple supply and demand models that dominate in Economics 101 textbooks have had a powerful influence on what people, who have not gone beyond Economics 101, believe to be true. Economism is a powerful tool that is frequently used by the powerful and their supporters to justify economic policies that justify the levels of inequality that have been on the rise in much of the developed world. We can't repeal the law of supply and demand but we need to understand its limitations.