Today is Frederich von Hayek’s 116th birthday. Hayek is probably best known for his book The Road to Serfdom, but his greatest contribution to the world is the description of what has become known as “the knowledge problem.”
In 1945, Hayek published in the American Economic Review his brilliant (and relatively short) essay The Use of Knowledge in Society. In it, he demonstrates how the particular knowledge of a time or space goes into economic decision making, and how central planning is so often doomed to fail because it doesn’t take into account these individual factors.
Hayek’s essay has had a profound effect on me. It is the primary reason I reject many of the macroeconomic policy solutions that are put forth by other economists. Heck, I might even be called a Keynsian if it weren’t for this. I do think government could, in a theoretical situation, enact policies and procedures that could boost economic growth. The problem is making them work for everyone, not just some people. No central planner, or committee, or Congress could possibly get all the knowledge necessary to make such a decision.
This applies to minimum wage, as well. There are countless arguments against minimum wage. Study after study has been conducting showing the negative effects of minimum wage (they number in the several hundred, at least). There are mountains of anecdotal, logical, and empirical evidence and yet, despite all this, the myth persists. In the past, I’ve argued against minimum wage on a moral level. Now, let me try on a Hayekian level:
A “one-size-fits-all” policy like minimum wage is incredibly foolish. Minimum wage, remember, is spread across everyone. Cost of living and wage rates vary incredibly across the nation, and even within states. $15/hr may be just right for Boston, but too low for New York City, and too high for Savannah. Heck, it might be just right for South Boston, too low for Back Bay, but too high for Dorchester. Some people will surely benefit from the minimum wage hike, but far too many (and typically the most vulnerable), will suffer as well.
As a (rather snarky) aside: I saw another study last night showing no link between the MMR vaccine and autism. Despite the preponderance of evidence out there, some people (including medical professionals), still believe the vaccine can cause autism. It’s good to know mine isn’t the only profession beset by pseudoscience and myth.