We Are All Biased & Irrational

Back in May of 2014, Seattle passed legislation that would provide for a gradual increase in the minimum wage to $15 an hour.

Since then, a number of studies have been conducted and published, aiming to ascertain the efficacy of the legislation.

A study at the University of California at Berkeley concluded that the the minimum wage hike has been a success:

Our results show that wages in food services did not increase – indicating the policy achieved its goal – and our estimates of the wage increase are in line with the lion’s share of results in previous credible minimum wage studies. Wages increased much less among full-service restaurants, indicating that the employers made use of the tip credit component of the law. Employment in food service, however, was not affected, even among the limited-service restaurants, many of them franchisees, for whom the policy was most binding. These findings extend our knowledge of minimum wage effects to policies as high as $13.

Alternatively, a study done at the University of Washington comes to a much less optimistic conclusion:

Using a variety of methods to analyze employment in all sectors paying below a specified real hourly rate, we conclude that the second wage increase to $13 reduced hours worked in low-wage jobs around 9 percent, while hourly wages in such jobs increased by around 3 percent. Consequently, total payroll fell for such jobs, implying that the minimum wage ordinance lowered low-wage employees’ earnings by an average of $125 per month in 2016. Evidence attributes more modest effects to the first wage increase. We estimate an effect of zero when analyzing employment in the restaurant industry at all wage levels, comparable to many prior studies.

Clearly, both conclusions can’t be correct. So, how to we determine whether the $15 minimum wage had a beneficial or deleterious impact on the Seattle labour market?

The difficulty lies in the fact the economics is prone to bias. We think that our views are based on reason, logic, and empiricism, but in reality, our biases heavily influence our views and conclusions. Minimum wage legislation is a politically contentious issue, and as such, subject to personal bias from a variety of political persuasions.

Those who support the $15 minimum wage will cite the University of California study which shows that low-skill workers were not negatively affected by the legislation. Those who oppose it will refer to the results of the University of Washington study, as proof that it failed in its objective in elevating the living standards of those working low-skill jobs.

It would be frustratingly difficult to convince each side to put their biases aside and submit to the results of empirical studies; the emotional baggage that accompanies the discourse is far too overwhelming for people. Logic and reason take a backseat.

On the macro level, you have the well-known examples of the communists and libertarians.

Socialists will argue for socialism as an economic system despite many decades of empirical evidence demonstrating its abysmal failure. What is their secret weapon they invoke when confronted with the cold hard facts? The answer is the no true Scotsman fallacy.

Whenever a socialist is confronted with the harsh truth, he immediately responds by saying “Ahh, yes, the Soviet Union, China, and Cambodia all failed miserably and caused the deaths of millions, but that wasn’t real communism. Real communism has never actually been tried!”

Similarly, libertarians will make excuses for any market failure by saying “But we aren’t living in a true free market! All of this is a result of government meddling in private business. If we were living in a true free market these stock market crashes, recessions, and outrageous wealth disparities would disappear!”

This is why the truth is hard to come by; our inherent biases cloud our judgement and impede us in our quest to determine truth from falsehood.

Few people can stomach having their worldview subjected to alternative facts. It’s painful to have your biases torn to shreds in the presence of unassailable empirical data, because you may have to admit that you’re wrong. Unsurprisingly, most choose to retreat to the solace of their ideological echo chambers.

However, pursuing truth at whatever cost and wherever it may lead you, is profoundly liberating. While it’s painful in the beginning, unlearning what you have learned (and now know to be false) will make you much more stronger as a person and less likely to be indoctrinated and irrational.

Always strive to talk to people who don’t agree with you and read books by those who you despise. There really is no harm in trying to understand why other people think differently than you. There is fear, however, because they might change your mind about things you hold dear to your heart.

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