A Reminiscence about George Akerlof
How I persuaded George Akerlof to advocate a Nixon veto of a minimum wage increase.
I posted recently about Treasury Secretary Janet Yellen’s draconian proposal for surveilling bank accounts of high rollers who have an ingo or outgo of more than $10,000 per year. Writing about her brought to mind two interactions I had had with her husband, George Akerlof, in the summer of 1973. George is also an economist and he shared the Nobel Prize in economics in 2001 with Michael Spence and Joe Stiglitz.
In the summer of 1973, I was a summer intern at the Council of Economic Advisers under Herb Stein. My boss for the first few weeks of the summer was Robert Tollison. He and I got along very well and he recommended that I replace him for about a month that summer before his real replacement arrived for the next academic year. Surprisingly, Herb Stein said yes. So, at age 22, I was an acting senior economist. I got to go to meetings with people at the Assistant Secretary and Undersecretary level. I wasn’t a passive observer. I remember once, at a meeting with the Undersecretary of Transportation, taking on George Hay, chief economist at the Antitrust division of the Justice Department. I was really feeling confident. One day in August, when I was coming back to the Old (now Eisenhower) Executive Office Building after lunch, I saw a young man chaining his bicycle to the fence outside the building. He looked like a young Woody Allen. He seemed like a nice guy, and it turned out that I did end up liking him. I said hi and asked him where he was going. He told me that he was going to be working at the Council of Economic Advisers. “That’s where I work,” I told him. “Are you a summer intern?” As I said, he looked like a young Woody Allen.
“No,” he answered, “I’m going to be the senior economist for labor.” And he introduced himself to me as George Akerlof from UC Berkeley. He said, unprompted, that he was a Maoist. I took that with a grain of salt. I had already run into enough academics who claimed identities that didn’t seem to fit. It seemed like an “epater les bourgeois” approach.
A day or two later, I dropped by his office to chat. One of the hot issues was an increase in the minimum wage that both houses of Congress had passed and that Nixon would have to decide whether to veto. At the time the minimum wage was $1.60 an hour and the bill would have raised it to $2.20 an hour. I figured that George would recommend to Herb Stein that Herb recommend to Nixon that Nixon veto it. Economists generally, wherever they were on the ideological spectrum, thought minimum wages would put unskilled workers, especially black teenagers, out of work. James Tobin thought that, Paul Samuelson thought that, and Milton Friedman thought that. A standard example of a price floor that we taught in introductory economics classes was the minimum wage, with its unintended, but totally predictable, effects.
But I had learned not to assume. I asked George what he would recommend. He replied that he was leaning towards advocating that Nixon sign.
I didn’t hit the ceiling. I just calmly made the standard argument. George didn’t deny it, but the argument seemed to carry little weight with him. So I changed my strategy. I told him that this would be one of his first acts as the CEA’s labor economist and that he could be over 90 percent sure that, whatever Nixon did, Herb would recommend a veto. If George recommended signing, he would, with his first impression, lose a little credibility with Herb. Then we parted.
A day or two later, I ran into George and asked him if he had made a recommendation. Yes, he answered. “What was it?”, I asked. He answered, “I recommended a veto.”
Nixon did veto it in early September. Here’s his veto message.