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.
READER COMMENTS
Jerry Brown
Oct 27 2021 at 5:59pm
It is an interesting story, as are most of your posts. But it is not so flattering to Mr. Ackerlof that you credit his switching positions to your appeal to his self interest as far as his standing in the job he held.
David Henderson
Oct 27 2021 at 6:55pm
You wrote:
Thanks, Jerry.
You wrote:
Actually, I don’t quite credit it to that. People make decisions based on multiple inputs. Maybe he had time over the next day or two to realize that in this kind of job, the rubber meets the road, and it’s not like being in some academic (in the worst sense of the word) discussion at Berkeley. Maybe it was because he bought my view about his credibility with Herb. But even if it was the latter, that doesn’t necessarily speak badly of him. It does speak badly if it was just credibility and that meant going against his true belief that the minimum wage should be increased. But it doesn’t speak badly if it’s that he realizes that there is a case against the minimum wage that he buys to some extent, combined with the credibility point.
I don’t know enough to judge. I just found it interesting.
Jerry Brown
Oct 28 2021 at 1:47am
One of the things I admire about you Professor Henderson is that you always seem to try to be kind or nice. This is a great quality and something I try to emulate myself. I fail occasionally, but trying to be kind does seem to result in kindness more often than not. I think kindness is often a very underrated quality.
Now I would argue with you about the effects of minimum wage laws and whether economists have always accurately understood or predicted or portrayed those effects. But it probably will just end up where we disagree to some extent. But maybe not about that particular instance.
It was nice of you to defend Mr. Akerlof from the observation I made in my previous comment. And of course you are probably right there.
David Henderson
Oct 28 2021 at 9:59am
Wow, Jerry. I just got up half an hour ago, but you’ve already made my day. Thank you.
rsm
Oct 29 2021 at 2:25pm
Were you both simply convenient tools providing cover for an arbitrary, fickle political agenda?
Why didn’t you support drug legalization so blacks had more entrepreneurial opportunities to pay themselves higher wages?
http://www.rapidshift.net/powell-memorandum-call-to-arms-for-corporations/
《“The Nixon campaign in 1968, and the Nixon White House after that, had two enemies: the antiwar left and black people. You understand what I’m saying,” added Ehrlichman, who died in 1999.
“Did we know we were lying about the drugs? Of course we did,” he said.》
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