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Another Reason Presidents Shouldn’t Appoint Neoclassical Economists to the CEA

President Obama at budget meeting Roosevelt Room

Not content with publicly contradicting the President that hired her once, Christina Romer is at it again, criticizing the President’s minimum wage proposal. Romer first criticized the President for having the audacity to say that manufacturing was more important than say, retail trade. For Romer, the former head of the President’s Council for Economic Advisers (CEA) under Obama, this was apostasy. Didn’t Obama know that all industries are equal and picking manufacturing for support was industrial policy? And with this latest critique, Romer is joining on the neoclassical pile attacking the President’s proposal to raise the minimum wage; which if you are a card carrying neoclassical economist is mandatory, or else they don’t let you attend the next AEA meeting.

Of course, as I pointed out, neoclassical economists like Romer analyze the minimum wage through the lens of their narrow and misleading doctrine, leading them to believe it distorts markets and leads to fewer jobs. But from an innovation economics perspective, a modest increase in the minimum wage will boost productivity and will not lead to net job losses. Romer would instead have government expand the earned income tax credit which has the double negative effect of giving employers even less of an incentive to adopt labor saving technology to boost productivity and reducing tax revenues and raising the budget deficit. A higher minimum wage means higher productivity and higher tax revenues. So a memo to next president, regardless of your party: whatever you do make sure that you don’t appoint neoclassical economists to your CEA. In fact, as ITIF has argued, you should make sure that at least one of the three CEA positions is not even an economist. Appoint someone who actually knows about the real economy (as opposed to the economy expressed in calculus-laden models), for example, an individual with a doctorate from a business school.

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