Cleo McVicker was a soapmaker in Cincinnati. And then came the Great Depression. McVicker’s company was reeling by 1933. He pitched Kroger, a grocery chain, a product that would clean wallpaper and not damage it. McVicker created a water-, flour-, and salt mixture that Kroger agreed to. It worked, but it was not a big commercial hit.
In the 1950s, many households switched from coal furnaces to gas or oil. No more was sooty wallpaper a major concern. Cleo McVicker, Joseph’s father, was desperate to save the family business. A relative told Joseph that schoolchildren enjoyed playing with the squishy cleaner. He reinvented it. Play-Doh continues to be a top seller.
Switcheroos and inventions are quite common. Viagra originated as an angina medication. Before it reached the kitchen, Teflon was employed in nuclear weapons and artillery fusery. Before the internet became an avenue for academics and military contractors to exchange information, it was also a way for them to sell Viagra and Play-Doh.
Repurpose ideas, too. The Nobel Prizes for Economics this year were given to David Card of Berkeley and Joshua Angrist of Massachusetts Institute of Technology. Guido Imbens of Stanford was also awarded. They were honored by the Nobel committee for their contributions to economic analysis through modeling and popularity of natural experiments. Card was the most prominent of these, having co-written a highly cited paper. PapierOn the labour-market implications of the minimum wage
This issue was studied thoroughly before Card and Alan Krueger published their paper in 1994. American Economic ReviewIt is. Card and Krueger’s approach is unique because they didn’t create an intricate national model with many variables that could or might not be independent. They instead used natural experiments. New Jersey and Pennsylvania are two states that share many similarities. They made very different policies. The first raised the minimum wage it required by its state. But the latter did. Contrary to popular economic wisdom, New Jersey saw a rise in employment at fast-food outlets after the minimum wage increase.
They have been cited numerous times. This conclusion seems to be spurious. Two other economists, William Wascher and David Neumark, used a larger set of data to run the “natural experiment”. ConclusionNew Jersey was actually less popular for fast-food than Pennsylvania, according to the latest minimum-wage increase. These scholars continue to debate the minimum-wage effect and other issues.
This doesn’t mean Card or the other scientists don’t merit praise for using natural experiments to provide useful analysis tools. For me, I am grateful they did this. In the decades that followed, many have used this tool to argue for limited government.
Two years ago, after the publication of the Card-Kreeger study, it was published again. American Economic ReviewPublished a PapierJames Hines, University of Michigan. This experiment used another natural phenomenon: taxation. Companies based abroad invested in American business operations and owed the U.S. the same tax as American-based businesses. Companies in certain countries received tax credits that offset American tax liability. This made it less expensive for these companies to choose among American states which have different tax rates. Hines isolated the effect of tax policies by comparing the foreign-based company behavior with all other businesses. According to Hines, corporate tax rates have a significant impact on the foreign investment location.
Similar results were obtained in 2004 StudyPlease see the following: Public Finance ReviewRandall Holcombe, Florida State University, and Ohio University’s Donald Lacombe examined groups of counties located along state lines. The natural experiment was performed among the contiguous counties when some states raised their taxes and others didn’t. Holcombe & Lacombe observed that, over a period of 30 years, income growth was slower in counties where taxes were raised than it was for neighboring counties.
Terra McKinnish of University of Colorado has returned to the minimum wages in 2017 StudyFor the journal Urban Economics and Regional ScienceThis is a. McKinnish examined the effects of a 2007–2009 increase in the federal minimum wage, from $5.15 to $7.25 an hour. Since some states set lower minimum wages than those in the federal, McKinnish found that the federal raise had an effect on reducing differences between state wage floors, at least temporarily. Using a differences-in-differences approach, McKinnish found strong evidence that in places with substantial commuting across state borders for jobs, “low-wage workers tend to commute away from minimum wage increases rather than towards them.” Progressives have claimed this for decades, using less convincing research methods.
I’m not so naïve as to believe contentious political debates about taxes, regulations, or other public policies can be settled by a few innovative studies in peer-reviewed journals. Political disputes are usually rooted in deeply held beliefs and assumptions. They do not stem from research findings. Oren Kass, an adroit observer in 2017’s “2017” report noted that political disagreements often stem from implicit assumptions and deeply held values. EssayPlease see the following: The National InterestPoliticians who assert that they are “evidence-based” in their policymaking can often be found guilty of “policy based evidence-making.” They amplify preconceptions by presenting research findings that support them and then downplay or completely ignore any contrary evidence.
However, empirical evidence accumulates over time. Since the 1990s, many peer-reviewed studies on economic performance between states and localities support classic liberal views. They are there because I and my colleagues have counted them. Washington’s finances are still in disarray, but many governors and legislatures have taken fiscal responsibility and adopted progrowth tax and regulatory policy. In part this was a response to effective arguments by activists and think tanks citing the kind of research I’ve summarized here—research that exists at greater scale and sophistication precisely because of the kind of analysis Card and his colleagues pioneered.
It doesn’t really matter that such an outcome wasn’t their intent. I have just cited Oren Cass (an analyst who has deviated from the free market ideas) as a positive example. Although he is wrong about many economic issues, it doesn’t negate the value of his earlier insights on policymaking’s perils. Even though Card and Krueger were progressives who championed their original work, the method proved to be quite useful for all of us.