I’ve long been a lurker on r/kitchenconfidential. I did a few brief tours in the service industry when I was younger and my partner used to manage a successful upscale restaurant. If you’ve spent anytime in a restaurant after closing in the last ten years, then you probably aren’t surprised by the continuing labor shortage in the service industry. Things have been bad for a while, with a pervasive sense that the industry was dependent on employees with weak outside options (i.e. a criminal record) or high exit costs (i.e. can’t afford to be on entry-level wages in a new career track). As I’ve written before, we’ve been eating on borrowed time: the pandemic game shifted the calculus for a lot of marginal employees who have left the service industry and likely aren’t coming back. The service industry is important, but not such that a great reorganization is likely to have catastrophic short term consequences for broader society.

Which bring us to nursing.

Nurses are burned out.

If the daily threads at on r/nursing subreddit are even mildly representative, the status quo in nursing is unsustainable. It’s not just that the job has become more dangerous, more tiring, and less rewarding. Tough jobs exist all over the place, with employees taking them on in return for higher wages than they might otherwise enjoy. No, the bigger problem in nursing is that it is not what these people signed up for. It has become dangerous and unrelentingly exhausting. It requires increasingly greater education and training that is highly specialized, with little in the way of outside options likely to reward that education and training. Can you think of a job with equivalent background requirements, that places the same physical demands on you, and forces you to interact at a personal level in the general population? I can’t, and if you did, I can almost guarantee that the pay is considerably higher.

The broad shortage of nurses in the US has gotten a fair amount of attention. That article points to a lot of causes, most entirely valid (the idea that travel nurses are a cause, rather than symptom, of the nursing shortage is silly, but we’ll let that slide- the broader point stands), but this is one of those cases where it seems to me the diagnosis is best kept simple: nursing has become a worse a job, in part because of the pandemic, and that has tipped the cost benefit analysis towards labor exiting.

While cooks and nurses decided that the pandemic was a good time to get out, let’s not make the mistake of ignoring one of the most martyred vocations in the US.

Teaching sucks, and this time they mean it.

You could go to r/teachers and read the resignation posts, but there isn’t a lot of new information to be gleaned. Everyone knows teachers are undervalued and underpaid. I was a public school teacher for two years, and I endured lots of third drink questions of “Why?” to go along with daily complaints about pay and “continuing education” requirementss with my colleagues. The rate of exit, was pretty predictable. More than half of teachers left the profession in their first 5 years, the rest stayed for life.

I’ll wait for the data to come out before I make broad pronouncements, but this wave of resignations could be different. If we lose a generation of teachers (>80% of those in their first 5 years), there really will be a massive shortage down the road. The pandemic is interesting because it’s taught us two things:

1. Online teaching is inferior
2. The value of schooling as “mass daycare” is hard to overstate

If we step into massive teaching shortage five years down the road, there’s not going to be a “scale education online” solution. The only solution will be to raise compensation for teachers and bring labor into the industry and, well, the failure to raise teaching salaries is maybe the single greatest of example of the divergence between what people publicly support and what they actually vote for. A mass teacher shortage would certainly given teachers unions across the country the opportunity to negotiate better pay scales, but I’m cynical enough to expect they will find a way to waste it on even more job security for their worst members while ensuring that the best teachers still never see a dime in extra compensation. But hey, prove me wrong, yeah know?

What do Cooks, Nurses, and Teachers have in common?

I can’t help but see what these three vocations have in common in the US labor market – a frequent sense of being trapped. Sure, working grill for $15/hour might not sound like something you couldn’t bring yourself to leave, but if you’re 34 with a high school diploma, a felony drug arrest, and a mortgage to pay, the intermediate stage between the status quo and something better might not seem so great. No, you did not enjoy being threatened by a patient who backed you into a corner and told you he “knows what you are trying to inject in him”, but you have a masters degree in nursing, which makes the pay gap between nursing and not nursing a miserable prospect, especially if you’re going to pay off the student loans that got you the job that makes you miserable. You know you essentially can’t be fired, but you’ve also seen the pay scale by seniority, and the prospect of teaching 5th grade for 25 more years fills you with a dark melancholy you did’t know possible. But your degree is in teaching, which essentially means you’d have to find a way to start from scratch at twenty-six. Or thirty-three. Or forty-one.

But then the pandemic happened and everything you already hated got even worse. So you did it. You quit.

But how many of you quit? How many of you are laying out your exit strategy? What will these industries look like in 2 years? We won’t know for a while, but I do think we’re going to learn which industries have been dependent on squeezing every ounce of juice out of trapped labor pools (with what you might call actual monopsony power), versus those industries where the standard “work sucks” complaints simply get more attention for whatever reason.

Personally, I’m betting on two out of the three, but I’m not telling you which two. Working in two of these industries is going to look very different in the wake of the pandemic, both in terms of labor characteristics and compensation. And one will just return to the previous normal, like it never happened.

It’s a debt we will never be able to pay back, but that doesn’t mean we shouldn’t keep trying.

David Friedman recently got into an online debate with Walter Block that could be seen as a boxing match between “Austrian economics” and the “Chicago School of Economics”. In the wake of this debate, Friedman assembled his thoughts in this piece which is supposed (if I understand properly) to be published as a chapter in an edited volume. Upon reading this piece, I thought it worthy of providing my thoughts in part because I see myself as being both a member of both schools of thought and in part because I specialize in economic history. And here is the claim I want to make: I don’t see any meaningful difference between both and I don’t understand why there are perpetual attempts to create a distinction.

But before that, let’s do a simple summary of the two views according to Friedman (which is the first part of the essay). The “Chicago” version is that you can build theoretical models and then test them. If the model is not confirmed, it could be because a) you used incorrect data, b) relied on incorrect assumptions, c) relied on an incorrect econometric specification. The Austrian version is that you derive axioms of human action and that is it. The real world cannot be in contradiction with the axioms and it only serves to provide pedagogical illustrations. That is the way Friedman puts the differences between the schools of thought. The direct implication from this difference is that there cannot be (or there is no point to) empirical/econometric work in the Austrian school’s thinking.

Now, I understand that this is the viewpoint shared by many — as noticed by a shared distrust of econometrics and mathematical depictions of the economy among Austrian-school scholars. In fact, Rothard was pretty clear about this in an underappreciated book he authored, the A History of Money and Banking in the United States. But I do not understand why.

After all, all models are true if they are logically consistent. I can go to my blackboard and draw up a model of the economy and make predictions about behavior. That is what the Austrians do! The problem is that predictions rely on assumptions. For example, we say that a monopoly grant is welfare-reducing. However, when there are monopolies over common-access resources (fisheries for example), they are welfare-enhancing since the monopoly does not want to deplete the resource and compete against its future self. All we tweaked was one assumption about the type of good being monopolized. Moreover, I can get the same result as the conventional logic regarding monopolies by tweaking one more assumption regarding time discounting. Indeed, a monopoly over a common access resource is welfare-enhancing as long as the monopolist values the future stream of income more than than the future value of the present income. In other words, something on the brink of starvation might not care much about not having fish tomorrow if he makes it to tomorrow.

If I were to test the claims above, I could get a wide variety of results (here are some conflicting examples from Canadian economic history of fisheries) regarding the effects of monopoly. All of these apparent contradictions result from the nature of the assumptions and whether they apply to each case studied. In this case, the empirical part is totally in line with the Austrian view. Indeed, empirical work is simply telling which of these assumptions apply in case X, Y, or Z. In this way of viewing things, all debates about methods (e.g. endogeneity bias, selection bias, measurement, level of data observation) are debates about how to properly represent theories. Nothing more, nothing less.

It is a most Austrian thing to start with a clear model and then test predictions to see if the model applies to a particular question. A good example is the Giffen-good. The Giffen good can theoretically exist but we have yet to find one that convinces a majority of economist. Ergo, the Giffen good is theoretically true but it is also an irrelevant imaginary pink unicorn. Empirically, the Giffen good has simply failed to materialize over hundreds of papers in top journals.

In fact, I see great value to using empirical work in an Austrian lens. Indeed, I have written articles (one is a revise and resubmit at Public Choice, another is published in Review of Austrian Economics and another is forthcoming at Essays in Economic and Business History) using econometric methods such as difference-in-difference and a form of regression discontinuity to test the relevance of the theory of the dynamics of interventionism (which proposes that government intervention is a cumulative process of disequilibrium that planners cannot foresee). n each of these articles, I believe I demonstrated that the theory has some meaningful abilities to predict the destabilizing nature of government interventions. When I started writing these articles, I believed that the body of theory I was using was true because it was logically consistent. However, I was willing to accept that it could be irrelevant or generally not applicable.

In other words, you can see why I fail to perceive any meaningful difference between Austrian theory and other schools of economic thought. For year, I realized I was one of the few to see like this and I never understood why. A few months ago, I think I put my finger on the “why” after reading a forthcoming piece by my colleague Mark Koyama: Austrians assume econometrics to be synonymous with economic planning.

I admit that I have read Mises’ Theory and History and came out not understanding why Austrians think that Mises admonished the use of econometrics. What I read was more of the domain of the reaction to the use econometrics for planning and policy-making. Econometrics can be used to answer questions of applicability without in any way rejecting any of the Austrian framework. Maybe I am an oddball, but I was a fellow Austrian traveler when I entered the LSE and remained one as I learned to use econometrics. I never saw any conflict between using quantitative methods and Austrian theory. I only saw a conflict when I spoke to extreme Rothbardians who seemed to conflate the use of tools to weigh theories and the use of econometrics to make public policy. The former is desirable while the latter is to be shunned. Maybe it is time for Austrians to realize that there is good reason to reject econometrics as a tool to “plan” the economy (which I do) and accept econometrics as a tool of study and test. After all, methods are tools and tools are not inherently bad/good — its how we use them that matters.

That’s it, that’s all I had to say.