Laying the Groundwork for
Thinking about Liberty
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As we know, there are known knowns.
There are things we know we know.
We also know there are known unknowns.
That is to say, we know there are some things we do not know.
But there are also unknown unknowns:
the ones we don't know we don't know.
—Feb. 12, 2002, Department of Defense news briefing
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Laying the Groundwork for
Thinking about Liberty
~ or ~
One misguided zealot can wreak more
havoc than a roomful of idiots.
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Things students believe are true.
Misconception
Knowledge

Things that are true.
The Unknown
3.14
33% of UK adults believe that Mount
Everest is in Europe.
– National Geographic, 2007
61% of American adults either do not
believe in evolution or have no opinion.
– Gallup, February 2009
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What We Think We Do
Misconception
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Knowledge
The Unknown
What We Really Do
Misconception
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Knowledge
The Unknown
Misconceptions Are the Enemy
(a real conversation)
As wages rise, more
people enter the
labor market.
Cool.
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Misconceptions Are the Enemy
As wages rise, firms
cut back on hiring.
Got it.
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Misconceptions Are the Enemy
Therefore, price
floors create
surpluses.
No problem.
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Misconceptions Are the Enemy
So, a minimum wage
causes
unemployment.
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But we need a
minimum wage
because companies
would pay zero if we
let them.
Misconceptions Are the Enemy
Misconception
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Knowledge
The Unknown
What We Need To Do
Misconception
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Knowledge
The Unknown
How Do We Dispel Misconceptions?
1. Data
2. Demonstrations
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Shameless
plug
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College Education (1978-2008)
4.0%
3.5%
Unemployment Rate
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
0.3
0.32
0.34
0.36
0.38
0.4
0.42
Minimum Wage as Fraction of Average Hourly Wage
Data source: Statistical Abstract of the United States, and Bureau of Labor Statistics
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0.44
0.46
HS Education (1978-2008)
12.0%
Unemployment Rate
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
0.3
0.32
0.34
0.36
0.38
0.4
0.42
Minimum Wage as Fraction of Average Hourly Wage
Data source: Statistical Abstract of the United States, and Bureau of Labor Statistics
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0.44
0.46
Less than HS Education (1978-2008)
20.0%
18.0%
Unemployment Rate
16.0%
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
0.3
0.32
0.34
0.36
0.38
0.4
0.42
Minimum Wage as Fraction of Average Hourly Wage
Data source: Statistical Abstract of the United States, and Bureau of Labor Statistics
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0.44
0.46
How Do We Dispel Misconceptions?
1. Data
2. Demonstrations
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Workers
Firms
Find a firm willing to hire you at
whatever price you can negotiate.
Hire workers at whatever price you
can negotiate.
Goal: Get the highest wage you can.
Goal: Maximize profit.
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Firms
Each firm gets a chart like this. The chart is the firm’s factory.
Workers Hired
Output Produced
0
1
2
3
4
5
6
7
8
9
10
11
12
0
10
14
17
20
22
24
26
28
30
32
33
35
Revenue from
Sales of Output
$0
$40
$56
$68
$80
$88
$96
$104
$112
$120
$128
$132
$140
Labor
Cost
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
$110
$120
Profit
$0
$30
$36
$38
$40
$38
$36
$34
$32
$30
$28
$22
$20
Each unit the firm produces is automatically sold for $4.
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Suppose you can negotiate a price of $10 per worker.
Workers Hired
Output Produced
0
1
2
3
4
5
6
7
8
9
10
11
12
0
10
14
17
20
22
24
26
28
30
32
33
35
Revenue from
Sales of Output
$0
$40
$56
$68
$80
$88
$96
$104
$112
$120
$128
$132
$140
Labor
Cost
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
$110
$120
All the workers will be hired  0% unemployment.
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Profit
$0
$30
$36
$38
$40
$38
$36
$34
$32
$30
$28
$22
$20
Now, impose a minimum wage of $15 per worker.
Workers Hired
Output Produced
0
1
2
3
4
5
6
7
8
9
10
11
12
0
10
14
17
20
22
24
26
28
30
32
33
35
Revenue from
Sales of Output
$0
$40
$56
$68
$80
$88
$96
$104
$112
$120
$128
$132
$140
Labor
Cost
$0
$15
$30
$45
$60
$75
$90
$105
$120
$135
$150
$165
$180
Only half of the workers will be hired  50% unemployment.
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Profit
$0
$25
$26
$23
$20
$13
$6
($1)
($8)
($15)
($22)
($33)
($40)
This demonstration can be done in 20 minutes and students
immediately “get” two important lessons:
1. Minimum wage causes unemployment.
2. Left alone, firms will not pay zero.
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Demonstration and data remove misconceptions,
opening the mind to more knowledge.
Misconception
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Knowledge
The Unknown
Inoculate Against Misconceptions
Economic misconceptions are usually the
result of pride and prejudice.
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Prejudice
• Humans who work in the private sector are greedy.
• Humans who work in the public sector are altruistic.
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Truth
• The same humans with the same strengths, failings, and
desires occupy both sectors.
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Schizophrenic Voters
• The same people you claim are selfish in the marketplace
you also claim are selfless in the voting booth.
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Addict Voters
• People want to be forced to do the right thing!
Save us!
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Pride
• Economic truths are opinion.
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Truth
• The whole point of economic theory is to describe the real
world.
• Disconnects arise not from a failure of economics but from
a lack of understanding of what economics is telling us.
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Pride
• Unwillingness to admit limitations.
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Truth
• It is impossible for an economy to provide everything that
everyone wants.
• Corollary: A majority vote does not bestow magical
powers to circumvent limitations.
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What is the point?
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What We Need To Do
Dispel misconceptions with
data and demonstration.
Less than HS Education (1978-2008)
20.0%
18.0%
Unemployment Rate
16.0%
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
0.3
0.32
0.34
0.36
0.38
0.4
0.42
0.44
0.46
Minimum Wage as Fraction of Average Hourly Wage
Misconception
Workers Hired
Output Produced
0
1
2
3
4
5
6
7
8
9
10
11
12
0
10
14
17
20
22
24
26
28
30
32
33
35
Revenue from
Sales of Output
$0
$40
$56
$68
$80
$88
$96
$104
$112
$120
$128
$132
$140
Labor
Cost
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
$110
$120
Knowledge
The Unknown
Profit
$0
$30
$36
$38
$40
$38
$36
$34
$32
$30
$28
$22
$20
Inoculate by warning against
pride and prejudice.
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