As readers of this blog know, I often respond to pro-mimimim-wage arguments by advising those who make such arguments to put their money where their mouths are.  Specifically, whenever I encounter the assertion that minimum-wage legislation is justified because employers of low-skilled workers allegedly possess monopsony power, I point out to those who assert the existence in reality of monopsony power as a reason to impose a minimum wage that their assertion implies the existence of profit opportunities for anyone who enters the market to hire away these allegedly underpaid workers.  So I ask those who assert that monopsony power is real and relevant to start their own businesses to give solid evidence of the strength of their belief.

The typical response to my suggestion is hostile.  “Oh that’s silly!  I’m a college professor / graduate student / newspaper pundit,” the typical such minimum-wage proponent retorts.  “I have no special ability to launch a real-world business.”

Well I’ve solved the problem for those professors and pundits who believe that monopsony power exists but who also are too inept to undertake the challenging tasks of operating real-world businesses.  I  know a very successful and savvy businessman in California, Mike Long – a man of enormous integrity and experience – who stands ready to share with you his time, expertise, and counsel in order to guide you in starting and operating your own businesses.  All you need do is to supply some of your own seed capital – say, a minimum of $25,000 – and Mike will help guide you to launch and run your business in order to take advantage of the profit opportunity that your identification of monopsony power implies is available for the taking.  Mike can even share with you his knowledge of how to get from the capital markets any additional financing you might need.

So I challenge Paul Krugman, Daniel Kuehn, Alan Manning, Aaron the Aaron, and any other person who believes that monopsony power is real and relevant enough to justify minimum-wage legislation to now act on his or her stated belief about the real world.  No longer do these minimum-wage proponents have the excuse that their inexperience prevents them from acting on their unique insights into prevailing market conditions.  Mike Long will guide them, including guiding them to find skilled and experienced executives to do the day-to-day operations of their business.  All they need to do is to supply three things – (1) that which they already insist that they possess, namely, the ability to identify the existence in reality of real and relevant monopsony power, (2) a substantial-enough sum of money to seed the company that they’ll launch to seize the available profits, and (3) some of their time talking with Mike to get their profit-bound ship to actually set sail on the market’s waters.

I’m serious.  To any business-inept scholar who nevertheless believes himself or herself sufficiently expert to have identified profit opportunities that other skilled business people continue to overlook I say: contact me with your interest and I’ll put you in touch with Mike Long.  If you are correct about the reality of monopsony power, you’ll become richer at the same time that you help to bid up the wages of workers who you believe are currently underpaid.

Of course, though, if you refuse to put your money where your mouth is, please stop proposing that government interventions that put the livelihoods of innocent people at risks based upon your beliefs that you refuse to back with something of substance of your own.

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Quotation of the Day…

by Don Boudreaux on July 30, 2015

in Myths and Fallacies

… is from page 1 of Thomas Sowell’s 2009 volume Intellectuals and Society:

Intellect is not wisdom.

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My Mercatus Center colleagues Veronique de Rugy, Nita Ghei, and Michael Wilt argue that that great geyser of cronyism, the U.S. Export-Import Bank, should not be resurrected.

The market is a process – a reality that, by encouraging market-improving innovations, reduces the alleged need for government intervention to improve the operation of markets.  Fred Foldvary and Eric Hammer explain in this new paper from the Mercatus Center.

I thank my colleague Alex Tabarrok for putting up at Marginal Revolution my recent Everyday Economics video on so-called ‘fair trade’ – and for the accompanying quotation from William MacAskill.

At Philly.com today I argue that Uncle Sam should abolish his prohibition on oil exports from the land of the free.  (There are other arguments to be made, and elaborations on the arguments that here are made.  But space for an op-ed is small.)

Richard Ebeling argues for the fundamental freedom to move.

David Henderson is adding more of his excellent biographies of economists to his indispensable Concise Encyclopedia of Economics.

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… is from page 152 of the 1991 Liberty Fund edition of Bruno Leoni’s brilliant 1961 volume, Freedom and the Law:

History evidences the fact that legislation does not constitute an appropriate alternative to arbitrariness, but that it often ranks alongside the vexatious orders of tyrants or of arrogant majorities against all kinds of spontaneous processes of forming a common will….

From the point of view of the supporters of individual freedom it is not only a question of being suspicious of officials and rulers, but also of legislators.

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Mencken Understood Politicians

by Don Boudreaux on July 28, 2015

in Politics

Here’s a letter to the Wall Street Journal:

The opening of Holman Jenkins’s most recent column – “Hillary Clinton would string syllables together in any order if she thought it would get her to the White House” – is reminiscent of (if a bit less graphic than) H.L. Mencken’s observation about FDR seeking reelection in 1936: “If he became convinced tomorrow that coming out for cannibalism would get him the votes he needs so sorely, he would begin fattening a missionary in the White House yard come Wednesday.”*

It must never be forgotten that the typical politician’s first and foremost – and too often only – object is to gain and keep office.  Honesty, decency, and genuine civility and humility be damned.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030

* Quoted on page 430 of Marion Elizabeth Rodgers’s 2005 biography, Mencken: The American Iconoclast.

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morganovich e-mailed me after reading my most-recent note in response to Aaron the Aaron.  Here’s the bulk of morganovich’s e-mail, shared here with his kind permission (original emphasis):

If I may, I’d like to propose another line of reasoning:

It is precisely the fact that (as all seem to agree) that these academics “have no skills to run a business” that renders them unqualified to render judgements about the monopsony power of such businesses.

It seems we have 2 possible states of the world:

1.      Academics understand business, its decisions, its challenges, and what the world looks like from a CEO or a HR chair.  in such a case, they would seem qualified to speak to the power such a business has around hiring.  however, also in such a case, they can (justly) be taken to task for failing to put their money where their mouth is.  if this great opportunity exists and they understand the space well enough to see it, then failing to do something about it (even if it’s just consulting or joining a board) does seem to render the sincerity of their claims highly suspect.

2.      Academics do not understand business, its challenges etc and have NO IDEA what the world looks like from the operating side.  in such a case, they are speaking of something they have just admitted they do not understand.  their beliefs about monopsony may well be utterly sincere, but there is no reason why we ought to give them much credence.  they have already told us these are the beliefs of someone who does not understand the subject matter.  I may have some very sincere beliefs about how to remove a tumor.  but, before taking my advice, any sane individual might ask “have you ever performed surgery?”  and upon receiving my response in the negative, quite reasonably choose to heavily discount my advice and instead rely upon someone with actual experience.

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My colleague Dan Klein pleads, in Modern Age, with friends of liberty and true liberalism to stop calling proponents of the widespread use of state power “liberals.”  A slice:

The term liberal has always had an abundance of positive connotations: generous, open-minded, tolerant, big-hearted. Centuries ago people who were at liberty had occasion to pursue arts and studies; thus there developed the concepts of the liberal arts, the liberal sciences, and the liberal professions. Liberal has an obvious connection to liberty. And still, when we speak of freeing up restrictions, we speak of “trade liberalization” and liberalization of policy generally. All told, to oppose “liberals” almost seems tantamount to opposing modern, open civilization.

In this new and important paper, Cato’s Chris Edwards explains why the federal government so consistently fails.  A slice:

The bulk of the study describes five sources of federal failure. These include (a) reliance on top-down coercion, (b) lack of knowledge, (c) misaligned political incentives, (d) misaligned bureaucratic incentives, and (e) the government’s huge size. The study concludes that the only way to substantially reduce failure is to downsize the federal government.

My colleague Bryan Caplan – an intellectual with an unusual and happy willingness to put his money where his mouth is – offers to bet that many conservatives are mistaken about the future of Iran’s nuclear arsenal.

Jeffrey Tucker argues that race relations are far more likely to be worsened by politics than by markets.

Daniel Bier argues that New York state effectively orders that many low-skilled workers in fast-food restaurants be replaced with machines.  (I reckon that such a government-issued diktat is in its own way progressive.)

Richard Epstein explains that Hillary Clinton’s proposed scheme to change the manner of taxing capital gains is upside down.  (HT Steve Pejovich)  A slice:

Revenue consequences aside, Clinton is wrong to think that the best way to monitor a weak investment is for rich investors to be prepared to go down with the ship. Most individuals, however wealthy, have only the tiniest sliver of ownership in any large corporation, and thus have little incentive to monitor its performance given their high private costs. But selling shares, which puts a downward pressure on the firm’s value, is a wonderful way to attract the attention of insiders that something is wrong. It also increases the possibility that new share buyers will have a sufficiently large block of stock such that they will be in a better position to deal with the shortcomings of the existing corporate culture.

How hard and effectively do Americans work?  James Agresti has some answers.

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Here’s a letter to the Wall Street Journal:

Here’s a question prompted by your report on Hillary Clinton’s plan to remake the U.S. energy sector (“Hillary Clinton Sidesteps Keystone in Climate Plan Rollout,” July 27): Regardless of who mishandled classified e-mails on Mrs. Clinton’s private server, and regardless of how and why such mishandling occurred – whether through carelessness, recklessness, or mischief – why should someone who cannot ensure the proper use of a single private server be trusted with the colossal power necessary to design and to oversee the remaking of a trillion-plus dollar sector of the U.S. economy (a sector, by the way, in which this person has zero experience)?

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030

And keep in mind that Clinton proposes not only to oversee the remaking of the energy industry, she proposes to do so while also restructuring corporate governance and engineering other parts of society at the same time.  She – like the typical politician – fancies herself to be god-like; such a fancy means that in fact she is much closer in reality to being devilish.  No one with such delusions is to be trusted.  No one.

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Quotation of the Day…

by Don Boudreaux on July 28, 2015

in Hubris and humility, Other People's Money

… is from page 3 of Eric Hoffer’s 1979 volume, Before the Sabbath:

One of the surprising privileges of intellectuals is that they are free to be scandalously asinine without harming their reputation.

The best explanation, in my opinion, for why this sad state of affairs exists can be found in Geoff Brennan’s & Loren Lomasky’s pioneering 1993 volume, Democracy and Decision and in my colleague Bryan Caplan’s equally path-breaking 2007 volume, The Myth of the Rational Voter.

That reason is this: whenever people get to hold and express beliefs free of personal charge, or at a personal discount, they are prone to hold and express beliefs reached carelessly and seldom reconsidered in light of new evidence or arguments.  People in their capacities as intellectuals, voters, politicians, and government administrators each, individually, are called upon to express (and often to actually act upon) opinions the costs and benefits of which are spread our over the lives of many strangers.  (It’s the worst negative externality in reality.)  The privilege (as Hoffer sarcastically calls it) of getting to express opinions and to take actions that affect chiefly other people breeds, at best, carelessness and, more commonly, damaging opinions and policies – the destructiveness of all of which, sadly, is camouflaged by the stated good intentions of those who hold those opinions or who push those policies.

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The Real Evidence

by Don Boudreaux on July 27, 2015

in Data, The Profit Motive, Work

Aaron the Aaron writes back:

Your complaint fails about scholars who find monopsony power not starting their own firms [to take advantage of the profit opportunities that such scholars identify in markets where entry isn’t obstructed]. You admit that scholars have no skills to run businesses, [so] why do you think their not putting their money where their mouths are proves they are insincere?

I don’t claim that such scholars are insincere.  I claim, instead, that such scholars are engaged in cheap talk.  In their hearts they almost surely do sincerely believe that monopsony power is rampant in the market for low-skilled labor, but because these scholars have nothing at stake in holding that belief, they hold it, I submit, too thoughtlessly, too carelessly, too blithely.  My calling upon them to put their money where their mouths are is not meant to actually prompt them to start businesses.  Rather, my aim is to prompt the more thoughtful amongst them to re-consider their conclusion and, more importantly, to expose them to the public as engaging in cheap talk that they can, but don’t, give evidence is anything but cheap talk.

A person can much more easily hold a belief sincerely if it is cheap for that person to hold that belief sincerely than if that person has something at stake in holding that belief sincerely.

But of course, the real real-world evidence that I point to whenever I urge those who assert the existence of monopsony power to put up or shut up is the failure of the true experts and specialists – actual entrepreneurs and business owners and executives – to take steps to seize the profits that the monopsony-obsessed scholars insist exist.  While nothing much might be proved by the failure of a monopsony-power-asserting college professor or graduate student to start a business to seize the asserted available profits, a great deal is proved by the failure of real-world business people to enter markets even more vigorously when such markets are alleged by some academic to be hotbeds of monopsony power.

Entry in the United States into retailing, restaurants, lawn-care, house- and office-cleaning, and other industries that employ disproportionately large numbers of low-skilled workers is generally quite open and easy.  So if the experts – those who are specialized in spotting and seizing profit opportunities – consistently act in ways that are inconsistent with the empirical claims of non-expert scholars (who, it is true, are not specialized in spotting and seizing profit opportunities), such failure-to-act on the part of the experts is powerful empirical evidence against the claims of the academics who insist that real and relevant monopsony power is such a problem that government is justified in enforcing minimum-wage legislation.

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