A Tale

by Don Boudreaux on September 2, 2015

in Reality Is Not Optional, Scientism, Seen and Unseen, Work

Once upon a time in the town of Crowville, somewhere deep in the heartland of America, the town elders secured the imposition of a poll tax to be paid by everyone in Crowville who votes in any political election in that handsome burgh.  The tax took the form of a flat $100 fee to be paid by every man and woman each time he or she seeks admission to a polling place in Crowville.

The elders further arranged for the proceeds of this tax to be used to subsidize transportation to the polls of low-income Crowvillians.

The elders heartily patted themselves on their backs for their wisdom and charity.  “This tax – er, really, a magnanimous benefit to Crowville’s poor – will increase the political participation of poor Crowvillians.  The poor will now find voting to be less costly as a result of this tax.  The poor will therefore vote in larger numbers than before – and, certainly, not in smaller numbers.  Yeah for us!!”

A small cadre of skeptical Crowvillians frowned.  These skeptics (they thought of themselves as realists, so that is what we will call them from here on in) asked the elders: “How do you figure that imposing a tax on the act of voting will increase people’s willingness to vote?  Aren’t you worried that the monetary value to poor Crowvillians of whatever transportation subsidy you supply will be far less than the direct cost to each of them of the poll tax that they must now pay in order to vote?  Surely a Crowvillian who is too poor to buy a bus ticket to a polling place, or who can’t find a friend to drive him or her, will be very negatively affected by your poll tax.  The final result will be less, not more, voting.”

The elders snarled at the realists.  “Don’t be so simple-minded, you ideologues you.  Yes, in simple textbook theory raising the cost of voting with a poll tax discourages voting, especially of the poorest of our citizens.  But the real-world is much more complicated than your basic theory.  First, we’re recycling the bulk of the proceeds of the tax into our ‘Transportation to the Polls” initiative.  Second, it’s really an empirical question of whether or not a poll tax in fact discourages voting.  One should not prejudge the matter based merely upon theory.  And you do realize, don’t you, that people’s demand to vote is such that they are unlikely to be dissuaded from voting merely by a extra monetary charge to do so?”

The realists’ jaws dropped.  Never mind the obvious logical inconsistency in the elders’ argument for why a poll tax is unlikely to discourage voting.  The realists were flabbergasted that the elders really were confident that conditions affecting real-world voting were such that their poll-tax scheme would not discourage voting.

The realists pointed out to Crowville’s elders that they – the realists – actually have several empirical studies that show that poll taxes do in fact, as common sense suggests, reduce people’s willingness to vote.  The elders snarled even more dismissively, insisting that those empirical studies are naive and flawed.

The elders continued: “On our side are the best politimetricians in the world.  These quant-jocks have done serious empirical research into the effects of poll taxes on voting and they conclude that, when the models are properly specified and all the relevant real-world trends are correctly accounted for, higher poll taxes do not reduce voting.  To deny these results is to deny Science.  To deny these result is to substitute ideology for fact.  We elders have Science on our side!  The poll tax is supported by Science!”

The realists responded with more – and more elaborate – empirical studies of their own.  The realists’ studies found that, when the models are properly specified and all the relevant real-world trends are correctly accounted for, higher poll taxes do indeed reduce voting.

There ensued a duel of quantitative studies.  This duel went on endlessly; indeed, the duel continues down to this very day.  (One of the elders’ most popular studies is the study that found that while in fact voting did decline in jurisdictions in which poll taxes were raised, when controlling for the independent – ‘exogenous’ – trend of a decline in voting in those jurisdictions, the higher poll taxes in fact appear not to discourage voting at all.)  Study after study, each one more elaborate and technical and minutely specified than its predecessor, poured forth.

Astonishingly (for it is, isn’t it, astonishing?) the elders’ studies always found that poll taxes do not discourage voting while the realists’ studies found that poll taxes do indeed discourage voting.

The elders, while they cannot be said to have won the scientific argument, won the public-relations argument.  The elders successfully portrayed the poll tax as a way to help poor voters; the elders’ intentions were oh-so-good and noble.  The people sided overwhelmingly with the elders, and the poll tax was raised (and, indeed, indexed to inflation!).  And all realists were ridiculed as unfeeling knuckle-draggers when they pointed out that the empirical record in favor of the poll tax is far too weak – and the logical argument against it is far too strong – to justify a poll tax.

Add a Comment    Share Share    Print    Email

Quotation of the Day…

by Don Boudreaux on September 2, 2015

in Reality Is Not Optional, Scientism, Seen and Unseen, Work

… is from page 233 of Milton & Rose Friedman’s great 1980 book, Free To Choose (first emphasis original; second emphasis added):

Moreover, the ability of unions to raise the wages of some workers does not mean that universal unionism could raise the wages of all workers.  On the contrary, and this is a fundamental source of misunderstanding, the gains that strong unions win for their members are primarily at the expense of other workers.

The key to understanding the situation is the most elementary principle of economics: the law of demand – the higher the price of anything, the less of it people will be willing to buy.  Make labor of any kind more expensive and the number of jobs of that kind will be fewer.

For example, while in practice a legislated minimum wage will reduce over time the number of jobs for low-skilled workers, in principle the negative effects of the minimum wage can be manifested almost exclusively in changes in the kinds of jobs filled by low-skilled workers.  A minimum wage could, in principle, cause nearly all of the jobs filled by low-skilled workers to become so much more demanding for workers, more dangerous to workers, or otherwise less desirable for workers to hold (yet more productive from the standpoint of employers) that the number of such jobs doesn’t decline.  This ‘change-in-the-nature-of-the-jobs’ effect is one among many reasons why empirical studies that purport to find no negative consequences of minimum-wage legislation for low-skilled workers should be approached with an enormous helping of skepticism: no such quantitative studies can possibly measure accurately the adjustments that occur on the many margins along which employment relations are defined in reality.

Add a Comment    Share Share    Print    Email

Mr. Bob Keener
Business for a Fair Minimum Wage

Dear Mr. Keener:

In your latest e-mail proclaiming the alleged merits of a government-enforced rise in the minimum wage, you quote Doug Havron, owner of Gabby’s Burgers and Fries in Nashville, as saying that “Raising the minimum wage is good business.  Paying people good money leads to better service and self-motivated behaviors.  It is smart in the short and long run.”

Because absolutely nothing prevents Mr. Havron from raising his workers’ pay now, and without being forced to do so by government, the fact that he evidently hasn’t yet done so means that Mr. Havron doesn’t really believe what he’s quoted as saying or that as a businessman he’s cartoonishly incompetent.  Either way, rather than Mr. Havron’s remarks serving to strengthen your case for a higher minimum wage, they do quite the opposite by revealing Mr. Havron to be someone whose advice should be completely ignored by everyone.

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

Add a Comment    Share Share    Print    Email

Reason’s Jim Epstein just produced this superb video on how Uber is creatively destroying New York City’s baneful taxicab monopolization system.

 A temptation is to feel sorrow or pity for taxicab-medallion owners whose personal wealth, insofar as it has been based on these medallions, is now plummeting.  Do not feel any sorrow or pity for these medallion owners.  The wealth they are now losing to competitive forces was the product of government-imposed unnecessary restrictions on competition – restrictions that, for 78 years now, have artificially reduced the supply of taxi services in New York City and artificially raised the prices that taxi customers had to pay.  Against the concentrated pain now being suffered by these former monopolists (or, put differently, by these former willing suppliers in a monopolized system) we must weigh the dispersed pain suffered by taxi customers in Gotham from 1937 until the arrival of Uber.

This dispersed pain is much harder to see than is the concentrated pain now being suffered by medallion owners.  This reality, however, does not make this dispersed pain less real or significant than it would be were it more concentrated and (hence) more visible.  This dispersed pain was suffered for decades, every minute of every day, by tens of millions of ordinary people seeking surface transportation in Manhattan and New York City’s four other boroughs.  Every taxi rider in NYC, from 1937 until today, paid a price higher than the forces of competition would yield.  This higher price was the product of an unholy alliance between medallion owners, taxi drivers, and New York City political officials.  This higher price was the bitter fruit of cronyism.

And this dispersed pain, spread out over nearly eight decades and over tens of millions of people, while much less visible than is the concentrated pain suffered now by medallion owners, is in total much greater than is the concentrated pain.  The taxi-medallion system was a clever cronyish method of hourly picking the pockets of unfortunate millions in order to line the pockets of a fortunate few.  And while many of the fortunate few did indeed win genuine fortunes as a result of this corrupt system, a great deal of the money picked hourly, day after day and decade after decade after decade, from the pockets of innocent people was transferred to no one: it was simply wasted on supply restrictions.

Hail Uber!  (But don’t hail a cab in NYC.)

Add a Comment    Share Share    Print    Email

Ed Stringham to Speak At GMU On His New Book

by Don Boudreaux on September 1, 2015

in Books, Current Affairs

Starting at 2:00pm on Thursday (September 3), Ed Stringham (a GMU Econ alum) will discuss his newly published book, Private Governance.  The location is GMU’s Fairfax campus.  Here’s the summary of the event:

Are all of the rules and regulations governing economic activity a product of central planning or legislation? To what extent does privately produced and enforced governance play a role? In his latest book, Edward Stringham argues that much of what is orderly in the economy can actually be attributed to governing mechanisms devised and enforced by private groups and individuals.

Please join the F. A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics at the Mercatus Center at George Mason University for a panel discussion featuring Edward Stringham and his new book, Private Governance: Creating Order in Economic and Social Life (Oxford University Press, 2015).

We will be pleased to hear from author Edward Stringham, as well as panel chair Peter Boettke, and commenters Jason Brennan and Bruce Benson.

For any further questions, please contact Bethany Stalter at bstalter@mercatus.gmu.edu or (703) 993-4889.

If you’ll be in the area on Thursday afternoon, do attend!  (I’ll be there.)

Add a Comment    Share Share    Print    Email

Glenn Reynolds, writing in USA Today, draws some lessons from Katrina and her ten-year aftermath.

In this new Mercatus Center study, Robert Beekman and Brian Kench explores the economics of export subsidies of the sort doled out by that great geyser of cronyism, the U.S. Export-Import Bank.  A slice:

Against that view [that the Ex-Im Bank adds positive value to the American economy by ‘leveling’ the global trading field], we offer a simple, open-economy trade model to demonstrate that there is, in fact, a deadweight loss in the domestic economy when a government offers an export subsidy. In addition to a loss in economic efficiency, the Ex-Im Bank amounts to a special privilege for the connected few—big subsidies to powerful companies. For example, nearly $8 billion of the $12 billion in Ex-Im Bank loan guarantees in 2013 went to support Boeing exports. In fact, of that $12 billion, 97 percent supported the sales of only 10 firms. While Ex-Im Bank programs may indeed benefit select domestic firms, we will demonstrate that the bank’s overall impact on the US economy is negative.

Tim Carney exposes Hillary Clinton’s penchant for flip-floppery and cronyism.

Randy Holcombe explains that politics obscures the difference between aspirations and policies – and in doing so offers libertarians some political advice.

John Cochrane likes the Wall Street Journal‘s recent exhibit of Phillips Curve Art.

Today is the official release day of the new book edited by Mark Steyn, A Disgrace to the Profession – a book on the sorry academic history of the idea that global temperatures are described accurately by the shape of a hockey stick.  Here’s an in-depth review of the book.  (HT W.E. Heasley)

The Human Freedom Index.

Add a Comment    Share Share    Print    Email

Quotation of the Day…

by Don Boudreaux on September 1, 2015

in Politics

… is from page 75 of Felix Morley’s 1949 essay “State and Society,” which is reprinted as Essay Two in the 1979 Liberty Fund collection The Politicization of Society (Kenneth S. Templeton, Jr., ed.):

Even a bargain with Mephistopheles is less surely a losing proposition than one in which the individual surrenders his soul to the state.  For Satan has forbidden fruit of his own to distribute, while the state, in the last analysis, has absolutely nothing to offer that it has not already expropriated from its subjects.  So, in worship of the state, men sacrifice their souls to a false god that can give them in return only what has already been placed by the worshippers themselves on the sacrilegious altar.

Add a Comment    Share Share    Print    Email

Bonus Quotation of the Day…

by Don Boudreaux on August 31, 2015

in Immigration

is from a recent Facebook post by Mario Rizzo; Mario is here discussing the people fleeing war-torn countries in the middle east:

I think western countries, including the US, will make a big mistake in not accepting large numbers of these people. They have proven their mettle by what they have gone through to get out of (eg) Syria. And they will be among the most loyal advocates of “western civilization” and toleration.

So true.

Add a Comment    Share Share    Print    Email

Here’s a letter to the Washington Times:

Peter Morici claims that “The U.S. economy won’t be much hurt by China’s slowdown because it has purchased much less in the United States than it sells here” (“China’s turmoil good news for U.S. economy and stocks,” August 31).

This claim is ridiculous.  If the logic behind it were sound, it would mean that the typical American household wouldn’t be much hurt by the demise of supermarkets, clothing stores, and hospitals because these entities purchase much less from the typical American household than they sell to the typical American household.

In this op-ed as in many of his other writings, Prof. Morici gets matters backwards.  He mistakenly assumes that the benefit to us of economic activity lies not in the amounts of goods and services that we acquire from others for our use but in the amounts of goods and services that we must give to others for their use.

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

….

Many of Donald Trump’s harrumphs, snarls, and sulfurus belches make him sound as though one of his economic advisors is Peter Morici.

Add a Comment    Share Share    Print    Email

Some Links

by Don Boudreaux on August 31, 2015

in Economics, Monetary Policy, Myths and Fallacies, Seen and Unseen, Trade

Robert Doar is right: family structure matters.  Here’s his conclusion:

But until all participants in the debate recognize the overwhelming importance of having two parents in the home, we’re not going to get very far in improving opportunity.

Ben Gitis and Jacqueline Varas find that worker pay has not lagged worker productivity.

Ira Stoll compares Disney World to the TSA.

My colleague Bryan Caplan offers an example of mistaken mainstream economic theory.

Michael Tanner and Charles Hughes explain that

[i]f welfare benefits become too generous, they can create a significant incentive that encourages recipients to remain “on the dole” rather than to seek employment.

Corey Iacono explains that Bernie Sanders is utterly ignorant about the economics of trade.

Writing over at Alt-M, Gerald O’Driscoll reviews the foundational case for monetary rules.

Add a Comment    Share Share    Print    Email