Tim Worstall elaborates on my recent post on how Uber and other sharing-economy innovations is helping both to increase the effective size of the capital stock and to make capitalists of people who aren’t traditionally thought of as capitalists.

Also from Tim Worstall is this elegant explanation of one of the many problems with the Card-Krueger study that allegedly showed that minimum-wage hikes do not hurt low-skilled workers.

Martin Feldstein adds his voice again to those who explain that it’s a myth that America’s middle-class has stagnated economically for the past few decades.  A slice:

With the traditional definition of money income, the CBO found that real median household income rose by just 15% from 1980 to 2010, similar to the Census Bureau’s estimate. But when they expanded the definition of income to include benefits and subtracted taxes, they found that the median household’s real income rose by 45%. Adjusting for household size boosted this gain to 53%.

And, again, even this more substantial rise probably represents a substantial underestimate of the increase in the real standard of living. The authorities arrive at their estimates by converting dollar incomes into a measure of real income by using a price index that reflects the changes in the prices of existing goods and services. But that price index does not reflect new products or improvements to existing goods and services.

Writing in the Wall Street Journal, Geoffrey Norman explains that Bernie Sanders’s “Progressive” policies are failing in Vermont.  (gated)

in the New York Times, Greg Mankiw reviews Arthur Brooks’s new book, The Conservative Heart.

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Quotation of the Day…

by Don Boudreaux on August 2, 2015

in Economics

… is from pages 140-141 of 1963 Norton Library edition of the superb posthumous 1951 collection of some of John Maynard Keynes‘s writings Essays in Biography; specifically, it’s from Keynes’s 1924 essay on Alfred Marshall (original emphasis):

The study of economics does not seem to require any specialized gifts of an unusually high order.  Is it not, intellectually regarded, a very easy subject compared with the higher branches of philosophy or pure science?  An easy subject at which few excel!  The paradox finds its explanation, perhaps, in that the master-economist must possess a rare combination of gifts.  He must be mathematician, historian, statesman, philosopher – in some degree.  He must understand symbols and speak in words.  He must contemplate the particular in terms of the general and touch abstract and concrete in the same flight of thought.  He must study the present in the light of the past for the purposes of the future.  No part of man’s nature or his institutions must lie entirely outside his regard.  He must be purposeful and disinterested in a simultaneous mood; as aloof and incorruptible as an artist, yet sometimes as near to earth as a politician.

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Thomas Piketty famously argues that owners of capital grab ever-larger shares of wealth, and that the single best ‘solution’ to this alleged problem is a global tax on wealth and high rates of income taxation.  Problems galore fill Piketty’s book – including his failure to recognize that market-driven innovation and competition are incessantly creating new capital while reducing or even destroying the value of older capital, all in ways that move new flesh-and-blood people into the central ranks of the ‘capitalists’ while moving others onto the periphery of those ranks.  (Twelve years ago Mark Zuckerberg, the son of a dentist, was no one’s idea of a capitalist.  He’s now worth close to $40 billion.)

While working together earlier this week on a business trip to California, my Mercatus Center colleague Ashley Schiller and I were chatting about Uber and the assaults that governments are now launching on this amazing innovation.  Ashley had a brilliant insight, which I share here with her kind permission: Uber (and other ‘sharing economy’ innovations, such as Airbnb) allow ordinary people to turn their consumption goods into capital goods.

Uber enables someone who would otherwise drive his or her car only for personal use to drive his or her car for paying customers – that is, to drive his or her car in an income-earning (and, hence, wealth-enhancing) manner.  Uber enables a consumption good to easily become a capital good for however long the car owner chooses to operate as an Uber driver.  For whatever number of hours car owners use their personal cars as Uber (or Lyft) cars, part of value of those cars becomes part of the value of an economy’s capital stock even if formal statistics do not yet register it as such.

Uber and other sharing-economy innovations create more productive capital and create more capitalists.  Government interventions against Uber and other sharing-economy innovations are, therefore, government interventions aimed not only at protecting the value of existing capital (and established capitalists) from the forces of creative destruction, and such interventions are not only obstacles to market forces that improve consumers’ access to goods and services; in addition, such interventions are assaults against market forces that increase the amount of wealth-producing capital that ordinary people are able to own, control, and profit from.

It’s more than a little ironic that France gives the world not only an economist who insists that massive taxation is required to prevent existing owners of capital from growing ever more rich and powerful at the expense of those of us who today are not relatively significant owners of capital, but gives the world also the single most obnoxious example of government intervention that blocks market forces from doing what the French economist says cannot be done by the market and must be done by the state.

UPDATE: Over at BleedingHeartLibertarians, Steve Horwitz furthers this discussion.

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Quotation of the Day…

by Don Boudreaux on August 1, 2015

in Politics

… is from page 107 of the 1991 Liberty Fund edition of Bruno Leoni’s pioneering 1961 volume, Freedom and the Law:

The main difference between individual decisions in the market and individual contributions to the decisions of groups on the political scene is that in the market, at least by virtue of the divisibility of the goods or services available in it, the individual not only can foresee exactly what the outcome of his decision is (for instance, what kind and quantity of chickens he will buy with a certain amount of money), but he can also put in a definite relation every dollar he spends with the corresponding things he can acquire.  Group decisions, on the contrary, are of the all-or-none variety: if you are on the losing side, you lose your vote.

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Bonus Quotation of the Day…

by Don Boudreaux on July 31, 2015

in Growth, Innovation, Standard of Living

… is from this recent Facebook post by economist Antony Davies:

When I was my youngest son’s age, I used a touch tone phone for the first time. He just used a touch tone phone for the first time. We were both equally impressed. I because it was a new technology. He because it was an antique.

That’s just one example of just one generation’s worth of technological advancement.

I recall that when my son, Thomas (b. 1997), was three, we visited his Uncle Bobby and Aunt Seana at their home in New Hampshire.  Bobby’s Toyota Corolla had mechanical crank windows.  Thomas was sitting in the back seat of his uncle’s car and, upon noticing the crank that rolled the window up and down, exclaimed gleefully that Uncle Bobby’s car is more advanced than was our car with its push-button window controls.  “Why more advanced?” his mother asked.  “Because in Uncle Bobby’s car you can roll the window up and down even when the car isn’t on!” he pointed out.

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No Takers Yet

by Don Boudreaux on July 31, 2015

in Work

It has been more than 24 hours since I passed along, here at the Cafe, businessman Mike Long’s generous offer of business advice to anyone who believes that monopsony power is so abundant in real-world markets that minimum-wage legislation is justified.  Mike’s offer is to supply the advice and guidance necessary to enable people – mainly, academics – to launch businesses to seize the profit opportunities that their assertions of monopsony power imply.  So far, no one has accepted the offer.

This lack of acceptance might, of course, be due to the fact that too little time has lapsed since the offer was first posted.  Or it could be due to the fact that those who justify minimum-wage legislation by asserting that reality is roiling with monopsony power are in fact insufficiently confident in their assertions of monopsony power.

Regardless of the reason, the offer will remain open indefinitely.

…..

Dear readers, please do keep in mind that anyone who asserts the reality and relevance of monopsony power while also stubbornly refusing to take personal steps to take advantage of the profit opportunities that would exist if these assertions are correct is someone who is either insufficiently expert to know if monopsony power exists or someone who makes such an assertion carelessly (or both).  Either way, that person’s policy prescriptions on this matter deserve to be ignored.  The advice of such people is unreliable.

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On this day, Milton Friedman’s 103rd birthday, it is good to read David Boaz’s birthday wishes to Milton Friedman from 2002.  A slice:

His advice was also sought around the world. Most famously, in the 1970s he advised the military government of Chile – for which he received years of abusive criticism – and the communist government of China – which no one seemed to mind. Happily, both governments listened, and both have become “economic miracles.” Chile now has the most successful economy in Latin America, and China’s path along the “capitalist road” has made it more prosperous than anyone could have dreamed in 1976, the year that Mao Zedong died and Friedman won the Nobel Prize.

Earlier this week in the Wall Street Journal, Nigel Lawson reviewed Ron Bailey’s new book, The End of Doom.  (gated)  It’s a book that I’m especially eager to read.  Here’s a slice from Lawson’s review:

It is even easier for him [Bailey] to show that a fear of the world running out of natural resources, popularized by scaremongers like Stanford demographer Paul Ehrlich, is wholly without foundation, as an elementary understanding of markets clearly shows. No doubt the age of oil will one day come to an end. But as my old friend Saudi Arabia’s Sheikh Yamani used to point out, the Stone Age did not come to an end because we ran out of stone.

As for the alleged perils of biotechnology and genetic modification (which is simply an improved form of the age-old practice of the selective breeding of plants), if there was any substance to the fears of Frankenfoods, these practices would have stopped decades ago. What the green revolution has done is feed the world and reduce poverty on an unparalleled scale.

Other than for his unfortunate use of the term “liberal” to describe statists, I like this letter in today’s Wall Street Journal from Joe Boccuzzi; it’s in response to a recent William Galston column on Hillary Clinton :

Mr. Galston parrots Mrs. Clinton with the classic union mentality that the employees “create wealth” for the company. Showing up for work doesn’t make one a wealth creator. Having someone tell you to flip a burger or turn a bolt on an assembly line doesn’t create wealth. If you have a “dime a dozen” type of job you shouldn’t be surprised that you are paid a dime. There are worker skills and education that bring value to a business, and those employees are usually well compensated without government intervention.

Business risk is anathema to those who speak about employee contributions to wealth. The employee gets his paycheck without risk of loss; the business (wealth) creator can lose substantially with business failure. Sharing the wealth for liberals doesn’t mean sharing the business risk. It is this loss of invested capital that justifies the wealth the creator of the business receives.

The liberal politician typically panders to union slogans about the oppression of the worker and the evils of “the rich” while they themselves are highly paid for work that involves little risk of loss.

Jonah Goldberg explains that minimum-wage legislation destroys many summer jobs.  A slice:

That’s one reason I find the race to raise the minimum wage across the country so problematic. I understand the good intentions underlying it. But the idea that the minimum wage — at least for young workers — should be a “living wage” is absurd, even immoral. Employers are taking a risk when they hire people with no work experience. Why further discourage that?

Subsidize something and you get more of it. Tax it and you get less. There are plenty of ways to subsidize low-skill hiring — an expanded earned-income tax credit, for instance. Instead, a higher minimum wage taxes the employers who hire low-skill workers. That’s nuts.

George Leef explains how the IRS adds further to the lawlessness that is civil asset forfeiture.

Spontaneous order, baseball edition.

Jeffrey Tucker points out that “Hillary’s campaign seems designed to prove that F.A. Hayek was a prophet.

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Quotation of the Day…

by Don Boudreaux on July 31, 2015

in Hubris and humility

… is from page 113 of the 1997 Johns Hopkins University Press edition of H.L. Mencken’s 1956 collection, Minority Report:

Of all varieties of men, the one who is least comprehensible to me is the fellow who immolates himself upon the alter of what he conceives to be the public interest – in other words, the reformer, the uplifter, the man, so-called, of public spirit.  What I am chiefly unable to understand is his oafish certainty that he is right – his almost pathological inability to grasp the notion that, after all, he may be wrong.

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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 risk 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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