… is from page 209 of the final (2016) volume – Bourgeois Equality – of Deirdre Nansen McCloskey’s indispensable trilogy on the essence of bourgeois values and their essential role in modern life (links added):

[Adam] Smith was reacting here against a view of society and economy entirely dominant in 1776, and still vibrant down to the present – the proposition that a law on the books can say where taxes will actually fall, or that government can pick winners, or that consumers need to be corrected in their consumption (recently revived in proposals to “nudge” people), or that natural liberty in running airplanes or grocery stores or an education in medicine needs to be closely regulated lest we fall into human sacrifice, dogs and cats living together, mass hysteria.

The world today is indeed more gentle, if less frank, than it was 200 years ago.  Back then, enslavers opened with explicit threats of force to gain control over their victims, most of whom the enslavers frankly and accurately called “slaves.”  And the enslavers back then spent less time than do the enslavers today denying that the whole point of the enslaving was to yield benefits and profits to the enslavers.

Today, in contrast, enslavers open with fine words meant to entice their victims into agreeing to be led, sheep-like, to obey their enslavers’ diktats.  Overt force is only a last – but never an absent – resort.  And a great deal of theater, pomp, and bad poetry is devoted by today’s enslavers to the effort to dupe the enslaved into believing that the enslaving is done exclusively for the benefit of the enslaved.  Indeed, today it isn’t even call “enslaving”; it’s called “nudging” or “public policy.”  Donald Trump, Hillary Clinton, and all the other mad-for-power people who met recently together in Cleveland and in Philadelphia were there only to help others – they were there only in the hope of gaining the top positions necessary to assist 322 million strangers with American passports.

Trump (we are supposed to believe) is concerned first and foremost for our, not his and his family’s and friends’, well-being.  Hillary Clinton (we are supposed to believe) is concerned first and foremost for our, not for her or her family’s and friends’, well-being.

Anyone who believes such idiocy is, well, idiotic on this front.

Add a Comment    Share Share    Print    Email

Warning: wonky

A common argument offered by people who grasp for reasons to believe that minimum wages do not price some low-skilled workers out of jobs is that employers of low-skilled workers will raise the prices of their outputs in order to reap the additional revenues needed to cover those employers’ higher labor costs.

One correct and dominant response to this argument is that higher prices for goods and services produced with disproportionate amounts of low-skilled workers will reduce the quantities of such goods and services demanded by consumers and, thus, cause employers of low-skilled workers to employ fewer such workers.

Another response to this “they’ll-just-raise-their-prices” argument, however, is not correct – namely, it is not correct to ask rhetorically “If raising prices on outputs is such a good idea, why do employers wait for the minimum wage to rise before raising their output prices?”  The minimum-wage advocate has a good answer to this question.  That good answer is that, without a hike in the minimum wage, any firm that raises its prices will continue to be profitably underpriced by its competitors because those competitors’ costs of production have not risen.  The sustained rise in output prices that follows a hike in the minimum wage is possible only because all firms that employ low-skilled workers have higher costs because of the rise in the minimum wage.

Put differently, the reason firms’ output prices rise after the minimum wage is raised is that only after the minimum wage is raised do all of these firms have higher costs of production.  It’s this minimum-wage-induced rise in the production costs of all firms that employ minimum-wage workers that is responsible for the rise in output prices.

Notice, though, that the above correct reasoning implies that output prices are set competitively.  Firms cannot willy-nilly raise output prices whenever they wish because any firm that does so will lose too many customers to rivals that keep output prices lower and closer to costs.

This reasoning surely does square with American reality.  Food service, retailing, lawn-care and yard-maintenance services, and most other industries that employ disproportionately large numbers of low-skilled workers are among the most competitive in America.

Yet if output markets are competitive, firms operating in these markets have no excess profits into which they can dip to cover the higher labor costs brought on by the minimum wage.  If the minimum wage rises, some low-skilled workers must lose their jobs (or suffer some combination of reduced fringe benefits and worsened work conditions).

Indeed, the case is more general: even an employer with a genuine monopoly in the output market would still raise its output price in response to a hike in the minimum wage, for before that hike this firm presumably charged a profit-maximizing price and sold a profit-maximizing quantity of output.  The hike in the minimum wage raises this employer’s costs and, thus, reduces its profit-maximizing quantity of output.  (While such a monopolist might have excess profits into which it can dip to fully fund the higher labor costs brought on by the minimum wage, it will not do any such dipping, for such dipping is neither necessary nor desirable for the monopolist.)

Raising the minimum wage, therefore, while it causes output prices to rise, also inevitably causes the quantities of outputs supplied and sold by employers of minimum-wage workers to fall.  This reality holds true for employers that sell in competitive output markets as well as for employers that are monopoly sellers in their output markets.

It remains the case, therefore, that the only theoretically plausible situation under which a minimum wage will not destroy jobs is the situation of monopsony power in the market for low-skilled workers.  But theoretically plausible does not imply realistically plausible: it is ridiculous to believe that the market for low-skilled labor in the U.S. – or any localized market for low-skilled workers – is infected by such a quantity of monopsony power as to justify minimum-wage legislation.

…..

I can’t resist reminding readers of Robert Reich’s especially absurd take on the argument that higher minimum wages are followed by higher output prices.

Add a Comment    Share Share    Print    Email

Quotation of the Day…

by Don Boudreaux on July 29, 2016

in Myths and Fallacies, The Economy

… is from page 68 of Chapter 4 of my Mercatus Center colleague Daniel Griswold’s excellent 2009 volume, Mad About Trade (footnote deleted; link added):

In his 2006 book, Senator Dorgan laments that “America cannot be great if most of its workers are in the service sector or cashiering at Wal-Mart.”  That statement is both misleading and, on a deeper level, simply false.  It’s misleading in the way it equates the typical service job with cashiering at a big-box retailer, when in fact – as we saw in the previous chapter – most of the new jobs being created in the service sector pay higher wages than the manufacturing jobs being lost.  The statement is simply false because nearly four out of five American workers earn their living in the service sector today at a time when America remains a great country.

Do the senator and those Americans who agree with him really pine for the days when more than half of Americans worked outside of the service sector?  That would take us back to about 1930 when our incomes and our standard of living were far lower than they are today.  Around the world, the nations with the lowest share of their workforce in services are invariably among the poorest, and those with the highest share of workers in services are among the richest.

Parents say about their daughters and sons “I hope that she grows up to be a doctor or an architect.” or “I hope that he grows up to become a lawyer or an engineer.”  No parent says “I hope that she grows up to be a drill-press operator!” or “I hope that he grows up to become a pipefitter in a shipyard!”  (Just fyi: my father and my maternal grandfather – both of whom I dearly loved, respected, and admired – were pipefitters in a shipyard.)  Of course, there is absolutely nothing wrong with being a drill-press operator, a pipefitter, or any other sort of manual laborer in a manufacturing facility.  But no one aspires to such jobs.  And nor do such jobs pay particularly well compared to the service-sector jobs that most people aspire to perform and hope that their children will grow up to specialize in performing.

The fact that no American, at least over the course of my 58 years in this vale, speaks of jobs on the floors of factories or on the dry-docks of shipyards as jobs that they aspire their children or grandchildren to hold – and the fact that the jobs spoken of aspirationally are all in the service sector – means that people in fact regard service-sector jobs more highly than they regard manufacturing jobs.  There is every reason to believe that this widespread, expressed sense of the relative merits of both species of jobs reflects the fact that service-sector jobs are generally and truly ones that give their holders better lives than do manufacturing jobs.

The biggest point today of education – especially of college education – is to prepare students for careers in the service sector.  Harvard University offers no degrees, or even classes, in drill-press operations.  Stanford University doesn’t teach welding.  George Mason University instructs no students in how to upholster sofas and chairs.  While I strongly oppose any and all government subsidization of college education, the fact that such subsidization is so popular with the public is further evidence that the romance about lost manufacturing jobs is just that – romance, unreasonably clung to.

Add a Comment    Share Share    Print    Email

Some Links

by Don Boudreaux on July 29, 2016

in Immigration, Myths and Fallacies, Regulation, Seen and Unseen, Trade, Work

Writing in Wednesday’s Wall Street Journal, Mark Perry and Michael Saltsman explain that minimum wages in the U.S. inflict their harms especially heavily upon minority inner-city teens.  A slice:

By significantly reducing the available stock of job opportunities at the bottom end of the career ladder, a higher minimum wage increases the likelihood that unemployed teens will seek income elsewhere. A 2013 study by economists at Boston College analyzed increases in state and federal minimum-wage levels between 1997 and 2010. It found that low-skill workers affected by minimum-wage hikes were more likely to lose their jobs, become idle and commit crime. The authors warn that their results “point to the dangers both to the individual and to society from policies that restrict the already limited employment options of this group.”

David Bier looks into why unemployment is low when immigration rates are high.

My former student Alex Nowrasteh notes that Trump opposes also legal immigration.

My Mercatus Center colleague Dan Griswold offers a partial list of Donald Trump’s many misunderstandings of trade.  Here’s Dan’s opening paragraph:

Mr. Trump should visit modern American factories where Americans are making more stuff than ever — jet engines, medical devices, pharmaceuticals, machinery, appliances, and millions of cars. Americans produced a record $2.4 trillion in manufacturing value added in 2014.

Speaking of misunderstandings about trade, back in June Scott Lincicome debunked many of the myths about TPA and TPP.

Richard Rahn documents some local tyranny.

Here’s Jason Brennan on the ethics and rationality of voting.

Add a Comment    Share Share    Print    Email

Here’s a comment, in full, from one “Bob” on this Marginal Revolution post by Tyler Cowen on Tyler’s receipt of Joel Mokyr’s new book, A Culture of Growth:

Growth for the sake of growth is the ideology of the cancer cell.

Bob likely believes that, with this single pointed sentence, he makes a profound point – a point that causes all but the most philistine of readers to pause and say “Omigosh!  Bob is so insightful!  Economic growth is cancerous.  We mindlessly bow to it – accept it – demand it even! – unaware that it will eventually destroy us.”

In fact, Bob is painfully sophomoric.  The reason is that the case for economic growth is not and never has been “growth for the sake of growth” (although misinformed best-selling authors such as Douglas Rushkoff continue to insist otherwise).  Instead, the case for growth is this: growth for the sake of human betterment.  The case for economic growth is founded on the fact that it improves human lives, and especially the lives of those who are currently worse off.

Economic growth extends life-expectancies; the wealthier we are the less likely are parents to suffer the tragedy of having to bury children – the wealthier we are the less likely are children to grow up with no memories of their fathers or of their mothers or of some of their siblings.  Economic growth protects ordinary people from the real risks of starvation that haunted nearly everyone until the modern age.

Economic growth supplies the material wherewithal for ordinary people to have the leisure to become literate, to read for pleasure, to travel for enlightenment and amusement, and to retire in the autumn of life with the expectation of having upwards of two decades of good health remaining to enjoy with grandchildren, neighbors, and friends.  Economic growth supplies ordinary people with the means of traversing the globe comfortably and safely and at speeds and at such ease that would cause a 17th-century pasha to fall to his knees, quivering, in astonishment.  Economic growth gives us antibiotics, antidepressants, statins, anesthesia, vision correction, and that miracle drug called aspirin.

Economic growth allows us to drink water without fear of dying from dysentery.

Economic growth gives us toothbrushes and dental floss and antibacterial soap.

Economic growth gives ordinary people that miracle of fast, individualized surface transportation called the automobile.

Economic growth puts over the heads of even poor people solid roofs and puts beneath their feet solid floors.  Economic growth makes the living environment of every ordinary human today cleaner, safer, and more comfortable than was the living environment of even the most powerful and wealthy monarch before 1700.

Economic growth gives us washing machines.

Economic growth is not merely about the accumulation of material trinkets and baubles.  It is, far more, about the possibility of living longer, healthier, better lives – lives more varied in experiences, more rich in enjoyments, more immersed in learning, and more free of worries and tragedies.

And economic growth is about giving the “Bob”s of the world the leisure, literacy, and computer capacity to make on blogs housed in cyberspace sophomoric comments about the alleged dangers of economic growth.

Add a Comment    Share Share    Print    Email

A Letter to “a Trump Man”

by Don Boudreaux on July 28, 2016

in Balance of Payments, Trade

Here’s a letter to someone (no relation, I’m sure, to Russ Roberts) who describes himself as “a proud Trump man”:

Mr. Rocky Roberts

Mr. Roberts:

Thanks for your e-mail.

Objecting to a recent blog-post of mine, you – who describe yourself as “a proud Trump man” – write that you and others who support Donald Trump’s candidacy oppose only “increased international trade and immigration but not increased international investment in America’s economy.”  Indeed, praising the Mercedes factory near your home in Alabama, you claim that you “cheer” all such investment “which doesn’t harm national security.”

You’re wise not to object on economic grounds to foreign investments in America.  But there’s a deep inconsistency between your support for such investments and your support for Trump’s mercantilist assertions and policy proposals.  For Mercedes, Toyota, Michelin, Sony, Ikea, and other foreigners to build factories and facilities in, and to otherwise invest in, the American economy they must acquire American dollars.  Ultimately, the only way for foreigners to acquire American dollars for investment is to sell goods and services to Americans – that is, to export to America – and then to not spend all of their export-earned dollars on purchases of American exports.  The result of this foreign saving of American dollars is an American trade deficit.  This result, of course, is one that Trump frequently if ignorantly warns spells the ruination of America.

Your opposition to increased imports, therefore, is in fact, and unavoidably, opposition to some combination of increased American exports and increased foreign investment in America.  In short, another name for the so-called “U.S. trade deficit” about which Trump squawks so regularly is “U.S. capital-account surplus” – that is, increased foreign investment in America that you astutely recognize is an economic boon for Americans.

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

Add a Comment    Share Share    Print    Email

Mooching Isn’t Magnanimity

by Don Boudreaux on July 28, 2016

in Other People's Money

Heres a paragraph from Will Swaim’s recent op-ed in the Los Angeles Times (emphasis added):

If there’s hope for party solidarity over the course of the convention it may rest here: Hillary is now a true believer in Bernie’s “free” college education proposal. She came to this faith reluctantly and then only because it was tactically shrewd: Bernie’s followers want free education. Hillary can offer them the promise that she’ll try.

Why are “Bernie’s followers” – the majority of whom are young people – praised as being idealistic, “progressive,” socially concerned, and caring when one of their signature issues is simply to force strangers to pay their college tuition?  (If I marched and chanted and bellowed to press my ‘demand’ that strangers be forced to pay for the car that I drive, would I be celebrated by the media as an idealistic, “progressive, socially concerned, and caring kind of guy?)

….

Note that in one odd way Sandersnista policies (or Hillary Clinton’s version of them) will indeed reduce the cost to many young people of attending college, and this result will arise even if government doesn’t increase the amount of dollars that it spends on subsidizing college tuition.  The cost for many young people of attending college will fall with increases in the minimum wage and other government intrusions into the economy that make it more difficult for young people to find full-time employment.

A large chunk of the cost of attending college is the forgone incomes that students must endure because they spend time in class and studying rather than working at jobs.  In many cases this cost is greater even than the tuition payments.  Because higher minimum wages and many of the other policies ‘demanded’ by Sandersnistas will make it next to impossible for many young people to find gainful employment, the cost to those young people of going to college will fall even if the tuition bills that they must pay do not shrink.

….

In fact, even Trumpkins’s policies – by weakening the U.S. economy as they surely will – will also have this same effect on the cost of attending college.

…..

…..

One small note about Swaim’s claim that “Hillary is now a true believer in Bernie’s ‘free’ college education proposal.”  “True believer”?  Mr. Swaim obviously wrote that line in jest.  Identifying Hillary Clinton’s true beliefs about government policy is a much more meaningless and futile exercise than is that of identifying the true color of a chameleon.

Add a Comment    Share Share    Print    Email

A Mark Perry Venn Diagram?

by Don Boudreaux on July 28, 2016

in Myths and Fallacies, Trade

I wonder: what percentage of people who believe that the wealth of modern first-world countries is the result of that wealth having been extracted from slaves or colonies (or both) also believe that the wealth of modern first-world countries is threatened when and to the extent that these countries trade with poor countries?

I’ll bet that, among today’s “Progressives,” the percentage is quite high.  And I’ll bet also that a large percentage of these people would still not understand the incompatibility of these two positions even after that incompatibility is explained carefully.

(I thank incoming GMU Econ doctoral student Jon Murphy for a comment that led to the above wondering.)

Add a Comment    Share Share    Print    Email

In this short video, Johan Norberg eloquently explains that economic growth cleanses humans’ environment.

Add a Comment    Share Share    Print    Email

Quotation of the Day…

by Don Boudreaux on July 28, 2016

in Immigration, Myths and Fallacies, The Economy, Trade

… is from page 74 of the late William Niskanen’s August 1998 speech “Creating Good Jobs and Good Wages,” which is reprinted as chapter 6 in the 2008 collection of some of Niskanen’s best writings, Reflections of a Political Economist:

Finally, a growing chorus of commentators has promised to protect American workers against increased international trade, investment, and immigration.  So far, as long as total employment is growing, there has been little popular response to this noisy crowd.  This group, however, represents a potentially harmful coalition of the populist left and right when the U.S. economy next turns down.

These words were first spoken by Niskanen 18 years ago, when the U.S. economy was – as they say – “booming.”  And although the unemployment rate today (June 2016), at 4.9 percent, is only four-tenths of a percentage point higher than it was in August 1998, the labor-force-participation rate today, at 62.7 percent, is significantly lower than was the labor-force-participation rate of 67.0 percent in August 1998.  (A falling labor-force-participation rate by itself tells us very little about the health of the economy.  It could be evidence that the economy is so healthy that it makes people so rich that many fewer adults than in the past seek work.  Or a falling labor-force-participation rate could be evidence that the economy is so sluggish that it makes people so discouraged that many more adults than otherwise simply give up looking for employment in the above-ground market.)

In part because for nearly a quarter-century now Americans have been falsely told that only the rich have prospered since the mid-1970s or early 1980s, and in part because of many still-lingering ill-effects – both real and psychological – of the 2008 Great Recession, lots of Americans today feel themselves to be in economic peril.  (I believe that much of this fear is founded in fiction – that is, the fear might well be genuine but it is grounded largely, although not exclusively, in a combination of economic ignorance and false beliefs about economic growth over the past 40 years.)  This widespread sense among ordinary people that they are in economic peril, when mixed with the widespread acceptance of mercantilist nostrums, has led precisely to the outcome that Niskanen warned of 18 years ago.

Add a Comment    Share Share    Print    Email