Some Links

by Don Boudreaux on March 13, 2011

in Current Affairs, Economics, Hayek, History, Regulation, Seen and Unseen, Video, Work

EconLog’s David Henderson appropriately takes my colleage Tyler Cowen (and Tyler’s co-author Jayme Lemke) to task for overlooking the role of minimum-wage legislation in promoting the unemployment of low-skilled workers.

Here’s Ryan Young – and, here, David Theroux – taking on the imbecility of arguing that natural disasters are, or can be, good for the economy.

In the New York Times, Joshua Hammer reminds us of Japan’s 1923 Great Kanto earthquake.

I love competition!

Mike Munger links to Axel Leijonhufvud’s interview of F.A. Hayek.  Thanks Mike (but I’ve always found the works of both of these scholars to be remarkably accessible…..)

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John Dewey March 14, 2011 at 10:53 am

David Henderson is correct. Of course the minimum wage has increased the unemployment rate for unskilled and low-skilled workers. In addtion, Obamacare has increases costs for hiring
• Limits on how much coverage an insurance plan will pay in benefits are being phased out, and completely eliminated in 2014;
• Small employers are now forced to provide the same coverage to every employee who works 30 hours or more per week;
• Most businesses will be fined if they do not provide health insurance for employees.

Cowen and Lemke argue that Obama’s policies are not impacting hiring. They point out that profits are high – to which I say, “So what?” How does higher corporate profits change the fact that Obamacare has made some employees too costly?

Cowen and Lemke also argue that Obamacare cannot be impacting hiring because the health care industry is hiring. But Obamacare and demographic changes will increase the demand for health services, so it is not surprising that the health industry is hiring. Furthermore, the health care industry hires very few low-skilled workers.

Methinks1776 March 14, 2011 at 11:36 am

I argue that that’s a damn fine post, John Dewey.

indianajim March 14, 2011 at 1:32 pm

But wait, don’t you remember that Card and Kruger showed that increasing the minimum wage increased employment. What a pile of crap that was! And yet it appeared in the AER and was uncritiqued there for many years. This allowed President Bill Clinton to waddle around and quote C&K’s article as definitive (afterall didn’t one of them get the J.Bates Clark award). Maybe Cowen took C&K at face value; I hope not, but his difficulty in explaining teen unemployment in the face of the huge increase in the minimum wage Henderson highlights causes one to wonder about what Cowen thinks.

purplefox March 14, 2011 at 2:59 pm

Healthcare is another inflating bubble, which will probably pop in an even bigger way than the housing bubble due to all the unintended consequences.

vikingvista March 15, 2011 at 2:46 am

It is a certainty, that Medicare soon will, one way or another, stop inflating that bubble. Then what?

I hope all of you out there are planning for Medicare to NOT be there for you.

ajlenze March 15, 2011 at 2:50 am

About those who claim that natural disasters can be good for a country’s economy: I have to thank these people because it’s made me realize a problem with how economic growth is measured. The main statistic used to measure economic growth is GDP, and I think it IS possible that a natural disaster can cause more of both private and public spending in an effort to rebuild, and this can increase GDP. But the problem with that analysis is that GDP can rise while a country becomes worse off.

Let me give an example. Say that a natural disaster causes $100 billion of damage, and also say that the government had $50 billion in a surplus rainy day fund that it spends to repair half the damage. This means that GDP will be $50 billion higher, even if nothing changes about private sector spending. But the country is obviously worse off, as even after the $50 billion in additional GDP, the country is still $50 billion poorer than it was previous to the natural disaster. (Actually, one could claim that the country is actually still $100 poorer, because now it’s rainy day fund is gone.)

The lesson is that GDP isn’t really a good measure of economic well being when large chunks of wealth are unexpectedly destroyed.

John Dewey March 15, 2011 at 4:03 am


The increase in GDP during rebuilding is not the only GDP effect of a natural disaster. The lost productive capacity represents a real reduction in GDP at exactly the same time rebuilding is taking place. That GDP reduction due to lost capacity starts at day one even though the rebuilding GDP “gain” may not start for months. Lloyd’s of London has estimated that Japan is losing $3.7 billion in international trade daily due to the destruction of the seaports in the Sendai area. Even if Japan spends $20 or $30 billion rebuilding those seaports, that expenditure will never make up for the ever-mounting loss in international trade.

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