James Pethokoukis summarizes a new paper by Robert Lawrence in which Lawrence offers data showing that worker pay did indeed keep up with worker productivity between 1970 and 2008, although it’s not quite done so since.

David Henderson is unimpressed by Paul Krugman’s assessment of the Greek economy and of the Greek government.

Ed Glaeser, in the Wall Street Journal, reviews my GMU colleague Ilya Somin’s new book, The Grasping Hand.  (gated)  A slice (link added):

Yet in reality, the public power to take private property for almost any purpose remains practically unchanged. In “The Grasping Hand,” Ilya Somin argues that “the backlash has yielded far less effective reform than many expected.” Mr. Somin, a law professor at George Mason University, provides a fine tour of the case [Kelo v. City of New London] and of the intellectual history of eminent-domain law. More important, he provides a framework for thinking about the future of eminent domain and private property.

Russ’s latest EconTalk guest is Eric Hanushek.

This account is for my conservative friends who are inclined to give the benefit-of-the-doubt to government law-enforcement officers.  (HT Methinks)

This account, from Jeffrey Tucker, is for my “Progressive” friends who believe that government regulators improve our standard of living.

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… is from page 116 of the 1992 collection of some of William Graham Sumner’s best essays, On Liberty, Society, and Politics (Roger C. Bannister, ed.); specifically, this quotation is from Sumner’s January 1881 Princeton Review essay, “The Argument against Protective Taxes”:

Any favor or encouragement which the protective system exerts on one group of its population must be won by an equivalent oppression exerted on some other group….  If the legislation did not simply transfer capital it would have to make capital out of nothing.  Now the transfer is not simply an equal redistribution; there is loss and waste in the case of any tax whatsoever.  There is especial loss and waste in the case of a protective tax.  We cannot collect taxes and redistribute them without loss; much less can we produce forced monopolies and distorted industrial relations without loss.  It follows that if a nation could come into some temporary industrial compression or arrested growth, a protective tariff not only would not help it out, but would contribute to still further limit its powers of self-development and to restrain its recuperative energies.

There are many lessons summarized above – the most timely of which is that any resources ‘successfully’ diverted by that great geyser of cronyism, the U.S. Export-Import Bank, to improve the business prospects of some U.S.-based firms come necessarily at the expense of other U.S. enterprises, both existing and potential.

Another lesson in the above quotation is that its an error – one committed by J.M. Keynes and Paul Krugman (among many other people) – to suppose that an economy in a recession can be helped to recover by higher tariffs, export subsidies, and other mercantilist quack remedies.

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And the Winner Is….

by Don Boudreaux on July 26, 2015

in Politics

If a space alien stumbled in its travels upon modern-day America and took stock of the typical candidate campaigning for the gaudy office of the president of the executive branch of the national government of the United States of America, that alien – who we can presume is more intelligent than is the typical human being – would surely conclude that the contest that each of the candidates is seeking to win is for the Most Clownish and Intellectually Insulting Buffoon Amongst Us.

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Here’s a letter to a correspondent who is “sick” of me asking people to put, whenever possible, their money where their mouths are:

Mr. Aaron the Aaron

Dear Mr. the Aaron:

You’re “sick” of me calling on those who assert that monopsony power is real and rampant in reality to put their money where their mouths are by starting their own businesses in order to profit by hiring underpaid workers away from employers who allegedly are today underpaying their workers.  You accuse me of “unrealistically demanding academics do what they don’t specialize in.”

It’s true that academics – such as Alan Manning, who you explicitly mention for his “wisdom” on this matter – don’t specialize in creating and managing businesses.  But academics who propose to unleash state coercion that will have harmful consequences if their beliefs about reality are mistaken should not be allowed to risk the livelihoods of innocent strangers if these academics refuse to risk their own livelihoods by taking actions that their very own beliefs imply can be profitable.  No one should get to experiment for free with the lives of others, especially if the experimenter’s own beliefs imply that private actions can be taken to test those beliefs and that such actions can be profitable if those beliefs are correct.

If monopsony power is real, and if, as a result, minimum-wage legislation would raise the incomes of low-wage workers without destroying any jobs – two huge ifs – then profits are available to owners of firms who move into monopsonized areas and hire low-skilled workers.  That is, if monopsony power is real and relevant, then profits will be earned by anyone who acts with reasonable competence on his knowledge of the existence of such monopsony power.

I agree that academics (such as Prof. Manning and myself) are generally too inept to perform genuinely productive activities such as starting and operating businesses.  But such ineptness on the part of any academic does not excuse his or her failure to voluntarily act on beliefs that he or she insists that others be forced to act on.  Arrogance does not compensate for ineptness.  Instead, such revealed arrogance combined with such confessed ineptness should serve as a warning to be especially skeptical of that academic’s policy recommendations.

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

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… is from page 120 of volume 2 of The Collected Works of Armen A. Alchian (2006); specifically, it’s from Alchian‘s and William Meckling‘s 1986 article, “The Bishops and the Lay Commission”:

Requiring employers to provide health insurance is not a conferral of new rights.  Employees always have the right to contract with employers to provide health benefits as a part of their compensation package.  Enacting a statute which requires employers to provide health benefits destroys employees’ rights in their persons.  In contracting for the use of their services, they are coerced into accepting health benefits as part of their compensation.

The only people who deny the truth of the above statement are people who believe that health benefits can be supplied to employees by employers freely (and, hence, are withheld from employees due to employers’ sheer meanness or utter stupidity) or that employers who are forced to supply more health benefits to employees do not respond by changing their employment contracts with employees in ways that minimize employers’ costs of this mandate.  In other words, the only people who deny the truth of the above statement are people who are out of touch with reality.

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Here’s a fact that I’d forgotten until I just now re-read James Sherk’s excellent June 25, 2013, testimony on the minimum wage before a U.S. House of Representative’s Committee:

Congress has not voted to raise the minimum wage when unemployment stood above 7.5 percent since the Great Depression ended.

This fact is inconvenient for those who endorse the theory that minimum-wage legislation is a means of addressing the problem of wages kept too low by monopsony power.  The reason is that the higher is the rate of unemployment, the greater are the prospects that employers will have genuine monopsony power which creates, at least in principle, a necessary condition (i.e., wages kept below the value of workers’ marginal products) for a hike in the minimum wage to increase the incomes of low-skilled workers without causing any job losses or other worsening of job prospects for such workers.

The higher the rate of unemployment, the worse are the prospects for dissatisfied worker Jones to find another job if she quits or is fired from her current one.  In other words, the higher the rate of unemployment, the more likely is low-skilled worker Jones not to quit her job – or to risk doing anything that puts her job at risk – even if her pay is below what her pay would be in a more competitive labor market.  Worker Jones’s employer, in short, might be said to have, and to exercise, some monopsony power over her.  So if the minimum wage is justified chiefly as a means of addressing extant monopsony power, we would expect that as the rate of unemployment rises, especially to recessionary levels, that the likelihood of the minimum wage being raised would also rise.

While the fact reported above by James Sherk doesn’t prove that there’s no positive relationship between the rate of unemployment and the likelihood of Congress voting to raise the minimum wage – perhaps such a positive relationship exists for rates of unemployment below 7.5 percent – the fact that no such vote has taken place during times of especially high unemployment (above a rate of 7.5 percent) remains a signal piece of evidence against the monopsony-power theory of minimum-wage hikes.

……

(Note to econometrically skilled young economists: I suggest an empirical study – or series of studies – to discover if there’s a statistically detectable relationship, be it positive or negative, between rates of unemployment and legislatures’ likelihood of raising minimum wages – with rates of unemployment being the independent variable.  Such a study can be time series or cross-sectional or both.  It can look also not only at the overall rate of unemployment, but also at the rates of unemployment of different age groups.  While my guess is that, if a relationship does exist between the unemployment rate and legislatures’ likelihood of raising the minimum wage, that relationship is negative, an interesting hypothesis is this one: as the rate of unemployment of unionized workers rises, legislatures become more likely to raise the minimum wage.  The reason would be to price out of the labor market lower-skilled workers who might be substitutes for unionized workers.)

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The Best Profit-Sharing Plan Is Competition

by Don Boudreaux on July 25, 2015

in Competition

Here’s a letter to the Washington Post:

Robert Samuelson offers sound objections to Hillary Clinton’s plan to fiddle with the tax code to prompt employers to share more profits with employees (“The trouble with Hillary Clinton’s profit-sharing plan,” July 23).  Allow me to offer yet another objection: her plan is too narrow.  It aims to encourage more sharing of profits only with workers of profitable firms.  A better plan is one that both encourages the creation of more profits and the sharing of these profits as widely as possible, not only with workers of profitable firms, but also with workers of unprofitable firms and with people who don’t work at all – that is, with everyone.

Such a better plan would slash taxes, reduce regulations and other government-erected entry barriers, and make trade free, all to encourage more innovation, more-ready entry into thriving industries, and more intense competition.

More innovation, by generating larger streams of novel and highly prized outputs, would produce more unusually high gains for successful firms – gains available to be disbursed not only in the form of profits shared with workers but also in the form of new products shared with consumers.  More-ready entry into thriving industries would more quickly drive down the prices consumers pay and further expand their access to new goods and services.  And free global trade in both goods and investments – by imposing ceaseless competitive discipline on American firms and by guaranteeing American consumers’ access to the fruits of the most creative and efficient producers on the globe regardless of location – would ensure that any unusually high profits that American firms earn today will soon be shared with consumers through falling prices and with workers through higher wages that are bid up to fully reflect increased worker productivity.

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

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Some Links

by Don Boudreaux on July 25, 2015

in Books, Environment, Hayek, Innovation, Myths and Fallacies, Taxes, Technology, Work

I’m very eager to read Eamonn Butler’s hot-off-the-press Classical Liberalism: A Primer.  I’m also very eager to read Ron Bailey’s latest: The End of Doom.

James Sherk and Lindsey Burke explain that technology and innovation will not impoverish the masses by eliminating the need for human labor; quite the opposite.  Here’s the abstract of their new paper:

Many Americans worry that automation will significantly reduce the need for human employees. This is highly unlikely to happen. Automation reduces the need for humans in particular tasks, but employees have historically moved to new or different sectors of the economy as a result. Little evidence suggests this time is different. Technological advances have reduced the demand for employees in routine jobs and increased the demand for employees in non-routine jobs. They have not reduced the need for human labor overall. Further, the rate of automation has slowed over the past decade.

Seeing eye-to-eye with Bob Higgs, I agree that (as he notes on his Facebook page) this innovation – if it succeeds – will be a great boon for humankind.

Washington Post columnist Robert Samuelson isn’t impressed with Hillary Clinton’s plan to use the tax code to prompt more employers to share profits with employees.  Here’s his conclusion:

The gains of Clinton’s proposal are overstated, the costs understated. We’d be better off with fewer preferences and lower rates. Let firms and individuals decide what’s best for them. But politicians would have to stop using the tax code as an advertising agency and benefits bargain store. That’s a long shot.

Megan McArdle puts Europeans’ often-self-righteous expressions of disdain for Americans’ use of air-conditioning into perspective.

Scott Sumner isn’t buying any defenses of Paul Krugman’s recent claim that “there’s just no evidence that raising the minimum wage costs jobs, at least when the starting point is as low as it is in modern America.”  Here’s Scott’s conclusion:

There are conflicting empirical studies of the effect of minimum wages. When that occurs, it’s probably safest to go back to the basic theory. That doesn’t necessarily mean that minimum wages are bad policies, perhaps the gains in income outweigh the cost in unemployment. But it’s disingenuous to claim that we can raise minimum wages without any disemployment effects.

David Brooks writes sensibly in the New York Times about minimum-wage research.  Here’s his conclusion:

The key intellectual upshot is that, despite what some people want you to believe, the laws of economic gravity have not been suspended. You can’t impose costs on some without trade-offs for others. You can’t intervene in the market without unintended consequences. And here’s a haunting fact that seems to make sense: Raising the minimum wage will produce winners among job holders from all backgrounds, but it will disproportionately punish those with the lowest skills, who are least likely to be able to justify higher employment costs.

At Alt-M, George Selgin discusses Hayek’s views on free banking.

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… is from page 111 of the Daniel Boorstin’s great 1973 volume, The Americans: The Democratic Experience (original emphasis):

The builders [such as Gustavus Swift, the innovative slaughterhouse entrepreneur and John Hartford of the A&P supermarket chain] of the new nationwide consumption communities met bitter opposition from local merchants, hometown boosters, and champions of neighborhoods who stood for the local community.  The keepers of the old general stores had fought the big-city department stores; they would also fight RFD [rural free delivery], they opposed parcel post, and they attacked mail-order “monopolies.”  The menace of “chain stores,” they said, was a threat to the whole American way of life.

Boorstin goes on to quote a jeremiad by U.S. Senator Hugo Black (D-AL) against chain stores.  (This is the same Hugo Black who, as a senator, famously filibustered a bill to prevent lynching – not surprising given his membership in the Ku Klux Klan – and who was successfully appointed in 1937 to the U.S. Supreme Court by Franklin Roosevelt.)

As Thomas Sowell points out (I believe in Intellectuals and Society, where he notes that the 1920s was one of the most economically progressive decades in American history), “Progressives” often oppose genuine progress – such as the lower distribution costs, lower product prices, higher product quality, greater product selection, and better employment opportunities opened up by innovations in retailing.  The only sort of change that “Progressives” consistently celebrate as “progress” is a progressive increase in the role of government – specifically, an increase in the scope and depth of government’s intervention into the economic affairs of ordinary people.  Such an increase in government power is considered by “Progressives” to be “progressive” even if (as is often the case) the goals and the effects of the use of such government power are to resist the forces of creative destruction or to otherwise stymie economic progress that is not directed or controlled by the state.

Note another feature of “Progressives'” frequent opposition to innovations in retailing: it is opposition to what in accuracy should be called “shared prosperity.”  When the likes of Wal-Mart devises innovative means of creating and taking advantage of economies of scale in distribution, or Home Depot imports for resale in the U.S. more lower-cost goods assembled abroad, the benefits of these lower costs (and, also typically, of higher qualities) are shared with millions of consumers throughout America (and wherever else these firms have stores) in the form of lower prices and wider product selection.  Such a widespread sharing of prosperity was certainly a consequence of the spread of mail-order innovators, such as Sears, in the late nineteenth century and of supermarkets, such as A&P, in the twentieth century – all despite the hysteria at those times over the demise of local merchants and over the alleged permanent loss of jobs that such retailing innovations were said to cause.

These retailing innovations were, of course, market-driven technological advances that expanded consumer choice.  And so to endorse government actions to suppress the consequences of market-driven technological innovation is, at bottom, to endorse government actions to suppress consumer choice.  There is absolutely nothing genuinely progressive about such arrogance wrapped in economic ignorance and spiced with cronyism.

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Here’s a follow-up letter to Ms. Louise Lauderdale:

Dear Ms. Lauderdale:

Thanks for your follow-up e-mail.  Your point, if I may summarize it, is that it’s desirable for people as a group (through the democratic process), to “control” technology in order to protect people from “the anguish of job loss.”

I disagree.  First, unlike you I worry that the democratic process will too often be hijacked by crony capitalists and other interest groups.  The hijackers, while proclaiming their devotion to the public welfare, will in fact use the power of the state to control new technologies not for the purpose of promoting the public welfare but, rather, to gain and protect special privileges for themselves at the expense of the public.

Second and more fundamentally, technology as such destroys no particular jobs.  What ultimately destroys particular jobs is consumer and worker choice.  For example, the technology behind Uber is destroying the jobs of traditional cab drivers only because consumers choose to use Uber and because many workers choose to drive for Uber.  Labor-saving technologies on farms and factories are profitable only because consumers choose to pay lower rather than higher prices for the goods and services that they buy and because workers choose higher-wage options over lower-wage options: employers would introduce far fewer labor-saving techniques if workers did not allow their wages to be bid up by rival employers.

So to use the democratic process to protect particular jobs by ‘controlling’ technological progress is really to use the democratic process to protect particular jobs by controlling consumer and worker choice.  When one realizes that what’s ultimately being controlled are the peaceful choices of consumers and workers rather than the abstraction “technology,” a policy of control such as the one you endorse seems far less attractive.

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

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