Here are wise words from Sheldon Richman on the tragedy in Ferguson, MO.  A slice:

People rightly decry the obnoxious militarization of even small-town police departments, but the problem is deeper than that. Police forces abused people — particularly black people — long before the Pentagon started giving cities and towns war materiel. Remember those scenes of dogs and firehoses being turned on peaceful civil-rights marchers? A billy club is low-tech, but it can do — and did — much damage. The system has long cultivated an us-versus-them attitude in the police. It’s nothing new, even if the “them” has come to include more people. Police don’t even regard themselves as civilians, as I believe they once did. We are the civilians. They are our watchers keeping us in line. Who doesn’t do a quick self-survey when a police officer approaches? As Steppenwolf sang in its 1969 hit “Monster”: “The police force is watching the people, and the people just can’t understand.”

My Mercatus Center colleagues Veronique de Rugy and Jason Fichtner argue that Uncle Sam still faces a debt crisis.

Chris Preble discusses the deeply lamentable military-interventionist bias of both the Left and the Right.  A slice:

Ironically, many of the same people who are skeptical of government intervention to deal with domestic problems seem to believe that that same government can somehow cure the ills of other nations. This cognitive dissonance reflects what Michael Munger calls a “unicorn” government: “a State that has the properties, motivations, knowledge, and abilities that they can imagine for it.”

Even if the advocates for U.S. military intervention—on both the left and the right—find that magical, mystical state, they must also show that the problem in question can’t be handled by others, or by nonmilitary means. Just because we have the ability to do something doesn’t mean that we should, or must, do it, nor does it mean that military intervention would improve the situation.

Ed Lazear isn’t impressed by today’s job market.

Government restrictions on new local transportation services – services such as Uber and Lyft – are perhaps hazardous to your health – so reports the Washington Post.  (I discovered this report only just now, over at Reason.com.)

Here’s Megan McArdle’s take on ending the so-called ‘war on drugs.

Add a Comment    Share Share    Print    Email

… is from page 299 of Indur Goklany’s indispensable 2007 volume, The Improving State of the World (footnote excluded):

In addition, the [climate-change] models should allow for society’s adaptive capacity to increase with both the level of economic development and the secular advances in technology.  However, … among the shortcomings of most present-day impacts studies is that although they use emissions scenarios that assume relatively rapid economic growth (and technological change) in the future, their impact estimates frequently do not fully consider increases in society’s adaptive capacity that should occur because of the same increases in economic and technological development.  Consequently, such impact assessments tend to systematically overestimate the net damages (or negative impacts) of climate change.

Goks supplies here yet another reminder of at least two important truths.  First, questions about the economic and environmental effects of climate change are not exclusively (perhaps not even primarily) matters of physical changes in the ‘natural’ environment.  Second, by ignoring economic responses and other realities, climate scientists can and often do concoct, without intending to mislead, objective-seeming but in fact bogus quantitative estimates and dubious qualitative predictions of the effects of climate change.

If a very smart and well-intentioned scientist in, say, 1700 (when the world’s population was about 610 million) predicted that world population in 2014 would be 7.18 billion, I imagine that that scientist, along with most thoughtful people back then, would have also predicted human and environmental calamity.  They likely would have been quite convinced that nearly all of the 7.18 billion people in 2014 would live in poverty unimaginable even to their 1700 minds – that human beings would be crowded by the dozens into each earthen hut – that the earth would be far filthier and more disease-ridden than it was in 1700 – that violence would be far greater and more cruel than on the eve of the 18th century.  Of course, every one of these (admittedly hypothetical) predictions would not only have been wrong; each would have been wildly wrong. Life in the early 21st century is quite the opposite of what would have been predicted just 300 years ago by ‘population-change’ scientists.

We – we ordinary people – are astonishingly richer today; our environments are cleaner; the world is far more peaceful.  These realities are the consequence of the productive creativity of the human mind operating in free societies whose denizens are largely infused with bourgeois ethics.

Add a Comment    Share Share    Print    Email

Here’s a letter to a new and very active e-mail correspondent who does not at all like the recent Wall Street Journal article by George Mason Econ’s Liya Palagashvili and Rachel Mace on minimum-wage fallacies:

Mr. Peter Willis

Mr. Willis:

Thanks for your series of e-mails.  In the last one you write that you “can’t conceive it possible [that] businesses can’t spare some amount of their profit to pay underpaid workers living wages.”

I disagree.  Firms that employ large numbers of low-skilled workers generally operate in highly competitive industries.  This competition ensures that there are no pools of excess profits lying about to be given gratis to workers.  If you dispute my empirical claim, you should stop reading this letter now and rush out to start your own firm in an industry that you believe enjoys a consistent stream of excess profits.  If you’re correct, you’ll profit handsomely even as you pay your low-skilled workers above-market wages.  (That you’ll not in fact put your money where your mouth is tells me that you can indeed conceive it possible that businesses have no such excess profits.)

Of course, you might mean instead that firm owners and investors should settle for below-market profit rates in order to pay their workers higher wages.  Perhaps.  Economics says nothing about how people should spend their money.  But before you criticize owners of businesses and other investors for what effectively amounts to their not giving some of their earnings as charity to low-skilled workers in their firms, you should start to give some of your earnings as charity to low-skilled workers in your community.  Nothing will stop you from doing so.  Nothing prevents you from practicing what you preach so passionately to business owners and investors.

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

I know that some people object to the argument that tells such minimum-wage proponents to put their own money where their mouths are by starting their own businesses.  I’ve never understood this objection.  We have in such cases people who volunteer that they possess enough detailed knowledge about the current state of business to know that at least some types of businesses are consistently earning excess profits, and that they know this fact with such certainty that they are comfortable in endorsing the use of government coercion based upon their asserted knowledge of business conditions.   Such people cannot then legitimately excuse themselves from actually putting their money on the line to start a business; such people cannot, by refusing to start their own firms, be allowed to get away with this cop-out by pleading that they are innocent of the knowledge, skills, and experience that it takes to successfully start and operate a business.

Add a Comment    Share Share    Print    Email

Is Maximizing Profits Foul?

by Don Boudreaux on August 22, 2014

in Entertainment, Seen and Unseen, Sports

Here’s a letter to Keith Olbermann; (I don’t normally listen to Olbermann, but earlier today I caught this clip playing on a radio in a physician’s waiting room):

Mr. Keith Olbermann

Mr. Olbermann:

In high moral dudgeon, you complained about the timing and scheduling of Major League Baseball games.   And when you revealed your theory for why this timing and scheduling isn’t to your liking, you did so as if you were courageously exposing forces as sinister as they are harmful.  Quoting you: “Do you know why the post-season games start so late?  8:37 instead of 8:07?  8:07 instead of 7:37?  Because on weeknights, the closer the game gets towards midnight eastern, the more people watch it.”*

Gasp!  Is Major League Baseball really so foul as to offer its product at times when the masses most prefer to watch it rather than at times that are less convenient for the masses?  Is MLB truly so greedy and cold-hearted that it carefully pays attention to its customers’ preferences and works successfully to satisfy those preferences?  Say it ain’t so!!

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

* The referenced lines start at around the 4:40 mark here.

As best as I can figure it, Olbermann – serious “Progressive” that he is – regards profits as morally suspect and as evidence of harm inflicted on innocent others.  Because MLB times and schedules its games in order (as we economists inelegantly say) to “maximize its profits” – and because Olbermann understands this fact – he knee-jerkily concludes that scheduling games at times when more, rather than fewer, people will tune in is unsavory.  Sigh.

Add a Comment    Share Share    Print    Email

Minimum Wage and Crime

by Don Boudreaux on August 22, 2014

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

I meant to post a link to this paper by Andrew Beauchamp and Stacey Chan when I first discovered it several months ago from Tyler Cowen at Marginal Revolution.  The paper explores empirically the connection between minimum-wage rates and crime.  Alas, I apparently forgot to actually post the link.  (I was reminded of this paper just now through an e-mail from Frank Stephenson.)

Here’s the abstract:

Does crime respond to changes in the minimum wage? A growing body of empirical evidence indicates that increases in the minimum wage have a displacement effect on low-skilled workers. Economic reasoning provides the possibility that disemployment may cause youth to substitute from legal work to crime. However, there is also the countervailing effect of a higher wage raising the opportunity cost of crime for those who remain employed. We use the National Longitudinal Survey of Youth 1997 cohort to measure the effect of increases in the minimum wage on self-reported criminal activity and examine employment–crime substitution. Exploiting changes in state and federal minimum wage laws from 1997 to 2010, we find that workers who are affected by a change in the minimum wage are more likely to commit crime, become idle, and lose employment. Individuals experiencing a binding minimum wage change were more likely to commit crime and work only part time. Analyzing heterogeneity shows those with past criminal connections are especially likely to see decreased employment and increased crime following a policy change, suggesting that reduced employment effects dominate any wage effects. The findings have implications for policy regarding both the low-wage labor market and efforts to deter criminal activity.

Add a Comment    Share Share    Print    Email

Quotation of the Day…

by Don Boudreaux on August 22, 2014

in Immigration

… is from page 190 of my colleague Chris Coyne’s superb 2013 book, Doing Bad by Doing Good:

The logic behind allowing labor migration is straightforward.  Decisions need to be made regarding the allocation of labor, which, like other goods and services, is a scarce resource.  Open migration not only expands the range of potential choices available to individuals – the essence of economic freedom – but allows for the reallocation of labor to its highest-valued use across a more extensive range of alternatives.  In other words, removing barriers to migration allows people to discover the highest-valued use of their labor and thereby contributes to broader economic development.  Indeed, the potential contribution of migration to global economic wealth is staggering.

Add a Comment    Share Share    Print    Email

Minimum-Wage Minutia

by Don Boudreaux on August 21, 2014

in Seen and Unseen, Work

Three e-mail correspondents and a commenter have asked me to clarify a specific claim that I make in this post – namely, that it’s possible for a hike in the minimum wage to increase overall employment even while it decreases the employment of those workers it is ostensibly meant to help (namely, low-skilled workers).

I do so below.  First, however, I want to express regret that I did not focus that post more appropriately.  My point there is that trends in overall employment cannot be used to test the economic argument against the minimum wage because that argument is that the minimum wage reduces the employment prospects only of low-skilled workers.  (I assume throughout what is empirically the case, at least in the U.S. – namely, that the legislated minimum wage never comes close to being as high as the median wage.)  Talking about trends in overall employment when the question involves the employment consequences of minimum-wage legislation is to talk about an irrelevant fact.  What matters is the employment of low-skilled workers.

Anyway….  Suppose that the two lowest-cost options for Acme Co. to produce Q amount of output X are as follows (and reckoned on an hourly cost basis):

1)  10 hours of low-skilled labor combined with 50 dollars of capital expenses;

2) 11 hours of skilled labor combined with 30 dollars of capital expenses.

If the prevailing hourly wage for low-skilled workers is $7.25, then Acme Co.’s hourly production costs will be $122.50 if it goes with option 1.  ($72.50 for ten hours of low-skilled labor plus $50 of capital expenses.)  If the prevailing hourly wage for skilled workers is $8.41 or higher, then Acme will use option 1; it will produce X using low-skilled rather than skilled labor.  (If Acme employs 11 skilled workers at $8.41 per hour, and uses with these workers $30 of capital every hour, Acme’s hourly production costs are $122.51 – higher than the total costs of hiring ten low-skilled workers at $7.25 per hour along with $50 worth of capital each hour.)

Now let the minimum wage be raised to (say) $8.41 per hour.  If Acme continues to produce Q amount of X each hour by employing ten low-skilled workers, along with $50 worth of capital, Acme’s hourly production costs would rise from $122.50 to $134.10.  (Ten low-skilled workers at $8.41 per hour = $84.10; adding $50 of hourly capital expenses sums to $134.10 per hour.)  But by instead employing 11 skilled workers at $8.41 per hour, along with $30 worth of capital, Acme’s hourly production costs will rise only by one cent, to $122.51.  Raising the minimum wage in this example causes Acme to fire (or not hire) the low-skilled workers and instead to employ the skilled workers.  Overall employment at Acme rises, and might rise for the economy as a whole if the now-artificially higher demand for skilled workers entices enough skilled workers, who would not have been in the labor force, into (or back into) the labor force.

I understand that the above is no general-equilibrium analysis.  Yet it is certainly possible, if not likely, that raising the minimum wage can cause overall employment to rise even as it cruelly shoves many low-skilled workers into the ranks of the long-term unemployed.

Again, though, my main point is that overall employment trends are irrelevant when discussing the merits or demerits of minimum-wage legislation.

….

I also remind readers of this related, excellent essay by Bob Murphy.

Add a Comment    Share Share    Print    Email

Here’s a letter to the Wall Street Journal:

Kudos to George Mason University economics PhD student Liya Palagashvili and to her GMU econ undergraduate student Rachel Mace for exposing the flawed analyses of those who contend that recent hikes in some states’ minimum wages resulted in especially strong job growth in those states (“Do Higher Minimum Wages Create More Jobs?” August 21).

Yet another point deserves mention, one that I’m sure Liya and Rachel would have addressed had space allowed. Even if (contrary to Liya’s and Rachel’s finding) states that raised their minimum wages did indeed enjoy higher employment growth than did states that did not raise theirs, the foundational economic argument against the minimum wage still stands. That argument is that the minimum wage reduces the employment prospects of the lowest-skilled of low-skilled workers. It’s possible that raising the minimum wage attracts into the labor market so many employable higher-skilled workers, such as recent retirees, that the effect on overall employment is positive (or not negative) even though – as economics warns – many low-skilled workers are nevertheless pushed into the ranks of the long-term unemployed.

In short, the central economic argument against the minimum wage is not that it reduces overall employment (although it likely does); rather, it’s that the minimum wage reduces the employment prospects of the people most desperately in need of jobs: workers with the fewest job skills.

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

Liya (who received a scholarship in high school funded by my great colleague Walter Williams, who also was one of her professors at GMU) was a GMU econ undergrad.  She’s now one of our many excellent PhD candidates, as well as a PhD Fellow at GMU’s Mercatus Center.  Earlier this summer – back in Fairfax during a break from her fellowship at NYU’s Classical Liberal Institute – Liya taught an intermediate-microeconomics class at GMU and discovered there another promising young undergraduate student, Ms. Rachel Mace.  Ms. Mace wrote a paper (as a writing assignment) for Liya’s class.  That paper, along with other insights brought by Liya, resulted in their excellent essay in today’s WSJ.

Liya and Rachel aren’t the only GMU students with articles in today’s Wall Street Journal.  The Cato Institute’s Dan Mitchell – who earned his graduate degree in economics from GMU several years ago – has this nice article in today’s edition.

Add a Comment    Share Share    Print    Email

My apologies to those of you who tried yesterday to watch the live-streaming of Deirdre McCloskey’s talk at the Illinois Policy Institute.  Technical difficulties obstructed the effort to live-stream the event.  But here the recording!

Add a Comment    Share Share    Print    Email

… is the closing paragraph of GMU Econ students Liya Palagashvili’s and Rachel Mace’s superb essay in today’s Wall Street Journal; Liya and Rachel here expose some errors committed by those with a zealous will to believe in the miraculous powers of minimum-wage legislation to read data carelessly in support of their faith:

The data are simply no reason to reject this fundamental economic precept: When you raise the cost of hiring, companies will do less of it. Until there’s a sound theory for why raising the price of low-skill labor doesn’t lessen employers demand for it, and until that theory is confirmed by serious, empirical analysis based on adequate data, the only legitimate minimum-wage stance is that it shrinks the employment options for the very workers it ostensibly intends to help: the poorest of the low-skilled.

Add a Comment    Share Share    Print    Email