Cafe Hayek — where orders emerge

Another Open Letter to Pres. Obama

by Don Boudreaux on January 21, 2015

in Myths and Fallacies, Seen and Unseen, Work

Pres. Barack Obama

Dear Mr. Obama:

In last-night’s State of the Union address you said “And to everyone in this Congress who still refuses to raise the minimum wage, I say this: If you truly believe you could work full-time and support a family on less than $15,000 a year, go try it. If not, vote to give millions of the hardest-working people in America a raise.”

The premise of your plea is mistaken: raises aren’t given by votes, by you, or by Congress: they’re given only by employers. And employers must fund these higher payments out of the revenues they earn by competing successfully in markets. Employers, therefore, can afford to raise their workers’ pay only if their workers become more productive - an outcome that is not achieved by a legislature waving its wand over workers’ paychecks.

You are, however, correct in one sense. Because the policy you propose would price many workers out of jobs, that policy would indeed change these workers’ incomes: it would drop them to $0. So I say this: If you truly believe you could be unemployed full-time and support a family on $0 a year, go try it. If not, vote to give millions of the hardest-working people in America opportunities to work that they are now denied. Abolish the minimum wage.

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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Quotation of the Day…

by Don Boudreaux on January 21, 2015

in Politics

… is from page 246 of the 1997 Johns Hopkins University Press edition of H.L. Mencken’s 1956 collection, Minority Report:

The theory seems to be that so long as man is a failure he is one of God’s chillun, but that as soon as he succeeds he is taken over by the Devil.

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I thought it doesn’t matter what you spend the money on

by Russ Roberts on January 20, 2015

in Stimulus

Maybe Keynesianism doesn’t work if the country you try it in has “H” as its first letter. The Economist reports:

FEW countries have suffered an earthquake so devastating, or have been less prepared for such a calamity. The quake that struck Haiti on January 12th 2010 killed perhaps 200,000 people—no one is sure how many—left 1.5m homeless and caused economic damage equivalent to 120% of the country’s GDP. A cholera epidemic compounded the misery. These disasters called forth the biggest-ever outpouring of humanitarian relief, worth some $9.5 billion in the first three years after the quake. The well-wishers vowed, in the words of Bill Clinton, who helped co-ordinate their early efforts, to “build back better”. Yet five years later, the country is little better off than it was before the disaster—and in some ways it is worse.

Worse? After all those broken windows? And that’s with the money and resources to repair the broken windows coming from outside the economy. Perhaps some other factors hurt Haiti in the meanwhile and those factors explain why the aid didn’t help. But I will continue to maintain that destruction is not good for human beings or the economy they interact in. And that the act of spending money doesn’t generate wealth other than for those who receive the money.

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A Worthy Distinction

by Don Boudreaux on January 20, 2015

in Myths and Fallacies, Work

A correspondent wrote to ask me the following question:

Isn’t there something more intrinsic to the worker [beyond or apart from the value to his or her employer of his or her hourly output] in relation to the job that could be used to determine the appropriate wage?

My answer, of course, is no.

This answer does not mean that I believe that the worker as a person is “worth” whatever hourly wage he or she fetches. A person’s ethical worth or moral worth or intrinsic worth – or a person’s value to his or her family, friends, and neighbors – is completely different from the market value of whatever it is he or she produces while on the job. Endless confusion is promoted by the fact that the term “worth” is used, in one setting, to describe traits that are emphatically non-economic and non-market while, in another setting, that term is used to describe the economic or market value of whatever it is that he or she produces as an employee.

Suppose that Mother Teresa, just before the end of her long and very worthy life, decided that she’d like to record some rock songs. So suppose further that she arranged for a recording studio to record her singing some of her own rock compositions. Finally suppose – quite realistically – that the general public just didn’t like her recordings as much as they like, say, the Beatles’ recording of “I Want to Hold Your Hand” or Michael Jackson’s recording of “Thriller.”

The amount of money that Mother Teresa would have earned from her rock recordings would be far less than the Fab Four earned from “I Want to Hold Your Hand” and that Michael Jackson raked in from his recording of “Thriller.”

Would anyone conclude from this fact that Mother Teresa, as a human being, is worth less than John, Paul, George, and Ringo? Or less worthy than is Michael Jackson? Would anyone suppose that an economist who explained why the Beatles and Jackson earned more from their musical recordings than did Mother Teresa believes, thereby, that Mother Teresa is less intrinsically worthy than are the Beatles and Michael Jackson? Would anyone think that your, my, and nearly every other human being’s refusal to pay as much for Mother Teresa’s recordings as we pay for recordings by the Beatles, Michael Jackson, and other popular musical acts is a sign that we regard Mother Teresa to be a second-class human being? Most importantly, would anyone believe that we have a moral obligation to arbitrarily increase the amounts of money we each pay for Mother Teresa’s recordings just because we believe that her non-economic (“intrinsic”) worth as a human being is at least equal to, and likely greater than, that of successful rock musicians?

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Some Links

by Don Boudreaux on January 20, 2015

in Civil Society, Country Problems, Data, Growth, Myths and Fallacies, Politics, Scientism, State of Macro, Video

My colleague Bryan Caplan identifies a favorite tactic of demagogues. A slice:

The demagogic connection is straightforward. The intellectually lazy masses have no patience for thoughtful arguments or big picture surveys of the evidence. So how are you supposed to persuade them of anything? Simple. Cast all epistemic scruples aside. Wait around for recent events to go your way. Then loudly claim that these events “show” the very thing you’ve long yearned to make the masses believe.

Richard Rahn reflects on the contributions of

Gary Becker, John Blundell, Leonard Liggio, Gordon Tullock and Henry Manne, all of whom passed away during the last eight months.

And FEE’s Larry Reed – with help from Cato’s Bob Levy – joins in to remember Henry Manne.

On Facebook Peter Lewin adds productively to the point I made in yesterday’s post on Brad DeLong’s argument that the living standards of ordinary Americans have stagnated since 1979:

Note, in reference to his [Boudreaux's] criticism of remarks by Brad DeLong, he might have noted that DeLong commits an astoundingly basic error. He [DeLong] ignores the creation of consumer surplus that the arrival of new technology has occasioned. New electronic “toys” that have added significant value to our lives and are, indeed, woven into the very fabric of business at every level, may take up a small proportion of our budgets. This is because their prices are low relative to the value they provide to us. To use this low price and low budget share as an indication of little value provided is almost laughably wrong. But it does indicate how wrong we can go by focusing only on measured value to the exclusion of value that is not directly seen – as in the case of aggregates like GDP.

As does my friend George Selgin in another context, John Cochrane helps to deflate fears of deflation.

Here’s a talk that the Independent Institute’s David Theroux gave recently to the C.S. Lewis Society of California.

Jim Dorn argues that more-intrusive government harms the economy.

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Quotation of the Day…

by Don Boudreaux on January 20, 2015

in Hubris and humility, Man of System, Regulation

… is from page 238 of H.L. Mencken’s essay on Teddy Roosevelt “Roosevelt I,” as reprinted in Mencken’s 1949 collection, A Mencken Chrestomathy:

Roosevelt, for all his fluent mastery of democratic counter-words, democratic gestures and all the rest of the armamentarium of the mob-master, had no such faith in his heart of hearts. He didn’t believe in democracy; he believed simply in government. His remedy for all the great pangs and longings of existence was not a dispersion of authority, but a hard concentration of authority. He was not in favor of unlimited experiment; he was in favor of a rigid control from above, a despotism of inspired prophets and policemen. He was not for democracy as his followers understood democracy, and as it actually is and must be; he was for a paternalism of the true Bismarckian pattern, almost of the Napoleonic or Ludendorffian pattern – a paternalism concerning itself with all things, from the regulation of coal-mining and meat-packing to the regulation of spelling and marital rights.

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On Ordinary Americans’ Living Standards

by Don Boudreaux on January 19, 2015

in Growth, Standard of Living

After reading a few days ago Pierre Lemieux’s excellent essay – “A Slow-Motion Collapse” – in the current issue of Regulation, I saw in it an opportunity to drive home a point that I’ve made before about the connection between arguments over the fate of ordinary Americans’ living standards and political ideology. Until now, though, I put off doing so (for no reason other than that I’ve been busy with other tasks). But now that David Henderson has pointed to Noah Smith’s excellent response to Brad DeLong’s claim that ordinary Americans have stagnated economically since 1979, I’ll finally weigh in with what I want to say about Pierre’s essay.

First, however, I can’t resist commenting here on this passage in DeLong’s post:

Moreover, across most of the income distribution Americans today are little if any better off than their predecessors back in 1979, at the business-cycle peak in the Jimmy Carter presidency. Yes, today Americans have remarkable access to incredibly cheap electronic toys. But those are a small part of expenditure….

It’s an error to minimize the significance (and size of benefits) of Americans’ “remarkable access to incredibly cheap electronic toys” on the grounds that “those are a small part of expenditure.” The fact that American households today are filled with lots of these economic goods – and are getting more filled as time goes on – means that the fact that acquiring these goods requires only a “small” expenditure renders Americans’ “remarkable access” to such goods a huge benefit.

Consider the extreme case: suppose that in a year or two electronic goods of the sort that DeLong has in mind become so inexpensive that each American household annually buys goo-gobs of them with a total expenditure of $0.01. The portion of households’ expenditure used to acquire these goods would be much lower even than it is now. But would anyone conclude from the fact that Americans’ spend such a paltry amount on these goods that the contribution of these goods to raising Americans’ standard of living is minimal? Would anyone conclude that the contributions of these goods to raising Americans’ standard of living would be greater if they were priced higher and if, as a result, Americans spent more in total to acquire such goods? I certainly wouldn’t.

Also note that DeLong’s calling these electronic goods “toys” trivializes their significance. It’s true that some of these goods are toys, but most are not. Automatic dishwashers create more leisure time for household members; cell phones – with zero-marginal-cost long-distance calling and texting – increase people’s opportunities to communicate in real time with loved ones, friends, and co-workers; GPS navigation means that we get to our destinations faster and with less anxieity and fewer wrong turns; cameras in our smartphones means that we can much more easily and on the spur-of-the-moment capture memories and share them more widely than any denizen of the disco decade could have done; ebook readers make the purchase of books less costly and the carrying of reading material easier. This list can be extended.

….

Now to the point inspired by Pierre’s essay: I have argued earlier that I see no obvious ideological advantage for free-market types (such as myself) to insist that the living standards of middle-class Americans have in fact risen significantly over the past 35 or 40 years. Nor do I seen any obvious ideological disadvantage for “Progressives” to deny this improvement in living standards.

Here’s the opening paragraph of Pierre’s article:

Six decades ago, fewer than 5 percent of Americans needed some sort of professional license (not counting mere certification) to work in their field. Today, that proportion is almost 30 percent. The growth of government regulation like licensure requirements seems to be a defining characteristic of the 20th and, thus far, 21st centuries. Most, if not all, economic life has been gradually brought under some kind—and usually many kinds—of regulation.

This paragraph nicely captures a theme of Pierre’s essay – namely, that government regulation, on the whole and despite some real deregulation in the late 1970s and early 1980s, has grown more and more burdensome for at least the last 60 years. If you read the essay, you’ll find further evidence in support of this claim.

If this evidence is correct (as I believe it to be) – that is, if it’s really true that government has intruded more and more into markets over the past several decades – then it would be easy and ideologically convenient for someone like me to go along with the likes of DeLong, Robert Reich, and Paul Krugman and agree that the living standards of ordinary Americans have stagnated. The culprit would be this increasingly burdensome regulation. And yet, as much as one part of me would like to find easy evidence that increasingly burdensome regulation has caused such stagnation, I cannot deny what my reading of the evidence tells me: Ordinary Americans’ living standards have improved dramatically over the time period that many “Progressives” insist have witnessed economic stagnation.

(On the other side, I’m sincere when I ask: Why do so few “Progressives” admit the impressive rise in the living standards of ordinary Americans and proclaim “See! Government works!” If I were a “Progressive,” I’m pretty sure that that’s what I’d do – loudly and frequently.)

Pierre makes the case that, absent such regulatory growth, ordinary Americans would today be much richer even than they currently are. I believe that he is correct.

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Maybe This Is What Gives

by Don Boudreaux on January 19, 2015

in Man of System, Myths and Fallacies

Princeton University Press just sent me a copy of its newly published American Insecurity, by Cornell political scientist Adam Seth Levine. (I’ve not yet read this book.) Here’s part of Jacob Hacker’s endorsing blurb that accompanies the book:

The worst economic crisis since the Great Depression, growing financial threats to the middle class, and the biggest political movement is the antigovernment Tea Party. What gives? The answer is that Americans buffeted by economic crisis don’t give. They don’t give money or time to political organizations seeking to improve economic security. When you try to rally people to the cause, you inadvertently but powerfully deter their political participation.

Notice Hacker’s presumption that improving the economy for the middle class requires greater “political participation” – and participation that is pro- and not anti-government. This proposition about the necessity of active government intervention and redistributive taxation on behalf of the middle-class could be correct (although I don’t believe it to be so); but its correctness is hardly as indisputable as Hacker seems to think. It’s telling that Hacker treats this proposition as a valid presumption.

Perhaps the reason that “Americans buffeted by economic crisis don’t give” to those political causes that Hacker (and I assume also Levine) presume to support middle-class economic security and prosperity is because a sizable number of Americans in fact do not share Hacker’s confidence in the necessity, efficacy, and trustworthiness of the government – at least compared to market forces – to improve their economic prospects. And maybe, just maybe, many of these middle-class Americans put the bulk of the blame for the crisis on government itself.

I know that my own parents – working-class Americans from head to toe and from cradle to grave – instinctively opposed big and active government on the domestic front. And it’s not because my parents were ideological in any recognizable sense. My father never read a single book, and my mother read only biographies of movie stars. I’m quite certain that they’d never heard the term “libertarian” until I became one as a young adult, and I know that they were never quite sure what being a libertarian meant. They almost never discussed politics.

Yet something in their marrow would not abide relying on government handouts or allow them to look favorably upon any politician or pundit who proposed to tax rich people more heavily and then transfer the booty to them and their friends. They harbored neither envy nor suspicion of rich people, yet were naturally suspicious of politicians and government.

I can’t say for certain that my parents were very much like lots of working-class Americans, but I have every reason to suppose that they were not unusual. And if my supposition here is correct, then the explanation for why so few middle-class Americans support political activism of the sort that Hacker presumes is pro-middle-class is more straightforward than Hacker and Levine think: relatively few middle-class Americans share Hacker’s fear of markets and his confidence in politicians and bureaucrats.

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Quotation of the Day…

by Don Boudreaux on January 19, 2015

in Competition, History, Myths and Fallacies

… is from Thomas Sowell’s October 28, 2005, column, “Rosa Parks and history“:

Those who see government as the solution to social problems may be surprised to learn it was government that created this problem. Many, if not most, municipal transit systems were privately owned in the 19th century and the private owners of these systems had no incentive to segregate the races.

These owners may have been racists themselves but they were in business to make a profit — and you don’t make a profit by alienating a lot of your customers. There was not enough market demand for Jim Crow seating on municipal transit to bring it about.

It was politics that segregated the races because the incentives of the political process are different from the incentives of the economic process. Both blacks and whites spent money to ride the buses but, after the disenfranchisement of black voters in the late 19th and early 20th century, only whites counted in the political process.

,,,,

People who decry the fact that businesses are in business “just to make money” seldom understand the implications of what they are saying. You make money by doing what other people want, not what you want.

Black people’s money was just as good as white people’s money, even though that was not the case when it came to votes.

For more depth and detail, see Robert Higgs, Competition and Coercion: Blacks in the American Economy, 1865-1914 (1976).

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An Anecdote In Support of Clemens & Wither

by Don Boudreaux on January 18, 2015

in Seen and Unseen, Work

The New York Times Magazine today ran this fine essay by Jan Ellison. Cafe patron Mike Wilson, applauding Ms. Ellison’s essay, sent the following letter to her by e-mail (pasted here with Mr. Wilson’s kind permission):

Dear Ms. Ellison,

I greatly enjoyed your description of the many benefits you accrued by working at so many different jobs in your youth. Your story is as powerful a case against raising the minimum wage as I have encountered. How sad that so many of today’s politicians and pundits have successfully advocated to use government force to deprive low-skilled workers, such as teenagers in poor families, the opportunities you had to develop your valuable work habits and help your family. No amount of cherry picked (and flawed) studies showing no loss of employment opportunities will help the many unemployed youth (especially African American youth: over 40%!) who will not learn the many valuable life-changing lessons you describe in your column. And you worked from age eleven! Did you secretly buck child labor laws? And now the same ill-informed and self-righteous pundits who support an above-market minimum wage are agitating to eliminate unpaid internships!

Your wonderful column is powerful testimony to the many non-wage benefits of working at so-called menial jobs. I only hope some day that well-meaning but economically ignorant politicians will come to understand that. Thank you for providing such compelling testimony.

Sincerely,
Mike Wilson

Mr. Wilson reports that Ms. Ellison responded to his e-mail to express her, her husband’s, and her son’s wholehearted agreement with it.

(Ms. Ellison’s essay, of course, would likely not surprise Jeffrey Clemens and Michael Wither.)

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