In my most recent column for the Pittsburgh Tribune-Review, I ask more questions of supporters of minimum-wage legislation.  A slice:

Many supporters of the minimum wage assert that imperfections in the labor market cause low-skilled workers to be paid wages less than these workers would be paid in a well-functioning market. This assertion implies that employers of low-skilled workers are reaping extra-high profits off of each of these workers. The minimum wage is said to be a device to push wages up to their “correct” level. But if most employers of low-skilled workers are profiting exorbitantly off of such workers, why do not greedy entrepreneurs and businesses flock into places and industries that use lots of low-skilled workers? Underpaid workers would be a gold mine for employers willing to hire such workers. Such additional competition for these workers, of course, would raise their wages up to appropriate levels. Why do you ignore this possibility?

(In a column from February 2013 I asked other questions of minimum-wage proponents.)

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Off the Money

by Don Boudreaux on May 14, 2015

in Monetary Policy, Seen and Unseen, State of Macro

This short essay by Jim Leaviss in The Telegraph is a fine candidate for Worst Economic Analysis of the Month.  (The competition for this dubious honor is, alas, intense.)  In summary, Mr. Leaviss proposes that cash be banned in order that government can exercise even fuller and firmer control over people’s economic activities.  Here’s a key passage, predictably revealing the wrongheaded man-in-the-street notion that the driver of economic well-being is aggregate spending:

And once all money exists only in bank accounts – monitored, or even directly controlled by the government – the authorities will be able to encourage us to spend more when the economy slows, or spend less when it is overheating.

I’m now too busy with grading and other matters to devote a lot of time to this essay.  I’ll content myself with making only two points.

First, it is astonishing that an adult can be so utterly trusting of any government as this Leaviss fellow apparently is.  He writes as if he never once considered even the possibility that government officials might abuse the awesome power that he wishes to give to them or that government officials might exercise that power in mistake-filled ways.

Second, reading this Leaviss piece makes me think that people can justifiably be divided into to camps, depending on how they answer the following question that appears below in italics.

Smith works really hard and creatively, churning out rivers of new and wonderful goods and services that consumers worldwide voluntarily rush to buy.  In the course of only fifteen years, Smith nets from his entrepreneurial efforts a personal fortune of $10 trillion.  But Smith spends almost none of it.  He takes his fortune all in the form of Federal Reserve notes, stashes these notes in a warehouse, and one day burns the entire $10 trillion of cash before going off permanently to Tibet to live as a monk.

Does Smith’s refusal to spend his accumulated fortune make the rest of us richer or poorer?

Most people, who we can put into camp #1, will answer “poorer.”  Only a relatively small handful of people – those in camp #2 – will answer “richer.”  Camp #2 contains people who think soundly about economics.  Camp #1 contains people – including, I’m sorry to report, not a few professional economists – who think unsoundly about economics.  This Mr. Leaviss would likely be a counselor for camp #1.

(HT to Donald Greer for the pointer to the Leaviss essay.)

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George Leef writes about the Model-T and the Tesla.

I apologize for only just now finding Mark Perry’s initial and excellent response to Robert Reich’s horrendously reasoned case for raising the minimum wage to $15 per hour. The video in which Reich presents this case is the intellectual equivalent of a video of someone who is widely believed to be a professional and competent biologist arguing that the earth is 4,000 years old.

Speaking of Mark Perry, he explains here a point that I believe deserves much more attention – namely, the increasing inability of conventional tools of national income accounting to measure changes in economic activity.  (See also Diane Coyle’s excellent 2014 book, GDP.)

George Will rightly laments the infantilization – and accompanying criminalization – of American society.

Starting at around the 25:45 mark in this video is my presentation at last month’s wonderful Liberty Forum in Porto Alegre, Brazil.  (HT Rodrigo Carpes)

David Henderson is understandably unimpressed by the economics of the U.S. Congress’s newest economist-member.

Tim Carney reports on a superb example of a bootleggers-and-Baptist coalition: big pharma and feminists.

Cato’s Chris Edwards discusses Amtrak’s budget.

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In one of his recent videos pushing a $15 per hour national minimum wage, former U.S. Secretary of Labor Robert Reich got one thing (and only one thing) right: he noted – starting around the 1:50 mark – that “[s]tudies have also shown that when the minimum is raised, more people are brought into the pool of potential employees, so employers have more choice of whom to hire.”

As I discussed in this earlier post, Reich is confused by this reality (although he’s unaware of his confusion).  One confusion of Reich’s that I’ve not yet discussed until now is his failure to draw from this reality the most obvious correct conclusion.  That correct conclusion is this one: the higher the minimum wage, the greater is the scope and incentive for employers, when they are choosing which low-skilled workers to hire and to retain, (1) to use economically irrelevant criteria (such as workers’ race, sex, or sexual preferences), and (2) to give excessive weight to certain potentially economically relevant criteria (such as a job-applicant’s work experience and whether or not that applicant is a single parent).

Read the full post →

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… is from a 1755 paper written by Adam Smith and quoted on page 58 (in chapter 5) of a recent printing [n.d.] of John Rae’s 1895 Life of Adam Smith; this paper by Smith is one of the few of his personal documents not to have been burned by Smith before his death, although it is suspected that Smith’s first biographer, Dugald Stewart (who quoted this paper in his 1793 biography of Smith), had it burned upon his (Stewart’s) death; much of this quotation made its way into The Wealth of Nations, but it is sufficiently unique to quote here:

Man is generally considered by statesmen and projectors as the materials of a sort of political mechanics.  Projectors disturb nature in the course of her operations on human affairs, and it requires no more than to leave her alone and give her fair play in the pursuit of her ends that she may establish her own designs….  Little else is required to carry a state to the highest degree of affluence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice; all the rest being brought about by the natural course of things.  All governments which thwart this natural course, which force things into another channel, or which endeavour to arrest the progress of society at a particular point, are unnatural, and, to support themselves, are obliged to be oppressive and tyrannical.

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More Reich Confusions

by Don Boudreaux on May 13, 2015

in Seen and Unseen, Video, Work

My goal when I sat down to write this post – a post which is in my series devoted to exposing the many errors in Robert Reich’s case for raising the national minimum wage to $15 per hour – was to fulfill a promise made in this earlier post.  That promise is to point out an important conclusion that Reich failed to draw from his correct observation that “when the minimum [wage] is raised, more people are brought into the pool of potential employees, so employers have more choice of whom to hire.”

But in setting the stage for describing the conclusion that Reich should have, but didn’t, draw, I encountered yet another confusion in Reich’s reasoning.  I’ll here, therefore, deal with this newly encountered confusion and save my description of the ‘missed conclusion’ for a later post. Read the full post →

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The Patriots and Confirmation Bias

by Russ Roberts on May 13, 2015

in Data, Sports

I really wanted the Wells Report to exonerate the Patriots. It did not. So being a huge Patriots fan, I read the Report carefully hoping to find a flaw. At first, I thought the engineering consulting firm, Exponent, had left a huge puzzle unexplored–while it’s true that the Pats balls apparently deflated a lot more than the Colts balls after being used in the first half, they seemed to deflate a lot less than the physics would predict. This would imply some kind of measurement error.

But I was wrong. The study DID take that into account. They explained by pointing out that the Colts balls had spent more time in the toasty halftime locker room so they had a chance to warm up more and pressure measurements were indeed consistent.

So I thought some more and looked for a different flaw.

This is what confirmation bias is good for. It’s what ideology is good for. It helps you identify hypotheses you might not have thought of. To see it in action, the Patriots haters see the texts uncovered in the Wells Report as definitive. They can’t imagine an innocent explanation. But as a Patriots fan, I can. What matters then is how far-fetched or illogical my explanation is. For after all, I am a fan. I’m biased. So bias can have a value, but of course it’s dangerous. It’s prone to make you think you’re alternative explanation, no matter how far-fetched, is perfectly logical.

I found another flaw. At first I thought it was devastating. I thought so for hours. I couldn’t wait to publish it. But being sensitive to my bias, I did wait and chewed on it some more. At some point, I realized I had over-estimated its importance. It matters, just not as much as I had thought at first. It was a great exercise in restraint which is not my strong suit.

The bottom line is that it remains the case that the Patriots may have cheated and probably deserve punishment of some kind. But the actual data on the inflation levels of the Patriots balls over the course of the AFC Championship game isn’t as strong as the Wells Report suggest. If you’re interested in the details, here’s my take along with other observations I haven’t seen elsewhere. Patriots fans will find it somewhat comforting perhaps. Patriot haters will still be able to dismiss it, of course. Ah, bias.

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Writing in today’s New York Post, my former student Alex Nowrasteh expertly and wisely analyzes New York governor Andrew Cuomo’s knee-jerk response to the recent New York Times‘s report on work conditions in many New York nail salons.

Radley Balko on the scary consequences of police unions.  A slice:

Republicans have long been loathe to criticize police and police unions because they see themselves as the law-and-order party, despite the fact that deference to police ought to run afoul of their alleged dedication to limited government, and that Pasco’s group ought to animate the GOP’s distrust of public service unions.

Democrats have been playing defense on law-and-order issues since Michael Dukakis got creamed in the 1988 election. Any instinct to defend the disadvantaged groups disproportionately affected by police abuse gets drowned out by that and by the enormous influence wielded by police unions.

Ross Kaminsky ponders the politics and the economics of TPP, TPA, and the new split on this issue separating Pres. Obama from Sen. Elizabeth Warren and other Democrats.  And Ramesh Ponnuru joins in.

But what do rank-and-file Democrats think about trade?  (HT Roman Hardgrave)

Although he has yet to do any formal work toward earning a doctorate in economics, Jon Murphy is one of the best young economists I know.

In the link immediately above, Jon Murphy explains that prices set on markets are not arbitrary; they are both the products of, and reflections of, realities that are not optional; for example, even the state, with all of its mighty (if crude) power, cannot by enforcing a minimum-wage requirement of $7.25 per hour make a worker that produces at most only $7.00 per hour for his or her employer worth more than $7.00 per hour to his or her employer.  Mark Perry here uses an appropriate reductio ad absurdum to expose one of the (many) ways that supporters and sympathizers of minimum-wage legislation are mistaken.

Arnold Kling ponders how best to teach economics.  And although he’s not completely happy with it, he very much likes Dave Prychitko’s and my colleague Pete Boettke’s The Economic Way of Thinking textbook (the great intro-to-econ text started by the late Paul Heyne).  A slice from Arnold’s post:

I have been thinking about the problem of teaching emergent economics. A commenter suggested The Economic Way of Thinking, so I got the eleventh edition. Paul Heyne started the franchise, and this edition, from 2006, adds as co-authors Peter Boettke and David Prychitko. It is quite good. It is certainly an improvement over the Samuelson tradition in which the market is a machine, technocrats are its repairmen, and economists write the repair manual.

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Quotation of the Day…

by Don Boudreaux on May 13, 2015

in Prices, Reality Is Not Optional

… from page 8 of my colleagues Chris and Rachel Coyne’s essay “The Economics of Price Controls,” which is chapter 2 of Flaws & Ceilings, a superb new collection edited by Chris and Rachel:

Prices are a commonly misunderstood concept.  Many view prices as random numbers assigned by a seller.  Related to this, many see prices as being an impediment to accomplishing their desired goals.  For example, a young adult may desire to live in central London but quickly realises that they cannot to do so given the relatively high price of renting a flat in that area.  The view of prices as impediments to achieving one’s goals is one reason why there are so often calls for politicians and regulators to place controls on prices.  The belief, from the perspective of proponents of price controls, is that, if regulators impose controls, then people will be able to achieve goals that would otherwise be unachievable.  For example, in order to assist younger citizens with their cost of living, a politician may propose some combination of rent controls and a living wage to make cities such as London more affordable.  These views, however, misconstrue the fundamental nature and role that prices play in an economic system.

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Money In Politics!

by Don Boudreaux on May 12, 2015

in Politics

Below (between the double lines of asterisks) is the bulk of the text of a mass e-mail that arrived my e-mailbox this afternoon:

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GET INVOLVED IN VIRGINIA DEMOCRATIC POLITICS!

AND GET PAID DOING IT!

 

Description:

Northern Virginia Democratic political campaign is looking to hire paid canvassers for the final weeks of a June election. This political experience is a resume-builder and will help build connections for future political work.

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What’s this?!  A major political party is offering money – actual $$$$$ – to people to politic!  Should such a thing be legal?!?!?  Will not the honest voice and unalloyed will of The People be drowned out and polluted by such a nefarious influence?!

Sure, apologists for monied interests will concoct some half-baked story of how knowledge of the candidates and of the issues is not a free good that is rained down upon The People by nature.  These dollar-wad-wagging influencers will “explain” that money is “necessary” to call forth the resources (including campaign workers) that must be used to make the body-politic more informed about elections.  Shamelessly catering to the greed of their oligarchical masters, clever talking heads and pundits will assert – fantastically! – that offering to pay people money to spread information about elections is protected in the United States by the First Amendment.  Ha!  We all see through these lame and self-serving excuses.

I do hope and trust that Ms. Clinton, the editors of the New York Times, and other sensible souls who understand that people should not be free to spend money in politics will condemn this and other efforts to distort and even destroy vox populi with avari pecuniam.

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