Some Links

by Don Boudreaux on March 15, 2015

in Immigration, Monetary Policy, Seen and Unseen, Work

It appears as though the war on poverty in the U.S. has been won.  (Why do so many people on the political left insist on denying what might well be evidence of the effectiveness and success of their programs?)

The war on poverty, however, has emphatically not been won across the globe.  Bjorn Lomborg argues that freer trade and freer migration would help to win that war.

Russ’s latest EconTalk podcast – recorded live before an audience late last month at the Cato Institute – features my colleague Larry White.

Mark Perry weighs in on the inevitable ill consequences of Seattle’s attempt to outlaw the employment of all workers who are unable to produce at least as much as $15 per hour of value for employers.  (Many people think that such legislation is humane.  But the people who think this way are duped by the title of the legislation and by the fine-sounding public proclamations of the legislation’s supporters.  Suppose, though, that this legislation were called, not a “minimum wage,” but instead a “prohibition on the paid employment of any and all persons who are unable to produce more than $14.99 per hour of value for employers.”  How much popular support would the legislation have then?  How many journalists and pundits would continue to think of the Seattle politicians who pushed this statute as being especially progressive and wise?  How many economists would cast aside the core and foundational principles of their discipline in order to devise ad hoc justifications for such legislation?)

Jerry Jordan – former President of the Cleveland Fed – warns of the many moral hazards of central banking.

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Quotation of the Day…

by Don Boudreaux on March 15, 2015

in Politics

… is from page 283 of the 1975 HarperPerennial printing of the third (1950) edition of Joseph Schumpeter‘s brilliant and pioneering 1942 treatise, Capitalism, Socialism, and Democracy:

A party is not, as classical doctrine (or Edmund Burke) would have us believe, a group of men who intend to promote public welfare “upon some principle on which they are all agreed.”  This rationalization is so dangerous because it is so tempting.  For all parties will of course, at any given time, provide themselves with a stock of principles or planks and these principles or planks may be as characteristic of the party that adopts them and as important for its success as the brands of goods a department store sells are characteristic of it and important for its success.  But the department store cannot be defined in terms of its brands and a party cannot be defined in terms of its principles.  A party is a group whose members propose to act in concert in the competitive struggle for political power.

Politics is about the gaining, the maintaining, the extending, and the exercise of power.  Period.  It’s true that the world is chock-full of naive people who sincerely believe that politics is about promoting the public welfare through collective action.  Such people occasionally, if not typically, even manage to win political office.  But the chief role that such naive people play in politics is to serve as useful idiots for realistic people who pursue and hold power.  What better way to burgle your victims’ homes than for them, in their naiveté, actually to invite you in and gladly to give you the keys to their lock-boxes?  What better way to gain at your neighbors’ expense than to convince them that your regular visitations are those of a deeply caring and altruistic servant, and that your routine removal of their properties during these visitations are done only to further their, their children’s, and their neighbors’ welfare?

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Hon. Beggar

by Don Boudreaux on March 14, 2015

in Other People's Money

Earlier today, returning home after getting my hair cut, I was stopped by a traffic light at a busy intersection at which a beggar was, well, begging.  I seldom give money to beggars, but I had a couple of bucks in my pocket that I decided to give to the guy.

“Thanks,” he said, not making eye contact.  He then added “Helluva way to make a living, huh?”  I replied, “Well, at least you’re not a politician.  Your occupation is a far less dishonorable one than that.”

The light turned green and I drove off.  I don’t think that my remark registered with the beggar, but my remark is, I believe, accurate.

However dishonorable it is (and it certainly is dishonorable) to beg strangers for money, it’s far less dishonorable than demanding money from strangers (and caging or killing those who refuse to fork over the amounts demanded).  And to make matters worse, politicians top off their thievery with with intelligence-insulting proclamations about how their practice of thievery is a self-sacrificial line of work meant to help others.  Yet, despite the reality of such falsehood-masked money-taking, politicians in the U.S. typically have their names prefixed with “Hon.” – a blatant lie if ever a blatant lie were told.

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Salim Furth helps to expose as mythical the claim that ordinary Americans’ real pay has stagnated over the past several decades.  A slice:

High wage growth is universally applauded, but many proposals for raising wages are poorly reasoned. One common policy argument is to choose a period of historically high wage growth, such as the 1960s or the 1990s, and then cherry-pick one or two policies that were in place at the time. Misplaced nostalgia for the 1960s might make pundits pine for strong unions or a large manufacturing sector, but those same pundits would blanch at bringing back most other aspects of the 1960s economy: race and gender segregation in most workplaces, a military draft, low social spending, and high marginal tax rates.

Cass Sunstein reviews (gated) the new volume edited by Sandra Peart, Hayek on Mill: The Mill-Taylor Friendship and Other Writings.

My GMU Econ colleague Garett Jones is one of the guests on this week’s Stossel (which aired last night and will air again on Sunday evening on Fox).

My intrepid Mercatus Center colleague Veronique de Rugy has a list of the top foreign buyers of U.S. exports subsidized by that great geyser of cronyism, the U.S. Export-Import Bank.

With help from Steve Chapman and Tyler Cowen, David Henderson draws an interesting comparison between Paul Krugman and Benjamin Netanyahu.

The great Matt Ridley explains that fossil fuels will save the world – no joking.

Seattle is hit with a mysterious rash of restaurant closures!

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Quotation of the Day…

by Don Boudreaux on March 14, 2015

in Economics

… is from page 64 of the 5th edition (2015) of Thomas Sowell’s Basic Economics:

Just as poetic discussion of the weather is not meteorology, so an issuance of moral pronouncements or political creeds about the economy is not economics.

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Here’s another letter to my new, persistent correspondent:

Mr. Marion Ellis

Dear Mr. Ellis:

You again assert that because corporations are now “sitting on mountains of cash” they will therefore pay a higher mandated minimum wage in full without adjusting their labor practices in any ways that harm low-skilled workers.

Much is wrong with your assertion, not least that you fail to ask why corporations are choosing now not to invest (as you say) “as much as they can.”  Presumably they find greater investment to be unduly risky or otherwise unlikely to yield sufficiently high returns.  Therefore, a government mandate that artificially raises labor costs even further is likely to make corporations even less willing to invest than they already are.

But let me also ask if you favor a carbon tax to reduce CO2 emissions.  I judge from your many other e-mails that you do indeed favor such a tax.  If so, given your belief that a higher minimum wage will simply be paid for out of “excess” corporate cash reserves, why do you not also believe that a carbon tax will simply be paid for out of these same “excess” cash reserves?  That is, if you (correctly) understand that a government mandate that forces businesses to pay more for each unit of carbon they emit will cause businesses - regardless of their cash holdings - to reduce the amounts of carbon they emit, why do you think that a government mandate that forces businesses to pay more for each unit of low-skilled labor that they employ will not cause businesses to reduce the amounts of low-skilled labor that they employ?  That’s a first-rank inconsistency.

Donald J. Boudreaux
Professor of Economics
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 March 13, 2015

in Scientism, Seen and Unseen, Work

… is my colleague Dan Klein’s comment on this recent EconLog post by David Henderson (original emphasis):

The term fringe benefits isn’t as general as non-wage job attributes. For example:

- work demands
- flexibility in schedule
- kindness, amiability in the workplace
- consideration and respect in the workplace
- upward mobility
- unpleasantness/pleasantness of the work
- health insurance
- on-the-job training
- lockers for workers
- food for workers
- air conditioning and good lighting
- workplace safety
- etc. etc. etc.

Non-wage job attributes.

That is the term for all that is beyond the wage.

The value to workers of some of these things can, with some effort, be reasonably measured quantitatively; the value of others of these things – for example, amiability in the workplace – cannot be so measured.  Yet each one of these job attributes (including the many in the “etc. etc. etc.”) can be changed by employers in response to a change in the legislated minimum wage.  And many of these job attributes will be changed insofar as employers don’t simply hire fewer hours of low-skilled workers.

Defenders of the empirical studies that show little or no disemployment effects of minimum-wage legislation, in addition to generally taking an economically unjustified short-term view of the matter, typically ignore these other potential negative consequences of minimum wages.  If the numbers don’t show it, then it must not exist – or so it is unreasonably reasoned.

Such defenders of minimum-wage legislation who assert that empirical studies refute the economic case against such legislation are poor economists.  They see only what their numbers show; they remain blind to what economic reasoning strongly suggests is real but uncapturable in the numbers.  These defenders of minimum-wage legislation don’t understand the full range and depth of the economic analysis.  That analysis shows that raising employers’ costs of employing low-skilled workers will cause employers to economize further on the amounts and kinds of low-skilled labor they employ.  One way that such economizing will occur is that employers will employ fewer hours of such labor – but that’s not the only way that economizing can occur.  Adjustments – all unfavorable to minimum-wage workers – along the many of the margins highlighted above by Dan will likely also be made.

The victims of such a policy of artificially raising workers’ hourly money wages are the workers who can least afford to be victimized by such a policy.  And the fact that some of the proponents of the minimum wage mean well, and that other proponents trot out empirical studies that naively (if with impressive window displays) report that minimum-wage legislation has no or only de minimus downsides in order to assure the world that science is on the side of minimum-wage legislation, does not relieve the unjust damage uncorked on poor people by such legislation.

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George Will writes eloquently about that great geyser of cronyism, the U.S. Export-Import Bank.  A slice:

Progressivism postulates what realism about government refutes — the congruence of the government’s interests and the public’s needs. Sen. Elizabeth Warren (D-Mass.) — rhetorical scourge of Wall Street, big banks, the 1 percent, etc. — supports Ex-Im, even though it helps to fatten seven- and eight-figure compensation packages for the leaders of some large U.S. firms, which get the lion’s share of the bank’s resources.

And for the many Republicans out there who continue to believe that their party is the party of free markets and of principle, Tim Carney has some depressing news.

Cato’s Alan Reynolds is understandably disappointed in U.S. Council of Economic Advisors’ Chairman Jason Furman’s mistaken take on recent U.S. economic history.

Bob Murphy explains that markets see ahead much further in time – and more clearly – than does government.

Paul Samuelson really should have had a better grip on 20th-century American history.

In this podcast with my former student Caleb Brown, Antony Davies discusses (among other topics) the fallacious, if popular, argument that proclaims that public debt is no problem insofar as “we owe it to ourselves.”

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Quotation of the Day…

by Don Boudreaux on March 12, 2015

in Complexity & Emergence, Growth, Seen and Unseen

… is from page 102 of Thomas Sowell’s 2009 book Intellectuals and Society:

The very concept of change used by the intelligentsia of the left – which is to say, most of the intelligentsia – is arbitrarily restrictive and tendentious.  It means in practice the particular kinds of changes, through the particular kinds of social mechanisms that they envision.  Other changes – no matter how large or how consequential for the lives of millions of people – tend to be ignored if they occur through other mechanisms and in ways not contemplated by the intelligentsia.  At the very least, such unprescribed developments outside the scope of the vision of the anointed are denied the honorific title of “change.”

The 1920s, for example, were a decade of huge changes for the people of the United States: the change from a predominantly rural to a predominantly urban society, the spread of electricity, automobiles, and radios to vastly more millions of Americans, the beginning of commercial air travel, the revolutionizing of retail selling with resulting lower prices by the rapid spread of chain stores.  Yet when intellectuals refer to eras of “change,” they almost never mention the 1920s – because these sweeping changes in the way millions of Americans lived their lives were not the particular kinds of changes envisioned by the intelligentsia, through the particular kinds of social mechanisms envisioned by the intelligentsia.  In the eyes of much of the intelligentsia, the 1920s (when that decade is thought of at all) are seen as a period of a stagnant status quo, presided over by conservative administrations opposed to “change.”

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Here’s another letter to my new correspondent Marion Ellis.  (Mr. Ellis, by the way, wasn’t the only person to e-mail me to accuse me of ignoring this alleged happy consequence of raising the minimum wage.)

Dear Mr. Ellis:

You ask why I “disregard the higher spending by minimum wage workers as a cause of more demand for these workers.”  With respect, while all arguments in favor of the minimum wage are bad, among the absolute worst of these arguments is the one (that you offer here) that says that a hike in the minimum wage causes the demand for low-skilled workers to rise because these workers will then have more money to spend.

First, your argument blithely assumes that the demand for low-skilled workers is (to use an economics term) inelastic - that is, it assumes that the percentage increase in the minimum wage is larger than the resulting initial percentage reduction in employers’ demand for hours of low-skilled labor.  But if instead - as seems more plausible - the demand for such workers is elastic, then a hike in the minimum wage reduces the total amount of income earned by minimum-wage workers.  Such workers then have less, not more, total income to spend.

Second, even if (as your argument assumes) the demand for labor is inelastic, the extra income earned by low-skilled workers comes from somewhere.  This fact means that other people in the economy - employers whose profits fall because of their higher wage bills, and consumers who spend more on the likes of higher-priced fast food and motel rooms - must spend less elsewhere, thus likely offsetting the increased spending by minimum-wage workers.

Third, your argument assumes that all or most of the extra income received by minimum-wage workers is spent in ways that support each other’s employment.  To see why this assumption is illegitimate, ask yourself if you think that a legislated minimum price for bread will cause bakers to sell more, rather than less, bread.  Do you think that if bakers as a group earn higher profits because of this legislation that they’ll spend enough of those extra profits buying so much of each other’s bread that the total amount of bread sold will rise beyond the level it achieved prior to the mandated hike in the price of bread?  Both common sense and economic theory tell us that such an outcome is extraordinarily unlikely.  Yet such an outcome is not much different from the one that you assume regarding the extra spending of minimum-wage workers.

Donald J. Boudreaux
Professor of Economics
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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