… is from page 63 of the manuscript of Deirdre McCloskey‘s forthcoming volume, The Treasured Bourgeoisie: How Markets and Improvement Became Virtuous, 1600-1848, and Then Suspect (original emphasis):
If profit occurs, or doesn’t, the economy is articulating something worth attending to. It says, “Do more of this. People want it sufficiently to pay for it. Don’t do that. People won’t pay for it.” The articulation comes from the dollar votes of ordinary people, a democracy of what people are willing to pay. A market society therefore will not build a pyramid or a Taj Mahal, because ordinary people are not willing to pay for them. National glory, or more exactly the glory of kings and politicians and their wives, does not get supplied by a profit-making firm except by governmental purchase – itself untested by cash bids from the actual citizens, because the wherewithal for the governmental purchase is compulsory taxation. The test of governmental purchase is at best the result of a majority vote overriding the preferences of the minority, at worst the result of an elite’s self-interested will.
EconLog’s David Henderson has read carefully – in a way that I have yet to do – the Congressional Budget Office study that predicts employment losses for low-skilled workers (only teenagers?) if the national minimum wage in the U.S. is raised. David highlights the following passage from the CBO’s explanation of its method – a method that included a survey of the existing empirical literature on the effect that minimum-wage legislation has (or doesn’t have) on the number of jobs available to low-skilled workers:
Second, CBO considered the role of publication bias in its analysis. Academic journals tend to publish studies whose reported effects can be distinguished from no effect with a sufficient degree of statistical precision. According to some analyses of the minimum-wage literature, an unexpectedly large number of studies report a negative effect on employment with a degree of precision just above conventional thresholds for publication. That would suggest that journals’ failure to publish studies finding weak effects of minimum-wage changes on employment may have led to a published literature skewed toward stronger effects. CBO therefore located its range of plausible elasticities slightly closer to zero–that is, indicating a weaker effect on employment–than it would have otherwise. (p.22)
As David says, clever.
If I understand correctly what’s going on here, it’s not obvious to me that publication bias for minimum-wage studies runs the way the CBO assumes. Remember, the standard prediction in economics – the prediction that jumps out most obviously from familiar, textbook supply-and-demand analysis – is that raising the minimum wage reduces the number of jobs available to low-skilled workers. Empirical studies that find negative employment effects of hikes in the minimum wage are a cause for yawning; in contrast, studies that find no or only small negative effects on employment seem exotic and counter-intuitive (to most professional economists, at least). If there is publication bias, therefore, these latter studies are more likely to be published in over-large numbers than are the former.
So quite plausibly, any publication bias runs in the direction opposite to that which is assumed by the CBO. In other words, it makes more sense to assume that the published papers on the employment effects of minimum-wage legislation are biased in favor of those papers that find no or only weak effects of the minimum wage on the employment prospects of low-skilled workers.
The CBO study, in short, seems to give undue weight to the ‘no- or small-effect papers’ and, hence, too little weight to the papers whose findings are more in line with standard supply-and-demand analysis. If I am correct, then the negative effects on employment of minimum-wage legislation are likely even greater than those predicted by the CBO.
… is from page 62 of the manuscript of Deirdre McCloskey‘s forthcoming volume, The Treasured Bourgeoisie: How Markets and Improvement Became Virtuous, 1600-1848, and Then Suspect (original emphasis):
The four heirs of Sam Walton (Alice, Jim, Christy, and S. Robson) were worth a combined total of $107.3 billion (which puts them half-again above Bill Gates), earn from retailing in which profit margins are low (in groceries, which they now lead, extremely low). Wal-Mart must be doing something right (no, dears: not by underpaying its staff, which the lively forces of entry and exit in the labor market prevent it from doing even if it wanted to; but by pioneering control of inventory and by pioneering mass but negotiated buying, for the benefit of its shoppers, with a small margin left overt for Alice, Jim, Christy, and S. Robson).
My old NYU classmate Sandy Ikeda exposes four falsehoods about the free market. A slice:
Now, without giving too much personal information away, my own annual salary is over seven times the average poverty-level income in the United States this year. To some that’s pretty unequal, and I can imagine that a person making only $11,490 a year with no other source of income probably feels pretty bad-off compared to me. But consider that the annual income Bill Gates, according to this website, is about $3.7 billion. That’s $3.7 billion dollars a year! So Gates’s annual income is more than 43,500 times my own. That’s monstrously unequal by almost anyone’s standard. But it’s funny—maybe it’s just me, but I don’t feel oppressed by that fact at all. What does that mean?
I think it means that what most of us object to is not income inequality per se (although I know some people do) but poverty. So the question becomes: What is the best way to fight poverty?
David Henderson explains that most benefits of an increased minimum wage would not go to households classified as ‘poor.’
Jim Dorn weighs in also on the economic folly (and immorality) of government prohibiting adults from reaching mutually advantageous terms of employment. A slice:
The government has no business telling private employers what to pay or telling workers they cannot offer their labor services at less than the legal minimum wage, even if they are willing to do so to retain or get a job. The President’s minimum wage is anti-economic freedom and violates personal freedom; Gap’s higher entry wage does neither. This is a case of “the emperor has no clothes!”
Ben Zycher on Jeffrey Sachs on Keystone XL.
Steve Hanke on Milton Friedman on Bitcoin.
… is from page 28 of the manuscript of Deirdre McCloskey‘s forthcoming volume, The Treasured Bourgeoisie: How Markets and Improvement Became Virtuous, 1600-1848, and Then Suspect (original emphasis; footnote excluded):
The usual way of talking about poverty is by income alone, using an ever-shifting “poverty line.” As the Australian economist Peter Saunders notes, however, poverty rates “automatically shift upwards whenever the real incomes (and hence the poverty line) are rising.” The poor are always with us by definition, the opposite of the Lake Wobegon effect – it’s not that all the children are above average, but that there is always a bottom fifth, of course, in any income distribution.
… is from page 120 of Diane Coyle’s 2014 book, GDP:
The constant improvements in the quality of products as well as the introduction of new goods and services over time have made it ever harder to calculate a meaningful general price level: today’s laptop is a vastly different machine from one bought just a few years ago for the same price, and the price of computing was infinite a few decades ago because computers did not exist. It is hard to capture this transformation in a single price index.
I will be moderating a live EconTalk conversation on climate change with John Christy of University of Alabama-Huntsville and Kerry Emanuel of MIT at UAH’s Business School. Come and out and listen. RSVP here.
Writing in today’s Wall Street Journal, Jim Piereson helps us to better understand just who are in America’s top 1 percent of income earners. A slice:
The top earners depend heavily on salaries. In 2010 the top 1% earned 36% of their incomes from salaries and wages (what the CBO calls labor income), 22% from businesses, farms and partnerships, and just 19% from capital gains. The majority of their income would thus be taxed today either at the corporate or the highest marginal rate rather than at the lower capital-gains rate of 23.8%.
Wanna get a sense of the size of labor-unions’ political contributions relative to those of, oh, the Koch brothers? Mark Perry has the picture.
Speaking of political contributions, I wonder if billionaire Tom Steyer will cause as much anguish among “Progressives” as do, oh, the Koch brothers.
My friend Ross Kaminsky reminded me that many years ago I wrote this little piece on puffery. I post it here simply so that I can more easily find it in the future if I need it.
David Henderson is less impressed than Tyler Cowen seems to be by Jason Furman’s performance in the White House.
Gene Healy explains why U.S. presidents emphatically are not worth celebrating. (Duh! They’re politicians – members of a profession as worthy of celebration as are, say, house burglars or purveyors of Ponzi schemes.)
John Cochrane makes available this 2008 video of Eugene Fama explaining the efficient-markets hypothesis.
… is from page 17 of the 2010 Liberty Fund edition of Israel Kirzner’s important 1966 volume, An Essay on Capital (footnote excluded):
The market process consists in the systematic chain of events that ensues from the interaction in the market of the decisions of numerous participants. These decision-makers find, at the outset, that the opportunities that are in fact being offered to them in the market (by virtue of the decisions of others) are different (either more or less attractive) than those originally expected. From the lessons learned in the market in this way, there follows a systematic pattern of adjustment and revision in the decisions made by market participants. This pattern of adjustment constitutes the market process.
Many excellent analyses have been done to explain why freeing the market for transplantable body organs would be a tremendously positive move toward a more humane – and healthier – society. Lloyd Cohen, for example – a GMU colleague of mine from over in the law school – has done great good work in this area. So has Sally Satel. (And here’s a short essay that University of Michigan law professor Adam Pritchard and I wrote in 1999 on this matter.) But this letter in tomorrow’s Wall Street Journal cuts right through to one vital consideration in favor of allowing organ donors to be paid market prices for their organs:
Why is it morally OK for everyone in the process to be paid for their time, talent and expenses except the one person who makes it all possible? Hundreds of thousands of dollars go to surgeons, anesthetists, hospitals, etc., for a transplant procedure, but it’s morally reprehensible for the donor to receive a dime?
It’s time for the altruists to get over themselves. We cannot afford the price of their convictions.
Do realize that the current prohibition on organ donors being paid to donate organs (that they are perfectly free to donate for free) is, in effect, a price ceiling of $0.00 on donate organs. I leave it to Cafe patrons to determine what this price ceiling does to the market value of transplantable body organs – and what a lifting of this price ceiling will likely do to the prices that transplant surgeons and hospitals can charge for their transplant services.