Writing in today’s Wall Street Journal, Rep. Jeb Hensarling (R-TX) explains that Dodd-Frank – which turns five-years-old tomorrow – has failed to improve the economy.  (gated)  Hensarling cites this 2013 from my Mercatus Center colleague Patrick McLaughlin (co-authored with Robert Greene) showing that the 2008 financial crisis was emphatically not caused by deregulation.  A slice from Hensarling’s essay:

Before Dodd-Frank’s passage, former Sen. Chris Dodd said that “no one will know until this is actually in place how it works.” Today we know. The law he co-wrote with former Rep. Barney Frank is gradually turning America’s largest financial institutions into functional utilities and taking the power to allocate capital—the lifeblood of the U.S. economy—away from the free market and delivering it to political actors in Washington.

Also in today’s Wall Street Journal is John Tamny’s explanation that politicians who target CEO pay reveal their economic ignorance or their shameful willingness to play on the economic ignorance or envy of voters.  (gated)

Baylor University’s Per Bylund explains that robots will indeed destroy more and more jobs currently performed by humans and that such progress is today, and will be tomorrow, a great blessing – just as it has been in the past.  (HT Warren Smith)  A slice:

Automation also leads to greater efficiency and abundance that raises living standards for all of us. Sticking with the example of agriculture, technological advancement has led to an unprecedented abundance and diverse selection of foods. According to a United Nations report, “the number of hungry people decline[d] globally by more than 100 million over the last decade and by 209 million since 1990-92.”

James Pethokoukis very nicely summarizes the main competing hypotheses for the fall in measured productivity increases.

Also from Pethokoukis is this nice response to a new proposal by Nick Hanauer and David Rolf to allegedly make workers better off in the ‘gig economy.‘  (Nick Hanauer seems to be in a competition with Pope Francis to prove who of the two is the most economically ignorant.  I’m unsure who is now ahead in this unseemly race.)

Bart Hinkle explores the bizarro and unintellectual world of political correctness at Virginia Tech.  (HT David Boaz – who, e-mailing me, notes that it’s likely good that Gordon Tullock, who served for many years on Virginia Tech’s faculty, did not live to witness this nonsense in Blacksburg.)

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Quotation of the Day…

by Don Boudreaux on July 20, 2015

in Politics

… is from page 125 of the 1997 Johns Hopkins University Press edition of H.L. Mencken’s 1956 collection, Minority Report:

The only way that democracy can be made bearable is by developing and cherishing a class of men sufficiently honest and disinterested to challenge the prevailing quacks.  No such class has ever appeared in strength in the United States.  Thus the business of harassing the quacks devolves upon the newspapers.  When they fail in their duty, which is usually, we are at the quacks’ mercy.

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This letter is to a Cafe patron:

Mr. B. Harris

Dear Mr. Harris:

Thanks for your e-mail.

First, when I say in my blog post that Paul Krugman is wrong, I refer not to the correctness or incorrectness of his reasons for supporting the minimum wage but, instead, only to his claim that “there’s just no evidence that raising the minimum wage costs jobs.”  On this matter he is indeed, contrary to your defense of him, clearly and verifiably wrong (as my blog post documents).

Second, you mistakenly suppose that the argument over the rightness or wrongness of the minimum wage turns on accurately measuring the amount of extra income earned by minimum-wage workers who keep their jobs compared to the amount of income lost by workers who are rendered unemployed by the minimum wage.  Yet, in fact, the traditional economists’ objection to the minimum wage has nothing whatsoever to do with the effect of the minimum wage on low-skilled-workers’ aggregate income.  I’m perfectly willing to believe that a higher minimum wage results in a higher income for low-skilled workers as a group.

My objection to the minimum wage stems exclusively from the economic reality that such legislation arbitrarily prices some workers out of jobs.  (Incidentally, it also causes total economic output to be lower than otherwise – so total income for the group “all people” falls.)  Discussing all low-skilled workers as if they are a unified group with a single collective interest – such as, say, a family – is deeply erroneous.  They are no such thing.  And so the government has neither an economically nor a morally defensible reason to enforce policies that cause some low-skilled workers’ incomes to rise by making it impossible for other low-skilled workers to find jobs, even if the gains enjoyed by the employed low-skilled workers exceed the losses suffered by the ones forced into the ranks of the unemployed.

If you disagree, then consider the following scenario.  Suppose that an economist produces an indisputably correct quantitative study showing that a policy of outlawing the employment of everyone whose last name is “Harris” will increase the total income of that group of workers whose last names start with “H.”  Such an outcome is perfectly possible in reality.  So would you, as an unemployed Harris, console yourself with the knowledge that you’re a member of a group – namely, people whose last names start with “H” – that, because of the policy that causes you to be unemployed, has a higher aggregate income?  Would you suppose that voters, pundits, and politicians have a scientifically sound reason to support this government policy of prohibiting you and all other Harrises from working?

My guess is that you’d oppose – and rightly so – such an anti-Harris policy.  Yet such a policy is quite similar in its economic and ethical essence to a legislated 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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… is from page 351 of the late Daniel Boorstin’s indispensable 1973 volume, The Americans: The Democratic Experience:

In the United State, hotels continued to set the pace.  As early as 1853, the luxurious Mount Vernon Hotel at Cape May, New Jersey, impressed Americans and amazed travelers from Britain by equipping every room not only with running water but also with a bathtub.  By 1877, one medium-priced Boston hotel offered in each of its rooms a wash basin with running hot and cold water.  But it was the early twentieth century before the private bathroom became normal for every room in better American hotels.

This historical example highlights yet another way in which ordinary people’s lives are made cleaner by capitalism.

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Suppose that, say, Bob Higgs or George Will or Richard Epstein or Holman Jenkins or Deirdre McCloskey or David Boaz – or, really, any well-respected public intellectual known to favor free markets – wrote the following in a major publication:

There’s just no evidence that raising the minimum wage fails to destroy some jobs, even when the starting point is as low as it is in modern America.

What would be the political left’s reaction to this assertion?  Almost certainly a reaction from the political left would occur quickly and be full of indignation and accusations about how libertarians and free-market conservatives lie.  And if any free-market writer were today really to write such a thing as above, it would indeed likely be either a lie or evidence that the writer is inexcusably uninformed about the subject that he or she has chosen to write about.

The fact is that there is indeed some evidence that raising the minimum wage fails to destroy some jobs, even when the starting point is as low as it is in modern America.  David Card’s and Alan Krueger’s famous article of more than 20 years ago is only the most notable of a long list of empirical studies that find no, or only the most insignificant, negative employment effects of raising the minimum wage in the United States.  Perhaps the most intrepid researcher today whose research finds no negative employment effects of raising the minimum wage is Arindrajit Dube, a highly skilled and respected University of Chicago PhD economist who is now on the economics faculty at U-Mass Amherst.

Of course, that such evidence exists means neither that it is correct (or even persuasive) nor that there is no contradictory evidence.  Yet however much one might question this evidence that finds no disemployment effects of raising the minimum wage, one cannot deny that this evidence exists.  Nor can one dismiss this evidence by asserting that it is either insufficiently ample or that it comes from researchers who lack credibility.

Any such statement as above would deeply embarrass me – as an opponent of minimum-wage legislation – even though I didn’t write it.  I would search for a plausible explanation other than the author being either a liar or inexcusably uninformed.  Perhaps the writer was simply careless in his or her composition.  Or perhaps the writer originally included the word “credible” immediately before the word “evidence” only to discover that some terrible copyeditor, incredibly, deleted the word “credible.”  (Inserting the word “credible” before “evidence” would go some way toward mitigating the untruthfulness of the above quotation, but even that move would have given most non-economist readers a mistaken impression about the current view of economists on the matter of the minimum wage.)  But it would be damned difficult – likely impossible – to find a reason not to elevate your distrust of anything this writer offers up in the future.

Yet what do we read in yesterday’s New York Times from Nobel laureate economist Paul Krugman?  We read this:

There’s just no evidence that raising the minimum wage costs jobs, at least when the starting point is as low as it is in modern America.

This statement is simply, verifiably untrue.  There is indeed evidence – and lots of it – that raising the minimum wage costs jobs, even when the starting point is as low as it is in America.

David Neumark and William Wascher have done several empirical studies, all highly technical and careful, that find disemployment effects of raising the minimum wage.  (They’ve even published a book in 2010 with the MIT Press on this matter.)  UC – San Diego economists Jeffrey Clemens’s and Michael Wither’s recent study – containing evidence that Krugman says doesn’t exist – is much-cited.  Jonathan Meer (of Texas A&M) and Jeremy West (of MIT) also have recently offered evidence that Krugman says is non-existent.  Cornell’s Richard Burkhauser and American University’s Joseph Sabia are also among the economists who’ve recently found evidence the existence of which Krugman denies.  Indeed, even the Congressional Budget Office, just this past February, presented evidence to support its prediction that a hike in the U.S. minimum wage to $10.10 per hour would destroy 500,000 jobs, and destroy 100,000 jobs if it is raised to $9.00 per hour.

Now Krugman surely does dispute this evidence (which is fair).  But for him to say that no such evidence exists is….  well, perhaps he’s the victim of a terrible copyeditor.  Let’s hope that the New York Times in the future is more careful about editing Mr. Krugman’s columns so as to ensure that his intended meaning isn’t lost in the final product.

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William Occam compares the insightful Dr. Krugman’s economics-full analysis of the minimum wage with the benighted Mr. Krugman’s economics-free analysis of the minimum wage.

Speaking of the mysterious transformation of Dr. Krugman into Mr. Krugman, I believe that I have not yet linked to this months-old Forbes essay by Tim Worstall.

And in his Forbes essay today, Tim Worstall explains that Mr. Krugman now has strayed so far away from economics that he – Krugman – seems to argue that labor is not subject to the law of demand.

Another scholar who has probing questions for Mr. Krugman about the minimum wage is economist Matthew Kahn.

I thank Warren Smith for alerting me to Thomas Sowell’s March 18, 2015, essay on the ruinous compassion that fuels support for the minimum wage.  A slice:

Looking back over my own life, I realize now how lucky I was when I left home in 1948, at the age of 17, to become self-supporting. The unemployment rate for 16- and 17-year-old blacks at that time was under 10 percent. Inflation had made the minimum-wage law, passed ten years earlier, irrelevant. But it was only a matter of time before liberal compassion led to repeated increases in the minimum wage, to keep up with inflation. The annual unemployment rate for black teenagers has never been less than 20 percent in the past 50 years and has ranged as high as over 50 percent.

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Quotation of the Day…

by Don Boudreaux on July 18, 2015

in Hubris and humility

… is from pages 64-65 of the 2006 Liberty Fund edition of Ludwig von Mises’s 1956 volume, The Anti-Capitalistic Mentality:

The vain arrogance of the literati and the Bohemian artists dismisses the activities of the businessmen as unintellectual moneymaking.  The truth is that the entrepreneurs and promoters display more intellectual faculties and intuition than the average writer and painter.  The inferiority of many self-styled intellectuals manifests itself precisely in the fact that they fail to recognize what capacity and reasoning power are required to develop and to operate successfully a business enterprise.

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A core “Progressive” belief:

Dominated by powerful, grasping, and profit-obsessed capitalists, the market works so poorly that workers are generally underpaid for overly difficult work while consumers are generally overcharged for poor-quality products, and yet the assurance of earning even more money by exploiting the profit opportunities created by all this underpaying and overcharging remains hidden from the view of the greedy capitalists.  Such opportunities are seen only by politicians, pundits, professors, preachers, and popes – yet each of whom is best equipped only to force other people to stake funds on efforts aimed at correcting these market inefficiencies.

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Here’s a letter to a faithful Cafe Hayek patron:

Mr. Arthur Petersen

Dear Mr. Petersen:

Thanks for your very kind e-mail about your friend who admires Bernie Sanders’s economics.

Believing that capitalism unfairly exploits workers, your friend denies your claim that “people make wages based on their value to their employer.”  According to your friend, your claim (as he describes it) “is a terrible fallacy.  People make what the market allows them to, not based on the value they bring to the market but how many other people could bring the same value.”

Your friend, while expressing an important detail, is mistaken.

The important detail expressed by your friend is that Jones’s wage is indeed determined by how many other workers can perform the job that Jones performs.  But your friend is mistaken to conclude from this fact that Jones’s wage is not based on her value to her employer.  Wages are determined by the value that the additional worker adds to her employer’s bottom line.  It’s true that if many workers can perform the same task at which Jones works, then the addition that Jones contributes to her employer’s bottom line is small (because also lots of other workers are performing that same task) and so Jones’s wage will be low.  In contrast, if very few workers can perform the task at which Jones works, then the addition that Jones contributes to her employer’s bottom line is large and, so, Jones’s wage will be high.  In either case, Jones’s wage reflects – as you correctly told your friend – the worker’s value to her employer.  In economists’ language, wages are determined by the value of the worker’s marginal product.

Now your friend might assert in response that most employers consistently pay workers less than the value of workers’ marginal products.  If he replies in this way, challenge your friend to give evidence of his belief in his assertion: tell him that he can simultaneously (1) prove that he means what he says, (2) make a personal fortune, and (3) directly help many workers, all simply by himself opening a business and hiring away at higher wages lots of underpaid workers.  If your friend’s response is to help solve the alleged problem of unfair worker exploitation only by voting for Bernie Sanders rather than by opening his own business, then he reveals that his understanding of economic reality is unreliable or that he, deep down, doesn’t really believe what he asserts.  Either way, if your friend rejects your suggestion you’ve no need to take his argument seriously.

Don

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EconLog’s David Henderson highlights some parts of Donald Trump’s recent talk at FreedomFest – a talk that features some of the most asininely stupid statements that a human being can possibly make about the economy.  Here’s my “favorite” from that bloviating ignoramus (an apt descriptor that I steal from George Will):

The biggest boats I’ve ever seen, I just left Los Angeles, thousands of cars, millions of cars coming in [from Japan.] We get nothing. We get cars. They get . . . We want to send rice, we want to send corn. . . . The imbalance of these things. They send a car. We send corn.

(In fairness to Trump, he did nothing more here than express in stark form the standard mercantilist belief held by 99 percent of politicians, pundits, and the general public.  It’s the belief that the true object of trade is to get from foreigners as much money as possible while spending as little money as possible buying foreign-made products; it’s the belief that the getting of goods such as cars and textiles and industrial chemicals from foreigners is the unfortunate cost that domestic citizens must bear in order to enjoy the splendid and enriching privilege of shipping ever more goods and services abroad in return for precious metals, Federal Reserve Notes, euros, yuan, and other media of exchange.  It’s a belief that everyone with even a tiny inkling of how to think correctly about the economy rejects in toto and without qualification.)

Speaking of Trump’s speech at FreedomFest, Reason’s Matt Welsh is among the many people who were horrified by it.  A slice:

This is the single dumbest speech I have witnessed in 17 years of covering American politics. Not just the lies, the policy positions (such that they existed), or even the dizzying heights self-regard, but the level of basic human intelligence and decency. For a guy who complains that the media only quotes “half-sentences,” Trump’s real adversary is the full-length transcript. These aren’t speeches, they’re seizures.

And here’s Jeff Tucker on Trump’s FreedomFest fiasco.  A slice:

I just heard Trump speak live. The speech lasted an hour, and my jaw was on the floor most of the time. I’ve never before witnessed such a brazen display of nativistic jingoism, along with a complete disregard for economic reality. It was an awesome experience, a perfect repudiation of all good sense and intellectual sobriety.

Yes, he is against the establishment, against existing conventions. It also serves as an important reminder: as bad as the status quo is, it could be worse. Trump is dedicated to taking us there.

Tim Sandefur instructs us in the the pre-Uber history – specifically, from the mid-19th century – of the struggle of transportation entrepreneurs against transportation monopolists.

James Pethokoukis explains that the iPhone replaces $3,000 of tech stuff from the 1990s.

Reihan Salam explains what Hillary Clinton gets wrong about infrastructure.  (HT Tyler Cowen)  A slice:

The chief problem with our airports is not (pace Larry Summers) that they’re not as sleek and modern as the vast white elephants you’ll find in East Asia. Rather, it is that they are congested, and the reason they are congested is that the federal government doesn’t provide for market-rate pricing for take-off and landing slots. This straightforward reform would greatly increase the productivity, not to mention the pleasantness, of our aviation system. Yet it doesn’t involve spending billions of dollars and cutting ribbons, so politicians are by and large not interested.

My colleague Larry White was recently interviewed about Bitcoin.

Shikha Dalmia argues – sensibly, in my view – that Obama’s nuclear deal with Iran is, while hardly perfect, the best option available.  A slice:

But, here’s what the hawks need to grok: America might be the lone superpower right now, but it does not have God-like powers to command the world to its will. Hence, if preventing — or slowing — Iran’s acquisition of a nuclear weapon is a worthy goal, then a less-than-perfect deal is better than no deal — because the alternatives are worse.

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