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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Some Links

by Don Boudreaux on March 11, 2015

in Health, Inequality, Legal Issues, Monetary Policy, State of Macro

Earlier this week, Washington Post columnist Robert Samuelson complained about the alleged folly of Fed-bashing – which sparked this insightful and forceful reply from George Selgin on the very real folly of Fed obeisance.  Here’s George’s conclusion:

But the Fed needs more than mere watching. It needs scrutiny. It needs criticism. Above all, it needs to be reined in–not for conservatives’ sake, but for everyone’s. Mr. Samuelson may not like it. But I, for one, intend to keep bashing away.

In my latest Pittsburgh Tribune-Review column I explain that good economists are far less obsessed with money than are many non-economists (and poor economists).  A slice:

So, the good economist, while understanding that monetary incomes are certainly one relevant measure of economic well-being, understands also that they are ultimately not what matters most. What matters most is ability to consume. The good economist, therefore, worries less about differences in money incomes and focuses instead on differences in “consumptionability” — a focus that reveals that, regardless of what’s happening to income distribution, the ability to consume is becoming increasingly more equal.

Shikha Dalmia wisely argues that the U.S. Supreme Court should effectively scrap Obamacare.

Similarly, Richard Epstein argues that the Court should – as a matter of sound law – rule against the Obama administration in King v. Burwell.  (HT Steve Pejovich)

Alvaro Vargas Llosa exposes some of the predations of Venezuela’s current dictator.

John Taylor is not impressed with the current U.S. economic “recovery.

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Quotation of the Day…

by Don Boudreaux on March 11, 2015

in Civil Society, War

… is from Voltaire, as quoted on pages 192-193 of Daniel Boorstin’s 1998 book, The Seekers (emphasis supplied by Boorstin):

Of those who have commanded battalions and squadrons, only the names remain.  The human race has nothing to show for a hundred battles that have been waged.  But the great men I speak to you about have prepared pure and lasting pleasures for men yet to be born.  A canal lock uniting two seas, a painting by Poussin, a beautiful tragedy, a newly discovered truth – these are things a thousand times more precious than all the annals of the court or all the accounts of military campaigns.  You know that, with me, great men come first and heroes last.

I call great men all those who have excelled in creating what is useful or agreeable.  The plunderers of the provinces are mere heroes.

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