More on the minimum wage

Mark Perry, on his blog, Carpe Diem has a couple of posts on the minimum wage worth reading:

1. An New York Times editorial to get rid of the minimum wage?!? It’s from 1987. Amazing how much of shift there has been since then.

2. Perry also points to these wise words from Henry Hazlitt, author of the highly recommended Economics in One Lesson (and available for free .pdf download for any of your reading devices):

Thinking has become so emotional and so politically biased on the subject of wages that in most discussions of them the plainest principles are ignored. People who would be among the first to deny that prosperity could be brought about by artificially boosting prices, people who would be among the first to point out that minimum price laws might be most harmful to the very industries they were designed to help, will nevertheless advocate minimum wage laws, and denounce opponents of them, without misgivings.

The first thing that happens, for example, when a law is passed that no one shall be paid less than $9.00 per hour [updated) is that no one who is not worth $9 per hour to an employer will be employed at all. You cannot make a man worth a given amount by making it illegal for anyone to offer him anything less. You merely deprive him of the right to earn the amount that his abilities and situation would permit him to earn, while you deprive the community even of the moderate services that he is capable of rendering. In brief, for a low wage you substitute unemployment. You do harm all around, with no comparable compensation.

 

We get what we deserve

Here are some more on Obama’s remarks today from the New York Times:

“They [Republicans] will not collect a ransom in exchange for not crashing the American economy,” Mr. Obama vowed in the East Room, a week before his second inauguration. “The financial well-being of the American people is not leverage to be used. The full faith and credit of the United States of America is not a bargaining chip.”

And from the Washington Post:

In the final news conference of his first term, Obama said Republicans were threatening to hold “a gun at the head of the American people” and that he would not trade spending cuts, as Republicans demand, for an agreement to raise the federal debt ceiling.

“To even entertain this happening — of the United States of America not paying its bills — is irresponsible. It’s absurd.” He vowed that congressional Republicans “will not collect a ransom in exchange for not crashing the American economy. The financial well-being of the American people is not leverage to be used. The full faith and credit of the United States of America is not a bargaining chip.”

Now, I could address how ludicrous this is.

How, it reminds me of the type of fervent propaganda I learned about in places like the glorious\ Soviet Union.

Or, how these seem like mighty uncompromising words from a President who has bellyached a great deal about the other side’s inability to compromise.

Or, how dumb it is that the government has locked in a trillion dollar deficit, where they have turned a temporary stimulus spending level into the new government spending norm, where — after demonstrating abhorrent financial irresponsibility and avoiding making anything that appears to be a tough choice — they want an unlimited ability to write checks from ours’ and our children’s bank accounts.

But, I think we are well beyond all that. President Obama is becoming the classic example of we get what we deserve. 

And we’ll keeping getting it until we vote for adults who understand incentives that lead to prosperity, who can say no to special interests and balance a checkbook.

 

How Social Security can continue to be paid out without raising the debt limit

Here’s the New York Times reporting on President Obama’s remarks today:

“Treasury would be left to fund the government solely with the cash we have on hand on any given day,” he said, forcing it to choose among creditors, federal contractors, veterans,Social Security and Medicare beneficiaries and the many other claimants to federal dollars.

An enterprising reporter or Republican politician might do well to understand and point out what David Henderson has written on this topic here, where Henderson points to the Huffington Post’s debunking of the Social Security claim:

The Social Security Administration owns bonds that the U.S. Treasury has issued. To make up for a shortfall each month, the SSA could sell some of these bonds to the Treasury. But where would the Treasury get the money to pay for these bonds? By issuing bonds to the public. How could the Treasury do that if the debt ceiling is not raised? The debt ceiling includes the SSA bonds. So for every $1 billion the Treasury pays when the SSA redeems bonds, the Treasury could issue $1 billion in new bonds without affecting the official debt at all.

And what of the big government experiments that have led to the disasters?

In the past few days, Russ Roberts, of Cafe Hayek has posted on his blog asking John Cassidy and Paul Krugman to back up their claims that European governments have cut spending. Both claim that “cuts” in government spending are making these economies worse.  For example, Cassidy wrote:

Republicans say they want to slash government spending and focus on the deficit regardless of the immediate economic situation. The Europeans have carried out that experiment, and, to say the least, it hasn’t turned out very well.

Roberts asks a good question. If you want to claim that government spending has been cut, show your work so we can know what meaning of ‘cut’ you are using. Is that cut in absolute amounts? Cuts in growth rates of spending? Cut as a percent of GDP? Or just talks about cuts?

I’d also like to ask Cassidy why he focuses only on what he believes to be the spending “cut” experiments, while completely ignoring the big government experiments that have led these European countries to the brink of financial disaster.

Let’s assume the spending cuts are real. Saying they’re not working while ignoring all that came before is a bit like observing a drug addict going into withdrawal and concluding that quitting the drugs is causing the problem and everything would be fine if he were just to resume taking drugs and, maybe, up his dose.

We’ve cast our safety nets wide

Alex Tabarrok, of Marginal Revolution, pointed to a New York Times piece reporting that the poorest households no longer receive the majority of government benefits.  He quotes from the article:

The government safety net was created to keep Americans from abject poverty, but the poorest households no longer receive a majority of government benefits.

…Dozens of benefits programs provided an average of $6,583 for each man, woman and child in the county in 2009, a 69 percent increase from 2000 after adjusting for inflation.

Alan Blinder, in the Wall Street Journal column featured in a previous post, says that since some folks are set to roll off the 99-week unemployment benefits we have a “serious hole in the safety net.”

We seem to have ever enlarging ideas about what safety nets are, which in turn enlarge our Federal and state government spending budgets, governments’ desire to tax and government bureaucracies.

Most of the safety nets are not necessary.  They’re large transfers of payments, with a cut taken out by the bureaucracies that administer them.

Consider Social Security.  I bet that a large percentage of people who pay in and eventually receive Social Security benefits don’t need it because they’ve done a fine job of living below their means and saving for retirement.

If they had more control of the 12.4% of their wages that were forced into Social Security, they would have done even better.

Bastiat wrote in 1848:

Government is the great fiction through which everybody endeavors to live at the expense of everybody else.

Yep.

Government begets more government

This post at the Pretense of Knowledge blog points to New York Times article that is yet another (frustrating) demonstration of how government leads to more government.

In this case, the initial government interference includes the complex zoning requirements, large fees for business permits and long turnaround times for the city to approve new businesses.  All these create costs that make investors less likely to try to open a new business there.

Over time this creates a problem as the city doesn’t have many small and unique shops. But, rather than just fixing the barriers to entry caused by the previous government actions, they just propose another action to make it appear like they are trying to solve the problem.  In this case, the mayor proposes $1.5 million to help fund small businesses.

The video below does a nice job of illustrating the frustrating planning requirements.  I recommend watching it.

In the video, the aspiring business owner wants to open a simple ice cream shop in a vacant location.  She’s not asking for money.  Why not make it easy for her to give it a go?

They have a hard time determining how to classify her ice cream shop (full service or fast food?) and tangle over whether her employees will be able to deliver the food to the table (if delivered to the table it’s full service).  That doesn’t sound like a city that is serious about attracting new and unique businesses.

The productive and dependent “tribes”

David Brooks takes a leap in this New York Times column.  Brooks writes about the  disparities Charles Murray explores in his book, Coming Apart, between what I’ll call the productive class and the dependent class.  For example:

Today, Murray demonstrates, there is an archipelago of affluent enclaves clustered around the coastal cities, Chicago, Dallas and so on. If you’re born into one of them, you will probably go to college with people from one of the enclaves; you’ll marry someone from one of the enclaves; you’ll go off and live in one of the enclaves.

Roughly 7 percent of the white kids in the upper tribe are born out of wedlock, compared with roughly 45 percent of the kids in the lower tribe. In the upper tribe, nearly every man aged 30 to 49 is in the labor force. In the lower tribe, men in their prime working ages have been steadily dropping out of the labor force, in good times and bad.

People in the lower tribe are much less likely to get married, less likely to go to church, less likely to be active in their communities, more likely to watch TV excessively, more likely to be obese.

And then Brooks makes his leap by recommending…

…a program that would force members of the upper tribe and the lower tribe to live together, if only for a few years. We need a program in which people from both tribes work together to spread out the values, practices and institutions that lead to achievement.

Stuart Anderson, writing on Forbes.com, suggests that Brooks and his New York Times elites…

…give up their jobs for two years and invite members of the “lower tribe” to live in their homes “if only for a few years”…

Nice suggestion, Stuart.  I have more.

There are number of problems with Brooks’ suggestion.

For starters, we already tried an experiment of forcing the two “tribes” together so the values of the productive class could rub off on the dependent class.  It’s called public education.  It hasn’t worked out so well.   In fact, the public education experiment has had the opposite effect.  It has reinforced the enclaves that Murray writes about by encouraging folks with similar values to cluster geographically into public school districts.  The school districts serving the productive class seem to be doing fine.  The districts serving the dependent class are miserable.

It doesn’t take much imagination to believe that something similar would happen with Brooks’ National Service program.

Next, a reminder to Brooks: This is a free country.  That’s sort of a basic principle.

By the way, Brooks, have you considered that the previous slapdash social engineering projects have contributed to the formation of the productive and dependent tribes?

If not, I would like to introduce you to a new subject.  It’s called systems thinking, but some also refer to it as economics.  In systems thinking, you consider that many things, such as behavior, are shaped by feedback.

Try this experiment: intentionally fart in a business meeting.  I’m sure you’d expect your co-workers to give you stares of indignity.  Those stares are feedback that shapes your behavior and cause you to try to refrain from rudely farting again.

But, sometimes problems develop in the feedback that may cause you to continue the rude farting.

One problem might be that you’re the boss, and a mean one at that, and your subordinates restrain themselves from giving you honest feedback.

Another problem in the feedback might be that you have social elites who believe you have the right to fart.  They reason, studies show it’s healthy to pass gas rather than restrain it.  After all, it’s a natural body function.

This is the first interference with the feedback.  The social elites convince you that you should be able to fart whenever and you do.  A group forms who buy into the social elites’ B.S. and they fart whenever.  After all, the smart social elite got good grades, didn’t they?

But the polite farters remain unconvinced.  They were raised not to fart in professional settings, they think excusing yourself when you need to fart is easy enough and they really don’t like the noisy and odorous distractions of the newly empowered farters, so what do you think happens?

The polite farters begin to segregate themselves from the rude farters.  The rude farters are first left out of meetings, then passed over for promotions and then not even hired in the first place.  Rude farters obviously give themselves away in interviews, after all.

What are the rude farters to do?  They can’t get jobs or keep spouses.

The social elites, never backing down from engineering a social problem (even ones they helped create) come to the rescue.  Well, if rude farters can’t get jobs, we will just tax the polite farters and give the proceeds to the rude farters, after taking our cut, of course.  That way, rude farters can continue their farting practices indefinitely without having to adhere to the unenlightened values of the polite farters.

This is the second interference with the feedback.  Rude farters were starting to get a valuable signal: to be productive they needed to be able to work with others without intentionally farting, despite what the social elite said.

But, the social elites interrupted that feedback signal and made it possible for the rude farters to continue their socially unacceptable behavior.  They no longer needed to be productive to get by.  They could just be dependent on others and continue farting whenever.

Now, decades later a new crop of social elites come along.  One writes a book about how the rude and polite farters don’t mix much and that the polite farters appear to be productive and proficient, while the rude farters are dependent.

Then another social elite columnist comes along, reads his book and suggests that maybe if we just forced members of the rude and polite farting tribes together for a few years in a National Service, maybe, just maybe, the values (although the social elite has a problem identifying exactly what those values are) of the polite farters will rub off on the rude farters — as long, of course, as the rude farters don’t have to stop farting rudely.

The smart social elite never realize:

  • that farting politely is THE value that distinguishes the two groups.
  • they they interfered with the feedback signals that would have minimized that anti-social behavior.
  • that their initial feedback interference caused the formation of the two groups.
  • that their second feedback interference insulated the rude farters from having to modify their behavior to get by.
  • that all they should do is stop interfering with these feedback signals and tell the rude farters that, perhaps, politely excusing yourself when you need to stink it up is okay after all and that whatever is gained by being rude isn’t worth the social costs you impose on yourself.

And, unfortunately, the smart social elite write about the poor rude farters as if they are incapable sad sacks that have no bearing on their position in life, even though generations of immigrants have demonstrated that you can come to this country, start on the lower rungs and work yourself up the ladder rather quickly by adopting productive behaviors and social norms, like not farting in meetings.

(Thanks to Don Boudreaux of Cafe Hayek for the link to Stuart Anderson’s article.)

Mankiwniversity

Harvard econ professor, econ textbook author and sometimes New York Times columnist, Greg Mankiw points out that his Intro to Econ course, or Econ 10, is the largest course at Harvard.  Story here.

I wonder if Mankiw has given any thought to following in the footsteps of Sebastian Thrun and Peter Norvig, who taught their Stanford intro to computer science course online to 165,000 worldwide students.  Given the demand, Thrun gave up his tenure to start his own online university, Udacity, with novel goal of teaching people who want to learn how to program.

There are a few people who could stand to learn basic economics.  Perhaps Thrun has a spot for Mankiw on his faculty.

What do you mean?

I enjoyed this Harvard Business Review Ideacast (podcast) that was based on the guest, Don Pollotta’s, HBR blog post, I don’t understand what anybody is saying anymore.

I recommend both.  Based on the number of comments to both, others did too.

I always like when someone calls BS on puffed-up language.  Business, politics, journalism and academics are full of it (pun intended).

I love the example he gives about a discussion he had about a “new media company around children in the preschool space.”

He said:  What do you mean?

You know, children in the preschool arena.

He said:  You mean preschoolers?

I’ve had similar experiences with business consultants.  Here’s one experience that sticks in my memory.  The consultant said, “We need to evaluate the efficacy of this action.”  I asked, “What do you mean?”  He said, “You know, the effectiveness of the project.”  I said, “ah, you want to see if it works?”  Yes.

My favorite part of the podcast (about 9 minutes in) Pollotta discusses having the courage to say what you mean. He gives the example of the 50 minute customer service queue where the message “your call is important to us” replays every couple of minutes.  As Pollotta says, “It obviously is not.”  Be authentic.  Have the courage to say, “we don’t have enough resources to handle the call volume and you’re going to have to wait 50 minutes.”  He believes folks will appreciate that.  I agree.

In my line of work, I have to communicate unpopular things sometimes.  I’ve learned that being straightforward works.  They may not like what you have to say, but they usually do appreciate that you didn’t try to “blow smoke up their” you-know-what.  They usually find the honesty refreshing.

I think another purpose of puffed-up language is to hedge what you really mean so that you won’t be pinned down for being wrong.

In my normal course of blog-reading, I come across discussions about New York Times columnist and Nobel economist Paul Krugman’s writings.  Waaaay too much of the discussion is about what Paul Krugman actually meant.  It’s like trying to find Waldo.

If I have to spend that much time trying to figure out what someone actually means, it’s not worth it.  And, I find it an absolute shame that society has bestowed such honors as a Nobel Prize and a New York Times column for writing so unclear that my junior high English teachers would not find it acceptable to even grade.

More debates like this, please

My family and friends are surprised to find out that I’m not a fan of TV-based political debates.   They figure that since I have an above average interest in politics, television debates must be like my Super Bowl, or something.

I prefer debates like How Much Government is Good Government? between New York Times columnist David Brooks and Representative Paul Ryan.   It’s written.  You can download it and read it on your iPad, Kindle or any device that supports .pdf.

I think TV debates don’t give a true picture of the candidate.  Its like trying to pick a wife while watching ladies perform in a roller derby.

There’s more opportunity in the written format to filter out the shenanigans and articulate a more complete representation of your positions and your criticisms of your opponents’ positions.

I downloaded the Brooks/Ryan debate for my Kindle iPhone app and read about 60% so far.  I’ll have more to say about it soon.

I do recommend it.   If you’re the least bit interested in politics, you will find it easy reading and interesting.