An emotionally attractive against the minimum wage? 2

Thanks for the great comments to the previous post. There’s nothing I disagree with from the regular commenters, but I think the arguments tend to appeal more to conservatives or libertarians and illustrate how tough the challenge is.

I’d like to keep on this topic. I’ll refine the challenge a bit.

• Two sentences max.
• It must appeal to someone who thinks along the liberal oppressed-oppressor axis (per Kling’s 3-axis model).
• It must be easy for just about everyone to grasp without the need to modify based on the person.

I read a good example of a short and compelling framing (on a different topic) in Steve Forbes’ recent Fact and Comment column in Forbes. Regarding Keynes’ monetary notions he wrote:

What Keynes posited was the equivalent of saying that manipulating scales is the way to attack obesity.

I think the story of Adam’s son, from the previous post’s comments, comes closest to appealing to liberals. But, I can well imagine that they spin it and say, “see, that’s why we need to guarantee him a living wage.”

Here are couple attempts:

1. Maybe smash-and-grab mobs and the knockout game wouldn’t be growing trends if the minimum wage didn’t prevent employers from paying such potential hires what they are worth — and keeping them more gainfully occupied.

2. Unfortunately, the liberal “We Care” banner is wrapped around a wrecking ball aimed at the very people they think they care about, when their actions result in continuing to fund schools that have not been educating children for decades and raising the minimum wage to make it even tougher for those uneducated children to gain job experience.

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An emotionally attractive argument against minimum wage?

The previous post made me think of the argument for and against minimum wage.

Those who support it have the emotionally attractive edge. They say it helps the poor. They also have the easy-to-envision edge. It’s easy to envision Minimum Wage Worker Bobby getting a raise.

Those opposed would seem to have an emotionally attractive edge, too. They say it hurts the poor. If you care about helping the poor, that should get your attention.

But, how it hurts the poor is tougher for someone to envision and maybe not very emotionally attractive, as well.

They say it hurts the poor by reducing entry-level job opportunities for the folks who need them the most, people with little or no job experience. How do you get to the next run in the economic ladder without experience?

What does ‘reducing job opportunities’ mean? That’s tougher to envision than Minimum Wage Bobby getting a raise. Does it mean the burger shop not hiring an extra worker next year? Does it mean that some businesses will never materialize because the costs are too high? Yes and yes. But, again, that’s tougher to imagine than Bobby getting that raise.

And, is entry-level work really a run on the economic ladder? Does it lead to bigger and better and things? That is also hard to imagine, since most folks are brainwashed to believe that it’s education, not entry-level job experience, that moves you up the economic ladder.

They would need to be paying close attention to observe how important many of the work skills, habits and interpersonal skills learned on those entry-level jobs are to their jobs later in life.

The minimum wage argument boils down to, I can envision Bobby getting a raise and I think that is worth more than some nameless person down the road not getting something they never knew they were going to get.

So, how do you frame the argument against minimum wage to make it both more emotionally attractive and easy to envision?

Any ideas?

 

Art and arguments

This week’s EconTalk podcast featured Jonathan Haidt. It was an interesting discussion. This part made me go hmmm…., cock my head a little to the side and squint my eyes a little:

Russ: …I think libertarians have handicapped themselves tremendously by failing to realize that most people aren’t like us. Guest: That’s right. I agree. Russ: Most people are groupish, most people are emotional. They don’t want an analytical argument. Most people don’t. They want an argument that appeals to the heart; and they want to feel part of something. So the libertarian–obviously there are many different strands of libertarianism, but I think the worst strand is the one that is totally individualistic and totally analytical; and that appeals powerfully to an analytical individualist. And then they can’t understand why no one wants to go with them. And the answer is because you’ve made it unattractive.

I think there’s more to it than an attractive emotional argument. The people who prefer them also seem prone to believe that attractive emotional arguments provide enough information to know the answer and not have to think about it any more.

Update: Adding to my last thought, it helps if the argument is emotionally attractive and easy to envision. More about that in the next post.

The (kids) gloves are coming off?

Russ Roberts and Don Boudreaux, of Cafe Hayek, don’t know what to call their recent posts about Paul Krugman. I have a suggestion: It’s about time.

Economist Russ Roberts criticizes Krugman for his treatment of intellectual opponents, like economist Robert Barro, in this case. Roberts quotes two passages from Krugman’s own economics textbooks that support an argument that Barro makes:

Additional transfers to people with earnings below designated levels motivate less work effort by reducing the reward from working.

Yet, while Krugman said as much in his text books, in his blog post, Krugman does a poor job of characterizing this incentives-driven view of what Barro calls “regular economics”:

But if you follow right-wing talk — by which I mean not Rush Limbaugh but the Wall Street Journal and famous economists like Robert Barro — you see the notion that aid to the unemployed can create jobs dismissed as self-evidently absurd. You think that you can reduce unemployment by paying people not to work? Hahahaha!

And:

If you read Barro’s piece, what you see is a blithe dismissal of the whole notion that economies can ever suffer from am inadequate level of “aggregate demand” — the scare quotes are his, not mine, meant to suggest that this is a silly, bizarre notion, in conflict with “regular economics.”

Not exactly. I did read Barro’s piece. He sets a good example of how to characterize opposing views, accurately and without straw-manning it like a 9-year-old who just put gum in her sister’s hair because “she deserved it”:

Keynesian economics argues that incentives and other forces in regular economics are overwhelmed, at least in recessions, by effects involving “aggregate demand.” Recipients of food stamps use their transfers to consume more. Compared to this urge, the negative effects on consumption and investment by taxpayers are viewed as weaker in magnitude, particularly when the transfers are deficit-financed.

Thus, the aggregate demand for goods rises, and businesses respond by selling more goods and then by raising production and employment. The additional wage and profit income leads to further expansions of demand and, hence, to more production and employment.

And, it wasn’t quite a ‘blithe dismissal’. It was an argument that Krugman chose to blithely dismiss himself, instead of addressing it.

So, why did Krugman describe Barro’s argument as he did? Why not simply state the argument. For example, Barro believes that the unemployment creates incentives for people not to work, something I also believe and have written in my textbooks. Where I disagree with him is that I believe during recessions, those incentive effects are overwhelmed because there are fewer jobs a lot more people who want them.

Don Boudreaux goes one further and criticizes the people who seem to relish in their own intellectual capacity to deal with Krugman’s nuances (by using bigger words than I used in the previous paragraph), while missing a larger point, that economics shouldn’t be used to justify stealing.

I did something that I rarely do. I read Krugman’s whole piece, and was reminded of why I choose not do so. Not only do I agree with the points made by Roberts and Boudreaux above, but there are other things that bug me.

Here’s a couple of those things.

1. He says of Keynes’ “discovery” of aggregate demand:

…while I’m generally against scientific pretensions, it amounted to a scientific revolution, something like plate tectonics in geology.

First, I don’t put much stock in anyone who compares economics to science. I think they will be prone to be more confident in their views than they should be, which can lead to disastrous results.

Second, why make this analogy if he really is “generally against scientific pretensions.” Just not in this case? Aggregate demand is lone example in economics where scientific pretensions is warranted?

Something else bugs me. Krugman writes:

Think, for example, about the Great Recession and its aftermath. Regular economics says that economies should normally get richer each year, as their work force and capital stock grow, and technology advances. But after 2007 the United States and other advanced countries suddenly went into reverse, becoming poorer instead of richer, and for an extended period too [pointing to a chart of declining GDP in the recession].

Does regular economics say that economies should get richer every year? Maybe. I haven’t heard that one.

Is GDP a measure of wealth? I thought it was a measure of economic activity. Can’t GDP decline and wealth still go up? If Bill makes $100,000 a year and has $1 million in Apple stock, does his wealth go down if his salary declines to $90,000? Not necessarily. It depends on how much he spends, doesn’t it? If he spends $80,000 a year, his wealth can still grow after the decline in his salary, no?

Perhaps I’m mistaken in my understanding of GDP. If so, please correct me. But, if not, it seems that Krugman’s language is unnecessarily sloppy here for a Nobel economist.

Families and Everybody Else

I wonder if Seth Godin has heard of Hayek?

In his blog post, Can I Pay You to Do a Favor? he explains how money doesn’t work that well as a motivator in small groups, but is useful for motivating those outside our small groups to do things for us.

Pope II

Here I wrote about the Freakonomics podcast with Jeffrey Sachs which covered the Pope’s anti-capitalism remarks.

Shortly thereafter, in Taleb’s book, Antifragility, I was surprised to read what I think is a more thoughtful response to the Pope’s remarks and one that supports the Pope’s view.

What surprises me even more is that what Taleb writes about isn’t new to me. It’s a frequent topic of conversation, something that I know well. But, I hadn’t taken it to the logical conclusion.

First, Taleb points out that even the patriarch of capitalism, Adam Smith, was

…extremely chary of the idea of giving someone upside without downside and had doubts about the limited liability of joint-stock companies (the ancestor of the modern limited liability corporation). He did not get the idea of transfer of antifragility, but he came close enough.

And he detected–sort of–the problem that comes with managing other people’s business, the lack of pilot on the plane:

The directors of such companies, however, being the managers rather of other people’s money than of their own, it cannot well be expected, that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own.

Let me make the point clearer: the version of “capitalism” or whatever economic system you need to have is with the minimum number of people in the left of the Triad.

“The Triad” is Taleb’s classification of systems as (from left to right) fragile, robust and antifragile; and what he means by ‘left of the triad’ is people who get the downside, as well as the upside, or they have skin in the game.

Taleb contiues:

There is a difference between a manager running a company that is not his own and an owner-operated business in which the manager does not need to report numbers to anyone but himself, and for which he has a downside. Corporate managers have incentives without disincentives — something the general public doesn’t quite get, as they have the illusion that managers are properly “incentivized.” Somehow these managers have been given free options by innocent savers and investors.

He provides an example:

…banks have lost more than they ever made in their history, with their managers being paid billions in compensation — taxpayers take the downside, bankers get the upside [Russ Roberts has been saying this for years]. And the policies aiming at correcting the problem are hurting innocent people while bankers are sipping the Rose de Provence brand of summer wine on their yachts in St. Tropez.

To bring this all together:

We are witnessing the rise of a new class of inverse heroes, that is, bureaucrats, bankers, Davos-attending members of I.A.N.D. (International Association of Name Droppers), and academics with too much power and no real downside and/or accountability. They game the system while citizens pay the price.

At no point in history have so many non-risk-takers, that is, those with no personal exposure, exerted so much control.

Now, let’s re-read what the Pope wrote (quoted from the Freakonomics post):

“[S]ome people continue to defend trickle-down theories which assume that economic growth, encouraged by a free market, will inevitably succeed in bringing about greater justice and inclusiveness in the world. This opinion, which has never been confirmed by the facts, expresses a crude and naïve trust in the goodness of those wielding economic power and in the sacralized workings of the prevailing economic system. Meanwhile, the excluded are still waiting. … One cause of this situation is found in our relationship with money, since we calmly accept its dominion over ourselves and our societies. The current financial crisis can make us overlook the fact that it originated in a profound human crisis: the denial of the primacy of the human person! … While the earnings of a minority are growing exponentially, so too is the gap separating the majority from the prosperity enjoyed by those happy few. This imbalance is the result of ideologies which defend the absolute autonomy of the marketplace and financial speculation. Consequently, they reject the right of states, charged with vigilance for the common good, to exercise any form of control. A new tyranny is thus born, invisible and often virtual, which unilaterally and relentlessly imposes its own laws and rules.

To me, this reads like leftist dribble, where their intuition leads them, perhaps, in the right direction for outcome, but the wrong direction for cause.

Maybe the Pope is right that there are some fundamental problems in the mixed markets that have emerged.

But, they’re wrong about the cause of those problems. They blame things like “trickle down theories” (Thomas Sowell challenges us to name one economist who used “trickle down“).

But, the part of the Pope’s passage that reminds me of Taleb’s point is:

…expresses a crude and naïve trust in the goodness of those wielding economic power…

Perhaps that is true. And Taleb tells us why:

At no point in history have so many non-risk-takers, that is, those with no personal exposure, exerted so much control.

They don’t have downside.

This includes politicians, apparatchiks in government agencies, economists and — the one that I am really disappointed that I missed because of my biases — managers of businesses who only have upside and no downside. I’ve even noticed that senior managers often have the same characteristics as politicians, but darn if I haven’t carried that through.

So, as I like to say, all problems can be traced to problems with feedback — I think Taleb exposes a couple of real feedback problems in — not free markets — but our mixed market economy. That feedback problem is that too many people “wielding economic power” don’t have downside. Rather they have incentives to game the system for their upside.

How can this be changed? Taleb gives one example that surprised me:

…in some countries such as Brazil, even today, top bankers are made unconditionally liable to the extent of their own assets.

Think about that. Would bankers act differently if they may have to repay the bonuses they received in what are now apparent as the fraudulently fueled good-times?

Help, please

In the Wall Street Journal, David Laband, chairman of economics at the Georgia Institute of Technology, describes a recent experience of his at the airport as a lesson in economics.

Bad weather had created a bad circumstance for six people. Snow caused them to arrive late at the airport, too late for cabs, in those conditions, to come pick them up. The six passengers faced spending a night at the airport, but another passenger with a car offered to take them to their destination for $25 each. The gladly accepted.

Laband writes:

There are those who argue that this unscrupulous individual took “unfair” advantage of these travelers in distress by charging them at all. Critics would say that he was a heartless “price-gouger.” Really? The fact is, no one was offering to provide private transport for the stranded passengers at no charge. For that matter, the real price-gougers—government-regulated taxi companies—were nowhere in evidence.

I found this article interesting for a few reasons.

First, it describes a topic of conversation I’ve had frequently with friends and family, so it’s familiar territory. Yet, not quite. This is a little different because the conversation is usually about high prices in disaster areas. This wasn’t quite a disaster area, nor were the people unable to pay. Even the fee itself was lower than normal, I imagine. But, I like this particular circumstance because it doesn’t have the typical emotional loading as disaster situations.

Second, I still found myself being uneasy that the ‘savior’, as Laband describes him, took money. Even though it was less than a typical cab fare, even though the six passengers gladly paid him, even though the guy was going out of his way to help and the six passengers certainly faced a rather uncomfortable night.

Why did I feel uneasy about it?  And, if I felt uneasy about it, I can certainly see why the people I’ve discussed such situations do as well.

But, what is it? I can’t quite put my finger on it. Especially considering that Laband correctly describes real price-gougers as the government-regulated taxi companies.

Why I am more willing to accept their price-gouging behavior and less willing to accept this private guy’s actions?

If someone gave me a ride home in a similar situation, I’d want to pay them — at least ‘buy them a nice dinner’, which is about $25.

I don’t think I should be uneasy. I agree with Laband’s logic. All parties came out ahead. It enhanced social welfare.

But what’s the difference between ‘buying them a nice dinner’ and paying $25? Is it that he asked for the money?

Any thoughts?

Party Planning vs. Raising Kids

Lant Pritchett uses a starfish/spider analogy to illustrate differences between bottom-up/top-down systems.

Steve Landsburg explained that people mistake central planning as being something like planning a birthday party. Based on this vision, they think it can work well. You just need good planners. Landsburg says that folks who make such mistakes simply can’t imagine the complexities involved when hundreds of millions of people are added to the mix, so even good planners won’t do well.

Russ Roberts recently distinguished between engineering and economics problems in a post on Cafe Hayek, building off the following Soviet joke:

Yuri Gagarin’s daughter answers the phone.  ‘No, mummy and daddy are out,’ she says.  ‘Daddy’s orbiting the earth, and he’ll be back tonight at 7 o’clock.  But mummy’s gone shopping for groceries, so who knows when she’ll be home.’

Of course, her Mom may be an avid shopper. But, the joke was meant to convey that centrally planning something as mundane as producing products that people want, at reasonable prices and making them available in nearby stores is a much more vexing problem than sending man into orbit. Prices do a better job of coordinating that effort.

I made a similar point in a follow-up to the Landsburg post, because I’ve heard too many people use the “If we can send a man to the moon, then we can do anything” fallacy.

Though, I didn’t distinguish it then as an engineering problem. That is an important observation. It’s also a good question to keep in mind when people start using the man on the moon fallacy, are we solving an engineering or economics problem?

But, I still think some folks may have a difficult time understanding exactly how an economics problem differs from an engineering problem. For many, both fall into one category: complicated. So, if we can solve one complicated problem, why not another?

I think it might help to go back to Landsburg’s party planning analogy. An engineering problem is like planning your kid’s birthday party. It’s straightforward (place, invites, plates, cake, fun, done) and it’s a relatively short time commitment. The short time commitment is important. Any longer and it might be harder to get grandparents to help clean up or for guests to come.

An economics problem is more (though still not quite) like raising kids. That’s much more complex than planning a two-hour party. It doesn’t end. It’s not easy.

Just when you think you figure it out, it changes. Why? Because kids are human and they go through phase. They have preferences. They respond to rewards and punishments — differently to different ones. They make decisions. They like what they like. They change. They will fight you. They won’t always do what you tell them. You need to let them make mistakes and learn for themselves, even though it is painful to do so.

Now, I say it’s not quite like an economics problem because people can do a good job of raising kids. Though, there aren’t many truth-telling parents who will say that it’s easy.

So, an economics problem is much more like being tasked with raising all of the kids in your town, or maybe your state, or more.

Multiply the frustrations, the reactions, the support, attention and love required by a thousand or a million kids.

We’re all smart enough to know that’s impossible. We would never sign up for it because we know we’d do those kids a major disservice. Hmmm…..

Sachs on Freakonomics

Freakonomics podcast host Stephen Dubner speaks with economist Jeffrey Sachs about the Pope’s recent drubbing of markets.

Several things about this rubbed me the wrong way.

First, the quote from the Pope (in the linked Freakonomics blog post) starts off with “Some people continue to defend…” As I wrote here, readers deserve to know who the Pope is talking about.

Second, Jeffrey Sachs tried too hard to clean up the Pope’s words. Around the 16-17 minute mark, Sachs comes out with ‘getting people into positions where markets work for them, and not against them, is extremely important.’

Granted, I think somewhere Sachs admitted that he switched to his view, not necessarily the Pope’s, but I think the podcast was about making sense of the Pope’s opinion.

This even seemed to annoy Dubner, as he replied:

Of course, that makes sense. But compared to what the Pope has written about capitalism…it was much heavier on the can’t work part and here’s why it doesn’t work. What is the Pope actually calling for?

Third, Sachs complains that the Global Fund to Fight AIDS, TB and Malaria, a fund he helped “architect 12 years ago” (a little self-promotion never hurts), recently fell short of its funding goals. I wasn’t clear on who they were going to for ‘replenishment’, but it sounds like bureaucrats in government.*

Sachs says:

When it [the Fund] came to the replenishment, just now, it couldn’t raise the funds for the minimum package. It was saying that it needed at a minimum to fight these three diseases $5 billion a year, mind you hundreds of million of people and their lives are at stake. $5 billion we know in macroeconomics is nothing in this world, and yet they could not raise $5 billion a year. They raised $4 billion a year.

And that may not sound so consequential [You’re right, especially since one sentence ago you said $5 billion is nothing, that would mean $1 billion is even less] when you’re in a village and the rapid diagnostic tests aren’t there or there’s a medical stock out…this is life and death [oh, that’s when it become consequential, in micro]. Since I’m living in a neighborhood, if not down the block, then a few blocks away, or a couple miles away [let’s keep hedging on terms] are billionaire hedge fund owners taking home personally paychecks of a billion dollars for the year, the fact that we can’t come up with $5 billion for this institution from all worldwide sources (governments?) is the globalization of indifference.

 

Too easy to pick on unpopular hedge funds, many who put their own skin in the game. Let’s not mention sacred cows like taxpayer funded sports venues, where billions of taxpayer money is tied up so team owners can afford to pay millions, even hundreds of millions, to the best kids game players. Soon the team owners will want to offload the liabilities of sports injuries on taxpayers, too.

I wonder if he also views that as a marker for the ‘globalization of indifference’.

Of course, you can probably also tell by the comments I inserted in the quote that Sachs’ verbal fitness annoyed me in how he framed $5 billion as inconsequential in macro, but a billion very consequential in micro in the span of three sentences.

My BS detector rings off when someone tries to sell me on something because, well, it’s just not that much money. Of course, it’s always enough that they can’t come up with it themselves.

*Sachs said “George Bush said, ‘we won’t let money stand in the way, you show that this works and the money will be there'”. So, I’m assuming it’s folks like Sachs trying to convince bureaucrats how to spend taxpayer money, rather than raising money from individuals. Which is the last thing that I found annoying that I will comment on.

What is “the market”? II

Don Boudreaux’s quote of the day, from Jim Buchanan, about what markets are reminds me of a post from 2011, What is a market? What is government?