Quit virtue signaling and put your money where your mouth is

In this EconTalk podcast, Russ Roberts discusses several interesting topics with guest Nassim Nicholas Taleb.

In one part of the conversation, they discuss the idea that some folks want to raise minimum wage, but they don’t tip current minimum wage workers more now. Here’s that part of their conversation. Read to the end.

Nassim Nicholas Taleb: …the person who advocates a minimum wage, you see, in case there are adverse consequences, will not be paying for it. So it’s much better to let people who have skin in the game decide on whether there should be minimum wage. And if you ask unemployed people making currently $0 whether there should be making a theoretical a theoretical $15 or $25, whatever minimum wage you want to set–if you ask the unemployed, okay–then you should take their answer seriously, because they have skin in the game. Where currently you have intellectuals, who have a job, who just want, because of the virtue signaling or maybe to feel better, maybe to feel, to give themselves that aura of feeling good because they did something good. And so you have a lot of fakes–true fakes or confused people–advocating actions, you know, that feel good to them. Because hey, of course, they think that it improves society, or on the surface it doesn’t[?] improve society. Like, you, I believe that a minimum wage would definitely, is a cause of more employments or robots or jobs going to places where the wages are lower. So, you have to have–see unemployed who should decide, or unemployed, or people who are subjected to these minimum wage or wages close to the minimum who should decide. Not some intellectual at CUNY (City University New York) making $250,000 a year.

Russ Roberts: Well, I think some of them are motivated for good reasons. I like to think they are. So, I’m going to give them the benefit of the doubt, at least in the short run.

Nassim Nicholas Taleb: Okay, but let me tell you one thing here. If you think that there should be a minimum wage, then you should pay–people who think there should be minimum wages should voluntarily pay everybody around them the difference between whatever they are getting and that minimum wage. And, when you go to McDonald’s, you should leave a $3 tip or $4 tip to the person. If that’s really what they want to do, they should do it themselves. I’ve discussed in a book that the behavior on the part of people who always have ideas of how things should be but in fact don’t pay for it themselves. Like, they argue about privilege, class privilege, but they themselves privileged; and they don’t pass their wealth to others. They want higher taxes on others but not–they don’t want to give more to charity.

Russ Roberts: I think their defense would be–I don’t find it, I’m not sure I find it compelling, but they’ll argue, ‘Well, I’m willing to chip in as long as other people are forced to, and then I’ll be happy doing it.’ So, that would be their claim.

Nassim Nicholas Taleb: Yeah, but that’s a weird argument. Virtue should be unconditional. It should not be conditional. In other words, ‘I’m going to save people from drowning only if other people save people from drowning.’ That’s not an argument that I can stand on. I don’t know any ethical system that is based on something like that.

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Great Grandma’s Wisdom: The power of making priorities

In this episode of Freakonomics podcast, they talk personal finance.

One guest, Harold Pollack, believes everything you need to know about personal finance should fit on an index card.

One rule he wrote on that index card is to save 20% of your income.

He said he received letters about that rule that went something like:

“Dear Professor Pollack: I’m a 28-year-old single mom and I work as a cashier. You have just told me to save 20 percent of my money. F*&k you!”  

In the podcast, Pollack admitted 20% is ‘too hard’ for folks on the low-end of the income spectrum and his advice was more for the middle class.

My Great Grandma had similar advice as Pollack’s:

No matter how much money you make, save something, even it’s just $5 a month.

She understood the power of compound interest, like Professor Pollack.

Unlike Pollack, she understood the true power of her savings rule was about making a priority to have a consistent habit.

If you let circumstances keep you from saving $5 a month when you’re a 28-year-old single-mom cashier, you will let circumstances keep you from saving 20% when you are in a better position and you won’t ever make progress.

It’s not so much about the $5 a month or 20%, it’s about learning to make a priority and then making the tough choices to stick with it.

Doing that is even more powerful than compound interest. A consistent savings habit, no matter how small, can accumulate to substantial sums over years and decades, and put you in a position where the choices you make are much less dependent on the income you happen to be making at the moment.

Why has alcoholism increased?

Alcohol use is up from the early 00’s.  The quoted article states:

There’s no single explanation for the increase. Researchers point to economic stress in the aftermath of the Great Recession; more easily available alcohol at restaurants and retailers; and the diminished impact of alcohol taxes. As a percentage of average income, than at any point since at least 1950.

Not mentioned: changing social norms and things go in cycles, especially things where there’s a significant time lag between the act and its most harmful effects.

In the past 10 years, I’ve been surprised at how outwardly alcohol abuse has been embraced and glorified compared to the relative tee totaling 80s and 90s.

This has all happened before and will happen again. I believe alcohol consumption at the beginning of the last century was also a thing, until the movement led by Carrie Nation tried to abolish it.

Smoking goes through similar cycles.

Part of this may be generational. The kids of the alcoholics see the harmful effects with their parents and abuse alcohol less when they grow up.

Their kids don’t see the long-term harmful effects, so they abuse it when they grow up. And so on.

Freedom is evil?

OMG. Conservative billionaires are profiting from Hollywood? LOL. Why is this worth writing an article about?

For those who think of the Koch brothers as the evil power twins, I encourage you to listen to the two part Freakonomics podcast where Stephen Dubner interviews Charles Koch.

It amazes me how much good these guys do for the little guy and how vilified they are for it by people who say they are for the little guy.

These guys are so much for the little that they even openly support things that will help the little guy, but hurt their business. Here’s Dubner and Koch:

Stephen J. DUBNER: Now the public line on you is that, “Everything that Charles Koch or the Koch Brothers advocate societally or politically is just an effort to protect or extend their business interests.” Make your best case how and why that’s not so.

KOCH: We opposed extenders, the tax bill, which are tax exemptions. And we make a lot of money from those. We opposed this border-adjustment fee that would make us over a billion dollars a year. Do you want me to go on?

Now, I gotta check times to go see Wonder Woman.

Why does socialism fail?

Because it doesn’t use a free price system.

Too many underestimate or simply don’t understand the power, complexity and mundane simplicity, of a free price system.

Economists should understand this and spend a great deal more time educating the rest of us of its wonders. But, I’m not sure as many economists appreciate it enough.

A free price system conveys pertinent information better than anything else we have.

It does so by keeping the benefits and costs close together — for the most part — so individuals can decide if the benefits are worth the costs and make trade-offs, accordingly.

This is like a driver of a car watching the road. If the car drifts left, the driver sees it and steers a little right. If you buy a cup of coffee that wasn’t worth the price, you probably won’t buy it again.

Socialism separates benefits from costs. Those receiving the benefits will not give those benefits up easily if those benefits aren’t worth the cost because they are far removed from those costs.

This is human nature. I’ve worked for companies go between providing coffee for employees and not providing it. Even though coffee doesn’t cost much, employees always hated losing the free coffee.

Another problem with socialism is that those covering the costs stop producing because they don’t see the benefits.

This isn’t as evil and selfish as it may sound.

Maybe you’ve done something extraordinary at work and someone else got the credit. Next time you aren’t as willing to go the extra mile.

That’s because you paid the price, but didn’t receive the benefit.

 

Not having a good price system is like a driver not being able to see the road. The car eventually drifts off the road and crashes.

This is the failure of socialism.

It’s not about getting the right people in charge. Even the best drivers can’t drive blindfolded.

Not convinced? Consider our economy. The parts of it that seem to have the most problems are the parts that don’t operate in a free price system, especially education and health care.

In both, the benefits are removed from the costs to a large degree.

What is a socialist?

Someone who hasn’t yet learned that intentions do not equal results.