Minimum Wage Prosperity

Suddenly, McJobs are Good
07/24/09 - Blogs.DailyMail by DonSurber

[edited] Labor union officials and their handmaidens in Congress, including former congresswoman Solis, derided any increase in employment under a Republican president, calling them "McJobs". They derided them, even if they were above minimum wage, because new jobs do not pay as much as old jobs.

Now that Obanomics has turned a mild recession of 7.6% unemployment into 9.5% unemployment, in just 4 months, we have Solis praising a 70 cents an hour increase in the minimum wage as an economic stimulus.

Solis says that raising the minimum wage to $7.25/hour is going to help the economy and increase employment. I hope she doesn't mean it will help the economy while decreasing employment. Or, hurt the economy while increasing employment.

Where are the studies and information about the ideal minimum wage? Maybe the sky is the limit. Why not set the minimum wage at $50/hour? That would send funds to poor people while lifting the economy, right? (sarcasm)

The minimum wage is just another way of saying: "Fire that person unless you can pay them $7.25 per hour. We would rather that they be out of work, than work for less than we think is polite."

The government cannot help people by restricting their choices.

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A Minimum Wage Equals Minimum Jobs
07/30/09 - Reason.com by John Stossel

[edited] Politicians declare that workers should get a raise, and people assume they will actually get it. But, government can increase wages by decree only if employers set wages arbitrarily. You have to believe that employers are arbitrarily stingy.

Say an employee produces $4 of value each hour after all business expenses, and the employer offers just $2. Another employer will hire him away for $3 or more. Competition drives wages up to the the worker's level of productivity.

Several years ago, Santa Monica, CA made the town a workers' paradise by requiring everyone to be paid at least $12.25 an hour. Restaurant owner Jeff King complained to me, that the law would "dry up the entry-level jobs for just the people they're trying to help."

He was right. It's why gas stations no longer hire teenagers to wash your windshield. Wage minimums tell employers: "Don't give a beginner a chance." The people of Santa Monica later woke up and overturned the "living wage."

If minimum-wage advocates really believe wages are set arbitrarily, why do they favor only a $7.50 or $14 minimum? Why not $100? At those levels, even a diehard interventionist knows that workers would be hurt. But, the principle is the same at lower levels. Wages follow productivity, not whim. If the minimum wage is set above productivity, those workers will be harmed.

Low Skilled Workers Are Not Helped
07/26/09 - Cafe Hayek by economist Don Boudreaux

[edited] Uncle Sam has hiked the minimum wage, raising the hourly cost of employing low-skilled workers by 10.7%. This is always unwise, and more so when unemployment is rising.

Say that Uncle Sam passed a minimum-salary statute for economists, requiring that every employed economist be paid at least $300,000 annually. I would, of course, love to earn this much by teaching economics. My more accomplished colleagues would benefit, such as Tyler Cowen and Walter Williams. But, I would lose my job.

Using the Minimum Wage to Hamper Your Rivals
07/24/09 - Econlog.Econlib by David Henderson

[edited] Forty years ago, politicians who pushed for the increased minimum wage did not hide their motives or their knowledge of who the victims would be.

In a 1957 Senate hearing, Senator (and future President) John F. Kennedy of Massachusetts said:

Having on the market a rather large source of cheap labor depresses wages outside of that group, the wages of the white worker who has to compete.

When an employer can substitute a colored worker at a lower wage, it affects the whole wage structure of an area, doesn't it? There are, as you pointed out, hundreds of thousands of colored workers looking for decent work.

Exploiting the Minimum Wage
07/24/09 - Open Market by Ryan Young

[edited] Young people with little or no work experience may not be able to offer $7.25 per hour worth of productivity. No wonder so many of them are having trouble finding summer jobs. The law says that they have to be paid more than they are worth [if they are hired]. Wage floors reduce the number of jobs.

Raising Rival's Costs
7/24/09 - Marginal Revolution by Alex Tabarrok

[edited] Some employers benefit from an increase in the minimum wage because it raises the cost of labor for their rivals. This is why unions have typically been in favor of the minimum wage even when their own workers make much more than the minimum.

Gaining Power Through Public Policy

Social Science and Public Policy
07/03/09 - EconLog by economist Arnold Kling

[edited] Political Economy is the science of obtaining and retaining power. The pollster, the fundraiser, and the media expert supply expertise to the operation. The public policy expert is for decoration. If you want to be an economic policy adviser, my advice is to learn how to put a good spin on the methods used by leading politicians to obtain power.

Is Health care reform about health, the stimulus about recovery, cap and trade about global warming, or TARP about the financial system? No, they are about seizing and retaining power.

The social scientist's role is to say, "X is a problem. Government must solve X. Here are some solutions." The solutions that rationalize seizing and retaining power will bubble to the top.

Suppose you believe that regulators cannot possibly have the wisdom to direct human activity, and that politicians spending other people's money tend to choose unwisely. Keep those beliefs to yourself, if you want to get anywhere as a public policy adviser.

Economists Surprised That People Read the Paper

The Grand Unification Theory of Sucking
06/07/09 - VodkaPundit by Stephen Green

[edited] Big Government Spending Programs are Having an Opposite Effect

The Federal Reserve announced a $1.2 trillion plan three months ago designed to push down mortgage rates and breathe life into the housing market.

But this and other big government spending programs are having the opposite effect. Rates for mortgages and U.S. Treasury debt are now marching higher as nervous bond investors fret about a resurgence of inflation.

Well, duh! Stimulus spending can’t work, because these things happen, and I’d say we will indeed get all three:

1. Extra spending means extra taxes, which means the whole thing is a wash. It is a big, fat lie that Government spending has a “multiplier” effect different from consumer or business spending.

2. Extra spending means extra debt, driving up interest rates and choking growth.

3. Extra spending means printing money. Resulting inflation makes any growth an illusion.

This is a great comment by Shannon Love who posts at ChicagoBoys

[edited] Leftist economists don't understand that people read the paper.

The problem with their stimulus theory starts with their assumption that everyone will behave just as they would have without a stimulus, up to the point that the stimulus spending reaches a critical mass sometime next year.

However, people read the newspaper, see the tsunami of taxes, regulation, and inflation coming their way, and they alter their behavior immediately. Passing the stimulus bill today and planning to raise taxes tomorrow, alters people’s behavior right now. The expectation of paying for the stimulus later drives down economic activity now, long before the stimulus can hope to have any effect.

Obama’s team can’t see this because they have an ivory tower model of the economy. They think people do not make economic decisions until they actually receive money. They can’t seem to grasp that the economy results from the choices of real, live, human beings who can and do make plans based on their predictions of future conditions.

Obama expects people to stand around passively until Obama does something that makes them react. Instead, they’re anticipating him.

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Stimulus Does Not Cure a Recession
Jobs change when people change what they want to buy or can afford. This takes time and adjustment. Businesses won't hire because of a short-term boost to their income that is being borrowed from later taxes.

Why Spending Stimulus Plans Fail
Government spending merely transfers jobs and income from one part of the economy to another.

Econ 201: The Myth of the Economic Multiplier
Government spending doesn't multiply anything. It takes resources from taxpayers and applies them to government projects. You get a bridge or some paperwork, that is it.

The Will to Have Efficient Cars

How Will You Spend Your $2,800?
05/20/09 - CafeHayek by Don Boudreaux

[edited] President Obama has no experience as an entrepreneur or in the automotive industry, but has supposedly designed fuel-efficiency standards that he assures us will save the average car buyer $2,800 over the life of the vehicle.

No one in Detroit, Britain, Japan, Germany, Korea, Sweden, Italy, or France, and no one with decades of experience producing and selling automobiles has yet devised vehicles that are so obviously attractive as the ones now promised to us by the Obama administration.

We can admire Obama for freely offering his idea to the public. If his idea is workable, he could have earned billions by licensing his idea to auto companies. We are certainly lucky that he is simply forcing us to use his idea without charging for it.

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Magic Power
There seems to be a leftist belief that technologists are holding back the cheap, efficient world that they could deliver, if they would just stop being grasping and lazy. Why don't they just do the math and make everything work faster and better? Could the nerds give us cheap power if they wanted to?

Efficiency Breakthrough: Small Cars With Small Engines
The Obama administration estimates paying $1,300 more per car to meet mileage goals. This is absurd. Consumers would need to pay more AND move down a few vehicle sizes. See the European equivalents, engineering considerations, and the financing.

Is There a Future for Business Schools?

Is there a future for Business Schools?
03/24/09 - Mises.org by Tim Swanson
This short post supplied the links below.

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The End of Business Schools?
09/01/02 - AOM Online by Jeffrey Pfeffer and Christina T. Fong

This study has a scholarly approach. They find that it took about one month to convert professionals from other fields into business consultants.

[edited] Available data suggests that business schools are not very effective. Career success does not correlate with having an MBA degree or grades earned in courses. There is little evidence that business school research influences management practice. These results question the relevance of management scholarship.

Consulting firms in the late 1990s found it difficult to compete with high-technology start-ups for talent. They had always hired some people without MBA degrees, but they increased the numbers, to include lawyers, doctors, and philosophers.

Consulting firms had to provide training so these individuals could give advice to companies using business knowledge and language. Many started or expanded 3-week programs to teach new hires the basics. Apparently, it took only 3-4 weeks for people to cover what business schools take 2 years to teach.

Internal studies found that the non-MBAs did no worse and sometimes better than their business school counterparts.

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MBA Schools Have Nothing to Offer in Our New World
03/25/09 - Bloomberg by Matthew Lynn

A general complaint against business schools. What could they have been teaching?

[edited] The MBA factories took a pseudo-scientific approach to finance. They promoted a mechanistic management style, and they taught a managerial elite more interested in rewards than producing lasting wealth for their societies.

They taught that running a company could be mastered by anyone through a set series of formulas from a textbook. The entire private-equity industry, mergers, and acquisitions are founded on that principle.

Academia largely invented the intellectual tools that led us into the financial meltdown. Complex models for pricing risk created the market for the options and derivatives contracts that have caused so much trouble in the past year.

The business schools took mysterious and unknowable "risk" and tried to make it as easy to count as peas in a pod. They encouraged a generation to go into investment banking armed with the belief that they had mastered risk.

In reality, management is a skill that is acquired through experience, judgment, and flair. Billions are about to be wasted relearning a simple fact that should never have been forgotten.

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Did Joseph Wharton Cause The US Financial Meltdown?
10/21/08 - Mises.org by Tim Hartnett

A disapproving review of what Americans will support, as long as an MBA in finance is proposing it. If you can't understand what they are saying, they must be smarter than you.

[edited] Americans are raised to believe there can be no such thing as a glut in graduate degrees. We don't think that any form of schooling can do harm.

What are the talents of the guys who rise to the top of established business empires? A good lot of them seem to specialize in finding ways to produce revenue, but not much of anything else.

Well into the 20th century, journeymanship in a business was a natural route to an executive position in big-time corporate America. People with the hands-on experience in mechanics, sales, manufacturing, and agriculture were residing at the top of many fields of trade. As late as the 1950s, entrepreneurs with widely divergent perspectives arising from a vast array of influences and experiences held sway in American industry. Today, those back roads are almost unknown.

The latest line is that government bailouts are good investments. This comes from politicians, ex-politicians, TV personalities, and people who run the cocktail circuit from the west side of the District to the east side of Manhattan.

"Remember Chrysler, we all made out big on that one." is the common refrain. Skeptics might have difficulty recalling it as quite so clear cut. Sure, number three of the one-time "Big Three" is still with us, but who-got-what out of that sweetheart deal remains hazy.

Money passing back and forth between the amorphous blob in DC and listed corporations is as difficult to follow as a shell game. Finding our end of the "profits" is like trying to unravel derivatives. So we take their word that all is soundly managed. Between cigar puffs, the MBAs reassure us that "in five or ten years everyone will be sitting pretty." The public is expected to sit blinking like a corporate mistress in a James Thurber cartoon.

Use Inflation to Fool People

We Were All Keynesians Then
01/09/06 - Cato.org by economist Ike Brannon
(via The Angry Economist)

Keynesian economists expect most people to be slow-witted and unable to make rational economic decisions. The government tries to fool people into working harder by inflating the currency to just the right amount. But, it doesn't work for long.

[edited] In 1961, John Muth published in the journal Econometrica, demonstrating that people thoughtfully use available information to predict future prices, and then make economic decisions based on "rational expectations".

Muth's insight was radical during that heyday of Keynesian economics. Today, it is an accepted part of the canon of economics.

"Rational expectations" says that entrepreneurs and workers do not assume that prices will be constant when they need to forecast future prices. They use all available information to estimate what prices will be, and their estimate is correct on average. They will make mistakes, but they will not be consistently wrong.

Muth demonstrated that rational expectations explained prices quite well for a market in hogs, thought to exhibit wide, predictable price swings.

Muth's paper was published at the time that Keynesian economics had become ascendant in the political world. Policymakers thought they could permanently increase employment by increasing inflation. Supposedly, higher inflation fools workers, who mistake a rising dollar wage for a real increase in their buying power. As a result, people would take jobs they would not otherwise take, and work more hours than they would otherwise work, increasing employment and output.

Muth's work explains why the 1970's economy experienced "stagflation", slow economic growth and inflation at the same time. Rational expectations predicted that people may not always make economically optimal decisions, but they can't be consistently fooled by government policies.

The Government Bailout IS the Problem

The Failout and Krugman
02/29/09 - Angry-Economist by Russ Nelson

The economy is bad because no one can predict the future with a big government elephant stomping around. The elephant can't solve the problem, and it scares away the elves who can solve the problem. The elves are small, but they are smart and there are a lot of them. The economist Paul Krugman has spun a theory for recovery. Will he bet on its success?

[edited] The problem here is simple: credit is scarce because nobody wants to lend and nobody wants to buy. The Federal Government is threatening to borrow and spend a TRILLION dollars.

If you are bank, would you loan money if you knew that an A-grade customer was going to be spending a TRILLION dollars soon? Of course not. Even if they choose not to get their loan from you, the price of lending is going to go up. It must go up when a TRILLION dollar buyer is showing up. So nobody is lending now.

And why would anyone buy anything now. You want to be positioned correctly for the TRILLION dollars which is going to enter the market soon. You don't want to invest your money in something, only to find that the market has shifted and your investment is toast.

The failout is not the solution to our problems. It is the CAUSE of our problems, merely by being threatened as a government action.

Why is this not obvious to everyone? I blame Krugman.

I wonder if Paul Krugman has borrowed huge amounts of money and spent it already? If he hasn't done it, then why should we do it? If he doesn't trust his own theory for his own household, then why should we trust his theory for our country?

Of course he hasn't done it, because his theory requires that many people behave differently together than each person would for himself. The group is made up of individuals, so how can that be?

Krugman's theory has no legs. That dog don't hunt.

Keynes Likes Totalitarians

Keynes Politely Explains How to Destroy Civilization
02/27/09 - Blog.Mises.org by Jeffrey Tucker

The late economist Lord John Maynard Keynes regarded his own theories as a best fit for totalitarian societies. It is so much easier to achieve full employment when you can tell everyone what to do and decide what they will be paid. Every member of an ant colony is employed, and seemingly happy.

Keynes impresses me with the long, jumpy, tedious construction of his sentences, to express the simplest and fuzziest thoughts. I find that saying something directly is easy. Saying nothing, or everything, with detailed qualifications and exceptions, in one sentence, is quite difficult. Why bother with paragraphs when long sentences are so much more impressive?

[edited] I'm sorry, but reading Keynes gives me the chills. I can easily imagine his dispassionate narrative about events in a Gulag, justifying every horror with a pseudo-scientific rationale made up on the spot.

Oh wait: he did do that. From the 1936 foreword to the German edition of The General Theory:

Nevertheless the theory of output as a whole, which is what the following book purports to provide, is much more easily adapted to the conditions of a totalitarian state, than is the theory of production and distribution of a given output produced under conditions of free competition and a lance measure of laissez-faire.

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The General Theory of Employment, Interest and Money, Chap. 24
Dig into the thought of Lord Keynes at Marxists.org.

The Political Dictionary: "Keynesian Economics"
A satirical definition, unfortunately true.

Audacity to Do Nothing

The Audacity of Doing Nothing
02/11/09 - Blogs.Law.Harvard.edu by Philip Greenspun
(via Peter G. Klein)

Our prosperous society is built on predictible law and consequences. This is already a shining accomplishment in an uncertain world. It does no good to, in effect, suspend the law and take extraordinary actions because some people made bad bets, lost money, and have political influence. Changing the rules and using naked government power makes things much worse. It removes predictability and rewards the people who took outrageous risks.

See also Rewarding Bank Management for Failure

[edited] The "real money" investors didn't want to invest alongside the government. If the bank loses money, they fear the government will take 100% of the value left in the bank and leave private investors with nothing, including recent ones. This happened to recent investors in Fannie Mae.

The "real money" investors didn't want judges to modify contracts, as when bankruptcy judges reset mortgage payments at a lower level and reduce the principal owed. A central tenet of the U.S. Constitution is that people are free to make contracts.

A foreclosure is greatly preferable to these folks than a modification. In a foreclosure, the most senior investors get what they expected, their money back. The holders of the most junior tranches [last to be paid], which carried a higher return and were known to be high risk, would get nothing. This is also what they expected. If mortgages are modified by government action, it is unclear how the obligations among the various private parties should be adjusted.

One money manager scoffed at the idea that the markets had failed. "The markets are working fine, but they're giving people answers that they don't like, so people cry market failure." Stocks and bonds low? That's because investors are afraid of a prolonged depression and continued government interference.

A house in a jobless region of Michigan is worth almost nothing. A place with 50% of its former jobs only needs 50% of its houses.

The government is a lot bigger and more powerful now than in prior recessions. Rich companies and people can put some of their wealth into lobbying. They demand that the government prevent them from getting wiped out or at least slow the process.

Spending Did Not Help Japan

What can we learn from Japan?
02/06/09 - CafeHayek by Russell Roberts

[edited] Most Japanese economists take a bleaker view of their nation’s track record, saying that Japan spent more than enough money, but wasted too much of it on roads to nowhere and other unneeded projects.

Dr. Ihori surveyed public works in the 1990s. The spending created almost no additional economic growth. Instead of spreading beneficial ripple effects across the economy, the spending led to declines in business investment by driving out private investors.

Critics said decisions on how to spend the money were made behind closed doors by bureaucrats, politicians and the construction industry, and often reflected political rather than economic considerations.

The Japanese Didn't Try Hard Enough?
02/07/09 - Blog.Mises.Org by Tim Swanson

[edited] This NY Times story discusses the Japanese government spending packages during the 1990's.

The story notes that most Japanese consider all of the plans to be resolute failures. Yet, a number of Western economists believe that Japanese taxpayers simply did not spend enough!

How much was not enough? Japan spent $6.3 trillion on construction-related public investment between 1991 and September 2008. [That is $6,300 billion.]

Read the "Stimulus Package Unveiled" from the WSJ and "Japan" by Benjamin Powell.

Will You Bet On Your Opinion?

Will $100 Shut People Up?
02/06/09 - Crime & Federalism by Mike

[edited] When people state a stupid opinion or false fact, I no longer argue. I say, "OK - I'll bet you $100 that you are wrong."

People never take the bet. What's up with that? It's amazing how something as small as $100 can test a person's convictions. Amazingly, if you will not put $100 on the line, why should I believe you? People want me to change my mind based on their assertions; yet their assertions aren't even worth $100 to them!

How about people who demand that the government provide a stimulus to the economy. Perhaps Paul Krugman will say, "I'll wager $10,000 with any of my critics that if x-stimulus occurs, y-economic effect will follow."

Why aren't these economists making huge bets? They are rather confident in their opinions. They should go win that money! If they are embarrassed by greed, they can set up a charity as the beneficiary of the wager.

If someone wants to spend billions or trillions of taxpayer dollars, but won't offer up a few thousand of their own, then what should we think of him?

Macroeconomics is Astrology, Not Science

Macroeconomics 'Experts' Apply Astrology, Not Science
01/30/09 - RealClearMarkets by Frank J. Tipler, Professor of Mathematical Physics at Tulane University.

[edited] The inability of macroeconomic theories (about an entire economy) to make accurate predictions means that those economists do not know what they are talking about. Our leaders are being advised by macroeconomists, and they haven’t got a clue where they are leading us. Their actions may lead us out of the current recession, or they may lead us into a depression as bad as the Great Depression.

Franklin Roosevelt is often given credit for experimenting with the economy in a scientific manner. He did nothing of the sort.

Any experiment involving human beings has to be a controlled experiment, as in medicine. Half the patients are given the new medicines and the other half, the controls, either the old medicine, or a placebo. Then, and only then, can one tell if the medicine actually improves the condition over doing nothing (the placebo), or is making matters worse.

In contrast, today’s economic advisors to the President, like Roosevelt, propose to apply their economic medicine to the entire economy. This is astrology, not science. The professors of economics have no true, experimentally confirmed knowledge of macroeconomics.

The widely touted macroeconomic “experts” are no experts at all.

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Why Spending Stimulus Plans Fail
Articles about Stimulus