Archive for the 'Current Events' Category

Trey Gowdy Thinks You’re Stupid

Here we have six and a half minutes of Representative Trey Gowdy badgering Jonathan Gruber while studiously avoiding any form of substance.

There’s a lot Gowdy could have asked, like “So, is it actually the case that a tax on insurers is equivalent to a tax on the insured?” or “Can you explain why those taxes are equivalent?” or “Are there any important ways in which the two policies are not equivalent?” or “Why do you think a tax on `Cadillac plans` was good policy in the first place?”

Instead, all he can think of to ask — over and over and over and over and over and over and over again — is, “Why did you call the American people stupid?”, as if there were anything useful to be learned from the answer.

I see one possible explanation here. Apparently Gowdy believes his constituents prefer mindless bullying to policy enlightenment. In other words, he acts on the assumption that the American voters are fundamentally stupid. Maybe someone should spend six and a half minutes asking him why.

Edited to add: I said this in a comment, but want to add it to the post. It either is or is not important to determine the truth of the matter regarding the issues on which Gruber spoke deceptively — e.g. in what sense are these two taxes equivalent, etc. If these questions are not important, why are we having this hearing in the first place? If these questions are important, then why is Gowdy so uninterested in them?

Edited to add further: I said this also in a comment, but want to add it here. Gruber is lying. Gowdy has a chance to question him. Gowdy can use that chance either to chant the equivalent of “Liar, liar, pants on fire” or to pin him down on the substance of what he’s lying about, e.g. “Do you or do you not stand by the statement that a tax on insurers is equivalent to a tax on the insured?”. I assure you that Gruber prefers the former, and that’s what Gowdy is giving him. Presumably that’s because he thinks voters are too stupid to appreciate the latter.

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Corrections

In yesterday’s post about Eric Garner, I wrote:

Suppose you are a typical street vendor of an illegal product, such as, oh, say, untaxed cigarettes.

Suppose the police make a habit of harassing such vendors, by confiscating their products, smacking them around, hauling them off to jail, and perhaps occasionally killing a few.

I have good news: The police can’t hurt you.

Here’s why: Street vending can never be substantially more rewarding than, say, carwashing. If it were, car washers would become street vendors, driving down profits until the rewards are equalized. If car washers were happier than street vendors, we’d see the same process in reverse. (The key observation here is that it’s very easy to move back and forth between street vending and other occupations that require little in the way of special training or special skills.)

Because police harassment of street vendors has no effect on the happiness of car washers, and because street vendors are always just as happy as car washers, it follows that police harassment has no effect on the happiness of street vendors.

So if you’re a street vendor, the police can’t hurt you. On the other hand, when the police go around putting people in deadly chokeholds, they’re clearly hurting someone. So the question is: Who?

Answer: Not the vendors, but their customers. Fewer vendors means higher prices. That hurts consumers, and the sum total of that harm adds up to the harm that we see in the viral videos.

Several commenters jumped in to question the claims that:

  1. If you’re a street vendor, the police can’t hurt you.
  2. The costs of police harassment ultimately fall on consumers.

I’d like to thank those commenters — particularly David Sloan, Keshav Srinivasan and Eric — for keeping me honest and for persisting when I was initially too quick to dismiss their questions.

With regard to the first point, what I actually should have said was:

  • If you’re a street vendor, the police can’t hurt you more than an eentsy weentsy bit.

That’s because harassment causes street vendors to move into a great many other occupations, one of which is car washing. For every displaced street vendor we get, say, 1/2000 of an extra car washer — bringing wages ever so slightly down in the car washing industry and therefore making both car washers and street vendors ever so slightly worse off.

I do not consider this a significant correction.

With regard to the second point, it would have been more accurate to say this:

  • The greater the harassment, the more of its burden falls on consumers in the harassed industry.

More precisely, if we consider the harassment equivalent to a tax of T, then the burden on producers tends to grow linearly in T while the burden on consumers in the harassed industry tends to grow quadratically in T.

However, here are two points I now realize I’d overlooked:

  1. The linear/quadratic thing is at least partially misleading, because there is a limit on how big T can be — if T grows beyond a certain point, then the first industry disappears entirely. So we’re not looking at arbitrarily large T’s here, making “growth rates for large T” less relevant. Thus workers collectively can in fact — and in contrast to what I said yesterday — bear a substantial burden of the cost.
  2. While consumer surplus in the first industry shrinks quadratically in T, consumer surplus in the other industries grows quadratically in T, and in fact, the total consumer surplus across all industries can increase as a result of the street harassment. Thus it’s possible for workers to bear more than the entire burden of the harassment!

Here’s an explicit model:

Continue reading ‘Corrections’

Three Short Essays on Eric Garner

I.

If you asked me to make the best possible argument in favor of the police action that led to the death of Eric Garner, it would go like this:

  1. Cigarettes are taxed.
  2. You can’t have taxes without enforcement. In this case, the enforcers are the police.
  3. Where there are enforcers, there will be confrontations.
  4. When sellers refuse to cooperate, the enforcers have only two options: Walk away, or resort to violence.
  5. Enforcers who walk away soon lose their credibility and their effectiveness. This is more than doubly important for a police officer, who needs that credibility when he confronts far more dangerous criminals.
  6. Therefore, we cannot fault the police for resorting to violence.
  7. Violence is sometimes catastrophic. That’s sad, but it’s not news.

If you asked me to make the best possible counterargument, it would go like this:

  1. You could say exactly the same thing about a protection racket.

That is, every protection racket needs an enforcer. When shopowners don’t pay up, the enforcer has only two options: Walk away or resort to violence. To walk away would sacrifice credibility. Therefore we cannot fault the enforcer for resorting to violence. Sometimes violence gets pretty messy. So it goes.

The force of that reductio ad absurdum depends on the analogy between taxation of cigarettes and the demand for protection money. I think that reasonable people can disagree about the depth of that analogy.

But the lesson remains that every law must occasionally be enforced through potentially catastrophic violence, or, to put this more succinctly, all legislation is deadly. Violence is part of the cost of making laws, and it’s a cost the makers of new laws would be well advised to contemplate.

Continue reading ‘Three Short Essays on Eric Garner’

Two Questions for Bob Murphy

Bob Murphy objects to my recent defense of Jonathan Gruber. I have two questions for Bob.

Suppose a newly elected Republican president wants to exempt all investment income from taxation. There are two ways to do this:

1) Retain the income tax, but exempt all interest, dividends, and capital gains (while also abolishing the corporate and estate taxes).

2) Scrap the income tax and replace it with a national consumption tax.

The president’s chief economic advisor, like all economists, is well aware that these two policies are essentially equivalent in the sense that, once prices, wages and interest rates adjust to the new policies, each individual taxpayer is burdened exactly as much by policy 2) as by policy 1). More precisely, at least following an initial adjustment period each individual taxpayer enjoys exactly the same lifetime stream of consumption under policy 2) as under policy 1).

Let’s suppose also that the chief economic advisor believes that policy 1) is vulnerable to scurrilous class-warfare-themed attacks and therefore cannot be sold to the American people. Policy 2), however, stands a chance of passage. He therefore goes around honestly touting what he perceives to be the clear virtues of policy 2), choosing not to mention that it’s equivalent to policy 1).

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More Thanks

Yes, I’ve already got one Thanksgiving post up. But we should not skimp on gratitude, so here’s another:

Today I am thankful that I live in a time and a place where indictments are handed down (or not) by grand juries that have weighed a wide range of evidence, and not by angry mobs.

I’m thankful too for all my readers. Have the very best of holidays.

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Borderline Disorder

Here’s one difference between me and Paul Krugman: He enthusiastically supports President Obama’s new immigration policy, which he calls a matter of human decency. I grudgingly support President Obama’s new immigration policy, which I call a bit less indecent than the policy it replaces.

krugHere’s another difference between me and Paul Krugman: I believe it’s the job of an economics journalist to call attention to unpleasant tradeoffs and offer frameworks for resolving those tradeoffs. Krugman apparently believes it’s the job of an economics journalist to sweep all tradeoffs under the rug in the name of advancing your policy agenda — appealing, if you will, to the stupidity of the American op-ed reader.

Krugman, for example, tells us that he opposes deportations because they’re cruel, but also opposes open borders because they’d make it both economically and politically impossible to maintain the modern American welfare state.

In furtherance of which, he offers this kind of claptrap:

Second, there are large numbers of children who were born here … but whose parents came illegally, and are legally subject to being deported.

What should we do about these people and their families? There are some forces in our political life who want us to … deport the undocumented parents of American children and force those children either to go into exile or to fend for themselves.

But that isn’t going to happen, partly because, as a nation, we aren’t really that cruel

Dammit, I hate this stuff. Krugman says (and I agree with him) that it’s cruel to deport people. He ignores the fact that it’s also cruel to keep other people out. Krugman says (and I agree with him) that letting more people in would put pressure on the welfare system. He ignores the fact that allowing people to stay also puts pressure on the welfare system. Why should we prioritize kindness to those who are already here over kindness to those who are clamoring to get here?

There might be a really good answer to that question, but you’d never know it from reading Krugman. In fact, the takeaway from Krugman’s column is that the cruelty of deportations is unacceptable only because Krugman says so, and the cruelty of closed borders is a necessary evil only because Krugman says that too. So the next time you want to know whether some other policy is unacceptably cruel or not, the only way to find out is to ask Paul Krugman.

And then there’s more:

Continue reading ‘Borderline Disorder’

Who I Hope We Are Not as Americans

So let me get this straight. We drew this imaginary line in the desert. We’ll no longer use force to move people from this side to that side, but we will still use force to prevent movement from that side to this side.

This is good news for the people who are on this side at the moment, and I share their joy. But it does little for their less fortunate cousins who never made it here in the first place.

The president talks about “who we are as Americans”. I’d have hoped that we as Americans were not so basely hypocritical as to find it imperative that we stop bullying Group A (i.e. those who are here), but equally imperative that we continue to bully the even less fortunate Group B (i.e. those who aspire to be here).

This is a day to celebrate and a day to mourn.

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In Defense of Gruber

Regarding Jonathan Gruber and the Cadillac tax, I think a little historical context will be useful:

1) Our tax system subsidizes employer-provided health insurance. That’s dumb. Pretty much all economists agree that it’s dumb.

2) On the other hand, it’s politically hard to eliminate a subsidy once people get used to it.

gruber3) In 2008, we had an election. The candidates were named Barack Obama and John McCain. Exactly one of those candidates took the politically courageous step of proposing to eliminate the subsidies (and replace them with other subsidies, far more sensibly designed). The other candidate took the low road, leaping to the defense of subsidies he had to know were indefensible, playing to the crowd, and staking all on what could reasonably be called “the stupidity of the American voter” (though I myself would prefer to call it “the inattentiveness of the American voter”). That candidate won in a landslide.

4) Once elected, President Obama’s demagogy came back to haunt him. On the one hand, he knew that you cannot have sensible health care reform without curtailing those subsidies. On the other hand, he’d publicly committed himself to preserving them.

Continue reading ‘In Defense of Gruber’

The Rising Sea

grothAround 1970, Alexander Grothendieck, the greatest of all modern mathematicians and arguably the greatest mathematician of all time, announced — at the age of 42 — the official end of his research career. Another great mathematician once told me that he thought he knew why. Following two decades of discoveries and insights that, one after the other, stunned the mathematical world, Grothendieck had, for the first time, achieved an insight so unexpected and so consequential that he himself was stunned. Grothendieck had discovered his own mortality.

I am told that just a few hours ago, his vision proved accurate. But the notion of Grothendieck as a mortal seems hard to swallow. He dominated pure mathematics not just through the force of his ideas — ideas that seemed eons ahead of everyone else’s — but through the force of his personality. When, around 1960, he announced his audacious plan to solve the notoriously difficult Weil conjectures by first rewriting the foundations of geometry, dozens of superb mathematicians put the rest of their careers on hold to do their parts. The project’s final page count, including the twelve volumes known as SGA (Seminaire de Geometrie Algebrique) and the eight known as EGA (Elements de Geometrie Algebrique) approached 10,000 pages. The force and clarity of Grothendieck’s unique vision scream forth from nearly every one of those pages, demanding that the reader see the mathematical world in a new and completely original way — a perspective that has proved not just compelling, but unspeakably powerful.

In Grothendieck, modesty would have been ridiculous, and he was never ridiculous. Here, in his own words — words that ring utterly true — is Grothendieck’s own assessment of how he stood apart (translated from French by Roy Lisker):

Most mathematicians take refuge within a specific conceptual framework, in a “Universe” which seemingly has been fixed for all time – basically the one they encountered “ready-made” at the time when they did their studies. They may be compared to the heirs of a beautiful and capacious mansion in which all the installations and interior decorating have already been done, with its living-rooms , its kitchens, its studios, its cookery and cutlery, with everything in short, one needs to make or cook whatever one wishes. How this mansion has been constructed, laboriously over generations, and how and why this or that tool has been invented (as opposed to others which were not), why the rooms are disposed in just this fashion and not another – these are the kinds of questions which the heirs don’t dream of asking . It’s their “Universe”, it’s been given once and for all! It impresses one by virtue of its greatness, (even though one rarely makes the tour of all the rooms) yet at the same time by its familiarity, and, above all, with its immutability.

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Now What?

It was the election of 1994 that knocked the idealism out of me. Republicans ran on a national platform of reform, they won — and nothing happened. My recollection (someone correct me if I have this wrong) is that a series of substantial reform bills passed the Republican house in short order, and all of them died in the Republican senate. My guess (without having thought too hard about it) is that this is the natural order of things because Senate campaigns are so expensive that no matter what legislation the House sends up, there’s always some committee chairman with a large donor who opposes it.

There is no reassurance to be had from the identities of the likely new chairmen-to-be: Thad Cochran at Appropriations, Pat Roberts at Agriculture, Jeff Sessions at Budget, Orrin Hatch at Finance. Even aside from the question of what you can or can’t get past the White House, these are not the sort of people I want rewriting the tax code; they are not the people I want setting agricultural policy; they are not the people I want in charge of immigration reform.

Continue reading ‘Now What?’

Amazon’s Bargemen

In early 20th century China, goods were frequently transported by barges pulled by teams of six men. The men were paid only if they delivered their goods on time. Therefore they all agreed to pull as hard as possible.

This is a classic example of what economists call a Prisoner’s Dilemma — a situation where everyone wants to cheat, regardless of whether he believes the others are cheating. Any bargeman might reason that “If the others are pulling hard, we’re going to make it anyway, so I might as well relax. And if the others are not pulling hard, we’re not going to make it anyway — so I still might as well relax .” Therefore they all relax and nobody gets paid.

According to my late and much lamented colleague Walter Oi, the bargemen frequently solved this problem by hiring a seventh man to whip them whenever they appeared to be giving less than 100%. You might suppose, at least if you’re a person of ordinary tastes, that hiring a man to whip you is never a good idea. There’s a sense in which you’d be right. But hiring a man to whip your colleagues can be a very good idea indeed, and if that requires getting whipped yourself, it might prove to be an excellent bargain.

If I’d lived in China a hundred years ago, I believe I’d have gone out of my way to buy goods from the teams with whipmasters — partly because that’s where I’d expect the best service, but also partly because I’d feel a certain combination of admiration and loyalty for the teams who were working so hard to earn my business.

That’s how I feel about the folks at Amazon. Based on the fabulous service I’ve been getting, I’m confident these people are knocking themselves out to do a good job for me. In fact, it’s been widely (and perhaps accurately) reported that during a heat spell a couple of summers ago, workers in an un-airconditioned Pennsylvania warehouse continued to fill orders even as several were being treated for heat sickness.

There’s a narrative going around that tries to paint these workers as victims, though I’ve heard no version of that narrative that makes clear who, exactly, is supposed to have victimized them — the stockholders? the management? the customers? the do-nothing Congress? But there’s little point in trying to make sense of this narrative, since it’s so obviously wrong to begin with.

Imagine a team of ambitious but relatively low-skilled workers. They know that if they all push themselves to the limit, they’ll all be more productive and therefore earn higher wages. They also know that if they all promise to push themselves to the limit, they’ll all break their promises, figuring that success or failure depends almost entirely on what the others do.

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Post-Ferguson

A number of things happened over the summer while I was largely on hiatus from blogging. Some of those things happened in Ferguson, Missouri.

I probably would not have blogged about Ferguson in any event because, like you, I don’t know the facts and the facts make all the difference. But I do want to share this remarkable blog post from the remarkable writer and law enforcement officer Chris Hernandez, who knows a lot more than most of us about the use of deadly force in general.

Hernandez makes a number of factual assertions for which I cannot, of course, vouch, but I think his perspective is both eye-opening and important. I encourage you to read this.

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ACT now!!

jamiewhyteIf you like The Big Questions, you really ought to know my brash and brilliant friend Jamie Whyte. After a brief but dazzling career as a philosopher at Cambridge university (he once won the prestigious Analysis prize for the best article by a philosopher under 30), Jamie distinguished himself as a management consultant, a foreign currency trader, and, via his frequent writing, an incisive and steadfast defender of rational thought and individual freedom. His little book on Crimes Against Logic delivers brilliantly on its promise to “expose the bogus arguments of politicians, priests, journalists and other serial offenders”, and his recent collection Free Thoughts (which, true to its title, you can read for free) is essential fare for anyone who cares about clarity of thought — or, because Jamie is as funny as he is brilliant, anyone who’s just looking for a good chuckle.

Now, in his most startling career twist yet, Jamie has become the leader of a political party in his native New Zealand — the ACT party, named for its forerunner, the Association of Consumers and Taxpayers. ACT stands unabashedly for individual liberty, the rule of law and the enforcement of well-defined property rights. It campaigns against corporate welfare. It’s even pro-immigration. And thanks to New Zealand’s system of proportional representation, it actually gets representatives into parliament.

After several years of turmoil, the party turned to Jamie’s leadership in February of this year. With the boundless energy that inspires awe in everyone he meets, Jamie is re-building the party and promoting a principled free-market agenda in the run-up to the September 20 general election.

actThe downside of being a principled politician — and the reason they’re almost vanishingly rare — is that it’s hard to raise funds when you won’t cater to special interests. ACT opposes both corporate welfare and legal favoritism for union members, which cuts out most of the usual big donors. Here’s where you can help, and I hope you will.

Never before (and, I expect, never again) have I encouraged my readers to support any political party with their votes, let alone their dollars. That’s because I’ve spent my adult life being seduced and abandoned by politicians who talked a good game and then caved in to expediency when the chips were down. But Jamie — and therefore ACT — is different. I know him as a friend, and I know that principles are his passion.

You can help make ACT’s vision a reality by visiting the donation page and giving generously. Remember that a New Zealand dollar is worth about 88 cents U.S., so if you’re an American, a “$100 donation” is actually $88.

A little more background on New Zealand:

Continue reading ‘ACT now!!’

Nanosteps

In a nanostep for freedom, the Supreme Court this morning protected a small number of Americans from being forced by Congress to buy contraception insurance that they do not want. In a somewhat larger step backward, that small number of Americans were not chosen randomly, but instead were selected according to the religious beliefs of their employers. Whether this bodes well for future progress remains to be considered.

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The Free Marketeers

Yesterday’s brief post raised an eyebrow over a congressional candidate who manages simultaneously to call himself a “free-market economist” and to support strict controls on immigration. Here are a few more words for those who don’t quite see the problem.

First, I can imagine two possible meanings for the adjective “free-market”. Either it means you place a high value on freedom as an end in itself or it means you believe that freedom is, in general, a highly effective means to other ends you care about, like prosperity or security. I happen to be a free marketeer in both senses, though I can easily imagine being a free marketeer in either sense alone.

I see my preference for freedom as an end in itself as being similar to my preference for well done meat — you either share that preference or you don’t, and if you don’t, we’ll just have to agree to disagree — there’s no right or wrong here. One exception: If your preferences strike me as inconsistent — if, that is, you seem to make a lot of choices that indicate a strong preference for freedom while denying that freedom is terribly important to you — then I’m apt to point to that inconsistency and suggest that you might want to think a little harder about what your true preferences really are. That was the thrust of what I once tried to do in a book called Fair Play, where I suggested that the choices we make as parents often reveal values contrary to those we express in the voting booth — and that by reflecting on those choices, we might become more thoughtful voters.

On the other hand, if you doubt that freedom is an effective means toward prosperity, then I’m pretty sure you’re just wrong, and that if you thought about it harder you’d change your mind. A lot of my other writing has tried to explain how to think about it harder, and to demonstrate that this is a subject where hard thinking can be fun.

Now I’m not sure in which sense our congressional candidate considers himself a free marketeer, but surely if you’re a free marketeer in either sense, you’ll tend to endorse statements like these:

Continue reading ‘The Free Marketeers’

Veterans Affairs

Suppose you’ve just joined the army and expect to serve for, oh, say, four years before returning to civilian life.

Which would you rather have when you get out: a lifetime-guaranteed annual check for $7500 (adjusted each year for inflation) or a package of VA benefits?

To help you decide: The VA benefits include payments of anywhere from about $100 a month to almost $3000 a month in the unlikely event that you are partially or fully disabled, a pension on the order of $15,000 a year in the more unlikely event that you are both disabled and poverty-stricken (rising to more like $20,000 a year if you need regular aid and attendance), educational benefits under the GI bill, and health care of whatever quality the government chooses to provide.

Me, I’d take the guaranteed $7500-a-year in a heartbeat. If that’s the typical response, then it’s hard to see why we have a Veteran’s Administration in the first place, seeing as how the VA’s annual budget would just about cover those payments.

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The Rising Tide

So the Obama administration has released a climate forecast, according to which Miami could be under water by the end of the century. Apparently we’re supposed to be very concerned about that.

To put this in perspective, we’ve currently got about 140,000,000 square miles of ocean on this planet — about 71.066% of the earth’s surface. Add Miami’s 35 square miles and that goes up to 71.066007%. You could add all of South Florida and barely notice the difference.

Here’s what Jeff Goodell of Rolling Stone says about that:

Of course, South Florida is not the only place that will be devastated by sea-level rise. London, Boston, New York and Shanghai are all vulnerable, as are low-lying underdeveloped nations like Bangladesh. But South Florida is uniquely screwed, in part because about 75 percent of the 5.5 million people in South Florida live along the coast.

What Mr. Goodell appears to overlook is that of the 5.5 million people now living in South Florida, approximately zero will be alive a hundred years from now, and those that are will presumably have had the sense to move inland well before the water reaches their breastbones.

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High Frequency Rentseeking

Spread Networks recently spent $300 million to build a fiberoptic cable that will let Wall Street traders shave .003 seconds off their execution times.

What’s the social value of that cable? If you can shave .003 seconds off the time it takes to execute a trade, how much good have you done the world?

Clearly, the full value of the cable resides in its ability to get things done faster. So start with a vast overestimate: Suppose the entire economy is on hold waiting for that trade to be completed. Then, thanks to the cable, we can all get on with our lives .003 seconds sooner and produce an extra .003 seconds worth of output.

In a $15-trillion-a-year economy, that comes to about $1500.

If we assume, more realistically, that just 1/1000 of the economy is hanging fire waiting for this one trade, the social contribution of a .003-second speedup is roughly $1.50. I’m confident it’s even more realistic to replace that 1/1000 with 1/1,000,000 . That gets us down to about an eighth of a cent.

But chances are you’d be willing to pay a hell of a lot more than an eighth of a cent for that extra speed, which is why Spread Networks is willing to pour $300 million into this thing, and why, quite generally, we should expect there to be more invested in such projects than they return in social value.

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Krugman Versus Keynes

Remember Paul Krugman? You know, the guy who thinks we’re so deep in a liquidity trap that pretty much all spending is good spending, even if it’s socially wasteful?

Well, here’s something odd. That very same Paul Krugman is outraged to the core by expenditures on fiberoptic cables to support high frequency trading — expenditures that I happen to agree represent a giant social waste.

“We’re giving huge sums to the financial industry for little or nothing in return”, gripes the very same Krugman who thought it was a swell idea to stimulate the economy through hundreds of billions in government spending, whether or not we got anything in return.

It’s true that Keynesian economists have reasons to believe that wasteful spending is sometimes good. But honest Keynesian economists tend to acknowledge that those reasons apply equally well to both private and public spending.

Krugman’s view, apparently, is that, at least in the current climate, wasteful spending is good as long as you’re spending taxpayer’s money, but bad if you’re spending your own money. That’s not Keynesianism. It’s just crankiness.

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The Arithmetic of Wage Gaps

Mark Perry and Andrew Biggs argue in the Wall Street Journal that

These gender-disparity claims [the claims that women are paid 23% less than men for the same work] are also economically illogical. If women were paid 77 cents on the dollar, a profit-oriented firm could dramatically cut labor costs by replacing male employees with females. Progressives assume that businesses nickel-and-dime suppliers, customers, consultants, anyone with whom they come into contact — yet ignore a great opportunity to reduce wages by 23% [by hiring women instead of men].

Well, first of all, even if we take the gender disparity claims at face value, this doesn’t add up to an opportunity to reduce wages by 23%. Only about half the work force is female, so the average firm, if it replaced all of its men with women earning 23% less, would reduce its wage bill by only about 11.5%.

Beyond that, the Perry/Biggs argument appears to founder on the observation that lazy and incompetent managers do in fact manage to ignore profit opportunities all the time. Why, then, is it so hard to imagine that they’re ignoring this one?

Fortunately, I’m here to fill the gap —- by figuring out just how big a profit opportunity we’re talking about.

Continue reading ‘The Arithmetic of Wage Gaps’

Re Arizona

I realize I’m late to the party, but here are a few thoughts on Arizona Senate Bill 1062:

1) A law allowing people to pick and choose whom they want to transact with would be a very good law. Not as good as eliminating the other laws that make this law necessary, but still a big improvement over the status quo.

2) Senate bill 1062, however, was not that law. Instead it was a law allowing people to pick and choose who they want to transact with provided they have (or claim to have) a religious basis for their preference.

3) This raises the question of how we should feel about good laws that exempt only the politically favored from onerous requirements of other laws. How should we feel, for example, about a law that allows only white people, or only black people, or only Muslims, or only art history majors to practice cosmetology without a license — while continuing the status quo for everyone else?

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Block Heads

walterblockThe righteously irrepressible Walter Block has made it his mission to defend the undefendable, but there are limits. Chattel slavery, for example, will get no defense from Walter, and he recently explained why: The central problem with slavery is that you can’t walk away from it. If it were voluntary, it wouldn’t be so bad. In Walter’s words:

The slaves could not quit. They were forced to ‘associate’ with their masters when they would have vastly preferred not to do so. Otherwise, slavery wasn’t so bad. You could pick cotton, sing songs, be fed nice gruel, etc. The only real problem was that this relationship was compulsory.

A group of Walter’s colleagues at Loyola university (who, for brevity, I will henceforth refer to as “the gang of angry yahoos”) appears to concur:

Traders in human flesh kidnapped men, women and children from the interior of the African continent and marched them in stocks to the coast. Snatched from their families, these individuals awaited an unknown but decidedly terrible future. Often for as long as three months enslaved people sailed west, shackled and mired in the feces, urine, blood and vomit of the other wretched souls on the boat….The violation of human dignity, the radical exploitation of people’s labor, the brutal violence that slaveholders utilized to maintain power, the disenfranchisement of American citizens, the destruction of familial bonds, the pervasive sexual assault and the systematic attempts to dehumanize an entire race all mark slavery as an intellectually, economically, politically and socially condemnable institution no matter how, where, or when it is practiced.

So everybody’s on the same side, here, right? Surely nobody believes the slaves were voluntarily snatched from their families, shackled and mired in waste, sexually assaulted and all the rest. All the bad stuff was involuntary and — this being the whole point — was possible only because it was involuntary. That’s a concept with broad applicability. One could, for example, say the same about Auschwitz. Nobody would have much minded the torture and the gas chambers if there had been an opt-out provision. And this is a useful observation, if one is attempting to argue that involuntary associations are the root of much evil.

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The View From Olympus

Correct me if I’m wrong here:

1) In Russia, there is a law against so-called “gay propaganda”. Reasonable people (including me) consider this a regrettable curtailment of liberty. Some of those reasonable people also believe that it contributes to a culture in which violent acts against gay people are condoned or encouraged. This, if true, is sickening.

2) In Russia, there is also a law requiring most male citizens to serve at least a year in the military. Reasonable people (including me) consider this a regrettable curtailment of liberty. It is widely reported that conscripts are routinely subject to violent hazing that has been characterized as rising to the level of torture. News reports suggest that hundreds of conscripts die every year as a result of this hazing. This, if true, is sickening.

3) Conscription affects far more people than the anti-propaganda laws. In most cases, it also affects them far more severely. (If you doubt this, try asking your friends which they’d prefer: avoiding public discussions of homosexuality or serving a year in the Russian military.) Conscription is therefore, on both counts, the (far) greater outrage.

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State of the Union

I’m leaving this one up to my readers. What was the most egregious moment?

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Vocabulary Lesson

So…Democrats want to increase federal spending. Republicans supposedly want to decrease federal spending. The “compromise” is to increase federal spending by $45 billion.

I do not think the word “compromise” means what these people seem to think it means.

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Blast from the Past

With minimum wages in the news, one of my old posts on the subject has been getting a lot of hits lately. Unfortunately that post is quite long and the key points come near the end — past the point where I suspect a lot of people might stop reading. So here I’m excerpting what I consider the main ideas:

1. If we’re going to transfer income to low-wage workers, it’s both fundamentally unfair and politically unwise to put the entire burden of that transfer on a relatively small segment of the population (namely the owners and customers of businesses that employ a lot of low-wage workers). The right thing, given that we’re going to make this transfer, is to fund it as broadly as possible — say through an increase in the Earned Income Tax Credit, which comes out of general tax revenues.

2. I used the phrase “fundamentally unfair and politically unwise”. I’ll expand on both points, starting with fairness. When we collectively want a whole lot of 18-year olds to form an army, do we put the entire burden of that desire on people who happen to be 18 years old, by conscripting them at zero wage? Or do we think it’s fairer for those of us who enjoy the protections of that army to bear the cost through the tax system? When we collectively want to convert farmland to parkland, do we put the entire burden of that desire on people who happen to own farms, by taking their land without compensation? Or do we think it’s fairer for potential park-goers to pay for that land through the tax system? When we collectively want to raise the wages of unskilled workers, should we put the entire burden of that desire on those who happen to employ unskilled workers? Or is it fairer for those who have collectively made this decision to share the burden?

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Minimum Insight

Paul Krugman argues that:

  1. Hiking the minimum wage has little or no adverse effect on employment
  2. and therefore

  3. A minimum-wage increase would help low-paid workers, with few adverse side effects

.

In other words, Krugman, not for the first time, is peddling the sort of claptrap that few of us would accept from a college freshman.

The first point — that hiking the minimum wage has little effect on employment — is an empirical one. Not all smart observers agree with Krugman’s reading of the data, but many do — so for the sake of argument, let’s assume he’s right about that.

The question now is: How the hell do you get from point 1 to point 2? Answer: Only by forgetting the most basic principle of economics, which is that things have to add up. If the minimum wage has no effect on employment, then it’s basically a pure transfer of resources. Which means that the costs and the benefits are equal. The only way there can be “few adverse side effects” —- i.e. few costs — is if there are few benefits. Our job as economists is to make sure people understand such things.

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A Little Knowledge is A Dangerous Thing

Sent by a reader:


(Click to enlarge.)

Some questions for the economics students:

  • Which vertical line segment illustrates the carbon tax revenue?
  • Which vertical line segment illustrates the compensation paid by the government?
  • Where does the difference come from?
  • What difference would it make if you changed the axis labels from “Polluting Products” and “Non-Polluting Products” to “Watermelon” and “All Things That Are Not Watermelon”?

Answers below.

Continue reading ‘A Little Knowledge is A Dangerous Thing’

False Imprisonment

The frequently insightful and usually accurate Megan McArdle gets this part quite completely wrong in her latest Bloomberg column about ObamaCare:

Democratic politicians and insurers are locked in a prisoner’s dilemma. In this classic game-theory case, you and a professional associate are both arrested for theft. If neither of you talks, then you’ll probably get off. But if just one of you talks, then the person who talks will get a reduced sentence, while the other person has the book thrown at them. If you both talk, then both of you go to jail for a long time. The equilibrium is for both of you to talk, just in case the other guy does .

I sincerely hope that anyone who’s ever taken my Principles of Economics course — or for that matter, any Principles of Economics course — can explain to McArdle how wrong this is, and why.

Exercise for the reader: To what extent, if at all, does this howler undermine the larger point of McArdle’s column?

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Obama Did Not Lie

Say you’re planning a vacation trip to visit the castles of England. You’re thinking maybe you’ll see a castle a day, with lots of time for leisurely drives and exploration in between. Your spouse, meanwhile, has drawn up a rigid schedule that will get you to twenty sites in seven days. In the course of trying, gently, to point out how impractical this is, you ask: “But how can we possibly make it from Harlech to Alnwick in under two hours?”. Your spouse, fed up with this discussion, replies: “We’ll take a rocket ship, okay?”

Actually, of course, your spouse knows perfectly well that you won’t be taking a rocket ship. So: Have you just been lied to? It seems to me that you clearly haven’t been. A lie requires an intent to deceive. You have, perhaps, been treated with contempt, and that can be just as unpleasant as a lie. But it’s not a lie. In order to lie, you’ve got to have some chance of being believed.

When President Obama said that he could provide health care to millions without taking any health care away from people who have already got it, he had no chance of being believed. The statement was absurd on its face. This is a law of arithmetic: If you invite a bunch of friends to share your lunch, there’s going to be less lunch for you. Everybody understands that.

Continue reading ‘Obama Did Not Lie’