Archive for the 'Current Events' Category

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.

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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.

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What Went Wrong

Okay. I’ve never worked as a tech geek, so I’m speculating from ignorance here. Some of you can probably speak with more authority. Perhaps we’ll hear from the reliably acerbic and insightful Doctor Memory, who knows whereof he speaks on this subject (and several others). But to my uneducated eye, it appears that Arnold Kling has got this pretty much dead-on right: The Obamacare mess “is not a technical screw-up, and it will not be fixed by technical people. It is an organizational screw-up.”

What you had here, among other things (and almost of this is paraphrasing Kling) is:

  • A bunch of people who had never worked in the insurance business appointing themselves executive officers of the world’s largest insurance brokerage.
  • Nobody at the top with the authority to trim features as needed to keep the project manageable.
  • No mechanism for the technical staff to challenge the managers, because all of the management decisions were essentially set in stone before the technical staff — i.e. the outside contractors — came on board.
  • No clear lines of authority and acceptability.

Private enterprises frequently fail, often for one or more of these reasons. But sometimes they succeed, and that’s largely because sometimes they get this stuff right. The government, by contrast, has no mechanism for getting it right. The people at the top are not industry experts, the features are largely determined by the legislative process, which takes place with absolutely no feedback from the tech geeks who are going to have to implement it, the political system pretty much forces you to put the technical part of the project out for bid and to parcel it out among multiple contractors, eliminating any possibility of ongoing negotiation between the managers and the techies, and on top of all that, nobody’s livelihood is on the line.

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Lying Low

Faithful readers of this blog might remember the despicable antics of Senator Sheldon Whitehouse, who, in a televised hearing last June, spent eight excruciating minutes impugning the honesty of a young economist named Salim Furth — because Furth had presented actual data that contradicted a bunch of numbers Whitehouse had made up out of whole cloth. For those who need a refreseher, the entire sordid story — including Paul Krugman’s reprehensible piling-on to Whitehouse’s McCarthyite smear — is here with a follow-up here.

Well, it turns out that Senator Whitehouse is no more interested in understanding the numbers today than he was last June. Last week, the Heritage Foundation held a symposium on the effects of austerity and what the data actually show — the precise data that Whitehouse disputed. In addition to Furth, who has continued his meticulous research on the subject the speakers included illustrious scholars such as Harvard Professor Alberto Alesina. Heritage sent personal invitations to Senator Whitehouse’s staff and to the various journalists who screwed up this story by reporting Whitehouse’s made-up numbers as accurate and his smears as justified.

The result? None of them showed. Apparently Senator Whitehouse’s passionate interest in the austerity numbers tends to cool off when he can’t hog the spotlight, or might risk learning something.

Meanwhile, if you care more about this subject than Senator Whitehouse does, you might want to look at Furth’s most recent report on the subject, or at the data set he’s posted online, or at his most recent blog post calling Paul Krugman to account for misinterpreting some of these numbers.

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Six Observations

Do correct me if I’ve got any of the history wrong here:

1. It seems pretty likely that a big part of the reason why Amazon’s website works so well and Obamacare’s website works so poorly is that Obamacare, unlike Amazon, is not subject to the discipline of the market (and therefore, for example, employs coders with no equity in the enterprise).

2. A whole lot of people predicted that the Obamacare bureaucracy would not work well because it would not be subject to the discipline of the market. I’m not sure anyone pointed to the webpage as a particular point of vulnerability, but plenty of people made the general observation that large government bureaucracies don’t work well and that this was a reason to be skeptical of Obamacare.

3. Paul Krugman pooh-poohed those concerns.

4. Paul Krugman reminds us approximately 914 times per month that only a very bad person would fail to acknowledge accurate predictions of his adversaries. (It’s true that in approximately 914 of those 914 cases, the vindicated adversary is Paul Krugman. But he has indicated support for the general principle.)

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They Got It Right

I have no time to blog at length, but Fama, Hansen and Shiller are brilliant choices.

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The Compassionate Science

I’ve said this before and will say it again: Part of the reason I love economics is that economics is the compassionate science. It’s the discipline that requires us to think hard and to care about how policies affect everyone, not just the people who happen to be standing in front of us.

The response to the government shutdown has been as good an example of this as any. Nothing but a garguntuan failure of empathy can explain the chorus of voices insisting that the shutdown is a bad thing because government employees might lose their paychecks. It takes a mighty powerful set of moral blinders to care so much about the recipients of those checks and so little about the taxpayers who fund them.

It gets even uglier when that same chorus of voices responds “But the government employees are poor and the taxpayers are rich!”. Put aside the question of whether that’s true. If your goal is to transfer money to the poor, and if the poorest people you can think of are government employees, then the well of your compassion is truly dry.

Argue if you must for transferring income from the rich to the poor. But to turn that into an argument for transferring income from the taxpayers to the employees of the government, there are a couple of billion poor people you’ve got to willfully ignore.

When I blogged about this issue earlier this week, we had one commenter — a personal friend, actually, and someone I’ve been surprised and delighted to see showing up in our comments section from time to time — who broke my heart by pointing to the pain of Capitol Hill coffee shop owners who are losing business, apparently oblivious to the fact that taxpayers also visit coffee shops, and that for every dime not being spent by a DC bureaucrat, there’s an extra dime available to be spent by a Nebraska farmer or a New York cab driver. Our commenter apparently remembered to care about the guys selling coffee in DC but forgot to care about the guys selling coffee in Nebraska.

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The Sky Won’t Fall if the Ceiling Holds

Paul Krugman proffers a trademark sneer to the “default deniers” who are “asserting that the government can prioritize, so as to avoid a default on interest payments”. Not so, says Krugman, who insists that

The crucial point here is that even if they’re right about interest payments — which is unclear — the government will (a) still go into default on obligations to vendors, Social Security recipients, and so on (b) be forced into spending cuts so large as to guarantee a recession if the standoff lasts any length of time.

Well, first of all, as I wrote the last time the debt ceiling got raised, it’s easy to cover all of the interest on the national debt via spending cuts. At least to a rough approximation, you could do it by eliminating the Departments of Commerce, Agriculture and Labor, none of which should ever have existed in the first place.

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The Sin of Wages

How dire is a government shutdown? Respectable people have made respectable arguments on all sides of that issue. But there’s nothing respectable about the chorus of voices pointing to the pain of furloughed government employees — and pretending this is a reason to end the shutdown, whereas it’s clearly a reason to prolong it.

The more painful the furlough, the more overpaid the worker must have been in the first place. People who are paid fair market wages don’t get nearly so upset about losing their jobs — or losing a few weeks of work — as do people who are paid more than their skills reasonably command. Of course there’s always pain associated with an unexpected disruption in your work schedule, even if when your wages are entirely reasonable. But cries of extreme pain amount to admissions that these workers have been ripping the public off for years.

Even without that observation, the pain of interrupted wages cannot by itself be a reason to restart the government, because it is exactly offset by the relief of those who pay those wages.

To make an honest argument in favor of a government operation, you’ve somehow got to point to the social benefits of that operation. In some cases that might be easy. In other cases, it’s hard but possible. But those who shirk the task completely, by focusing not on lost productivity but on lost wages, are just making themselves ludicrous.

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Correcting an Oversight

Listening to talk radio on the way into work this morning (I know, I know, there are better things to listen to, but since Sirius/XM has pretty much made the Broadway channel unlistenable —- something I’ve been meaning to blog about — I’ve been floundering around lately), I heard a gentleman complain that the government shutdown is hurting his business — because nobody’s available to issue the export licenses that he needs to ship goods abroad.

Oddly, it seems not to have occurred to this gentleman that his problem emanates not from the parts of the government that are shut down, but from the parts that aren’t. If the government were really shut down, there’d be nobody to enforce the export-license requirement in the first place.

(And just to anticipate the worst possible misreadings — yes, I am aware that in the absence of any government at all, this gentleman’s business, with its reliance on contracts and property rights, might not exist in the first place. That doesn’t change the fact that his immediate problems are being caused by too much government, not too little.)

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Dispatches From the Front

My government’s been shut down almost 12 hours now. So far, I’m doing okay without them.

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RIP, Ronald Coase

Ronald Coase has died at the age of 102. I am therefore reposting, with minor changes, the appreciation I wrote a few years ago for his 99th birthday.

In the theory of externalities—that is, costs imposed involuntarily on others—there have been exactly two great ideas. The first, forever associated with the name of Arthur Cecil Pigou (writing about 1920) is that things tend to go badly when people can escape the costs of their own behavior. Factories pollute too much because someone other than the factory owner has to breathe the polluted air. Nineteenth century trains threw off sparks that tended to ignite the crops on neighboring farms, and the railroads ran too many of those trains because the crops belonged to someone else. Farmers keep too many unfenced rabbits when they don’t care about the lettuce farmer next door.

Pigou’s solution—and it’s often a good one—is to make sure that people do feel the costs of their actions, via taxes, fines, or liability rules that allow the victims to sue for damages. Do a dollar’s worth of damage, and you’re charged a dollar.

Pigou endorsed this policy not because it seems fair, though it does seem fair to many, but because it yields, under what he believed to be very general conditions, the optimal amounts of damage. We don’t want too much pollution, but we don’t want too little, either, given that pollution is a necessary by-product of a lot of stuff we enjoy. Pigou offered a proof—now standard fare in all the textbooks—that his policies lead to the perfect compromises, in a sense that can be made precise.

The second great idea about externalities sprang full-blown from the mind of a law professor and subsequent Nobel prize winner named Ronald Coase, who stunned the profession in 1960 by pointing out that Pigou’s argument runs both ways. If you breathe the pollution from my factory, I’m imposing a cost on you—but at the same time, you’re imposing a cost on me. After all, if you lived somewhere else, you wouldn’t be complaining about the smoke and I wouldn’t be getting punished for it.

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Sun Burned

This is a picture of Jeffrey Punton, from my hometown of Rochester, New York, standing in front of the solar panels that he installed at a cost of about $42,500. He figures that over the long term, they’ll save him maybe $8000 to $10,000 in power bills. But he’ll only lose a few thousand dollars on the deal, thanks to about $30,000 in government subsidies — in other words, thanks to those of you who pay taxes. He keeps the panels up as a conversation-starter so he can educate people about how little sense these subsidies make.

The story is here.

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Double Standards

Remember last January, when the President said he wouldn’t negotiate with hostage-takers—like the Republican representatives who demanded spending cuts in exchange for raising the debt ceiling? His argument, as I understood it, was that:

  1. A failure to raise the debt ceiling would be unambiguously bad policy.
  2. It is irresponsible to threaten to implement a bad policy just to gain concessions on the spending front.

It’s an argument I expect we’ll hear again, next time the debt ceiling comes up.

And what’s the President up to in the meantime? He’s demanding a new round of spending increases in exchange for corporate tax reform. Now, since pretty much every sentient being in the Universe agrees that we’re long overdue for corporate tax reform (and in particular for lower rates), I think it’s fair to characterize the President’s position as a threat to retain a bad corporate tax policy just to gain concessions on the spending front.

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Acta Sanctorum

So if I have this right, it is now the official position of the Catholic church that:

  1. The late Pope John Paul II has the ongoing power to cure brain aneurysms.
  2. As far as we know, he has chosen to employ this power exactly once. (He also once cured a case of Parkinson’s.)
  3. While hundreds of thousands of others have suffered and/or died from brain aneurysms, John Paul has not been moved to intervene.
  4. The one victim he troubled himself to save was selected not because she was particularly deserving or particularly valuable to society, but because she chose the right guy to pray to — sort of like having to suck up to the teacher to get a good grade.
  5. All of this makes John Paul II particularly fit for veneration.

For God’s sake (you should pardon the expression), if you’re looking to make the case that John Paul II was capable of performing (or at least catalyzing) genuine miracles, isn’t the defeat of Soviet Communism good enough? That right there makes him a saint in my book — though if I ever come to believe that he can cure aneurysms and has been holding out on us, I might have to retract my endorsement.

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A Queer Bit of Reasoning

Here is Justice Anthony Scalia, dissenting from the Supreme Court ruling striking down the Defense of Marriage Act:

It is enough to say that the Constitution neither requires nor forbids our society to approve of same-sex marriage, much as it neither requires nor forbids us to approve of no-fault divorce, polygamy, or the consumption of alcohol.

I don’t get it. The Consitution neither requires nor forbids our society to approve of the Atlantic Monthly, but it still requires us to tolerate the Atlantic Monthly. Or does Justice Scalia disagree?

(Note to potential commenters: This is not a post about whether we as a society either should or should not approve of same-sex marriage, or for that matter whether there’s any meaningful sense in which a “society” is capable of approving anything at all. It’s also not a post about what our policy should be toward same-sex marriage. It’s a post about Justice Scalia’s odd notion of what this case was about. Please stay on topic.)

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Judgment Calls

If you need further proof that a human being is a close cousin to a chimpanzee, you need look no farther than the design of the American justice system.

Debra Nelson, the judge in the George Zimmerman murder case, has disallowed testimony from audio experts about whether that’s Zimmerman or the deceased Trayvon Martin who can be heard screaming on the 911 tape. That matters, because much of what’s in dispute here is the question of who attacked whom.

One prosecution expert was prepared to testify that the screams are Martin’s, and another that they are at least not Zimmerman’s. Defense experts were prepared to dispute those claims. They made their arguments in front of the judge for several days, whereupon she ruled that the jury won’t be allowed to hear any of it.

The judge’s concern was that there is no good evidence that the experts’ techniques are reliable. That might be true. But who should be making that call — the judge or the jury?

There is, I think, an excellent case to be made that juries are, by and large, incompetent (or at least less competent than judges) to determine what constitutes a plausible argument by an audio expert. But if you buy that argument, I think you’ll be pretty much forced to conclude that the jury is also incompetent to reach a verdict. If that’s your view, we shouldn’t have juries in the first place.

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The Story Darkens

It turns out that last week’s tag-team smear of a young Heritage Foundation economist, executed by Senator Sheldon Whitehouse of Rhode Island and his lackey Paul Krugman of the New York Times, was even worse than we knew.

As you’ll recall, Salim Furth of the Heritage Foundation testified before the Senate Budget Committee, accurately presenting data on economic policy changes in various countries for the years 2007-2012. Then Senator Whitehouse, cheered on by Paul Krugman, spent eight minutes excoriating Furth for inventing those numbers — the sort of accusation which, if it were taken seriously, would surely destroy Furth’s career. (As well it ought to, if it had contained a grain of truth.)

And what was Senator Whitehouse’s evidence for Furth’s “meretriciousness”, as he put it? Well, it was the fact that Whitehouse had gone to Furth’s source, looked for the numbers, and found them to be entirely different.

What Senator Whitehouse didn’t tell you was that he was “refuting” Furth’s accurate report of the historical record with projected numbers, which is to say pie-in-the-sky promises by politicians about what they’re going to do in the year 2016. It was, as I said last week, as if I’d announced plans to lose 30 pounds and then promptly gained 10. When Furth accurately reports my recent weight gain, Whitehouse calls him a liar because a 10 pound gain is not a 30 pound loss.

Paul Krugman, who must know better, cheered on this mendacity when he wrote:

a Heritage Foundation economist has been accused of presenting false, deliberately misleading data and analysis to the Senate Budget Committee.

What’s so shocking? Not the false, misleading data and analysis — that’s SOP at Heritage. … What’s shocking is that they got called on it, in real time.

Now it turns out that Senator Whitehouse’s numbers were even farther off base. Not only was were the numbers invented to begin with; he took those numbers for various years and added them up, even though they were already cumulative. It’s as if I’d announced plans to lose 30 pounds in 2013 and another 20 in 2014 — a total of 50 over two years. What Senator Whitehouse did was the equivalent of adding the initial 30 to the total of 50, and then announcing that my projected weight loss is 80 pounds. And then calling Furth a 90-pound liar for accurately reporting my 10 pound weight gain.

Continue reading ‘The Story Darkens’

Lies and Lying Liars

When a politician misleads the public with distorted or flat-out fictional data, or uses eight minutes of national TV time to smear the character of the careful scholar who dared to report an inconvenient set of facts, you can always count on Paul Krugman of the New York Times to leap to the defense of truth and honesty — or, alternatively, to jump on the bandwagon if the politician happens to be a Democrat.

Here, you see, is what happened this week: Salim Furth, an economist at the Heritage Foundation (and a graduate of the University of Rochester, where I knew him to be a thoughtful and honest researcher) testified before the Senate budget committee, where he presented data from the Organisation for Economic Cooperation and Development (OECD) showing that most European governments have recently increased their spending. (This isn’t surprising for several reasons, one of which is that governments often spend more in recessionary times.)

Enter Senator Sheldon Whitehouse of Rhode Island, who spent eight excruciating televised minutes lambasting Furth and questioning his honesty, by reading out OECD numbers that differed dramatically from what Furth had reported. Some choice comments:

Dr. Furth, I am very concerned about your testimony….

When I look at the graph, for instance, which you source to the OECD — did you actually look at what the OECD says?….

They’ve actually written what the numbers are. And here’s what the numbers actually are, according to the OECD….

I am concerned that your testimony to this committee has been meretricious…I am contesting whether you have given us fair and accurate information.

And then there’s another eight minutes of reading out numbers that are, Senator Whitehouse keeps reminding us actually from the OECD, as opposed to these other numbers reported by Furth, which Furth claims are from the OECD, but obviously can’t be, because Whitehouse has the actual OECD numbers right here, and look how different they are — all of this interspersed with a barrage of attacks on Furth’s character and integrity. (See the video below, if you have the stomach for it.)

Now here’s the thing: There are a couple of legitimate reasons why Furth’s and Whitehouse’s numbers don’t agree. The first is that they’re for different time periods. Furth’s are for the years 2007-2012, while Senator Whitehouse’s are for the years 2009-2016. That’s right, 2016. Which brings us to the other reason these numbers differ: Furth’s come from the historical record, while Senator Whitehouse’s come from somebody’s ass.

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To Hold You Over….

Sorry to have been so silent this week; various deadlines have kept me away from this corner of the Internet. I’ll be back in force next week for sure. Meanwhile, if you’re looking for some good reading, this is the best thing I’ve seen all morning.

Edited to add: “Best all morning” was not intended as damning-by-faint-praise. It’s actually the best of many mornings.

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Terror, Truth and Torture

Last week was not the first time the United States was transfixed by an act of terror. In 1964, three civil rights workers in Philadelphia, Mississippi were (quoting Wikipedia) “threatened, intimidated, beaten, shot, and buried by members of the Mississippi White Knights of the Ku Klux Klan, the Neshoba County Sheriff’s Office and the Philadelphia Police Department.” It took 44 days and an FBI-initiated act of torture to locate their bodies.

The FBI, in a nod to the theory of comparative advantage, subcontracted the torture to the Mafia, more specifically to the Colombo family associate Gregory Scarpa. Here’s the story as relayed by Selwyn Raab, the New York Times investigative reporter who covered the Mafia for 25 years:

[Scarpa] went down to Mississippi for the FBI and kidnapped a KKK guy agents were sure was involved in disposing of the bodies. The guy had an appliance store. Scarpa bought a TV and came back to the store to pick it up just as he was closing. The guy helps him carry the TV to his car parked in the back of the store. Scarpa knocks him out with a bop to the head, takes him off to the woods, beats him up, sticks a gun down his throat and says “I’m going to blow your head off”. The KKK guy realized he was Mafia and wasn’t kidding and told him where to look for the bodies.

(Source: Raab’s book Five Families, which is fascinating throughout. Raab says the story has been verified by “former law enforcement officials who asked for anonymity and lawyers who are aware of the circumstances”.)

The moral of the story is that torture sometimes works. Other times it doesn’t, eliciting either no information, or false information, or whatever “information” the victim believes the inquisitor wants to hear. I am almost 100% ignorant, and hence virtually 100% agnostic, about the relative frequency of these outcomes in those cases where the torturer is both skilled in his art and genuinely interested in eliciting the truth. I will be very glad if any educated reader can shed light on this question. I doubt that we’re likely to learn of any controlled experiments, but I’ll settle for sketchy data or even well-chosen anecdotes. Failing that, I’ll settle for plausibility arguments.

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Censorship, Environmentalism and Steubenville

Note added on 4/5: Some readers missed the point of this post very badly, which means that it could have been written more clearly. Here is a brief attempt to clarify.


Here are three dilemmas about public policy:

Farnsworth McCrankypants just hates the idea that someone, somewhere might be looking at pornography. It’s not that he thinks porn causes bad behavior; it’s just the idea of other people’s viewing habits that causes him deep psychic distress. Ought Farnsworth’s preferences be weighed in the balance when we make public policy? In other words, is the psychic harm to Farnsworth an argument for discouraging pornography through, say, taxation or regulation?

Granola McMustardseed just hates the idea that someone, somewhere might be altering the natural state of a wilderness area. It’s not that Granola ever plans to visit that area or to derive any other direct benefits from it; it’s just the idea of wilderness desecration that causes her deep psychic distress. Ought Granola’s preferences be weighed in the balance when we make public policy? In other words, is the psychic harm to Granola an argument for discouraging, say, oil drilling in Alaska, either through taxes or regulation?

Let’s suppose that you, or I, or someone we love, or someone we care about from afar, is raped while unconscious in a way that causes no direct physical harm — no injury, no pregnancy, no disease transmission. (Note: The Steubenville rape victim, according to all the accounts I’ve read, was not even aware that she’d been sexually assaulted until she learned about it from the Internet some days later.) Despite the lack of physical damage, we are shocked, appalled and horrified at the thought of being treated in this way, and suffer deep trauma as a result. Ought the law discourage such acts of rape? Should they be illegal?

If your answers to questions 1, 2 and 3 were not all identical, what is the key difference among them?

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History Repeats Itself

Benjamin Franklin was against smallpox vaccination — until his own unvaccinated son died of smallpox, whereupon Franklin changed sides and began urging other parents to vaccinate their children.

This has always struck me as a bit of a black mark against Franklin’s rationality. He’d always known that smallpox kills; he’d always known that vaccinations (at least in the early 18th century) could also kill. As a parent, he’d weighed one risk against the other and used his best judgment about where to place his bets. In a world where smallpox deaths were commonplace, his own son’s death was just one more virtually insignificant data point. Could inoculation have been an unacceptable risk against a disease that killed 100,000 people a year, but a prudent precaution against a disease that killed 100,001?

That’s how I feel, too, about Senator Rob Portman’s turnabout on the issue of gay marriage after learning that his son is gay. Continue reading ‘History Repeats Itself’

Debt and Growth

Is the public debt a drag on economic growth? Economist Salim Furth reviews the evidence here and finds cause for alarm.

My own instincts are substantially less alarmist, but it should be noted that unlike me, Furth (and those he quotes) have spent substantial time thinking hard about this question.

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Romer on Minimum Wages

Christy Romer, writing in the New York Times, deems the Earned Income Tax Credit a more palatable alternative to the minimum wage. So do I. (So, I feel confident, do the great majority of economists). But there is almost no overlap between Romer’s reasons and mine. I believe her reasons are wrong.

First, Romer observes (correctly) that while the minimum wage tends to reduce employment (though perhaps not by very much), the EITC has the opposite effect. That’s because the minimum wage is essentially a tax on hiring unskilled labor, while the EITC is a subsidy. When you tax something you get less of it; when you subsidize something, you get more.

But, contra Romer, that’s no reason to prefer the EITC. Since when, after all, is it automatically better to have too much of something than too little? Underemployment and overemployment are both bad things. Indeed, if the minimum wage (for whatever reason) has very little effect on employment while the EITC increases it substantially past the efficient level, that’s a good reason to prefer the minimum wage.

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Deficit Attention Disorder

Imagine you’ve got a drinking problem. And imagine this conversation with your spouse:

Spouse: Dear, you’ve really got to do something about your drinking. You’ve been in three auto accidents this week, you’ve lost your job, and you’ve been trying to beat the children, though you keep passing out before you can get to them. I want to help you figure out how to get this under control.

You: You’ve got a fair point there. But let me point out that it would also be a good idea to redecorate the living room.

Spouse: Well, maybe so, and it’s something we can talk about at some point. But right now, I’d really like to focus on the drinking issue.

You: Doesn’t that strike you as imbalanced? Here we’ve got two issues on the table, and you want to focus 100% on one of them and 0% on the other. Why are you being so one-sided?

Spouse: Well, but I feel like there’s some urgency about the drinking thing, and I’d like to prioritize it.

You: Apparently, you’re fanatical on this issue. I don’t see how I can continue to take you seriously.

Spouse: Well, actually I’m trying to get you to focus on a very serious issue.

You: Yes, but by focusing exclusively on that issue, you’re betraying your fanaticism. Clearly, I’m the one who’s willing to address our problems, and you’re the one who’s just out to score debating points.

Spouse: Huh?

You: Not only that, but I’ve got a Nobel-prize winning economist who agrees with me!

How does that make you feel? I feel that way a lot when I read the news lately. Arguably, our country faces a spending crisis. The Republicans claim they want to deal with that crisis. (There’s some legitimate question about how sincere they are, but they at least say they want to deal with it.) The Democrats say: Okay, but let’s also talk about raising taxes. Maybe they’d also like to talk about redecorating the Rotunda; this seems roughly as pertinent. In other words, the Democrats attempt to deflect attention from the crisis (or the alleged crisis) by insisting that we talk about some other thing at the same time — and then they insist that the Republicans, by insisting that we focus on the issue at hand, are “betraying their fanaticism”. And they’ve managed to find a Nobel-prize winning economist willing to parrot this nonsense almost daily on the pages and webpages of the New York Times.

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Thoughts on the Minimum Wage

The usual case against the minimum wage has three components:

  1. Minimum wages reduce employment among unskilled workers.
  2. Therefore minimum wages are bad for unskilled workers.
  3. Therefore minimum wages are bad policy.

The problems with this case are that

  1. Minimum wages might not reduce employment very much.
  2. Even if they do, that doesn’t make them bad for unskilled workers.
  3. Therefore we cannot conclude (via this route) that minimum wages are bad policy.

Minimum wages are bad policy, though — but for entirely different reasons.

I’ll get to those reasons shortly, but first let’s examine the traditional argument a little more closely. I’ll number my paragraphs to make it easier for commenters to respond.

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