“I pointed out that the Mexican economy suffers from a lack of rule of law, corruption, pervasive crime, poor provision of public goods, shaky governance, limited economic freedom (although with very high trade openness), and has a dominant culture that rewards evading the system. Many of Mexico’s problems are long term: It doesn’t help that Mexico has had intermittent socialist tirades, during which private wealth — e.g. land, natural resources — is confiscated without regard to the impact on long-term economic welfare or growth. It didn’t help that the Mexican government borrowed (and foreigners lent it) tremendous sums of money that it could not repay. It doesn’t help that property in land is not secure and not easily mortgageable. In short, a big chunk of the needed improvement for a solid Mexican economy is outside of the influence or direct control of the American government”. –Kevin Brancato, Economic Ph.D. student at George Mason University, writing in the Truck And Barter blog
Monthly Archive for September, 2005
Page 2 of 4
Two economics professors, Russell Roberts and William Polley, debate economic literacy, and what can be done about it here (the link will expire tomorrow).
Maybe we need a new name for what we do when we talk about tradeoffs and unintended consequences, emergent prices, market forces and the seen and the unseen — the whole range of creative ways that economics helps you see the world. When people hear the word “economics,” they think of either the stock market or someone talking about the Fed’s latest move. Those things are related to economics, yes, but if that’s all people think we think about, it’s like hearing the word football and assuming it’s about the ball of your foot. It leaves out the most interesting stuff.
“The Theory of Moral Sentiments,” on the other hand, is a treatise on temperance. It is a study of propriety, sympathy, and justice. Sadly, many people don’t even know the book exists or that it was written by the man who is sometimes called the “father of capitalism.” Ignorance of Smith’s other major work leads people to think that economics is only about greed, self-interest, and rational maximization. As a result, many intelligent people who would be quite capable of becoming economically literate are turned off to economics because they see it as promoting a “greed is good” mentality that doesn’t square with their world view. Unfortunately, this perception is so well embedded in the pop culture view of economics and economists that it may be very difficult to reverse.
How many times have you been in an economic discussion with someone, discussing the benefits of competition, the power of markets, and the overall benefits of capitalism when someone blurts out that in any competitive system, unions and regulations are necessary, for without them, without their interference, we wouldn’t have a middle class, we wouldn’t have a five day work week or eight hour work days? I hear this all the time, I see it on bumper stickers, and it is so often repeated that I thought I’d blog on it and give the readers of my blog an edge on what really happened, and how to respond if they encounter the same topic.
So, who gave us the 5 day, 8 hours per day, work week? Was it really the unions, was it really higher regulations? No, the historical answer is that it was Heny Ford who gave us the 5 day, 8 hours per day, work week. Ford was tired of continuously losing good employees, he was trying to increase employee retention and at the same time increase profits, so he basically doubled wages and implemented a 5-day work week, and in the process effectively invented the modern weekend. It is Henry Ford who is widely credited with contributing to the creation of a middle class in the United States.
In addition, if you look at why Henry Ford did this, you will see that his reasons had nothing to do with charity, and everything to do with increasing profits and dealing with the forces of competition.
What makes those who believe it was unions look even more ridiculous is the fact that Henry Ford despised unions. The tensions were so strong, that Ford hired a former Navy boxer to help him stop the unions from unionizing Ford Motor Company.
Many of those who hold the view that it was unions – or regulations – who gave us the middle class, often hold outdated fears against ‘unfettered markets’, still repeating the now fully debunked Karl Marx view that capitalism, through competition, will bring exploitation of workers, will be a ‘race to the bottom’, and will eventually, atleast according to Marx, result in class warfare blah blah blah blah. However, if you come back to the real world, you will see that competition does the exact opposite, it increases the standard of living, it increases working standards, it increases pay, and it is overall the working person’s best weapon, not its enemy. This is why unions and the minimum wage have the opposite result, since by reducing competition they don’t make the working person’s standard of living better; on net balance, they make it worse.
So in conclusion, it wasn’t because of unions or regulations that we have a middle class, it was in spite of them that we do, and the next time you hear otherwise, correct them immediately, the working class will thank you.
“Minimum wage laws don’t just regulate those “evil corporations that exploit the labor of poor workers,” they regulate the worker’s legal ability to bargain for a job. Let’s say I have no skills yet and I’d like a job so I can make myself more marketable in the future (and earn more money later). I go to the local convenience store and say, “I’d like a job.” Minimum wage is $5.15/hour, but since I have no experience, I can’t do $5.15/hour worth of work — I can only generate $3.15/hour. I might as well go to the manager and ask him for $2.00/hour to do nothing. There’s no way that I am going to get the job given that scenario, but the experience is really important to me so I tell the manager, “I know I’m not that skilled yet, so I’ll take $3.15/hour instead, just so I can gain the experience.” The manager legally cannot hire me. I legally am not allowed to sell my labor for that cheap, even though that’s what it’s worth. Instead, I remain unemployed and do not gain the valuable experience that will help me land a better job in the future”. –Capital Freedom blog
Economics professor Russell Roberts explains:
I think a lot of folks think that Wal-Mart doesn’t offer health insurance to all of its workers because Wal-Mart’s mean or greedy or too interested in profits. A lot of people are mad at Wal-Mart because they pay less than the average wage in the economy.
There’s a simple way to look at it. Wal-Mart doesn’t offer health insurance or pay more than they do because they’ve found that they can attract enough workers with the pay package they currently offer. Period. For other companies, they have to offer health benefits to attract workers. They reason they offer health insurance isn’t because they’re socially responsible or kind or altruistic. They find that to compete for workers they have to offer it.
Paradoxically, Wal-Mart doesn’t determine what it pays its workers or what benefits it offers any more than you can set the price of your house when you want to sell it. Suppose houses of similar quality and location sell for $500,000. You’re free to set any price you want, but if you set a price of $1,000,000, you’re going to wait a long time for a buyer. Oh, you might get a slight premium above $500,000 because you did such a nice job renovating your kitchen. Or maybe a little less if your taste in kitchen’s is real different from most people’s. You don’t set the price of your house.
Wal-Mart is in the same situation. They don’t determine the compensation of their workers in any real sense. The compensation of their workers is set by the market for people of a particular skill level and the alternatives in the work place available to workers of that skill level. What Wal-Mart does have some control over is the level of customer service and knowledge and skill used by their workers.
He also explains what is going to happen if you try to force Wal-Mart to pay more:
Attempts to force Wal-Mart and similar stores to offer benefits or raise wages is going to punish the people with the lowest skill levels because it will diminish the choices available to them. Wal-Mart will find ways to substitute capital and technology for people. The people who remain employed there will make more money. That will be seen. What will be unseen is the reduction in wages elsewhere in the economy.(emphasis added)
For those of you who still feel like this explanation has holes in it, this is a must read.
“Many people who think that government is the answer to our problems do not bother to check out the evidence. But it can be eye-opening to compare how private businesses responded to hurricane Katrina and how local, state and national governments responded”. –Thomas Sowell, Fema versus Wal-Mart
Update: John Tierney of the New York Times has more.
The shade from the Wal-Mart Neighborhood Market sign is minimal around noon; still, six picketers squeeze their thermoses and Dasani bottles onto the dirt below, trying to keep their water cool. They’re walking five-hour shifts on this corner at Stephanie Street and American Pacific Drive in Henderson—anti-Wal-Mart signs propped lazily on their shoulders, deep suntans on their faces and arms—with two 15-minute breaks to run across the street and use the washroom at a gas station.
Periodically one of them will sit down in a slightly larger slice of shade under a giant electricity pole in the intersection. Four lanes of traffic rush by, some drivers honk in support, more than once someone has yelled, “assholes!” but mostly, they’re ignored.
They’re not union members; they’re temp workers employed through Allied Forces/Labor Express by the union—United Food and Commercial Workers (UFCW). They’re making $6 an hour, with no benefits; it’s 104 F, and they’re protesting the working conditions inside the new Wal-Mart grocery store….
“We had one gal out here in her 40s, and she had a heat stroke. I kept making her sit down, I noticed she was stepping (staggering), and I made her sit in the shade,” Greer said. She went home sick after her shift and didn’t ever return to work.
Another woman, Greer said, had huge blisters on her feet and he took her inside to the Wal-Mart pharmacy. The pharmacist recommended some balm, and Greer bought it for her. Since then, he said, other picketers have purchased the balm for their blisters inside the Wal-Mart they are protesting.
The group has no transportation to go elsewhere—they are dropped off by a union van and picked up later. On weekends, they have to find their own transportation, Greer said.
The ‘greed’, the ‘moral callousness’, these ‘evil people’, how could
Wal-Mart the union support such ‘exploitation’? If only we had unions to protect us from this sort of thing!!!
Rick Santorum, the devout Catholic Republican senator that liberals love to hate, may be defining a new direction for the conservative movement, Reason writes:
Rick Santorum, a second-term Republican senator from Pennsylvania, has written a new book called It Takes a Family: Conservatism and the Common Good . The book is worth taking seriously for several reasons, not least of which is that it is a serious book. The writing and thinking are consistently competent, often better than that. The lapses into right-wing talk-radioese (“liberals practically despise the common man”) are rare. Santorum wrestles intelligently, often impressively, with the biggest of big ideas: freedom, virtue, civil society, the Founders’ intentions. Although he is a Catholic who is often characterized as a religious conservative, he has written a book whose ambitions are secular. As its subtitle promises, it is about conservatism, not Christianity.
Above all, it is worth noticing because, like Goldwater’s Conscience, it lays down a marker. As Goldwater repudiated Dwight Eisenhower and Richard Nixon, so Santorum repudiates Goldwater and Ronald Reagan. It’s now official: Philosophically, the conservative movement has split. Post-Santorum, tax-cutting and court-bashing can hold the Republican coalition together for only so much longer.
As a policy book, It Takes a Family is temperate. It serves up a healthy reminder that society needs not just good government but strong civil and social institutions, and that the traditional family serves all kinds of essential social functions. Government policies, therefore, should respect and support family and civil society instead of undermining or supplanting them. Parents should make quality time at home a high priority. Popular culture should comport itself with some sense of responsibility and taste.
Goldwater and Reagan, and Madison and Jefferson, were saying that if you restrain government, you will strengthen society and foster virtue. Santorum is saying something more like the reverse: If you shore up the family, you will strengthen the social fabric and ultimately reduce dependence on government.
Where Goldwater denounced collectivism as the enemy of the individual, Santorum denounces individualism as the enemy of family.
I haven’t read his book yet, but it is on my Amazon Wish List. For those who would like to know more about Santorum, read this New York Times Profile of him. There is also this interview he gave on NPR.
“Another priority is, as Becker notes, girls’ education, probably the surest route to reducing population growth. But, although heartless, I do not agree that African nations should receive anti-AIDS drugs on a subsidized basis. Drugs that reduce the severity of an infectious disease can actually foster the spread of the disease by making the disease less costly to people who contract it. Pending development of a vaccine (still not in sight), the only effective way of dealing with the African AIDS epidemic is adoption of safe sex. The AIDS drugs will retard that adoption by reducing the benefits. Girls’ education, quite apart from its other benefits, will combat the epidemic because the more secure women are economically, the less they will be inclined to yield to men’s demands for risky sex”.–Richard Posner, Judge on the U.S. Court of Appeals for the Seventh Circuit, writing in the Becker-Posner blog about foreign aid and its
benefits and costs
“Being against busing and being against quotas is not the same as being against civil rights”. –John Roberts, future Supreme Court Justice
First is “The Law” by Frederic Bastiat. The description states, Walter Williams an economics professor at George Mason University put it thusly:
I must have been forty years old before reading Frederic Bastiat’s classic The Law. An anonymous person, to whom I shall eternally be in debt, mailed me an unsolicited copy. After reading the book, I was convinced that a liberal-arts education without an encounter with Bastiat is incomplete. Reading Bastiat made me keenly aware of all the time wasted, along with the frustrations of going down one blind alley after another, organizing my philosophy of life. The Law did not produce a philosophical conversion for me as much as it created order in my thinking about liberty and just human conduct.
He goes on to say:
Many philosophers have made important contributions to the discourse on liberty, Bastiat among them. But Bastiat’s greatest contribution is that he took the discourse out of the ivory tower and made ideas on liberty so clear that even the unlettered can understand them and statists cannot obfuscate them. Clarity is crucial to persuading our fellowman of the moral superiority of personal liberty.
In short, a must read/listen.
It can be found here.
Second is, “Narrative of the Life of Frederick Douglass, An American Slave” By Frederick Douglass. The description states, First published in 1845, the Narrative of the life of Frederick Douglass became Frederick Douglass’s most well known work. It is as the name implies his autobiography.
It can be found here.
Third is, ” Common Sense” By Thomas Paine. The description states, Common Sense is perhaps the work single most responsible for the American Revolution. It brought the idea of freedom and liberty down from the intellectuals to the common American colonist. Written by Thomas Paine and published January 10th, 1776, it was the first publication to openly ask for independence from Britain.
It can be found here.
“Maybe I deeply misread them, but I suspect that even most left-wing professors grade as meritocratically as I do. They may give extra help to students who come to office hours, but if a student spends 2 hours in your office every week and still fails the exam, you can’t let him slide.
To me, this reveals a basic inconsistency in egalitarian philosophy. If you assign grades based on merit, and merit depends on performance unadjusted for opportunity, then why shouldn’t the same principle hold for income and wealth? Just because you feel sorry for someone, why does that entitle them to a share of the riches of the more successful? And if you do not adjust for unequal opportunities when you grade, why should you adjust for unequal opportunities when you contemplate redistribution?” –Economist Bryan Caplan, discussing The Economics and Philosophy of Pity Grades
For those of you who still think that the certification “The National Council for Accreditation of Teacher Education” requires of its teachers is necessary, this article is a must read.
Link via Discriminations.
A few days ago I posted a RIP post in remembrance of Rehnquist and his importance on the Supreme Court. That post than initiated a response from my liberal latino friend Nebur that originally started out in the comments section and eventually spilled over into his blog, here and here, and the comments section there.
The gist of his argument is that Rehnquist was a racist and caused a lot of harm to minorities by, among other things, refusing to endorse Brown vs. Board of education, the Supreme Court case which explicitly outlawed racial segregation of public education facilities. Throughout the back and forth, I did learn some things about Rehnquist that I didn’t know before, and while I still think his judicial philosophy answers several of the objections Nebur makes, I am willing to concede the possibility that Rehnquist, in the end, might have been a ‘man of his time’ (along with several liberals), and was not as supportive of diversity as I originally thought.
But that is not all to the story. Personal views, racist or not, can only go so far. The real question of whether or not Rehnquist was good for minorities lies in his 33-year career on the court. Looking back, did Rehnquist’s rulings help or hurt minorities, that is the central question that must be asked here. Did his rulings, apart from whatever his personal beliefs may have been, hurt or help minorities?
Of course, liberals will never forgive Rehnquist for voting against one of their solutions to poverty (if you can’t fix em, get rid of em), Roe vs. Wade, the Supreme Court case that essentially brought in abortion during all nine months of pregnancy. But Nebur specifically said he wished to avoid mixing that topic into this one, so what Supreme Court case is left? The big tortilla is of course, Brown vs. Board of education. Nebur seems to believe that this case was so important, and Rehnquist refussal to accept it so tragic, that it alone warrents the majority of the criticism he gives to Rehnquist. Nebur writes, “If it were up to him, i would have been educated in a run-down schoolhouse with no books and a whole lot of dark faces”.
I find it odd that Nebur would say that since that is pretty close to the circumstances we are in today. Talk to my friends at Compton High School about the ‘benefits of Brown vs. Board of Education’ and they will think you are out of your mind, that you are from a different world. Personally, I don’t lose any sleep over Brown vs. Board of Education, to me, that ruling is only useful to Ivy League professors, it gives them a sense of importance and feeling of connection to ‘them poor minorities’. But to us in the real world, the people that have to live outside of university walls, we see Brown vs. Board of education for what it is; at best, very limited progress (Thomas Sowell, for example, has a great three part series that gets very close to saying that Brown did more harm than good, here, here, and here).
So I don’t worry much about Brown, since more than fifty years later, Brown shows to have made almost no progress in it’s supposed goal. But there is a Supreme Court case I do care about, and Clint Bolick, president and general counsel of the Alliance for School Choice, describes it here:
Regardless of how his other decisions are viewed, it is a cornerstone of a proud judicial legacy that no judge has done more for parental choice than Chief Justice Rehnquist.
Starting with his 5-4 majority in Mueller v. Allen in 1983, a decision that upheld tuition tax credits in Minnesota, Rehnquist crafted a judicial standard that was both in keeping with the original intent of the First Amendment and hospitable to school choice. That commonsense standard held that programs that are neutral toward religion and allow third parties to determine where to direct education funding do not offend the prohibition against establishment of religion.
The Court applied that standard 19 years later n the landmark Zelman v. Simmons-Harris decision, again authored by Rehnquist. That decision upheld the Cleveland school choice program and created tangible hope for the first time for thousands of children trapped in inadequate schools.
With the passing of Chief Justice Rehnquist and the retirement of Justice Sandra Day O’Connor. two of the five justices who formed the Zelman majority are no longer on the Court. We hope that the justices chosen to replace them will honor the cherished constitutional tradition of parental autonomy.
All Americans are in Chief Justice Rehnquist’s debt. We will miss him and will honor his memory by working to expand educational opportunities for children who need them desperately.
So Nebur could have Brown, in fact, throw in Lyndon Johnson’s supposed “War On Poverty”, those were billions and billions of dollars completely wasted, and throw in Bill Clinton’s billions to education, another failed attempt, he can keep all of that. I, on the other hand, am concentrating on the big prize. As history has shown, government is not the solution to minority problems, this is essentially why Brown failed, why LBJ’s “war on poverty” failed, and this is also why Bill Clinton’s large increase in educational funding did very little, to almost nothing, to improve the test scores. No, government is not the solution, government is the problem, and vouchers addresses the problem at its core.
In vouchers, like in the free-market in general, we look forward to a system that will, for the first time in its history, be forced to deal with competitive pressures, no longer able to hide behind the large cape of the government. Much like the post office of old, when it was inefficient, unresponsive, and high in waste, but as soon as it was exposed to private sector competition, it was forced to improve. Now USPS is almost indistinguishable from other competitive mail systems, it is overall consumer-oriented and pretty reliable. Competition did not destroy USPS, it made the public system more efficient, while providing freedom of choice to consumers. I see the same direction with public schools, vouchers will not destroy them, but help them work at their maximum levels.
So in vouchers, we can look forward to a day where people don’t have to have hunger strikes to get a better school opened in their neighborhood. We look forward to a day where good teachers are rewarded, where good teachers looking to find a job don’t have to be shut out of the teaching community by huge, arbitrary, barriers. We look forward to a day where schools in the ghetto can have schools that are closer to what schools in the rich areas are like. In other words, by unhinging the schools from the inefficient, slow, unresponsive, highly politicized, bureaucratic thing we call government, we get a system that works primarily for its customers, the poor kids currently left behind year after year by our current public school system.
So what Rehnquist did, not just by being a deciding vote in a very critical case, but by being the most instrumental justice in that case, was to start a revolution that could help more minorities than Brown, LBJ’s War On Poverty, and Clinton’s failed public school funding couldn’t even dream of achieving. Will vouchers live up to their expectations? We can’t tell for sure, but if the preliminary results are any indication (here, here, here, here, here, here, here, here, here, here here here and here), we can already be sure that the next fifty years after Zelman v. Simmons-Harris, are already going to be very different than the fifty years after Brown, and certainly the fifty years after Lyndon Johnson’s ‘war on poverty’ – legislation that did more harm than good – and certainly better than Bill Clinton’s more money for education.
And because of that, I will continue to mourn the loss of Rehnquist, specifically his absense on future Supreme Court cases.
“It is structural, not demand-side, policies that most influence economic performance over the long term. The experience of reforming economies as diverse as Australia, New Zealand, the Netherlands, and Poland is testimony to that. But structural policies take ages to produce effects. The initial consequence is usually a reduction in expenditure, which slows economic activity. It typically takes five years or more for positive effects to start to outweigh the negative. No surprise that politicians so seldom undertake reform. They know that the negative consequences will occur on their watch, while the benefits will accrue to their successors. Look at how Labour has benefited from the policies of Mrs Thatcher”. –Dr John Llewellyn, answering “what, over the past 35 years as a professional economist, I have learnt that is of real use”
…the answer is no!!
David Card, economist at UC Berkeley, has a new study that states:
Mexican immigrants were historically clustered in a few cities, mainly in California and Texas. During the past 15 years, however, arrivals from Mexico established sizeable immigrant communities in many “new” cities. We explore the causes and consequences of the widening geographic diffusion of Mexican immigrants. A combination of demand-pull and supply push factors explains most of the inter-city variation in inflows of Mexican immigrants over the 1990s, and also illuminates the most important trend in the destination choices of new Mexican immigrants – the move away from Los Angeles. Mexican inflows raise the relative supply of low-education labor in a city, leading to the question of how cities adapt to these shifts. One mechanism, suggested by the Hecksher Olin model, is shifting industry composition. We find limited evidence of this mechanism: most of the increases in the relative supply of low-education labor are absorbed by changes in skill intensity within narrowly defined industries. Such adjustments could be readily explained if Mexican immigrant inflows had large effects on the relative wage structures of different cities. As has been found in previous studies of the local impacts of immigration, however, our analysis suggests that relative wage adjustments are small.(emphasis added)
Link via Tyler Cowen at Marginal Revolution.