“Which is just to say that in a diverse nation with more than 300 million citizens, opinions are going to vary on the pros and cons of extended business hours. How strapped for cash are you? Where does your family live? What’s your relationship with them like? How sentimental are you about specific holiday rituals? People will differ. This Thanksgiving there are going to be people with jobs at the Gap who wish they weren’t working Thanksgiving but feel that they’d lose their jobs if they weren’t willing to take an extra shift. There are also going to be people with jobs at Radio Shack who wish they could earn some extra cash and get out from under that credit card debt. I’m not persuaded that there’s a first-order question of social justice here one way or the other.” — Matthew Yglesias
Archive for the 'Economics' Category
“A few years back, Robert Ohsfeldt of Texas A&M and John Schneider of the University of Iowa asked the obvious question: what happens if you remove deaths from fatal injuries from the life expectancy tables? Among the 29 members of the OECD, the U.S. vaults from 19th place to…you guessed it…first. Japan, on the same adjustment, drops from first to ninth.” — Forbes Magazine Commentary
“We exploit a policy discontinuity at U.S. state borders to identify the effects of unemployment insurance policies on unemployment. Our estimates imply that most of the persistent increase in unemployment during the Great Recession can be accounted for by the unprecedented extensions of unemployment benefit eligibility. In contrast to the existing recent literature that mainly focused on estimating the effects of benefit duration on job search and acceptance strategies of the unemployed — the micro effect — we focus on measuring the general equilibrium macro effect that operates primarily through the response of job creation to unemployment benefit extensions. We find that it is the latter effect that is very important quantitatively”. — new NBER paper
“The influence of the California Teachers Association was rarely more apparent – or more sickening – than in the defeat of SB1530. The union showed its willingness to defend an expensive and cumbersome process for firing bad teachers at almost any cost – even if that means school districts must continue to spend exorbitant sums of time and money to dismiss teachers in cases involving sex, drugs or violence with students.” -SF Gate, on the teachers union recent campaign effort against SB1530
“It’s not just bathroom tissue that’s lacking: In recent months, food items such as cooking oil and powdered milk have nearly disappeared from store shelves. But even after a decade of price controls, foreign-exchange restrictions, runaway inflation, currency devaluations, blackouts and takeovers of more than 1,000 companies or their assets, the government still claims the private sector is at fault for the deficiency in consumer staples. The Manpa asset grab came a week after Maduro introduced the new regulatory committee, which will address product hoarding and other abuses that he blames for missing goods.” — Bloomberg, on toilet paper shortages in Venezuela
They say that “[a] tipping point was reached in 2012, when average manufacturing costs in Mexico, adjusted for productivity, dropped below those of China.” In other words, rising real wages for Chinese manufacturing workers mean that unit labor costs in Mexico are now just as low. Meanwhile, thanks to NAFTA and geography, it’s much cheaper to export American natural gas to Mexico than to ship it to Asia through LNG ports. So right now “electricity costs are around 4 percent lower in Mexico than in China, for example, while the average price of industrial natural gas is 63 percent lower.” Add to that the fact that Mexico has an advantageous location in terms of shipping products to American and Canadian consumers and the logic looks pretty compelling—Mexico is going to be the factory location of choice for many companies.
“One of the Obama arguments at the time was that the rush in the stimulus program was needed to avoid a Great Depression. This was and is highly doubtful (though, yes, it is widely accepted). The US economic emergency in late 2008 and early 2009 wasn’t really an aggregate demand crisis but a financial crisis. The chaotic failure of Lehman Brothers had led to an intense panic and credit squeeze. The Fed therefore needed to flood the markets with liquidity, which it rightly did, in order to unwind the panic. The Fed’s action was the real difference with 1933 (when the Fed allowed the banks to fail). It was the Fed, not the fiscal stimulus, which prevented a fall into depression.” — Jeffrey Sachs, Responding to Paul Krugman and Crude Keynesianism
“Ironically, the minimum wage creates a reserve army of the unemployed. That in turn allows employers to be less thoughtful, helpful, and kind. It destroys the civilizing effect of competition by muting it. That encourages exploitation. It reduces the cost to employers of racism or cruelty. Before the increase, being obnoxious or racist made it much harder to find employees. A minimum wage makes it easier to indulge in bad behavior. The costs are lower. Before the minimum wage, a cruel, selfish employer might have had to mentor his employees or train them or be nice to them despite his nature. Now he won’t have to. He can still get workers to work for him. Even more cruelly, the minimum wage encourages workers to exploit themselves. They work harder and put up with more abuse from the boss because the minimum wage reduces the alternatives that are available.” — Economist Russ Roberts
A quote from Jason Brennan’s latest book, Libertarianism: What Everyone Needs to Know:
If Wal-Mart started to pay high wages, Wal-Mart jobs would become attractive to skilled workers. People who currently work as medical assistants or car mechanics would want Wal-Mart jobs. Since they are more productive and have more skills – since their labor is worth more – they will outcompete the kind of people who currently work at Wal-Mart. So, raising wages above market levels is unlikely to help unskilled workers. Instead, it causes job gentrification. (Imagine if Wal-Mart offered to pay its workers $100/hr. Then many of my colleagues would consider becoming Wal-Mart cashiers).
The blogosphere reminded me of this future economic bet between Paul Krugman and Greg Mankiw that Mankiw clearly won:
In early 2009, the incoming Obama administration’s Council of Economic Advisers predicted real GDP would rebound strongly from recession levels. In a blog post, Greg Mankiw expressed skepticism. In their blogs, Brad DeLong and Paul Krugman sighed. Of course there would be strong growth, they maintained, because the recovery of employment would mandate it via Okun’s Law. Mankiw challenged Krugman to a bet on the issue, but there was no response. Of course we now have a good idea of the likely outcome, but I posit a hypothetical time series econometrician who, at the time of the blog entries, applies some standard forecasting methods to see whether DeLong and Krugman’s confidence was justified. The econometrician’s conclusion is that Mankiw would likely win the bet and furthermore that a rebound of any significance is unlikely. The econometrician has no idea how DeLong and Krugman could have been so confident in the CEA’s rebound forecast.
Here is the relevant 2009 post where Mankiw challenges Krugman to a bet.
Matthew Yglesias gives the basics:
The main reason Romney’s effective rate is so low is that the American tax code contains a lot of preferences for investment income over labor income. That’s something that strikes many people as unfair on its face, and particularly unfair since it often means very low rates for extremely rich people like Rommey. And Rommey himself as a rich guy who’s also a member of the political party seen as favoring the rich, and who’s been recorded as whining that the working poor are undertaxed is perhaps not an ideal messenger for a defense of this policy.
But this is definitely an issue where the conservative position is in line with what most experts think is the right course, and Democrats are outside the mainstream.
The reasoning is basically this. You imagine two prosperous but not outrageously so working people living somewhere—two doctors, say, living in nearby small towns. They’re both pulling in incomes in the low six figures. One doctor chooses to spend basically 100 percent of his income on expensive non-durables. He goes on annual vacations to expensive cities and eats in a lot of fancy restaurants. The other doctor is much more frugal, not traveling much and eating modestly. Instead, he spends a lot of his money on hiring people to build buildings around town. Those buildings become houses, offices, retail stores, factories, etc. In other words, they’re capital. And capital earns a return, so over time the second doctor comes to have a much higher income than the first doctor.
So then there are too different scenarios:
— In the world where investment income isn’t taxed, the second doctor says to the first doctor “all those fancy vacations may be fun, but I’m being much more prudent. By saving for the future, I’ll be comfortable when it comes time to retire and will have plenty left over to give to my kids.”
— In the world where investment income is taxed like labor income, the first doctor says to the second “man you’re a sucker—not only are you deferring enjoyment of the fruits of your labor (boring) but when the money you’ve saved comes back to you, it gets taxed all over again. Live in the now.”
And the thinking is that world number one where people with valuable skills take a large share of their labor income and transform it into capital goods is ultimately a richer world than the world in which such people just go out to a lot of fancy dinners.
“Kaplan also points out that the pay of those at the top of other highly-paid occupations has grown dramatically as well, like lawyers, athletes, and hedge fund managers. Here’s a figure showing the pay of top hedge fund managers relative to that of CEOs in the last decade. Kaplan writes: “The top 25 hedge fund managers as a group regularly earn more than all 500 CEOs in the S&P 500. In other words, while public company CEOs are highly paid, other groups with similar backgrounds and talents have done at least equally well over the last fifteen years to twenty years. If one uses evidence of higher CEO pay as evidence of managerial power or capture, one must also explain why the other professional groups have had a similar or even higher growth in pay. A more natural interpretation is that the market for talent has driven a meaningful portion of the increase in pay at the top.” — Economist Tim Taylor
Matthew Yglesias on what should be common sense:
…the idea that labor union objections to firing their members are fundamentally about evaluation metrics is extraordinarily naive. Under any possible evaluation scheme—whether for teachers, journalists, auto workers, basketball players, truck drivers, or what have you—the union is going to want to make it as difficult as possible to fire people. The idea of a labor union is to, among other things, represent the workforce’s interests and give voice to its desires. And in my experience people don’t want to get fired! In any kind of unionized workplace you see management pushing for more flexibility (i.e., ability to fire people) and the union pushing for more job securitiy (i.e., it’s easier to keep your job even if management decides you’re bad at it).
The Skidelskys have an exalted conception of leisure. They say that the true sense of the word is “activity without extrinsic end”: “The sculptor engrossed in cutting marble, the teacher intent on imparting a difficult idea, the musician struggling with a score, a scientist exploring the mysteries of space and time — such people have no other aim than to do what they are doing well.” That isn’t true. Most of these people are ambitious achievers who seek recognition. And it is ridiculous to think that if people worked just 15 or 20 hours a week, they would use their leisure to cut marble or struggle with a musical score. If they lacked consumer products and services to fill up their time they would brawl, steal, overeat, drink and sleep late. English aristocrats in their heyday didn’t work, but neither did they cut marble or explore the mysteries of space and time. Hunting, gambling and seduction were their preferred leisure activities.
Americans value leisure, but it is expensive leisure, and so they have to work hard in order to pay for it. As a result they have less leisure time than if their preferred form of leisure were lying in a hammock, but on balance they obtain more pleasure.
Imagine that you lived in Beverly Hills, among the richest people in the United States. Some of your friends were the kids of executives at Fortune 500 companies. Others were the kids of famous Doctors, Lawyers, and some were the kids of hedge fund managers. While all relatively rich, assume there was quite a range of wealth from really rich, to filthy rich.
Further assume, that one day, a bleeding heart liberal starts feeling bad for the really rich. Her complaints are along the lines of: “The really rich can’t eat out at the $500/plate restaurants, they have to settle for the $100/plate restaurants, or, god forbid, make sandwiches at home”. Her complaints continue: “The really rich can’t afford the Lamborghini’s or Ferrari’s, they have to get by with the – GASP! – BMW’s and Mercedes Benz’s”. Worst yet, “the really rich actually have to live in mansions with no ocean view, or golf courses”. Most heartbreaking of all, “the really rich have to actually prioritize their lifestyle and set a budget. They can’t go to Europe on a moments notice, they can’t eat out everyday”.
Now further assume that said bleeding heart liberal decided to set up an “alleviate suffering” fund that took away from the filthy rich to give to the really rich. Such a fund would help equalize Beverly Hills and “bring people together”. But instead of making this fund voluntary, the bleeding heart liberal wanted to enforce this through the city. She wanted to make it a city tax that merely takes from the filthy rich and gives to the really rich. Her arguments, again, are to “alleviate suffering”.
What would your reaction be if you were suddenly transplanted to that society and debate? Would you support the “Beverly Hills tax”? I am not one of those that believes there are absolutely no circumstances that justify forcibly taking the wages of one to give to another. But such circumstances have to be met with atleast reasonable justification. Yet simply moving money around amongst the worlds richest people does not seem to me like an acceptable justification.
Such is the image that comes to mind whenever I have a discussion with a liberal about increasing redistribution via taxes to help the USA “poor”. It’s the image my dad and uncles, who immigrated to the United States in their twenties from ranch life in the poorest parts of Mexico, gave me. It is certainly how they viewed me and my cousins growing up – no matter what our circumstances, be it growing up in Compton (as I did), living off of the income of mechanics, gardeners, or window tinters – we were all blessed beyond their wildest dreams. Where they had to eat tortillas off the dirt floor, work in fields in the scorching heat where there were no “sick days” or “vacation time”, even the McDonalds cashier can seem privileged. And this view isn’t far from reality. Even the “poor” in the United States are among the richest in the world (see here and here).
Changes in family structure may explain anywhere from 15 to 40 percent of the increased inequality in recent decades. Readers may wonder why there is such a broad range of estimates. It depends on the time period examined, the income rungs examined, and assumptions about how much the absent parent might have brought into the household.
Mr. Western’s estimate that the rise in single parenthood explains 21 percent of the growth in inequality comes from a 2008 article in the American Sociological Review (with Christine Percheski and Deirdre Bloom). He examined the change from 1975 to 2005.
Gary Burtless looked at different years (1979 to 1996) for the European Economic Review but came up with the same figure: 21 percent. He also found that the increased tendency of educated people to marry each other accounted for another 13 percent of inequality’s growth.
The other estimate cited in the article comes from Robert Lerman of the Urban Institute. His unpublished analysis examines families with children at the 25th percentile and the 75th percentile. In 1975, the higher group had 2.16 times the income of the lower group. By 2008, it had risen to 3.09. Mr. Lerman estimated that 40 percent of that rise was the result of increasing single parenthood.