Quote Of The Day

“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

Quote Of The Day

“I’d even argue that people’s views about climate change are extremely inconsistent. (#2) If you believe that lower demand for fossil fuels in in clean countries will reduce fossil fuel prices in dirty countries, why aren’t First World greens worried that reducing their carbon footprint will counter-productively increase carbon emissions in the Third World?” — Bryan Caplan

The Scamming Beggar

I have a long standing rule to NEVER EVER give money to bums. No matter what the circumstances. I even look down on people who do. They rub me as purely emotional acts with not even one second of real thought. I do this for two reasons: one experience, the other logical. Growing up in Compton, I was approached by what we called cluck-heads daily. Crack addicts who would do anything, and I mean anything, for a $1. They would give you the most extravagant reason why that dollar was absolutely necessary. Then, after a moment of weakness, you would see them smoking that dollar – digging themselves further into the crack addiction. After years and years of this, I have developed quite a thick skin from beggars.

The logical reason has to do with the fact that it is very difficult to separate the true needy beggar from the scammer.  When confronted for a donation, with such limited information, there really is no statistically significant way to know if the bum is going to use the donation for something useful, or simply another hit of drugs. Much more beneficial is to save the donation and send it to a charity devoted to helping the truly needy. They have the means of separating the sincere bum ready to change their life, from the one who just wants another hit. With such noisy information, it’s much more logical to withhold your money and choose an efficient charity of your choice.

With that said, I was touched by the news article showing a New York Police officer giving a pair of winter boots to a shoeless bum. I thought, maybe in that situation that is the best thing to do, as the bum currently needs shoes, else his feet will freeze. It’s an immediate, obvious need that should be fulfilled. Sending money to a charity is not going to cut it, as by then the bum could have lost his feet to frost bite. Anyway, I didn’t think much more of it until later when I saw the story on CNN.

While reading the article, still torn between feelings of admiration and disapproval, I came across this interesting section:

There were some who considered the officer a victim, taken in by another scam.

“This guy is only barefoot as a begging strategy,” wrote David Levy. “I’ve been seeing him around midtown for years. I’ve even witnessed someone buy him slippers in a freezing day which he promptly put in his shopping cart.”

“Clever stunt! The (man) is ‘parked’ at the entrance of a shoe shop. He got like 10 pairs that day,” commented Louis Zehmke.

Which cured my short lapse of judgement.

When Affirmative Action Stops

A working paper finds:

Proposition 209 banned using racial preferences in admissions at California’s public colleges. We analyze unique data for all applicants and enrollees within the University of California (UC) system before and after Prop 209. After Prop 209, graduation rates of minorities increased by 4.4%. We characterize conditions required for better matching of students to campuses to account for this increase. We find that Prop 209 did improve matching and this improvement was important for the graduation gains experienced by less-prepared students. At the same time, better matching only explains about 20% of the overall graduation rate increase. Changes after Prop 209 in the selectivity of enrolled students explains 34-50% of the increase. Finally, it appears UC campuses responded to Prop 209 by doing more to help retain and graduate its students, which explains between 30-46% of the post-Prop 209 improvement in the graduation rate of minorities.

Full post here.

The Economics Of Wal-Mart Wages

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).

More here.

Quote Of The Day

If I ran the zoo, that’d be my main idea. We’d start out with things like congestion fees and carbon taxes that serve non-revenue policy goals but do raise money. Then we’d add on some land taxes and VATs and such to fun public services. Once that’s squared away, you can do redistribution with a progressive payroll tax, a small wealth tax, whatever.

But standard practice among Democrats has become to argue that we should expand public services and pay for them by taxing the rich. This feeds into a poisonous dynamic that’s bringing the country low. On the one hand, it means that Democrats are insuffiently attentive to the question of cost-effectiveness. The pitch to taxpayers isn’t “this is a cost-effective use of your money to provide valuable public services” it’s “wouldn’t this be nice, and besides you won’t have to pay.” Then on the other hand, you unleash a toxic dynamic whereby rich people’s desire to not have their wealth redistributed gets channeled into a ferocious ideology of claiming that no public services are worth financing. So rather than having two separate debates—one about the provision of public health, educational, and transportation services and the other about redistribution—we have one big combined debate. The result is that we underspend on public services, and then tend to spend the dollars that we do spend ineffectively.” – Matthew Yglesias

Mankiw Vs Krugman

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.

In Defense Of A Low Investment Tax

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.

Quote Of The Day

“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

The Union Goal Is To Make Firing More Difficult

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 Logic Of The Left

My good friend Jon, one of the smartest leftists I know, argues that looting isn’t really so bad if you compare it to the legal “theft” done by Mitt Romney types:

Who is harmed when a TV is stolen from Best Buy? Not the person that made the TV. He’s in Mexico making $1 an hour or so and he has already been paid. Not the workers at Best Buy. Their salary doesn’t change. In an economy where corporations have record cash and only hire to meet the demand the people harmed are the investors. The poorest half of people in this country don’t own any stock, so they obviously are not harmed. By and large it’s the richest people in the world that are harmed when a poor person steals a TV from Best Buy.

Mitt Romney made $20 million in 2010 and he didn’t work. He’s the kind of guy that gets the largest share of the money due to the profits generated by workers. So you can kind of see why the right wing would want to shoot a black man for stealing a TV. He’s stealing from Mitt Romney, a super rich guy that won’t actually notice because he already has money coming out of his ears. But so what? Serving the needs of the rich is of prime importance.

Romney doesn’t actually “steal” because “stealing” means illegally taking something. He takes the value created by the Mexican factory worker, but it’s not stealing because it’s legal. Let’s say the Mexican worker is paid $5 to make a TV. Other costs related to delivering that TV to a buyer amount to maybe $300. The TV is actually sold for $1000. So Romney gets $695, even though he may have been asleep through the whole process.

Where to even begin with such a thought process? The economics, the moral arguments, even the assumptions are all wrong. I feel like our worldviews are so far apart that it would be fruitless to even try.  Although I have tried in the past, and indeed, it has proven to be fruitless. Now I have resigned to just pointing it out, chuckling, and just shaking my head. This, my readers, is the logic of the left.

Quote Of The Day

Richard Posner on the liberal daydream of working 20 hour weeks and enjoying more “leisure”:

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.

The (Lack Of) Precision Of Drones

Surprisingly inaccurate:

 An in-depth, field-based investigation by the Bureau of Investigative Journalism (on behalf of the UK’s Sunday Times) found in February that “since Obama took office three years ago, between 282 and 535 civilians have been credibly reported as killed including more than 60 children.” The bureau notes that the drone attacks were started under the Bush administration in 2004 and have stepped up significantly under Obama. There had been 260 strikes by unmanned Predators or Reapers in Pakistan under Obama’s administration—averaging one every four days.

The report echoes the July 2009 estimates of Daniel L. Byman, senior fellow at the Saban Center for Middle East Policy: “Sourcing on civilian deaths is weak and the numbers are often exaggerated, but more than 600 civilians are likely to have died from the attacks. That number suggests that for every militant killed, 10 or so civilians also died.”

The bureau reported another aspect of the drone attacks that is perhaps just as alarming as the raw numbers of innocent people they slaughter: it found that U.S. unmanned aircraft had killed dozens of civilians who had rushed to help other victims. A three-month investigation including eyewitness reports indicates that at least 50 civilians were killed in follow-up strikes when they had gone to the aid of others.

Quote from Ximena Ortiz, writing in The American Conservative here

Beverly Hills As The USA

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).

Marriage And Inequality

The connection:

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.

More can be found here. Economist Russ Roberts dives deeper into the data here.

Why So Little Lobbying?

University Of Chicago economist Casey Mulligan tries to answer the puzzle:

Some people have expressed dismay at the unprecedented amounts spent on 2012 political campaigns. But heightened political spending and other forms of political participation are an expected consequence of our more active government.

As explained by a pioneer in political economy research, Gordon Tullock, the real surprise about spending on campaigns and lobbying is how little it is compared with the amount of resources controlled by governments.

The federal government spends about $4 trillion every year, and state and local governments another $2 trillion, not to mention the resources these governments control through regulatory activities.

At the same time, estimates of aggregate campaign and lobbying spending are well below than 1 percent of total government spending. For example, analysis of filings under the Lobbying Disclosure Act finds that $3.5 billion was spent on lobbying in the year 2010.

Although economists have trouble explaining why observed lobbying spending is so little in total, economic analysis has been successful at explaining why there is more lobbying in California than, say, Vermont and why lobbying expenditure often peaks at the height of legislative activity. More is at stake.

For better or for worse, an active government begets lobbying activity.

Full post can be found here.