Rex Nutting at MarketWatch has a recent article claiming that economic policy uncertainty had nothing to do with the sluggish recovery. I beg to differ. Check out my brief response at my blog The Slow Hunch.
In the December 1958 issue of The Freeman, economics writer and FEE founder Leonard Read published his now-famous essay “I, Pencil.” The essay traced the “family tree” of the modern pencil, demonstrating the complexity of its creation and the numerous people involved. Nobel laureate Milton Friedman was so impressed with the essay that he used it in one of the episodes for his TV series Free to Choose. More recently, science writer Matt Ridley borrowed from the idea by declaring that literally nobody on the face of the planet knows how to build a computer mouse. Despite the individualistic rhetoric that often accompanies markets, Read’s essay provides a much needed reminder that markets on the whole are more communal, more cooperative, and more interdependent than the centralized planning that often employs these rhetorical fronts.
The discussion of the “invisible hand” toward the end is almost spiritual in nature. And with good reason. As Peter Harrison, historian and director of the Centre for the History of European Discourse at the University of Queensland, explains,
[D]uring the early modern period, in addition to increasing frequency of occurrence, we witness the emergence of a more distinct pattern of use or, more correctly perhaps, of two related concepts of the operation of ‘‘the invisible hand.’’ Most commonly the invisible hand was used to refer to the manner in which God exercised providential control over the course of history by subtly influencing human actions in order to bring about his ends. These ends are thus accomplished in spite of the intentions of human actors and without their knowledge. The second pattern of usage also refers to God’s providential action, but in the context of his superintendence of the natural world. Thus God’s invisible hand was glimpsed in the contrivances of the creatures and in the wisdom and foresight evidenced by the laws of nature, which again promote his ends. These two conceptions between them represent the most predominant uses of the expression in the seventeenth and eighteenth centuries and hence the most relevant background for Smith’s uses of the expression.
Just as the laws of nature were originally seen as “exemplif[ying] design, so too…did the laws of morality.” For Smith and his contemporaries, “the general laws of the moral, as well as of the material world, are wisely and beneficently ordered for the welfare of our species.”
Seems to be working out alright.
The stereotype of American Mormons (according to socio-demographic data) is true:
- We’re really, really white
- We’re well-off financially
- We’re highly educated
- We’re overwhelmingly Republican
However, economist Miles Kimball of the University of Michigan finds that this white, conservative demographic is quite different from the typical white, conservative American. In his post “How Conservative Mormon America Avoided the Fate of Conservative White America” over at Confessions of a Supply-Side Liberal, he notes that
- Mormons invest in marriage with an avoidance of premarital sex (and thus out-of-wedlock births) and relatively low divorce rates.
- The Mormon prohibition of alcohol and tobacco leads to healthier and longer lives
- Geographic congregations known as wards function as “ersatz small towns” and plug Mormons into an extensive social network
Kimball makes several other observations with extended commentary. Check it out. It goes along quite well with some of Megan McArdle’s comments in a recent Bloomberg article (which was covered here at Difficult Run):
The highest income mobility in the country, it turns out, is found in Salt Lake City — almost three times higher than the rate in Atlanta, the lowest-ranked city…Salt Lake City is in the reddest of red state places — not a lot of taxes and transfers going on there. And yet it’s highly mobile, presumably because of the influence of the Mormon Church, which essentially runs the most comprehensive and effective social welfare system in the country…maybe in the world. There’s money and other help to tide you over in bad times, but arguably more importantly, there’s all the efforts of your ward to get you back on your feet. Churches do this sort of thing everywhere, of course, but in few places is it so comprehensive and organized. And unlike the government system, it’s combined with intense social support, and a community whose norms about things like work, marriage and family (and drinking and drug abuse) encourage what you might call a prosperous lifestyle.
Social capital and cultural factors are big players in economic well-being and should not be ignored.
Nathaniel’s recent post on minimum wage touches on a couple of important–if not overlooked–points about the “job creation” debate: (1) innovation vs. job preservation and, implicitly, (2) wealth vs. jobs. If the goal is to create jobs for the sake of creating jobs, then the task is pretty straightforward.
As economist Steven Horwitz says above, “I would argue that creating jobs is easy; it’s the creation of wealth that’s hard.” The creation of wealth is intrinsically linked with innovation and the “creative destruction” it brings about. Even though many have partaken of what Scott Winship of the Brookings Institution calls “technophobia” (remember Jesse Jackson Jr.’s claim that the iPad was “eliminating thousands of American jobs” or the President’s concern that the ATM represented a “structural issue” in the American economy?), the fear is unjustified.
Arguing against technological progress because it “destroy jobs” ignores the mass benefits that will follow, including the rise in absolute standards of living. “In a free-market economy,” explains historian Thomas E. Woods,
businesses invest the vast bulk of their profits in capital goods that make labor more productive…[Different] kinds of machinery can multiply the efficiency of a single worker many times over, sometimes by orders of magnitude…This is how wealth is created: we can produce more with the same (or a lesser) amount of labor…As a result of capital investment, firms can now produce many, many times more goods than before, and at considerably lower cost. Thanks to the pressures of market competition, firms pass on these cost cuts to consumers in the form of lower prices, better quality merchandise, or a combination of both. The ordinary person’s standard of living increases…because business firms can invest in machinery that makes it possible for more and more goods to be produced with fewer and fewer hands, thereby increasing the overall amount of material goods available and rendering them less and less expensive.
A higher minimum wage will not help raise the poor out of poverty. It will simply eliminate jobs for low-wage workers (i.e. high school education and less).
But couldn’t one argue that technological advances eliminate low-wage jobs? Sure. But the difference is that minimum wage laws provide only a slight financial bump for some low-wage workers, while keeping others in the unemployment line. Innovation creates new jobs for low-wage workers, while raising the absolute standards of living for everyone (including the poor). When given these options, I would hope the choice is obvious.