More on the Minimum Wage

minimum wageWe’ve written a lot about minimum wage hikes here at Difficult Run. Here’s another to add to the list: economist David Neumark (who has published extensively on minimum wage) has an op-ed in The Wall Street Journal arguing that minimum hikes may indeed go to low-wage workers, this very different from saying they go to low-income families. “One might think that low-wage workers and low-income families are the same,” Neumark writes. “But data from the U.S. Census Bureau show that there is only a weak relationship between being a low-wage worker and being poor, for three reasons” (reasons that are “descriptive evidence” and “not disputed by economists”):

  1. “[M]any low-wage workers are in higher-income families—workers who are not the primary breadwinners and often contribute a small share of their family’s income.”
  2. “[S]ome workers in poor families earn higher wages but don’t work enough hours.”
  3. “[A]bout half of poor families have no workers, in which case a higher minimum wage does no good.”

The amount of low-wage workers from poor families dropped from 85% in 1939 to 17% by the early 2000s due to changes in social safety nets and family structure. Evidence indicates that only 18% of the benefits of a national minimum wage of $10.10 would go to poor families, while 29% would “go to families with incomes three times the poverty level or higher.” The benefits for poor families decline to 12% at 15 dollars, while benefits for the well-off would increase to 36 percent. Neumark further explains that “most studies…fail to find any solid evidence that higher minimum wages reduce poverty.”

He concludes, “The desire to help poor and low-income families is understandable. But increasing the minimum wage is a misguided way to do it.”

Essays on McCloskey

Over at the Online Library of Liberty there is an excellent group of essays covering economist Deirdre McCloskey’s work on the “Bourgeois Era”:  The Bourgeois Virtues: Ethics for an Age of Commerce (2006), Bourgeois Dignity: Why Economics Can’t Explain the Modern World (2010), and the forthcoming Bourgeois Equality: How Betterment Became Ethical, 1600-1848, and Then Suspect (2015).

The full amount of essays are still in the process of being posted, but so far you can read ones by economists Don Boudreaux, Joel Mokyr, and John Nye. Boudreaux captures many of my own feelings about McCloskey’s work, while Mokyr and Nye provide some excellent feedback and criticism.

Definitely worth checking out.

William Easterly: Poverty Is a Moral Problem

Christianity Today has an excellent interview with economist William Easterly on his new book The Tyranny of Experts: Economists, Dictators, and the Forgotten Rights of the Poor. In it, Easterly explains that poverty is a moral problem that cannot be easily fixed by technocratic solutions. The answer comes from treating the poor with the same dignity as everyone else. He explains,

I realized our attitude towards the poor is so often condescending and paternalistic. We think of them as helpless individuals. We don’t respect their dignity as individuals.

The next step was not to just avoid paternalism or condescension but actually to go back to first principles and think about the rights of the poor and what role those rights play in development. Economists’ research actually does give the institutions associated with individual rights a lot of the credit for the development in the West and the rest of the world. This combined with my own moral awakening that these rights are a desirable good in and of themselves. Whenever we violate them, we set back development.

Check it out.

 

Catholics Against Capitalism

Kevin Williamson has an article over at National Review that expresses many of the feelings I’ve had regarding some of the more hostile, self-righteous religious critics of capitalism. The article discusses the recent “panel of Catholic intellectuals and clergy, led by His Eminence Oscar Andrés Maradiaga,” that was “convened to denounce a political philosophy under the headline “Erroneous Autonomy: The Catholic Case against Libertarianism.” The conference was mainly about free-market economics rather than libertarianism per se…” But as Williamson notes, “There is something about the intellectually cloistered lives of religious professionals that prevents them from engaging in anything but the most superficial way with the 21st-century economy.” But then he just lays it out:

The implicit economic hypothesis [of the panel] is that producing a certain amount of goods more efficiently — in this case, with less labor — makes the world worse off. (“Why not use spoons?”) The reality is the opposite, and that is not a matter of opinion, perspective, or ideology — it is a material reality, the denial of which is the intellectual equivalent of insisting on a geocentric or turtles-all-the-way-down model of the universe.

The increasingly global and specialized division of labor and the resulting chains of production — i.e., modern capitalism, the unprecedented worldwide project of voluntary human cooperation that is the unique defining feature of our time — is what cut the global poverty rate in half in 20 years. It was not Buddhist mindfulness or Catholic homilies that did that. In the 200,000-year history of Homo sapiens, neither of those great religious traditions, nor anything else that human beings ever came up with, made a dent in the poverty rate. Capitalism did.

Production and resources are important. “If the Good Samaritan had been the Poor Samaritan,” explains Williamson, “with no resources to dedicate to the stranger’s care, then the poor waylaid traveler would have been out of luck. All the good intentions that we may muster are not half so useful to a hungry person as a loaf of bread.” The fact that “men of the cloth, of all people, should be blind to what is really happening right now on the global economic scale is remarkable, ironic, and sad. Cure one or two people of blindness and you’re a saint; prevent blindness in millions and you’re Monsanto.” What is really happening is this: “there is no poverty in the capitalist world comparable to poverty in the early 18th century, much less to the poverty that was nearly universal in Jesus’ time. Our people are clothed, fed, and housed, and the few shocking exceptions, as with the case of the neglected mentally ill, are shocking because they are exceptions.”

It boils down to “how you intend to fulfill the Lord’s command to feed His sheep — with rhetoric or with bread…”

On the Selfishness of Sweatshop Anxiety

2014-06-11 London Apartment

So apparently someone wants to rent this tiny London apartment (pictured above) for $1,230/month. Outrage ensues.

Now, the weird thing is that it’s perfectly reasonable to imagine someone wanting to rent that apartment for that price. I once had to commute up to the Northern Virginia area while my family lived in Williamsburg for work every week. I was lucky enough to have a kind friend with a guess suite, but if I hadn’t had recourse to that, such a tiny little domicile would have been perfect. I seriously investigated living out of my car before my benefactor appeared.

Think about it this way: if someone offers to pay that money for that apartment it is because they have evaluated their alternatives and found that to be the best course of action for them. In what world does eliminating the best course of action someone has available help that person? When someone makes a reasoned consideration that a course of action is the best course of action available, then some do-gooder stepping in to prevent them from taking that course of action is by definition harmful.

I think the intuition is that if someone is willing to pay $1,230 for such a tiny apartment, then they must have pretty crappy alternatives. And that is true. But taking away the apartment doesn’t actually improve that person’s prospects. It just removes the evidence of their misfortune from public view. This isn’t about helping anyone any more than placing spikes where homeless people sleep is about helping homeless people. And yes: that’s a real thing. In London they don’t want you to rent out a tiny, cheap apartment but they also don’t want you to sleep on the pavement, either. This looks less like compassion for the poor and a lot more like spraying your house for ants. You don’t really care if the spray kills them or helps them or hurts them, as long as they aren’t in your house anymore.

I call this “Sweatshop Anxiety” because that’s sort of the biggest example of the problem. The thought of poor people in third world countries working long hours in terrible conditions makes rich Westerners want to shut down sweatshops. Which helps the poor… how?

I’m not saying there’s nothing we can do. I’m just saying that reducing options probably almost never helps.

Manhattan Institute: New Volume on Income Inequality

A brand new volume of essays on income inequality was recently published by the Manhattan Institute and is available for free online. Economist Diana Furchtgott-Roth introduces the volume with the following:

Claims of ever-increasing shares of wealth going to top earners are a perennial complaint. This year, partly due to the publication of Thomas Piketty’s Capital in the Twenty-First Century, discussions of inequality are preoccupying policymakers and political pundits.

Today Economics21.org is releasing Income Inequality in America: Fact and Fiction, a series of essays from leading experts on different aspects of measuring inequality. For Winston Churchill, inequality was an unavoidable part of economic life in capitalist societies. “The main vice of capitalism,” said the British Prime Minister, whose youngest daughter, Lady Mary Soames, died last weekend at the age of 91, “is the uneven distribution of prosperity. The main vice of socialism is the even distribution of misery.”

In conclusion, she states, “Empirical analysis shows that many commonly accepted ideas about income inequality are false or overstated. If policy recommendations are to be effective, they must be informed by an accurate picture of the current situation. Income Inequality in America: Fact and Fiction offers the empirical tools for such an analysis.”

Check it out.

Americans Don’t Know Global Poverty Has Declined

Americans are missing out on one of the greatest stories in the history of mankind:

According to a recent Barna Group survey…more than eight in 10 Americans (84%) are unaware global poverty has  [decreased by more than half in the past 30 years]. More than two-thirds (67%) say they thought global poverty was on the rise over the past three decades.

Similarly, while both child deaths and deaths caused by HIV/AIDS have decreased worldwide, many Americans wrongly think these numbers are on the rise: 50% of US adults believe child deaths have increased since 1990, and 35% believe deaths from HIV/AIDS have increased in the past five years.

Despite the very real good news, more than two-thirds of US adults (68%) say they do not believe it’s possible to end extreme global poverty within the next 25 years. Sadly, concern about extreme global poverty—defined in this study as the estimated 1.4 billion people in countries outside the US who do not have access to clean water, enough food, sufficient clothing and shelter, or basic medicine like antibiotics—has declined from 21% in 2011 to 16% in 2013.

It turns out that practicing Christians are more likely to believe it’s possible to end extreme global poverty in the next 25 years: “Practicing Christians under 40 are the most optimistic at nearly half (48%), with practicing Christians over 40 slightly higher than the general population (37%) compared to 32% of all adults).” But people are hesitant to give more for reasons ranging from belief in the inevitability of poverty’s existence to distrust in corrupt foreign governments.

Check out the full article.

The Inequality Illusion?

Economists Wojciech Kopczuk and Allison Schrager have a Foreign Affairs article with the eye-catching title “The Inequality Illusion.” The two argue that “imposing a tax on wealth is a terrible way to promote equality. It actually benefits the super wealthy the most.” They continue:

What is not widely understood is that the growth in income inequality [in the U.S.] has been driven almost entirely by earned income, that is, what people are paid for their work rather than what they earn on their investments. 

Wealth inequality refers to the stock of people’s assets. It represents the accumulation of saved income and returns on investments over the years. Some wealth inequality is inevitable, even desirable, because wealth represents a lifetime of saving and not just luck or opportunity. Extreme income inequality can beget extreme wealth inequality because people with a lot of income, if they save, can amass large fortunes and pass them on to their children. But over time, such wealth can also dissipate as people leave it to multiple children, get married and divorced, develop expensive lifestyles, contribute to charities, or make poor investment decisions. Whereas income inequality has clearly worsened, the recent evidence about wealth inequality is much less convincing.

After reviewing a number of sources, they declare, “Taken together, then, the economic evidence points to increased earnings inequality but to a much more benign picture of changes in wealth inequality. Increasing inequality has been driven by income earners not necessarily by the entrenched wealth holders.”

Given the recent controversy over errors in Thomas Piketty’s data (errors that may or may not undermine his argument), the above article is quite timely.

Check it out.

Havana: The Last Communist City

Journalist Michael Totten has a disturbing article in the Spring edition of City Journal on the effects of communism in Cuba’s Havana. Using the recent film Elysium to paint a picture of life in Havana, Totten documents how he lied to get into the country and what he witnesses. “Outside its small tourist sector,” he explains, “the rest of the city looks as though it suffered a catastrophe on the scale of Hurricane Katrina or the Indonesian tsunami.” While the goals of the Marxist leaders “were total equality and the abolition of money; the methods were total surveillance and political prisons. The state slogan, then and now, is “socialism or death.”” Furthermore, “Cuba has a maximum wage—$20 a month for almost every job in the country. (Professionals such as doctors and lawyers can make a whopping $10 extra a month.)” This maximum wage is defended by the government, which argues “that life’s necessities are either free or so deeply subsidized in Cuba that citizens don’t need very much money. (Che Guevara and his sophomoric hangers-on hoped to rid Cuba of money entirely, but couldn’t quite pull it off.) The free and subsidized goods and services, though, are as dismal as everything else on the island.” This includes their supposedly wonderful health care system that Michael Moore was raving about years back. This “free” health care requires patients “to bring their own medicine, their own bedsheets, and even their own iodine to the hospital. Most of these items are available only on the illegal black market, moreover, and must be paid for in hard currency—and sometimes they’re not available at all. Cuba has sent so many doctors abroad—especially to Venezuela, in exchange for oil—that the island is now facing a personnel shortage.”

There’s much more. Check it out.

Mercatus Center and Regulations

Several new studies out of the Mercatus Center at George Mason University this month cover the impact of regulations on the economy:

Check them out.