Politics

Minimum Wage Fallacies

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minimum wage

The New Republic has an excellent article by a Stanford doctoral student in economics that argues against the fallacies of minimum wage proponents:

The first fallacy is that changes in the minimum wage do not affect the behavioral response among firms and individuals. The second fallacy is that higher wages will force companies to innovate in order to reduce costs. Both these arguments overlook some very basic, but informative, economic principles.

The first overlooks the fact that wages are designed to compensate workers for productivity. When wages are distorted, they affect the profit-maximizing decisions that businesses make. The textbook prediction, which is generally supported in the data, is that higher minimum wages reduce employment since companies restrict the number of workers they will hire. These adverse effects are especially likely given the pace of technological change and automation.

The second overlooks the fact that there are effective and ineffective ways to stimulate innovation among businesses. The idea that making hiring more costly will spur innovation is tantamount to requiring companies to reduce the size of their physical presence so they become more productive. While these types of distortions may prompt a small fraction of companies to innovate, misallocation more generally is a major factor behind cross-country differences in productivity.

Given that many advocates of a higher minimum wage do so in the name of equality, it’s notable that the author states, “My own ongoing research, which focuses on the link between such wage-setting mechanisms and company behavior, suggests labor-market distortions like raising the minimum wage can have other negative effects on workers, businesses and inequality beyond the overall impact on employment.” The reasons include reduced hours, reduced skill accumulation, and reduced investment in workers. Finally, the evidence suggests that “even in the best of worlds—where the minimum wage has no unintended side effects—it appears to only marginally reduce inequality.”

The whole thing is worth reading. Check it out.

 

The College “Experience” Cannot Be Free

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college-freshman-seniorOne of the reasons college costs so much is that American universities operate like elite private schools with extra administration. Since Germany became tuition free a couple of years ago (again), Americans have apparently been “flocking” there to take advantage of a free higher education. I have to wonder which Americans are benefiting from Germany’s generosity. How many lower-middle class and below 18 year olds do you know that would be able to get a passport, plane ticket, and housing in Germany to get one of these great free educations? According to one website, to get a German education VISA, “They will ask for proof of enrollment from the university, health insurance documentation, plus you will need to demonstrate you have access to at least 659 euro per month for the first year, or 7,908 euro total.” That’s not an enormous amount of money, compared to college education in the US, but if your parents don’t even make enough money to have Obamacare require health insurance (and you don’t either), chances are you are facing many obstructions to getting a free education in Germany. I guess if college was free in America, this wouldn’t be a problem anymore, right?

Beyond the problem of who would really benefit from free college (hint, mostly kids who could afford better early education, and thus college as well, and get into schools that will likely have lower acceptance rates), we also have to consider what free college looks like. Let’s go back to the idea that colleges behave like elite private schools. Do you attend (or does your child attend) a school with state-of-the-art facilities, recently built dorms, fantastic exercise facilities, sports teams, administrative personal for every imaginable problem, tutoring and expansive disability services, a plethora of majors, relatively small class sizes, and clubs, events, and frats galore? Did you read that list of think, “of course, that’s what real life looks like!”? No, college today is nothing like real life and that is why it is so darn expensive. You are not paying for an education, you are paying for an experience. (And considering the fact that universities are hiring more and more woefully underpaid adjuncts, you truly are not paying for an education). A free education in Germany, or most of Europe, will educate you and require you to live (or learn to live) like an adult because it strips out all of that bloat.

Don’t get me wrong, I don’t think it’s horrible that schools offer these things. You have to be pretty heartless to say expansive disability services is a bad idea, and I would even say that most items on that list are good things. (I could do without frats and their unequal female counterparts, personally.) They may say the best things in life are free, the good things (or the goods) are not. So if we want affordable, or even free, higher education it needs to be significantly stripped down, just like it is in Germany. Say goodbye to dorms, food courts, many majors, any kind of small-liberal-arts experience, and even the opportunity for most to go to college. That’s right, in Germany only about 30% of students attend college, likely because the path to college is divvied out by the end of the American elementary school, and there is a quota system in each major. There is, however, excellent vocational training in Germany for those who don’t attend college. I love German reasonableness and American excess. But American excess cannot, and should not, be free. We should focus on how to provide low cost tertiary education, including vocational schools and apprenticeships, before we consider throwing taxes at it.

Without a License

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Yes, I know permits aren’t exactly the same as licenses, but it’s funny nonetheless.

I’ve blogged about occupational licensing before, citing its negative impact on upward mobility. Now Richard Reeves at the Brookings Institution adds his voice to the critics. In a brief post, he lists four ways in which occupational licensing can hinder upward economic mobility:

  1. “Since state licensing laws vary widely, a license earned in one state may not be honored in another…This licensing patchwork might explain why those working in licensed professions are much less likely to move, especially across state lines…”
  2. “In many cases, people who’ve been imprisoned face a lifetime ban on obtaining an occupational license.”
  3. “Licensing requirements impose up-front costs. The actual licensing fees are often just the tip of the iceberg; many aspiring professionals must spend time and money attending the required trade school courses. These burdens fall disproportionately on people from lower-income backgrounds.”
  4. “Licensing can act as a form of “opportunity hoarding,” allowing those with resources and connections to benefit from the higher incomes flowing from these occupations, in part by preventing others from competing with them.”

Check it out.

Wealth, Poverty, and Politics: An Interview with Thomas Sowell

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This is part of the DR Book Collection.

Economist Thomas Sowell was featured once again on the Hoover Institution’s Uncommon Knowledge to promote his latest book Wealth, Poverty, and Politics: An International Perspective. The interview is a nice, if somewhat simplified overview of his main arguments. Poverty, he says, is the norm. Wealth is what needs to be explained. And wealth largely comes by means of productivity. Yet, why are some groups across the globe more productive than others? He delves into a number of factors, ranging from geography to culture (human capital) to politics. Both the conversation and book are enlightening.

Check out the interview below.

Free Introduction to Political Philosophy

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Libertarianism.org has a series of lectures on political philosophy featuring Georgetown University professor Jason Brennan. The lectures cover topics such as

  • What Makes Institutions Just or Unjust?
  • What Are Rights?
  • Why Property Rights?
  • Democracy and Voting
  • Market Failure vs. Government Failure

On top of this, you get a free copy of Brennan’s book Political Philosophy: An Introduction. Check it out. A small taste of the lecture series can be found below.

The Capitalist Welfare State

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The merits of the social democratic Nordic countries have once again become popular in American political discourse due to their praise by presidential candidate Bernie Sanders. This revival of the “U.S. vs. Sweden” debate reminds me of the following interview with Swedish economist Andreas Bergh:

Bergh presents a fairly clear view of the difference between what some have called the administrative state vs. the social insurance state.[ref]Understanding this difference has made me more open to welfare policies such as a guaranteed basic income (mainly as a replacement of current policies): an idea put forth by libertarian thinkers such as F.A. Hayek and even Milton Friedman via a negative income tax.[/ref] For those interested in his research–which is quite relevant to the current political climate–check out his aptly titled blog The Capitalist Welfare State.

How to get a Republican in the White House

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800px-United_states_supreme_court_building Step 1: Don’t nominate Trump.

Step 2: Let Obama have a Supreme Court Justice.

Step 3: ????

Step 4: Profit!!!

Seriously if Obama gets 3 nominees, what better campaign to run on than “Make sure the next nominees are not with the Democrats!”  As long as it’s not Trump.

Compassionate (Sentimental) Liberals, Loyal (Authoritarian) Conservatives, and Intelligent (Cold-Hearted) Libertarians

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Social psychologist Jonathan Haidt and the Cato Institute’s Emily Ekins have an incredible article on the moral psychology of different candidate supporters. The two begin with the 6 major moral foundations:

  • Care/harm: We feel compassion for those who are vulnerable or suffering.
  • Fairness/cheating: We constantly monitor whether people are getting what they deserve, whether things are balanced. We shun or punish cheaters.
  • Liberty/oppression: We resent restrictions on our choices and actions; we band together to resist bullies.
  • Loyalty/betrayal: We keep track of who is “us” and who is not; we enjoy tribal rituals, and we hate traitors.
  • Authority/subversion: We value order and hierarchy; we dislike those who undermine legitimate authority and sow chaos.
  • Sanctity/degradation: We have a sense that some things are elevated and pure and must be kept protected from the degradation and profanity of everyday life. (This foundation is best seen among religious conservatives, but you can find it on the left as well, particularly on issues related to environmentalism.)

In the graph below you can find how supporters of the various candidates scored:

Here are some highlights from Haidt and Ekins:

  • “The most obvious thing to note is that supporters of the two Democratic candidates are high [in Care], whereas supporters of most Republicans are low. This is consistent with most studies of the left-right dimension: The left values care and compassion as public or political values more than the right does. (We note that all people, and all groups, value care to some extent; we are merely looking at relative differences among groups.)…Rand Paul’s supporters score particularly low [in Care]. We have consistently found that libertarians score lower on care and compassion compared with others — indeed, they score low on almost all emotions, while scoring the highest on measures of reason, rationality, and intelligence.”
  • “As you move to the right, the bars [in Fairness] rise. Ted Cruz and Marco Rubio supporters score highest on this foundation. This pattern is consistent with these candidates receiving the most support from the Tea Party. In our earlier research, we have each independently reached the conclusion that Tea Party supporters are highly motivated by the sense that the government routinely violates proportional fairness, by bailing out well-connected corporations and by spreading a safety net of welfare benefits under people they see as undeserving of help.”
  • “Not surprisingly, Rand Paul’s supporters rate [Liberty] the most important foundation, by far…More surprisingly, Bernie Sanders supporters also score high. Sanders seems to be drawing the more libertarian elements of the left, consistent with his more libertarian views on personal freedom, gun rights, and dovish foreign policy. Libertarian-minded voters seem to choose Sanders if they are on the left on economic policy, and Paul if they are on the right…Clinton supporters, in contrast to Sanders’s supporters, score slightly below the national mean. This may be one of the most important differences between the two candidates: Clinton attracts voters less concerned about individual autonomy.”
  • “Supporters of the Republican candidates tend to highly rate authority/loyalty/sanctity. Supporters of Democrats and libertarian-leaning Rand Paul do not…Sanders supporters score the lowest on these foundations and are joined not by Clinton supporters but by Paul supporters.”

But perhaps the biggest surprises?:

One surprise in our data was that Trump supporters were not extreme on any of the foundations. This means that Trump supporters are more centrist than is commonly realized; consequently, Trump’s prospects in the general election may be better than many pundits have thought. Cruz meanwhile, with a further-right moral profile, may have more difficulty attracting centrist Democrats and independents than would Trump.

One last interesting finding: Jeb Bush supporters are closest to the average American voter, despite the fact that his campaign has thus far has failed to gain any traction among Republican primary voters.

Bush’s failures may have more to do with his poor debate performances than with his moral profile, but in this time of high and rising polarization, cross-partisan hostility, and anger at elites and the establishment, Bush appears to be suffering from an excess of agreeability: He has no standout moral message that connects to any particular moral foundation, even at the risk of alienating supporters of another.

Check it out.

Immigration: No Laughing Matter

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Comedian Steve Gerben has a new talk entitled “On Increasing Immigration” that is funny, informative, and to some extent moving. If you wonder why some people advocate for (more) open immigration,[ref]I’ve blogged about immigration here at Difficult Run before multiple times.[/ref] but prefer your academia presented in an entertaining fashion, then Gerben’s talk is for you. Check it out below.

Education & Inequality: Roland Fryer Lecture

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Recent Clark medalist Roland Fryer gave a fascinating lecture for the inaugural Buchanan Speaker Series event at George Mason University towards the end of last year. The topic was “Education, Inequality, and Incentives.” Fryer has done impressive work on education, heading the Education Innovation Laboratory at Harvard University. The need for education reform is real. In the conclusion of his lecture, after pointing out the long-term effects for children who got into the Harlem Children’s Zone (i.e. 5x reduction in pregnancy for girls and 3x reduction in incarceration for boys), he movingly says,

Do know how frustrating that is for a guy like me who grow up in these [low-income] neighborhoods? It’s almost maddening. It’s the lottery. We’re by random coin flip deciding who is going to have a 5x lower probability. And no, we don’t do it directly because that’d be mean. We do it indirectly by not doing what we know works. We talk about “no-excuses” schools. It’s time to have a no-excuses society. What other excuses do we have? We’ve seen the stuff from charters, we’ve seen the stuff from meta-analysis, you put it into the traditional public schools, the test scores go up. When the test scores go up using similar interventions, we get better social outcomes! What else!

…These are our children. It’s not a philosophical debate anymore…I got lucky. People look at me a lot and say, “Well, see! It can happen.” Well, shit, you can also drive a car with your feet, but it doesn’t make it a good idea…We know what works…The question is do we really have the courage and will to do it. Or deep down do we really not think this is possible.

See the lecture below to see what works.