Politics

Economist Jeff Smith Won’t Sign Minimum Wage Petition

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I’ve written about my criticisms of minimum wage a couple of times already. (Walker has weighed in as well.) Here’s a good article, posted by Michigan economist Miles Kimball but quoting fellow professor Jeff Smith, on reasons why Jeff Smith refuses to sign a petition supporting a raise in the minimum wage. His concerns are:

1. It is poorly targeted relative to alternative policies such as the Earned Income Tax Credit (EITC). And, yes, I am familiar with the argument that the minimum wage and the EITC are complements; what is thin on the ground, so far as I am aware, is evidence of the empirical importance of this argument.

2. As pointed out recently by Greg Mankiw, it distributes the costs of the increased minimum wage in a less attractive way than alternative policies such as the EITC, which implicitly come out of general tax revenue.

3. Most importantly, raising the minimum wage fails to address the underlying issue, which is that many workers do not bring very much in the way of skills to the labor market. Rather than having a discussion about raising the minimum wage, we should be having a discussion about how to decrease the number of minimum wage workers by increasing skills at the low-skill end of the labor market. This would, of course, mean challenging important interest groups. It is also a bigger challenge more broadly because it is less obvious how to do it. But that is the discussion we should be having because that is the one that will really help the poor in the long run, in contrast to a policy that feels good in the short run but only speeds the pace of capital-labor substitution in the long run.

None of these arguments are novel, and I’ve cited all of them in the past, but they are worth repeating. Minimum wage: the best you can say is that it’s a really inept and obsolete policy.

Top All-Time Political Donors, 1989-2014

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Who are the top donors to political parties? And which political parties are the recipients? There is an eye-opening list of the top 156 donors between the years 1989 and 2014. For all the rhetoric about Republicans being the party of “big business” and “cronyism,” it is interesting to see that the majority of the top 20 donors gave heavily to Democrats. Or, as economist Mark Perry put it, “Combined the 18 labor unions donated more than $35 for every $1 donated by Koch Industries, $640 million vs. $18 million.”

Check it out.

Gay Marriage and Levels of Abstraction

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2014-02-13 two-men-arguingAdam Greenwood has a pretty insightful look at one of the commonly confused aspects of arguing about gay marriage over at Junior Ganymede.

A lot of time gets wasted in arguments that are really about what the proper unit of analysis is, without any of the participants quite realizing that is what their argument is about.

Let’s take gay marriage, for example. Defenders of the traditional definition of marriage believe that marriage is fundamentally tied to procreation. Proponents of gay marriage pooh-pooh the suggestion. The defenders, they point out, do not try to prevent old or infertile couples from getting married, nor do they try to prevent couples who have decided not to have children from getting married.

Read the rest for his resolution of this problem, which is really helpful in bringing some clarity to the debate.

19th-Century Missionaries: Evil Colonialists or Heroes of Democracy?

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The cover story of the 2014 Jan/Feb issue of Christianity Today traces the work of political scientist Robert Woodberry and his earth-shattering article “The Missionary Roots of Liberal Democracy.” While a graduate student, Woodberry took interest in a surprising link between democracy and Protestantism. While various case studies seemed to support the link, it wasn’t until Woodberry “created a statistical model that could test the connection between missionary work and the health of nations. He and a few research assistants spent two years coding data and refining their methods. They hoped to compute the lasting effect of missionaries, on average, worldwide.” The results were shocking. “It was like an atomic bomb,” said Woodberry. “The impact of missions on global democracy was huge. I kept adding variables to the model—factors that people had been studying and writing about for the past 40 years—and they all got wiped out. It was amazing. I knew, then, I was on to something really important.” Woodberry’s discovery revealed a surprising truth: “Missionaries weren’t just part of the picture. They were central to it.” But not every kind of missionary: “The positive effect of missionaries on democracy applies only to “conversionary Protestants.” Protestant clergy financed by the state, as well as Catholic missionaries prior to the 1960s, had no comparable effect in the areas where they worked. Independence from state control made a big difference.” It turns out that “Protestant missionaries not funded by the state were regularly very critical of colonialism.” And “so far, over a dozen studies have confirmed Woodberry’s findings. The growing body of research is beginning to change the way scholars, aid workers, and economists think about democracy and development.”

The piece is definitely worth the read.

Single Motherhood in the NYT

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Kay Hymowitz of the Manhattan Institute has an excellent article in The New York Times on single motherhood and the outcomes of children. Hymowitz is no amateur to the subject and she cites an impressive amount of research. For me, one of her most interesting links was a study that “found a connection between the size of a welfare state and rates of both nonmarital births and divorce. Even if you believe that enlarging the infrastructure of support for single-parent families shows compassion for today’s children, it’s not at all obvious that it shows much concern for tomorrow’s.”

The 2013 study looked at OECD member countries and the effect expansive welfare states had on family outcomes. The findings indicate that the welfare state increases the amount of marriages. However, it also increases the divorce rate and the amount of out-of-wedlock births.[ref]The quality of these welfare-sponsored marriages may be lacking: “First, a more pronounced welfare state may facilitate divorce by providing or subsidizing goods and services to divorced spouses that would be otherwise only available within marriage (e.g., risk sharing). Put differently, in the case of divorce, the indirect e ffect may dominate the direct effect. Second, marginal marriages–those which would have not been formed without the marriage-promoting component of the welfare state–may have a lower match quality, which increases marital instability. Third, the welfare state may alter assortative mating patterns such that less stable marriages are formed…In principle, it is possible that the increased incidence of divorce drives some of the positive e ffect on the marriage rate (i.e., divorces increase the supply of potential partners in the marriage market)” (pg. 12, fnt. 20).[/ref] “Hence, while the welfare state supports the formation of families, it crowds-out the traditional organization of the family by increasing the divorce rate and the number of children born out of wedlock” (pg. 3). The welfare state’s relation with out-of-wedlock births “is consistent with the view that the welfare state creates incentives by providing higher support for single mothers (direct e ffect, as for instance in the case of AFDC), and with the idea that the welfare state acts as a substitute for a stable union (indirect e ffect)” (pg. 13).

Definitely worth checking out.

 

Rivalry and Marriage

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Bryan Caplan
Bryan Caplan

Not that kind of rivalry, but the kind spoken of in economics. GMU economist Bryan Caplan has a fascinating blog post in which he examines how rivalrous a married couple’s consumption bundle typically is with some aid from equivalence scales. Caplan takes an imaginary couple with the high earner making $60,000 and the low earner making $40,000 annually. Using four distinct empirical strategies,[ref](1) “Expert Statistical” measures for statistical purposes only (i.e. Bureau of Labor Statistics, OECD), (2) “Expert Program” focuses on defining social benefits (i.e. Swiss “base amount,” U.S. poverty line), (3) “Consumption” measures consumer spending constrained by disposable income,(4) “Subjective” is associated with particular income levels for families of given characteristics and their self-evaluation.[/ref] he finds that “the low-earning spouse makes out like a bandit.  The surprise: The high-earning spouse gains as well – for all four ways to estimate real-world rivalry…[I]f one partner outearns the other by 50%, share-and-share-alike marriage raises the high-earner’s effective consumption by about 30%, and the low-earner’s effective consumption by about 100%.  To quote Keanu, “Woh.””[ref]Caplan asks, “Is there any reason to prefer one method to the others?  Yes.  People have ample first-hand experience with household management, so the subjective approach is probably better than deferring to government statisticians’ opinions.  And looking at actual consumption behavior is probably better than asking people what they think.”[/ref]

He concludes,

These calculations deliberately ignore all the evidence that marriage makes family income go up via the large male marriage premium minus the small female marriage penalty.  So the true effect of marriage on economic well-being is probably even more massive than mere arithmetic suggests.  Why then are economists – not to mention poverty activists – so apathetic?

See the full post for the calculations.

 

 

Does Criminalizing Abortion Lead to Women Dying?

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2014-02-06 Aborto Legal

One constant refrain from the pro-choice side of the abortion issue is that there will be just as many abortions if they are illegal, but that they will be much more dangerous. Both arguments are objectively false. It’s old news that the first part of that argument is false. The famous chapter in Freakonomics that claimed abortion lowered crime rates was based on a study in the Quarterly Journal of Economics called The Impact of Legalized Abortion on Crime (pdf). One of the subsidiary findings of the study, discussed in footnote 8, talks about the relatively small decline in births at the same time as the number of abortions went up dramatically after legalization:

Note, however, that the decline in births is far less than the number of abortions, suggesting that the number of conceptions increased substantially—an example of insurance leading to moral hazard. The insurance that abortion provides against unwanted pregnancy induces more sexual conduct or diminished protections against pregnancy in a way that substantially increases the number of pregnancies.

In other words: when abortion was legalized you didn’t see a shift of the same number of abortions from illegal to legal. You simply saw many more abortions. The second part of the argument is also deeply flawed: abortions got safe long, long before they were legalized, and it had nothing to do with the law. (Details here.) It was simply a reflection of advancing medical technology. Even prior to Roe, illegal abortions were performed by doctors, and in the arguments leading up to Roe the safety of illegal abortions was considered an argument for legalizing them. The whole “back-alley abortion” thing was invented after-the-fact as a scare tactic. So the evidence suggests criminalizing abortion would lead to a lower rate of abortions without making the illegal abortions that do take place any more dangerous. Maternal death should not increase.

But what about direct evidence? Well, now we have that too. This article discusses a recent medical study that examined the change in maternal death rate in Chile when abortion was criminalized in 1989 after being legal since 1965. (Full article also available.) The result? With decades of data before and after criminalization, there is no evidence of any increase in maternal death due to illegal abortions.

This is strong evidence, along with what we already knew, that criminalizing abortion would not lead to a flood of scary, dangerous, coat-hanger abortions.

Giving Back to Society

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Drawing on data from the Congressional Budget Office, economist Mark Perry provides the following two charts:

“As the data show in the top chart,” writes Perry,

the shares of pre-tax income for the four lower income groups was greater than their shares of federal taxes paid in 2010. In contrast, the highest quintile earned about half (51.9%) of all income in 2010 but paid more than two-third (68.8%) of all federal taxes collected. The top 1% earned 14.9% of pre-tax income in 2010 but paid 24.2% of all federal taxes collected…The federal tax system is highly progressive (higher income households shoulder an increasingly greater tax burden), especially for federal income taxes, as the bottom chart shows. The top income quintile paid almost all federal income taxes in 2010 (94.1%), and the top 1% paid almost 39% of all income taxes. In contrast, the bottom two income quintiles actually had negative shares of income taxes in 2010 and were in fact “net tax receivers” because their refundable tax credits exceeded the income tax otherwise owed.

Not only do the top earners pay the highest amount of taxes, but it tends to be their innovations that benefit society as a whole. Yale economist William Nordhaus’ 2004 paper “Schumpeterian Profits in the American Economy: Theory and Measurement” found that innovators only capture 2.2% of the total present value of social returns. As GMU economist Don Boudreaux pointed out, “The smallness of this figure is astounding. If it is anywhere close to being an accurate estimate, the implication is that “society” pays a paltry $2.20 for every $100 worth of welfare it enjoys from innovating activities.”

The rich may be evil and all that, but they sure do pay for it.

Startup Cities

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Over the last year or so, I’ve become somewhat fascinated with cities and urban studies. The video below, featuring Chapman University law professor Tom W. Bell, is one reason why. In his lecture, Bell discusses ZEDEs: zones of economic development. These “startup cities”[ref]Bell is a consultant to the Honduran “startup city” project.[/ref] could potentially bring on new forms of governance. This is likely a good introduction to his forthcoming article in Social Philosophy & Policy titled “What Can Corporations Teach Governments About Democratic Equality?” The abstract reads,

Democracies place great faith in the principle of one-person/one-vote. Business corporations and other private entities, in contrast, typically operate under the one- share/one-vote rule, allocating control in proportion to ownership. Why the difference? In times past, we might have cited the differing ends of public and private institutions. Whereas public democracies aim at promoting the general welfare of an entire political community, private entities aim at more specific goals, such as generating profits or managing a cooperative residence. As business entities have grown in size and in the range of services they provide, however, the distinction between public and private governance has grown blurry. Soon, entire “startup cities” may join residential cooperatives and homeowners associations in drawing their governing principles from private sources. How can private communities affirm the principles of democratic equality? By affording full protection to all rights holders, individuals and owners alike. The one-person/one-vote approach popular in political contexts works best at protecting the individual personal rights—freedoms of conscience, speech, and innumerable others—to which each of us has an equal claim. Corporate law’s one-share/one-vote rule works best at protecting the property rights of those who invest in a commonly owned community. This paper explains why a polity should offer both corrective and constructive democracy. Residents exercise corrective democracy in defense of their individual rights by submitting officials and laws to popular veto. Shareholders exercise constructive democracy in defense of their investments, choosing directors and managing polity governance. The result: a double democracy that combines the best features of public and private governance to give equal treatment to both the personal rights of individual residents and the property rights of shareholder owners. Respect for democratic equality demands nothing less.[ref]I wrote a commentary on Mitt Romney’s “corporations are people” remark at The Slow Hunch, which drew in part on management literature to explain how this view of organizations could be beneficial in the White House.[/ref]

I’m excited to see how these ideas develop further.

Government Spending, 1945-2014

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Economist Veronique de Rugy of the Mercatus Center at George Mason University provides the depressing chart above. Federal spending has been on the rise since 1948 with no sign that the slight decrease has any permanency about it.

There isn’t much else to say.