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Riddle Me This

Reducing costs to a business in this case is going to attract it to your state and induce it to change its behavior.

Yet increasing its costs due to various labor market intrusions is at the same time NOT supposed to induce a response?

Did we legalize it in all 50?

When I first started writing here at TUW in earnest nearly a decade ago, I actually used to spend time writing up the very simple economic arguments, rooted in price theory and the empirical literature, regarding the minimum wage and many other proposed policies. There was once a time that I persuaded myself that a good dose of pure logic was enough to “win” an argument. Certainly a lot has changed. I don’t try to “win” arguments anymore – I probably spend a lot of energy just evading them now. But even if I were in the business of winning arguments, I’ve come to learn that it’s not logic most people care about. And since that’s the case, much of what I end up writing is ultimately a waste of time. To convince myself that it is worth putting pen to paper, at least on TUW, I tend to reflect upon logical considerations that seem to me to be unappreciated. So the following thoughts are in no way to be construed as home run arguments for or against the minimum wage, or even the most important ones, but ones that I find interesting ipso facto.

(1) Suppose you know someone that, rather than working for the man, works for themselves. There is little difference – in each case you work to produce a product or service, you sell it, and you earn income. Suppose this someone puts in about 20 hours per week doing such work, but when you look at the end of the year performance of this someone’s consulting activities, the total gross earnings are less than $6,000 (in fact MUCH lower). Putting these together would indicate an effective hourly wage of less than $6.00 per hour of work. Now, don’t go telling me what the minimum wage legislation says … I want to know if proponents of the minimum wage being raised think that this poor sap is entitled to earn a living that is dignified and that can support himself and perhaps a small family on? Is this person entitled to earn $7,150 for his 1,000 hours of running his own organization? And when the wage law is enacted and mandated wages go to $15.00 per hour or $10.10 or whatever the number is, is this person required to pay himself $10,100 or $15,000 for the year? Why not? And if so, then how is he supposed to do it? Why WOULDN’T proponents of the minimum wage argue that these poor entrepreneurs are entitled to earn a decent and dignified and respectable living without having to be at the mercy of impersonal competitive forces that force his annual earnings below a “living” level? We here at TUW are really wanting to know if ever any serious thought has been given to this and if so if there is a legitimate argument to be made to NOT make this man the object of the feel good sympathy of the minimum wage proponents? And who, of course, is to be deemed to have to raise this man’s pay.

(2) Let’s be generous and assume that the answer to (1) is, “yeah, sure, he deserves some cash.” Consider, hypothetically of course, that this “entrepreneur” happens to also have another full-time salaried job. And this salaried job is quite well paying (by objective standards, not by the standards applied to the 1%). It turns out that this “consulting” business is a side business on top of the “real” job, but perhaps is something the man wishes to turn into something more permanent. Again, all hypotheticals here. How many folks would NOW argue that this man is entitled to the minimum wage? I am almost sure that 100% of the people I would pose this scenario to would say that this person is in no way “deserving” of the minimum wage. And I wouldn’t disagree, but merely wish to ask the question of, “why do you say that?” Is it because there are circumstances beyond the actual wage one gets paid that suggest whether one ought to receive additional support? Now of course, I don’t think proponents of minimum wages better find themselves arguing this? Why is that? Because regardless of the empirical results on the minimum wage’s impacts on employment, unemployment, nonwage compensation, long-term business continuity and so on, what we DO certainly know is that a large number of minimum wage earners would fall closer into the 2nd category here than the “37 year old father, married, with 3 children, trying to raise a family on $56 per day. And once we admit that we can’t just look at the money earned by our fellow in scenario 1, I tend to believe that most “reasonable” arguments in favor of the minimum wage as an across the board law simply have to disappear. But of course, you knew I would say that.

(3) Suppose you knew someone who was actually salaried, say, as an investment banker at the entry level. I wouldn’t happen to have any firsthand knowledge of this, like everything else in economics, I make this stuff up too. Suppose their annual pay was something like $35,000. If this person worked a normal work-week, their hourly pay would amount to $17.50 or so. But what if this person ended up pulling 110 hour work weeks? Now he;s making $6.36 per hour. Do minimum wage supporters also support a maximum hours worked law? Or do they mandate that there be an increase in investment banker pay? 

(4) And while I am pondering the coming $10.10 minimum wage, can someone refer to the economic literature and economic theory that says this is the correct amount? Why not $10.02? Why not $11.15? Who came up with this number? I can assure you that at best it is pegged to some “ideal wage that existed in the past” but this is nothing more than arguing that football players today be mandated to wear leather helmets. Why? Because .. we think … they look cool.

(5) Dear minimum wage supporters, can you tell me why, if employers are required by law to pay people no less than $7.15, anyone is paid more than $7.15?

(6) Dear minimum wage supporters, can you tell me why a person who is earning $14.00 per hour actually obtains that wage? And please, when you answer, do make reference to what is different about someone who earns $7.15.

Thank you

Dear social contractarians, suppose I agree with you that by being born “into society” that I am bound by an unwritten social contract, and therefore am bound to allegiance to my fellow citizens and the representatives they choose. Great, I agree.

What, then, do you say to me when both my fellow citizens and especially the elected officials and the people that administer the legislation constructed by these officials do not meet the terms of the social contract? After all, if you suggest that there is a contract, there MUST be terms, no? And just what those terms are indeed are never made clear. Both fellow citizens and rulers who break the terms of the “deal” are no longer legitimate. So, when are these terms deemed broken? What is an individual’s recourse, especially when fellow citizens break the terms of the deal – can you seriously argue that they should be permitted to “choose better leaders”?

I’m pretty sure Hume had something interesting to say about this. But I really don’t know, because it’s not like I was encouraged or asked to study it at a great liberal arts college, and it’s certainly not like kids are asked to think about it here.

Friday Quiz

Name a government program or effort that has not worked well – particularly a huge one.

Can you do it? If not, is it because you aren’t thinking hard enough, or is it because you can’t fathom that something done by government is a failure? Surely it can’t be the case that EVERY program has been a good one, is it?

I would venture to argue that almost everyone could argue and demonstrate private programs and businesses that have been abject failures, regardless of political disposition. Why is the same not true of government? After all, the existence of failure is part of our humanity, it is insane to demand and expect that all programs work all of the time and for all people.

The real distinction ought NOT be whether some entity has failed at something, but rather what the responses to those failures have been over time. Nor do we require that failed programs necessarily go away, but surely the failure should induce some changes in behavior and resource allocation, no? So the right way, in my view, to be arguing “pro-” or “anti-” some program probably includes SOME measure of how successful it may or may not be, but rather what happens if and when it fails. And this is the point to emphasize about private versus government programs – name for me a major government program that has disappeared after its failure?

I can think of elements but not entire programs. For example, NASA closed down its Space Shuttle program. Why? Is this just one of many examples, or an exception that sort of proves the rule.

Finally, the distinction really ought not be about governments versus the private sector … it really should be broadened to any collective institution – a look at any “private” college campus is good enough evidence that this question need not only apply to governments versus markets.

One of the great ones, a former student of mine, gets a hearty shout out from Marginal Revolution today.I’ll leave it for readers to evaluate the ideas Dan summarizes there. Per usual, as much as I think I agree with the general gist of the argument, I think there are also reasons to be worried about how much we really understand what is going on in technology and why. Note, too, that this topic can easily go off the rails and devolve into a game of picking political sides as explanations for what is potentially going on. You can imagine the left arguing that we’ve starved the basic research funding beast (in many ways I agree with that). You can see the right arguing that the brutal regulatory and tax environment is responsible, and I’d find reason to agree with that. But it’s complicated, as is most stuff.

Well worth considering.

Surely you have followed with interest the debate over the past decade on what the true history of Easter Island was. Was it, as Jared Diamond makes the case for in Collapse, a case of a people stupidly overconsuming the limited resources on a fragile island ecosystem, or was it perhaps a more nuanced story, or eve na success story that people could have flourished in such a place for so long before the island depopulated? I’ll leave it to readers to track down the various ideas and arguments. Our point today is a bit different. Suppose the Collapse version of the story is correct, which I am sympathetic to, particularly since being neither an historian nor anthropologist I really have no basis to judge which version of stories is more correct. However, there are huge lessons to be drawn from the story, particularly if correct. And one of those lessons? Over the course of human history well over 10 billion people have inhabited all different parts of the planet. And in this entire human history despite seemingly stupid and rapacious behavior in many places and despite living in some of the most inhospitable places one could ever imagine, one of the “best” illustrations of how we are doomed to destroy ourselves and our planet is from a tiny little island that is for all intents and purposes pretty insignificant? So, when I pick up stories like this, aware of course that we are all prone to confirmation bias, I take it not at all as a cautionary tale, but rather quite the opposite – a sign of the incredible ability of people of all cultures and all time periods in all places to survive, a story of resilience, a story of our bright future, a story, in fact, of our inherent ability to live quite sustainably in practice. Sharing such a view does not garner much sympathy or invitations to fancy faculty dinners of course. No matter – this wintercow prefers a laid back fish-fry among his fellow cows out here in the pasture.

Just as I finished looking at Krugman’s mature piece, I ran into this doozy: ”

The ‘Wall Street Journal’ Parade of Climate Lies”

I was quite excited to see what sorts of science was being peddled and interested to see the research to debunk it. But then I noticed the author was none other than Economist Jeff Sachs. He is no more qualified to weigh in on the climate debate than I am, and despite his awesomeness as an economist (I believe that) and his awesomeness at helping the world’s poor, I am pretty sure that I have grappled more with the climate science and economics literature than he has. If I were to write a piece on either side of the climate debate that touched on anything other the economic responses to a warmer planet, I would be deemed a hack, unqualified and all sorts of other things. But nope, if you are a famous person, your thoughts on anything matter.

Incidentally, I had not noticed the Ridley piece until I saw this Sachs piece. It turns out that Ridley has responded. And no surprise here given my hackish, biased, partisan leanings, whether you agree with Ridley or not, he calls Sachs out on his poppycock and scientific masquerade, I don’t expect a sincere response or exchange. So here we are, just like in a University setting (not that I have firsthand experience), a chance for people to actually learn something about an important topic devolves into ad hominem attacks, name calling, questioning affiliations and nastiness, with people on “both sides” (are there?) retreating further into their tribes.

Less than two weeks into the term and my mind is already planning the next outdoor adventure.

The Huffpo and the minimum wage cheerleaders have now gone off the deep end. If you simply SAY that someone “demolishes” a classic argument, does that make it so? And just look at how uber-sophisticated and intelligent that post is. WHAT classic argument? It’s not like anyone tells us. Is it the classic moral argument against it? And that argument is? Is it the theoretical one? Which one? There are several classics that I bet if the author were asked couldn’t tell us exactly what he meant. And what about the empirical one? Oh, I bet he can just ignore the piles of research that show downward sloping demand curves or that TANSTAAFL and just “demolish” it because, you know, some guy who won a Nobel Prize thinks fast food line cooks are hard to replace.

But, really, that ain’t an argument. That ain’t science. And it’s not even clear it makes sense in its own right. I love how sure they are about how irreplaceable low wage workers are (sort of strange argument given their low wages) and how it is just assumed that this is a good way to help low wage workers. It’s not. Krugman of course knows that.

Not that I was ever threatening to put others out of business, but I simply don’t understand how ANYONE starts and keeps a small business these days. Any notion I may have had of venturing out on my own is long since gone – there’s no way I would put up with this legal environment, and quite frankly the sanctimony of “those working for the oppressed.” Go suck an egg, quite frankly.

Here is an image of the hockey rink I frequent and am affiliated with:

It is a “mom and pop” place. Now, it’s not struggling much as far as I can tell, but I am sure the mega-plex down the street that has 4 rinks and is run by a major corporation would LOVE to see the minimum wage increased to $15.

Here is a place I love to get subs, soup, breakfast pizza, donuts and the occasional growler:

Mike and Kerrey, the owners, are super people, and would be happy to take your calls asking them what would happen to them if they were forced to pay everyone at least $15.00 per hour. Once again, I am sure the Applebees and major pizza chains down the road wouldn’t mind at all – nor would the nearby Wegmans. These are real people. Hard working people. And they employ full time workers and kids needing a few extra bucks. They take care of their customers and the place is a pleasure to go in. They have done more for the “low wage” worker than any freakin’ pundit or writer for the HuffPo. These are the people you are telling must add over $15,000 per FTE per year in costs too. I don’t bet, but I don’t think Kerrey and Mike clear too much more than that for themselves in a year. God damn miserable capitalist pigs that they are.


UPDATE: A former student of mine sends me this passage from the Krugman (via Mark Perry at the AEI) that I read when I was an undergraduate myself. It’s plausible, of course, that he’s seen the preponderance of new evidence and theories and has changed his mind, just like most people.

The living wage movement is simply a move to raise minimum wages through local action. So what are the effects of increasing minimum wages? Any Econ 101 student can tell you the answer: The higher wage reduces the quantity of labor demanded, and hence leads to unemployment.

This theoretical prediction has, however, been hard to confirm with actual data. Indeed, much-cited studies by two well-regarded labor economists, David Card and Alan Krueger, find that where there have been more or less controlled experiments, for example when New Jersey raised minimum wages but Pennsylvania did not, the effects of the increase on employment have been negligible or even positive. Exactly what to make of this result is a source of great dispute. Card and Krueger offered some complex theoretical rationales, but most of their colleagues are unconvinced; the centrist view is probably that minimum wages “do,” in fact, reduce employment, but that the effects are small and swamped by other forces.

What is remarkable, however, is how this rather iffy result has been seized upon by some liberals as a rationale for making large minimum wage increases a core component of the liberal agenda–for arguing that living wages “can play an important role in reversing the 25-year decline in wages experienced by most working people in America.” Clearly these advocates very much want to believe that the price of labor–unlike that of gasoline, or Manhattan apartments–can be set based on considerations of justice, not supply and demand, without unpleasant side effects.

In short, what the living wage is really about is not living standards, or even economics, but morality. Its advocates are basically opposed to the idea that wages are a market price–determined by supply and demand, the same as the price of apples or coal. And it is for that reason, rather than the practical details, that the broader political movement of which the demand for a living wage is the leading edge is ultimately doomed to failure: For the amorality of the market economy is part of its essence, and cannot be legislated away.

UPDATE #2: Lest anyone misunderstand my real feelings, I WANT to see the minimum wage increased, you should know that. Remember, I am a fundamentally mean person that hates human beings, so if I believe my own bullshit, raising the minimum wage is a great way to inflict some pain. The only problem as far as I see it is that since I really hate poor people, the minimum wage isn’t really going to do too much damage to them, very few poor people earn the minimum wage. Perhaps more seriously, if it weren’t for the impacts on small businesses and those who may never get a job or see their hours cut or see their benefits reduced or see their working conditions suffer or see themselves replaced by a machine in 10 years or just see desire for the products they make go away, I’d probably want to see a nice stiff increase. Most students don’t believe anything I say that they didn’t see and hear in their lifetimes, so this would be a nice chance for some living history.

Understanding Risk

Given the choice between having a well-trained medical professional attend to my BASIC medical needs (i.e. not things like heart surgery) or having access to the internet, online medicines, and a professional that was well-trained in statistics and actuarial studies, I would easily choose the latter,

If I were to cite evidence for you that suggests a particular lifestyle increases the risk of dying among a particularly effected group by, say, 25%, how would you respond? Like me, I am sure you’d be startled. Of course, when data is reported in this particular way, it is a reporting of relative risks and not the actual risk of death that any particular person faces.

When you encounter such information, ask yourself the question, “25% over what?” For example, if a total of 4 people in a population die of some malady, and exposure to some other risk factor, such as mosquitos or cancer or …, causes one additional person to die, then the increase in relative risk is 25%. Indeed, with numbers this small, it is going to be VERY hard to know if this is caused by the outside factor, or is just random variation.

What matters then? To me, it is the absolute risk. If exposure to some outside factor causes one additional death then I care over what total population this occurs. If, for example, we are talking about the population of a small city of 10,000 people, then the data reported above is not really a 25% increase in mortality risk, but rather a 1 in 10,000, or a 0.01% increase in your risk of dying due to this factor. Those are vastly different things. You might thing this is trite, or obvious, but be careful when you are in the presence of such data and you will often see the two notions conflated, badly.

I think the same crowd of folks can be heard chanting, “Democracy Now!” in certain pretexts, but it seems that they have changed their tune recently to something closer to, “Authoritarianism Now!” I’m no expert in Political Science, nor do I think it appropriate of me to denigrate those who are, and I apologize if I misrepresent what Political Scientists actually say and know about Democracy – but as I understand it, the point of Democracy is not to give EVERYONE what they want. Of all of the silly notions that are stuck in people’s heads these days is that they have a right and are entitled to get the things they want. But Democracies exist to help deal with (notice I did not say solve) collective action problems that for whatever reason are not being dealt with by other institutions that evolve to deal with collective action problems (say, like markets). But like markets, which are not necessarily best suited to solve all problems, when in fact they are used, they are not even supposed to, in theory, make everyone happy.

So on what planet are we living on that people thing that they are supposed to be happy with political outcomes? And if the climatistas want to end democracy so that “we” can do more about global warming (by the way, lots is being done even as I write this, but that’s for another post), fine let them end democracy to impose their global warming policies on the world.

But of course, there is nothing that says that once we end democracy to do stuff to stop global warming, that we shouldn’t end democracy so that we can also do all kinds of things that these people like. A wise person once said to me, and she was not a political scientist, “whatever you think you want from a particular political order – imagine that the people who run the thing, or who have the proverbial keys to the car, are people you mistrust at best and at worst you have a profound dislike for.” I like that way of thinking about politics, wholly aside from the lessons economists have taught us about how to evaluated decisions in the political sphere.

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