Policies that foster economic freedom, in tandem with a lean government, tend to lead to economic prosperity. Something to ponder on Tax Day.
One of the many distressing aspects of the current pontificate is the strong attachment that Pope Francis has to economic nostrums that invariably end in the State largely controlling the economy for the “good of the poor”. How such ideas have played out disastrously time and again in human history should be obvious to any sentient being. The latest case study is Venezuela. Richard Fernandez gives us the bad, albeit unsurprising, news:
Pop quiz. Suppose a whole country decides to live off an imaginary inexhaustible stash promised by its president. One day it runs out of other people’s money and begins to starve. Hospitals start to close. Even the beer runs out. What do you do? What do you do?
According to the International Crisis Group that is the problem the world faces in Venezuela. “Some economists predict a sudden collapse in food consumption and widespread hunger, and public health specialists already say that some surveys are showing chronic malnutrition.” If the Colossus of the North doesn’t save it, then all hell with break loose. Can’t let that happen can you?
Aside from purely humanitarian concerns, Venezuela’s neighbours and the wider international community have pragmatic reasons for acting. If a solid institutional and social welfare framework can be restored through a negotiated settlement, and economic measures taken to deal with inflation and scarcity, a humanitarian crisis can be averted. If not, the collapse of the health and welfare infrastructure is likely to make political conflict harder to manage and could lead to a further erosion of democracy and an increasing likelihood of violence.
This in turn would have an impact beyond Venezuela’s borders. Potential risks include large-scale migration, the spread of disease and a wider foothold for organised crime. Without a change of economic policy, the country is heading for a chaotic foreign debt default, probably in 2016. An unstable Venezuela unable to meet its international commitments could destabilise other countries in the region, particularly Caribbean nations that have come to rely on subsidised energy from Caracas. It would also have a direct impact in Colombia, along a border already under multiple threats.
Venezuela should have been rich what with being the “12th largest oil producer in the world … and a beneficiary of the most sustained oil price boom in history”. Instead it is flat broke. It’s currency, the Bolivar is worth 1% of its official rate on the black market and 1/1000th of what it was before Hugo Chavez assumed power.
The country may be on the verge of hyperinflation. Most economists reckon that the inflation rate is already 120% a year (the central bank stopped publishing price data, so no one is sure). Some expect it to reach 200% by the end of 2015.
The Bolivar has essentially stopped working as legal tender and now everything is doled out by the state in an effort to make things “affordable”. “The government uses a labyrinthine system of price and exchange controls to shield Venezuelans from soaring prices. But these make matters worse. Price ceilings have devastated local production; factories are operating at half-capacity and more than two-thirds of food is imported. Affordable goods are in short supply.”
The result has been food riots. Desperate gangs of looters are roaming the streets, forcing the remaining businesses to shut down. “One person was killed and dozens were detained following looting of supermarkets in Venezuela’s southeastern city of Ciudad Guayana on Friday morning, according to Venezuelan authorities. Shoppers seeking scarce consumer staples including milk, rice and flour broke into a supermarket warehouse on Friday morning, leading businesses in the area to shut their doors.”
Hattip to commenter Ernst Schreiber for the suggestion. Pope Francis has admitted that he does not know much about economics. Faithful Catholics have a duty to help the Pope learn more about this area he clearly likes to talk about I hereby announce a campaign for Catholics to send links to the I Pencil movie, The Road to Serfdom video and Keynes v. Hayek Second Round to the Pope! He doesn’t have a public e-mail address but the Vatican Press Office does:
In the comboxes please link to any other videos you think might be useful for the Pope as he learns about The Dismal Science.
One of the most beloved fairy tales in this country is that the Government, which seems unable to balance its own books, can by fiat, with no consequences to employment, tell employers that they must pay a minimum wage. Economist Thomas Sowell, who, like me, began his career earning less than the then mandated minimum wage, explains what an appallingly bad idea this is:
One of the simplest and most fundamental economic principles is that people tend to buy more when the price is lower and less when the price is higher. Yet advocates of minimum wage laws seem to think that the government can raise the price of labor without reducing the amount of labor that will be hired.
When you turn from economic principles to hard facts, the case against minimum wage laws is even stronger. Countries with minimum wage laws almost invariably have higher rates of unemployment than countries without minimum wage laws.
Switzerland is one of the few modern nations without a minimum wage law. In 2003, “The Economist” magazine reported: “Switzerland’s unemployment neared a five-year high of 3.9 percent in February.” In February of this year, Switzerland’s unemployment rate was 3.1 percent. A recent issue of “The Economist” showed Switzerland’s unemployment rate as 2.1 percent.
Most Americans today have never seen unemployment rates that low. However, there was a time when there was no federal minimum wage law in the United States. The last time was during the Coolidge administration, when the annual unemployment rate got as low as 1.8 percent. When Hong Kong was a British colony, it had no minimum wage law. In 1991 its unemployment rate was under 2 percent.
It therefore came as little surprise to me yesterday when the CBO estimated that raising the minimum wage would kill off half a million jobs in 2016:
President Obama’s proposal to raise the minimum wage to $10.10 per hour would cost 500,000 jobs in 2016, according to a report released Tuesday by the nonpartisan Congressional Budget Office.
The report also found hiking the wage from $7.25 per hour would raise income for about 16.5 million workers by $31 billion, potentially pulling nearly 1 million people out of poverty.
The White House and economic groups on the left immediately pushed back at the CBO’s conclusions on jobs even as they hailed the findings on poverty, saying its conclusions on jobs ran counter to other research.
“CBO’s estimates of the impact of raising the minimum wage on employment does not reflect the current consensus view of economists,” Council of Economic Advisers Chairman Jason Furman wrote in a blog post. “The bulk of academic studies, have concluded that the effects on employment of minimum wage increases in the range now under consideration are likely to be small to nonexistent.”
Given its findings on poverty alleviation, Furman told reporters the CBO report was an overall positive for the White House.
“Sometimes you have to have a respectful disagreement among economists,” Furman said in a conference call. “I think a lot of economists who have looked at [the] literature would summarize it differently than CBO has done here.”
Democrats are hoping to make the minimum wage a top issue in the 2014 midterms if the GOP blocks passage of a bill, but the CBO report would bolster Republican arguments for stopping a wage hike. Continue Reading
Last week saw the publication of an apostolic exhortation written by Pope Francis, Evangelii Gaudium. The wide ranging document (over 200 pages long) is self described as “on the proclamation of the gospel in today’s world” and opens:
The joy of the gospel fills the hearts and lives of all who encounter Jesus. Those who accept his offer of salvation are set free from sin, sorrow, inner emptiness and loneliness. With Christ joy is consistently born anew. In this Exhortation I wish to encourage Christian faithful to embark upon a new chapter of evangelization marked by this joy, while pointing out new paths for the Church’s journey in years to come.
So, naturally, everyone decided it was about economics.
Yes, the document does touch on economics. Page forty-six has the section that generated headlines:
We have created a “throw away” culture which is now spreading. It is no longer simply about exploitation and oppression, but something new. Exclusion ultimately has to do with what it means to be a part of the society in which we live; those excluded are no longer society’s underside or its fringes or its disenfranchised — they are no longer even a part of it. The excluded are not the “exploited” but the outcast, the “leftovers”.
In this context, some people continue to defend trickle-down theories which assume that economic growth, encouraged by a free market, will inevitably succeed in bringing about greater justice and inclusiveness in the world. This opinion, which has never been confirmed by the facts, expresses a crude and naïve trust in the goodness of those wielding economic power and I the sacralized workings of the prevailing economic system. Meanwhile, the excluded are still waiting.
There’s something a bit frustrating about this one section out of a wide-ranging document which addressed everything from the need for a personal discipleship to Christ, to the importance of marriage to how homilies should be written to abortion and the sacredness of unborn life becoming the one passage which people reading news coverage of the exhortation hear about. Continue Reading
Hattip to Instapundit. Anything that helps drive a stake through the idiotic notion that spending money we don’t have is good for the economy gets an enthusiastic thumbs up from me. This from the brilliant, albeit a little twisted, mind of John Papola who performed the miracle of creating a rap video that I enjoyed: Continue Reading
One of the many divides among modern Catholics is between what we might call the “moralizers” and the “justice seekers”. “Moralizers” are those who emphasize the importance of teaching people moral laws and urging them to abide by them. “Justice seekers” seek to mitigate various social evils (poverty, lack of access to health care, joblessness, etc.) and believe that if only these social evils are reduced, this will encourage people to behave better.
Moralizers tend to criticize the justice seekers by pointing out that following moral laws is apt to alleviate a lot of the social evils that worry the justice seekers, arguing, for example, that if one finishes high school, holds a job and gets married before having children, one is far less likely to be poor than if one violates these norms.
Justice seekers reply that the moralizers are not taking into account all the pressures there work upon the poor and disadvantaged, and argue that it’s much more effective to better people’s condition than to moralize at them (or try to pass laws to restrict their actions) because if only social forces weren’t forcing people to make bad choices, they of course wouldn’t do so.
(I’m more of a moralizer myself, but I think that we moralizers still need to take the justice seeker critique into account in understanding where people are coming from and what they’re capable of.)
One area in which the justice seeker approach seems to come into particular prominence is the discussion of abortion. We often hear politically progressive Catholics argue that the best way to reduce abortions is not to attempt to ban or restrict them, but rather to reduce poverty and make sure that everyone has access to health care. There’s an oft quoted sound bite from Cardinal Basil Hume (Archbishop of Westminster) to this effect:
“If that frightened, unemployed 19-year-old knows that she and her child will have access to medical care whenever it’s needed, she’s more likely to carry the baby to term. Isn’t it obvious?”
You’d think that it was obvious, but I’m suspicious of the idea that having more money or resources makes us better or less selfish people (an idea which strikes me as smacking of a certain spiritual Rousseauian quality that doesn’t take fallen human nature into account) so I thought it would be interesting to see if there’s any data on this.
I was not able to find data on the relationship of abortion to health insurance, but I was able to find data on the relation of abortion to poverty, and it turns out that the Cardinal, and conventional wisdom, are wrong.
Al Lewis at MarketWatch uses the D word to describe the perpetual lousy economy we have been living through the past four years:
There is nothing more depressing than hearing about a new recession when you haven’t fully recovered from the last one. I take heart in suspecting that in a still-distant future, historians will look back with clarity and call this whole rotten period a depression.
The precise definition of a depression, of course, remains as debatable as anything else in the field of economics. By some definitions, it is a long-term slump in economic activity, often characterized by unusually high unemployment, a banking crisis, a sovereign-debt crisis, surprising bankruptcies and other horrible symptoms we can find in the headlines almost every day.
It is easy to avoid seeing all of these events as constituting a depression if you somehow have kept your livelihood intact all this time. But it’s important to remember that not everyone has to stand in a bread line during a depression.
Nearly one out of seven Americans receives food stamps, according to the U.S. Department of Agriculture. That’s more than 44 million people. If they all stood in a line and someone photographed them using black-and-white film, they easily could be mistaken for people from the 1930s. Instead, they go to a grocery store and spend their credits like money. There isn’t even a social stigma to make them stand out as any more glum or destitute than anybody else.
Last week, the Associated Press reported that America’s poverty rate likely has hit levels not seen since the 1960s. Surveying several economists and academicians, the wire service predicted the official poverty rate would come in as high as 15.7% when the Census Bureau releases it in September. That would wipe out all the gains of President Lyndon Johnson’s War on Poverty.
Poverty is another word for joblessness, and our economy hasn’t been generating enough decent-paying jobs for many years. Globalization, technology, outsourcing, immigration and the schemes of financiers have taken their toll. No one is certain when jobs will come back, and many of the jobs that remain don’t pay anywhere near what, say, your average failing CEO gets paid. Continue Reading
There’s an article forthcoming in the journal Economic Inquiry by Professors of Economics, Joseph Sabia and Daniel Rees, that shows parental notification or consent laws are associated with a 15 to 25 percent reduction in suicides committed by 15- through 17-year-old women. The researchers analyzed National Longitudinal Study of Adolescent Health data collected from 1987 to 2003 and found results that are consistent with the hypothesis that laws requiring parental involvement increase the “expected cost of having unprotected sex,” and, consequently, protect the well-being of young females. (Hey, they’re economists.)
Here’s the reasoning, taken from this paper by the same authors.
So the hypothesis is: If parental involvement laws discourage minors from risky lifestyles that affect their physical health, then they would promote emotional health of teenage females as well. Analyzing suicide rates will give an indication since there have been many studies that link depression and suicide. The national suicide data was analyzed and that’s exactly what they found – a supporting correlation. Parental involvement laws correlate with fewer suicides. Further in support, there was no evidence of a similar relationship among male adolescents, and no correlation between parental involvement laws and suicide for older women because, well, neither group would be affected by those laws.
Makes sense, right? You’re probably thinking, “Did we need to pass those laws, wait and see what happened, and then count suicides?” No, we didn’t, and there’d be at least some justice if the people opposing those laws would take notice.
You’d think someone who really cares about women would be able to take an objective view of this data and consider it as an appeal to our collective conscience. You’d think someone who parrots, “Trust Women!” would be consistent enough to also trust mothers who are raising teens. When the state comes between teens and their parents, it just follows that the adolescents will not be as close to their parents as they ought to be.
This only affirms what we already know. Parents of teen girls can be trusted – should be trusted for the psychological benefit of a daughter in crisis. The abortion advocate community doesn’t seem as concerned about young women, though, as they are about politics and agendas. They instead say that people just want to make it harder for teens to have abortions, and that teens have a “fear of abuse” from unrelenting parents. Oh, and they’ll say something about how correlation doesn’t equal causation, revealing that they either are ignorant of analytical methods or, even worse, knowledgeable of them but dishonest when the results don’t fit their predetermined conclusions. Some will even say that teen women should be trusted to make their own decisions even when the decision for these desperate young women is to end their own lives. Of course, we all know why Planned Parenthood doesn’t want the parents involved. Ac$e$$ to abortion.
So I have a little hypothesis of my own. I predict (but would love to be proven wrong) that not a single abortion advocate will come forward and honestly reassess parental consent laws even though there is no body of data to support their premise. Could they admit that maybe, just maybe, the default condition is not that most parents of teens are abusive. Imagine!
If they trust women, why can’t they trust mothers and fathers? Where does this automatic distrust of parents come from anyway? Perhaps there’s a cost associated with believing that a mother has the right to kill her own child in the womb, and that cost is faith in people to love their children unconditionally at any point in life, even during difficult times.
Image: Microsoft Powerpoint
In articles, interviews and addresses, U.S. Representative Paul Ryan is defending — not without controversy — his 2013 budget proposal (see “The Path to Prosperity: A Blueprint for American Renewal”) as an application of Catholic social teaching, inspired by his Catholic faith.
In an April 10 interview with CBN News, Ryan responded:
To me, the principle of subsidiarity, which is really federalism, meaning government closest to the people governs best, having a civil society of the principal of solidarity where we, through our civic organizations, through our churches, through our charities, through all of our different groups where we interact with people as a community, that’s how we advance the common good. By not having big government crowd out civic society, but by having enough space in our communities so that we can interact with each other, and take care of people who are down and out in our communities.
Those principles are very very important, and the preferential option for the poor, which is one of the primary tenants of Catholic social teaching, means don’t keep people poor, don’t make people dependent on government so that they stay stuck at their station in life. Help people get out of poverty out onto life of independence.
The U.S. Bishops Conference conveyed their thoughts on the FY2013 Budget and spending bills, which in their words “repeated and reinforced the bishops’ ongoing call to create a “circle of protection” around poor and vulnerable people and programs that meet their basic needs and protect their lives and dignity.”:
Bishops Blaire [chairman of the bishops’ Committee on Domestic Justice and Human Development] and Pates reaffirmed the “moral criteria to guide these difficult budget decisions” outlined in their March 6 budget letter:
1.Every budget decision should be assessed by whether it protects or threatens human life and dignity.
2.A central moral measure of any budget proposal is how it affects “the least of these” (Matthew 25). The needs of those who are hungry and homeless, without work or in poverty should come first.
3.Government and other institutions have a shared responsibility to promote the common good of all, especially ordinary workers and families who struggle to live in dignity in difficult economic times…
Just solutions, however, must require shared sacrifice by all, including raising adequate revenues, eliminating unnecessary military and other spending, and fairly addressing the long-term costs of health insurance and retirement programs.
In April 16 and April 17 letters to the House Agriculture Committee and the House Ways and Means Committee addressing cuts required by the budget resolution, Bishop Blaire said “The House-passed budget resolution fails to meet these moral criteria.”
Marc Thiessen defended the congressman from “a bishop’s unjust attack” (Washington Post, 4/23/12) along with (Fr. Robert Sirico (of the Acton Institute) — the latter, however, disagreeting with Ryan’s equasion of subsidiarity with federalism.
This past week, U.S. Representative Paul Ryan further presented his case in a column for the National Catholic Register: Applying Our Enduring Truths to Our Defining Challenge, April 25, 2012):
As a congressman and Catholic layman, I am persuaded that Catholic social truths are in accord with the “self-evident truths” our Founders bequeathed to us in the founding ideas of America: independence, limited government and the dignity and freedom of every human person. As chairman of the House Budget Committee, I am tasked with applying these enduring principles to the urgent social problems of our time: an economy that is not providing enough opportunities for our citizens, a safety net that is failing our most vulnerable populations, and a crushing burden of debt that is threatening our children and grandchildren with a diminished future. … [read more]
On April 26th, Paul Ryan gave a lecture at Georgetown University, entitled “America’s Enduring Promise”, in which he once again addressed the challenge of America’s exploding federal debt, which he characterized as “the overarching threat to our society today”:
The Holy Father, Pope Benedict, has charged that governments, communities, and individuals running up high debt levels are “living at the expense of future generations” and “living in untruth.”
We in this country still have a window of time before a debt-fueled economic crisis becomes inevitable. We can still take control before our own needy suffer the fate of Greece. How we do this is a question for prudential judgment, about which people of good will can differ.
If there was ever a time for serious but respectful discussion, among Catholics as well as those who don’t share our faith, that time is now.
Ryan’s appearance at Georgetown was prefaced by a scathing letter from some 80 members of the faculty irate over his alleged “continuing misuse of Catholic teaching to defend a budget plan that decimates food programs for struggling families, radically weakens protections for the elderly and sick, and gives more tax breaks to the wealthiest few.” An organized protest of Ryan on the actual day of the event was distinguished by a notable lack of participation. Continue Reading
I’d been fooling around with Census data a bit over the last week. Here’s an interesting chart using Census Table P-36. Full-Time, Year-Round All Workers by Median Income and Sex: 1955 to 2010
Median income for full-time working men first hit 50,000 (in inflation adjusted 2010 dollars) in 1973, and it has been essentially flat ever since (breaking 50k for the second time in 2010.) However, the median income of full-time working women has gone up 35% since 1973. The percentage of full time workers who are women has also increased gradually throughout that time, from 30% in 1973 to 43% in 2010. (In absolute numbers, obviously both the number of male and female full time workers has increased significantly during the same period.)
David Cloutier at the Catholic Moral Theology blog links approvingly to a post at dotCommonweal addressing Romney’s political views which asks whether “neoliberalism” (the which is here used to mean something along the lines of free market capitalism) and Catholicism can ever be compatible. He says:
Superb exchange going on over at dotCommonweal over a post about how certain political conservatives, like Rick Santorum or Michael Gerson, try to reconcile their Catholicism with the neoliberal paradigm. For once, even the comment thread is worth reading!
I think this is an important – if not THE important – debate about Catholicism and politics in the current election. Often, the debate over particular policies dominates, but in fact, what we should be looking at are the basic principles of the economic order. If a candidate fundamentally contradicts the basic principles, Catholics should have reservations about supporting him. In the post referred to above, “neoliberalism” is cast in terms of a pure free-market conception, in which governments take a minimal role in economic activity, providing for enforcement of contracts, a stable currency, etc. – protection against “force and fraud.” Others claim that Gerson forthrightly support subsidiary actors – such as families, community organizations, and churches – and so is not in fact individualist.
The (frequently made) mistake here is one that goes back to Edmund Burke, that “father” of conservatism. Burke seeks to deal with nascent industrial capitalism by (Warning: blogging oversimplification ahead…) distinguishing between a sphere of “culture” (or “civil society”) that can be fostered, and refuses to attribute social problems to the mechanisms of the market itself. He defends the market as good, over against the landed establishment (the “nobles”) of the pre-industrial order, which is who he is opposing. But for him, the market is not all there is. (One sometimes sees a variant of this in defending Adam Smith by noting one must read both The Wealth of Nations and The Theory of Moral Sentiments.)
It’s true that Germans and Greeks work very different amounts, but not in the way you expect. According to the Organization for Economic Co-operation and Development, the average German worker put in 1,429 hours on the job in 2008. The average Greek worker put in 2,120 hours. In Spain, the average worker puts in 1,647 hours. In Italy, 1,802. The Dutch, by contrast, outdo even their Teutonic brethren in laziness, working a staggeringly low 1,389 hours per year.
If you recheck your anecdata after looking up the numbers, you’ll recall that on that last trip to Florence or Barcelona you were struck by the huge number of German (or maybe they were Dutch or Danish) tourists around everywhere.
The truth is that countries aren’t rich because their people work hard. When people are poor, that’s when they work hard. Platitudes aside, it takes considerably more “effort” to be a rice farmer or to move sofas for a living than to be a New York Times columnist. It’s true that all else being equal a person can often raise his income by raising his work rate, but it’s completely backward to suggest that extraordinary feats of effort are the way individuals or countries get to the top of the ladder. On the national level the reverse happens—the richer Germans get, the less they work.
Newt Gingrich may not be my first choice this primary season, but I have a sinking feeling that left-wingers are going to help me get over whatever reservations I may have. Newt is getting hammered for comments he made yesterday:
“Really poor children in really poor neighborhoods have no habits of working and have nobody around them who works,” the former House speaker said at a campaign event at the Nationwide Insurance offices. “So they literally have no habit of showing up on Monday. They have no habit of staying all day. They have no habit of ‘I do this and you give me cash,’ unless it’s illegal.”
Gingrich lately has been unspooling an urban policy, beginning with his comments at Harvard University last month when he discussed child labor laws. “It is tragic what we do in the poorest neighborhoods,” Gingrich said then, “entrapping children in, first of all, child laws, which are truly stupid.”
Children in poor neighborhoods, he said, should be allowed to serve as janitors in their schools to earn money and develop a connection to the school.
Yes, what an absolutely crazy notion – allowing kids to develop a work ethic early in life. I mean it’s not like we’ve trained an entire generation of people to just simply expect handouts:
“Somebody needs to be held accountable, and they need to pay.”
But yes, let’s attack Newt Gingrich for suggesting that young people develop work skills at an early age.
I also wonder how many socially “moderate,” economically “conservative” types will see this video and grasp that inconsistency. Maybe Rick Santorum and Jim DeMint have a point after all.
Thinking this post (written last night) over again in the light of morning, it strikes me that while getting a lot of the real text out there is doubtless is a real service, many people simply won’t read the whole thing, so I’m adding the following summary bullets at the top. The document:
– Blames easy money and easy credit for the origins of the global financial crisis (classic Austrian business cycle explanation)
– Criticizes a “liberalist approach” to avoiding intervention and the failure to bail out Lehman Brothers (notes later that financial institutions should be bailed out on condition of contributing to the real economy through “virtuous behavior”)
– Notes that globalization has been a huge benefit to many, but has left others behind
– Calls for people to remember spiritual and ethical considerations rather than putting their hope in technocracy
– Expresses concern that speculation has hurt global markets and the developing world in particular
– Praises the G7 and G20
– Suggests the need for a global “authority” stronger than the UN or IMF
– Says that such a world authority would have to be voluntary in nature, not use force or compulsion, and would probably start as an association of a smaller number of nations (like the G20 or EU)
– Expresses concern that financial markets have grown faster than “real markets”
– Endorses the idea of a world central bank
– Lists as purposes of a world authority and central bank that it would: 1) encourage free trade and efficient markets, 2) prevent excessive government deficits, 3) pursue sound money, 4) prevent speculation and excessive credit, 5) fund itself via a financial transaction tax
Now on to the detailed post.
First, a little context: This document was written by the Vatican’s Pontifical Council for Justice and Peace, an office responsible for providing thought on social justice issues. This is, thus, not something written by the pope, but it does come from people that Benedict XVI has put in charge of thinking on political and economic issues. The document itself is fairly short and less densely written than most encyclicals. Given what it covers, it seems to me that there’s not really any teaching presented here, per se, but rather an attempt to summarize the understandings of certain experts about the current global economic situation, and then to apply well established Catholic moral teachings to the current world situation.
Without getting further into editorializing, I’m going to work through a number of quotes from the text while providing some notes with my own thoughts on it. I’ve preserved the numbered headings of the original document. (The document is in the block-quote indents, my notes are in the out-dents.)
1. Economic Development and Inequalities
In material goods markets, natural factors and productive capacity as well as labour in all of its many forms set quantitative limits by determining relationships of costs and prices which, under certain conditions, permit an efficient allocation of available resources.
This is a fairly standard observation, but as a pricing guy I found it interesting that one of the first things in the document was a note to the efficiency of price as a means of achieving efficient markets.
In monetary and financial markets, however, the dynamics are quite different. In recent decades, it was the banks that extended credit, which generated money, which in turn sought a further expansion of credit. In this way, the economic system was driven towards an inflationary spiral that inevitably encountered a limit in the risk that credit institutions could accept. They faced the ultimate danger of bankruptcy, with negative consequences for the entire economic and financial system.
The speculative bubble in real estate and the recent financial crisis have the very same origin in the excessive amount of money and the plethora of financial instruments globally.
This is interesting in that it is an essentially Austrian account of the sources of the financial crisis: blaming it on easy money and easy credit. As Blackadder observed a while back, this wouldn’t be the first time that a Vatican official has taken an explicitly Austrian (and anti-Keynsian) stance on economic issues.) Continue Reading
There’s some consternation in conservative (and other) circles about tax reform proposals that would eliminate the home mortgage interest deduction. The deduction is eliminated in most flat tax proposals, though it is not eliminated in the plan Governor Perry laid out today.
It seems to me that, at least in the abstract, a tax reform measure that lowered rates and eliminated such deductions would be fair. To me all these credits are just a form of social engineering through the tax code. Believe me, I benefit from these credits and so it would probably be against my self interest to see them go. On the other hand, my overall rate would decline, so it wouldn’t be a catastrophic change for me.
At any rate, opponents of eliminating this deduction categorically state that it would depress home sales and force others into bankruptcy. This seems . . . overstated. The deduction certainly had no influence on my decision to buy a home, and even if I lost the deduction without a concurrent rate decrease it would hardly force me out onto the streets. Believe me, I like getting that extra money back, but it isn’t that much money.
Maybe I’m missing something here and the deduction has a much greater influence on people’s decisions to buy or rent than I know. And maybe I’m just one of those “fat cats” Mitt Romney thinks are the ones who would be the sole beneficiaries under Perry’s plan. But I fail to see how this simple credit or deduction is that much of a factor in home buying decisions.
I would love feedback on this one.
The old saw is that there are lies, damned lies, and statistics, as if statistics were in some way a variety of lie. Of course, the issue is not so much that statistics are lies, as that statistics represent an attempt to simply quantify a terribly complex reality, and with simplification comes the opportunity for error — often error confirming the biases of the person doing the analysis.
The other day I ran into a very interesting exploration of one of those statistics which is often discussed — that “more families are in poverty” after the last three decades than was the case in the past. In 2006 Hoynes, Page and Stevens authored a paper entitled “Poverty in America: Trends and Explanations” which was published in the Journal of Economic Perspectives. One of the interesting things they do is look at the trends in poverty by family type. The findings are fascinating:
Last week, Alex of Christian Economics wrote a piece arguing, on the basis of both catholic social teaching and modern monetary theory, for the government to act as an employer of last resort. In this post, I’d like to respond to several aspects of his argument. This kind of exchange is always challenging as on the one hand I want to give the fullest possible justice to Alex’s argument, but on the other in an internet debate it seems impossible to respond to every point without both sides getting totally bogged down in novel-length posts. As such, this post will be comprised of several titled sections dealing with different aspects of Alex’s post which I thought most interesting to present counter-arguments to.
The Purpose of Unemployment: Why Looking For Work Is Work
Just a couple months into my first full time job, I was laid off. It was 2000 and the tech bubble was in the middle of bursting, and I was a college senior trying to work full time while finishing off my last few classes. The web hosting company that I was working for had built itself on an unsustainable business model so one day my whole office showed up to work and found out that every single one of us was laid off. Even though I was young enough and my expenses were low enough that I could weather joblessness fairly easily (despite not qualifying for unemployment since I hadn’t been working the job long enough) if was definitely one of the uncomfortable experiences of my working life. Looking at the job listings was infuriating — it seemed like there were dozens of jobs that I could do (and, of course many, many more which required experience or qualifications I didn’t have) but they remained steadfastly silent as I sent out applications and resumes. It only took me a few weeks to find a part-time job at similar wages, and only a month longer to find a full time job that actually paid slightly more than the job I’d been laid off from, but it seemed like a very long time.
I bring up the personal angle because it seems to me that job searching serves very different purposes for the individual job hunter and for society as a whole. Continue Reading
Alex of Christian Economics is a thoughtful guy who adheres to some economic theories (specifically the Modern Money Theory of economics) that I don’t hold with. Thus marking out one of my rare areas of agreement with Paul Krugman.
Alex and I were looking for topics to have a sort of slow-motion blog debate over, and there seems no better place to start than one of the bigger policy proposals which many MMT adherents support: having the government become an Employer of Last Resort. Alex has a substantive post up to day making the case for an employer of last resort program from a Catholic and economic point of view. I’ll be writing and posting reply-post in the next couple days.
I take off my hat to you Klavan on the Culture for making the effort, but it will take more than that to get through to people who believe that infinite wealth can be produced by government fiat. Exhibit A is a plan to solve the national debt, read all about it here, which is quite popular among the people who call themselves “the reality-based community”. Pixies, unicorn dust, Obama is a great President and the government is a cornucopia of infinite largesse: many leftists in this country would sooner see us do a replay of the Great Depression than give up such delusions.
Paul Krugman recently did a Five Books interview with The Browser, talking about his five favorite books. The books are: Asimov’s Foundation series, Hume’s An Enquiry Concerning Human Understanding, two books by Lord Keynes, and a book of essays by economist James Tobin, one of Krugman’s old teachers. Of Foundation he says:
This is a very unusual set of novels from Isaac Asimov, but a classic. It’s not about gadgets. Although it’s supposed to be about a galactic civilisation, the technology is virtually invisible and it’s not about space battles or anything like that. The story is about these people, psychohistorians, who are mathematical social scientists and have a theory about how society works. The theory tells them that the galactic empire is failing, and they then use that knowledge to save civilisation. It’s a great image. I was probably 16 when I read it and I thought, “I want to be one of those guys!” Unfortunately we don’t have anything like that and economics is the closest I could get.
Every week I make a point of finding the time to listen to the EconTalk podcast — a one hour interview on some economics related topic conducted by Prof. Russ Roberts of George Mason university. Roberts himself has economic and political views I’m often (though not always) in sympathy with, but he’s a very fair and thoughtful interviewer and has a wide range of guests. This week’s interview was with a semi-regular on the show, Prof Mike Munger of Duke University, and the topic was the concept of euvoluntary exchange which Munger has been attempting to create.
Munger’s project aims to identify why it is that some seemingly voluntary transactions are seen as morally repugnant by most people, and are either socially disapproved of or outright outlawed. So for example, say that Frank is very poor and desperately wants to provide for his family. Tom is very rich and is loosing eyesight in both his eyes. His doctor believes they can pull off a revolutionary new surgery and transplant a healthy eye into him, but they need the eye of a live, healthy person who matches Tom’s blood type and DNA well. Frank is a match and is willing to give up an eye in return for a million dollars.
Now, there are a few people who lean heavily in the rationalistic direction who would say this sounds like a great idea because it makes most people better off, but most people would react to this with revulsion, and it is in fact illegal to do this kind of thing in the US.
The interesting thing is that voluntarily donating an organ (so long as giving it up isn’t considered too big a detriment to you) is considered morally admirable, and is legal. So, for instance, there was a case a year or two ago in our parish where one young woman in the parish donated a kidney to another parishioner who needed a transplant.
Munger’s argument is that in the Frank and Tom example, the transaction may seem voluntary but it’s not really voluntary because of the disparity in means between Tom and Frank. Continue Reading
One of the mildly worrying economic trends of the last thirty years has been the increasing gap between rich and poor in the US. Many policy analysts conclude that this is the clear result of not following whatever policies they advocate, and thus demand quick action. However, as a recent OECD study shows, most countries have seen increases in inequality since 1980:
Given that countries as varied as Israel, Germany, New Zealand, Sweden and Finland have all seen increases in inequality of similar or greater scale (though not to the same absolute level, since they started lower) to that of the US over the last 30 years, it seems hard to imagine that it is simply a matter of US tax or social safety net policy which is the cause of the trend. Continue Reading
Russ Roberts and friends have come out with another Keynes vs. Hayek rap video:
The production values on this are great, and I like the noir look they’ve got with, but I have to admit I slightly prefer their original: Continue Reading
Having linked last week to some discussion on whether the US is really becoming “Of the 1%, by the 1%, for the 1%”, I was struck by this chart, which I saw a link to this morning, over at Carpe Diem, showing top marginal income tax rates versus percentage of income tax paid by the top 1% of earners since 1980.
However, I thought it would be a lot more interesting if the chart showed the percentage of total income earned by the top 1%, and also showed the total federal tax liability (including Social Security and Medicare) rather than the just the income tax. Luckily, all this information is available easily on line. (Percent of taxes paid. Percent of total income. Historical tax tables.)
Here’s the chart I produced with that data:
There’s a Vanity Fair piece on income inequality by Nobel Price-winning economist Joseph Stiglitz, “Of the 1%, by the 1%, for the 1%”, which has been cited again and again in the commentariat lately, and it’s a frustrating piece because of the extent to which is makes logical leaps or simply distorts reality. Scott Winship of The Empiricist Strikes Back does a good job of going through the piece and addressing it point by point, including taking on a few of the talking points which are increasingly becoming things “everybody knows” in the wonk community but which don’t actually mean what they seem to.
One of the problems with our modern society’s fixation on “data” is that people, even very educated people who should know better, often fixate on a given metric (for example, the claim that “While the top 1 percent have seen their incomes rise 18 percent over the past decade, those in the middle have actually seen their incomes fall. For men with only high-school degrees, the decline has been precipitous—12 percent in the last quarter-century alone.“) without taking the time to dig into what we can discover of the realities that underlie that measure. Sometimes those realities do not fit with the ideological picture which makes the original metric so appealing. (Winship’s responses to the just quoted claim, both in the main article linked above and in this older one, are fascinating.)
Definitely worth a read.
Ever since people finished identifying “the American Dream” — the idea that in the US in particular and the New World in general somehow allowed people to escape the hidebound social structures of the Old World and better themselves via their own efforts — people have been worried that it is on the point of dying. Americans continue to show an an unusual degree of belief in the ability those who work hard to better themselves by their own efforts. For instance, in the 1999 International Social Survey, 61% of Americans agreed that “people get rewarded for their effort”, whereas only 41% of Japanese agreed, 33% of British and 23% of French. This belief has actually increased in recent decades. In 2005 the New York Times reported that while in 1983 only about 60% Americans agreed that “It is possible to start out poor, work hard and become rich” by 2005 nearly 80% of Americans agreed with that statement.
And yet, those who study inter-generational income mobility have been increasingly worried in recent decades that despite American’s belief that people can work hard and get ahead, that it is becoming increasingly difficult for people to actually achieve this in the US. In a lengthy report by the liberal think thank Center for American Progress, Tom Hertz of American university brings together a number of the recent studies on intergenerational income mobility in the US as compared to other countries, showing how people who are born into the lower income quartiles in the United States are less likely to reach the top levels of income than in other countries such as Germany, Sweden or Denmark. Continue Reading
For decades, progressives tended to accuse conservatives of wanting to bring back the ’50s, but in recent years the shoe is on the other foot, with some prominent progressives saying they yearn for the good old days when unions were strong, manufacturing was the core of the economy, and the top marginal tax rate was over 90%. I wanted to see what the real tax situation was for people in a number of different income situations, so I decided to pull the historical tax tables and do the math.
Luckily, the Tax Foundation publishes the income tax tables for every year from 2010 back to 1913. I decided to compare 2010 and 1955. Here are the 2010 tax tables:
I then got the 1955 tax tables and adjusted the income brackets to 2010 dollars using this inflation calculator. (For those interested, the inflation factor from 1955 to 2010 is 713%) The result is as follows:
Cars that get over 40 miles per gallon in fuel efficiency are, reportedly, becoming all the rage, with more models from American and foreign car makers being introduced at the latest Detroit Auto Show.
So I got curious, having just started a 18-mile-each-way commute, what exactly are the savings one can achieve by buying a more fuel efficient car? I assumed a situation faily like mine: My car is paid for and costs me only minimal maintenance to keep up (a 14-year-old Toyota Camry) and a 20 mile each way commute.
Say you’re considering buying a new car which gets 40mpg for $20,000. That seems moderately standard for these cars. Assume a 40 mile daily round trip commute, and an additional 40 miles of weekend or additional driving. Assuming a current care actual efficiency of 20mpg. Assume the price of gas goes up to $4/gal. How long would it take for you to make up the cost of that new car in fuel savings?
For some reason, I found myself reading through Paul Krugman’s recent NY Times material. Perhaps it was a desire for a little mental vaunting, what with the direction the elections seem to be taking, and if so I should have come away quite satisfied as Mr. Krugman is in full Chicken Little mode. A GOP takeover of congress will be a disaster, and we should all be very afraid. Stupid people are allowing their emotions to run away with them and will destroy the world economy through getting all moralistic about debt. And of course, the reason why the entire world doesn’t see things Krugman’s way is because macroeconomics is too hard for them to understand.
Well, I’m certainly prepared to admit that Krugman’s expertise in macroeconomics is greater than my own — and I’ll even stretch and say that my understanding probably goes farther than that of the average bear. Continue Reading
One of the difficulties that comes in discussing the many “isms” that populate the landscape of political discussion is that very often people use the same words without mean the same things, or indeed without having any clearly defined idea of what they do mean. While this is the case with nearly any ism (socialism, liberalism, libertarianism, conservatism, etc.) I’d like to address in this case the way in which opponents (particularly Christian opponents) of “capitalism” tend to address the object of their condemnation. This is in some ways a beautifully typical example of a Christian opponent of capitalism attempting to describe what it is he is condemning:
We must remember the capitalistic system we live in also is a materialistic ideology which runs contrary to the Christian faith, and it is a system which is used to create rival, and equally erroneous, forms of liberation theology. It is as atheistic as Marxism. It is founded upon a sin, greed. It promises utopia, telling us that if we allow capitalist systems to exist without regulation, everyone, including the poor, will end up being saved. The whole “if we allow the rich to be rich, they will give jobs to the poor” is just as much a failed ideology as Marxist collectivism.
Admittedly, this is a somewhat muddled set of statements, but I think we can draw out of it the following statements which the author, and many other self described critics of capitalism (in particular from a religious perspective) believe to be true:
-Capitalism is a system or ideology much as Communism is.
-Capitalism is based on greed or takes greed to be a virtue.
-Capitalism is a materialistic or atheistic philosophy/system.
-Capitalism could be summed up as the idea that “if we allow the rich to be rich, they will give jobs to the poor”
-Capitalism promises utopia if “capitalist systems” are allowed to exist without regulation.
While one approach to this is simply to throw out the term “capitalism” entirely, what I’d like to do is accept that claim that we live in a “capitalist” system and that this system is roughly what libertarians/conservatives advocate, and proceed to address the claims made about “capitalism” in that context.
With a certain frequency, commentators see fit to worry as to the extinction of the US middle class. One among these, it seems, is one Edward Luce, who composed a piece on “The crisis of middle-class America” for the Financial Times. The piece profiles two families making about $70k/yr each, and worries as to the future of them and families like them. Both are, by coincidence, families of loyal Democrats, and the piece sports the requisite concerns about the potential dangers of tea party barbarians howling at the gates of the US order.
I feel myself in an odd position in regards to such stories. The particular definition of “middle class” picked for the story is a family income threshold which five years ago was frustratingly above our families income, and which now is embarrassingly below it. In this regard, I recognize myself to be uncharacteristically fortunate. However, having recently made a good deal less than this (and coming from a family which never exceeded such a total, even adjusting for inflation) I feel that I have some familiarity with the sort of middle class world being discussed — while I can’t escape the feeling that this seems a very squalid and foreign world to the Financial Times writer.
Added to this sense of class conflict is that Luce seeks to build up his story with juxtapositions of facts which sound like they mean more than they do. Continue Reading
If you believe what you read on blogs or hear from certain politicians and pundits, a new kind of haves-vs.-have-nots class war is brewing across the land. Not between the rich and the poor, but between private and public sector workers, as related here.
Scandalous stories of public officials enjoying lavish or disproportionate pay and benefits at taxpayer expense, such as in Bell, Calif., and elsewhere , frequently make headlines and prompt calls for reductions in such compensation.
As with many other economic and taxation issues, the answer to the question posed in the title of this post usually depends on which side of the political spectrum you are on. Conservatives tend to answer “yes,” while liberals tend to answer “no” .
But which side is correct?
Before I delve into that question, I will first make some disclosures. I am a full-time employee of the state of Illinois, making $35,000 per year. I do not belong to a union, and due to the nature of my job and agency, probably never will. I have only received one raise the entire time I have been so employed (nearly 4 years) due to a promotion to a slightly higher job level. I do not expect to receive any raises for the foreseeable future; in fact a pay cut is a distinct possibility. Prior to that I worked 20 years in private sector employment in the newspaper field. In some instances the pay and benefits were comparable to, and even better than, my current job. In other instances they were not as good.
Now to the question: are public employees overpaid? That depends on who you ask and how one defines “overpaid”. The average pay of state and federal employees in general is higher than that of private sector workers in general. When broken down by education, profession, etc. the picture is not as cut and dried. For lower-skilled jobs requiring only a high school or vocational education — e.g. custodians, receptionists, guards — the public sector pays better, whereas for professional jobs requiring a college degree or higher (attorneys, doctors, CPAs, etc.), the private sector pays more — often a lot more. These articles from Kiplinger and from Governing.com explain the differences in greater detail.
Two of the biggest reasons for these disparities are that 1) public employment tends to have a greater percentage of jobs requiring a college education or beyond and 2) public sector jobs are more likely to be unionized.
Public employee unions are a favorite bete noire of fiscal conservative politicians and candidates at the moment, and much of the public seems to agree with them. The fact that public employees continue in many (though not all) states and localities to enjoy benefits most private employees no longer have, such as regular salary increases, defined benefit pension plans, and caps on health insurance premiums and co-pays, arouses resentment among ordinary citizens who are forced to pay for such benefits via taxation.
Although many officeholders and candidates talk a good game when it comes to reining in public employee benefits, in practice the most frequent targets of budget cutting measures such as layoffs, furlough days and pay cuts, are lower or mid-level non-union employees. They often end up being punished for the sins (real or perceived) of their higher placed or unionized colleagues, simply because they are the easiest targets — not protected by either union contracts or political/personal connections.
The biggest problems on a state and local level are pension deficits — the growing gaps between the amount of money in public pension funds and the amount of benefits those funds are expected to pay in the future. According to this report by the Pew Center on the States, pension shortfalls are fiscal time bombs that threaten to devour entire state and city budgets if nothing is done to defuse them before it is too late.
How did the situation get that bad? In most cases it was due to a variety of factors — yes, generous union contracts played a part, but so did repeated failure on the part of lawmakers to invest properly in public pension funds, demographic changes (aging of the Baby Boomers, people living longer), and investments tanking due to the recession. No one factor can be singled out, and the entire blame for the pension crisis cannot be laid at the feet of one person or group of people. But regardless of who is or was to blame, the problem has to be dealt with, not swept under the rug.
Private sector employees are quick to point out that while they have to support public employee benefits with their taxes, public employees are not forced to do the same for private employees — they can choose whether or not to do business with a private company.
I agree, and this is in my opinion an argument that should be taken most seriously. For that reason, public employees are by necessity accountable to the public and will always be subject to various restrictions and considerations that do not apply to private employees (e.g., their salaries being public information). This is not “unfair” or unequal, but simply part of the deal one signs up for when working for a government body.
Another claim often made by private employees is that government workers, by virtue of the pay, job security and benefits they enjoy, are artificially insulated from the realities their privately employed neighbors face — the constant threat of being fired or laid off, lack of retirement security, worry about medical bills, etc.
That might, perhaps, be true of top officials/administrators with strong political connections who make six-figure salaries, whose spouses have equally high-paying positions, and whose children or other family members are completely healthy. Otherwise, I am not so sure.
Many public employees, particularly non-union ones, are regularly threatened with layoffs or missed paychecks (most often at the end of a fiscal year). Given the poor financial standing of many public employee pension funds, combined with the fact that some public employees don’t get Social Security, I’d say many of them (including myself) who are 10 years or more away from retirement are just as worried about their retirement as you are.
Also, most public employees do not live in a bubble or a vacuum. Most used to work in the private sector at some time in their lives, and many are married to spouses who work in the “real world” or are currently unemployed or disabled. Their grown children, their parents, their siblings, and their friends and neighbors include private employees or unemployed persons looking for work. The only exceptions I can think of might be political “dynasty” families like the Kennedys or Daleys. Plus, public employees pay all the same taxes everyone else does — federal, state, sales, property, the whole works. If taxes go up, it cuts into their budgets too.
Just because someone has a government job doesn’t mean they have, or should have, no interest in whether private business succeeds. If factories close and move overseas, if private companies go bankrupt and abolish or raid pension funds, if high taxes drive up the cost of living, if college education becomes unaffordable without taking on ruinous levels of debt — it affects them and their families too. It is in everyone’s interest, no matter what kind of job they have, to have a fiscally sound and honest government, competent public employees, and a sustainable tax structure.
Also, do not forget that for every instance in which a public official received undeserved pay, pensions or perks at taxpayer expense one could probably cite an equally egregious case of a private business executive enjoying lavish pay and benefits at the expense of fired workers, closed factories/offices, or raided pension funds. Greed is greed no matter where it occurs, and no sector of the economy is exempt from the effects of original sin.
Finally, since this is a Catholic blog, we should approach this issue from a religious perspective as well. Christ Himself chose a public employee, Matthew the tax collector, to be one of His Apostles. He also told His followers to “render unto Caesar what is Caesar’s and unto God what is God’s.” So, apparently, He did not believe that working for the government was inherently evil, unproductive or exploitive.
Some more pointed advice was given by Christ’s precursor, John the Baptist, to the public servants of his day who came to see him (Luke 3:12-14):
“Even tax collectors came to be baptized and they said to him, “Teacher, what should we do?”
He answered them, “Stop collecting more than what is prescribed.”
Soldiers also asked him, “And what is it that we should do?” He told them, “Do not practice extortion, do not falsely accuse anyone, and be satisfied with your wages.”
John was referring to practices for which the public employees of the day were notorious — tax collectors often overcharged citizens and pocketed the “profit” they made, while Roman soldiers were known for shaking down citizens of the provinces they occupied for money, food, or other goods. Here John is telling them simply to do their duty, not demand any more of the public than the law requires, and be content with what they are paid. If today’s public officials and employees did the same, there would be a lot fewer problems.
As with most problems in a fallen world, there is no perfectly just way to balance the need for a professional, competent government workforce with that of a private sector free of unnecessary taxes and regulation. This does not mean, however, that we should not attempt to find as just a resolution as possible. However this will require people who are not to blame for the situation to help clean it up, and at considerable personal cost.
For public employees, this means more work for less pay, more out of pocket expenses, and for some, no job at all. For the rest of us it could mean higher taxes, reduced services or some combination of the two. All these things will impact thousands, even millions, of good, hardworking people who are simply doing the best they can and had no part in creating the situation. It may not be perfectly fair, but life ain’t fair.
On Monday night there was a debate between Connecticut Senatorial candidates Richard Blumenthal and Linda McMahon. During the debate Linda McMahon asked Mr. Blumenthal, “How do you create a job?” Blumenthal’s answer was, well, see for yourself.
Watching this, I couldn’t help but be reminded of another example of genius on display.
Rookie hazing is common to all American professional sports. Normally it amounts to rookies carrying veterans’ bags, being dressed up in women’s clothing for “fashion shoots,” or simply having to buy dinner for the veterans. Well last week Dez Bryant of the Dallas Cowboys was subjected to the latter. Unlike most rookie hazing incidents this caused headline news. Why? Because the bill came out to just under $55,000. That’s a lot of steak.
This has led to all sorts of outrage. I think this nugget from Peter King’s (never-ending) column fairly represents the typical media reaction to the story.
This doesn’t deserve a monumental amount of coverage, but one thing should be said to the Cowboy veterans who delighted in spending about $2,500 per man (one estimate I heard for the 22 to 25 men who attended this dinner) as most of America struggles to pay for weekly groceries: Stop being pigs. It’s disgusting.
This comes from the same column in which Peter King discusses his three-hour meal with Texans running back Arian Foster. People are struggling with the grocery bills and Peter King is out carousing with football players? What a pig.
In a remarkably good article here at newgeography, Joel Kotkin details how California has been transformed from the Golden State to the state most likely to go bankrupt. He sums up his argument as follows:
What went so wrong? The answer lies in a change in the nature of progressive politics in California. During the second half of the twentieth century, the state shifted from an older progressivism, which emphasized infrastructure investment and business growth, to a newer version, which views the private sector much the way the Huns viewed a city—as something to be sacked and plundered. The result is two separate California realities: a lucrative one for the wealthy and for government workers, who are largely insulated from economic decline; and a grim one for the private-sector middle and working classes, who are fleeing the state.
Kotkin notes that government spending was completely out of control prior to the present Great Recession:
Between 2003 and 2007, California state and local government spending grew 31 percent, even as the state’s population grew just 5 percent. The overall tax burden as a percentage of state income, once middling among the states, has risen to the sixth-highest in the nation, says the Tax Foundation. Since 1990, according to an analysis by California Lutheran University, the state’s share of overall U.S. employment has dropped a remarkable 10 percent. When the state economy has done well, it has usually been the result of asset inflation—first during the dot-com bubble of the late 1990s, and then during the housing boom, which was responsible for nearly half of all jobs created earlier in this decade. Continue Reading
Another first rate video from the Econ 101 series of the Center for Freedom and Prosperity. This video exlores the concept of moral hazard in economics. A moral hazard occurs in economics when one of the parties to a transaction is insulated from bad effects if the transaction goes south. This will cause that party to behave more recklessly than if the full impact of the failure of the transaction were felt. Government bailouts of course establish a precedent that if a big business suffers a loss, that the government might bail it out. No doubt many of our major financial institutions have learned the lesson that if a financial fiasco is large enough, Uncle Sucker will come to the rescue, and put the taxpayers on the hook for another few trillion that they can’t repay. Moral hazard indeed!
Once upon a time there was a country — it had its problems as any nation does, but it did well enough. Its people prided themselves on working hard, and they were comparatively well off: less so than the UK, more so than Spain and Italy.
They’d had the good fortune to have none of their infrastructure destroyed during World War II, and after the war they experienced a boom as an exporter. Things slowed, however, in the late 60s and early 70s. Some said this was because the rest of the world got better at growing their own food and manufacturing their own goods. Others said it was because they allowed too much immigration. Some said it was because the welfare programs they created in the 60s ate away at the motivation to work hard. Others said it was because unions became weak. Whatever the reason, their average income in inflation adjusted terms grew much more slowly than it had, and there was a good deal of discontentment and disagreement as to what to do about it all and who was at fault. Here’s a graph of their average family income in inflation-adjusted US Dollars.
One thing my study of economics has taught me is that businesses will tend to act in whatever way they think will bring them the most profit. There may be rare exceptions, and of course businessmen often have mixed motives. But the overall tendency in this direction is very strong.
My guess is that if you surveyed people, many more self-described progressives would say that they agreed with the statement than self-described conservatives. Indeed, progressives often criticize conservatives and libertarians for being insufficiently attuned to the rapacious self-interest motivating businessmen.
Yet oddly enough, it seems to me that one of the main problems with progressive thought is that they don’t take the idea that businesses act to maximize profit seriously enough. For a group that claims to have a low opinion of businessmen, progressives have a strange habit of advocating policies that will only work on the supposition that businesses won’t act to maximize profit, and then react with shock when they proceed to do so.
This was going to be a comment on Blackadder’s post which has turned into a discussion on licensing and whether it raises prices, but since I only have time to write out one thought process today I thought I’d turn it into a post.
Most folks outside economics see licensing as a way of legally certifying duties and providing a means of redress when incompetence occurs. Not only does a plumber who consistently allows sewer gases to enter a home get sanctioned civilly, he can be sanctioned by license loss and prevented from harming other households.
Let’s try two examples on our theoretical plumber here:
1) Say that we have a local economy in which licensing is not mandatory. If I want some plumbing done, I have several options: I could open up the phone book, call around, and hire the absolute cheapest guy who says he’s willing to give plumbing a job. He may do a terrible job, and set sewage to run through my ice maker.
Recently I’ve been toying with the idea of doing a series of posts looking at the recent survey purporting to know a lack of economic knowledge on the Left, with one post for each of the eight questions on the survey. As I look at the list of questions, however, a clear theme emerges, namely that liberals tend to think that the price of a good or service isn’t much affected by the supply of that good or service or visa versa. According to the survey, liberals tend to think that restricting the supply of housing doesn’t increase the price of housing (question 1), that restricting the supply of doctors (through licensing) doesn’t increase the price of doctors (question 2), and that price floors won’t decrease the supply of either rental space (question 4) or jobs (question 8).
Coincidentally, I’m currently reading a (surprisingly good) book by Paul Krugman, in which he argues that conservatives tend to minimize or dismiss the part changes in demand have on getting us into or out of recessions. Naturally this got me thinking whether one of the things separating left from right in this country is a difference in the importance of supply and demand in economic phenomenon. For the above issues, at least, liberals seem to be ready to discount the importance of supply, whereas conservatives underestimate the importance of demand.
Great minds think alike. I had prepared a post on this subject and I see that Darwin already has posted on the same topic. Normally I would simply trash my post, but this time I think our readers might find it amusing to see our different takes on this topic.
Everyone loves a pop quiz right, especially on economics! Here are eight questions. Possible answers are : 1) strongly agree; 2) somewhat agree; 3) somewhat disagree; 4) strongly disagree; 5) are not sure.
Here are the questions:
1) Mandatory licensing of professional services increases the prices of those services.
2) Overall, the standard of living is higher today than it was 30 years ago.
3) Rent control leads to housing shortages.
4) A company with the largest market share is a monopoly.
5) Third World workers working for American companies overseas are being exploited.
6) Free trade leads to unemployment.
7) Minimum wage laws raise unemployment.
8) Restrictions on housing development make housing less affordable. Continue Reading
Zogby researcher Zeljka Buturovic and I considered the 4,835 respondents’ (all American adults) answers to eight survey questions about basic economics. We also asked the respondents about their political leanings: progressive/very liberal; liberal; moderate; conservative; very conservative; and libertarian.
Rather than focusing on whether respondents answered a question correctly, we instead looked at whether they answered incorrectly. A response was counted as incorrect only if it was flatly unenlightened.
Consider one of the economic propositions in the December 2008 poll: “Restrictions on housing development make housing less affordable.” People were asked if they: 1) strongly agree; 2) somewhat agree; 3) somewhat disagree; 4) strongly disagree; 5) are not sure.
Basic economics acknowledges that whatever redeeming features a restriction may have, it increases the cost of production and exchange, making goods and services less affordable. There may be exceptions to the general case, but they would be atypical.
Therefore, we counted as incorrect responses of “somewhat disagree” and “strongly disagree.” This treatment gives leeway for those who think the question is ambiguous or half right and half wrong. They would likely answer “not sure,” which we do not count as incorrect.
In this case, percentage of conservatives answering incorrectly was 22.3%, very conservatives 17.6% and libertarians 15.7%. But the percentage of progressive/very liberals answering incorrectly was 67.6% and liberals 60.1%. The pattern was not an anomaly.
After calling for Catholics to be liberated from their pet ideologies, Pope Benedict is helping flesh out a moral economic vision that puts the standard Left- socialism/Right- Free Markets debate into the dust bin for faithful Catholics. The bottom-line seems obvious to me- you can’t demonize government and you can’t demonize business- both bring difficulties into play- over-regulation can harm economic development, but lack of regulation can lead to corporate dominance which is a problem when one considers that corporations typically are upfront about being in existence to pad their investor’s bank accounts, not being much concerned with the universal common good. Our Pope clarifies the inherent morality(read Natural Law) in the economy in this article from one of my favorite web sites Zenit.org:
To follow up on my first installment of “Set Me Free (From Ideologies), I am going to draw again from the rich well of Pope Benedict’s powerful encyclical Caritas In Veritate. In this case it would seem that in paragraph #25 the Pope is sounding kinda liberal if we would attempt to fit the views expressed into one or another of our American political ideologies. Continue Reading
Economics may be the “dismal science”, but I find this kind of story about the interconnectedness of the world endlessly fascinating. With flights restricted throughout the UK and Northern Europe because of the volcanic eruption, vegetable and flower growers in Kenya find themselves with mountains of produce with no market.
If farmers in Africa’s Great Rift Valley ever doubted that they were intricately tied into the global economy, they know now that they are. Because of a volcanic eruption more than 5,000 miles away, Kenyan horticulture, which as the top foreign exchange earner is a critical piece of the national economy, is losing $3 million a day and shedding jobs.
The pickers are not picking. The washers are not washing. Temporary workers have been told to go home because refrigerated warehouses at the airport are stuffed with ripening fruit, vegetables and flowers, and there is no room for more until planes can take away the produce. Already, millions of roses, lilies and carnations have wilted. Continue Reading
One often hears polemics against the fact that our country is now dominated by the “service economy”. It is one of those phrases that gives a strong impression, yet is oddly difficult to pin down.
If I may be indulged in an open-ended post:
1) How would you define the “service economy”? (with examples)
2) Is the service economy new, or merely expanded/changed, versus what you would consider a more traditional time? (Whether that is 100 years ago or 500 years ago.)
3) Is it a problem that the service economy is so large, and if so why?
The Oregonian features an article on how Chinese workers who spent years working in factories for American brands like Nike and Columbia Sportswear have become a major source of business startups and wealth in China’s rural interior.
WUHU, China — Years after activists accused Nike and other Western brands of running Third World sweatshops, the issue has taken a surprising turn.
The path of discovery winds from coastal factory floors far into China’s interior, past women knee-deep in streams pounding laundry. It continues down a dusty village lane to a startling sight: arrays of gleaming three-story houses with balconies, balustrades and even Greek columns rising from rice paddies.
It turns out that factory workers — not the activists labeled “preachy” by one expert, and not the Nike executives so wounded by criticism — get the last laugh. Villagers who “went out,” as Chinese say, for what critics described as dead-end manufacturing jobs are sending money back and returning with savings, building houses and starting businesses.
Workers who stitched shoes for Nike Inc. and apparel for Columbia Sportswear Co., both based near Beaverton, are fueling a wave of prosperity in rural China. The boom has a solid feel, with villagers paying cash for houses.
“No one would take out a mortgage to build a house,” said Wang Jianguo, 37, who returned after a factory injury in a distant province to the area near Wuhu, west of Shanghai. “You wouldn’t feel secure living in a house you didn’t own.”
The interview changed the way Dodson talked with other supervisors and managers of low-income workers, and she began to find that many of them felt the same discomfort as the grocery store manager. And many went a step further, finding ways to undermine the system and slip their workers extra money, food, or time needed to care for sick children. She was surprised how widespread these acts were. In her new book, “The Moral Underground: How Ordinary Americans Subvert an Unfair Economy,” she called such behavior “economic disobedience.”
I’m perplexed as to why Prof. Dodson is so surprised by this. Continue Reading
I don’t believe any good Catholic would say they are happy with the situation of so many sweatshops operating in China et al. The problem is what to do (or not do) about it. I am giving my students a research project premised on a single sentence- “How can I avoid buying sweatshop products?”. We are simultaneously studying the good Pope Benedict XVI’s “Caritas In Veritate”- specifically paragraphs #21, 22, 25, 27, 35, 36, 37, 38, 40, 41, 44, 48, 49, 51, 60, 63, 64, 65, 75, and 76. You can follow along at home!