Economics

In Other News, Water is Wet

YouTube Preview Image

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.

Most nations today have minimum wage laws, but they have not  always had them. Unemployment rates have been very much lower in places  and times when there were no 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. →']);" class="more-link">Continue reading

Will Money Make Everyone Virtuous?

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.
→']);" class="more-link">Continue reading

Great Depression II

YouTube Preview Image

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. ']);" class="more-link">Continue reading

Question: If they trust women, why don’t they trust mothers?

SHOCKER: Teens need their mothers. Mothers can help their daughters. Even in crisis.

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.

  • Researchers have already found, using state-level data from 1981 through 1998, that parental involvement laws reduced teen gonorrhea rates 12 to 20 percent among teen females. (Klick and Strattman, 2008)
  • Other recent studies provide evidence that female adolescents who become sexually active at an early age are more likely to suffer from the symptoms of depression. (Hallfors et al. 2004; Sabia and Rees 2008)
  • Research has shown that multiple sex partners increased the likelihood of substance abuse. (Howard et al. 2004)
  • It is also been found that adolescent females who had multiple sex partners were 10 times more likely to develop the symptoms of major depression than those who remained abstinent. (Hallfors et al. 2005)
  • There was no evidence of a similar relationship between male multiple partners and adolescent depression. (Hallfors et al. 2005)

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.

H/T:  Michael J. New at National Review

Image: Microsoft Powerpoint

Chart Of The Day: Whose Wages Are Stagnating?

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.)

Catholicism and “Neoliberalism”: Strawmen Are Often Contrary to Church Teaching

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.)
→']);" class="more-link">Continue reading

Do Greeks Work Harder Than Germans?

Matt Yglasias has a piece in Slate attempting to counter the “if the Euro is going to work, Greeks are going to have to learn to work hard like Germans” line of thinking.

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.
→']);" class="more-link">Continue reading

And It Begins

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:

YouTube Preview Image

“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.

The Home Mortgage Deduction

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.

Poverty and Family Type

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:

→']);" class="more-link">Continue reading

Employment for All: A Response

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. →']);" class="more-link">Continue reading

Employment for All: A Debate

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.

1 2 3 7
Follow TAC by Clicking on the Buttons Below
Bookmark and Share
Subscribe by eMail

Enter your email:

Recent Comments
Archives
Our Visitors. . .
Our Subscribers. . .