Tuesday, February 4, 2014

The False Justifications for a Minimum Wage

On 1/30/14 Forbes published an article by Jeffrey Dorfman titled "Almost Everything You Have Been Told About The Minimum Wage Is False".  The entire article is at this link:

These are some of the most interesting points:
First, people should acknowledge that this rather heated policy discussion is over a very small group of people.  According to the Bureau of Labor Statistics there are about 3.6 million workers at or below the minimum wage (you can be below legally under certain conditions). That is 2.5 percent of all workers and 1.5 percent of the population of potential workers. Within that small group, 31 percent are teenagers and 55 percent are 25 years old or younger. That leaves only about 1.1 percent of all workers over 25 and 0.8 percent of all Americans over 25 earning the minimum wage.

Within that tiny group, most of these workers are not poor and are not trying to support a family on only their earnings.

This group of workers is also shrinking. In 1980, 15 percent of hourly workers earned the minimum wage. Today that share is down to only 4.7 percent.

Liberals have been trumpeting a study claiming that if the minimum wage had risen in tandem with worker productivity, the minimum wage would be nearly $22 per hour. Senator Elizabeth Warren (D-MA) has gone to great lengths to push this statistic into the policy debate....Labor productivity may have risen faster than the minimum wage over the last twenty or thirty years, but the study getting all the press uses the productivity gains of all workers to calculate a hypothetical increase in the minimum wage. What is needed is a measure of the productivity gains of minimum wage workers....Taking a longer view, from 1987 to 2012 the same BLS data show that worker productivity in the food service sector rose by an average of 0.6 percent per year. In limited service restaurants, the gains were slightly lower, only averaging 0.5 percent per year. Meanwhile, unit labor costs have risen by an average of 3.6 percent. Over this period the minimum wage has risen from $3.35 to $7.25 per hour which is an average annual increase of 3.1 percent. In other words, at least in food service, the minimum wage has risen at a rate five or six times as fast as justified by the gains in worker productivity.

The myth that minimum wage workers are being treated unfairly is exposed by a look at the correct data on labor productivity.  In a truthful debate we see that the minimum wage has been generous to workers receiving it when compared to the changes in the value of their output.
We discussed the minimum wage in a previous post on this blog.  Please review:

Monday, February 3, 2014

The extent of corruption in Europe is "breathtaking"

An article published by BBC News on 2/3/14 discusses corruption in Europe.  I find the "shocked" tone of the article ironic.  European nations have expansive governments that control all aspects of social and economic interaction.  The fact is that whenever government is large and intrusive corruption will flourish.  You can read the article at this link:

This article is reporting on a study by the European Union to the European Parliament.  The entire study can be found at this link:

The BBC News article contains the following paragraphs:
In some countries there was a relatively high number reporting personal experience of bribery.

In Croatia, the Czech Republic, Lithuania, Bulgaria, Romania and Greece, between 6% and 29% of respondents said they had been asked for a bribe, or had been expected to pay one, in the past 12 months.

There were also high levels of bribery in Poland (15%), Slovakia (14%) and Hungary (13%), where the most prevalent instances were in healthcare.
The last sentence could be a prediction for the future direction of healthcare in the USA.  As more government intervention occurs in the healthcare industry we will be subjected to more corruption.

Wednesday, December 4, 2013

The social safety net

Several times each year, John Allison President and CEO of the Cato Institute circulates a memorandum to the Directors, Sponsors, and Friends of the Institute.  In his July/August 2013 Report John makes the following statements:
A trend that disturbs me is the effort by some of those who want to change political results to try to appeal to egalitarianism for the purpose of electing "compassionate" conservatives to Congress. On several occasions, I have heard the leaders of conservative policy organizations lead with the comment "We all agree about the need for a social safety net" (of course, government financed and controlled). Well, not me. In fact, once we agree the government has the right to use force to redistribute wealth (which is mandatory to create a government-based safety net) the fight is over. The only logical stopping point for this argument is equal outcomes. Equal, that is, except for the elitists in the government and power positions who control the redistribution of wealth.

As libertarians, we believe the sole role of government is to protect individual rights. Our position is logically defendable across all political activities and demands a limited government.

In addition, we are the true advocates of human flourishing. In fact, as libertarians we are the defenders of the pursuit of happiness in the Aristotelian concept of happiness. Happiness earned by a life well lived. Hard work, blood, sweat, and tears happiness. The type of happiness we advocate is only possible in a free society where each individual has the personal responsibility for his life and has the right to live that life consistent with his beliefs and values as a free and independent person.

I believe the welfare state creates very destructive incentives in multiple ways. Mike Tanner's recent study, The Work versus Welfare Tradeoff: 2013, outlines the significant economic incentives that the welfare state provides.

On the noneconomic front, many (most) long-term welfare recipients are not happy as evidenced by high rates of alcohol consumption, drug use, domestic violence, etc. They are numbed into a destructive state of dependency that destroys personal responsibility, undermines a sense of purpose, and makes the true pursuit of happiness impossible.

What if the welfare state had not been created? Would markets have solved the welfare problem better than governments, based on private contributions? I believe the answer is unequivocally yes. In fact, there were many private mutual-support societies that provided voluntary assistance to the poor before the government welfare state was created.

A current example is Goodwill Industries, which relies primarily on donations of used goods (clothing, etc.). Their philosophy is to teach people how to be personally responsible, to teach them work skills, and to help them understand the healing power of work. Goodwill has many inspiring success stories. Compare this outcome to the results of government-based welfare. Unfortunately, organizations like Goodwill have a difficult challenge competing against a free lunch from the government.

If the welfare state had not been created, I am confident the pre-welfare private charitable organizations would have experimented and learned radically different solutions to many social issues. The market-discipline process would have supported innovation that would have led to significantly better outcomes for many beneficiaries (victims) of the current welfare system.

So, I do not agree that a government-financed and controlled safety net is a morally defendable idea. When government expands beyond its important but very limited role, it crowds out private institutions that are far more effective. History teaches us that when force is used to achieve so-called "positive" goals, instead of in the proper role of defending individual rights, the "good intentions" practically always produce bad results.

Saturday, November 30, 2013

On Spending: No Sacred Cows

The following is an advertisement currently being circulated by the Cato Institute.

We face another budget crisis and possible government shutdown as early as January, unless Congress can come together on a bipartisan basis to cut spending.

The Affordable Care Act is far from the only program that should be repealed. Both Democrats and Republicans must be willing to cut programs that are championed by special interests in their parties. There can be no more “sacred cows.”

Policy experts at the Cato Institute have put together a plan that balances the budget and reduces our dangerously high debt burden by cutting more than $3 trillion over 10 years. It builds on good ideas from both liberals and conservatives to expand individual freedom and reduce the burden of government.

You can read more about needed reforms at DownsizingGovernment.org, a project of the Cato Institute.

CORPORATE WELFARE | Farm aid distorts agriculture, harms the environment, and nearly all goes to well-off businesses. Energy subsidies have been disastrous—from a $500 million loss on Solyndra to $700 million wasted on a clean coal project in Mississippi. Phasing out farm and energy subsidies would save $160 billion.

SUBSIDIES FOR THE STATES | Washington runs more than 1,100 aid-to-state programs. They are hugely bureaucratic and stifle state and local innovation. Phasing out federal subsidies for K-12 schools would save $180 billion and free states to improve the quality of their own education systems.

PRIVATIZATION | President Obama has suggested privatizing the Tennessee Valley Authority. TVA and other businesses may “no longer require federal participation,” his budget noted, which would “help put the nation on a sustainable fiscal path.” Other candidates for privatization include Amtrak, the Corps of Engineers, federal dams, airport screening, and air traffic control—which would save at least $110 billion.

SUBSIDIES FOR INDIVIDUALS | The government’s vast array of individual aid programs would be better handled by state and local governments and private charities. Programs such as food stamps should be turned over to the states. Phasing out federal food stamp subsidies over 10 years would save $400 billion.

INTELLIGENCE BUDGET | The budgets of the CIA, NSA, and other intelligence agencies have become bloated with spending on vast and often invasive data collection efforts and armadas of drone aircraft. Cutting intelligence spending by one quarter would save $110 billion.

MILITARY OVERREACH | The Constitution envisioned a military to “provide for the common defense” of the United States, not one that serves as the world’s policeman. Congress should reduce overseas military commitments, avoid foreign wars, and create a leaner force structure. Making reforms to meet the budget caps for 2014 and beyond could save at least $200 billion.

DRUG WAR | The war on drugs wastes a huge amount of resources in our police and justice systems. It also harms civil liberties, foments violence, and does little to curb drug use. Ending the federal drug war and returning drug policy to the states where it belongs would save $110 billion.

MEDICARE | Medicare spending is the largest factor pushing the budget into crisis. Raising premiums and increasing cost-sharing would save $330 billion. Policymakers should also restructure the program by directing payments to enrollees, not insurers or providers. That would generate greater choice, spur innovation, and improve access to care.

SOCIAL SECURITY | Social Security has huge unfunded obligations, and it causes ongoing damage by reducing personal savings and harming labor markets. Meanwhile, spending on federal disability programs has soared as the number of recipients has multiplied. America should move to a system of personal accounts for retirement and disability, but meanwhile we would save $640 billion by indexing initial benefits to prices, modestly raising the retirement age, and trimming the disability rolls by one quarter.

MEDICAID | Medicaid’s open-ended matching grants to the states have led to huge cost growth, but not better health care. Congress should give each state a fixed amount of funding and free them to experiment with better ways of providing care for the needy. Limiting annual growth in the block grant to five percent would save $760 billion.

Dollar amounts are savings over 10 years. Cuts are assumed to be phased in over 10 years. Total cuts include estimated interest savings.

Saturday, November 16, 2013

Civilian Labor Participation Rate

The following article was published on 11/15/13 by Mark Thornton of the Ludwig von Mises Institute:

They say that a picture is worth a thousand words. This is a picture of the government statistic on the Civilian Labor Participation rate. That rate is now at a 35 year low. The steep decline in the rate is indicative of people giving up hope of ever finding a job, so they stop looking for a job and therefore are no longer considered part of the labor force = (employed and unemployed). In October 2013 the number of people no longer in the labor force decline by over 700,000. As the labor participation rate falls, it puts downward pressure on the calculated unemployment rate (U3). To put it another way, if all these “discouraged workers” were still included in the labor force the unemployment rate would be much higher and rising.

Thursday, September 5, 2013

A differentiation fed them by the administration

John F. Kerry's testimony before the Senate Committee on Foreign Relations on April 22, 1971:

"We veterans can only look with amazement on the fact that this country has been unable to see there is absolutely no difference between ground troops and a helicopter crew, and yet people have accepted a differentiation fed them by the administration."

John F. Kerry's testimony before the Senate Foreign Relations Committee hearing on Syria, September 3, 2013:

"So let me be clear: President Obama is not asking America to go to war. And I say that sitting next to two men -- Secretary Hagel and Chairman Dempsey -- who know what war is. Senator McCain knows what war is. They know the difference between going to war and what President Obama is requesting now. We all agree, there will be no American boots on the ground."

Tuesday, July 30, 2013

On Appeasing Envy

The Ludwig von Mises Institute has re-published an article written by Henry Hazlitt in 1972.  The entire article is available at this link:

In my opinion these are the highlights:

Any attempt to equalize wealth or income by forced redistribution must only tend to destroy wealth and income. Historically the best the would-be equalizers have ever succeeded in doing is to equalize downward. This has even been caustically described as their intention. “Your levelers,” said Samuel Johnson in the mid-eighteenth century, “wish to level down as far as themselves; but they cannot bear leveling up to themselves.”

And in our own day we find even an eminent liberal like the late Mr. Justice Holmes writing: “I have no respect for the passion for equality, which seems to me merely idealizing envy.”

In the envious the thirst for social advancement is insatiable. As soon as they have risen one rung in the social or economic ladder, their eyes are fixed upon the next. They envy those who are higher up, no matter by how little. In fact, they are more likely to envy their immediate friends or neighbors, who are just a little bit better off, than celebrities or millionaires who are incomparably better off. The position of the latter seems unattainable, but of the neighbor who has just a minimal advantage they are tempted to think: “I might almost be in his place.”

Moreover, the envious are more likely to be mollified by seeing others deprived of some advantage than by gaining it for themselves. It is not what they lack that chiefly troubles them, but what others have. The envious are not satisfied with equality; they secretly yearn for superiority and revenge. In the French Revolution of 1848, a woman coal-heaver is said to have remarked to a richly dressed lady: “Yes, madam, everything’s going to be equal now; I shall go in silks and you’ll carry coal.”

Envy is implacable. Concessions merely whet its appetite for more concessions. As Schoeck writes: “Man's envy is at its most intense where all are almost equal; his calls for redistribution are loudest when there is virtually nothing to redistribute.”

Sometimes the motive of appeasing other people's envy is openly avowed. Socialists will often talk as if some form of superbly equalized destitution were preferable to “maldistributed” plenty. A national income that is rapidly growing in absolute terms for practically everyone will be deplored because it is making the rich richer. An implied and sometimes avowed principle of the British Labour Party leaders after World War II was that “Nobody should have what everybody can't have.”

But the main objective test of a social proposal is not merely whether it emphasizes equality more than abundance, but whether it goes further and attempts to promote equality at the expense of abundance. Is the proposed measure intended primarily to help the poor, or to penalize the rich? And would it in fact punish the rich at the cost of also hurting everyone else?

This is the actual effect of steeply progressive income taxes and confiscatory inheritance taxes. These are not only counterproductive fiscally (bringing in less revenue from the higher brackets than lower rates would have brought), but they discourage or confiscate the capital accumulation and investment that would have increased national productivity and real wages. Most of the confiscated funds are then dissipated by the government in current consumption expenditures. The long-run effect of such tax rates, of course, is to leave the working poor worse off than they would otherwise have been.

There are economists who will admit all this, but will answer that it is nonetheless politically necessary to impose such near-confiscatory taxes, or to enact similar redistributive measures, in order to placate the dissatisfied and the envious — in order, in fact, to prevent actual revolution.

This argument is the reverse of the truth. The effect of trying to appease envy is to provoke more of it.