Source: post-partisan
Inequality is in; discrimination is out for Next Generation Left
02 Jul 2014 1 Comment
in applied price theory, income redistribution, politics - USA, Public Choice, Rawls and Nozick Tags: discrimination, inequality, Leftover Left, poverty, The Progressive Left
Comparative Advantage and the Tragedy of Tasmania | MRUniversity
02 Jul 2014 Leave a comment
in applied price theory, international economics Tags: comparative advantage, Don Boudreaux
Milton Friedman on raising the minimum wage – the most ‘anti-black law in the land’
01 Jul 2014 Leave a comment
in applied price theory, labour economics, minimum wage, Public Choice Tags: Milton Friedman, minimum wage
The minimum wage law is most properly described as a law saying that employers must discriminate against people who have low skills. That’s what the law says.
The law says that here’s a man who has a skill that would justify a wage of $5 or $6 per hour (adjusted for today), but you may not employ him, it’s illegal, because if you employ him you must pay him $9 per hour.
So what’s the result? To employ him at $9 per hour is to engage in charity. There’s nothing wrong with charity. But most employers are not in the position to engage in that kind of charity.
Thus, the consequences of minimum wage laws have been almost wholly bad. We have increased unemployment and increased poverty.
Good old fashioned altruism versus a grubby market for kidneys
30 Jun 2014 Leave a comment
via Carpe Diem
How to refute the case for a minimum wage when genuinely calling for a smarter federal minimum wage
30 Jun 2014 1 Comment
in applied price theory, applied welfare economics, labour economics, minimum wage Tags: federalism, george stigler, minimum wage, monopsony
What if minimum wage rates could somehow be tied to specific locations as suggested by former White House economist Jared Bernstein puts it in an essay in the New York Times:
When we adjust a national minimum wage of $10.10 for regional differences, these are the amounts you’d need to have the same buying power: $11.94 in Washington, D.C., and $11.40 in California, but only $8.90 in Alabama and $9.08 in Kansas.
And of course, prices vary within states as well. In the New York City area, it would take $12.34 to meet the national buying power of $10.10; upstate around Buffalo, you’d need only $9.47. In the Los Angeles area, it would take $11.94; go up north a bit to Bakersfield, where prices are closer to the national average, and it’s $9.83.
To repeat what George Stigler said on the unsuitability of a nation-wide minimum wage in 1946 when there was monopsony, and therefore a small minimum wage increase is less likely to result in a reduction in employment:
If an employer has a significant degree of control over the wage rate he pays for a given quality of labour, a skilfully-set minimum wage may increase his employment and wage rate and, because the wage is brought closer to the value of the marginal product, at the same time increase aggregate output…
This arithmetic is quite valid but it is not very relevant to the question of a national minimum wage. The minimum wage which achieves these desirable ends has several requisites:
1. It must be chosen correctly… the optimum minimum wage can be set only if the demand and supply schedules are known over a considerable range…
2. The optimum wage varies with occupation (and, within an occupation, with the quality of worker).
3. The optimum wage varies among firms (and plants).
4. The optimum wage varies, often rapidly, through time.
A uniform national minimum wage, infrequently changed, is wholly unsuited to these diversities of conditions
A smarter federal minimum wage is a federal minimum wage of zero. Let each state and city set a minimum wage in accordance with its own economic conditions and the blackboard economics of monopsony and competition in the labour market.
As soon as you concede that there is not one single national labour market, other concessions must be made. This slippery slope includes that the monopsony power of employers might vary from state to state, city to city, and local labour market from local labour market.
Even a state or city minimum wage regulator would have to pretend to know an immense amount of information about the labour market with most of this information in a tacit form that cannot be summarised in statistics or other decision aids for regulators. As Hayek reminded in his classic in 1945 on The Use of Knowledge in Society:
the fact that the sort of knowledge with which I have been concerned is knowledge of the kind which by its nature cannot enter into statistics and therefore cannot be conveyed to any central authority in statistical form.
The statistics which such a central authority would have to use would have to be arrived at precisely by abstracting from minor differences between the things, by lumping together, as resources of one kind, items which differ as regards location, quality, and other particulars, in a way which may be very significant for the specific decision.
It follows from this that central planning based on statistical information by its nature cannot take direct account of these circumstances of time and place and that the central planner will have to find some way or other in which the decisions depending on them can be left to the "man on the spot."
What Headlines Would Look Like If We Lived in a Mathematically Literate World
30 Jun 2014 Leave a comment
Market failure here, market failure there, market failure everywhere
28 Jun 2014 Leave a comment
in applied price theory, applied welfare economics, comparative institutional analysis Tags: Deirdre McCloskey, the Nirvana fallacy
Have you ever heard of a private firm proposing to solve a shortage of the product it sells by telling people to buy less?
27 Jun 2014 Leave a comment
Does a fiscal stimulus stimulate?
26 Jun 2014 Leave a comment
in applied price theory, budget deficits, business cycles, fiscal policy, macroeconomics Tags: Eugene Fama
Information costs are just costs?
25 Jun 2014 Leave a comment
in applied price theory, comparative institutional analysis, Ronald Coase Tags: Armen Alchian, Harold Demsetz, Yoram Barzel
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Yoram Barzel and Harold Demsetz pointed out that some economists want to stigmatise information costs. Armen Alchian was in this camp too.
Demsetz asked why the costs of finding, digging up and processing an ore deposit is a legitimate cost, but the costs of finding and interpreting information are illegitimate costs. There is an arbitrary classification of costs going on here according to Demsetz:
…there exists an efficient amount of ignorance in an economic system if the cost of acquiring information is positive.
The amount of ignorance that is efficient increases as does the cost of transacting (viewed as the cost of conveying information). Ignorance not only may be bliss, it also may be efficient.
One cannot claim that resources are wrongly allocated simply because information is not possessed or negotiation is absent; nor can one claim that resources are misplaced because a specific market does not exist.
None of these is free, and the costs of acquiring information and creating and maintaining markets may be so high as to make it efficient to forego some information and some markets.
A decision that something is not worth taking into account is not, because of this, a source of inefficiency. That this something is not taken into account is a reckoning if it follows from a thoughtful anticipation that it is not worth taking into account. An explicit accounting for every ‘something’ would be inefficient indeed in a world in which knowledge is not free
Imports from countries where labour is cheap causes our unemployment to rise
25 Jun 2014 Leave a comment
in applied price theory, international economics, Murray Rothbard Tags: Murray Rothbard, tariffs
One of the many problems with this doctrine is that it ignores the question: why are wages low in a foreign country and high in the United States?…
Basically, they are high in the United States because labour productivity is high – because workers here are aided by large amounts of technologically advanced capital equipment.
Wage rates are low in many foreign countries because capital equipment is small and technologically primitive. Unaided by much capital, worker productivity is far lower than in the United States.
Wage rates in every country are determined by the productivity of the workers in that country. Hence, high wages in the United States are not a standing threat to American prosperity; they are the result of that prosperity…
we must realize that wages in each country are interconnected from one industry and occupation and region to another.
All workers compete with each other, and if wages in industry A are far lower than in other industries, workers – spearheaded by young workers starting their careers – would leave or refuse to enter industry A and move to other firms or industries where the wage rate is higher…
If the steel or textile industries in the United States find it difficult to compete with their counterparts abroad, it is not because foreign firms are paying low wages, but because other American industries have bid up American wage rates to such a high level that steel and textile cannot afford to pay.
In short, what’s really happening is that steel, textile, and other such firms are using labour inefficiently as compared to other American industries.
Tariffs or import quotas to keep inefficient firms or industries in operation hurt everyone, in every country, who is not in that industry. They injure all American consumers by keeping up prices, keeping down quality and competition, and distorting production. Tariffs and import quotas also injure other, efficient American industries by tying up resources that would otherwise move to more efficient uses.
Stronger road safety laws kill more pedestrians
24 Jun 2014 Leave a comment
in applied price theory, economics of regulation, Sam Peltzman Tags: offsetting behaviour
Sam Peltzman likes to point out the road fatalities in the USA fell pretty much at a steady rate of 3% for the entire 20th century. There was no break in trend with the drop in fatalities after major road safety legislation was passed by Congress in 1966.
The composition of who died changed: Peltzman found fewer drivers and passengers died but the more pedestrians were killed because drivers drove faster and with less care. Alma Cohen and Linan Einav (2003) found that seat-belt laws, in the absence of any behavioural response, were expected to save three times as many lives as were in fact saved. This shortfall because of greater risk taking is the Peltzman effect:
the hypothesized tendency of people to react to a safety regulation by increasing other risky behaviour, offsetting some or all of the benefit of the regulation.
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