Russell Roberts's Blog, page 307

Quotation of the Day…

(Don Boudreaux)

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… is from page 26 of Thomas Sowell’s slim yet significant 1981 volume, Markets and Minorities (original emphasis):

Economics takes as axiomatic the proposition that more of anything is demanded at a low price than at a high price. Discrimination is no exception. A pair of twins might be equally racist, but, if one was an employer of violinists and the other an employer of basketball players they would face very different costs of excluding blacks. Their subjective prejudices might be identical, but economics would predict that the differing costs would produce different amounts of overt discrimination….

Looked at another way, there are costs to the discriminator, as well as to the victim, and the magnitude of those costs affects the extent to which subjective prejudices produce overt discrimination. Foregone opportunities to make money – as employer, landlord, seller, lender, etc. – put a price on discrimination. Economic competition means that the less discriminatory transactors acquire a competitive advantage, forcing others either to reduce their discrimination or to risk losing profits, perhaps even being forced out of business.

DBx: Indeed so. And history testifies to the validity of the prediction from economics.

I first read Sowell’s Markets and Minorities in 1981, the year it was published. I just re-read it. I’d forgotten how deep, subtle, and excellent is the economic analysis that runs through this slim but profoundly important work. This book is written with Sowell’s signature clarity, yet also displays, on nearly every one of its 136 pages, both his sharp and rare talent as an economic theorist, and his remarkable ability to use that theory to make better sense of reality.

Bonus Quotation of the Day…

(Don Boudreaux)

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… is from page 58 of my late, great colleague Walter Williams’s 2011 book, Race & Economics (original emphasis):

The real problem is that workers are not so much underpaid as they are under-skilled. And the real task is to help those people become skilled. Congress cannot do this simply by declaring that as of such-and-such a date, everybody’s productive output is now worth $7.25 per hour. This makes about as much sense, and does just about as much harm, as doctors “curing” patients simply by declaring that they are cured.

Some Non-Covid Links

(Don Boudreaux)

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George Will rightly decries the U.S. government’s unprecedented peacetime fiscal diarrhea. A slice:

[Brian] Riedl, a student of ancient (or so it suddenly seems) U.S. fiscal history, remembers that the 2009 stimulus included a $25 addition to weekly unemployment checks. In 2020, Democrats wanted $600 bonuses, and Republicans were considered skinflints because they favored only $300 — 12 times the 2009 sum. During the Great Recession, the typical family of four (a family with income below the $150,000 threshold where the phaseout begins) received tax rebates of $2,600 ($1,800 in 2008 and $800 in 2009). If legislation the Biden administration wants and the House of Representatives will almost certainly pass becomes law, a typical family of four will have received $11,400 in 12 months. In previous deep recessions, state and local governments received up to $200 billion in federal aid. Today Democrats want to add $350 billion to the $360 billion approved last year.

The Wall Street Journal Editorial Board exposes the lunacy of the case for a national-government bailout of U.S. state governments. A slice:

Nearly half of states rolled in more tax revenue in calendar year 2020 than 2019, according to the Reason Foundation. On average, state revenues were a mere 0.01% lower across the board. Seventeen state treasurers recently moaned to Congress that “tax revenues have plummeted,” but collectively they’ve seen a 1.8% increase year-over-year, the Kansas Policy Institute reports.

Gov. Andrew Cuomo recently warned of a $15 billion budget deficit and threatened to raise New York’s top income tax rate to 14.7%—the nation’s highest—though New York’s revenues were down a mere 1.5% from 2019. He refuses to renegotiate union contracts or cut spending.

Wall Street Journal columnist Kimberly Strassel is appalled by the increasing fever on Capitol Hill for censorship. A slice:

What was new this week was Democrats’ brazenness: their shocking and open targeting of news organizations. The left has long worked to shut down speech with which it disagrees, but officials in the past did it with more subterfuge. It came via legislation for “campaign finance reform,” or via their successful effort to push the IRS to target conservative nonprofits; or via Sen. Dick Durbin’s campaign to pressure companies out of funding free-market nonprofits. Liberal activists have honed intimidation campaigns, threatening boycotts and other actions against companies that advertise on disfavored platforms or donate to right-leaning groups.

Here’s Alberto Mingardi on Terence Kealey on Mariana Mazzucato’s impact on the British government.

Simon Lester offers some thoughts on likely trade policy under Biden.

Damon Root reports on U.S. Supreme Court Associate Justice Neil Gorsuch’s efforts to rein in the power of the police by strengthening 4th Amendment protections.

My Mercatus Center colleague Adam Thierer explains that antitrust can kill innovation. A slice:

The most important feature is the proposed change to the legal standard by which regulators approve business deals. It would allow the government to stop any deal that creates an “appreciable risk of materially lessening competition,” and it also defines exclusionary behavior as, “conduct that materially disadvantages one or more actual or potential competitors.”

These may sound like simple, semantic tweaks, but – much like some of the other policy ideas currently circulating – they would upend decades of settled law and create a sea change in U.S. antitrust enforcement. This change could undermine business dynamism, innovation and investment in ways that inhibit the global competitiveness of U.S. businesses.

Critics of merger and acquisition (M&A) activity by large tech firms include not only Sen. Klobuchar but also Republicans such as Sen. Josh Hawley (R-Mo.). Hawley recent offered an amendment to a budget bill that would preemptively prohibit mergers and acquisitions by dominant online firms. Klobuchar and Hawley believe that M&A skews the market in favor of today’s largest firms, entrenching their market power and discouraging innovation.

History teaches a different lesson.

Juliette Sellgren talks with GMU Law professor Todd Zywicki about law and economics.

David Henderson on the Economics and Ethics of Lockdowns

(Don Boudreaux)

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Last Friday, David Henderson – in this lecture – offered an economic and ethical case against lockdowns.

Some Covid Links

(Don Boudreaux)

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Neville Hodgkinson accurately observes that “the Orwellian flavour of our current experience is unmistakable.” A slice:

As for the intoxication of power: Boris, Matt Hancock and their cronies – and similar teams in many other countries – seem to me to be taking far too much pleasure in having us dance almost daily to changes in the Covid lockdown tune.  Cancelling Christmas, and maybe Easter, rarely acknowledging uncertainties in the science, sending in thought police to discipline doctors who challenge vaccine orthodoxy, making 100-year-olds spend their last months and hours in Room 101… these are just a few of countless examples.

Here’s Ethan Yang on unfreezing the economy after the lockdowns.

David McGrogan asks “Where did our human rights go?”

David Redman and Ramesh Thakur reflect on a year of living with Covid-19. A slice:

After a year’s experience of COVID-19 worldwide, the continuing hold of discredited mathematical models regarding lockdowns remain. As well, it is increasingly evident that medical specialists put in charge of public policy ignored existing pandemic preparedness plans, for better or worse.

Hugh Willbourn reflects on recent correspondence between Neil Ferguson and some who question the efficacy of lockdowns. Here’s Willbourn’s wise conclusion:

It is time to mourn our losses, to learn how to make better decisions in the future, to let go of fear and to acknowledge that we cannot eliminate risk, nor death, from life. When we remember we are going to die it may make us all a little braver while we live.

“A series of unfortunate experiments.”

Omar S. Khan rightly labels the narrative of the past year as “diseased.” Two slices:

When the Wuhan death videos, almost certainly “doctored” in retrospect, having seen no equivalent situation anywhere in the world, looking almost absurdly surreal today, relating to this alleged scourge, went viral, and well before there was any factual basis for existential panic (nor has any been forthcoming since), the world geared up to shut down. It was well before any surges, and it was exacerbated by the manic, fevered modeling fervor of SAGE and its persistently, consistently, inaccurate prognosticator, Neil Ferguson, who almost never fails to demonstrate that “accuracy” is clearly not a criterion for legitimacy in UK government circles.

Models can be terrifying, and indeed some “milestones” or “markers” could have been established with Plan A, B, and C, ready to go. Instead “blow up the planet” was opted for, on the basis of conjecture. And competing models or analyses coming out of Stanford, or indeed approaches like Total Harm Minimization coming out Yale, were all sidelined if not swatted away. Why? What was the motivation for being so mindlessly alarmist?

…..

Again, we are left wondering why? Never in medical history was there a precedent for repeatedly testing the healthy. Never was a “case” defined as being symptom-free. But to create global panic, this was necessary, in addition to unremitting flashing of COVID stats from a media base that capitulated, kowtowed, and became advocates for the panic porn, underwriters of the orthodoxy.

Quotation of the Day…

(Don Boudreaux)

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… is from pages 48-49 of Thomas Sowell’s August 4, 2001, column, “Minimum Journalism Evident in Wage Story,” as this column is reprinted (and renamed as “Minimum Journalism”) in Sowell’s 2002 collection, Controversial Essays:

The minimum wage law is very cleverly misnamed. The real minimum wage is zero – and that is what many inexperienced and low-skilled people receive as a result of legislation that makes it illegal to pay them what they are currently worth to an employer.

Most economists have long recognized that minimum wage laws increase unemployment among the least skilled, least experienced, and minority workers. With a little experience, these workers are likely to be worth more. But they cannot move up the ladder if they can’t get on the ladder.

DBx: If you really want to help low-paid workers and young people – particularly young people of color – you should work to abolish minimum wages. Work to return to these people their right to compete for employment by offering to work at wages below the government-set minimum.

Minimum-wage legislation is as helpful to low-paid workers as would be legislation that explicitly puts a cap on the amount of skills that all low-paid workers are allowed to acquire or to use while on the job. Do you think that the government would help low-skilled paid workers by prohibiting them from competing for employment by offering to use skills or effort while on the job that exceed some mandated maximum amount?

If you answer yes, then at least you are consistent in your misunderstanding of the consequences of minimum wages and other government interventions that shrink the bargaining power of low-skilled workers. But if you answer no, yet still continue to support minimum-wage legislation, you’re not thinking very hard.

Economic pedants: Please don’t remind me of the monopsony model. I’m aware of it and of the fact that it describes a theoretical case for minimum wages helping low-skilled workers. But anyone who believes that employers of low-skilled workers in the American economy possess monopsony power is someone who takes simple theories far too literally and reality unseriously.

Some evidence that proposed increases in the minimum wage are not really based on any estimation of monopsony power, and a wish to combat its ill-effects, is found in the fact that many such proposals feature a gradual increase in the minimum wage rather than a one-time hike to the desired high minimum. If the existence of monopsony power truly justified a minimum wage of (say) $15 per hour, there would be no point in not imposing that high minimum wage immediately.

The desire of many minimum-wage advocates to increase the minimum wage only gradually reveals that these advocates either don’t understand the monopsony model or that they secretly harbor grave doubts that employers of low-skilled workers possess monopsony power.

Thomas Sowell on the Vision of the Anointed

(Don Boudreaux)

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In this 1995 interview with Ben Wattenberg, Thomas Sowell discusses the thesis of his then-new book, The Vision of the Anointed:

Some Non-Covid Links

(Don Boudreaux)

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Inspired by my late, great colleague and dear friend Walter Williams, my intrepid Mercatus Center colleague Veronique de Rugy wisely counsels that we keep an eye on the many negative effects, on low-skilled workers, of minimum-wage diktats. A slice:

Workers who didn’t have a job at the time of the increase and won’t get one after may pay the steepest (and unseen or overlooked) cost of the minimum wage. As Williams explained in his autobiography, “Early work experiences not only provide the pride and self-confidence that comes from financial semi-independence but also teach youngsters attitudes and habits that will make them more valuable and successful workers in the future.”

Also writing about the minimum wage – specifically, here, about Senators Cotton’s and Romney’s proposal – is the great Bruce Yandle.

Here’s Ryan Bourne on the economically ludicrous Rep. Ro Khanna and the minimum wage.

My Mercatus Center colleague Jack Salmon warns against lazily falling for the fallacy that low interest rates mean that we need not worry about the magnitude of government’s deficit financing.

Jane Shaw brings realism to the discussion of the recent power outages in Texas.

Vincent Geloso explains the connection between government ‘regulation’ of day-care and the costs of day-care.

Jim Gwartney, I fear, is correct when he argues that significant – perhaps even double-digit – inflation in the U.S. is on the horizon.

Pres. Biden will give us more efficient protectionism than was given to us by Pres. Trump. What a deal. Rah. Rah. (Eric Boehm reports.)

Nick Gillespie speaks with Wall Street Journal columnist Jason Riley about the great Thomas Sowell.

Bonus Quotation of the Day…

(Don Boudreaux)

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… is from page 2 of Thomas Sowell’s slim yet significant 1981 volume, Markets and Minorities:

A mere jumble of beliefs and facts is not theory or hypothesis-testing. It is possible to select – in retrospect – facts consistent with almost any belief.

Again, Put Your Money Where Your Mouth Is or Shut Your Mouth Up

(Don Boudreaux)

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This young economics major is confident that the case against raising the minimum wage is (his words) “elitist apologetics”:

Mr. A___:

Continuing to make the case for raising the national hourly minimum wage to $15, you assert – in response to my last letter – that “there is zero evidence that most of these [low-paid] workers are paid anywhere close to the value of their contributions to their employers bottom lines.”

Your assertion is mistaken. In my letter to you yesterday I linked to my and Liya Palagashvili’s March 7th, 2014, Wall Street Journal op-ed in which we presented such evidence. You’re free, of course, to question the soundness of this evidence, but the evidence itself exists.

You and I could duel with data all day long. You send me a study; I send you a study; you send me another study – it will never end and no mind will be swayed.

So let me support my claim by pointing to evidence that doesn’t appear in a study but that is as conclusive as evidence on such matters gets. The evidence is your own behavior – specifically, your failure to start a business that employs at least some among these legions of workers who you insist are today underpaid.

If you really believe that America is filled with legions of underpaid workers, you can make a sure fortune by taking a year or two away from school and starting, say, a chain of restaurants or lawn-care companies. Entry into these industries is easy. And with a large pool of underpaid workers currently toiling away at the likes of McDonald’s, Home Depot, and Aunt Myrtle’s Country Kitchen, you’ll easily be able to hire away these workers at wages above the exploitation wages they now earn yet still at levels that enable you to reap a handsome profit by employing each one.

You’ll grow rich as you raise the pay of the workers about whom you care so deeply. It’ll be a win-win.

But if you do not put your time, effort, and money where your mouth is, then I’m left with only one of two possible conclusions. Either you don’t really believe what you assert to be true, or – more likely – you haven’t thought with sufficient seriousness about the meaning and implications of your assertion. No third conclusion is plausible. (Note: The fact that your assertion is made also by some PhD-sporting economists doesn’t save you from my criticism here. Those economists’ failure to start firms that employ these allegedly underpaid workers means only that they, too, either don’t believe their assertions or that they haven’t thought seriously enough about what those assertions imply.)

People aren’t lab rats for coercive social experiments. Yet you wish to conduct such an experiment by coercively preventing low-skilled workers from bargaining for employment by offering to work at wages less than $15 per hour. And to justify your wish, you assert – without, apparently, thinking seriously through the matter – that large numbers of workers who are now paid less than $15 are grossly underpaid.

The world, Mr. A___, has a superabundance of good intentions exercised on the cheap. It doesn’t need yours. What it does need, and what I hope it will eventually get from you, is serious, sound analyses of likely consequences. And so I urge you to pay less attention to whatever economics books you’re now reading and to instead study carefully better ones. Start, for example, with Armen Alchian’s and William Allen’s Universal Economics. If you promise to read this book from cover to cover, I’ll buy a copy for you. Seriously.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030