Russell Roberts's Blog, page 312

Monopsony Power, Schmonopsony Power

(Don Boudreaux)

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Here’s a letter to a young guy who plans to do graduate work in economics:

Mr. A___:

Thanks for your e-mail. In it, you write that my argument against minimum wages is “weak given it ignores monopsony power.”

You’re correct that I didn’t mention monopsony power in that essay. This omission, however, does not, I think, weaken my argument.

First, even in this age of Covid I find implausible the assertion that employers have monopsony power in the market for low-skilled labor. And in normal times – which, let us hope, return soon – the assertion of the existence of such monopsony power fails the smell test.

Second, even if employers do possess monopsony power, minimum-wage legislation does nothing to solve the problem. At best such legislation treats one lone symptom – namely, low money wages. Yet employers can adjust the terms of the labor contract on many different margins. (See this new paper by Jeffrey Clemens.) Therefore, artificially ‘curing’ the symptom of low money wages will only artificially worsen other, less-visible but no less real symptoms.

Pushing wage rates higher will result in workers who remain employed suffering a reduction in fringe benefits, an increase in work demands, or some mix of the two. And because even employers with monopsony power have every incentive to offer that mix of wage and non-wage benefits that’s most appealing to the workers they wish to employ, minimum wages harm low-skilled workers even when employers possess monopsony power.

There is, I’m afraid, no plausible economic case for minimum wages even if monopsony power were rampant.

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

Price Controls Make People Work Harder

(Don Boudreaux)

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In my most-recent column for AIER – titled “Exploring Deeply the Economics of Price Controls” – I elaborate on an important yet subtle point that I first encountered in F.A. Hayek’s The Road to Serfdom. A slice:

Just as well-meaning supporters of price ceilings are blind to the heavy costs of this policy, well-meaning supporters of minimum-wage legislation are also blind. They mistakenly suppose that the only consequence of such legislation on affected workers is that these workers’ monetary incomes rise.

When low-skilled workers are prevented by government from competing for jobs by agreeing to work at wages below the government-set minimum, some would-be workers are simply rendered unable to find employment. These unfortunate persons thus earn no income to be spent on bread, beef, beer, or any other goods and services. They must either produce directly for themselves or live off of incomes earned by others.

But the ill-effects of minimum wages don’t play out exclusively in job losses. Because even entry-level jobs have many dimensions, employers who are obliged by minimum-wage legislation to pay their workers higher monetary wages can alter these jobs in ways that make them worthwhile to maintain. Employers can demand that workers work faster. They can more strictly monitor and limit workers’ break times. Personal texting and telephoning while on the job can be reduced or eliminated.

Even low-skilled workers who remain employed with a minimum wage in place are thus constrained by this legislation to work in ways that are less desirable than they’d be absent the minimum wage. While these workers’ monetary incomes might be made higher by the minimum wage, most such workers would prefer less-onerous job requirements to the additional income. If this latter fact weren’t so, employers would not have to be prompted by minimum-wage legislation to pay the higher wages in exchange for greater work effort from their workers. Employers would do so on their own in response to the demands of current and potential workers.

Minimum-wage legislation, in other words, is a means by which government forces some low-skilled workers into the ranks of the unemployed while forcing other such workers to ‘purchase’ increases in their monetary incomes with extra work effort that these workers would prefer not to exert. These workers continue to work only because an even worse option for them than working harder at the minimum wage is not working at all.

Some Covid Links

(Don Boudreaux)

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Jordan Schachtel decries New York strongman Andrew Cuomo’s – and other governors’ and government officials’ – mindless swallowing of reckless Covid-model predictions issued by an outfit from Washington state. A slice:

Bill Gates has never discussed the catastrophic failures of his prized “health metrics” forecasting organization, and how it has contributed to the suffering of millions of Americans. Instead, he has seamlessly washed his hands of COVID mania, and has moved on to demanding that the western world sacrifice itself in the name of the latest “crisis” that is climate change.

In December, however, Melinda Gates acknowledged that “we hadn’t really thought through the economic impacts “ of demanding that people stay locked in their houses indefinitely, among other policy requests demanded by Gates Inc.

The IHME models that demanded lockdowns and other insane restrictions relied entirely on sketchy COVID-19 data coming from the city of Wuhan, China. The early statistics concerning deaths, hospitalizations, and overall age stratification have not come close to matching the actual data on the virus. For example, IHME used a 3+% death rate when the real number *from* COVID-19 is only around 0.1%. IHME’s risk projections, which they presented as sound science, were all incredibly overinflated.

Good sense spoken by Florida governor Ron DeSantis.

Glen Bishop looks at various Covid-prediction models. He’s not impressed. A slice:

Imperial predicted 2.1 million deaths for the USA. South Dakota never locked down, hospitals were able to cope, and Imperial’s prediction would assume 5,632 deaths within months for a population of South Dakota’s size. It has been a year with only 1,803 deaths and very few daily deaths now, so the total death toll is less than a third of Imperial’s projection and South Dakota has lower death rates than many states that locked down heavily (though admittedly it is more rural than some of them).

Ferguson’s Swine Flu modelling predicted a reasonable worst-case scenario of 67,000 deaths in 2009 and Ferguson advocated school closures then. Luckily for me the Government at the time ignored this advice. There were 457 deaths.

Ramesh Thakur calls on the left and the right to unite against the tyranny of what David Hart calls “hygiene socialism.” A slice:

Is being concerned about bankrupted businesses right-wing? Those whose lives have been destroyed by constantly shifting and inconsistent rules with little basis in science, include small business owners whose talent, capital and daily grind help pay mortgages, school fees and employees’ wages. Behind every shuttered shop window lies a family story, perhaps a family home lost as collateral for a loan. When a Manchester cafe owner reopened just to survive, cops punched him. Testifying to the growing confidence in complete immunity of thugs in uniform despite the ubiquitous phone camera and widely shared videos, authorities have charged him with assaulting police.

The “let it rip” strawman is a figment of critics’ imagination. ‘Mainstream sceptics’ (is that an oxymoron?) don’t deny Covid is real, but highlight history, perspective, balance and proportionality. The scientific consensus until 2020, written into pandemic preparedness plans like the UK’s, rejected lockdowns. The consensus was sacrificed on the altar of flawed mathematical modelling with an appalling track record. They’ve proven to be catastrophically wrong in both worst and best-case estimates for the UK, US, Australia, Sweden, etc. The experience of an authoritarian government in Wuhan should have come with health warnings on data reliability and brutal suppression methods. Empirical data around the world are underwhelming in correlating hard lockdowns to falling infection and mortality curves. The latter two correlate more robustly to geography, age, underlying health conditions and seasons. An article in the European Journal of Clinical Investigation (January 4th) by Stanford University experts shows that, between less restrictive and harsh interventions, net harm vastly exceeds net gain for the latter.

Colin Tennell argues that lockdown Britain is proving deadlier than ‘free’ Sweden.

Kathy Gyngell walks us through Ivor Cummins’s latest Viral Reality Update. A slice:

But perhaps the most remarkable and damning part of this particular episode starts at about 12 minutes in, when he explains something so simple yet a truth not expressed like this before. This is his observation of the abandonment of decades of Western science by our and other governments in favour of a distinctly unscientific (in Western terms) response to the Covid pandemic. For all the the Government’s protestations about ‘following the science’, this is exactly what they have not been doing. Cummins sets out the wealth of scientific evidence on pandemic management that should have been leveraged, graphically (actually and metaphorically speaking) presenting what he terms the ‘Scientific Crisis Management’ approach, based on years of Western science experience. This is the rational approach we should have taken rather than a Chinese Communist Party version of science adopted by the WHO in 2020 and then foisted on the Western world.

It’s the one Sweden essentially adopted and which, up until 2019, was the World Health Organisation’s recommendation.

Daniel Miller applauds the fact that Peter Hitchens, unlike so very many pundits, refuses to be infatuated by power. A slice:

In March 2020, Boris Johnson and his enablers imported a public health policy from a totalitarian police state, in the face of all medical wisdom and respect for individual liberty, and launched a campaign of psychological warfare to compel public compliance. Eleven months later, the failure of this policy is evident on every level. There is next to no evidence that Britain has seen any medical benefit by transforming itself into a national plague hospital while the costs of the policy continue to mount.

Robert Wright bemoans the pandemic of ignorance.

Quotation of the Day…

(Don Boudreaux)

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… is from page 3 of Scott Lincicome’s excellent, data-rich new study – published last month as a Cato Institute Policy Analysis – “Manufactured Crisis: ‘Deindustrialization,’ Free Markets, and National Security“:

[A]nalyses of the U.S. manufacturing sector and the relationship between trade and national security, as well as the United States’ long and checkered history of security-​related protectionism, undermine the theoretical justifications for imposing protectionism and industrial policy in the name of national defense. Instead, open trade, freer markets, and global interdependence will in almost all cases produce better outcomes in terms of national security and, most importantly, preventing wars and other forms of armed conflict.

I Am Insane

(Don Boudreaux)

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The following conclusion is now firmly set in (what remains of) my mind: If humanity’s reaction to Covid-19 is sane and rational, then sometime in the past 11 months I’ve lost my mind and I am now certifiably insane. If, instead, I remain reasonably in touch with reality and rationality, and am not completely insane, then most of my fellow human beings are utterly bonkers-mad.

Truly, I see no other alternative.

Recognizing that my attachment to reality might well be all but completely severed, I speak from the vantage point of my reality as I perceive it (what else can I do?): The single-minded obsession with avoiding contact with the coronavirus, or with avoiding illness and death from Covid, is beyond my ability to comprehend. This obsession strikes me – in what I no longer doubt is my lunacy – as being as idiotic as obsessions can become.

Why does illness from Covid differ categorically from illnesses from other sources?

My fellow human beings seem now to be willing to suffer without limit deaths from causes other than Covid. To avoid Covid they’re willing to endure indefinitely isolation and misery and tyranny. They seem to have a fetish to be frightened out of their skins by incessant reports of Covid’s devilish dangers and to react to these reports like mindless lemmings.

I truly don’t get it. I look at the data on Covid and then at my fellow human beings – many of whom are close friends – and conclude, tragically for me, that I now inhabit a different reality than they inhabit.

Occam’s Razor leads me to the conclusion that the lost mind is not that of my fellow human beings but, rather, my own. I am insane. I am. Moi. There’s no other plausible explanation for what appears to me to be humanity’s inexplicably lunatic hysteria over Covid-19.

…..

I will continue to blog here at Cafe Hayek, but you readers are well-advised to stop reading this blog – the reason being that it now features only the rantings of a delusional madman.

Bonus Quotation of the Day…

(Don Boudreaux)

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… is from page 188 of Deirdre N. McCloskey’s and Alberto Mingardi’s superb 2020 book, The Myth of the Entrepreneurial State (footnotes deleted; link added; original emphases):

The premise of superior foresightedness in the State, and the premise of the harmlessness of imposing its will coercively, is as we have noted in orthodox economics about a century old. Before 1920 or so, English and Austrian and Swedish economists in particular were modest in their suggestions, and mainly advocated a prudent laissez faire, with carefully designed exceptions to help the poor. Laissez faire was and is reasonably prudent. It was and is not “market fundamentalism,” as George Soros calls it (so unlike a sweet and good State fundamentalism), based on “the theory of perfect competition – of the natural equilibrium of supply and demand—assumed perfect knowledge, homogeneous and easily divisible products, and a large enough number of market participants that no single participant could influence the market price.” His is a common misunderstanding of innovism, pinning a crazy utopianism onto it. The characterization arose from the unhappy choice a century ago of the phrase “perfect competition,” a priori impossible in this vale of tears, to characterize markets with merely reasonably free entry. It led to a mathematical formalization by economists in the 1950s such as Kenneth Arrow and Frank Hahn of implausible assumptions sufficient for utter perfection – “ in order to contradict Margaret Thatcher,” as Hahn once expressed it. Utter perfection was never the goal of those who thought the State ought to have humility, and stay out of things it has no plausible claim to understand, such as spontaneous markets and creative innovation. Markets are pretty good. That is all.

Pittsburgh Tribune-Review: “Habit of the lip”

(Don Boudreaux)

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In my column for the May 11th, 2011, edition of the Pittsburgh Tribune-Review, I wrote again on Deirdre McCloskey’s emphasis on the role that bourgeois dignity plays in economic growth.  You can read my column beneath the fold.

(more…)

Some Covid Links

(Don Boudreaux)

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Liz Wolfe reports on the arbitrariness and absurdity of New York City’s ever-changing Covid-age outdoor dining regulations.

Geoffrey Clifton-Brown says that it’s time to ignore the lockdown fanatics and reopen Britain. Joining in this call is Graham Brady. Alas, Britain remains populated with lockdown fanatics, not the least of whom is British strongman Boris Johnson.

Jonathan Sumption decries the destruction that Covid-19 lockdowns have done, and continue to do, to liberal democracy. A slice:

What makes us a free society is that, although the state has vast powers, there are conventional limits on what it can do with them. The limits are conventional because they do not depend on our laws but on our attitudes. There are islands of human life which are our own, a personal space into which the state should not intrude without some altogether exceptional justification.

Liberal democracy breaks down when frightened majorities demand mass coercion of their fellow citizens, and call for our personal spaces to be invaded. These demands are invariably based on what people conceive to be the public good. They all assert that despotism is in the public interest.

The problem is perfectly encapsulated in a recent interview with Professor Neil Ferguson, whose projections were used to justify the first lockdown last March. Before that, as Prof Ferguson related in that interview, Sage had concluded that the Chinese lockdown had worked but was out of the question in Europe. “It’s a communist, one-party state, we said. We couldn’t get away with it in Europe, we thought. And then Italy did it. And we realised we could … If China had not done it, the year would have been very different.”

How can anyone look at a picture such as this one from the U.K. and not conclude that the reaction to Covid is hysterical – that it is so disproportionate that it cannot be spoofed? Look closely, people, at what we’re doing to our children and to ourselves!

Speaking of spoofs, here’s a recent one from the Babylon Bee – one that, were it instead to have appeared in the New York Times or Washington Post, would be taken without question to be a genuine report written by serious journalists. (HT Todd Zywicki)

Canadian-living-in-Australia James Allan writes about London under strongman Boris Johnson’s lockdown tyranny. A slice:

The first was how eerily empty London was as we walked around each day. We wondered when the great city of London last looked so deserted – not during WWII’s Blitz, not during WWI or the Spanish Flu, not at any point going back at least to the 17th Century. And for what? For a virus that in no-lockdown Sweden has led to 5,000 excess deaths for the year. Tops. And that’s if you don’t correct for population growth or an ageing population. For a virus that has a fraction of a soupcon of the lethality of the Spanish Flu, and all that it has concentrated on the elderly and vulnerable (who one might think should be the overwhelming focus of concern and action).

Next there was all the propaganda everywhere. The BT tower made me want to vomit – “Stay inside. Stay safe. Protect the NHS.” I always thought health services were there to protect citizens, not the other way round. (Leave aside that for someone like me who has lived and worked in a lot of countries the NHS product is one of the worst I’ve ever experienced, perhaps marginally better than the health service in my native Canada but miles worse than Australia’s, New Zealand’s, and even Hong Kong’s.) Meanwhile the orchestrated clapping was nauseating. Can you imagine our ancestors clapping for the Battle of Britain pilots? Or those pilots wanting this to be done?

And let’s not forget all the posters on bus shelters, straight out of some authoritarian government’s propaganda handbook. “Look him in the eye and tell him you can’t work at home.” Or “won’t wear a mask”. Or “It’s not that serious a disease.” These slogans ran below a photo of some deathly ill looking chap with an oxygen mask. Again, leave aside the subtle manipulation here that is involved in showing photos of actors far below 83 years old, that being the median death age from Covid. It is also dishonest because it presents only one side of the equation. The young are being decimated not by the virus – for them it is less risky than the flu – but by the Government’s response to it.

Better to be governed by Ron De Santis than by New York State strongman Andrew Cuomo. The former, unlike the latter, had the good sense to be appropriately skeptical of the models predicting that many states would run out of hospital beds.

I agree with Phil Magness:

I’ll be blunt. If Fauci, as an 80 year old, was vulnerable and at risk, he should have done the responsible thing and stayed home. He also should have retired a decade ago. Instead he irresponsibly ventured out into public every day, even gravitating toward crowds of potentially disease-carrying reporters at every opportunity he had and often appearing maskless in public along the way. In doing so he transfered the burden of accounting for his own relatively high risk onto other innocent people at lower risk levels than his own, expecting them to incur the costs of providing him with a disease-free space so he could continue basking in public attention. Why did he do so? Who knows, but I will go ahead and assume selfishness is at play because he draws a half-million dollar salary and he clearly enjoys being a celebrity.

Quotation of the Day…

(Don Boudreaux)

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… is from page 29 of the 1972 second edition of Henry Hazlitt’s superb – yet, sadly, largely overlooked – 1964 book, The Foundations of Morality:

The moral life should not be confused with the intellectual life. The moral life consists in following the course that leads to the greatest long-run happiness achievable by the individual concerned, and leads him to cooperate with others to the extent of the capacities he actually has, rather than those he might wish he had or might think he “ought” to have.

DBx: Notice the word “cooperate.” The moral life does not consist in ordering other people around against their wills, even if the person doing the ordering intends to achieve admirable outcomes.

You behave morally if you offer to me an exchange that I am free to accept or reject. By needing my acceptance, you offer to cooperate with me in ways that improve each of our lots. The offered exchange, by the way, need not be commercial. It can be – and often is – an offer of friendship, an offer of counsel, an offer of love, an offer of marriage, an offer of charity, an offer of neighborly assistance. (One of the many straw men that opponents of liberalism never tire of slaying is the fictitious and buffoonish proponent of markets who thinks that people do or should care only about their own narrow material well-being and the liberty to pursue it.)

Those persons, of whatever particular ideological or political stripe, who propose to remake society by ordering peaceful people around behave immorally. Such persons’ intentions might not be immoral, but their actions necessarily are.

News Flash: Death Is Inevitable!

(Don Boudreaux)

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Near the two-minute, twenty-second mark of this brief interview with British MP Charles Walker – who has been absolutely heroic in fighting Covid Derangement Syndrome – the interviewer, a British news person, apparently discovers for the first time that some people, such as Mr Walker, understand that death is inevitable.

In response to a perfectly reasonable point made by Walker, the interviewer asks Walker, “So are you saying that we need to learn to live with a certain amount of death?”

Seriously, has humanity gone deranged? This interviewer – along with all who suffer the debilitating disease Covid Derangement Syndrome – treats Covid as if it is visiting upon humanity a fate that differs categorically from any that we’ve ever before confronted.

(I thank my Mercatus Center colleague Jack Salmon for sending to me the link to this interview.)