Making Omelets

There’s has been quite a bit of controversy over raising the minimum wage to $15 per hour. It’s even spawned a movement: “Fight for 15”. Proponents insist that employment effects are nominal and wage effects largely positive. My position, consistently, has been that we should be cautious that we don’t hurt more people than we help. While in some places the labor market will readily absorb a $15/hour minimum wage, in others it could be disastrous. Five Thirty Eight reports a study of Seattle’s rising minimum wage:

As cities across the country pushed their minimum wages to untested heights in recent years, some economists began to ask: How high is too high?

Seattle, with its highest-in-the-country minimum wage, may have hit that limit.

In January 2016, Seattle’s minimum wage jumped from $11 an hour to $13 for large employers, the second big increase in less than a year. New research released Monday by a team of economists at the University of Washington suggests the wage hike may have come at a significant cost: The increase led to steep declines in employment for low-wage workers, and a drop in hours for those who kept their jobs. Crucially, the negative impact of lost jobs and hours more than offset the benefits of higher wages — on average, low-wage workers earned $125 per month less because of the higher wage, a small but significant decline.

That’s a sizeable decrease. It may be the case that other ways for helping low wage earners, like eliminating onerous zoning ordinances that prevent the building of inexpensive housing, should be considered.

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Entrepeneur of the Year

This story reported by WGN captured my imagination:

CHICAGO — A U.S. Postal Service mail carrier is in jail after authorities discovered he was allegedly delivering a lot more than letters and magazines on his Chicago route.

Christopher Baxter was formally charged Saturday with one felony count of manufacturing or delivering cannabis. A Cook County judge ordered Baxter held on $100,000 bail and on Sunday he remained in custody.

Prosecutors say that postal service inspectors were conducting surveillance on Baxter when they saw the 36-year-old mail carrier make a number of hand-to-hand drug deals while he was on duty. They alerted Chicago police and after Baxter admitted to police that he had a “pound of weed,” officers found marijuana, a digital scale, plastic bags and a heat sealer inside his postal bag.

And they say the entrepeneurial spirit is dead! It certainly gives “going postal” a completely new meaning.

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A Little Economics 201

Readers may find it puzzling that I’m always harping on the low rate of business investment. Here’s a brief explanation from Investopedia:

Improved capital goods increase labor productivity. A simple example of this can be seen when a lumberjack upgrades from a standard axe to a chainsaw. Superior capital equipment directly makes individuals, businesses and countries more productively efficient. Increased productive efficiency leads to increased standards of living – the purpose of economic growth.

A business does not see an immediate increase in revenue when it develops capital goods. To make it economically viable to increase or improve the capital structure, a company must have a pool of saved funds to draw upon. This pool of funds needs to last until the new capital goods lead to additional revenue.

Increased capital investment allows for more research and development in the capital structure. This expanding capital structure raises the productive efficiency of labor. As labor becomes more efficient, more goods are produced (higher GDP) and the economy grows.

Now consider the graph at the top of the page, illustrating GDP growth by component of the economy. GDP has four components: personal consumption, business investment, government spending, and net exports. In real terms business investment has been flat for more than a decade, net exports are a drag on the economy, while personal consumption has soared. Since 2009 government spending has actually declined as a component of GDP in real terms.

My preferred solution for increasing wages, employment, and GDP is through increased business investment. The claim that businesses don’t see any opportunities rings hollow—there’s plenty of personal consumption. The alternatives are more government spending with the attendant deadweight loss or fewer imports. Every time you even mention fewer imports somebody starts screaming “Trade war!” So increased business investment is the best of the available alternatives.

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Nobody Knows What Those Policies Are

I thought that this observation by Christopher Bolan at RealClearDefense was worthy of note:

As terrorism expert Peter Bergen recently pointed out, all fatal jihadist attacks in the United States since 9/11 have been perpetrated by U.S. citizens or legal permanent residents. Disrupting terrorist plots overseas will continue to be one critical component of any US counterterrorism strategy. But as the ISIS caliphate collapses, its leadership is calling on potential recruits to “stay put and carry out jihad at home” by conducting attacks using whatever means are available to include guns, knives, and trucks. Preventing these spontaneous attacks from self-radicalized terrorists inside the U.S. will require a coordinated domestic intelligence and law enforcement campaign heavily dependent on the willing cooperation of local Muslim communities who are closest to those most vulnerable to recruitment. Adopting policies that fully integrate Muslims into local communities and American society more broadly is the best insurance against this emerging threat of self-radicalization.

The emphasis is mine. What are those policies? Acceptance of people with drastically different backgrounds is probably higher now that at any time in our history even as the number of terrorist attacks with multiple casualties mounts. We are not Europe. I don’t think anybody knows what policies will prevent self-radicalization.

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What’s Missing From This Picture?

In City Journal Edward Glasser makes a number of proposals for reducing joblessness:

  • More Americans with college educations.
  • Improved vocational education.
  • Better retraining for older workers.
  • Reduce regulatory burdens to entrepeneurship including “one stop permitting” and reforms in occupational licensing.
  • Consolidating the alphabet soup of support programs for the poor into a single cash payment to ensure that work made more sense than joblessness.
  • Wage supports to replace the Earned Income Tax Credit.

More higher education is cargo cult thinking at its best. An alternative explanation for the lower unemployment rate among those with college degrees is that those with college educations have a competitive advantage over non-degree holders for jobs that don’t actually require a college degree. What we actually need is more jobs that require college degrees rather than more people with college degrees.

Better retraining for older workers is an explanation in search of a problem. Older workers are holding on to their jobs as long as they can these days as is reflected in the fact that the labor force participation rate for the elderly is the highest it’s been in decades.

I found a couple of factors conspicuous by their absence. We should reduce the number of workers that come here illegally, particularly those without skills. We should ensure that foreign workers are not imported unless there’s a genuine need. Keeping U. S. wages low is not a legitimate reason to import workers.

And companies should be given incentives for investing in the U. S. economy (or disincentives for holding cash).

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Juxtaposition

The Hill reports that some Democrats would like to change the subject:

Frustrated Democrats hoping to elevate their election fortunes have a resounding message for party leaders: Stop talking so much about Russia.

Democratic leaders have been beating the drum this year over the ongoing probes into the Trump administration’s potential ties to Moscow, taking every opportunity to highlight the saga and forcing floor votes designed to uncover any business dealings the president might have with Russian figures.

But rank-and-file Democrats say the Russia-Trump narrative is simply a non-issue with district voters, who are much more worried about bread-and-butter economic concerns like jobs, wages and the cost of education and healthcare.

As Thomas Lifson notes at American Thinker:

Despite the continuing absence of any evidence that Donald Trump “colluded” with Russia to steal the election from its rightful winner, MSNBC’s Joy Reid did her own version of Lady Macbeth’s obsession, in effect muttering, “Out, out, damn defeat,” by invoking the Russia excuse 56 times in the first hour of her program yesterday.

they are likely to get their wish. It would be darned hard to talk more about Russia.

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The Missing Statistic

There is one meaningful statistic missing from Justin Fox’s analysis at Bloomberg of the myths surrounding the “gig economy”:

The median number of years that wage and salary workers in the U.S. have been with their current employer was 4.2 when the Bureau of Labor Statistics last checked in January 2016. That’s higher than at any time in the 1980s or ’90s.

The percentage of Americans switching employers or shifting in and out of the workforce has been declining since the 1980s, economists at the Federal Reserve Board and University of Notre Dame documented last year.

Moves across state lines, which are often made by people searching for new job opportunities, have become much less common.Only 1.5 percent of Americans made such moves from early 2015 to early 2016, reports the U.S. Census Bureau, down from 3.6 percent from 1969 to 1970. Moves across county lines within the same state have also declined.

Self-employment has fallen slightly as a percentage of overall employment over the past decade, according to the BLS, and is far below the levels of the 1950s.

How can you reconcile the perception of a more mobile workforce with the reality of one that’s significantly less mobile? The answer is in the graph at the top of the page. Nearly a third of those who are unemployed have been unemployed for a very long time and people know that. People realize that a significant number of people who lose their jobs or leave them voluntarily never go back to work. That fear reduces mobility and keeps wages low.

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The Economy of the Future

In his most recent Washington Post column Robert Samuelson muses about a column he’s never written, one that sketches the contours of the “economy of the future”. Here’s the kernel:

Industries vary. Not for everyone is the planned disorder of the “gig economy.” But neither can we resurrect the calm economic growth of the 1950s, when large American corporations seemed to control their markets. That was the basis of the postwar contract between capital and labor. The goal now is to convert the worker shortage into a better-paid, better-trained and more productive labor force.

There are multiple factors working against that future. One of them is the loose labor market created by importing workers, legal and illegal, from outside the country and pressing wages down. The other is a lack of domestic capital investment. If there is an over-arching theme for this blog, it’s advocacy for that version of the future.

Not everyone shares the goal expressed above by Mr. Samuelson. And some of those people, who envision an economy in which companies reap enormous profits at low risk, paying low wages to workers who don’t protest for fear of being replaced, are among the wealthiest and most powerful people in the country.

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My Dad’s Photos

I’ve decided to be a bit more conscientious about posting my dad’s photos. This picture was taken on a trip my mom and dad took to Mexico 70 years ago. What I like about it is the expressions on the women’s faces. I wonder if they’d ever had their pictures taken before?

If the young girl is still alive she’d be in her 80s at this point. Someday someone may stumble across this picture here and recognize their grandmother or great-grandmother. Strange to think about.

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Running Aground

Remember the state of California’s ambitious plan to create its own single-payer system? The Sacramento Bee reports that the plan has run aground on the shoals of reality:

Assembly Speaker Anthony Rendon put the brakes on a sweeping plan to overhaul the health care market in California Friday, calling the bill “woefully incomplete.”

Rendon announced plans to park the bill to create a government-run universal health care system in Assembly Rules Committee “until further notice” and give senators time to fill in holes that the bill does not currently address.

“Even senators who voted for Senate Bill 562 noted there are potentially fatal flaws in the bill, including the fact it does not address many serious issues, such as financing, delivery of care, cost controls, or the realities of needed action by the Trump administration and voters to make SB 562 a genuine piece of legislation,” Rendon said.

By that he means that under the terms of the Affordable Care Act California would require a waiver for its single-payer system.

Democratic Sens. Ricardo Lara and Toni Atkins, who introduced the proposal, acknowledged the bill was dead for the year. Lara and Atkins had described the bill as a work in progress when it passed the Senate earlier this month without a funding plan. A legislative analysis pegged the cost at $400 billion.

The abrupt announcement shields members of the Assembly from having to take a difficult vote that could be used against them by critics or supporters of the policy.

When Gov. Moonbeam represents the voice of reason, you can be pretty confident that there are some pretty serious practical hurdles to leap to implement a workable plan not to mention the political ones.

I wonder what would have happened when the tab turned out to be an order of magnitude higher than was being projected? When has any health care program come in under budget? Certainly not Medicare, Medicaid, or the Affordable Care Act. Medicare is presently two orders of magnitude more expensive than originally projected, even when inflation is taken into account.

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