Are Minimum-Wage Hikers Being Stingy?Steven Greenhut|SACRAMENTO — Foes of minimum-wage increases often ask supporters why they are so stingy. If a $10 minimum wage is unquestionably beneficial to the workers and the economy, then why not ratchet that number up to $20 an hour or even $50. They don't really want those absurdly high minimum wages, but want to showcase how damaging such an idea can be to the economy.I used to downplay that argument as hyperbolic, but after reading recent research used to tout the new San Diego measure, I see the logic of these minimum-wage critics. Increasingly, wage-hike supporters claim that there virtually is no measurable down side to their proposal, that giving lower-wage workers more money helps the economy.
If a little boost helps a lot, a bigger boost would help even more, right?
Earlier this month, the union-backed Center on Wage and Employment Dynamics at the University of California, Berkeley, published a short study estimating the effect of San Diego's proposed minimum-wage law. (The increase recently was approved, 6-3. It will likely be vetoed by Mayor Kevin Faulconer, but City Council has enough votes to override the veto. The business community is mulling a plan to put the matter to voters via referendum.)
The report confirms a massive local economic bonanza — of $260 million a year, as lower-income earners gain additional dollars to buy food and other necessities, according to the San Diego-based Center on Policy Initiatives (CPI). It cites the study as proof: "Raising the minimum wage is not only the right thing to do; it's smart economic policy."
The Berkeley labor center report finds that 23 percent to 29 percent of San Diego workers will be "affected" by the wage increase, with an average annual earnings increase of $1,400 a year by 2017. An odd thing jumps out from the data and the commentary about it: These economists are taking a static look at the data, considering only the increased income that people will receive. They don't consider any other possibilities.
For instance, there's no accounting for the likelihood that some businesses will cut back benefits to pay for the additional labor costs. Or the possibility that some business owners — already unsure of what the implementation of Obamacare will add to their cost structure — will hire fewer workers or perhaps even lay off some existing workers. Or that some new businesses might not bother getting started.
How can economists analyze the costs and benefits of any particular policy by only looking at the benefits?
If there's only an upside, then there's a lot of work to do. In its calculator for San Diego residents, the Massachusetts Institute of Technology has determined that the city's planned increase to $11.50 by 2017 (plus five mandated sick days) is barely sufficient. That wage is OK for single people, but the living wage should be closer to $34 an hour for an adult with three kids, according to the calculator.
California's minimum wage, which was raised to $9 an hour in July and will be raised to $10 by 2016, isn't too generous, either. Even in low-cost Imperial County, a decent living wage for a single mom would be close to $20 an hour, based on that same MIT calculation.
"The first step is employers cut back on benefits and try to maintain the same level of employees that they have," said Lawrence McQuillan, an economist at the libertarian Independent Institute in Oakland. "If they still can't get costs under control, they start laying people off. It's a gradual effect. ... It's hard for people to get their heads around what they can't see."
That's what good economic analysis should try to do — calculate the unseen costs of things.
CPI's Research Director Peter Brownell admitted that the Berkeley center's data didn't try to wrestle with the costs involved, but he insisted that the broad economic acceptance is that the negative effects are "close to zero." He admitted that "somewhere out there, there's a number that doesn't make sense." But business owners might be afraid to know what that number might be.
It would be nice if economists would at least produce data that analyzed the additional costs and likelihood of cutbacks — and didn't just paint a one-sided picture. But as long as wage-hikers claim higher wages help the economy, it makes sense to wonder why they are being so parsimonious about it.
Wednesday, July 30, 2014
Are Minimum-Wage Hikers Being Stingy? - Reason.com
Are Minimum-Wage Hikers Being Stingy? - Reason.com
Sunday, July 27, 2014
Mary Poppins Quits: The Rebuttal (w/ Remy) - YouTube
Mary Poppins Quits: The Rebuttal (w/ Remy) - YouTube
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The original (embedding disabled)
http://youtu.be/TlTO8ggfes8
<iframe width="560" height="315" src="//www.youtube.com/embed/fjGGS5L8NhU" frameborder="0" allowfullscreen></iframe>
The original (embedding disabled)
http://youtu.be/TlTO8ggfes8
Tuesday, July 22, 2014
Friday, July 18, 2014
The Clarence Thomas Rules « Commentary Magazine
Yesterday’s front page feature in the Sunday New York Timesabout Thomas and his various associations with rich people is the sort of thing that one simply cannot imagine being written or published about anyone else on the high court.
The piece is a 2,800-word insinuation about ethical violations that are never spelled out. Reporter Mike McIntire was sent out on a fishing expedition looking for juicy material about this liberal bête noire and clearly came up empty. But instead of spiking the story, the Times (whose new editor Jill Abramson’s career was made via slanders of Thomas) printed it anyway.
The worst allegation in the piece is that Thomas may have helped persuade a wealthy donor to contribute to the building of a museum about the culture of poor Gullah-speaking African-Americans along the Georgia coast where the jurist grew up. Federal judges aren’t supposed to do fundraising even for charity but the code has never applied to the Supreme Court and even if it did, McIntire has no real proof of Thomas specifically conducting an “ask” for the Pin Point museum.
And that’s the most substantive allegation in the article. Everything else is mere conjecture and insinuation intended to give readers the idea that Thomas is unethical and conflicted. Except there are no instances of conflicts of interest and no ethical violations reported in the story. Liberal justices like Stephen Breyer and Ruth Bader Ginsburg associate with rich people, travel to give speeches and attend liberal think tank events the same way Thomas and Justice Antonin Scalia go to ones run by conservatives. The idea that the votes of either faction on the court are up for sale is absurd.
But you don’t have to be an investigative reporter to understand the motivation behind this article. Liberals have always treated Thomas as traitor to his race because he is a black conservative Republican. That has meant that Thomas is the sort of person about whom anything can be said. It is true that he may not have been the most qualified person in the land at the time of his appointment but the same can be said of a number of his liberal colleagues on the court. But, unlike other judges, his personal destruction has always been the goal of the political left. Switch the name and the political affiliation of the subject of this hit piece and you have a story that would never have been assigned, let alone published by the Times.
Thursday, July 17, 2014
The climate consensus is not 97% – it’s 100% | Watts Up With That?
During my valedictorian keynote at the conference, I appointed the lovely Diane Bast as my independent adjudicatrix. She read out six successive questions to the audience, one by one. I invited anyone who would answer “No” to that question to raise a hand. According to the adjudicatrix, not a single hand was raised in response to any of the questions.
These were the six questions.1. Does climate change?
2. Has the atmospheric concentration of CO2 increased since the late 1950s?
3. Is Man likely to have contributed to the measured increase in CO2 concentration since the late 1950s?
4. Other things being equal, is it likely that adding CO2 to the atmosphere will cause some global warming?
5. Is it likely that there has been some global warming since the late 1950s?
6. Is it likely that Man’s emissions of CO2 and other greenhouse gases have contributed to the measured global warming since 1950?
At a conference of 600 “climate change deniers”, then, not one delegate denied that climate changes. Likewise, not one denied that we have contributed to global warming since 1950.
In the peer-reviewed learned journals, therefore, only 41 of 11,944 papers, or 0.3% – and not 97.1% – had endorsed the definition of the consensus proposition to which the IPCC, in its 2013 Fifth Assessment Report, had assigned 95-99% confidence.
Now that we have the results of the Heartland Conference survey, the full extent of the usual suspects’ evasiveness about climate “consensus” can be revealed.
Cook et al. had lumped together the 96.8% who, like all 100% of us at ICCC9, had endorsed the proposition that we cause some warming with the 0.3% who had endorsed the IPCC’s proposition that we caused most of the warming since 1950.
Wednesday, July 16, 2014
Walmart, Wages, and the Public Good « Commentary Magazine
When New York Times columnist Timothy Egan wrote a column called “Walmart, Starbucks, and the Fight Against Inequality,”claiming that Walmart’s low wages forced many of its employees onto public assistance, such as food stamps and Medicaid, David Tovar, the communications director for Walmart, treated it as a first draft and pointed out its many factual inaccuracies. He then posted it on the Walmart website. It makes for hilarious reading.
Egan’s argument is that if Walmart paid higher wages, its employees wouldn’t need public assistance. Using very dubious math and a “study” that left-leaning Politifact.com calls “mostly false,” Egan describes Walmart as a “net drain” on taxpayers. Tovar points out that Walmart is the largest taxpayer in the country.
I doubt that Timothy Egan has ever gone into a store to buy something and, on being told the price, insisted on paying more. So if Walmart can hire a satisfactory employee at a given wage, why should it insist on paying more? For one thing, it would violate its fiduciary duty to the stockholders. For another, it would have to raise the prices its hundreds of millions of customers pay.
Egan’s column, demanding that Walmart pay higher wages, is classic modern liberalism, solving the problems of the world with other people’s money, and using junk statistics to justify it.
Friday, July 11, 2014
Inherited Intelligence | The Scientist Magazine®
Tests of spatial memory, tool use, communication, and other cognitive abilities in chimpanzees have revealed that aspects of intelligence, including general intelligence, are inherited. The results, published today (July 10) in Current Biology, complement similar findings from human studies, and lend support to the theory of general intelligence—wherein an individual’s overall cognitive prowess influences his or her more specific abilities.
“This is really major evidence that . . . those estimates of the heritability of human intelligence are probably dead on,” said Alexander Weiss, a psychologist at the University of Edinburgh in the U.K., who was not involved in the study. “Anyone sensible and objective looking at this, who had any doubts about the heritability of human intelligence . . . should put those worries to rest.”
In Hopkins’s study, 99 chimps were subjected to 13 different tests covering a range of specific cognitive skills. The team then applied a statistical process called a principal component analysis (PCA), which essentially identified links between the individual tests. That is, the PCA determined whether an animal’s ability in one test was linked to its ability in any of the other tests. If such links were found, those tests were lumped together into one subgroup, or component. From this analysis, the 13 cognitive tests were divided into four components.
After the tests were completed, each chimp had scores both for overall (general) intelligence—calculated from all 13 tests—and for each of the four components. Tallying these intelligence scores with the chimps’ known relatedness to one another, the team confirmed that general intelligence scores were heritable, as were the scores for two of the four components—those that included spatial memory and communication ability.
“Some people think you can partition or parcellate intelligence . . . so you have a logical arithmetic one, and a language one, and a music one,” said Hopkins. But, said Weiss, “[Hopkins’s study] is a really strong piece of evidence in favor of general intelligence—the view that there is a single underlying factor for intelligence.”
Interestingly, a human genome-wide association study (GWAS) published in Nature Communicationsthis week (July 8) also provided evidence for general intelligence, showing that approximately half of the genetic variations linked with ability in mathematics are also those linked with ability in language.
Hopkins said that, with enough animals, similar GWASs could be performed in chimpanzees. Candidate genes could then be compared between humans and chimps to see how the genetic component of the two species’ intelligence has evolved.
Ultimately, it is probably no surprise that, like human intelligence, chimp intelligence is heritable, given that “we were the same species for 23 million years,” said Sally Boyson, a professor of psychology at Ohio State University. However, it had never actually been confirmed, she said. “We can surmise, we can speculate, we can think, ‘Oh, probably,’ but [Hopkins’s group] went out and did it.”
Thursday, July 10, 2014
Who's the Real Hobby Lobby Bully? - Bloomberg View
Cards on the table: I think that institutions Hobby Lobby and Little Sisters of the Poor are obviously correct -- they are being forced by the government to buy something that they don’t want to buy. We can argue about whether this is a good or a bad idea, but the fact that it is coercive seems indisputable. If it weren’t for state power, the Little Sisters of the Poor would be happily not facilitating the birth-control purchases of its employees; the Barack Obama administration has attempted to force them to do otherwise. The U.S. Supreme Court has ruled that this coercion violates the Religious Freedom Restoration Act, and it must therefore cease.
I think a few things are going on here. The first is that while the religious right views religion as a fundamental, and indeed essential, part of the human experience, the secular left views it as something more like a hobby, so for them it’s as if a major administrative rule was struck down because it unduly burdened model-train enthusiasts. That emotional disconnect makes it hard for the two sides to even debate; the emotional tenor quickly spirals into hysteria as one side says “Sacred!” and the other side says, essentially, “Seriously? Model trains?” That shows in Justice Ruth Bader Ginsburg’s dissent, where it seems to me that she takes a very narrow view of what role religious groups play in the lives of believers and society as a whole.
The second, and probably more important, problem is that the long compromise worked out between the state and religious groups -- do what you want within very broad limits, but don’t expect the state to promote it -- is breaking down in the face of a shift in the way we view rights and the role of the government in public life.
All of us learned some version of “You have the right to your beliefs, but not to impose them on others” in civics class. It’s a classic negative right. And negative rights are easy to make reciprocal: You have a right to practice your religion without interference, and I have a right not to have your beliefs imposed on me.
This works very well in situations in which most of the other rights granted by society are negative rights, because negative rights don’t clash very often. Oh, sure, you’re going to get arguments about noise ordinances and other nuisance abatements, but unless your religious practices are extreme indeed, the odds that they will substantively violate someone else’s negative rights are pretty slim.
I’m not saying that America ever perfectly hewed to this sort of ideal. (Blue laws, anyone?) I’m just saying that the statement of this ideal was perfectly consistent with the broadly held conception of what government was for, which was to provide “public goods” in the classical economics sense,1 but otherwise mostly to keep other people from doing stuff to you, not to do things for you or force you to do them for other people.
In this context, “Do what you want, as long as you don’t try to force me to do it, too” works very well, which is why this verbal formula has had such a long life. But when you introduce positive rights into the picture, this abruptly stops working. You have a negative right not to have your religious practice interfered with, and say your church forbids the purchase or use of certain forms of birth control. If I have a negative right not to have my purchase of birth control interfered with, we can reach a perhaps uneasy truce where you don’t buy it and I do. But if I have a positive right to have birth control purchased for me, then suddenly our rights are directly opposed: You have a right not to buy birth control, and I have a right to have it bought for me, by you.
....
1 Public goods are not “goods provided by the government”; they’re goods that have to be provided by the government, because no one without taxing power can efficiently provide them. Police service is the classic public good because it is nonrivalrous (multiple people can enjoy it) and nonexclusive (you can’t keep other people from enjoying the benefits). If crime goes down, all of us enjoy lower crime, even if we don’t pay taxes. Defense of the borders is another classic public good, and other items such as roads and lighthouses are usually included.
Alan Reynolds: Why Piketty's Wealth Data Are Worthless - WSJ
No book on economics in recent times has received such a glowing initial reception as Thomas Piketty's "Capital in the Twenty-First Century." He remains a hero on the left, but the honeymoon may be drawing to a sour close as evidence mounts that his numbers don't add up.
Mr. Piketty's headline claim is that capitalism must result in wealth becoming increasingly concentrated in fewer hands to a "potentially terrifying" degree, on the grounds that the rate of return to capital exceeds the rate of economic growth. Is there any empirical evidence to back up this sweeping assertion? The data in his book—purporting to show a growing inequality of wealth in France, the U.K., Sweden and particularly the United States—have been challenged. And that's where the story gets interesting.
In late May, Financial Times economics editor Chris Giles published anessay that found numerous errors in Mr. Piketty's data. Mr. Piketty's online "Response to FT" was mostly about Europe, where the errors Mr. Giles caught seem minor. But what about the U.S.?
Mr. Piketty makes a startling statement: The data in his book should now be disregarded in favor of a March 2014 Power Point presentation, available online, by Mr. Piketty's protégé, Gabriel Zucman (at the London School of Economics) and his frequent co-author Emmanuel Saez (of the University of California, Berkeley). The Zucman-Saez estimates, Mr. Piketty says, are "much more systematic" and "more reliable" than the estimates in his book and therefore "should be used as reference series for wealth inequality in the United States. . . (rather than the series reported in my book)."
Zucman-Saez concludes that there was a "large increase in the top 0.1% wealth share" since the 1986 Tax Reform, but "no increase below the top 0.1%." In other words, all of the increase in the wealth share of the top 1% is attributed to the top one-tenth of 1%—those with estimated wealth above $20 million. This is quite different from the graph in Mr. Piketty's book, which showed the wealth share of the top 1% (which begins at about $8 million, according to the Federal Reserve's Survey of Consumer Finances) in the U.S. falling from 31.4% in 1960 to 28.2% in 1970, then rising to about 33% since 1990.
In any event, the Zucman-Saez data are so misleading as to be worthless. They attempt to estimate top U.S. wealth shares on the basis of that portion of capital income reported on individual income tax returns—interest, dividends, rent and capital gains.
This won't work because federal tax laws in 1981, 1986, 1997 and 2003 momentously changed (1) the rules about which sorts of capital income have to be reported, (2) the tax incentives to report business income on individual rather than corporate tax forms, and (3) the tax incentives for high-income taxpayers to respond to lower tax rates on capital gains and dividends by realizing more capital gains and holding more dividend-paying stocks. Let's consider each of these issues:
• Tax reporting. Tax laws were changed from 1981 to 1997 to require that more capital income of high-income taxpayers be reported on individual returns, while excluding most capital income of middle-income savers and homeowners. This skews any purported increase in the inequality of wealth.
For example, interest income from tax-exempt municipal bonds was unreported before 1987—so the subsequent reporting of income created an illusory increase in top incomes and wealth. Since 1997, by contrast, most capital gains on home sales have disappeared from the tax returns of middle-income couples, thanks to a $500,000 tax exemption. And since the mid-1980s, most capital income and capital gains of middle-income savers began to vanish from tax returns by migrating into IRAs, 401(k)s and other retirement and college savings plans.
Balances in private retirement plans rose to $12.4 trillion in 2012 from $875 billion in 1984. Much of that hidden savings will gradually begin to show up on tax returns as baby boomers draw them down to live on, but they will then be reported as ordinary income, not capital income.
Tax law changes, in summary, have increased capital income reported at the top and shifted business income from corporate to individual tax returns, while sheltering most capital income of middle-income savers and homeowners. Using reported capital income to estimate changing wealth patterns is hopeless.
• Switching from corporate to individual tax returns. When individual tax rates dropped from 70% in 1980 to 28% in 1988, this provoked a massive shift: from retaining private business income inside C-corporations to letting earnings pass through to the owners' individual tax returns via partnerships, LLCs and Subchapter S corporations. From 1980 to 2007, reports the Congressional Budget Office, "the share of receipts generated by pass-through entities more than doubled over the period—from 14 percent to 38 percent." Moving capital income from one tax form to another did not mean the wealth of the top 1% increased. It simply moved.
• Tax rates and capital gains. There were huge, sustained increases in reported capital gains among the top 1% after the capital-gains tax was reduced to 20% from 28% in 1997, and when it was further reduced to 15% in 2003. Although more frequent asset sales showed up as an increase in capital income, realized gains are no more valuable than unrealized gains so realization of gains tells us almost nothing about wealth. Similarly, a portfolio shift from municipal bonds, coins or cash into dividend-paying stocks after the tax on dividends fell to 15% in 2003 might look like more capital income when it was merely swapping an untaxed asset for a taxable one.
In his book, Mr. Piketty constructed estimates of top wealth shares, decade by decade, melding and massaging different kinds of data (estate tax records, the Federal Reserve's Survey of Consumer Finances). These estimates are suspect in their own right; but as we now learn from Mr. Piketty's response to Mr. Giles, we can ignore them.
Yet Mr. Piketty's preferred alternative, the Zucman-Saez slide show, is also irreparably flawed as a guide to wealth concentration. Mr. Piketty's premonition of soaring U.S. wealth shares for the top 1% finds no credible support in his book or elsewhere.
Mr. Reynolds, a senior fellow with the Cato Institute, is author of a 2012 Cato Institute paper, "The Misuse of Top 1 Percent Income Shares as a Measure of Inequality."
Wednesday, July 09, 2014
Dear Ultra-Rich Man : The Freeman : Foundation for Economic Education
Dear Ultra-Rich Man : The Freeman : Foundation for Economic Education
You probably don’t know me, but unlike you, I am one of the 99 percent, a proud and unapologetic advocate of free and open markets. I’m writing you because your letter to other rich guys has gone viral. Each time I saw it, I thought, “Somebody should respond to this guy.” I got tired of waiting. So I hope you’ll read this. I leave your prose in italics so I can address your major points in turn.
You probably don’t know me, but like you I am one of those .01%ers, a proud and unapologetic capitalist.I admit I’m already suspicious. If you were a proud and unapologetic capitalist, I doubt you’d write the things you did. Now, maybe you’re an apologetic investor, or even an entrepreneur. But to my mind, a capitalist is one who understands and advocates for a system of free and open markets—as opposed to other economic systems—such as State capitalism, crony capitalism, mercantilism, or Keynesian interventionism. If by capitalist, you mean, “guy who likes to make money in business,” then great. I just want to make sure we’re not talking past each other.
I have been rewarded obscenely for my success, with a life that the other 99.99 percent of Americans can’t even imagine. Multiple homes, my own plane, etc., etc.Did you create something of value for people, or make it possible for people to get something of value in return? Did they willingly hand over what economist Walter Williams calls “certificates of performance”? Or did you take subsidies or lobby the government for competitive advantages? If the former, I certainly don’t begrudge you your airplane. If the latter, then you are a crony capitalist (crapitalist), or rent-seeker. There is a big difference.
I was so excited by the potential of the web that I told both Jeffs that I wanted to invest in whatever they launched, big time. It just happened that the second Jeff—Bezos—called me back first to take up my investment offer. So I helped underwrite his tiny start-up bookseller. The other Jeff started a web department store called Cybershop, but at a time when trust in Internet sales was still low, it was too early for his high-end online idea; people just weren’t yet ready to buy expensive goods without personally checking them out (unlike a basic commodity like books, which don’t vary in quality—Bezos’ great insight). Cybershop didn’t make it, just another dot-com bust. Amazon did somewhat better. Now I own a very large yacht.What if the other Jeff had called first? You might be living next door to me. The point is not that you were successful, but rather that—at that time—the capital you gave to either Jeff could not be used for any other purpose. As it happens, Jeff Bezos was a good steward of your capital. He has created value for hundreds of millions of people, so both you and he have since been rewarded for being good stewards of capital. Without either of you, there would have been no Amazon (and thus no Amazon Prime, which lets me watch good TV cheaper than cable).
What sets me apart, I think, is a tolerance for risk and an intuition about what will happen in the future. Seeing where things are headed is the essence of entrepreneurship. And what do I see in our future now? I see pitchforks.We might quibble about the essence of entrepreneurship. You get it partially right, at least. But if you see pitchforks, it’s only because egalitarian ideologues are spreading bad economic ideas and fomenting the worst instincts in people: cruder emotions such as envy. Yet the poorest quintile of Americans is wealthier and healthier than two-thirds of the entire world. We should not be brandishing pitchforks at you. We should keep on sending you our certificates of performance—if, that is, you keep satisfying our wants and needs, and solving our problems.
At the same time that people like you and me are thriving beyond the dreams of any plutocrats in history, the rest of the country—the 99.99 percent—is lagging far behind.Guess what? I, too, am thriving beyond the dreams of any plutocrats in history! Later, in this very letter, you admit that on the things that matter, there isn’t really much of a gap between us at all. You write, “I earn about 1,000 times the median American annually, but I don’t buy thousands of times more stuff. My family purchased three cars over the past few years, not 3,000. I buy a few pairs of pants and a few shirts a year, just like most American men.” Looks to me like we’re pretty equal where it counts. Because when it comes to consumption power, we little guys also have it made, yachts notwithstanding. (You’re more likely to find me on a pontoon boat. That’s okay.) You leave those surpluses to be used as capital—hopefully by other able entrepreneurs.
The divide between the haves and have-nots is getting worse really, really fast. In 1980, the top 1 percent controlled about 8 percent of U.S. national income. The bottom 50 percent shared about 18 percent. Today the top 1 percent share about 20 percent; the bottom 50 percent, just 12 percent.Accepting this statement on its face: So what? These statistical abstractions tell us nothing about how well people live today compared with the past. The more important questions are: Compared to 1980, is any one of us more likely to have greater access to the goods and services we need to live a decent life? Can plebs like me get mobile devices we couldn’t in 1980? Are we living longer than in 1980? Can we buy food, shelter, pants, TVs, transportation—on a website? Is total compensation (including non-wage benefits) more than it was in 1980? (Yes, yes, yes, yes, and yes.)
Now, might any of this have to do with entrepreneurs and investors directing capital to productive uses?
According to Michael Shermer, writing in Scientific American of all places, the American dream is not dead.
The top-fifth income earners in the U.S. increased their share of the national income from 43 percent in 1979 to 48 percent in 2010, and the top 1 percent increased their share of the pie from 8 percent in 1979 to 13 percent in 2010. But note what has not happened: the rest have not gotten poorer. They’ve gotten richer: the income of the other quintiles increased by 49, 37, 36 and 45 percent, respectively.
Not only that, but all quintiles have access to Netflix, Trader Joe’s, and mobile devices.
Now, there are desperately poor people out there. But worrying about what the desperately poor lack is very different from worrying about what the ultra-rich have. Surely guys like you can find creative solutions to helping the least advantaged without making them dependent on State largess, or without placing any more burdens on business.
Our country is rapidly becoming less a capitalist society and more a feudal society. Unless our policies change dramatically, the middle class will disappear, and we will be back to late 18th-century France. Before the revolution.This could be true, but not for the reasons you think. Again, there is a big difference between those who lobby politicians to transfer resources into their coffers through subsidies, regulations, and other political means and those who actually serve customers in order to make their lives better. The former should be called “crapitalists,” and there are way too many of them in the world. But crapitalism is a consequence of too much government power, power that ends up on auction. Such was the case in Rome, Paris, and Saint Petersburg. As long as poor people aren’t systematically excluded from entrepreneurial opportunities, the pitchforks will pitch hay.
(Note: Minimum wage laws can exclude poor people from opportunities.)
In fact, there is no example in human history where wealth accumulated like this and the pitchforks didn’t eventually come out. You show me a highly unequal society, and I will show you a police state. Or an uprising. There are no counterexamples. None. It’s not if, it’s when.Sure there are counterexamples: Singapore. Hong Kong. Switzerland. These days the pitchforks are coming out in societies where the poor don’t have access to real property, collateral, and low-cost legal institutions that help them become upwardly mobile—places like Egypt, Brazil, and Turkey. (See the work of Hernando de Soto). The pitchforks come out not when there is inequality of outcomes, but when political power is being sold to the highest bidder, or put differently, where political powers pick winners and losers and where business and government collude unfairly to become a “monstrous hybrid.” Pitchforks come out when the welfare well runs dry, as in Greece.
Many of us think we’re special because “this is America.” We think we’re immune to the same forces that started the Arab Spring—or the French and Russian revolutions, for that matter. I agree. We are certainly not immune to populist uprisings. But this is no justification for wealth redistribution or minimum wage hikes, which are likely—revolution or no—to make those with the pitchforks worse off than they would otherwise have been. "People don’t like that other people have gotten rich" is not an argument for confiscating wealth.
The model for us rich guys here should be Henry Ford, who realized that all his autoworkers in Michigan weren’t only cheap labor to be exploited; they were consumers, too. Ford figured that if he raised their wages, to a then-exorbitant $5 a day, they’d be able to afford his Model Ts. What a great idea. My suggestion to you is: Let’s do it all over again. We’ve got to try something. These idiotic trickle-down policies are destroying my customer base. And yours too.Wait, didn’t you say you were “rewarded obscenely”? Looks to me like your customer base is doing just fine. Do you really want to use the “company town” as the model for the good society? Good luck with that. Now, if we’re being charitable in interpreting you, we might point to companies like Costco that pay more for labor. It works for them. If it works for you, then what’s stopping you? If any such model works so splendidly, people will replicate it.
Finally, don’t you think it’s a bit rich (no pun) to call “trickle-down” policies “idiotic” and then propose them in the same breath? What’s more “trickle-down,” after all, than the notion that raining free money from on high—whether via fiat wages or welfare checks—will “stimulate” a middle class to burgeon? If anything, it will stimulate them to do more of less. These tired Keynesian nostra only end up in perfectly good capital being misallocated. (Burning planks from a ship at sea might keep you warm for a night, but it won’t get your ship to port.)
It’s when I realized this that I decided I had to leave my insulated world of the super-rich and get involved in politics.Why not help people with charity? Why not create better-faster-cheaper goods? Politics, at its root, is just some group compelling other people with the threat of violence to try to refashion the world as they see it in their minds. If that’s not inequality, I don’t know what is. But more importantly, you have already demonstrated that you can make the world a better place. It is better with Amazon than without. People are employed. I buy products and services from you that enrich my life. Thank you. Now, if you have more money than you can spend, why not build more businesses that solve more human problems? Why not engage in superphilanthropy instead of amateur economics?
I wanted to try to change the conversation with ideas—by advancing what my co-author, Eric Liu, and I call “middle-out” economics. It’s the long-overdue rebuttal to the trickle-down economics worldview that has become economic orthodoxy across party lines—and has so screwed the American middle class and our economy generally. Middle-out economics rejects the old misconception that an economy is a perfectly efficient, mechanistic system and embraces the much more accurate idea of an economy as a complex ecosystem made up of real people who are dependent on one another.So far neither you nor Mr. Liu have demonstrated anything to suggest you understand the nature of the economy as an ecosystem. You seem to be selling the same old ideas that brought us mechanistic economics like “priming the pump” or “fixing” the economy with economic stimulus, fiscal transfers, and price controls—none of which takes into account effects on real flesh-and-blood people involved in that complex ecosystem, and instead reduces them to macroeconomic abstractions. (I’m bracing for more Keynesianism from you, Mr. Hanauer.)
Which is why the fundamental law of capitalism must be: If workers have more money, businesses have more customers. Which makes middle-class consumers, not rich businesspeople like us, the true job creators. Which means a thriving middle class is the source of American prosperity, not a consequence of it. The middle class creates us rich people, not the other way around.Ah, more magical thinking from Keynes. First, it’s simply a myth that the American middle class is disappearing. And Mr. Hanauer: You get things entirely wrong about the sources of prosperity. Most of the planet is poor, in fact, though it’s getting richer all the time.
The question we have to ask ourselves—inequality notwithstanding—is: Why did the rich countries get rich to start with? If we go by your logic, all we have to do to make sub-Saharan Africa rich is transfer massive amounts of wealth there until a “middle class” has enough money to go buy stuff. (Oh yeah, that didn't work.) But the arrow of causation doesn’t run that way. Instead, wealth originates from people like the pillow makers in your family—perhaps starting small—operating within stable rules, creating goods and services that people value enough to trade their time and labor for it—that is, if they have nothing else to trade. Economies of scale and specialization kick in. Then, like a great coral reef, the economic ecosystem emerges through distributed processes of interdependency that flow from within simple rules (such as property, prices, and profit-or-loss).
Of course, time and labor are not enough to make society wealthier. If they were, then we really could dig ditches and fill them up again, as Keynes suggested, to become rich. Yes, entrepreneurs figure into a wider economic ecosystem that includes consumers. But Hong Kong did not become the richest rock on earth because of wealth transfers. It became rich because entrepreneurs and investors did not squander capital, but rather used it in wildly diverse ways to expand the base of capital goods so entrepreneurs could produce consumer goods and services—better, faster, and more cheaply. It started with little sweatshops and ended up with megacompanies. But this required savings, investment, ideas, innovation and entrepreneurship. Lather, rinse, repeat. You can try to shortcut this process with Keynesian manna. But rich guys have to get rich by creating wealth first.
So, without Henry Ford, no company town. Without a stable business environment, no Henry Ford. Yes, the open market is a virtuous ecosystem, but it is not improved by zero-sum (or negative sum) wealth transfers like you’re proposing. The ecosystem is seeded with ideas that make people more productive. More productivity creates surpluses that end up as investment in more capital goods or more consumption goods—all of which feeds better ideas that make people more productive and create further surpluses. Creative entrepreneurs, willing to take risks, get the ball rolling (not the other way around). They are the prime movers.
On June 19, 2013, Bloomberg published an article I wrote called “The Capitalist’s Case for a $15 Minimum Wage.” Forbes labeled it “Nick Hanauer’s near insane” proposal. Forbes was right. I’m sorry. But it is near insane. Price controls don’t work in the energy markets. Price controls don’t work in healthcare. Why would price controls work in labor markets? Your proposal amounts to nothing more than price controls. But prices are information signals wrapped in incentives. When you try to control prices, you’re distorting both the information and the incentives.
You go on to brag that your idea saw implementation in Seattle. I’m surprised a businessman of your caliber would do that. You see, we have to look at outcomes, not inputs. I know, you said you left business to go into “politics.” And politics is that bottomless well of aspirations in which people reward themselves for good intentions—that is, for getting things passed. But what are the effects of a policy?
Back in the business world, people have to live with the consequences of politics. And so far, the minimum wage in Seattle has already resulted in perverse effects. As businesses are forced to adapt—cutting back labor, hours, and substituting labor for technology—your policy hastens this process. You may think you’re making big companies pay their “fair share,” but you’re hurting small businesses: restaurateurs with slim margins, someone opening a little child care center, maybe a guy who runs a body shop. And more importantly, you’re depriving people of opportunities. When you raise the minimum wage by 25 percent, you are raising the costs of hiring a minority teenager by 25 percent. If the minimum wage makes it too costly to open another store, the business owner won’t open another store.
The thing about us businesspeople is that we love our customers rich and our employees poor.This doesn’t sound like a sentence written by a businessperson at all. Labor, like any other market phenomenon, has a market value. That may sound crass. But it’s true. If it weren’t true, we could set the minimum wage to $150 per hour. Now, it may be that some companies want to pay their workforces more than comparable wages in an area—perhaps in exchange for loyalty, or so that they’ll spend more at the company store. Maybe they attract better, more reliable workers. For some employers, it’s worth it: They value the labor that much based on their particular circumstances. In North Dakota, Walmart employees are being offered $17 per hour. Why? Labor supply and demand. For other companies, it might be a form of charity. But the truth is, we don’t know from one company to the next. One thing we do know, however, is that blanket policies don’t do a good job of determining which companies have which circumstances.
Every time the capitalists said exactly the same thing in the same way: We’re all going to go bankrupt. I’ll have to close. I’ll have to lay everyone off. It hasn’t happened. In fact, the data show that when workers are better treated, business gets better. The naysayers are just wrong.The most comprehensive study of minimum wages is by Neumark and Wascher (and you can buy it on Amazon). These scholars have determined that the net effects of minimum wage laws over the years have been primarily deleterious. (And predictably so.) Treating an employee “better” may or may not have positive effects for a given business. But the thing about entrepreneurs is they are highly attuned to such opportunities. And if such opportunities are a win-win, they will pursue them. But the net effect of assuming you or anyone else knows what’s best for all companies has been shown to be negative in theory and in practice.
Most of you probably think that the $15 minimum wage in Seattle is an insane departure from rational policy that puts our economy at great risk. But in Seattle, our current minimum wage of $9.32 is already nearly 30 percent higher than the federal minimum wage. And has it ruined our economy yet? $9.32 versus $15.00? That’s a big difference. Normally politicians set minimum wages right around where they might otherwise be—say in a large, gentrified area like Seattle—and so the ill effects go away pretty quickly as companies adapt, if they need to at all. Politicians do this to create the illusion that they are making things better with policy, when actually they are getting out in front of a trend in order to take credit for it. But if entry-level wages are hovering around $9 in Seattle or San Francisco, they aren’t in Stockton (where the unemployment rate is 14 percent). Indeed, no one should believe for a second that a jump of more than 50 percent is going to be easy for companies to adapt to, and won’t require wrenching ill effects. Again, the labor pool and conditions are heterogeneous, so blanket policies are ill-advised. Remember, you said yourself the economy is like an ecosystem, not a machine. Wage rates can’t be set by a single rheostat.
The two cities in the nation with the highest rate of job growth by small businesses are San Francisco and Seattle. Raise it to $15 tomorrow and you’ll slam on the brakes. Or you’ll see lots of small businesses with fewer employees or just the owners.
Guess which cities have the highest minimum wage? San Francisco and Seattle. The fastest-growing big city in America? Seattle. My sources show my home city Austin is the fastest growing, despite a minimum wage of $7.25. Other major Texas cities—sucking in Californians by the day—have similar minimum wages. But let’s not facts get in the way of your hypothesis.
Fifteen dollars isn’t a risky untried policy for us. It’s doubling down on the strategy that’s already allowing our city to kick your city’s ass.Did I mention I live in Austin, one of four Texas cities among the 10 fastest growing? How is this kicking our ass? While San Francisco’s unemployment rate may be low and its small start-ups doing okay for now, the rest of the state is a mess. You’ll have to look at other factors besides wage rates to see why.
It makes perfect sense if you think about it: If a worker earns $7.25 an hour, which is now the national minimum wage, what proportion of that person’s income do you think ends up in the cash registers of local small businesses? Hardly any.It would make perfect sense if there weren’t so many counterexample cities that completely belie your claim—many here in Texas. But what’s what’s more, the United States already has an income support system called the Earned Income Tax Credit (EITC). That means rich people like you already subsidize wages for workers under a certain income threshold. So it’s not clear to me why shifting the burden directly onto individual businesses is going to create some sort of magic. If your argument is that there should be a bigger EITC, that’s a separate discussion.
Please, please stop insisting that if we pay low-wage workers more, unemployment will skyrocket and it will destroy the economy. A $15 per hour wage is not likely to destroy the economy. It will certainly destroy prospects for groups like African-American teens, whose unemployment rate currently hovers around 40 percent. Minimum wages don’t destroy the economy, they remove the bottom rungs of the income ladder for people who need to gain skills and experience to be upwardly mobile. And they often raise prices for consumers, including those making low wages.
The most insidious thing about trickle-down economics isn’t believing that if the rich get richer, it’s good for the economy. It’s believing that if the poor get richer, it’s bad for the economy.It depends upon which straw man you’re beating up here, Mr. Hanauer, but neither of your “trickle down” claims is true. The rich getting richer is an effect, not a cause. The poor getting richer is an effect, not a cause. If all groups are becoming better off—as they have been (I refer you to the Shermer citation above) then the causes of those improvements across quintiles are good for the economy.
Indeed, what is good for the economy—and human well-being—is when people get richer due to becoming more productive, solving more problems, and satisfying more wants and needs. The value of a worker’s effort is determined according to the subjective valuations of individual entrepreneurs in unique circumstances. You can’t possibly know these circumstances, Mr. Hanauer, because you are not treating the economy like a complex ecosystem. How do I know? Because you say…
In order for us to have an economy that works for everyone, we should compel all retailers to pay living wages—not just ask politely.But again, a “living wage” is a numerical abstraction—detached from any real economic ecosystem. If we were to view the economy as an ecosystem, we would have to reckon with its complexity and heterogeneity. Price controls treat the economy as a static thing that can be jump-started by edicts from a central committee.
[Instead of buying stuff…] I sock my extra money away in savings, where it doesn’t do the country much good. What makes you think your savings don’t do the country much good? If it’s gaining interest at all, then it most certainly is doing the country good. You seem to be laboring under the mistaken notion that consumption drives production. But consider for a moment that Lord Keynes was wrong. When you save, somebody is going to use that money for something (unless the Fed has other ideas). Now, if you’re just letting it sit in a zero-interest account, or you’re bathing in dollars, I would encourage you to diversify and/or use your savvy to create more wealth for both yourself and the country. If you’re a true capitalist, you know more interest/income is a signal that you’re doing something right—that you’re making the world a better place, even if you’re just leaving your money in the bank.
Bottom line: If you don’t agree, you can always give it away. One wonders why you haven’t.
So forget all that rhetoric about how America is great because of people like you and me and Steve Jobs. You know the truth even if you won’t admit it: If any of us had been born in Somalia or the Congo, all we’d be is some guy standing barefoot next to a dirt road selling fruit. It’s not that Somalia and Congo don’t have good entrepreneurs. It’s just that the best ones are selling their wares off crates by the side of the road because that’s all their customers can afford.If this were true, Hong Kong would be a backwater, poor as it was 100 years ago. As Nobel Laureate Douglass North said in his prize speech:
The organizations that come into existence will reflect the opportunities provided by the institutional matrix. That is, if the institutional framework rewards piracy then piratical organizations will come into existence; and if the institutional framework rewards productive activities then organizations—firms—will come into existence to engage in productive activities.
And entrepreneurs start firms. In the Congo, piratical organization is rewarded by the institutional matrix. It’s been a corrupt dictatorship for years, so people who take bribes and join the army get the rewards. Make no mistake: Changes to Congo’s institutional matrix—along with the entrepreneurial culture—will give rise to dramatic changes in living standards, as they did in Hong Kong. There are 75 million potential customers in the Congo.
So why not talk about a different kind of New Deal for the American people, one that could appeal to the right as well as left—to libertarians as well as liberals? Edge of my seat.
If people are getting $15 an hour or more, they don’t need food stamps. They don’t need rent assistance. They don’t need you and me to pay for their medical care. Raising the minimum wage is effectively no different than raising the corporate tax for welfare benefits for assistance, except that one has greater potential to harm businesses. In both cases, people are getting something for nothing.
If the consumer middle class is back, buying and shopping, then it stands to reason you won’t need as large a welfare state. How’s that? If fewer poor people are being hired—a la Neumark and Wascher—more poor people will require assistance.
And at the same time, revenues from payroll and sales taxes would rise, reducing the deficit.If all these positive effects were to come about, how does this address the so-called “problem” of inequality? If you’re correct that all this crazy consumption is going sustainably to push up company revenues (which I doubt), aren’t guys like you still going to get richer under your theory?
There are three main problems with any proposal to raise the minimum wage in lieu of welfare:
First, there are better, more pragmatic proposals out there for a minimum income, including the negative income tax (i.e., expanding the EITC and getting rid of welfare). Charles Murray’s In Our Hands is a good start, though his numbers might need updating. That proposal reduces the direct burden on companies compared with your proposal, because it redistributes after profits rather than before. Minimum wage laws are indifferent to whether a firm is profitable, which makes them dangerous by degree.
Second, any policy that simply transfers wealth can have incentive effects that discourage upward mobility. That being said, I will grant that your proposal would help people avoid “welfare traps” if there were no negative effects on employment. But if your government-set wage rates are pricing people out of the labor market, there will be just as many unemployed workers, if not more.
Third, any such grand compromise ideas about minimum income—as much as we might like to think about them—are very likely not to be implemented. How do you plan to combat the welfare-industrial complex? There are armies of vested interests in the welfare bureaucracy. They will be extremely difficult to send packing.
Capitalism, when well-managed, is the greatest social technology ever invented to create prosperity in human societies. But capitalism left unchecked tends toward concentration and collapse. I think you might be confused about what capitalism is. If by capitalism, you mean crapitalism, then you’re right. It’s not sustainable. And only checking the State’s power to assist cronies will we rein in the excesses of crapitalism. If by capitalism, you mean free and open markets, then you are simply mistaken. In competitive environments, it’s very difficult for firms to hold on to market dominance for very long. Firms have to consistently deliver on quality and price. Almost all monopolies and cartels are created and shored up by corporate-State collusion. And corporate-State collusion almost always starts with the State trying to “manage” capitalists. Regulation is inherently anticompetitive.
Now there will be resource concentrations in a free and open market, as with any natural system, but they too are difficult to maintain over time. In other words, there is incredible churn at the top—because only the best stewards of capital can stay there.
My family, the Hanauers, started in Germany selling feathers and pillows. They got chased out of Germany by Hitler and ended up in Seattle owning another pillow company. Three generations later, I benefited from that. Then I got as lucky as a person could possibly get in the Internet age by having a buddy in Seattle named Bezos. You may feel guilty about this. After all, your forebears were real value creators. Maybe you inherited a fortune and got lucky knowing Jeff Bezos. Maybe you really aren’t that good at predicting the future, identifying trends, etc.—just lucky. Maybe Bezos just called you first and you simply rode the wave. Still, we shouldn’t begrudge you your fortune, any more than we should pity a guy who loses at the tables.
Things get tight for me and my family. We’re trying to figure out how to fix the fender on my car (my fault) and renovate the old house we just bought. But at least we’ve got a car to fix. We’ve got a house to fix up. We eat nutritious food. My son has a Kindle Fire. And my wife and kid are about the best family a guy could have. We don’t have much, but we have enough to make Louis XVI positively green.
Yeah, you might be lucky, Mr. Hanauer. But so am I.
Max Borders is author of Superwealth: Why we should stop worrying about the gap between rich and poor, which you can buy for your Kindle at Amazon.
Confessions of a Computer Modeler - WSJ
After earning a master's degree in environmental engineering in 1982, I spent most of the next 10 years building large-scale environmental computer models. My first job was as a consultant to the Environmental Protection Agency. I was hired to build a model to assess the impact of its Construction Grants Program, a nationwide effort in the 1970s and 1980s to upgrade sewer-treatment plants.
The computer model was huge—it analyzed every river, sewer treatment plant and drinking-water intake (the places in rivers where municipalities draw their water) in the country. I'll spare you the details, but the model showed huge gains from the program as water quality improved dramatically. By the late 1980s, however, any gains from upgrading sewer treatments would be offset by the additional pollution load coming from people who moved from on-site septic tanks to public sewers, which dump the waste into rivers. Basically the model said we had hit the point of diminishing returns.
When I presented the results to the EPA official in charge, he said that I should go back and "sharpen my pencil." I did. I reviewed assumptions, tweaked coefficients and recalibrated data. But when I reran everything the numbers didn't change much. At our next meeting he told me to run the numbers again.
After three iterations I finally blurted out, "What number are you looking for?" He didn't miss a beat: He told me that he needed to show $2 billion of benefits to get the program renewed. I finally turned enough knobs to get the answer he wanted, and everyone was happy.
Was the EPA official asking me to lie? I have to give him the benefit of the doubt and assume he believed in the value of continuing the program. (Congress ended the grants in 1990.) He certainly didn't give any indications otherwise. I also assume he understood the inherent inaccuracies of these types of models. There are no exact values for the coefficients in models such as these. There are only ranges of potential values. By moving a bunch of these parameters to one side or the other you can usually get very different results, often (surprise) in line with your initial beliefs.
I realized that my work for the EPA wasn't that of a scientist, at least in the popular imagination of what a scientist does. It was more like that of a lawyer. My job, as a modeler, was to build the best case for my client's position. The opposition will build its best case for the counter argument and ultimately the truth should prevail.
If opponents don't like what I did with the coefficients, then they should challenge them. And during my decade as an environmental consultant, I was often hired to do just that to someone else's model. But there is no denying that anyone who makes a living building computer models likely does so for the cause of advocacy, not the search for truth.
Surely the scientific community wouldn't succumb to these pressures like us money-grabbing consultants. Aren't they laboring for knowledge instead of profit? If you believe that, boy do I have a computer model to sell you.
The academic community competes for grants, tenure and recognition; consultants compete for clients. And you should understand that the lines between academia and consultancy are very blurry as many professors moonlight as consultants, authors, talking heads, etc.
Let's be clear: I am not saying this is a bad thing. The legal system is adversarial and for the most part functions well. The same is true for science. So here is my advice: Those who are convinced that humans are drastically changing the climate for the worse and those who aren't should accept and welcome a vibrant, robust back-and-forth. Let each side make its best case and trust that the truth will emerge.
Those who do believe that humans are driving climate change retort that the science is "settled" and those who don't agree are "deniers" and "flat-earthers." Even the president mocks anyone who disagrees. But I have been doing this for a long time, and the one thing I have learned is how hard it is to convince people with a computer model. The vast majority of your audience will never, ever understand the math behind it. This does not mean people are dumb. They usually have great BS detectors, and when they see one side of a debate trying to shut down the other side, they will most likely assume it has something to hide, has the weaker argument, or both.
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