Quotulatiousness

July 19, 2017

“The Economics of Trade” | THINK 2017

Filed under: Britain, Economics, USA — Tags: , , — Nicholas @ 04:00

Published on Jul 17, 2017

What exactly is Free Trade and is it always the best policy?

Professor Don Boudreaux of Cafe Hayek discusses the morality of capitalist exchange and its inherent advantages.

July 13, 2017

Each month in the United States—a place with about 160 million civilian jobs—1.7 million of them vanish”

Filed under: Business, Economics, Technology — Tags: , , — Nicholas @ 05:00

Deirdre McCloskey addresses the fear that technological change is gobbling up all the jobs:

Consider the historical record: If the nightmare of technological unemployment were true, it would already have happened, repeatedly and massively. In 1800, four out of five Americans worked on farms. Now one in 50 do, but the advent of mechanical harvesting and hybrid corn did not disemploy the other 78 percent.

In 1910, one out of 20 of the American workforce was on the railways. In the late 1940s, 350,000 manual telephone operators worked for AT&T alone. In the 1950s, elevator operators by the hundreds of thousands lost their jobs to passengers pushing buttons. Typists have vanished from offices. But if blacksmiths unemployed by cars or TV repairmen unemployed by printed circuits never got another job, unemployment would not be 5 percent, or 10 percent in a bad year. It would be 50 percent and climbing.

Each month in the United States — a place with about 160 million civilian jobs — 1.7 million of them vanish. Every 30 days, in a perfectly normal manifestation of creative destruction, over 1 percent of the jobs go the way of the parlor maids of 1910. Not because people quit. The positions are no longer available. The companies go out of business, or get merged or downsized, or just decide the extra salesperson on the floor of the big-box store isn’t worth the costs of employment.

What you hear on the evening news is the monthly net increase or decrease in jobs, with some 200,000 added in a good month. But the gross figure of 1 percent of jobs lost per month is the relevant one for worries about technological unemployment. It’s well over 10 percent per year at simple interest. In just a few years at such rates — if disemployment were truly permanent — a third of the labor force would be standing on street corners, and the fraction still would be rising. In 2000, well over 100,000 people were employed by video stores, yet our street corners are not filled with former video store clerks asking for loose change.

We could “save people’s jobs” by stopping all innovation. You would do next year exactly what you did this year. Capital as well as labor would perpetually be employed the same way. But then we would perpetually have the same income. That’s nice if you’re doing well now. It’s not so nice if you’re poor or young.

Job protections for the old have in fact already created a dangerous class of unemployed youths in the world — 50 percent among Greeks and black South Africans, for instance.

July 2, 2017

Minneapolis is going Seattle one better … and the results will be even worse

Filed under: Business, Economics, USA — Tags: , , , — Nicholas @ 05:00

Tim Worstall explains why, despite all the pious hopes that significant increases in the minimum wage won’t negatively impact employment or take-home pay, Minneapolis will have measurably worse outcomes:

Minneapolis has just passed an ordinance making the minimum wage in that fine city $15 an hour at some point in the near future — the effects of this will be worse than the effects of the similar Seattle ordinance raising the minimum wage there to $15 an hour. I agree that this is an unpopular prediction but it’s one that I’ll still stick with for the interesting bit is that I predicted the effect of the Seattle rise correctly. I even managed to get right why it would go bad. This is not, sadly, because I have a crystal ball, nor am endowed with super-powers, it’s just that I understand the basic economics of the minimum wage.

The details of which are that modest rises in the minimum wage don’t have much effect. They don’t have much effect on wages and thus they don’t have much effect upon employment. Changes which are at best “Meh, marginal” have effects which are at best “Meh, marginal.” The problem with Seattle’s minimum wage rise was that it wasn’t marginal, the problem with that in Minneapolis is that it is even less so.

[…]

But why isn’t it all going to be wondrous? If we just insist that poor people should be paid higher wages then why won’t it all become copacetic? Well, this was tried in Seattle. And the results weren’t that way. We have the actual academic study of why and it’s just as conventional economics predicts. Modest rises in the minimum wage have modest effects, immodest rises have immodest. Which leaves us with trying to define immodest.

As I’ve been saying for some yeare now that definition of immodest seems to be 45 to 50 % of median wage in that labour market. We don’t usually have median wages by city, only by a rather larger economic unit. But Seattle’s area median is higher than that of Minneapolis. When we look at the cities, the mean is higher in Seattle than in Minneapolis.

We already know that $15 an hour is too high a minimum wage for Seattle, it leads to lower incomes for low wage workers. The Minneapolis $15 an hour minimum wage is higher compared to local wages–the effects will be worse.

June 28, 2017

QotD: How “Jim Crow” laws were brought in to suppress competition

Filed under: Economics, History, Quotations, USA — Tags: , , , — Nicholas @ 01:00

Lebergott’s historical account – which reinforces the important findings of Robert Higgs about the postbellum economic trajectory of blacks in America – reveals the equalizing powers of economic competition. Contrary to popular myth, even racist southerners put their own economic well-being ahead of their irrational prejudices by competing with offers of higher wages for blacks’ labor and with offers of low prices for blacks’ business. This competition, in turn, increased blacks’ geographic and economic mobility and raised their incomes. The reason southerners – whether racists or rent-seekers (or both) – turned to government to get Jim Crow legislation is that market forces were undermining their racist preferences and competing away their uncompetitively high profits, rents, and wages.

Lebergott’s account also further reveals the utter implausibly of the claims of those who assert that today’s market in America for low-skilled workers is infected with monopsony power. While this market isn’t textbook perfect (no real-world market is), and while this market would be improved by making it even freer (for example, by eliminating occupational-licensing statutes and zoning restrictions), the ability of low-skilled workers today throughout the U.S. to move from job to job is surely better than was the ability of low-skilled blacks 150 years ago throughout the American south to move from job to job. And yet, as Lebergott documents, low-skilled American blacks of 150 years ago in the American south did indeed enjoy such mobility that economic competition raised their wages. Similarly, the ability today of entrepreneurs and business owners to discover and compete for under-priced labor is surely greater than was the ability of employers 150 years ago to do the same – and yet, again as Lebergott documents, such competitive initiative by employers was common 150 years ago and served to increase low-skilled workers’ mobility and wages.

Don Boudreaux, “Quotation of the Day…”, Café Hayek, 2017-05-22.

June 27, 2017

Seattle sees some negative effects from their latest minimum wage hike

Filed under: Business, Economics, Politics, USA — Tags: , , — Nicholas @ 05:00

Ben Casselman and Kathryn Casteel report for FiveThirtyEight on initial reports from Seattle after their most recent increase in the city’s minimum wage rules:

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.

“The goal of this policy was to deliver higher incomes to people who were struggling to make ends meet in the city,” said Jacob Vigdor, a University of Washington economist who was one of the study’s authors. “You’ve got to watch out because at some point you run the risk of harming the people you set out to help.”

The paper’s findings are preliminary and have not yet been subjected to peer review. And the authors stressed that even if their results hold up, their research leaves important questions unanswered, particularly about how the minimum wage has affected individual workers and businesses. The paper does not, for example, address whether displaced workers might have found jobs in other cities or with companies such as Uber that are not included in their data.

Still, despite such caveats, the new research is likely to have big political implications at a time when the minimum wage has returned to the center of the economic policy debate. In recent years, cities and states across the country have passed laws and ordinances that will push their minimum wages as high as $15 over the next several years. During last year’s presidential campaign, Hillary Clinton called for the federal minimum wage to be raised to $12, and she faced pressure from activists to propose $15 instead. (The federal minimum wage is now $7.25 an hour.) Recently, however, the minimum-wage movement has faced backlash from conservatives, with legislatures in some states moving to block cities from increasing their local minimums.

June 20, 2017

“Licensing … is now one of the biggest labor problems facing California”

Filed under: Bureaucracy, Business, Government, USA — Tags: , , , — Nicholas @ 03:00

In the Orange County Register, Dick Carpenter outlines how many jobs in California are now closed off to anyone who doesn’t have a license:

Whether it’s brick-and-mortar restaurants fighting to outlaw food trucks, or taxicab associations suing Uber and Lyft, examples abound for this type of anticompetitive lobbying. One of the more blatant instances comes courtesy of the California Landscape Contractors Association. In 2014, the association supported a bill that made it even easier for regulators to crack down on contractors operating without a license. Their stated reasons were revealing: “Unlicensed persons unfairly compete,” because they can “significantly undercut licensed contractors when pricing projects to consumers.” The cost of compliance is quite substantial, as it “typically adds 15 to 20 percent to the cost,” the association estimated. Not only does licensure jack up consumer prices, it also keeps out aspiring entrepreneurs who ask for nothing more than the opportunity to work hard and prove themselves by the sweat of their brow.

Licensing goes well beyond contractors and is now one of the biggest labor problems facing California. In the 1950s, about 5 percent of Americans needed a government-issued license to work. Back then, government-mandated licensing was limited to a handful of trades, such as medicine and the law. But over the years, bottleneckers — often through self-serving professional associations — successfully persuaded governments to adopt new licenses that are difficult or practically impossible to obtain. This restricts opportunities for would-be entrepreneurs trying to break into the marketplace and provide new or better services.

Today, more than one-fifth of California’s workforce is licensed. When it comes to low- and middle-income occupations, which are often a gateway for upward mobility, California is the second-most extensively and onerously licensed state, according to a study by the Institute for Justice. In fact, there are so many licensing bottlenecks that when the bipartisan Little Hoover Commission began examining the issue, it reported that “No one could give the commission a list of all the licensed occupations in California.”

These restrictions are great for the bottleneckers, but they are bad for consumers. A report by the Brookings Institution summarized many of the academic findings on occupational licensing. Licensure can boost wages for licensed workers by as much as 15 percent, while increasing the cost for consumers by anywhere from four to 33 percent. As a result, one study even estimates that pervasive licensing leads to “up to 2.85 million fewer jobs nationwide, with an annual cost to consumers of $203 billion.”

Bottleneckers typically claim the costs of licensing are necessary to protect the public, but the reality is quite different. In California, barbers, cosmetologists, tree trimmers and many construction contractors all must complete far more training for their licenses than is required for emergency medical technicians — who hold people’s lives in their hands. Manicurists need 400 hours of coursework and training for their licenses, which can costs thousands of dollars; EMTs require less than half the amount of training at only a 160 hours.

The introduction of licensing to a previously unregulated field typically benefits the existing workers in that field and severely disadvantages anyone hoping to enter that field — existing workers and businesses restrict competition by keeping out new entrants, and create an artificial shortage which allows them to boost their prices. The consumer generally does not benefit in any measurable way from the introduction of licensing, and ends up paying more for the services offered.

June 8, 2017

Life As A Railroad Engineer. What it is like to work for a railroad

Filed under: Railways — Tags: — Nicholas @ 02:00

Published on 20 Apr 2014

http://www.djstrains.com

This is MY story about MY experience as an engineer for CSX. The views are not of that of CSX, nor anybody else but mine.

June 1, 2017

Words & Numbers: Is Your College Degree Worthless?

Filed under: Economics, Education — Tags: , — Nicholas @ 04:00

Published on 31 May 2017

A lot of people assume that any degree increases your income over the course of your life, but it actually seriously depends on what major you choose and what career you go into. This week on Words & Numbers, Antony Davies​ and James R. Harrigan​ breakdown the numbers on what your college degree is actually worth.

May 25, 2017

Dangerous railway practices of the past

Filed under: History, Railways, USA — Tags: — Nicholas @ 04:00

On Facebook, the New England, Berkshire & Western (“an HO scale layout created by the Rensselaer Model Railroad Society, which is a student club on the campus of Rensselaer Polytechnic Institute in Troy, NY”), posted a link to this fascinating — eventually banned for obvious safety reasons — method of moving railway cars on parallel track to the locomotive:

Raymond Breyer shared this video link on the pre-Depression page, about poling. […]

I always assumed they would move slowly and the trainman would have to hold the pole the entire time. Guess I was quite wrong! – JN

May 23, 2017

QotD: The dangers of career “dualization”

Filed under: Business, Economics, Quotations — Tags: , , , , — Nicholas @ 01:00

This concept [of dualization] applies much more broadly than just drugs and colleges. I sometimes compare my own career path, medicine, to that of my friends in computer programming. Medicine is very clearly dual – of the millions of pre-med students, some become doctors and at that moment have an almost-guaranteed good career, others can’t make it to that MD and have no relevant whatsoever in the industry. Computer science is very clearly non-dual; if you’re a crappy programmer, you’ll get a crappy job at a crappy company; if you’re a slightly better programmer, you’ll get a slightly better job at a slightly better company; if you’re a great programmer, you’ll get a great job at a great company (ideally). There’s no single bottleneck in computer programming where if you pass you’re set for life but if you fail you might as well find some other career path.

My first instinct is to think of non-dualized fields as healthy and dualized fields as messed up, for a couple of reasons.

First, in the dualized fields, you’re putting in a lot more risk. Sometimes this risk is handled well. For example, in medicine, most pre-med students don’t make it to doctor, but the bottleneck is early – acceptance to medical school. That means they fail fast and can start making alternate career plans. All they’ve lost is whatever time they put into taking pre-med classes in college. In Britain and Ireland, the system’s even better – you apply to med school right out of high school, so if you don’t get in you’ve got your whole college career to pivot to a focus on English or Engineering or whatever. But other fields handle this risk less well. For example, as I understand Law, you go to law school, and if all goes well a big firm offers to hire you around the time you graduate. If no big firm offers to hire you, your options are more limited. Problem is, you’ve sunk three years of your life and a lot of debt into learning that you’re not wanted. So the cost of dualization is littering the streets with the corpses of people who invested a lot of their resources into trying for the higher tier but never made it.

Second, dualized fields offer an inherent opportunity for oppression. We all know the stories of the adjunct professors shuttling between two or three colleges and barely making it on food stamps despite being very intelligent people who ought to be making it into high-paying industries. Likewise, medical residents can be worked 80 hour weeks, and I’ve heard that beginning lawyers have it little better. Because your entire career is concentrated on the hope of making it into the higher-tier, and the idea of not making it into the higher tier is too horrible to contemplate, and your superiors control whether you will make it into the higher tier or not, you will do whatever the heck your superiors say. A computer programmer who was asked to work 80 hour weeks could just say “thanks but no thanks” and find another company with saner policies.

(except in startups, but those bear a lot of the hallmarks of a dualized field with binary outcomes, including the promise of massive wealth for success)

Third, dualized fields are a lot more likely to become politicized. The limited high-tier positions are seen as spoils to be distributed, in contrast to the non-dual fields where good jobs are seen as opportunities to attract the most useful and skilled people.

Scott Alexander, “Non-Dual Awareness”, Slate Star Codex, 2015-07-28.

May 18, 2017

You Can’t Trust Employment Statistics

Filed under: Economics — Tags: , , — Nicholas @ 05:00

Published on 17 May 2017

There is no truly good way to measure unemployment, which makes it pretty easy for successive administrations to claim that unemployment is consistently improving. But when we do our level best to include all of the unemployed in the numbers, what we learn is that unemployment levels now are higher than they were at the beginning of the Great Recession. That’s the bad news. The good news is that things actually have been getting better over time. In this week’s episode, James and Antony take a look at the actual unemployment numbers to get to the bottom of what they really mean.

Get the facts here:
https://fee.org/articles/you-cant-trust-unemployment-statistics/

May 16, 2017

How service companies might respond to a mandated increase in the minimum wage

Filed under: Business, Economics — Tags: , , , — Nicholas @ 05:00

At Coyote Blog, Warren Meyer discusses how real world service companies that employ a lot of minimum wage workers are likely to respond when the minimum wage is raised:

When I discuss this with folks, they will say that the increase could still come out of profitability — a 5% margin could be reduced to 3% say. When I get comments like this, it makes me realize that people don’t understand the basic economics of a service firm, so a concrete example should help. Imagine a service business that relies mainly on minimum wage employees in which wages and other labor related costs (payroll taxes, workers compensation, etc) constitute about 50% of the company’s revenues. Imagine another 45% of company revenues going towards covering fixed costs, leaving 5% of revenues as profit. This is a very typical cost breakdown, and in fact is close to that of my own business. The 5% profit margin is likely the minimum required to support capital spending and to keep the owners of the company interested in retaining their investment in this business.

Now, imagine that the required minimum wage rises from $10 to $15 (exactly the increase we are in the middle of in California). This will, all things equal, increase our example company’s total wage bill by 50%. With the higher minimum wage, the company will be paying not 50% but 75% of its revenues to wages. Fixed costs will still be 45% of revenues, so now profits have shifted from 5% of revenues to a loss of 20% of revenues. This is why I tell folks the math of absorbing the wage increase in profits is often not even close. Even if the company were to choose to become a non-profit charity outfit and work for no profit, barely a fifth of this minimum wage increase in this case could be absorbed. Something else has to give — it is simply math.

The absolute best case scenario for the business is that it can raise its prices 25% without any loss in volume. With this price increase, it will return to the same, minimum acceptable profit it was making before the regulation changed (profit in this case in absolute dollars — the actual profit margin will be lowered to 4%). But note that this is a huge price increase. It is likely that some customers will stop buying, or buy less, at the new higher prices. If we assume the company loses 1% of unit volume for every 2% price increase, we find that the company now will have to raise prices 36% to stay even both of the minimum wage increase and lost volume. Under this scenario, the company would lose 18% of its unit sales and is assumed to reduce employee hours by the same amount. In the short term, just for the company to survive, this minimum wage increase leads to a substantial price increase and a layoff of nearly 20% of the workers. Of course, in real life there are other choices. For example, rather than raise prices this much, companies may execute stealth price increases by laying off workers and reducing service levels for the same price (e.g. cleaning the bathroom less frequently in a restaurant). In the long-term, a 50% increase in wage rates will suddenly make a lot of labor-saving capital investments more viable, and companies will likely substitute capital for labor, reducing employment even further but keeping prices more stable for consumers.

As you can see, in our example we don’t need to know anything about bargaining power and the fairness of wages. Simple math tells us that the typical low-margin service business that employs low-skill workers is going to have to respond with a combination of price increases and job reductions.

May 14, 2017

QotD: Big business, crony capitalism and regulatory capture

Now, Pope Francis has the beginnings of a point about large “private corporations” (note the oxymoron), which in their wealth may grow (though only temporarily) to a size rivalling the smaller national governments. And I would add, they become nearly as centralized and monopolistic (through “regulatory capture”), and faceless and bureaucratic as the agencies of State. Whenupon, unlike the self-perpetuating agencies of the State, they begin to disintegrate from their own lack of enterprise.

It is not enough, as the libertarians suppose, to leave them to their fate, in the knowledge that if they are inefficient they’ll be gone tomorrow. For new large corporations rise to take their place, and at every moment the great majority of people are reduced to wage-slaves of one large corporation or another. Indeed, part of the power of large corporations comes from their scale as employers. A democratic government which tries to stand up to them will quickly relent, and switch to subsidies instead, when they threaten to create mass unemployment.

The question must be asked: What makes vast, morally obtuse, centralized corporations possible? And the answer should be easy to see. It is vast, morally obtuse, centralized governments, which command regulatory regimes that are consistent over huge areas. That has actually become our model for global “free trade”: making regulations and taxation consistent not only across nations, but across continents. This creates an order which large corporations, and only large corporations, are well-equipped to exploit.

Imagine instead they were to face different regulatory regimes, parish by parish. They could still operate, but would have to adapt each franchise to local conditions, as defined by the sovereign local authority. This immediately flips the onus, and gives the local merchant or producer the advantage over his multinational competitor, in being on the spot. It reduces that competitor’s economy of scale, while also imposing upon him a new model of corporate governance, as network, that must of necessity become decentralized and responsive (just as creatures in nature) to every single environmental niche.

The re-focusing on what is local, and what is doable locally, would have tremendous ramifications on “the environment” at large — overwhelmingly positive, given some time. Yet it would also have the happy effect of disempowering the ecological whack cases.

David Warren, “Five thousand max”, Essays in Idleness, 2015-06-19.

May 11, 2017

Words & Numbers: The Minimum Wage Conspiracy

Filed under: Business, Economics, USA — Tags: , , — Nicholas @ 04:00

Published on 10 May 2017

This week, James & Antony tackle minimum wage laws and present some hard facts that might surprise a lot of people.

See the YouTube description for a long list of links related to this discussion.

May 9, 2017

QotD: Wage floors and rent ceilings

Filed under: Economics, Government, Quotations, USA — Tags: , , , , — Nicholas @ 01:00

[Progressives] tend to favor policies such as New York City’s rent controls, and the new $15 minimum wage being gradually phased in in some western cities. I like to think of these policies as engines of meanness. They are constructed in such a way that they almost guarantee that Americans will become less polite to each other.

In New York City, landlords with rent controlled units know that the rent is being artificially held far below market, and thus that they would have no trouble finding new tenants if the existing tenant is unhappy. So then have no incentive to upgrade the quality of the apartment, or to quickly fix problems. They do have an incentive to discriminate against minorities that, on average, are more likely to become unemployed, and hence unable to pay the rent. Or young people, who might damage the unit with wild parties.

Wage floors present the same sort of problem as rent ceilings, except that now it’s the demanders who become meaner, not the supplier. Firms that demand labor in Los Angeles in the year 2020 will be able to treat their employees very poorly, and still find lots of people willing to work for $15/hour.

Scott Sumner, “How bad government policies make us meaner”, Library of Economics and Liberty, 2015-08-25.

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