Published on 3 Feb 2015
What’s the difference between a wage subsidy and a minimum wage? What is the cost of a wage subsidy to taxpayers? We take a look at the earned income tax credit and how it affects low-skilled workers. We also discuss Nobel Prize-winning economist Edmund Phelps’ work on wage subsidies.
May 25, 2015
May 9, 2015
Tim Worstall explains why we can easily disregard the calls to panic about the impending invasion of our new robotic overlords:
Essentially, what [economist Joe] Stiglitz is saying is that under certain conditions the advance of the robots means that we all lose our jobs and the capitalists, the people who own the robots, get to have all of the economy. And one can see his mechanism to get there: if robots become ever more productive then yes, we can see the idea that there will be more robots and fewer people employed by the capitalists and so on. But it’s still impossible for that end state to arrive: simply because we non-capitalists aren’t going to let it.
So, let’s recast that end state. There’s the 1% (the plutocrats, the capitalists, whatever) and then there’s us, the 99%. Robots become ever more productive and we the 99% all lose our jobs working for the capitalists. Hmm, tant pis in one telling of this story because as Karl Marx pointed out that’s a precondition for true communism, that we overcome the scarcity problem. But even leaving that aside what is going to happen next?
That 1% owns all the robots and gets all the production from them. We, the 99%, have no jobs and thus no incomes. We cannot purchase any of that robotic consumption from the capitalists. This is the very point that Stiglitz is making, that the capitalists will own and consume 100% of the robotic output. Well, yes, OK, but what are we the 99% going to do? This new peasantry: do we all just wander around the fields until we keel over from starvation? No, quite obviously we don’t. Sure, the robots are more efficient than we are, produce things for much lower prices. But we don’t have any of the currency with which we can buy that production. So, what are we going to do?
May 6, 2015
Science does not need women any more than it needs foot fetishists, pole-vaulters, or Somalis. What science needs (if an abstraction such as science can be said to need anything) is scientists. If they happen also to be foot fetishists, pole-vaulters, or Somalis, so be it: but no one in his right mind would go to any lengths to recruit for his laboratory foot fetishists, pole-vaulters, or Somalis for those characteristics alone.
It is true, of course, that women are demographically underrepresented in the ranks of scientists, but so are many other groups. (This means, of course, that others are overrepresented.) This may be for more than one reason: lack of aptitude or interest, for example, or deliberate or subtle obstructiveness. But historical attempts to recruit scientists according to some demographic criterion or other have not been met with success, even as far as the advancement of science itself is concerned, and have been made by the very worst dictatorships that in other respects have been abominable. Social engineering and engineering are two very different activities. It would be no consolation to know while on a collapsing bridge and about to plunge into the deep ravine below that it had been built by a truly representative sample of the population, and was therefore a monument to social justice.
Suppose that, instead of Science needs women, other slogans based upon exactly the same logic hung over the arrivals hall: Heavyweight boxing needs Malays, for example, Football needs dwarf goalkeepers, Quantity surveying needs bisexuals, Lavatory cleaning needs left-handers: the absurdity of the argument would be immediately apparent. In fact the categorization both of human activities and humans themselves being almost infinite, the obsession with demographic representation as the most important criterion of fairness or social justice is virtually without end. The search for social fairness in this sense can lead only to perpetual conflict, much as the imposition of parliamentary democracy has done in countries in which it is not an organic outgrowth of their history, and as a true parliamentary regime in the European Union would very soon do.
Theodore Dalrymple, “A Miasma of Untruth”, Taki’s Magazine, 2014-06-29.
May 5, 2015
I’ve had a few friends over the years who seemed to somehow be able to spend extended time in China. This article may explain how at least a few of them funded their stays:
In 2010, Mitch Moxley wrote a story for The Atlantic entitled “Rent a White Guy,” relating the story of his trip to Dongying where he pretended to be the representative of a non-existent California-based company that was allegedly building a factory in the city. His Canadian friend Ernie, hired to play the role of director, delivered a speech before a large crowd in which he “boasted about the company’s long list of international clients.” After the speech, “confetti blasted over the stage, fireworks popped […] and Ernie posed for a photo with the mayor.” The article has nothing to say about the extent of the scam. Were Mitch Moxley and his friend Ernie giving a boost to a local company or were the attendees being asked to invest in a company that didn’t exist?
A 2010 CNN report cited one ad posted on The Beijinger by a company called “Rent A Foreigner.” The story describes one foreigner who had police knock on his door one day, “after a financial company he worked at for a couple of months in Xi’an […] allegedly swindled millions of yuan out of clients.”
It’s commonplace in China to see expats paid exorbitant fees as dancers, singers, musicians, or models, often regardless of talent. I have seen unattractive models, dancers who couldn’t dance, and singers who couldn’t sing. One of my friends was once paid handsomely to play bass at a live concert. The thing was, he didn’t know how to play bass — so they left his instrument unplugged and he plucked at the strings as if he had some clue as to what he was doing. Several of the musicians were also pantomiming to a prerecorded track, but the track had no bass, so my friend was pretending to play a part that didn’t exist. No one in the crowd seemed to notice though, and he was paid more than twice what the Chinese band members, who were actually rather talented musicians, earned.
April 29, 2015
At Coyote Blog, Warren Meyer lays out his simple but effective plan to help African-Americans:
- Legalize drugs. This would reduce the rents that attract the poor into dealing, would keep people out of jail, and reduce a lot of violent crime associated with narcotics traffic that kills investment and business creation in black neighborhoods. It would also reduce the main excuse for petty harassment by police that falls disproportionately on young black men. No its not a good thing to have people addicted to strong narcotics but it is worse to be putting them in jail and having them shooting at each other.
- Bring real accountability to police forces. When I see stories of folks absurdly abused by police forces, I can almost always guess the race of the victim in advance. I used to be a law-and-order Conservative that blindly trusted police statements about every encounter. The advent of cell-phone video has proven this to be supremely naive.
- Eliminate the minimum wage (compromise: eliminate the minimum wage before 25). Originally passed for racist reasons, it still (if unintentionally) keeps young blacks from entering the work force. Dropping out of high school does not hurt employment because kids learn job skills in high school (they don’t); it hurts because finishing high school is a marker of responsibility and other desirable job traits. Kids who drop out can overcome this, but only if they get a job where they can demonstrate these traits. No one is going to take that chance at $10 or $15 an hour**
- Voucherize education. It’s not the middle class that is primarily the victim of awful public schools, it is poor blacks. Middle and upper class parents have the political pull to get accountability. It is no coincidence the best public schools are generally in middle and upper class neighborhoods. Programs such as the one in DC that used to allow urban poor to escape failing schools need to be promoted.
You could argue that decriminalizing drugs is somehow wrong … but if you’re looking at the harm inflicted by drug abuse and comparing it to the harm to African-American communities in particular, you would have to admit that it’s significantly worse with drug prohibition than it would be under a legal drug-use scenario. Reforming the police? Check what kinds of stuff show up in my Militarization-tagged posts — if that doesn’t convince you, you can’t be convinced.
The minimum wage is one of those issues that seems beneficial to the poor, because it means they get a higher wage on the job than they might get otherwise — what isn’t seen is that this limits the number of jobs that a poor person may have access to. Our education system is not adequately equipping people for the working world, and the more we expect the schools to teach, the less they can teach in the way of life-skills. A bad school can negatively impact someone’s entire working life. In education especially, one size does not fit all. Having more varied educational offerings makes it much more likely that children will be able to get the kind of education they need to succeed in life.
March 25, 2015
In The Federalist, Nichole Russell agrees that it is nearly impossible to “have it all” (a real career and a family) … at the same time, anyway:
The conversation about mothers in the workforce seems to be at once continuous and clamoring. Rarely does a working mother nail the problem and solution without sounding too whiny or too arrogant. Yet a recent commentary in Forbes comes as close to any as I have seen recently, complete with some eyebrow-raising admissions. If more men and women — parents and CEOs — viewed this exhausting issue with such clarity, perhaps we could finally work towards a solution.
In the piece, succinctly titled, “Female Company President: I’m sorry to all the mothers I worked with,” Katharine Zaleski recounts how, while employed in high-powered editorial positions at The Washington Post and The Huffington Post, she regularly scoffed at the work ethic of other women just because they were mothers, either mentally or by failing to support the decisions they made related to work and family.
She reveals this penitent anecdote: “I secretly rolled my eyes at a mother who couldn’t make it to last minute drinks with me and my team. I questioned her ‘commitment’ even though she arrived two hours earlier to work than me and my hungover colleagues the next day.”
What’s just as surprising as her admission that she evaluated a mother’s work-related achievements on a different scale than she did other employees is the equally important truth that the workforce isn’t just a tough place for moms because of their male bosses. “For mothers in the workplace, it’s death by a thousand cuts – and sometimes it’s other women holding the knives. I didn’t realize this – or how horrible I’d been – until five years later, when I gave birth to a daughter of my own.”
Zaleski goes on to discuss how she lamented her status as a new mom and employee only briefly before she determined to find a solution, both for her daughter so she wouldn’t feel “trapped” and other moms facing the same struggle. She wound up co-founding a startup called PowertoFly that matches women in technical positions they can do from home.
While many conservatives and liberals alike might call this an abandonment of the feminist theory, I think it actually expresses the heart of feminism — not radical left-wing feminism, but one of the few Oprah gems I agree with: “You can have it all, just not at the same time.”
March 24, 2015
In his Forbes column last week, Tim Worstall made the point that perhaps the biggest economic story of the last century has been the economic emancipation of women:
There’s an interesting little rumpus going on over the new book by Robert Putnam on the class divide in American lifestyles. Put very simply, the middle and upper classes seem to take marriage and child rearing seriously and the poor have a more, umm, chaotic approach. Looking at the various think pieces that have been done on this book I find myself astonished by the way that the most important salient and relevant fact is simply not being mentioned. Marriage is many things but among them is that it is an economic contract. And the terms of that contract have changed: thus it’s not even remotely surprising that behaviour has changed too.
Which brings me to that headline: that the economic emancipation of women is the most important single fact of the past century. That past really was a different place. We can argue if we want to about whether that economic emancipation is complete (the famous womens’ 77 cents to mens’ dollar, or is it a motherhood pay gap and so on) but let’s leave that for another time. What is obviously and glaringly true is that women are much freer economically than they were a century ago. Wages for women back then were distinctly lower than they were for men. And no, this wasn’t particularly discrimination: some large part of what most people were hired for was physical muscle. Men have more of this so they got paid more. There were also strong social norms: I’m not quite sure of pre-WWI America but in my native UK the only respectable jobs for an adult woman (ie, something that the bourgeois would be happy to see their daughters go into) were nursing or teaching. And as a result of this paucity of choice the wages were low in both professions (there’s a strong truth to the point that the rising wages of both teachers and nurses in recent decades are the result of their being free to work in other sectors these days).
The result of both of these things was that the wages of a female worker were not, except at the most basic, basic, level, sufficient to raise a child let alone support a family. I’m not saying that being a single parent these days is easy but it is at least possible as tens of millions of people are showing us.
Which brings us to marriage: yes, this is many things. Love, sex, companionship and so on. But it is also an economic contract (the only proof we need of this is to read some divorce settlements)
and marriage always has been an economic contract. Pretty much since humans arrived as a species it has been necessary to have two parents around in order for a child to have a reasonable chance of survival to an age where it would have its own children. This was true of hunter gatherer societies, of agricultural ones, of industrial ones, feudal and so on. It really is only in this past century, more so in the past 50 years, that it’s been possible for one person to both earn a living and raise a child or children. Yes, obviously people did do so as a result of having to do so but it wasn’t something that anyone did by choice simply because of the penury that resulted from their doing so. And yes, all of this is much more true of women than men.
March 17, 2015
Properly understood, all economic values are subjective. Some items have useful applications, but the relative value of those applications is itself subjective; there’s nutritional value in a pound of cauliflower, and there’s nutritional value to an ounce of Beluga caviar, and the difference in the price between the two is based on no objective criterion. Even scarcity does not explain the difference: There are more diamonds in this world than there are autographed photos of Anthony Weiner, but try giving your wife the latter for your anniversary and you’ll get a short and possibly violent lesson in the subjectivity of value. In fact, it is the subjectivity of value that makes exchange possible — if our values and preferences were perfectly aligned, we’d never trade anything for anything else, because we’d all value every item and service at precisely the same level, and there would therefore be no incentive to engage in commerce. That our preferences should be non-uniform ought not be surprising — our lives are non-uniform, too. If I operate an apple orchard, I am probably not going to buy apples from you at any price, unless perhaps they are a different sort of apple than the ones I grow. The rancher and the fisherman each assigns a different value to beef and fish than does his opposite number. Disagreement is fundamental.
The crude version of exchange — which is, unhappily, the common version — is inclined to suspect that there is an objectively correct price for a good, and that profit comes from duping somebody into paying more than the correct price for it. That error is fundamental to Marxism and other anti-capitalist philosophies, and it is implicit in such social phenomena as the anti-advertising movement, “Buy Nothing Day,” and similar political tendencies. But that bias does relatively little harm in the heads of greying Marxists, peddlers of “profit is a crime” banalities, and Occupy riff-raff. Where it is truly destructive is in the disorganized thoughts of the large majority of ordinary people with no particularly strong political commitments or economic orientation. Consider these phrases: “An honest day’s work for an honest day’s pay,” “just wages,” “fair price,” “obscene profits,” “price gouging,” “excessive executive compensation.” For any of those phrases to have any intellectual content, then there must be a price that is in some non-subjective sense the correct one. But if economic values are subjective — and they are — then “an honest day’s work for an honest day’s pay” can only mean one thing, that being the payment of an agreed-upon wage for an agreed-upon performance of labor, with “honest” referring only to the fulfillment of the agreement and saying nothing substantive about the terms of the agreement itself.
Kevin D. Williamson, “The Profit Police”, National Review, 2014-06-30.
March 11, 2015
In Forbes, Tim Worstall looks at last week’s announcement that China is (slightly) lowering their economic growth forecast.
On that larger scale though what people are worrying about is this. Catch up growth is easier than growth from the technological frontier. What is meant by this is that it’s a great deal easier to generate economic growth if you have an example in front of you of how to do things. To take a trivial example, if you can go and buy a mobile phone, take it apart to see how it works, it’s a lot easier to copy that technology than it is to invent it for the first time. And this is true of how you make cement, how you put up buildings, how you farm a field and so on. And at root that’s what economic growth is: becoming more efficient at doing all of these things as well as everything else. Each time you become more efficient at doing one task you free up resources to be doing something else. Thus you get both the original thing plus the new one from the same resources: this is the very definition of economic growth.
However, there’s a limit to such catch up growth. In certain areas China is right at that technological frontier (in some areas ahead of the rest of the world in fact). Which is where things become more difficult: there’s no one to copy. Therefore that invention has to happen domestically. This is obviously more difficult. But also it rather requires a certain set of institutions. The rule of law, property rights and so on. These aren’t things that China notably has (although things are very much better than they were decades ago). It’s those headwinds that need to be beaten. Bringing in these new institutions, embedding them in the society and the economy, without causing so much disruption as to slow down growth while they are done.
The standard jargon for this is “middle income trap”. To be crude about it the general feeling is that it’s pretty easy to go from dirt poor to middling income. The essence is really just to stop doing stupid things that hold economic development back. China’s done that very well even though they did start from a very low level of an immense number of very stupid things that Maoism did to hold economic growth back. The middle income trap is where the transition over to those institutions that promote technological frontier growth don’t appear (or are not imposed). And thus the stunning growth peters out.
March 10, 2015
Published on 9 Mar 2015
When you think about World War One, you think of men fighting to death in the mud. All to often the immense contribution of women as nurses, medics, ammunition workers and so many more has been forgotten. This special episode salutes all the women who served in the Great War.
March 3, 2015
In Reason, Steve Chapman looks at the tangle of issues still causing problems for African-Americans in the United States:
The breakdown of the black family is a sensitive topic, though it’s not new and it’s not in dispute. President Barack Obama, who grew up with an absent father, often urges black men to be responsible parents.
Nor is there any doubt that African-American children would be better off living with their married parents. Kids who grow up in households headed by a single mother are far more likely than others to be poor, quit school, get pregnant as teens and end up in jail.
It’s true that whites don’t force blacks to have children out of wedlock. But it’s wrong to suggest that whites bear no responsibility. Poverty is often the result of lack of access to good jobs or any jobs, and discrimination by employers didn’t stop in 1965 — and hasn’t stopped yet.
The impact of drug laws, and the harsher treatment black men get from the criminal justice system, means that many have records that scare employers away. But research indicates that white applicants with criminal records are more likely to get interviews than blacks without criminal records.
A lot of the well-paid blue-collar jobs once abundant in cities have vanished. Moynihan lamented that unemployment had long been much higher for black men than for whites, and the gap is bigger today.
Without decent jobs, these men are not likely to be able to find wives or support families. They are not likely to get married or stay married. If family breakdown causes poverty, poverty also causes family breakdown.
African-Americans often find it hard to leave blighted neighborhoods. They can find themselves steered away from white communities by real estate agents or rejected by landlords. The Urban Institute reports a fact that ought to shock: “The average high-income black person lives in a neighborhood with a higher poverty rate than the average low-income white person” (my emphasis).
February 11, 2015
…but Jerry Toner says that modern employers can learn from the management techniques of Romans. Roman slave-owners, that is:
Most Romans, like Augustus, thought cruelty to slaves was shocking. They understood that slaves could not simply be terrified into being good at their job. Instead, the Romans used various techniques to encourage their slaves to work productively and willingly, from bonuses and long-term inducements, to acts designed to boost morale and generate team spirit. All of these say more than we might imagine about how employers manage people successfully in the modern world.
Above all, the story shows how comfortable the Romans were with leadership and command. They believed that there is a world of difference between having the organisational skills to run a unit and actually being able to lead it. By contrast modern managers are often uncomfortable with being promoted above their staff. I worked in a large corporation for a decade and I had numerous bosses who tried to be my friend. Raising yourself over others sits uneasily with democratic ideals of equality. Today’s managers have to pretend to be one of the team.
The Romans would have scoffed at such weakness. Did Julius Caesar take his legions off-site to get them to buy-in to his invasion of Gaul? Successful leaders had to stand out from the crowd and use their superior skills to inspire, cajole and sometimes force people to do what was necessary. Perhaps we would do well to learn from their blunt honesty.
February 8, 2015
Megan McArdle on the discomfort many young entrants to the workforce feel at the unpalatable career options they face:
Millennials don’t want to work in sales, reports the Wall Street Journal. They think it’s exploitative. They also hate the idea of variable compensation; they want a nice, steady job where the company takes the risk, not the worker.
The feeling that sales is exploitative is not new; people have always been uncomfortable with the idea of selling something or being sold. And, of course, many people have always been uncomfortable with the idea of variable compensation. But if companies are having a harder time finding people to take sales jobs and reworking compensation packages to decrease the commission component, that is worth noting.
It’s not entirely surprising, of course. I’ve heard people who worked in New York City’s government during the 1970s noting that there was an unusually high number of very competent senior staff at the time — refugees from the Great Depression who ended up there because it was the only place where you could get a steady paycheck. That generation was risk-averse in ways that their children were not, with a high savings rate and a permanent aversion to equity investments. It would be natural for the millennial generation to have had a similar reaction to such a brutal formative experience.
Unfortunately, as Farhad Manjoo noted last week, they may be coming of age at a moment when the economy is moving toward more variable work, not less. Uber and similar services are making it relatively easy to employ people in a high-tech version of piecework: discrete tasks that are parceled out moment by moment, entirely contingent on demand. Robert Reich thinks this is terrible. If the Journal‘s article is any guide, it’s not what the new generation of entering workers wants. But it may be what’s available.
January 28, 2015
Warren Meyer says what the US needs to do is to make changes to the structure of the working world to allow companies to profitably hire low-skilled workers:
A lot of head scratching goes on as to why, when the income premium is so high for gaining skills, there are not more people seeking to gain them. School systems are often blamed, which is fair in part (if I were to be given a second magic wand to wave, it would be to break up the senescent government school monopoly with some kind of school choice system). But a large portion of the population apparently does not take advantage of the educational opportunities that do exist. Why is that?
When one says “job skills,” people often think of things like programming machine tools or writing Java code. But for new or unskilled workers — the very workers we worry are trapped in poverty in our cities — even basic things we take for granted like showing up on-time reliably and working as a team with others represent skills that have to be learned. Amazon.com CEO Jeff Bezos, despite his Princeton education, still learned many of his first real-world job skills working at McDonald’s. In fact, back in the 1970’s, a survey found that 10% of Fortune 500 CEO’s had their first work experience at McDonald’s.
Part of what we call “the cycle of poverty” is due not just to a lack of skills, but to a lack of understanding of or appreciation for such skills that can cross generations. Children of parents with few skills or little education can go on to achieve great things — that is the American dream after all. But in most of these cases, kids who are successful have parents who were, if not educated, at least knowledgeable about the importance of education, reliability, and teamwork — understanding they often gained via what we call unskilled work. The experience gained from unskilled work is a bridge to future success, both in this generation and the next.
But this road to success breaks down without that initial unskilled job. Without a first, relatively simple job it is almost impossible to gain more sophisticated and lucrative work. And kids with parents who have little or no experience working are more likely to inherit their parent’s cynicism about the lack of opportunity than they are to get any push to do well in school, to work hard, or to learn to cooperate with others.
Unfortunately, there seem to be fewer and fewer opportunities for unskilled workers to find a job. As I mentioned earlier, economists scratch their heads and wonder why there are not more skilled workers despite high rewards for gaining such skills. I am not an economist, I am a business school grad. We don’t worry about explaining structural imbalances so much as look for the profitable opportunities they might present. So a question we business folks might ask instead is: If there are so many under-employed unskilled workers rattling around in the economy, why aren’t entrepreneurs crafting business models to exploit this fact?
Not having gone to university myself, I can’t speak from direct personal experience, but my strong sense is that the university degree today fulfils almost exactly the role for job-seekers that a high school diploma did about a generation ago. Most of the “entry level” jobs that actually offer some sort of career progression require no more skill or preparation now than they did 25 or 30 years ago … but the combination of lowered standards in secondary school and the vast expansion of post-secondary education have encouraged employers to filter job applicants for such openings by education first. As a direct result, parents have been pushing their children toward university as the only way to ensure those kids have a fighting chance to get into jobs that might, eventually, lead somewhere both interesting and remunerative.
But with more demand for places at university, the government is under pressure to provide funding — both to the universities to create more spaces, and to the students themselves to allow them to pay their tuition and other costs. Megan McArdle worries that pouring more money into the system isn’t the right answer:
The other day, I argued that maybe we should rethink our current policy of endlessly dumping more money into college education. It’s completely true that there is a big wage premium for having a college degree — but it does not therefore follow that we will make everyone better off by trying to shove every American through post-secondary (aka tertiary) education. We may simply be setting up college as a substitute for a high school diploma: a signal to employers that you can read and write, and are able to turn in scheduled assignments within a reasonable time frame. And in the process, excluding people who aren’t college-educated from access to decent jobs.
Predictably, this was not met with shouts of joy and universal admiration in all quarters. I was accused of just wanting to stick it to President Barack Obama, and also of wishing to deny the dream of college education that should be the birthright of every single American. I was also accused of being unfamiliar with the known fact that America woefully underinvests in education compared to other advanced nations.
It is true that I am unfamiliar with America’s woeful underinvestment in education, in the same way that I am unfamiliar with the tooth fairy, because both are legends with no basis in fact. American spending on education is in line with that of our peers in the developed world — a little higher than some, a little lower than others, but not really remarkable either way:
You can argue that there’s an inequality problem in our schools. In fact, I think there is obviously an inequality problem in our schools, but that the big problem is not at the college level, but rather in the primary and secondary schools that are overwhelmingly government-funded. And those disparities are also not primarily about the dollar amounts going into schools — Detroit spends well above the U.S. average per pupil, and yet one study found that half the population of the city was “functionally illiterate.”
Should we fix the issues with those schools? Absolutely — and doing so might mean spending more money. But that doesn’t mean that we need to increase the overall level of educational funding. It means that we need to identify ways to improve those underperforming schools, then find out how much more it would cost to implement those programs. It is just as likely that improvements will come from changing methods and reallocating resources as that they will require us to pour more money into failing institutions.