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 28, 2017
QotD: How “Jim Crow” laws were brought in to suppress competition
June 27, 2017
Seattle sees some negative effects from their latest minimum wage hike
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 26, 2017
Human Capital & Conditional Convergence
Published on 26 Apr 2016
In our previous macroeconomics video, we said that the accumulation of physical capital only provides a temporary boost to economic growth. Does the same apply to human capital?
To answer that, consider this: what happens to all new graduates, in the end?
For a while, they’re productive members of the economy. Then age takes its toll, retirement rolls around, and eventually, the old workforce is replaced with a new infusion of people. But then, the cycle restarts. You get a new workforce, everyone’s productive for a while, and then they too retire.
Does this ring a bell?
It should, because this is similar to the depreciation faced by physical capital.
Similarly, are there diminishing returns to education? It likely wouldn’t pay off for everyone to have a PhD, or for everyone to master Einstein’s great theories.
That means the logic of diminishing returns, and the idea of a steady state, also applies to human capital.
So, now we can revise our earlier statement.
Now we can say that the accumulation of any kind of capital, only provides a temporary boost in economic growth. This is because all kinds of capital rust. So, one way or another, we’ll reach a point where new investments can only offset depreciation.
It’s the steady state, all over again.
However, what does the journey to steady state look like?
The Solow model predicts that poor countries should eventually catch up to rich countries, especially since they’re growing from a lower base. And given their quicker accumulation of capital, poorer nations should also grow faster, than their more developed neighbors.
And eventually, every country should reach similar steady states.
In other words, we would see growth tracks that all eventually converge.
So, why isn’t this always the case? Why, in some cases, are we seeing “Divergence, Big time,” as coined by economist Lant Pritchett?
The answer to these questions, lies in the institutions of different countries and the incentives they create.
Assuming that a certain set of countries do have similar institutions, that’s where we see the convergence predicted by the Solow model. We see that poorer countries do grow faster than their richer counterparts. And conditional on having similar institutions, eventually, even poorer countries will reach a similar steady state of output as more developed nations. We call this phenomenon conditional convergence.
You can think of it as a national game of catch-up, with catch-up only happening if institutions don’t differ.
What happens though, once all this catching up is done?
Let’s not forget that there’s still another variable in the Solow model. This is variable A: ideas — the subject of our next video.
There, we’ll show you how ideas can keep a country moving along the cutting edge of growth.
“Ah, the Comeau case. Schwisberg says it could change everything – knock down all the barriers”
It’s ridiculous that 150 years into Confederation, and we still don’t have free trade within Canada:
If you’re on vacation abroad somewhere this summer and find yourself explaining to people over dinner what makes Canada so unique and special, use the story about Gerard Comeau and his beer run back in 2012. There is no more Canadian story than that.
Comeau is a Canadian who, looking for the best bargain he could, drove to a Canadian town a few miles from his home in Canada, bought 14 cases of beer and three bottles of liquor from Canadian beer and liquor stores, then returned to his home. In Canada.
A squad of plainclothes Mounties with binoculars, it turned out, had him under surveillance, according to his lawyer. On his way home from the Canadian town to his Canadian home, he was intercepted and handed a ticket for $292.50 by uniformed Canadian officers who then seized all the alcohol he’d purchased.
His Canadian crime: his beer run had crossed one of Canada’s internal borders. He’d driven from New Brunswick into Quebec. As far as New Brunswick was concerned, that made him a smuggler.
Sixteen other people were charged that day in the same sting operation, but Comeau had more spine than most and fought the ticket. Some smart lawyers from Ontario and Western Canada got involved, and – my god, I love it when things like this happen – he won.
A New Brunswick judge ruled that the province’s law against importing alcohol from other provinces violated the Constitution Act, Sec. 121, which states: All Articles of the Growth, Produce, or Manufacture of any one of the Provinces shall, from and after the Union, be admitted free into each of the other Provinces.
The ruling shocked New Brunswick and most of the other provinces, which consider Sec. 121 to be one of the most horrible and un-Canadian sentences in the Canadian Constitution, something that should be ignored at all costs.
June 22, 2017
Words & Numbers: The Population Boom Could Save the World
Published on 21 Jun 2017
In 1798, 95 percent of the world lived in poverty. Today, less than 10 percent do, in spite of the world’s population growing by 700 percent in that same time.
The common thought among young people is that this 700 percent population growth is going to overpopulate the earth. But given the number of people in poverty, it looks like population growth is actually good for poverty – more people means more brains, which means more ideas, inventions, and innovations.
This week on Words and Numbers, Antony Davies and James R. Harrigan talk about how and why the world is improving despite widespread negativity towards the idea of a growing world population, and why that negativity persists regardless of the prosperity we see every day.
June 21, 2017
Physical Capital and Diminishing Returns
Published on 29 Mar 2016
Do you recall our question about Germany and Japan from our previous video?
How did they achieve record economic growth following World War II?
Today’s video will help answer that question. We’ll be digging into the K variable of our simplified Solow model: physical capital.
To help with our discussion, we’ll be exploring two specific concepts. The first is the iron logic of diminishing returns which states that, for each new input of capital, there is less and less output produced. Your first input of capital will likely be the most productive, because you’ll allocate this first unit to the most important, value-adding tasks.
The second concept we’ll cover is the marginal product of capital. This concept describes the output created by each new unit of invested capital.
Can you already see how these two forces of capital help answer our question about Germany and Japan?
For these two war-torn countries, the first few units of invested capital had a lot of bang for their buck. The first roads between destroyed cities, the first new steel mills, the first new businesses — these helped boost their growth rate tremendously.
Even more so, remember that Germany and Japan were growing from a low economic base after the war. It’s easy to grow a lot when the base is small. But all else being equal, you’d rather have a larger base, and grow slower.
Capital has some more nuances worth thinking about, which we’ll show in the next video. So get to watching, and in our next macroeconomics video, we’ll show you yet another problem surrounding physical capital.
June 19, 2017
Office Hours: The Solow Model
Published on 20 Apr 2016
In last week’s Principles of Macroeconomics video, you learned about the steady state level of capital and the Solow model of economic growth. Here are two of the practice questions from that video:
Country A has K=10,000 and produces GDP according to the following equation: GDP=5√K.
1) If the country devotes 25% of its GDP to making investment goods, how much is the country investing?
2) If 1% of all machines become worthless every year (they depreciate, in other words) in Country A, GDP is…?
June 15, 2017
Words & Numbers: What You Should Know About Poverty in America
Published on 14 Jun 2017
Poverty is a big deal – it affects about 41 million people in the United States every year – yet the federal government spends a huge amount of money to end poverty. So much of the government’s welfare spending gets eaten up by bureaucracy, conflicting programs, and politicians presuming they know how people should spend their own money. Obviously, this isn’t working.
This week on Words and Numbers, Antony Davies and James R. Harrigan delve into how people can really become less poor and what that means for society and the government.
June 11, 2017
Nostalgia for a lost England
David Warren got all weepy about bygone times in England:
I lived in England — London, to be more frank, but with much wandering about — through the middle ’seventies and for a shorter spell in the early ’eighties. By the late ’nineties I visited a place that had been in many ways transformed, and clearly for the worse, by the Thatcher Revolution. Tinsel wealth had spread everywhere, trickling down into every crevice. Tony Blair surfed the glitter, and people with the most discouraging lower-class accents were wearing loud, expensive, off-the-rack garments, and carrying laptops and briefcases. No hats. It was a land in which one could no longer find beans-egg-sausage-and-toast for thirty-five new pence, nor enter the museums for free.
I missed that old Labour England, with the coalfield strikes, and the economy in free fall; with everything so broken, and all the empty houses in which one could squat; the quiet of post-industrial inanition, and the working classes all kept in their place by the unions. I loved the physical decay, the leisurely way people went about their charmingly miserable lives. Cricket still played in cricket whites; the plaster coming off the walls in pubs. It was all so poetical. And yes, Mrs Thatcher had ruined all that. For a blissful moment I was thinking, Corbyn could bring it back.
Actually, he would bring something more like Venezuela, but like the youff of England, one can still dream.
I visited England as an adult in mid-Winter 1979, the “Winter of Discontent“, and it was a fantastically appropriate epithet for a chilly, damp, and miserable time-and-place. When we landed at Heathrow, there was some kind of disruption with both the bus service and the underground (“subway” to us North Americans), so getting into London required taking a cab. The cabbie “kindly” took us around a bunch of touristy sites (and probably ran up the meter a fair bit) before dropping us off at King’s Cross station. When we bought our tickets for the train north to Darlington, we were warned that the catering staff were not working that day (no idea whether there was a formal strike or just a wildcat walkout), so there were no meals available on the train. The restaurant at the station was closed — that might just have been the time we were there, as British restaurant opening and closing hours were quite restricted at the best of times.
On the train, we were at least able to get a cup of tea and a stale bun. The journey took quite some time — once again, that might have been normal, but what was supposed to be a ~3 hour journey probably took closer to 5 hours (maintenance, signalling issues, strike-related delays, and for all I know the “wrong kind of snow” were all possible contributors). By then, we’d missed our connecting train to Middlesbrough, but they ran fairly frequently so we weren’t held up too long. We finally reached my Grandmother’s house, only to discover that we might be hit by blackouts as the power station workers were threatening to go off the job. It was a dismal and yet appropriate welcome back to the place I’d left as a child in 1967 … it was tough to recognize the places I thought I remembered, as childhood memories tend to emphasize the (fleeting) warmth and sunshine and ignore the much more traditional wet and windy British weather.
I left Toronto wearing normal winter clothing, which was well adapted to our Canadian winters, but not at all appropriate to the bitter, wet cold of Northeast England at the best of times and this was the worst winter since 1963. My teeth started to chatter as we left the terminal at Heathrow and didn’t stop chattering until the door closed on the aircraft for our return two weeks later (in the middle of a huge winter snowstorm that had us on one of the few aircraft that arrived or departed that day).
My brief two weeks’ experience of England’s Winter of Discontent didn’t build up any particularly rich sense of nostalgia, let me tell you…
June 8, 2017
Words & Numbers: Earning Profits is Your Social Responsibility
Published on 7 Jun 2017
“We tend to demonize people who make money – how dare they have more than us? But that negative reaction forgets the voluntary role we play in profit-making every day. This week in Words and Numbers, Antony Davies and James R. Harrigan discuss just how good it is to earn a profit, and the vital difference between that and forcing money from people.”
June 4, 2017
Intro to the Solow Model of Economic Growth
Published on 28 Mar 2016
Here’s a quick growth conundrum, to get you thinking.
Consider two countries at the close of World War II — Germany and Japan. At that point, they’ve both suffered heavy population losses. Both countries have had their infrastructure devastated. So logically, the losing countries should’ve been in a post-war economic quagmire.
So why wasn’t that the case at all?
Following WWII, Germany and Japan were growing twice, sometimes three times, the rate of the winning countries, such as the United States.
Similarly, think of this quandary: in past videos, we explained to you that one of the keys to economic growth is a country’s institutions. With that in mind, think of China’s growth rate. China’s been growing at a breakneck pace — reported at 7 to 10% per year.
On the other hand, countries like the United States, Canada, and France have been growing at about 2% per year. Aside from their advantages in physical and human capital, there’s no question that the institutions in these countries are better than those in China.
So, just as we said about Germany and Japan — why the growth?
To answer that, we turn to today’s video on the Solow model of economic growth.
The Solow model was named after Robert Solow, the 1987 winner of the Nobel Prize in Economics. Among other things, the Solow model helps us understand the nuances and dynamics of growth. The model also lets us distinguish between two types of growth: catching up growth and cutting edge growth. As you’ll soon see, a country can grow much faster when it’s catching up, as opposed to when it’s already growing at the cutting edge.
That said, this video will allow you to see a simplified version of the model. It’ll describe growth as a function of a few specific variables: labor, education, physical capital, and ideas.
So watch this new installment, get your feet wet with the Solow model, and next time, we’ll drill down into one of its variables: physical capital.
Helpful links:
Puzzle of Growth: http://bit.ly/1T5yq18
Importance of Institutions: http://bit.ly/25kbzne
Rise and Fall of the Chinese Economy: http://bit.ly/1SfRpDL
QotD: The Empire of the Cow
Whatever you might say against European imperialism and colonialism, it was good for the dairy industry. Ditto the railways which, beginning with the Great Western, made a fortune delivering rural milk supplies to the Great Wen of London, using methods soon copied by entrepreneurs in Paris, New York, Bombay. We forget, don’t we, that before 1860 or so, almost all dairy farming for urban consumption was done within the cities; to say nothing of other animal feedlot operations, including poultry and eggs; market gardening, horticulture and so forth. I’m with the hipsters for bringing it all back.
I cast no aspersions on the milkers of buffalo, goats, sheep, camels, donkeys, horses, reindeer, yaks, when I recognize that the Holstein/Frisian cow was the great cause and inspiration for the rise of what Max Weber murkily called the Protestant Ethic and the Spirit of Capitalism, emanating from the north-west of Europe. Instead, as will be seen, I champion them.
Neil Cameron interviewed the learned Professor Gerhard Fleischkopf, in a cover piece for the Idler magazine, more than a quarter-century ago, to publicize a thesis that still hasn’t been taken seriously enough by the historians. Contra Weber, Fleischkopf showed that it wasn’t the Germans, Dutchmen, Normans, English who launched this cultural revolution. Rather it was their cows, who forced them to rise very early every morning, lest they be kicked upon finally approaching the engorged teats with their milk-stools and pails; forced them otherwise to adopt patterns of behaviour entirely in the interest of the cows. Their philosophical and theological outlook — a dramatic break from the mediaeval scholastic synthesis — was not in any sense original to them, but instead an artefact of their cultural and intellectual manipulation, by cows. And so, too, their adaptive pushiness towards those of other lands — those lesser breeds without modern dairying techniques — whom they subjugated in turn, as agents of the cow.
David Warren, “A new model for society”, Essays in Idleness, 2015-07-20.
June 1, 2017
Words & Numbers: Is Your College Degree Worthless?
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.
Terence Corcoran – It was the fake Tories that did in Maxime Bernier
In the Financial Post, Terence Corcoran blames the supply management fans and other anti-free market types for Maxime Bernier’s loss in the federal Conservative leadership race:
On Monday, during a noon-hour Ontario CBC Radio show, the host opined that Maxime Bernier lost the Conservative leadership because of his “wild ideas,” as if the libertarian politician from Quebec had been offering conservatives options too crazy to contemplate.
Wild ideas? In the recent history of Canadian politics, no politician has been more grounded or sane.
[…] if accounts from the frontline are accurate, Bernier would have won the leadership were it not for vote-rigging infiltrators from the farmers’ unions and associated backers of supply management.
One source says that as many as 3,000 points went to Scheer, mostly in Quebec and Ontario, as a result of an organized campaign in which farmers temporarily joined the Conservative party and then cast votes against Bernier.
Bernier didn’t lose the leadership vote; it was stolen from him by a concerted campaign organized by members of Union des producteurs agricoles (UPA) and farmers in Ontario. Via Facebook, Quebec farmers and others were urged to join the Conservative party and vote for Andrew Scheer.
Three Quebec ridings tell the story. One is Beauce, Bernier’s home riding. Right off the bat, in the opening round of the ranked ballot, Scheer collected 46.63 per cent of the points against 47.5 per cent for Bernier. By the end of the final round, Scheer was at 51 per cent versus 48 for Bernier — in a riding where Bernier is a local hero among Conservatives and hardly anyone would even know Scheer’s name.
