Quotulatiousness

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 30, 2017

QotD: Rent-seeking

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

Calling someone a rent-seeker is sort of an economist’s way of telling them to die in a fire.

Scott Alexander, “Contra Caplan on Mental Illness”, Slate Star Codex, 2015-10-07.

June 29, 2017

Words & Numbers – Just Say No to the War on Drugs

Filed under: Economics, Law, Liberty — Tags: , , , , , — Nicholas @ 06:00

Published on 28 Jun 2017

Ted Cruz recently asserted that the United States military needs to be sent to Mexico to attack the drug cartels head-on.

This is a bad idea. But so is the drug war itself, both constitutionally and logically.

Forty-six years and one trillion dollars after its start, President Richard Nixon’s War on Drugs is still going, with 300,000 people currently in jail on drug charges. Meanwhile, 26 times as many people suffer from alcoholism as do heroin abuse, and eight times as many die from alcohol abuse as do heroin.

Many who support the war do so with the best of intentions, but has it really helped? Or has it done more harm than good, like the Prohibition of the 1920s? Is this war even legal in the first place?

James Harrigan and Antony Davies discuss these questions in this week’s Words and Numbers. Watch the conversation below or on our YouTube channel, or listen to it on SoundCloud.

June 28, 2017

Concert-goers rejoice, for the government is here to help you!

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

Of course, if you have any experience of the utility of “government help”, you shouldn’t get your hopes up too high, as Chris Selley explains:

The results of an online public consultation were clear, said Naqvi. “One: the current system clearly is not working for fans; and two: Ontarians expect the government to take action.” We should have expected nothing less: ticket rage is a real thing among concertgoers in particular — a mind-boggling 35,000 people completed the online consultation — and besides, the survey didn’t include an option to suggest the government do nothing.

Among other things, Naqvi said, it will be illegal to resell tickets for more than 150 per cent of face value, and it will be illegal to use bots. Soon, he promised, “everyone (will have) a fair shot at getting the tickets they want.” Ontario, he said, will become “a world leader in ticket sales regulation.”

You’re supposed to think that’s both plausible and desirable. You should instead be very, very skeptical. So long as U2, the Tragically Hip and other artists insist on pricing their tickets vastly below what people are willing to pay for them, there will be an enormous incentive to circumvent whatever laws are in place to prevent third parties from reaping those foregone profits. A 150-per-cent cap would reduce the incentive, as Naqvi says — but only if the entire scalping community decided to respect it.

It won’t. It doesn’t. Scalping is illegal in Arkansas. Tickets for the University of Arkansas Razorbacks’ Nov. 24 game against Missouri are going on Stubhub for well over twice face value. Scalping is illegal in Quebec. Stubhub will put you in the third row for Bob Dylan’s show at the Montreal Jazz Festival next month for US$275; face value is $137.50 Canadian. The experiment works in every scalping-restrictive North American jurisdiction I tried. Heck, scalping used to be illegal in Ontario. That sure didn’t deter the gentlemen who prowled around outside Maple Leaf Gardens and SkyDome.

Many Stubhub users aren’t even in Ontario — that’s even more true for the people with the bots. Is the Attorney General really going to prosecute people for the crime of selling tickets at prices people are perfectly willing to pay? People in other countries? That would get awfully old in an awful hurry.

As he points out in the article, this is yet another instance of the Ontario government pandering to the demands of economic illiterates (recent examples include slapping on new rent controls in the middle of a housing crunch and significant increases in the minimum wage as new workforce entrants are already finding it tough to get hired). It’s as though the government is reading the economic textbook upside down … bringing in exactly the wrong “solutions” to every problem they see.

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 26, 2017

Human Capital & Conditional Convergence

Filed under: Economics — Tags: , — Nicholas @ 14:33

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”

Filed under: Cancon, Economics, Liberty — Tags: , , , , , — Nicholas @ 03:00

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

Filed under: Economics — Tags: , , , — Nicholas @ 06:00

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

Filed under: Economics, WW2 — Tags: , — Nicholas @ 02:00

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.

QotD: Profit

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

While capitalism has a visible cost – profit – that does not exist under socialism, socialism has an invisible cost – inefficiency – that gets weeded out by losses and bankruptcy under capitalism. The fact that most goods are more widely affordable in a capitalist economy implies that profit is less costly than inefficiency. Put differently, profit is a price paid for efficiency.

Thomas Sowell, Basic Economics (fifth edition), 2015.

June 19, 2017

Office Hours: The Solow Model

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

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

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

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

Filed under: Britain, Economics, History, Personal — Tags: , , , , , — Nicholas @ 03:00

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

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

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.”

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