(via Read manga Akumetsu 014 online in high quality)  Economic lessons from a manga.  Awesome HD
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(via Facebook)That’s horseshit  HD
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Ugh, just had the most frustrating discussion on minimum wage ever. I hate when people who don’t understand what they are discussing resort to cat-calling and insults

» President Obama's $9 Minimum Wage Wouldn't Solve Working Poor Problem: Study

Minimum wage = prolongued poverty

» The Temperamental Minimum Wage - Walter E. Williams - [page]


The first fundamental law of demand postulates that the lower the price of something, the more will be demanded, and the higher the price, the less will be demanded. To my knowledge, there are no known exceptions to the law of demand. That was until last fall when 650 economists, including several Nobel Laureates, signed a letter calling for an increase in the minimum wage.

They said, “We believe that a modest increase in the minimum wage would improve the well-being of low-wage workers and would not have the adverse effects that critics have claimed.” I’m not sure if these 650 economists meant increases in the minimum wage will have no effect on the employment of low-wage workers or if they meant its magnitude won’t be large. If their argument is the former, I’m embarrassed for them.

Maybe these economists, like House Speaker Nancy Pelosi, see the law of demand as being somewhat temperamental — sometimes having an effect and sometimes not. This would be like a physicist suggesting that the velocity of light, in a vacuum, is temperamental — sometimes a constant and sometimes not. But they and Speaker Pelosi might have a point.

On Jan. 10, the House of Representatives voted to raise the minimum wage from $5.15 to $7.25 per hour. Their bill, for the first time, extended the federal minimum wage to the U.S. territory of the Northern Mariana Islands, but it exempted American Samoa, another U.S. Pacific Ocean territory. American Samoa would have been the only U.S. territory not subject to the federal minimum wage. If increases in the minimum wage, like my 650 fellow economists claim, are so helpful to low-wage workers, why deprive Samoan workers from the benefits? Are Speaker Pelosi and my fellow economists anti-Samoan?

StarKist Tuna, whose parent company is Del Monte, and Chicken of the Sea employ nearly 50 percent of the Samoan workforce. Samoan cannery workers earn about $3.50 an hour. I’ll give you one guess what would happen if the minimum wage were raised to $7.25 an hour. Here’s a hint: The average cannery wage in Thailand is 67 cents an hour, and in the Philippines, it’s 66 cents. If you guessed that StarKist and Chicken of the Sea might move their operations to Thailand or the Philippines, go to the head of the class. Perhaps Speaker Pelosi agrees that mandating a higher wage would have an unemployment effect, but just in Samoa.

There’s a better explanation for Speaker Pelosi’s position that has nothing to do with the possible fickleness of the law of demand. StarKist, which owns one of the two Samoan packing plants, has been a big opponent of increases in the U.S. minimum wage. Del Monte, its parent company, is headquartered in Speaker Pelosi’s San Francisco district. Chicken of the Sea is based in Southern California. It’s not unreasonable to guess that Speaker Pelosi’s position has to do with the interests of her well-heeled constituents. In any case, Samoans are off the hook for now because the proposed legislation enacting a higher minimum wage didn’t pass Congress.

Many minimum wage supporters, like the Speaker, are hypocrites, but most supporters are decent people with an honest concern for the well-being of their fellow man. True compassion for our fellow man requires that we examine not the intentions behind public policy but the effects of that policy. There’s no question that Congress can mandate the minimum wage at which a person is hired, but Congress hasn’t found a way to mandate that a person have a level of productivity commensurate with the wage. Moreover, Congress hasn’t chosen to mandate that an employer hire a person whose productivity is less than the minimum wage. This means higher minimum wages cause unemployment for the least-skilled workers.

» Think Consumption Is The 'Engine' Of Our Economy? Think Again. - Forbes

Have you heard that the economy is like a car? It’s the most popular analogy in financial reporting and political discourse. The American people are repeatedly told by financial pundits and politicians that consumption is an “engine” that “drives” economic growth because it makes up 70% of GDP.  One notable Nobel-winning economics pundit with a penchant forbizarre growth theories even recently noted that an economy can be “based on purchases of yachts, luxury cars, and the services of personal trainers and celebrity chefs.” Conversely, other economists including Nobel-winner Joseph Stiglitzclaim that our economy is stuck in “first gear” due to inequality: too much income is concentrated among too few rich people who tend to save larger share of their income and thus have a lower “marginal propensity to consume”. The Keynesian message is clear: if you want to put the economic pedal to the metal, get out there and consume!

Not so fast, Speed Racer. The systematic failure by Keynesian economists and pundits to distinguish between consuming and producing value is the single most damaging fallacy in popular economic thinking. This past Christmas, we produced a playful video called “Deck the Halls with Macro Follies” exploring the history of this popular myth.  If the economy were a car, consumer preferences would surely be the steering wheel, but real savings and investment would be the engine that drives it forward.

A History of Macro Follies

The historical record on economic growth conflicts with this consumption doctrine. Economic growth (booms) and declines (bust) have always been led by changes in business and durable goods investment, while final consumer goods spending has been relatively stable through the business cycle. Booms and busts in financial markets,  heavy industry and housing have always been leading indicators of recession and recovery. The dot-com boom and bust, the Great Depression and our current crisis all exhibit the pattern.

For example, during our past two decades of booms and busts, investment collapsed first, bringing employment down with it. Consumption spending actually increased throughout the 2001 recession (financed, in part, by artificially easy credit) even as employment was falling along with investment. During our continuing crisis, consumption spending returned to its all-time high in 2011–yet investment to this day remains at decade lows, producing the worst recovery in growth and employment since the Great Depression. Labor force participation hasn’t been this low since the 1980s. But why?

As John Stuart Mill put it two centuries ago, “the demand for commodities is not the demand for labor.”  Consumer demand does not necessarily translate into increased employment. That’s because “consumers” don’t employ people. Businesses do. Since new hires are a risky and costly investment with unknown future returns, employers must rely on their expectations about the future and weigh those decision very carefully. As economic historian Robert Higgs’ pioneering work on the Great Depression suggests, increased uncertainty can depress job growth even in the face of booming consumption. As recent years have demonstrated, consumer demand that appears to be driven by temporary or unsustainable policies is unlikely to induce businesses to hire.

The past several decades in America have been marked by a collapse of real savings encouraged by artificially easy credit from the Fed, along with explosive growth in government spending. All these combined to bring about a debt-fueled spending binge, with disastrous consequences.

Increased investment drives economic growth, while retrenched investment leads to recession and reduced employment–and it always has. Those who blame our stagnation on a lack of consumer demand rely on a toxic brew of dubious data and dangerous theory.

Before I Can Consume, I Must Produce for Others

By definition, GDP is a summary of final sales for new goods and services and not of all economic activity. Raw materials, intermediate goods and labor costs, which comprise the bulk of business spending are not treated in GDP, but are rather rolled up in the final sale price of the “consumer” spending. Only capital equipment, net inventory changes and purchase of newly constructed homes constitute “investment” according to GDP. This framing of the data makes the “consumption drives the economy” a foregone conclusion. But this is circular reasoning.

Where do these “consumers” get their money to spend? Before we can consume, we need to produce and earn a paycheck. And paychecks have to flow to productive — that is value-creating — behavior, or value is simply being transferred and destroyed. Our various demands as consumers are enabled by our supply as workers/producers for others. That’s the classical “Law ofMarkets”, often referred to as Say’s Law, in a nutshell.

For employees, those paychecks are income, but for the  employers, wages represent most business’ single largest expense. Yet GDP does not treat employee wages or materials as “investment spending” — even though any business owner regards salaries as the most important and largest investment that they make. Instead, employee wages appear in GDP data as consumption when income is spent on final goods like food, clothing, gadgets, and vacations. Moreover, since GDP is an accounting summary, it adds consumption and investment spending together. But this summarizing masks the fact that these two activities are actually in opposition in the short run. In order to invest more today, we have to save more and consume less. As a result, GDP in-and-of-itself reveals nothing about what grows an economy; at best, it demonstrates how large the economy is and whether it’s growing or shrinking.

Digging below the surface of GDP reveals a structure of value-adding production far more complex than the simplistic analysis given by most media reports. According to government data, more than 70% of Americans earn their incomes from employment in domestic business. Yet the retail sector of our economy, for example, only contributed 6% of GDP. Bureau of Labor Statistics (BLS) data on employment show that only about 11% of employed Americans work in “sales and related occupations”.  That leaves a great deal of economic activity and employment to the “business to business” sector, which composes most of the real economy.

Most of the value-adding activities occurred between a vast structure of businesses and workers starting with raw materials and blueprints and coming together over months (sometimes years when R&D is included) before a final sale can be made. At each stage, the activity is funded not by current “consumer spending” but through a combination of new investment and savings such as each company’s reinvested earnings. The farther from a final good a business’s output is, the more it relies on credit markets and the more it is subject to distortions on the savings and investment side. And since employment is spread across this time structure with relatively few working in final retail stage, savings and investment changes have dramatic impacts on employment.

Organic Growth

My wife Lisa and I have personal experience with dynamics that the top-down Keynesian view ignores. Several years ago we launched a side-business designing, manufacturing and selling reusable all-in-one cloth diapers to moms interested in saving money and cutting down on trash. We called them “weehuggers”.

To start the business, we got a small capital contribution from my brother-in-law in exchange for equity in the company. These savings were put to use buying the raw materials, designing the diaper prints, hiring sets of skilled people both to sew the diapers and to build the website. Designing, testing and producing the product and website took over a year. Almost none of that activity was included in GDP for that year, except through the “consumer spending” of people we paid. Throughout this stage, no “product” existed for others to demand or for us to sell and generate income.  The time Lisa and I spent building the company was also a very real form of investment itself. This so-called “sweat equity” is just as much of an investment as a financial contribution.


“Love the fetus, hate the child.”
America makes it near impossible for a woman to stay autonomous—hard to get family planning resources/make the choice of getting an abortion, and harder to get child care support after the baby is born. Leaving women destitute and dependents everywhere.

Let’s put facts, where the facts are. First of all, up until now, there were no major shifts within the labor market, when it came to gender.  In 2012, the number of women working surpassed men, for the first time. Thus, prior to this major shift, companies did not see the benefit in providing maternity leave, especially since women (they still do, especially within senior level position) left once they gave birth.  Since, we have essential a “free market”(I wish, but that’s neither here or there) labor market, companies who want to compete for the best female employees will start offers benefits, such as maternity leave. It is still in the early phase, but it will increase as the number of women in higher positions increase. Companies want to retain talent and will do everything in their position to do so.  No need for the government to step in and force companies to change their policies, especially if they don’t want to. HD
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I have estimated statistically that the prohibition of drugs produces, on the average, ten thousand homicides a year. It’s a moral problem that the government is going around killing ten thousand people. It’s a moral problem that the government is making into criminals people, who may be doing something you and I don’t approve of, but who are doing something that hurts nobody else. Most of the arrests for drugs are for possession by casual users.

Now here’s somebody who wants to smoke a marijuana cigarette. If he’s caught, he goes to jail. Now is that moral? Is that proper? I think it’s absolutely disgraceful that our government, supposed to be our government, should be in the position of converting people who are not harming others into criminals, of destroying their lives, putting them in jail. That’s the issue to me.

Libertarian Bait: Rent Seeking Edition


A recent NYT article discusses the plight of users of an online crowd-sourced room rental service called Airbnb, which allows users to offer their rooms for rent for travelers looking to avoid paying exorbitant hotel fees.  The problem?  In many cities, such as New York City, people offering their rooms for rent to travelers are breaking local laws:

Back in September, Nigel Warren rented out his bedroom in the apartment where he lives for $100 a night on Airbnb, the fast-growing Web site for short-term home and apartment stays. His roommate was cool with it, and his guests behaved themselves during their stay in the East Village building where he is a renter.

But when he returned from a three-night trip to Colorado, he heard from his landlord. Special enforcement officers from the city showed up while he was gone, and the landlord received five violations for running afoul of rules related to illegal transient hotels. Added together, the potential fines looked as if they could reach over $40,000.

New York City ordinances outlaw this sort of “crowd-sourced” approach to offering lodging for travelers:

 local laws may prohibit most or all short-term rentals under many circumstances, though enforcement can be sporadic and you have no way of knowing how tough your local authorities will be. Your landlord may not allow such rentals in your lease or your condominium board may not look kindly on it … [NYC law] says you cannot rent out single-family homes or apartments, or rooms in them, for less than 30 days unless you are living in the home at the same time.

The NYCRR is a labrynthine mess that even lawyers have trouble navigating.  Needless to say, though I’ve worked with the NYC regs before, I was unaware of this particular restriction.  

What struck me about these ordinances, however, is that it appears to be a textbook definition of rent-seeking by hotel concerns when I read it.  Indeed, after reading further, the justification for these laws seem flimsy at best:

New York City officials don’t come looking for you unless your neighbor, doorman or janitor has complained to the authorities about the strangers traipsing around.

“It’s not the bargain that somebody who bought or rented an apartment struck, that their neighbors could change by the day,” said John Feinblatt, the chief adviser to Mayor Michael R. Bloomberg for policy and strategic planning and the criminal justice coordinator. The city is also concerned with fire safety and maintaining at least some availability of rental inventory for people who live there.

These justifications don’t hold up upon interrogation.  The “bargain” in question is one governed by the terms of the lease, and landlords are generally free to dictate the terms of that lease as they please.  Landlords could, for example, place a restriction on this sort of short-term room rental if they wanted to.  The fact that the landlord at issue in this case did not only proves further that this isn’t really a concern that comes up that often.  If it was, you can bet the landlord would have a section in their lease devoted to banning this practice, so as to ensure they don’t get held liable for their tenants’ violation of the ordinance in question.  

Second, the fire safety concern is related to the number of people in the building at any given time.  That would be controlled by placing restrictions on maximum occupancy, which already exist.  Notably, the fire hazard concern would also be implicated where people simply allowed friends to sleep over in their apartments, which a ban on individual room rentals would not prevent.

Third, the idea of “maintaining at least some available rental inventory for the people who live there” doesn’t even make sense.  The only way these rooms get rented out is by someone who already occupies them.  There’s no way that crowding out of rental space could occur here.  The room is already “unavailable” to the other residents of the city because somebody already lives there.

So all we are really left with in this case is a law that represents rent-seeking by hotel businesses in New York City.  There doesn’t seem to be a good reason to place a per se restriction on this sort of transaction where other laws already account for the justifications given.  Which makes this whole thing a shame, because people clearly benefit from having this option available to them.  Particularly in New York City, where reasonably safe and clean hotel rooms are notoriously expensive.  

This is a good example of an instance where we really should just let the market (and the wonders of the internet) do its thing.  For the reasons cited above, I can see no legitimate reason for this type of ordinance other than fattening the pockets of both hotel concerns and city governments, who get to impose fines every time a violation occurs.  Regulations that attempt to solve legitimate problems with land use in a heavily populated suburban area are one thing.  Regulations that serve merely as revenue-raising and rent-seeking provisions for the city—and its attendant private beneficiaries—are another thing entirely.

h/t Matt Yglesias

As someone who used Airbnb for housing in Indianapolis, during the MBA job fair, I have to say it is a wonderful service. In fact, I intend to use it from now on.  This situation, explained above, is reminscent of the food truck battle occuring in NYC, D.C., Chicago and L.A.  Incumbents, aka the hotels, are trying to find ways to curb the competition from people who offer far better service at a cheaper price.  The same can be said of brick-and-mortar restaurants( and food carts) who pushed for parking regulations against food trucks.  The market has decided it wanted an alternative to traditional housing and like all other industries, where incumbents are fighting competition, they will use government to force consumers to choose them.

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Surprise! NBC Universal to cut 500 jobs


It’s amazing the stuff that comes out after an election. The same network who was praising Obama for all of his substantive accomplishments before the election, like his ability to magically fix the economy by lowering the unemployment rate 3 points a month before the election and his ability to walk on the beach after a hurricane, is now laying off 500 people before the end of the year. They helped get him elected, they must suffer in his economy. Congratulations.

From Variety:

A sporadic series of job cuts NBCUniversal has been making since August will amount to 500 positions, or 1.5% of the workforce, by year’s end.

A source at the conglom confirmed the number circulating in published reports but characterized the eliminations as “nips and cuts” aimed at reducing inefficiencies across many different divisions, as opposed to the broader layoffs that rocked NBCUniversal in the years before its acquisition by Comcast.

Read the Rest

Now, in all fairness, many of the cuts have already taken place. But does anyone remember reading the headline: ‘NBCU cuts will total 500 jobs by year-end’ before the election? I don’t.

Furthermore, by using phrases like “nips and cuts” and “reducing inefficiencies”, isn’t NBC admitting that the point of their company is to make money? That sure is what it seems like. Yet the left—including NBC—will continue to support candidates who tout extreme progressive taxes and out-of-control corporate tax rates and regulations. The disconnect here is staggering.

I still am of the opinion that the vast majority of the country wants self-sufficiency. They just haven’t come to terms with what that means. Millions have yet to associate the left’s economic policy with its failure. I think it will happen eventually but until then, we will continue to see massive layoffs and a stagnant economy.

» Screw You New Jersey!


Call me cynical, but one thing that comes to mind is that it is good to be a neighbor of a state with anti-price-gouging laws. Because those states shut themselves off from the safety valve of rising market prices, they keep their shortages largely to themselves. They can suffer a massive market dislocation without draining the resources of their neighbors.

Philadelphians should send thank-you cards to Governor Christie for building up a protectionist wall that prevented New Jersey from draining the gas supply of its neighbors.

Yeah! Screw you New Jersey people! Thank God you have Anti-Gouging laws. I sure as Hell wouldn’t want you guys to use any of our gasoline.

Bad arguments make the world a worse place


As the smoke clears up for this year’s election, we see the status quo and not much else. Ironically, two very centrist parties have created a partisanship that has split the nation to a point where compromise is near impossible. The reason, is that the arguments espoused by the two major parties are terrible. Let’s break them down a little:

Welfare makes people lazy because of handouts

The truth of the matter is that handouts will make a few people lazier, but many, I might even contend, most, would still want to make a better life for themselves even with welfare. The real problem with welfare that it actively disincentivizes work. A welfare recipient often times has more to lose when the accept a job. After all, if they lose their job because lord knows how bad the economy is, they will not be able to get back on welfare for a while. Furthermore, it is possible that they might see an immediate income fall when they get a job. For our solvent members of society, we have tax brackets so that you can never earn less by earning more. Why does this logic not apply to the poorest of the poor? My personal inclination is that the negative income tax is the best temporary fix. I know most of us liberty lovers would rather have all private charity, but we really do have an immediate responsibility to our poor, especially when it is our own political blunders that impoverished many in the first place.

Taxes on the rich will hurt job growth

Being a libertarian, I have a natural inclination against taxation. Not only against the rich but against the poor and middle class as well. However, the argument that taxing mega corp. will stunt job growth simply doesn’t stack up. For one, mega corp. already has probably saturated most of its market and has little room to grow. Any extra money will more likely be paid out in dividends. Furthermore, even if it did have room to grow, mega corp. has far more collateral to get loans and can raise capital, so they will invest and grow where they can, even if they are taxed a little bit more. However, there is one group of people who do need the tax relif. The entrepreneur has very little wiggle room when it comes to financing so the amount of money they have at their disposal is far more finite. Furthermore they have a lot more room to grow, so exempting them from certain taxes really can create more jobs. I am sure even most liberals will get behind this sort of tax relief because it would favour the little guy. If not, they can’t call themselves leftists.

We should allow gays to marry because everyone is equal

I have quoted my conservative friends twice now, so here is one for you liberals. Now, before you there on tumblr kills me for saying this, hear me out a bit. Marriage was a government function only because people wanted to oppose interracial marriage. Therefore, the origin of marriage as a government function is a history of bigotry. Should our love be made legitimate by our government? No. It is made legitimate by the people we know and by ourselves. Sure, there are some practical aspects of marriage that are handled by government, but many of those Christians who oppose gay marriage only want to feel special. I am all for marriage equality, but we could get there faster if we just made it so that the government has no authority over it. There’s your equality

So there you have it, in a few minutes on a computer, I have made more compromise than Washington does in years. Actually scratch that. Washington really does no how to get things done when it has to do with taking away our civil liberties. However, my point is that bad arguments make the world worse off. In these three areas that I have detailed above, bad arguments have set up our political discourse in such a way that we cannot get our shit togehter. All of this is at the cost of the poorest of the poor, entrepreneurs, potential employees of entrepreneurs, gays, and even more. If you really want to claim that you have the best intentions of the people at heart, you better show it and argue your case better. Because being right is not even half the battle. Having the conversation and learning to work with others to produce an optimal solution is the only way forward. Do or die. Compromise, or watch as your liberties perish.

» In which Bryan Caplan reference Lord of the Rings in a blog about the present value of learning, adjusted for forgetting

Suppose learning marginal fact F increases your productivity by V.  What is the present value of learning F?  Economists will be tempted to mechanically apply the standard present value formula.  Using discrete time to keep things simple: 

PDV(F)=V + V/(1+r) + V/(1+r)^2 + V/(1+r)^3 + … = V/r.  

If V=$100, and r=5%, the present value of learning F is $2000.

As Treebeard would say, however, “Don’t be hasty.”  When you learn F, this hardly implies that you will know F forever.  Every observant teacher knows that the opposite is closer to the truth: students usually quickly forget what they learn.  

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