I know Mark Perry reads this blog from time to time, so I thank him for not hammering me (specifically) in his annual grammar day post. I actually do know all this stuff (and had a uselessly high score on my verbal SAT all those many years ago, though my kids claim it was a much easier test then) but I seem to be the worst proofreader in the world.
Posts tagged ‘Mark Perry’
Yesterday, I suggested we needed a new, real consumer advocacy organization to replace the economically ignorant Nader-led PIRG organizations. The reason is that it is time that consumers banded together and resisted Trump's protectionism, since such protection generally protects a few politically favored unions and corporations while raising prices and reducing choice for all consumers.
A couple of hours after I posted that, the absolutely indispensable Mark Perry brings us a great post on academic research about how protectionist actions nearly always cost consumers more than they help producers.
The empirical evidence above helps us to understand a very important economic lesson about international trade, call it “protectionist math” — and that mathematical reality is that the costs of protectionism imposed on American consumers in the form of higher prices and a reduction in trade will always be greater than the benefits generated for the protected industries and the workers in those industries. And here’s another part of that “protectionist math” that helps us answer the question: Sure, we can save US jobs with protectionist trade policies, but how much does it cost consumers for every job saved with protectionist trade policy, and is that cost worth it? Economic analysis and the empirical evidence presented above suggest that it’s very, very expensive to save US jobs with protectionism — more than half-a-million dollars on average per year per job in 2016 dollars (see chart above). If Trump enacts protectionist policies that save $50,000 per year US factory jobs but at a cost to consumer of $500,000 annually for each job saved, that’s a surefire formula to “Make America Expensive and Poor Again,” not “great again.”
I won't reprint his chart, but he has detailed results form a number of academic studies in different industries that back this statement up.
My point about needing a new consumer advocacy group was a little tongue in cheek, but here is Perry quoting from a study at the Federal Reserve Bank of St Louis a number of years ago (back during the last wave of protectionism, which was based on Japan rather than China bashing).
The primary reason for these costly protectionist policies relies on a public choice argument. The desire to influence trade policy arises from the fact that trade policy changes benefit some groups, while harming others. Consumers are harmed by protectionist legislation; however, ignorance, small individual costs, and the high costs of organizing consumers prevent the consumers from being an effective force. On the other hand, workers and other resource owners in an industry are more likely to be effective politically because of their relative ease of organizing and their individually large and easy-to-identify benefits. Politicians interested in re-election will most likely respond to the demands for protectionist legislation of such an interest group.
This is a regular chart used by Mark Perry, updated for the most recent data. It is one of my favorites.
Mark has a lot of great analysis of this data, too long to excerpt, so I refer you back to the link to see his comments. But I want to add one of my own.
Let me restate the numbers in this chart one other way to give a pretty stark view of utility of raising the minimum wage as a poverty program. Let's look at the first lowest vs. the second lowest quintile.
Raising current workers in the poorest quintile to second quintile earnings ($28,970 to $35,858) would increase the first quintile's average income by $2,962. On the other hand, keeping first income wages flat but raising first quintile household's average earners to second quintile number of earners (0.43 to 0.91) increases the first quintile's average income by $13,905.
By this analysis, increasing first quintile hours worked (and % employment) has 4.7 times more leverage than fiddling with wage rates.
So now consider raising the minimum wage, which will raise some wages but reduce unskilled employment -- it is exactly the wrong thing to do, even before we consider that the majority of minimum wage earners who benefit from such an increase and keep their jobs are not in the lowest quintile but are 2nd and third earners in rich and middle class households.
There is one thing that activists can never, ever do: declare victory and go out of business. For activists, their chosen problem is always worse than ever and continuing to go downhill.
Here is an example, the book "Failing at Fairness," written in 1994 to make the case that education was failing girls. Here is one summary of the book:
Drawing on findings from 20 years of research on sexism in American classrooms, this book examines the history of women's education and its shortcomings. The hidden curriculum, the effect of gender bias on self-esteem, test results, and professional orientation of girls from primary education through college were examined through naturalistic observation. The results suggest that girls are systematically denied opportunities in areas where boys are encouraged to excel, often by well-meaning teachers who are unaware that they are transmitting sexist values. Girls are taught to speak quietly, to defer to boys, to avoid math and science, and to value neatness over innovation, appearance over intelligence. In the early grades, girls, brimming with intelligence and potential, routinely outperform boys on achievement tests, but by the time they graduate from high school they lag far behind boys--a process of degeneration that continues into adulthood.
All of this will seem familiar, as women's groups typically claim that things have gotten worse on all of these fronts since 1994. I have no doubt that these flaws exist, along with many others, in the government education system. You certainly won't get me defending the public schools. But I thought of this book today when I saw the chart below from Mark Perry, which I annotated with the publication date for Failing at Fairness:
It takes some work to look at this situation and decide that the main issue you want to highlight is how girls are getting hosed. But trust an activist to be up to the task.
Postscript: This seems relevant (it has been around the net for a while, so I don't know what source to link, sorry)
After my prior post, I have summarized the chart I included from Mark Perry to the key data that I think really makes the point. Household income is obviously a product of hours worked and hourly wages. Looking at the chart below, poverty seems to be much more a function of not working than it is of low wages. Which makes California's decision to raise the price of hiring unskilled workers by 50% (by raising their minimum wage from $10 to $15) all the more misguided.
Note the calculations in the last two lines, which look at two approaches to fighting poverty. If we took the poorest 20% and kept their current number of hours worked the same, but magically raised their hourly earnings to that of the second quintile (ie from $14.21 to $17.33), it would increase their annual household income by $2,558, a 22% increase (I say magically because clearly if wages are raised via a minimum wage mandate, employment in this groups would drop even further, likely offsetting most of the gains). However, if instead we did nothing to their wages but encouraged more employment such that their number of workers rose to that of the second quintile, this would increase household income by a whopping $13,357, a 115% percent increase.
From this, would you logically try to fight poverty by forcing wages higher (which will almost surely reduce employment) or by trying to increase employment?
Why The Minimum Wage Does Not Make Moral Sense: Unemployment, Not Low Wage Rate, Causes Most Poverty
In response to his new $15 minimum wage in California, Governor Jerry Brown said:
Economically, minimum wages may not make sense. But morally, socially, and politically they make every sense because it binds the community together to make sure parents can take care of their kids.
Let me explain as briefly as I can why this minimum wage increase is immoral. We will use data from the chart below which was cribbed from Mark Perry in this post.
The average wage of people who work in the poorest 20% in the US is already near $15 ($28,417 divided by 2000 full time hours - $14.20 per hour). This is not that much lower than the hourly earnings of those in the second poorest or even the middle quintiles. So why are they poor? The biggest different is that while only 16% of the middle quintile households had no one who worked, and 31.5% of the second poorest quintile had no one who worked, of the poorest 20% of households a whopping 63% had no one who worked. Only 16.1% of poor adults had a full time job.
The reason for poverty, then, is not primarily one of rate, it is one of achieving full time employment. Many of these folks have limited education, few job skills, little or no work experience, and can have poor language skills. And California has just increased the cost of giving these folks a job by 50%. The poor will be worse off, as not only will more of them miss out on the monetary benefits of employment, but also the non-monetary ones (building a work history, learning basic skills, etc.)
Past studies have shown that most of the benefit of the minimum wage goes to non-poor households (ie second and third earners in middle class homes). The targets Jerry Brown speaks of, parents earning the minimum wage to take care of families, are perhaps only 1/8 of minimum wage earners.
MaCurdy found that less than 40% of wage increases [from a minimum wage hike] went to people earning less than twice the poverty line, and among that group, about third of them are trying to raise a family on the minimum wage.
Of course, the price of a lot of stuff poor people have to buy in California is about to go up. We are going to have to raise our campground rates by 20-25% to offset the labor cost increase. But that is another story.
Mark Perry loves to use the Venn diagram format to point out hypocrisy or inconsistent arguments. He has a sort of best-of post with 12 of them here.
I am actually fairly certain the first one of these actually appeared here, on Coyote Blog. This was the chart I made:
Update: Good lord I wrote Rick Perry instead of Mark Perry. I am officially going senile. Sorry Mark.
The American Left generally spends most of its time telling us how much better things are in Denmark or France. I can't find a lot of reasons to like Trump, but he has apparently convinced the Left that they need to defend the American economic model against other countries. This post by Kevin Drum at Mother Jones reasd more like what one might expect from Mark Perry at AEI.
"We're a poor country now." I wonder how many people believe that just because Donald Trump keeps saying it? In case anyone cares, the actual truth is in the chart on the right. There's not a single country in the world bigger than 10 million people that's as rich as the US.
I agree! In fact, not only are American rich richer, but the American middle class is richer and the American poor are richer. From an earlier post, here is the purchasing power of individuals across the income spectrum in the US vs. Denmark
Well, it is time for many of our seasonal operations to open over the next few weeks so I have been running in circles on business issues. Also, I must confess that blogging is becoming a sort of Groundhog Day (the movie) experience, with the same arguments circling over and over. How many more times can I write, say, a long article about how minimum wage increases are a terrible anti-poverty program only to get one line emails asking me why I hate poor people. So blogging will be light as I do real world work and try to recharge.
I will leave you with one note of optimism, from Mark Perry. I went to college in the nadir (1980) of the American beer industry, where a small oligopoly of mediocre beer producers was protected by government legislation. It was a classic example of how regulation drives monopoly, consolidation, and loss of choice. With deregulation, the American beer industry has exploded.
As an aside, my current go-to beer is actually Brazilian, Xingu Black
Mark Perry had this chart on the demographics of income distribution. From it, I want to draw a couple of conclusions about minimum wage and poverty
Note the household income per earner for the lowest quintile. It equates to something over $14 an hour, well above minimum wage almost everywhere in the US and nearly as high as the $15 national minimum wage proposed as an anti-poverty program.
The problem with most poor households is not wage rate, it is getting full time work. The household income per earner is nearly as high as the average income of the second quintile. The problem is that most poor households do not have full-time earners. The key stat is that only 16% worked full-time and only 30% had any sort of job at all.
This is what always amazes me about the minimum wage discussions. An increased minimum wage doesn't address the root problem of poverty at all, and in fact will tend to make it worse by pricing the 85% of the poor who need a job or need more hours out of the job market. If they can't find a job at $8, it is the purest insanity to think they will have a better chance with their limited skills of finding a job at $15.**
**Postscript: I suppose there is one set of facts that would lead to a minimum wage increasing employment in this lowest quintile: If people who don't work in this quintile are not seeking work because they are happy to live on government benefits and other sources of charity. This would imply that the reason they are not working full-time is not because no work is available but because they choose indolence. If this were the case, then a rising minimum wage would provide enough incentive, I suppose, for some to get off the couch and go to work. I am reluctant to buy into this explanation, but I am SURE that those on the Left who promote the idea of rising minimum wages increasing employment would not accept these assumptions.
I suppose one could argue that there is some change in reporting rates, since rape is well-know to be an under-reported crime. However, I would struggle to argue that under-reporting rates are going up (which is what it would take to be the prime driver of the trend above). If anything, my guess is that reporting rates are rising such that the chart above actually understates the improvement.
PS- Folks commenting on this post saying that by reporting a declining trend I demonstrate that I don't care about rape or don't treat it seriously are idiots. I have lived through dozens of data-free media scares and witch hunts -- global cooling, global warming, the great pre-school sexual abuse witch hunt, about 20 different narcotics related scares (vodka tampons, anyone?). Data is useful. In this case, knowing there is improvement means we can look for what is driving the improvement and do more of it (though Kevin Drum would likely attribute it to unleaded gasoline).
"Trend that is not a trend" is an occasional feature on this blog. I could probably write three stories a day on this topic if I wished. The media is filled with stories of supposed trends based on single data points or anecdotes rather than, you know, actual trend data. More stories of this type are here. It is not unusual to find that the trend data often support a trend in the opposite direction as claimed by media articles. I have a related category I have started of trends extrapolated from single data points.
Four things I would do 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. 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
- 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.
** This might not be enough. One of the main reasons we do not hire inexperienced youth, regardless of wage rates, is that the legal system has put the entire liability for any boneheaded thing an employee does on the employer. Even if the employee is wildly breaking clear rules and is terminated immediately for his or her actions, the employer can be liable. The cost of a bad hire is skyrocketing (at the same time various groups are trying to reign in employers' ability to do due diligence on prospective employees). I am not positive that in today's legal environment I would take free labor from an untried high school dropout, but I certainly am not going to do it at $10 an hour when there are thousands of experienced people who will work for that. Some sort of legal safe harbor for the actions of untried workers might be necessary.
The media tends to talk about the growth of the Chinese economy as if it is something new and different. In fact, there probably have been only about 200 years in the history of civilization when China was not the largest economy on Earth. China still held this title into the early 18th century, and will get it back early in this century.
This map from the Economist (via Mark Perry) illustrates the point.
Of course there is a problem with this map. It is easy to do a center of gravity for a country, but for the whole Earth? The center in this case (unless one rightly puts it somewhere in the depths of the planet itself) depends on arbitrary decisions about where one puts the edges of the map. I presume this is from a map with North America on the far left side and Japan on the far right. If one redid the map, say, with North America in the center, Asia on the left and Europe on the right, the center of gravity would roam around North America through history.
I reached drinking age (mercifully 18 in those days) in 1980 and I can tell you from experience that the early 80's were a beer wasteland. Spent a lot of time learning foreign beers at a great little pub I discovered entirely by accident called the Gingerman in Houston (near Rice University). The beer landscape in the US today is awesome by comparison.
I have written before that trade policy is generally ALL corporate cronyism -- tariffs or restrictions that benefit a narrow set of producers at the expense of 300 million US consumers.
Mark Perry has yet another example, though with a small twist. Most corporations are looking for limits on imports of competing products and/or subsidies for their own products exports. In the case of Dow Chemical, they are looking for limits on exports of key inputs to their plants, specifically oil and natural gas. CEO Andrew Liveris wants to force an artificial supply glut to drive down his input prices by banning the export (or continuing to ban the export) of natural gas. If gas producers can't sell their product? Tough -- let them try to out-crony a massive company like Dow in Washington.
But here is the irony -- there is absolutely nothing in his logic for banning natural gas exports that would not apply equally well to banning the export of his own products. Like natural gas, his products are all inputs into many other products and manufacturing processes that would all likely benefit from lower prices of Dow's products as Dow would benefit from lower natural gas prices.
So here is my proposal -- any company that publicly advocates for banning exports for its purchases must first have exports of its own products banned.
Via Mark Perry. This issue came up in the debates, when Obama claimed that he tried to take credit for the recent oil and gas boom, when in fact all of the boom is occuring on public lands (oil and gas production on federal lands is actually falling during this boom). Here is one reason whyL
Administrative bloat is a natural tendency of organizations. I am not entirely sure why, though I understand some of the drivers. Never-the-less, I have seen it in nearly every organization I have worked in or consulted for.
Even the best-run private companies still have this problem. To remain competitive, then, they have to come through every few years and wield the ax on these growing staffs, almost like trimming back a hedge that keeps trying to overgrow your house. I spent a depressing amount of time as a consultant helping them. It is uncomfortable, sometimes heartbreaking work, and one wonders the whole time why there is not some better way to keep staff in check. To my mind, there is a still a great academic work to be written on this topic some day.
The alternative, in organizations that can get away with it, is administrative bloat. Like, for example, in this public institution:
That staff adds up to an incredible billion dollars in administrative salaries, or nearly $21,000 a year per full-time student. And remember, if this is just salaries, the actual cost is much higher because they all need offices, supplies, travel, etc.
Apparently the news of the week is that the letter grade "A" is now the most common. Mark Perry has more on college grade inflation.
I am actually a fan of the grading system at Harvard Business School when I was there. 15% of the students in each course get the top grade (category I) -- no more, no less. 10% get the bottom grade (category III) -- again by rule, no more and no less. All the rest are in the middle. It effectively acknowledges that for most folks, the point is to demonstrate you have satisfactorily learned the course material, while still allowing folks to distinguish themselves on both ends. Budding young executives who complain that it is unfair to automatically "fail" the bottom 10% of each course are reminded that this is exactly how many Fortune 500 companies run their HR systems, seeking to constantly weed out the bottom 10%.
Update: The argument usually is that students need high grades to compete with other kids from grade-inflated schools in the marketplace. I just don't think this is true. Colleges themselves deal with this all the time in admissions. When they get a high school transcript, attached to that transcript is a fact sheet about the high school that gives its distribution of grades. That way the recipient can discount the GPA as appropriate. Every company doing hiring should demand the same of colleges.
Here is a personal anecdote. My son Nic's school grades hard. Something like 2 kids over the last 2 decades have graduated with a 4.0. One could argue my son's grades could have been higher at another school, but knowledgeable consumers of high school GPA's know how our school works and we have never felt he somehow was at a loss due to the school's grading policies (but Oh God can type A parents fret about this incessantly among themselves). [edit: took out brag about my son. Nothing more boring than other people bragging on their kids.]
I have zero desire to be a farmer. But that would seem to be the logical end result if we take Obama's recent statement to its logical conclusion. He said in his Kansas "OK, I really am a socialist after all" speech:
Factories where people thought they would retire suddenly picked up and went overseas, where workers were cheaper. Steel mills that needed 100—or 1,000 employees are now able to do the same work with 100 employees, so layoffs too often became permanent, not just a temporary part of the business cycle. And these changes didn’t just affect blue-collar workers. If you were a bank teller or a phone operator or a travel agent, you saw many in your profession replaced by ATMs and the Internet.
As has been pointed out by economists everywhere since the speech, Obama is fighting against the very roots of wealth creation and growth and our economy. Productivity improvement has always been the main engine of a better life for Americans, but here Obama is decrying it.
This reduction in employment in major industries due to productivity is not new. It began with the agriculture. Check this out from the always awesome Mark Perry
This is exactly what Obama is criticizing. Without productivity improvements of the type Obama seems to hate, nine out of ten of you would be laboring in a field rather than reading this on the Internet. Are you poorer because you don't have to grow your own food? Of course not. Every time we increase productivity in a major industry, we fee up labor for the next big thing. We couldn't have had the steel or auto or oil industries if agricultural productivity improvements had not feed up labor for them. The computer revolution would be impossible if we all were working in steel mills.
PS- of course this does not work if the next big thing, say domestic gas productions through fracking, is blocked by the government and private investment capital is diverted by the government to cronies with a solar panel factory.
The progressive argument for a larger state has, for over a hundred years, rested in part on the premise that smart people at the top in government can better optimize the allocation of resources and make better investment choices.
This premise always has been ludicrous. Government officials have neither the information nor incentives to perform this function, and lacking such, decisions always get made based on political rather than economic or other objective functions.
Ethanol is such a great example, it will almost be a shame when its mandates and subsidies are repealed. As a reminder, corn-based ethanol production get the trifecta of state sponsorship -- mandates for its use, subsidies for its protections, and stiff tariffs to prevent lower-cost imports.
The result is a classic government fail. The economic subsidies benefit only a small number of the politically connected, while hurting the great mass of humanity, even outside the US, through higher food and fuel prices. Because ethanol takes as much fuel to produce as it provides, it does nothing to change the amount of fossil fuels we use. And as a result, it does nothing to affect CO2 production and in fact has a number of environmentally negative effects, particularly in land and water use.
I am reminded of all this by these staggering figures, via Carpe Diem
"U.S. ethanol refiners are consuming more domestic corn than livestock and poultry farmers for the first time, underscoring how a government-supported biofuels industry has contributed to surging grain demand.
The U.S. Department of Agriculture estimated that in the year to August 31 ethanol producers will have consumed 5.05 billion bushels of corn, or more than 40% of last year’s harvest. Animal feed and residual demand accounted for 5 billion bushels."
As Mark Perry shows in his blog, US ethanol policy has also pushed corn prices up from $2 a bushel in 2007 to over $8 today.
From yesterday's Census report on educational attainment, the chart above shows the college degree gap in favor of women for all levels of higher education for age group between 25-29. More than 60% of advanced degrees are now held by women for that age group, up by more than three percentage points from the 58.2% reported by Census for 2009. For African-Americans ages 25-29, there are 239 women holding advanced degrees for every 100 men with graduate degrees (70.5% female vs. 29.5% male).
See his original for a good chart.
By the way, the answer to the question in the title is probably "no." Advocacy groups never go away -- they just seek new problems. Too much money to be gained in achieving victim status.
My column is up at Forbes, and is the fourth in a series on Obamacare. An excerpt:
Its amazing to me how many ways supporters of government health care can find to rationalize the bad incentives of third-party payers systems. Take, for example, the prevelance today of numerous, costly tests that appear to be unnecessary. Obamacare supporters would say that this is the profit motive of doctors trying to get extra income, and therefore a free market failure. I would point the finger at other causes (e.g. defensive medicine), but the motivation does not matter. Let’s suppose the volume of tests is truly due to doctors looking for extra revenue, like an expensive restaurant that always is pushing their desserts. In a free economy, most of us just say no to the expensive dessert. But the medical field is like a big prix fixe menu — the dessert is already paid for, so sure, we will got ahead and take it whether we are hungry or not.
It should be no surprise that while US consumer prices have risen 53% since 1992, health care prices have risen at nearly double that rate, by 98%. Recognize that this is not inevitable. This inflation is not something unique to medical care — it is something unique to how we pay for medical care.
Contrast this inflation rate for health care with price increases in cosmetic surgery, which unlike other care is typically paid out of pocket and is not covered by third party payer systems. Over the same period, prices for cosmetic surgery rose just 21%, half the general rate of inflation and just over one fifth the overall health care rate of inflation.
This is why I call free market health care the road not traveled. There are many ways we could have helped the poor secure basic health coverage (e.g. through vouchers) without destroying the entire industry with third-party payer systems. Part of the problem in the public discourse is that few people alive today can even remember a free market in health care, so its impossible for some even to imagine.
Update: Coincidently, Mark Perry has a post that addresses just the issue I do in my article, that is the positive effects of high-deductible health insurance and out of pocket health expenditures on pricing transparency and reduced costs. The high deductible health plans at GM seem to be having a positive effect on the health care market. A shame they will probably be illegal under Obamacare. Of course, since GM is owned by the government, it can get any special rules that it wants, unlike the rest of us. But that his how things work in the corporate state.
Here is a simpler explanation of QE2: The same people who always get us out of recessions, eg private business people, will eventually get us out of this one. However, the government has an incredible stake in trying to convince everyone that they actually drive the economy. Therefore, it is important for the feds to be able to claim credit for any recovery. Since some sort of natural recovery from the recession is likely in 2011 (and per Mark Perry may already be in progress) the government needs some program that it can credit for the recovery. Since Congress will not pass Obama's (or Krugman's) desired son-of-stimulus bill, then the Fed must step up to create a plausible high-profile program.
I have to reprint this Carpe Diem post nearly in its entirety. Mark Perry does some editing on a Harold Meyerson WaPo article:
"This week, committees on both sides of Capitol Hill will plumb the conundrum of Chinese currency manipulation. The conundrum isn't that -- or why -- China is manipulating its currency: By undervaluing it, China is systematically able to underprice its exports, putting American (and other nations') manufacturing consumers and businesses that purchase China' cheap imports at a significant disadvantage. The conundrum is why the hell the United States isn't doing thinks it should do anything about it.
There are certainly plenty of senators and congressmen -- and Main Street Americans U.S. producers that compete with China -- who'd like to see the White House place some tariffs taxes on American consumers and businesses who purchase the underpriced low-priced Chinese imports. If the administration doesn't act, Congress may just consider mandating some tariffs punitive taxes against American consumers and business on its own."