Economics Is Super Hard, Y’all (Part II)


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On your assessment of the papers I highlighted, I’ll give you umbrage for attempting to read them. However that doesn’t warrant you gleaning conclusions which those papers don’t make. You stated that the CEPR study found “Their summary of the theoretical and empirical research through the late 1970s suggested that any “disemployment” effects of the minimum wage were small and almost exclusively limited to teenagers and possibly other younger workers.” The paper never found that conclusion. That wasn’t even a conclusion of the paper. What it was, in fact, was historical summary from a 1977 MWCS paper placed in CEPR study for historical context– listed on page 4 of the entire study. The actual CEPR paper states, in specific reference to that MWCS study, that “For a decade, the MWSC’s conclusions remained the dominant view in the economics profession. By the early 1990s, however, several researchers had begun to take a fresh look at the minimum wage.” And the actual conclusion of the paper says “weight of the empirical evidence is either inconclusive (statistically insignificant or positive in some cases and negative in others) or suggestive of only small economic effects.

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Yeah, I know. I figured I’d take a turn not reading. It seemed like the cool thing to do.

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Say what you want about Democrats with counting, at least they can read! (okay, that was a little over the top. Sorry…got into my juices too much on that one). 

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No problem. I was a little overeager when I wrote the original insult. I feel we much exchange a virtual handshake or something now.

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And you may not have liked the assumptions or scope of the Card and Krueger study, but its results are supported by other studies across the country with tighter scopes—this is specifically why I listed the CEPR group study paper, to begin with—for context. In it, the CEPR study even comments on your Newark an Wassers work – “The Neumark and Wascher review, however, is considerably more subjective and arguably less relevant to the United States than the two meta-studies discussed earlier. Only 52 of the 102 studies reviewed by Neumark and Wascher analyzed U.S. data. Of these, Neumark and Wascher designated 19 as “most credible,” five of which were their own studies.”

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There is quite a bit contentiousness surrounding the N&W paper as well as the C&K paper it was seeking to discount. You say that there are many studies supporting the C&K study, but the thing is, there are even more studies disproving it. To be fair, I made a fatal flaw in being lazy and just showing that (somewhat credible) paper instead of extracting the credible data from multiple papers. In an effort to rectify that, I present the following statements from Being Classically Liberal.

-According to a study titled, Minimum Wages and Poverty, raising the minimum wage is an ineffective anti-poverty policy because poor people typically don’t work minimum wage jobs (usually they don’t work at all). According to the study, “Assuming no negative employment effects, only 11.3% of workers who will gain [from increasing the federal minimum wage to $9.50 per hour benefits] live in poor households” [1] That means that 88.7% of workers who would get a pay raise as a result of an increase in the minimum wage do not live in poor households, assuming there are no disemployment effects (and that’s a big assumption). The study concluded, “Our results show that recent [state] minimum wage increases between 2003 and 2007 had no effect on state poverty rates” [1].

-Two economists published a paper in an economic journal which examined the conclusions of studies of minimum wage increases since the 1990’s. The economists concluded, “among the papers we view as providing the most credible evidence, almost all [85%] point to negative employment effects” [2]. They also wrote, “we see very few – if any – studies that provide convincing evidence of positive employment eects of minimum wages”. I mean, who would have guessed that making labor more expensive would reduce demand for it?

-“Empirical research has found no link between a higher minimum wage and economic growth. In fact, a higher minimum wage reduces output in certain industries with a higher concentration of less-skilled employees” [3]

So contra almost all other empirical research, the EPI keeps making ridiculous conclusions which defy all logic and evidence. For example, their conclusions support the hypothesis that “making labor more expensive increases the demand for labor”. Keep in mind, the Economic Policy Institute was founded by Robert Reich so it shouldn’t be a surprise when their studies consistently make conclusions in support of left wing policies. For example, they are the think tank that consistently put out the nonsense that wages have stagnated since the 1970’s despite huge increases in productivity. (The President of National Bureau of Economic Research destroys such claims in this paper [see citation 4])

Citations:

[1] http://epionline.org/downloads/Sabia_Burkhauser_SEJ_Jan10.PDF

[2] http://www.socsci.uci.edu/~dneumark/min_wage_review.pdf

[3] http://www.epionline.org/study/r131/

[4] http://www.nber.org/papers/w13953.pdf?new_window=1)

[Disclaimer: Above cited paragraphs taken from Being Classically Liberal]

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We may just have to focus on things we do agree on, and even though I don’t think the evidence is there to show significant harm to teenagers, I have stated I’m open to tying a minimum wage increase to age as a compromise. But I will say this to your comments about executive compensation and how fair they are– the executive compensation in this country has been tragically unbalanced for a number of decades now. 

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Who defines unbalanced? 

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A $100,000 raise? Are you kidding me? Not for the McDonalds and Walmarts of the world. Oh no. More like $10 million. http://www.nytimes.com/interactive/2013/06/30/business/executive-compensation-tables.html And how do major companies define executive pay and raises? By market forces or performance—nope—By their boards, which are populated with people that either the CEO handpicks, are of the same mind, or who are politically connected to the CEO. 

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That’s one of the things that separates good companies from bad. In a free market, a company is allowed to have overpaid executives and cronyism. If the executive runs the company into the ground, the government won’t bail it out and the underlings, under no obligation to stay, can jump ship. If the executive does his job and makes the company a lot of money, on the other hand, his paycheck will be well earned, and the employees under his care will be better off from the increased business. 

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How would you like to get your raise from people who you actually have influence over? Not so bad. The common worker doesn’t have that leverage. And its no secret that the CEO compensations and pensions have actually been the biggest drain on company assets, more than anything from the common workers’ pensions

http://online.wsj.com/news/articles/SB115103062578188438 — you know the workers pensions? The ones that workers actually do need to retire on. But what do these companies cut? The executives pension—hell no. Better to cut those inconsiderate, moocher workers. And you hear the same tired old argument trotted out every time..Oh we’ll lose that executive talent. They’ll leave the company. Please, the only reason the compensation is this high is because all the people at the top have really lost their grip on what the true value of what their CEO’s are worth. It’s basically an arms race with no ceiling. Some are definitely worth it—Google, Apple, etc, but most are not. 

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Says who?   

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And it’s a problem for America as a whole. 

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No, it’s a problem for the companies. But you see, this is why it helps to have agreements tied to long-term employment. In a free market there would be many voluntary ways in which workers could make sure that they don’t get screwed over. One is to pay into pension insurance. Another is to agree to a legally-binding contract that stipulates a guaranteed pension. Remember what I said about corporatism from the 19th century? If the government actually does its job to protect liberty and property, those workers would have nothing to fear when it comes time for the class-action lawsuit. I know there was something not quite right with the way I argued that, but my basic point is that workers usually feel squished because the system is broken and if we had a free market, most of those problems would be either ameliorated or eliminated.
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You said “So what do rich people do, if not save/invest/consume? Swim in gold coins like Scrooge McDuck? No! They hire workers! Wal-Mart employs 2 Million people!” No, actually that’s incorrect. Rich people don’t just go out and hire people. The history has been pretty clear—a few hire people, the rest go and buy stocks, buy into money making derivative schemes (that, by the way, blew up the economy in 2008), 

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Yes, I remember the bubble bursting in 2008. It had something to do with the government encouraging malinvestment in the housing market to create a bubble, just like how back in the 20s it created a malinvestment bubble that burst in 1929. Ah, those were the days. 

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sink money in banks overseas to collect interest, and at the end of the day blow that money on very particular industries (interior decorating, luxury restaurants, luxury boat liners, expensive food and drink, prostitutes,—the high end service industry. Some, I repeat some of that money eventually flows down to lower tier workers, but only in certain places in the country, and within certain professions. Hiring people—the millions who need jobs all over the country, they don’t do.

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You’re ignoring the fact that all that money they spend goes toward compensating workers. So they go to luxury restaurants to order caviar. Who gets money from that? The waitstaff, the fisher who harvested the caviar, the contractors who built the restaurant, the electric company, and the list goes on and on. Don’t pretend that just because they’re not buying dollar cheeseburgers like John Doe is, that the money doesn’t go into the economy.

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And lets be very clear…demand drives this economy, not supply. If you don’t have demand in the first place, there will be no supply. When you underpay your workers, they can’t buy all those wonderful things you keep telling us are so cheap and available—all they can afford is the minimum/necessary items–food and medicine, and lots of the time that food is unhealthy, because unhealthy food tends to be the cheapest, which then gives rise to health problems, which raises health care costs, and starts the vicious cycle all over again.  

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But if you “underpay” workers, you’ll be able to lower your costs and their meager paychecks will be able to stretch farther. That is how the “minimum wage” in a free market rises. As time goes on and production becomes more efficient/cheaper, a dollar will be able to buy a chicken nugget, then a chicken leg, then a whole chicken (hypothetically speaking). As Thomas Woods said in that video above, a whole chicken cost 3 hours of labor in 1900, but only cost 71 minutes of labor by 1950. That’s quite a raise! 

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You had so many comments in 5, so I’ll just respond to each one at a time:

“Which is exactly why we need a free market. If they could just pick up and move to a different company who’ll treat them better, they wouldn’t feel like they have to stay with their current crappy jobs.

That doesn’t work so well in a bad free market economy, when there aren’t so many jobs (and don’t start with that nonsense that the government caused this bad economy with raising MW—I already scrapped that idea in point 2).

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[A “bad” free market? Are you frickin’ kidding me?]

How unfortunate it is that we can’t compare states with MW to states without any MW, to see who’s better off. When you have a federal government making rules, it applies to all the states, meaning that if it’s detrimental, no one is safe and we can’t compare different results. What a shame.

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So what if that job is in another state? Or in another city? Does the free market provide low wage workers the means to get to that other job? Are you going to provide them a car and gas and moving expenses to get to that so easy to find job? Hmmm? Yeah, not so easy then is it? 

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You’re forgetting the other source of income for the downtrodden—charity. If Americans didn’t have to relinquish 28% of their income to the IRS, imagine how much more we would have left over to give to those struggling workers. But if we didn’t have to pay all those taxes, why assume that our economy would be in the exact same shape it is now? If not for the government there wouldn’t be downtrodden workers. Also, “bad” free market economy? What’s that?

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“There is no solution to income inequality because it’s not a problem. You know where they have income equality? North Korea. You know who used to have income equality? America, during the Great Depression; everyone was equally poor.” Ah yes, trot out the old strawman argument. The solution to improving income inequality is to go to a complete communist state where we all make the same amount. There is no in between. Either 1% of the population takes 30% of all the income in a country, or everyone is a communist, or we need a great depression. That’s some really lazy thinking there. There is in fact an income inequality problem in this country, 

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Nice try, but no. For all of human history, there has been a “1%.” Kings and conquerors have had riches while everyone else was poor since the dawn of time. What’s different about capitalism is that through mutually-beneficial trade, it allows everyone to become wealthier. Think about it. If you have millions of individuals making billions of transactions that leave them better off, multiplied by hundreds of years, you’re going to have an entire population that’s better off than it was beforehand. China and India all but eliminated extreme poverty (less than $1.25/day) in twenty years by doing nothing. They adopted freer markets (which means reduced the government’s role in the economy) and the problem drastically reduced itself through free and voluntary human interaction. (http://www.youtube.com/watch?v=JzmxQOonnGE) (mirror)

England similarly turned Hong Kong into an economic miracle simply by doing nothing (www.fee.org/the_freeman/detail/the-man-behin-the-hong-kong-miracle#axzz2tReJIUgV).

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because when there are scarce resources and you basically see 1% of the country getting all the breaks,

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It’s interesting you should say that, because most of what’s said about the 1% is based on misapprehensions. When you look at the facts, the 1% earns around 20% of all income in the US but pays 40% of all income taxes. Also, the top 10% of income earners pay 70% of all income taxes (up from 55% in 1986) despite earning 45% of all income. I fail to see how anyone could claim that the wealthy are not paying their “fair share”, never mind the fact that what the wealthy’s (or anyone else’s) “fair share” of the tax burden ought to be is completely subjective. As Thomas Sowell once said, “Since this is an era when many people are concerned about ‘fairness’ and ‘social justice,’ what is your ‘fair share’ of what someone else has worked for?”

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given unwarranted influence and wasting those resources, it causes social unrest. 

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Didn’t Americans rebel against England because they hated having their freedoms taken away? I don’t recall “I hate the rich” being shouted by the founding fathers. 

[I didn’t catch this at the time, but Mr. S claimed that the rich waste resources. This is the opposite of the truth (big surprise), because one of the goals of capitalism is to utilize resources as efficiently as possible. This is why the average vehicle in the 1950s got 12 miles per gallon, but now that average is in the high 20s. The government is the single biggest waster of resources that there is. The largest consumer of fossil fuels in the world is the US military.]

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It is because we have developed a strong middle class in this country, that we have endured as a democracy for so long, free from major revolutions and other civil strife. 

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But the US isn’t a democracy. It’s a constitutional republic. We’ve been able to endure for so long because each man was to be free to mind his own business. I will agree that being financially well-off prevents civil strife—after all, Libyans didn’t rebel against Qaddafi until after the recession of 2008. But democracy is what killed Socrates. The golden age of Greece only lasted a few decades for a reason.

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“And how are businesses going to have incentive to invest when the government eats up our earnings with corporate taxes, property taxes, income taxes, inheritance taxes, price-fixing on labor, restrictive regulations, and then attempts to toughen rules on doing business overseas, which helps bring those people out of poverty and gives us cheaper goods so we have disposable income to invest in new jobs?


Business did fine when tax rates were much higher, easily over 50% in the Eisenhower, JFK, and Nixon days. Innovation wasn’t strangled then. 
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But it doesn’t matter what the “official” tax rate was. The marginal tax rate and effective tax rate are not the same thing. No one paid all those taxes. Neither those with $200K taxable income (http://mymoneycounselor.com/wp-content/uploads/2012/02/US-Tax-Rate-History-1024×540.png)

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The economy was working fine, even with all those hurtful and pesky regulations.

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 Whatever do you mean? They had far fewer regulations than we do now (http://mercatus.org/sites/default/files/federal%20regulations.png)


and as a result the GDP was growing much more quickly than it is now. (https://freecomputerviruses.files.wordpress.com/2014/04/acc84-gdp2blong2bterm2bdecline.jpg)

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We even tackled poverty for a while, with government help of course. Being a student of history, you should appreciate that.

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But poverty was drastically falling up until the War on Poverty began, then it stagnated. (http://www.intellectualtakeout.org/sites/www.intellectualtakeout.org/files/failed-war-on-poverty_0.jpg)


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“It?” What is the market, if not the human beings who participate in it? And what is the government, if not the people who participate in it?”

“It” is greed, which has always been a driving force for the free market. It has always been there in some form or another, and many times it can be an productive influence, but every once in a while it has to be put in check, or it will destroy the economy, like it did during the Great Depression, or the Great recession of 2008.

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You mean when the government created bubbles that burst, and then blamed the free market for the failure? 

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“Based on what evidence? How often is “sometimes?” What many things? Nothing Dems and Reps say is ever concrete and factual! It’s all philosophy and assumptions!”


I’d say after a major recession caused by an unregulated Wall Street is the perfect time. Pretty clear here. 

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Banks were encouraged by the government to relax lending standards, in accordance with The Housing and Community Development Act of 1992. (Peter J. Wallison, “Cause and Effect: Government Policies and the Financial Crisis,” (Washington, DC: American Enterprise Institute, November, 2008.) After those banks did what the government told them to and collapsed the economy, they promptly received government bailouts courtesy of taxpayers. If the government hadn’t tried to legislate wealth, this wouldn’t have happened. .

“Does it? The Constitution does not grant Congress the authority to set workers’ wages. What is Machiavellian, if not doing whatever you have to in order to reach a goal?”

The Constitution doesn’t specifically grant the congress to do a lot of things—to set environmental standards, to build roads, provide specific regulations for banks, build buildings.

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That’s the entire point.   

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It doesn’t grant you the power to tie your own shoes. 

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Yes, it does. The tenth amendment states, “The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.” Since the Constitution does not grant Congress the authority to regulate my shoe tying, I am reserved the right as a US citizen. I am also reserved the right to work below the MW if I so choose. That’s the elephant in the room. Every time the government enforces an unconstitutional regulation it is breaking the law. But you’ll never see a police officer arresting the IRS for penalizing businesses.

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But you know how to still do it, don’t you. The framers were smart enough, and assumed we were smart enough, to fill in the blanks ourselves. 

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They most certainly did not. After John Adams passed the Alien & Sedition acts the American people were irate and Thomas Jefferson reminded us that we have a God-given duty to resist illegal laws. He popularized the concept of state nullification (http://tenthamendmentcenter.com/2009/03/06/jeffersons-arguments-for-nullification-and-limited-government/#.UwKzKoX3T1Y). 

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They granted Congress the right to “promote the general Welfare” –as stated in the very first paragraph of the constitution,  

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That’s not a delegated power as set out in Article I, Section VIII of the Constitution. The US government was to promote the general welfare by upholding life, liberty, and property. That is the proper role of government. All that government can do is destroy. It can use the police to arrest criminals and the military to bomb cities. That is ALL it can do. When the government tries to create and build and improve, it fails miserably just as it did with the war on poverty, the war on drugs, and the war on terror. That is because nothing can compete with voluntary human interaction and the government is not voluntary—it is a monopoly on force. George Washington said “How soon we forget history! Government is not eloquence, it is not reason. It is force. And, like a fire, it is a dangerous servant and a fearful master.” He knew that too much government is bad government. That’s why Congress has such limited powers. There’s no way that some legislator in Washington, D.C. will know how to live my life better than I do. Just give me freedom! Live and let live.  

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and helping improve workers wages fits in just nicely with that. And it is NOT Mahciavellian to achieve that, no matter how much you want to stretch that interpretation!

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Based on that opinion, I’ll assume that you either never read “The Prince” or didn’t get it. It was from “The Prince” that we derived the phrase “The ends justify the means.” And at the core of every statist argument is a JUSTIFICATION for taking away people’s freedom. You’ll never hear a libertarian try to justify liberty, because no justification is needed. God gave us free will because He intended us to be free. The tyrant, on the other hand, will always find an excuse for his tyranny. “It’s for your own good,” is by far the most effective. But we must raise the question, “If men are so wicked or incompetent that they cannot be trusted with liberty (to rule themselves), then how can they be trusted with power (to rule others)?”

[end]

Next week there will be the exciting conclusion. Then after I have a stiff drink I’ll get back to appreciating games. For now, just remember these words of wisdom:

morpheus