Category: Economics

100930_minimum_wageYesterday I mentioned that translating economic principles into intuitive concepts is one of the most urgent and necessary tasks to prevent such evils as harm to the poor. Today, William Poole provides an excellent example of what is needed with his “common-sense thought experiment” on minimum wage increases:

Suppose Congress were to enact a minimum wage $50 higher than the current one of $7.25 per hour. Would a minimum of $57.25 reduce employment? I know of no economist who would assert a zero effect in this case, and recommend that readers ask their economist friends about this thought experiment. Assume that the estimate is that a minimum of $57.25 would reduce employment by 100,000. The actual number would be far higher but 100,000 will do for this thought experiment. Now, consider several other possible increases of less than $50. The larger of these increases would have substantial effects, the smaller ones smaller effects.

But is there reason to believe that a minimum of $10 would have no effect? I have never seen a convincing argument to justify that belief. If you accept as a fact that a minimum wage of $57.25 would reduce employment, and you accept as a fact that some workers are currently paid $7.25 per hour, then logic compels you to believe that a small increase in the minimum wage above $7.25 will have at least a small negative effect on employment.

The only escape from this logic is to believe that there is a discontinuity in the relationship between the minimum wage and employment. No one has offered evidence that there is a discontinuity at a certain minimum wage such that a minimum above that has an effect and one below does not.

Far too often, advocates of minimum wage increases tend to dismiss such thought experiments before giving them due consideration. I think I know why. I don’t mean to cast aspersions on their motives (it certainly sounds like I’m about to cast aspersions on their motives, doesn’t it?), but I suspect they fear that admitting the undeniable logic of this reasoning will cause them to lose the moral high ground.
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Many people believe laws to protect ownership and private property primarily favor the wealthy. But as Prof. Dan Russell explains, lack of property protections can lead to abject poverty.

(Via: Institute for Faith, Work, and Economics)

asian familyPresident Obama has called income inequality the “defining challenge of our time,” but is it strictly about paychecks? Ari Fleischer thinks there is definitely more to it; he believes it’s about the breakdown of the family and American rejection of marriage.

“Marriage inequality” should be at the center of any discussion of why some Americans prosper and others don’t. According to Census Bureau information analyzed by the Beverly LaHaye Institute, among families headed by two married parents in 2012, just 7.5% lived in poverty. By contrast, when families are headed by a single mother the poverty level jumps to 33.9%. (more…)

The_Moon_Is_A_Harsh_Mistress_fIt was once a common practice of saloons in America to provide a “free lunch” to patrons who had purchased at least one drink. Many foods on offer were high in salt (ham, cheese, salted crackers, etc.), so those who ate them naturally ended up buying a lot of beer.

In his 1966 sci-fi novel, The Moon Is a Harsh Mistress, Robert Heinlein used this practice in a saloon on the moon to highlight an economic principle:

“It was when you insisted that the, uh, young lady, Tish—that Tish must pay, too. ‘Tone-stopple,’ or something like it.”

“Oh, ‘tanstaafl.’ Means ‘There ain’t no such thing as a free lunch.’ And isn’t,” I added, pointing to a FREE LUNCH sign across room, “or these drinks would cost half as much. Was reminding her that anything free costs twice as much in long run or turns out worthless.”

“An interesting philosophy.”

“Not philosophy, fact. One way or other, what you get, you pay for.”

While the phrase “there ain’t no such thing as a free lunch” didn’t originate with Heinlein, he did help to popularize the concept. Nobel-winning economist Milton Friedman even used a variation for his 1975 book, There’s No Such Thing as a Free Lunch. Economist Campbell R. McConnel claims the phrase is the “core of economics“:
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MedicaidMoney_jpg_800x1000_q100If a large Oregon study is any indication, says Jonathan Witt in this week’s Acton Commentary, the Affordable Care Act may drive up frivolous emergency room visits and do little to improve people’s physical or economic health:

In essence, the healthcare industry becomes the enabler in a lucrative game in which patients put off needed lifestyle reform, opting instead for prescription pills, surgeries and conversations about “genetic predispositions.” None of this gets at the root problem, and indeed exacerbates the root problem. People face a moral challenge, to accept responsibility as stewards of their bodies to live a healthy lifestyle. The system, instead of spurring them on to do the responsible thing, all too often invites them to believe they are not responsible and should entrust their genetically hopeless selves into the hands of the medical/pharmaceutical industrial complex.

The full text of his essay can be found here. Subscribe to the free, weekly Acton News & Commentary and other publications here.

Given the recent and wide-ranging discussion here on the PowerBlog surrounding the the minimum wage (Hunter Baker, Joe Carter, Jordan Ballor, Elise Hilton, yours truly), this short little video offers a nice overview of the seen and unseen effects of such an instrument.

To make its argument, the video assumes the worst about wage-setters, describing Edgar the Employer as Edgar the Exploiter: one who cares only about “making profit” and even dreams about paying his employees less. I have yet to meet such a miser, even in my dark days behind the McDonald’s fry vat, but surely he exists. (more…)

On Monday afternoon, Acton Institute President Rev. Robert A. Sirico was a guest on “Faith, Culture, Politics: In That Order” on the Guadalupe Radio Network, which broadcasts primarily in Texas. Rev. Sirico engaged in an extended discussion of Catholic Social Teaching, with a great deal of time dedicated to Pope Francis’ particular style and emphasis in dealing with some of the more controversial matters of our time. You can listen to the interview via the audio player below.

Update: The embedded audio appears to be having problems; you can go to the Soundcloud page for the interview by clicking this link.

cronyismActon’s Director of Research, Sam Gregg, discusses crony capitalism in today’s issue of The American Spectator. Gregg says 2014 looks to be the year of “inequality” economically-speaking, and that we must not forget the threat of crony capitalism.

Crony capitalism is an expression that’s used a great deal these days, so let’s be clear what it means. Crony capitalism is not criminal activity or outright corruption — though it verges on, and often enters, these spheres. Crony capitalism is about hollowing-out market economies and replacing them with what may be described as political markets. (more…)

minimum wagaeFast food workers have been calling for a raise in the minimum wage, and politicians are touting it. There’s even a website devoted to it (“Rebuilding an economy that works for all of us.”) But would raising the minimum wage really help the working poor?

Economist David R. Henderson says no, it won’t. In a piece for the National Center for Policy Analysis, Henderson says there are two myths here. (more…)

I’ve just returned from Bangalore, where I attended a conference on “Bounds of Ethics in a Globalized World” at Christ University, which is run by the Carmelites of Mary Immaculate, the first Catholic religious order started in India. The headline attraction on the opening day was the appearance of the Dalai Lama and his remarks promoting “secular ethics.” This may seem surprising coming from one of the world’s most famous religious leaders (and a monk, at that), but like his counterpart in Rome, the Dalai Lama has a talent for speaking to the irreligious in a way that challenges and flatters democratic prejudices at the same time.

Being completely ignorant in Buddhism, I will refrain from evaluating the orthodoxy of his adoption of secular rather than religious ethics. The Dalai Lama knows how to poke fun at seemingly pious people by highlighting their hypocrisy. He preaches using liberal concepts like compassion and equality that are pleasing to the ears of the audience; in fact, he makes living with compassion by renouncing oneself the key to happiness. He goes even further by stressing that the world would be better off with perfect equality and no leaders to pose as authorities. And he does it all so easily, with a smile and joking asides that make him seem like your not-completely-all-there grandfather, which is all this one would be if he wasn’t the 14th incarnation of a great Tibetian leader, feared and exiled as a boy by communist China.  The Chinese would prefer to see him renounce his leadership as well.

In spite of his treatment by the Chinese government, the Dalai Lama called himself a “social and economic Marxist” during his talk, saying that capitalism is only about “money, money, money.” He said this while also speaking well of George W. Bush, the United States, and even suggested that NATO headquarters should be moved to Moscow in order to spiritually disarm the Russians. Listening to him makes you think that human pride could simply be shamed out of existence. It would be too easy to call his ideas contradictory and utopian. (more…)