The most obvious error in using the “they can afford it” argument to justify a hike in the minimum wage is that having on hand enough cash to purchase something at a particular price is hardly a condition sufficient to ensure that such purchases will be made. Bernie Sanders, Ro Khanna, and my protesting students presume that if the minimum wage is hiked, Walmart and other employers of low-skilled workers will simply dip into their cash reserves to cover the costs of paying higher wages. But this presumption is mistaken. Even if Walmart has in reserve billions of dollars of cash, nothing compels Walmart to spend any of these reserves on higher wages. The ability to pay for something doesn’t make purchasing that something an attractive deal for the wealth holder. You, I’m sure, can afford to buy baby diapers. But if you don’t have a baby, the ‘affordability’ of baby diapers to you will not prompt you to run out and buy them. The gain you’d get from owning diapers is less than the cost you’d incur to buy them.
And so it is with the employment of low-skilled workers. Because a hike in the minimum wage pushes the cost of employing some workers above the gain the firm gets from employing these workers, the firm adjusts to the higher minimum wage by changing its employment practices to ensure that every dollar it spends employing labor brings in for the firm more than a dollar in revenue. Workers who cost more to employ at the minimum wage than these workers contribute to any firm’s bottom line will not be employed.
This fact holds true regardless of how profitable or rich firms might be. Just because Elon Musk can afford to employ someone at an annual salary of $100 million to daily shine his shoes doesn’t mean that he’ll employ such a person at that wage if the government declares that the minimum annual pay for shoe-shiners is $100 million. Likewise, just because Walmart might be able to ‘afford’ to employ at $15 per hour a worker who generates no more revenue than $11 per hour doesn’t mean that Walmart will employ that person at $15 per hour simply because the government raises the minimum wage to $15 per hour.
There is, however, a deeper economic point: Even companies with unusually high net worth cannot, in fact, afford to pay workers more than those workers contribute to the companies’ bottom lines.
…..
One additional point is worth mentioning: Even if the above analysis using Walmart were wrong – that is, even if the likes of Bernie Sanders and Ro Khanna are right to insist that a hike in the minimum wage will cause none of Walmart’s and other ‘rich’ corporations’ low-skilled workers to be laid off – the case for raising the minimum wage would not be much strengthened. The reason is that many employers of low-skilled workers do not have large net worths. Relatively few local restaurants, local nurseries, McDonald’s franchisees (which are companies distinct from McDonald’s, Inc.), and local retailers have billions (or even millions) in net worth. Therefore, for the likes of Messrs. Sanders and Khanna to point to the high net worths of companies such as Walmart and McDonald’s, Inc., as a reason why hikes in the minimum wage would have no adverse impact on any low-skilled workers is uninformed and unreflective nonsense.
But they are now entrenched inside the building, have set up camp and barricaded the doors, and are refusing to budge in the face of the threats of expulsion. (Only now, at this late moment, is expulsion finally on the table for Columbia.) And they have found a spokeswoman. Allow me the pleasure of introducing you to one Johannah King-Slutzky, Ph.D. candidate in the English and Comparative Literature Department at Columbia. She focuses on . . . well, “stuff,” near as I can gather from her biography page on the department’s website. She IS also (and unsurprisingly) happy to mention she comes from a lengthy background in left-wing protest:
My dissertation is on fantasies of limitless energy in the transatlantic Romantic imagination from 1760-1860. My goal is to write a prehistory of metabolic rift, Marx’s term for the disruption of energy circuits caused by industrialization under capitalism. I am particularly interested in theories of the imagination and poetry as interpreted through a Marxian lens in order to update and propose an alternative to historicist ideological critiques of the Romantic imagination. Prior to joining Columbia, I worked as a political strategist for leftist and progressive causes and remain active in the higher education labor movement.
I’m guessing that this is a lady with a lot of free time on her hands, is all I’m saying. (Look, some theses just take longer to draft than others.)
[DBx: More and more I’m convinced of the accuracy of Schumpeter’s prediction that capitalism will nourish and equip its ignorant yet merciless executioners.]
The University of Florida took a different approach. In a statement Monday evening, the school said protesters who engaged in prohibited activities would face a trespassing order and an “interim” suspension from the university. “This is not complicated,” a spokesman said. “The University of Florida is not a daycare, and we do not treat protesters like children—they knew the rules, they broke the rules, and they’ll face the consequences.”
That’s appropriate, and it’s also a life lesson. Florida’s message shows respect for a liberal education environment and students who attend college to learn something. Appeasement does the opposite.
At Columbia, meanwhile, President Minouche Shafik tried to negotiate with protesters to coax them to dismantle their Little Gaza, but students escalated instead. After faculty objected to New York police arrests of student protesters, Ms. Shafik said she wouldn’t invite law enforcement back on campus. On Monday night protesters rewarded her forbearance by breaking a window, taking over Hamilton Hall, and hanging an “Intifada” banner.
Richard Rahn is bearish on Ivy League ‘schools.’
Jon Miltimore: “A Marxist economist [Richard Wolff] explains why socialism could never reate a PS5.” Here’s Jon’s conclusion:
Wolff, like Marx, seems completely unaware of what drives market innovation. To believe that a PS5 would emerge from a process of individuals talking to one another about how much they should be paid and weighing one’s interest for a gaming system against the interests of co-workers who desire something else is to ignore both history and the fundamentals of economics.
But perhaps this should not surprise us.
“If socialists understood economics,” the Nobel Prize-winning economist F. A. Hayek once quipped, “they wouldn’t be socialists.”
Benn Steil and Elisabeth Harding have a new global inflation tracker.
John Stossel and GMU Econ alum Ed Stringham understand the reality of government.
Kenneth Costello argues that “economists’ advocacy for a carbon tax is misguided.” Two slices:
Overall, models that calculate the SCC [social costs of carbon] are non-robust, and highly dependent on the parameters and assumptions contained in them. Interest groups, policymakers, analysts and others can easily manipulate the models to produce results to their liking. Using a discount rate of two or three percent, rather than seven percent, for example, can have a significant effect on the SCC calculation. One then can legitimately question whether predictions of the SCC actually reflect unbiased analysis. When policymakers apply an inflated SCC, restrictions on carbon emissions (whether by executing a high carbon tax or tighter controls), require society to expend excess resources on curbing emissions — that is, the additional abatement costs exceed the reduced damages from emissions, causing a net welfare loss.
…..
It may well also be true that existing government measures to reduce carbon emissions (electric-vehicle mandates, renewable-energy subsidies) have already moved emissions near or even below the optimal level. An additional measure such as a carbon tax may actually lower economic efficiency by increasing abatement costs more than the added benefits. Although this becomes an empirical question, one can conceive conditions under which this outcome becomes imaginable. This illustrates yet another example where blackboard economics has overlooked a real-world condition that could make a carbon tax less attractive.
… is from page 203 of George Will’s 2021 book, American Happiness and Discontents: The Unruly Torrent, 2008-2020 – a collection of many of his columns over these years; (the column from which the quotation below is drawn was originally published in the Washington Post on February 28th, 2010) (original emphasis):
It is scientifically sensible to say that all behavior is in some sense caused. But a society that thinks scientific determinism renders personal responsibility a chimera must consider it absurd not only to condemn depravity but also to praise nobility. Such moral derangement can flow from exaggerated notions of what science teaches, or can teach, about the biological and environmental roots of behavior.
Here’s a letter to the Wall Street Journal:
Editor:
We Americans are constantly warned that Beijing is cleverly orchestrating the Chinese economy’s eclipse of America’s – and, thus, Washington must respond in kind. But the recent report by Yoko Kubota and Clarence Leong should calm our fears. Your reporters note that the government in China is “encouraging unprofitable carmakers to keep producing as officials try to boost economic growth, preserve jobs and expand China’s role in the global electric-vehicle business” (“Why China Keeps Making More Cars Than It Needs,” April 29).
In other words, in a quest to gain a larger share of global sales in one particular industry, and to keep workers employed in jobs that are not worth their cost, Beijing is urging the continued operation of companies that destroy more economic value than they create. It’s a genuine mystery why the likes of Donald Trump, Joe Biden, Robert Lighthizer, Elizabeth Warren, Josh Hawley, and Oren Cass think that genuine economic growth is achieved by governments commanding their citizens to waste resources.
Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030
Art Carden correctly identifies tariffs as sanctions that governments impose on their own citizens. A slice:
Tariffs on foreign goods are “sanctions” on American consumers. Their crime? Not wanting to pay as much as domestic producers want.
Paul Sracic explains that “protectionism won’t save U.S. Steel’s jobs.” A slice:
It might be useful for the United Steel Workers to recall that the mills that closed in Youngstown were all union shops. History teaches that while unions can improve wages and working conditions for those working in the mills, they can’t make the mills economically sustainable. Cleveland-Cliffs announced it would close its unionized tinplate mill in Weirton, W.Va., this month. While the company blamed foreign competitors, the bipartisan International Trade Commission unanimously rejected the claim that imports were damaging Cleveland-Cliffs.
Even if the U.S. adopts tariffs and other countermeasures to raise the price of foreign steel, the older plants that formed the core of the old U.S. Steel will face increased competition from greener domestic rivals. A lack of investment and innovation destroyed steel jobs in the 1970s and ’80s. Politicians and others who oppose Nippon Steel’s purchase of U.S. Steel risk taking us down this road once again. Ironically, they are doing so in the name of the very working-class voters who will feel the brunt of the economic pain should these mills close.
Say, Arnold Kling writes insightfully about the market for bureaucrats.
The Editorial Board of the Wall Street Journal warns of “a global wealth tax.” Two slices:
In our new socialist age, the demand to tax and redistribute income is insatiable. The latest brainstorm arrives in a proposal by four countries in the G-20 group of nations to impose a 2% wealth tax on the world’s billionaires. Don’t think this couldn’t happen.
…..
As you might expect, this would principally be a tax raid on Americans, who are the most numerous billionaires. It would also be taxation without representation, since it would be a body of global elites attempting to impose a tax without having passed Congress.
Hans Bader’s letter in today’s Wall Street Journal is excellent:
The editorial board is right to criticize a California legislative committee’s passage of reparations proposals that could cost taxpayers a huge amount of money (“Slavery Reparations in California?” April 24). Paying race-based reparations to blacks is unconstitutional. Under Supreme Court precedent, racial handouts are allowed only as a remedy for recent systemic discrimination by the unit of government providing the handout.
California wasn’t a slave state, and it hasn’t engaged in recent systemic discrimination against blacks, so reparations aren’t warranted under court rulings such as Coral Construction Co. v. King County (1991). Discrimination that occurred decades ago isn’t a reason for racial preferences under court rulings like Hammon v. Barry (1987), which rejected affirmative action as a remedy for discrimination that occurred 18 years earlier.
Moreover, the racial wealth gap isn’t due to segregation or government discrimination. Racial wealth gaps exist even in countries like Malaysia and Uganda, where the ethnic group with less wealth is politically dominant and received racial preferences from the government. So the racial wealth gap isn’t a reason for reparations.
Hans Bader
Arlington, Va.
GMU Econ alumn Dominic Pino puts an important question to today’s campus occupiers.
… is from page 414 of the 2016 second edition of Thomas Sowell’s important volume Wealth, Poverty and Politics (footnote deleted; link added):
This disdain [in Spain] toward those who were economically productive extended to such displays of bigotry as the mass expulsion of Jews in the fifteenth century and of Moriscos in the seventeenth century – mass exports of human capital in both cases. Such attitudes were not unique to Spain. It was said of serfdom in Russia that it simply put “much wealth in the hands of a spendthrift nobility.” In America, the plantation owners in the antebellum South were likewise noted for a spendthrift lifestyle and the region for lagging in the skills, work ethic and entrepreneurship more common in the rest of America. Those who seek to depict slavery as the basis for American prosperity fail to explain why the region where slavery was concentrated and flourished was the poorest and least progressive region of the country, as was also true in Brazil, the second largest slave-owning nation in the Western Hemisphere.
DBx: And also, Brazil clung to slavery longer than did the United States.
The proposition that today’s wealth in capitalist societies is the fruit of slavery is among those propositions that are most irreconcilable with history and most unsalvageable in theory.
… is from page 103 of the 5th edition (2020) of Douglas Irwin’s excellent book Free Trade Under Fire:
There is no such thing as a free lunch. Every government intervention involves a tradeoff of some sort. Higher sugar prices increase employment in sugar production but reduce employment in food-manufacturing industries. Higher semiconductor prices increase employment in the semiconductor industry but decrease employment in the computer industry. Higher steel prices increase employment in the steel industry but decrease employment in steel-using industries. When an industry asks the government to impose trade barriers that would raise the domestic price above the world price, the choice means trading off jobs in one sector of the economy for jobs in another sector, not creating or losing jobs overall.
DBx: Yep. And, of course, what’s true for jobs is true also for output. Protectionism can indeed cause the domestic outputs of industries X and Y to rise, but only by also causing the outputs of industries A and B to fall. Further, this tradeoff is negative-sum because protectionism keeps workers and resources in inefficient domestic industries X and Y, thus slowing – or preventing altogether – the domestic thriving of efficient industries A and B.
This undeniable truth is nearly universally ignored by protectionists – many of whom have the chutzpah to fancy themselves more realistic and practical than free traders.
Here’s a letter to a new reader of my blog:
Ms. E__
Thanks for sharing Jeff Ferry’s new piece on some prominent economists – specifically, Angus Deaton, Mario Draghi, Paul Romer, and Janet Yellen – rejecting free trade.
I put no stock whatsoever in pronouncements by Draghi and Yellen, for each is now principally a politician. And like too many politicians, they’ll insist that the earth is flat if taking such a stance furthers their political goals.
Deaton and Romer are more credible. Nevertheless, for at least two reasons I believe them to be mistaken. First, both men ignore the realities of government. Even if in principle more restrictions on trade are desirable – and even if, contrary to fact, government officials had access to the detailed knowledge necessary to impose these restrictions ‘optimally’ – all trade restrictions are imposed by officials who are inevitably pressured by interest groups. Deaton and Romer simply assume that the costs of these political distortions will be outweighed by the benefits of trade restrictions. I see no warrant for this assumption.
Second, Deaton and Romer, seeing and pitying people who lose jobs because of economic change, err in assuming that this change is uniquely and overwhelmingly caused by international trade. Yet while increased trade does destroy some particular jobs, the vast majority of job destruction in a country as large and as dynamic as the U.S. is caused by factors having little or nothing to do with trade – factors such as changes in consumer tastes, the introduction of new products, and improvements in technology. What Deaton and Romer really decry is economic change. Therefore, to be consistent they would have to endorse not only government efforts to restrict Americans’ freedom to trade with foreigners, but Americans’ freedom to trade with each other and to innovate.
Unless and until the likes of Deaton and Romer (and, for that matter, Draghi and Yellen) explicitly endorse government efforts to restrict domestic trade and innovation in addition to foreign trade, I’ll continue to believe that their stated objections to free trade are poorly thought out.
Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030
The United States has had an industrial policy aimed at boosting its domestic shipbuilding industry since the passage of the Merchant Marine Act of 1920, commonly known as the Jones Act. Whatever the arguments for the passage of the bill a century ago, it has over time been a disaster for the US maritime industry, and continues to impose significant costs on other parts of the US economy. Colin Grabow goes through the arguments in “Protectionism on Steroids: The Scandal of the Jones Act” (Milken Institute Review, Second Quarter 2024, pp. 44-53).
The Jones Act “requires that vessels engaged in domestic transportation be registered and built in the United States as well as crewed and at least 75 percent owned by U.S. citizens.” However, the underlying rule goes back to an 1817 law “prohibiting foreign vessels from transporting goods within the U.S.”
…..
Supporters of industrial policy have a tendency to brush aside examples like the Jones Act: “Sure, that’s a foolish way to implement industrial policy, but my plan is a smart way to do so.” “Yes, the Jones Act is a problem, but the way to fix it is with much bigger government subsidies to expand US shipbuilding.” But the Jones Act is a classic example of a special interest law that benefits a small and very vocal group, while imposing large but diffuse costs. The problems of the Jones Act have been well-known for decades, and nothing has changed. Every proposal for industrial policy faces similar political economy dynamics.
Thus, it seems to me that the challenge for supporters of industry policy is not just to pick some alluring industries and then to hand out government favors like Halloween candy, but to specify in advance how they intend to measure success or failure of these subsidies–perhaps with a series of goals that must be met over time or else the subsidies get turned off. In South Korea, for example, which is often cited as an example of successful industry policy, the government subsidies for certain industries were often made contingent on the industries expanding their export sales at prevailing prices in international markets. When industrial policy goes poorly, as in the Jones Act, the costs are broadly felt across an array of related industries.
No bureaucratic worries. The FTC pulls the old antitrust trick of redefining the luxury market to discover competitive harm. The agency claims the merger will harm competition in the “accessible luxury” and “affordable” handbag market. The agency describes handbags that retail for several hundred dollars as “affordable,” which they may be for antitrust attorneys in Washington. Most middle-class Americans would consider them a genuine luxury.
The FTC excludes from its market definition brands that don’t sell handbags through multiple channels such as online websites and outlets. “Chanel and Hermes even go so far as to never sell certain handbags online—a customer must go into a store to purchase a Chanel or certain Hermes bag,” the FTC explains. But they’re still competitive luxury brands.
Media progressives provide rationalizations. In March, former Wikimedia Foundation head Katherine Maher began as CEO of National Public Radio. Bad choice. Her principles seem to include redefining the truth to fit any principles.
In a 2022 TED talk, she said: “For our most tricky disagreements, seeking the truth and seeking to convince others of the truth might not be the right place to start. In fact, our reverence for the truth might be a distraction that’s getting in the way of finding common ground and getting things done.”
From the same speech: “Part of the reason we have such glorious chronicles to the human experience in all forms of culture is that we acknowledge there are many different truths.” My truth: I don’t listen to NPR.
Changing principles and truth-bending will never die. Which reminds me of Groucho’s supposed last words, “Die my dear? Why that’s the last thing I’ll do.”
Elite colleges are supposed to separate the wheat from the chaff in their application process. They are, however, increasingly selecting students for traits that many employers don’t want, such as a passion for progressive activism.
Most of the 1960s anti-war protesters were not pro-Vietcong. They were upset with the sacrifices Americans were making and the casualties on both sides in a war that seemingly had no end. They wanted American policy to aim toward peace, even if this meant conceding that the war would not be won.
Much of mainstream America came to agree that the war was a terrible mess. They were tired of being lied to by President Johnson. They were tired of watching what was happening to their young men in a far-off jungle land. They were tired of South Vietnamese generals whose prowess was at staging coups rather than fighting the enemy. They were tired of the nightly television news that made the war seem grotesque and hopeless. Even Richard Nixon, the candidate of the more hawkish Republican Party, campaigned on a slogan of “Peace with Honor.”
In 2024, my sense is that the protesters are limited to the fringe that supports the bad guys. There is no broader peace movement, as far as I can tell. I could be wrong, but I suspect that the anti-Israel movement on campus is not as popular with the student body as the anti-war movement in 1968. For most people, sympathy for Hamas is too much of a stretch.
I also suspect that the anti-Israel movement is not going to gain a large following in the general public, the way that the anti-war movement gained a following in the Vietnam era. American lives are not being lost in the Middle East. Many Americans admire Israel and view it as a stalwart ally, which was not their perception of South Vietnam.
…..
The social justice activists strike me as closer to being a cult than a movement. I think that the cult attracts people who are unhealthy psychologically. They have a lot of negative emotions, and the social justice ideology serves to validate and reinforce those emotions.
Jim Bacchus wonders: “Is President Joe Biden more interested in fighting climate change or in sheltering domestic industries from foreign competition?” [DBx: Perhaps I’m too cynical, but I have no such wonder. I’m as certain that Mr. Biden will put his own political welfare above any asserted interest in ‘fighting climate change’ as I am that cows will moo, dogs will bark, and cats will meow.]
It’s been four months since Mr. Milei took the oath of office, promising to free the nation from the strictures of Peronism. With a passion for liberty and irreverence for the establishment, he’s generated excitement among long-suffering Argentines tired of a century of government modeled on Mussolini’s Italy. He rails against socialism and endorses Western civilization. He backs Israel, a welcome foreign policy in a region that increasingly bows to Tehran.
Yet Mr. Milei’s talk of freedom is at odds with exchange, capital, and lingering price controls. Monthly inflation for March was below market expectations but still high at 11%. “On an annual basis, headline inflation accelerated to 287.9% [year over year],” Goldman Sachs reported April 12. “Core inflation printed at a lower but still high 9.4% [month over month] in March, reaching 300.0% [year over year].”
Nick Gillespie talks with Justin Amash about Congressional dysfunction.
… is from page 241 of Deirdre McCloskey’s 2024 paper “Market Prices and Wages Do Not Reflect Ethical Value,” which is chapter 19 in The War on Prices: How Popular Misconceptions About Inflation, Prices, and Value Create Bad Policy (Ryan A. Bourne, ed., 2024):
Trades, in economic jargon, are positive sum. Violent coercion, by contrast – such as private hired thugs or public tax gatherers extracting goods from one person to give to another – yields one person a gain and the other person a loss. It’s zero or even negative sum.
DBx: There might be justification for a number of government activities. But the reality identified here by Deirdre should create a strong, if rebuttable, presumption against any such activity. Proposed government actions should have to satisfy a weighty burden of persuasion before being approved. The mere social-engineering fancies of pundits, professors, preachers, and politicians satisfy no such burden even if the verbal or written descriptions of their imagined utopias are sublime.
