25
Sep
2019
Tough Questions for Progressives
The latest Bob Murphy Show. If any of you share this with your chums, I would be interested in feedback. I truly didn’t intend this to be a “USA! USA!” self-congratulatory thing. I wonder if progressives think any of these are good points, or if it merely provokes eye-rolls.
I really liked the Right to Abortion v Right to Sell your Kidney analogy. I’m in favor of both ‘rights’ but until now had never noticed its covered by the same ‘My Body, My Choice’ mantra often used by pro-abortion-rights people. I’m curious to see how my progressives friends (who typically don’t like the Right to Sell your Kidney bit) handle this argument when I raise it with them.
I’m less convinced that the minimum wage question is a gotcha for progressives. I suspect that they mainly want to have a minimum wage because they think its undignified to expect someone to work below a certain wage and would accept a trade off between higher wages for many and unemployment (with decent benefits of course !) for a few to avoid this. The economically literate would point to the various studies that show the relatively small levels of unemployment that seem to be caused by minimum wage. I don’t think anyone is really using the argument that if $15 is a good minimum wage then $50 would be even better as most people do see the trade-offs so I do think that when free-market people use that as a reductio ad absurdum they are just talking past the progressives.
“I don’t think anyone is really using the argument that if $15 is a good minimum wage then $50 would be even better as most people do see the trade-offs so I do think that when free-market people use that as a reductio ad absurdum they are just talking past the progressives.”
The argument is a first step only. It is not difficult to point put that a little of something is good, but too much is bad. Just look at Iron pills, which are quite toxic. If this is presented as your argument it is very poor, but as a “why isn’t $50 good?” and then people have to think about why that is.
” The economically literate would point to the various studies that show the relatively small levels of unemployment that seem to be caused by minimum wage.” Indeed. We have seen with the TIE that actual economies behave quite differently than we would expect from Econ 101, and this can only be demonstrated with complex models of the economy. Nobody can readily explain why the results occur, but as Bob said “the results pop out of the models” or something similar. If data shows us that the unemployment effect from a minimum wage is elusive we should not dismiss the result.
The research doesn’t show that the disemployment effect from minimum wage is relatively small, it shows that relatively small INCREASES in the minimum wage don’t lead to significant increases in disemployment.
Not the same thing, but frequently equated in the argument.
Good point Michael. I have made that before, but I don’t bring it up enough. I mean, we can’t use the regression analysis to prove our POV, but you’re definitely right that nobody can point to the literature and say, “See? Minimum wage so far hasn’t had any effect on teenage employment.”
Maybe not exactly the same thing, but almost a distinction without a difference. Particulary when most of the policy discussions are about relatively small increases in minimum wage.
In the UK, minimum wage was introduced relatively recently (1998). There was much anticipation of impacts on employment, which did not happen in a measurable way. The Tory party subesequently adopted minimum wage ideology and pushed it further than Labour.
The UK Low Pay Commission published the following report on the 1998 introduction of a minimum wage which is consistent with what Harold says. I cannot vouch for its objectivity:
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/601139/The_impact_of_the_NMW_on_employment_-_a_meta-analysis.pdf
Well it does matter what the wage is set to obviously, on terms of how significant the impacts are.
You can’t escape the fact that it will tend to disemploy a person who cannot maintain the necessary productivity to justify their wage in a given line of work.
And at the same time, it’s equally obvious that many of us have very low productivity performance, especially those with significant disadvantages such as the young, the very poor, the elderly, people with disabilities, people with mental health problems, etc etc
Take the homeless… With a minimum wage it might as well be illegal to hire them for any job, without it at least you could offer them the chance to begin to stabilize if they’d like to take it.
In the UK we have The Big Issue – based on “Street news” in new York. Homeless people buy the magazine for £1 and sell it for £2 (a bit more now). This has been an important leg up for many experiencing homelessness and helps them get an income to stabilise their situation.
They are self employed, running their own micro business.. They may not make enough to cover minimum wage.
So yes, it is important not to close off opportunities.
Not the same thing at all. Think of any curve corresponding to diminishing returns. Set the cut off high enough and the marginal rate above the cutoff is small, but the cutoff effect is big.
For professional sumo wrestlers, gaining a pound will have little effect on their performance. Ergo weight is irrelevant in sumo wrestling. You buy that?
Sorry if this is a little off topic, but it got me thinking about minimum wage as it relates to unemployment. (I haven’t listened to the podcast episode yet.)
So to me, unemployment is a really bad statistic to use in trying to measure the negative impact of the minimum wage. The problems that I see as being caused by minimum wage largely stem from a uniform minimum wage being applied over too large of an area. So there’s a federal minimum wage that covers the entire country and then many states set their own minimum wage higher than that. It looks like maybe four or five states set their minimum wage levels at a granularity finer than the state level.
The problem is cost of living. I would assume that businesses within a lower cost-of-living region would generally have a harder time paying their employees the minimum wage than businesses operating in higher cost-of-living regions. And to me, this phenomenon would appear to contribute to the urbanization and ghettoization that we see. Businesses that cannot afford to pay minimum wage in low cost-of-living regions would give way to businesses within their market that operate in high cost-of-living regions. The people who work minimum wage jobs now need to work in the high cost-of-living areas in order to find work. And because hosing is hard to find in high cost-of-living areas, they end up congregating in ghettos where they can easily commute to their jobs in the high cost-of-living area.
But unemployment wouldn’t capture any of these problems. Because it isn’t like minimum wage put these people out of their jobs entirely. It just moved them to worse neighborhoods and increased their cost of living. They’re still employed but they’re worse off than they would be making a slightly lower wage in a much lower cost of living area. Meanwhile, vast expanses of the country remain economically stagnant because labor costs are too high to justify opening a business. If there isn’t high unemployment in these places, it’s because the unemployed people chased the job market into the cities.
This is largely speculation on my part but I can’t see that I’ve made a mistake. Responses are appreciated.
I think if we went from no minimum wage to current minimum wage, you’d see really big employment effects for the lowest skilled or highest risk employee groups (i.e. especially homeless, migrant or mentally unwell workers).
But I think given a minimum wage of the level we have ($14/hr CAD for me in Ontario) I think the more important effects are compositional like you note – its more about how it changes who gets what job, or how the workforce is composed across a region.
In particular you’d imagine that on the margin, a fast-food restaurant would be less likely to be staffed by the very elderly and poor teenage workers, and more likely to be staffed by older, relatively more affluent teenagers/college kids and younger seniors – as an example.
I was thinking about your Yang UBI question and I think it is unfair:
Yang’s site says:
‘Many current welfare programs take away benefits when recipients find work, sometimes leaving them financially worse off than before they were employed. UBI is for all adults, regardless of employment status”
I think this implies that Yang’s UBI proposal is meant as a reform of the existing welfare programs. Proposing a free-market UBI would have no effect on the existing welfare programs so it is something of a non-sequitur to propose the free-market option as something equivalent. A bit like a statist saying to an AnCap “you guys don’t like tax , then why don;t you create a club where you don’t pay pay to each other”..
“pay pay to each other”.. = “pay tax to each other”.
There is no chance Yang means to replace welfare wth the UBI, and id need to hear it straight from his mouth in very specific terms to draw that conclusion.
Friedman already tried to replace them back in the day, and that was the dealbreaker for NIT.
see https://www.yang2020.com/what-is-freedom-dividend-faq/
‘We currently spend between $500 and $600 billion a year on welfare programs, food stamps, disability and the like. This reduces the cost of the Freedom Dividend because people already receiving benefits would have a choice between keeping their current benefits and the $1,000, and would not receive both.’
I stand corrected, though it’s not a replacement but rather both systems running concurrently (but you can only use one) I don’t think it’s a very coherent approach.
Transformer I would never use my argument against someone like Mike Munger, who supports it for just the reason you cite.
I have never ever seen a YangGang person on Twitter talk about the benefits of eliminating means-tested welfare programs. Everything they say in support of UBI would be true if it were a private thing.
slightly different point but it strikes sme that any form of redistributive taxation (which this is) needs to be mandatory for it to work. If it is voluntary then there will be a strong tendency for only those who think they will benefit to join the scheme and the whole thing will quickly unravel.
!! Right Transformer, but I would like to see a YangGang person say, “Yeah, his UBI plan is bad for rich people but it helps everybody else.” I don’t see them talking like that, I see them likening it to insurance.
Notice that in any given period, there are “winners and losers” from, say, fire insurance, but you can still make that work voluntarily.
It seems pretty obvious that Yang’s UBI is redistributive in nature. It’s going to be paid for from a new VAT so from a net-tax perspective anyone who pays more in VAT than the proposed UBI level ($12000) is a loser and anyone who pays less is a winner.
He seems to claim that everyone also gains from
1) Optimizing welfare payments (presumably inline with Munger’s thinking)
2) A boost to GDP (‘12.56 to 13.10 percent—or about $2.5 trillion by 2025’). This seems to come from redistributing income via the UBI and from incentifying income spending due to the VAT being a tax on consumption.
So objectively a YangGan member could say that as all benefits come from optimizing welfare benefits, redistributing income, and changing incentives then none of this could be done on a voluntary basis.
It guess it would be nice for them to be open about this – perhaps that was the point of your question ?
(BTW: I spent maybe 30 minutes or so looking at Yang’s site and saw nothing to suggest he views UBI as ‘like insurance’)
also Transformer, I asked on twitter and YangGang people didn’t say what you said. (I think some third parties brought it up.) The YangGang people said stuff like, “Well you could say that about anything in a democracy.”
You would hope for that, but there’s a massive trust deficit in politics and nobody ever lives up to their promises. Trump promised to end the wars and bring the troops home … but we are now reduced to merely thanking him for not starting any new wars. Obama promised you can keep your health care plan. People should rightly assume that government programs have a tendency to grow … and a candidate claiming to reduce expensive bureaucracy by introducing a new program should be treated with the utmost suspicion.
Paying tax is compulsory but collecting on food stamps is optional. There’s nothing to stop the YangGang from making an agreement amongst themselves that they will decline any government money and only collect UBI. It might be a bit difficult to privately enforce such an agreement, but hey let’s presume everyone is honest since this is all hypothetical to start with.
This is slighty off topic, but related to a post now off page 1, so no point putting it there. I apologise for hijacking an unrelated post for my own curiosity, but just ignore me if you wish. I suppose i can justify it under “tough questions for progresssives”, if not one that Bob mentioned and within the Pigovian taxes already discussed.
I was reviewing my previous analysis of Pigovian vs Coasian worlds, and something about it makes me uneasy. I assumed that in a Coasian world, the producer of the pollution would compensate the victims of that pollution. This is very much against the Coasian view, which was all about symmetry. The social cost of roof damage is the same whether the roof owner or the polluter pays, so there is no reason why the polluter should pay..
Coase was concerned with the socially efficient result, not with who was liable, or who paid for it. With the rabbits and lettuce farmers he demonstrated that, in a world of frictionless exchanges, it did not matter which party was held liable: the efficient solution would result.
The situation is that the rabbits are close to the lettuce, and so eat some of them, causing damage to the lettuce crop. Coase pointed out that equally, the lettuce were close to the rabbits, allowing them to be eaten. There are many possible solutions, so we will name but a few. Put up a fence ($10), move the lettuce ($20) or move the rabbits ($30). Say only the lettuce farmer can put up a fence.
Make the rabbit farmer liable, and he could move the rabbits for $30. Or he could offer the lettuce farmer $20 to move the lettuce, or he could offer the lettuce farmer $10 to put up a fence. The cheapest solution – the fence – is arrived at. In this case the rabbit farmer pays.
Make the lettuce farmer liable. He can move the lettuce for $20, or put up a fence for $10. He puts up the fence and the same, most efficient, solution is arrived at, but this time the lettuce farmer pays. Coase was not concerned with who paid, only that the social benefits were optimised.
He was pointing out that ideas such a who was “right” may interfere with the optimal solution. If the court ruled that the lettuce farmer had right to his lettuce because he was there first and so the rabbit farmer must move his rabbits because the lettuce farmer was there first, this would lead to an inefficient resolution.
This is my understanding of Coase Theorem. Please let me know if I have it wrong.
Now the big but (which I like, I cannot lie).
The outcomes are not the same. If we make the lettuce farmer liable we get fewer lettuce, we get fewer rabbits if the rabbit farmer is liable.
Does this matter? After all, the social cost is the same whether it is in rabbits or lettuce. I think this is what Coase meant – the social cost can be paid in rabbits or lettuce, it does not matter.
In the rabbit/lettuce example, say the damage is only $5. We are effectively saying that moving the lettuce or rabbits or erecting a fence are not viable. All we can do is optimise the number of rabbits and lettuce. There will be some level of both where the most efficient outcome results. That is where social welfare is optimised. Then, it seems to me, it does matter who is liable.
Make the rabbit farmer liable. He has to pay the lettuce farmer for the damage, which means he will have fewer rabbits, so the damage is reduced and he will have to pay less. He reduces the number of rabbits to the level where the compensation paid to the lettuce farmer is equal to the profit he can make from the rabbits. Say for the sake of argument, this is a certain number of rabbits that cause $4 of damage.
Make the lettuce farmer liable and he passes on the cost of the damage, which means we have fewer lettuce. But he cannot ameliorate the damage by growing fewer lettuce, so we still get $5 damage no matter how much he grows. This is not socially optimal. The $4 damage is optimal. We end up with “too many” rabbits and “too few” lettuce. Since Coase was all about social welfare optimisation, this seems at odds with his symmetry ideas.
Now, Coase has been around for a long time and very many people have analysed his Theorem, so I am not imagining I have any refutation here. However, I have read about a bit and have not seen the answer to this. I would love to have explained where my analysis is wrong.
Suppose the two farmers get together and just decided to maximize revenue with the optimal combination of lettuce location,rabbit location and fence.
Then , based on their understanding of property rights , they work out how to distribute that maximized revenue between them. My understanding of Coase is that he saying that no matter what the property rights are they will always be able to negotiate and come up with that optimal outcome. since they both benefit from it.
I think it may be incorrect to think of the fence as .being a cost either to rabbit or lettuce production but as a cost that market forces will distribute between both products in an optimal way, and will do so even if its either the rabbit or the lettuce farmer who shells out the $10 for the fence.
Yes, I think that is it. The lettuce farmer would offer to pay the rabbit farmer some amount to compensate him for having fewer rabbits. Since social benefit is maximised, then there must be more to go around, and the optimum level would be arrived at. The lettuce farmer pays the rabbit farmer some amount less than $1 which results in the rabbit farmer being as well of as before, but the damage is now $4, so both are at least marginally better off.
The difficulty is that there is no way to determine what this level is without the market applying the invisible hand. With the fence we can see easily what the solution is. When the damage is less than the fence we cannot easily see what the optimum solution is, but in principle that does not matter. A perfect, frictionless market would still arrive at the same outcome.
Thank you for that!
Great Podcast. Yep what is actually the difference between popularism and democracy?
And your last point, about comparing the English colonialist mindset to those of the progressives is really really good.
“Yep what is actually the difference between popularism and democracy?”
Do you mean popularism or populism? I guess populism is the term that is most often used and I guess what you are talking about here.
The answer is that they describe very different things. Populism is essentially a political stance that emphasises the people against the elite. Democracy is a political system where the citizens exercise power by voting. Quite different concepts.
But that is not how populist accusations are used. Whenever someone on the right (In my country) makes gains in elections, they get accused of being populist, they are just telling people what they want to hear to get votes. Yet the left does exactly the same. but there it is called being democratic by hearing what the people want.
Go figure…
And after further thinking about it, I would argue democracy is inherently populist. Democracy was championed for because ordinary people didn’t want to be ruled by elites in a dictatorial way. And rightly so BTW (Though I am rather for Ancapistan now, at least like it is in Lichtenstein). Through Democracy instead of established elites (aristocrats whatever), every ordinary man and woman can become the leader of the country based on majority rule and only for a limited time to stop them from becoming elite themselves by staying in power for too long.
In short, Democracy originated from the struggle of ordinary people versus the ruling elite hence it is populist.
I disagree, there has always and everywhere been a struggle between ordinary people vs ruling elites. That part never changes.
Democracy originated from the type of weapons that allowed large numbers of ordinary people to have a hope of defeating their ruling elites. Starting with arrows and rowboats in Athens; and then longbows, caltrops, pole arms and of course the misericorde (all anti-chivalrous weapons) during the Middle Ages. Next it became muskets and rifles, and eventually the assembly lines of Detroit that turned the tide in WWII.
I really don’t follow Tel. I don’t see what the weapons have to do with it. Or I see it rather the other way around. The better the weapons the less troups a dictator would need to subdue and control his subjects. So if weapons would decide what form of government we have then democracies would have been the norm in ancient times, and dictatorships now.
It’s the democratization of weaponry. Today’s gun is far cheaper (in relative terms) and more effective (in absolute terms) than swords and and armor were in ancient times. This makes it easier for the masses to fight back against the elite and forces the elite to develop innovations (such as democracy and improved propaganda) to elicit buy-in from the masses.
@Andrew
I disagree, I think we have democracies now because of the thing that is most powerful, much more than any weapon. Ideology.
“there has always and everywhere been a struggle between ordinary people vs ruling elites. That part never changes.”
I always had you down a a secret Marxist 🙂
Marx got everything wrong in the most boneheaded ways imaginable. Marxism is about using envy to motivate people to seize power … but the analysis required to achieve that is so obviously stupid, the only reason people fall for it is they want to fall for it.
Marx claimed that people are “elite” if they own capital, and that the working class could not possibly own any capital goods whatsoever. Therefore a farmer who owns a cow and a milking shed is somehow oppressing all the people who buy milk.
So we are supposed to believe that William the Conqueror in 1066 took over England by importing large volumes of cheap capital goods, unfairly competing with local industry.
Before Marx came along, any regular historian would understand “elite” to mean military elite, skilled in the use of violence. When historians wrote that Alexander the Great was an elite horseman they didn’t mean that he owned a ranch. They didn’t call King Richard by the nickname “Lionheart” because of his brave forays into innovative factory management practices. Lord Kitchener’s concentration camps for South African women and children were not an example of for profit private education. Field Marshall Haig was not known as the “Butcher of the Somme” for his efficient meat packing business.
It is, I admit, difficult to explain any of this to a Marxist … but the struggle of history has very little to do with who owned some capital equipment, and everything to do with military power. Thing is, the leaders who use Marxism as their pathway to gain power already understand this. Mao said power comes from guns … he knew the deal … yet he still encouraged envy because it suited his purposes to turn one man against his neighbour. Say one thing, do another. Or as the Chinese say: point to a deer and call it a horse. Misdirection can be a military weapon when used in certain ways.
Fascinating fact.
i was lookijg up the history of eluites, and the term was only coined in 1902 by Vilfredo Pareto, of Pareto Efficiency fame.
He chose this because he didn’t like either “ruling class” or “aristocracy.”
Before Pareto (and hence also Marx) came along, apparently nobody would have understood the term in this context at all.
Pareto said that an elite will always rule, but the elites change. For much of UK history, the ruling class owned the land – King Richard for example.
@Harold,
Interesting. Nice fact.
https://www.dictionary.com/browse/elite
This one says “1350–1400; Middle English elit a person elected to office”
More interestingly it comes from the root of the word “to choose” meaning Bob’s book “Choice” can rightfully claim to be elite.
I checked my OED and got similar answers, although the concepts of “choice” and “election” are listed separately so perhaps the meaning changed somewhat over time.
At any rate the historian must explain things in the language of the reader, rather than the language of the subject in question. I’m sure Alexander the Great would have had different words to describe prowess in battle … but not many people speak ancient Greek so those words don’t get use all that much today. This doesn’t invalidate the concept.
I did a quick search, and the word “elite” comes up at the start of War and Peace by Leo Tolstoy:
For brevity sake I won’t quote the whole thing … but that was published 1869 in Russian and then 1899 translated to English. The way he used the word there suggests it was hardly being coined for the first time.
I also found a book called Physics and Politics, or, Thoughts on the application of the principles of “natural selection” and “inheritance” to political society by Walter Bagehot. (same guy as the Bagehot dictum on central banking).
Seems plausibly close to modern usage there, to me at least. Wikipedia claims this was published in 1872 but then the citation says “This three-part article was published over the course of three years in the Fortnightly Review: the first section was published in November, 1867; the second section in April, 1868; and the third in July, 1869.”
Whether you agree with Bagehot on the principles of governance (or banking for that matter) is irrelevant … but clearly it was already established at the time that “elite” was a word related to those people who had the power to govern.
Yeah, I was a bit vague. Pareto made popular the term to mean “those who govern.” The ruling elite. The term already existed but referred more to experts in their field.
I just thought it was cool that Pareto did that too as I had no idea.
“William the Conqueror in 1066 took over England by importing large volumes of cheap capital goods,”
In the form of arrows?