Division of Labour: February 2013 Archives
February 28, 2013
Wonder What Multiplier She Uses in Her Macro Model

Maxine Waters: 'Over 170 Million Jobs Could Be Lost' Due To Sequestration

Posted by E. Frank Stephenson at 03:10 PM

February 27, 2013
The Presidency as Theatre

Mary Theroux on the Presidency as Theatre.


Posted by Joshua Hall at 01:48 PM

February 23, 2013
Arbitrage Opportunities: Colon Blow Edition
While Speight was being processed at police headquarters, he “was found to be in possession of 100 bags of heroin which were concealed in his anus and undetectable at the scene.” Police estimated the heroin’s vale at $1000 in New York City, and $2000 in upstate New York, “where both subjects were traveling to.”


Posted by E. Frank Stephenson at 09:58 AM

February 21, 2013
Fly the Fragrant Skies

Study Finds Passengers Passing Gas Mid-Flight Healthy

Posted by E. Frank Stephenson at 09:13 AM

February 20, 2013
Today's Installment of Hope and Change

Universal to drop health insurance for part-time workers

What happened to the bit about how if you liked your insurance you could keep it? Seems not.

Posted by E. Frank Stephenson at 04:02 PM

Letter in WSJ

Me in today's WSJ:

Regarding the new trade deal with Mexico that is expected to increase imported tomato prices by at least 40%: Perhaps the deal should be called the Ppata or Political Patronage and Affordable Tomato Act.

E.F. Stephenson
Rome, Ga.

I do wish the WSJ had left Ppata as PPATA which is how I submitted it.

Posted by E. Frank Stephenson at 08:45 AM

February 19, 2013
Mayor Bloomberg With Drones

Mike Lester's recent cartoon in the RN-T brings to mind what Mayor "No 16 Ounce Drinks" Bloomberg might do if he had a fleet of drones.

Lester Drones.jpg

Posted by E. Frank Stephenson at 12:08 PM

The Taxman's (Upper) Cut

Manny Pacquiao prefers to fight Juan Manuel Marquez in China because of high U.S. taxes

Posted by E. Frank Stephenson at 11:58 AM

February 18, 2013
So Maybe "Idiocracy" Is Not Only a Movie

Leading Geneticist: Human Intelligence is Slowly Declining

Posted by E. Frank Stephenson at 09:19 AM

February 17, 2013
Herbert Hoover-san

Japanese Leader Urges Firms to Boost Wages

This, of course, is similar to Hoover's policy of jawboning business leaders not to cut wages during the Great Depression (see pp. 91-97 of The Forgotten Man).

Posted by E. Frank Stephenson at 01:08 PM

"Magic Progressive Fairy Dust"

That's the term, quoted in this David Henderson post but apparently coming from a commenter on Krugman's blog, for specious arguments in favor of minimum wage increases. It is these sorts of arguments, much more than the disemployment effects per se, that I've been pushing back against in my recent posts.

I'm not going to take the time to reply to each one (just rinse and repeat previous posts) but here are a few that caught my attention over the past few days:

1. The fallacy-peddler-in-chief (who apparently thinks that business owners are not also consumers) during the SOTU: "For businesses across the country, [a minimum wage increase] would mean customers with more money in their pockets."

2. Rick Ungar in Forbes: Increasing the minimum wage is "good for the whole of the American economy because when we increase the pay of some 28 million Americans, we put more money into the pockets of these workers who will spend that money in the U.S. economy."

3. David Cooper of the Economic Policy Institute (ground zero for much of this nonsense): “Getting more money into consumer hands would be a good thing.”

4. Christian E. Weller and Nick Bunker: "These gains include greater productivity, less labor turnover, and more customers."

As for the disemployment effects, I think the Card/Krueger paper has been discredited and the preponderance of evidence supports the notion that labor demand curves are downward sloping (who knew?). I think this paper presents the most serious challenge to the presence of disemployment effects, but it too has been found wanting.

Posted by E. Frank Stephenson at 12:53 PM

February 12, 2013
Profit is not a dirty word

Identifying people with unmet needs is the beginning of a profit opportunity, and profit provides the resources to find new ways to serve others.

As they say, read the whole

Posted by Joshua Hall at 12:27 PM

Some Questions for Mr. Ross

Today's installment in our series of posts on illogical arguments for higher minimum wages comes from a Darius Ross who writes:

As said in a Business for a Fair Minimum Wage statement, “With far less buying power than it had four decades ago, today’s minimum wage means poverty for working families and weakens the consumer demand at the heart of our economy.”

Raising the minimum wage will put more money in the pockets of workers who most need to spend those dollars. It will boost consumer spending at local businesses across the state. And nothing drives business owners like me to hire additional workers more than increased consumer demand.

Higher wages also benefit businesses by boosting employee productivity, retention and customer satisfaction, and reducing the high costs of employee turnover.

A few questions for Mr. Ross:

1. What, sir, do you think business owners do with the dollars that they do not currently put in the pockets of workers via paying them higher (minimum) wages? Do you think they shred them or burn them? If the dollars are spent by employers (or channeled through the financial system--see Tyler Cowen's post on Paul Krugman) wouldn't that also stimulate your precious aggregate demand?

2. You suggest that higher minimum wages would "boost ... retention" and "reduc[e] employee turnover." Do you, sir, think employers are so dumb that the government must force them to increase employee retention via mandated pay increases? And if employers are so thick-headed then why do we see them paying the vast majority of their workers wages that are well above the legal minimum? Do you in your own business pay your employees the legal minimum or do you, like many other employers, voluntarily pay above the minimum wage because you realize you must do so in or to hire sufficiently capable workers for your enterprise? Unless you're paying only the minimum wage to your employees then you've undercut your argument that employers must be bludgeoned into acting in their own interest.

UPDATE: I had to run off to class earlier, but I want to dig a bit more into the part about a higher minimum wage "boosting employee productivity, retention ...." I suspect the boost in productivity, if it actually happens, is a statistical artifact. Suppose that the minimum wage causes each firm that employs low-skilled workers to lay off their least skilled/productive worker. The result would be an increase in output per worker, not because the remaining workers now produce more but because the least productive worker is no longer employed and no longer counted in productivity measures. It's the same marginal vs. average logic that is familiar to students who want to have their lowest grade dropped. (Related post here.) As for a possible boost in retention, I suspect this too may be an artifact. If the minimum wage leads to more unemployment, then workers with jobs may be more inclined to keep their current jobs since finding other jobs may now be more difficult. Retention should increase if there are the same number (or perhaps more*) workers competing for fewer jobs. In sum, I'm skeptical about claims that the minimum wage increases productivity and retention.

*Maybe laws increasing the minimum wage should be named The High School Dropout Encouragement Act of 2013.

UPDATE 2 (2/14): This article discusses some companies that do voluntarily pay more because they think it is in their best interest. A snip:

According to Kate Lowery, head of public relations at Whole Foods, the average non-executive hourly pay is $18.63. Executives there have argued that higher morale, presumably in part because of better pay, leads to higher productivity and lower turnover.

I do wonder if higher pay would causes the same workers to reduce their morale, retention, etc. or if it simply allows Whole Foods to buy better quality labor in the marketplace ($18/hour workers are probably much different from $8/hour workers). The question is important because if it is not the former then raising the minimum wage will not make the workers who receive a pay boost have better retention etc.

BTW, as Tim Worstall points out, economist Paul Krugman (not NYT columnist Paul Krugman) gets this one right too.

Posted by E. Frank Stephenson at 08:50 AM

Maybe They Should Call It The Affordable Tomato Act

Trade Agreement Will Jack Up Tomato Prices

Posted by E. Frank Stephenson at 08:31 AM

February 10, 2013
Theroux on Plantinga Receiving Rescher Prize

On the Independence Institute blog.

Posted by Joshua Hall at 04:24 PM in Misc.

Update on the Bolivarian Paradise

Venezuela sharply devalues its currency

Next up Argentina?

Posted by E. Frank Stephenson at 01:11 PM

Repeat After Doug North ...

... institutions matter. Several papers in European Journal of Political Economy illustrate the point nicely. First up a paper on corruption in Liberia; the abstract:

We study how corruption affects economic activities of households in rural Liberia. A proxy of corruption of community leaders is obtained by directly monitoring the diversion of inputs associated with a development project. We measure quantities of these inputs twice; before and after the chief stored them, and interpret any ‘gaps’ between these measurements as indicative of diversion by the chief (or corruption). We use this ‘gap’ proxy to explain variation in economic behaviour across respondents, and find that corrupt community leaders cause reduced levels of income generating activities that are economically important: corruption leads to a 50% reduction in rice planted and to nearly equally large reductions in trade activity.

Next a paper on the Troubles in Northern Ireland; the abstract:

This paper explores the effect of conflict on GDP in Northern Ireland. A synthetic control region constructed as a weighted average of other UK regions provides an estimate of counterfactual ‘no-conflict’ GDP. Comparing this with actual per capita GDP suggests a negative impact of up to 10%. Excluding the increased grants provided in response to the conflict, a 15–20% reduction is evident. Most forms of terrorist activity had negative effects over the period 1969–1997. Deaths attributable to Republican paramilitary groups or to the State appear to have a greater and more lasting impact on GDP than deaths attributable to Loyalist paramilitaries.

Now one on the effect of political instability on economic growth; the abstract:

The purpose of this paper is to empirically determine the effects of political instability on economic growth. By using the system-GMM estimator for linear dynamic panel data models on a sample covering up to 169 countries, and 5-year periods from 1960 to 2004, we find that higher degrees of political instability are associated with lower growth rates of GDP per capita. Regarding the channels of transmission, we find that political instability adversely affects growth by lowering the rates of productivity growth and, to a smaller degree, physical and human capital accumulation. Finally, economic freedom and ethnic homogeneity are beneficial to growth, while democracy may have a small negative effect.

Lastly, one on budget rules that is more Buchanan than North; the abstract:

There is a well-established literature analyzing the effects of fiscal institutions on fiscal policy variables such as budget deficits or accumulated government debt. We combine this literature with the emerging field of positive constitutional economics, which deals with the economic effects of constitutional rules. The paper addresses three questions: (1) Do budget provisions that are explicitly spelled out in a country's constitution have any significant effect on fiscal policy? (2) Does the transparency, or lack thereof, of the budget process have any significant effect on fiscal policy? and (3) Do these two variables have an impact on other variables such as government effectiveness and productivity? We find that constitutionally entrenched spending limits are correlated with lower total government expenditure and that the transparency of a nation's budget is correlated with higher government effectiveness as well as lower corruption. If anything, the deficit limits entrenched in the Maastricht Treaty are correlated with higher, rather than lower, overall government expenditure.
Posted by E. Frank Stephenson at 01:08 PM

February 08, 2013
Just Another Scare Story Paul?

From the NYT:

The report, which examined conditions at Stafford Hospital in Staffordshire over a 50-month period between 2005 and 2009, cites example after example of horrific treatment: patients left unbathed and lying in their own urine and excrement; patients left so thirsty that they drank water from vases; patients denied medication, pain relief and food by callous and overworked staff members; patients who contracted infections due to filthy conditions; and patients sent home to die after being given the wrong diagnoses.

The report into what has been called the biggest scandal in the modern history of the health service found that many of the problems were due to the efforts of the hospital to meet health-service targets ...

Wonder if this report, from his own paper, might make a certain Mr. Krugman revise and resubmit his comments on the British health system:

In Britain, the government itself runs the hospitals and employs the doctors. We’ve all heard scare stories about how that works in practice; these stories are false.

UPDATE (2/10)--Links added; sorry for forgetting them earlier.

Posted by E. Frank Stephenson at 11:03 PM

Chicago Values Update

Jesse Jackson Jr. Signs Plea Deal In Federal Probe

The probe apparently centers on converting campaign funds to personal use. Previous post on Chicago values here.

Posted by E. Frank Stephenson at 12:06 PM

An influential Minnesota House Democrat touted her bill Thursday that would more than double the state's cigarette tax, saying she's motivated by public health concerns and not additional tax money.

The proposal from Rep. Ann Lenczewski of Bloomington would increase the state's tax on a 20-pack of cigarettes by $1.60, from $1.23 to $2.83.

Source. If she's truly motivated by health concerns then she'd propose either completely banning cigarettes or imposing a tax ($100 per pack?) so prohibitive that it would price more people out of the market. There'd still be smuggling, of course, but with a ban or a $100 per pack tax there'd be less smoking than there will be with a tax of $2.83.

My guess, instead, is that $2.83 per pack might be relatively close to the tax revenue maximizing rate.

Posted by E. Frank Stephenson at 10:05 AM

February 06, 2013
Scottish Library Offers Pole Dancing Classes to Boost Attendance

Source here (thanks to DH for the pointer). So how long until some amenity peddling college adopts this idea? (A google search suggests a few may have done so already.)

Posted by E. Frank Stephenson at 01:41 PM

Anthropology Control Anyone?

More anthropology, more crime ...

During his testimony Wednesday, Thandiwe suggested that his reason for even purchasing the gun he used in the shootings was to enforce beliefs he’d developed about white people during his later years as an anthropology major at the University of West Georgia.

Source. (Thanks to GL for the pointer.)

Posted by E. Frank Stephenson at 10:15 AM

February 05, 2013
Perverse Incentives

Apparently it took some 65 takes to film the Go Daddy Super Bowl commercial. Seems like the principal-agent problem might lie behind a few of those takes. "Just one more take, I'll get it right next time ..."

Posted by E. Frank Stephenson at 10:57 AM

Argentina Goes on Two Month Diet

A news item: Argentina announced a two-month price freeze on supermarket products Monday in an effort to stop spiraling inflation.

Seems like a pretty radical commitment device for keeping those New Year's resolutions about losing weight. Anyone know the Spanish word for shortage?

Kidding aside, I suggest that President Cristina Fernandez spend a few moments with Uncle Miltie:

Posted by E. Frank Stephenson at 08:26 AM

Correlation or Causation?

Here's part of the abstract of a paper forthcoming in Economics of Education Review:

We theorized that student test score performance will be positively related to the percentage of school district revenues raised from local taxes and with salary levels of school district administrators. Using both fixed and random effects panel analyses, we examine data for 217 Kindergarten- to-Grade 12 school districts in New Jersey for the years 2002 to 2009. Our results support the inference that increases in the percent of school funds raised locally have a positive influence on student test scores.

I haven't read the full paper (it's gated) so the authors may well have a convincing reason for claiming a causal relationship ("... funds raised locally have a positive influence on ...") but I wonder if the relationship might instead arise from reverse causation. In many states, funding formulas send more state funds to poorer school districts. Whether by nature or nurture, kids raised in poor districts may tend to perform worse in school. If this is the case, then the authors have done nothing but confirm that New Jersey has a funding formula weighted toward poor districts.

Could the relationship be causal? Sure. One way would be if an increased local funding share was indicative of greater oversight and if that oversight in turn led to better student outcomes.

Posted by E. Frank Stephenson at 08:09 AM

February 04, 2013
Holy Sophistry on Stilts Batman

Yes, we have more minimum wage nonsense. Today's helping comes from the Baltimore Sun which writes:

Legislation introduced last week in Annapolis would raise the minimum from $7.25 an hour to $10 in two years and keep it indexed to inflation — a move that EPI says will not only put $778 million more in the pockets of Maryland workers but create 4,280 new jobs from increased economic activity generated by the higher pay.

The Sun (or the union shills at EPI) seem to think the $778 million would magically appear out of thin air. It doesn't seem to have dawned on them that those funds must come from somewhere and that the folks with $778 million less than before might reduce their economic activity.

Aside from the out-of-thin-air economics, I am, of course, very skeptical of the $778 million figure. I suspect it ignores, or underestimates, the job losses and other effects that would result from a one-third increase in Maryland's minimum wage.

Posted by E. Frank Stephenson at 08:46 AM

People Respond to Incentives: Beckham in Paris Edition
The star’s contract at PSG runs for only five months.

If he stayed any longer than six he could become liable to a proposed 75% tax on his entire multi-million pound earnings by the socialist French government.


Posted by E. Frank Stephenson at 08:36 AM

Lefty Discovers Bureaucratic Red Tape

Matthew Yglesias: Starting a Business Is a Huge Pain

Yglesias has also written about the burdens of occupational licensing.

Posted by E. Frank Stephenson at 08:25 AM

Non-state Creation of Law and Order

Saturday's WSJ has an article on people in some rural Mexican villages organizing themselves to provide protection against drug gangs that the governmental police seem unable to perform. A snip:

A dozen villages in the area have risen up in armed revolt against local drug traffickers that have terrorized the region and a government that residents say is incapable of protecting them from organized crime.

The villages in the hilly southern Mexican state of Guerrero now forbid the Mexican army and state and federal police from entering. Ragtag militias carrying a motley arsenal of machetes, old hunting rifles and the occasional AR-15 semiautomatic rifle control the towns. Strangers aren't allowed entry. There is a 10 p.m. curfew. More than 50 prisoners, accused of being in drug gangs, sit in makeshift jails.

Crime is way down—for the moment, at least. Residents say kidnapping ceased when the militias took charge, as did the extortions that had become the scourge of businessmen and farmers alike. The leader of one militia group, who uses the code name G-1 but was identified by his compatriots as Gonzalo Torres, puts it this way: "We brought order back to a place where there had been chaos. We were able to do in 15 days what the government was not able to do in years."

This brings to mind work such as Venkatesh's "Gang Leader for a Day" and Sobel and Osoba's gang paper.

Posted by E. Frank Stephenson at 08:11 AM

February 03, 2013
Economic Freedom and Nordic Prosperity

This week's issue of The Economist has a special feature on the Nordic countries. It's good to see that The Economist (which sometimes seems awfully fond of Keynesian style stimulus) recognizes that economic freedom plays an important role in prosperity and that the recent success of the Nordic countries resulted, at least in part, from their turn toward more freedom. The feature includes the chart below which is derived from the EFW work of Bob, Josh, and others.

Americans take note of our decline in economic freedom over the Bush-Obama years (the last two administrations not only have similar foreign policies but they also share big government tendencies).


Posted by E. Frank Stephenson at 01:26 PM

February 02, 2013
Minimum Wage, Minimum Logic

What is it about minimum wage policy that brings out such sloppy economic thinking? I recently posted about a letter that was chock full of nonsense and today we'll examine a recent piece on a proposed minimum wage increase in Maryland.

The piece quotes a Prof. Curt Grimm of the University of Maryland:

Prof. Grimm sees the proposal as a good idea, and one that could be a "small step in overcoming income inequality," and "can have a positive effect in increasing consumption and jobs, a counterweight to individual small businesses' [issues]."

I wonder if Prof. Grimm thinks store owners would burn the dollars they are not mandated to pay in higher wages. After all, it's entirely possible that business owners would consume the dollars themselves in which case a minimum wage hike would have zero effect on consumption. Even if the business owners would save the dollars that would not be such an awful thing. After all, we're constantly reading stories about how little Americans have saved.

As for reducing inequality, a business that raises its wages but employs fewer workers (more about this below) has probably increased income inequality rather than reducing it. A bunch of folks who all make $7.25 per hour have more equal wages (and, depending on the number of hours worked, probably more equal incomes) than having some of the workers retain their jobs at $10 per hour while others of them are no longer employed. Of course, the employer might cut the hours of all workers instead of laying someone off or reducing the number hired, but this undermines the premise that increasing the minimum wage reduces the inequality between minimum wage workers and other workers.

Here's more:

Grimm also foresees the potential of "substitution" as a way that business could cope with an increase in the minimum wage.

"For instance, in a restaurant, you could have some sort of electronic device to place an order, rather than an individual taking your order," he said. "It's starting to be implemented, and there's room for a lot more to come—especially in a fast food situation," a business sector that traditionally employees minimum wage workers.

But, Prof. Grimm, doesn't such substitution undermine the whole premise that raising the minimum wage helps "overcome income inequality"? The more the minimum wage hike is offset by using ordering machines instead of workers being paid the now $10 minimum wage, the more net gain to workers is reduced.

Between this chap's minimum wage reasoning and the mercentilism of our favorite Chinese copier peddler, one has to wonder about what the kiddies are being taught at UMD's business school.

Posted by E. Frank Stephenson at 04:11 PM

Another Diagram for Chico Harlan

In two recent posts (here and here), I called attention to Chico Harlan's claim that

Under Prime Minister Shinzo Abe, elected last month, Japan has turned away from the well-worn practices followed by economies under duress — conventions that call for austerity and debt reduction.

I have come across and even clearer diagram of Japan's net debt (source) and have copied it below. I would certainly appreciate Mr. Harlan's being so kind as to explain what exactly he means by Japan's turn away from debt reduction. I'm still trying to adjust to bifocals but it sure looks to me that, except for a brief pause around 2005-2006, Japan has been on a debt bender for most the last two decades.


Posted by E. Frank Stephenson at 03:20 PM

February 01, 2013
Some Recent Letters to the Editor

The letter writing muse dropped by recently. I don't know if the WSJ will run any of my submissions but one follows and two more are below the fold.

To the editor:

So Sen. Patty Murray advocates “making sure the rich no longer benefit disproportionately from deductions and other tax preferences” (“In Senate, New Push on Taxes” Jan. 25). The benefit arising from a given deduction is equal to the deduction times a taypayer’s marginal tax rate. For someone such as Sen. Murray, who advocates higher marginal tax rates on high earners, to then fret about the rich benefitting disproportionately from deductions brings to mind the old line about killing ones parents then begging for mercy as an orphan.

E. Frank Stephenson
Rome, Ga.

UPDATE (2/4): Today's WSJ contains one of the letters that is below the fold.

Read More »

Posted by E. Frank Stephenson at 03:40 PM

The statesman who should attempt to direct private people in what manner they ought to employ their capitals would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it. -Adam Smith

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