Tag Archives: economics

Minimum Wage And The Real World

There is evidently a lively argument about who authored the much-quoted observation “It Ain’t What You Don’t Know That Gets You Into Trouble. It’s What You Know for Sure That Just Ain’t So.”

The quotation has been attributed to Mark Twain and Will Rogers, among others, but whatever the source and however folksy the articulation, it counts as real wisdom.

I thought about that very human tendency to cling to verities that “we know for sure” are so when I came across some recent research into the consequences of raising the minimum wage, because for a long time, I was convinced by the (very logical, very persuasive) argument that raising wages would depress job creation.

It turns out there was a logical fallacy in the formulation of the argument that, if employer  had to pay his current employees more, he would have less money available to hire additional workers. That actually would be true–all else being equal.  Those of us who accepted the formulation–including your truly–didn’t realize how much else wasn’t equal.

In the real world, putting more money in the pockets of people who don’t have much disposable income actually increases demand and boosts economic growth.

When something they’ve believed turns out to be wrong, reasonable people change their minds. There’s a difference, however, between ideology and a mistaken belief–ideology is stubborn. It rejects contrary evidence, no matter how convincing.

With respect to minimum wage rates, a number of previous, peer-reviewed academic studies have found little to no impact on hiring as states and municipalities have raised the  wage, casting doubt on the “wage hikes will kill jobs” mantra, but the number of states that have recently raised their minimum wage allowed these recent researchers to draw broader conclusions.

Eighteen states rang in 2019 with minimum wage increases — some that will ultimately rise as high as $15 an hour — and so far, opponents’ dire predictions of job losses have not come true.

What it means: The data paint a clear picture: Higher minimum wage requirements haven’t reduced hiring in low-wage industries or overall.

State of play: Opponents have long argued that raising the minimum wage will cause workers to lose their jobs and prompt fast food chains (and other stores) to raise prices. But job losses and price hikes haven’t been pronounced in the aftermath of a recent wave of city and state wage-boost laws.

And more economists are arguing that the link between minimum wage hikes and job losses was more hype than science.

What we’re hearing: “The minimum wage increase is not showing the detrimental effects people once would’ve predicted,” Diane Swonk, chief economist at international accounting firm Grant Thornton, tells Axios.

“A lot of what we’re seeing in politics is old economic ideology, not what economics is telling us today.”

The doom-and-gloom that opponents have predicted, “are part of the political policy debate,” Jeffrey Clemens, an economics professor at UC San Diego, tells Axios.

His research for the conservative American Enterprise Institute is often quoted in arguments against minimum wage increases.

But Clemens told Axios: “People will tend to make the most extreme argument that suits their policy preferences, and it’s not surprising if that ends up being out of whack with the way things unfold on the ground.”

As part of the study, researchers used Bureau of Labor Statistics data to compare the rate of  job growth in four states with low minimum wages against the rate in eight states with high minimum wages. All 12 states saw growth in restaurant, bar and hotel jobs.
Four states had job growth higher than the U.S. median, and three of them have raised their state’s minimum wage; three of the five states having the slowest job growth kept their wage at the federal minimum of $7.25 an hour.

The bottom line: Opposition to higher minimum wage laws is increasingly based in ideology and orthodoxy rather than real-world evidence, economists say.

The evidence says I used to believe something that just wasn’t so. Given that evidence, I don’t believe it any more.

That isn’t so hard, is it?

 

Walmarts Of War

The words used by knowledgable people to describe the size of America’s military budget  range from “bloated’ to “obscene.” The United States spends more on military hardware, troops, bases and the like than most of the rest of the world combined. Even the Pentagon recommends significant cuts, including base closures.

So why doesn’t it happen? Why does Congress routinely vote more money for the Department of Defense than the Department requests?

The answer is in that famous James Carrville motto: It’s the economy, stupid.

Manufacturers who contract with Defense are significant employers in numerous Congressional Districts. Anyone who was paying attention several years ago when there was a round of base closings can attest to the howls of anguish emanating from the local proprietors of businesses that depended upon those defense workers to buy their goods, patronize their bars and restaurants and rent or buy housing.

The reality of that dependence is daunting enough; it has prevented us from paring back a no longer necessary, too-costly war machine that is increasingly focused on fighting the last war. (The Russians are currently demonstrating that cyberwars are much less expensive…) But so long as our tax dollars were supporting a wide range of manufacturers pumping money into an equally wide number of communities, it was possible to understand–if not approve– the justifications offered.

Now, however, we’re just enriching a shrinking number of plutocrats, as Mark Thompson has reported.

The merger mania that surged as the Cold War wound down—when 51 aerospace and defense companies shrank to five—is making a comeback. The “military-industrial complex” that President (and five-star Army general) Dwight Eisenhower warned us of in 1961 has funneled down to a few “Walmarts of war,” as Daniel Wirls, a professor at the University of California, Santa Cruz, quoted defense researchers calling the surviving contractors in a June 26 Washington Post column. Less competition can drive up costs while dampening innovation. Backers counter that efficiencies, job cuts, primarily, lead to lower costs that can save the Pentagon money—rarely—or let it buy more for the same price—also rare. And the middlemen—the lawyers and financiers who nurture these deals—do just fine, thanks.

Thompson detailed the defense mergers, and reported on their consequences.

In May, the Government Accountability Office (GAO) notedthe dire effect of consolidation. Even though the Pentagon has cut four programs from its must-have list, the GAO said, its remaining 82 major programs had grown in cost by $8 billion, to a cool $1.69 trillion. “Portfolio-wide cost growth has occurred in an environment where awards are often made without full and open competition,” the Congressional watchdog agency added. “Specifically, GAO found that DOD did not compete 67 percent of 183 major contracts currently reported for its 82 major programs.” Nearly half of those contracts—47 percent—went the current Big 5: Lockheed, Boeing, General Dynamics, Northrop, and United Technologies (the numbers are even grimmer for taxpayers if supposedly “competitive” bids lead to only a single bidder)….

Worse, the Pentagon pipeline for missiles and munitions is plagued with problems, including “material obsolescence and lack of redundant capability, lack of visibility into sub-tier suppliers causing delays in the notification of issues, loss of design and production skill, production gaps and lack of surge capacity planning, and aging infrastructure to manufacture and test the products,” the report warns. “Production gaps for munitions and missiles directly reduce the U.S. capability to deliver kinetic effects against adversaries.” In October, a second report from the Trump Administration saidthe nation has an increasingly “fragile” defense-industrial base with “entire industries near domestic extinction” and growing reliance on foreign sources.

It is increasingly obvious that the United States needs to rethink virtually all aspects of our approach to national defense–to determine what is really needed to keep the nation safe from foreign attack in the 21st Century, a time when danger comes less and less from state actors and more and more from terrorist cells and internet bots.

The kind of rethinking that is needed will require the best efforts of men and women who are experts in international relations and the intricacies of warfare–not simply military hardware, but strategy and especially the changing nature of the threats we face.

This is a particularly unfortunate time to be governed by corrupt buffoons who have no understanding of government, economics, foreign affairs or science.

 

 

 

 

The Culture of Inequality

This month, we have had two reminders of the ways in which culture and cultural assumptions shape notions of equality.

For the first time ever in the United States, a woman was nominated for the Presidency by a major political party. And in much of the country, Pride Week was celebrated in June—a time for public celebrations of the LGBT community’s movement toward civic and legal equality.

When Americans talk about the social marginalization of a group of people based upon their identity, we tend to think in terms of individual rights and fundamental fairness. Those of us supporting civic inclusion and legal equality point—justifiably—to the importance of treating people as the individuals they are, judging people on their personal merits and not dismissing (or elevating) them on the basis of their group identity.

Those opposed to equal treatment for members of minority populations often justify disparate treatment on religious grounds (“the bible says”), or—like a certain deceased Supreme Court Justice—on the stabilizing effect and social importance of tradition. (These tend to be white heterosexual men who have been socialized to see women, blacks, gays, Jews, Muslims, etc. as “other;” as members of a class enjoying more privileged status, they see no reason to disturb a status quo that benefits them.)

What sometimes gets lost in these discussions are the very practical, very tangible economic consequences of membership in a disfavored minority.

The economic gap between whites and blacks has been too pronounced to ignore, of course; the legacy of slavery, the oppression of Jim Crow and the more subtle but no less devastating results of the “new Jim Crow”—the drug war—are vivid examples of what happens to people when you make it difficult or impossible for them to compete on a level playing field. Only people determined to ignore reality refuse to recognize the economic consequences of that degree of systematic oppression.

That economic inequality is also a consequence of the marginalization of women and LGBT citizens, however, is less widely appreciated.

When women point out that they make 78 cents for each dollar a man earns, those defending the status quo point to the fact that women disproportionately “choose” lower-paying professions, or take time out of the workforce to raise families. The conversation rarely considers the role culture plays in constraining women’s “choices” or shaping employers’ expectations. Occasionally, an academic study will compare women’s status in countries where the cultural assumptions facilitate government provision of day care and other safety-net supports for working women. (Not so coincidentally, several of those countries elected women to high office years ago.)

Because LGBT employees are not immediately recognizable, there is an assumption that they do not face the same sorts of employment discrimination as women or African-Americans. That, of course, is true only for those who remain in the closet. In many states, including my own Indiana, LGBT people are not protected by civil rights laws, so the decision to come out can be risky. When your continued employment and/or promotion depends upon the goodwill of your boss rather than your legal entitlements, your economic situation is precarious. As American cultural norms have changed, and bias against LGBT people has diminished, more companies have instituted anti-discrimination policies, and more states have expanded their civil rights protections, but it is still a work in progress.

Bottom line: social inequality is almost never only social. It translates into fewer job opportunities, a reduced likelihood of promotion, less access to credit and the kinds of networks that work to the benefit of privileged populations—all of which means greater economic insecurity.

In a society where some are more equal than others, some will be more economically secure than others. A culture that treats individuals equally, no matter what their gender, race, religion or sexual orientation, is a society that is more likely to offer employment security and equal pay for equal work.

Of course, a culture that values all of its citizens is also unlikely to countenance a huge disparity between the rich and the rest. But that’s a post for another day.

Inequality…and ISIS?

Wonkblog reports on what it concedes may be “the most controversial theory” about the rise of ISIS: inequality.

A year after his 700-page opus “Capital in the Twenty-First Century” stormed to the top of America’s best-seller lists, Thomas Piketty is out with a new argument about income inequality. It may prove more controversial than his book, which continues to generate debate in political and economic circles.

The new argument, which Piketty spelled out recently in the French newspaper Le Monde, is this: Inequality is a major driver of Middle Eastern terrorism, including the Islamic State attacks on Paris earlier this month — and Western nations have themselves largely to blame for that inequality.

The theory is relatively straightforward: wealth in the Middle East is concentrated in countries having a relatively small a share of the population, making the region the most unequal on the planet.

Within the fabulously rich monarchies, a very few people control most of the wealth. Others, especially women and refugees, are kept in what he describes as “a state of semi-slavery.” Picketty says that it is those economic conditions that have provided justification for the region’s  jihadists–although he concedes that the casualties inflicted by the West’s wars have been a contributing factor.

The clear implication is that economic deprivation and the horrors of wars that benefited only a select few of the region’s residents have, mixed together, become what he calls a “powder keg” for terrorism across the region.

Piketty is particularly scathing when he blames the inequality of the region, and the persistence of oil monarchies that perpetuate it, on the West: “These are the regimes that are militarily and politically supported by Western powers, all too happy to get some crumbs to fund their [soccer] clubs or sell some weapons. No wonder our lessons in social justice and democracy find little welcome among Middle Eastern youth.”

If we take Piketty’s argument seriously, we can add terrorism to the list of deleterious consequences generated by inequality. If the West did accept the analysis, it would also suggest that economic measures, not tanks, are the armaments most likely to be effective in the fight against ISIS.  (Considering everything from entrenched worldviews, the political clout and interests of arms dealers, and–in the U.S.– a political system that routinely categorizes countries unwilling to dance to our tune as “evil-doers,” I don’t see America accepting Piketty’s premise any time soon. If ever.)

Even if we were able to forge a consensus on the need to ameliorate economic inequality–not just in the Middle East, but here at home–we would still have to confront thorny issues. It’s one thing to identify inequality as a central problem of our age; it is another to determine the precise point at which unequal distribution of life’s goods becomes inequitable and counterproductive. It is one thing to say “We need to fix this,” and quite another to figure out how.  (If communism taught us anything, it was how not to redistribute wealth.)

The challenge for our age is to figure out how to be fair without being stupid.

I think I’m going to reread John Rawls’ A Theory of Justice….

 

 

The Economics of “Social Policy”

There are economic consequences to most policy choices. That’s just as true of so-called “social” policies as it is of decisions to build roads or wage wars.

When religion is driving policy, economic repercussions tend to get ignored. So it was interesting to read Two Sides, Same Coin–a report by the University of California at San Francisco on the economics of abortion policy. Researchers followed women who were turned away–who wanted to terminate a pregnancy but were unable to do so. As the report noted,

Access to comprehensive reproductive health care, including abortion, is essential to women’s economic security. Yet many progressive politicians and advocates often ignore this important connection. This report delineates the many links between these topics—including that family planning increases women’s economic opportunity, lack of supports for pregnant and parenting women interferes with their economic stability, and there is an unfulfilled potential for reproductive health care to help create economic security—and the need to integrate both issues into any proactive policy agenda to achieve equality for women.

The Guardian recently noted the “costly choice” faced by pregnant American women:

For a country where politicians are rather eager to promote family values, America has few policies that make it easy to have children. On top of high health-care costs and limited employer benefits, the country has little in the way of affordable child-care. It is unsurprising, then, that three-quarters of women who choose to have an abortion say it is because they cannot afford to have a child. Some will argue that they can always put their child up for adoption. Others will add that marriage can be a fine antidote to poverty (45% of all women who seek abortion are unmarried). These are fair points. But perhaps instead of closing down abortion clinics, lawmakers might consider more ways to give these women better choices.

Perhaps the most widely-read economic analysis of abortion policy was the argument by the authors of Freakonomics,  

who concluded that legalization of abortion in the 1970s explained a substantial part of the crime decline in the 1990s. (Evidently, children born into households where they are wanted, and where the adults are financially and emotionally capable of raising them, commit fewer crimes.)

None of this is an argument for making moral choices on the basis of economic consequences. But opinions on the morality of abortion are hotly contested.

It’s interesting to note that people who believe that the moral position requires respect for personal autonomy and reproductive choice tend to give generously to organizations like Planned Parenthood. On the other hand, the lawmakers most willing to use government’s power to impose their personal moral/religious beliefs on women who may not share them have shown little interest in ensuring the well-being of children once they are born.

The economic consequences of that disinterest fall on the rest of us.