Ain't It the Truth
Apparently, Hillary Clinton sees government, and her preferred role as president, as Santa Claus doling out goods and services provided by little elves.
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Apparently, Hillary Clinton sees government, and her preferred role as president, as Santa Claus doling out goods and services provided by little elves.
An argument that is frustrating for economists to continue making, but John Tamny does a good job of explaining why a trade deficit is meaningless.
I run a variety of trade deficits, including a large one with a Safeway supermarket located in the Glover Park section of Washington, D.C. Unfortunately, as many customers of this Safeway are presently aware, it’s going through a partial re-model. As a result, many of the goods I would normally buy are not available thanks to the store’s reduced level of inventory.
If I were a country, economists and journalists would rejoice. Either because I can’t find much of what I used to buy, or because it’s not in stock due to the re-model, my trade deficit with Safeway has plummeted of late.
Am I better off? If we factor in that the goods I buy at Safeway tend to be healthier than my alternative choices, probably not. Economists would point to my falling Safeway deficit and say that I’m at least economically better off, but then my reduced trade deficit with Safeway has occurred alongside rising deficits with both Popeye’s Chicken and Domino’s Pizza. Whatever one thinks of my non-Safeway alternatives, I’m certainly worse off because at least at present, I can’t consume my surplus in the most optimal way.
In short, when we reduce trade to individual exchange, we see there can’t be deficits. We can only engage in deficit trading to the extent that we have a trade surplus elsewhere; usually with our employers, but sometimes with lenders and investors willing to curtail immediate consumption in order to capture a portion of the economic upside we offer.
HT to Management R & D.
Let's say that two Mexicans live in the same town. One chooses to cross the border into the United States to work picking tomatoes while the other decides that the low wages earned by tomato pickers is not enough for him to leave his friends and family and work. In other words, the expected wage was in the U.S. was less than his opportunity cost. If the wage increased by, say, $1 per hour more, he too would cross the border to work in the U.S.
An ordinance is then passed in the U.S. - call it the Assist the Mexican Immigrant ordinance, or AMI - mandating that tomato consumers must pay a penny more per pound for their tomatoes - an insignificant sum for sure - and the proceeds given to the tomato pickers . Are the existing tomato pickers made better off by this ordinance? No.
At this new wage the tomato pickers are earning economic rents (a wage in excess of their opportunity cost), which induces more people to move from Mexico to become tomato pickers. This influx of supply depresses the base pay earned by the tomato pickers to the point that they are no better off than before. In fact, it may induce more skilled Mexicans to cross the border - those with higher opportunity costs of their time - thus driving the less skilled out of their jobs. This competition makes the current tomato pickers worse off, not better.
Here's the aptly named story.
In 2005, Florida tomato pickers gained their first significant pay raise since the late 1970s when Taco Bell ended a consumer boycott by agreeing to pay an extra penny per pound for its tomatoes, with the extra cent going directly to the farm workers. Last April, McDonald’s agreed to a similar arrangement, increasing the wages of its tomato pickers to about 77 cents per bucket. But Burger King, whose headquarters are in Florida, has adamantly refused to pay the extra penny — and its refusal has encouraged tomato growers to cancel the deals already struck with Taco Bell and McDonald’s.
All the more reason to eat at Burger King.
Greg Mankiw points to this story about the decline of the U.S. sock industry due to increased globalization. Of particular note is the ending.
Jimmy Durham, the [Dekalb] county [Alabama] economic development officer, shows just how grim things have been for the sock business here.
On street after street, he points to buildings that used to house sock mills, most of which are now gone. With all these businesses shuttered, you might think Durham is in despair about the future of Fort Payne. He isn't.
Those closed sock factories are reopening as new businesses.
He points to Steadfast, which makes bridges; Ferguson, a major plumbing supply company; a distribution center for Children's Place; two new metal tube manufacturers; a high-tech label maker. For a town of only 13,000 people, this is a lot of new, good-paying employment. These jobs pay more than sock-making jobs.
In fact, most of 4,000 recently laid-off sock workers quickly found new jobs. It's an irony that reversing this tariff — fought for so hard by some in Fort Payne — will likely have its biggest impact thousands of miles away in Honduras.
It's difficult to convince trade skeptics of the transitioning of jobs when factories move offshore. And yet, despite a near doubling of imports into this country over the past ten years, employment has increased more than ten percent.
Of further note is this realization:
Wills never finished high school. Why bother? It was easier to just go get a job in a sock mill, just like his mom and dad and most of his uncles did. Wills is 60 now and had a good career.
Like many in Fort Payne, Ala., Wills was able to acquire more and more sock-making skills. Eventually, he opened his own business, as a sock machine specialist. He'd come into a mill and fix broken knitting machines. He specialized in K-Ends and Crawfords, an older kind of machine that didn't have computer-based controls. By 2003, most of the mills that used those old machines had closed or invested in newer models.
Wills suddenly found that there was no demand for his specialized services. He got a full-time job at Durham Hosiery, one of the last mills that still used K-Ends. But even Durham was investing more and more on newer equipment with computers. And Wills didn't know how to operate those.
"With computer machines," he says, "it's more important to have an education."
Again, to alleviate poverty you have to understand what causes it. It's not the schooling per se that improves one's productive output - there's probably more dumbing down going on in government schools than actual learning - but high school dropouts signal their inability/unwillingness to follow through and complete simple tasks.
Further proof that when you put two students in a classroom one will always be left behind and that the NCLB simply decides who will be left behind.
Some scholars are joining parent advocates in questioning whether the education law No Child Left Behind, with its goal of universal academic proficiency, has had the unintended consequence of diverting resources and attention from the gifted.
Proponents of gifted education have forever complained of institutional neglect. Public schools, they say, pitch lessons to the broad middle group of students at the expense of those working beyond their assigned grade. Now, under the federal mandate, schools are trained on an even narrower group: students on the "bubble" between success and failure on statewide tests.
Teachers struggling to meet the law's annual proficiency goals have little incentive, critics say, to teach students who will meet those goals however they are taught.
"Because it's all about bringing people up to that minimum level of performance, we've ignored those high-ability learners," said Nancy Green, executive director of the District-based National Association for Gifted Children. "We don't even have a test that measures their abilities."
Story here.
I remember watching Ruth Conniff interviewed a few years back and the interviewer asked her to explain what causes poverty. She replied, "A lack of money." Wow! That's like responding to the question of what causes obesity with "Being overweight." She defined poverty, but she certainly never answered what caused poverty.
Mark Winne concludes his op-ed in today's Washington Post with this:
We know hunger's cause -- poverty. We know its solution -- end poverty. Let this Thanksgiving remind us of that task.
Until you adequately explain what causes poverty you can never end it. Despite spending $10 to $12 trillion over the span of more than forty years fighting "the war on poverty" (under the leadership of eight Republican and Democratic presidents), poverty is actually worse. Or so we're led to believe, depending on how you define poverty.
Poverty is not caused by a lack of money; plenty of that has been thrown at it. Poverty is caused by one's inability to produce value to others. For whatever reason - those who live isolated from larger populations (hillbillies in the hollows of Kentucky and West Virginia, as well as isolationists the likes of Ted Kasczynski); those with mental and/or physical impairments; and those simply refusing to work - if you don't produce value to others you will have little income. And yes, there are coordination problems (there are too few jobs in a specific geographic area), but these should normally be temporary (entrepreneurs find it advantageous to open a business where the existing labor supply is plentiful and expected to be productive, or residents move to find jobs in areas where their skills are more in demand).
Liberals want to argue that poverty is largely a problem of mental illness (only about 20-25% of just the homeless population) or a coordination problems (markets do a lousy job of creating opportunities for the poor). Never is poverty viewed as self-imposed, and worse still, exacerbated by programs ostensibly seeking to eradicate it. (What incentive does the welfare bureaucracy have to eliminate their jobs?)
Watching The Boys of Baraaka was infuriating for just this reason. These kids have very little chance of leading productive lives, the efforts of the Baraka School notwithstanding. These kids still have to go back to their welfare-dependent dysfunctional families.
As Daniel Patrick Moynihan aptly noted,
"There is one unmistakable lesson in American history: A community that allows a large number of young men to grow up in broken families, dominated by women, never acquiring any stable relationship to male authority, never acquiring any set of rational expectations about the future — that community asks for and gets chaos... And it is richly deserved." — "Family and Nation", 1965
Back in the 80s and 90s unions embarked on a "Buy American" campaign, distributing bumper sticker s that implored Americans to "Buy American, the next job lost may be yours." It's a blatant display of union workers' rent seeking nature.
ASCAP, the American Society of Composes, Authors and Publishers, embarks on an even more egregious (or at least ridiculous) display of rent seeking behavior in the form of "Donny Downloader." You've got to see it to appreciate the idiocy.
A good story of the inner workings of Washington by explaining the workings of one government contractor, Concurrent Technology. In a nutshell,
In a July 17 speech on the floor of the House, Rep. Jeff Flake (R-Ariz.) unsuccessfully sought to strike a $1 million earmark proposed for the Center for Instrumented Critical Infrastructure, to be run by Concurrent. Flake said he could find no evidence that the center existed.
"Concurrent Technology has been the recipient of millions upon millions of dollars over the years," Flake said during his floor statement. "The executives in Concurrent Technology contribute handsomely to members of Congress. So it receives a lot of earmarks. It seems to be an earmark incubator of some type, an earmark that begets more earmarks."
It's difficult to convince some people that markets tend to weed out discrimination, or at least penalize those who discriminate. For example, let's say that Ty and Amy, a male and female carpenter, respectively, can both produce four shelving units in a week. If Ty is the favored party and earns, say, $1,000 per week, while Amy, the disfavored party, earns only $800 per week, then why aren't more Amy's hired and fewer Ty's? The marginal cost for Amy to produce a bookshelf unit is $200, while for Ty it's $250, and if profit maximizing firms in a competitive market don't act on this cost differential, they're not likely to remain in business for long. Or at least they'll pay in the form or reduced profits.
But many people see discrimination in various forms in the workplace and chalk it up to problems with markets, which require workplace regulation to advance the interests of those discriminated against. The problem, however, is that when you impose such regulations firms work around them, much to the detriment of those such regulations profess to help. If someone can sue for discrimination, you can bet that fewer firms will be willing to hire them, thus driving down their wages. And mandating quotas simply alters whom I hire. Since lesser skilled people tend to not advance much in the workplace, and are consequently more likely to sue their employer for discrimination, firms respond by hiring fewer workers with standing to sue who also have lower skills.
The problem of workplace discrimination comes about for other reasons, one that I refer to as the Happy Meal effect. A year or so ago my kids got McDonald's Happy Meals. The meals came in boxes that had on two sides a game for boys and on the other two sides a game for girls. The boy's side contained such directives as (and I'm paraphrasing), "You found the secret hiding spot, move ahead two spaces." or "You discovered your opponents secret, move ahead one space." The girl's game had such gems as "OMG, you and another girl wore the same dress to a party, go back one space." and "Curling Iron burnout, go back two spaces."
Boys are problem solvers - they should be creative, adventurous, and inquisitive, all traits respected in a business setting. Girls on the other hand, are baubels - they should just sit on the side and look pretty, traits that are not necessarily respected in a business setting, at least not in positions of authority.
Consider the reaction most people have when a male superior berates an employee for making a mistake or acting in some unacceptable manner. Traditionally, the superior is feared and respected. But if it's a female superior acting the same way, the reaction is often to refer to her as "a bitch."
Some good studies are exploring this problem, including this study.
Victoria Brescoll, a researcher at Yale, made headlines this August with her findings that while men gain stature and clout by expressing anger, women who express it are seen as being out of control, and lose stature. Study participants were shown videos of a job interview, after which they were asked to rate the applicant and choose their salary. The videos were identical but for two variables — in some the applicants were male and others female, and the applicant expressed either anger or sadness about having lost an account after a colleague arrived late to an important meeting.
The participants were most impressed with the angry man, followed by the sad woman, then the sad man, and finally, at the bottom of the list, the angry woman. The average salary assigned to the angry man was nearly $38,000 while the angry woman received an average of only $23,000.
When the scenario was tweaked and the applicant went on to expand upon his or her anger — explaining that the co-worker had lied and said he had directions to the meeting — participants were somewhat forgiving, giving women who explained their anger more money than those who had no excuse (but still less money than comparative men).
So the cause behind discrimination is not necessarily a market problem as much as it is a cultural problem. If women are perceived as lacking competitiveness (or actually do lack competitiveness due, in part, to having it instilled in their heads since childhood that to problem solve is for boys and girls should simply look pretty and not act aggressively) or the ability to effectively manage people, then they'll be overlooked for management positions. Regulating the labor market ain't gonna work. Changing the culture and people's perceptions of women will, but changing culture doesn't happen overnight.
Thanks to my beautiful and lovely wife for the story link.
Maybe Hillsdale College is onto something more important than I once previously imagined.
In a new regulation based on the Family Educational Rights and Privacy Act, or FERPA, that some are calling "bizarre," [University of Iowa] officials say using a student's name could be a violation of privacy.
____The issue is that class lists and course schedules are not considered directory information, which is public, and therefore must be kept private under FERPA. This means professors aren't supposed to reveal a student's name to third parties, including other students in the same class, unless it's been OK'd with the student.
Story here.
Megan McArdle defends private school vouchers. I see all the arguments against her defense as hollow and lacking merit. I also find only one (loosely) credible defense against vouchers for private schooling, which nobody has yet made.
Some of the less inane arguments against vouchers, yet still lacking merit are:
But this last point brings up a seemingly possibly legitimate criticism against vouchers. Do we really want to support with tax dollars education that promotes hatred or some otherwise socially undesirable dogma? If markets indeed will produce private schools that cater to specific tastes and talents, can't we expect to see anti-American Muslim Schools, Aryan Nation schools that promote racism and ethnic cleansing, or Wiccan schools? If not, do we really want government to regulate private schools to ensure that schools that teach socially undesirable dogma do not receive vouchers?
This is likely a small problem. Do we see colleges springing up with such curricula? The gains to privatizing education are great and costs like this seem trivial given the substantial benefits.
Two weeks ago I was listening to a discussion on NPR of research scientists in the U.S. who all (four of them) expressed their concern that scientific research and development in this country has deteriorated considerably over the past thirty years. All four attributed their academic (college and postgraduate) success, as well as their research success, to having attended private elementary and secondary schools. They all argued that had they instead attended government schools (this is NPR mind you, not a hotbed of anti-government conservatives) they would not likely have made it to where they are today. Why can't we provide more people the same opportunity that these research scientists received?
Price ceilings lead to shortages, whether the price control is mandated by government or voluntarily implemented. In San Diego, many hotels reduced rates, rather than increase them, in light of the hordes of evacuees seeking shelter. A compassionate gesture? Maybe, but have they created adverse consequences?
Kirk Shaw, office manager at the city's Days Inn Harbor View said the facility has been flooded with evacuees, many of them coming from ravaged Ramona "saying that their houses were actually on fire."
The hotel has turned away dozens of guests in the past three days, Shaw said, during a time when business is traditionally slow. "People come in -- three four cars at a time -- saying they'd been driving around for like three hours and they needed a couple of rooms for their entire families, I didn't even have one for them, so I had to turn away entire families at a time."
Shelters are obviously an inferior good. There is no privacy; if you have small children it's difficult to keep tabs on them; the food is less than satisfactory; there is no television, at least private; sleeping is more difficult; etc. But there are available substitutes for one family staying in a local hotel, including staying with family, staying with friends, staying at a hotel farther away, staying with family farther away, staying in a camper, sharing a hotel room with another family, etc.
At the margin, people are indifferent between two or more choices. If my reservation price for staying in a hotel is $200, then at any price above $200 I'll stay with 'Ol Crazy Aunt Millie rather than rent a hotel room. But if the hotel charges only $160, I'm staying at the hotel.
Keep in mind that there are others who don't have alternatives - or at least have less desirable alternatives than staying with their 'Ol CrazyAunt Millie - and might be willing to pay up to, say, $300 per night for a room for their family. But now that the hotel rooms are full they are unable to find a room.
My guess is that there are some families using two or more hotel rooms who would have doubled up or found alternative arrangements had the price of their rooms increased to, say, $400. There are also probably retired people staying in these hotels at the reduced rate who would have otherwise left town and stayed at a hotel in Vegas, Phoenix, or with relatives or friends in other cities. And there are probably families with small children, people whose jobs require them to remain nearby, people without family nearby, people who have loved ones in San Diego hospitals or hospice care, and so on who value a hotel room at more than $400 and yet are now unable to find a room.
It was a nice gesture on the part of the hotels, but I'd rather see compassion administered through the invisible hand of market prices.
Addendum: Edited for clarity.
Let's say that you own a company. This company produces some good (say, gas grills) that, after discussing with your employees, you find out poses a greater safety threat than what was previously thought. Even though this threat is small, you find out that it's still greater than you had been revealing to the public.
What should you do? Should you warn your customers of the potential problem, knowing that as information spreads about this increased risk it might hamper sales and thus reduce your profits? And, if you decided to destroy the information specifically to protect sales, wouldn't the government like a word with you, not to mention the lawyers?
What if the entity seeking to destroy the information was the government?
MOFFETT FIELD, California (AP) -- An unprecedented national survey of pilots by the U.S. government has found that safety problems like near collisions and runway interference occur far more frequently than previously recognized. But the government is withholding the information, fearful it would upset air travelers and hurt airline profits.
Well worth reading.
Here's my similar take on this analysis.
Here's an excellent quote:
Back in the 1980's, I recall that Microsoft had a very low profile in Washington. Technology leaders, including Bill Gates, seemed to feel this way: those who can, compete; those who can't, lobby. In this view, a technology firm that has a big lobbying focus is indicating that it has lost its way. If the Gates Foundation cannot come up with a better way to spend its money than to plead with politicians, then I would suggest that it has lost its way.
