Wintery Knight

…integrating Christian faith and knowledge in the public square

My conversation with a leftist friend about basic economics and rent control

My conversation with a leftist friend about “Basic Economics: A Common Sense Guide to the Economy, 4th Edition“, by Thomas Sowell.

Him: I remember why I stopped reading that book when you asked me to read it.

Me: Why did you stop reading it?

Him: Because of the chapter on rent control.

Me: Chapter 3 is the chapter on price controls. It talks about rent control.

Him: I expect an economist to present both sides of rent control. He has to present the arguments for and against rent control.

Me: There are not two sides to rent control. There is only one side to rent control. He chose that because it is a clear cut example of the problems caused by price controls. Economists universally condemn rent control, across the ideological spectrum.

Him: No they don’t.

Me: The chair of the Department of Economics at Harvard University, Greg Mankiw, reports in his economics textbook that 93% of professional economists agree that rent control reduces housing supply and housing quality. It is the most agreed upon position among economists across the ideological spectrum, number one in his list of facts on which professional economists agree. And obviously they have reasons for agreeing on that, specifically the experience of trying rent control policies in different times and places. It has always failed.

Him: Somebody must like rent control, because they have it in New York city.

Me: Politicians and low-information voters support rent control. It makes politicians feel good, and it gets them elected, too – if the voters are economically illiterate enough, as they are in New York city.

Him: But what about global warming then? Isn’t the consensus against you there?

Me: There has been no global warming in the last 17 years, according to the New York Times. They were reporting on findings by the UN IPCC in 2013.

Him: The UN never said that. The New York Times never wrote that.

Me: Yes, they did. And I have the sources I can send them to you.

Him: I’ll bet you do. (walks away in a huff)

This is the relevant quote from the Greg Mankiw post from his survey of economists that appears in his textbook:

  1. A ceiling on rents reduces the quantity and quality of housing available. (93%)
  2. Tariffs and import quotas usually reduce general economic welfare. (93%)
  3. Flexible and floating exchange rates offer an effective international monetary arrangement. (90%)
  4. Fiscal policy (e.g., tax cut and/or government expenditure increase) has a significant stimulative impact on a less than fully employed economy. (90%)
  5. The United States should not restrict employers from outsourcing work to foreign countries. (90%)
  6. The United States should eliminate agricultural subsidies. (85%)
  7. Local and state governments should eliminate subsidies to professional sports franchises. (85%)
  8. If the federal budget is to be balanced, it should be done over the business cycle rather than yearly. (85%)
  9. The gap between Social Security funds and expenditures will become unsustainably large within the next fifty years if current policies remain unchanged. (85%)
  10. Cash payments increase the welfare of recipients to a greater degree than do transfers-in-kind of equal cash value. (84%)
  11. A large federal budget deficit has an adverse effect on the economy. (83%)
  12. A minimum wage increases unemployment among young and unskilled workers. (79%)
  13. The government should restructure the welfare system along the lines of a “negative income tax.” (79%)
  14. Effluent taxes and marketable pollution permits represent a better approach to pollution control than imposition of pollution ceilings. (78%)

And this is the relevant quote from the New York Times article, dated September 2013:

The global warming crowd has a problem. For all of its warnings, and despite a steady escalation of greenhouse gas emissions into the atmosphere, the planet’s average surface temperature has remained pretty much the same for the last 15 years.

As you might guess, skeptics of warming were in full attack mode as the Intergovernmental Panel on Climate Change gathered in Sweden this week to approve its latest findings about our warming planet. The skeptics argue that this recent plateau illustrates what they always knew — that complex global climate models have no predictive capability and that, therefore, there is no proof of global warming, human-caused or not.

The author of the NYT article (a leftist) goes on to attempt to explain he is not concerned by the 17 year period of no significant warming, but the point is that the 17 year (not 15 year) period of no significant warming is A FACT acknowledged by the UN IPCC that has to be explained by those who believe in catastrophic man-made global warming. The IPCC may not like the temperature measurements, but those facts are not in doubt. The global warming crowd might make predictions about the future, but they made predictions about the past before, and we now know for a fact that those predictions (polar ice caps melting, Himalayans melting, significant global warming, etc.) were FALSE. They have been falsified by evidence, and that’s not in doubt.

Economic illiteracy is the problem

When people on the left voted for Barack Obama in 2012, they did not know based on evidence that they could keep their doctors and keep their health plans and that insurance premiums would drop $2500. They did not know it because the economic studies contradicted Obama’s words. They even believed Obama when he said that the Benghazi incident was caused by a Youtube video. Obama-supporters had a sincere belief in the words of his passionate speeches. They were impressed by the visuals of him talking to large crowds of young people. They believed him because they had feelings about him. And voting for him made them have good feelings about themselves. They felt that they were going to achieve good things by voting for this good man. They meant well, but they did not know. They did not have evidence.

Before the 2012 election, people on the right pointed to evidence from studies (like this one) showing that Obama was lying, but his supporters were apparently not interested in economic studies. They want to preserve the feelings of being good people. They want to preserve the belief that you can embrace policies that sound good, and that words that sound good will necessarily lead to good results for people who are at a disadvantage. I don’t question the motives of people on the left – they mean well. But meaning well doesn’t produce good results without knowledge of economics. In economics, policies that sound appealing to well-meaning liberals (rent control, tariffs, protectionism, minimum wage, trillion-dollar deficits) actually produce bad results for poor people. And we know this for a fact from our experience across different times and places.

If we can get people to accept the authority of our observations of policy experimentation in different times and places over and above their feelings and intuitions, then we can save this country.

Filed under: Commentary, , , , , , , , , , , , , , , , , , ,

New study: Obama’s proposed minimum wage hike could destroy 1 million jobs

Labor Force Participation down to 62.8%

Labor Force Participation down to 62.8%

From the Daily Caller. (H/T Conway)

Excerpt:

The Obama administration’s proposal to raise the minimum wage to $10.10 an hour could result in as many 1,084,000 jobs eliminated from the work force, according to a new study conducted by the Employment Policies Institute (EPI)

“No amount of denial by the president and his political allies — and no number of ‘studies’ published by biased researchers — can change the fact that minimum wage hikes eliminate jobs for low-skill and entry-level employees. Non-partisan economists have agreed on this consensus for decades, and the laws of economics haven’t changed,” Michael Saltsman, research director at EPI, said in a statement.

He offered an alternative to the president’s plan: “Instead of raising small businesses’ labor costs and creating more barriers to entry-level employment, the president and the Senate should focus on policies that help reduce poverty and create jobs.”

The  study was released in the wake of an expected vote on a Senate bill that aims to raise the federal minimum wage from the current $7.25 an hour to $10.10 an hour — a nearly 40 percent increase.

Many Democrats argue that increasing the federal minimum will reduce poverty without having an adverse effect on unemployment.

EPI’s report, which used analysis from economists at Miami and Trinity University, reached a different conclusion.

Researchers used recently updated Census Bureau data from 2012 and 2013 to calculate how each individual state would be impacted by the proposed wage hikes. As a lump sum, Americans would see a loss of at least 360,000 jobs, and perhaps even over one million if hourly wages are increased to $10.10.

The number of job losses would be the most dramatic in large states, such as California and Texas. Economists found that California could lose as many as 100,016 jobs and Texas could see up to 128,617 jobs disappear from its economy.

This article from Investors Business Daily, written by the famous economist Thomas Sowell has more on the effects of raising the minimum wage.

Excerpt:

Switzerland is one of the few modern nations without a minimum-wage law. In 2003, the Economist magazine reported: “Switzerland’s unemployment neared a five-year high of 3.9% in February.”

In February of this year, Switzerland’s unemployment rate was 3.1%. A recent issue of the Economist showed Switzerland’s unemployment rate as 2.1%.

Most Americans today have never seen unemployment rates that low. However, there was a time when there was no federal minimum-wage law in the United States.

The last time was during the Coolidge administration, when the annual unemployment rate went as low as 1.8%. When Hong Kong was a British colony, it had no minimum-wage law. In 1991 its unemployment rate was under 2%.

[...]Most people in the lower income brackets are not an enduring class. Most working people in the bottom 20% in income at a given time do not stay there over time. More of them end up in the top 20% than remain behind in the bottom 20%.

There is nothing mysterious about the fact that most people start off in entry-level jobs that pay much less than they will earn after they get some work experience.

But when minimum-wage levels are set without regard to their initial productivity, young people are disproportionately unemployed — priced out of jobs.

In European welfare states where minimum wages, and mandated job benefits to be paid for by employers, are more generous than in the United States, unemployment rates for younger workers are often 20% or higher, even when there is no recession.

Unemployed young people lose not only the pay they could have earned but, at least equally important, the work experience that would enable them to earn higher rates of pay later on.

Minorities, like young people, can also be priced out of jobs. In the United States, the last year in which the black unemployment rate was lower than the white unemployment rate — 1930 — was also the last year when there was no federal minimum-wage law.

Inflation in the 1940s raised the pay of even unskilled workers above the minimum wage set in 1938. Economically, it was the same as if there were no minimum-wage law by the late 1940s.

In 1948 the unemployment rate of black 16-year-old and 17-year-old males was 9.4%. This was a fraction of what it would become in even the most prosperous years from 1958 on, as the minimum wage was raised repeatedly to keep up with inflation.

A survey of American economists found that 90% of them regarded minimum-wage laws as increasing the rate of unemployment among low-skilled workers.

Harvard University economist Greg Mankiw puts the level of opposition to minimum wage hikes at 79% among professional economists across the ideological spectrum.

Filed under: News, , , , , ,

Why is the unemployment rate for young people so high?

A few of the policies that are causing the problem are explained in this article from the American Enterprise Institute. I have highlighted the policies that discourage employers in the snippet I excerpted below.

Excerpt:

If Washington is serious about helping this vulnerable population, it should focus on increasing workers’ take home pay and lowering the business employment costs. Conventional wisdom preaches increasing minimum wages. But a far more effective policy would be to simply exempt younger workers and their employers from paying taxes related to their employment.

People in the workforce typically get their start when they are young – beginning with some entry level job where they learn basic job skills, develop effective work habits, and earn a modest wage. This important first step gives them a chance at earning wages and achieving a level of success that facilitates advance up the economic ladder. Work habits and skills are generally learned early in life or unfortunately for too many, not learned at all.

The long term damage caused by this lack of employment is very large. Income mobility has declined. The sad fact is the probability of people at the bottom moving up the income ladder is lower than it was 20 and 30 years ago. Many studies have demonstrated that three factors determine most of the difference between those who start in poverty and stay there and those who don’t – finishing high school; avoiding becoming a teenage parent, and getting a full-time job. Those who do all three have only a 2 percent chance of living in poverty and a 75 percent chance of joining the middle class.

Many economists and social scientists have suggested both demand and supply reasons why youth unemployment is so high. On the demand side, the national safety net – Food Stamps, Earned Income Tax, welfare and subsidy programs of all kinds – substantially reduce the relative benefit of working. In other words, the wage premium for working versus taking advantage of benefit programs on an after-tax basis is simply too small to encourage many people to work.

If a young person enters the work force at the minimum wage, he grosses $7.25 per hour. From this, in a place like Los Angeles, he pays federal and state income taxes and Medicare and Social Security payroll taxes which total $1.11. So, out of the $7.25 earned, he keeps just over $6. If he is single and without children, he won’t qualify for the Earned Income Tax Credit (EITC) or food stamps.

On the supply side, the cost of employing young people is high relative to their economic contribution to potential employers. An entry-level employee costs his employer much more than $7.25. In addition to his wages, the employer also pays Social Security and Medicare taxes, plus unemployment insurance, that add on an average of 92 cents. So today, the new employee costs the business $8.13 per hour, of which the young employee keeps only three-quarters.

This cost will increase further when the Affordable Care Act kicks in. Beginning in 2015, if the employer has more than 50 employees, he will have to provide health insurance for full-time workers or pay a $2,000 fine – which comes to $.96 per hour. That will make an abysmal employment situation even worse.

Overall, public policy ought to be aimed at encouraging businesses to create entry level jobs. Perversely, attempts to increase the minimum wage and institute so-called living wages would do the exact opposite. If government wanted to help create a permanent economic underclass, it would implement exactly the policies that are in place. All of us who want people to enjoy earned success ought to be outraged at these government policies.

This is important, because very often the policies proposed by people on the left are not designed to solve the problem. Thomas Sowell argues that the real purpose of leftist policies is for leftist leaders to feel self-important by getting applause from those who are economically ignorant. They push policies that sound good but that don’t actually work.

The good news is that young people are waking up. According to a Harvard University survey, 57% of young adults now disapprove of Obamacare. Even they are starting to think about what is happening to them. Maybe they can avoid the slavery that awaits them under the Democrat’s massive program of intergenerational theft, but I’m not optimistic. They have really short attention spans, and you don’t learn the fundamentals of economics on Instagram and Pinterest.

Filed under: News, , , , , , , , , , , , ,

Fast-food walk out ignores basic economics: minimum wage hike creates unemployment

Investors Business Daily explains what’s wrong with the plan of fast-food industry workers to strike for higher wages.

Excerpt:

Egged on by unions, fast-food workers plan to strike in dozens of U.S. cities for much higher wages. Sadly, they’re being used to do something that’s not in their own interests.

Sensing the time is ripe, the Service Employees International Union and union-funded front groups are organizing a walkout of workers at fast-food joints in about 100 cities to protest how tough it is to live on the federal minimum wage of $7.25 an hour.

They’d like that nearly doubled to $15 — and not just for fast food, but retailing and other industries too.

Sounds great. But even by the loopy logic of the left, this is economic insanity and would lead to greater misery, fewer jobs and fewer opportunities for all.

That’s not just our opinion. Economists David Neumark and William Wascher, in their comprehensive book “Minimum Wages,” looked at virtually all the scholarly and statistical evidence worldwide, digging up literally dozens of studies.

Their finding: Minimum wage laws almost always result in a “reduction in employment opportunities for low-skilled” employees while limiting “skill acquisition by reducing educational attainment and perhaps training, resulting in lower adult wages and earnings.”

And, they said, it reduces the total amount of human capital — a huge cost to society.

The minimum wage is so devastating that roughly 85% of all economists in a recent survey — from both the left and the right sides of the spectrum — said they think it’s a bad idea.

[...]The idea that working families depend on these jobs is false. Most of those working for minimum wage are young, ages 16 to 24. They live in middle-class homes with above-average household incomes.

And as James Sherk of the Heritage Foundation notes, two-thirds of minimum-wage earners get a raise in their first year. This is how they learn to show up, work hard and get along with others — valuable life skills young people acquire as they begin work and the very things that will make them a success later on.

A higher minimum wage would cost young workers jobs and opportunities. They’d be wise to ignore the unions’ siren song of higher wages for nothing.

From Investors Business Daily, an article by famous economist Thomas Sowell has more on this issue.

Excerpt:

Switzerland is one of the few modern nations without a minimum-wage law. In 2003, the Economist magazine reported: “Switzerland’s unemployment neared a five-year high of 3.9% in February.”

In February of this year, Switzerland’s unemployment rate was 3.1%. A recent issue of the Economist showed Switzerland’s unemployment rate as 2.1%.

Most Americans today have never seen unemployment rates that low. However, there was a time when there was no federal minimum-wage law in the United States.

The last time was during the Coolidge administration, when the annual unemployment rate went as low as 1.8%. When Hong Kong was a British colony, it had no minimum-wage law. In 1991 its unemployment rate was under 2%.

[...]Most people in the lower income brackets are not an enduring class. Most working people in the bottom 20% in income at a given time do not stay there over time. More of them end up in the top 20% than remain behind in the bottom 20%.

There is nothing mysterious about the fact that most people start off in entry-level jobs that pay much less than they will earn after they get some work experience.

But when minimum-wage levels are set without regard to their initial productivity, young people are disproportionately unemployed — priced out of jobs.

In European welfare states where minimum wages, and mandated job benefits to be paid for by employers, are more generous than in the United States, unemployment rates for younger workers are often 20% or higher, even when there is no recession.

Unemployed young people lose not only the pay they could have earned but, at least equally important, the work experience that would enable them to earn higher rates of pay later on.

Minorities, like young people, can also be priced out of jobs. In the United States, the last year in which the black unemployment rate was lower than the white unemployment rate — 1930 — was also the last year when there was no federal minimum-wage law.

Inflation in the 1940s raised the pay of even unskilled workers above the minimum wage set in 1938. Economically, it was the same as if there were no minimum-wage law by the late 1940s.

In 1948 the unemployment rate of black 16-year-old and 17-year-old males was 9.4%. This was a fraction of what it would become in even the most prosperous years from 1958 on, as the minimum wage was raised repeatedly to keep up with inflation.

A survey of American economists found that 90% of them regarded minimum-wage laws as increasing the rate of unemployment among low-skilled workers.

Harvard University economist Greg Mankiw puts the level of opposition to minimum wage hikes at 79% among professional economists across the ideological spectrum.

Learn economics for Christmas

By the way, if you’re looking for a really good drama that shows the business-owner vs union-leader conflict, I really recommend the BBC production of North and South. It’s a beautiful period drama that’s based on a Christian woman’s novel. The author of the book wrote in the time of Charles Dickens, and he even named the book for her. It’s rated 8.7/10 on IMDB. It’s $19.99 on Amazon, although it sometimes goes lower than that! A great way to communicate basic economics to your liberal spouse or significant other – especially on this minimum wage issue. Oh, apparently there is a love story in it, but I didn’t really pay any attention to that part of it, other than to be pleased that there was no sex or nudity at all – not even kissing! Perfect! This DVD is WK-approved. It is also Dina-approved, because she was the one who suggested it to me.

Just to give you an idea of how much I liked it, I tried watching Downton Abbey and stopped after two episodes. It’s boring nonsense. But North and South I rated 9.5/10 and could not stop watching it once I started. There are no wasted scenes, no fluff at all. Everything they did worked to develop the theme of the story. How different it is from the garbage they have in theaters today! The presentation of capitalism is absolutely heroic, and yet the union side is presented sympathetically as well. Of course, if you want to read an economics book instead, then just get Thomas Sowell’s “Basic Economics“. One of my friends (Letitia) is actually reading that now.

Filed under: News, , , , , ,

UK Supreme Court rules against Christian B&B couple’s conscience rights

Dina sent me this article from the UK Telegraph about a recent Supreme Court decision from the UK.

Excerpt:

The devoutly Christian owners of a Cornish hotel who refused to allow two gay men to take a double room have lost their final appeal to the Supreme Court. It ruled that Peter and Hazelmary Bull had discriminated against the couple, even though they had long operated a rule that unmarried guests had to sleep apart. One of the judges, Lady Hale, said such a case would have been unthinkable less than two decades ago, and it is a measure of how both the law and societal norms have changed that the Bulls should have found themselves in such a predicament.

It is also a pity this matter was not settled amicably when the Bulls made an offer of redress; but campaigners were intent on making an example of them. The aggrieved men, Martyn Hall and Steven Preddy, who were in a civil partnership, were supported by the Equalities and Human Rights Commission (EHRC). The Bulls were perplexed as to why the EHRC should act against them, since their right to exercise their religious beliefs was being set against that of the men not to be discriminated against on the grounds of their sexual orientation.

Dina also sent me this article from the pro-gay Spiked Online.

Excerpt:

[A]s the systematic unequal treatment of gays has ended, so another problem has grown. One pernicious social force has been replaced by another: the willingness of the state to outlaw minority or eccentric views and behaviours. State-backed oppression has yielded to state-backed intolerance.

The Bulls have been hauled before the courts and told they can no longer practise what they preach. To deny a couple the right to make a living in a manner consistent with their Christian values is draconian. The Bulls’ fate is similar to that of Lillian Ladele, an Islington marriage registrar, and Gary McFarlane, a Relate counsellor, who were both sacked after declining to provide their professional services to lesbians and gays. Equality laws did for them all.

The problem here is not, as it appears, merely a slap in the face to Christians. It is a slap in the face to the right of all individuals to act free of state control absent a compelling reason for intervention. As John Stuart Mill put it in On Liberty (1859): ‘The only purpose for which power can be rightfully exercised over any member of a civilised community, against his will, is to prevent harm to others.’

As if to satisfy Mill’s harm principle, the Supreme Court went in search of Preddy and Hall’s ‘harm’. What they found was that when the Bulls’ house rules were explained to Preddy and Hall, they found it ‘upsetting’ and ‘very hurtful’. Even in the touchy-feely twenty-first century, where self-esteem is seen as so important and so fragile, this is pretty lame.

The Supreme Court judge, Lady Hale, may have been aware that this ‘affront to their dignity’, as she put it, was not the sort of harm, in the Mill sense, that should justify the state’s coercive power. She bolstered her argument by linking Preddy and Hall’s hurt feelings to a bigger historical picture. ‘We should not underestimate’, she said, ‘the continuing legacy of those centuries of discrimination, persecution even, which is still going on in many parts of the world’.

Fascism happens when the normal desire for compassion is taken out of the family context and becomes the policy of a powerful feminist welfare state. And that’s when it becomes a threat to the right of individuals to make moral judgments and to exercise religious liberty.

The EHRC, you’ll remember, was a project of the Labour Party of the UK, which is the socialist party in the UK. There is also a communist party called the Liberal Democrats. The striking thing is that many church-attending Christians not only vote for the Labour Party, but they also vote for the Liberal Democrats, which are even more liberal. A lot of this is because British Christians are so far to the left on economic issues that they sort of go along with the assault on their own religious liberty out of ignorance. They vote for bigger and bigger government, and then they are surprised when they actually get it.

The same thing happened in Canada with the Liberal Party and their introduction of Human Rights Commissions and Human Rights Tribunals, which criminalize offending people with free speech. The very Christians that voted for expanding government to reduce poverty were the ones who were then persecuted by the same big government they voted to create. This goes to show why we need to have better economics knowledge among Christians, because many of us are voting for left-wing parties because we think that private, voluntary charity can be replaced with government-controlled redistribution of wealth. Not only does that not work to reduce poverty, but in the end, we lose our liberties, too.

In the UK, you’ll find a lot of Christians who think that rent control is a good thing, that price controls are a good thing, that raising minimum wage is a good thing, that tariffs on imported goods are a good thing – positions which are generally viewed as incorrect by academic economists across the ideological spectrum. That’s why churches need to teach the Christian worldview, including economics. The UK church should be training Christians to undo this ignorant, patriotic confidence that UK Christians have in their welfare state. We all have a lot of work to do to educate ourselves on how the Bible applies to the real world (e.g. – economics), or else we will end up undermining our own liberties.

Additionally, I find it very frustrating that so many churches are so focused on providing emotional comfort and a sense of community to the people in the pews that they neglect to talk about these religious liberty issues. Pastors don’t want to alert ordinary Christians about how dangerous it’s becoming to take unpopular stands on issues like gay rights in public – it’s scary and divisive and drives people away from church. You’re not going to hear them trying to apply the Bible to moral issues or economic issues, etc. from the pulpit, because that spoils the “experience” and “the show” – the comfort and entertainment that people expect from church. We need to do better at helping Christians to be aware of threats to our liberties. They need to be trained to connect their faith to specific laws and policies in the real world.

Filed under: News, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

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