Sunday, May 15, 2016

I wish I'd authored this

This is from the Foundation for Economic Education
Written by LW Reed

On ne saurait faire une omelette sans casser des oeufs.

Translation: “One can’t expect to make an omelet without breaking eggs.”

With those words in 1790, Maximilian Robespierre welcomed the horrific French Revolution that had begun the year before. A consummate statist who worked tirelessly to plan the lives of others, he would become the architect of the Revolution’s bloodiest phase—the Reign of Terror of 1793–94. Robespierre and his guillotine broke eggs by the thousands in a vain effort to impose a utopian society based on the seductive slogan “liberté, égalité, fraternité.”

But, alas, Robespierre never made a single omelet. Nor did any of the other thugs who held power in the decade after 1789. They left France in moral, political, and economic ruin, and ripe for the dictatorship of Napoleon Bonaparte.

As with Robespierre, no omelets came from the egg-breaking efforts of Lenin, Mao, Pol Pot, Adolf Hitler, and Benito Mussolini either.

The French experience is one example in a disturbingly familiar pattern. Call them what you will—leftists, utopian socialists, radical interventionists, collectivists, or statists—history is littered with their presumptuous plans for rearranging society to fit their vision of “the common good,” plans that always fail as they kill or impoverish other people in the process. If socialism ever earns a final epitaph, it will be this: “Here lies a contrivance engineered by know-it-alls and busybodies who broke eggs with abandon but never, ever created an omelet.”

Every collectivist experiment of the twentieth century was heralded as the Promised Land by statist philosophers. “I have seen the future and it works,” the intellectual Lincoln Steffens said after a visit to Uncle Joe Stalin’s Soviet Union. In the New Yorker in 1984, John Kenneth Galbraith argued that the Soviet Union was making great economic progress in part because the socialist system made “full use” of its manpower, in contrast to the less efficient capitalist West. But an authoritative 846-page study published in 1997, The Black Book of Communism, estimated that the communist ideology claimed 20 million lives in the “workers’ paradise.” Similarly, The Black Book documented the death tolls in other communist lands: 45 to 72 million in China, between 1.3 million and 2.3 million in Cambodia, 2 million in North Korea, 1.7 million in Africa, 1.5 million in Afghanistan, 1 million in Vietnam, 1 million in Eastern Europe, and 150,000 in Latin America.

Vast and Incompetent Bureaucracies

Additionally, all of those murderous regimes were economic basket cases; they squandered resources on the police and military, built vast and incompetent bureaucracies, and produced almost nothing for which there was a market beyond their borders. They didn’t make “full use” of anything except police power. In every single communist country the world over, the story has been the same: lots of broken eggs, no omelets. No exceptions.

F. A. Hayek explained this inevitable outcome in his seminal work, The Road to Serfdom, in 1944. All efforts to displace individual plans with central planning, he warned us, must end in disaster and dictatorship. No lofty vision can vindicate the use of the brute force necessary to attain it. “The principle that the end justifies the means,” wrote Hayek, “is in individualist ethics regarded as the denial of all morals. In collectivist ethics it becomes necessarily the supreme rule.”

The worst crimes of the worst statists are often minimized or dismissed by their less radical intellectual brethren as the “excesses” of men and women who otherwise had good intentions. These apologists reject the iron fist and claim that the State can achieve their egalitarian and collectivist goals with a velvet glove.

But whether it is the Swedish “middle way,” Yugoslavian “worker socialism,” or British Fabianism, the result has been the same: broken eggs, but no omelets.

Have you ever noticed how statists are constantly “reforming” their own handiwork? Education reform. Health care reform. Welfare reform. Tax reform. The very fact that they’re always busy “reforming” is an implicit admission that they didn’t get it right the first 50 times.

The list is endless: Canadian health care, European welfarism, Argentine Peronism, African postcolonial socialism, Cuban communism, on and on ad infinitum. Nowhere in the world has the statist impulse produced an omelet. Everywhere—it yields the same: eggs beaten, fried, and scrambled. People worse off than before, impoverished and looking elsewhere for answers and escape. Economies ruined. Freedoms extinguished.

It is a telling conclusion that statists have no successful model to point to, no omelet they can hold up as the pièce de résistance of their cuisine. Not so for those of us who believe in freedom. Indeed, economists James Gwartney, Robert Lawson, and Walter Block in their survey, Economic Freedom of the World: 1975–1995, conclude that “No country with a persistently high economic freedom rating during the two decades failed to achieve a high level of income. In contrast, no country with a persistently low rating was able to achieve even middle income status. . . . The countries with the largest increases in economic freedom during the period achieved impressive growth rates.”

Perhaps no one explained the lesson of all this better than the French economist and statesman Frédéric Bastiat more than 150 years ago:

“And now that the legislators and do-gooders have so futilely inflicted so many systems upon society, may they finally end where they should have begun: May they reject all systems, and try liberty; for liberty is an acknowledgment of faith in God and His works.”

This column first appeared in the September 1999 Freeman.

Wednesday, April 27, 2016

The Unintended Consequences of the Minimum Wage.

A few days ago I posted about the economic benefits to minimum wage, which are few and not overly valuable. But a case can be made for some benefit in purely economic terms.   In general, minimum wage laws are created for political reasons – there is a claim of compassion but you shouldn’t be too quick to believe those.  Politicians don’t do things out of compassion, they do them to get re-elected.  Politicians work on the philosophy of delayed blame.  They’ll spend your future money to buy votes today on the theory that when the debt comes due, most voters will have forgotten who to blame.  Sadly, it works really well.

There are a number of downsides to minimum wage laws. Beyond the obvious distortion of the free market (see previous post), there is the tendency to increase them once they’re established. The dangers of what I’m seeing now, which is a trend toward a more than doubling of the Federal minimum wage in the wake of events in two of the most liberal states in the country.  Both New York and California went against all rational advice from economists and did the “Feel Good” thing anyway – assuming that voters will forget who just screwed them by the time the next election comes up.  For those people who manage to keep their jobs, it will be a big win.   For everyone else, not so much. This is going to be lengthy, and hardly exhaustive, but it should give you an idea of what kind of trouble we’re borrowing.

There is strong consensus amongst economists that raising the minimum wage results in few jobs for unskilled and inexperienced workers.  The only big holdout I know of is Paul Krugman, who lives in a world with unicorns.

If destroying entry level jobs were the only effect, it would be bad enough.  The hike from $10 to $15 per hour has resulted in UC Berkeley laying off 500 people.   That’s 500 people whose wage went from $10 to $0.  And believe me – the real minimum wage is $0.  Berkeley is just the beginning – the full effect of that increase won’t be seen for two to five years.  I expect to see more businesses flee California – which they’ve been doing in droves.   It is a business hostile environment. Between the constant assault of regulatory strangulation and now a 53.1% increase in unskilled labor costs – assuming there are no other hidden costs beyond the 6.2% FICA which means that $5/hour is really costing the employer $5.31.

Unfortunately, there is a trickle up of costs. Few employers that depend on minimum wage worker can afford to absorb a 53% hike to what is probably their biggest single expense.  They will have no choice but to raise prices – with that price increase comes a decrease in demand.  So, while prices are up – sales are down.  Since prices are unlike to go up any more than one needs to cover the actual costs in the first round, there will be a net loss in revenue. With that will be a net decrease in what the State collects for taxes.  Yes, that’s one of those little unintended consequences that is so easy to overlook. More so for a state that has a major budged shortfall, and a seriously underfunded public pension.

There may be some good news depending on what labor pool is used. If supermarkets are already paying $15/ hour (which seems unlikely) then the impact to food prices will only come from their suppliers – otherwise, the costs of eating at home will rise even further than the the cost of goods sold.  That will have some mitigating effect on the demand of dining out.  The nice thing about food is that overall, it has a relatively inelastic demand.

When those sales decrease, the demand for raw materials will fall.  Taking a restaurant as an example.  When the prices on the menu increase significantly, people will make the rational choice to eat out less.  So the restaurant sells less, and the minimum wage workers now get fewer tips – oops yet another unintended consequence. The company that supplies the food, and condiments will also lose business, lowing revenue and hence taxes.  If the restaurant sells liquor, those sales will also drop, which is bad because that’s a real profit center for restaurants. Oh, and the state loses even more tax income.

Now, if sales drop enough, a rational business owner will be forced to confront the decision of how to allocate his capital. In other words, struggle along or close up shop and find someplace else to do business.  When those shops close all the employees are now at the true minimum wage of 0$.  And the state now gets hit with an additional tax burden – unemployment compensation.

The suppliers lose even more business – potentially resulting in more layoffs.  Certainly less income and hence – less taxes paid.

You can expect to see capital replace labor in more places, since the relative cost of capital just went down. The nice thing about capital – it doesn’t show up late, rarely takes sick days, and complains about overtime, or not enough hours.

So, we’ve killed jobs for unskilled, inexperienced workers, we’ve put unskilled workers out of jobs, we’ve put skilled workers, and management out of work. We’ve decrease tax revenues and increase the tax burden. We’ve increase overall unemployment. And increased welfare spending. But at least some of those people are making a living wage now – except the prices on everything just went up so that $5 / hour feels a bit more like $1.75/ hour.   Feels pretty good doesn’t it.

At which point I will reiterate my advice – Capitalists – be compassionate, pay as much as you can afford, don’t price yourself out of existence, but if you wait, the government will do it for you. Workers – have a little compassion for all those people you seem so willing to throw under the bus,  $7 or $10 may not be a living wage, but neither is $0.

Well, you get the picture.   It’s too bad that people demanding these huge increases in the minimum wage don’t see it.  Nor apparently do the politicians.   And if you think they do, I would point you to the following:

How White Castle Will Adjust to a $15 Minimum Wage in New York

How High should the Minimum Wage Be? 

Tuesday, April 26, 2016

You know Marko Kloos right?   You do read science fiction right?  

If you like SciFi,  and you like action, and military, and military SciFi then you must know about Marko Kloos - Frontlines series.   Book 4 is a great read, which comes as no supprise.  Andrew Grayson is about as real as they come. Once again, Andrew is on the pointy end of the speer, but the enemy has changed, for the moment anyway.

Chains of Command at Amazon

If you haven't read the other three - you probably should.

  Terms of Enlistment - book 1  at Amazon 

Lines of Departure - book 2 at Amazon 

Angles of Attack - book 3 at Amazon  

Sunday, April 24, 2016

Minimum Wage - Good and Bad

I was writing a comment to Bayou Renaissance Man: Yes, this is the unacceptable face of capitalism

It's one of my regular daily stops, highly recommended.  This post concerns the issue of Minimum Wage - and mostly references this article by Fred  

So what happened was, as usual, I got long winded, and pedantic, and well - Me.  So I decided to post it here rather than clutter up Peter's comment section with my lengthy response. 

Speaking as an economist (well sort of - I only have a BA in Econ which is the next best thing to useless).

Economics makes a lot of assumptions - it has to, without those simplifying assumptions we're lost.  We've learned to deal with how regulation affects the free market to some extent. There are a lot of assumptions about the free market that are, well...not quite accurate in real life. Often people who are advocates of Free Market Capitalism (of which I am one).  Don't really think though what those assumptions are and what they mean. 

I've studied the effects of minimum wage quite a bit.  In general, it's possible to pick a minimum wage which is supportable by the general economy. What that minimum does is force business owners into meeting the price of the labor market at large.  If you've got the only jobs in a small town, without minimum wage, you get to take advantage of people who have no mobility. With perfect mobility, the workers can simply pick up and move to a place that's paying the market wage.  But we don't have perfect mobility, we have in many cases captive labor markets.  Less so today than in the years before anyone ever considered the notion of a minimum wage.  But, still, it's an issue, although not a large one.  

Another assumption is near perfect information.  The assumption that an individual will "magically" figure out what the market is paying for the labor of which they are capable.  That doesn't happen either, although I can't decide if it's because may people lie about how much they make, or because everyone knows what the minimum wage is. Or, is it that people hate talking about it. Still - without that minimum, how would an unskilled person know how much was fair?  There's the assumption that if you accept the deal then you think it's fair - which is also not completely accurate. If you need to eat, and this is the only job in town, then you either take it or starve - unless you and everyone else happens to know that you can walk to the next town and do better.   If you don't know that, then you have a problem.   

There are a lot of assumptions.  The unskilled labor market may fit a few of them; and can probably deal with a few more, but certainly not all of them. Even with the help of the internet and it’s not quite ubiquitous ubiquity and its perfectly imperfect information.  

So, a minimum wage solves some issues avoided by a number of free market assumptions. It does this by establishing the labor market price via regulation - no it's not the most efficient method in a perfect world but we don't live in a perfect world.   But, if you do the work to figure out what the labor market can bear - the going rates for labor and you set the minimum wage to that amount (And for God's sake, not at the federal level) give or take a little bit, then it has minimal effect on the efficient allocation of resources.   Hardly ideal, but in a world that his far from ideal, it's maybe the most compassionate way to solve the problem. 

Where things go wrong is when Politicians get involved and "Decide" what the market price should be.  They're not doing the research to determine what it should be, they're just Feeling It -or more likely feeling what it will do for the re-election campaign.    That's when we get stupid ideas like $15 an hour in places that can't support it.   Maybe San Francisco can support it (although anecdotal information indicates that it can’t) Settle really can't - $12 maybe... Perhaps Manhattan can - we'll see. Can Fresno?  Or Bakersfield?   Or Danube, NY with its population of 1039, and a median household income of $31,815?   I'm betting - NO.  

Then there is the question of weather a minimum wage job is supposed to be a "Living Wage".  I would argue that it's not.   If it is, then there are NO entry level jobs for the completely unskilled and inexperienced - To support a "living minimum wage" we raise prices on everything - a lot - and all of a sudden your "Living Wage" isn't - again.  It's complicated - seriously complicated; people hate complicated - but it's what we've got and simple solutions are often worse than doing nothing (not always but often).  

So, I don't really have a problem with a minimum wage that is a reasonable attempt at nailing the fair market value of unskilled labor - it's more than a high-school kid at his first ever job might be worth, but not enough for a person to feed a family - and yeah you might need roommates to make it livable.  Therein lies the incentive to move beyond the minimum wage - to move up, to get out of poverty.   We can probably legislate everyone out of poverty - but in the process we'll legislate a larger number of people into "damn near" poverty.    How will that help? 

I don't like blaming everything on Capitalism, that's too easy.  I also don't like the typical Capitalist response of a Free Market assures Fairness - it doesn't - and it's too easy.   More government is pretty much the WRONG answer to any question - it just replaces Capitalism with Cronyism and that is MUCH worse.   

So is it Fair? No. Why?  Fair is a stupid useless word that's why. There is no "Fair".  Capitalists - if you want less government - be as compassionate as you can afford to be.  And workers - unless you're looking forward to a life of a dollar over the poverty line - stop asking the government to solve all your problems. 

And if all of the #NEVERWHOEVER people stick to their guns and don't vote for that Asshat (which ever one that might be) then we'll get someone who will push for and get a Federal $15 minimum wage - then we're screwed, well and truly screwed.

Thursday, April 21, 2016

If you think Science is Broken now....

This is a scary fascinating aricle on the problems with science as we do it today.

You might not notice that he's just ripped all the defenses used by The Science is Settled™ people.  The same people who have now decided that those of us who are actually skeptical should be in prison, or the nearest Gulag for re-education.

(On a side note - I'm beginning to wonder if George Orwell did us any favors by writing his dire warning of things to come - 1984)

I might be wrong - it seems that more people use it as a Lifestyle Guide than as the warning he'd intended. 

Get out. Get out now!

California is now exploring ways to steal another 3-5% of your money. 

Why?  Well because you're too stupid to manage for yourself, and the Social Security System funds are out of their reach.  So you need to give money to the state to manage for you. This would be in addition to the Social Security Ponzi scheme, which doesn't actually work in your favor. This is the same state that has a massively underfunded state pension system by the way.

No - Really.  Why? 
Their bankrupt public sector pensions, woefully underfunded due to the need to buy votes.  Access to private sector funds would help pay that off - how they're going to pay off the private sector once they've stolen the funds?   Well, they'll just get the tax payers to bail them out.   Yep, you'll get put put in 3-5% and later you'll get to pay more taxes to pay for that money they took from you earlier and gave to state employees.

So if you think opting out of this - which employees can do (at the moment) but employer can't, get over it.  They're going to take your money one way or another.

Do yourself a favor - if your a conservative get out, get out while you can still afford it.   If, on the other hand, your a democrat or progressive - please stay there.  I'm not sure we can stand another wave of the California Liberal Plague.

Wednesday, April 13, 2016

Totalitarian Science

More calls for the punishment or imprisonment of people who disagree.  From the Providence Journal - Michael E. Kraft puts his bid in for the Stalin's Hero of the People award for demanding punishment for those who WrongThink about Climate Science.

Thought Police | a12iggymom's Blog
The Narrative is strong with this one. 

The sad lack of science is the real problem. The problems with the "data" are almost too many to enumerate.  For example, I can make a case for both Global Warming and Global Cooling very easily by simply picking my starting point - which is invariably arbitrary.   Ground measurement stations suffer from urban island heat distortions in many cases. Normalization of disparate sources is highly prone to error - Especially the ideological kind - where corrections always lean in the direction of supporting the theory.

We don't have a good method of studying warming of the ocean, which has a much higher heat capacity than the dry surface.   Greenland ice is melting, quite possibly because of local geothermal activity, since records indicate that the polar ice mass is actually increasing

The "Theory" has two parts - greenhouse gas effect on temperature (fairly wide consensus) and the 3-5x positive feedback loop in the environment (which as near as I can is a primarily caused by the ubiquitous element Becauseium

If there can be a consensus in science -it should be that we haven't actually done any real science, and maybe we should.