Krugman decided to write about the minimum wage today.
As one would expect, he is all for raising it. He provides non-controversial assertions that:
- It’s low by historical standards.
- Foreign competition is not a relevant factor.
- He likes the E.I.T.C. and it compliments the minimum wage nicely.
- The public favors it.
- A higher minimum wage raises earnings.
So far so good, but unfortunately as an economist it’s hard for him not to escape talking about the economics of it all. That’s where he gets a little lazy. He begins by providing some decent rhetorical cover:
Doesn’t that violate the law of supply and demand? Won’t the market gods smite us with their invisible hand? The answer is that we have a lot of evidence on what happens when you raise the minimum wage. And the evidence is overwhelmingly positive: hiking the minimum wage has little or no adverse effect on employment, while significantly increasing workers’ earnings.
“A lot of evidence?” Okay! Nice. Finally. Krugman the Nobel winning economist will no doubt provide us with more than that ONE STUDY that all minimum wage advocates throw out incessantly. There have to be scores of them, right?
While there are indeed more wage studies that back up the notion that traditional supply and demand curves don’t exist in the labor market, he provides none. For those who are after data and peer-reviewed research, He links us to a page that cites two (2) studies as evidence. One is (you guessed it) that tired old Card and Krueger research. The other takes us to a 404 page.
What does Krugman’s “a lot of evidence” page link to that’s not a 404? How about a meta-analysis of scores of research papers that concludes: Based on their comprehensive reading of the evidence, Neumark and Wascher argue that minimum wages do not achieve the main goals set forth by their supporters. They reduce employment opportunities for less-skilled workers and tend to reduce their earnings; they are not an effective means of reducing poverty; and they appear to have adverse longer-term effects on wages and earnings, in part by reducing the acquisition of human capital.
In the field of scientific criticism, Krugman and his acolytes are invoking something called the Fallacy of The Crucial Experiment. This is where one claims an idea has been proven by a single pivotal discovery.
Following the theme of The Crucial Experiment, two can play. For some time, I’ve wanted to challenge the folks who lean so heavily/exclusively on Card and Krueger to a little game. For every study you invoke that apparently invalidates the law of supply and demand (where the minimum wage has no negative effect on employment), I’ll match it. Below is my counter to Card Krueger, plus an extra. Now I’m one ahead of Krugman. Happy to keep playing in the comments.
“We confirm our earlier findings that business assistance living wage laws boost wages of the lowest-wage workers, at the cost of some disemployment…” Here.
These disemployment effects in turn imply `minimum wage’ elasticities of about -0.4 (ranging from -0.3 to -0.5). Here.
A little less than a month ago, my pal Steve engaged in a little triumphalism via posts documenting the decline in Republican favorability:
It’s Working: Pubs’ Polls Plummeting
Congressional Republicans’ Approval Ratings in Freefall. Dems Hold Steady
I’d be remiss to not update him with the latest headiness and charts, and adapt one of his closing lines:
Republicans Democrats enough rope and they’ll hang themselves? It seems to be working.”
Business Insider: The Disastrous Launch Of Obamacare Has Caused A Remarkable Collapse In Democratic Poll Numbers
CNN: CNN/ORC poll: Democrats lose 2014 edge following Obamacare uproar
Time: Poll: Congressional Dems in Trouble
Business Week: Obamacare’s Support From Democrats Slips in New Poll
From Real Clear Politics:
I’ve been meaning to write up a response to the oft-repeated claim that Medicare is much more efficient than private insurance but then the Wall Street Journal hit the high points for me.
Usually that canard is put out when I advocate for markets in the medical sphere — and I used to fall for it. Didn’t take me long to realize that heavily regulated collectivization via organizations that spend big lobbying bucks is not what I am promoting, and my debate opponent is slyly trying to change the subject on me.
Also, it’s pretty easy to diffuse the issue by bringing up that the IRS staff and overhead (who collects the money) is not in that accounting, and neither is the 25% deadweight loss that the CBO allocates to the taxation that funds it. See: “In Circular A-94, OMB has estimated the “excess burden of taxation” at 25 percent of revenues.”
This from the WSJ (Emphasis mine):
Many on the left tell us the solution is Medicare-for-All, because Medicare is so much more efficient than private insurers, spending a mere 2% on overhead compared to 20% or higher for private plans. Extraordinary claims require extraordinary proof, and the idea that a bureaucratic agency with no obvious incentive for efficiency is inexplicably efficient certainly qualifies. Yet many in the media are prepared to pass along this claim as a found item.
This requires overlooking a lot. Even if overhead-to-medical spending were the right measure, much of Medicare’s overhead is hidden on the books of other agencies, including Health and Human Services, which provides management, and the IRS, which handles revenues.
Then there’s the fact that Medicare keeps overhead low by under-spending on fraud prevention. Why? Because health-care providers are a powerful force in every congressional district and find Medicare audits annoying. The government’s own accountants suggest tens of billions of dollars are being left on the table by Medicare failing to match private spending on policing caregivers.
But these are the tiddly objections. Ask yourself: If the overhead ratio is the right measure of insurer efficiency, which is the least efficient insurer? Answer: The one with the healthiest customers, who consume little or nothing in the way of medical services. An insurer with perfectly healthy customers would spend 100% of revenues on overhead.
Medicare serves the oldest and sickest Americans, and necessarily shovels out a high percentage of its revenues on medical care. But this tells you nothing about whether it’s getting value for money. And most of the real evidence suggests not—up to a third of Medicare spending is useless and merely exposes beneficiaries to unnecessary medical risk.
This is a guesstimate, of course, but one with many fathers. A study last year by Rand Corp. and former Medicare chief Donald Berwick found between $166 billion and $304 billion of unnecessary spending in $900 billion in annual Medicare and Medicaid spending. A Dartmouth study in 2003 found that high-utilization Medicare regions spend 60% more per patient than low-utilization regions, with no difference in outcomes. A 2005 Harvard study found that end-of-life spending on comparable Medicare patients varied by a factor of five among California hospitals.
Look, if Medicare had cracked the secret of administering large sectors of the economy more efficiently than the private sector can, we’d be wise to hand the entire economy over to Medicare. We don’t hear too many making this argument. Most understand that our real problem is a systematic insensitivity to the price and value of medical services that afflicts government and private plans alike.
Serious Economists universally agree that some goods are better allocated via markets and others are better managed by state distribution. The distinction generally has to do with the nature of the good being considered. These attributes include things like excludability and rivalry. Public goods are generally regarded as items where state allocation is best suited.
Folk Economists also make a distinction between markets vs the state — and which goods are best for each, but the prejudices of the man-in-the-street typically lean toward a more emotional choice based on how “important” a good is. As the Economist said, “The traditional argument has been that health care is too important to leave to the market.”
For the economically uninformed, the fairness of an allocation based on something other than price, (apparently even if it reduces amount supplied) can have strong moral appeal. And in those cases where scarcity is recognized, distribution guided by benevolent experts can be extremely appealing.
The dedicated levelers can be frustrated by people who argue that they don’t like the idea that the same entity that runs the DMV, the post office, and healthcare.gov will be deciding what medical procedures are best for them.
State enthusiasts can employ a variety of clever techniques to make the case that government allocations rule. One approach is to assert that since you personally really like the reports Medicare offers, that Medicare is superior at reporting (Mind Projection Fallacy.) That could be taken a step further by claiming that since the reports are better, this one minor aspect is an indication that Medicare at-large is better at allocating services (Hasty Generalization Fallacy.) Toss in the Straw Man Fallacy for good measure and say your opponents claim that you “can’t trust government to do anything right” and those with market-leanings can generally be put at bay.
At least until they look at the data and focus on the outcomes of the essential Medicare deliverable — care.
Check out this new report just published in healthaffairs.org. In The Quality Of Care Delivered To Patients Within The Same Hospital Varies By Insurance Type, authors Spencer et al., find that “Medicare patients appeared particularly vulnerable to receiving inferior care.” and “We found that privately insured patients had lower risk-adjusted mortality rates than did Medicare enrollees for twelve out of fifteen quality measures examined.”
Your risk of death may go up, but hey, at least your survivors will find the reporting “clear, well-laid out, and fully informative.”
The RAND Health Insurance Experiment is referenced in the academic literature as a “gold standard” study, and the main conclusion it reached aligned perfectly with what Econ 101 teaches us — when people have to pay for stuff, they buy (significantly) less of it. It also confirmed that “outcomes” were not worse for those poor devils that are forced to participate fully in a market system (meaning having to pay for things.)
This conclusion was reached again when the results of a two-year Oregon Health Study were announced. Free health care did not result in clear improvements in physical health for the participants.
Another Econ 101 principle shown to be highly applicable in other markets is that when things are free, demand increases. And when demand increases, prices tend to go up. The paradox is that while places like France and the U.K. are regarded as highly socialized in the delivery of health care, their costs are well controlled compared to the “free market” of the U.S.
The question is, how do you define a market as “free” vs socialized? Many would say that you’d be hard pressed to come up with a better metric than the percentage of health costs paid directly to health care providers out of patient’s own pockets.
Luckily The World Bank has calculated that for us. I found the numbers surprising — that is until I realized they aligned perfectly with what Econ 101 tells us.
We all know that many in the U.K. bypass the NHS (with good reason) to go private with their care. I just did not realize the size of those numbers.
According to World Bank, over 50 percent of costs are paid out of pocket in the U.K. France? 32 percent. Canada? 49 percent. The free market “wild west” that is the U.S.A.? A measly 21 percent. That’s right. Thanks to the collectivization we call insurance, the vast majority of services are delivered to people who don’t care about the bill.
OK, so I’ve tossed out a few examples here, but what does the data tell us? Let’s compare the two data sets linked above. Prices vs. out of pocket. Here is the pattern:
That’s a correlation coefficient of .51. Compare to the correlation of I.Q. to income, which is estimated to be .40 to .50.
I’d be interested to see other data sets that have been correlated with health care costs. I think one would be hard pressed to find a relevant set with a higher alignment.
There’s been a lot of negativity of late surrounding the Foreign Account Tax Compliance Act. The core issue according to The Hill is:
“Now, the U.S. Treasury expects banks in every country worldwide to report funds held by “U.S. persons” (not all are U.S. citizens) beginning in 2015. If they do not, foreign financial institutions (FFIs) face huge financial penalties and sanctions.”
As Bastiat might have forecast, It’s been reported that some institutions overseas are refusing to accept U.S. clients and that has inspired a record number of Americans to renounce their citizenship.
With this in mind, I steered my browser over to Topsy.com to see what the tweets reflected. My main interest was Topsy’s sentiment metric. Comparing the term “colonoscopy” (42% negativity) to “FATCA” (53% negativity) indicates that FATCA is 26% less liked. Sadly, “Obamacare” comes in dead last with a negativity score of 78%.
More information available at wikipedia. The legislative history is shown below.
Almost as if it was choreographed, it was only minutes after reading the passage below from the Economist that I discovered that the respected blog The Oil Drum was to be no more.
“Scratch the surface of the planet and the chances that hydrocarbons will spew forth appear to grow by the day.”
This reality decimates even the now highly diluted position now taken by ardent peak oilers. After digging through the entrails of The Oil Drum, we can see what began as a call to prepare/avoid the painful hardships we will experience from “a global collapse in production.” Has evolved into a concern regarding high prices (from new demand,) fear of climate change, and that Iraq “perceives that too much oil in the market may well be destabilizing.”
A Question of Timing:
While no rational person would claim the supply of fossil fuels is infinite, it’s equally silly to deny that it’s only a matter of time before life on earth is decimated by an asteroid strike or the collapse of the sun. All of the above are certain dire outcomes, yet none merit daily posts by a cadre of PhDs. The reason? Mitigation is unlikely/impossible and none of us or anyone we or our children will ever know will be affected.
Why Did they Quit Now?
The answer can be found in any Econ 101 textbook. The fruits of market innovation in response to high prices are being realized, and supplies are surging. The benefits of horizontal drilling and fracking were first seen in the natural gas market:
Now that the technology is rapidly expanding into the arena of oil production, it’s clear that the chart below from the Economist reflects only the beginning of what will be a long-term and significant deviation from the predictions of the “peak oilers.”
To use a couple of pop-culture metaphors, The Oil Drum served it’s position well as the Lisa Simpson of blogs, but ultimately became a blog about nothing.
The recent collapse of the carbon trading market in the E.U. has prompted me to put in writing something I’ve been convinced of for some time — that skeptics of man-made catastrophic global warming should just keep quiet. My opinion is that they need to spend less time talking about the economics of carbon taxes and more time studying game theory.
Here’s what I’d tell a vocal denier:
- You’re not going to convince anyone.
- Live in a highly urbanized area? You’ll lose half of your friends.
- Are your friends mostly under 50? (they didn’t live through the strikingly similar — and thoroughly discredited — “limits to growth” movement of the 70′s) You’ll lose half of those too.
- This issue likely won’t be resolved in your lifetime, so you can’t gloat if you turn out to be right.
- Even if you are vindicated in life, it will be like the sages of the cold war — no one will care, and those who were dead wrong will just move the goalposts and claim victory.
- If you’re wrong, you stand the chance of going down in history as the devil.
- Expensive carbon taxes will never happen. Religious Gaia types will be the first to defect when it hits their pocketbooks.
- Expensive carbon taxes will never happen. Anyone who has seriously studied cartels and economic coalition knows aligned carbon-limiting agreements and enforcement among scores of countries is impossible. It just takes one country to cheat or refuse to stifle their economies by participating and it all collapses.
On that last point, Bryan Walsh of Time said it best: “if carbon trading can’t make it in Europe, it can’t make it anywhere.” He’s right. It can’t make it anywhere.
Am I being too jaded about how pocketbooks override ideals? Consider 2009 — when the Republican deniers were held in check by congress and the president. No fewer than 5 (1, 2, 3, 4, 5) carbon tax bills were proposed by Democrats concerned about co2. Despite a fillibuster-proof majority, none made it to the floor.
Me, what do I expouse? I am adopting the line of the Economist. Despite the fact that “temperatures have not really risen over the past ten years.” (15 really…) We need to take “wise precautions.” I wholeheartedly advocate that our politicians spend as much time and effort as possible researching, discussing, and drafting bills that can help prevent catastrophe. They need to divert their attention away from meeting with lobbyists and instead study the climate.
The blogosphere has been roiling of late over a report titled What Does Bowdoin Teach? The 360-page document profiled in the WSJ makes the case that the Brunswick college has abandoned its historical “commitment to Western Civilization” and instead has focused on “reshaping America in the image of progressive politics.”
In my mind, a school that accepts only one in six applicants and charges 44 grand a year can’t be faulted for having a losing formula. If the right-wing embraces market acceptance as the ultimate test, there is no compelling reason for them to ask Bowdoin to revert to a different formula.
Regardless, high demand does not imply a wise investment.
I’ve been noodling around with the site College Risk Report — an online calculator designed to assist those evaluating the net long-term value of various colleges. Naturally, I could not resist seeing how Bowdoin stacks up. The results are not pretty. According to CRR, a liberal arts major would net a better return by standing pat with their high school diploma, and would net about 250K more by attending a local community college instead. See below.
Does political alignment appear to affect net return? What happens if we plug in a school that’s ranked number one for traditional conservative values? Using out of state tuition pricing, here is how Texas A&M stacks up:
And with that bargain in-state pricing:
While it’s probably tempting for some to view this as a win for the conservative mindset, note that Texas A&M dominates here largely due to the fact that its a less expensive school.
My pal Steve reminded me of his thought-provoking post he made a while back asking the question “Why Hasn’t Europe Caught Up?”
Gallup may have a partial answer in this report issued in 2007.
The results echo what the class concluded in an Economics course I took years ago. The overarching topic was an evaluation of the root cause(s) of America’s economic success. Natural resources featured prominently, as did solid infrastructure (transcontinental railroad, etc.) But those factors don’t explain very well why Europe lags today.
The conclusion we reached after 10 weeks (with the helpful hand of the professor) was that the key to our success was that as a nation of immigrants, our population had an unusually high proportion of risk-takers. The thinking was that those who would uproot from everything they knew and loved to forge out to new opportunities, were also more inclined to be entrepreneurial. This mindset endures apparently.
These from the Gallup report:
“When it comes to a choice between being employed or self-employed, Europeans still prefer the former, while across the Atlantic, the entrepreneurial urge still predominates. In fact, there has been a slight decrease in the gap between the EU25 and the United States, with 3% more Americans (up from 34% in 2004) now preferring to be employed. However, the percentage of Americans wanting to do their own thing (61%) is still higher than in any of the other 27 countries under review (see Chart 1 and the Annex Tables for answers to Q.1).”