Sunday Links – hours worked, austerity & wealth, groupishness, high school fiction, backscratching by survey
I don’t think minimum wage hikes are going to help here. A tale of two work-weeks:
In sum, federal fiscal policy decisions in recent years added enormously to deficits and have produced the highest levels of spending, deficits, and debt relative to GDP since the aftermath of World War II. I leave it to others to determine whether this can reasonably be termed “austerity.”
In reality, living within your means (and living well, within your means), should feel a lot more successful than it does, but unfortunately we’re creatures of comparisons.
As we wrote about in a recent blog post, happiness is not related to a set level of spending, but rather positive changes upward every year.
This is long, but really interesting. A scientific approach to finding consensus about climate. The “trouble” is the policymakers and advocates haven’t been allowed as much influence. Consensus is difficult enough.
Human beings evolved in small bands. Group identity – and group identity’s tendency to corrupt our sense of justice - is in our DNA. Once you learn this harsh truth, though, you can, should, and must compensate for your immoral urges. Review your judgments of out-group members for draconian harshness. Review your judgments of in-group members – yourself included – for maudlin absolution. You won’t make a lot of friends, but you will be a better person.
To hell with Gatsby’s green light! Maybe the classroom is not the best setting for children to have profound literary experiences. Give the kids something they can relate to, immerse themselves in, and even copy!
Hold up. Economists answering this question are supposed to ‘take into account’ ALL of the economic consequences? including ‘any’ ‘likely future effects’? Over the timescale of [now to infinity)?
What discount rate are they meant to use? What utility metric? It doesn’t say so I guess they just substitute Their Favorite. But hey, here’s a possible utility-metric that probably coincides at least some with the metric economists (or anyone else for that matter) is implicitly going to use when answering Hopelessly Vague Questions:
“Policies that I like get scored a utility of One Zillion. Policies I don’t like get scored a Zero Zillion.”
Gary Burtless brings us changes in real after-tax income for various quantiles, since 1979 and 2000. Unsurprisingly, the incomes of the wealthy have a much higher beta to the economy than the poor. Yet people keep presenting that as a surprise. But Burtless is also working with a slightly different, and more relevant definition of income – real, after-tax.
These are after-tax figures. Burtless also points out that after-transfer figures reveal the degree to which tax relief and government programs insulated lower quantiles from the recession:
The things that have become terribly expensive in the last 5 decades are the things we’ve been subsidizing: healthcare, education and real estate. Healthcare is directly subsidized through government programs, and the degree to which that makes a difference is clear here. Education transfers are outside this analysis, but all colleges are running a progressive pricing system. Redistribution mechanisms have grown dramatically in the US, but they have become far more opaque than direct government transfers.
Saturday Links: global poverty, inequality, happiness, identities, unemployment benefits, assortative mating
Poverty and global inequality are falling. (and perhaps faster than traditional studies indicate) I’ve made this point a few times. The best summary was on Vox EU. In an article called Parametric estimations of the world distribution of income.
World poverty is falling. Between 1970 and 2006, the global poverty rate has been cut by nearly three quarters. The percentage of the world population living on less than $1 a day (in PPP-adjusted 2000 dollars) went from 26.8% in 1970 to 5.4% in 2006 (Figure 1).
Figure 1. World poverty rates
Although world population has increased by about 80% over this time (World Bank 2009), the number of people below the $1 a day poverty line has shrunk by nearly 64%, from 967 million in 1970 to 350 million in 2006. In the past 36 years, there has never been a moment with more than 1 billion people in poverty, and barring a catastrophe, there will never be such a moment in the future history of the world.
Figure 2. World distribution of income: 1970 and 2006
- ….and poverty is what we should focus on, says Krugman.
- Inferring from identities
- Videos on downsizing the government one department at a time!
- Minimum Wage and labor force participation.
- No,no, the CBO report is actually *good* news!! It’s whatever supports your priors about the ACA I suppose. Plus a more reasoned take from Tyler Cowen and one from Ross Douthat.
- is happiness a choice? An obligation?
- What is North Carolina telling us about unemployment benefits? These suggest a higher level of work discouragement than I would have expected.
- Mobility, 1996-2005.
Bottom Line: The dynamism of the US economy is generally under-appreciated, and the significant income mobility documented above receives almost no attention from those complaining about income inequality and stagnant household incomes. Contrary to prevailing public opinion that Americans get stuck at a given low-income level for decades or generations, the empirical evidence summarized above tells us that there is significant movement up and down the economic ladder over even very short periods of time, like one decade.
- Reject Telescopic Morality
The people who devote themselves to these causes are not heroes. I’m sorry, but they are not. The crusader on behalf of the greater good who fights their hardest on behalf of policies whose outcomes they cannot hope to actually measure is nothing compared to the everyday citizen who does not hesitate to help pick up the pieces after a disaster. Hell, the activist-crusader is nothing compared to the neighbor who helps clear up the snow after a blizzard.
The modern moralist wants to look down upon mankind from above to determine what moral codes are valid for shaping our choices. Yet the true moralist is not above their community, but of it.
- End Harvard and end inequality!
The “typical” married couples today consist of highly educated people marrying highly educated people and lowly educated people (at lower rates) marry people from their same educational and income class. This perpetuates and deepens inequality. Of course, where does most of the high-talent, high-income, high-class sorting happen? At the elite colleges. Ban them and then you fix that “problem.” Ah. Easy peasy lemon squeasy.
Other reasons to ban Harvard on inequality grounds should be obvious. If you take the view that education is a way to enhance productivity, and you understand that those folks who are already more productive and more privileged are more likely and more prepared for Harvard, then by banning Harvard you would reduce the already large advantage the already productive people have.
- The demise of the Great Gatsby Curve
- We think inequality is worse than it is.
- Inequality and assortative mating. First in the Atlantic, then the FT:
The sociologist Christine Schwartz showed in 2010 that the incomes of husbands and wives in the US are far more closely correlated than they were in the 1960s, and that this explained about one-third of the increase in income inequality between married couples. John Ermisch and colleagues have shown other consequences: in both the UK and Germany, assortative mating substantially explains low social mobility because the children of prosperous parents marry each other.
We should not place too much emphasis on all this. Assortative mating explains only part of the rise of inequality, and perhaps very little at the top of the income scale. The usual remedies for inequality – unionisation, redistributive taxes, minimum wages – still have the same advantages and limitations as ever, even if they need to reflect the reality of the two-income household. It’s a reminder that the most welcome social trends can have unwelcome side-effects.
Speaking of assortative mating: Yuck, just yuck.
- More on the progressivity of the Tax system from AEI and the CBO, incorporating tax shares and income shares
- Bad news is good news. Killing jobs, discouraging work and ACA
- The demise of the Great Gatsby curve. The inequality debate is still plagued by tortured data. Winship et. al.
- The volatility of income for the 1%, Justin Lahart
- Solow and Mankiw debate inequality
- Caplan on “how rival is your marriage“. Divide income by 1.28
- “Outrage and coercion are not about solutions. They are about identifying outsiders and activities that we exempt from the protection of our principles. “
- Crony Capitalism: life insurance and the estate tax
- In 2012, the top quintile of the income distribution received 52.5 percent of income and paid 68.3 percent of federal taxes.
Source: Tax Policy Center Table T12-0200.
This series includes payroll and other taxes that weren’t included in my analysis. It would be nice to get a time series on this as well.
I’ve been spending a wonderful week diving and relaxing at Harbour Village, in Bonaire. I have just a few unorganized observations:
- This is a day destination for Royal Caribbean. The Horreure of the Seas was in here yesterday. The whole town of kralendijk transformed from sleepy nowheresville to enormous trinket shop for the day. We hid in the resort.
- I did not expect to see a reference to a Shofar here in the Caribbean. But there is an island accounting firm called Shofar accounting.
- The wind here is strong and constant. The bay between the main island and Klein Bonaire is one of the best kitesurfing spots I’ve seen.
- If you don’t dive, sail or kitesurf, there isn’t too much for you here (Except the climate). Harbour Village has the best beach apart from the uninhabited Klein Bonaire
- Harbour Village is luxurious, but dive-oriented. The hotel staff are a little diffident in general. The dive staff, on the other hand, are really friendly and helpful.
- As I type this there is a gorgeous orange and black bird on our balcony with a descending minor-third whistle call (like a doorbell). A Troupial (icterus icterus)
- My eighteen year-ols son is enjoying drinking legally
This isn’t my usual fare, but I get confused by the posturing condemnation of Zero Dark Thiry: Which is the harder-won morality, eschewing torture because it’s useless, or despite its usefulness?
The real issue is the human rights of the people who fall under the suspicion of Bigelow’s CIA interrogators, who include Maya (Jessica Chastain) and her mentor, Dan…..
I believe she supports all protests, but she undermines the protestors by showing the CIA heroes of her film using torture, getting results, and never, ever, being held to account for their gross violations of human rights and common decency. In “The Greatest Manhunt in History (ZD30),” anything goes; the end justifies the means, where the means include cruel, inhuman and degrading treatment.
Naturally, the economics blogosphere is afire with talk of the minimum wage. One of the obvious arguments opponents make is “if a minimum wage hike is so great, why not raise it to $100/hr”? Rhymes with Cars and Girls describes the course of the discussion:
This argument is a variation of a This Policy Doesn’t Do What It Does argument. I might think that when the government puts a price floor on labor that has an effect – in the only conceivable possible direction for that effect to point – but I’m not allowed to ever say or think so without untangling this effect perfectly from every last variable with a definitive, complete ‘study’. Which is something that would be impossible for humans to do, hence, the minimum wage is permanently fine.
This know-nothing approach also allows the anti-anti-minimum-wage theorist to poo-poo arguments like Well then why not raise it to $90/hour? That’s ‘silly’, goes the logical, calm argument. It’s just silly! What is left unexplained is where the magical inflection-point occurs between $9 and $90. The anti-anti-minimum-wage theorist apparently knows there is such an inflection-point, and must indeed know where it is (or at least knows a lower-bound for it, so as to be able to know that $9 lies below it), but isn’t divulging anything further than that. Pity. But of course this I’m-not-telling-you-where-the-magical-inflection-point-lies issue plagues all This Policy Doesn’t Do What It Does discussions.
Keith Hennessey makes similar points. After a certain level, it becomes obvious that raising the minimum wage would act as a horrific employment-killing price control. Defenders are making a special pleading that smaller adjustments can interact with other economic feedback forces to keep unemployment from growing (as Card and Krueger observed in NJ and PA fast food establishments) or even decrease it (see Menzie Chinn and others below).
This all reminds me of the Laffer curve. At confiscatory tax levels the downward slope of the Laffer Curve (higher rate–>lower revenues) is trivially true, even as at is undeniably upward-sloping at very low levels. Ideologues will tie themselves in knots trying to deny or confirm the truth of Laffer’s insight at any tax level for fear it might be giving hard-won ideological ground at current tax rates.
Just as there is an “optimum” tax rate under Laffer (presuming you believe that maximizing government revenue is a desirable objective, which I don’t), there is, theoretically a ‘clearing wage’ in an economy. Raising the minimum wage to the unskilled clearing wage will do little damage to unemployment. As Menzie Chinn shows, there may be a level above the clearing wage where the income effects will overcome the job reduction effects, raise consumption and thereby have a positive impact on hiring. Others have proposed that minimum wage hikes act as some sort of productivity stimulus, prompting employers to adopt better employment policies and workers to work harder. This strikes me as ridiculous. At any rate, raising the minimum well above the clearing wage (or, if you will, the Menzie Chinn-adjusted and/or productivity-enhanced Clearing Wage) will undoubtedly put people out of work. This all raises two broad questions, one philosophical and one more realistic.
a)On Principle: is it appropriate at all to set the terms of private contracts? even if the minimum wage is below the Clearing Wage, what does that accomplish? ( I did read some arguments suggesting that it increased worker dignity, but I came away wondering how that was quantified). Obviously, the government interference in private contracts train has left the station, but that doesn’t make it right.
b) Isn’t the Clearing Wage different in different parts of the country? Can the federal government even know the clearing wage? Don’t they take a great risk of putting people out of work?
Anyway, here’s a review of some other posts.
- Steven Landsburg does a nice survey of the arguments, but states that the burden of raising the minimum wage falls unfairly on certain types of businesses.
- Naturally, Krugman’s first entry is just to say that the opponents of the minimum wage don’t care about poor people, Q.E.D., although he was quite clear about the labor effect back in 1998. His second entry (linked and critiqued by Landsburg above) gives a skewed recitation of the literature, thus depending on the bias or ignorance of his readership.
- Megan McArdle gives a good review of the literature and its limitations
- Tyler Cowen politely (as is his wont) points out some major discrepancies in how pundits talk about setting a minimum labor price depending on who sets it and the context.
- Bob Murphy describes surveys of economist showing great caution about raising the minimum wage, certainly by large amounts. There is substantial support for eliminating it altogether. Then he gets all empirical
- Mankiw is brief, but has covered the topic before.
- David Henderson notes that illegal immigrant work is affected by the minimum wage and discusses the monopsony case.
- Menzie Chinn does the math and finds employment can go up if the effect on income/consumption is high enough
- Mark Perry reminds us that teenage unemployment increased after the last hike
- Mark Thoma says an increase in the EITC would be better theoretically, but the minimum wage requires far less government bureaucracy
- Free Exchange reviews the arguments
The intuitive logic is encapsulated nicely in this cartoon:
Glenn makes a reasonable point about the pseudo-proposal for universal pre-k:
“There’s another way of looking at this: as an overt sop to the teachers’ unions. What a great way to expand the ranks of the credentialed, licensed, and dues-paying members. And don’t forget tenure.”
Good point. It wouldn’t just expand the teacher ranks, theoretically it would bring in lots of younger dues-paying members. Growing the paying-in cohort would extend the life of the ponzi scheme of state/teacher pension retirement plans for many more years.
Of course the right immigration policy would do this for social security as well. I say let in anyone under 30 who can get a job on the books. Wouldn’t hurt housing either.
Chris Dillow suggests a rational paradox in attitudes towards the inheritance tax:
who are the sort of people who expect to get big inheritances and so are deterred from working? There are two (extreme) possibilities:
1. The rich have high skills, and such skills are passed onto their children by genes or environment. If this is the case, the economy will lose a lot if the children of the rich are disincentivized from working. We should therefore favour high inheritance taxes as a way of reincentivizing them to work.
2. The children of the rich are airheads, wastrels and no-marks, so it’s little loss to the economy if they are out of the labour market. If this is so, the case for high inheritance taxes to motivate them to work is weak.
Which generates my paradox. The sort of people who instinctively oppose inheritance taxes tend, I suspect, to believe the rich pass on skills to their children. But if you believe this, you should favour higher inheritance taxes on economic grounds. On the other hand, those – like me – who viscerally support inheritance taxes tend to think the children of the rich are abominations who can safely be kept out of the labour market. To us, the country would be a better place if George Osborne had been disincentivized from working. But if you believe this, you shouldn’t want an inheritance tax that forces the little bastards into work.
While this is true as far as it goes, there are many other dimensions through which people estimate the (dis)utility of inheritance taxes:
- Allocation of resources: does inherited wealth get cycled productively into the economy? Some think it is a huge waste if money sits in trust dribbling out to support the allegedly idle lifestyle of the heirs. But if the children of the rich are “abominations”, surely they will be parted with the money eventually. It will be spent, and enrich the rest of us based on what we can sell to them (or sell to those who sell to them). After all, economists like Paul Krugman complain that the wealthy’s marginal tendency to consume is too low. An abomination’s big inheritance is a stimulus program! Shirtsleeves to shirtsleeves.
- Fairness/justice. Some simply can’t abide that the children of the wealthy should enjoy such a windfall simply by dint of being in the lucky sperm club.
- Redistribution: Some just can’t stand the idea of all those resources not being available to government or given to the disadvantaged
- Property/liberty: Some believe estates are after-tax property and can’t be taken on a property rights basis, regardless of what heirs might do with the proceeds.
Dillow thinks too much like an economist. Not everyone views taxation through an incentive lens, although most of our polity could stand to do more of that.