Thursday, January 23, 2014

The tragedy of the corporations

In 1968, economist Garrett Hardin published an article in Science magazine titled “The Tragedy of the Commons”. Although the article has been criticized for its factuality, the concept itself — also known as “the tragedy of the fishers” — has been applied in other areas. Briefly stated: One business’ best practice, when replicated throughout an industry, may become a suicide pact. That is, each business may be acting independently and “rationally” as economists define rationality (that is, according to each business’ self-interest); yet taken as a whole they’re acting in a manner contrary to the best interests of the industry … and perhaps the national economy.

One good example is the buffalo-hide boom of the 1870s: The failure of the clothing industry to put a limit on demand through high prices practically insured that the great beasts would be hunted almost to extinction, with devastating effects on the Plains Indians who had built their lives and tribes around the buffaloes’ migrations. But none of this was the suits’ intent — they were simply trying to give the customers what they wanted, that’s all.

Economics is supposed to be an empirical discipline, concerned with how people do behave rather than how people ought to behave. Part of the problem with calling self-interested behavior rational is that self-sacrificial behavior is subtly, subconsciously apostrophized as irrational; any behavior becomes “moral” so long as you can make a business case for it. The boundary between is and ought is not only frequently crossed but was probably blurred to begin with. Moreover, it creates a false position in which economic laws become not just observed (or at least theoretical) relationships but something inviolable and self-enforcing as the laws of physics; invisible, indefinable “market forces” create an economic karma which punishes the unrighteous and creates order in the house.

Thursday, January 16, 2014

Dumb idea #6,258: Create jobs by paying poor people less

… [The] alternative to unbridled capitalism is not socialism but Catholicism.
Michael Coren, “Blessed are the poor

The main problem with most non-economists’ economic analyses is that they take one aspect of economic relations and then ride it into the ground. Case in point: “How Democrats Kill Jobs”, a piece in Defining Ideas by Richard A. Epstein.

Epstein is a libertarian looking to make a case against government intervention in the market via an increase in minimum wages. He begins by looking at the most recent jobs report:

The latest government labor report indicates that job growth has slowed once again. It is now at a three-year low, with only an estimated 74,000 new jobs added this past month. To be sure, the nominal unemployment rate dropped to 6.7 percent, but as experts on both the left and the right have noted, the only reason for this “improvement” is the decline of labor force participation, which is at the lowest level since 1978, with little prospect of any short-term improvement.

So far, so good. But it’s his second paragraph in which he sets out his theme:

One might think that these figures would be taken as evidence that a radical change in course is needed to boost labor market participation. The grounds for that revision rest on a straightforward application of the fundamental economic law of demand: As the cost of labor increases, the demand for labor will decrease [bold type mine.—ASL]. There are, of course, empirical disputes as to just how rapidly wage increases will reduce that demand for labor.

From this point on Epstein’s line of argument wanders off course. How will getting rid of the minimum wage and extended unemployment benefits boost labor force participation? Will businesses and buildings stop needing janitorial services if their contractors have to pay $11.10/hour rather than $7.25? Epstein is more concerned with slamming Democrats than with explaining himself.

Saturday, January 11, 2014

What is the problem with income inequality?

Click to view larger graphic.
Since Pope Francis promulgated Evangelii Gaudium, with its infamous passage on “‘trickle-down’ theories”, conservatives — especially conservative Catholics — have been rather touchy.

Most of them aren’t driven by their own personal greed. Many if not most aren’t even wealthy, but rather solidly part of the middle class. For the most part, they’re good, well-intentioned people … even the disciples of Ayn Rand. And most are well aware that capitalism rewards some ugly human traits even given positive legislation and effective regulation. They don’t defend the ugliness or the weaknesses; they simply hold that capitalism works better than do communism or socialism.

But while the increase of the “wealth gap” has been a source of some concern for a while now, from recent conservative reactions, you would never have guessed that anyone spoke of income inequality before Francis. “But what IS it exactly?” asks my friend Elise Hilton. “Does it mean that a teacher, a brain surgeon and a garbage collector should all earn the same wage? Does it mean the wealthy entrepreneur should simply give away her money, rather than investing it or leaving it to her heirs?”

These must be rhetorical questions. After all, with the exception of a handful of leftover Communists still dreaming in their academic refuges, liberals accept that different jobs will merit higher or lower wages. No one has a problem with entrepreneurs investing their income or leaving it to their kids; in fact, no one has a problem with people becoming or remaining rich.

It’s important to stress this because some writers, such as Pat Buchanan, dismiss the inequality issue as an attempt to ramp up class warfare based on envy of the wealthy. While this might be the case for some liberal politicians, the dismissal itself is an ad hominem; calling an opponent’s motives into question doesn’t disprove his argument or render it less credible.

Monday, January 6, 2014

Catholics can’t have “designated sinners”

Little Sister with a patient. (Source: Becket Fund.)
Barack Obama will not make the history books on the strength of his ability to compromise. At best, the Obama Administration’s “compromises” are the same demands made previously, spun differently to make it appear that concessions are being offered when in fact nothing is conceded.

So far, Obama & Co. have been able to get away with stiff-necking their agenda through Congress because they’ve had the backing of the majority of the mainstream media, who are more than happy to blame the opposition for failures to “compromise” (i.e., give in). Despite the ideological crystallization of the parties which has led to the near-disappearance of political moderates in Congress, there are a few Republicans who, as Theodore Roosevelt said of William McKinley, have “the backbone of a chocolate éclair”, and will sign off on fig-leaf “concessions” to end the confrontation and “save GOP face”.

However, such tactics don’t necessarily work when the opponent is a litigant party who isn’t elected to any office and thus can’t be scared off with the specter of defeat at the next polls. It’s amazing to see an Administration so driven by image politics risk that image by holding the HHS mandate line against the Little Sisters of the Poor, a company of Catholic nuns.

In a sense, the Administration’s tactics are determined by the wider context of their battle against the Catholic Church in America as the Last Bastion of Conservative Morality. However, the standard party ballyhoo about “the war on women” and “Church imposing its morality” fails to erase the image of a monstrous bureaucracy intent on beating down a bunch of ladies who take care of sick people. Nuns evoke the kind of sympathy that bishops don’t.

Wednesday, January 1, 2014

The recovery that isn’t

In December, the federal government released information that the gross domestic product was up 4.1% for the third quarter of 2013, and that 203,000 people had been employed, bringing the unemployment rate to 7.0%. Time to pop the champagne corks; it finally appears the recovery is taking hold, right?

Jobs lost, October 2006 – October 2013
Increase in real disposable income, 1979 – 2010.
(Graphic source: Washington Post.)
Somebody forgot to tell the rest of us. While the Bloomberg consumer confidence level is the highest it’s been since August, it’s still not where it was in November 2007. A recent Gallup survey showed that almost twice as many Americans believe the economy is “poor” as believe that it is “excellent” or “good”, and that over half believe it’s getting worse. Over 4 million of the 8.656 million jobs lost from October 2006 to October 2009 are still missing from the economy; many of those who lost jobs left the market and haven’t returned.[1] Congress is shutting off extended unemployment benefits even though the average length of unemployment is still 37.2 weeks, over twice as long as in September 2007 (16.3). ABC News tells us, “While more than 2 million new jobs were created in 2013, a large share of them were low-income retail and restaurant positions.”

If that weren’t enough of a buzz kill: Alan Greenspan reminds us that businesses still aren’t making large investments in fixed assets or long-term Treasury bonds. While consumer spending is up, income isn’t rising to match. In fact, Peter Thiel shows us that the real average income of bachelor’s degree recipients has dropped over the last ten years even as student-loan debt and college tuition increased; and Sen. Chuck Schumer (D-NY) enjoins us to “focus like a laser” on the light blue line of the graphic to your left, which shows that the middle 60% of incomes has not increased as much as even the bottom quintile.