It All Comes Back to the Minimum Wage Debate

I shared Jeffrey Tucker’s article about Hillary Clinton, and pulled out this quote:

Meanwhile, Hillary’s actual policies on women are a disaster waiting to happen. Consider her support for “equal pay for equal work.” What effect will this have on women in the workforce? It not only puts government in charge of micromanaging every aspect of payroll and personnel of every business in America. It also incentivizes managers to keep women in lower positions in a firm in order to comply with the wage mandates, and disincentivizes advancing women up the ladder by making the costs of ascending too high. The result will be the very “glass ceiling” that mainstream feminism abhors.

An intelligent friend, who shall remain nameless, replied:

I feel like this runs on the same logic that if you raise minimum wage to a livable wage, jobs will be destroyed and small business will crumble, when in fact the opposite has been shown to be true.

Now, this friend is not an economist. What I suspect is that the news sources he typically reads report heavily on the few studies that show positive employment effects of minimum wage increases, and ignore the rest of the literature.  This isn’t exclusively the territory of the left, I’m sure people who read only right-wing or libertarian news sources overestimate the disemployment effects in the other direction.

But look at the conclusion he drew! Since he got the false impression that raising the minimum wage has positive employment effects, he concluded that there is essentially no tradeoff in government artificially boosting any wage; in this case the wages of half (!) the population. But given the initial error, this extreme conclusion naturally follows. Continue reading It All Comes Back to the Minimum Wage Debate

Aladdin’s Biggest Anachronism isn’t Genie’s Jack Nicholson Impression…

…it’s Aladdin’s attitude towards wealth and poverty. That’s what struck me while re-watching this thoroughly enjoyable movie. After being called a “street rat,” Aladdin tells Abu, “Someday, Abu, things are gonna change.  We’ll be rich, live in a palace, and never have any problems at all.”

This is an extraordinary view for a peasant orphan in thirteenth century Arabia! It is a thoroughly modern view. Throughout most of history, if you were born into the lower classes, you lived in poverty. Your entire extended family lived in poverty. Everyone you knew, and all their ancestors stretching back as far as anyone could remember, lived in poverty. Imagining life without poverty would have been as fanciful as imagining life without gravity. Continue reading Aladdin’s Biggest Anachronism isn’t Genie’s Jack Nicholson Impression…

Afterthoughts: Civil Asset Forfeiture with Don Boudreaux

Afterthoughts LogoI just released the first Afterthoughts episode of Economics Detective Radio. It’s fifteen minutes of bonus content for those who support me through Patreon. In this episode, I discuss my recent conversation with Don Boudreaux. I touch on the following topics:

  • The media and its incentives
  • History and legal precedent
  • The British common law

To hear it, you have to become a patron through Patreon. That entails signing up to give a small donation (at least $1) for each full episode I release. I plan on releasing an Afterthoughts episode with each full interview I do on the main podcast.

The Prima Facie Case that Great Depression Policy was Really Really Bad

As a Canadian, it’s very strange hearing Americans talk about the Great Depression. The American public education system apparently has a monolithic view on the subject. Based purely on my interactions with people who have passed through that system, I imagine their kindergarten classes must be something like this:

TEACHER: Alright students, what’s 1 + 1?

STUDENTS: 2!

TEACHER: What’s 2 + 2?

STUDENTS: 4!

TEACHER: What do you call someone who doubts the efficacy of FDR’s policies in bringing an end to the Great Depression?

STUDENTS: Insane!

The Great Depression is a complex historical event, so the level of confidence I see from American laymen certainly makes it seem like they’ve been brainwashed from a young age. Maybe it’s just the sort of Americans who make internet comments.

If you believe that it is clearly and obviously true that (1) the New Deal ended the Great Depression or that (2) World War 2 ended the Great Depression, this article is for you. I’m not going to make a slam-dunk case against these notions; if you’re looking for one, you’ll need to read something far longer than a blog post. I recommend Robert Higgs or Bob Murphy. My goal here is to make the case that these ideas, far from being obvious, are actually very counter intuitive given the facts. Continue reading The Prima Facie Case that Great Depression Policy was Really Really Bad

Civil Asset Forfeiture with Don Boudreaux

Alan Greenspan was Not a Free Market Guy

Here’s a video I had made with the audio from my interview with Jimmy Morrison.

JIMMY: Ever since Alan Greenspan became the Federal Reserve Chairman in the mid-80s, he’s just been bailing out Wall Street every chance he can get: the S&L crisis, the Tequila crisis in Mexico in the early 90’s, and the dot com bubble. You know, whenever there’s a problem he just prints and prints and prints, and so over the course of twenty years, Wall Street realized this. They took the risk out of the situation because they could make money when things were good and then when things were bad, bailouts would be there.

GARRETT: Greenspan…had a reputation as a free-market guy. Some people got the wrong idea that Greenspan’s policies were somehow free market.

JIMMY: It’s funny, Greenspan wrote an article in favour of the gold standard in the 60s, and a lot of people point to that and talk about it, but when you look at somebody’s life, what matters is what their actual policies were and the things that they did. And the fact was that this is a guy that created bubble after bubble, and at the end he was creating a billion dollars a day just to keep everything going.

Experimental Economics, Norms, and Prosocial Behaviour with Erik Kimbrough

The Bubble Films with Jimmy Morrison

Was Murray Rothbard a Good Economist?

Someone on Quora was wondering whether Murray Rothbard was a good economist. I obliged with an answer:

Yes. Murray Rothbard was a prolific thinker whose contributions to economics were numerous, original, and significant.

His magnum opus, Man, Economy, and State, was the first complete treatise on economics in a half century. The book was originally meant to be a textbook version of Mises’ Human Action, but Rothbard built on Mises’ work to create a more complete body of thought. He contributed his own theory of production and supply, while critiquing Mises’ theory of monopoly as a static conception that did not fit with his generally dynamic view of the economy. Rothbard argued persuasively for a return to the original definition of a monopoly as a government grant of exclusive privilege.

His work in economic history is excellent. His book, The Panic of 1819: Reactions and Policies is the definitive work on the titular panic. America’s Great Depression applied Mises’ theory of the business cycle to the Great Depression, showing how the Fed under Benjamin Strong pumped up an inflationary bubble in the 1920’s, which led to the 1929 crash. He also demonstrated that Herbert Hoover was not a laissez faire President but a big-state interventionist, in opposition to what was commonly (and wrongly) believed at the time.

An Austrian Perspective on the History of Economic Thought, Rothbard’s two-volume work on the history of thought, is by far the most exhaustive history of economic thought up to 1870 (he tragically died before he could write a third volume covering the developments after 1870). While most histories of economic thought focus on a few key figures, maybe Smith, Ricardo, John Stuart Mill, Marx, and Keynes, Rothbard covers everyone. If someone had a passing thought about economics before 1870, and it came down to us in print somehow, Rothbard probably discusses it. While most histories of economic thought will treat Adam Smith as the inventor of the discipline (maybe with a passing nod to the French Physiocrats), Rothbard spends over 500 pages discussing the economic thinkers who preceded Smith, beginning with Aristotle. It turns out that economics had a rich history before Smith, and some earlier thinkers (Turgot and Cantillon) even surpassed Smith in many respects. Even if you disagree with Rothbard on absolutely everything else, he deserves credit for being an outstanding historian of economic thought.

Against the Price Transparency Act

My latest article on Mises Canada takes on the Price Transparency Act, a piece of legislation that would allow the Competition Bureau to investigate alleged “price gouging” of Canadians. Here’s a bit of it:

The price transparency act aims to seek out firms that sell profitably in Canadian markets and shame them into charging lower prices for their outputs. I’ve seen complaints that, since the legislation doesn’t grant the Competition Bureau the power to set prices, the investigations will create costs for the government and for compliant firms without having any real impact on prices. Actually, that would be the best possible outcome. The legislation would be far more disastrous if it succeeded in its goal of putting downward pressure on prices. To do so would remove the incentive for entrepreneurs to efficiently employ their knowledge and insight in allocating resources. While bailouts famously socialize losses while privatizing gains, antitrust actions to reduce “gouging” effectively socialize gains while privatizing losses. We all know how privatized gains and socialized losses led investors to take excessive risks in the lead up to the financial crisis. If the antitrust authority steps in to force profitable firms to reduce prices, effectively socializing gains, then entrepreneurs will be excessively averse to risk taking. Entrepreneurs will not seek out opportunities for high profit if they anticipate that government officials will order them to reduce their prices if they succeed.

High profits are what motivate entrepreneurs to zealously pursue opportunities. Whether they achieve those profits or not, in pursuing them they bring their best knowledge and insight to bear on the problem of allocating scarce resources. High profits motivate entrepreneurs the same way a carrot can motivate a donkey. Mainstream economists are too worried about losing the occasional carrot to realize that taking away the carrot would seriously impair the donkey’s motivation to walk. Taking away the carrot would save a carrot, but it would forfeit something far more valuable. Similarly, while pushing down prices that far exceed marginal costs could reduce the deadweight loss in a particular time, place, and industry, doing so would hamper the entire entrepreneurial process.

Go read the whole thing.

Garrett M. Petersen's blog about markets, institutions, and ideas.