Archive for July 2019

On Tribalism and Discourse -- The Best Paragraph I Have Read For Quite A While

Today on Twitter I sought to give our Senator Krysten Sinema some support for her opposition to tariffs (kudos for Donald Trump for working to turn Democrats into free traders, though to be fair Sinema herself has come a long way from her radical roots).  I got this response:

I wanted to write about what a non-sequitur this response appears to be, as it is completely unresponsive to the issues at hand.  All the commenter is really saying is, "I notice you are not of my tribe."

But a detailed response on my part is unnecessary, given this awesome paragraph from Kevin Williamson:

Which brings us to the problem of trying to have a productive conversation with people who are caught up in the vast sprawling electronic apparatus of self-moronization. It does not matter what anybody actually has said or written. The rage-monkeys have an idea about what it is they want you to have said, or what people like you are supposed to think about or y. I cannot count how many times I have had some person respond to something critical I’ve written about some lefty fruitcake with “What about Trump, huh?” When I point out that, among other things, I wrote a little book called The Case against Trump, the response is: “Well, Republicans . . .” And then when I point out that I am not one of those, either, the retreat into ever-vaguer generality continues incrementally. The fundamental problem is that what’s going on in “conversations” such as these is not conversation at all but a juvenile status-adjustment ritual. These people do not care about ideas — they care about who sits at which cafeteria table in the vast junior high school of American popular culture.

Gad, I wish I had written that last sentence.

My Favorite Useful Idiot Story

Not long after China was opened to the US for visitation, actress Shirley MacLaine made a visit to the country.  As part of this visit she went to a rural agricultural commune where she met an ex-professor who had obviously been sent to the countryside during Mao's cultural revolution.  MacLaine thought it was wonderful that the professor expressed himself as so happy to have given up academics to do manual labor on the farm.

I don't know if anyone in the US who had a firmer grasp of China's history ever sought to correct MacLaine's understanding of the conversation.  The academic was very likely sent to the farm unwillingly, as were many other academics, as part of Mao's virulent anti-intellectualism as well as the broader rustication movement that consigned a whole lost generation to dead-end lives in rural China.  In 1979, Deng Xiaoping was visiting the US for the first time and was seated near MacLaine at a dinner party.  She retold her story about this wonderfully happy ex-academic she met on the farm.  In response, Deng provided the honest response to her story that none of MacLaine's American enablers seemed to be able to provide.  Deng responded to her, referring to the ostensibly happy academic, "he was lying."

I originally heard this story from a lecture by Richard Baum.  The best online version of it I can find is here.

Eeek

Slavery Made the US Less Prosperous, Not More So

I want to put a couple of caveats on this post.  1) Though there are utilitarian arguments related to slavery in this post, by no means do I think they ever come close in magnitude to the basic fact of the moral outrage of slavery. 2) Though there are utilitarian arguments about reparations in this post, by no means do I think they ever come close in magnitude to the moral outrage of penalizing people for sins of their grandfathers.

The other day, in what I thought was a quick throwaway comment on Twitter to an NBC article that seemed to be supporting slavery reparations, I wrote

One response I got which I want to address was this one:

This notion that slavery somehow benefited the entire economy is a surprisingly common one and I want to briefly refute it.  This is related to the ridiculously bad academic study (discussed here) that slave-harvested cotton accounted for nearly half of the US's economic activity, when in fact the number was well under 10%.  I assume that activists in support of reparations are using this argument to make the case that all Americans, not just slaveholders, benefited from slavery.  But this simply is not the case.

At the end of the day, economies grow and become wealthier as labor and capital are employed more productively.  Slavery does exactly the opposite.

Slaves are far less productive that free laborers.  They have no incentive to do any more work than the absolute minimum to avoid punishment, and have zero incentive (and a number of disincentives) to use their brain to perform tasks more intelligently.  So every slave is a potentially productive worker converted into an unproductive one.  Thus, every dollar of capital invested in a slave was a dollar invested in reducing worker productivity.

As a bit of background, the US in the early 19th century had a resource profile opposite from the old country.  In Europe, labor was over-abundant and land and resources like timber were scarce.  In the US, land and resources were plentiful but labor was scarce.  For landowners, it was really hard to get farm labor because everyone who came over here would quickly quit their job and headed out to the edge of settlement and grabbed some land to cultivate for themselves.

In this environment the market was sending pretty clear pricing signals -- that it was simply not a good use of scarce labor resources to grow low margin crops on huge plantations requiring scores or hundreds of laborers.  Slave-owners circumvented this pricing signal by finding workers they could force to work for free.  Force was used to apply high-value labor to lower-value tasks.  This does not create prosperity, it destroys it.

As a result, whereas $1000 invested in the North likely improved worker productivity, $1000 invested in the South destroyed it.  The North poured capital into future prosperity. The South poured it into supporting a dead-end feudal plantation economy.  As a result the south was impoverished for a century, really until northern companies began investing in the South after WWII.  If slavery really made for so much of an abundance of opportunities, then why did very few immigrants in the 19th century go to the South?  They went to the industrial northeast or (as did my grandparents) to the midwest.  The US in the 19th century was prosperous despite slavery in the south, not because of it.

Minimum Wage Increases Are Mostly Paid for by Consumers

Apparently there is a new CBO report on the effect of a Federal minimum wage hike to $15.  Before I get into the economic impacts, I want to observe that the $15 Federal minimum wage is a political smart bomb that hits mostly red states in much the same way as the reduced Federal tax deductions for SALT (state and local taxes) was a smart bomb that mostly hit blue states.  From an equity standpoint it is insane to have the same minimum wage in rural Alabama as in San Francisco, but since its main negative employment effects will be in red states I think this may be a feature rather than a bug for Democrats.

Anyway, for years folks have made the argument that government-mandated minimum wages are necessary because of the power imbalance between employers and low-skill workers which allows employers to exercise monopsony power and keep wages below some theoretical market clearing price (which is a total laugh -- if you really believe this you can come to my company and try to hire for unskilled positions at the top of the economic cycle and see how much power we have).   The progressive theory is that companies therefore earn excess profits due to this power.

But that is almost impossible.  To actually profit from such power, a company would have to have a consumer monopoly and monopsony hiring power and those two are Venn diagrams that don't overlap much.  As I wrote before (excerpt from a much longer piece)

Let’s consider a company paying minimum wage to most of its employees.  At least at current minimum wage levels, minimum wage employees will likely be in low-skill positions, ones that require little beyond a high school education.  Almost by definition, firms that depend on low-skill workers to deliver their product or service have difficulty establishing barriers to competition. One can’t be doing anything particularly tricky or hard to copy relying on workers with limited skills. As soon as one firm demonstrates there is money to be made using low-skill workers in a certain way, it is far too easy to copy that model.    As a result, most businesses that hire low-skill workers will have had their margins competed down to the lowest tolerable level.  Firms that rely mainly on low-skill workers almost all have single digit profit margins probably averaging around 5% of revenues (for comparison, last year Microsoft had a pre-tax net income margin of over 23%).

If there were some margin windfall to be obtained from labor market power that allowed a company to hire people for far less than their labor was worth to it, and thus earn well above this lowest tolerable margin,  new companies would try to enter the market, probably by lowering prices to consumers using some of that labor premium.  Eventually, even if the monopsony premium exists, it is given away to consumers in the form of lower prices.  If the wholesale price of gasoline suddenly falls sharply, gasoline retailers don't get to earn a much higher margin, at least not for very long.  Competition quickly causes the retailer's lowered costs to be passed on to consumers in the form of lower retail prices.  The same goes for any lowering of labor costs due to monopsony power  -- if such a windfall exists, it is quickly passed on to consumers.

As a result, the least likely response to increasing labor costs due to regulation is that such costs will be offset out of profits, because for most of these firms, profits have already been competed down to the minimum necessary to cover capital investment and the minimum returns to keep owners interested in the business.

I have not read the CBO report.  Interestingly, apparently both Kevin Drum and CNBC have and they summarize the findings differently -- not just draw ideologically different conclusions but report the key data differently.  I have not made any attempt to reconcile this (my guess is that Drum has picked the most optimistic case).  But I will take this from Kevin Drum's version:

  • Total wages for workers would rise by $44 billion (accounting for both higher wages and increased joblessness). Income for business owners would fall $14 billion.
  • Consumers would pay higher prices amounting to a total of $39 billion. That’s an increase of about 0.3 percent.

You can see that the CBO obviously does not buy the progressive argument about excess corporate profits.  90% of the wage increase is paid for by consumers in the form of higher prices.  My bet is that most of the business income loss is not margin compression as much as lost sales due to higher prices.  Note also the inefficiency of the minimum wage even in these optimistic numbers -- consumers and businesses contribute $53 billion in value to increase wages by $44 billion.  The rest is a net loss to the economy and my bet is that these numbers underestimate this loss.

The other problem with minimum wage increases as an anti-poverty program is that people are in the bottom 20 percentile of earnings mostly due to insufficient work hours, not due to wage rates.  It turns out that increasing the wage rates of the poorest 20% to middle class levels yields $6,335 a year in gains for a person in the poorest 20% while increasing that same poor person's amount of work done to middle class levels yields $28,844 a year in gains (government data here).  If you want to help poor people, economic growth and reducing barriers to hiring low-skill workers (combined with efficient transfer programs) is the way to go -- in this context the minimum wage increase can actually be counter-productive.

One other reason minimum wage increases are a bad anti-poverty program is that most of the data I have seen points to about a third of minimum wage jobs held by earners in families below the poverty line. So 2/3 of the increased wages from a minimum wage increase go to non-poor households

Last summer I had the cover story in Regulation Magazine titled, "How Labor Regulation Harms Unskilled Workers." I fear we are heading to a European model of very high minimum costs of employing anyone, which tends to result in a two-tier system of well-paying jobs for skilled and educated employees and lifetime government relief for the unskilled and under-educated.

Stupid Corporate State Tricks Here in AZ

First, it turns out our state's taxpayers were subsidizing a new Nike plant somewhere in AZ.  I am just exhausted writing about how stupid it is that we spend taxpayer money in this state relocation game.  The state takes away capital from current AZ businesses and gives it to Nike?  Even beyond the obscene power game going on here, taking from the small and giving to the rich and well-connected, what evidence is there that having Nike invest my money is better than having me do it in my own already-in-AZ business?

But then the story just gets stupider.  Apparently Nike was going to produce a sneaker with a colonial version of the American flag on it.  But then Colin Kaepernick said that African-Americans would be offended by it, which seems stupid.  Then Nike cancelled the sneaker, which seems even more stupid.  And then our governor said "hold my beer" and decided to cancel subsidies of Nike that shouldn't have even existed based on this product development decision by Nike.  Here is how a local commentator calling himself James Madison (I assume that is a pseudonym) crows about how awesome he thinks Governor Ducey's move is (sorry I get this as an email so I don't have a link)

Nike was planning on coming to Arizona to set up shop. A few hundred jobs were on the line. The city of Goodyear already approved their arrival. Then the anti-American, hateful little idiot that Nike hired a couple of years ago once again opened his bigoted mouth. Colin Kaepernick announced that Nike's new sneaker with the Betsy Ross American flag was "offensive." Nike caved to political correctness and pulled the shoe. Mr. Ducey responded by saying he was disappointed in Nike's decision and embarrassed for them. Mr. Ducey also instructed the Arizona Commerce Authority to withdraw any financial support that was promised to Nike for the move to Arizona. Mr. Ducey is right.

Nike has shown once again that they don't care about Americans--the primary source of their success. The sneaker was meant to be a tribute to America's founding, even hitting the store shelves the week of July Fourth. But, Nike would rather put their support behind American haters--like Mr. Kaepernick and others.

Is it any wonder our politics are broken? -- talk about taking a trivial issue and raising the stakes to wildly disproportionate levels.  Conservatives rightly get upset when student groups try to oust professors from their jobs over trivial, often unintentional, slips into political incorrectness.  But Conservatives have their own definitions of political incorrectness and are willing to run a few hundred innocents from their jobs for trivial violations of these norms.  I can't believe Ducey's decision is being haled as a brave act of some sort.  It is just silly, the Conservative form of the same virtue-signalling the Left revels in.My guess is that in a few days Ducey and his advisers will wake up and find themselves a touch embarrassed over all this, and find a quiet off-camera way to walk it back.

Politicians Should Not Have Access to ANYONE's Tax Returns

Since Richard Nixon weaponized the IRS against his enemies, by mining their tax returns for information he could use against them and calling down onerous audits on them, I thought it was an established principle of liberal democracy in this country that tax returns could not be used politically.  The only people who are supposed to have access to them are people who have legitimate enforcement responsibilities for tax collection.  That means the President and his staff can't rifle through them, and I thought those rules applied to Congress as well.

However, the Democrats in the House of Representatives, who mostly grew up excoriating Nixon's excesses, are now arguing the House should have access to any tax return they wish for any reason.  Of course, this is all playing out vis a vis Donald Trump.  From the WSJ:

The House’s tax-writing committee sued the Treasury Department and the Internal Revenue Service on Tuesday for access to President Trump’s tax returns, hoping federal judges will pry loose records that the administration has refused to hand over.

The lawsuit from the House Ways and Means Committee puts the clash over Mr. Trump’s tax returns and audit records in the courts, exactly where Committee Chairman Richard Neal (D., Mass.) and Treasury Secretary Steven Mnuchinhave predicted for months that it would land.

Mr. Neal is asking the courts to enforce a subpoena that Mr. Mnuchin and IRS Commissioner Charles Rettig have defied and produce the records immediately. The chairman also wants the courts to validate his authority under a tax code section that says he can get any taxpayer’s returns upon request.

Trump's lawyers are likely to argue Presidential privilege, but I hope the defense goes beyond this.  We all should be protected against individuals in Congress conducting fishing expeditions of their political opponents' tax returns.  And this is a fishing expedition, pure and simple.   There is no probably cause or any investigation that credibly needs to inspect some part of the returns.  Congress just wants them so they can fish for ammunition they can use in their political battles against Trump.

Trump is a pain in the *ss as President not just for his irritating demeanor and counter-productive economic nationalism, but also because liberals can't stop themselves from setting illiberal precedents in their desire to bring him down.

 

 

Dear Billionaires, The Best Thing You Can Do For This Country Is To Employ Your Capital Productively

From Anthony Gill

On June 24, 2019, nineteen billionaires released a letter to the media entitled “A Call to Action: A Letter in Support of a Wealth Tax.”  They urged potential presidential candidates to campaign for and, if elected, implement a new wealth tax that would strengthen America.  I hereby offer my own letter in response.

Dear Billionaires,

Thank you for your patriotic concern about our nation’s democracy and the global climate.  The willingness shown to submit yourselves to higher tax rates warms my heart as we approach the season in which we celebrate US Independence from Britain, brought about mostly over a concern about arbitrary taxation without adequate representation.

....  After just a few minutes on the Internet, I discovered that the US Treasury accepts voluntary gift donations to reduce debt held by the public.  The link can be found here, with more explicit instructions on who to make the check out to and where to send it here.  You don’t have to wait for all that pesky legislative debate and cumbersome bureaucracy to start making a difference immediately.  Even better, this proposal avoids the reems of paperwork needed for the typical tax filing and won’t require you to contact your accountant.

Simply calculate what you consider to be your fair share, write the check, and drop it in the mail.  Your honorable wishes realized, instantaneously! Better yet, you can do this every year.

I know Mr. Gill is mocking the billionaire's proposal to force all of us to pay more taxes so that they can as well, but here is my alternative response:

Dear Billionaires,

I appreciate your patriotic desire to make  "smart investments in our future, like clean energy innovation to mitigate climate change, universal childcare, student loan debt relief, infrastructure modernization," etc.  However, I beg you, the best possible way you can employ your capital to achieve these goals is to keep it and deploy it yourself.  Why?

  • You will naturally pay a lot more attention to how your own money is spent and how productively it is employed than any group of government bureaucrats ever can or will.  The government wastes orders of magnitude more every year than any of you could ever pump into its coffers
  • I presume many of you are billionaires because have creatively solved a problem or added new capabilities to the world, and have been paid handsomely by consumers for these contributions.   Keep it up!  I give you a far better chance to productively employ these resources, whether it be in new commercial ventures or in a non-profit to solve some particular problem, than I do some random assistant associate deputy director buried in the Department of Energy.
  • If you inherited it all and don't feel particularly competent in your own acumen, then put it into the S&P500 or the Russell 2000.  Even without knowing a thing about business, you can trust our markets to productively employ your capital and create value and jobs with it.
  • If you want to solve a problem via the non-profit route, go for it -- with your direct, passionate oversight, your money will almost certainly achieve more than if it were dumped into the Treasury.  Concerned about student loan debt relief?  Use your money to payoff the debt of worthy recipients, or better yet, go after the root cause and use your money to found educational institutions that don't cost $50,000 a year.  As I have pointed out before, rich people in the 19th century founded colleges all the time, but I can hardly think of one established in the last century. [I pick this as an example because if I were a billionaire, I would found a new model online/offline college with no intercollegiate athletics, no grad school, and no research establishment that provides a $5-$10K a year high quality degree to students chosen purely on testing and high school grades.  I would hire Bryan Caplan as a consultant and we would base the whole intellectual culture around understanding issues from all sides and his ideological Turing test].

What training I have in economics leans towards the Austrians.  An economy is growing and prosperous when its resources -- talented people, capital, etc -- are employed in the most productive ways.  Anything that diverts these resources from their most productive employment makes the nation and everyone in it poorer.  Which is exactly what will happen with every extra dollar you mail in to the government and every dollar your lobbying causes the government to coerce out of the rest of us.

Please, do not assuage whatever guilt you may have saddled yourself with (not guilt from me, as I have nothing but admiration for your accomplishments) by lobbying the government to tax me more.

The Non-Profit Scam

Arnold Kling writes on non-profits:

My general view on non-profits is that their status is too high relative to profit-seeking firms. In the for-profit sector, I think of the example of Elizabeth Holmes, the founder of Theranos. The company had a noble vision, and she made compelling presentations, but the product didn’t work. Because she claimed that the product worked better than it did, she got in trouble. She was ousted as CEO, and she faces a lot of legal jeopardy.

In the non-profit world, there are no end-users to hold you accountable if what you are doing doesn’t work. Just having the noble

From my direct experience, I would go further.  There is a tranche (I don't know how large) of non-profits that are close to outright scams, providing most of their benefits to their managers and employees rather to anyone outside the organization.  These benefits include 1) a salary with few performance expectations; 2) expense-paid parties and travel; 3) myriad virtue-signalling opportunities; 4) opportunities to build personal networks.  This isn't just criticizing theoretical institutions -- people I know are in such jobs in these organizations.

Advice to commenters -- please do not purposely misunderstand the point I am making.  Clearly great non-profits doing good work exist, but their existence does not invalidate the point I am making.  And I think their ability to continue to survive without creating value beyond that they provide for their employees is closely related to the point that Kling makes.

I Am Not Sure This Accomodation Law Needle Can Be Threaded

Via Zero Hedge:

The Washington Post and New York Times have recently opened up their platforms to Op-Eds defending, justifying and promoting abhorrent behavior committed against conservatives. Calling them out is the Washington Examiner's Byron York, who notes that "the toxicity of the resistance to President Trump has risen in recent days," with both papers "publishing rationalizations for denying Trump supporters public accommodation and for doxxing career federal employees."

First up, Stephanie Wilkinson, the owner of the infamous Red Hen restaurant in Lexington, Virginia. Wilkinson unapologetically booted White House spokeswoman Sarah Huckabee Sanders and her family last June. Wilkinson told the Washington Post at the time that her gay employees were too triggered by Sanders to serve her due to the Trump administration's transgender military ban.

It is going to be fascinating to see how these folks on the Left thread the Constitutional needle to make it illegal to refuse to bake cakes for gay weddings but legal to refuse service to Republicans.  My prediction is that someone on the Left is soon going to try and I am sure the New York Times will gladly give them editorial space to do so.  My guess is that any such theory will take advantage of the popular but bogus "hate speech is not free speech" idea.

I don't really get worked up about accomodation law too much one way or another.  I know our company benefits from being open to all.  We get calls all the time from customers who have been turned away because they have kids or have an older RV and we are happy to have their business.  It's not as true today but 15 years ago we gained a lot of good workers by hiring gay campground managers when many campgrounds thought it was "unsafe" to employ gay people around kids in campgrounds.  On the other hand, I read the First Amendment right of association as the right not to associate as well, so if folks want to turn away business it does not wildly bother me.  I personally wouldn't bake a cake for, say, the local Nazi party rally or Che Guevara birthday party.

My public policy rule of thumb is to allow folks to refuse accommodation as long as they represent a small percentage of the supply in a market.