Coyote Blog

Groups like the NAACP are actively pursuing claims for compensation from both corporations and governments for slavery in the United States 140 or more years ago (that's 7+ generations in the past).  The particular article linked is on seeking reparations from corporations, but many efforts exist to extract compensation from taxpayers, e.g. you and I.

Lets forget for a minute why I owe money for what my great-great-great-great-great grandfather did to your great-great-great-great-great grandfather.  Lets even forget that my great-great grandparents and all preceding generations of my family did not even live in this country.  Forget even about whether a statute of limitations has been exceeded by waiting 140+ years and seven or more generations to file a claim.

Lets however ask the question of what damages are incurred by the current generation of African-Americans who are decedents of American slaves.  Clearly the slaves themselves were irreparably harmed by slavery, but lets talk about the people who are actually bringing the suit.

If it were not for slavery, then many African-Americans today would be ... in Africa.  And in Africa, they would very, very likely be in horrible mind-numbing poverty (see Live8).  Its hard to pin down a number, but estimates of average incomes in Sub-Saharan Africa are between $600 per year and $1,770 per year.  By comparison, the average income of an African American was $14,397 in 1999 and is certainly higher today, since black incomes are growing rapidly in this country and actually falling in Africa.  And African American life expectancies, which still have some catching up to do with whites in the US, are nevertheless 10-25 years longer than their counterparts in the old country.  Everything from AIDS survival rates to education levels to VCR ownership and Internet access are far superior for American blacks than blacks in Africa.  So in this context, how does one demonstrate economic damages from slavery?

If I were an African American, I would give thanks every day that my ancestors endured the torture and humiliation and horror of slavery so that today my family could live, despite frustrations that sill exist for blacks, in relative wealth and prosperity and good health instead of some sub-Saharan shit-hole.

One Note:  I have certainly gotten some interesting emails on this one, including at least one "you will roast in hell" offering.  One comment I have gotten several times is "But there is no statute of limitations on murder, so how can there be on slavery?"   To which I answer - yes, there is not statute of limitations on murder, BUT, if we fail to catch a murderer in his lifetime, we don't throw his kids or grandkids in jail in his stead, nor do we ask his grandkids to pay reparations for his murders.  If we suddenly could absolutely prove the identity of Jack the Ripper, would we track down all his descendants and sue them for his actions? 

The second comment I get, presumably from African-Americans by the pronouns "I" and "we" used in the emails, is "we had our heritage ripped away".  I will confess that I may have a blind spot on this loss-of-heritage issue.  My great-grandparents were forcibly exiled from Germany about a century ago, and I don't shed any tears for my lost heritage, particularly given Germany's atrocious actions during the twentieth century.  I am thrilled to be an American and reject or at least ignore my German heritage.  I am not at all saddened my disconnectedness from the Kaiser or Hitler, and am not sure in turn that if I was black I would feel a loss from not being closer to Robert Mugabe or any of a zillion other repressive African regimes. 

By the way, in terms of being disconnected from one's heritage,  I have no way to prove it or get the numbers, but I would be willing to be that there are more college students right now studying black and/or African history in the US than in the whole of Africa.

One of the worst parts about living through the eighties was listening to all the angst about Japanese companies "buying America".  I never really understood the issue that people had with foreigners buying American assets (beyond pure xenophobia).  It was all especially puzzling because most of the wailing came from people who are today wailing about American outsourcing.  So its bad when American companies buy productive assets in other countries AND its bad when foreigners buy productive assets in this country?

Anyway, I missed it the first time around, but apparently Paul Krugman is upset that a Chinese company might buy Unocal.  Here are his reasons for concern:

Yet there are two reasons that Chinese investment in America seems different
from Japanese investment 15 years ago.

One difference is that, judging from early indications, the Chinese won't
squander their money as badly as the Japanese did....

The more important difference from Japan's investment is that China, unlike
Japan, really does seem to be emerging as America's strategic rival and a
competitor for scarce resources - which makes last week's other big Chinese
offer more than just a business proposition.

His first is just laugh out loud funny.  We actually have an economist claiming that the world was better in the 1980's because there was a huge market inefficiency (ie, the Japanese overpaid for unproductive assets). 

His second argument seems to be that US supplies of oil are more secure if American companies own them.  This is stupid.  If he means that it is more secure economically, then he should have his economist merit badge taken away for life.  Even he must know that oil is a fungible commodity, and as such trades world wide at a price set by supply and demand.  If more of Unocal's oil goes to China, this replaces other oil coming from somewhere else that is now available on the market.  And, if he means it is safer politically, he forgot to study the last 50 years of history.  Every major oil producer of the world - Saudi Arabia, Mexico, Venezuela, etc are pumping oil that used to belong to American oil companies, but was nationalized and taken from them.  Does Mr. Krugman's statement mean that the left and the NY Times are suddenly more ready to support the property rights of American oil companies overseas? I doubt it.  It is actually an improvement over history that a totalitarian state like China is actually buying American oil assets rather than just expropriating them.

By the way, I call Mr. Krugman's view of national economic success the "monopoly board" view of the world.  In his mind, America and China are playing monopoly, and once China gets St. James Place, America can never own all the oranges.  This is not the way the world works.  When America grew economically in the last century, it did not mean that all the other countries had less opportunity to grow.  In fact, we pulled many countries along with us.  His zero-sum view is just the macroscopic counterpart to the zero-sum based worry about rich people getting richer in this country.

Marginal Revolution and Cafe Hayek both have good analyses of Paul Krugman's neo-mercantilism.

Postscript:  Gee, I hate to play the race card, but why is it we always get a national panic when it is China or Japan buying US assets and not when it is the Dutch, the English or the Canadians (who are far larger investors in US assets and companies than the Chinese)?

Living for many years in Dallas, including the three-Superbowl period in the mid-eighties, it was nearly impossible not to jump on the Dallas Cowboy bandwagon.  And, part and parcel (Parcell?) of being a Cowboys fan was hating those NFL east franchises the Giants, Redskins, and the Eagles (the Cardinals were also in the division, but were such a joke that they were not even worth hating, which is ironic since they are now my team here in Phoenix).

When we were driving up to Princeton reunions from Washington DC, my old roommate Brink Lindsey pointed out to me, as we passed the new Philadelphia stadium, that the Eagles were named in the 1930's after the blue eagle of the National Recovery Administration, or NRA.

I found this hard to believe, that anyone would name a sports franchise after one of the worst pieces of legislation in American history, but it seems to be true.  Apparently, naming the team the eagles was part of a larger soviet-style propaganda program:

For a while, there was no escaping the bird. Towns all over the country got on the Blue Eagle bandwagon. A hundred thousand schoolchildren clustered on Boston Common and were led in an oath administered by Mayor James Michael Curley: "I promise as a good American citizen to do my part for the NRA. I will buy only where the Blue Eagle flies." In San Francisco, 8,000 schoolchildren were dragooned into showing their
allegiance by forming themselves into a human Blue Eagle on the outfield in Seals Stadium. In Cleveland, 35,000 enthusiasts gathered in the public square to cheer the unveiling of the Blue Eagle flag while city officials proclaimed the "end of the depression." In Memphis, 125,000 people watched another 50,000 march in the city's traditional Christmas parade; on the final float Santa Claus sat resplendent upon a big Blue Eagle, from which perch he threw candy to children. In a New
Orleans park, NRA celebrants erected an enormous pyramid on which were inscribed the names of more than 7,000 people and businesses who had taken the pledge; on top of the pyramid was a nine-foot eagle made of blue lights, while red and white bulbs spelled out "We Do Our Part." In Philadelphia, citizens were soon cheering for a new professional football team whose name was inspired by the general's icon: the Philadelphia Eagles. In Roanoke, North Carolina, "Shanghai Mickey" offered Blue Eagle tattoos for a mere 50 cents. In Atlantic City, beauty contestants had the Blue Eagle stamped on their thighs.

What's next?  Should we rename the Red Sox the Boston Alien and Sedition Acts?  How about having the Chicago Smoot-Hawley Tariffs?

By the way, for those who are not familiar, the National Industrial Recovery Act of 1933 that formed the NRA was the centerpiece of Roosevelt's New Deal, and was modeled on Mussolini's fascism in Italy (via Sheldon Richman of the Concise Encyclopedia of Economics):

The image of a strong leader taking direct charge of an economy during hard times fascinated observers abroad. Italy was one of the places that Franklin Roosevelt looked to for ideas in 1933. Roosevelt's National Recovery Act (NRA) attempted to cartelize the American economy just as Mussolini had cartelized Italy's. Under the NRA Roosevelt established industry-wide boards with the power to set and enforce prices, wages, and other terms of employment, production, and distribution for all companies in an industry. Through the Agricultural Adjustment Act the government exercised similar control over farmers. Interestingly, Mussolini viewed Roosevelt's New Deal as "boldly... interventionist in the field of economics." Hitler's nazism also shared many features with Italian fascism, including the syndicalist front. Nazism, too, featured complete government control of industry, agriculture, finance, and investment.

And further, from John Flynn's The Roosevelt Myth via Anthony Gregory:

[Mussolini] organized each trade or industrial group or professional group into a state-supervised trade association. He called it a corporative. These corporatives operated under state supervision and could plan production, quality, prices, distribution, labor standards, etc. The NRA provided that in America each industry should be organized into a federally supervised trade association. It was not called a corporative. It was called a Code Authority. But it was essentially the same thing. These code authorities could regulate production, quantities, qualities, prices, distribution methods, etc., under the supervision of the NRA. This was fascism. The anti-trust laws forbade such organizations. Roosevelt had denounced Hoover for not enforcing these laws sufficiently. Now he suspended them and compelled men to combine.

If you are not familiar with the NRA, you need to be if you are going to come to a conclusion about the New Deal and just how statist FDR's aspirations were.  Henry Hazlitt has a long evaluation here. In the end, the NRA was struck down by the Supreme Court, and never revived in large part because it was a disaster for the economy.  Many blame the NRA for strangling the recovery that began in 1933-34 and thus extending the depression. Parts of the law (collective bargaining, minimum wage) were incorporated in other later legislation, but the core concept of organizing industrial cartels with government backing to run industries and set prices, wages, and production levels died, fortunately.

By the way, the countries today that I know of that most closely adhere to the assumptions of the NRA are France and Germany, who expelled the fascists in the forties only to eventually adopt most of their corporatist economics.

Lynne Kiesling points out that, like swallows returning to Capistrano, a new energy bill debate in Congress has brought out the Ethanol advocates.  Lynne takes several good swipes at this stupidity:

I actually just heard John Thune say that ethanol is a clean fuel that will
lessen our dependence on foreign oil. Spare me. Ethanol is neither clean nor a
silver bullet to make us self-sufficient in energy. Ethanol production is
filthy, just as dirty as other manufacturing processes, particularly when you
take into account the appalling effects of fertilizer runoff killing fish in the
Gulf of Mexico when growing the corn for the ethanol. Why don't the Senators
from Louisiana open up a can of whup ass on this one?

Reducing dependence on foreign oil is a specious objective when you recognize
that oil is traded in integrated world markets and we are not low-cost
producers. So even if we reduce our oil consumption the marginal barrel of oil
will still come from somewhere in the Middle East. That won't change. Reducing
our consumption would be likely to reduce oil prices (but only marginally,
because China's demand is the big price driver right now) and would be good from
a conservation perspective, but it won't change the fact that we import oil from
places we don't think we can trust.

What she does not mention, probably because she is tired of repeating the obvious, that most careful studies show that producing ethanol requires as much or more energy than it provides.  In other words, it takes more than a barrel of oil to make the fertilizer, run tractors, harvest the corn, take it to market, and process it into a enough ethanol to replace a barrel of oil. 

To prove this, I would point to a lot of studies from ethanol opponents, but I will instead use data from an ethanol supporter.  From this biofuel support site:

In the US most ethanol is
made from corn (maize). A US Department of Agriculture study concludes
that ethanol contains 34% [sic, see below] more energy than is used to grow and harvest
the corn and distill it into ethanol.

Here are a couple of observations.  First, 34% is incorrect.  The first paragraph of the study they link says 24%, not 34%.  Second, this is the only study I have ever seen that shows the energy balance positive, which may be because it is from the Department of Agriculture and not the Department of Energy.  Third, to get to even this small positive balance, their number is based on the theoretical best number if every single stage of the agriculture and production process uses best known practices.  Using current practices that are actually in place in the production chain, even this study says the energy balance is probably negative.  Fourth and finally, 24% is pathetic.  Supporters imply that one gallon of ethanol replaces one gallon of oil.  It does not -- using these numbers, and factoring the .8 gallon of oil needed to produce that one gallon of ethanol, then one gallon of ethanol replaces at best only .2 gallons of oil.  This means that if we subsidize ethanol 30 cents per gallon (which is probably low) then the effective subsidy per gallon of gasoline replaced, which is what is relevant, is $1.50!  Ouch! And remember, this is based on ethanol's supporters numbers.  Based on most everyone else's numbers, the subsidy per gallon replaced is infinite.

Ethanol subsidies do nothing to add energy to the US market and just pass tax dollars to Archer Daniels Midland and other similar Ag conglomerates.  Stupid, stupid, stupid.  The only thing uglier than these distortions in the energy bill is the scene of Republican and Democratic candidates falling over themselves every four years to support these subsidies in order to compete in the Iowa caucuses.

The other day, I wrote fairly tongue-in-cheek about dentists, their investment choices, and the housing "bubble".  In that article I linked to several much weightier analyses, if you are interested in the topic.  The Commons Blog has chimed in today with an interesting point about "smart growth" policies (which I have derided in many other posts):

But few reporters have bothered to ask why some markets have a bubble while
other fast-growing markets do not. The usual answer is that the bubbles are on
the coast because everyone is moving there, but many fast-growing regions in the
West and South do not appear to have a bubble.

The answer appears to be that "smart growth" and other growth-management
policies restrict housing supply. Since housing is an inelastic good, a small
restriction on supply leads to rapid increases in prices. This brings
speculators into the market -- and a large percentage of homes today are being
purchased with no-down-payment, interest-only loans by people who don't plan to
live in the homes; in other words, speculators.

A list of regions that are suffering bubbles reveals that a very high
percentage have implemented some form of growth management such as urban-growth
boundaries, greenbelts, or restrictions on building permits.

More on smart growth and housing bubbles here.  More smart growth resources via Cato.

I don't have access to the right kind of data to decide whether there is a housing bubble in the US, though a lot of people are writing about it. 

In the Phoenix / Scottsdale area, housing values have really starting going up, up, up in the last 18 months, though whether this is just a catch-up to other desirable metropolitan areas (Phoenix real estate has been pretty sluggish for years, and way cheaper than other resort-type destinations) or a true bubble, I can't tell.  Certainly speculation activity is way up, with a lot of homes being bought and renovated by investors, but again, I could argue that Scottsdale was behind other suburban markets in the whole tear-down thing. 

So, to date, I have been unconvinced about the housing bubble, at least as it applied to our community.  After all, demographics over the next 20-30 years are only going to support Scottsdale area real estate. 

However, over the weekend I had a disturbing experience:   At a social function, I heard a dentist enthusiastically telling a doctor that he needs to be buying condos and raw land.  The dentist claimed to be flipping raw land parcels for 100% in less than 6 months. 

For those who don't know, this is a big flashing red light.  When doctors and dentists start trying to sell you on a particular type of investment, run away like they have the plague.  At Harvard Business School, I had a great investment management class with a professor who has schooled many of the best in the business.  If an investment we were analyzing turned out to be a real dog, he would ask us "who do you sell this to?" and the class would shout "doctors!"  And, if the investment was really, really bad, to the point of being insane, the class would instead shout "dentists!"  Marginal Revolution has another potential bubble indicator.  Angry Bear has a lengthy analysis.

Postscript: By the way, just so you doctors and dentists won't feel like I am picking on you, we small business owners are considered to be almost as bad, which is I why I get so many boiler room calls.

Update:  OK, in one of those great moments in timing, my wife just called me to say that one of the moms at school was trying to get other moms to invest with her in some condos, and should we join in?  Eeeek!

There is a widespread notion that the Scandinavian countries somehow have crafted for themselves the highest standard of living in the world.  This never made much sense to me, since I just couldn't believe their socialist economies could really create the wealth needed to support this alleged standard of living.  As it turns out, they can't and don't, and owe their reputation more to PR than reality:

THE received wisdom about economic life in the Nordic countries is
easily summed up: people here are incomparably affluent, with all their
needs met by an efficient welfare state. They believe it themselves.
Yet the reality - as this Oslo-dwelling American can attest, and as
some recent studies confirm - is not quite what it appears....

All this was illuminated last year in a study by a Swedish research
organization, Timbro, which compared the gross domestic products of the
15 European Union members (before the 2004 expansion) with those of the
50 American states and the District of Columbia. (Norway, not being a
member of the union, was not included.)

After adjusting the
figures for the different purchasing powers of the dollar and euro, the
only European country whose economic output per person was greater than
the United States average was the tiny tax haven of Luxembourg, which
ranked third, just behind Delaware and slightly ahead of Connecticut.

The next European country on the list was Ireland, down at 41st
place out of 66; Sweden was 14th from the bottom (after Alabama),
followed by Oklahoma, and then Britain, France, Finland, Germany and
Italy. The bottom three spots on the list went to Spain, Portugal and
Greece.

Alternatively, the study found, if the E.U. was treated
as a single American state, it would rank fifth from the bottom,
topping only Arkansas, Montana, West Virginia and Mississippi. In
short, while Scandinavians are constantly told how much better they
have it than Americans, Timbro's statistics suggest otherwise. So did a
paper by a Swedish economics writer, Johan Norberg.

So Europeans, in terms of being well-off, rank right up there with... Appalachia.  "Jimmy, you have to finish that liver - you know there are starving kids in Norway that would love to have that food."

Anyway, if this topic interests you, of true comparisons of US vs European economies, income distribution, work weeks, etc., Cowboy Capitalism is a good place to start.  (hat tip Instapundit)

Socialists and "progressives" of various stripes always want to argue that the distribution of wealth among nations is basically due to luck, in large part related to the distribution of natural resources.

This is disprovable in about 2 seconds:  Russia (via Cafe Hayek) and the Netherlands.   Russia, resource-wise, is perhaps the richest country in the world.  It is, our could be, among the largest producers of any number of natural resources, from diamonds and gold to oil and uranium.  But its economy is a disaster.  The Netherlands, resource wise, has about nothing.  There are few third world economic hell-holes that don't begin with infinitely more resources than the Dutch, but the Dutch are among the richest nations in the world. 

Wealth comes not from labor or capital or resources - wealth comes from the mind, and as such requires a rule of law where the mind is free not only to imagine new ideas but to pursue and reap the fruits of these ideas.  As I said in this article:

From the year 1000 to the year 1700, the world's wealth, measured as GDP per capita, was virtually unchanged.
Since 1700, the GDP per capita in places like the US has risen, in real
terms, over 40 fold.  This is a real increase in total wealth - it is
not money stolen or looted or exploited.  Wealthy nations like the US
didn't "take" the wealth from somewhere else - it never even existed
before.  It was created by the minds of human beings.

How?  What changed? 

1. There was a philosophical and intellectual
   change where questioning established beliefs and social patterns went
   from being heresy and unthinkable to being acceptable, and even in
   vogue.  In other words, men, at first just the elite but soon everyone,
   were urged to use their mind rather than just relying on established
   beliefs
2. There were social and political changes that greatly increased
   the number of people capable of entrepreneurship.  Before this time,
   the vast vast majority of people were locked into social positions that
   allowed them no flexibility to act on a good idea, even if they had
   one.  By starting to create a large and free middle class, first in the
   Netherlands and England and then in the US, more people had the ability
   to use their mind to create new wealth.  Whereas before, perhaps 1% or
   less of any population really had the freedom to truly act on their
   ideas, after 1700 many more people began to have this freedom. 

So today's wealth, and everything that goes with it (from shorter
work hours to longer life spans) is the result of more people using
their minds more freely.

I've written a couple of times about how I find the whole process of tipping in this country to be irritating.  There is absolutely no logical framework you can come up with to say why we are expected to tip restaurant workers but not, say, retail workers.  Tipping has long, long ago passed the point where it was a practice to reward good service and has instead become a way for employers to shift the burden of paying wages to their employees onto their customers.  For example, I wrote (or more accurately, ranted) here:

Unfortunately, restaurants and other service establishments have
twisted this act of reward and generosity into having customers pay the
wages of their staff.  Restaurants are simultaneously increasing
tipping expectations (from 15% to 20%+) while requiring tips on more
and more occasions by building them automatically into the bill.

The event that brought my irritation to a boil the other day
actually happened valet parking my car at a restaurant.  As background,
the establishment charged $4 to valet park your car.  Now, I am not a
socialist, so I accept that value is not driven by cost but rather by
what I am willing to pay for it, and I was willing to pay $4 to avoid
having to walk a few blocks from the free lot  (those of you from
Boston or NY are wondering what the fuss is about -- a valet parking
charge of any amount is virtually unprecedented in Phoenix, at least
until recently).

So I paid my $4, and then I saw the sign:

"Our employees work for tips"

What?
You mean I just paid your company $4 for what amounts to about 5
minutes of labor, and now you are telling me that in addition, I need
to pay your employees' wages for you too?  This is pretty nervy - I
mean, other than a percentage concession payment they are probably
making to be the parking company at that location, what other costs do
they have?  I didn't want to hurt the young guy actually doing the
parking, but for the first time in years I didn't tip the valet.  That
little sign turned, for me, an act of goodwill into a grim obligation,
extorted from me by guilt.

I bring all this up because I saw an interesting piece the other day on Marginal Revolution:

1. Two studies show little relationship between quality of waiter service and
size of tip.

2. Hotel bellboys can double the size of their tips, on average, by showing
guests how the TV and air conditioning work.

3. Tipping is less prevalent in countries where unease about inequality is
especially strong.

4. The more a culture values status and prestige, the more likely that
culture will use tipping to reward service.

5. Tips are higher in sunny weather.

6. Servers can increase their tips by giving their names to customers,
squatting next to tables, touching their customers, and giving their customers
after-dinner mints. (query: how do lap dances fit into this
equation?)

7. Drawing a smiley face on the check increases a waitress's tips by 18
percent but decreases a waiter's tips by 9 percent.

8. In one study, waitresses increased their tips by 17 percent by wearing
flowers in their hair.  In general it pays to look distinctive albeit not freaky

If you were to make a list of 10 people in the 20th Century who had the ability to rethink whole industries, you might come up with names like Sam Walton or Herb Kelleher.  One guy you might not think of, but who should make the list, is Bill James.  James has helped to single-handedly rethink the game of baseball, one of the great bastions of not-invented-here thinking.  Here is an interview of James that is pretty interesting.  Hat Tip to Cafe Hayek, who also has some thoughts on James the economist.

James sounds a lot like Hayek, and more recent authors like Virginia Postrel, when he says things like this:

If I were in politics and presented myself as a Republican, I would be
admired by Democrats by despised by my fellow Republicans. If I
presented myself as a Democrat, I would popular with Republicans but
jeered and hooted by the Democrats.
        I believe in a universe that is too complex for any of us to
really understand. Each of us has an organized way of thinking about
the world"”a paradigm, if you will"”and we need those, of course; you
can't get through the day unless you have some organized way of
thinking about the world. But the problem is that the real world is
vastly more complicated than the image of it that we carry around in
our heads. Many things are real and important that are not explained by
our theories"”no matter who we are, no matter how intelligent we are.
        As in politics we have left and right"”neither of which explains
the world or explains how to live successfully in the world"”in baseball
we have the analytical camp and the traditional camp, or the
sabermetricians against the scouts, however you want to characterize
it. I created a good part of the analytical paradigm that the
statistical analysts advocate, and certainly I believe in that paradigm
and I advocate it within the Red Sox front office. But at the same
time, the real world is too complicated to be explained by that
paradigm.

Or this, closer to the sports world:

Honestly, major league baseball"”and all sports"”would be far better off
if they would permit teams to do more to make one park distinctive from
another"”even so far as making the bases 85 feet apart in one park and
95 in another. Standardization is an evil idea. Let's pound everybody
flat, so that nobody has any unfair advantage. Diversity enriches us,
almost without exception. Who would want to live in a world in which
all women looked the same, or all restaurants were the same, or all TV
shows used the same format?
        People forget that into the 1960s, NBA basketball courts were
not all the same size--and the NBA would be a far better game today if
they had never standardized the courts. What has happened to the NBA
is, the players have gotten too large for the court. If they hadn't
standardized the courts, they would have eventually noticed that a
larger court makes a better game"”a more open, active game. And the same
in baseball. We would have a better game, ultimately, if the teams were
more free to experiment with different options.
        The only reason baseball didn't standardize its park
dimensions, honestly, is that at the time that standardization was a
dominant idea, they just couldn't. Because of Fenway and a few other
parks, baseball couldn't standardize its field dimensions in the
1960s"”and thus dodged a mistake that they would otherwise quite
certainly have made.
         Standardization destroys the ability to adapt. Take the high
mounds of the 1960s. We "standardized" that by enforcing the rules, and
I'm in favor of enforcing the rules, but suppose that the rules allowed
some reasonable variation in the height of the pitching mound? What
would have happened then would have been that, in the mid-1990s, when
the hitting numbers began to explode, teams would have begun to push
their pitching mounds up higher in order to offset the hitting
explosion. The game would have adapted naturally to prevent the home
run hitters from entirely having their own way. Standardization leads
to rigidity, and rigidity causes things to break.

I love it.  Maybe those guys who want to use baseball as a paradigm for life had something after all.

OK, I will begin this post with what I guess is, for some, a damning admision:  My company pays many of its employees minimum wage. 

I believe that I have a very honorable relationship with my employees, but for many, particularly on the left, the fact that I pay minimum wage puts me at the approximate moral level of a forced labor camp gaurd.  For those of you that feel that way, you might as well move on now because this post will just irritate you further.

I want to present four case studies from my own business as to what happens to workers and consumers when minimum wages go up.  For the purpose of this post, I will leave out the philosophical argument of why voters or politicians should even have the right to interfere in the free decision-making between employer and employee, but I certainly addressed it here, in this post.  Unfortunately, a large number of voters accept the argument that there is a power imbalance between employer and employee that needs to be moderated by measures like the minimum wage  (folks who believe this obviously never have tried to attract and retain quality wokers). Many politicians support minimum wage measures, mainly because it is one of those measures, like protectionism, where the benefits (e.g. Joe got a raise) are much easier to identify than the costs (e.g. Mary lost her job).

Before I get into the case studies, it may be helpful to describe my workers, because in some ways their situation is unique.  To run our campgrounds, we mainly employ retired people.  Of my 500 workers, well over half are over 60 years old, more than 150 are over 70, some 25 or so are over 80 and a few are even over 90!  Most are on social security and medicaire, and many have pensions and retirement health plans.  A good number are disabled and have some sort of disability support.  While they work slower, they make up for their low productivity in part by their friendliness with customers and their life experience.

Most of  my employees travel the country in their RV.  They take most of the year off, but many like to work over the summer to make a little money and to pay for their camping site.  I give many of them a free or subsidized campsite, worth about $500+ a month, plus all their utilities and then pay them minimum wage for the hours they work.  Many are thrilled with these terms - so many that I have a waiting list now of over 300 names of people who are looking for this type work.  This list is currently growing by about 10 names a day.

There may be employers somewhere who have a power imbalance over their employees.  Some days, I envy them.  My employees most all have independent means of support.  Further, they all have wheels on their houses, so they can and do pick up and leave if they aren't enjoying their job.  And, if they don't like our company, there are thousands of other campground operators who are looking for help.

So why are so many people lining up for minimum wage jobs when lefties and progressives are telling them that they should not want those jobs?  Here are some reasons:

• They value the amenities that come with the job, including living for free in a beautiful outdoor setting, something it is impossible to value under minimum wage laws
• They have other means of support, so the money is incidental.  In fact, I get more inquiries from employees asking me to reduce their hours so as not to mess up their social security or diabiloity payments as I do people asking for more pay
• They get to work with their spouse as a team.  There are not many employers out there that let a husband and wife split up work between them any way they want or even work together - can you imagine such a situation on a GM assembly plant?
• They would have a hard time getting hired by anyone else.  Very few employers will hire new workers in their sixities, and certainly not older than that.  Older workers can be slower and less productive.  For $12 an hour, I would have to hire younger workers too, but at minimum wage, I can afford the lower productivity of older workers and gain the benefit of their experience and trustworthiness.

This last point help set the stage for our cases.  I love hiring older workers at $5.15 an hour, and they love the job and line up for it.  But what happens when I have to pay these less productive workers $6.00 an hour?  What about $7.50?  What about at $12.00 an hour?  Here are some examples of what happens:

Case 1:  The jobs just go away

Washington State has one of the higher minimum wages in the country, at $7.35 an hour.  What makes the Washington minimum particularly hard to manage is the fact that it has a built-in escalator, such that it rises each year based on an inflation index (as you might imagine, since labor is a major component of most goods and services, this creates a positive feedback loop). 

We run a number of campgrounds in Washington under concession contract from the US Forest Service.  Most of these campgrounds are both small and very isolated, and are therefore labor intensive.  Given local market conditions, it is increasingly difficult to raise fees fast enough to keep up with rising labor rates (as well as labor-linked costs such as workers comp and unemployment) since we are competing against larger private campgrounds that are designed more efficiently and may be closer to local labor.  We have effectively given up trying to make money in this area, and will very likely not rebid the contract when it expires.  Given USFS experience on other similar contracts in the area, there is a good chance that no private company will bid for the contract, and the campgrounds will revert to USFS operation.  In this case, many will likely be closed, and instead of having minimum wage jobs, there will be no jobs left at all.

Case 2:  The jobs get outsourced to contractors

In a number of locations, we have been forced by rising minimum wages and associated costs (particulalry workers comp.) to switch some of our cleaning and landscaping duties from our live on-site employees to local contractors.  These contractors may pay their workers more than minimum wage, but the workers are often twice as productive as ours, yielding a cost savings for us.  When minimum wages are $5.15 an hour, these contractors can't compete with our own workers, but when minimum wages rise over $7.00, as they are across the west coast, this option starts to become attractive.

Case 3:  The jobs get automated away

One of the more frustrating situations we have is one government concesion contract where the government has continued to insist that the Service Contract Act (SCA) applies.  Like the Davis-Bacon act, the SCA sets minimum wages that contractors have to pay to employees when serving the government (for example, on a contract to clean the bathrooms in a goverment office building).  These rates, while ostensibly the market prevailing wages, are in almost every case FAR higher than what a private company would have to pay in the market to get good employees.  By specific Labor Department regulation, the SCA typically does not apply to concession contracts (I won't bore you with the details, but more in this series here or email me if you need help in a similar situation, I have been forced to become an expert).

Anyway, on this particular concession we have to pay our living-on-site workers based on the SCA.  This means, for example, that someone who sits in a parking lot booth collecting parking fees must be paid something like $12.50 an hour, which translates to a bit over $15.60 when you factor in FICA, SUI and workers comp.  Over 2000 hours a year that is $31,200 a year. 

A fully automated fee collection machine (which actually does more than the attendent, since it takes credit and debit cards as well as makes change for cash) costs $23,000.  Plus, the machine never will sue over wrongful termination, never will discriminate against or sexually harass a customer, never will steal, and never will fail to show up for work. 

What would you do?  I would prefer to have the person there, and if we put the machine in I will still  probably staff the booth on busy summer weekends to help customers out, but over 5 years the machine may save us over $100,000.

Case 4:  Prices go up to customers

Last election, Floridians voted themselves a minimum wage increase of $1.00, and worse, voted that the wage will increase each year by a cost of living factor.  As a result, on the May 2 effective date, our costs will go up by about 15% in managing the swim areas and campgrounds in that area.  Since this is well over our profit margin, prices will also go up by the same amount on the same day.  This is unfortunate, because it tends to be lower income people who most enjoy the recreation opportunities we offer, since historically we have been able to keep our costs, and therefore the pricing, so much lower than outrageously expensive attractions like Disney and Universal Studios.

Final Thoughts

I'm not going to cry that my business is doomed by minimum wage increases, because it is not.  As you can see above, we have many options for dealing with these changes.  What I fear may be doomed, though, is the special relationship our company has always had with older, retired workers. For now, the business model is OK, but there is a point, somewhere between about $7.00 and hour and $10.00 an hour, where rising minimum wages will push us to look for other ways to staff our parks rather other than our traditional use of live-on-site retirees.  And that would be sad for everyone.

For more on the topic, Powerline has a nice article today on minimum wage increase proposals in Minnesota.  It is astounding to me that people still want to believe the notion that minimum wages don't affect employment.  Just look at France and Germany for living proof.  Or, consider any other commodity in the market.  If the government set a price floor for gasolene, say at $3.00 a gallon, would anyone out there argue that people wouldn't use less gas?  But when we try to raise the price floor on labor, the media and politicians with a straight face try to argue that businesses won't use less labor.  Or, for the reverse, look at the experience with natural gas and airline travel - the government removed price floors on these commodities in the lates 70s / early 80s and look at how demand has skyrocketed.  (update: Powerline has a second post on the topic here)

For even more good reading, Cafe Hayek is always a good source for defense of free market economics, including this good post on French work week laws.  More on minimum wage here.

Many universities over the last several decades have created race and gender studies programs.  One of the problems with many of these programs has been the appalling quality of scholarship.  The recent broohaha around Ward Churchill at Colorado is but one example -- there are many others.  For example, look how Cal-State Long Beach chose the head of their Black Studies Department:

On September 17, 1971, Karenga was sentenced to one to ten years in prison on counts of felonious assault and false imprisonment. The charges stemmed from a May 9, 1970 incident in which Karenga and two others tortured two women who Karenga believed had tried to kill him by placing "crystals" in his food and water.
       

A year later the Los Angeles Times described the events: "Deborah Jones, who once was given the title of an African queen, said she and Gail Davis were whipped with an electrical cord and beaten with a karate baton after being ordered to remove their clothes. She testified that a hot soldering iron was placed in Miss Davis' mouth and placed against Miss Davis' face and that one of her own big toes was tightened in a vice. Karenga, head of US, also put detergent and running hoses in their mouths, she said."       

The shooting at UCLA caused Karenga to become deeply paranoid and spurred his bizarre behavior. At his trial, the question of Karenga's sanity arose. The psychiatrist's report stated, "This man now represents a picture which can be considered both paranoid and schizophrenic with hallucinations and elusions, inappropriate affect, disorganization, and impaired contact with the environment." The psychiatrist observed that Karenga talked to his blanket and imaginary persons and believed that he had been attacked by dive-bombers.

Eight years later California State University at Long Beach made Karenga the head of its Black Studies Department.

Or, check out the scholarly discussions around choosing the head of Black Studies at UCLA:

In 1965 Karenga founded the United Slaves Organization (US), a group that would rival the Black Panthers on the UCLA campus. The US was more radical than the Panthers, setting off quarrels between the two.
       

The biggest dispute between the US and the Panthers centered around the leadership of the new Afro-American Studies department at UCLA; both groups backed a different candidate. On January 17, 1969, 150 students gathered to discuss the situation. Panthers John Jerome Huggins and Alprentice Carter used the meeting to verbally attack Karenga, much to the dismay of his followers. Two US members, George and Larry Stiner, confronted Huggins and Carter in a hallway after the meeting and shot and killed them.

Universities all raced to create new race and gender-based studies departments, and tenured many  based on their strong opinions and the positive response they would get out of the relevant community, rather than normal academic guidelines.

Anyway, I have, as often happens, gotten away from the point of my post.   The NY Times has a good article on Roland Fryer, who appears to be the leading edge of a new generation set on bringing real scholarship and fact-based analysis to these programs.  (hat tip:  marginal revolution)  I don't necessarily agree with him, for example on paying cash for good grades in school, but I am happy to see his dedication to real analysis and challenging conventional wisdom.

I have never been bothered by the trade deficit.  Concern over the trade deficit always seems to be a holdover of 18th century mercantile thinking.  The key failure seems to be thinking of wealth as static or zero sum.  In a zero sum world, running a consistent trade deficit might indeed pour all of a countries wealth overseas like a tank springing a leak.

Wealth, of course, is not zero sum.  New ideas, productivity, technology create wealth.  Ever year, the US creates tremendous amounts of new wealth.  If we spend some of it overseas, so what?   

Often, problems like the deficit that seem problematic at a macro level fall apart when studied as part of individual behavior.  Cafe Hayek takes this approach in a nice post on why not to panic about the deficit:

If my paying my Virginia neighbor $10 to mow my lawn creates neither
debt nor other economic problems, how would my paying a Canadian $10US
to mow my lawn create debt or other economic problems? What conceivable
economic difference can the latitude or longitude of the seller's
residence make?

UPDATE: I always felt this same way, from Steve Landsburg:

I hold this truth
to be self-evident: It is just plain ugly to care more about total
strangers in Detroit than about total strangers in Juarez. Of course we
care most about the people closest to us-our families more than our
friends and our friends more than our acquaintances. But once you start
talking about total strangers, they all ought to be on pretty much the
same footing. You could say you care more about white strangers than
black strangers because you've got more in common with whites. Does
that make it okay to punish firms for hiring blacks?....

Stealing assets is wrong, and so is stealing the right to earn a living, no matter where the victim was born.

Free trade, despite it enormous benefits, is constantly under attack.  Yesterday I heard a radio ad, with the sound of a toilet flushing, and the a voice over saying something like "that is the sound of 3 million jobs being lost due to NAFTA".  Since the US unemployment rate when NAFTA was passed was over 7% and is currently under 5.5%, its hard to figure out just how they did their math.  The problem is that it is relatively easy to spot job losses due to foreign competition (cars, apparel, memory chips) and much harder to find the jobs that were created due to lower cost materials supplies and increased exports.

Virginia Postrel has a really nice article in the NY Times (yes, reg required) on how industries and jobs have prospered due to NAFTA.

Economists argue for free trade. They have two centuries of theory and experience to back them up. And they have recent empirical studies of how the liberalization of trade has increased productivity in less-developed countries like Chile and India. Lowering trade barriers, they maintain, not only cuts costs for consumers but aids economic growth and makes the general public better off. 

Even so, free trade is a tough sell. "The truth of the matter is that we have one heck of a time explaining these benefits to the larger public, a public gripped by free trade fatigue," the economist Daniel Trefler wrote in an article last fall in The American Economic Review.

If you don't want to register, she has a longer excerpt at her site here.

Café Hayek has a good post on pricing and marginal cost:

Economists: loose your devotion to marginal-cost pricing. The best prices are not necessarily those that equal marginal cost. Prices above marginal cost help convey important information "“ namely, information about the value of the capital invested that makes provision of the good or service possible in the first place. This information, in turn, is important to entrepreneurs searching for profitable places to invest their money and energies.

This article is particularly helpful in the context of pharmaceutical cost regulation.  Activists of the socialist/progressive bent consider any pricing above marginal cost to be evidence of monopoly, market failure, rapacious greed or all of the above -- but in any case a call for government action.  This article helps reinforce the case of why pricing above marginal cost is not necessarily a market "failure".  In the case of US Pharmaceutical pricing, drug pricing today is evidence of market failure only if one wishes to see the market fail to develop any new drugs in the future.

Note:  I have posted a more recent article with updated data here.

Mises Blog has a good article on the "Peak Oil" meme.  You may have gotten investment solicitations urging you to invest in oil because production is supposedly going to peak in 2006.

Oil production will peak some day.  I do not know when.  I do know that when I was in high school debate in the late 1970's, the topic one year was on resource policies.  I read everything there was at the time on oil supply as well as other critical mineral supplies.  Most "experts" at the time were predicting that oil would "run out" in about 1985 or 1990.  As you can see below, folks who invested in oil in 1980, after a price run-up similar to the one we have seen lately, got slaughtered.

Think twice or maybe three times about this graph before you invest.  Notice that there is no long term trend in real oil prices, even over one hundred years!  To make money buying oil, you have to do it on timing, buying ahead of sharp temporary increases.  And given that we are at the top of one of those sharp increases, can now really be the time to buy?

You can never get all the oil out of a field, and the exact amount of oil you can recover is dependent on how much you want to spend to do it, which in turn is related to oil prices (or expectations of oil prices).  The first 20% of the oil in a field might just squirt out under its own pressure.  The next 20% might have to be pumped.  The next 20% might need high pressure water injection to help it.  The next 20% might need expensive CO2 injection to help it.  If you ask the field manager how much oil was left, he would give you different answers at $20 and $45 a barrel, because he would make different assumptions about how far along this investment curve he would go.

If you are still thinking about investing, do one more thing: Study the famous bet between Paul Ehrlich and Julian Simon:

In 1980, economist |Julian Simon| and biologist Paul Ehrlich decided to put their money where their predictions were. Ehrlich had been predicting massive shortages in various natural resources for decades, while Simon claimed natural resources were infinite.

Simon offered Ehrlich a bet centered on the market price of metals. Ehrlich would pick a quantity of any five metals he liked worth $1,000 in 1980. If the 1990 price of the metals, after adjusting for inflation, was more than $1,000 (i.e. the metals became more scarce), Ehrlich would win. If, however, the value of the metals after inflation was less than $1,000 (i.e. the metals became less scare), Simon would win. The loser would mail the winner a check for the change in price.

Ehrlich agreed to the bet, and chose copper, chrome, nickel, tin and tungsten.

By 1990, all five metal were below their inflation-adjusted price level in 1980. Ehrlich lost the bet and sent Simon a check for $576.07. Prices of the metals chosen by Ehrlich fell so much that Simon would have won the bet even if the prices hadn't been adjusted for inflation. (1) Here's how each of the metals performed from 1980-1990.

New Carnival of the Capitalists up at Odyssey of the Mind.

Todd Zywicki at Volokh has an interesting post on what is driving hybrid car purchases in certain cities.  While certain segments are driven by environmentalism and fuel economy, the real boom in certain cities has come with the legal change in some cities allowing single persons in hybrid cars to use the carpool lanes.

"'I'd say 95 percent of the people who buy a Prius say it's to get into HOV,'" said Jay Taye, sales manager at Ourisman Fairfax Toyota. "'They talk about the tax break and the HOV, and once in a while they say they prefer it for the gas mileage as well.'"

By the way, he links an absolutely dead-on article about public transit in the Onion here called --"Report: 98 Percent of Commuters Favor Public Transportation For Others"

The link between the Onion article and the Washington Post story referred to by Zywicki is that what people really want is a fast commute in their car, and they are willing to pay for it.

Several years ago, I sent in a proposal to the Arizona Dept. of Transportation for their new HOV lanes in the Phoenix area, though I never got a response back.  I suggested that HOV lanes probably did not really increase carpooling, since they probably just shifted vehicles that would have already been carrying 2+ people into the faster lane.  Why should I get this artificial subsidy of a dedicated lane when I am driving my kid to a soccer game but not when I am driving myself to do productive work?  Either way, the lane is not changing my behavior.

Anyway, I suggested that instead, AZ DOT should create a number of special passes for exclusive use of the HOV lane.  The number of passes should be set as the largest number that could be issued while keeping the HOV lane moving at the speed limit at rush hour.  Maybe 5000?  Anyway, they would have the stats to set the number, and it could be adjusted over time.  I proposed that they then auction off these passes in a dutch auction once a year.  I posited that the clearing price might be as high as $1000, thus raising $5,000,000 a year that could be used for other transportation projects.

I have friends that said I was crazy, that no one would spend $1000.  Back then, I argued it in two ways.  First, thousands of people in town spend not $1000 but tens of thousands of dollars, in the form of purchasing a nicer-than-basic-car, to make their driving experience better.  In those terms, to the Mercedes or Lexus owner, $1000 was nothing and in fact the price might go higher.  Second, if each pass holder saved 15 minutes per commute, or 30 minutes per day over 250 work days, they would save 125 hours of their time each year.  Bidding just $1000 for this would mean that people would have to value their free time (since commuting generally comes out of free and family time) at $8 an hour.  I certainly value my free time at a MUCH higher rate than this.

This article cited above effectively adds another data point to what people might pay.  To buy a Prius, they are spending at least $5000-$10,000 more than a similar car that can't go into the HOV lane, and probably even more when you consider features they may be giving up to have the car.   

Today, I would bet that the clearing price for 5000 such passes may be $3000-$5000, thus increasing the annual revenue to the city/state as high as $25,000,000.

By the way, though it is a bit different than what I am suggesting, the best related plan that I know of that has actually been executed succesfully is congestion pricing in central London.

UPDATE:  Dang, reading up further in Volokh, Zywicki anticipated my post with a similar one here.

I wrote here and here about the cost that licensing can impose on consumers, often with little measurable benefit.  It's worth repeating this Milton Friedman quote:

The justification offered is always the same: to protect the consumer. However, the reason is demonstrated by observing who lobbies at the state legislature for the imposition or strengthening of licensure. The lobbyists are invariably representatives of the occupation in question rather than of the customers. True enough, plumbers presumably know better than anyone else what their customers need to be protected against. However, it is hard to regard altruistic concern for their customers as the primary motive behind their determined efforts to get legal power to decide who may be a plumber.

In this same vein, Reason has an article on the Oklahoma case where the state's requirement that casket sellers be licensed morticians was challenged legally:

Memorial Concepts Online sells an oak coffin for about $2,000, compared to an average of around $4,000 at funeral homes in Oklahoma, where the company is based. By separating the purchase of caskets from the purchase of funeral services, Memorial Concepts can offer substantial savings, not to mention a shopping environment free of hovering morticians. But in Oklahoma, which allows caskets to be sold only by licensed funeral directors, such competition is illegal.

I have written in the last week here and here about how it is poverty, not global warming or any other tired explanation, that has the most to do with high death tolls from natural disasters. 

The Mises Institute makes the case in more depth.  Excerpt:

The correlation between poverty and destruction resulting from natural disaster seems to hold up not only with a cross-section of nations, but also over time. As nations become wealthier, their losses of human life from natural calamities tend to fall. Countries that experience economic growth are putting themselves in a better position to reduce the number of deaths that result from natural cataclysms, and the clearest way to produce that economic growth is to allow people to interact in the marketplace without government intrusion.

Most "progressives" who reject capitalism do so in part because they do not trust the bottom-up organic progress and social structure that comes with capitalism.  They prefer top-down god-like statist technocratic control.

This is an interesting article contrasting the rejection by liberals and progressives of creationism in the complex systems within nature to their embrace of it in economics and society.

Just as in the natural world, society and the economy is self-organizing, and arises without any sort of central direction or central planning. This is a view that has been put forward by economists and social thinkers such as Frederick Hayek, Adam Smith, David Hume and many others and, like its non-creationist counterpart in the realm of biology, has the advantage of empirical support.

Cool article.  I have written on similar thoughts here.  Listen closely to about any politician today, liberal, conservative, progressive, etc and you will hear, in almost every statement, a distrust of individual decision-making.  Ironically there are many liberal professors out there who will explain to you all evening how termites can build an elaborate mound without any centralized control, but will deny to the death the suggestion that individual humans can build a strong economy and social structure without central control. 

Staring at all my Christmas decorations around the house, and dreading putting the lights back neatly so they won't be a tangled rats nest next year, this looks more and more tempting.

When I get an odd or inappropriate Christmas gift, I usually get a good chuckle with the family and then try to figure out who to recycle it to next year (though the Chia Shrek may be a keeper).

When economists get a bad gift, they try to quantify deadweight loss to the economy.  And, according to Marginal Revolution, the number is substantial.

Update:  more here at TCS

I had no idea this is what they were doing, but it is insane (via Marginal Revolution):

THE queue of angry motorists stretches for miles. Baghdad's petrol stations are drier this month than they have been since just after the American-led invasion of Iraq in 2003. Some drivers wait for as much as 24 hours, sleeping in their vehicles. When told that there is no petrol, some have lost their tempers and started shooting. How, asks a furious driver, can an oil-producing country run out of fuel?

Ask an insurgent, and he will assure you that the American army steals the oil for its tanks. Others might blame the lack of capacity at Iraqi oil refineries or the fact that the insurgents keep blowing up the pipelines. But the most important reason is that the government has fixed the price of petrol at approximately zero"”barely one American cent a litre.

I wonder if the problem in the electic power sector is similar.  See the post for the whole article, from the Economist.

New, via Reason, comes this excerpt from an article by Milton Friedman:

After World War II, opinion was socialist while practice was free market; currently, opinion is free market while practice is heavily socialist. We have largely won the battle of ideas; we have succeeded in stalling the progress of socialism, but we have not succeeded in reversing its course. We are still far from bringing practice into conformity with opinion. That is the overriding non-defense task for the second Bush term. It will not be an easy task, particularly with Iraq threatening to consume Bush's political capital.

Reason links to the whole article.  I have said on a number of occasions that as a libertarian, one of the downsides of the Iraq war that does not get discussed much is that it diverted Bush II from promised market reforms, including tort reform and social security.  There appears to be some hope that these can be addressed in the second term.