Tag Archives: Basic Economics

Commentary

Trump supported the bank bailout and auto bailout, Cruz opposes all bailouts

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Donald Trump and his friends, the Clintons
Donald Trump and his friends, the Clintons

I have two friends who are Trump supporters. I’ve been going over Trump’s record with them, and I thought that I would blog some of the evidence I presented here.

Now, the conservative view of bailouts is that we should not have them, because in a free market economy, companies that cannot serve customers efficiently (low price, high quality) must be allowed to go bankrupt. That includes banks and auto manufacturers.

Where does Trump stand? Here is a transcript of an appearance on Fox News from 2008, where he embraced the bank bailouts:

NEIL CAVUTO, HOST: Well, Donald Trump saying, anything close to that $700 billion bailout would be a black eye for an economy he says rushing into one big depression.

Real estate mogul Donald Trump joins me now on the phone.

[…]

TRUMP: […]Now, I did not know about a $700 billion bailout, in all fairness. And I think probably, it is something — it’s sad, but, probably, it’s something that has to get done, because your financial system is most likely going to come to a halt if it does not. So, it is a pretty sad day for this country.

This Daily Caller article explains Trump’s view on auto bailouts:

Faced with crushing debts caused by poor management and high labor costs, GM and Chrysler requested federal assistance to keep the firms afloat, and were granted a $25 billion loan in the fall of 2008. President George Bush then secured more than $17 billion for the companies.

This occurred months before the birth of the Tea Party, but conservatives were outraged.

Not Trump. A longtime advocate of sweetheart deals between corporation and state, the real-estate developer went all in for the deal.

“[Y]ou have to try and save the companies,” Trump said in a separate 2008 Fox News interview. “And I think you can easily save the companies.”

Ted Cruz opposes auto bailouts and bank bailouts.

Cruz was asked in a 2012 run-off debate if the federal government should have bailed out General Motors, and here is his answer:

Of course we shouldn’t have. We’ve got a problem in Washington. We’ve got career politicians in both parties that spend the taxpayer money. That’s how we’ve gotten a $16 trillion dollar debt that is bankrupting our country. I don’t support bailouts, period. I don’t support the bailout of the auto companies. I don’t support the bailout of the banks. Government shouldn’t be in the business of spending taxpayer money to help private corporations. The role of government is to protect our rights, to protect our national security, to ensure rule of law and to stay out of the way and let entrepreneurs create jobs. And the problem with Washington is career politicians spending money and digging us into a hole that is threatening the economic future of our nation.

Cruz doesn’t even like the government giving companies subsidies, much less bailouts. It’s taxpayer money, it should not go to corporations that cannot compete fair and square.

Trump also supported Obama’s pork-filled stimulus spending bill:

President Obama held his first prime-time press briefing — designed to build support for the economic stimulus package that was his top priority upon taking office — on Feb. 9, 2009. Later that same night, real estate mogul Donald Trump took to the airwaves to sing the plan’s — and the president’s — praises.

“I thought he did a terrific job,” Trump told Fox News’s Greta Van Susteren. “This is a strong guy knows what he wants, and this is what we need.”

“First of all, I thought he did a great job tonight,” said Trump. “I thought he was strong and smart, and it looks like we have somebody that knows what he is doing finally in office, and he did inherit a tremendous problem. He really stepped into a mess, Greta.”

Van Susteren then asked Trump if a simple payroll tax holiday might be a better way to stimulate the flagging economy. Trump, however, held firm in his support for Obama’s plan, which he praised for the wide breadth of approaches it took to combatting the crisis.

[…]“Well, I have analyzed the bill as closely as it can be analyzed in this quick a period of time, but he’s really got a combination of both,” Trump replied. “He is doing the taxes, he is doing rebates, and he is also doing lots of public works.”

His support for public works spending reminded me of a chapter from Henry Hazlitt’s “Economics in One Lesson” on public works, in which he explains that public works can never stimulate the economy, since it takes money out of the productive private sector and spends it in the wasteful and corrupt public sector. The chapter is entitled “Public Works Means Taxes”.

It says:

Two arguments are put forward for the bridge, one of which is mainly heard before it is built, the other of which is mainly heard after it has been completed. The first argument is that it will provide employment. It will provide, say, 500 jobs for a year. The implication is that these are jobs that would not otherwise have come into existence.

This is what is immediately seen. But if we have trained ourselves to look beyond immediate to secondary consequences, and beyond those who are directly benefited by a government project to others who are indirectly affected, a different picture presents itself. It is true that a particular group of bridgeworkers may receive more employment than otherwise. But the bridge has to be paid for out of taxes. For every dollar that is spent on the bridge a dollar will be taken away from taxpayers. If the bridge costs $10 million the taxpayers will lose $10 million. They will have that much taken away from them which they would otherwise have spent on the things they needed most.

There is no free lunch. Someone has to pay.

Listen to me. This economy is not doing well. We are going to have more debt, higher taxes, and lower public services the further we go down the path of socialism. It’s fun to spend money on all sorts of bailouts, but the money is not unlimited. Bailing out private businesses and giving them subsidies costs taxpayer money. Eventually, that runs out. We need a candidate who understands this, and that candidate is Ted Cruz, not Donald Trump.

Polemics

Is there any downside to raising the minimum wage to $15 an hour?

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They told me if I voted Republican, we'd lose jobs, and they were right!
They told me if I voted Republican, we’d lose jobs, and they were right!

This article is from the libertarian Reason.com. They’re terrible at social issues, but really really good at economics.

They write:

Raising the minimum wage like this is an idea that’s become increasingly common amongst more liberal Democratic politicians and policymakers: The city of Seattle, Washington passed a law raising its minimum wage to $15 last year, and the Los Angeles city council voted to follow suit. Soon after, New York state announced a plan to raise the minimum wage of all fast food workers to $15, and the state’s governor, Andrew Cuomo, recently said he believes it should apply to all workers.

Many of these plans start from the assumption, implicitly or explicitly, that these minimum wage hikes would be relatively cost-free, pointing to several studies seeming to show that increases in the minimum wage don’t have much effect on jobs.

Here is what the author of some of the most influential of those studies, former Obama administration economic adviser Alan B. Krueger, had to say about raising the federal minimum wage to $15 an hour in an op-ed for The New York Times last week:

15 an hour is beyond international experience, and could well be counterproductive. Although some high-wage cities and states could probably absorb a $15-an-hour minimum wage with little or no job loss, it is far from clear that the same could be said for every state, city and town in the United States.

Krueger goes on to warn of greater risk, and the potential for “severe” trade-offs, if policymakers pursue a $15 minimum wage, warning that it would go beyond what any research supports. Ultimately, he concludes, it is  “a risk not worth taking.”

Krueger wasn’t disowning his own work or abandoning his position. He still supports raising the minimum wage to $12 an hour over a period of years, which he thinks could be done with essentially no job loss.

There are some reasons to be skeptical of that claim too: The Congressional Budget Office, which generally tries to take a moderate approach to economic evidence and put its estimates right in the middle of the consensus range, found that even a more modest hike to $10.10 an hour nationally would most likely cost about a half a million jobs, and while it’s possible such a raise might produce minimal job loss, it’s equally possible that it would cost a million jobs.

Overall, as David Neumark and William Wascher have found, the bulk of the evidence from research into the minimum wage suggests that hikes tend to decrease employment.

Let’s review the facts on minimum wage.

Abstract from a National Bureau of Economic Research study:

We estimate the minimum wage’s effects on low-skilled workers’ employment and income trajectories. Our approach exploits two dimensions of the data we analyze. First, we compare workers in states that were bound by recent increases in the federal minimum wage to workers in states that were not. Second, we use 12 months of baseline data to divide low-skilled workers into a “target” group, whose baseline wage rates were directly affected, and a “within-state control” group with slightly higher baseline wage rates. Over three subsequent years, we find that binding minimum wage increases had significant, negative effects on the employment and income growth of targeted workers.

[…]Over the late 2000s, the average effective minimum wage rose by 30 percent across the United States. We estimate that these minimum wage increases reduced the national employment-to-population ratio by 0.7 percentage point.

That comes out to 1.4 million workers who lost their jobs, thanks to minimum wage mandates. And those are primarily young, unskilled workers who are affected – people trying to get a start in the workplace and build their resumes, so they can move up.

Harvard economist Greg Mankiw explains the top 14 views that a majority professional economists agree on, and here’s #12:

12. A minimum wage increases unemployment among young and unskilled workers. (79%)

This is not controversial. This is the kind of basic “how America works” economics stuff that people used to learn in their civics classes before the schools became so politicized.

Podcasts

Dr. Jennifer Roback Morse lectures on basic economics

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Dr. Jennifer Roback Morse
Dr. Jennifer Roback Morse

Here is a podcast on basic economics from Dr. Jennifer Roback Morse.

About the speaker:

Jennifer Roback Morse, Ph.D. is the founder and President of the Ruth Institute — a project of the National Organization for Marriage — which seeks to promote life-long married love to college students by creating an intellectual and social climate favorable to marriage.

She is also the Senior Research Fellow in Economics at the Acton Institute for the Study of Religion and Liberty.

She is the author of Smart Sex: Finding Life-long Love in a Hook-up World, (2005) and Love and Economics: Why the Laissez-Faire Family Doesn’t Work (2001), recently reissued in paperback, as Love and Economics: It Takes a Family to Raise a Village.

Dr. Morse served as a Research Fellow for Stanford University’s Hoover Institution from 1997-2005. She received her Ph.D. in economics from the University of Rochester in 1980 and spent a postdoctoral year at the University of Chicago during 1979-80. She taught economics at Yale University and George Mason University for 15 years.

The MP3 file is here.

Topics:

  • The study of economics is anti-postmodern – there is objective truth independent of what people think
  • The study of economics believes in fixed principles of human nature
  • Economics studies the allocation of scarce resources that have alternative uses
  • Economics studies how people exchange resources
  • How both people who engage in a voluntary trade always believe that they will be better off
  • How both people who engage in a voluntary trade both benefit from the exchange
  • How incentives motivate people to act
  • Understanding supply and demand
  • Understanding how “free” government services are rationed
  • Understanding opportunity costs
  • How prices signal producers to produce more or less, and consumers to buy or not buy
  • Market-driven prices versus price controls
  • The role of substitution
  • The necessity of allowing failure in a free market

The requirements of economic growth:

  • private property
  • contracts
  • the profit motive
  • competition
  • free trade
  • entrepreneurship, creativity and innovation
  • the rule of law

If you want to learn more about basic economics, I recommend picking up a book or two by Thomas Sowell – the first book I usually give away is “Intellectuals and Society”, and then next “Basic Economics”.