Basic economics: if you raise the price, then people will buy less of it
Right now, all the candidates for President from the Democrat party are competing with one another to see who can buy the most votes using taxpayer money. One popular Democrat policy to buy votes is to raise the minimum wage. Democrats reason that minimum wage increases are great, because workers will have more money to buy stuff. What could go wrong?
Well, I want to talk about this policy from a theoretical point of view, then give an example of how it works in practice.
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.
Why does it hurt young and unskilled workers most? Because those workers don’t produce as much as older, more experienced workers. So, if all the salaries go up, employers keep the most experienced employees and lay off the youngest, and least experienced employees. This is why the youth unemployment rates of socialist countries in Europe are so much higher than the overall unemployment rate. And just to be clear, minorities are disproportionately harmed by minimum wage laws, since they are the ones who are often trying to move up through those entry-level jobs.
Here’s an example of how this works in reality, from San Francisco, a Democrat-run city.
San Francisco’s minimum wage is currently $11.05 an hour. By July of 2018, the minimum wage in San Francisco will be $15 an hour. That increase is forcing Borderlands Bookstore to write its last chapter now.
[…]Borderlands was turning a small profit, about $3,000 last year. Then voters approved a hike in the minimum wage, a gradual rise from $10.75 up to $15 an hour.
“And by 2018 we’ll be losing about $25,000 a year,” he said.
It’s an unexpected plot twist for loyal customers.
“You know, I voted for the measure as well, the minimum wage measure,” customer Edward Vallecillo said. “It’s not something that I thought would affect certain specific small businesses. I feel sad.”
That was in 2018, but strangely enough, Democrat voters haven’t learned their lesson. They still think you can vote people more money, and not ask where the money is coming from.
Shawn sent me this story about Seattle, another Democrat-run city.
Excerpt:
Restaurants Unlimited, a Seattle-based chain with restaurant locations in 47 US cities, announced on Sunday it was seeking Chapter 11 protection, citing “progressive” wage laws.
The company, which has operated since the Lyndon Johnson Administration, said rising labor costs—part of a national trend of government-mandated minimum increases—were part of its decision.
“Over the past three years, the company’s profitability has been significantly impacted by progressive wage laws along the Pacific coast that have increased the minimum wage,” Chief Restructuring Officer David Bagley said in court filings, The Seattle Times reports. “As a large employer in the Seattle metro market, for instance, the company was one of the first in the market to be forced to institute wage hikes.”
[…]BLS data show that New York City experienced its sharpest decline in restaurant jobs since 9/11 following its passage of a $15 minimum wage law. In California, a local newspaper recently detailed how an entire business district virtually disappeared following the city’s aggressive minimum wage push.
Restaurants Unlimited’s announcement came a day before the Congressional Budget Office released a report estimating that a House bill designed to raise the federal minimum wage to $15 an hour would cost 1.3 million jobs.
Now, you might say to me “But Wintery, Democrats are the party of the little guy, why would they vote for something that would leave workers unemployed?” And there are two answers to that. First, Americans who work for a living tend to not look to the government for support. Second, Americans who work for a living tend to dislike when their taxes are raised to pay for people who aren’t working. Democrats are the party of higher taxes and bigger government. They always oppose letting people keep what they earn, and they always want the government to take free market solutions to health care, etc. so they can use the provision of health care to buy votes. So for them, kicking 1.3 million people out of work is a benefit.
When it comes to economics, we know what works. Trump cut taxes, and unemployment for all races is at a record low. If you want to reverse that, and have more people unemployed, living off taxpayer’s, then vote for Democrats.
It occurred to me that young people are being taught in government-run schools that central planning of the economy by the federal government works better than allowing states to decide policy for themselves. Naturally, the students – lacking life experience and at the mercy of the unionized teacher’s grading pen – have no choice except to be indoctrinated. But what are the facts?
The genius of America is that the Founding Fathers allowed the federal government to only have power in certain areas of life. Other areas of policy were delegated to the states. This allows states to try different policies to see what works best, or even just what works best for them. Then the other states have the option to emulate that success, or continue doing what doesn’t work. States that do what works will see more success, with more businesses and people migrating to their states. States that persist in doing what doesn’t work will see business and taxpayers flee. That is the genius of America’s design.
Federalism encourages states to operate according to the “principle of subsidiarity”, which is an economic principle that states that problems are best solved at the lowest level possible (individual -> family -> church – > business -> community -> local government -> state government -> federal government). This is because the people at the lowest level have the most KNOWLEDGE about how to solve the problem.
Case study: right-to-work laws
Let’s look at an example – unions and right to work laws. Starting after world war 2, some states decided to pass right to work laws. These laws allowed workers to decide for themselves whether to join a union or not. Since workers had the choice about whether to join the union, the union had to care about the workers and advocate for them, instead of enriching themselves at the expense of the workers via corruption and thuggery.
Here is how different states adopted right to work laws at different times:
Map of states showing adoption of right-to-work laws
What happened in these states? Well job creating businesses started to move from forced-union-membership states to right-to-work states. Why? Because unions were stopping them from innovating. Companies would figure out new ways to improve productivity, such as using machines and computers. But the unions would step in and insist that the old ways were best. The unions wanted their union members to just be able to do the same job, e.g. – pulling a lever over and over, for the entire 35 years of their career. And the unions wanted their members to be paid like a software engineer or a doctor for pulling a lever over and over. The unions also wanted to make sure that underperforming workers could never be fired, or replaced. And so on. Companies realized that they couldn’t compete in a global market like this, so they got up and left for right-to-work states.
Here’s what happened next:
Rates of employment in forced union states vs right to work states
States with right-to-work laws never said that there couldn’t be unions, only that workers wouldn’t have to join a union to work. And in right-to-work states, not only did workers not join unions, they voted not to unionize at all. This resulted in a massive decline in private sector unions in America:
Decline in private sector union membership
As a result of job creating businesses not being hampered by union corruption and thuggery, American businesses quickly outpaced their rivals in forced union membership states in productivity, as measured by GDP. They also outpaced the productivity per worker in other economically illiterate countries. Why? Because allowing companies to innovate meant that workers were using more machinery and computers to do their jobs. They learned new skills. Underperforming workers could be replaced with workers who were willing to grow and adapt. Non-union workers higher productivity allowed them to find other jobs if they were laid off.
Right to work states innovate, creating more skilled workers
The job security of the American worker comes from his improved worker productivity – not from the union. Not only did unemployment go down in right to work states (more jobs!) but salaries and benefits also increases, as companies had to compete with each other for workers. However, companies were ok with paying more for workers, because they would rather pay ONLY the workers who deserved it, rather than pay one rate for all union workers, regardless of performance.
This article from the far-left New York Times explains how slaries and benefits rise when job creators move to right-to-work states: Income Rises When Right-to-Work Laws Are Passed because job creators must offer workers a lot in order to get them to sign. Not just salaries and benefits, but realistic development plans to grow the workers skills, making them even more resistant to layoffs and economic downturns.
Quote:
While some persons may favor right-to-work laws largely on philosophical grounds (people should have the freedom to decide whether they want to belong to a union or not), the major reason I support such laws is that they seem to promote prosperity — specifically, higher incomes. Real personal income in the right-to-work states rose nearly twice as much as in other states from 1970 and 2013.
To be sure, most of that reflected higher population growth in right-to-work states — there was massive in-migration to these states from the states denying workers the right to not join a union. Yet even after correcting for population growth, income per person on average rose somewhat more in the right to work jurisdictions. Capital moves to right-to-work states with a more stable labor environment, and that increases labor demand and, ultimately, income and wages.
Although unions mostly died out in the private sector, the ones that remained actually functioned well as unions – focusing on their workers instead of enriching union bosses. They had to, because if they didn’t, then the workers would just opt out of them. The only places where unions still survive is in the public sector, i.e. – government. This is because government is (by law) a monopoly, where consumers have no choice except to accept the garbage that they are offered. They can’t go anywhere else for a lower price, or a better product, or a better service. Public sector unions are immune to innovation, because they lobby the government to prevent any improvement or accountability.
Here is an example of a public sector union’s effort to “help the customer”:
Political contributions by the American Federation of Teachers union
And here’s what those efforts to “help the customer” produced for the customer:
Education spending has tripled since 1970
They aren’t really helping the customer, are they? What they do is collect dues, enrich their union leaders, intimidate their opponents with threats and force, and then give money to secular left politicians to prevent their customers from opting out of a system that doesn’t produce higher quality and lower prices for the customer. The secular left politicians pass laws that prevent the customers (parents) from being able to get a better product (education for their children) for a lower price. We should abolish public sector unions in order to get the benefits for the customer that we see in the private sector.
In this post, I have the video of a debate on the topic of what Christians should think about economics and economic policies. In addition to the video, I summarized the two opening speeches and the two rebuttals, for those who prefer to read rather than watch. We’ll start with a short biography about each of the debaters.
The video recording:
The debaters
Jay Richards:
Jay Richards, Ph.D., is a Senior Fellow of the Discovery Institute where he directs the Center on Wealth, Poverty and Morality, and is a Visiting Scholar at the Institute for Faith, Work & Economics. Most recently he is the co-author with James Robison of the best-selling Indivisible: Restoring Faith, Family, and Freedom Before It’s Too Late”.
In addition to writing many academic articles, books, and popular essays on a wide variety of subjects, he recently edited the new award winning anthology, God & Evolution: Protestants, Catholics and Jews Explore Darwin’s Challenge to Faith . His previous book was Money, Greed, and God: Why Capitalism Is the Solution and Not the Problem (HarperOne, May 2009), for which he received a Templeton Enterprise Award in 2010.
[…]In recent years, he has been a Contributing Editor of The American at the American Enterprise Institute, a Visiting Fellow at the Heritage Foundation, and a Research Fellow and Director of Acton Media at the Acton Institute. Richards has a B.A. with majors in Political Science and Religion, an M.Div. (Master of Divinity) and a Th.M. (Master of Theology), and a Ph.D. (with honors) in philosophy and theology from Princeton Theological Seminary.
Jim Wallis:
Jim Wallis (born June 4, 1948) is a Christian writer and political activist. He is best known as the founder and editor of Sojourners magazine and as the founder of the Washington, D.C.-based Christian community of the same name. Wallis is well known for his advocacy on issues of peace and social justice. […]He works as a spiritual advisor to President Barack Obama.
[…]In 2010, Wallis admitted to accepting money for Sojourners from philanthropist George Soros after initially denying having done so. […]In 2011, Wallis acknowledged that Sojourners had received another $150,000.00 from Soros’ Open Society Foundation.
Wallis just came out this month in favor of gay marriage. He is also a strong supporter of Barack Obama, who is radically pro-abortion. Some pro-lifers have argued that Barack Obama has the same views on abortion as Kermit Gosnell, because Obama voted twice to allow abortions on babies who were already born alive.
The format of the debate
20 minute opening speeches
10 minute rebuttals
10 minutes of discussion
Q&A for the remainder
SUMMARY
I use italics below to denote my own observations.
Jim Wallis’ opening speech:
My goal is to spark a national conversation on the “common good”.
A story about my son who plays baseball.
The central goal of Christianity is to promote the “common good”.
Quotes “Catholic social teaching” which values “human flourishing”.
The “common good” is “human flourishing”.
Is the purpose of Christianity is to make sure that everyone has enough material stuff or to preach the gospel?
When Christians go on mission trips, it’s good that they focus on things like human trafficking.
Democrat John Lewis is the “conscience of the U.S. Congress”.
John Lewis gets a 0% rating from the American Conservative Union in 2012.
John Lewis gets a 8% rating from the American Conservative Union in 2011.
John Lewis gets a 2.29% lifetime rating from the American Conservative Union.
Nothing is going well in Washington right now except comprehensive immigration reform.
Does he think that Christianity means giving 20-30 million illegal immigrants a path to citizenship, while skilled engineers cannot even get green cards, even though there is a shortage of them? Does he think that the other people in society who earn more than they receive from the government ought to be taxed more in order to provide more services and benefits to those who earn less than they take from the government?
Jay Richards’ opening speech:
Two topics: 1) what is the common good? 2) what should Christians do to promote the common good?
Catholicism defines the “common good” as “Indeed, the common good embraces the sum of those conditions of the social life whereby men, families and associations more adequately and readily may attain their own perfection.”
We have natural ends that we are supposed to be achieving and some places, like South Korea, are better for allowing that to happen.
The common good is broader and prior to any sort of political specification.
It’s not the political good or what the state is supposed to do.
It’s not about the communal good, as in Soviet Russia, where the communal good was above individual and familial good.
The common good is the social conditions that promote the things that we humans have in common as individuals and members of family.
The common good takes account of who we are as individuals and in associations with other individuals, e.g. – families.
Christians don’t have to be doing the same things to promote the common good, e.g. – pastors, entrepreneurs, etc.
The church, as the church, has as its primary goal making disciples of all nations.
But even in that capacity, the church should be interested in more than just conversions and saving souls.
We also have to care about God’s created reality including things like physics, education, etc.
How should Christians promote the common good in politics?
Question: when is coercion warranted?
In Romans 13, Paul says that the state does have power to coerce to achieve certain ends, like justice.
Most Christians think that there are some things where the state can use coercion, for example, to prevent/punish murder.
It is OK for the police to use coercive force to maintain public order and the rule of law.
But we need to ask whether other things are legitimate areas for the state to use coercive force.
We should only give the state power to coerce when there is no other way to achieve a goal.
We need to leverage the science of economics in order to know how to achieve the common good.
Jay Richards’ main point in the debate
Henry Hazlitt: “The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.”
For example, what happens if we raise the federal minimum wage to $50. What happens next for all groups? That’s what we need to ask in order to know which policies achieve the common good.
When it comes to economics a lot of things have been tried in other places and times.
We can know what works and doesn’t work by studying what was tried before and in other places.
Many things are counter-intuitive – things that sound good don’t work, things that sound bad do work.
Principle: “We are our brother’s keeper”. Christians have an obligation to care for their neighbors.
We all agree on the goal. But how do we do things that will achieve that goal?
We have to distinguish aspirations from principles and prudential judgment.
Principle: We should provide for the material needs of the poor.
Prudence: Seeing the world as it is, and acting accordingly.
Example policies: which minimum wage is best? None? $10? $20?
We decide based on seeing how different economic policies achieve the goal of helping the poor.
Jim Wallis’ first rebuttal:
Jesus commanded us to “care for the poor and help to end poverty”.
Actually, Jesus thought that acknowledging him and giving him sacrificial worship was more important than giving money to the poor, see Matthew 26:6-13:
6 While Jesus was in Bethany in the home of Simon the Leper,
7 a woman came to him with an alabaster jar of very expensive perfume, which she poured on his head as he was reclining at the table.
8 When the disciples saw this, they were indignant. “Why this waste?” they asked.
9 “This perfume could have been sold at a high price and the money given to the poor.”
10 Aware of this, Jesus said to them, “Why are you bothering this woman? She has done a beautiful thing to me.
11 The poor you will always have with you, but you will not always have me.
12 When she poured this perfume on my body, she did it to prepare me for burial.
13 Truly I tell you, wherever this gospel is preached throughout the world, what she has done will also be told, in memory of her.”
It’s not clear to me whether Jim Wallis thinks that preaching is more important than redistributing wealth to address material inequality.
I like what Jesus said in a TV series, even though it’s not in the Bible when an actor playing Jesus said to “change the world”.
Jesus never said to “change the world” in the Bible. Should we be concerned that he is quoting a TV actor playing Jesus instead of Jesus.
Here is a terrific story about Bill Bright.
I love Catholic social teaching.
Quote: “All are responsible for all”.
I go to the World Economic Forum at Davos, Switzerland every year. I spoke once at 7 AM on the 4th floor.
It’s a funny place for a Christian to be if they care about the poor – rubbing shoulders with leftist elites. He must have named a dozen high-profile people that he spoke with during the debate, as if he could win the debate by some sort of argument from name-dropping. He mentioned the Davos thing several times!
The greatest beneficiary of government actions to deal with the economic crisis was Wall Street banks.
I’m going to tell you a story about what a Washington lawyer says to Jesus.
I’ve had conversations with business leaders where I tell them to integrate moral truths.
I talk about the Good Samaritan parable.
Quote: “Do you love your undocumented neighbor?”
Quote: “Do you love your Muslim neighbor?”
Jay Richards’ first rebuttal:
Who is responsible for your own children? Who knows the most about them?
Parents should have more discretion over their children because they have more knowledge about their child and what’s best for them.
The Good Samaritan doesn’t show that government should confiscate wealth through taxation and redistribute it.
The Good Samaritan emphasizes voluntarily charity to help people who are not necessarily your immediate neighbor.
Some of the things we do should be for the good of other people in other countries.
But then we are back to leveraging economics to know what policies are good for those other people in other countries.
The principle of subsidiarity: if a problem can be addressed by a lower level of society (family) then we shouldn’t make higher levels (government) address it.
The best place to take care of children is within the family.
Only if the family fails should wider and wider spheres get involved.
Although we want to think of the common good in a global sense, we don’t want to lose sight of the fact
The financial crisis: we need to integrate moral truths, but also economic truths.
We don’t want to assume policies based on intuitions, we want to check our intuitions using economic principles.
Why did we have a financial crisis in mortgages, but not in commodities futures or technology, etc.?
Greed is a contributing factor in all areas of business.
Something more was going on in the mortgage markets than just greed.
There were specific policies that caused the mortgage lending crisis.
The root cause of the problem were “affordable housing policies” that lowered lending restrictions on low income people.
The policy ended up degrading the underwriting standards on loans.
Government intruded into the market and undermined the normal ways of
People were getting massive loans with no income, no jobs, no assets and no down payment.
The federal government created a market for risk loans by guaranteeing
There was a government imposed quota on mortgage lenders such that 50% of their loans had to be given to high-risk borrowers.
That is what led to the financial crisis. Not the free market, but intrusions into the free market.
These policies were well-meaning and implemented by people from both parties. But they had bad effects.
WINTERY KNIGHT 