Senator Rangel, War & The Minimum Wage

DONALD BOUDREAUX:

"Rep. Charles Rangel (D-NY) believes that by forcing the children and grandchildren of high government officials into the military, the draft would reduce Uncle Sam's likelihood of going to war ('Rangel: Bring On the Draft,' Nov. 21). In other words, Rep. Rangel recognizes that government makes irresponsible decisions whenever politicians have no large, personal stakes in the matters they decide.

Rep. Rangel's insight applies more broadly than he suspects. It means also, for example, that minimum-wage legislation is ill-advised, for very few politicians have family members who are likely to lose jobs as a result of raising the minimum wage."

Bulls-eye!

The Nature Of This War

IRAQ THE MODEL:

"Lebanese industry minister Pierre Gemayel was assassinated a few hours ago this afternoon…

Prime ministers, MPs and journalists; all are targets for terrorist regimes if they dare show their opposition to Damascus or Tehran.

The message is clear and loud, I just wonder how many more messages do we need before the world realizes that these murderous regimes are not so much into dialogue?

I accuse Syria of being behind this crime. Syria thinks that just because they made a 'friendly' gesture towards Iraq yesterday they would have the right to unleash their dogs in Lebanon today.

That's their definition for dialogue.

These regimes and their allied gangs will not stop their crimes; they will do anything they can to stop the movement of democratic changes and reform in the region and to keep their despotic, dark age regimes in power."

Democrats On Trade

The WSJ has commentary about the Democrat party position on protectionism. Apparently there is a debate within the party at this time. It is interesting to read that some notable Democrat Presidents did not warm up to protectionism:

"Amid the breakdown of the international trading system in the 1930s, the man who began to rebuild it was a Democratic Secretary of State, Cordell Hull. With FDR's support, he negotiated a series of bilateral trade deals that Harry Truman used as the basis for the revival of the multilateral trading system known as GATT in 1947.

Two decades later, John Kennedy pushed for freer trade with Latin America as part of his Alliance for Progress. And however reluctant at first, Bill Clinton eventually supported and signed Nafta, the creation of the World Trade Organization and most-favored-nation trading status with China. Mr. Clinton also refused to impose steel tariffs, a temptation that captured President Bush.

This is a proud pro-growth tradition, helping to keep America competitive as the world's greatest destination for capital and goods. The question now is whether Democrats newly elected to Congress will squander that legacy and turn to the populist, protectionist left. The early portents aren't encouraging."

Why might the Democrat party support protectionism and not free trade?

". . . Union politics, pure and simple. Once a free-trade supporter, the AFL-CIO began to turn protectionist in the 1960s and is now a relentless opponent of open global markets. Union leaders invested heavily in this past election, and they are boasting about the exit polls showing that nearly one in four voters last week came from a union household. Those voters went Democratic by more than 60%, and now union leaders expect legislative repayment."

Imagine that? Unions, a.k.a. labor monopolies, are protectionist and unions deliver significant numbers of votes for Democrat candidates. Of course, I think any public policy supported by a monopoly, especially a monopoly that primarily exists because the coercive power of government supports it, is most likely a policy that will not be economically efficient.

Maybe most of the Democrat politicians will turn against protectionism:

"We don't think there's much political profit in a protectionist turn. Whatever applause Democrats received from the AFL-CIO, they would lose as much support from business. They'd also advertise themselves as a party of a narrow special interest rather than the larger national good. This is why no truly protectionist candidate has won his party's Presidential nomination, Democrat or Republican, since Hoover. Voters have an instinctive sense that the only way to prosper is by competing in the global economy, not shrinking from it."

Maybe. On the other hand, whether voters have "an instinctive sense" for good economics or not (and I suspect "they" don't after the recent state votes with respect to minimum wages), economics suggest that most voters will be "rationally ignorant."

Liberty

Neil Boortz:

"It is clear that something is terribly wrong in Washington right now. We just went through an election where principles of individual liberty and limited government were not even on the table. I am hard-pressed to name one leading Republican or Democrat who still extols the virtues of freedom, individualism, free markets and limited government. "

Seems true. I'm trying not to be discouraged.

Minimum Wage

The Wall Street Journal has an article this morning about what the agenda of the Democrat Congress may be, and it includes an increase in the minimum wage:

"Raising the minimum wage is one fight the Democrats are expected to win. That would be a victory for organized labor, which has pushed for an increase for years, but a defeat for the restaurant and retail industries and small-business owners, who argue it would hurt the economy by forcing them to hire fewer workers.

Mrs. Pelosi has promised to bring legislation to the floor within the first 24 hours of the new Congress to boost the minimum wage to $7.25 an hour from the current $5.15. The idea is popular with voters: Six states overwhelmingly passed ballot initiatives Tuesday to raise the minimum wage and tie future increases to inflation. Republicans may feel hard-pressed to oppose the move.

At a news conference yesterday, President Bush cited the minimum wage as 'an area where we can ... find common ground.'"

There is an old refrain in all of this that I want to mention.

Who is fighting for an increase in the minimum wage? Labor unions. Why? Because labor unions benefit from increases in the minimum wage.

Is anyone harmed by an increase in the minimum wage? Yes, some people who would otherwise be employed will lose their jobs. Businesses (in retail and small business) who employ workers that will be paid the increased minimum wage will see increased costs, so they will see decreased profit (a.k.a. income to the small business owners). Consumers will see increased prices.

What happens to the workers who will be unemployed? Well, perhaps some of those workers will become another statistic counted as those in our country who are below the poverty line. This means a scenario for the Democrat party that is almost a "have your cake and eat it to" story,since increasing the minimum wage can make it easier for the Democrat party to argue that something must be done about the growing number in poverty.

On the other hand, it seems that most of the workers harmed by an increase in the minimum wage will be teenagers who will not be able to find employment.

An increase in the minimum wage will change incentives in other ways as well. It will increase the incentive employers see to hire illegal workers, while at the same time increasing the incentive illegal workers see to risk illegally entering this country.

As you can tell, I do not support an increase in the minimum wage because I don't think any of the economic results are good for our system of political economy.

If you support an increase in the minimum wage (and apparently many do since many of the ballot measures passed in this election) perhaps you can convince me the results will be good, or that the results I think will occur simply will not occur.

What Does It Mean?

After any election, there is discussion of what the election means. I wonder what yesterday's election means? There are many suggestions out there in the public square today.

Here's one observation I'm interested in that is offered byAustin Bay:

"The big race in 2006 was Lamont versus Lieberman. Joe Lieberman won. Joe’s core issue: VIctory in the War on Terror, which means victory in Iraq. That’s a warning to Nancy Pelosi and Co. If they go “nutsroots-Lamont Left” they will squander their victory. Ed Driscoll suggests 2006 is a race-to-the center. Lieberman has carved out one the strongest personal political position in America. For Joe, it’s November lemonade made from the bitter lemons of August."

I think another suggestion was actually offered on election day by Tom Sowell:

"Democrats have learned to avoid admitting to being liberals and this year are running a number of moderate candidates.

If these new moderate candidates are elected and give the Democrats control of Congress, that control will be exercised by senior Democrats who will hold leadership positions -- and all of them are liberal extremists, whether people like Nancy Pelosi in the House or Ted Kennedy and John Kerry in the Senate.

Getting people to vote for moderates, in order to put extremists in power, may be the newest and biggest voter fraud."

Both these suggestions suppose that this election involved, at least on the surface, a bit of a move toward the right of the political spectrum because this election seems to bring a few more hawkish Democrats to Congress. But, Austin Bay seems to suspect the Democrat leadership will not notice this lesson, and Tom Sowell seems to suspect that the Democrat leadership actually designed their strategy to gain Congress by fooling the voters.

What does this election mean? I think both of these suggestions are worth considering, and, unfortunately, I'm tending to agree with Sowell because there also seems to have been a strong strain in the electorate this time to throw the incumbents out. Yet, after throwing the Republican bums outs, the replacement leaders in Congress still look like incumbent bums, only now they have the big D after their names.

Wal-Mart & The Poor

Arnold Kling discusses this paper by Hausman and Leibtag which measures consumer benefits from Wal-Mart. Kling writes:

At the MIT economics alumni event this morning, Jerry Hausman spoke about his research on Wal-Mart. He says that Wal-Mart lowers prices to consumers primarily by bargaining down the prices charged by suppliers, such as Procter and Gamble. It also uses cost-saving logistics. Lower labor costs may contribute to its low prices, but not as much as the other factors.

Hausman argues that driving down prices of suppliers is a benefit, because prices are being driven closer to marginal cost. In welfare-economics terms, you can think of Wal-Mart as a substitute for a regulator who would try to improve efficiency by forcing imperfectly competitive producers to move down the demand curve.

The magnitude of the benefit is enormous. Hausman looked at food, and for that category alone Wal-Mart increases consumer welfare by 25 percent (I'm a bit worried that the theory behind his calculations holds only for much smaller differences, but I don't have an alternative.) Since food is about 12 percent of GDP, multiplying .25 by .12 gives a benefit of .03, or 3 percent of GDP from Wal-Mart.

[ . . . . ]

Oh, and by the way, Hausman finds that poor people get 50 percent more benefit from Wal-Mart than rich people.

What Is Government Good At?

RUSSELL ROBERTS:

"I was talking to some people last night about different approaches to government. A woman asked me if there was anything I thought government did better than the private sector. Sure, I replied. Killing people. That is the government's best thing and governments have had unparalleled success in killing people over the last 100 years. Start with the murder of innocents. Hitler and Stalin dwarf the worst serial killer. Even if you count 9/11 as a private act of murder, that's a few thousand versus many millions. No comparison.

Then there's war. Government is very good at war relative to the private sector. Some wars are better than others. Some are ghastly. But there is no disputing that government armies, regardless of the merits of the cause, are better at killing people than private armies.

Come on, someone else said, before I could lengthen the list with maybe the enforcement of contracts and the rest of a very short list. What about education and health care? We can't leave that to the private sector. That launched us into a long discussion of the current state of the public schools and whether the vigilance of the FDA in protecting us from dangerous drugs has been a net benefit or a net loss. . . .

This seems to me to be a very revealing conversation. I think there is one word that characterizes the essence of government, and that word is coercion. Government is inherently coercive. It seems to me that Russell Roberts' answer to the question about what government does better than the private sector is based upon this observation. Now, what about education and health care? Since government is inherently coercive, if I thought government did these things better than the private sector, then I would have to think that education and health care could be better done with coercion than without. I don't happen to think that.

Economies Are Long-Run Processes

Doon Boudreaux writes:

"Economies are long-run processes; they should be evaluated as such. What happens in any arbitrary time period - a month, a quarter, or even a year - typically is too filled with short-run distortions and lags to present a reliable picture of an economy's long-run trajectory."

This is a very important observation. Economies should be characterized as long-run processes. Of course, the "data" we use to measure and characterize our economy empirically are measured over short-run periods of time. However, we "slice" time to get a snapshot picture of our economy, we can't clearly understand from the snapshot much about the long-run processes of the economy.

Voting & Rational Ignorance

Economic analysis suggests that voters can be expected, in general, to be rationally ignorant about public policy issues as well as about candidates. There are many implications of this analysis that I think we observe in our politics. Greg Mankiw writes about an implication of this sort of analysis that might not be so obvious:

"So the next time a friend of yours tells you he's not voting, don't try to change his mind. It's a good bet that if he's not voting, he's not been following the election closely anyway. Maybe he watched a baseball game instead of the debates. Maybe he is bored silly with all the talk of targeted tax cuts, privatized social security, and campaign finance reform. Maybe he's as ignorant about public policy as those focus groups of undecided voters that are the media's latest darling.

So rather than pushing your friend to the polls, perhaps you should thank him for staying at home. He's making your vote count just a little bit more."

You should read his whole explanation.

Iraq Nukes & NY Times

JIM GERAGHTY:

"I'm sorry, did the New York Times just put on the front page that IRAQ HAD A NUCLEAR WEAPONS PROGRAM AND WAS PLOTTING TO BUILD AN ATOMIC BOMB?

What? Wait a minute. The entire mantra of the war critics has been 'no WMDs, no WMDs, no threat, no threat', for the past three years solid. Now we're being told that the Bush administration erred by making public information that could help any nation build an atomic bomb.

Let's go back and clarify: IRAQ HAD NUCLEAR WEAPONS PLANS SO ADVANCED AND DETAILED THAT ANY COUNTRY COULD HAVE USED THEM.

I think the Times editors are counting on this being spun as a 'Boy, did Bush screw up' meme; the problem is, to do it, they have to knock down the 'there was no threat in Iraq' meme, once and for all. Because obviously, Saddam could have sold this information to anybody, any other state, or any well-funded terrorist group that had publicly pledged to kill millions of Americans and had expressed interest in nuclear arms. You know, like, oh... al-Qaeda.

The New York Times just tore the heart out of the antiwar argument . . . "

[ via Instapundit which has more ]

Politics & Public Finance

An article in the Washington Times discusses what might happen with respect to national public finance if the Democrat party wins Congress:

But Republicans such as former House Majority Leader Dick Armey of Texas said that if the Democrats take over, 'they will try to find some way to raise taxes to finance their spending programs.'

Democrats gave voters a peek into the kind of spending proposals they want to enact in their election agenda titled 'A New Direction For America.' The campaign agenda does not say how much their proposals would cost, but an analysis by the National Taxpayers Union based in part on CBO estimates puts the price tag at more than $79 billion a year.

These legislative proposals include $16.2 billion a year for lower-interest college loans, nearly $1 billion more per year for scientific research, $4 billion in additional Pell Grants for college students and $28.8 billion more for health care, including increased subsidies for the Medicare prescription-drug program for the elderly.
Perhaps one of the biggest spending initiatives in the Democrats' agenda is a program called 'AmeriSave,' under which the government will match the first $1,000 contributed to an IRA, 401(k) or other investment retirement account. The program would cost taxpayers $37.5 billion in the first five years.

Another measurement of spending increases a Democratic Congress would seek can be found in amendments they have offered in the Senate in the past two years. According to an analysis by the Senate Republican Policy Committee, Senate Democrats proposed $95.2 billion in increased spending for fiscal 2006 and $74 billion for fiscal 2007.

Mr. Panetta blames both Republicans and Democrats for the sizable budget deficits of the past six years and does not see that changing dramatically anytime soon, despite this year's sharp decline in the deficits as a result of unexpectedly stronger federal tax revenues.

"This Congress has been the worst on borrowing and spending that I've seen in my lifetime, with record deficits. Responsibility for that rests with both parties. My theory is that they will continue to borrow and spend in the future," he said.

I thought that, perhaps, a discussion of national public finance would benefit from seeing these three charts which provide the larger context. When looking at that national government's public finance I think it is best to consider receipts, outlays, and the deficit in terms of the percent of GDP.

The chart of the deficit numbers suggests that the deficit during the Bush Administration has not been exceptional when compared to the period of the last 30 years. Certainly the deficit during the Bush administration makes quite a contrast with the budget surplus at the end of the Clinton administration. But budget surplus during the Clinton years does seem the exception since 1960.

The chart of outlays suggests that the lenth of the period during the Clinton administration during which outlays trended downward seems out of the norm since as long ago as 1930. Nonetheless, outlays as a percent of GDP seems to have stayed right around 20% since about 1950 or 1960. The experience during the Bush administration doesn't seem unusual when compared to the entire period depicted in the chart.

The chart of receipts suggests that receipts have been right around 17% or 18% since about 1950 or 1960. The recent experience during the Bush administration seems to fit that pattern.

It seems that public debate tends to attribute national public finance to the President, and following that practice I've referred to the experience reflected by the years of the Clinton presidency and the Bush presidency. But, perhaps focusing on the President presents not quite the right target. After all, the President does not have the power to tax, nor does the President have the power to fix the amount of appropriations. These powers reside in Congress. Perhaps the charts suggests that it doesn't much matter which party controls Congress, the public finance of Congress has pretty much been in the same neighbor relative to national output since about 1950 or 1960.

Social Security -- Back Again

OpinionJournal - Featured Article:

"Social Security was supposed to be a killer issue for Democrats this election year after they defeated President Bush's reform plans in 2005. But suddenly the tables are turning on several Democratic candidates because of their endorsement of the tax-increase agenda of the American Association of Retired Persons, or AARP.

The liberal entitlement lobby has asked candidates around the country to fill out a questionnaire asking, 'Will you support a balanced Social Security plan to continue the program's guaranteed benefits for future generations?' That may sound innocuous, but here's how AARP defines its balanced plan on its Web site near the above question: 'AARP believes that a bipartisan plan that balances additional contributions from high income workers with modest adjustments in future benefits can maintain guaranteed Social Security benefits for future generations.'

Those italics are ours, because in Washington 'additional contributions' means a tax increase. And by 'high income workers,' AARP can only mean anyone earning more than $94,200, which is the 2006 income level above which the 12.4% Social Security portion of the payroll tax no longer applies. Employers and workers each pay half of the payroll levy, and the income cap already rises each year with inflation."

Of course I written about social security here before. Increasing taxes for social security is, plain and simple, a bad idea. I think one of the most serious problems with social security is that it is a program built on dishonesty. The program is called an insurance program, but it is not an insurance program. It is often talked about as something akin to a government retirement or pension program, but it is not that either. Plain and simple, social security is a program that redistributes income from today's workers to those who are retired. Increasing taxes is a good way to continue to be dishonest about this program, and in the meantime increasing taxes means more money for government to spend today under the camouflage of "fixing social security." Increasing taxes today means the payroll tax will general more EXCESS tax revenue today, while at the same time committing future workers to greater tax payments (or budget reductions) in the future to "pay off" the Treasury securities "purchased" with the EXCESS payroll tax revenue. Increasing taxes continues the lie that is social security.

There is a second significant problem with social security, in my opinion. Social security is intergenerationally unjust. Increasing the social security payroll tax today also makes this intergenerational injustice more severe. Why? Because increasing the payroll tax today is not just a tax on today's workers, it is also a commitment to an increased tax on future workers. Many of those future workers aren't workers today, many aren't yet voters, and many haven't even been born yet. It is unjust, it seems to me, to have a government program that forces people to pay when they cannot even vote to say no we don't want that.

I don't want my son and my grandchildren to be paying for my golf when I retire, and I certainly don't want to vote for a program that forces my son and grandchildren, as well as your children and grandchildren, to pay for my golf when I retire. I want the social security program to really be fixed by changing it from an intergenerational income redistribution program to a program that truly can be called INSURANCE against the risk of living in retirement beyond a person's assets. Raising the payroll tax does not do this. It is a bad idea. It would continue the lie and the injustice.