“The Law of Demand, which operates whether we like it or not, says that when the price of something goes up, people buy less of it. That’s why environmentalists like higher gasoline taxes, and anti-smoking activists back higher cigarette taxes.”
“The Law of Demand works in the labor market, too. If government mandates a higher minimum wage, some workers will get a raise. Some. But something else will happen. Employers will hire fewer low-skilled workers. Others will let some current workers go. Some will choose not to expand their businesses. A few will close altogether. If an employer believes a worker creates only $5 worth of value on the job, he won’t pay $7, even if the government demands it.”
“Let’s face it. The higher minimum wage is a feel-good law. A slight increase will pass because politicians and poverty activists will be able to say they have “done something” for the poor, while the victims of the policy go unnoticed. Those who can’t find jobs because they produce too little are not likely to blame the law or the politicians who tried to “help” them. Then the resulting unemployment will justify expansion of the welfare state.”
As George Mason University economist Walter Williams says, “It’s tempting to think of higher minimum wages as an anti-poverty weapon, but such an idea doesn’t even pass the smell test. After all, if higher minimum wages could cure poverty, we could easily end worldwide poverty simply by telling poor nations to legislate higher minimum wages.”
From a recent column by ABC 20/20′s John Stossel, who probably never had an economics class, but apparently understands the Law of Demand better than most politicians.
From today’s NY Times Business Section, an interesting article about economists:
“Economists have been using their tools — mainly the analysis of enormous piles of data to tease out cause and effect — to examine everything from politics to French wine vintages.”
From the Concise Encyclopedia of Economics:
“The law of unintended consequences is that actions of people—and especially of government—always have effects that are unanticipated or “unintended.” Economists and other social scientists have heeded its power for centuries; for just as long, politicians have largely ignored it.”
Example: The War on Drugs, aka as the War on U.S. Asparagus.
The asparagus industry in Washington state has been decimated by a U.S. drug policy designed to encourage Peruvian coca-leaf growers to switch to asparagus. Passed in 1990, the Andean Trade Preferences and Drugs Eradication Act permits certain products from Peru and Colombia, including asparagus, to be imported to the United States tariff-free.
The National Drug Control Policy Web site currently notes that the Peruvian coca acreage, mostly in the highlands, is the highest it has been in eight years.
On the other hand, Peru has become a powerhouse in asparagus production along its Pacific Coast lowlands. Peruvian asparagus production has multiplied 18-fold. The industry has developed a vigorous market and attracted sizable capital investment.
Meanwhile, the Washington asparagus industry is disappearing. Acreage has been cut by 71 percent to just 9,000 acres. In 2005, Seneca Foods closed the world’s largest cannery in Washington, and shipped its state-of-the-art equipment to — no surprise — Peru. So did Del Monte, when it also closed its Washington plant.
From the International Herald Tribune, “As the world’s top auto executives gather in Detroit for the annual auto show there, one of the biggest questions is how GM will fare this year if, as is expected, Toyota passes it to become the world’s largest automaker. The answer will depend to a considerable extent on how GM performs in China, its second-largest market after the United States.”
We hear often of the U.S. trade deficit with countries like China and Japan, with the implication that nations trade with each other. Technically, nations do not trade with each other. Consumers and businesses in the U.S. buy products from businesses in Japan and China and other countries, and consumers and businesses in other countries buy U.S. products from American businesses. This is not just a technical issue, but a practical one, because we often lose sight of the importance of international trade when we talk about the “U.S. having a trade deficit with China,” or hear about “an imbalance of trade,” as if “countries” trade with each other. The “unit of analyis” in international trade is NOT countries, but individual consumers and individual businesses for the most part.
I think it would be more accurate to say, and it would increase our understand of trade, if we said “Conumsers and businesses in the U.S. purchased $75 billion more goods and services from Japanese businesses in 2006, than consumers and businesses in Japan purchased from U.S. businesses. On the other hand, Japanese investors invested $75 billion more in the U.S. economy than U.S. investors invested in Japan during 2006.”
For example, if you take your family on vacation to the Bahamas or Europe or Canada, I don’t think you would think of that action as contributing to the “trade deficit” or the “trade imbalance,” even though your vacation would technically increase the “trade deficit of the U.S.” And yet it is millions of individual transactions like your European vacation that make up the “trade deficit of the U.S.”
So keep in mind that individuals buy and sell and trade globally, not countries.
Venezuelan President Hugo Chávez on Monday announced plans to nationalize the country’s electrical and telecommunications companies, take control of the once-independent Central Bank and seek special constitutional powers permitting him to pass economic laws by decree.
“All that was privatized, let it be nationalized,” said Chavez.
Hasn’t that already been tried before and abandoned in places like the Soviet Union?
Q: The minimum wage has strong support from many policiticans. So when they vote to raise it next time, why not also vote to index the minimum wage to the rate of inflation, like Social Security payments, and be done with it? Forever.
A: Indexing the minimum wage would end the political payoff from raising it again sometime in the future? Forever.
From a recent report from the Joint Economic Committee of Congress:
According to a key Census Bureau measure, income inequality has been essentially unchanged since 2001. In response to a request by the staff of the Joint Economic Committee, a statistical test performed by the Census Bureau yesterday confirms that no statistically significant change in the inequality measure occurred between 2001 and 2005, the last year for which data are available.
In the bottom fifth of households, 58.7 percent have no earners, whereas in the top fifth 76.3 percent of households have two or more earners. There is often good reason not to work, such as retirement or disability, but obviously households without earners will lack earnings.
Inequality in consumption is much less than inequality in income. For example, the level of consumption in the bottom fifth is nearly twice that of income, indicating that income is not necessarily the best measure of economic well-being.
Civil rights used to be about treating everyone the same. But today some people are so used to special treatment that equal treatment is considered to be discrimination.
~Economist Thomas Sowell