QOTD: Peter Boettke

Peter Boettke writing today at Coordination Problem:

We live in an imperfect world populated by very imperfect individuals muddling through with the aid of various institutions, such as those of involved in financial intermediation. The system if based on the rule of law and freedom of contract, will be smarter than any of the individuals that utilize it. Property, prices and profit/loss incentivize, provide guiding signals, and the critical learning feedback so that savings of some will be allocated toward productive investment projects by others. There simply is no alternative to generalized prosperity than through a vibrant capital market.

The idle rich are never really idle is a free market economy.

Response to my Brat article’s critics

I’ve noticed that comments on my piece at The Freeman today have been largely negative. Most of the negativity surrounds my claim that immigrants don’t come to the United States to become unemployed, and will therefore stop coming en masse when there are no jobs for them. I’m wrong, the commenters say, because immigrants are incented to come for the welfare benefits and therefore open borders is a bad idea and only makes things worse.

Boiled down, however, what these commenters are saying is that because we have a bad form of government intervention (welfare), we should create another bad form of government intervention (border fence/stifling free movement of labor) to counteract it. Just like the statists many of them claim to despise, they advocate for more government intervention to solve problems created by previous forms of government intervention.

Also, what many of my critics implicitly assume is that we somehow slow the progression of the welfare state and bankrupting of the United States government by limiting immigration. We have this terrible welfare system, they say, that perverts incentives and slows economic growth. We should forbid free movement of labor into the country for that reason because, I’m guessing, they think the system is sustainable or won’t get worse otherwise. To that I say: Couldn’t the effect by exactly the opposite? Could not the free entry of labor into the country spur more economic growth that outpaces additional strain on the welfare system? Could not restricting immigration slow economic growth and leave even a higher proportion of Americans unemployed and demanding/earning welfare handouts? Is not this alternative equally as feasible as the other? In light of historical data about immigration’s effect on economic growth, I’d say my proposed alternative is far more likely.

Finally, I will admit that some immigrants come to the United States to live off welfare. My guess, however, is that this includes less than one percent of them. Firstly, illegal immigrants cannot receive welfare. Secondly, legal immigrants must reside in the United States for five years before they are eligible to become a citizen and receive welfare. This means that if someone does indeed want to come to the United States to live off the welfare system (which still leaves them in poverty), they must be able to work and support themselves for five years–not something I’d suspect people want to do who are so lazy they’d rather change countries than go to work.

I have more thoughts on this issue. I’ll post them here later.

I got published: David Brat’s Bad Immigration Logic

I got published today at The Freeman on David Brat’s bad immigration logic. I haven’t been published at The Freeman before, so that’s cool.

I’m sad to have to call Brat out on this issue, but facts are facts. He’s just dead wrong. And as an economics professor, he has no excuse. If, like he says, immigration really does create a lump of labor and unemployment, then a logical solution to solving existing unemployment is to simply raise the minimum working age and reduce the supply of labor. He, of course, would never advocate this. Why then advocate for immigration restrictions with the goal of constricting the supply of labor?

I got reposted to Zero Hedge

My article at Mises.org yesterday was reposted to Zero Hedge. By the looks of it, the piece got quite the exposure.

One commenter of the article’s link on Reddit made a comment that I think summarizes my argument quite well: If minimum wage works, why are people with disabilities exempted from it?

Of course, there are those that disagree with the exemption and believe, for “equality’s” sake, that people with disabilities deserve to be paid minimum wage like everyone else. Many of these people are self-described “advocates” for the rights of people with disabilities and wrongly consider ending the 14(c) exemption a matter of justice. But first they must prove that minimum wage actually helps those it’s intended to help, which, as my article explains, would in turn defy the reasoning of minimum wage’s originators.

I got published

I got published at Mises.org today. Topic is how minimum wage law logically undermines itself.

The 14(c) exemption for people with disabilities reveals the brokenness of minimum wage law. It makes the policy all the more heinous, as lawmakers insist on enforcing, and even strengthening, such laws while exhibiting their full awareness of how it harms the least productive people.

Cantor. And Brat’s wrong on immigration.

The New York Times Editorial Board laments the fall of Eric Cantor to “little-known resident of the distant extremes” David Brat. They’re no fans of Cantor, but Brat, they say, is even worse. Two thoughts on this piece.

1. Eric Cantor epitomizes corporatism. His top five donors this past year include Blackstone Group, Scoggin Capital Management, Goldman Sachs, Altria Group and Charmer Sunbelt Group. He’s a shill for Wall Street special interests…so much so that it almost goes without saying in this Politico article. He’s the archetype of politico “1 percenters”. I wonder if the New York Times knows this.

2. What’s so wrong with immigration? The article references some pledge going around among Tea Party types (like Brat) opposing not only attempts at amnesty, but even measures that increase legal immigration and increase the overall number of guest workers. Additionally, I found the following comment on Brat’s website:

“Adding millions of workers to the labor market will force wages to fall and jobs to be lost.”

Read that again. So more willing workers coming to America to feed their families means wages will fall and jobs will be lost. That’s assuming people continue to come to America when their prospects for employment here are virtually zero (bad assumption). It also assumes that the new workers will willingly work for less than those already here, which means more money left over for business owners to invest elsewhere (good assumption, and a good thing!).

Bad economic logic. But I don’t think most conservatives’ opposition to immigration has ever been about economic logic. It’s more about perceived culture erosion. Imagine if conservative-leaning, English-speaking Canadians were pouring into the United States to take advantage of our freer market conditions. Would conservatives be so quick to ship them out at every possible opportunity?

For example, according to this logic it makes sense to raise the minimum working age from 16 (or whatever) to 21. That way, the labor supply is limited and those annoying teens won’t be around to bid down wages!

Why inequality hawks (and their opposites) frustrate me

Paul Krugman’s June 1 New York Times op-ed “On Inequality Denial” makes me mad.

In it, he criticizes Financial Times editor Chris Giles for his allegedly flawed critique of Thomas Piketty’s Capital in the Twenty-First Century. He writes,

We have two sources of evidence on both income and wealth: surveys, in which people are asked about their finances, and tax data. Survey data, while useful for tracking the poor and the middle class, notoriously understate top incomes and wealth — loosely speaking, because it’s hard to interview enough billionaires. So studies of the 1 percent, the 0.1 percent, and so on rely mainly on tax data. The Financial Times critique, however, compared older estimates of wealth concentration based on tax data with more recent estimates based on surveys; this produced an automatic bias against finding an upward trend.

Interesting. I haven’t evaluated Krugman’s claim myself. I haven’t read Giles’ critique. I haven’t even skimmed Piketty’s book. For all I know, Giles could be dead wrong and Krugman spot on.

But what frustrates me about inequality hawks like Krugman is their habitual unwillingness to consider how anything other than tax policy contribute to growing inequality (whether such a trend exists or not). At the end of the post, he writes,

…taxes and benefits don’t greatly change the picture — in fact, since the 1970s big tax cuts at the top have caused after-tax inequality to rise faster than inequality before taxes. This picture makes people uncomfortable, because it plays into the populist demands for higher taxes on the rich. But good ideas don’t need to be sold on false pretenses. If the argument against populism rests on bogus claims against inequality, you should consider the possibility that the populists are right.

If I had time, I’d sift through every other post on Krugman’s blog to mark every mention of how tax breaks for the wealthy and a general lack of state intervention on behalf of the poor contribute to growing income ineaquality. I’d compare these with his mentions of how inflation, bank bailouts, crowding out and regulatory capture make life more expensive all around, thereby harming the poor most of all. I can’t be sure, but from my many years of reading Krugman’s blog, I’m sure the former would outnumber the latter by something like one million percent.

I’m not in the inequality debate for kicks and giggles. I’m not in it to unilaterally defend the 1 percent, corporate America or “right-wing” economics. I’m in it because much of what I read is dead wrong and not enough people are saying the right things.

What the inequality debate needs is less lopsided analysis from the likes of Krugman (and many right-wing economists, for that matter) and more equitable commentary that examines not only how tax rates and loopholes contribute to skyrocketing wealth at the top, but also how existing government policy — QE infinity, inflation, unemployment insurance, minimum wage, etc. — exacerbates the problem. Is that not a compromise partisans are willing to make?