Is religious adherence bad for the economy?

I have a new post up at First Thoughts about religious adherence and economic performance.

This one was prompted by a frustratingly shallow NPR story about Ramadan’s effect on GDP in majority-Muslim countries. Ramadan, it said, and (by implication) similar events in other religions steal from productivity as religious adherents divert energies toward something other than productive efficiency.

I argue otherwise. Go read the post to find out why.

On a related note, today happens to be the last day of Ramadan. How fitting!

Wage stagnation. Blame grad school?

The chart below from Kevin Drum at Mother Jones shows that median wage for 25-34 year olds have been stagnating or declining for more than a decade.

Wages don’t include other benefits, of course, but similar wage stagnation hasn’t been seen among older Americans. Two things about this chart:

First: I’m seeing anti-immigrant activists using data like this to argue against increased immigration into the United States. If we let more people in, they say, we’ll risk driving wages down even further as cheap labor undercuts the wage demands of already-here Americans.

I debunked this fallacy in The Freeman last month. I explained that while this might be true in the short run, the long run gains from a bigger pool of labor will almost certainly far outweigh whatever layoffs and pay cuts happen as the economy grows to accommodate more laborers. And of course, limiting the supply of labor by cutting off immigration in order to boost wages for those already working is no different than simply raising the minimum working age to 25 or 30 years. I think most people realize why this is a bad idea and would limit economic growth — fewer low-wage laborers means higher costs of production and higher consumer prices all around.

Second: Why would wages stagnate like this? Aren’t young people today more educated than young people of previous generations? Shouldn’t they be earning more…especially considering 6 years of relatively stable economic growth between 2001 and 2007?

A theory of mine, based on information from a recent Brookings Institution study, is that longer matriculation has something to do with this. According to that study, more young people these days are choosing to go to graduate school. These students are bright and not likely to be content earning $30,000 per year. This means that the 25-34 year old labor force is missing a sizable number of its brightest people, which skews the average wage downward. Those left in the labor force are more likely than members of older age groups to have performed poorly in college or, for that matter, not have gone to college altogether. Once you get above 34 years, most people have already completed their graduate degrees and have entered the labor market, thereby driving their age group’s average wage higher.

Hyperfocusing on negative externalities

Mark Buchanan had an interesting article at Bloomberg View yesterday. He writes:

Much of human activity is focused on the quest for efficiency — getting the most out of our resources so that we can improve our standard of living. Problem is, what we perceive as efficient is often making us worse off in ways that are difficult for the human mind to grasp.

He goes on to discuss honeybees’ declining population — a fact he blames on pesticide use. Pesticides, of course, are a primary reason for increased crop yields, which are good for everyone and the result of entrepreneurs pursuing maximum efficiency. But their effect on honeybee populations is bad for everyone.

This means, says Buchanan, that efficiency can’t be the only guide for our economic activity. Instead, he argues for “greater flexibility” and a “diversity of approaches” instead of only efficiency. He writes,

So we need a different approach, demoting efficiency as the only goal and instead pursuing greater flexibility. If we can’t know what will happen in the long term, then we need to maintain a diversity of approaches over time and avoid getting “locked in” to any one crop or industry.

I understand what’s he’s trying to say. Even though I suspect he’s pushing a hidden big-government agenda, such thoughts are vital to the health of even the freest of economies. Entrepreneurs can make mistakes.

But my problem with comments like these is that we don’t need anyone else saying things like this. Many are those who push for more regulation and who paint the free market as full of only failures. We’re already too quick to inflate the alleged failures of the free market outside the context of a cost-benefit analysis, whereby these failures are weighed against the targeted industry’s many uses and benefits.

For instance, pesticides may very well diminish the population of honeybees. But they also, of course, vastly increase crop yields, allowing farmers to feed more mouths with less land. In turn, some of the mouths fed belong to innovative people who devise ways of reversing negative externalities created by efficiency-seeking entrepreneurs — people who who owe their lives to pesticides. The result: A thriving economy, growing population and an ever-increasing number of solvable problems to keep us busy.

I’m not saying it’s wrong to identify negative externalities. Indeed, such an exercise has been the catalyst for many inventions we modern people couldn’t imagine living without. But for people who care about economic progress and not just pushing a pro-regulatory agenda, an industry’s negative externalities should be compared with the value it creates (in the case of pesticides: less hunger, longer life expectancy and higher GDP per capita). Only then do we get an accurate view of just how our collective efforts to do more with less are coming along.

I got a new theme

As you can see, I found a new theme for my blog. This one is much more modern. I’ve noticed the big thing in online journalism lately is to let the content (not the environment) set the tone — minimize distracting widgets to emphasize the content. As someone far too eager to fill in blank space for the sake of filling in blank space, this wasn’t easy for me to do. But you’ll notice that the new themes allows me to highlight my social media via buttons on the left, which let me remove the cumbersome “Follow me on Twitter” widget from my blog.

Any thoughts? Web design and WordPress are hobbies of mine. I don’t code, but I love tinkering around with WordPress themes and building websites.

QOTD: Jeffrey Kluger

Want to know how far we’ve sunk? Here’s how far: There was never any chance at all that we would handle the crisis of thousands of unaccompanied immigrant children running for their lives and arriving at our border with any maturity or grace at all. There was never a chance we’d take them in, get them fed and settled, and then consider sensibly how we can address the immigration-emigration mess on both sides of our border—and on our border—while working to send the kids safely home.

From Jeffrey Kluger, writing in TIME.

Boettke on the “economists’ conundrum”

From Chapter 1 of Peter Boettke’s Living Economics. I received the book as a gift on Monday and just started reading it.

This is the economists’ age-old plight: what is fleeting in economics is politically popular, whereas what is enduring in economics is politically unpopular. Hayek describes the economists’ conundrum as consisting of being called upon to consult with politicians on matters of public policy more often than any other social scientists, only to have their advice based on the principles of the science dismissed as soon as it is uttered. Not only are the teachings of the discipline dismissed, but public opinion on the matters at hand seems to run in precisely the opposite direction of that of the economist.

Boettke doesn’t mention what I think is an obvious third layer to this “conundrum.” That is, that as opportunistic young economists grow into their shoes, they themselves are often swayed by political theater and enticed to promote ideas and theories that are “fleeting” and bad for the discipline, yet quite marketable among the reading public. Therefore, the problem threatens not only economists’ image and effectiveness, but the very heart of their discipline.

QOTD: Henry Hazlitt

From Chapter 14 of Henry Hazlitt’s timeless book The Failure of the “New Economics”:

According to Keynes, holding cash for the “speculative motive” is wicked. This is what the Monetary Authority must stop. It is Keynes’s usual trick of giving the dog a bad name as an excuse for shooting him. But it is a nice question whether those who hold cash because they distrust the prices of investments or of commodities are holding cash in order to speculate or in order not to speculate. They hold cash (beyond the needs of the transactions-motive) because they distrust the prices of investments or of durable consumption goods; they believe that the prices of investments and/or of durable consumption goods are going to fall, and they do not wish to be caught with these investments or durable goods on their hands. They are seeking, in short, not to speculate in investments or goods. They believe that next week, next month, or next year they will get them cheaper.

This may be called speculating in money, as Keynes calls it; or it may be called a refusal to speculate in stocks, bonds, houses or automobiles. The real question to be asked about it, however, is not whether or not this is “speculation,” but whether it is wise or unwise speculation. It is usually most indulged in after a boom has cracked. The best way to prevent it is not to have a Monetary Authority so manipulate things as to force the purchase of investments or of goods, but to prevent an inflationary boom in the first place.

No one actually reads Piketty’s book

Hardly anyone actually finishes Thomas Piketty’s Capital in the Twenty-First Century. According to University of Wisconsin professor Jordan Ellenberg writing at last Thursday, only 2.4 percent of readers actually make it to the end of the book.

Of course, we can’t know this for sure. Ellenberg admits this study is for “entertainment purposes only.” The number is based on where in the book Kindle users tend to highlight passages (Kindle users’ highlighted passages are made public). Ellenberg explains:

How can we find today’s greatest non-reads? Amazon’s “Popular Highlights” feature provides one quick and dirty measure. Every book’s Kindle page lists the five passages most highlighted by readers. If every reader is getting to the end, those highlights could be scattered throughout the length of the book. If nobody has made it past the introduction, the popular highlights will be clustered at the beginning.

In the case of Piketty’s book, the last of the top-five most highlighted passages occurs on page 26. That’s not very far, considering the book is more than 700 pages long. So even with a huge margin of error, it seems few people are actually reading Piketty’s book.

But should anyone be surprised? It’s a dense pseudo-textbook on economic theory. I’m just glad people are thinking about these issues, even if wrongly.

QOTD: Ron Paul

Ron Paul discussing the Hobby Lobby case and the alleged “right” to free birth control on the Glenn Beck Show this morning:

Demands and desires and needs can’t become ‘rights.’ That’s why we have a society in which anyone who needs or wants something says, “We have a right to this!” But they never say, “Whose rights must we violate in order to get what we want?”

Obamacare as jobs creator? Not so fast.

According to Thomas Black and Caelainn Barr writing at this morning, 2014’s surging hiring pace indicates broad economic recovery. Whether this is driven by stronger fundamentals or the illusions of easy money is yet to be seen.

But my reason for highlighting this article is for one particular phrase near the end:

Positions for software developers, computer systems analysts and financial compliance officers are getting hard to fill, said Paul McDonald, senior executive director at Robert Half International, Inc., the Menlo Park, California-based professional employment service company.

The boom in technology has driven the unemployment rate below 1 percent in the industry. New financial regulations and requirements for the Affordable Care Act are also boosting demand for professionals, he said.

I added the emphasis in the second paragraph. Even the slightest bit of thinking about this comment should lead you to understand that these new jobs aren’t actually a positive development. That’s because, I’ll remind you, more employment itself is not necessarily a good thing. More employment only indicates economic growth if the new jobs create real value–something ACA compliance officers probably don’t do. Of course, executives wouldn’t hire such compliance officers if they weren’t convinced such officers add value to their companies (even if, at the very least, by keeping them out of trouble with the IRS/HHS). But compliance officers don’t necessarily add value to the real economy.

For example, consider the hypothetical ABC Company. Since the beginning of 2014, ABC Company has spent $50,000 on ACA compliance initiatives. This was money that could have been invested elsewhere, like R&D or towards hiring another salesperson. Instead, it was “invested” toward ensuring compliance with an overbearing state regulation that itself impedes economic growth, and that the ABC ‘s owners are more than likely to believe either doesn’t help or harms their company’s long-term prospects. In effect, this is hardly different than simply giving $50,000 to some stranger on the street.

I’m reminded of the famous Milton Friedman/William Aberhart quote regarding government program jobs:

At one of our dinners, Milton recalled traveling to an Asian country in the 1960s and visiting a worksite where a new canal was being built. He was shocked to see that, instead of modern tractors and earth movers, the workers had shovels. He asked why there were so few machines. The government bureaucrat explained, “You don’t understand. This is a jobs program.” Milton replied, “Oh, I thought you were trying to build a canal. If it’s the jobs you want, then you should give these workers spoons, not shovels.”

While this story is not about regulatory compliance, it might as well be. Creating jobs by requiring spoons instead of shovels is hardly different than creating jobs by requiring companies to hire more people to ensure compliance with new, confusing, overbearing and unwanted regulation. In both cases, business owners are hiring people they wouldn’t have otherwise hired for the sole purpose of complying with rules they don’t believe will help their businesses.

Finally, on a somewhat related note, new government audit reports reveal Obamacare is still a total mess. Sources here and here.