Government is the great fiction through which everybody endeavors to live at the expense of everybody else.
I thought of Bastiat's quote as I read this article on the employment effect of the Affordable Care Act.
Government is the great fiction through which everybody endeavors to live at the expense of everybody else.
I thought of Bastiat's quote as I read this article on the employment effect of the Affordable Care Act.
Another Congressman is retiring and laments the acrimony in the House today relative to some idealized past.
Dingell told the Detroit News he finds "serving in the House to be obnoxious" and that "it's become very hard because of the acrimony and bitterness, both in Congress and in the streets." In his prepared "State of the District" remarks, Dingell said he was hopeful the "fever" that has come over Congress will break.
First, governing in our federalist republic has never been pretty, and that's a feature not a bug. Getting things done through the political process is intentionally meant to be difficult in order to preserve stability and reduce uncertainty.
Second, what many people like Dingell who argue that Washington has become more divisive lately (and North Carolina is little different) likely won't consider is something Frédéric Bastiat wrote about more than 150 years ago in The Law.
This unavoidable phenomenon, combined with the lamentable inclination that, as we have observed, exists in the heart of man, explains the almost universal perversion of the law. It is understandable how, instead of restraining injustice, the law becomes its instrument, indeed its most invincible instrument. It is understandable that, in proportion to the power of the legislator, and for his profit, the law destroys, in varying degree, among the rest of mankind, the rights of the person by way of slavery, liberty by way of oppression, property by way of plunder.
It is in the nature of men to react against the iniquity of which they are the victims. When, therefore, plunder is organized by the law for the profit of the classes who make it, all the plundered classes seek, by peaceful or revolutionary means, to enter into the making of the laws. These classes, according to the degree of enlightenment they have achieved, can propose two different ends to themselves when they thus seek to attain their political rights: either they may wish to bring legal plunder to an end, or they may aim at getting their share of it.
Woe to the nations in which the masses are dominated by this last thought when they, in their turn, seize the power to make the law!
Bastiat goes on:
No society can exist if respect for the law does not to some extent prevail; but the surest way to have the laws respected is to make them respectable. When law and morality are in contradiction, the citizen finds himself in the cruel dilemma of either losing his moral sense or of losing respect for the law, two evils of which one is as great as the other, and between which it is difficult to choose.
If I want to increase my profit for an existing product I have one of two ways of doing so: raise the nominal price, or reduce the size of my product. If a candy company currently prices its candy bar at $1 for a 6 oz. bar, it can increase its profit by raising its price to $1.20 for the 6 oz. bar, or it can instead keep the price fixed at $1 and decrease the size of the candy bar from 6 oz. to 5 oz. It effectively did the same thing, but the latter method is a bit more surreptitious than the former. (Selling 60 oz. of chocolate would increase total revenue from $10 to $12 in both cases.)
On January 15, 2012, the Powerball multi-state lottery increased the purchase price of one of its tickets from $1 to $2, leaving unchanged the odds of winning and the size of the jackpot.
On October 19, 2013, the Mega Millions multi-state lottery game also raised its price, but did so more like the example of decreasing the size of the candy bar—they decreased the odds of winning while maintaining the $1 price per chance.
Before October 19th, there were 175,711,536 different number combinations for Mega Millions, of which only one wins the jackpot. With the new Mega Millions, there are now 258,850,890 different combinations. To put this change in perspective, prior to October 19th, winning the old way was equivalent to lining pennies edge-to-edge on a driving route from Springfield, MO all the way to Seattle, WA. One of those pennies was marked with an X on the underside and you had one chance to drive to some location on the route, stop at one of these pennies and turn it over. If that penny had the X you won the jackpot. Winning with the new Mega Millions game extends the route all the way from Seattle to Jacksonville, FL. Good luck finding that one penny!
Decreasing the probability of winning was partially offset by increasing the starting jackpot for the winner and by how much the jackpot increases each week there is no winner. So what really matters here is the expected value of buying a chance at winning the Mega Millions jackpot. Because the jackpot does change, and because more people play as the jackpot increases, increasing the probability that the winner will have to share the winnings, I will use just the lowest jackpot amount, which is what the jackpot begins with until someone matches the jackpot numbers.
There are nine possible ways to win money from purchasing any one number combination, but winning is not cumulative. For example, if you correctly picked, say, 3 white balls and the power ball, you don't win the jackpot, but you do win $50. However, you don't also win any lesser prizes for correctly having combinations requiring fewer numbers. You don't win an additional $5 for having three white balls, and $5 more for having 2 balls, etc. You simply win $50. Therefore, the value of any given number combination is equal to the maximum expected value of winning any prize with that combination, which for both the new and old games is winning the jackpot.
As seen above, the expected value of winning the jackpot for the old Mega Millions game for the lowest possible jackpot is 6.83¢, and for winning the new game it's 5.79¢. Did you get that? The expected value of playing (I hate using that word to describe buying a ticket) the Mega Millions game, which still costs $1, decreased by 1.03¢ as of October 19, 2012. That's equivalent to a roughly 16% increase in the price of buying any one number combination. And most people who play probably didn't even know it. (Then again, if you buy lottery tickets you don't understand probability theory either.)
This is not the first time that Mega Millions surreptitiously increased the price of playing its game. As shown in the chart below, and graphed below that, the expected value of a Mega Millions number today declined nearly 60% of what it was at the inception of the game (then known as The Big Game) on September 6, 1996.
But don't worry, it's all going toward improving education, at least in North Carolina.
Principle #2: People respond to incentives.
The Affordable Care Act (ACA) will tend to reduce participation, with the largest impact stemming from new subsidies that reduce the cost of health insurance purchased through exchanges. Specifically, by providing subsidies that decline with rising income (and increase with falling income) and by making some people financially better off, the ACA will create an incentive for some people to choose to work less.
This New York Times story notes:
The report did say that the law would reduce hours worked and full-time employment, but not because of a crippling impact on private-sector job creation. With the expansion of insurance coverage, the budget office predicted, more people will choose not to work, and others will choose to work fewer hours than they might have otherwise to obtain employer-provided insurance.
See, economists' claims that the ACA will reduce unemployment because firms would not hire as many people were incorrect. Employment will fall not because firms won't hire as many people, it's because people will reduce the number of hours they want to work, if they want to work at all. This is a supply issue, not a demand issue. In either case, economists were correct in their assertions that incentives would change and fewer people will be employed as a result of the ACA.
And from Senator Harry Reid:
The report “rightfully says that people shouldn’t have job lock,” said Senator Harry Reid of Nevada, the Democratic leader. “We live in a country where we should be free agents. People can do what they want.”
Agreed. Let's not lock insurance coverage of any kind with employment. But that last sentence?!?! "People can do what they want." At whose expense? I can see many baby boomers thinking that they can now retire five or ten years earlier than anticipated given others will now subsidize their retirement even more.
I'm not saying that our health care system is not in great need of correction, but that we have to pay attention to simple economic principles before we pass any bill, much less a bill that overhauls 1/7th of our national economy.
Additionally, from the NY Times article:
The budget office also estimated that about a million fewer Americans than expected would receive health insurance coverage this year through the marketplaces established by the Affordable Care Act, primarily because of the troubled rollout of the exchanges. It also revised its estimates of the number of people receiving coverage through Medicaid and Children’s Health Insurance Plan coverage, lowering it by about one million.
This is a few weeks dated, and is something I wanted to post earlier, but this op-ed by Linda Bilmes (Harvard prof and official in the Clinton Administration) and William Daly (former Chief of Staff to President Obama) published in the Washington Post provides an outstanding public choice explanation of the incentive problems inherent with public provision of goods and services such as the rollout of the ACA web site. The problems were a product of incorrect incentives (power rather than profits), not of incompetent programmers.
Over the past three decades, fierce global competition has forced corporate America to modernize how it manages projects so that they can be delivered as efficiently as possible. The federal government, insulated from market pressures, has fallen badly behind. In government, managerial jobs — such as chief financial officers, technology officers and procurement executives — are considered the least glamorous, a poor second to policymaking and politics.
Civil servants who manage government programs are judged by their ability to expand their departments, in terms of the number of employees and the size of their budgets. Most people who work in government are committed to their mission, so they naturally want their programs to grow bigger and do more. There is seldom much personal benefit, in pay or promotion, for a manager who delivers services at the same quality for lower cost. There are few thank-yous for simplifying Web sites or delivering faster, better service. Managers are actually penalized for being more efficient: If an agency saves money, its budget will most likely be reduced the following year.
The Aquinas College Jane Hibbard Idema Women's Studies Center is having a bake sale to raise awarness of the fact that women are discriminated in the workplace by the fact that women earn just 77¢ for every $1 earned by men.
Here's Christina Hoff Sommers explaining the reasons for this difference in income between men and women.
The 23-cent gender pay gap is simply the difference between the average earnings of all men and women working full-time. It does not account for differences in occupations, positions, education, job tenure, or hours worked per week. When all these relevant factors are taken into consideration, the wage gap narrows to about five cents. And no one knows if the five cents is a result of discrimination or some other subtle, hard-to-measure difference between male and female workers.
Now, this is where I usually cue in the McDonald's Happy Meal theory for why women self-select into lower paying careers, but Hoff Sommers discredits even that.
Have these groups noticed that American women are now among the most educated, autonomous, opportunity-rich women in history? Why not respect their choices? For the past few decades, untold millions of state and federal dollars have been devoted to recruiting young women into engineering and computer technology. It hasn’t worked. The percent of degrees awarded to women in fields like computer science and engineering has either stagnated or significantly decreased since 2000. (According to Department of Education data, in 2000, women earned 19 percent of engineering BA’s, and 28 percent in computer science; by 2011, only 17 percent of engineering degrees were awarded to females, and the percent of female computer science degrees had dropped to 18.) All evidence suggests that though young women have the talent for engineering and computer science, their interest tends to lie elsewhere. To say that these women remain helplessly in thrall to sexist stereotypes, and manipulated into life choices by forces beyond their control, is divorced from reality—and demeaning to boot. If a woman wants to be a teacher rather than a miner, or a veterinarian rather than a petroleum engineer, more power to her.
I'm not conceding that Hoff Sommers actually discredits my theory, but she has a good point when she argues that we should respect the career choices women make. I have to admit though, that if find it a little ironic that the Aquinas College Jane Hibbard Idema Women's Studies Center chose a bake sale to illustrate the wage inequality between men and women?
HT: Marianne for the picture.
Jeffrey Dorfman offers some good insight into the minimum wage and who actually earns relatively low wages.
That leaves only about 1.1 percent of all workers over 25 and 0.8 percent of all Americans over 25 earning the minimum wage.
- - - -
In fact, according to a recent study, 63 percent of workers who earn less than $9.50 per hour (well over the minimum wage of $7.25) are the second or third earner in their family and 43 percent of these workers live in households that earn over $50,000 per year.
- - - -
Further, almost two-thirds of today’s minimum wage workers are in the service industry and nearly half work in food service. Because this is where the minimum wage workers are, that is what we will focus on for the rest of this column.
In summary, those on whom the minimum wage is binding are largely younger, are secondary or tertiary (or more) income earners in their respective households, and the majority work in the service industry. I would only add to Dorfman's argument here that many of these workers in the service industry, maybe even most, have their earnings supplemented by tips. (From personal experience also, my guess is that many of these workers and others receive income that is not reported.)
Dorfman then goes on to berate liberals, especially Elizabeth Warren for making the following claim.
Liberals have been trumpeting a study claiming that if the minimum wage had risen in tandem with worker productivity, the minimum wage would be nearly $22 per hour.
He challenges this argument using data from the Bureau of Labor Statistics (BLS) on labor productivity in the food service sector.
Taking a longer view, from 1987 to 2012 the same BLS data show that worker productivity in the food service sector rose by an average of 0.6 percent per year. In limited service restaurants, the gains were slightly lower, only averaging 0.5 percent per year. Meanwhile, unit labor costs have risen by an average of 3.6 percent. Over this period the minimum wage has risen from $3.35 to $7.25 per hour which is an average annual increase of 3.1 percent. In other words, at least in food service, the minimum wage has risen at a rate five or six times as fast as justified by the gains in worker productivity.
Is this relevant? Well, yes and no.
The theory of comparative advantage explains how the wages of two people or groups of people who trade with each other can increase even if the labor productivity of just one of them increases. Suppose I can mow LeBron James' yard in one hour, and to do so I have to give up earning $10 doing something else. (Let's just say that $10 per hour accurately reflects the productivity of my labor services for that one hour.). And let's suppose that LeBron James' could mow his own yard, but in doing so must forego an hour of practice that due to some incentive clause would increase his income by, say, $1,000. Then he and I have a mutually advantagous trade by me mowing his lawn for anything between $10 and $1,000.
Suppose now that LeBron's labor productivity subsequently increased so that his opportunity cost of mowing his lawn doubles to $2,000 per hour. Now the mutual advantages to our exchanging my labor services for payment increases to between $10 per hour and $2,000 per hour. Where we end up depends. If barriers to entry preclude others from entering the lawn mowing business, my wage would increase closer to the $2,000 threshold. If, however, plenty of people could enter this market, then it would remain closer to the $10 range.
My labor productivity did not change at all, but that doesn't mean that my wages would not necessarily increase. Whether my wage increases or not depends on the gains from trade by employing my labor services mowing LeBron's yard. As an actual example, the labor productivity of barbers and other cosmetologists has probably not increased much over the past twenty-five years either, but I'm guessing the real wages in this sector have increased over that period.
Now, this doesn't mean that Dorfman is incorrect, only that the labor productivity of a worker is not the only determinant of his or her wage. You have to also consider the opportunity costs of labor to determine the value of the labor that person provides.
So why haven't wages in the food service industry kept up with overall labor productivity? Because what determines exactly where the terms of trade end up within the wedge of a worker's productivity and the opportunity cost of the person or persons with whom they trade depends on the relative value to each party of the services or good each party provides the other. In the case made by Dorfman, since food service work requires relatively little skill, plenty of people are willing to enter that industry and compete away additional wage payments above and beyond their opportunity costs. This means that the terms of trade are closer to the actual productivity level of food service workers and not upwards to the opportunity costs of workers whose labor productivity increased.
For another comparison, consider the labor productivity of academics, which has not likely increased over the past twenty-five years either, even though their real wages have risen significantly. This is because it is much more difficult and costly to become an academic, and demand for the services of academics has increased significantly over this time. This means that both the marginal revenue product of an academic has increased over the past two decades (almost all of that due to gains in marginal revenue, not in productivity), and barriers to entry allow the wages of academics to rise without new entrants competing to push them downward.
I received an email from Amazon.com asking me the following:
As someone who owns Schlage F10ACC619 Accent..., can you help this fellow customer?
[Name Withheld] asks
"what is the difference between Schlage F10VACC619 and Schlage F10ACC619 ?"
A customer asked Amazon.com a question, and Amazon used crowdsourcing to come up with an answer. (I'm guessing they sent the same email to other people.)
It just so happens that I had the same question last year when I purchased the locksets for the doors on my third floor and emailed the manufacturer about it. I was able to reply to this questioner with the answer I was given from the manufacturer, which is that there is no difference in the product, only with the packaging. The "V" denotes a blister packaging for retail stores like Home Depot.
The world is becoming smaller and smaller every day.
Data released today shows that 203,000 new jobs were created in the United States in November and that the unemployment rate fell to 7%, it's lowest level in five years.
Here is a graph of civilian employment in the U.S. over the last year, indeed showing a jump in net new jobs.
And here is the graph showing the unemployment rate. It did indeed decrease over the past year.
But this information tells only part of the story. Unemployment is measured by dividing the number of people unemployed by the number of employed plus the number of unemployed people. (Unemployed are people who actively sought work but have been unable to find a job. See this for more information.)
Suppose our economy consisted of 300 people. One hundred were either younger than 16 years of age, in the military, or institutionalized in a prison or retirement home or home for the disabled. They are not included as able for work, therefore they are not included in our employment and unemployment stats.
Another hundred of the three hundred citizens of our country were retired at home, stayed at home to take care of kids, full-time students not looking for work, or others who were neither working nor looking for work. These people are considered not in the labor force. They do not show up in our unemployment stat.
Lastly, let's say that of the remaining one hundred people, 7 wanted to work but could not find a job, while the other 93 were working at least part-time. We take the 7 (unemployed) and divide it by 100 (i.e., 93+7=100) to calculate the 7% unemployment rate.
But suppose there were actually only 80 people who had been considered as not in the labor force last month, and 120 were either working or looking for work. Of these one hundred and twenty, suppose 15 were unemployed and 105 were working at least part-time. The unemployment rate would be 12.5%. Discouraged by not finding a job, suppose 10 of these 15 left the labor force by deciding to no longer even look for a job. Now the labor force is 110, of which 5 are currently unemployed. The unemployment rate is now just 4.5%, but are we better off?
So now let's look at some other charts.
First is the labor force participation rate.
This did increase over the last month, but only by two-tenths of a percentage point. Nothing to write home about, especially since it is still down by six-tenths of a percentage point from last year, and a full three percentage points from before the most recent recession.
Most importantly is the employment population ratio. This is a measure of the number employed divided by the total civilian population age 16 and over who are not institutionalized. (i.e., This would be the 200 from the example above. Dividing the 93 who are currently employed by the 200 who are considered employable, and you get an employment population ratio of 46.5%.)
Here we see an ever-so-slight increase over the past month, from 58.3% to 58.6%, but still down by one-tenth of a percentage point since last November.
Worst yet, it is not showing any recovery from the recession. This is not all that rosy of a jobs report.
Jon Stewart interviews Debbie Wasserman Schultz. (See video below.)
First, I love the use of the phrase, "We need real people." What she means by"we," of course, is people who believe in more centralized control of our economy, which of course means more power in the hands of people like Debbie Wasserman Schultz to control other people's lives.
Further, to explain what she means by "real people," Wasserman Schultz uses the example of mothers needing to become more involved in education. But there are plenty of "real people," both fathers and mothers, thank you, involved in their children's education, many of whom send their kids to private schools, in part to separate their kids from the large number of kids whose parents do not concern themselves with, and who do not actively participate in, their children's education.
Also, what about the "real people" who work in the private sector as employees, employers, entrepreneurs, etc. Don't they better our lives, and arguably far greater than 99.99% of any government program that I know of.
She uses a straw man to criticize Republicans (who, by the way, deserve tons of ridicule and criticism) as obstructionists who do not see any value in government. Given the expansion of government under eight years of Bush, with four of those years having Republican control over both houses of Congress, I wouldn't say Republicans don't believe in centralized decision making and big government. What many of the critics might be contending is that there are limits on what government can, should, and ought to do, not that it cannot do anything right. Honest people can disagree; they don't need their views distorted simply because you disagree with them.
Which brings up Stewart's last question to her (with about 1:40 left to go). He notes that the Republicans handed Democrats a golden opportunity for the latter to prove that government does work and that they failed to take advantage of this opportunity. Could it be maybe, possibly, might be, probably, that critics of centralized planning are correct in that centralizing health care won't work? It's not that but for the bumbling of the Democrats health care can be centralized, but maybe, could be, just might be that the failure to launch the Affordable Care Act portends larger systemic problems with centralizing health care, both now and in the future? Can there possibly be, might be, probably is, a problem with the incentives that preclude much success when government seeks to control other people's lives and the decisions they make or fail to make? And that such a system is too complex to collectivize?