Do you believe in magic?
This headline caught my attention:
Romney Wants GOP to Be the Party of Jobs and a Minimum Wage Hike
Just imagine how much higher the minimum wage would be if the GOP had won the election in 2012. Thank God for Mr. Obama.
Of course the right did win the German election, and in addition to instituting a minimum wage in the world’s only non-dysfunctional big country labor market, they’ve decided to cut the retirement age:
Individually, these proposals may seem noble-minded. But as a package, the plan is “short-sighted and one-sided,” thinks Axel Börsch-Supan, a pension adviser at the Munich Centre for the Economics of Ageing. It benefits the older generation, which is already well looked after, at the expense of younger people who will have to pay higher contributions or taxes. “The financial and psychological costs of the pension at 63 are disastrous,” Mr Börsch-Supan says. There will no longer be any incentive to keep working longer. In some cases, people may, in effect, retire at 61, register as unemployed for two years, and then draw their full pensions.
Criticism of the pension changes straddles German politics. Social Democrats who were involved in previous reforms, such as Franz Müntefering, a former party boss, are against. So are members of the business-friendly wing of Mrs Merkel’s own party. Employers are opposed, because they face labour shortages and are trying to persuade older workers to stay in their jobs longer, not leave sooner. Even the churches are critical, on the grounds that the plan violates “generational justice”. Germany’s EU partners are especially upset. Olli Rehn, the European economics commissioner, has said that the commission may even sue Germany if it goes ahead with the plans.
Love that part about opposition from the Social Democrats. And the cardinals seem to have elected a Peronist pope:
The Peronist pope?
The political landscape of Francis’s homeland, however, offers a more accurate, and nuanced, understanding of his views. For most of his life Argentina has plotted a kind of third way between Marxism and liberalism””albeit one with disastrous political and economic results. “[Francis] only knows one style of politics,” says a diplomat accredited to the Holy See. “And that is Peronism.”
The creed bequeathed by Argentina’s former dictator, General Juan Perón, with its “three flags” of social justice, economic independence and political sovereignty, has been endlessly reinterpreted since. Conservatives and revolutionaries alike have been proud to call themselves Peronist. But at its heart it is corporatist, assigning to the state the job of resolving conflicts between interest groups, including workers and employers. In that respect it resembles fascism and Nazism””and also Catholic social doctrine.
Peronism combines the things I hate most about the left, with the things I hate most about the right. And yet at least Pope Francis has empathy for the world’s “true victims:”
“He has changed the topic from abuse without doing anything about it,” says Anne Barrett Doyle of the American watchdog group bishopaccountability.org. “I would never have predicted that a whole year would go by without the new pope reaching out in a meaningful way to the victims.” In his most recent interview, with Corriere della Sera, Francis appeared to suggest that the church was the true victim: it was “perhaps the only public institution to have acted with transparency and responsibility…And yet the church is the only one to have been attacked.”
Just when the news seems bleak, I can always count on the Chinese commies to cheer me up:
Mr Li also said the amount of energy consumed per unit of GDP growth would be cut this year by 3.9%, after a 3.7% drop last year. He omitted to mention that coal consumption, China’s biggest source of energy and a major cause of smog, is expected to continue rising. But he did say that emissions of sulphur dioxide (which result from burning coal and contribute to smog) fell by 3.5% last year and would drop another 2% this year. Smog notwithstanding, researchers at Harvard University last year said China’s cuts in sulphur-dioxide emissions in recent years may have been “one of the most swiftly effective air-pollution policies ever implemented anywhere”.
Over the next 30 years China’s air and water will get dramatically cleaner, partly due to tough regulations, and partly due to China’s ongoing switch to a service economy, once the physical infrastructure appropriate for a developed economy is built out. And say what you will about the Chinese, they are building a modern economy at blinding speed. (Pretty soon I need to do another “apocalypse later” post.) Long term I’m much more worried about global warming than I am about Chinese air and water pollution.
And don’t forget we are coming up on the 25th anniversary of May 35th.
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1. June 2014 at 12:57
On the one hand, of course earlier retirement ages reduce the labor pool and must be financed.
On the other hand, what is the point of increasing productivity and wealth? In the 1960s in the USA, Life magazine predicted a four-day workweek. It made sense–real GDP rose by more than 8 percent in 1965 and the five day a week workwork had replaced the prewar six-day norm. So…what happened? Productivity has doubled since the 1960s but workweeks have gotten longer…
If we are going to have a taxed and regulated economy starved by an anorexic monetary policy, why not have some regulations that civilize life for average people?
1. June 2014 at 13:31
Some people say that the Chinese are currently geared toward a system of officially sanctioned intellectual property theft (targeting other nations). What’s your opinion?
Also do you think a free market requires authoritarian one-party rule and arbitrary involuntary organ harvesting? What is the human organ market like in China? Is it truly free? If I need to buy a five year old’s liver, can it be found in China? How are the prices? What about quality?
1. June 2014 at 14:37
Ben, The best way to “civilize life” is to deregulate, and let people choose the options they think are best for them.
Tom, IP laws are far too strict, so I think the “theft” of IP by the Chinese is an optimal policy, at least in many cases. It is certainly not a major cause for concern.
You asked:
“Also do you think a free market requires authoritarian one-party rule and arbitrary involuntary organ harvesting? What is the human organ market like in China? Is it truly free?”
My understanding is that China takes organs from condemned prisoners, and there is some dispute as to whether they give “consent.” They are planning on phasing out this policy–don’t know how far along they are. The Chinese example suggests that involuntary organ harvesting goes with non-free market policies–just the opposite of what you hypothesized. As countries adopt free markets (like Hong Kong) they tend to abandon that sort of barbaric practice.
1. June 2014 at 16:21
Off topic
Professor,
Charles Plosser made a speech on Friday about rules-based monetary policy:
http://www.philadelphiafed.org/publications/speeches/plosser/2014/05-30-14-hoover.cfm
His big issue with rules-based policy is that there’s disagreement on the correct model of the economy, but he still thinks that it’s the direction that the Fed should move towards. NGDP futures targeting would seem to get rid of the modeling problem. Too bad the Fed is so mistrustful of markets.
1. June 2014 at 16:22
Most people prefer the illusion that they’re being paid “their worth” in reward for work as opposed to being paid a certain amount because of a statutory minimum.
But I guess it’s not all bad. That wage floor does seem to push people to educate themselves more and employers to pay for the costs of more labor-saving technology, which in the long run is nothing but good news.
The political instability was probably a bigger factor than anything else in Argentina’s stagnation. Mexico did a combination of industrial policies involving bad farmer socialism, state-owned enterprises, and Import Substitution Industrialization and still manage to have pretty good growth for three decades (albeit not as good as the Chinese, but aside from southern Mexico they were starting from a higher base).
@Tom Brown
Basically, every country aside from the British that has industrialized has done so in part by appropriating as much useful technology from more advanced countries as possible and then putting it to work in a local setting with their own “spin” and advancements on it. Other countries in Europe did it by bribing British workers and industrialists with higher wages to come there, while others – such as the US – openly offered favors and policies to anyone who brought British industrial trade secrets back there.
Think of it as a healthy competition. It’s the US’s right to try and protect its trade secrets, and it’s developing countries’ right to try and get around those barriers as much as possible so they can advance themselves – especially since anyone who isn’t rich specifically because of a trade barrier (IP or otherwise) benefits from a world in which everyone is “all caught up”.
1. June 2014 at 17:02
One word: Sunspots.
Solar flare activity correlates better with the earth’s temperature than anything else anyone has come up with. And the current trend is one of sharply declining solar flare activity — which should lead to colder earth temperatures …
1. June 2014 at 17:19
“And don’t forget we are coming up on the 25th anniversary of May 35th.”
I hope this explains why I haven’t been able to access any google websites for the past few days here in China!
1. June 2014 at 19:29
Scott Sumner–As a libertarian, in my utopia I agree with you, that less regulation and government is best.
But as a practical matter, for a citizen in a modern state…I wonder.
The reason?
Various and numerous special interest groups have their hooks in the economy, whether rural residents, vets, businesses allied with the Commerce Department, people in the defense-foreign policy world, businesses associated with extensive regulations at state and local levels, and those who concoct special passages in the tax code.
It is hardly an original observation that special interests prevail at the expense of the general.
So, when something can done that gives a large and general mass of people a benefit—such as early retirement—it can be seen as the general interest swiping back what was swiped from them by the collection of special interests.
A federal employee in the military can retire with full pension and medical after just 20 years of employment. Or, they can quit earlier, and get a “disability” benefit that is larger than they would get working at the minimum wage.
There are now more Americans collecting “disability” benefits from the VA (3.7 million) than there are working at the minimum wage (about 2 million). So which is the larger structural impediment?
In other words, the modern economy is politico-economic farce anyway. Why not make life good for ordinary citizens?
I would prefer wiping out the entire range of special interests. Good luck with that.
1. June 2014 at 20:53
Kgaard,
Why would you think that climatologists arent aware your sunspot theory? Or are you proposing there is a giant conspiracy?
1. June 2014 at 22:19
Funny thing is this, social security can be fixed by simply increasing the bond return in the “trust fund” (which is simply a spreadsheet). No reason to cut benefits or raise taxes.
1. June 2014 at 23:21
“In that respect it resembles fascism and Nazism””and also Catholic social doctrine.” This is egregiously bad reporting by the Economist, and I’m a little upset that Scott quoted it. Even if one were to grant, for the sake of argument, that fascism, Nazism, and Catholic social doctrine have some things in common when it comes to economic ideas, that is a glib and irresponsible way of discussing that topic. It’s like saying, “so and so is a vegetarian…just like Hitler.” Similarly, some claim that Nazi Germany engaged in Keynesian stimulus policy. Yet, it would be absurd and offensive to mention Obama and the Nazis in the same breath merely because both engaged in deficit spending.
Scott, you’re better than this.
1. June 2014 at 23:37
Also, regarding sex abuse: http://www.cnn.com/2014/05/26/world/pope-sex-abuse/
The insinuation that he is not empathetic toward sex abuse victims is not very charitable.
2. June 2014 at 04:51
Scott,
This is the fault of Economists.
The Catholics have an awesome economic theory called #Distributism.
At it’s core it s an understanding that all systems have a pollution called INEFFICIENCY.
The small firm is less efficient than the large firm, so larger firms will find consumer surplus, and beat small firms.
Go capitalism!
Wrong.
There is an unmeasured negative externality to large firms. Big Government. You CANNOT HAVE Large Firms and not have Big govt.
And Economists will not confront this directly.
All the efficiency found in large firms, in turn grows a larger more inefficient government.
—–
But now things are different. This time we have the Internet.
Since the web makes things near frictionless, reduces transaction costs, and empowers small firms to moves faster than large firms….
We ought to reexamine our thinking about HOW to create economic equality, BECAUSE it will speed the growth of the Internet.
One example is limiting the size of firms that can use a wage subsidy system: what this does is create a RENT for SMB owners, it gives them a seat at the trough. You as much as anyone understand thats where political power comes from.
Another would be only offering FDIC insurance to mutual local (and virtual) banks.
Another would be allowing SMB owners to easily move capital from one entity to another entity without paying income tax.
#Distributism understands the network theory of p2p. Use law right up front to favor the small capitalists and you stop the pollution of Bog Government forever.
2. June 2014 at 04:56
Re: global warming
Depending on the data set, there has been no global warming for 10-17 years, despite a pretty rapid increase (2 ppm / year) in measured atmospheric CO2 and huge increases in Chinese CO2 output.
Here’s an overview of developments in the four major temperature data sets: UAH and RSS (satellite), GISS and HADCRUT (ground).
http://www.climatedepot.com/2014/04/04/global-temperature-update-no-global-warming-at-all-for-17-years-8-months/
For me, the question is, what is the falsifiable hypothesis of global warming? Go ahead, postulate one. We have data on all this stuff.
2. June 2014 at 05:47
Thanks Garrett,
Brett, Germany and Switzerland have done OK without a minimum wage, I doubt it boosts worker productivity.
Mexico is a good example of the effects of those policies. But I’d call the test a failure.
Kgaard, One word: carbon.
Ben, I am skeptical of the idea that adding a bunch more bad policies to already existing bad policies will improve things–I believe it would make things even worse.
Greg, I agree the Nazi comparison is unfair to Peron. I should have noted that. On your other point, the Church does deserve a lot of criticism for its passivity in the sex scandals.
Steven, There is lots of short run volatility, but the science is very solid on the long run effects. There was also a pause from the 1940s to the 1970s, perhaps due to particles of air pollution blocking sunlight. After those were cleaned up temps soared. Now we have (from China) another huge upswing in particles blocking sunlight. And when China clean up its coal plants?
2. June 2014 at 07:44
Aerosols
Bottom line: Allowing for aerosols, a doubling of C02 gives a 1.6-1.7 deg C increase in temps.
CO2 has increased from pre-industrial levels of 280 ppm to 400 ppm currently, and is rising by 2 ppm per year. Thus, a doubling would take 200 years. If the temp is 3 deg F warmer in 200 years, I think we can live with that.
On the other hand, I don’t know what we can burn to produce another 400 ppm of CO2, given that all we’ve burned so far–principally coal, oil and natural gas–has managed to increase C02 by all of 120 ppm. I would be surprised if we could find another 240 ppm of CO2 worth of fossil fuels to burn on this planet.
http://judithcurry.com/2012/12/19/climate-sensitivity-in-the-ar5-sod/
2. June 2014 at 08:18
Steven, I believe there is plenty of fossil fuels to push CO2 much higher. You might be right about 3 degrees, but:
1. It might well be more than 3.
2. Even though we could “live with it” it would be highly undesirable, so I’d prefer much higher carbon taxes, offset by lower income taxes, and less warming.
2. June 2014 at 10:44
Why would higher temperatures be undesirable? Seven of the ten fastest growing US states are either hot or dry or both. Very hot and very dry, in fact. People prefer warm temperatures. If the shore moves up, so what? Sea level is up more than a hundred feet higher than the last ice age? Do we care? For example, take Cape Cod. We’ve lost maybe 50-60 feet of beach since we started going there forty years ago. The shipwrecks of the 1700s are often now a thousand feet offshore. It’s erosion. Has happened, will continue to happen. Don’t want to lose your beach house? Don’t build on the shore.
Or take Boston. How much of the city is reclaimed land? Half? My goodness, how did Bostonians ever manage that, what with sea levels have risen for a thousand years, now?
But, if you’re talking higher taxes, who do they affect? Mr. Professor, or the minimum wage guy who can’t afford to cross the GW Bridge? Or maybe the family with a tight budget? With DMUWI, then guy who gets hit is the guy at the margin, not at the top of the pile.
Despite all the doom-mongering, temperatures are unchanged over more than a decade. All the IPCC models were wrong, but you’re telling me we should put up a huge tax because, well, you know, maybe those models won’t be wrong in the future. Why don’t we get some models that actually predict something for, say, a decade or so before we re-engineer society.
2. June 2014 at 10:47
As for fuel supply:
Coal – might last another 200 years
Gas – could peak around 2030, could peak much later–methane hydrates are potentially important
Oil – the oil outlook is really crappy, as bad as I’ve seen it in four years. At this pace, oil lasts maybe another 40 years in the better case.
2. June 2014 at 11:41
Steven, Those sorts of fuel supply predictions have been going on for decades. When I was yound we only had 10 or 15 years of gas left. You say we should not believe IPCC predictions because they’ve been wrong about the past 15 years. And yet you want us to believe bearish energy scenarios that have been wrong for many decades.
I’m not proposing a huge tax increase (as you claim), or indeed any tax increase. I am saying we should stop taxing things with positive externalities (labor, saving, etc) and start taxing things with negative externalities (congestion, carbon, pollution, etc.)
Warming could cause mass extinctions, flooded coastal areas (Think Bangladesh, not Cape Cod), disruptive droughts in places like India. The carbon could indirectly destroy the coral in the oceans. There are many other side effects.
Personally, I like hot weather, but none of this will affect me, I’ll be long dead. BTW, I don’t think a sensible policy that gradually raised the carbon tax would be all that disruptive. Years ago the electricity producers claimed the tradable permits for emissions would be a very costly system. Once market forces were put to work, the costs were an order of magnitude less than expected. I’d expect the same here.
2. June 2014 at 13:31
Bangladesh is growing by 20 sq km per year.
But in theory–again, in theory–it could sink. It’s always like this: could, would, should, might. But what’s actually happening, what is actually observed in the data, is that the land mass is growing.
http://www.treehugger.com/natural-sciences/bangladeshatms-landmass-is-growing-yearly-but-gains-from-sediment-deposits-will-be-overtaken-by-sea-level-rise.html
2. June 2014 at 14:00
Ken Deffeyes, Prof Emeritus of Geology here at Princeton University, predicted the peak of the legacy oil supply virtually to the month.
All–all–of the net growth in the oil supply since has come from US shale oil and Canadian oil sands. The legacy oil system of 2005, in which we have invested some $3 trillion in the last nine years–is producing below its 2005 level. And that’s 93% of the global oil supply. Right now, I see downside risk almost across the board.
US
– Eagle Ford and Bakken look to peak in the next two years
– It’s unclear that Permian can pick up the slack
– Monterey has been downgraded by 96% (although it never had a chance, really: no gas drive)
– And that’s pretty much it for US (some modest gains in the GoM)
Saudi
– Saudi wants to drill for gas in 1,000 meters of water in the Red Sea, to displace oil consumption in power. So I ask you, what is the marginal cost of a barrel of oil in Saudi Arabia? Is it the same cost as one from deepwater? Does Saudi now have the same economics as BP or Chevron on the margin? Why would you drill in deep water if oil is readily available on shore?
Russia
– They’re struggling to hold production; now they want to frack. That sentiment would have been better pre-Crimea. It will be tough to do that at large scale quickly in Russia for a number of reasons.
Canada
– France’s TOTAL just canceled the Jocelyn oil sands project due to cost concerns; Shell did the same with Pierre River a few months back.
IOC Capex
– IOC oil production is off 1 mbpd (7%) compared to last year; capex to be down 6% this year–at $110 Brent!
If US and Canadian unconventionals stumble, there’s nothing behind them.
I’ve never made firm statements about nat gas peaking, although if you poke around, it’s not all roses there either. But there’s still a lot of gas, much of it stranded.
There’s lots of coal.
When people speak of 10-15 years of oil or gas left, that’s true as such. But normally, operators only explore for 10 years of inventory. If you have stuff to produce for a decade, there’s no pressure to explore to find more due to dcf considerations. Operators spend money on drilling when they need to fill up their backlog.
As for carbon taxes, one mmbtu of power cost $2.35 using coal last year; using nat gas, it cost $4.35 (we had gas to coal switching for a good portion of the year last year). And there’s at least one i-bank forecasting nat gas to $6 / mmbtu.
What level of tax should we have on coal? 200%?
3. June 2014 at 04:58
I would be very hesitant to call Francis a Peronist – Peronism is not an ideology (the neo-liberal Menem and socialist Fernandez both find a way to lead the Peronist party) but merely an organization whose sole aim is to stay in power. Before becoming Pope, Archbishop Bergoglio was considered an “opposition” figure to the current (peronist) government. He clashed with them over gay marriage, crime and drug policy.
3. June 2014 at 05:17
Steven, So with global warming we should ignore the theory because right now temps and sea levels are not rising, and for energy we should ignore the right now increase in energy because the theory says we are running out? That doesn’t seem very consistent for me.
And I don’t agree with your claim that fracked oil production will soon peak in the US. I predict that this is another prediction that will fail to hold true.
Alfred, I think they were referring to Peron the individual, not Peron the political party.
3. June 2014 at 09:00
Scott that is incorrect, Peronism is almost always used to refer to the party/movement. Peron himself had contradicting ideals to the point where he had both right and left wing youth organizations behind him.
4. June 2014 at 12:09
Alfred, I’d guess the Economist was thinking about Peron himself, and misused the term.