My new op ed in Politico

Here’s my new op ed in Politico.

Tyler Cowen linked to an interesting study of the minimum wage.  I’ve argued that the effects of higher marginal tax rates are hard to measure, as they tend to occur in the very long run.  Meer and West say the same thing is true of the minimum wage.

I’ve argued that although growth around the world tended to slow just before countries began liberalizing, it turns out that liberalization actually boosts growth if you do a cross sectional comparison.  Alex Tabarrok points to a much more rigorous study by Billmeier and Nannicini that reaches the same conclusion.

I’ve also argued that the so-called “reforms” passed after the 2008 crisis didn’t really address the core problem.  Matt Yglesias makes the point much more effectively:

But from another point of view it’s a bit strange to come out of a massive crisis with its origins in the housing sector and the cult of homeownership and come out of it with a reform agenda that very much doubles down on that very same cult.

 


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17 Responses to “My new op ed in Politico”

  1. Gravatar of Ashok Rao Ashok Rao
    6. August 2013 at 15:38

    The Billmeir and Nannicini study came via Alex Tabarrok, if I recall.

    While homeownership isn’t a good policy goal, it’s possible to pursue it without tempting a crisis like ours. But Yglesias’ point is well-taken.

  2. Gravatar of Geoff Geoff
    6. August 2013 at 16:31

    “I’ve argued that although growth around the world tended to slow just before countries began liberalizing, it turns out that liberalization actually boosts growth if you do a cross sectional comparison. Alex Tabarrok points to a much more rigorous study by Billmeier and Nannicini that reaches the same conclusion.”

    I skimmed the Billmeier et al study, and, just like every study that uses similar methodology, is being both misinterpreted by its like minded (in terms of methodology) readers, and presented in a misleading manner.

    There is actually no way to “conclude” trade liberalization boosts economic growth, on the basis of a cross sectional historical data set. For even if there was a perfect 100% positive correlation, the data cannot answer the question of whether economic growth increased because of the trade liberalization, or despite the trade liberalization.

    The only way to “conclude” that trade liberalization boosts growth, is by reflecting on the nature of human activity itself. Human activity is a purposeful activity, whereby profits are sought after while losses are avoided.

    If every individual is free to pursue their own ends, constrained to the ends of others, which means constrained to private property rights, then by the very definition of what it means to liberalize trade, namely, to remove artificial human created barriers that prevent other humans from seeking profit and avoiding losses, constrained to the property rights of others, it follows that there is an improvement in the quality of ends actually achieved. “Improvement” here means in relation to each individual’s subjectively unique ends.

    The more that the individual is free to pursue their ends, or, the same thing stated differently, the more that each and every individual is free to pursue their own unique ends, constrained to the freedom of other individuals to seek their own unique ends, then this is a “boost” to economic growth.

    The connection between liberalization and growth is NOT an empirical question. We do not have to, indeed we cannot even if we tried, prove that removing coercion from society boosts economic activity on the basis of “testing” this by first initiating coercion and measuring output, and then reducing coercion and measuring output again. Not only does this method require non-empirical assumptions such as constancy in economic laws over time, but it cannot differentiate whether B=growth followed A=liberalization because or despite A=liberalization. Not even a million such “tests” can prove this.

    Then there is the fact that the methodology of the authors does not even allow for apodictic “conclusions” to be made. Only tentative hypotheses, which must be treated as always capable of being falsified at some point in the future, are permitted.

  3. Gravatar of Geoff Geoff
    6. August 2013 at 16:46

    Yglesias:

    “But from another point of view it’s a bit strange to come out of a massive crisis with its origins in the housing sector and the cult of homeownership and come out of it with a reform agenda that very much doubles down on that very same cult.”

    If only Yglesias would do this exact same reasoning with central bank “stimulus”, i.e. inflation.

    The origins of the crisis are rooted in the Federal Reserve System cult. It is quite “strange” that Yglesias wants the Fed to “double down” on that same cult.

    As we can see, arguments of the form Yglesias is making depends very much on what actually constitutes “the roots” of the crisis. Hint: It wasn’t the housing market. The housing market debacle was but one consequence of extremely loose money from the Fed System for the last 20 years, if not more.

    And no, just because consumer prices or NGDP did not rise “highly”, it doesn’t mean inflation was low. For in a free market of money, it is very possible, indeed likely, that consumer prices would have fallen as productivity increased, and domestic US spending could have fallen as the US trade deficit increased.

    From this point of view, even zero price inflation, and/or zero NGDP growth, would represent a massive inflation that seriously distorted the economy.

    Never reason from a price change and never reason from an NGDP change, when it comes to gauging monetary policy. Always use individual subjective preferences constrained to private property rights as the standard. If this is unobservable, then tough luck.

    It is a serious flaw to believe that because something is not observable, that it no longer becomes important and that other observable facts somehow become the new basis of knowledge. It’s easy to see why it is flawed. Imagine a radio signal that is jammed by spammers. Imagine that A is trying to communicate with B, but every time A tries, there is signal distortion from an external spammer. Would it make any sense at all to say that because A’s actual communication is not able to get through to B, that what A wants to say is somehow no longer important, and that now we have to ground our knowledge of the real world of radio communication between A and B on the “observable” jammed radio signals that make little to no sense? Or does it make more sense to ground our knowledge on what coordination could otherwise take place between A and B if only the radio was no longer jammed?

  4. Gravatar of Benjamin Cole Benjamin Cole
    6. August 2013 at 21:13

    I can accept eliminating the minimum wage, as it effects less than 2 million workers now anyways. It is not a very important issue.

    But first can we crush the guild system for the nation’s 1.3 million lawyers?

    Really? It takes seven years of schooling, and then passing a law exam to become lawyer? And it is against the law to practice without a license?

    Can not law be simplified? Binding arbitration for most business disputes?

    The economic damage and costs done by lawyers is probably far in excess of the rather small sums devoted to people working at the minimum wage.

    I think somehow the economic profession has become warped in the last 30 years. Obsessed with inflation and people earning the minimum wage? This is what has happened to economists?

    But the vast and near total subsidization of the USA rural infrastructure? The law guilds? The need for a monetary policy to be growth-oriented?

  5. Gravatar of Jeff Jeff
    6. August 2013 at 22:05

    A sound point- a bit more straightforward than sorting out Chinese life expectancy 🙂

    Where does targeting aggregate wage and salary (as per your post earlier this week) fit in? More data points to consider, or conflicting approaches to monetary policy altogether?

  6. Gravatar of dtoh dtoh
    6. August 2013 at 22:35

    If you want to see the effects of minimum wage, look at Saipan where Congress (in its infinite wisdom) in 2007 replaced the local minimum wage of $3.05 with the Federal minimum wage. To cite just a selected few of the benefits which Saipan enjoyed as a result of this enlightened policy.

    Highest inflation rate in the U.S.
    Highest unemployment rate in the U.S.
    RGDP drop of 20%
    Dramatic population decline.

    Compared to Saipan, Detroit is a boomtown.

  7. Gravatar of J.V. Dubois J.V. Dubois
    7. August 2013 at 01:53

    Scott: Totally unrelated, just want to vent a little bit after reading this: http://krugman.blogs.nytimes.com/2013/08/06/another-bad-story-bites-the-dust/?_r=0

    What the hell is Krugman talking about? Recession (that he elsewhere characterizes as a fall in aggregate demand) “caused not by tight money but by private sector overreach”. And that is why we have slow recovery? Is this some weird austrian-keynesian mesh-up?

    Somebody should gather links to BS like this whenever somebody says “Krugman is not against easier monetary policy”.

  8. Gravatar of W. Peden W. Peden
    7. August 2013 at 03:07

    dtoh,

    “As of March 2007,[10] 19 companies manufactured garments on Saipan. In addition to many foreign-owned and run companies, many well-known U.S. brands also operated garment factories in Saipan for much of the last three decades. Brands included Gap (as of 2000 operating six[11] factories there), Levi Strauss,[12] Phillips-Van Heusen,[13] Abercrombie & Fitch,[14] L’Oreal subsidiary Ralph Lauren (Polo),[15] Lord & Taylor,[16] Tommy Hilfiger, and Walmart.[17]

    Currently, there are no garment manufacturers on the island, with the last one having closed on January 15, 2009.”

    That’s horrific.

  9. Gravatar of ssumner ssumner
    7. August 2013 at 04:45

    Thanks Ashok, I changed it.

    Good point Ben.

    Jeff, The futures idea can be linked to any target.

    dtoh and W. Peden, Interesting. Thanks, do you have a link for the Saipan story?

    JV, I wonder if he thinks money was easy because rates were low.

  10. Gravatar of W. Peden W. Peden
    7. August 2013 at 06:13

    I just looked up Saipan on Wikipedia, having never heard of it before.

  11. Gravatar of dtoh dtoh
    7. August 2013 at 06:14

    Scott,
    Nope. Hard to get much data on Saipan. I just follow it because I go there for R&R occasionally. Plus it’s a great test tube for controlled experiments to prove common sense economic principles understood by everyone except bigoted intellectually dishonest progressives.

    The other big industry there is tourism. Guess what happens when you take a labor intensive (40 to 50% of total costs) industry and raise wages from $3.05 to $7.25.

    Actually it ratchets up annually….only $5.55 at this point. By the time it hits $7.25 in 18 months, they can probably shave another 25% off their RGDP. Of course with the inflation they’re getting, NGDP will probably go up.

  12. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    7. August 2013 at 06:48

    Saipan is where Ernie Pyle fell victim to a Japanese sniper in 1945.

  13. Gravatar of dtoh dtoh
    8. August 2013 at 02:23

    Patrick,
    Actually not. Ernie Pyle was killed in Okinawa (Iejima) by machine gun fire.

  14. Gravatar of ssumner ssumner
    8. August 2013 at 04:17

    dtoh and W. Peden. Thanks.

  15. Gravatar of Bill Ellis Bill Ellis
    8. August 2013 at 15:43

    Benjamin Cole,

    It is not just lawyers who have institutionalized privilege.
    Doctors, needlessly keep nurses and PAs from rendering desperately needed care for less.
    Dentists keep dental hygienists from offering their important services at a more affordable cost.
    In America Car dealers keep manufactures from offering their products in normal retail way– taking a big middle cut.

    I bet we could add examples of successful rent seeking that underpins almost every common kind of private business. And that it is an especially significant contributor to the success of the highest earning professions.

    What bugs me… the only rent seeking many of these high paid fortunates seem to be able to see is the rent seeking of the poorest and least fortunate.

  16. Gravatar of dtoh dtoh
    8. August 2013 at 18:12

    Bill Ellis,
    Couldn’t agree more.

  17. Gravatar of What Caused the Great Recession? In a Very Few Words Krugman Says so Much | Last Men and OverMen What Caused the Great Recession? In a Very Few Words Krugman Says so Much | Last Men and OverMen
    19. February 2017 at 09:25

    […]  Here’s Sumner’s piece about his Politico piece.       https://www.themoneyillusion.com/?p=22798       P.S. What’s really brilliant about Krugman’s small post is that […]

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