… is from Paul Krugman’s outstanding May 1993 American Economic Reviewessay “What Do Undergrads Need to Know about Trade?”, reprinted in Krugman,Pop Internationalism, pp. 117-125; this quotation is on page 124 of the latter:
Now there are reasons, such as external economies, why a preference for some industries over others may be justified. But this would be true in a closed economy, too. Students need to understand that the growth of world trade provides no additonal support for the proposition that our government should become an active friend to domestic industry.
Watch this video. (HT: Drudge) It gives me the creeps. The desperation and viciousness is palpable. But there are surely millions of fine people, some of them my friends and neighbors who will find it inspiring. Such is the nature of politics. This is going to be the ugliest political campaign of my lifetime.
On Thursday, President Obama will deliver a major speech on America’s employment crisis. But too often, what is lost in the call for job creation is a clear idea of what jobs we want to create.
What jobs we want to create? Who is “we?” What does “create” mean? A clear idea? No one has a clear idea of how the government can create good jobs.
The next paragraph:
I recently led a research team to the Rio Grande Valley in Texas, where Gov. Rick Perry, a contender for the Republican presidential nomination, has advertised his track record of creating jobs. From January 2000 to January 2010, employment in the Valley grew by a remarkable 42 percent, compared with our nation’s anemic 1 percent job growth.
But the median wage for adults in the Valley between 2005 and 2008 was a stunningly low $8.14 an hour (in 2008 dollars). One in four employed adults earned less than $6.19 an hour. The Federal Reserve Bank of Dallas reported that the per capita income in the two metropolitan statistical areas spanning the Valley ranked lowest and second lowest in the nation.
Leading a research team to the Rio Grande Valley strikes me a bit strange. But never mind. The implication is that sure Perry can create jobs. But he doesn’t know how to create good ones.
Who does, Professor Osterman?
Do you really think Governor Perry just had his JobCreationMeter on the wrong setting, the crummy low-wage setting instead of the high-tech high-wage information economy setting and that’s why the Rio Grande Valley isn’t doing so well? And you’re writing this piece to make sure the President gets the setting right?
The next six paragraphs are about the challenges of living on low wages in the Rio Grande Valley. I guess the goal of the research team was to discover how hard it is to be poor in Texas. I knew that already.
So what’s the solution? Here is the rest of his piece:
Must we choose between job quality and quantity? We have solid evidence that when employees are paid better and given more opportunities within a company, the gains outweigh the costs. For example, after a living wage ordinance took effect for employees at the San Francisco International Airport, in 1999, turnover fell and productivity rose.
Contrary to the antigovernment rhetoric, there is much that the public sector can do to improve the quality of jobs.
A recent analysis by the Economic Policy Institute reported that 20 percent of federal contract employees earned less than the poverty level for a family of four, as opposed to 8 percent of traditional federal workers. Many low-wage jobs in the private sector (notably, the health care industry) are financed by taxpayers. The government can set an example by setting and enforcing wage standards for contractors.
When states and localities use their zoning powers to approve commercial projects, or offer tax incentives to attract new employers, they can require that workers be paid living wages; research shows this will not hurt job growth.
Labor standards have to be upgraded and enforced, particularly for those employers, typically in low-wage industries, who engage in “wage theft,” by failing to pay required overtime wages or misclassifying workers as independent contractors so that they do not receive the benefits to which they are entitled.
Americans have long believed that there should be a floor below which job quality does not fall. Today, polls show widespread support for upgrading employment standards, including raising the minimum wage — which is lower, in inflation-adjusted terms, than it was in 1968. It’s time for the federal government to take the lead in creating not just more jobs, but more good jobs. The job-growth mirage of the Rio Grande Valley cannot be our model.
So government just needs to pay more than the market will bear and force private employers to do the same. You might think this would reduce employment, but don’t worry, “research shows this will not hurt job growth.” I am comforted by this waving of hands.
Here is something else research shows–wages are determined by your productivity. Your productivity is a function of your skills, your investments in knowledge, your work ethic, and the capital that you have to work with. Laws that mandate higher wages don’t affect any of these things. They just make low-skilled workers more expensive.
Remember your Hayek:
The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.
From this August 16, 2011, press release by the Equal Employment Opportunity Commission (HT Reuvain Borchardt):
Old Dominion Freight Line, Inc., a trucking company with a service center in Fort Smith, Ark., violated federal law by discriminating against at least one truck driver because of self-reported alcohol abuse, the U.S. Equal Employment Opportunity Commission (EEOC) charged in a lawsuit filed today. The company should have met its legal obligation to comply with the Americans with Disabilities Act while assuring safety, rather than permanently sidelining self-reporting drivers, the EEOC contended.
An argument can be made that if a private trucking firm (or taxi firm, or tugboat firm, or airline, or any private firm that hires people to drive or pilot vehicles) fires drivers or pilots who self-report their alcohol problems, alcoholic drivers and pilots will have less incentive to self-report. One consequence, then, might be that the roads, air, and waterways will be filled with more drunken drivers and pilots.
On the other hand, having self-confessed alcoholics driving or piloting vehicles creates obvious problems.
Are these problems appropriately minimized by not firing self-reporting alcoholics and, instead, putting them on leave or giving them a desk job? Perhaps. But perhaps not. Perhaps knowledge that firing isn’t in the cards – while making employees more likely than otherwise to report substance-abuse problems – makes employees less likely to avoid substance abuse in the first place. The trade-offs here are numerous and nuanced.
Surely each firm has appropriate incentives to try to strike the right trade-offs. If a private firm fires an alcoholic truck driver, and then government bureaucrats – some all aflame with self-appointed missions to inflict their own brand of “justice” on the world, and others tempted by the additional litigation experience that such actions add to their resumes – take legal action against the firm for doing so, the likely consequence is that more trucks, planes, and boats will, in the future, be driven and piloted by drunkards and other substance abusers.
Alex Tabarrok suggests that Krugman has taken the broken window fallacy to a whole new level. Krugman argues that we want more regulations when we’re in a liquidity trap–it forces firms to invest. Alex responds:
What is interesting about this argument is that Krugman has gone one derivative beyond the broken windows fallacy to create an argument requiring even stronger assumptions, let’s call it the breaking windows fallacy.
Bastiat’s assumption of a one-time, randomly broken window is more likely to be stimulative than an increase in the rate of window breaking. A one-time, window-breaking is a sunk cost that does not affect profit-maximization, at least not according to basic theory. (I say basic theory because once we introduce fixed costs, bankruptcy costs and liquidity constraints a one-time negative shock may cause a firm to shut down even when it would continue to produce without the shock, ala Krugman and Baldwin 1989). Thus a one-time window breaking may cause firms to increase spending. An increase in the rate of window-breaking, however, is a change in the marginal conditions for profit maximization that will cause some firms to exit the industry (reduce output) and thus the net effect on spending is more ambiguous.
In this earlier post about the upcoming speech of President Obama, I wrote:
What I’d like him to say is the same thing I wanted him to say in January of 2009. My druthers haven’t moved at all.
What I wrote in January of 2009 was this piece. The gist of the piece was: Don’t increase federal spending, it’ll be wasted on cronies, make our deficit worse and have little lasting effect on reaching recovery. Instead, better to make the tax system more transparent and fix the demographic train wreck of Social Security and Medicare now rather than later. Send a signal to the world that we can live within our means and act like adults rather than teenagers. I still believe that approach would have been the right one.
When I said “my druthers haven’t moved at all” I didn’t mean that it captured all my policy preferences. I meant that I still think fiscal stimulus is wasteful, that our deficit is a problem, that the current structure of the tax system has bad economic and political consequences, and that our demographic challenges would best be fixed sooner than later.
A number of commenters objected to my suggestion for the President to turn Social Security and Medicare into means-tested programs. That is not my preferred policy. My preferred policy is to eliminate both of them and treat adults like adults. Let us make our own choices and let private charity help those who are either unfortunate or irresponsible. Let charities compete in doing dealing with those challenges.
But if we end up keeping some form of Social Security and Medicare, means-testing is the right way to go. Making that transition would reduce the size of government enormously and make the real impact of each program more transparent. It is what I believe will happen. And if the President were to give the speech I suggested, I would be extremely pleased.
Mr. Thomas E. Perez
Assistant Attorney General for the Civil Rights Division
U.S. Department of Justice
Dear Mr. Perez:
In today’s Wall Street Journal you justify the DOJ’s crackdown on banks that, in your and your colleagues’ opinion, allegedly resist extending mortgages at appropriate market rates to minority home buyers (“Government Is Right to Fight Discrimination in Lending“). And you protest that “The suggestion that the department, as part of its settlements, is forcing banks to lower their underwriting standards and make loans to unqualified borrowers is simply wrong.”
Please forgive my skepticism.
Your premise is that profit-hungry banks – out of bigotry or incompetence or both – are leaving money on the table by discouraging credit-worthy homebuyers from borrowing. If this dubious premise is valid, then a far better course of action for you and your colleagues is to quit your jobs as ‘public servants,’ start your own banks, and then lend to all of those many homebuyers whose profitable business is rejected by other banks.
By putting your own money where your mouths are, you’ll not only give credible evidence that your premise is valid, you’ll also – if you’re correct – (1) solve through voluntary market actions the problem that you now attack with government force, and (2) make a mint.
It’s a classic win-win.
Donald J. Boudreaux
Professor of Economics
George Mason University
Fairfax, VA 22030
P.S. Yet another benefit of your putting your money where your mouths are is that, with government resources no longer spent solving a problem that the private sector cures, Uncle Sam’s fiscal woes will be a tad bit eased.
Andrew Bolt – Wednesday, September 07, 11 (02:36 pm)
Julia Gillard gives a concession to the Coalition, not the Greens, as she desperately tries to fix her boat people fiasco:
JULIA Gillard has taken her first step towards enlisting the opposition to restore offshore processing of asylum-seekers, writing to Tony Abbott in defiance of pressure from the Labor Left and the Greens to switch to an onshore regime.
And the Opposition Leader has agreed to co-operate on legislation to circumvent last week’s High Court ruling that struck out Labor’s existing border security system, conceding that the national interest demands collaboration. The move to bipartisanship came yesterday as senior government figures admitted to a sense of urgency about the need to deliver a policy response to the High Court declaration that Labor could not proceed with its plans to send 800 boatpeople to Malaysia in exchange for 4000 proven refugees.
With the policy aimed at discouraging people-smuggling, it is understood a cabinet meeting on Monday night heard it was vital to deliver a swift legislative response to avoid a new flood of boats arriving off northern Australia.
Abbott will want a solution that ends with his proposal - Nauru. Gillard will want one that ends with her proposal - Malaysia. The kind of legislation each needs to make their solution meet or circumvent the standards demanded by the High Court are the same, but Nauru would be easier to bring to conformity.
I suspect this is a tussle that Abbott will win, but a misstep could make him seem a blocker. Still, every day talking about boat people is a day that hurts Labor, so I doubt Abbott is losing much sleep.
But Gillard’s agony continues in Auckland:
JULIA Gillard has ruled out talks with Nauru on asylum-seeker processing this week as she avoids any discussion of the key foreign policy issue at the Pacific Islands Forum.
While Nauru is keen to offer a lifeline to the embattled Gillard government, the Prime Minister said it was important Australia reached domestic agreement on third country processing before talks were held with other countries.
“Let me make it very clear; I have not come here to discuss issues of people smuggling. No one from the Australian government is here for that purpose,” Ms Gillard told reporters in Auckland this morning, ahead of the opening of the regional forum.
Heavens. If I wrote what Immigration Department officials are telling Tony Abbott today, I’d be accused of being a Right-wing fear-monger, exploiting racist resentments:
MORE than 600 boatpeople a month would flood into Australian waters unless offshore processing is revived as a policy option, Tony Abbott was to be told by government officials today.
Labor has been warned, and the Opposition Leader was expected to be told, that onshore-only processing would overwhelm the immigration detention network within about one year.
And, inevitably, the asylum-seekers that were part of that influx would be released into the community.
This could, in the long-term, change the nature of Australian society, leading to European-style disharmony, Mr Abbott was to be told in the special briefing in Brisbane to be led by Department of Immigration secretary Andrew Metcalfe.
That is an extraordinary assessment.
No talkies at all with Nauru’s President, Marcus Stephen, at the Pacific Islands Forum:
QUESTION:You’re at this conference with Julia Gillard. Have you and Julia Gillard had a conversation or a meeting at all and has this issue been discussed?
We had dinner together last night, we sat next to each other; we had lunch today, sat on the same table; and no we didn’t discuss anything on refugees
Andrew Bolt – Wednesday, September 07, 11 (01:43 pm)
Good news for us - and even better for a battered government:
THE Australian economy grew at a brisker pace than expected in the second quarter as it continued to recover from the devastating floods earlier this year.
Gross domestic product climbed 1.2 per cent in the June quarter, compared with a revised 0.9 per cent contraction in the March quarter, the Australian Bureau of Statistics said today.
Economists, on average, had expected a 1 per cent rise in GDP.
Andrew Bolt – Wednesday, September 07, 11 (01:13 pm)
A sane and sensible commentary on the Mike Smith suspension by 2UE’s Jason Morrison.
Professor Sinclair Davidson isn’t much impressed by Media Watch’s role. Professor John Quiggin would like some answers from the Prime Minister.
Andrew Bolt – Wednesday, September 07, 11 (10:31 am)
Simon Crean is nearly rivalling Julia Gillard as the punters’ tip to leader Labor to the next election. Surprised, SportsBet has since suspended betting on Crean.
(Thanks to reader Tim.)
Andrew Bolt – Wednesday, September 07, 11 (07:17 am)
This doesn’t sound healthy:
The ABS survey reveals that government pensions or benefits are the main source of income for one in four households, which get by on an average of $557 a week.
Andrew Bolt – Wednesday, September 07, 11 (07:03 am)
JULIA Gillard is now the zombie Prime Minister - the walking dead. Her government dropped yesterday to a record low in Newspoll, at just 41 per cent of the preferred vote to the Coalition’s 59.
Just a quarter of voters like the job she’s doing, and from that there is no coming back.
Three things need to be sorted out by Labor before Gillard is replaced.
First, she needs to be persuaded to resign, much as Alexander Downer selflessly did to end his own hopeless year as Liberal leader.
Labor cannot afford the shame of another knifing, and Gillard’s successor cannot afford the stain.
That’s why some of the people most likely to take over - notably Assistant Treasurer Bill Shorten and Defence Minister Stephen Smith - insist they back Gillard completely.
Both want clean hands, especially Shorten, who still hasn’t washed off all Kevin Rudd’s blood.
The trouble for Labor is that Gillard doesn’t seem about to budge.
“I’m not going anywhere,” she says.
“I’m the best person to do this job.”
So Labor is paralysed. For now.
Second, Labor needs to decide if it just wants a better salesman, or a better product, too.
Does it dump Gillard alone, or the carbon dioxide tax with her?
If Labor wants to keep the tax, then it will probably let Gillard get it through Parliament, so she wears any blame.
That gives her time.
But if Labor wants to dump it, it may have to move against Gillard by next week, when she is due to introduce the tax Bill to Parliament. Unless, of course, her successor wants to argue in favour of her tax in Parliament next week, only to have to repeal a law for it later.
Then there’s the last question. Who? Who to choose to lead Labor to its inevitable defeat?
This is the most agonising decision of all. If the answer were clear, the Prime Minister would be gone already, but all the contenders are flawed and bring big risks.
Take even the most obvious of them.
Andrew Bolt – Wednesday, September 07, 11 (06:55 am)
Paul Kelly says the problem is bigger than Gillard, but says Labor should stick to the very policy that has hurt it most:
With Labor’s primary vote in Newspoll at 27-29 per cent for the past three months, Gillard must be replaced unless she recovers. As a realist Gillard would know this. The hard part is deciding on any successor, working out how the switch is done, sorting out what happens to Gillard and, above all, having a few rudimentary ideas on repositioning the government. Anybody in caucus who thinks it is - “hey presto” - a new leader and then “business-as-usual” doesn’t get it…
Gillard’s immediate task is to legislate the carbon price, the mining tax and devise a new asylum-seeker policy. Pitching a new leader into this melting pot would be absurd… The only justification for changing leaders now is to recant on some of these policies, notably to abandon carbon pricing. There is no sign the cabinet wants any such retreat, though it would love to start again. Frankly, a reversal of such magnitude would probably trigger the government’s collapse and an election....
How could the new leader reposition the government? The first task would be to break the alliance with the Greens… With the carbon and mining policies legislated by Gillard, a new leader (or maybe even Gillard) would have the flexibility to move.
The second repositioning concerns the trade unions. Labor these days is strong on its union ties and weak on working-class votes. It needs a dose of Whitlamist bravery to reduce union links and union influence on policy… Over summer Labor under either Gillard or a new leader must reframe the economic debate.
It would be a devastating start for a replacement to Gillard to have to undo legislation for a carbon dioxide tax. I’d say the tax, for which there is no mandate and lots of opposition, must go - which means ditching it before Parliament votes on it. That gives Gillard just a month or so.
Andrew Bolt – Wednesday, September 07, 11 (06:47 am)
A DUTCH TV quiz program shows how the Left and Right could finally agree about asylum seekers, if we’re arguing about asylum seekers themselves.
The one-off show, aired by Dutch public broadcaster VPRO, is Weg van Nederland and the title gives the clue.
It means “Away from the Netherlands” - as in giving asylum seekers the boot, which horrifies the Left. But it also means “Mad about the Netherlands” - which means asylum seekers should love the land they’re joining, which would charm the Right.
The contestants are asylum seekers who are being deported as the Netherlands tightens its slack immigration laws, and also scraps the multicultural policies that were turning the country into a nation of tribes.
So last month’s pilot show starred an aeronautical engineer being deported to Cameroon, a Slavic languages student being sent home to Chechnya and other equally attractive potential citizens.
To win, they had to answer questions on Dutch culture, history and language, to show how well they’d fitted in.
For instance, the winner, a Kurd, correctly named the first king of the Netherlands and carved a map of Holland from a block of cheese.
First prize was $5000 to settle in back in Armenia, while the runners-up got bullet-proof vests.
You could only think, watching the show, it was a pity that the contestants, knowing so much about the Netherlands, were getting kicked out.
If the same show were made here, no doubt it would have the same effect, although it’s true that few asylum seekers coming by boat get to stay long enough to know much about us except the varieties of our barbed wire.
But what makes the Dutch show work is what’s missing from much of our immigration policy - an insistence on fitting in.
Andrew Bolt – Wednesday, September 07, 11 (06:38 am)
Ron Paul gives Rick Perry, his rival for the Republican nomination, a fierce uppercut.
One thing about America’s primaries: they sure give political parties the chance to reorientate. Labor could do with such a process today.
(Thanks to reader Go Ron.)
Andrew Bolt – Wednesday, September 07, 11 (06:20 am)
Remember the frenzied media pack-attack on Sarah Palin for her “hate speech” - which amounted to a staffer putting hatch marks on a map to show where Democrats were running for re-election?
Let’s see if there’s anything like that same confected fury to these fighting words from Teamsters President Jimmy Hoffa:
We got to keep an eye on the battle that we face: The war on workers. And you see it everywhere, it is the Tea Party. And you know, there is only one way to beat and win that war. The one thing about working people is we like a good fight. And you know what? They’ve got a war, they got a war with us and there’s only going to be one winner. It’s going to be the workers of Michigan, and America. We’re going to win that war. President Obama, this is your army. We are ready to march. Let’s take these son of bitches out and give America back to an America where we belong.
Obama’s reaction to this talk of taking out other Americans?
When he took the stage, President Obama said he was “proud” of Jimmy Hoffa and other labor leaders.
Andrew Bolt – Wednesday, September 07, 11 (06:14 am)
Saving the world isn’t worth the pain it causes the Greens:
A GREENS-led council has failed to meet a key climate-change target because it installed a new airconditioning and heating system to improve the comfort of town hall staff.
Embarrassment over the missed greenhouse-gas emissions target comes just months after the City of Yarra tried to impose a $105 fee on restaurant and cafe owners for outdoor heaters, suggesting they instead provide their customers with blankets.
A council report that went to a meeting last night said that Yarra was unlikely to meet a target to reduce its energy use by 30 per cent compared to 2008 levels.
Never mind. If you can’t meet your first mad target, then set a wilder another:
Yarra Mayor Alison Clarke said yesterday the council had to balance a growing organisation with shrinking energy use, but still hoped to meet a 2015 target to reduce emissions by half.
Andrew Bolt – Wednesday, September 07, 11 (06:10 am)
In so many ways, Labor has worked to stifle free speech:
OPTUS has promised not to criticise the National Broadband Network in key regions for 15 yearsunder a deal that raises new warnings the $36 billion project will stifle competition.
Just a week after the competition regulator warned that parts of an $11bn deal with Telstra could prove detrimental to competition and consumers, official documents reveal that an $800 million deal with Optus includes an “anti-disparagement” provision.
This is so blatantly anti-competitive, I’d be dismayed and surprised if the ACCC waved it through.
Andrew Bolt – Wednesday, September 07, 11 (06:03 am)
There is no doubting Albanese’s courage:
TRANSPORT Minister Anthony Albanese has demanded colleagues toughen their approach to confronting Labor’s critics, urging the government to argue its political case harder and more often. ...
Some Labor MPs have told The Australian they want Ms Gillard to muscle up to critics, as Mr Albanese did last week when confronting a crowd outside his Sydney electorate office.
Yesterday, Mr Albanese said some of his colleagues had questioned his decision to meet the protesters. “What it’s about from my perspective is that at each and every opportunity, what the government has to do is not just advance our position; we have to also take on, head-on, face to face, our critics—be prepared to argue our case,” Mr Albanese said.
Does this mean Labor ministers will finally agree to go on The Bolt Report?
I think Albanese’s advice is basically good - and it’s the course of action John Howard took. The concern is that the Prime Minister’s last attempt to take the fight to the enemy’s camp did not go very well.
Andrew Bolt – Wednesday, September 07, 11 (05:57 am)
This kind of behaviour seems awfully familiar:
National Australian Workers Union boss Bill Ludwig personally signed two AWU cheques worth almost $45,000 combined for legal expenses relating to his position as a director of Racing Queensland Limited.
The revelation will focus further attention on the use of union funds by officials.
Labor remains embroiled in the ongoing controversy involving former head of the Health Services Union, NSW federal Labor MP Craig Thomson, who is alleged to have misused union credit cards.
Mr Ludwig, one of the powerbrokers instrumental in the downfall of Kevin Rudd as prime minister, yesterday said he had done nothing unusual.
He had taken defamation action against former Supreme Court judge Bill Carter in relation to Mr Ludwig’s duties as an RQL director. It is understood Mr Ludwig is eligible for an income of at least $50,000 for those RQL duties.
Mr Ludwig eventually dropped the legal action and was forced to pay Mr Carter’s legal costs…
Mr Ludwig signed two AWU cheques one worth about $37,000 and the other $8000 to settle Mr Carter’s legal fees for the dropped action.
Mr Ludwig said the AWU had a long-standing policy that an attack on a union official was an attack on the union.
(No comments, to spare us legal worries.)