Minor Thoughts from me to you

Today's Quote of the Day comes from Russ Roberts: "We have tried buy local before. It is called the Middle Ages."

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Given the data available, it's impossible to prove that unions boost student test scores and it's impossible to prove that unions hurt student test scores.

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You want negotiating power? Get educated. Get a skill. What keeps wages up in a world of 7% unionization in the private sector is that I have alternatives. So stay in school and study something serious that has value alongside whatever else you’re interested in. Or study something interesting that has little market value. But if you do that, don’t complain about your low salary and lack of a union.

Exactly.

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Walter Russell Mead argues that if we want to really avoid a race to the bottom, we need to aggressively raise productivity across the economy. That will require changes that unions will resist to the death. He argues that we may have to take away the unions' power to save the economy.

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Alex Tabarrok recently wrote a great explanation of the economic concept of deadweight loss:

Imagine that you want to go to New York on a trip. You value the trip at $50 and a bus ticket costs $40. Do you take the trip?

A. Yes. The value ($50) of the trip exceeds the cost of the ticket ($40) so you travel to New York.

How much consumer surplus (net value) do you get from the trip?

A. $10=$50-$40.

The government taxes bus tickets which raises the price of a bus ticket to $60. Do you take the trip?

A. No. The value of the trip is now less than the price of the ticket.

What happened to the $10 consumer surplus which you used to get when there was no tax?

A. It's gone since no trip takes place.

Did the government get any tax revenue from you?

A. No.

Key idea: Consumers lose but the government does not gain from trips that are not taken.

Conclusion: Deadweight loss is the value of the trips (trades) which do not happen because of the tax.

When you hear someone mention the "deadweight loss of taxes" on the economy, this is exactly what they mean: taxes that result in the government not getting money and consumers not getting what they wanted.

Obamacare delenda est

I was wrong last night. I was attempting to argue a point about stimulus spending and whether or not government spending actually helped an economic recovery. To offer some support for my position, I tried to relay from memory a point that David Henderson made over at EconLog. To wit, Keynesian economists predicted that the end of government spending after World War 2 would precipitate a massive rise in unemployment and a return of recession.

David Henderson quoted Paul Samuelson's prediction, from before the war ended.

When this war comes to an end, more than one out of every two workers will depend directly or indirectly upon military orders. We shall have some 10 million service men to throw on the labor market. [DRH comment: he nailed that number.] We shall have to face a difficult reconversion period during which current goods cannot be produced and layoffs may be great. Nor will the technical necessity for reconversion necessarily generate much investment outlay in the critical period under discussion whatever its later potentialities. The final conclusion to be drawn from our experience at the end of the last war is inescapable--were the war to end suddenly within the next 6 months, were we again planning to wind up our war effort in the greatest haste, to demobilize our armed forces, to liquidate price controls, to shift from astronomical deficits to even the large deficits of the thirties--then there would be ushered in the greatest period of unemployment and industrial dislocation which any economy has ever faced. [italics in original]

Samuelson predicted that the government would act to avoid this catastrophe by slowly ramping down spending and acting to increase public employment.

For there is every reason to believe that we shall not be lulled into a feeling of false security by the last war's experience or by the half-truth that the end of the war will witness a boom. No doubt, we shall retain direct controls for a period after the conflict ends. We shall taper off war production gradually. We shall undertake income maintenance in the form of dismissal pay for soldiers, unemployment compensation, direct and work relief expenditure. It is probable, although less certain, that, in addition, the Federal government will initiate employment maintenance measures such as large scale public works, etc. But even these will not be adequate to maintain full employment or any approach to it.

Here's what Henderson said actually happened:

This reinforces the lesson from the far more extreme U.S. experience after World War II: Between FY 1945 and FY 1947, federal government spending was cut by 61 percent. This was a 27-percentage-point drop from 41.9 percent of GDP to 14.7 percent of GDP. Yet the unemployment rate over that same time rose from 1.9 percent to only 3.6 percent. The postwar bust that so many Keynesians expected to happen never did.

History shows that it's possible for government to sharply slash spending without sending the economy into a tailspin. So far, so good. This I remembered last night. Then I tried to remember what David Henderson said about the GI Bill. What I remembered reading was that comparatively few people took advantage of the GI Bill and that it didn't have a huge effect on the company. What Henderson actually said was that comparatively few people took advantage of it in any one year.

Of course, direct controls were removed relatively quickly, certainly within a year and a half of the end of the war. War production did not taper off gradually but plunged. I don't think there was any dismissal pay for soldiers. You could see the GI Bill as a form of relief expenditure, but if I recall correctly, at any given time only about 500,000 people were taking advantage of the GI Bill to get education. [italics mine]

Oops. As I learned last night, 7.8 million veterans eventually took advantage of the G.I. Bill.

Thanks to the GI Bill, millions who would have flooded the job market instead opted for education. In the peak year of 1947, veterans accounted for 49 percent of college admissions. By the time the original GI Bill ended on July 25, 1956, 7.8 million of 16 million World War II veterans had participated in an education or training program.

Now I'm intrigued by the qualification "education or training program". If we're going to count the G.I. Bill as stimulus, I think it makes a difference whether someone went to an actual 2-4 degree program or whether they just went to a training program and then entered the workforce.

Is David Henderson right? Were only about 500,000 people at a time taking advantage of the G.I. Bill? I don't know. I've been having a hard time tracking down the number of students enrolled in college during the 1940's. According to a 1947 Census report, 62.2% of the 6-24 year old population was enrolled in school. Of the 18-29 year old cohort actually enrolled in school, 75.1% of them were veterans. But I'm having a hard time tracking down the actual absolute number of people enrolled in school.

Answers.com has an estimate, but I'm not sure where it's sourced.

Initial expectations for the number of veterans who would utilize the educational benefits offered by the G.I. Bill were quite inaccurate. Projections of a total of several hundred thousand veterans were revised, as more than 1 million veterans were enrolled in higher education during each of 1946 and 1947, and well over 900,000 during 1948. Veterans represented between 40 and 50 percent of all higher education students during this period.

While the G.I. Bill also had an impact on home sales following the war, its unemployment provisions were little used.

Millions also took advantage of the GI Bill's home loan guaranty. From 1944 to 1952, VA backed nearly 2.4 million home loans for World War II veterans.

While veterans embraced the education and home loan benefits, few collected on one of the bill's most controversial provisions--the unemployment pay. Less than 20 percent of funds set aside for this were used.

Job training and higher education certainly took off after World War II, much of it aided by the jobs bill. But overall government stimulus was negative as government spending was cut sharply and as millions of service men and women returned to the civilian workforce. In contrast to Keynesian predictions, the economy responded with a surge of growth and not another slump into recession.

The minimum wage isn't bad because it hurts employers. It's bad because it hurts non-traditional employees.

Coyote Blog » Blog Archive » Case Studies on the Minimum Wage

To run our campgrounds, we mainly employ retired people. Of my 500 workers, well over half are over 60 years old, more than 150 are over 70, some 25 or so are over 80 and a few are even over 90! Most are on social security and medicare, and many have pensions and retirement health plans. A good number are disabled and have some sort of disability support. While they work slower, they make up for their low productivity in part by their friendliness with customers and their life experience.

Most of my employees travel the country in their RV. They take most of the year off, but many like to work over the summer to make a little money and to pay for their camping site. I give many of them a free or subsidized campsite, worth about $500+ a month, plus all their utilities and then pay them minimum wage for the hours they work. Many are thrilled with these terms - so many that I have a waiting list now of over 300 names of people who are looking for this type work. This list is currently growing by about 10 names a day.

There may be employers somewhere who have a power imbalance over their employees. Some days, I envy them. My employees most all have independent means of support. Further, they all have wheels on their houses, so they can and do pick up and leave if they aren't enjoying their job. And, if they don't like our company, there are thousands of other campground operators who are looking for help.

So why are so many people lining up for minimum wage jobs when lefties and progressives are telling them that they should not want those jobs? Here are some reasons:

• They value the amenities that come with the job, including living for free in a beautiful outdoor setting, something it is impossible to value under minimum wage laws
• They have other means of support, so the money is incidental. In fact, I get more inquiries from employees asking me to reduce their hours so as not to mess up their social security or disability payments as I do people asking for more pay
• They get to work with their spouse as a team. There are not many employers out there that let a husband and wife split up work between them any way they want or even work together - can you imagine such a situation on a GM assembly plant?
• They would have a hard time getting hired by anyone else. Very few employers will hire new workers in their sixties, and certainly not older than that. Older workers can be slower and less productive. For $12 an hour, I would have to hire younger workers too, but at minimum wage, I can afford the lower productivity of older workers and gain the benefit of their experience and trustworthiness.

This last point help set the stage for our cases. I love hiring older workers at $5.15 an hour, and they love the job and line up for it. But what happens when I have to pay these less productive workers $6.00 an hour? What about $7.50? What about at $12.00 an hour? Here are some examples of what happens

Case 1: The jobs just go away ...

Case 2: The jobs get outsourced to contractors ...

Case 3: The jobs get automated away ...

Case 4: Prices go up to customers ...

Coyote Blog » Blog Archive » Update on the Arizona Minimum Wage

We are changing our operating strategy from hiring retired couples who live on-site to hiring younger workers. This is a change I really hate. The business model of hiring retired folks who live on-site at a campground is an old and successful one. Folks in their seventies (and I even have workers in their eighties and nineties) don't work very fast, and they have more workers comp claims, but they had the ability to live on-site and life experience that helped them with customer service. But trade-offs that worked at $5.15 an hour don't work as well at $7.25 and higher. So far only selectively, but we are hiring younger folks from the local community to come in and do some of the janitorial and maintenance work. Even if I pay them $8 or $10 an hour, they make sense if they can be twice as productive.

Businesses, sadly, don't have an unlimited ability to raise their prices. Every time the cost of labor goes up, the profit margin goes down. When the profit margin goes below 0% (or whatever margin the owner is willing to accept), prices must go up. If prices can't go up -- as frequently happens in a competitive marketplace -- costs must go down. If the government mandates that labor must cost at least some number, per unit, then the number of units has to go down.

In this case, Warren Meyer is faced with the unpalatable choice of reducing the number of elderly employees at his company or losing the ability to run his business. This isn't something that his specific employees want. They're thrilled with the amount he was giving them. I strongly suspect that they'd work for even less, if given the choice. But they can't. They're not allowed to. They're forced into unemployment because the government refuses to consider that they may not fit the mold.

The minimum wage isn't bad because it hurts employers. It's bad because it hurts non-traditional employees. We're not all alike and it shouldn't be our government's policy to criminalize those who have different preferences about how they'd like to be paid.

The minimum wage isn't bad because it hurts employers. It's bad because it hurts employees.

An Entrepreneur and the Minimum-Wage

To All Team Members:

The schedule for next week has been posted. You may notice that hours have been cut back on your schedule. This is across the board, not just you. I don't want anyone to think they've done something wrong to deserve a cut in hours, so I wanted to explain why it's happening.

There are a couple of reasons for this:

1) May and September are very slow months for our business. Anyone who has worked Sundays recently has seen the drop off in traffic. Now that we're entering May, that drop off will continue on to other days as well, and it will get worse.

2) The recent increase in the minimum wage to $7.25/hour. Since we've opened, I've had a lot of people ask why they can't get more hours, and it's a great question.

I would LOVE to give everyone all the hours they want, and then some. Our customers would be happier across the board, we could accomplish much more every day, our business would grow, I could hire even more people, and on and on. However, we operate on a tight budget just like any other business, and in order to survive, we have to make money. That means our labor cost (the total amount you are all paid) must stay below a certain percentage of our total sales. If it doesn't, we go broke and everyone loses their jobs.

Our brilliant Congressmen in Washington, D.C. decided a couple years ago that it would be a good idea to raise the minimum wage by about 40% to $7.25/hour. It just took effect last year. That probably sounds like great news for everyone - more money in everyone's pockets can only be good, right?

Unfortunately, it doesn't work that way in the real world. If I'm forced to pay everyone 40% more, I can't afford to schedule as many employees for as many hours, since our sales aren't going up by 40%. Remember, I can only afford to pay you guys a certain percentage of all the money coming in the door. That means hours get cut, and everyone ends up poorer.

In a perfect world, it should work the opposite way: you should be free to choose how much you think your skills and time are worth (since you know best), and I should be free to pay you whatever that amount is if I want to hire you. Everyone wins in that case. I get as many good employees as I want that I can afford to pay, and you get valuable job training, references, and relationships to carry into the future.

To prove how bad of a deal minimum wage is for you guys as hard-working job-seekers, just look at this way:

I'm not being forced to pay $7.25/hour; YOU are being forced to accept $7.25/hour no matter what, even if you'd be willing to take less in order to get (or keep) a job.

You can thank our elected officials in Raleigh and Washington for sticking you with such a raw deal.

If you have any questions about any of this or want to talk more about it, please feel free to come see me, the door is always open.

(Obamacare delenda est)

The minimum wage isn't bad because it hurts employers. It's bad because it hurts employees.

Armed and Dangerous » Blog Archive » Marginal Devolution

What these guys have in common is that they're only marginally employable. What borderline mental illness has done to one, mediocre skills and the unintended consequences of anti-discrimination laws have done to the other. As long as I've known both (and that would actually be most of my years, for both of them), they've worked dead-end jobs and put their passion into science fiction and wargaming. They're decent, honest, unambitious men who have never wanted anything but steady work, a normal life, and a hobby or two. They're not stupid and they have respectable work habits; in fact they're probably more conscientious and safe than average. Now they don't quite fit; too old, too geeky, too male, too quiet. The job market has discarded one and the other is hanging by a thread.

When I look at these guys, though, I can't buy the explanation most people would jump for, which is that they simply fell behind in an increasingly skill-intensive job market. Thing is, they're not uneducated; they're not the stranded fruit-picker or construction worker that narrative would fit. Nor does offshoring explain what's happened to these guys, because their jobs were the relatively hard-to-export kind.

No. What I think is: These are the people who go to the wall when the cost of employing someone gets too high. We've spent the last seventy years increasing the hidden overhead and downside risks associated with hiring a worker -- which meant the minimum revenue-per-employee threshold below which hiring doesn't make sense has crept up and up and up, gradually. This effect was partly masked by credit and asset bubbles, but those have now popped. Increasingly it's not just the classic hard-core unemployables (alcoholics, criminal deviants, crazies) that can't pull enough weight to justify a paycheck; it's the marginal ones, the mediocre, and the mildly dysfunctional.

Again, the minimum wage isn't bad because it hurts employers. It's bad because it hurts employees. It makes employees more expensive to hire, more expensive to take a risk on, and easier to fire. As soon as someone costs more in salary, benefits, and regulatory costs than they generate in revenue, they become a liability. And few businesses can afford to keep such employees just for the thrill of being charitable.

(Obamacare delenda est)

It seems like the whole world is annoyed that Spirit Airlines decided to charge passengers for carry-on bags.

Some in Congress believe airline fees should have limits. A bill has been introduced to outlaw carry-on baggage fees; another effort is aimed at taxing fees just as tickets are taxed so government doesn't lose out on revenue as airlines shift their charges from tickets to fees. And the DOT is looking closely at Spirit, mostly to see if the airline properly discloses its fees and other charges to consumers.

Transportation Secretary Ray LaHood has been vocal in his criticism of Spirit's carry-on fee.

"Charging passengers to stow carry-on bags in overhead bins does not strike me as good customer service," he said in a statement to this newspaper. "We will take up this issue as part of an upcoming rulemaking on consumer protection."

I, for one, think Secretary LaHood needs to muzzle himself. I like the idea of Spirit Airlines charging for carry-on luggage. Luggage belongs in the cargo hold, not the passenger compartment. Spirit is quite clear about their reasons -- and I agree with every one of them.

One reason some airlines are eager to charge fees for carry-on bags: There's no room at the (overhead) bin.

To avoid checked-baggage fees, more travelers are carrying more bags onboard with them. At the same time, airlines have packed flights with more passengers, on average. That's led to a real-estate crisis in the cabins—not enough space in overhead bins to accommodate all customers. So more flights are delayed when customers struggle to cram bags into full bins and airline workers have to send bags that don't fit down to cargo compartments.

I always check my luggage when I fly. I hate lugging a suitcase around an airport. I prefer to travel with a small, personal bag and spend my time doing something other than acting as an unpaid baggage handler. In the few flights I've take recently, I've had to stand in airplane aisles waiting as people try to shove large bags into small openings. I've had to sit and watch (and watch and watch) as the flight crew tries to find a spot for every bit of a family's vacation luggage. I've even had to watch a few (supposedly professional) businessmen yell at the flight crew for not having more space available.

If Spirit Airlines flew out of Madison, I'd look to buy tickets from them first. I want to get somewhere quickly. If charging a fee is what it takes to make my fellow passengers quit acting like idiots, then I'm happy to see the fee imposed. Because -- and let's be clear here -- there wouldn't be a need for a fee in the first place if passengers didn't consistently ignore airline guidelines about carry-on luggage.

"We're not having any second thoughts. Right now, it still seems like a good idea to us," says Ben Baldanza, chief executive of Spirit, based in Fort Lauderdale, Fla.

Mr. Baldanza says Spirit will be able to trim five minutes off each flight—20 hours of airplane time per day. That's like having two extra $40 million planes in your fleet, and would let the airline add more flights without having to buy more planes. Today, without carry-on fees, Spirit is often gate-checking as many as 20 to 30 bags per flight that don't fit in overhead bins.

Passengers who don't like it can feel free to fly with another airline.

Carrie Lukas wrote about the class-action lawsuit against Wal-Mart at The Corner on National Review Online. In her post, she provided a great summary of why the median woman earns less than the median man. Hint: it's not rampant sexism.

Women and men tend to gravitate toward different industries and even different specialties within fields. Women leave the workforce more frequently than men do and take more time off while working, and even full-time working women spend about half an hour less in the office each day than their male co-workers. These differences add up, and even liberal groups like the American Association of University Women admit that controlling for personal choices eliminates up to three-quarters of the wage gap.

It’s hard to control for all of the factors that affect earnings. In his book, Why Men Earn More, Warren Farrell looks at many factors, and notes trends that make identifying discrimination difficult. For example, women often are promoted more quickly than men. As a result, women executives often have less experience than their male counterparts and therefore are paid less. Dr. Farrell uses the example of TV news directors. Some claimed discrimination because female news directors were paid about 27 percent less than their male counterparts. Yet the data also showed that the average female news director had less than six years of experience in news, while the average man had more than 14. In this instance, who exactly is being discriminated against?

Other studies have found that women are less likely to negotiate their starting salaries or ask for raises and promotions, which may contribute to them earning less than men on average. That could be a result of socialization, natural instincts, and even the presumption that women who try to negotiate their salaries will be perceived as less attractive candidates (which studies have also found to be true).

Statistics also cannot capture the different goals that men and women have when negotiating employment contracts. While many men might focus exclusively on maximizing pay, many women focus on flexible work schedules or schedules that work with their children’s school calendars.

For the last couple of years, I've been unhappy with the "short term missions" model that many churches use. It seems to involve a lot of good feelings about going somewhere else to experience "true poverty", working there for 1-3 weeks, coming home, showing lots of pictures of really poor people, and talking about the great need for Christian generosity. Now, I am a fairly generous individual. And I don't like seeing poor people suffer in poverty any more than you do. Despite the vast concern for social justice that's put into most trips, I don't think poverty will ever be reduced by them.

Poverty will be eliminated in the 3rd world the same way it was eliminated in the 1st world: growth. And that growth often involves taking the best scientific know-how we have, training people to understand how and why it works, and then letting them get on with the business of making themselves richer. (Growth often involves a strong rule of law and a government that doesn't steal from its own people, but I'll leave that topic for another post.)

I quoted from an article, just a few minutes ago, about the need for appreciating the "modern, science-intensive, and highly capitalized agricultural system" that we have her in America. But what about Africa? Will that really work over there?

Yes (from later in the same article).

Africa faces a food crisis, but it's not because the continent's population is growing faster than its potential to produce food, as vintage Malthusians such as environmental advocate Lester Brown and advocacy organizations such as Population Action International would have it. Food production in Africa is vastly less than the region's known potential, and that is why so many millions are going hungry there. African farmers still use almost no fertilizer; only 4 percent of cropland has been improved with irrigation; and most of the continent's cropped area is not planted with seeds improved through scientific plant breeding, so cereal yields are only a fraction of what they could be. Africa is failing to keep up with population growth not because it has exhausted its potential, but instead because too little has been invested in reaching that potential.

One reason for this failure has been sharply diminished assistance from international donors. When agricultural modernization went out of fashion among elites in the developed world beginning in the 1980s, development assistance to farming in poor countries collapsed. Per capita food production in Africa was declining during the 1980s and 1990s and the number of hungry people on the continent was doubling, but the U.S. response was to withdraw development assistance and simply ship more food aid to Africa. Food aid doesn't help farmers become more productive -- and it can create long-term dependency. But in recent years, the dollar value of U.S. food aid to Africa has reached 20 times the dollar value of agricultural development assistance.

The alternative is right in front of us. Foreign assistance to support agricultural improvements has a strong record of success, when undertaken with purpose. In the 1960s, international assistance from the Rockefeller Foundation, the Ford Foundation, and donor governments led by the United States made Asia's original Green Revolution possible. U.S. assistance to India provided critical help in improving agricultural education, launching a successful agricultural extension service, and funding advanced degrees for Indian agricultural specialists at universities in the United States. The U.S. Agency for International Development, with the World Bank, helped finance fertilizer plants and infrastructure projects, including rural roads and irrigation. India could not have done this on its own -- the country was on the brink of famine at the time and dangerously dependent on food aid. But instead of suffering a famine in 1975, as some naysayers had predicted, India that year celebrated a final and permanent end to its need for food aid.

What if the American church committed to getting over the West's passion for antiquated farming methods and decided instead to take up the mantle that the U.S. government dropped 35 years ago? We might find that we're far more likely to be of some use that way than we currently are. Instead of sending people over to marvel at poverty why don't we fund the same kinds of projects that enabled India to be self-sufficient?

I talked earlier this week about capitalism and its blessings, in regard to cleanliness. Consider this, about the blessings of capitalism in regard to food.

What's so tragic about this is that we know from experience how to fix the problem. Wherever the rural poor have gained access to improved roads, modern seeds, less expensive fertilizer, electrical power, and better schools and clinics, their productivity and their income have increased. But recent efforts to deliver such essentials have been undercut by deeply misguided (if sometimes well-meaning) advocacy against agricultural modernization and foreign aid.

In Europe and the United States, a new line of thinking has emerged in elite circles that opposes bringing improved seeds and fertilizers to traditional farmers and opposes linking those farmers more closely to international markets. Influential food writers, advocates, and celebrity restaurant owners are repeating the mantra that "sustainable food" in the future must be organic, local, and slow. But guess what: Rural Africa already has such a system, and it doesn't work. Few smallholder farmers in Africa use any synthetic chemicals, so their food is de facto organic. High transportation costs force them to purchase and sell almost all of their food locally. And food preparation is painfully slow. The result is nothing to celebrate: average income levels of only $1 a day and a one-in-three chance of being malnourished.

If we are going to get serious about solving global hunger, we need to de-romanticize our view of preindustrial food and farming. And that means learning to appreciate the modern, science-intensive, and highly capitalized agricultural system we've developed in the West. Without it, our food would be more expensive and less safe. In other words, a lot like the hunger-plagued rest of the world.

(Hat tip to Wilson Mixon, at Division of Labour.)

Back on Earth Day, Don Boudreaux wrote a nice letter to USA Today.

On this Earth Day, Bjorn Lomborg scrubs with facts the noxious notions and emotions that pollute public discourse about the environment ("Earth Day: Smile, don't shudder," April 21). Especially useful is his point that the world’s number one environmental killer remains the indoor air pollution suffered by persons in poor countries who burn wood, waste, and dung to cook their meals and to heat their homes.

As the historian Thomas Babington Macaulay reminded us, it wasn't until Europeans industrialized – or, as we say today, enlarged their 'carbon footprint' – that they were saved from that same filthy fate. Here’s Macaulay's description of the dwelling of a typical 17th-century Scottish highlander:

You'll have to click through to read the full letter. But his point is sound. For the average person, capitalism has't increased pollution. It's greatly decreased it.

I recently read two good articles, from Jonah Goldberg, on socialism.

Capitalism vs. Capitalists

If by "capitalist" you mean someone who cares more about his own profit than yours; if you mean someone who cares more about providing for his family than providing for yours; if you mean someone who trusts that he is a better caretaker of his own interests and desires than a bureaucrat he's never met, often in a city he's never been to: then we are all capitalists. Because, by that standard, capitalism isn't some far-off theory about the allocation of capital; it is a commonsense description of what motivates pretty much all human beings everywhere.

And that was one of the reasons why the hard socialism of the Soviet Union failed, and it is why the soft socialism of Western Europe is so anemic. At the end of the day, it is entirely natural for humans to work the system--any system--for their own betterment, whatever kind of system that may be. That's why the black-market economy of the Soviet Union might have in fact been bigger than the official socialist economy. That is why devoted socialists worked the bureaucracy to get the best homes, get their kids into the best schools, and provide their families with the best food, clothes, and amenities they could. Just like people in capitalist countries.

It's why labor unions demanded exemptions and "carve-outs" from Obamacare for their own health-care plans. And why very rich liberals still try their best to minimize their taxes.

The problem with socialism is socialism, because there are no socialists. Socialism is a system based upon an assumption about human nature that simply isn't true. I can design a perfect canine community in which dogs never chase squirrels or groom their nether regions in an indelicate manner. But the moment I take that idea from the drawing board to the real world, I will discover that I cannot get dogs to behave against their nature--at least not without inflicting a terrible amount of punishment. Likewise, it's easy to design a society that rewards each according to his need instead of his ability. The hard part is getting the crooked timber of humanity to yield to your vision.

To understand that last point better, consider these two quotes.

From Hayek's The Fatal Conceit:

The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.

From Adam Smith's The Theory of Moral Sentiments:

The man of system, on the contrary, is apt to be very wise in his own conceit; and is often so enamoured with the supposed beauty of his own ideal plan of government, that he cannot suffer the smallest deviation from any part of it. He goes on to establish it completely and in all its parts, without any regard either to the great interests, or to the strong prejudices which may oppose it. He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board. He does not consider that the pieces upon the chess-board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might chuse to impress upon it. If those two principles coincide and act in the same direction, the game of human society will go on easily and harmoniously, and is very likely to be happy and successful. If they are opposite or different, the game will go on miserably, and the society must be at all times in the highest degree of disorder.

(Hat tip to Russ Roberts, for the quotes.)

Finally, here's Jonah Goldberg writing about What Kind of Socialist is Barack Obama?

By these lights, socialism is a very sophisticated, highly technical, and historically precise phenomenon that has nothing to do with the politics or ideas of the present moment, and conservatives who invoke the term to describe Obama's policies and ideas are at best wildly imprecise and at worst purposefully rabble-rousing. And yet when liberals themselves discuss socialism and its relation to Obama, the definition of the term "socialist" seems to loosen up considerably.

... But is it correct, as an objective matter, to call Obama's agenda "socialist"? That depends on what one means by socialism. The term has so many associations and has been used to describe so many divergent political and economic approaches that the only meaning sure to garner consensus is an assertive statism applied in the larger cause of "equality," usually through redistributive economic policies that involve a bias toward taking an intrusive and domineering role in the workings of the private sector. One might also apply another yardstick: an ambivalence, even antipathy, for democracy when democracy proves inconvenient.1 With this understanding as a vague guideline, the answer is certainly, Yes, Obama's agenda is socialist in a broad sense. The Obama administration may not have planned on seizing the means of automobile production or asserting managerial control over Wall Street. But when faced with the choice, it did both. Obama did explicitly plan on imposing a massive restructuring of one-sixth of the U.S. economy through the use of state fiat--and he is beginning to do precisely that.

As they say, read the whole thing.

I just read a pretty good essay over at The Freeman, discussing the difference between what we can do and what we ought to do. Too often, people talk about what we ought to do before even considering if we can do it. The essay, appropriately enough is Ought Implies Can.

There are two parts I particularly liked. The first was on the problem of imperfect knowledge.

The economist David Prychitko once defined economics as “the art of putting parameters on our utopias.” And in a particularly insightful definition, Nobel laureate F. A. Hayek wrote that “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” What both definitions suggest is that economics deals with the realm of the possible and in doing so demarcates the limits to what should be imaginable.

The author points out that this practice makes economists unpopular.

Economists are thus often seen as only knocking down the ideas of others without coming up with solutions of their own. There is some truth to this claim. That is how economists spend much of their time. But it’s an important function: showing why a proposed solution would only make matters worse is a valuable contribution to the broader process of solving the problem.

So, before you tell me that we ought to do it -- healthcare reform, for instance -- you first need to demonstrate that we can do it. Preferably in some level of detail.

Sheldon Richman on "Proposers versus Producers."

"The dynamic leader who gives impassioned speeches and sponsors legislation on behalf of social justice is portrayed as heroic in part because few people can find the logical flaws in the program. As a result, all that counts are presumed motives. But motives divorced from understanding are worthless — even dangerous. In a more sensible world, proposing ends while oblivious to means would be a sign of irresponsibility, the intellectual equivalent of drunk driving."

(Tip 'o the hat to Art Carden at Division of Labour.)

I finished listening to an old EconTalk podcast, during my commute this morning. Russ Roberts was talking to Karol Boudreaux about her fieldwork on property rights and economic reforms in Rwanda and South Africa. They spent the first half of the conversation talking about Rwandan reforms and the second half talking about South African reforms. I was most fascinated by the South African portion. (It starts at about 30 minutes into the podcast.)

Karol talked about Langa township in South Africa. It was established as a place for blacks to live, but they weren't given any rights to the properties whatsoever. They had to get permission from the city government even to paint or repair their homes. By 1994, the government had started to turn over ownership to the people who lived in the homes.

I was thrilled to hear the story of Sheila, a very entrepreneurial woman in Langa township. (Her story starts about 39 minutes into the podcast.) Sheila had been a domestic helper in Capetown when she saw a receipt for two glasses of wine and a plate of cheese. She was stunned to see that that sold for more than she got paid in a month. She knew she was worth more than that. So, she decided to prove it.

After a few false starts, she hit on the right business plan. Tourists had been driving through Langa Township for years, to see the results of apartheid. But they never got out of their tourist buses. Sheila decided to give them an opportunity to start getting out. She opened up a restaurant in her house (after she'd received the title to it). She now serves meals to tourists, while telling them the story of her life and her experiences under apartheid. Her restaurant is well known for "authentic" South African food. It's primarily advertised through word of mouth and bloggers (how great is that?). The restaurant doesn't just support Sheila. She also employs five other people to keep things humming along.

Does South Africa have more economic freedom than the U.S.? In some ways, it does. Try opening a restaurant out of your home and see how long it lasts before the local authorities shut it down. But, in South Africa, Sheila was able to use her home to create a living for herself, create income for others, create something for tourists to see and do, and educate many people along the way. And it all happened because she had the economic freedom to use her property in the way she saw fit. Her tourist guests use their freedom to eat where they see fit and her desire to keep her restaurant's reputation protects her customers as they eat.

Sheila's story is a perfect example of the win-win results that come from letting people make their own economic decisions and bear both the profits and losses that they generate. It's also an example of how far you can go if you decide to change your circumstances instead of complaining about them.

Economist David Henderson has a great idea.

What do you call people who want government solutions even when those solutions don't work?

In my latest article in The Freeman, I introduce the term "government fundamentalists." Here's a passage:

What should we call people who seem to regard government as the solution regardless of the evidence? I propose the term "government fundamentalists."

This is great shorthand for what the current administration believes in. No matter what the problem is, government is always the solution. This is a label I'll have to use more.

(Via EconLog.)

Rand Simberg argues that UAW work rules have killed the productivity of the Detroit Three. He thinks it's possible that the companies could survive paying the high salaries if they had a free hand to simultaneously increase worker productivity. But they don't and for that reason the union deserves to die.

Some have claimed that the only goal of the Republicans was to break the union. Well, if that -- or at least breaking the work rules -- wasn't one of the goals, it should be, because there is no saving this industry without doing so in some form. After all, the union played a major role in breaking it. If we could do so, the Wagner Act, a relic of the Depression and New Deal, should be repealed or at least revised as well. Unfortunately, with the party and mindset that passed it over seventy years ago once again in power in Washington, they seem much more likely to dramatically worsen it and spread the infection to the rest of American industry.

I'm a sympathetic to his arguments, but I have to admit that they're entirely based on anecdotal evidence. I'd be interested in seeing actual statistics about the productivity differences between the Detroit Three and everybody else.