Economics
Economics isn't just about theoretical impacts to money, though many get caught up in that. It's about social engineering or understanding. You can't argue a policy change (or any change) intelligently if you don't think about the consequences of your actions -- and not just to the people you care about, but all people and the system as a whole. How will people react, how can the solution be gamed, sure you helped a few -- but what happened to the rest (and does the help outweigh the costs). Micro-economics is looking at one system, Macro-economics is looking at how that system impacts all the others.
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This is of course hotly contested, but it breaks down into two camps: (1) "No" (2) Those who have a clue as to what they're talking about. The problem is (of course) that it doesn't always, and doesn't always immediately impact it. So there's some plausible deniability for the economics deniers out there to find edge cases and say, "see". But as soon as you look deeper than the surface, you find that it does suppress growth, or increase a decline, sometimes ahead of the law and sometimes well behind it but it happens, and it especially hits certain segments and groups of people harder than others (like teens, starting out, part time work, and so on). Let's dive into the evidence.Minimum wage is like Goldilocks, there are three ways you can set minimum wage: too low, too high, and just right. Too low, means it's doing nothing of value. Too high means it's hurting employment and growth. And since just right can never apply to two different people, places or moments in time, there's really only one way to set minimum wage: and that's at the wrong level.
Ignoring the stupidity that there's one magic "livable wage" that would be equally fair on both sides of the same city, let alone country, the left tries to sell the gullible that setting a salary minimum will set a salary minimum, but it doesn’t. Progressives often see the choice as: (a) A livable minimum wage (b) A lower minimum wage. The minimum wage and living wage warriors seem reluctant to accept the economic realities: price and wage controls almost never work. There are extremely rare cases where they can work (or do minimal damage) in one small location for short amounts of time, but there's no magic wage that's right for everywhere and everywhen at once. Thus wage controls start out bad and get worse over time. While a few discredited studies (like Card & Krueger) show that raising minimum wage doesn't have large impacts, in a few situations, for short periods of time. But each study like that has dozens of rebuttals and refutations that show the flaws in their methodology, and counter studies that it does impact employment (and wages), in the wrong way. So if you see a Study or News that claims minimum wage doesn't hurt employment, you know it's Fake. A few socratic questions show the problems: (a) What's a fair wage for both NYC and B.F. Idaho? If $15/hr is good, why not $150/hr? If only 9% of minimum wage workers are below the poverty line (and 91% are not), wouldn't giving money directly to that 9% be better? If minimum wage is a starting salary, why should it have an ending value (be a livable wage)?
Value (Money) is derived from the product of work (productivity/results), not based on what you paid for it. Thus the less you pay, the better off you are. The more you pay, the worse. This is why despite the doomsayers automation is good, and despite what the Social Justice Warriors (also known as economically illiterates) will tell you, minimum wage is not good. Despite the B.S. they're selling, you can't lose more money on every transaction and make it up in volume. I hear all the time, that McDonald’s can afford to pay a “livable wage” without raising costs, or "it’s just a few cents a burger", by people that don’t understand basic economics, or business. Here’s some notables taken from the average McDonald's balance sheet:
Poverty (and who makes minimum wage) gets even more complex:
Explain to me how raising minimum wage helps with any of those things? I can explain how fewer teenage jobs means more teenagers doing other things, like getting pregnant. Fewer opportunities for the less educated and immigrants doesn't help them out. And so on. So target the right people, instead of offering blanket subsidies to the wrong ones. Instead of raising the minimum wage, Congress should look at other ways to aid the working poor that actually focus on providing help to those who need it. And that' the first rule of economics: do no harm. If you can't show how you're making something better, and the other side can show how you're not, then you're wrong. Or don't knock down fences without understanding why they're there. |
To the left, everything is about community organizing and their protests and self-righteous indignation. To the informed, those tantrums usually came late after the cultural tide was shifting and the Jonny-come-lately's did little but try to take credit for the success of others. Like Henry Ford (Capitalism) standardized on the 40 hour work-week, most others had adopted it, and then the Federal Government created a regulation that said we should adopt it for the very few remaining and took credit for something that was already done. Then the leftist media (like NBC) repeats the lie, and the gullible gobble it up. Thanks Unions for riding on the coat tails of others.
The bay bridge is a metaphor for San Francisco. The Golden Gate was built privately and under budget for $35M ($1.2B in today's dollars), one span of the Bay Bridge needed a retrofit, that was run by the city and came in late, and over budget at $6.4B, and has withmetallurgy issues (per the spec). For that cost we could have built 4 other bridges. But it looks nice, so everyone wins.... except the taxpayers
A good example of government helping is what the FCC did for cell phones: it delayed them by 40 years. . In 1945 the Saturday Evening Post was talking about handle-talkies, which could have been done with transistor radios of the time. But while the technology was known for how to do it, as well as business plans and motivation, it took until 1982 for the FCC to allocate the spectrum to do it, and another 7 years (1989) to authorize licensing the service.
There are many unexpected consequences for everything we do. I had a minor epiphany for improving a medical device/process, that the heads of the company I worked for (Baxter) agreed would save lives, but they could never use because of medical liability. They had to practice defensive medicine, which is about protecting the company from lawsuits. For every action, there is an opposite reaction.... but in life (unlike physics), it isn't always an equal and opposite reaction.
There was an economics battle between Keynes and Hayek fought generations ago. But History proved Hayek the winner: things he predicted came true. Keynes scored a few microeconomic points, but history broke his macroeconomics models: the boom economy after WWI, stagflation in the 1970's, Japan's lost decades and the failure of Abenomics, China and Russia's growth after abandoning command economies, all proved Keynes wrong. And Hayek won the noble prize for explaining why: Dispersed Knowledge. If the leaders don't know more than everyone else combined, then the more decisions you make from the top, the less efficient those decisions will be, and planned economics will underperform ones where the decisions can be made closer to the problem.
This one is many myths (lies) in one: (a) Women get $.77-.82 cents on the dollar compared to what men make (this injustice is called the "Gender wage/pay gap" or GWG) (b) We need big government (politicians) and new laws/regulations/taxes to fix it (c) Democrat politicians motives are all sincere, anyone that opposes is a sexist/misogynistic/bigot. All false, and debunked here.
The Gini Coefficient (or Gini Index) came about when Corrado Gini (and Italian Sociologist) wrote the book: The Scientific Basic of Fascism. His idea was that you could make systems stronger than the individuals, if you just weeded out the threats to the collective and accepted fascism (democratic socialism combined with crony capitalism). His book, and the infamous “Gini Coefficient” he created, said that income should be evenly distributed, and if it wasn’t, then government should use that imbalance as an excuse to seize wealth and liberty, and redistribute it (fascism) to make things “more fair”. His coefficient is basically just that: a measure of how economically fascists (socialist) your country is.
There’s a bunch of meme’s and soundbites going around where politicians love to point out the disappearing middle class (income inequality), and how we need them to fix it. There’s only a few problems with that:
If you want to know why businesses flee the state, and why the rest of the nation think SF is a city of fascist morons, look no further than the just passed Prop D. This is a vacancy tax that penalizes landlords for the inability to find tenants for their storefronts, after the city has made it harder to find tenants for their storefronts.
Each new tax, law or regulation, comes with costs (compliance, non-compliance, enforcement and punishment). We 174,545 pages of regulations with over 1,040,940 restrictions. Our tax code has over 73,954 pages. Our federal legal code has over 23,000 pages and over 4,450 federal crimes (in 2008). Double that for statutes, case law, and regulatory provisions. Then there’s another 300,000 criminal punishments within the discretion of administrative agencies. Then you have to add in the state and local laws, regulations and taxes on top.
While discussing progressive "solutions" the other day, someone said my problem was that I saw government as a zero sum game. Where every dollar you used to help one person, came from the pocket of someone else, so there could never be a net win for society. I explained that it is much worse than that: when government is involved, because there's overhead, waste, fraud, work rules, politics, and other things that dissolve efficiency, freedom, pride and value, as part of the transaction, it is always a negative-sum (lose-lose) game. That isn't to say there aren't winners, there's just always far more losers: because of how the system works. |
There was an economics battle between Keynes and Hayek fought generations ago. But History proved Hayek the winner: things he predicted came true. Keynes scored a few microeconomic points, but history broke his macroeconomics models: the boom economy after WWI, stagflation in the 1970's, Japan's lost decades and the failure of Abenomics, China and Russia's growth after abandoning command economies, all proved Keynes wrong. And Hayek won the noble prize for explaining why: Dispersed Knowledge. If the leaders don't know more than everyone else combined, then the more decisions you make from the top, the less efficient those decisions will be, and planned economics will underperform ones where the decisions can be made closer to the problem.
I'm not arguing government spending never produces anything good. It does. In theory, you can do things like invest billions in infrastructure, and that will benefit the economy in the long term. Hoover dam meant cheap power, and helped enable Vegas and L.A. So a few public works programs, do help, eventually. However, for each Hoover dam, there are a dozen Solyndra's, or government spending disasters. When you average them all in, you get far more weighing down your economy than helps it up, because: politics. So net net? Government spending fails more than it succeeds, and even when it succeeds, it generally succeeds by less than it would have if it was done/managed privately with profit motives -- but there are a few exceptions to the rule.
I listen regularly to the Freakanomics Podcast (Radio). And they did a two part series on writing. Starting with, “do we really need cursive anymore”, some light discussion on cursive, it was an interesting podcast, but just for curiosity. Mostly it was a setup for the next week’s one which was far more interesting. The second podcast was on i pencil: an economics treatise by Lawrence W. Reed, founder of fee.org (circa 1958), explaining the complexity of making something as simple as a pencil in the modern world. I’d heard parts of this, in other contexts, and I was very familiar with fee.org, which I’d read a lot of their stuff. But it piqued my curiosity, and read I pencil in it’s entirety. It’s definitely worth a listen or read.
It would be great if Keynesianism worked, governments could manipulate economies, and our lives would be better. But history shows us the opposite: it has failed every time it has been tried. Examples: the new deal, the new new deal, after WWII (Keynesians predicted a depression cutting all those military jobs, instead we had huge growth), 1970's Stagflation broke their models completely, Japan's lost decades (Abenomics) all went the opposite of Keynes predictions. Every country that converted from centralized planning and communism to free'er economies (Russia, China, Vietnam, East Germany, etc), should have had a depression, instead of massive growth. The history of central planned economies like North Korea, Venezuela, Cuba, should have all outgrown places like South Korea, Brazil or Hong Kong: but the opposite happened. Heck, if it would have worked, then Obamanomics would have given us the highest labor participation rates in our history, instead of the lowest since the Great Depression. So what did we learn? Keynesians learned nothing because reality doesn't fit their desires. But the rest of us learned that Keynes was wrong.
Keynes microeconomics was brilliant, his macroeconomics have never worked in the real world.
Those claiming 20 million more people are insured because of Obamacare (ACA) either don’t know what they’re talking about, or are bald-faced liars. We're around 29 million people short of the campaign promise for universal coverage. And it's well below the 20 million new people covered that the fools and frauds like to claim. The facts: about 2.8M were covered because of Obamacare, and another 4-6M because of medicaid expansion, at a cost of about $20K per new person covered.
The Broken Window Fallacy is a fundamental concept of economics (and logic) about seen advantages versus unseen costs. Henry Hazlitt summed up the art of economics as not merely looking at the immediate consequences but the longer effects of any act or policy, and tracing those consequences not merely for one group but for all groups
The general definition is "government spending crowds out private investment". It is widely accepted as at least partly true.
The Keynesian version is that in recessions/depressions everything has to be perfectly efficient and instantaneous. Since it isn't, they see any lags, overreactions and inefficiencies as opportunities for government to step in and spend (stimulate) to where "things should have been", to smooth out the downturns. Nice theory. FDR tried it in the great depression (believing in his "brain trust"), and the results were extending the depression by a decade, and we have many more examples of the failures of planners to be more effective than the free market. So while it's a great theory, it has never actually worked in the real world. Keynes was a brilliant micro-economist, with delusions of being a macroeconomist, but his religion of collectivism (authoritarianism) got in the way of understanding human nature (how people and thus economies would react) or the nature of governments. There's a name for Trickle Down Economics... it's called economics. Even Keynesianism is the idea that if government spends, it trickles down. No rational economist will argue against the idea that cutting everyone's taxes leaves them more money to spend, and they will spend some of it. Increases in earnings will either be actively invested, saved (passively invested), or spent. And if they do any of those, that money is passed through into the economy: in other words, it trickles out (and down). Period. End.
Now there can be intelligent debates on what helps the economy more: spending, cutting, and whether cutting at the top or the bottom helps more. But liars (polemics, fools and the media), will perverts that debate on what helps more, into some fraud that cutting taxes at the top doesn't work at all. Keynesianism is the idea that during recessions/depressions markets can react to fear and over-correct. Government can make up for the fearful private sector over-cutting (and being less than efficient), by spending up to where levels should have been, and smoothing the reset. However, for Keynesianism to work you need 4 things to happen: (1) an information vacuum (2) you have to cut spending/programs as the economy gets better (3) you need to be replacing like jobs (4) you have to have near equal efficiency between government and private sector. Since none of those things happens in the real world, the Keynesian promises have never, ever, been realized.
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There are a few books or movies like "The Big Short", Liar's Poker, or William Black who float this Big-Fraud theory (BFT), It is loved by Hollywood, the Media, Progressives (Elizabeth Warren, Bernie Sanders), and those who know better but want to distract and enrage the gullible. It's becoming the most widely spread theory because simply hate and ignorance spread faster than information, complexity, and introspection. It is really just a variant of GST and "Too Little Government".
The idea is:
The problem is no one credible has really offered this as a "theory", because it's not economics, it's politics. And it doesn't explain anything, if you think it through. NOTE: No one doubts there were a few unsavory actors, or that Countrywide wasn't and aggressively selling LIAR/NINJA loans (preying on consumers that couldn't afford to pay them back). They were doing exactly what Fannie/Freddie and the CRA had demanded, and paid them for (by buying all those loans up, and putting them into MBS's in the first place). But these characters weren't the fundamental cause of the crash (all markets cycle), or the credit crunch caused by over-regulation, and it has nothing to do with Glass-Steagall which couldn't have done anything to stop it. So yes, there were over-aggressive players, taking advantage of the Democrat created credit traps -- and they slightly magnified the problem. But had they not existed, the same exact thing would have happened. And those that try to pin THE blame on these guys, are ignorant or dishonest. These were bad actors, but it's like blaming a pickpocket in the back of the plane for 9/11.
The reality is:
The idea of the CRA->Fannie/Freddie theory (CRAFFT) is as follows:
The GST theory is great at pointing fingers at who (by scapegoating evil bankers and sub-prime loans), it doesn't tell you the what, why, how like the CRAFFT theory does. Why would they do it (knowing that short term greed would kill the goose that made them rich)? Oh, because they had to by law, now that makes sense. What really happened? Credit markets froze. How did TARP help? By helping banks have enough liquidity (loan them money) to get around the governments own restrictions: it fixed their debt-equity ratios, and that let them loan again. So knowing CRAFFT, explains far more -- knowing GST means you can't explain anything, but you get to hate bankers and wallow in virtue (think more government could have fixed it). These are a bunch of financial terms (concepts really), that you can scan to get familiar with the jargon and ideas. Especially before reading the Financial crisis of 2007-2008, but they're good jargon to know when watching financial shows or reading financial press.
What caused the financial crisis of 2007-2008? This is a comparison of the two (or three) most popular theories: whether Glass-Steagall, CRA and FannieMae/FreddieMac, or the Big Fraud caused the meltdown. Along with a full explanation of the strengths and weaknesses of them (which holds up to scrutiny). Links and resources provided.
Glass-Steagall was the 1930's new deal regulation that said Commercial and Investment banks had to be separated. There would be no "universal" banks (that did both). In theory, by separating sides there would be more transparency, and people might behave less risky. In truth, there's just more inefficiency and the same risk. Think of these:
Most of all, if G-S was the problem, then during the collapse it would have been the unified banks that had the biggest problems (over-leveraged/under-capitalized). It wasn’t. The Unified banks outperformed the Commercial banks (Countrywide) and the Investment Banks went out of business (Goldman Sachs, Morgan Stanley, Merrill Lynch, Lehman Brothers, Bear Stearns). The Unified banks bailed out the others; JP Morgan Chase (Unified) bailed out Bear Stearns (Investment), while B of A (Unified) helped by taking over Merrill Lynch (Investment) and Countrtywide (Commercial). This is backwards from what GST says should have happened! |
People on both sides of the dot-com bubble can be wrong at the same time. The Internet IS changing the global economy, and this IS NOT just a "flash-in-the-pan" fad that's going to be gone tomorrow. But the other side is that investors CAN overreact to hype, get way ahead of returns, and that can cause a big pullback. But in the long term, this is the new normal. The general definition is "government spending crowds out private investment". It is widely accepted as at least partly true.
The Keynesian version is that in recessions/depressions everything has to be perfectly efficient and instantaneous. Since it isn't, they see any lags, overreactions and inefficiencies as opportunities for government to step in and spend (stimulate) to where "things should have been", to smooth out the downturns. Nice theory. FDR tried it in the great depression (believing in his "brain trust"), and the results were extending the depression by a decade, and we have many more examples of the failures of planners to be more effective than the free market. So while it's a great theory, it has never actually worked in the real world. Keynes was a brilliant micro-economist, with delusions of being a macroeconomist, but his religion of collectivism (authoritarianism) got in the way of understanding human nature (how people and thus economies would react) or the nature of governments. There's a name for Trickle Down Economics... it's called economics. Even Keynesianism is the idea that if government spends, it trickles down. No rational economist will argue against the idea that cutting everyone's taxes leaves them more money to spend, and they will spend some of it. Increases in earnings will either be actively invested, saved (passively invested), or spent. And if they do any of those, that money is passed through into the economy: in other words, it trickles out (and down). Period. End.
Now there can be intelligent debates on what helps the economy more: spending, cutting, and whether cutting at the top or the bottom helps more. But liars (polemics, fools and the media), will perverts that debate on what helps more, into some fraud that cutting taxes at the top doesn't work at all. |
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