Two leaked letters between staff and administrators at the Smith College School for Social Work have led to mass student protests of perceived institutional racism.
Professors alleged that admissions staff were doing a disservice–particularly to minority students–by admitting unprepared students to the program, despite “overwhelming data that demonstrates that many…students, including white-identified students, cannot offer clients a social work intervention that is based upon competence, skills and ethics.”
The unnamed source of the leak, as well as students, took umbrage over some of the terminology and implications of the letters, citing “violent, racist rhetoric.”
Protests at Smith College are somewhat of a perennial occurrence, but this case is particularly interesting because it deals in part with matters that can be verified through existing data. Moreover, arguments from the students present good opportunities to debunk common fallacious assumptions and underscore the importance of viewing statistics in proper context.
The first such assumption is that members of differing groups should be expected to achieve similar results and outside factors are to blame when this isn’t the case.
Contemporary politics are inundated with references to various forms of inequality. Why would we expect that there would be huge differences across people of varying (ethnic) groups except when it comes to academic performance? Indeed, racial achievement gaps are a widely acknowledged phenomenon.
For this reason, student Chris Watkins’ statement that a “disproportionate amount of black and Latino students” are under review, which can endanger their chances of graduation, isn’t enough to indicate racism. There’s no reason to assume that black and Latin students as a group would do as well as whites or Asians besides that we might find it ideologically appealing.
The second assumption is that multivariate groups of people can be divided neatly by single variables. Speaking of black, Latino, and white students assumes that the students that fall into these categories share all other variables that might affect educational performance.
Students could just as easily be separated by family income or some other variable that correlates to academic success. We wouldn’t expect black students from poor, single-parent households and upper class black students whose parents are Ivy League alumni to succeed at the same rates, even though both are black. Any discussion of racial outcomes that doesn’t take other factors into account is too blunt to deserve much weight.
Even if racism were a factor in determining which students are put on review, as Watkins seems to allege, the proportion of students on review by race wouldn’t tell us that, which brings me to my third point: Gross statistics are easily digestible, but can rarely be trusted to convey the nuances of a situation. Discrimination could be inferred statistically, but Watkins is looking in the wrong place for evidence.
In 1991 the Federal Reserve Bank of Boston found that after adjusting for several factors, blacks loan applicants were rejected about 17% of the time, compared with 11% for white applicants. The Boston FED felt that this was enough to infer racial discrimination on the part of lenders, which confirmed an existing belief held by the researcher.
It was only later that a writer at Forbes pointed out that racial discrimination would be evidenced not in the percentage of rejected applicants, but in the default rates of the borrowers. Lower rates of default among black borrowers would indicate that their applications were being held to tighter standards than comparable white applications. Since black and white default rates were even, it appeared that race was not a deciding factor in the lenders’ decision-making process.
We can apply the same logic to this accusation of faculty racism at Smith College. It’s not enough to demonstrate that a higher proportion of black and Latino students are placed under review; we need to know they’re outperforming white students who are also placed on review, or inversely, if among students not under review whites had a lower GPA than black and Latino students.
Similarly, we can evaluate the complaints of Professor Dennis Miehls and the “Concerned Adjuncts.”
If, as the letters from staff seem to imply, unqualified students were being admitted because of an administrative predilection for non-academic qualities, we would probably find some evidence of that in the incoming GPAs (or other metric of gauging academic preparedness) of students under review relative to their successful peers. Since the Smith College MSW program doesn’t require applicants to take a GRE, work experience, undergraduate GPA, and SAT scores might be the best such indicators.
In a school so often embattled by protests and accusations of racism, students and faculty should take this chance to quantitatively assess whether or not racism is affecting the performance of minority students on campus. With any luck, someone with access to the right data will perform a competent analysis.
 It would hardly be the first time a university admitted based on preferential characteristics that had nothing to do with academic success. Among students admitted to medical schools between 2013 and 2016, black and Latino students have lower median GPAs and MCAT scores than white applicants, who are similarly behind Asian applicants. Among applicants with comparable MCAT and GPAs, black and Latino students are far more likely to be accepted, indicating an admissions preference.
Given the historically unpopular candidates presented to us, 2016 should be the year Americans are encouraged to expand our political horizons.
Instead, people interested in a non-binary choice this election face a litany of derisions and insistences that their political preferences should take a back seat to a greater mission of ensuring that either Clinton or Trump not take the White House.
Underneath it all is the accusation—outright or implied—that voting for a third party candidate is a waste of time: a selfish, brazen gesture best left for a less pivotal year.
This is a terrible argument. There’s no such thing as wasting your vote if you’re doing what you want with it: it’s yours! Vote for candidate A, B, or C; don’t vote; write in your uncle’s name. It doesn’t matter. The only real way to waste your vote is to let someone else tell you how to use it.
Once you’ve been dutifully informed by some clairvoyant pundit that you’re wasting your vote by using it the way you want to, the dismissal of third party candidates based on their remote chances of victory is never far behind. This is profoundly confused; a vote isn’t a bet. There’s no prize for picking the candidate that ends up winning.
The point of a representative democracy–other than to elect leaders–is to convey national preferences to politicians (does anyone believe Ralph Nader’s relative success as a Green Party candidate had no impact on the Democrats’ current environmental stances?). The best way to do this is for everyone to vote for candidates and ideas that appeal to them. The worst thing voters can do is reward unresponsive parties with loyalty: that only begets more unresponsiveness.
Increased interest in third parties let’s Democrats and Republicans know they’re off track. In that sense, and especially to anyone interested in the integrity and evolution of our political discourse, third parties have an important role as the barometers of American political attitudes, if not yet heavyweight contenders for the presidency.
Remember: only a very small minority of our country has actually voted for Clinton or Trump at this point! There’s no reason for the rest of us, who have actively or passively declared our disinterest in both, to feel pressured to line up behind either of them. Some will, and that’s fine if it’s what they want at the end of the day; in fact, I’m happy they’ve found something they can believe in. But it’s not unreasonable for the rest of us to pursue options that we find more personally appealing.
Pluralism and diversity are, at least ostensibly, integral to the American political experience. I can think of nothing worse for our nation than a fear-driven dichotomy whereby we are encouraged to re-imagine second worst as synonymous with best. If we want to be happy with the results of our electoral process, we should start by being more honest about what we want from politicians. The best way to do that is in the voting booth.
The votes are counted and Britain has officially decided to leave the EU. Experts and elites on both sides of the Atlantic are roiling over the decision and predicting a sort of Valyrian Doom unfolding. Before we lose our heads, we should at least entertain the possibility that things won’t completely deteriorate. Let’s talk about how things could go right.
Leaving the EU doesn’t have to mean a rejection of internationalism. In the best case scenario, British policymakers will take the opportunity to free themselves from cumbersome EU regulations while working to strengthen their international presence and keep their markets open. Britain will remain a member of NATO and can maintain strong international ties irrespective of its EU membership status.
From an economic perspective, the best parts of the EU are increased mobility of capital and labor and open trade. In theory, both Britain and the remaining 27 members of the EU would realize that these arrangements are mutually beneficial and that erecting economic barriers would hurt both parties. London is the world’s top financial center—one of only two European cities on the top ten list. The EU would be doing its members a great disservice by cutting them off from such a resource.
An arrangement like NAFTA, where countries forego many economic barriers but remain politically independent, might make sense. Something that allows for personal mobility throughout the continent and Britain would be ideal, but is probably wishful thinking at this point. One of the main motivations for Britain to leave the EU was to regain control over its border (motivated in part by perceptions of welfare spending on immigrants and refugees, which has me feeling a bit prescient). It’s unlikely that EU countries won’t be tempted to reciprocate.
At the end of the day, the repercussions of Brexit will hinge on politics, not economics. The economic benefits of open trade are widely acknowledged, but if EU membership is to continue to mean something beyond onerous dues and ceding sovereignty, it might be hard for members to resist punishing Britain, and themselves, for its departure.
We’ll see what happens. Britain has two years to make its departure. Until then, don’t take too many cues from financial markets–they’re nervous at the moment, but that could easily change over time.
Starting on January first of next year, the City of Philadelphia plans to impose a “soda tax” of 1.5 cents per ounce. The new law—already set to be challenged in court—has proved highly controversial, even within the political left where its revenue-raising potential is pitted against concerns over its regressive nature. The political right seems fairly uniformly unenthused.
But that’s boring. What’s really interesting is that Philadelphia’s government is avoiding calling the tax a public health measure, instead choosing to focus on the additional revenue it might generate, despite soda taxes’ endemic appeal to the public health profession.
Public health officials often laud soda taxes as a means of reducing demand for sugary drinks that are linked to obesity, diabetes, tooth decay and other maladies. The underlying economics are relatively straightforward—raise the price of soda and people will consume less of it. The hope is that doing so will reduce the incidence of the aforementioned conditions and curb associated healthcare spending.
But despite the wide approval of public health professionals, it’s far from clear that a soda tax is an appropriate solution in this scenario. Not only is there reason to doubt it’s efficacy, but in a sense, such a policy blurs the line between public and what we might call ‘private’ health in a way that marks a pernicious slide away from self-determination and seems to me unethical.
Using a tax to “correct” demand is one of the classic methods of solving collective action problems, which tend to involve public goods or open-access resources and often require regulatory oversight. President Bush’s cap and trade initiative in the 1980s, meant to reduce emissions of sulfur dioxide, is a successful example of such an endeavor.
The idea is that if a resource is shared (in this scenario, air quality), then it makes sense to have a centralized agency impose regulations to account for the “social cost” associated with its degradation. If something can be proven to affect others (without requiring an onerous amount of nuance), there’s a compelling case for using coercive public policy to address it.
That’s certainly the case when air quality is concerned. But there are key differences between air pollution and obesity; even though they both affect people’s health, one is far more likely to be incurred privately. We all breathe the same air; but your neighbor drinking a Double Gulp everyday doesn’t affect your waistline. Someone else being fat doesn’t harm you. Right?
Actually, depending on how an individual’s healthcare is paid for, that last part is up for debate.
Soda drinkers tend to be poorer, (the same is true for users of tobacco, which is subject to similar tax-based deterrence) and therefore more likely to have their healthcare publically subsidized. In a not-so-tangential sense, that means it’s very much in the interest of the taxpayer that those people be deterred from such actions. After all, any tax dollars not spent on healthcare can be spent on something else or not collected.
In my view this poses an ethical challenge—does public financing of healthcare erode beneficiaries’ sovereignty over their health-related decisions? And, if it does, what sort of precedents are we setting should America switch to a universal healthcare system, which would effectively render all health public?
It does seem to be the case that as more resources are poured into social safety nets, there is increased incentive for societies to attempt to engineer the results they want through coercive means. The resulting policies range from ethically dubious taxation to outright illiberalism.
Take, for example, the rather harsh methods by which the Danish government discourages immigration and asylum seekers: seizing assets worth more than $1,450; using policy to force assimilation (in one city mandating that pork be included on municipal menus); cutting benefits to refugees by up to 45%.
A similar situation is unfolding in Sweden, where the extensive social safety net has turned immigration into a tug-of-war between classical and contemporary liberal sentiments. The Economist writes:
The biggest battle is within the Nordic mind. Is it more progressive to open the door to refugees and risk overextending the welfare state, or to close the door and leave them to languish in danger zones?
Closer to home, Canada has recently received some scrutiny for its habit of turning away immigrants with sick children so as to not overburden its single-payer healthcare system.
Some of this might sound cruel or discriminatory. Some of it is. But these are rational responses from systems forced to ration scarce resources. In a sense, it’s the ethical response, given that governments are beholden to their taxpayers.
It’s a natural goal for public health experts, economists, and others whose jobs are to optimize society to try to promote a healthier nation. Our national health and wealth would clearly be improved if obesity, diabetes, etc. were eradicated. And yes, that could conceivably be achieved by any number of forceful policies—what about a Trump-style deportation of the obese?!
But we must consider the costs as well as the benefits of such policies. Are the potential gains worth ceding dominion of our personal decisions to rooms of “experts?” Is it possible for the conversion of health from a private to public good to coincide with our liberal values?
I don’t think so, at least not in the extreme. If health becoming a public resource means that the government must take an increasingly paternalistic and protectionist role in our society, it’s not worth whatever we might gain—or lose around the midsection. After all, if people can’t be trusted to decide what food to eat, what can we be trusted with? If a soda tax is okay, what about a tax on red meat, sedentarism, or motorcycles? Surely we’d be healthier if we did less of each.
I do believe there is an appropriate role for government to play in promoting the private health of the masses, but it’s significantly more parochial than the sort of collective action scheme fetishized by academics. To loosely paraphrase the Great Ron Swanson: people deserve the right to make their own peaceful choices, even if those choices aren’t optimal.
Side note: I would also argue that there’s some pretty heavy cognitive dissonance at play here as far as soda taxes go. The federal government hands out generous subsidies—collected from taxpayers—to corn producers that make junk food and soda cheaper to consumers. If more expensive soda is the remedy, why not remove those subsidies rather than tax consumers twice?
On June 6, 2016, the New York Times ran this article claiming that Clinton had clinched the nomination the day before the California and five other states head to the polls to vote in the primaries. The article, based on a poll by the Associated Press, claims that Clinton has secured enough superdelegate votes to effectively guarantee her the ticket, regardless of the turnout yesterday. The timing was…serendipitous, shall we say. All in all a fitting end to the Democratic primaries.
Anyone following the election will be familiar with the growing sentiment that our political process has been hijacked by elites. To paraphrase candidates Trump and Sanders: that we have a rigged system. This surprise announcement—that voters in six states have been rendered obsolete by the markedly undemocratic superdelegate system—will surely do nothing to alleviate such disquiet.
I haven’t been shy of critiquing Sanders’ ideas from my little soapbox. He made the economy a cornerstone of his campaign and then displayed approximately zero economic acumen (in my opinion at least–plenty of people find him compelling). But for all of the eye-roll-inducing statements he made over the past year, his campaign has been a breath of fresh air. It brought to light the extent to which establishment Democrats are perceived to have failed the working class (Trump did the same for the Republicans) and underscored that there are big ideological divisions within the Democratic Party.
It also brought a troublesome revelation for many longtime Democratic voters: some of those “Washington insiders” against whom they rallied to the beat of Sanders’ war drum have a “D” prefixed to their state. That disillusionment is sure to haunt the Party as it charges into November under the banner of a candidate under federal investigation for at least the fourth time.
Now Sanders and his supporters will be told (in truth, continue to be told) that it’s time to turn back into a pumpkin and fall in line. My advice to them: don’t.
I won’t go on a diatribe here—Clinton has plenty of merit as a candidate and is certainly “qualified” to be president, to whatever extent one can be qualified for a unique position. But she and her awkward, halting coronation represent everything wrong with American politics: the presumptuous attitude of entitlement; the ethos of a benevolent dictator; the impunity of the well-connected; the fallacy that less terrible is synonymous with good.
In 1964, Malcolm X observed that while Democrats were getting into office on the black vote, black political support was being taken for granted. I’d say the same point applies to any demographic or individual. If a voter is really into Sanders’ ideas, most of which are rooted in some spirit of protectionism, how do they rationalize supporting a pronounced neoliberal like Clinton?
Vote (or don’t vote) for whomever, for whatever reason you find compelling. But Bernie supporters shouldn’t reward a political party that persistently refused to take their candidate seriously out of a sense of obligation to “party unity.”
The debate over minimum wage is one of the most confused arguments in American public policy. Although on its face minimum wage appears to be a promising and simple idea, it is, in fact, a very bad policy that has surely hurt the very people it aimed to help. Proponents of minimum wage (many of them well intentioned) often advocate for increases as a means to improve the personal welfare of workers earning the minimum. This is often accompanied by the argument that no one working full time should live in poverty.
The debate they’re having is: can we provide a minimum income/standard of living in America for workers? The debate relative to minimum wage law is, as Charles Blahous of 21st Century Economics points out: Whether government should establish a price barrier to employment, and if so how high it should be.
The answer to the first question is: yes, but it should be handled differently. The answer to the latter is simple: no.
The welfare of the poor and the prevailing minimum wage are not inextricably linked. Despite minimum wage’s self-evident virtue among certain ideological factions, there’s actually little reason to think this sledgehammer-style policy would help many people, let alone society as a whole. Before we talk about what would work better, I want to highlight some of the more egregious failings of the minimum wage.
Minimum wage forces people out of work
Because most of us grew up with the idea, it takes effort to even begin considering the minimum wage for what it really is: a price floor. Like other price floors, it has consequences beyond those desired.
One negative effect of a minimum wage is a loss of employment. This isn’t limited to people losing their jobs or having their hours cut, but also includes the destruction of future jobs that are casualties of foregone economic growth.
Artificially changing the price of something doesn’t change how much it’s worth to people; economics is tasked with grimly reminding us that prices emerge as a function of supply and demand. As long as employment remains a voluntary transaction between employer and employee, it’s hard to believe a price floor won’t compromise the ability of some workers to sell their labor.
Tragically, this usually affects workers with the lowest skills—traditionally the young, poor, undereducated etc. By eliminating their ability to charge less for their services, minimum wage laws eliminate their competitive advantage. This forces them onto the public dole and renders them a net drain on society.
2. Loss of societal surplus, deadweight loss
This concept is a bit nebulous, but bear with me.
One of the reasons people like me (handsome, rugged) are fans of free markets (a commonly maligned and misunderstood term) is their ability to maximize surplus—the excess benefits enjoyed by producers and consumers in a transaction. (That is, when we’re talking about privately consumed goods.)
Surplus is the idea that even though someone would be willing to pay more or be paid less to consume or supply a good (in this case, labor), the free-market equilibrium price ensures that both parties enjoy a better price. In the graph below, it’s represented by the triangle formed by the crossing of the supply and demand curves.
Forcing a price above or below the equilibrium diminishes the amount of surplus enjoyed by society as a whole; economists refer this to as “deadweight loss” (the green triangle in the graph on the right). It’s true that implementing a price floor above the equilibrium point can (but won’t necessarily) increase the surplus of suppliers (laborers), but this is a bad idea for two reasons:
It reduces economic growth and efficiency. The added supplier surplus comes at a direct expense to the rest of the economy. This puts undue pressure on consumers of labor, and thus demand for labor.
Consumers of labor aren’t exclusively employers; they’re also everyday customers—many of whom are the very laborers we meant to aid with the minimum wage.
In other words, though there is tendency to focus on people as either consumers or suppliers of labor, most are both. While they may benefit from minimum wage increases as an employee, they may lose in many other instances when they find themselves on the other side of the proverbial counter. Which dovetails nicely with my next point…
3. Poor people consume lots of low-wage labor
We all buy food. We all buy clothes. But we don’t all shop at the same places. Poor people are more likely to shop at places with lower prices and–you guessed it–lower costs of labor.
Consider that the average Whole Foods employee earns about $18 per hour while the average WalMart employee makes about $13. The shoppers of the corresponding stores have similar disparities in disposable income that are reflected in the prices they pay.
If the minimum wage were raised to $15 per hour, it might have a negligible effect on prices at Whole Foods. The same is not certain for Walmart. Even if prices were to increase by the same amount in both stores, the impact would be greater on the lower-income shoppers, since it would make up a larger percentage of their income.
The problem is that the money that pays for the higher price of labor doesn’t come from nowhere; too often, it comes from exactly those we’re trying to help.
4. Minimum Wage Has Sloppy Aim
A central challenge to minimum wage’s credibility as a form of poverty relief is that it only affects people with wages. It’s easy to make the assumption that poor people are the ones working low-wage jobs, but the two groups aren’t as synonymous as one might think.
First of all, in order to be considered poor, you must be from a poor household, 57% of which have no income earners (Federal Reserve of San Francisco, pg 2). The idea that we would help them by making things cost more is ludicrous.
In reality, about 22% of minimum wage earners live below the poverty line. Their median age is 25; 3/5 of them are enrolled in school; 47% of them are in the south (where costs of labor and living are lower); and 64% of them work part-time.
Fully ¾ of minimum wage-earning adults live above the poverty line.
It’s clear that we’re largely talking about two different groups of people when we discuss minimum wage earners and the poor. Given that the majority of minimum wage workers aren’t poor and that the majority of the poor are unemployed, we should consider another strategy for fighting poverty: one that doesn’t reduce employment opportunities for the unskilled.
Okay, okay…so if minimum wage isn’t a good solution, what is?
Phenomenal question! The many problems with minimum wage policies share a common root: minimum wage effects transactions before they occur. This passes the cost on to employers or customers and impacts demand. The evident solution then, is a policy that goes into effect post-market. My answer to this is a wage subsidy.
We lose more than we gain by interfering with labor markets. Instead, we should eliminate the minimum wage and—very carefully—create targeted wage subsidies for people that aren’t making enough money from their jobs to survive.
This has to be done precisely to avoid creating disincentives to work. Welfare programs can perversely discourage people from earning more money by stripping away benefits faster than wages rise (and this really is more like a welfare program than minimum wage). To give a simple example: if everyone earning under $10,000 were given an extra $5,000, it would discourage people from earning between $10,000 and $14,999, thus encouraging economic stagnation.
We want to encourage people to be as productive as possible. When we design a welfare system, we have to make sure the total benefit enjoyed by the recipient is greater for every dollar earned than the one before it. In order to accomplish this, we need to design our wage subsidy as a function of market wages (the price that employers pay) that increases at a decreasing rate until it hits a wage that we as a society find acceptable.
I chose to have the subsidized curve cross with the market wage (y=x) at $13/hour, beyond which point it will cease to be applied. Of course, we could write any equation and phase it out at any point. This subsidy curve is a concept, not a strict recommendation.
There are some profound advantages to this “after-market” approach:
The cost is borne by society instead of individual employers
I’ve spoken before about how the cost of consumption should be borne by the consumer, so you can be forgiven for feeling confused about why I feel a subsidy funded by taxes is appropriate here. However, the true price of a dishwasher (for example) is not $15 per hour. We know this because there are currently an abundance of dishwashers willing to work for far less than that. If we as a society want them to take home more money for their work, we should pay the difference.
Because of the way this subsidy curve is designed, employees will still have incentive to search for the highest paying jobs available to them. By tying subsidy receivership to work, we encourage workers to maximize their productivity. As long as these conditions are met, our subsidy won’t unnecessarily burden society with the cost of inefficient labor allocation.
No one is locked out of the labor market
Young people’s employment opportunities are eroded by high minimum wages. Keeping them out of the labor market has negative repercussions for their futures. From the Center for American Progress:
Not only is unemployment bad for young people now, but the negative effects of being unemployed have also been shown to follow a person throughout his or her career. A young person who has been unemployed for six months can expect to earn about $22,000 less over the next 10 years than they could have expected to earn had they not experienced a lengthy period of unemployment. In April 2010 the number of people ages 20–24 who were unemployed for more than six months had reached an all-time high of 967,000 people. We estimate that these young Americans will lose a total of $21.4 billion in earnings over the next 10 years.
Everyone, even the White House, recognizes that the larger implications of a “first job” for our young labor force extend far beyond the pay they receive. Absurdly, they have crafted a program that calls for $5.5 billion in grant funds to help young people get the jobs they have been priced out of by their own government.
Markets will function better
Advocates of raising the minimum wage are effectively claiming that making a market inefficient will improve outcomes. Here this fallacy is presented as: if the cost of labor is higher, workers will have more money to spend and demand will increase.
This is tempting logic, but it doesn’t hold up to scrutiny. To see how, we can substitute workers for something more specific, like carpenters. Yes, if we passed a law saying that carpenters had to be paid more it would be great for some carpenters. But any additional money spent on carpenters can’t be spent on something else. Society loses any additional benefits it might have gained from having more surplus.
If the reverse were true, it would make sense to ban power tools and all sorts of technology, thereby increasing demand for and price of human labor.
An efficient market creates more surplus, and is less burdened by the cost of those who must rely on public welfare. Additionally, the cost of supporting those people will be defrayed by their renewed ability to provide (in some part, at least) for themselves.
It’s way more targeted than a minimum wage, and could absorb other welfare programs
We could write different equations for different people who might require larger or smaller subsidies to meet their basic needs. For example, a single mom of four kids in Long Beach could receive a steeper subsidy than a childless teen living in rural Alabama, who might not need one at all.
This could theoretically absorb other welfare programs. Instead of receiving a SNAP card, a section 8 voucher, and WIC benefits, the cash needed to cover one’s expenses can be calculated in the subsidy. This has the benefit of cutting down on expensive bureaucratic systems and increases the utility of the money given through welfare while incentivizing work.
The United States is a rich country. If we spend our money wisely, there’s no reason we can’t afford some minimum standard of living for workers. Helping our poor citizens is one of the best uses for taxes and far better than a lot of the things we spend public money on.
But rather than mess with markets, we should simply give more money to the people we want to help by redistributing income after markets are allowed to produce as much wealth as they’re able. Additionally, if we’re going to combat poverty with public money, we should do it in a way that stands a chance of eventually readying people to support themselves and without sacrificing economic efficiency. Minimum wage fails both of these tasks.
In his opus, Economics in One Lesson, Henry Hazlitt devotes an entire chapter to minimum wage laws. He’s quick to identify a semantic problem that lies at the heart of the debate on minimum wage.
“…for a wage is, in fact, a price. It is unfortunate for the clarity of economic thinking that the price of labor’s services should have received an entirely different name from other prices. This has prevented most people from realizing that the same principles govern both.
Thinking has become so emotional and so politically biased on the subject of wages that in most discussions of them the plainest principles are ignored”
Today Hazlitt’s gripe still rings true.
Presidential candidates Clinton and Sanders are calling for huge increases in the federal minimum wage (Clinton recently echoed Sanders’ call for a $15 federal wage floor). California and New York scheduled incremental increases in the state minimum wages to $15/hour by 2022 and 2021 (with New York’s timing of increase stratified by county). All this is sold to the public as a means to help poor workers, with rarely a mention of the costs of such policy, or who would bear those costs.
Despite a wealth of study on the subject and large consensus about the effects of price floors, economists aren’t speaking out against such an aggressive price-fixing scheme as loudly as one might think.
Twenty-four percent of economists surveyed by the University of Chicago disagreed that advancing the federal minimum wage to $15/hour by 2020 would reduce employment. That is, a quarter of economists disagreed that forcing employers to pay twice as much for labor would reduce their ability or desire to employ people. Fully 38% of economists surveyed responded that they were “uncertain.”
It’s hard to imagine economists making such a statement about anything else. For example: that doubling the price of laptops would have no effect on the amount of laptops purchased. Since labor is purchased just like anything else, we can expect that making it more expensive will cause people to consume less of it.
Consider that when governments want to cut down on behaviors they deem harmful, one of their go-to tools is taxation aimed at increasing the price paid by consumers. Sanders understands that making people pay more for producing carbon means we will produce less carbon. Other politicians have proposed or implemented taxes on soda, tobacco, alcohol, and more activities in order to suppress demand for them. Yet apparently even economists fail to see the parallels between this and minimum wage.
As Hazlitt states, labor is best thought of as another good. Raising its price by mandate will yield the same effects as any other minimum price: some will be purchased for a rate higher than the free-market equilibrium, but a portion of the previously available supply will not. In other words, while some workers will get a raise, others will work less, be fired, or not hired to begin with and employers will enjoy less productivity from their workers.
No one—least of all economists—should be surprised to hear that setting the price of labor higher than people are willing to pay and accept will lead to less efficiency and productivity, nor that this would lead to slower job growth and less employment. We can even observe this happening during past increases of the minimum wage.
Minimum wage is rationalized as an intervention to alleviate poverty and give a leg up to the most vulnerable workers. However raising the minimum price of labor not only prevents consumers (employers) from buying labor beneath such a floor, but also prevents producers (employees) from selling labor below that cost. Since some people don’t have skills that are worth at least $15/hour to employers, they are going to have a much harder time finding employment under such a policy.
When we consider the people that most likely fit this description, the cynicism of minimum wage laws becomes clear. Those most unable to command premiums for labor–the young, poor, under-educated, and inexperienced—are the very people we purport to be helping! It’s no coincidence that minimum wage laws all over the world have roots in racism and ethnic nationalism. In many cases, their goal was to create unemployment among marginalized groups by eliminating their comparative advantage to native workers.
As for employers, it actually gives an advantage to bigger businesses and puts undue pressure on marginal producers (think mom and pop stores, rural and inner-city employers, etc.) who have smaller profit margins and must operate more efficiently. Quite bizarre for an election cycle marked by consternation of income inequality and skepticism of big business.
The ability to sell your labor competitively is important when you don’t have a lot to offer. We seem to understand the value of this for the affluent. No one thinks twice when a college kid takes an unpaid internship or starts volunteering to gain experience. If it’s fine to work for $0/hour, why not $1, $5, or $7?
The scale of federal minimum wage is what truly makes it a bad idea. It’s one thing to try to fix the price of a specific item in a given location (though it’s still a bad idea). But to impose a national price floor on all incarnations of labor should be unthinkable. To suggest that this won’t lead to any reduction in employment (especially in poorer places) is ridiculous.
Some proponents of minimum wage hikes seem to understand this, yet proceed regardless. Upon signing California’s minimum wage increase into effect, Governor Jerry Brown stated:
Economically, minimum wages may not make sense. But morally, socially, and politically they make every sense because it binds the community together to make sure parents can take care of their kids.
To be honest, I don’t understand the morality of pricing people out of work or making consumers spend more than they have to. Given that “57% of poor families with heads of households 18-64 have no workers”, I don’t think making them harder to employ is going to be beneficial to anyone.
It’s good to care about the poor and try to implement policies that help them, and to be clear, I’m not advocating that nothing be done. But economic policies should make economic sense, rather than being rooted in feel-good or politically expedient gestures. Minimum wages help some (often the wrong people) at the expense of others, who, now unemployable, are unable to gain experience that might lead them to prosperity or at least self-sufficiency. At the same time, the rest of society is robbed of the potential productivity of those victims of the wage floor.
After-market transactions (which I’ll get into next essay) are a much better method of helping the poor, precisely because they don’t distort labor markets or reduce demand for labor. Hopefully, our economists will soon get back to the dismal science and stop playing politics.
Decades before Luis Pasteur fostered scientific consensus on germ theory, Ignaz Semmelweis was imploring obstetricians to wash their hands after handling corpses. His work did little to inspire his fellow medical practitioners. On the contrary, he was met with indignation and disbelief at almost every turn. Though aided by his increasingly erratic behavior and political inelegance, there is no doubt that his alienation from the medical community was due in part to his then-heretical proposals.
We’ve come a long way since the Roman Inquisition locked Galileo under house arrest for advancing the theory of heliocentricity. Yet still, skepticism is a trait that can inspire zealous culture warriors to brand others “deniers” or deride them as being “anti-science.”
Of course, there’s nothing more scientific than scrutinizing an accepted norm. The scientific process is dependent on constant refinement by people attempting to prove each other wrong. Indeed, science needs skepticism to sharpen its ham-fisted hypotheses into acute theories.
Our devotion to explaining the universe through rational observation and rigorous testing has catapulted us from a species-wide state of destitution to one of unimaginable wealth. That’s largely due to thousands of years of continued knowledge expansion and the pursuit of logical explanation. If science is the vehicle that brought us this far, then the fuel is undoubtedly…well, doubt.
This unique feature stands in sharp contrast to another primary way humans have explained the world: religion, which asks us to accept without questioning. Doubt may have been bad for Thomas, but Copernicus did wonderful things with it. There are few things as amusing as the rabid atheist who has not so much embraced doubt as become a cynic. Remember that uncertainty, regardless of its target, is the very heart of science.
A cursory glance at the past is all one needs to find examples of misplaced faith in science of the day. As the story of Dr. Semmelweis illustrates, there was a time when nearly all doctors were pretty damn sure that they didn’t need to wash their hands after handling dead bodies. In fact, they were offended by the notion.
More recently, Brian Nosek of the University of Virginia tried to replicate 100 studies appearing in top psychological journals; he and his team were unable to replicate about two thirds of them.
Treating scientific consensus axiomatically is a step in the wrong direction. We need to keep gathering information, and that information has to include research by iconoclasts in order to be well rounded. Remember that many widely held beliefs started out as heresies. Behind each of them was someone willing to come out against conventional wisdom, sometimes at great personal or professional risk.
The greatest minds of humanity used to believe in a static universe, phrenology, and many more things that we might find ridiculous today. So if skepticism is so demonstrably useful and deserved, why do people demonize each other for failure to follow the herd?
It’s politics, stupid.
Like basically anything today, science often finds itself mired in the ostentatious game of political signaling. Opinions and interpretations of scientific research are as much a part of political identity as a bumper sticker or a lawn sign. This is hugely unfortunate because it leads people to adopt dogmatic approaches to a process that should be objective.
Politics ruin science (and pretty much everything else) because everything is reduced to a zero-sum game: an us versus them scenario where concession is likened to defeat. They also reduce diversity of opinion and promote groupthink.
If you think I’m exaggerating, consider this: as people’s scientific literacy increases, their opinions on climate change polarize depending on their political affiliation. But that’s not all. According to the same study, conservatives who are more scientifically literate are also more likely to believe that there is a scientific consensus on global warming. Dan Kahan writes:
Accordingly, as relatively “right-leaning” individuals become progressively more proficient in making sense of scientific information (a facility reflected in their scores on the Ordinary Science Intelligence assessment, which puts a heavy emphasis on critical reasoning skills), they become simultaneously more likely to believe there is “scientific consensus” on human-caused climate change but less likely to “believe” in it themselves!
While skepticism of climate change science is a markedly right-wing prejudice, those on the left are more likely to display similarly rock-ribbed opinions on fracking, GMO safety, and other areas that conflict with scientific consensus.
Politics are an inevitable part of living in a republic, but scientific debate loses integrity when we let our politics decide how we feel about science instead of the other way around. It’s divisive, but worse: it’s lazy and positively unscientific.
In an increasingly polarized country, we would do well to remember the humanity of our detractors. We also might make a conscious effort to both admit and overcome our biases, even as we argue with conviction.
Perhaps most importantly, we should stop acting like morality and argumentative position are inextricably linked. Doing so makes it that much easier to demonize people with differing opinions (If my opinion is moral and yours is different, it is less moral. Therefore, since you are putting forth an immoral opinion, you are evil) and makes us far less capable of changing our own.
The free college crusade represents a perfect collision of ignorance and entitlement. The movement is popular with self-interested students seeking debt forgiveness or a free ride and contributes heavily to the appeal of Bernie Sanders’ candidacy among them. While he is the most extreme in his rhetoric and supposed intentions, the venerable senator is only one among many high-profile Democrats to opine that higher education should be at least partially subsidized by federal money (or more accurately that federal subsidies should be expanded, since they already exist).
Their argument is predicated on the idea that there is a moral or economic obligation to protect students from the rising costs of college education. The underlying assumption is that the federal government is actually capable of containing such inflation by throwing money at it. However you dice it—morally or financially—it’s a bunk policy move that, if implemented, would certainly do more harm than good.
There is no free lunch…or sociology class
Let’s start off with the obvious; professors, administrators, and other faculty aren’t going to work for free. Nor can universities maintain, power, and supply themselves free of charge. It will still cost a lot to keep a college operating, so free college is a misnomer. It will still be paid for, but we would change the payer.
A basic tenet of economics is that costs should be borne by the consumer. There’s good reason for this. When consumers have skin in the game, they ration much more effectively because they’re confronted with the opportunity costs of their decisions (any money or time spent on education can’t be spent on something else) as well as the reality of paying that money back some day.
By contrast, having prospective students make unobligated investments with other people’s money would almost guarantee that more bad investments are made. That means too many people earning degrees in areas that aren’t in high demand and are unlikely to pay for themselves. It’s not that I don’t want anyone to major in art history or theology, but if you’re going to you should pay for it yourself.
Funneling more money into education will inflate costs further
Think about it: if a stranger gave $10,000 to a pizza place so that other people could eat for free, customers would probably order more than the efficient amount of pizza. Why not? There’s no risk involved, at least not to the guy taking the pizzas home.
Let’s say this generous stranger kept funding the restaurant so consumers could continue to enjoy “free” pizza. What might we expect to happen to the cost of pizza? You might be tempted to think that it will stay the same, but the truth is that it would probably rise as overhead and total cost increase. Of course, customers wouldn’t feel the burden of rising prices, and would keep eating away happily.
Meanwhile, behind the scenes the shop has had to hire more cooks and cleaning staff; order more ingredients; use more electricity etc. because they have to produce ever more pizza. Where does that money come from, if not the customers? It comes from the generous stranger, our allegorical taxpayer, who is analogous in all but one crucial aspect: her funding is given by choice and can be halted when the cost becomes prohibitive.
In real life, taxpayers would be on the hook for an increasing amount as constraints on demand are removed and overhead costs increase. A cheaper and more effective method of reducing the cost of college might be easing the accreditation process. Costs might (and probably will) also be driven down by innovations such as online learning and other challenges to the traditional college process.
Free college wouldn’t help the right people
A tuition subsidy would directly benefit the education industry and students who have, are, or will go to college. None of these groups is so destitute as to warrant burdening taxpayers, 68% of which don’t hold a diploma, with the cost of their voluntary, secondary education. On the contrary, 81% of college graduates in 2012 came from families with above-average incomes while merely 7% came from families in the bottom quintile.
Free tuition would fall in with subsidies for electric cars and solar panels: well-meaning policies that essentially transfer wealth up the income ladder to those who are much more likely to take advantage of such incentives. This makes it a very bizarre choice for a candidate, and indeed an entire party, that spends so much time perseverating on the onerous effects of economic inequality.
A major point of college is to accrue human capital: to improve your skills and come out more valuable and employable than you were when you went in. Secondary education is an investment: the benefits of which are enjoyed by the recipient in the form of higher future earnings. Making the taxpayer foot the bill for wealthy kids to invest in their futures is pretty cynical, even by modern standards.
How can you decry tax cuts on the rich and then turn around and hand them a blank check for college? More importantly, how can any of us get behind this? Campuses all over America are full of kids condemning social and economic privilege. And yet they want to vote themselves, the most fortunate echelon of the richest generation ever, out of debt with other people’s money. Let the petulance of that sink in.
What it boils down to is a notable dearth of understanding of basic economics among our generation. Even very smart people that I know are simply unable to reckon with the most fundamental principles of supply and demand and basic price theory.
A better way to help
Even if fully subsidized tuition did make it more likely that low-income people attended college, that wouldn’t necessarily be a good thing and certainly wouldn’t be the best way to improve their lot. It’s pretty unlikely that someone from a poor community who has been forced to attend an underfunded school in their neighborhood is going to be adequately prepared for a college curriculum.
The most frustrating thing about this is that there is a very clear method by which we might compensate for this–it’s just wretchedly unpopular with Democrats…and teachers unions.
What if instead of waiting for someone to turn 18 and encouraging them to enter a college they’re not ready for, we allowed them the ability to choose better schools as children? Instead of sequestering children from poor areas in underfunded and overcrowded schools, we should help parents send their young kids to better schools.
Make no mistake; school choice isn’t a magic bullet or a catch-all solution to educational inequality. But it would greatly improve on some of our current policies, in my opinion.
Tying kids down to public schools (44% of whose funding is procured locally) in their district is a recipe for disaster. Financing public schools through property taxes might work well in affluent communities, but it perpetuates a lack of access to education in poorer areas. Allowing people to choose where to send their kids and giving poor families vouchers for primary education would make a lot more sense than shelling out money to send unprepared students to universities. The only trouble is getting the politics to align.
If the Democratic Party really cared about improving access to education, increasing social mobility for the poor, or cultivating a competent workforce, they would give parents more choice in the schooling of their children. They might also acknowledge that there are other paths to success that don’t involve credentialism and a rigid bureaucratic structure.
Instead, they propose a plan that would pump $70 billion of public money annually into dubious investments and subsidies for the wealthy. It might not make any economic sense, but it’s great for courting votes.
 To her credit, Hillary Clinton isn’t totally against school choice. She would be fine with allowing for choice among public schools, but not private. Oddly, she cited a fear of parochial schools training terrorists to support her decision. She also thought that a voucher system would be unconstitutional. Sanders stated that he was “strongly against” any program that might redirect funding from public to private schools, including doing so in the form of tax credits.
About a month ago, I was talking with some friends on the beach and the topic of environmental regulation came up. When I mentioned that I disagreed with strict environmental regulations and subsidies, it became less of a conversation and more of a melee. I found myself frustratingly inarticulate (3 hours of sleep and a bottle of wine) and was unable to give my argument the explanation I thought it deserved. This essay fulfills my promise to clarify some of my ramblings and, more importantly, it details what I believe to be the best strategy to address environmental concerns. For arguments sake, let’s set aside any disagreement over the disputed realities of climate change and its respective causes.
As I see it, there are two types of motives for conservation: one is economic, the other political (though we might also consider it emotional). The former is aimed at establishing that natural resources have utility beyond that which can be obtained by harvesting them. For example, a specific fish population is valuable to us not only as food, but also in the ocean, since it plays a part in the larger ecosystem upon which we depend. The latter might be described as conservation for conservation’s sake. It is not only common, but expected for world leaders to address climate issues by wielding political power (the UN recently met for its 21st conference on climate change since 1995). This has nothing to do with promoting efficiency and everything to do with satisfying an agenda. I feel comfortable saying this because there is a very clear, simple solution to environmental degradation—at least on the national level.
A sound environment is valuable to all of us. There is no doubt that rapacious consumption of natural resources would lead to adverse and possibly catastrophic consequences. The difficulty lies in the fact that the costs of environmental degradation are not always apparent, nor are they isolated to specific locations or populations. When people consume natural resources or conduct activity that pollutes, and don’t compensate society for the entirety thereof, they are externalizing part of their costs. This externalization is tantamount to a subsidy, and a particularly difficult one to measure at that. For this reason, we cannot rely strictly on a free-market system to sort out environmental issues. In this, government can be a useful tool because it has the unique ability to tax.
I am of the mind that environmental protection is the most worthwhile capacity in which the government can be involved in the economy. There is, however, a right and a wrong way to go about achieving such goals. The wrong ways are through subsidies and quota-based regulations that encourage market inefficiencies and prioritize certain industries unfairly. The right way is through corrective taxation: a process by which environmental costs can be accounted for and passed on to the consumer. This can be achieved by traditional pricing methods and non-market valuation.
It would be disingenuous of me to present this as a novel idea. Most of us have heard of corrective taxation, though perhaps not by that name. The most notable examples are probably carbon tax proposals, whereby producers would be held accountable for the cost of carbon output during their production, ultimately passing that cost on to the consumers (it is also used for non-environmental purposes, such as in the case of so-called “sin taxes” applied to curb consumption of alcohol, tobacco, etc.).
A bleeding heart may object that no price can be put on clean drinking water, the rainforests, atmospheric carbon content, etc. They are, of course, incorrect. An easy way to do this would be to calculate the cost of correcting the damage caused. For example, let us stipulate that the consumption of 1 gallon of gasoline produced negative environmental effects that would cost $0.50 to fix. Adding a $0.50/gallon corrective tax to the final cost of gasoline would compensate for these impacts. This would accomplish 4 goals:
Internalizing costs that were previously externalized
Procuring funds to alleviate the impacts of environment-harming consumption
Curbing demand for environmentally harmful products
Promoting the most efficient products—thus increasing quality of life
The market is the most valuable tool we have in the effort for conservation. It incorporates the best rationing mechanism humanity has yet to devise: price. The answer is not to try to circumvent this process, but rather to help it more accurately reflect reality and then use it as a tool to determine how resources should be consumed. Unfortunately, much of the current rhetoric surrounding environmental protection pays little heed to the dismal science. Rather than address these issues through the price system, some prefer arbitrary quotas and subsidies. The inferiorities of such policies are legion, but I’ll have to content myself with addressing their main deficiencies.
The purpose of economics is to promote the most efficient use of resources, natural or otherwise. Creating a quota or cap that cannot be surpassed distorts this process. The reason for this is that circumstance may dictate that an object’s value changes from one time to another. Quotas do not–and cannot–take this into account because they aren’t receptive to demand. No matter how well calculated a quota is, it can’t respond to shifts in the economy or ecosystem.
For a thought experiment, pretend that with the intention of preserving forestry, there is a forest of 500 trees that cannot be cut down. No one would deny that those trees have utility in the forest: they provide shelter to animals, filter water and carbon, and much more.
However, when something changes, those same trees could be better utilized in another capacity. If, for example, a nearby railroad track which was the only means by which to reach a city were to be destroyed it may very well be that some of the trees are more valuable as railroad ties, and thus should be extracted from the forest and put to that purpose.
How can we know if this is the case? If there is a strict prohibition on harvesting the trees, it’s a non-starter. No amount of demand can warrant the removal of the trees from the forest. However, if we have a complete account for the value of the trees in the forest and can incorporate that into the price of the wood (passing that cost on to the consumers as an internalization of the environmental loss), we can form a clearer picture. All we would need to do is weigh the value of the trees in the forest against their value as railroad ties—ultimately a means by which to get goods–upon which some of them may be dependent–to people.
What is the forest’s integrity worth? What if there is urgently needed medicine on board? What if a store is waiting on a shipment of laptops? Where is our tipping point in this decision? These are questions we can answer with non-market valuation (the process by which we will determine the value of the trees) and price, if given the opportunity.
It may sound implausible or perhaps even unethical; I assure you that it is neither. This is the way that we have been deciding how resources are consumed and procured for centuries. There is a huge network of cooperation in which materials (or anything) are directed by the price people are willing to pay for them. This system is one of the greatest advantages of a market economy, and it is so far unmatched by any centralized model.
The purpose of this thought experiment is to underline that decisions are made on an equilibrium; there is a point at which even a very large cost becomes the more attractive of two options. This same scenario can be extrapolated to Arctic drilling or mining coal. These aren’t things that people (or corporations) just do for no reason. To deride them for being “profit-hungry” is to miss the point. They can make money doing those things because those things are the means to achieve an end that people value; in this case, everything from turning on the lights to staying warm in the winter. However, we should make sure that the full cost of such activity is passed on to the consumer.
The point I’m trying to make here is that strict regulations that implement quotas or prohibitions take whole options off the table—and that’s not a good thing. The concept of utility is utterly absent from such approaches. They lead to inefficient allocation of resources, which can mean anything from waste to starvation to loss of life. Our conservation efforts should be aimed at promoting the greatest quality of life for people, while acknowledging that a sound environment plays a part in that equation.
Subsidies are equally villainous, even when used for industries that we consider to be “good”. Instead of propping up inefficient industries (if they were huge successes, as people claim, they wouldn’t be reliant on subsidies) while sometimes aggravatingly continuing to subsidize the “bad” alternative, we should let the market do its job, once we have put effective environmental taxes into place. The government should not be picking winners and losers. Doing so precludes the development of innovative technologies in the future and reduces industry competition.
Think about it. If the cost of oil plus a corrective tax to produce a certain amount of energy is still exceeded by the cost of producing that amount of energy through solar panels, why not take the first option? The point of technology like solar panels is to be more efficient and ultimately lower costs. If it isn’t, it’s not doing its job and it needs to become more competitive. Human labor and capital, represented in this exchange by money, are also valuable resources and there is no sense in wasting them. After all, we want our lives to improve, not worsen.
This is politics, though. Instead of a rational approach to curbing emissions, we are treated (read: subjected) to bureaucratic tendencies to measure input instead of output when crafting policy. Indeed, as Ira Stroll points out, Clinton’s plan to set up half a billion solar panels across the country conflates a means with an end. Having a lot of solar panels is a ridiculous goal. Lowering emissions is a smart goal, the solution to which can rely partly on solar development, as well as other industries–some of which may not even exist yet. There is no reason to divert resources to a politically favored product that isn’t yet competitive. As Stroll points out, that would be a great way to prematurely litter our country with inefficient infrastructure.
Subsidies are additionally invidious because they often involve perverse transactions of wealth from the poor to the wealthy. If the government is going to be involved in redistribution, it should be to support the poor. When users of advanced, expensive technologies enjoy tax credits and direct subsidies, they are doing so at the expense of less wealthy tax/rate payers. The kind of corrective tax I am proposing would also be of a regressive nature, as is any tax on consumption. In order to offset any damaging effects on the poorer taxpayers, tax credits could be issued to cover some of the accrued costs. Or perhaps our progressive tax system will be enough to offset any adverse effects spurred by this consumption tax.
Perhaps the greatest advantage of a such a program would be its simplicity. I think it’s a safe assumption that a program like this could eliminate a lot of the overhead cost associated with environmental overhaul. Importantly, it eliminates the top-down central model that ignores basic economic realities and puts progress in the hands of individuals. History has a lot to say on the benefits of markets. Who knows how much time, effort, and money could be saved by circumventing the regulatory web woven by ever increasing branches of federal and state governments?