The Welfare Trap: Mapping Benefits and Income

A report from the Illinois Policy Institute shows why people are trapped on welfare. The graph below shows what happens to a typical welfare recipient in Cook County with two children as she's tempted to earn more money. This person optimizes her income by earning between $8.25 and $12/hour ($16,500 to $24,000 per year). Why would anyone seek a better job paying, say, $20/hour, when it results in less income?

As a final insult, politicians in places like Seattle are enacting $15/hour minimum wage laws, which actually decrease the income of the very people they purport to care about. All of this underlines Drum's Rule 1: Politicians who claim to be "solving a problem" by meddling with market forces, inevitably make the problem worse.  

Manufacturing Jobs Did Not Disappear Overseas

For anyone who thinks the reason American manufacturing jobs have disappeared is because companies have "shipped jobs overseas" consider this inconvenient fact.

Since 1979, durable manufacturing output in the United States has increased 167% while employment in these industries has declined 37%.  Manufacturers are simply using technology to do more with fewer people. That has nothing to do with Mexico or China. In fact the same trend to producing more with less labor is going on in Mexico and China as well. 

Donald Trump, nor anyone else, is going to change this. 

The Most Protectionist Country in the World

If China had free elections there would likely be a Trump clone promising to get rid of all the unfair trade restrictions imposed by the United States. According to a study by Credit Suisse, the biggest protectionist country in the world is not China or Mexico as Donald Trump claims.

Election 2106 Votes by Segment

Being very datacentric, I thought this look at how voter turnout by segment affected the election was quite interesting. Contrary to what some expected, the "gender gap" did not help Hillary Clinton all that much. It's also pretty clear that Obama's reelection owed a lot to people who voted for him because of his race.

Growth and Productivity. Simple Math

The clueless (e.g. the media and politicians) keep asking why economic growth has remained slow. The answer is simple mathematics (which might explain their inability to understand it). More and more resources are being shifted away from sectors with high productivity into sectors with low productivity (e.g. government, education, and healthcare). These low productivity sectors are all ones that government subsidizes, so it should not be a surprise. Neither should the resulting slow growth be a surprise.

College Majors and Gender Pay Gaps

Mark Perry went back to the Glassdoor report on salaries by college major degree and appended the percentage of those degrees that are awarded to males (keep in mind that 58% of all bachelors degrees are awarded to women).

So if women want to reduce the "gender pay gap" with men, there's a really easy fix that doesn't involve whining or government interference. They can just choose college majors that pay more.

Productivity Stagnation = Wage Stagnation

Ultimately, wages must reflect productivity. You cannot justify higher wages without higher production . Efforts to counter that without changing productivity-- e.g. misguided minimum wage actions -- are, then, merely transferring money from one set of people (those whose labor value is less than the minimum and are, therefore, unemployable) to those with higher skills and labor value.

You can argue why productivity has been falling in the 21st century (I blame increased government regulation and capital controls), but unless you change this curve, overall wages are going to continue to be stagnate.

Demagoguing Hurricanes

Last Week Hillary Clinton and Al Gore tried to convince you that "Climate Change" was responsible for "increased hurricane activity". The Inconvenient Truth, Al, is that hurricane activity has been unusually low recently. Facts simply don't matter to demagogues.

Explaining Income Inequality With Demographics.

This is an updated chart from the Census Bureau's report Income and Poverty in the United States: 2015. What it shows is that differences in household income are primarily related to differences in the households themselves.

1. High income households earn more because they have more people in them who are actually working at something.
2. High income households have a much higher rate of marriage.
3. High income households are composed of better educated people, who have higher earning capabilities.
4. High income households have more people in their peak earning years (35-64).

In other words, contrary to popular political rhetoric, household income inequality is not something that is "done to you", it is mostly a product of decisions that you have made and where you are in life stage. The good news is that these are factors that you can influence. You can choose more education. You can choose to work. You can choose to marry and have more earners in your household. And if you're 25 you will eventually be 35 or 40 (sorry, but if you're 65, your earning power won't increase with age).  

Also, keep in mind that "income" here is only earned cash income. It does not include transfer payments (e.g. welfare, Medicaid, social security, housing subsidies, etc.)

Worldwide Prosperity Explained in One Chart

It's hard to give any other explanation to this chart than "capitalism" or, if you prefer, "classic liberalism" --- the idea that if government protects property rights and otherwise leaves people to employ their own energies and ambitions, great wealth will result. The US, having more aggressively adopted this posture, obviously benefited the most.

Using Household Data for Income Analysis is Misleading

Democrats constantly make the "income inequality" argument by citing household data from the census bureau. But they don't cite a number of important facts about the household data itself. One being that the number of people in households varies considerably (and directly) with income. Another is the composition of the households with respect to age. Higher income quintiles have more people of working age in them. This shouldn't be terribly surprising, but apparently nobody in the media is smart enough to research and report on it.

Imagine you read a report that asserted that fans in Boston spend more more on ballpark concessions than fans in Oakland do, but that report didn't mention the fact that Fenway Park is always full of people while Oakland-Alameda is not. Would you think the reporter incolved was a) stupid or b) purposely misleading?



THIis

The Foreign Investment Real Estate Bubble

Does this maybe look like a another bubble? Commercial real estate debt is widely held by banks and other financial institutions. What happens to their liquidity when this bubble bursts?

Energy Prices Continue To Decline Despite Governemnt

The American Enterprise Institute charts how the cost of energy has become a smaller and smaller portion of consumer spending over time. This has not happened because of windmills and solar panels that government keeps trying to push and subsidize. It has happened because new technology like hydraulic fracturing has made available more and cheaper oil and gas.

Demographics Spell Slow Growth for Housing

The demographic future does not bode well for the housing industry or consumption goods such as food and clothing.

What If Only Taxpayers Could Vote?

Right now any American citizen who is alive (and some who are not alive or not citizens) can vote. What if you actually had to pay income taxes in order to vote?  CNN actually went back and looked at the 2012 presidential vote and recalculated the result based on that premise. Romney would have won in a landslide. Which explains why Democrats are so anxious to expand the numbers of people who don't pay income taxes. For those who don't pay taxes, the cost of more "free stuff" is zero.

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MInimum Wage Bites Restaurant Workers in DC

What could possibly have happened in Washington DC that would have caused restaurant employment to drop suddenly this year? Anyone? Anyone? Buehler?

Regulation Adds to Cost, Benefits The Regulated

George Stigler at the University of Chicago fifty years ago noted that regulatory bodies, -- contrary to popular myth --  exist to serve the interests of those they regulate. Examples abound.  From the sugar cartels to the American Bar Association, regulators protect incumbents from new competition and lower prices for consumers.

Jim Bessen from the Boston University School of Law recently published a new study providing evidence of this. In his study he estimates the regulation and other political activity accounts for about 40% of the increase in the rise of profits in the last 15 years.


Contribution to Rise in Operating Margins, 1971-2014, US public firms

For large corporations today the most productive investment they can make is not in R&D or marketing or cost-reducing capital improvements, but in influencing government regulators to insulate them from new competition.  In his paper, Bessen provides a striking specific example of effect of the laughably named* 1992 Cable Television Consumer Protection and Competition Act. 
The act, of course, did nothing of the sort and predictably increased the relative value of cable firms.


Rise in Corporate Valuations / Assets around 1992 Cable Act;7 Cable TV firms and 2,137 other firms

So the next time you hear someone promising to "protect consumers" by regulating some business, remember that they are seeking just the opposite result.

* I am still struggling with whether the name of this act exceeds the Laughability Index of the Affordable Health Care Act. Pretty much a toss-up.

Understanding the Minimum Wage Over a Cup of Coffee

An article yesterday in the Seattle Times pointed this out:

"Last July, Starbucks raised its prices 3.5 times as much in Seattle as in the rest of the country. It raised the price of its typical coffeeshop purchase across the U.S. by 1 percent, but in Seattle by 3.5 percent."

Gee, now if there only some sort of theory that would explain the effects of Seattle's $15 minimum wage law. We could call it Economics 101 or something.

Do Black Lives Really Matter?

The push for higher minimum wages in big cities has had exactly the effect you'd expect if you'd taken Economics 101 -- reducing the demand for low skilled, inexperienced labor.  We’re now going to have lots of young black men sitting around with nothing to do. What could possibly go wrong? For liberals, black lives only matter when there's a shooting. Otherwise, who cares?

Tax Rates Matter to Scientists

A recent paper by Ufuk Akcigit and Salome Baslandze examined the effect of tax rates on the mobility of "superstar scientists" -- the top 1% of inventors with the most valuable patents -- found that countries enjoyed a "26% increase in foreign superstar inventors for each 10 % decrease in top marginal tax rates."

What this means is that top performers (in this particular case, scientists who can do their work in lots of places) tend to move from locations that tax their earnings heavily to places that tax them lightly. This is the same basic economic reason that people are moving out of  high tax states like California and New York to low tax states like Florida and Texas.

Sometimes the empirical evidence of basic economic principles is complicated, but the principles are rather simple -- and predictable.  If you want top talent to stay in your country, don't drive them away with high taxes.

Why Are the Chinese Buying Gold?

Crowds of investors are often wrong, but one has to pause when you see them. Why are Chinese investors suddenly running to buy gold? What do they see that is causing them to shift from domestic investments to precious metals?

Washington Minimum Wage Failure

In 1998, Washington voters approved Initiative 688, dramatically boosting the state minimum wage from $5.15 to $5.70 on Jan. 1, 1999, and to $6.50 on Jan. 1, 2000, and, for the first time in the U.S., indexing the minimum wage to inflation. Since that time, Washington's population and total job growth has outpaced the national average, while employment in the hospitality and food service industries has lagged the average. There is really only one possible explanation for this. The imposition of a minimum wage "tax" on employers forced them to hire fewer people. While this is not a surprising outcome to anyone remotely familiar with economics, it will probably be a surprise to those in government, who are not members of that group. In fact, the Seattle City Council has doubled down on that job-killing policy by imposing a $15 minimum wage.

Trade Surpluses In Services

Mark Perry posts this chart on his website. I guess Donald Trump's take on this must be that the US is using Unfair Practices to run a trade surplus in services with China and Mexico. right?

High Earners Don't Pay Their Fair Share (Continued)

Envy and resentment are emotions not readily diminished by facts. Nonetheless  . . . . .

If You Can't Tax It, Steal It

If Congress somehow manages to constrain the tax revenue to the federal government, the federal government will simply steal it. Forfeiture is the process by which officers can take cash and property away from people without convicting or even charging them with a crime. This sort of thing is supposed to be prohibited by the 4th amendment to the constitution, but, then, who other than Antonin Scalia pays attention to that old thing anymore. [This is only federal forfeitures. If state totals were added it would probably be at least a half-billion dollars higher.]

High Income Earners Don't Pay a Fair Share

Newest data from the CBO shows, that, yes, the highest income earners don't pay a fair share.

The Gender Pay Gap (continued)

In a study, Preference for the Workplace, Investment in Human Capital, and Gender economists Matthew Wiswall of Arizona State University and Basit Zafar of the New York Federal Reserve show how men and women have different preferences when it comes to workplace attributes.



Why should it be any surprise that women choose jobs that are less remunerative than men (except to Hillary Clinton, of course)?

Denying Thousands of Years of History

If you look at the data below and conclude that any observed climate warming over the last 50 years is a "man-made crisis", then you are to be applauded, subsidized and welcomed into the community of right-thinkers. If on the other hand, you look at the data and think that maybe we ought not jump to conclusions or that natural climate forces are a lot more important than any human activity, you are a "denier"and may be prosecuted by your state's attorney general for saying so. And now you understand what happened during the Inquisition.

DC Metro Transit in Trouble

The Washington (DC) Metro Area Transit Authority is in trouble. Its equipment is in disrepair and it is broke. Why? Well, consider this.

The most common WMATA job, a bus operator, requires a driver’s license and a high school diploma or equivalent. The job pays an average of $63,000, with extensive benefits and overtime pay. This salary is 57 percent higher than the national average for transit system bus drivers ($40,160) and 66 percent higher than the average salary of a non-transit bus driver in the area ($38,000). With overtime, WMATA bus drivers can earn more than $100,000 a year. Wages and benefits consume nearly 78 percent of its operating budget, and the share would be larger still if Metro properly funded its employee pension liabilities. Metro spends $3.10 in labor costs for each passenger trip, compared with $1.92 in New York’s Metropolitan Transportation Authority and $1.88 in Boston’s Massachusetts Bay Transportation Authority.

Anyone have an idea about how they might save some money? Anyone? Buehler? Anyone?

Gee, Why Not Expand Social Security?

Democrats from Sanders to Clinton to Obama are clamoring to expand Social Security benefits. Sure. We're already $19 trillion in debt. What's another $10 or $20 or $30 trillion. Or maybe we can increase taxes on a workforce that the declining portion of the population that is still working.

if you like your national debt, you can keep you national debt.

While President Obama claims he is reducing our national debt, the latest report from the Congressional Budget Office says otherwise. It's increasing and will shortly top 80% of GDP.

Capitalism's Effects in One Chart

Maybe we could send Bernie Sanders and his supporters to China to explain how much better off they were before they emulated the capitalistic, free trade policies of the West.

Regulations Cost Workers $13,000 Per Year in Lost Income

A new study out of George Mason University shows that Federal regulations create a substantial drag on economi growth estimated at 0.8% of GDP per year. This might not sound like a lot, but:

• If regulation had been held constant at levels observed in 1980, the US economy would have been about 25 percent larger than it actually was as of 2012.
• This means that in 2012, the economy was $4 trillion smaller than it would have been in the absence of regulatory growth since 1980.
• This amounts to a loss of approximately $13,000 per capita, a significant amount of money for most American workers.

I wonder if the workers currently complaining about stagnant wages would like to have gotten a $13,000 raise? They could have.

Do Billionaires Inherit Their Wealth?

If you listen to Bernie Sanders you'd think the billionaires he despises all inherited or stole their wealth from you. As usual, Bernie Sanders is wrong.

Climate Skeptics Have Good Reason To Be

The chart below shows data from NOAA (National Oceanic and Atmospheric Administration) reconstructing average  world temperature over the last 500 thousand years. I think we can say with fair certainty that the previous warming cycles were not due to human activity. I think we can also say that it's a little much to accuse "climate skeptics" of having no basis at all for their skepticism.




Speaking of inconvenient facts, how many times have you heard climate hysterics cite tornado and hurricane activity as "evidence" of global warming

No Income Tax=Faster Growth

In their 2015 book, “The Wealth of States,” Arthur Laffer, Rex Sinquefield and Travis Brown examined the 11 states that have adopted income taxes since 1960. All 11 grew more slowly than the national average and all of them had slower job growth.  Meanwhile, since 1990 the nine no-income-tax states have had twice the population growth and job creation as measured by payrolls, and about one-third faster total income growth than the high-tax states like New York, California and New Jersey. A no-income-tax policy is a flashing billboard telling employers: We’re open for business.

Environmentalism and Electric Cars

3 Questions for the Settled Science Crowd

According to Progressives, Global Warming is "settled science".  Beyond the obvious point that it is settled only among those who wish it so, I do have three serious questions:

1.  Most of the climate models advanced a couple of decades ago predicted warming that has not since come to pass. How certain are you that the other predictions of these models are now accurate?

2. Why is it you think that we have the technology resources to counteract the enormous forces that have driven the climate to constantly change over millions of years?

3. What evidence can you offer that the cost of fighting a changing climate is less than the cost of adapting to a changing climate? Maybe instead of trying to protect existing vineyards in the Napa Valley it might be cheaper to plant vines in Greenland (like they did during the last warming period)?

Obamacare's Effect on Worker Hours

Thanks to Obamacare, the number of people working more than 30 hours has fallen as employers are incented to reduce worker hours below 30.

Yes, The Middle Class is Shrinking . . .

 . . .  but not because they've gotten poorer.

If a couple of people in your middle class neighborhood earn more money, the percentage of households represented by the remaining middle class shrinks. But isn't this a good thing?

The Rational Economic Reason for Income Inequality

Ever notice the price of gasoline or beef or television sets rises when demand increases and/or there is a shortage of supply? Ever notice that prices fall when there is a glut of supply or demand decreases? Of course you have. That's just the way economics works, right?

But when it comes to labor prices, somehow this relationship is not supposed to hold. Over the last thirty years (at least), the demand for high-skill labor -- the sort that requires advanced training and often a college degree -- has been increasing rapidly. The supply of that skilled labor has not increased nearly as fast. At the same time the demand for unskilled labor has been falling as more and more routine functions are done by machines rather than people. Meanwhile the supply of unskilled labor has been steady to increasing (especially due to immigration).  What would you think the consequence of this to be? That's right, wages paid to higher skilled labor would grow faster than those paid to lower skilled labor.

This obvious and efficient* phenomena goes by another name in the political realm: Income Inequality. There is only one way to change the underlying fundamentals (assuming you want to): increase the supply of skilled labor and reduce the supply of unskilled labor. The former can only be accomplished by getting more people into post-high school programs (not necessarily a 4 year college) that equip them with higher value skills. The most likely way to accomplish the latter is to restrict immigration of low-skilled people. This would require the US to adopt an immigration policy that prioritized economic viability over family ties. Sorry, but that means that someone from China you don't know will get a visa rather than your illiterate brother Fernando. 

* Income inequality serves the same economic purpose that any price does. The greater the income gap between skilled an unskilled, the more incentive there is to acquire skills. When there were plenty of semi-skilled jobs that paid you $50,000/year, the incentives were low. When those same skills will only pay you $35,000, the incentives are higher. 

California Dreaming

What do you think the odds are that the recently adopted minimum wage (which will, in real terms, be about 30% higher than ever before) will have an impact on businesses and hiring in California. You would think there are some things so obvious even a California legislator could see them.

Wage Insanity in California

The State of California has proposed a minimum wage law of $15/hour for the state. Let's just see how that might impact a couple of locales.

                                      Current Median Wage
       
San Jose                                  $27.61                                            
Fresno                                     $15.02

In San Jose, maybe 15% of the workforce is currently earning less than $15, but in Fresno, nearly half the workforce is earning less than $15. What do you think the impact on employment in Fresno will be when employers are forced to pay more to half its current workforce? A freshman Econ 101 student could figure this out. Apparently not the elected officials in Sacramento.

CEO Salaries and Orthodontists

Today the Bureau of Labor Statistics released it's newest OCCUPATIONAL EMPLOYMENT AND WAGES summary. The average Chief Executive Officer (about whose earnings Democrats are very agitated) earned $185,850 -- or 16% less than the average orthodontist (about whom Democrats seem much less agitated). As usual, facts seldom get in the way of a good demagogue.

CEO                                      $185,800
Orthodontist                          $221,390
Petroleum Engineer              $149,990
Lawyer                                  $136,260
Dentist                                   $177,230
Nurse Anesthetist                  $160,250
Anesthesiologist                    $258,100
Airline pilot                           $136,400

Poverty and Marriage

This chart shows pretty clearly what the big predictive variable is in determining whether you might be living in poverty (here less than 150% of the federal poverty line).

The Gender Gap in Awarded Degrees

Hillary Clinton has been very vocal about gender inequities. I'd like to know what her plan is to address the "gender gap" in college degrees.

Manufacturing Jobs Have Nothing To Do With China

Donald Trump (and others) have been complaining that China has "stolen" all the manufacturing jobs from the United States. According to Trump, that's because we make "bad deals".

But the reality is that manufacturing output in the United States is at an all time high. We have never manufactured as many goods as we do today. What's not at an all time high is employment in manufacturing. Below is a chart showing the percentage of US employment in manufacturing.




This trend line is not a result of making "bad deals" with China. The downward trend is 50 years old. It predates the end of Bretton Woods. It predates the union-crushing, deregulating era of the late 1970s and early 1980s. It predates the era of Japanese dominance, the rise of the Asian tigers, and the recent surge in Chinese growth. What is driving this trend is technology. Manufacturers steadily improve manufacturing productivity, automating tasks that used to be done with labor.

This is not going to change no matter how many Yuge Deals you do. Trump is just another in a long line of demagogues who prey on the emotions of the economically ignorant.

Baseball's Elite to Average Salaries Tops CEOs

Where is the outrage that is directed toward CEOs? Why are there not demonstrations at every stadiums? How can we tolerate such injustice.

Let's Be More Like Europeans?

Bernie Sanders and other Democrats think we should be more like Europeans.

Minimum Wage Explained in One Panel

At the same time this illustrates how people misuse the word “worth”. If McDonald’s were to charge $15 for a Big Mac, almost everyone would say "it’s not worth that". But somehow the people who McDonald’s might hire to produce the Big Mac are all “worth” $15/hour because, well, they’re good people who “deserve” to be paid that much. The bottom line is the bottom line. You don't hire people if you have to pay more than their economic worth. No matter how "worthy" they are.

Wages and Productivity

Everyone is complaining that wages are not growing as fast as they used to. Do you think the information below might have something to do with that? Why would you expect wages to grow rapidly when productivity is not?

Government Control=Increasing Costs

Let's examine six fairly basic needs of human beings:

1. Clothing
2. Food
3. Shelter
4. Health care
5. Education

These are ranked in increasing order of the government's control and subsidy of their creation and delivery.

They are also ranked in the increasing order of inflation adjusted cost increases over the last fifty years.

Coincidence? When government subsidizes something, the cost will rise much faster. Which leads to cries for more government subsidy. That's a pretty neat scheme -- if you work in government. Not so much if you're paying for it as a taxpayer or consumer.

What Do You Do When a War Has Failed?

If 50 years ago you started a war that failed to achieve its objective while consuming ever increasing amounts of money, what would you do?