The Short Term effects of Minimum Wage Increases

This will not come as a shock to anyone who has successfully completed Economics 101, but two professors from University of California San Diego felt it necessary to publish a paper that shows that labor has a demand curve as well. From their abstract:

As of 2015, We estimate that relatively large minimum wage increases(defined as those exceeding $1) reduced employment among low-skilled population groups by just over 1 percentage point.

What Do Universities Plan to Do About This Gender Disparity?

Progressives claim there are no inherent differences between genders. Ergo any male-female disparities must be explained by discrimination of some sort, which requires remediation. So my questions are this:

1. In light of the disparity in college degrees, what is it that colleges and universities are doing that discriminate in favor women over men?
2. Universities have been particularly active in doing things to narrow gender disparities. What do they plan to do about this one? Safe spaces for men? Extra points on exams for men? More tuition assistance for men and less for women? Inquiring minds want to know.

The Myth of Tax Cuts for the Rich

If you listen to Democrats in Congress and most of the media you'd probably think the recent tax legislation were "tax cuts of the rich". If you used facts instead of rhetoric, you'd know that isn't true.
The tax cuts will result in the highest earning Americans actually shouldering more of the income tax burden than in 2017. If your household earns  $150,000 (which doesn't exactly make you "rich" in most major urban centers), you get the privilege of helping to pay 87% of the country's income taxes. Middle income households in contrast will pay 4%.

More Evidence of the Perverse Effects of the Minimum Wage

A new study from Grace Lordan, London School of Economics and David Neumark, University of California at Irvine shows the  following:

1. Increasing the minimum wage decreases significantly the share of automatable employment held by low-skilled workers. 

2. An increase of the minimum wage by $1 (based on 2015 dollars) decreases the share of low-skilled automatable jobs by 0.43 percentage point. 

The Balance of Payments Must Always Balance

Apparently Donald Trump didn't study Balance of Payments at Wharton because he is always wailing about a "trade deficit".  A trade deficit is always balanced by a surplus of foreign investment.
So, for example, if US businesses and consumers import more than they export, there is a corresponding increase in the capital investment from abroad -- e.g. buying the stocks and bonds of US companies, investing in US treasury debt. Why this would be bad is beyond me.

More on Cost-Benefit in Education

Here's another example where the education establishment ignores cost-benefit analysis.

A new study from CATO and the University of Arkansas examines student performance at charter schools and traditional schools in eight major U.S. cities, Washington D.C., Indianapolis, Boston, Denver, San Antonio, New York City, Atlanta, and Houston. These researchers also conducted a return-on-investment (ROI) analysis, comparing projected lifetime earnings of charter school students with those of traditional school students, relative to the cost to taxpayers. Their conclusion? They show public charter schools are delivering better results for students at significantly lower costs to taxpayers.

Yet the education establishment routinely opposes charter schools. Not surprising if your objective has more to do with employing people than educating students. 

Education is Exempted From Cost-Benefit Analysis

Most people grasp the idea of cost-benefit analysis. for instance, you wouldn't spend $100,000 on improvements to your home if it added only $10,000 to the selling price. And you wouldn't spend a million dollars on advertising your business if it only increased sales by $100,000.

However, when it comes to education, people seem to be living in a different universe. They are spending huge amounts of money and getting no benefit from it. If your local supermarket doubled your grocery bill so they could hire more people, but gave you the same amount of food at the same service level, would you continue to do business with them? Of course not. What if government forced you to pay that store even if you went elsewhere to shop? They would have no incentive to stop spending money for no benefit, would they?

International Trade=Lower Prices

Questions for today.
1. Do you think it's a coincidence that the categories with the lowest price changes are the ones that are traded internationally?
2. Do you think it's a coincidence that the categories with the highest rate of price change are the ones with the most regulation and government subsidy?
3. What do you think will happen if we adopt more protectionist policies?

Inflation Fears?

Some perspective on the media's sudden concern about inflation. 

Watching the Stock Market Work

Over the last 14 months, we have had a compressed demonstration of how the stock market works. At any given point in time, the intrinsic value of equity investments roughly reflects two factors.

1. A discounted present value of expected future earnings.

2. The expected returns from competing investments.

When Donald Trump was elected President the expectations of future earnings rose dramatically because he promised, then delivered on, reduced taxes and government regulation. Both of these actions greatly increased expectations of future corporate earnings versus what they had been under the Obama administration and what could be expected from another Clinton administration. Hence the significant market run-up immediately following his election.

The second factor we've seen play out in the last week. The Federal Reserve has made it pretty clear that we can expect higher interest rates in the future. This affects expectations for bonds, the primary alternative to equity investments.

Traders trying to guess which of these two factors will be dominant create a lot of day-to-day volatility, but over the longer run, it is the battle between these two expectations that counts. If corporate earnings continue to grow faster than expected, Factor #1 will prevail. Otherwise, you can expect a major correction in 2018. 

The MIddle Class IS Shrinking

Thanks to Mark Perry for updating this important chart.

So the next time you hear someone say, "the middle class is disappearing", you can respond, "Good!".

Government Involvement=Higher Prices. Imports=Lower prices

Gee, it almost looks as if the more government involvement in an industry, the faster prices rise. Who would have predicted that?
And (dare I say it?), prices also seem inversely related to the level of imports in the industry.

The Ignorance of E.J. Dionne

I understand opinion writers are supposed to write opinions, but wouldn't you want to consult someone who knew something about the subject before displaying your ignorance in public?

EJ Dionne writing in the Washington Post makes the claim that "government works" citing as an example the bailout of auto companies by the federal government.

"In the end, taxpayers invested some $80 billion in the effort and recouped all but approximately $10 billion of that."

Let's think about this, Mr. Dionne (regrettably, after rather than before you wrote this).

1. If your investment advisor came to you and said he should be lauded for losing 12.5% of your money, would you do so?

2. To what other uses could that $80 billion have been put? If the government had not confiscated $80B from the private sector and directed it to the auto industry, isn't it likely it would have been invested in something that had a return higher than -$10 Billion?

I'm not sure whether to damn Mr. Dionne by pointing out his ignorance of opportunity cost or to assume he is knowingly trying to mislead his readers in order to make lame excuses for government economic malfeasance.

Fair and Balanced?

Well, at least the most fair and balanced according to a new Gallup poll.

More Guns Do Not Cause More Homicides

While economists understand that correlation does not mean causation, the chart below certainly doesn't support the progressive's position that the solution to gun violence is to reduce the number of guns available.

Update: Minnesota just reported that gun ownership in the state reached an all-time high, while violent crime reached 50 year low.  At some point even the HYSTERICALS have to acknowledge that the data does not support gun ownership being positively correlated to gun violence.

High Earners Will Shoulder Even MORE of the Tax Burden

According to the Joint Committee on taxation they expect tax filers with incomes of $100,000 and over to pay 79.1% of all Federal Taxes. As opposed to 78.7% now.

1. The media claim that this is a "tax cut for the rich" is a crock as usual.
2. People earning at least $100,000 will continue to pay a hugely disproportionate share of federal taxes because . . .
3. Lower income earners will be getting a larger percentage tax reduction.

It's Not Easy Being Green in the Northeast

The Regional Greenhouse Gas Initiative (RGGI) is a cooperative effort formed in 2012 among the states of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont to cap and reduce CO2 emissions via the much-touted "cap and trade" mechanism. While to date nobody has claimed that this initiative has done anything to reduce global temperatures, it has clearly reduced the number of manufacturing jobs in those states. Since 2012, the number of manufacturing jobs is the United States increased 5.4% while the number of manufacturing jobs in the RGGI states fell by 3.8%. I guess that's okay with the people who created this cooperative. They don't work in manufacturing. 

Migration Follows what Economic Theory Predicts

North American Moving Services just released its annual US Migration Report for 2017 based on household moves from one US state to another last year.

It's pretty obvious what's going on here. People are moving away from Democrat-controlled, high tax, anti-business states to states that are Right-to-Work, Republican-controlled, high growth, business friendly, low tax.

Gosh, if only there some sort of theory that would predict these things.

What Homeschooling Tells Us About Government Schools

Don Boudreaux offers this analogy at Hayek

Imagine that the only source of professional haircutting is government-operated hair-care salons that are funded exclusively with tax dollars doled out directly to the bureaucrats in charge of each salon. Imagine also that each citizen can use a salon free of charge, but is assigned exclusively to the salon nearest to his or her home. If this were how professional hair-care specialists were organized and compensated, these specialists’ salaries would be determined not by competition and consumer choice, but by politicians. Hair-stylists’ workloads and incomes would then depend only upon their skills at political lobbying and uttering clever sound bites for the news media. No premium would attach to quality hair-styling skills. Hair stylists inevitably would lose much of their ability to cut and style hair as they focus their energies increasingly on protecting and expanding their special political prerogatives. More and more people would cut and style their own hair at home.

In 1980 only 10,000 children were schooled at home. Today that figure stands at about one million. This means that fully 2 percent of all children are now homeschooled. And this number continues to grow, even though public education is “free.”

It's The Economy (Again), Stupid

Presidents are seldom responsible for the performance of the stock markets, but this one is an exception.  Market prices are always roughly reflect the present value of future income streams, the expectation of which ratcheted upward last November with the election of a President who promised, and appears to be delivering, lower taxes and regulation for businesses.  Economic growth is driven by corporate profits and the reinvestment that devolves from those profits. We have experienced this twice before when President Kennedy and President Reagan cut tax rates. Democrats -- stuck with their Keynesian assumptions -- seem not to have learned this lesson. Or don't want to. It appears that they will come out in unanimous opposition to lower taxes and higher growth. A rather peculiar platform to run on.  Maybe they ought to remember what James Carville said during the Clinton years -- it's the economy, stupid.