Topic: Trade and Immigration

Voluntary Charity vs. Government Charity

Chris Edwards’ post on FEMA brought to mind a 2002 New York Times article, which I recently found on FreeRepublic.com. The article concerned fiscal shenanigans at the United Way, and FreeRepublic.com allowed readers to post comments. The following were representative:

“Why anyone would give money to (through) the United Way so they can skim their take is beyond me. Pick your favorite charity or cause, and give to them.”

“If anyone at work asks you to give through United Way, point them to the Salvation Army. The difference is like night and day.”

Pity we never see comments like:

Why anyone would give money to FEMA is beyond me. Pick your favorite charity or cause, and give to them.

If anyone at work asks you to contribute to Medicaid or Food Stamps, point them to the Salvation Army. The difference is like night and day.

As I told a (hostile) room of graduate social work students this morning, when charity is coerced, charities don’t have to try nearly as hard.

Long-Term Costs of a Minimum Wage

Greg Mankiw blogs an NBER study by David Neumark and Olena Nizalovaof on the minimum wage, including this finding by Neumark and Nizalovaof:

The evidence indicates that even as individuals reach their late 20’s, they work less and earn less the longer they were exposed to a higher minimum wage, especially as a teenager. The adverse longer-run effects of facing high minimum wages as a teenager are stronger for blacks. From a policy perspective, these longer-run effects of minimum wages are likely more significant than the contemporaneous effects of minimum wages on youths that are the focus of most research and policy debate.

House Faces the Dumbest Bill of the Year (So Far): A $2.10 Increase in the Minimum Wage

House Republicans have one last chance to demonstrate that they have any remaining intelligence or principles. On June 13, the House Appropriations Committee approved a bill that would increase the minimum wage from $5.15 to $7.25 per hour over the next three years. This bill, with the support of seven Republicans on the committee, would implement one of the highest priorities of the congressional Democratic leadership.

An increase in the minimum wage is one of the dumbest possible policies for the following reasons:

  1. The employment of the least-skilled members of the labor force—often new entrants—would be reduced.
  2. The non-wage benefits and working conditions of those who keep their jobs at the higher wage would probably be reduced.
  3. Most of those who keep their jobs at the higher wage would be secondary workers in non-poor families.

An increase in the minimum wage has long been a symbolic issue for the Democrats, however inconsistent with their other professed political values. House Republicans should challenge the Democrats on this issue, pointing out that an increase in the minimum wage would most hurt those that they claim to help. To do this, the House Republicans should split off the minimum wage provision from the appropriation bill, allow a separate floor vote on this provision, and demonstrate the absurdity of this proposal by a defeating this measure by a large margin. I’m waiting for a demonstration of good sense, in part, to determine whether there is any remaining reason to favor a Republican majority in the House.

Local Musician Tired of Being Hassled by the Man

A recent article on the new Massachusetts health insurance law quotes an aspiring young musician who is skeptical of both the individual mandate and the subsidies designed to help low-income individuals satisfy the mandate:

“I’m aware that I lead a lifestyle where you have to live really cheaply. So something I think about is what if I tried to do something to make a little more money?” said Crosby. “What if I get a job and I start having to pay several hundreds of dollars for health insurance just because I come out of making a low income? Sometimes I think the state does things that encourage people to stay poor.”

Rock on, Ryan Crosby.  Rock on.

Income Inequality and Social Unrest: What’s Their Function?

The current debate on Cato Unbound, particularly today’s contribution from economist Edward E. Leamer, circles around the danger that income inequality poses to political stability.

Leamer argues that computer technology amplifies innate talent differences, and hence will widen existing income disparities. This seems undeniable. He then goes on to imply that this is necessarily a threat to political stability or social harmony. But is it?

Leamer’s unstated assumption is that there is a simple monotonic relationship between income disparities and social unrest. That is certainly a reasonable hypothesis, but it is not the only such hypothesis.

Isn’t it also possible that the relationship is more complex, and multivariate? It seems at least worth investigating the possibility that the relationship between income inequality and political instability is asymptotic – that the richer and richer Bill Gates becomes, the less impact any further increase in his income will have.

More importantly, isn’t it also worth considering the possibility that there are other variables in the equation besides income inequality; for example, the sufficiency of the incomes earned by those in the lowest quartile of the earnings distribution. If the poorest quarter of citizens were destitute, that would seem more socially destabilizing than if they could comfortably feed, clothe, and house themselves and their families – regardless of the incomes of the rich. Someone able to live comfortably might not care if the richest citizens double their incomes tomorrow, whereas someone who is barely scraping by might resent even the most modest increase in the incomes of the rich.

So perhaps the seemingly inevitable increase in income inequality will not pose a threat to social stability, so long as those with the least marketable skills can still earn a comfortable living.

It would be interesting to see a natural experiment conducted to test this theory using historical data.

New at Cato Unbound: Frank Levy on Education and Inequality in the Creative Age

In today’s reply to Richard Florida’s lead essay on “The Future of the American Workforce in the Global Creative Economy,” Frank Levy, Daniel Rose Professor of Urban Economics in the MIT Department of Urban Studies and Planning, agrees that creativity is more important than ever in a world where computers and foreign workers can do routine work less expensively than domestic workers. This shift, Levy says, requires better education in problem-solving. But better education can only do so much. The gains from rising labor productivity are going largely to the wealthy, Levy argues. Unless policies and norms are reinstated that spread those gains more widely, “all of the nation’s institutions will be at risk.”