With Minimum Wage, Diners Lose

September/​October 2017 • Policy Report

Could the minimum wage be the death knell to your favorite greasy spoon diner? In “The Impact of the Minimum Wage on Firm Exit: Evidence From Yelp Data” (Research Briefs in Economic Policy no. 81), Dara Lee Luca of Mathematica Policy Research and Michael Luca of Harvard University examine evidence from the San Francisco Bay area, which saw 21 local minimum wage changes in the past decade. They examine the performance of restaurants, by Yelp rating, after a minimum wage change, and find that the minimum wage turns restaurants into an ever more cutthroat business. An increase in the minimum wage increases overall restaurant exit from the market, particularly for lower‐​rated restaurants—a $1 increase in the minimum wage led to a roughly 14 percent increase in the likelihood of exit for median 3.5-star restaurants.

In 2009, Congress passed a massive stimulus bill, the American Recovery and Reinvestment Act (ARRA). The bill bestowed nearly $800 billion in spending, mainly on infrastructure projects. Given that it was an extremely partisan measure that was very strongly associated with the Democratic Party, did this spending have any impact on the votes of its beneficiaries? In “Stimulating the Vote: The American Recovery and Reinvestment Act (ARRA) Road Spending and Vote Share” (Research Briefs in Economic Policy no. 80), Emiliano Huet‐​Vaughn of Middlebury College finds that living within three miles of an ARRA road project led to a roughly 1.7 percentage point increase in the presidential vote share received by the Democratic Party.

Overdose deaths are at a record high in the United States, and in response, some states have adopted “Good Samaritan Laws,” under which individuals can seek medical assistance for an overdose without fear of prosecution. Numerous states have also passed Naloxone Access Laws (NALs), which authorize trained responders, and in some cases private citizens, to administer an opioid antagonist (naloxone) to stop a drug overdose. In “With a Little Help from My Friends: The Effects of Naloxone Access and Good Samaritan Laws on Opioid‐​Related Deaths” (Research Briefs in Economic Policy no. 78), Daniel Rees and Laura Argys of the University of Colorado– Denver, Joseph Sabia of the University of New Hampshire, Joshua Latshaw of San Diego State University, and Dhaval Dave of Bentley University find that the adoption of an NAL is associated with a 9 to 11 percent reduction in opioid‐​related deaths—and a 13 percent reduction when the laws allow citizens to administer naloxone as well. They do not find that these laws increase the recreational use of prescription painkillers.

President Trump has promised to spend $1 trillion on infrastructure over the next decade, claiming that this will boost the economy and improve productivity. In “Would More Government Infrastructure Spending Boost the U.S. Economy?” (Policy Analysis no. 812), Ryan Bourne, Cato’s R. Evan Scharf Chair for the Public Understanding of Economics, makes the case that no economic arguments support the idea that this spending would accomplish either of these goals. Bourne also argues that government is a poor means of delivering infrastructure—in fact, he writes, “A rushed attempt to begin ‘shovel‐​ready’ projects or ‘create jobs’ will likely harm the economy in the longer term, as resources are misallocated and infrastructure is delivered in the wrong places.” Bourne suggests alternatives to bolster infrastructure, including privatization and revising regulations that make infrastructure more expensive.

The Supreme Court tends to provide less protection for commercial speech than it does for other categories such as political or artistic expression. Meanwhile, academic commentary often disparages protections for commercial speech, arguing that it trivializes the First Amendment. In “Commercial Speech and the Values of Free Expression” (Policy Analysis no. 813), Martin H. Redish, author of The Adversary First Amendment, mounts a vigorous defense of freedom for commercial speech. “There exists no rational basis on which to categorically set commercial speakers apart, other than the ideologically driven desire to penalize those who benefit from the capitalistic system,” he writes. It is time, he says, for the Court to explicitly acknowledge that commercial speech deserves the same footing as other kinds of expression that enjoy full First Amendment protection.

Over 15 years after the terrorist attacks of September 11, 2001, it is clear that America’s war on terrorism has destabilized the Middle East and accomplished little in the way of making America safer. In “Step Back: Lessons for U.S. Foreign Policy from the Failed War on Terror” (Policy Analysis no. 814), A. Trevor Thrall and Erik Goepner critique the failings of the War on Terror and suggest a different approach. Thrall and Goepner demonstrate that, after many years, many lives lost, and billions of dollars spent, there is no evidence that the War on Terror has made Americans safer. They argue that the failure of the war has two fundamental sources: first, the inflated assessment of the actual terror threat facing the United States, and second, the adoption of an aggressive strategy of military intervention.

Are corporate taxes stifling innovation? In “Do Corporate Taxes Hinder Innovation?” (Research Briefs in Economic Policy no. 79), Abhiroop Mukherjee and Alminas Žaldokas of the Hong Kong University School of Technology Business School and Manpreet Singh of the Georgia Institute of Technology examine how companies respond to corporate income tax changes in the United States. Using patents as their measure of innovation, they find that firms become less innovative following an increase in taxation of corporate income in their home state, filing fewer patents and slowing their research and development investment.

For years now, China and the United States have been waging a technology trade war against one another, in the name of cybersecurity. The U.S. government has banned Chinese information and communications technology (ICT) companies and advised U.S. companies against buying their products, while China has recently passed new laws with stringent requirements for U.S. ICT companies. In “Cybersecurity or Protectionism? Defusing the Most Volatile Issue in the U.S.–China Relationship” (Policy Analysis no. 815), Cato’s Daniel Ikenson argues that both countries are using cybersecurity concerns as “fig leaves” for protectionist policies. Both, he maintains, could open up trade without compromising their security.

The United States maintains a staggering 800 military bases in 70 countries throughout the world. In “Withdrawing from Overseas Bases: Why a Forward Deployed Military Posture Is Unnecessary, Outdated, and Dangerous” (Policy Analysis no. 816), Cato’s associate director of foreign policy studies John Glaser makes the case for abandoning America’s numerous bases in Europe, the Middle East, and Asia. Glaser argues that not only do these bases cost around $180 billion a year, but also their presence can actually backfire and cause unnecessary tension with other countries. Glaser also notes that technology has largely made these bases obsolete—troops can now deploy anywhere in the world in an extremely short amount of time.