You're Filling The Wrong Hole!!!

It is these needs which are essentially deficits in the organism, empty holes, so to speak, which must be filled up for health’s sake, and furthermore must be filled from without by human beings other than the subject, that I shall call deficits or deficiency needs for purposes of this exposition and to set them in contrast to another and very different kind of motivation. — Abraham Maslow, Toward a Psychology of Being

This means that the terraces of the Champ-de-Mars are ordered first to be built up and then to be torn down. The great Napoleon, it is said, thought he was doing philanthropic work when he had ditches dug and then filled in. He also said: "What difference does the result make? All we need is to see wealth spread among the laboring classes. - Frédéric Bastiat, What Is Seen and What Is Not Seen

 Reply to: The Magnitude of Inequality by James Kwak

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Some people’s stories don’t receive any recommendations… other people’s stories receive 1000s of recommendations. That’s infinitely more recommendations. Why do you ignore the massive inequality that’s right under your nose?

Unlike the government, Medium is not way outside your range of effectiveness. You should have no problem persuading Medium to massively reduce recommendation inequality. When it does so, we’ll all be amazed and astounded by how much the stories improve as a result. Right? With such conclusive evidence, the government will no longer be way outside your range of effectiveness.

Fortunately for everybody, Medium is way outside my range of effectiveness. If it wasn’t, then we’d all have the option to allocate our pennies to our favorite stories. Oh man, can you imagine what would happen to penny inequality? For sure it would skyrocket. I wonder though if the most popular stories would also be the most valuable stories…

Seriously though, the primary purpose of paying for things is to reveal and communicate our perception of their relative scarcity. This should be pretty intuitive. If Medium facilitated micropayments then for sure you’d allocate more pennies to rarer stories.

It is these needs which are essentially deficits in the organism, empty holes, so to speak, which must be filled up for health’s sake, and furthermore must be filled from without by human beings other than the subject, that I shall call deficits or deficiency needs for purposes of this exposition and to set them in contrast to another and very different kind of motivation. — Abraham Maslow, Toward a Psychology of Being

We’d all use our pennies to communicate which stories fill our empty holes, so to speak. This fundamental feedback would logically alter everybody’s behavior. The result would be a feedback loop…

It is thus that the private interests and passions of individuals naturally dispose them to turn their stocks towards the employments which in ordinary cases are most advantageous to the society. But if from this natural preference they should turn too much of it towards those employments, the fall of profit in them and the rise of it in all others immediately dispose them to alter this faulty distribution. Without any intervention of law, therefore, the private interests and passions of men naturally lead them to divide and distribute the stock of every society among all the different employments carried on in it as nearly as possible in the proportion which is most agreeable to the interest of the whole society. — Adam Smith, Wealth of Nations

Economics is all about behavior optimization. Behavior can only be optimized when our payments accurately reflect our perception of relative scarcity…

allocation = valuation

Is labor an exception to this rule? Should we disregard people’s perception of labor’s relative scarcity? Should we pretend that it’s economically impossible for any given geographic area to ever have a labor surplus? It’s impossible for Seattle to ever have too many waiters? No matter what… Seattle will always have a shortage of waiters? No matter what… students in Seattle should drop out of school and become waiters? No matter what… waiters in Los Angeles and Houston should move to Seattle? But wouldn’t that mean that Seattle’s shortage of waiters is greater than the shortage of waiters in Los Angeles and Houston?

In ants, one such behaviour is the collective food search: ants initially explore at random. If they find food, they lay down pheromone trails on their way back to base which alters the behaviour of ants that subsequently set out to search for food: the trails attract ants to areas where food was previously located. — Jo Michell, The Fable of the Ants, or Why the Representative Agent is No Such Thing

Also…

Today’s Mandeville is the renowned biologist Thomas D. Seeley, who was part of a team which discovered that colonies of honey bees look for new pollen sources to harvest by sending out scouts who search for the most attractive places. When the scouts return to the hive, they perform complicated dances in front of their comrades. The duration and intensity of these dances vary: bees who have found more attractive sources of pollen dance longer and more excitedly to signal the value of their location. The other bees will fly to the locations that are signified as most attractive and then return and do their own dances if they concur. Eventually a consensus is reached, and the colony concentrates on the new food source. — Rory Sutherland and Glen Weyl, Humans are doing democracy wrong. Bees are doing it right

It seems pretty straightforward that there’s some sort of relationship between the accuracy of communication and the benefit of behavior.

From my perspective, you’re never going to make the feedback loop more accurate by disregarding/overruling/overriding/ignoring/diminishing people’s true perceptions of relative scarcity. Of course I might be wrong.

FYI…. I did notice your scarcity. Even though we fundamentally disagree I really don’t think that your absence improved Medium. For sure you’re a liberal… but at least you’ve done some homework. You’ve read at least some Hayek. Like I’ve read at least some Samuelson.

So I’ll definitely appreciate your thoughts on the topic of disregarding people’s perception of relative scarcity. Please ignore my snark/sarcasm and do your best to try and persuade me that I’m barking up the wrong tree! My life is way too short to spend barking up the wrong tree!

[Update Feb 3, 2018]

Saw this tweet and it reminded me of the Maslow quote...

Genius Optical Illusions To Promote Pet Adoption pic.twitter.com/NXHqXesRsR

— The Human Experience (@thehumanxp) February 2, 2018

[Update 3 March 2020]

Snippet of lyrics from Little Girl (With Blue Eyes) by Pulp...

Little girl (with blue eyes)
There's a hole in your heart
And one between your legs
You've never had to wonder
Which one he's going to fill
In spite of what he said

Better Communication, Better Markets

Reply to: The “Why” in Wage Segregation by Samuel Hammond

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It’s neat, and smart, that you juxtaposed the two things. But it doesn’t seem like you did an adequate job of making the case for subsidizing lower productivity workers. Why would we want to subsidize lower productivity workers? This paragraph seemed to be the extent of your case…

Rising premium on quality signals like educational attainment, polarizing wages, and lower social mobility / “Coming Apart” dynamics may therefore all be symptoms of the same phenomena. For better or worse, pooling equilibria promoted a degree of churn between rungs on the social ladder, and denied the ability of imperfect signals to sort one into a low wage destiny.

I’m pretty sure that Ezra Klein isn’t going to hire me as a writer. Which makes sense… I’m a pretty terrible writer. But if he did hire me… then I’d get paid more (certainly more than Medium pays me!)… and somehow I’d also become a better writer? A much better writer? If there was solid evidence that this was indeed the case then I think that Klein would act on it. Who doesn’t love a diamond in the rough?

However, your conclusion doesn’t seem to be that Klein really needs to open his eyes and see and appreciate and understand the enormity of my raw and untapped potential… your conclusion seems to be… universal basic income.

You give up on trying to persuade Klein of my incredibly latent value and instead reach into his pocket and put his money into my hand. Thanks? My writing skills would greatly improve? Voila!? I would shine on like the crazy diamond that I truly am?

Speaking of diamonds… I don’t think that I’ve been equally productive in every romantic relationship that I’ve ever been in. Just like I don’t think that all of my relationships have been equally healthy or beneficial. If it was possible, would it be desirable to mandate a minimum benefit for relationships? I don’t think it would be. You’d be giving people an incentive to stay in less productive relationships.

What if people could get the minimum benefit even if they weren’t in a relationship? It seems obvious that this would decrease their incentive to find and start productive relationships.

No two relationships are equally productive. This isn’t just true of romantic relationships…. this is true of all relationships. The minimum wage gives workers an incentive to stay in less productive relationships. And a basic income would decrease people’s incentive to find and start productive relationships.

A good relationship depends on good communication. People’s willingness to sacrifice is a super important form of communication. Actions speak louder than words. So it’s a problem when the government decreases the goodness of communication. Like most government “solutions”, universal income would make the problem even worse.

If you truly want to help people… then you should focus on improving the goodness of communication. Can we get rid of minimum wages? At this point in time it seems a bit outside our range of effectiveness. But what about here on Medium? What if there were some coin and dollar buttons below every story?

If you liked my story, despite how poorly it was written, you could clearly communicate your valuation of my content by clicking the 50 cent button. Fifty cents would be automatically withdrawn from your digital wallet and deposited into mine. The total value of my story would increase by 50 cents. When people searched for stories the default sorting would be by their value. It would be easy to find the most valuable stories. Once I had enough money in my wallet… I could cash out and Medium would take a very fair and reasonable cut.

Wouldn’t this system increase the goodness of communication? Of course! It would eliminate the payment problem. However, there would still be the free-rider problem. So what if, for example, Netflix allowed their subscribers to use their monthly fees to communicate their valuation of the content? A while back I sat down and figured out how I might allocate one month’s worth of fees…

1. Amelie: $1.50
2. Black Mirror: $0.25
3. Castaway on the Moon: $0.25
4. Rake: $1.25
5. Shaolin Soccer: $0.50
6. Sidewalls: $0.25
7. Snatch: $0.25
8. Spaced: $1.00
9. The League: $0.75
10. The Man From Earth: $4.00


Yeah, it was really hard. Talk about opportunity cost. But I had absolutely no incentive to understate my valuations. Doing so certainly wouldn’t have decreased my monthly payment.

Wouldn’t this system (the pragmatarian model) increase the goodness of communication? Wouldn’t consumers have better relationships with content creators?

Minimum wages decrease the goodness of communication. And so would a universal basic income. Decreasing the goodness of communication makes society worse. If we want to make society better… then we need to increase the goodness of communication.

Markets are all about the goodness of communication. Improving communication means improving markets. Better communication means better markets. Right now Medium is a pretty terrible market. We can’t use our cash to communicate our valuations of each others’ stories. Facilitating payments would make Medium a much better market. If the free-rider problem is a real problem, which it probably is, then switching over to the pragmatarian model would make Medium an even better market.

How many websites are really terrible markets? Is Vox a terrible market? Of course it is. I’m sure you’ve never used your cash to communicate your valuation of any of Klein’s stories. Klein is certainly a better writer than I am… but to the extent that I understand what makes markets better… I’m certainly a much better economist than he is. He’s a great writer and a terrible economist. I’m a terrible writer and a great economist. Sounds like a match made in heaven! But he never returns my phone calls. :(

And even with those websites that do put their content behind paywalls… can subscribers use their monthly payments to communicate their valuation of the content? Nope. So they are terrible markets as well.

The internet has a gazillion really terrible markets. If we vastly improved these markets by applying the pragmatarian model to them, then we would all clearly see that any perceived necessity of a universal basic income was the consequence of people’s failure to understand the importance of good communication. And people’s failure to understand the importance of good communication is the consequence of my terrible writing skills.

Of course I might be wrong! I might have fallen asleep in a few econ classes or zoned out while reading a few econ books. So if you think there are any details, minor or major, that I’m missing… please enlighten me!

Minimum Wages - The Impossibility of "No Vacancy"

Reply to: The Aluminum Rule by Miles Kimball

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I feel like I read a story about why people should have the freedom to swim in the ocean. It’s a true story… but what if you knew, for a fact, that there were sharks in the ocean? Wouldn’t it be… ummm… “iffy” to leave this “minor” detail out of your story?

Not sure if I win the award for terrible analogies but I don’t think the minimum wage problem is a minor detail when it comes to immigration.

Since it’s Christmas and all… perhaps it would be like traveling to a motel that has a big bright sign in front that says “Vacancy”. But when you talk to the person at the front desk they inform you that the only vacancy is in the stables. Stables?  Barn? Parking lot? What’s the modern day equivalent of stables?

Minimum wages are the equivalent of preventing the “No Vacancy” sign from ever being turned on. It’s as if there could never ever ever ever be such a thing as a labor surplus. Except… the point of minimum wages is that wages would be really low without them. So the very existence of minimum wages means that a labor surplus isn’t just a high probability… it’s in fact the reality. But the reality of the labor situation is obscured by the presence of minimum wages. Just like a murky ocean hides the presence of sharks.

Now, if my next door neighbor invited me over for a sleepover, which would be strange, but it turned out that the only available space he had for me was in his dog’s house… then it wouldn’t be a huge problem because I could simply take a few seconds to walk back home and sleep in my comfortable bed. The cost incurred as the direct result of false information would be very low. I was tricked but it wasn’t a big deal. I wasn’t like Jacob who worked 7 years to marry Rachel but ended up with Leah instead.

When it comes to immigration though… the cost of moving to a different country is quite high. This makes false information a very big problem. Well… certainly big enough that I feel that it would be irresponsible of me not to mention it at least once… or twice… or a dozen times.

I don’t think that I’ve actually dedicated even one blog entry to open borders. Unlike Bryan Caplan… he’s a huge fan of open borders. I do support open borders… but I don’t actively support them because the minimum wage makes me feel like I’m complicit in a major conspiracy to lie to every poor person in the world about our labor situation. Who lies to poor people about something so important as the availability, or lack thereof, of jobs? It would be a different situation if our wages accurately reflected/communicated our labor situation. Then I’d write a bunch of blog entries in support of open borders. Once the borders were open and wages accurately communicated our labor situation then poor people could make much more informed decisions whether it was worth the cost/risk to move here. Maybe poverty will be eliminated once poor people can easily avoid moving to countries that have a labor surplus.

Anyways, I know you oppose minimum wages. Well… at least that’s my impression. But my constructive criticism is that I feel it’s a bit… irresponsible… to write in support of open borders without also mentioning the importance of accurate information regarding the labor situation.

Miles Kimball vs Matt Bruenig

Miles Kimball (blog) and Matt Bruenig (blog) are both liberals.  A few days ago they had a twitter discussion that was worth sharing...

Context

Linda Tirado: I'll drop minimum wage endorsement if you drop tax/investment protections and disavow lobbyists. That'd be fair.
Miles Kimball: I lean toward requiring all lobbyist interactions with congresspeople or their staff be videotaped an posted publicly.
Tirado: that's a net good no matter what, and common ground. But minimum wage advocacy is the same pressure for favorable regulations.
Kimball: Not for favorable regulations--in this case no regulations. No regulations is the starting point, not a favor.
Tirado: that's as true of any regulation that has ever existed.
Kimball: Starting point for comparison should be no regulations except these rules: no stealing, threatening violence, or deception.

Context

Matt Bruenig: miles way of here, the actual baseline includes only one rule: don't touch another person's body.
Kimball: I don't see how you can possible get good results without a rule against theft. Certainly no welfare theorem.
Bruenig: "theft" is a meaningless concept without an agreed upon notion of who is entitled to what, not a helpful baseline
Bruenig: in fact, paying too low wages *is* theft
Kimball: I can see lack of a basic income as theft, but not low wages. Do you have a right for me to employ you?
Bruenig: Wage floors don't force anyone to employ anyone though. It's all voluntary.
Bruenig: That's the basic problem with all min wage args that are premised upon unfairness to the employer.
Bruenig: The employer is not required to pay minimum wages. It doesn't have to operate if it doesn't like the rules.

According to Kimball... the lack of basic income is theft.  Which means that he has an obligation to pay you.  But then he immediately argues that he doesn't have an obligation to employ you.  Eh?  What?  

According to Bruenig... a wage floor is acceptable because employing people is voluntary.  If a wage floor is acceptable and beneficial... then what about a donation floor?  Donations are certainly voluntary.  So would it be beneficial to prevent people from making donations that are under $100 dollars?  

Kimball is obligated to donate money to you... and Bruenig is obligated to ensure that Kimball's donation to you is large enough.  

I can imagine Bruenig following Kimball around.  Kimball spots a homeless person and feels obligated to give him a dollar.  Bruenig quickly obligates Kimball to give the homeless person at least $100 dollars. 

See also: 

Matt Bruenig vs Poverty

Ryan Cooper vs Economics

Spending Money Is Good For The Economy

Reply to: It actually has nothing to do with morality, in all honestly.

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Paying a living wage makes good economic sense? Would it also make good economic sense if Medium minimized payment costs?

Here’s what you wrote in your second reply to my reply to your story…

As an aside, I actually do get paid to write. The stuff I post here is just my own thoughts in my spare time; things I think are important that I wouldn’t normally be paid for, things I don’t think I should be paid for, or just as a practice space.

Medium is where you come to share your worthless stories? Not me! This is where I come to share my worthy stories!

Let’s super pretend that you really valued my reply to your story. In fact, you valued it so much that you would be willing to pay me for my story. Unfortunately, Medium doesn’t facilitate payments. In technical terms, Medium doesn’t minimize payment costs.

Minimizing payment costs would be easy enough. Medium would simply give each of us a digital wallet that we could deposit money into using paypal. Under each story there would be some coin buttons…








If you clicked the empty heart button… then absolutely no money would be transferred from your digital wallet to my digital wallet. But if, on the other hand, you clicked the 1¢ button… then one penny would be instantly transferred from your digital wallet to my digital wallet.

Basically, Medium would be making it stupid quick and easy to pay people for their stories.

So what do you think? Do you think it would make good economic sense for Medium to minimize payment costs?

Perhaps it might help if you check out Scott Santens’ Patreon page. Here’s his Medium page. Santens is the biggest advocate of a Basic Income Guarantee. As you can see from his Patreon page… he is currently receiving $937.87/month.

How much more money would Santens receive if Medium minimized payment costs? Would you be willing to put any money into his digital wallet?

From your perspective… it makes good economic sense to force Starbucks to pay its employees twice as much money. Because… every employee is also a consumer. So the more money that goes into the pockets of employees… the more money that they’ll be able to spend as consumers. And the more money that they spend as consumers… the more money that Starbucks will receive. The more money that Starbucks receives… the more money that it will be able to put into the pockets of its employees.

From your perspective… a functioning economy depends on consumers having enough money to spend. So when the economy struggles… it’s because consumers don’t have enough money to spend. Which can be fixed easily enough simply by forcing employers to pay their workers more money.

It seems like there’s some premise that, if employers weren’t forced to spend twice as much money on workers… then this money wouldn’t get spent. And if employers aren’t spending this money… then evidently they must be saving it. Which is, of course, bad for the economy.

So this leads us to the premise that workers aren’t going to save the extra money that they earn when the minimum wage is doubled. Because if they did save it… then Starbucks wouldn’t receive more money. And if Starbucks doesn’t receive more money… then it wouldn’t have more money to pay its employees.

Essentially, your argument is that doubling the minimum wage is good for the economy because saving money is bad for the economy. The assumption being that people who earn the minimum wage have a very low propensity to save.

With this in mind, my guess is that you’re going to perceive that it’s good for the economy to minimize payment costs. Because… minimizing payment costs makes it easier for people to spend their money… and spending money is good for the economy.

Am I correct? Do you fully support Medium making it easier for members to spend their money?

Magical Moral Mushrooms

Reply to: Minimum Wage Arguments: Job Loss

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Your income wouldn’t be so tight if Medium paid you to write stories. Right now Medium is paying you $0.00 dollars an hour for your labor. Medium is exploiting the heck out of you. But here you are complaining that Starbucks is only paying people a measly $7.25 dollars an hour for their labor. 

What is it, exactly, about Starbucks paying people some money for their labor… that impregnates you with the idea that Starbucks has the moral obligation to pay people more money for their labor? 

Your income is tight so I suppose that you can’t afford to pay me $7.25/hour to write stories. But I’m sure that you can afford to pay me $0.01/year to write stories. And if you do so… well… thanks! Even though it’s a microscopically marginal improvement in my income… it’s still an improvement. 

Here’s where the moral magic happens. As soon as you pay me $0.01/year to write stories then voila! Immaculate conception! You’re pregnant with the idea that you have a moral obligation to pay me more. Doing some good obligates you to do more good. It’s a moral virtuous cycle. Or a moral slippery slope? Kinda like how it’s morally impossible to eat just one chip. 

Don’t you think it’s a little…ummm… iffy… to bundle doing some good with doing more good? Like, if giving a homeless guy a dollar morally obligated you to give him three more dollars… then wouldn’t you think twice about giving him a dollar in the first place? If spending one day a month picking up litter at your local park morally obligated you to spend one day a week removing graffiti… then wouldn’t you think twice about picking up litter at your local park?

Doing some good isn’t good enough? 

If you help one person by giving them a job… then you have a moral obligation to help three more people by giving them jobs. If you help one person by paying them $7.25/hour… then you have a moral obligation to help them by paying them $15.25/hour. 

If you help one person by baking them a cake… then you have a moral obligation to bake cakes for three more people. If you help one person by baking them a small cake… then you have a moral obligation to bake them a big cake. 

And life becomes more wonderful when these magical moral obligations become magical legal obligations.  

Guy, you’re not rational. You’ve overdosed on magical moral mushrooms. If you stopped tripping then, assuming your brain wasn’t entirely fried, you’d realize that legally obligating business owners to do more good is as monumentally moronic as it would be to legally obligate donors and volunteers to do more good. 

Knowing The REAL Disparities In Profitability

Reply to: How to fix capitalism: part two

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Dollar voting is super solid! The rest of your story seems… shaky. In your previous story you wrote this… 

The sooner more of us buy organic (increased demand), then the sooner more companies will enter the market and create more (increased supply to meet demand), and the sooner the price will drop (due to increased competition and economies of scale).

This is super solid! 

But here’s what you wrote in this story…

Say we remove minimum wage and we remove all government social services. This would obviously lead to a short term disaster with many people living in poverty, homeless and hungry. But eventually these people would die, its a competitive world right?

This is super shaky!

Honestly, it seems like these two scenarios were written by two entirely different people. I’m sure that this isn’t the case… it just seems that way. 

If we eliminated the minimum wage and removed all government social services… then all companies would become more profitable as a result of lower taxes. The companies that were no longer required to pay minimum wages would become even more profitable. Because of these higher profits, more companies would enter the market… which would increase competition. Increased competition would have two counterbalancing effects…

1. The prices of all products would decrease. The prices of products made by unskilled labor would decrease even more. 
2. The cost of unskilled labor would increase… which would increase the prices of products made by unskilled labor. 

None of this is theoretical. A multitude of companies entered China’s market because they wanted higher profits. Higher profits were possible because labor was a lot less costly in China. Labor was cheaper in China because China used to have a massive labor surplus. Now labor in China isn’t so cheap. The large increase in wages had absolutely nothing to do with mandating minimum wages and everything to do with maximizing the demand for labor.

The demand for productive labour, by the increase of the funds which are destined for maintaining it, grows every day greater and greater. Labourers easily find employment, but the owners of capitals find it difficult to get labourers to employ. Their competition raises the wages of labour and sinks the profits of stock. — Adam Smith, Wealth of Nations 

Of course there’s no guarantee that this is exactly how it would play out if the US eliminated the minimum wage and cut taxes. For all I know… maybe the day after the minimum wage was eliminated… some company would launch a line of robots that could do everything that unskilled workers could do but at a fraction of the cost. Life is dynamic. Conditions and circumstances are constantly changing. 

The key concept is that the real disparities in profitability are absolutely necessary in order to optimally incentivize companies and workers to exit from less profitable areas and enter into the most profitable areas. 

A minimum wage arbitrarily decreases the disparity in profitability. It decreases the incentive for workers to go into more profitable fields and it decreases the incentive for companies to enter into fields which utilize unskilled workers. Just like subsidizing regular farmers would decrease their incentive to become organic farmers. 

Eliminating the minimum wage would increase the disparity in pay between unskilled workers and skilled workers (ie plumbers, electricians, carpenters). How much would the pay disparity increase? It’s impossible to say. But the greater the disparity in pay between unskilled workers and skilled workers … the greater the incentive for unskilled workers to make the effort to become skilled workers. Just like the greater the disparity in profitability between regular farming and organic farming… the greater the incentive for regular farmers to become organic farmers. 

Incentives matter…

If by law every human being wanting support could be sure to obtain it, and obtain it in such a degree as to make life tolerably comfortable, theory would lead us to expect that all other taxes together would be light compared with the single one of poor rates. The principle of gravitation is not more certain than the tendency of such laws to change wealth and power into miser and weakness; to call away the exertions of labour from every object, except that of providing mere subsistence; to confound all intellectual distinction; to busy the mind continually in supplying the body’s wants; until at last all classes should be infected with the plague of universal poverty. — David Ricardo, On the Principles of Political Economy and Taxation

When kids are in school… we really want them to have the optimal incentive to make the effort to learn and develop the skills that they need in order to maximize their contribution to society. We really want students to fully appreciate the real disparity in benefit between studying and slacking. We really don’t want to make unskilled labor appear more attractive or acceptable or adequate than it truly is. If being unskilled means barely scraping by and living uncomfortably… then we really want students to clearly see and appreciate this. This essential information will help them make far more informed career decisions. 

Knowing the real disparities in profitability isn’t just fundamentally important when it comes to different fields… it’s also important when it comes to different locations. 

If the US is suffering from a massive surplus of unskilled labor… then eliminating the minimum wage would result in a massive decrease in wages. Earning a lot less money would push some unskilled workers into much more profitable fields and it would push other unskilled workers into much more profitable countries. The two closest countries are of course Canada and Mexico. The question is… which country would it be most profitable for unskilled workers to move to? Does it matter? Of course it matters! Which is why it would be a big problem if Canada and Mexico lied, via minimum wages, about their respective labor situations. 

It would be extremely beneficial if every country in the world eliminated minimum wages. Unskilled workers would be pushed from the least profitable countries and pulled towards the most profitable countries. Companies would be pushed from the countries with too few workers (labor shortage = expensive labor) and pulled towards countries with too many workers (labor surplus = cheap labor). Eliminating the minimum wage would optimally incentivize workers and jobs to go where humanity needed them most. 

Markets maximize benefit because they create an accurate and interactive treasure map that everybody has access to. If consumers demand more organic food… then the treasure map will be updated accordingly and automatically. Everybody will clearly be able to see the actual size of the organic food treasure. This essential information will help people make an informed decision whether it’s worth it to go after the treasure. Whoever does decide to take the risk and make the effort of going after the treasure…if they manage to reach it before it’s all gone… then they will reap the reward of successfully benefiting society. 

The government, by mandating minimum wages, decreases the accuracy of the treasure map. Nobody benefits when the treasure map shows that the US needs more unskilled workers when it actually has too many unskilled workers. Everybody benefits when the treasure map accurately shows where in the world unskilled workers are needed most. Just like everybody benefits when it’s easier, rather than harder, for unskilled workers to go where they are needed most. 

The reality is, capitalism is doing just fine. The problem is not the system, the problem is what we tell the system to do. The purpose of capitalism should never have been the pursuit of profit. That is not what it was designed for and that is the reason for all the failings listed above.

I disagree with the first sentence because government intervention (minimum wages, numerous barriers to entry, subsidies, tariffs, quotas, unnecessary restrictions on immigration, etc.) decreases, to an incredible extent, the accuracy of the treasure map. An extremely inaccurate treasure map prevents capitalism from doing as well as it should. There would be infinitely more abundance, prosperity and progress if people truly understood the problem with decreasing the accuracy of the treasure map.

The second sentence is true inasmuch as it relates to dollar voting. Consumers are the compass…

The management of a socialist community would be in a position like that of a ship captain who had to cross the ocean with the stars shrouded by a fog and without the aid of a compass or other equipment of nautical orientation. — Ludwig von Mises, Omnipotent Government

The last two sentences really seem to miss the point of profits…

It is thus that the private interests and passions of individuals naturally dispose them to turn their stocks towards the employments which in ordinary cases are most advantageous to the society. But if from this natural preference they should turn too much of it towards those employments, the fall of profit in them and the rise of it in all others immediately dispose them to alter this faulty distribution. Without any intervention of law, therefore, the private interests and passions of men naturally lead them to divide and distribute the stock of every society among all the different employments carried on in it as nearly as possible in the proportion which is most agreeable to the interest of the whole society. — Adam Smith, Wealth of Nations 

If the US ends up with too many unskilled workers… then their wages should naturally decrease in order to automatically alter this “faulty distribution” (misallocation, inefficient allocation). By mandating a minimum wage… the government prevents faulty distributions from being automatically altered. The distribution of workers becomes even more faulty when the minimum wage is increased. It pulls even more workers to the US when it should be pushing them to countries that have a greater demand for unskilled labor. It pulls even more students out of school when it should be pushing them into learning and developing skills that there’s a greater demand for. 

As a collective society we need to reframe our willingness to pay based on the value that something brings to our society. We need policies that prioritize the collective utility over our individual needs.

There are a lot of movies that deal with the idea of the greater good. My favorite is Hot Fuzz. Another movie that comes to mind is The Cabin in the Woods. 

The idea of placing a higher priority on collective rather than individual utility is, to put it bluntly, entirely nonsensical. The only way that you can truly know whether something has actually increased the collective’s utility is to get accurate feedback from the collective. But the collective is simply a collection of individuals. 

With our current system… we elect representatives who determine whether something truly is in the greater good. And, if we disagree with their assessment of what the greater good truly is, then we replace them with better representatives. 

The premise of representative democracy is that it somehow produces a more accurate treasure map. Yet, for some reason, nobody ever wants to use the same system in the private sector. 

What few people understand is that the accuracy of the treasure map can only be increased by clarifying demand. Clarifying the demand for public goods can easily be accomplished simply by allowing taxpayers to choose where their taxes go (pragmatarianism). This would create a market in the public sector… which would help ensure that the treasure map is just as accurate for public goods as it is for private goods.  

Clearly a market in the public sector wouldn’t have “profits”. But government organizations would gain or lose revenue according to how effectively they served the public. 

Again, incentives matter…

Public services are never better performed than when their reward comes only in consequence of their being performed, and is proportioned to the diligence employed in performing them. — Adam Smith, Wealth of Nations

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See also: Workers: Beggars or Choosers?

Liberals Hate Mexicans More Than Donald Trump Does

Imagine that you're the Joker.  Obviously you want to kill Batman.  So what do you do?  One deviously simple plan would be to commandeer the bat signal.  Then, when Batman responds to it, you kill him.

What if Batman was an entrepreneur?  Then you would use the signal that displays the highest profit...

What if Batman was a worker?  Then you'd use the signal which displayed the highest wage.

What if Batman was a poor worker?  Then you'd use the signal which displayed the highest minimum wage.

What if Batman was a poor worker in Mexico?  Then you'd use the signal which displayed the highest minimum wage... and, rather than having to kill him yourself, you'd use the border to kill him for you.

Liberals want to increase the minimum wage (which will attract more Mexicans)...

Garcetti said county adoption of the minimum wage proposal would put the Los Angeles area “past the tipping point.” He predicted other cities would follow suit to avoid losing the most qualified workers to higher-wage areas. - Abby Sewell, Jean Merl, Sarah Parvini, Business concerns stall minimum wage vote by L.A. County board

... but they also want to make it more difficult to cross the border (which will kill more Mexicans)...

In the United States, for example, the AFL-CIO has traditionally taken a very tough stance in favour of restrictive immigration laws and border control measures aimed at stemming illegal immigration into the country from Mexico. — Michael J Hiscox, Global Political Economy

We all know that Donald Trump is also a fan of making it more deadly to cross the border.  But, unlike liberals, he's fine with the minimum wage where it is...

Trump is one of the few Republicans in the 2016 field who isn't skeptical of the usefulness of a federal minimum wage, but he doesn't think it should be increased from the current rate of $7.25 an hour. - Heather Long, So what exactly is Donald Trump's economic policy?

Clearly Trump hates Mexicans... but liberals hate Mexicans even more.

Just in case you didn't visit the Wikipedia entry on Migrant deaths that I linked to...

If your Spanish is a little rusty it says, "Caution! Do not expose your life to the elements. It's not worth it!"

The sign says one thing, but the minimum wage says another thing.


Some relevant passages....

“What concerns me are provisions in the bill that would bring low-wage workers into this country in order to depress the already declining wages of American workers,” Sanders said in May 2007. “With poverty increasing and the middle-class shrinking, we must not force American workers into even more economic distress.” - Seung Min Kim, Bernie Sanders and immigration? It’s complicated

In 1921 and 1924, Congress passed legislation that effectively shut down immigration into the US. Although much of the motivation behind these laws was to exclude ‘dangerous aliens’ such as Italian anarchists and Eastern European socialists, the broader effect was to reduce the labour surplus. Worker wages grew rapidly. - Peter Turchin, Return of the oppressed 

You know what youth unemployment is in the United States of America today? If you're a white high school graduate, it's 33 percent, Hispanic 36 percent, African American 51 percent. You think we should open the borders and bring in a lot of low-wage workers, or do you think maybe we should try to get jobs for those kids? - Bernie Sanders, Interview With Ezra Klein

Looking back over my own life, I realize now how lucky I was when I left home in 1948, at the age of 17, to become self-supporting. The unemployment rate for 16- and 17-year-old blacks at that time was under 10 percent. Inflation had made the minimum-wage law, passed ten years earlier, irrelevant.  

But it was only a matter of time before liberal compassion led to repeated increases in the minimum wage, to keep up with inflation. The annual unemployment rate for black teenagers has never been less than 20 percent in the past 50 years and has ranged as high as over 50 percent. - Thomas Sowell, Minimum-Wage Laws: Ruinous ‘Compassion’  

Legislative attempts to raise wages, limitation of competition in the labour market, taxes or restrictions on machinery, and on improvements of all kinds tending to dispense with any of the existing labour - even, perhaps, protection of the home producer against foreign industry - are very natural (I do not venture to say whether probable) results of a feeling of class interest in a governing majority of manual labourers. - J.S. Mill, Considerations on Representative Government

Even worse, this regulation will interact with the migrant flow from Latin America, to produce another set of unanticipated side effects. In some developing countries there is a huge army of unemployed who go to the cities, hoping to get one of the few high wage jobs available in the "formal" sector of the economy. With a $15 minimum wage, migrants will come from Mexico until the disutility of waiting for a good job just balances the expected utility of landing one of those good jobs. You'll have lots more angry, frustrated young Mexican illegal immigrants, with lots of time on their hands. - Scott Sumner, How bad government policies make us meaner

If the American automobile worker, railroadman or compositor says equality, he means expropriating the holders of shares and bonds for his own benefit. He does not consider sharing with the unskilled workers who earn less. At best, he thinks of equality of all American citizens. It never occurs to him that the peoples of Latin America, Asia, and Africa may interpret the postulate of equality as world equality and not as national equality. 

The political labor movement as well as the labor union movement flamboyantly advertise their internationalism. But this internationalism is a mere rhetorical gesture without any substantial meaning. In every country in which average wage rates are higher than in any other area, the unions advocate insurmountable immigration barriers in order to prevent foreign "comrades" and "brothers" from competing with their own members. Compared with the anti-immigration laws of the European nations, the immigration legislation of the American republics is mild indeed because it permits the immigration of a limited number of people. No such normal quotas are provided in most of the European laws. - Ludwig von Mises, Planning for Freedom

See also: Workers: Beggars or Choosers?

Workers: Beggars or Choosers?

My comment on John Cochrane's blog entry: Summers and the nature of policy advice

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I remember way back in the day... when I was in the army infantry... my buddies and I would sit around discussing how easy it was for ugly army chicks to hook up with good looking army dudes. It wasn't because the ugly chicks were particularly charming... nope... it was simply because of supply and demand. I have no idea what the actual ratio was... but it sure seemed like there was at least 100 guys for every girl. Guys were a dime a dozen. And, as the saying goes, beggars can't be choosers. Ladies had the upper hand... they could quickly and easily replace guys on the slightest whim.

Can you imagine if Larry Summers had been there? "Hey!  I have an idea!  The army should make it harder for women to join!"  Even the dumbest guy in the entire army would have instantly recognized just how massively moronic Summers' idea was.

Maybe the problem is formalism?  Summers didn't join the army infantry right after high school. Instead, he went to some university... got a PhD... and now he uses so much technical jargon that regular folks aren't able to instantly recognize just how massively moronic his ideas are. I wouldn't be surprised if he was related to Paul Samuelson.

Eh, Samuelson did get the free-rider problem right. And it's not like we can get rid of technical jargon... "that one problem where people have an incentive to lie about how much they value things like national defense and it results in the wrong amount of defense being supplied."  Well... since I'm here... if you get a chance I'd appreciate a second opinion on my argument that the free-rider problem is equally applicable to democracy.

Getting back on topic... Scott Sumner recently wrote this paragraph about employers having the upper hand...

Regardless of how you feel about monetary policy, it's clear that if employers feel they have a "captive audience" of workers, who are terrified of losing their jobs, it would be easier for the employer to crack the whip and drive the employees to work extremely hard. One advantage of a healthy job market is that workers have more power to negotiate pleasant working conditions.

To reinforce my comparison...

[Justice Anthony Kennedy] ignores the fact that polygamy imposes real costs, by reducing the number of marriageable women. Suppose a society contains 100 men and 100 women, but the five wealthiest men have a total of 50 wives. That leaves 95 men to compete for only 50 marriageable women. - Richard Posner, Supreme Court Breakfast Table

Heh... half the ladies be gold diggers?  Posner's been listening to too much Kanye West. Anyways, if we did legalize polygamy... and Posner's estimate turned out to be correct... then Summers' bright idea would be to make it harder for American guys to marry foreign ladies.  "Hey!  Let's send all the foreign ladies to Mars!"

You say that Summers is a smart guy... but he wants to help workers by building up, rather than tearing down, barriers to entry. He wants there to be more workers and less employers.  He prefers barrierism over builderism.  How is that smart? Not only is it bad for workers... but it's also bad for consumers. It also increases instability/volatility. The economy has more eggs in fewer baskets.


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Out of curiosity... I searched Google for the title that I chose for this entry... Workers: Beggars or Choosers?   Here's a snippet from one of the results...

Labour advocates say there are no publicly traded manufacturers in China that get this yet. Some will eventually figure it out. Until they do, companies like Yum! Brands Inc, which invests in employee development at its KFC and Pizza Hut fast-food restaurants, offer a better alternative. - Alexandra Harney, China's migrant workers: from beggars to choosers

This made me chuckle when I read it.  Isn't it funny that labor advocates are the most qualified to run businesses... yet they rarely do so... which is why we need labor advocates!


See also:

• Minimum Wage Vicious Cycle
• Knowing The Real Disparities In Profitability
• The Inefficient Allocation of Labor
• Maximizing Opportunities By Clarifying Demand Diversity
• Maximizing Demand For Labor By Minimizing Barriers To Entry
• Consumers Are The Conductors Of Commerce
• Minimum Wages vs Minimum Employees
• Is there a shortage of unskilled labor?
• A Surplus Of One-Armed Workers
• Liberals Hate Mexicans More Than Donald Trump Does

Is there a shortage of unskilled labor?

Reply to: Thank you for the response.

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According to the Department of Complete and Utter Nonsense… limiting the wages of doctors to $10/hour would help a gazillion times more people than it would harm. 

Look, this is really simple…

Is there a shortage of unskilled labor?

1. Yes
2. No

If you answer “Yes” then please explain why it would be necessary to artificially increase the wages of unskilled workers. If there was a shortage of doctors… would it be necessary to artificially increase their wages? Wouldn’t their wages already be high? Wouldn’t their wages already accurately reflect/communicate the fact that doctors were in short supply? 

If you answer “No” then please explain why you’d want to artificially increase the wages of unskilled workers. If there was a surplus of doctors… why would you want to artificially increase their wages? If we had too many doctors…. why would you want to increase people’s incentive to become doctors? Can you imagine the problems with a society where everyone was a doctor? 

Picture a world with two countries. One country has no doctors. The other country has all doctors. Would you want to live in this world? If not, then why not? 

The point of prices is to help ensure that resources are efficiently allocated. If one country has a shortage of doctors while another country has a surplus of doctors… then there will be a disparity in their wages. In the country that has too many doctors (surplus)… their wages will be very low. In the country that has too few doctors (shortage)… their wages will be very high. This disparity in wages will incentivize the poorly paid doctors to move to the country where doctors are highly paid (in short supply). In a relatively short time… the disparity in wages will disappear. Prices helped facilitate the optimal (most valuable) distribution (allocation) of doctors (a resource).

In that scenario, in order to keep it simple, we assumed a fixed supply of doctors. But in reality… the supply of doctors is not fixed. People can study to become doctors… and doctors can go into other fields. 

Whether people go into a field and/or stay in a field depends largely on wages. If there’s a shortage of people in a certain field, then we need wages to incentivize people to go into that field and/or stay in that field. If there’s a surplus of people in another field, then we need wages to encourage people to go into fields that have higher wages (shortages of people). 

The beauty of markets is that wages adjust automatically…

It is thus that the private interests and passions of individuals naturally dispose them to turn their stocks towards the employments which in ordinary cases are most advantageous to the society. But if from this natural preference they should turn too much of it towards those employments, the fall of profit in them and the rise of it in all others immediately dispose them to alter this faulty distribution. Without any intervention of law, therefore, the private interests and passions of men naturally lead them to divide and distribute the stock of every society among all the different employments carried on in it as nearly as possible in the proportion which is most agreeable to the interest of the whole society. — Adam Smith, Wealth of Nations

Regarding the congressional budget report PDF document that you shared… I searched it for the word “shortage”. Guess how many results there were? ZERO. 

When congress can be bothered to come up with some evidence that America is suffering from a shortage of unskilled labor then, and only then, will I be willing to entertain the notion that perhaps a minimum wage is the solution rather than the problem. 

Now here’s something that’s going to blow your mind. The government doesn’t make decisions because they’re economically sound. It makes decisions because they are politically popular. And it’s rarely ever the case that politically popular decisions will be economically sound. 

The only other possible explanation is that the government is entirely fucking clueless about basic economics. 

The Inefficient Allocation Of Labor

Reply to: Minimum Wage — Treating the Symptoms

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Check out this passage by J.S. Mill…

The fact itself, of causing the existence of a human being, is one of the most responsible actions in the range of human life. To undertake this responsibility — to bestow a life which may be either a curse or a blessing — unless the being on whom it is to be bestowed will have at least the ordinary chances of a desirable existence, is a crime against that being. And in a country either over-peopled or threatened with being so, to produce children, beyond a very small number, with the effect of reducing the reward of labour by their competition, is a serious offence against all who live by the remuneration of their labour. — J.S. Mill, On Liberty

Compare it to this passage by Adam Smith…

Every colonist gets more land than he can possibly cultivate. He has no rent, and scarce any taxes to pay. No landlord shares with him in its produce, and the share of the sovereign is commonly but a trifle. He has every motive to render as great as possible a produce, which is thus to be almost entirely his own. But his land is commonly so extensive that, with all his own industry, and with all the industry of other people whom he can get to employ, he can seldom make it produce the tenth part of what it is capable of producing. He is eager, therefore, to collect labourers from all quarters, and to reward them with the most liberal wages. But those liberal wages, joined to the plenty and cheapness of land, soon make those labourers leave him, in order to become landlords themselves, and to reward, with equal liberality, other labourers, who soon leave them for the same reason that they left their first master. The liberal reward of labour encourages marriage. The children, during the tender years of infancy, are well fed and properly taken care of, and when they are grown up, the value of their labour greatly overpays their maintenance. When arrived at maturity, the high price of labour, and the low price of land, enable them to establish themselves in the same manner as their fathers did before them. — Adam Smith, Wealth of Nations

Conditions improve when we efficiently allocate resources. But in order for resources to be put to their most valuable uses, we need prices to accurately communicate demand (valuations)…

The market economy should have natural mechanisms to limit inequality. If housing is very expensive in coastal California, more firms should build houses. If Mickey Mouse toys and Barbie dolls are profitable, more companies should produce those toys. If some professions make more than others, people should move into the higher-paying professions. — Scott Sumner, Kevin Erdmann, Here’s What’s Driving Inequality

Workers should move to the states with the highest wages and businesses should be created in the states with the lowest wages.

Unfortunately, this isn’t an easy concept. Here’s Scott Sumner again…

Why would a Conservative government sharply increase the minimum wage, in a budget that in many other respects favored small government? The minimum wage is currently 6.50 pounds/hour, and 9 pounds/hour is almost $14/hour in US terms. Also recall that average incomes in the UK are lower than in the US. It can’t be just politics, as they just had an election, and are 5 years away from the next one.

A few months back a commenter suggested that the new German minimum wage was aimed at cutting immigration from poorer EU members such as Romania and Bulgaria. Britain is also seeing a fairly large wave of immigration from Eastern Europe, and the Conservative Party seems to be increasingly opposed to high levels of immigration. Could this be aimed at slowing immigration? — Scott Sumner, Britain’s new minimum wage: Is there a hidden agenda?

Higher wages in one country would decrease the incentive for workers to move there? What about higher wages in one county?

Garcetti said county adoption of the minimum wage proposal would put the Los Angeles area “past the tipping point.” He predicted other cities would follow suit to avoid losing the most qualified workers to higher-wage areas. — Abby Sewell, Jean Merl, Sarah Parvini, Business concerns stall minimum wage vote by L.A. County board

What about immigration in terms of unions?

Typically, the most vocal opposition to changes in immigration laws that would permit more low-skilled immigration comes from labour unions representing blue-collar workers. In the United States, for example, the AFL-CIO has traditionally taken a very tough stance in favour of restrictive immigration laws and border control measures aimed at stemming illegal immigration into the country from Mexico. — Michael J Hiscox, Global Political Economy

What about immigration in terms of businesses?

American business and farm associations have taken a very different position, often lobbying for more lenient treatment of illegal immigrants and for larger quotas in various non-immigrant working visa categories. — Michael J Hiscox, Global Political Economy

Mandating price changes and restricting immigration guarantees that resources will be inefficiently allocated. Garbage in, garbage out.

A minimum wage guarantees that labor will be inefficiently allocated. It also guarantees that businesses will be inefficiently allocated.

When, as in J.S. Mill’s passage, there’s a surplus of labor (and all the associated problems)… the last thing that we should do is mandate a wage increase. Mandating a wage increase will have two main consequences…

1. Decrease the incentive for people to move elsewhere
2. Decrease the incentive for people to start businesses

We really want businesses to be created where they are most needed… but this really can’t happen when we prevent wages from accurately communicating need.

In short… the true solution is to maximize the demand for labor. This involves minimizing everything that makes it less likely that somebody will start a business.

Let me know if you have any questions. And welcome to Medium!

Scott Sumner - Keynesian Imperialist

And I'd say the same about Jose's comments on Keynesians. Lots of Keynesians do favor wealth redistribution, but there isn't any necessary linkage. As I point out in this post, it's perfectly possible to be a conservative Keynesian and favor small government. You can simply use tax cuts as your preferred form of fiscal stimulus. - Scott Sumner, I don't favor an interventionist monetary policy to fix recessions

Ouch, my brain.

This is so many types of weird.

A small government Keynesian (SGK)?  This is perfectly possible?  Like, Big Foot is perfectly possible?  What's the point in telling us that Big Foot is perfectly possible?  I'm not interested in the perfect possibility of his existence... I'm interested in evidence of his existence.  If Sumner knows of a SGK then he should tell us this person's name!  So we can take pictures.  And perform experiments.

Maybe Sumner is a SGK?  If not, then why not?  Let's pretend that he is!

Let's say that Sumner and Henderson both want tax cuts.  However, Sumner is a SGK while Henderson is not.  This is because Sumner wants tax cuts to stimulate the economy while Henderson just wants tax cuts to...uhhhh... not stimulate the economy.

Sumner:  I support tax cuts so that people will have more money to spend!!!
Henderson:  I support tax cuts so that people will have more money to save!!!

I take issue with this idea of needing, for any reason, to stimulate the economy.  If the economy has problems... if it's sluggish...  then it's because resources are inefficiently allocated.

Like, one time, my gf accidentally threw her keys away.  Hey Sumner, how do you translate her action into "econ"?  You know the answer... right?  Yeah?  The answer is... she "inefficiently allocated her keys".  Because she inefficiently allocated her keys, we wasted several hours searching for them.

When Sumner talks about "fiscal stimulus"... then I honestly have to wonder whether he truly grasps what it means for resources to be (in)efficiently allocated.

My second favorite liberal in the whole wide world kinda has this rule...

Quiggin's Implied Rule of Economics (QIRE) - Society's limited resources should be put to more, rather than less, valuable uses

Does Sumner think QIRE is a good rule?  Wouldn't you like to know?  I sure would.

Personally, I think it's an excellent rule!  Society maximizes benefit when it does the most beneficial things with its limited resources.

So where is the role for "fiscal stimulus"?  In theory, it has a role when the economy needs fixing.  But the only reason that the economy should ever need fixing is because QIRE is being violated.  The goal for every economist should be to clarify how, exactly, QIRE is being violated.

Tyler Cowen recently linked to this article in the LA Times about minimum wages...

Garcetti said county adoption of the minimum wage proposal would put the Los Angeles area “past the tipping point.” He predicted other cities would follow suit to avoid losing the most qualified workers to higher-wage areas. 

Some cities, including Santa Monica and West Hollywood, are already considering raising the minimum wage. However, larger cities in the county, including Pasadena and Long Beach, have remained on the sidelines of the debate. - Abby Sewell, Jean Merl, Sarah Parvini, Business concerns stall minimum wage vote by L.A. County board

Eric Garcetti is the mayor of Los Angeles.  Here's his logic...

Cause: LA mandates higher wages
Effect: LA increases its supply of workers

By mandating higher wages, Garcetti is effectively saying, "Hey everybody in the world!  LA has a shortage of workers!!!  So we're increasing your incentive to help us solve this huge problem!!!"

LA has a shortage of workers?  I guess.  Because, why else would Garcetti want to increase the supply of workers?  It sure wouldn't make sense to increase the supply of workers when there's a surplus of workers.  Except, if LA truly does have a shortage of workers... then why in the world would the mayor need to mandate higher wages?  Usually prices automatically increase when supply doesn't meet demand.  Evidently Garcetti is under the impression that prices are broken.  From his lofty vantage, the mayor can clearly see that LA has a shortage of workers... and the price of labor does not accurately communicate this reality.

Who should we trust?  Garcetti?  Or prices?

If we trust prices then, in reality, LA has a surplus of workers.  And raising the minimum wage will only make this problem worse.  It will result in an even more inefficient allocation of unskilled labor.  It will hurt the economy.

And how do we help the economy?  Stimulus!  Uhhhh...no.  In order to help the economy we first have to identify exactly how QIRE is being violated.  When my gf threw her keys away she violated QIRE.  When Garcetti throws workers away he violates QIRE.

Cause: Garbage in
Effect: Garbage out

Society's limited resources are misallocated and the inevitable problems are "solved" with... stimulus.  And what's stimulus?  The misallocation of resources.    

Keynesians really did an excellent job of capturing the narrative.  I'll give them that!  The topic of debate isn't the system... it's stimulus.  Scott Sumner is allocating his scarce resources to help promote this narrative.  The economy isn't my girlfriend and I digging threw the trash to find her keys.  It's not unskilled workers wandering around LA trying to find jobs.  Instead, the economy is some sentient being... completely independent of individuals.  When this being has a problem... then invariably the solution is stimulus.  Just like in the military how Motrin will "solve" any problem.  Sucking chest wound?  Have some Motrin.

Motrin is an easy "fix".  Just like stimulus.  Even the word "stimulus" is easier to write than "inefficient allocation of resources".  The revolution was postponed...yet again, because of semantics.  The other side has all the best word smiths!  And in our superficial system, style always wins over substance.

Jeff Madrick vs The Invisible Hand

Thanks to Donald J. Boudreaux, I learned of Jeff Madrick's article... Why Economists Cling to Discredited Ideas.

Why, for example, do so many economists oppose increases in the minimum wage?

Wages have two very important functions...

1. Compensate
2. Communicate

These two things are impossible to separate.  So when liberals change the compensation they change what's communicated.  A minimum wage communicates that the demand for unskilled labor is higher than it truly is.  As a result, people end up with the wrong answers to the fundamentally important question... "should I stay or should I go?"

Should I stay in school... or should I go get a job?
Should I stay in Mexico... or should I go to America?

When people stay when they should have gone... or go when they should have stayed... the logical result is the inefficient allocation of labor.

If we eliminated minimum wages... then wages would more accurately communicate the supply/demand for labor in any given area.  Workers would move to areas with higher wages and manufacturers would move to areas with lower wages.

But in a recession, worried people ignore these market signals.

Recessions wouldn't occur if liberals understood the point of value signals.

Individual behavior does not aggregate to general efficiency.

How can it when liberals use the government to spread misinformation?

Moreover, widespread assertions that free-market reforms led to enormous reductions in global poverty foundered on a hard fact: Most of the reduction occurred in China, and to a lesser degree in India—countries that did not adopt the Washington Consensus.

Deng Xiaoping decreased the visible hand's sphere of influence.  Please see...

• Builderism
• Pushing For A Pubmar

First, nations need space to develop their own industries and institutions. This might require subsidies and other supports that violate trade agreements.

A couple fundamentally basic premises...

1. People like to trade
2. Public goods, ie a bridge, can facilitate trade

The point of governments is to make it easier for people to trade with each other.  In other words, the point of governments is to facilitate communication.

Mainstream economics has no strong theory of government, except that it is a corrector of market failures (which are presumed to be rare).

Public choice is an extremely strong theory of government... but it's painfully true that it's not mainstream.

The nation needs a positive theory of government, which recognizes how valuable social policies and public investment have been, and how much more of them we need.

In the absence of a pubmar... how can we possibly know just how beneficial any government intervention has been?  How can we ensure that government intervention does not violate Quiggin's Implied Rule of Economics?

Please see...

• The Truth About Infrastructure Projects?
• The Inadequacy Of The Opportunity Cost Concept
• Optimal Government Intervention
• Why I Love Your Freedom

But the nation won’t grow without more government.

China didn't grow as a result of more government... it grew as a result of less government.  Until we create a market in the public sector... it's safer to err on the side of less government.

The dominance of bad mainstream thinking, which leads to resistance to public investment, has been especially damaging because it undermines the foundation of future prosperity.

Progress depends on difference.

From these assumptions, however, it logically follows that an economy is almost always self-adjusting—and the politically conservative assumption that government interference is almost always bad becomes axiomatic.

It will continue to be axiomatic until we ensure that the government doesn't violate Quiggin's Implied Rule of Economics.

By its very nature, a firm belief in the invisible hand means a faith in laissez-faire policies: reduced taxes and regulation.

Less taxes and regulation means more invisible hand.  More invisible hand means more difference.  More difference means more progress.

The less government, the better.

Yup, until we create a market in the public sector.

The dominating policy ideas of the invisible hand have failed.

Nope, any real failure stems directly from liberals failing to understand the importance of value signals.

Neglect of public investment in infrastructure, clean energy, and education, a consequence of Say’s Law–type thinking, has undermined the nation’s foundation.

The government, by diminishing difference, has undermined the nation's foundation.