Monday, September 8, 2014

The Long View on Labor Force Participation

The source here is definitely a conservative website interested in bashing Democrats.

But, they have a good graphic for one of the meme floating around about one symptom of the economy not working too well. Labor force participation is at a 36 year low, but compared to what exactly?

Labor Force Participation-August

So, somehow we’re on the downside of a 50 year swell in labor force participation. The time frame is the key: 50 years means that this is unlikely to be caused by some sort of policy. Instead, it’s likely to be demographics.

And that’s a point I’ve made many times for students on this blog over the last few years. The baby boomers started working in 1962 (when those born first, in 1946, turned 16), were probably all working by 1994 (when the tailenders born in 1964 hit 30), and started to edge into early retirement starting around 2001 (when the initial group turned 55). And this will continue until the tailenders are 55 to 70 (2019 to 2034) before any other demographic feature is large enough to swamp their effect.

Friday, September 5, 2014

A Culture That Won’t Deliver Growth

A problem of how macroeconomics has developed over the last 30 years is that while most fields are pushing a non-judgmental view of cultures, macro has started from scratch to pile up a bunch of support for the idea that they make a lot of difference in one area: economic growth.

As an example of a culture that is not growth oriented, take this quote:

Then there are those cultural attributes that it is considered impolite to raise. "Somali men are not lazy," protests Mr. Mohamed's No. 2. "We are descendants of Abraham, and if you descend from Abraham you don't do manual labor." When the men are caught loafing, they say they are "planning" …

This quote is from a Somali, living in Kenya, who’s employed locally in the economic development bureaucracy.

Somalis are, of course, one of the poorest ethnic groups in the world.

And … lots of people claim descent from Abraham. It’s just that most of them don’t use that to justify not being productive.

This is from “Book Review: ‘The Idealist’ by Nina Monk” in the September 6, 2013 issue of The Wall Street Journal. Her book is about Jeffrey Sachs, a famous macroeconomist who turned development maven about 15 years ago — and who appears to have evolved towards the view that lack of development is caused by the stinginess of developed countries.

Sunday, August 24, 2014

Why Is Macro So Hard? Brandolini’s Law

This comes to us from computer science:

Ordre Spontane has some similar quotes.

Anyway, think about a handful of macro issues:

  • Trade restrictions are good.
  • The minimum wage is a good way to help the poor and unskilled.
  • Predatory pricing is a successful management practice.
  • Americans don’t save enough.
  • Government needs to subsidize firms before they can thrive.

These are all BS. And yet macroeconomists spend a lot of effort, year in year out, trying to expunge these from informed public discourse.

Via Café Hayek.

The Minimum Wage Doesn’t Really Help the People We Think It Does

Raising the minimum wage nationally has been a hot political subject for a few years now, and many jurisdictions around the country have already raised it locally.

On the pro side, 1) if we take cumulative inflation seriously, then yes it’s probably time to adjust it, and 2) the “common sense” that it reduces employment doesn’t appear to be persuasively supported by the data.

But, here’s an idea familiar to economists that the public just doesn’t talk about much: a plurality of people who earn the minimum wage already live in high income households.

You see, when the minimum wage was first instituted a few generations back, most people who worked at the wage lived in low income households. So a minimum wage certainly helped them make ends meet.

That’s a good thing. I don’t know if the effect was strong enough to counterbalance the theoretical loss of jobs, but it’s close enough that reasonable people fall on both sides.

And that’s the urban myth that continues to be most people’s argument for supporting the minimum wage today.

Except it’s an urban myth because it really isn’t true any more.

These days the typical minimum wage worker is a teenager from a high income household: one with access to job openings, transportation to jobs, and immersed in a culture of employment. This is not your typical poor person in America: without ready access to job openings, often living where transportation to jobs is spotty, and distinctly not immersed in a culture of employment.

[Calculated estimates indicate that] if we were to raise the minimum wage to $10.10 per hour nationally, 18% of the benefits of the higher wages (holding employment fixed) would go to poor families, and 29% would go to families with incomes three times the poverty level or higher.

What about minimum wages as high as $15 an hour? Applying the same calculation as above for a $15 per hour minimum, the share of benefits going to poor families would decline to 12%, and the share to families more than three times the poverty line would increase to 36%. [emphasis via a quote posted at Carpe Diem].

Let me put some perspective on that. A household with income 3 times the poverty level corresponds roughly to that of a married SUU professor, with a spouse who doesn’t work, and two kids … one with a job at McDonald’s.

This is not necessarily a reason to be against a minimum wage increase, because there is still a positive effect on the poor. But, it is an argument that if your motivation for raising the minimum wage is to help the poor, then there are probably other methods you should think about first.

You can read the original here, from David Neumark, a macroeconomist at UC-Irvine.

Saturday, August 23, 2014

Putting Absolute Poverty In Perspective

One of the problems in understanding macroeconomic policy in developed countries is the distinction between absolute poverty (someone lacks something) and relative poverty (someone has less of some things than their neighbors).

And in developed countries, activists tend to prefer to talk about relative poverty … because there simply isn’t much absolute poverty.

A further concern, and one that’s a little bit deeper and thus less discussed, is what is the radius used to determine the comparison set when discussing relative poverty. Most activists want to limit that to a few miles. But if we talk about a radius of thousands of miles … there isn’t even any relative poverty in developed countries at all: it’s all in developing countries.

None of this matters though, if we focus primarily on absolute poverty. And really, even if you’re concerned about relative poverty, most would agree that it is a secondary. And, if you’re still concerned about relative poverty, then ask “relative to what?”

All of which brings me to agricultural subsidies in developed countries. You see, there’s a standard metric for the poorest of the absolute poor: those who live on $2/day or less. That covers over a billion people on the globe.

And in places like the EU, they pay cows more than that. Of course, the cows don’t get the cash themselves, to blow on smokes and forties. Instead, the farmers collect the income that (at least conceptually) is paid to the cows.

So, here’s an idea. The next time someone you know starts to grouse about poverty, suggest that we remove the agricultural supports for American farmers, and instead pay that money out to someone in absolute poverty in a developing country.

Friday, August 22, 2014

More than Corporate Arm Candy?

All the big, famous, firms have to have one these days: a chief economist.

That’s the dream of the new tech company chief economist: Become indispensable, by using your employer’s data to create something the market didn’t know it needed.

Wednesday, August 20, 2014

Purchasing Power

Here’s a chloropleth from the Tax Foundation showing how much $100 buys:

The data here is something like the inverse of a price index (which takes low values where prices are lower).

N.B. Normally, you might see something like this with “heat map” shading. The problem with that is that the color blind have difficulty with that choice of colors. The use of blue-to-yellow here may not seem that comfortable, but it has the virtue that even the color blind can readily see the differences.

Anyway, blues are bad: stuff is expensive there and $100 doesn’t go as far. Yellows are better: your $100 will buy more there. The biggest difference, going from Mississippi to D.C., is 37%. So at the store, you’d walk out with a third more loot.