Minimum Wage Thoughts

An interesting point from Worthwhile Canadian Initiative:

That's not to suggest that the minimum wage is necessarily bad for the low-skilled. I suspect most low-skilled workers would rather live in a world with a $10.25/hr minimum wage where it's harder to find worker than a $6.85/hr one where it is easier. But given the possible alternatives (technology, outsource, do without) a higher minimum wage does reduce low-skill employment.

I think that this is a very perceptive point. I have often heard that the minimum wage hurts the working poor because it removes their ability to lower their wage rate to get jobs (by biding under the cost of current employees). But it is an open question whether the cost in employment rates is an aggregate harm to low skilled workers. It might very well be the case that the loss in jobs is more than offset by the higher wages; especially given the low bargaining power of those with few job skills.

I think it is worth reflecting on whether the net impact of minimum wage laws might be positive despite the decrease in net employment among these workers.

Settling in

So how long does it take to settle into a new location? I have often figured that it would take about two years to really fit into a new job or a new place. It's funny, I have lived in eight different cities as an adult and i must admit that I have had a very different experience depending on the city. But I wonder how much fitting in can be a self-fulfilling prophecy? If you think it is going badly then do you change how you act to make it harder for things to work out?

Just some thoughts on the cusp of the new year . . .

Warzones and medical research

There was a fascinating story on today's All Things Considered about the ways that our experiences with the Afghanistan and Iraq wars have added to our understanding of emergency medicine:

The medevac choppers land and then taxi over to the gate just outside the emergency room, where gurneys are waiting. Nightfall has brought a bone-chilling wind, and a gang of nurses and orderlies rushes four patients into the warmth of the ER.

It's more than warm inside. In fact it's 100 degrees. It's the first clue that this hospital — the Joint Theater Hospital at Afghanistan's Bagram Air Field — is a little different. Through years of war, combat surgeons have learned that hypothermia is a big risk in patients with significant blood loss. Nine years of conflict in Iraq and Afghanistan have brought some grim benefits: a new wealth of knowledge about treating war wounds.

"At the beginning of this conflict, we were taking the best trauma medicine from the civilian sector, and we brought it to Iraq and Afghanistan," says U.S. Air Force Col. Chris Benjamin, the hospital commander. He says now his doctors tell him it's the other way around.

This got me thinking about another story I heard on the same public radio station last night, the subject of my previous post. In it Steve Levitt said:

One of the easiest ways to differentiate an economist from almost anyone else in society is to test them with repugnant ideas. Because economists, either by birth or by training, have their mind open, or skewed in just such a way that instead of thinking about whether something is right or wrong, they think about it in terms of whether it's efficient, whether it makes sense.

In health and medicine, researchers (some of whom are, admittedly, economists) don't seem to have any trouble getting past the repugnance of ideas like using controversial wars as data gathering opportunities. It's true that these researchers pass up some data that is considered ethically tainted but this has nothing to do with the mentality of the researchers and everything to do with a set of ethical rules that many researchers consider to be overly restrictive and due for an overhaul.

Given these and other counterexamples, Dr. Levitt's quote may, more than anything else, tell us something about the way many economists see themselves.

Freakonomics: disagreeing about why we disagree

On today's Marketplace, Steve Levitt explains why he thinks many people see the world differently than he does:

One of the easiest ways to differentiate an economist from almost anyone else in society is to test them with repugnant ideas. Because economists, either by birth or by training, have their mind open, or skewed in just such a way that instead of thinking about whether something is right or wrong, they think about it in terms of whether it's efficient, whether it makes sense. And many of the things that are most repugnant are the things which are indeed quite efficient, but for other reasons -- subtle reasons, sometimes, reasons that are hard for people to understand -- are completely and utterly unacceptable.

There are few thoughts more comforting than the idea that the people who disagree with you are overly emotional and are not thinking things through. We've all told ourselves something along these lines from time to time.

But can economists really make special claim to "whether [ideas] makes sense"? Particularly a Chicago School economist who has shown a strong inclination toward the kind of idealized models that have great aesthetic appeal but mixed track records? (This is the same intellectual movement that gave us rational addiction.)

When I disagree with Dr. Levitt, it's for one of the following reasons:

I question his analyses;

I question his assumptions;

I question the validity of his models.

Steve Levitt is a smart guy who has interesting ideas, but a number of intelligent, clear-headed individuals often disagree with him. Some of them are even economists.

Not a big deal but...

I generally set up tables so that time goes forward from left to right. Does this bother anyone else?



From CNN via Yglesias via DeLong.

"When $250,000 Equals $315,000"

Good post by David Leonhardt which I've been meaning to link to since it came out (the thing I'll miss most about the holidays is the excuse for procrastination):

There are two aspects of the high-end cuts that often get lost in the public discussion. The first is households with more than $250,000 a year in adjusted gross income would still get a tax cut — on their first $250,000 of such income. On average, this tax cut would equal about $6,500 a year, regardless of whether a household had $250,000 in adjusted gross income or $1 million (or much more) in adjusted gross income. If all the Bush tax cuts are extended, by contrast, households making at least $1 million a year would receive an average annual tax cut of $104,000.

The second issue is that earning $250,000 in adjustable gross income is different from earning $250,000 in total income. High-income households tend to take a significant number of deductions. At our request, Roberton Williams at the Tax Policy Center analyzed the total income of households with $240,000 to $260,000 a year in adjusted gross income. On average, they made $315,000 in adjusted gross income, including $32,000 in capital gains and dividends.

So when you hear talk about taxes on people makes at least $250,000 a year, it really tends to means taxes on income above $315,000 a year.

We have seen numerous pieces telling us how difficult it is to make ends meet on a quarter mil (see Brad DeLong for the latest amusing example). Perhaps when you get closer to a third of a million, life is a bit easier.

"Fixing the economy the scientific way"

Recommended with reservations, this op-ed from the LA Times is worth a read.

Articles that talk about the huge economic pay-offs of scientific research often make me nervous, not because I disagree with the fundamental thesis but because I'm afraid we might make the war-on-cancer mistake, promising an overly specific result in an unrealistic time frame. I also worry about encouraging commentators who argue that we shouldn't bother taking even small steps to address looming problems because some new technology invariably pop up and solve everything.

Take this passage:

Health economists and demographers, surveying the steady aging of the U.S. population, are predicting a dramatic rise in the cost of dealing with neurodegenerative diseases such as Alzheimer's, which already accounts for $172 billion in total spending annually. That number is projected to climb to more than $1 trillion by 2050 as legions of baby boomers reach the age of onset and the population generally ages. Meanwhile, our annual federal Medicare expenditure on Alzheimer's is projected to increase from $88 billion today to $627 billion, far exceeding the current total Medicare budget (about $468 billion this year).

There's just one hope here: scientific advances that will slow the progression of Alzheimer's disease and ultimately uncover a cure. But, ironically, the prospects for scientists who seek federal dollars to study the disease are among the worst in the entire government science infrastructure. The National Institute on Aging, which supports most of this work, is now turning down more than 90% of scientifically meritorious research grant proposals due to an inability to finance them.

Is Alzheimer's research a good use of our money? Almost certainly, but that doesn't mean that these advances will come through or that, if they do, they will arrive in the time to help with the budget problems associated with baby boomers.

Of course, the expected value of this kind of research is very good, particularly when you add in the possibility of an advance in a field that has nothing to do with Alzheimer's. Remember that one of the most profitable drugs in recent memory (Viagra) was originally developed to treat hypertension rather than erectile dysfunction.

Complex Constructs

Andrew Gelman has a very interesting discussion about whether happiness is a U-shaped curve in relation to age. What I found most interesting is how people focused on the "interesting conclusion" (the U-shape) even when there was a broad selection of curves to consider:

At the very least, the pattern does not seem to be as clear as implied from some media reports. (Even a glance at the paper by Stone, Schwartz, Broderick, and Deaton, which is the source of the top graph above, reveals a bunch of graphs, only some of which are U-shaped.)

But what I found the most interesting is that the sub-graphs are on different elements of "well being" (stress, worry,enjoyment happiness, sadness, anger). I wonder if the higher well being among older adults is, in some sense, very different than that of younger adults. Less stress and worry may contribute to increased (overall well being) but it might be a very different positive state than one created by the limitless potential of youth.

So I suppose I wonder if representing a complex vector (as well being has many factors that contribute to it) as a scalar (singl question) might not be eliminating the most useful sources of variability? Even if this approach is the standard in the field, it does not mean that we can't benefit from seeking a more complicated understanding of the phenomenon. I think that Andrew Gelman is on the right track in trying to really understand this complicated (and interesting) relation.

A Quick Christmas Wish

I am hoping that all of you have a prosperous new year, filled with good health and some form of improvement in all aspects of your life.

Merry Christmas

A short letter to James B. Patterson

Dear Mr. Patterson,

I refuse to pick up any book that promotes itself using the word 'unputdownable.'

Sincerely,
M. Palko

If you only read one really long economics lecture this holiday...

Delong, again:

Alexander Hamilton and the Origins of the National Debt: Back in the early 1790s, the national debt was close to 40% of annual GDP. It was close to 40% because the first Treasury Secretary, Alexander Hamilton, thought it was a good idea to make it close to 40%. He convinced congress to let him go to the states and say:

You know all that money you spent winning us our independence from Britain by raising armies during the Revolutionary War? The federal government is going to pay you back for all of that. We in the federal government are going to assume your Revolutionary War debts, and pay off all the bonds you issued at full face value.

Alexander Hamilton did this for three reasons. One was he had a bunch of friends who were financiers in New York. Once they got wind of how he was thinking they had the opportunity to buy up pieces of the debt from the merchants, the soldiers, and the others to whom the government owed money--to say:

You don't think New Jersey will ever pay off that piece of paper, do you? I'm willing to gamble that they will eventually pay something--how about you trade it to me for 40 cents? You get the cash, I take the risk, it is a good deal for both of us.

Then Alexander Hamilton announces his debt assumption plan. New York financiers who understand how Hamilton thinks make an awful lot of money. And they are grateful.

That, however, was only a minor reason.

One major reason was that Alexander Hamilton saw that the United States was then a relatively small country in a world dominated by two super powers, Britain and France. Both Britain and France had ocean-spanning ambitions and blue water navies. Hamilton thought it likely that we would at some time in the future get into a big war with either Britain or France. And he wanted to make sure that if we did get into a big war that the federal government would be able to borrow money in order to fight it effectively. Moreover, even if we did not get into a big war a U.S. federal government that could not borrow--that had no debt capacity--would be weak. Both France and Britain would both notice that we were weak, and they would steal our stuff, press our sailors and make them man their navies, et cetera et cetera. Thus Hamilton thought it was important for the federal government to start its existence by building up its debt capacity. And what better way to convince investors that the federal government would pay off its debts in the future than for it to pay off the debts of the United States incurred during the Revolutionary War--even or perhaps especially if those debts had not been incurred by the current federal government?

The most important reason, however, was that Alexander Hamilton was Secretary of the Treasury in a country where the rich were at best uneasy about the revolution and independence. Of America's upper class as it stood in 1775, full half of them were gone: had fled to Britain or Canada during the Revolutionary War. Those who remained remembered that back before 1775 the British monarch had protected property, that the British army and navy had protected them against deprivations of all kinds, that it was quite clear who the police worked for. Now you have a republic with a much broader electorate. Might politicians run on a platform of soaking the rich and redistributing wealth to the poor? Thus the rich people were nervous--and at least thinking about how maybe it would be good if the British came back and ruled again.

This was where Alexander Hamilton had his good idea. Suppose, he thought, he could set things up so that the rich owned a lot of U.S. government bonds. Then if the British returned--well, the British were not going to pay off the Revolutionary War debt of the United States of America under any circumstances. Having a national debt was a way to bind the United States rich to the country--giving them a stake in the new republic's survival. And by large it worked: the national debt was a national blessing.

Definitely worth reading the whole thing.

The Peacock's Tail -- Analogy of the week from Brad DeLong

From an excellent post on the growth of financial services:

The obverse of that fall is the rise of a peculiar piece of the service sector: the growth of finance, insurance, and real estate transactions (i.e., the paper shuffling and the exchanging, not the construction). It was supposed to be the high-productivity sector of the future. It has turned out to be the equivalent of a peacock's tail--damnably awkward and reducing your mobility and survival characteristics, but fascinating to the peahen, for a while at least.

"Some of us are illegal, and some are not wanted"

There's a tendency to treat certain ideas and attitudes (particularly liberal ones) as modern inventions, usually going back no further than forty or fifty years, but if you do a little digging, you will inevitably find someone (albeit, in this case, someone on the far left) who was expressing these ideas decades (in this case, 1948) or even centuries ago (thanks to Brad DeLong for the Jefferson letter)



Plane Wreck At Los Gatos by Woody Guthrie

The crops are all in and the peaches are rott'ning,
The oranges piled in their creosote dumps;
They're flying 'em back to the Mexican border
To pay all their money to wade back again

Goodbye to my Juan, goodbye, Rosalita,
Adios mis amigos, Jesus y Maria;
You won't have your names when you ride the big airplane,
All they will call you will be "deportees"

My father's own father, he waded that river,
They took all the money he made in his life;
My brothers and sisters come working the fruit trees,
And they rode the truck till they took down and died.

Some of us are illegal, and some are not wanted,
Our work contract's out and we have to move on;
Six hundred miles to that Mexican border,
They chase us like outlaws, like rustlers, like thieves.

We died in your hills, we died in your deserts,
We died in your valleys and died on your plains.
We died 'neath your trees and we died in your bushes,
Both sides of the river, we died just the same.

The sky plane caught fire over Los Gatos Canyon,
A fireball of lightning, and shook all our hills,
Who are all these friends, all scattered like dry leaves?
The radio says, "They are just deportees"

Is this the best way we can grow our big orchards?
Is this the best way we can grow our good fruit?
To fall like dry leaves to rot on my topsoil
And be called by no name except "deportees"?

And bonus stat-nerd points for the title

This New Republic article by Ed Kilgore is a good (if troubling) read and it's an excellent complement to Joseph's earlier post on government services in Washington (the state, not the district).