Month: June 2017

Nobel prize winner Vernon Smith (our emeritus colleague at GMU) is a bold thinker. I have long proposed selling “government” land in the West but Vernon takes it a step further, privatize the highway network to create a permanent income fund. Essentially what Vernon is proposing is a libertarian method to fund a universal basic income. Can’t we all agree on that?

Even more than in the United States, there are many countries in the world today where the government holds trillions of dollars assets that are underutilized. Selling those assets to create a permanent income fund would be good for efficiency, liberty and equality.

…[T]he richly interconnected highway network really could be auctioned. Between major highway intersections there are alternative routes that could be auctioned to different bidders, assuring drivers of a choice of toll roads, along with state and local freeway alternatives. That competition would keep tolls affordable.

 Perhaps most important, surface transportation rights of way would be opened to new mass-transit innovations at a time when driverless vehicles are making their entrance. A few autobahns might also compete more effectively with short- to medium-haul airline routes, but you will need to resist airline opposition.

You should also consider auctioning off the Bureau of Land Management’s extensive grazing lands. Better incentives through ownership, or long-term leases, mean better stewardship and innovation. But neighboring farmers and ranchers won’t like the impact on their land prices.

How could you use the money from highway and land sales to benefit all Americans—and improve your own popularity? By creating a new Permanent Citizens Fund, invested in stocks, bonds and real estate world-wide. Every citizen would hold an equal share, with annual dividends paid in cash.

Better highways, more land for productive development plus a permanent fund sending checks to every citizen. A guaranteed basic income financed from public assets waiting to be monetized and put to work. You might even get the progressives’ vote. Have you ever made such a great deal?

If you think it’s pie in the sky, ask an Alaskan. The Alaska Permanent Fund, initiated in 1976 to distribute oil revenue, has a market value I estimate at $72,000 for each Alaskan citizen. Annual dividends began in 1982, when the public corporation that administers the fund cut the first checks for $1,000. Little wonder that Alaska is second among all the states in income equality.

I am rushing to the airport (Kunming), but here is my (short) debate with Noah Smith on that topic.  Here is my closer:

The sad truth is that American productivity growth was, for the most part, considerably higher in the 1920s and 1930s, a time when most institutions were far worse than they are today, including of course public health. We didn’t even have a National Science Foundation back then. What we did have was a lot of technologies ripe for further exploitation, namely the combination of fossil fuels, electricity, powerful machines and a somewhat freer economy.

Let’s hope the internet and artificial intelligence can lead a new tech revolution, but so far it is looking like a long, tough slog.

In addition to the Seattle study, another minimum wage paper crossed my path this week and it takes a very different approach than much of the literature. In Denmark the minimum wage jumps up by 40% when a worker turns 18. Thus the authors, Kreiner, Reck and Skov, ask what happens to the employment of young people when they hit their 18th birthday? Answer: employment drops dramatically, by one-third.

A picture tells the story. On the left is measured wages by age, the jump up due to the minimum wage law is evident at age 18. On the right is the employment rate–the jump down at age 18 is also evident as is a bit of pre-loss as workers approach their 18th birthday.

The authors have administrative data covering wages, employment and hours worked for the entire workforce of Denmark so their estimates are precise.

Denmark has laws making age discrimination illegal but these do not apply when a young person turns 18 and firms may legally search for under or over-18 age workers.

A variety of restrictions mean that under-18 age workers can do less than adults (e.g. they can’t legally lift more than 25 kilos or have a driver’s license.) Thus, productivity increases at age 18, making the employment loss at this age even more dramatic.

The authors can’t tell for certain if workers are quitting or getting fired but there are few other obvious discontinuities around exactly age 18. Students are eligible for certain benefits at age 18 but the authors are able to look at sub-samples where this objection doesn’t apply and the results are robust.

In a section of the paper that adds important new evidence to the debate, the authors look at the consequence of losing a job at age 18. One year after separation only 40% of the separated workers are employed but 75% of the non-separated workers are employed. Different interpretations of this are possible. The separated workers will tend to be of lower quality than the non-separated and maybe this is correlated with less desire to have a job. Without discounting that story entirely, however, the straightforward explanation seems to me to be the most likely. Namely, the minimum wage knocks low-skill workers off the job ladder and it’s difficult to get back on until their skills improve.

Hat tip: Ben Southwood.