In a shocking op-ed in the NYTimes two well known liberals, Michael Dukakis and Daniel Mitchell (a former price-control Czar), acknowledge that the minimum wage creates unemployment.  Nevertheless, they are in favor of raising the minimum wage.  Why?  Because it will create even more unemployment among immigrants than among natives.

The mean-spirited, Machiavellian nature of their op-ed is chilling but I will give Dukakis and Mitchell this, their logic is impeccable.  The minimum wage creates unemployment among the low-skilled.  As a result, the minimum wage tends to create disproportionate unemployment among teenagers and young African Americans.

Similarly, since many immigrants have lower-skills than natives, Dukakis and Mitchell are correct that a well-enforced minimum wage will put immigrants out of work reducing the pull of the American economy to workers in foreign countries.

I wonder if the NYTimes would have printed an op-ed that advocated minimum wages as a way of creating unemployment among
African Americans and raising white wages?

(Long-time readers will know that the original proponents of the minimum wage had in mind exactly that so Dukakis and Mitchell are true progressives.)

Here is an interesting article by Abhijit Banerjee of MIT; here are many responses, most prominently by Angus Deaton (the most incisive), Nicholas Stern, and Jagdish Bhagwati.

A loyal MR reader, Erik Alberts, writes:

I’ve made several
trips to the UK in the past few months in preparation and it amazes me
how much more things cost there (in London) then here in California.
What I’m trying to understand is why.  I realize that some things like
gasoline cost more in the UK due to taxes.  But for other things, it
appears that prices in the UK are 40 to 50% higher.  How would you
explain this?

Here are a few examples:

1.  Apple iTunes –
costs $0.99 per download in the US, costs $1.47 (0.79 pounds at 1.8594
pounds/$) in the UK.  Why should downloading a song in the UK cost 48%
more when on the internet you can just download them off the US site?

 

I realize that higher
taxes and higher labor costs may be factors (although at my company UK
labor is cheaper than it is in California), but I find it difficult to
believe that this would explain a 50% difference.  Could this be a sign
of currency imbalance like the big mac index, a supply and demand
issue, or are UK consumers simply used to paying more?

Name a white powder that is consumed by millions, generates huge profits, and is smuggled in and out of the United States.  Nope.  It’s milk.  Here’s another classic story of how our farm program wastes billions.

For years, the government has periodically purchased powdered milk
— as well as butter and cheese, the other byproducts of raw milk — as
part of a congressionally mandated price-support program for milk
producers. By 2003, the Agriculture Department had accumulated a record
1.4 billion pounds of powdered milk in warehouses and in a huge
limestone cave in the Kansas City area.

The bulging stores
coincided with a drought that left livestock pastures burned in about a
dozen states. Some livestock owners were faced with selling their
herds, Farrish said. Giving them the powdered milk as an emergency
source of feed seemed like a good way to help out….

In 2003,
the government released 390 million pounds of powdered milk for the
ranchers, giving it to the states for $1 a truckload.

The true value of the milk was somewhere on the order of 3 thousand dollars a truck load (the article is a little unclear) so you can imagine that the milk did not long stay with the ranchers.

Thanks to Ramin Seddig for the pointer.

The new Roland Fryer paper looks promising:

This paper develops a model of social interactions and endogenous
poverty traps. The key idea is captured in a framework in which the
likelihood of future social interactions with members of one’s group is
partly determined by group-specific investments made by individuals. I
prove three main results. First, some individuals expected to make
group-specific capital investments are worse off because their observed
decision is used as a litmus test of group loyalty – creating a
tradeoff between human capital and cooperation among the group. Second,
there exist equilibria which exhibit bi-polar human capital investment
behavior by individuals of similar ability. Third, as social mobility
increases this bi-polarization increases. The models predictions are
consistent with the bifurcation of distinctively black names in the
mid-1960s, the erosion of black neighborhoods in the 1970s, accusations
of ‘acting white,’ and the efficacy of certain programs designed to
encourage human capital acquisition.

I have observed similar behavior among small ideological groups.  The more some members from that group succeed, the stronger the litmus/loyalty test required from remaining members.  Polarization accelerates.  Those who are left behind are often worse off than if a pooling equilibrium — everyone together in the same boot — had held.

Back in high school we had a run for charity, x laps around the track for so many dollars per lap.  I forget the charity but showing early signs of an economic mind, or perhaps a lazy body, I decided that it would be much more efficient to get the money and avoid the running (today, I would say avoid the rent seeking).   Thus, I solicited donations with the promise that I would run just one lap. 

Unsurprisingly, the other students were most displeased when I sauntered around the track finishing just as everyone else was beginning to work up a sweat.  More surprisingly, the charity organizers didn’t like my methods even though I raised a lot of money.

I had to go to graduate school in economics before I really began to understand why.  Eric Crampton, subbing for Bryan Caplan at EconLog, has the details.

By the way, its been said that crazy people go to graduate school in psychology in an effort to understand themselves.  Perhaps the socially obtuse go to graduate school in  economics for reasons that are somewhat similar.  See here on yours truly and also Greg Mankiw’s related comments.

What is truly scarce inside the human mind?  Hayek (The Sensory Order) and the neuroeconomists have grasped this as a central question of economics.  Here is a new paper:

Common intuition and experimental psychology suggest that the ability
to self-regulate, willpower, is a depletable resource. We investigate
the behavior of an agent who optimally consumes a cake (or paycheck or
workload) over time and who recognizes that restraining his consumption
too much would exhaust his willpower and leave him unable to manage his
consumption. Unlike prior models of self-control, a model with
willpower depletion can explain the increasing consumption sequences
observable in high frequency data (and corresponding laboratory
findings), the apparent links between unrelated self-control behaviors,
and the altered economic behavior following imposition of cognitive
loads. At the same time, willpower depletion provides an alternative
explanation for a taste for commitment, intertemporal preference
reversals, and procrastination. Accounting for willpower depletion thus
provides a more unified theory of time preference. It also provides an
explanation for anomalous intratemporal behaviors such as low
correlations between health-related activities.

My approach to willpower deletion, of course, is to always leave oneself wanting to do a little more of the virtuous task, rather than to overdiscipline.  If you have promised yourself 200 push-ups, stop at 198.  Here is the link.

Read most of it here, the pointer is from New Economist blog.